Court Opinion

ID: 6696452
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:52:51.905585+00
Date Added: 2024-06-11T16:01:15.637107
License: Public Domain

Clark, C. J.,
concurring: I concur fully in the opinion of Mr. Justice Brown for the Court in this case, who niakes it entirely clear that the Atlantic Coast Line of Virginia as chartered by the State of Virginia is alone authorized to issue the stock, and that the North Carolina incorporation of the same is an ancillary, or subsidiary corporation, without authority to issue stock, and which in fact has issued none. It was incorporated in this State for the purpose of making it a domestic corporation, that our courts might have jurisdiction of its operations here. This was done at a time when it was necessary to procure a reeharter of that part of its line which lay between Weldon and the Virginia State line, which this State refused to do except upon the condition that it should become a North Carolina corporation for the purpose of jurisdiction, and of control by the State of its operation in this State. Ch. 544, Laws 1891; Allen, J., in Cox v. R. R., 166 N. C., 656; chs. 100 and 284, Pr. Laws 1893. In the same manner this State has required the domestication here of insurance and other companies before authorizing them to do business in this State, but did not authorize this company nor the other companies thus incorporated here to issue stock. Rev., 1194, 3900-3902, 4747.
In Cox v. R. R., 166 N. C., 654, Allen, J., says that it had been held in the Staton case: “Prom an examination and consideration of the acts of the General Assembly of this State, the defendant was a domestic corporation, at least in so far as it was necessary to give the courts of this State jurisdiction over causes of action arising in this State.”
I also concur in the ruling that if this were a domestic corporation, even then under the terms of the statute the stock would not be exempt from taxation, though that matter is purely hypothetical and obiter dictum in view of the holding that this is stock in a foreign corporation.
However, as this matter has been dwelt upon in the dissenting opinion, it is not improper for me to say that in my opinion, even if this stock *368bad been issued by a domestic corporation, tbe Legislature bas no power to exempt it from taxation, and therefore tbe Court should be very slow to assume that tbe Legislature passed an act that is unconstitutional.
Tbe Constitution of North Carolina, Art. V, sec. 3, provides: "Taxation shall be by uniform rule and ad valorem. Laws shall be passed taxing, by uniform rule, all moneys, credits, investments in bonds, stocks, joint-stock companies, or otherwise; and also, all real and personal property, according to its true value in money.”
There, is such a thing as “collecting taxes at the source,” which originated probably in the National Banking Act, and the Legislature might direct that the taxes upon the stock in any corporation should be deducted from the dividends, if any, declared in favor of each stockholder,, and that the companies shall pay the same direct to the State Treasurer and to the sheriff of the county where each stockholder resides, and upon certificate thereof each stockholder should be exempted from further tax thereon; but that is not what is asserted here, which is merely that if the company pays taxes on its capital stock, a very small tax upon the company itself, that the stockholders shall be exempt from payment of all taxes upon their individual property, i. e., the stock which they hold.
John H. Brown is the sole plaintiff in this case, and George C. Jackson, sheriff of New Hanover, and T. D. Meares, clerk and treasurer of Wilmington, are the only defendants. The Atlantic Coast Line Railroad Company has no possible interest in this controversy, and hence is not a party.
The plaintiff not only admits, but alleges in his complaint as the basis of his action, that he is the owner of the 50 shares of stock which he asks us to declare exempt from taxation, and that other owners of such stock will be benefited by the exemption if we accord it to him.
Shares in a corporation are the individual property of each stockholder, and are not the property of the corporation. The shares of stock are not assets of corporations, but are always charged up in their reports as a “liability.” The certificate of shares is a receipt or due bill for the money paid in, or supposed to be paid in, by the holder, and on which he expects to receive dividends in lieu of interest. Consequently,, each stockholder is liable for the tax upon his own property, and cannot, be exempted from taxation by any statute on the ground that the company pays taxes upon its own property.
In Comrs. v. Tobacco Co., 116 N. C., 446, this Court held, in accordance with the decision rendered by Chief Justice Smith in Belo v. Comrs., 82 N. C., 415; 33 Am. Rep., 688, and of Ashe, J., in Worth v.. R. R., 89 N. C., 305, and indeed in accordance with all legal authorities and text-books, as follows: '“As to corporations, by all the authorities, it is in the power of the Legislature to lay the following taxes, two or *369more of them in its discretion at the same time: (1) To tax the franchise (including in this the power to tax also the corporate dividends). (2) The capital stock. (3) The real and personal property of the corporation. This tax is imperative and not discretionary under the ad valorem feature of the Constitution. (4) The shares of stock in the hands of the stockholder. This is also imperative and not discretionary”
This last, of course, is due by the owner thereof, the stockholder.
