Case Name: State ex rel. the Attorney General v. Fort Smith Lumber Company
Court: Arkansas Supreme Court
Jurisdiction: Arkansas
Decision Date: 1917-10-15
Citations: 131 Ark. 40
Docket Number: 
Parties: State ex rel. the Attorney General v. Fort Smith Lumber Company.
Judges: Wood, J., concurs in tbe dissent.
Reporter: Arkansas Reports
Volume: 131
Pages: 40–49

Head Matter:
State ex rel. the Attorney General v. Fort Smith Lumber Company.
Opinion delivered October 15, 1917.
Taxation — corporations—surplus invested in stock in other corporations. — A domestic corporation, in returning its capital stock for taxation, can not deduct investments of its surplus in shares of stock in other corporations in this State.
Appeal from Sebastian Chancery Court, Fort Smith District; W. A. Falconer, Chancellor;
reversed.
JohnD. Arbuckle, Attorney General, T. W. Campbell, Assistant, and George Vaughan, Frank Pace and T. M. Seawel, Special Counsel, for appellant.
1. The case in 97 Ark. 254 is conclusive of this case. lb., 259, 260. The rule laid down there harmonizes with the case. 87 Ark. 484. See also 41 Ark. 509; 11 Peters, 543. All property is subject to taxation, and no exemptions are permitted by law. See also 92 Ark. 335; 73 Id. 515; State v. Bodcaw Lumber Co.
Analogous cases, see 204 Pa. 36; 53 Atl. 517; 60 W. Va. 357; 55 S. E. 398; 155 N. C. 53; 70 S. E. 1079; L. R. A. 1915 C, 380-5; 99 Ala. 1; 42 Am. St. 17.
Fill, Fitshugh & Brizzolara, for appellee.
1. The company made true and proper returns of its property for taxation as required by Kirby’s Digest, § 6936, and the amendatory act; Kirby & Castle’s Digest, § 8549.
To prevent double taxation, a domestic corporation may deduct investments of its surplus in shares of stock in other corporations in the State. 128 Ark. 505; 73 Ark. 515.
2. Corporate stock is tangible property, but if an intangible asset, it was properly deducted. 131 Fed. 282; Kirby’s Digest, § 6937; Kirby & Castle’s Digest, § 8461; 8552-3, 8577; 84 Kan. 508; 34 L. R. A. (N. S.) 1221.
3. The lumber company was authorized to acquire capital stock. Reviews the Arkansas cases and contends that deduction should be allowed where stock in other cor porations which is taxed is held by a corporation. 92 Ark. 335; 73 Id. 515. The case in 97 Ark. 254 does not settle the question. 87 Id. 484.
4. Should the State’s contention be upheld, this construction would be in conflict with the rights guaranteed by the Federal Constitution and amount to double taxation. 188 U. S. 385; 198 Id. 341; 117 Ark. 606; Judson on Taxation, § § 308,.310-315, etc.

Opinion:
McCULLOCH, C. J.
This suit was instituted in the name of the State, ex rel. the Attorney General, against the Ft. Smith Lumber Company, a domestic corporation, to recover taxes which escaped adequate assessment for former years. It is alleged in the complaint that the said corporation failed to assess the whole of its capital stock for taxation, as required by statute, and deducted from the value of the capital stock, as assessed, amounts invested in shares of stock in certain other domestic corporations.
The allegations are that the defendant owned shares of stock in the Central Railway Company, an Arkansas corporation, of the value of $260,000, and also owned shares of stock in the Choctaw Investment Company, another domestic corporation, of the value of $104,000, and that in assessing its property for taxation it deducted the value of all those shares of stock from its capital stock.
The defendant denied in the answer that any of its property had escaped taxes for former years, but admitted that it owned shares of stock in the other corporations named, and alleged that those shares of stock were purchased with proceeds of the earnings of the corporation, not with the original capital stock, and that it has regularly assessed for taxation its original capital stock at par value, as well as its other property, except the shares of stock in the other corporations. It is admitted in the answer that the value of the shares of stock in other corporations are not assessed, but is deducted from the valuation of the capital stock of the corporation other than its original capital stock.
