Court Opinion

ID: 7809046
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:10:28.703416+00
Date Added: 2024-06-11T16:30:24.975204
License: Public Domain

HART, J., (dissenting). Judge Wood and myself dissent from the opinion of the majority in this case because we believe it is in direct conflict with the principles announced in State v. Bodcaw Lumber Company, 12 Ark. 505. The opinion of the majority relies for its support upon the case of Dallas County v. Home Fire Insurance Co., 97 Ark. 254. In the first place, it may be said that we do not think that case is susceptible of the construction now placed upon it by the majority. In that case the court was considering the subject of taxation of an insurance company where practically all of the original capital stock was invested in certificates of stock of other domestic and foreign insurance companies. The court reached the conclusion that the shares of stock in the other insurance companies were not taxable in the hands of the Home Fire Insurance Company, but that the original capital stock of the insurance company was subject to taxation. In the first mentioned case the words “capital stock” were used to denote the money which the shareholders paid into the corporation when it was organized. In the Bodcaw Lumber case the words “capital stock” were used in a much broader sense and the court adopted an entirely different system of valuing the capital stock of a corporation for taxation. The court said that the words “capital stock” mean shares of a corporation in their aggregate, and not the capital of the corporation as represented by its tangible assets. The meaning thus given to the words “capital stock” does change their meaning as used in the Dallas County case. When that case is considered the words must still be considered to mean what the court intended them to mean in that case. But it would be useless to stop here and discuss the soundness or unsound- ■ ness of the opinion in the Dallas County case. If the construction now placed upon it by the majority is to obtain, it is manifest that it is in conflict with the majority opinion in State v. Bodcaw Lumber Co., 128 Ark. 505, and to the extent that it conflicts with that opinion it is modified or overruled. Inasmuch as two of the judges dissented in the Bod-caw Lumber Company case, the opinions of the Chief Justice and Judge Wood must be read together to determine the opinion of the majority. Judge Wood attempted to sum up the opinion of the majority and clearly stated the principles adopted by them as follows: “The tangible property of the corporation outside of the State is not taxed here at all, and could not be, for that is taxed in the jurisdiction where it is located. But such property is only considered in so far as it contributes to give value to the shares of stock which the State has a right to tax, at their source, that is, the domicile of the corporation. But the rule is different as. to tangible property within this State. This State has the right to tax the value of the shares of capital stock once, as ascertained by the method indicated, and, inasmuch as the tangible assets within the State have been considered once in making up this value, the rule adopted by this court to prevent double taxation is to deduct the tangible property taxed here as such, from the aggregate value of the shares of stock taxed as capital stock, because that has to be considered and is embraced in the calculation making up the total value of the shares of stock. Not to deduct the local tangible assets, taxed as such, would be equivalent to taxing the value of such assets twice. But all of this is clearly set forth and argued in the opinion of the Chief Justice.” The opinion of the Chief - Justice is too long to quote from at length, but excerpts therefrom show that he had the same .view of the law as Judge Wood. He said: ‘ ‘ The words ‘capital stock’ used in the statute, mean the aggregate value of the shares of stock in the hands of the shareholders, though the value of the shares of stock themselves do not constitute the limit of taxation. The purpose of the lawmakers was to merge the separate valuation of the shares of stock into the aggregate valuations of the whole, and thus constitute the compound as a basis for fixing the valuation for taxation purposes, after deducting the value of the tangible property which is to be specifically assessed separately. In this way the lawmakers have provided a scheme for taxation of all of the elements of value of this property one time, and only once, and the tax is levied at the source and paid there without any assessment being levied against the individual shareholders. The scheme absolutely excludes any idea of double taxation, but it does provide an adequate means of including all the elements of value contained in the shares of stock and the tangible property of the corporation itself, merged into a composite whole. The assessment of the property is in name only against the corporation, for it includes the elements that go to make up the value of the shares of stock themselves. ’ ’ Thus it will be seen in the Bodcaw Lumber Company case, the court proceeded upon the theory that the combining of the shares of the capital stock of a corporation and its corporate principal for the purpose of taxation whereby all are taxed as a unit could not be considered as double taxation. The theory of the court was that the principle against double taxation had no application because that is confined in operation to such taxation in the same jurisdiction. The writer recognized in that case that in strict legal theory double taxation does not exist unless the double tax is levied upon the same property in the same jurisdiction; but he dissented from the opinion on the ground that whatever the strict legal theory is the practical effect of the decision was to tax substantially the same property twice, and this he believed was against our whole system of taxation, as "heretofore established and construed by the court. If the question in the present case had been an issue in the case, it is evident that the property would have been deducted from the aggregate value of the shares of stock taxed as capital stock. We think the only logical result of the decision in that case is that when a corporation invests part of its assets in property of any kind situated in or out of the State, that property is .to be . considered in estimating the value of the shares of stock of the corporation for taxation in this State, and that where such property is situated outside of the State it is not to be deducted from the total valuation, but that where it is situated within the State it is to be deducted from the total value, when the corporation assesses its property for taxation. This is so because where the property is situated outside of the State, there can be no double taxation in legal theory because the tax upon substantially the same property is not levied by the same jurisdiction. But in case the property is situated within the State, substantially the same property would be twice taxed if it was not deducted from the total valuation of the shares of stock. To illustrate, let us suppose a corporation is formed with capital stock of $400,000, divided into 4,000 shares of. a par value of $100 each. At the outset we will assume that both the shares of stock and the capital stock are worth $400,000. A part of the assets of the corporation may then be invested in the shares of stock of other corporations and in real estate situated in this State and a part of its assets may be invested in real estate situated in another State. These may be fortunate investments and add greatly to the value of the shares of stock of the corporation and all are to be taken into consideration in estimating the value of the share's of stock. According to the rule laid down in the Bodcaw Lumber Company case, there will be no deduction on account of the real estate situated in another State because, although it may be taxed in that other State, it is only taxed once in this State. On the other hand, it is admitted that real estate situated in this State is to be deducted, for otherwise substantially the same property would be twice taxed in the samé jurisdiction. The same reasoning holds good in the case where the corporation has purchased shares of stock in another domestic corporation; for that corporation pays taxes on its own shares of stock, and to require the corporation purchasing its shares of stock to also pay taxes on them would be to tax- substantially tbe same property twice in tbe same jurisdiction, and that according to tbe trend of all our decisions, is double taxation and is contrary to tbe letter and spirit of our Constitution. If by any refinement of reasoning or otherwise it may be said that the case of Dallas County v. Home Fire Insurance Company, supra, is against this conclusion, it is manifest from tbe excerpts we have quoted from in tbe Bodcaw Lumber Company case that tbe opinion in tbe former case in so far as it is contrary to tbe views we have just expressed, is modified or overruled by tbe opinion in tbe Bodcaw Lumber Company case. Indeed, one ground of dissent by tbe writer was that tbe principles of law in tbe two cases were in necessary conflict in tbe respect herein stated. Wood, J., concurs in tbe dissent.