Commonwealth v. William Mann Co.

• Decision Date: 13 July 1892
• Docket Number: 18
• Citation: 24 A. 601,150 Pa. 64
• Parties: Commonwealth v. Wm. Mann Co., Appellant
• Court: Pennsylvania Supreme Court

24 A. 601

150 Pa. 64

Commonwealth v. Wm. Mann Co., Appellant

No. 18

Supreme Court of Pennsylvania

July 13, 1892

Argued May 31, 1892

Appeal, No 18, May 3, 1892, from judgment of C.P. Dauphin Co., Jan. T., 1892, No. 385, on trial by court without jury in appeal from tax settlement, for tax on capital stock of manufacturing corporation.

Defendant's specifications of appeal were in substance as follows: (1) Section 21 of the Act of June 1, 1889, P.L. 420, exempt manufacturing corporations from tax on capital stock, and appellant is exempt under said Act. (3) If taxable at all appellant is taxable only on the proportion, if any, invested outside of its manufacturing business. (4) Section 21 of the Act of 1889 conflicts with art. IX, § 1, of the Pa constitution, prescribing uniformity of taxation. (5) Said section conflicts with art. XIV, § 1, of the amendments to the U.S. constitution.

The court found the facts to be as follows, in an opinion by McPHERSON, J., reported in 1 Dist. R. 345.

"1. The defendant is a corporation of this state, chartered April 11, 1888, under the General Corporation Act of 1874, for the purpose of manufacturing blank books and stationery, printing, lithographing, and selling the products of such manufacture: P.L. 1889, p. a54. It does not engage in the brewing or distilling of spirituous or malt liquors, and it does not enjoy and exercise the right of eminent domain.

"2. The defendant has found it an advantage to its business, and a desirable method of increasing and extending the sale of its own manufactures, to invest a portion of its capital stock in the purchase and sale of goods manufactured by others. During the tax year of 1890 $45,000 of its capital stock were thus invested.

"3. The paid-up capital stock of the defendant is $350,000, upon which, during the year ending the first Monday of November, 1890, it declared a dividend of 12 1/2 per cent. The settlement in question taxes the capital stock at the rate of 6 1/4 mills.

"4. With the exception of the $45,000 above referred to, all of its capital stock is invested in the manufacturing plant, buildings, machinery, etc., which it occupies and uses exclusively for manufacturing purposes, or in merchandise manufactured by it, and on hand awaiting sale, in process of manufacture, or in cash on hand. Its business is carried on and its property is found in the city of Philadelphia."

The court argued to the effect that a change was intended by the Act of 1889. The commonwealth's argument in Com. v. Lackawanna I. & C. Co., 129 Pa. 346, 352, suggests the source from which the language of the Act of 1889 is derived. That Act intended to apply a more stringent test than the Act of 1885. Organization applies to the exercise of corporate functions in business: International Nav. Co. v. Com., 104 Pa. 38.

The court, although expressing doubt, re-stated the conclusions as follows:

"1. Section 21 of the Act of 1889 exempts from taxation the whole capital stock of corporations which, during a given tax year, have been engaged in manufacturing and in no other business.

"2. The corporation claiming exemption under this section must, during the given tax year, have actually carried on within this state at least a part of its manufacturing business.

"3. This section taxes the whole capital stock of corporations which, during the given tax year, have carried on two or more businesses, only one of which was manufacturing. In this class, apportionment as heretofore allowed is now forbidden.

"In brief, then, we are of the opinion that the construction above adopted is in harmony with the course of legislation and decision upon this subject, gives to the words used their natural and ordinary meaning, carries out the evident intention of the Legislature to relieve manufactures from the burden of one kind of taxation, and obeys the rule that exemptions from taxation are to be strictly construed.

"Applying the rules above stated to the case in hand, we find as conclusions of law:

"1. The defendant is a manufacturing corporation, actually carrying on manufacturing within the state, but during the tax year of 1890 it was not organized exclusively for manufacturing purposes. (This is also, and in part, a conclusion of fact.)

"2. Its whole capital stock therefore is taxed by § 21 of the Act of 1889."

Exceptions. Defendant filed exceptions alleging error (1-4) in not sustaining the specifications of appeal; (5) in holding the whole capital stock taxable; (6) in directing judgment therefor; (7) in not directing judgment for defendant.