The pleadings in the case, therefore, present the question whether a domestic corporation, in returning its capital stock for taxation, may deduct investments of its surplus in shares of stock in other corporations in the State. The right to make such deduction is asserted under authority of the statute which provides that "no person shall be required to include in his statement, as a part of the personal property, moneys, credits, investments in bonds, stocks, joint stock companies or otherwise which (he) is required to list, any share or portion of the stock or property of any company or corporation which is required to list or return its capital and property for taxation in this State." Kirby's Dig., § 6902.
The. question involved seems to have been fully decided against defendant's contention in the'case of Dallas County v. Home Fire Insurance Company, 97 Ark. 254, where it was said: "So, if one corporation purchases shares of stock in another corporation, it does not pay taxes on the shares so purchased, for the corporation which issued the shares must pay the taxes on its own property; but it does not follow that the first corporation is not required to assess and pay taxes on its own capital stock because it has invested all or a part of it in the stock of another corporation. In such case the corporation differs from an individual, in that it has capital stock on which it must pay taxes and an individual has not. To hold otherwise would be to exempt the property of the first corporation from taxation, which it can not be presumed that the Legislature intended to do, and which it has no power to do. "
It is insisted that the decision just referred to applies only to assessments of the original capital stock of a corporation, and that the words " capital stock" as used in that decision meant only the' par value of the aggregate shares of stock, not including earned surplus.
In the recent case of State ex rel. v. Bodcaw Lumber Company, 128 Ark. 505, we defined the term "capital stock" as used in the statute to mean "the aggregate value of the shares of stock in the hands of the share holders," which would, of course, include the value augmented by the earned surplus. The two decisions must be considered together, and when that is done, it is plain that they lead irresistibly to the conclusion that defendant is wrong in its. assertion of the right to deduct from its assessment of capital stock the value of the shares .of stock in the other corporations.
We ,are unable to discover any reason for a distinction between allowing this deduction from the earned surplus and from the par value of the capital stock, for our statute makes no provision for separate assessment of the par value of capital stock. The aggregate value is assessed and the value of tangible property in which the capital is invested is deducted, but the amount thus obtained is not reducible by the value of investments in non-assessable property. That was decided by this court in the Bodcaw Lumber Company case, supra, and the same principle was announced in First National Bank of Batesville v. Board of Equalization of Independence County, 92 Ark. 335.
Nor does this construction of the statute operate as a discrimination against a corporation and in favor of individual owners of shares of stock. The capital stock of a corporation has its own value. It is assessable as such for taxation, and the failure to deduct investments in shares of stock of other corporations does not constitute double taxation. The two elements of value are separate and distinct, for the shares of stock themselves are not assessed for taxes.
Of course, it would constitute double taxation, as was said in the Dallas County case, to tax the shares of stock in other corporations held by this corporation and also its capital stock, but the failure to deduct the value of such shares of stock from the capital stock is not tantamount to assessing the shares of stock in the other corporations.
An individual is not required to return in his assessment the value of the shares of stock in a corporation, and his investment in such shares of stock is, therefore, not directly taxed, but, as pointed out in the Dallas County case, a corporation has a separate assessable valuation in its capital stock -which is not possessed by an individual, and it constitutes no discrimination against a corporation to fail to deduct the value of such shares of stock held in other corporations from the assessment of its capital stock.
The question of the right of corporations to hold shares in another corporation has been zealously argued by counsel on both sides, but we think it is unnecessary to pass upon that question, in view of our conclusion that it is the aggregate value-of the capital stock of the corporation which is assessable, and it is unimportant whether it has been rightfully or wrongfully invested in shares of stock in other corporations.
We are of the opinion, therefore, that the learned chancellor erred in overruling the demurrer to the answer, and the decree is reversed and the cause remanded for further proceedings not inconsistent with this opinion.