It is further said in the same ease, on the identical point presented here, as follows: “Originally the tax upon the shares of stock was collected, of the individual shareholder's at their several places of residence. Buie v. Comrs., 79 N. C., 267. But under that method many shares failed to he listed for taxation. Besides, the shares of nonresident owners, except those of national banks, escaped taxation in this State under the ruling in R. R. v. Comrs., 91 N. C., 454. To remedy this, the provision was passed which is section 14 of chapter 296, Laws 1893 [which has been substantially reenacted at every session of the Legislature since], and which requires the list of shares to be given in by the proper officer of the corporation, which shall pay the same in behalf of the shareholders. This does not affect the liability of the shares to tax as the property of the shareholders, but is simply for the convenience of the State in collecting the tax. The effect is merely to change the situs of the shares for taxation from the residence of the owner to the locality where the chief office of the corporation is situated, as was held in Wiley v. Comrs., 111 N. C., 397. It simply extends to the collection of taxes due by shareholders in other corporations the mode of collection already in force as to shareholders in national banks. . . .
“The capital stock belongs to the corporation. The shares or certificates of stock are entirely a different matter. • They belong to the shareholders individually, and under the Constitution must be taxed ad valorem like other ‘property belonging to the holder, independently of the taxation upon the corporation, its franchises, etc.’ ”
This case has been cited with approval. Comrs. v. S. S. Co., 128 N. C., 559; Lacy v. Packing Co., 134 N. C., 571; S. v. Wheeler, 141 N. C., 775; Land Co. v. Smith, 151 N. C., 72; Pullen v. Corporation Commission, 152 N. C., 554; 58 L. R. A., 590, 594, 601, note; 60 L. R. A., 367, note.
To the same effect are the decisions throughout the country, which can be found grouped in the elaborate notes to State Board v. Coggin (Ill.), 58 L. R. A., 513-618, which cite the above case at pages 590, 594, 601. On page 594 it quotes from Chief Justice Waite, in Tenn. v. Whitworth, 117 U. S., 129, as follows: “In corporations four elements of taxable value . . . are sometimes found: (1) franchises; (2) capital stock in the hands of the corporation; (3) corporate property; and (4) *370shares of the capital stock in the hands of the individual stockholders.”
In Pullen v. Corporation Commission, 152 N. C., 553, Manning, J., for the Court says: “It is likewise well settled by the language of our State Constitution, by many decisions of this Court, and of the Supreme Court of the United States, and now generally accepted law, that the property of a shareholder of a corporation in its shares of stock is a separate and distinct species of property from the property, whether real, personal, or mixed, held and owned by the corporation itself as a legal entity. It would be useless to cite authority to support a proposition so well established and generally accepted.”
Brown, J., in the same case, concurring, says, at page 562 (68 S. E., 162): “I agree, also, that it is well settled that the shares of stock in any corporation, when owned by individuals, are separate and distinct property from the assets of the corporation and may be taxed as such.”
In the same case Hoke, J., at p. 582 of 152 N. C., says, quoting from Bank v. Tenn., 161 U. S., 146: “The capital stock of a corporation and the shares into which such stock may be divided and held by individual shareholders are two distinct pieces of property. The capital stock and the shares of stock in the hands of the shareholders may both be taxed, and it is not double taxation. Van Allen v. Assessors, 3 Wall., 573; People v. Commissioners, 4 Wall., 244, cited in Farrington v. Tennessee, 95 U. S., 687.
“This statement has been reiterated many times in various decisions by this Court, and is not now disputed by any one.”
The stock held by each shareholder in a corporation is the individual property of the shareholder to be sold, devised, or disposed of at his will alone. It is in no sense the property of the corporation, or in any wise subject to its control, and the General Assembly under the Constitution must tax it as the property of the owner by uniform rule. It cannot be exempted from taxation in the hands of the owner because the corporation is required to pay tax upon its own property or privileges.
This action seeks to secure by judicial construction the exemption from taxation of, it is estimated, $4,000,000 of Atlantic Coast Line stock owned by residents of this State, and thus make it a “nontaxable 7 per cent stock.” This would throw upon those not able to own such stock —upon the laborers, farmers, and others who create the wealth of the State, in addition to their own. taxes already sufficiently high — the payment of this tax, which should be paid (under the Constitution and in justice) by those who are able to invest their surplus in the stocks of this corporation.
