Court Opinion

ID: 8198916
Source: CourtListenerOpinion
Date Created: 2022-09-09 23:22:34.697807+00
Date Added: 2024-06-11T08:42:48.114855
License: Public Domain

The following opinion was filed May 4, 1936:
Fowler, J.
{on motion for rehearing). There is a motion for rehearing and the brief in support of the motion re-argues nearly all of the questions presented in the original briefs, perhaps with more force and cogency than they were originally presented, but the ultimate conclusion urged in all the briefs is in effect that the tax imposed is a property tax and a personal tax against the stockholder, and as such is unconstitutional as to nonresident stockholders.
From some things in the briefs on the motion for rehearing we fear that we failed to make our position entirely clear in the original opinion. Our position is that the tax is an excise tax on the transfer of earnings resulting from property located or business transacted within this state, and stands on the same basis of constitutionality that a state inheritance tax stands; that the tax of the state of New York on stock transfers, upheld in Hatch v. Reardon, 204 U. S. 152, 27 Sup. Ct. 188, stood; that the state tax in New York on the transfer of property by deed upheld in Keeney v. New York, 222 U. S. 525, 32 Sup. Ct. 105, stood; and that'the tax on salaries of nonresidents earned within the state, upheld in Travis v. Yale & Towne Mfg. Co. 252 U. S. 60, 40 Sup. Ct. 228, stood. Earnings from property or transactions within the state are as much subject to a transfer tax as property within the state passing by inheritance or deed or other form of transfer, or salaries earned within the state. We *241cannot perceive that the fact that the recipient is a nonresident any more invalidates the instant tax than the others stated, nor do we perceive that it makes any material difference whether the transfer tax is paid before or after dividends are declared from earnings.
It is urged in the brief for rehearing that the decisions of the United States supreme court in the cases involving inheritance taxes on stocks, Rhode Island Hospital Trust Co. v. Doughton, 270 U. S. 69, 46 Sup. Ct. 256, and First National Bank v. Maine, 284 U. S. 312, 52 Sup. Ct. 174, on bonds, Farmers’ Loan & Trust Co. v. Minnesota, 280 U. S. 204, 50 Sup. Ct. 98, on debts for advancements and for unpaid declared dividends, Beidler v. South Carolina Tax Comm. 282 U. S. 1, 51 Sup. Ct. 54, inherited by a nonresident of the taxing state wherein the debtor was a corporation or resident of the taxing state, holding the tax unconstitutional, renders the instant tax unconstitutional. But it does not follow from these decisions that a transfer tax may not be imposed on the devolution of dividends resulting from property located or transactions conducted within the state. The basis of those decisions was that the things inherited were intangibles whose situs was at the residence of the owner, and subject to an inheritance tax only by the state of which the deceased owner was a resident. These cases do not reach the instant situation. It is true a dividend declared and not paid is a debt. But dividends declared from earnings made within a state have characteristics not possessed by other debts. They are debts so different in kind that the difference forms a proper basis of classification and renders them the basis of a transfer tax that other debts are not subject to. The basis of the instant tax is the fact that the dividends result from earnings from property situated or business transacted within this state. Such earnings are a proper subject of taxation, and therefore a proper basis for an excise *242tax on the transfer of the dividends resulting therefrom. The case of First National Bank v. Maine, supra, so strongly relied on by plaintiff, legalizes the instant tax as to Wisconsin corporations. It holds that, although an inheritance tax may not be laid by a state on the devolution of stock of a domestic corporation owned by a nonresident decedent, the state may, on the issue of new certificates to take the place of the old, lay a tax on the transfer of the stock to nonresidents inheriting it. The declaring of a dividend is as much of a transaction within the state as is the making out of a stock certificate. If the state may impose a tax on the one transaction, it may on the other. Of course, it does not follow that the state may impose the instant tax in case of a foreign corporation because it may impose it in case of a domestic corporation. The declaring of a dividend by the foreign corporation and the transmittal of it would be done without the taxing state,, and neither would be a transaction within, it, nor would the funds out of which the dividend was paid be located within the taxing state at the time of the payment. But the fact that the earnings made by a foreign corporation within a state are not located therein does not prevent the state wherein they are earned from taxing the earnings, nor from enforcing the collection of the tax. No more should the circumstances above stated prevent the state from imposing the instant tax or enforcing its collection. The case of First National Bank v. Maine, supra, also states that the United States supreme court has reserved the question whether stock, bonds, etc., owned by a nonresident may by reason of their use within a state acquire such a situs within the state as to make them subject to an inheritance tax. By implication the question whether they may not be so used as to acquire a situs for other forms of transfer tax is also reserved ; and so is the question whether the dividends involved in the instant transfer tax, which have been earned within *243the state, have not such a constructive situs within this state as to render them subject to the tax imposed by the instant statute.