The exceptions were overruled and judgment entered, whereupon defendant appealed.

Errors assigned were (1-7) overruling exceptions, quoting them.

The judgment is reversed, and judgment is now entered in favor of the commonwealth and against the William Mann Company for the sum of three hundred and seventeen dollars and ninety-nine cents and costs.

M. E. Olmsted, with him John G. Johnson, for appellant. -- Corporations under the Act of 1874, unlike those under previous local Acts, must select their officers and complete their organization, before charters can be granted, and the purpose -- the single purpose -- must be stated in the application: Act of April 29, 1874, P.L. 74. The purpose of appellant company complied with this Act. The investment of capital in the purchase and sale of goods manufactured by others was in effect found by the court to be incidental to and in aid of the manufacturing business. It was in the line of the legislative exemption, and certainly would not defeat the exemption. The laws of New York and New Jersey favor their corporations by grading the tax according to the percentage of capital stock invested in the state. The proviso to the Act of 1889 was in the same direction. The Act of 1874 provides that iron and steel manufacturing companies shall open mines, etc. They make their own coke or mine their own coal, limestone, etc. Yet clearly the proviso to the Act of 1889 was designed to encourage such corporations.

The proviso to the Act of 1889 excepts from the exemption corporations having the right of eminent domain. The fact that this exception was deemed necessary, indicates that without it the exemption was understood to apply to a manufacturing corporation having the right of eminent domain, which could not belong to a corporation organized exclusively for manufacturing purposes without incidental outside operations.

If the capital invested in aid of the manufacturing business is not exempt, the tax must be apportioned. Apportionment is a part of our tax system: Com. v. Atlantic Refining Co., 2 Pa. C.C. 65; Com. v. Standard Oil Co., 101 Pa. 119; Com. v. Lack. I. & C. Co., 129 Pa. 346; Com. v. Mahoning Rolling Mill Co., Ib. 360. The last two cases were not decided when the Act of 1889 was passed, but their reasoning applies to the Act of 1885. The Lackawanna Co. claimed exemption for its whole capital stock. It was probably to prevent the entire exemption of such corporations that the Act of 1889 changed the phraseology of the Act of 1885.

The Act of 1885 was intended to encourage productive industries: Com. v. Northern Electric Light & Power Co., 28 W.N. 521, 4, 7. The Act of 1889 had the same purpose in view.

The exemption apples only to state tax on capital stock: Hawes Mfg. Co.'s Ap., 1 Mona. 353.

James A. Stranahan, Deputy Attorney General, and W. U. Hensel, Attorney General, for appellee. -- If appellant's contention is correct there is little if any difference in the exemption clauses of the Acts of 1885 and 1889. There was some reason for using the terms employed in the latter Act. The "custom of apportionment" was undoubtedly sought to be abolished by the Act of 1889. The experience of the commonwealth under the Act of 1885 was fresh in the minds of the Legislature. It knew how corporations organized for different purposes had escaped taxation by this custom. The only legitimate construction of the Act of 1889 is to keep those corporations within their proper limits. If their chartered powers are not exclusively for manufacturing purposes and they have not disclaimed or surrendered these powers that are other than manufacturing, they are not exempt, or if they are chartered for partly manufacturing purposes, but invest their stock in other business, they are not entitled to the exemption, as they ought to be held to be doing that for which they are organized to do. The rule adopted should be uniform.

Defendant, to come within the exemption of the Act of 1889, must show that it includes all the purposes covered by the Act of April 7, 1849, and its supplements, passed to encourage manufacturing operations within the commonwealth. By supplement of April 14, 1851, this was extended to the business of printing and publishing.

The Act of 1874, in its mode for the incorporation of companies adopted this same idea in reference to this class of manufacturing industries, and in corporations for profit -- second class in § 2, clause 12, P.L. 74, it provided for corporations for the "transactions of a printing and publishing business." This clause and the Act of 1851 unmistakably had reference to the same class of manufacturing. It was simply a printing and publishing business, and applied to the printing and publishing of books and newspapers. Defendant does not come under the class mentioned and intended in either of these Acts. Its charter must have been granted under § 2, clause 18 of the Act of 1874, P.L. 74. If so it was chartered or organized for a different purpose from that set forth in § 12, and it cannot be claimed that it comes within...