By Ordinance 34, Convention of 1866, those in control of the Wilmington & Weldon Railroad Company (the predecessor to this corporation) which had been largely built by the issuance of State bonds, procured the privilege under which every holder of $1,000 of any valid *371State bonds (wbicb a few years later were refunded by tbe State at 40 cents, i. e., $400 in new 4 per cent bonds) could present it to tbe State Treasurer and would receive in exchange ten shares of tbe State’s $1,500,000 stock in tbe then Wilmington & Weldon Eailroad. This stock by tbe process of watering its shares and distributing bonds as bonuses to its stockholders is now worth $40 or more for every $1 so invested. See Allen, J., Cox v. R. R., 166 N. C., at page 655. This should be sufficient without now exempting this stock from all burdens of the State, county, and city governments, on the alleged ground that the corporation pays taxes upon its own property, for which it is liable like all property holders.
There was a time when this corporation, and also the Seaboard Air Line Eailway (and the predecessors of both), claimed and obtained for many years an exemption from taxation on their property. This exemption from all taxation by the corporation itself continued down till 1892, when, in R. R. v. Alsbrook, 110 N. C., 137, it was declared that such exemption was contrary to the State Constitution, which required a uniform taxation on all property and the exemption was held invalid. On a writ of error to the United States Supreme Court, this decision was, in every respect, affirmed (R. R. v. Alsbrook, 146 U. S., 279), and it has often since been cited as authority. See citations in Anno. ed.
It would be sardonic to restore this exemption from taxation which was taken from the company itself by transferring the exemption to the stock in the hands of the stockholders. Indeed, if the stock of one corporation can be exempted from taxation because the corporation pays tax on its own property, then the stock of every corporation in the State can be thus exempted, and there will be' a gross partiality in exempting “stocks” which are named in the Constitution as liable for taxation ad valorem, while all others must pay taxes on their property of every description. There is no reason why those rich enough to invest in stocks shall be exempted from taxation, which will thus be thrown upon those who have no surplus to invest in that manner. If stockholders can be exempted from taxation on their stocks because the corporation pays tax on its own property, with equal reason the mortgage bonds issued by such corporations should be exempt because the corporation pays taxes on the property covered by the mortgage.
Of all times, when high taxation causes' complaint, there should be equality, and no special privileges by reason of the exemption of the property of those who are best able to bear it.
The Constitution of this State, Art. Y, sec.-3, specifies the only property which may be exempted from taxation, and in it there is no authority to the Legislature to exempt the owners of the “stocks” and “bonds” of any corporation from payment of taxes upon the true value thereof because the corporation has paid taxes (as it rightly should do) *372upon its own property nor for any other reason. In that same article, sec. 5, there is authority to exempt “wearing apparel, arms for muster, household and kitchen furniture, the mechanical and agricultural implements of mechanics and farmers, libraries and scientific instruments, or any other personal property, to a value not exceeding $300.” But the State has felt so poor that every farmer and mechanic for more than 50 years has been required to pay taxes on his clothing for his family, his household and kitchen furniture, his blacksmith’s and farming tools and plows “above $25,” until, the matter being called to the attention of the Legislature (see concurring opinion in this Court, Wagstaff v. Highway Commission, 177 N. C., at bottom of page 360), this exemption was raised to $300 for the first time by the Legislature of 1919.
Those who labor and toil have been required to pay taxes on everything above $25 — on their pots and pans, the washing tub of the washerwoman, the farmer on his plows, the blacksmith on his tools, and every one on everything above $25. This has been the policy of this State as declared by the Legislature. Ve are now asked to say that the Legislature, contrary to the equality of taxation required alike by the Constitution and by justice, had power to exempt, and has exempted, the owners of many millions of dollars of the best property in the State, the stock of its most prosperous corporation, from paying any share of the burden of maintaining the Government under which they live, and thus make it nontaxable, though this Court and the United States Supreme Court have held that the property of the corporation itself could not be exempted from taxation by the act of the Legislature.
It is a maxim of the law, as well as of political economy, that the “power to tax is the power to destroy,” and there is no power more deadly to the prosperity of a people than to increase taxation on those of small means, and who by their labor and their efforts earn a bare living, by exempting the wealthy, and powerful aggregations of wealth, whose just share of taxation must thus be paid by the class that is less wealthy and influential.
The Constitution provides that the taxation laid upon the poll “shall never exceed $2” for State and county purposes, and that this shall be applied solely to “education and the' support of the poor.” And this Court so held in 3 cases in 148 N. C., i. e., R. R. v. Comrs., 148 N. C., 220, 245, Judge Connor saying: “This question cannot arise again”; R. R. v. Comrs., 148 N. C., 248, and Hoke, J., in Perry v. Comrs., 148 N. C., 521. This limit has been constantly exceeded since, and poll taxes as high as $7 and $8 per capita have not been infrequent, and the proceeds háve been often- used, not solely “for education and the support of the poor,” but to relieve the property of the wealthy from taxation.