The brief on motion for rehearing assumes that we have held the tax imposed by statute to be against the corporation. We did not in the original opinion take the position that the tax is necessarily one against the corporation. We pointed out that one decision of the supreme court of the United States, Barnes v. Philadelphia & R. R. Co. 17 Wall. 294, 21 L. Ed. 544, has held that a tax on corporate dividends payable by the corporation was one against the corporation, and that another, Travis v. Yale & Towne Mfg. Co., supra, has held that the only liability for a tax on salaries of nonresidents payable by a corporation was imposed upon the corporation and treated the tax as in effect a tax on the corporation. Counsel state that a later decision of the United States supreme court, Stockdale v. Atlantic Insurance Co. 20 Wall. (87 U. S.) 323, holds that the tax involved in the Barnes Case, supra, was a tax against the stockholder. But if so,, as stated in the later decision, “the question whether the tax . . . [is] on the stockholder or on the corporation ... is one of form rather than substance.” If the tax is an excise tax, and we hold that it is, it is entirely immaterial upon whom the burden of it ultimately falls: In a sales tax it falls, usually at least, upon the purchaser. In a stamp' tax on deeds it usually falls on the seller. In an inheritance tax it falls on the recipient of the property. In the stock transfer tax above referred to it probably fell on the broker consummating the transfer. In a stamp tax on checks it falls on the drawer of the check. In none of the cases is it a personal property tax against the person upon whom the burden of it ultimately falls.
Counsel argue that the cases cited in the original opinion to the point that the instant statute does not violate the con*244tract clause of the federal constitution do not support that proposition. Maybe so. The decisions may speak for themselves. However this may be, we consider the proposition self-evident that, if the subject of a tax is taxable by the state, a corporation cannot by any form of contract between itself and its stockholders withdraw that subject from taxation. It would seem that no citation of authority is necessary to support that proposition. In case of a contract between the state and a corporation exempting the corporation or its property from taxation, if such a contract would be valid, the matter might stand differently, but we have no such contract here.
Several points are argued in the brief on the motion for rehearing that we did not mention in our original opinion because we considered them beside the case or patently not well taken. Several of these the plaintiff is not in a position to urge because it is not at all affected by the point suggested. For instance, it is urged that the statute is unconstitutional because it does not exempt from earnings receipts from governmental exempt securities. The plaintiff is not affected by this fact. None of its income is.received from tax-exempt securities. This is enough to- remove this contention from consideration. But we do not perceive that the fact that it does not specifically exempt receipts from tax-exempt securities affects the statute. If some assessor should include receipts from such sources with the dividends taxed, the inclusion would not invalidate the statute. It would only operate to invalidate the portion of the tax imposed by reason of such receipts.
It may also be said that the plaintiff, being a domestic corporation, is not in a position to urge the unconstitutionality of the tax as to foreign corporations. If it may, it is because the earnings of foreign corporations within the state are so great or so greatly exceed the earnings of domestic corpora*245tions as to warrant the assumption that the legislature would not have passed the act had they not considered the tax constitutional as to foreign corporations. On this assumption, if the statute were void as to foreign corporations, it would void the statute as a whole, and such invalidity might, perhaps, justify the plaintiff in raising the objection as to foreign corporations. In one of the briefs amicus curice, filed on behalf of a foreign corporation, the gross and comparative earnings of foreign and domestic corporations were stated, and argument was made that the facts stated established that the legislature would not have passed the bill had they believed that it could be held invalid as to foreign corporations. It is not permissible for us on demurrer to the complaint to consider the factual statements of this brief. Nor can we take judicial notice of the facts in this regard. Nor can we assume on the facts of the complaint that the legislature would not have passed the act if dividends of foreign corporations from earnings within the state are not subject to the transfer tax imposed. However, in view of the importance of the question, and the fact that the question has been as fully and ably presented in behalf of foreign corporations as it could have been were a foreign corporation a party to the litigation, we concluded to consider whether the act is invalid as to them. We conclude it is not. We perceive no more difficulty in taxing the transfer of dividends of foreign corporations attributable to business transacted or property situated within the state than in taxing such corporations on income so derived, and the validity of the latter form of taxation is established. The fact that the dividends involved are derived from earnings within the state gives them a constructive situs within the state. They are as readily collectible as is an income tax against a foreign corporation. Liability for payment of the tax is imposed upon the corporation. If such liability may be imposed there *246is no difficulty about collecting it, and there is no more difficulty about imposing the liability than existed in the Travis Case, supra, about imposing upon the employer liability for the income tax on salaries of nonresidents earned within the state.
The above, we believe, sufficiently explains our position.
By the Court. — The motion for rehearing is denied.