*373A poll tax was levied once in England wben it caused Wat Tyler’s Rebellion, and was repealed. For long centuries it bas been unknown tbere. It survives in this country in very few States (named by Connor, J., in R. R. v. Comrs., 148 N. C., 244; see, also, ibid., 253), and in them it is appropriated to “education and the poor.” The poll tax is essentially unjust because exacted regardless of ability to pay, and is condemned by all writers on political economy. It is further unjust here because those unable to pay it are disfranchised, which penalty is not inflicted upon those failing to pay taxes on their property, though this last discrimination is to be removed by a constitutional amendment which is to be voted on this year. But if the State has been so pressed that it has been unable to dispense with a tax on the poll so universally condemned as unjustly discriminatory, certainly it is a violation of the spirit as well as the letter of the Constitution if the Legislature has attempted to exempt the owners of stock in all corporations, or in this corporation, from payment of their just dues thereon for the maintenance of the Government.
The constant attempt to procure from Congress and State Legislatures an exemption of the property of corporations and of the wealthy, or to procure from courts a construction of statutes to that effect is a great and just cause of public dissatisfaction.
After a hundred years ruling that Congress could levy an income tax, the United States Supreme Court, after reaffirming that ruling, by a change of the vote of one judge reversed it, which caused the adoption of the Sixteenth Amendment over the power of aggregated wealth, and, without the income tax and the excess profits tax thus authorized, it would have been impossible for this country to have carried to a successful conclusion the great “World War.” But in the interval between the action of the changeable judge, and the enactment of the Sixteenth Amendment, many billions of taxes were taken off of the great corporations and the wealthy upon whom Congress had placed an income tax, and the burden was transferred to the backs of the toiling millions who were already overtaxed.
The time was when—
“Rome veiled eartli witli its haughty shadow,
And filled it, till the o’er canopied horizon failed,
With the rushing of her wings.”
By the power of taxation which exempted or favored the wealthy and transferred the burden to the masses, its fairest and most fertile provinces became a desert. As Pliny said: “Latifundio, perdidere Italiam” —that is, “The accumulation of wealth by the few destroyed Italy.”
*374In France, the same discrimination exempting property in the bands of the wealthy from just taxation and passing the burden on to those who created the wealth of the country resulted in the French Revolution, which took from the bands of the nobility and the church their accumulated property in its entirety and placed it in the bands of the people. Tbe same cause has brought about the confiscation of the vast wealth of the Czar and the nobility in Russia and has divided it among the people. In this country we have built bur Constitution upon the foundation of “equal rights to all and special privileges to none.” And as long as that is observed by lawmaking bodies and the courts our troubles will be but light.
When a proposition is presented to this Court that tbe Legislature has enacted, or can enact, that tbe owners of surplus wealth which happens to be invested in tbe stocks and bonds of corporations are exempt from taxation whenever tbe corporation has paid taxes on its own property, it is within my duty as a member of this bench to plainly state that tbe Constitution of this country and tbe safety of its institutions will not permit, and that tbe Legislature has not in fact enacted so dangerous a measure against which all history is a warning.
The State Tax Commission held that the plaintiff was not entitled to have bis stock exempted from taxation, and in the Superior Court Judge Stacy dissolved the restraining order and filed an opinion giving bis reasons. There was no appeal from this order and judgment, but the plaintiff undertook to have Judge Stacy reconsider and reopen the matter for argument and rehear it upon the same state of facts. This was a most irregular proceeding, and was condemned in Bormer v. Rodman, 163 N. C., 1. At this rehearing, however, Judge Stacy again affirmed bis ruling that the plaintiff was not entitled to have bis stock exempted from taxation and filed a very conclusive opinion.
In Blake, v. Askew, 76 N. C., 326, Reade, J., said: “This is manifestly a feigned issue” and “not fit to be entertained.” It cannot be said that this is manifestly “a stock speculation action,” but it may be shrewdly suspected to be intended to procure a ruling by the Court that, though the plaintiff’s stock has not been exempted from taxation by the Legislature, the Legislature has power to do so hereafter. If this were so held, it might boost the stock as being potentially “nontaxable” with great profit to those who may have arranged the proceeding. Tbe bolding of the State Tax Commission and the twice repeated opinion of Judge Stacy should be affirmed.