Macallen Co. v. Commonwealth

• Decision Date: 28 September 1928
• Citation: 264 Mass. 396,163 N.E. 75
• Parties: MACALLEN CO. v. COMMONWEALTH.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

264 Mass. 396

163 N.E. 75

MACALLEN CO.

v.COMMONWEALTH.

Supreme Judicial Court of Massachusetts, Suffolk.

Sept. 28, 1928.

Appeal from Supreme Judicial Court, Suffolk County.

Petition by the Macallen Company against the Commonwealth for the abatement of a tax. Decree of dismissal, and petitioner appeals. Affirmed.

T. Allen, of Boston, for petitioner.

R. A. Cutter, Asst. Atty. Gen., for the Commonwealth.

RUGG, C. J.

[1][2] This petition for the abatement of a tax under G. L. c. 63, § 77, as amended by St. 1922, c. 520, § 14, comes before us on appeal from a final decree whereby a demurrer filed by the defendant was sustained and the bill dismissed. All facts well pleaded must be taken as true for the purposes of this decision. The petitioner is a corporation established under the laws of this Commonwealth and has duly filed its excise tax returns as required by law. The commissioner of corporations and taxation, acting pursuant to G. L. c. 63, § 32, and section 30 as amended by St. 1925, c. 343, § 1A, added to the net income of the petitioner as determined by its Federal income tax return, sums received by it as interest from Liberty bonds issued by the United States, from federal farm loan bonds of Federal Land Banks, and from bonds or notes of counties and municipalities of this Commonwealth, all of which bonds and notes were owned by the petitioner. The Liberty bonds are ‘exempt, both as to principal and interest from all taxation now or hereafter imposed by * * * any State [with exceptions not here material] * * * upon the income or profits of individuals, partnerships, associations, or corporations.’ Act of Congress approved September 24, 1917, 40 U. S. Sts. at Large, 288, 291, c. 56, § 7 (31 USCA § 747), as amended by Act of Congress approved April 4, 1918, 40 U. S. Sts. at Large, 502, 504, c. 44, § 3 (31 USCA § 752 note). The Federal farm loan bonds ‘and the income derived therefrom’ are ‘exempt from Federal, State, municipal, and local taxation.’ Act of Congress approved July 17, 1916, 39 U. S. Sts. at Large, 360, 380, c. 245, § 26 (12 USCA § 931). The county and municipal bonds and notes were issued in accordance with law so as to be ‘exempt from taxation’ under G. L. c. 59, § 5, cl. 25. It is conceded that the excise tax was assessed, computed and levied in accordance with the requirements of the terms of the statutes of the Commonwealth. The single contention urged is that the part of St. 1925, c. 343, § 1A, whereby income of the petitioner derived from its investments already described was used, in combination with other factors, in ascertaining its net income as partial basis of the excise tax, is unconstitutional on several grounds. No other part of the excise tax law is assailed. The argument of the petitioner is confined to said section 1A and its effect upon the amount of its excise tax.

It is plain that, under our system of taxation of domestic corporations, the tax here attacked is a pure excise as distinguishedfrom a property tax. It is declared by G. L. c. 63, § 32, to be an ‘excise’ ‘with respect to the carrying on or doing of business' by the corporation. Although there have been differences of detail as to the calculation of the tax upon domestic corporations, the unbroken current of decisions of this court has been to the effect that ur method of taxing domestic corporations has been by excise as distinguished from a property tax. Indeed, only in that way can the validity of the general method of our corporation tax be upheld under part 2, c. 1, § 1, art. 4, of the Constitution of this Commonwealth, which requires all property taxes to be ‘proportional,’ but permits ‘excises' to be levied upon principles not proportional. Only a few of the many cases to this point need be cited. Commonwealth v. Peoples Five Cents Savings Bank, 5 Allen, 428;S. S. White Dental Manuf. Co. v. Commonwealth, 212 Mass. 35, 38 to 41, 98 N. E. 1056, Ann. Cas. 1913C, 805, where most of the earlier cases are collected and reviewed. Farr Alpaca Co. v. Commonwealth, 212 Mass. 156, 159, 98 N. E. 1078;Eaton, Crane & Pike Co. v. Commonwealth, 237 Mass. 523, 527, 528, 130 N. E. 99;Springdale Fishing Co. v. Commonwealth, 242 Mass. 37, 40, 136 N. E. 250;National Leather Co. v. Commonwealth, 256 Mass. 419, 425, 152 N. E. 916, affirmed in National Leather Co. v. Massachusetts, decided on May 28, 1928, 48 S. Ct. 534, 72 L. Ed. 935;Ruggles Lumber Co. v. Commonwealth, 261 Mass. 445, 449, 158 N. E. 897;Same v. Same, 261 Mass. 450, 453, 158 N. E. 899.

The proposition that our method of collecting revenue is an excise and not a property tax was expressly declared after full discussion in Hamilton Co. v. Massachusetts, 6 Wall. 632, 639, 640, 18 L. Ed. 904. That the nature of our system of exactions from corporations is an excise as distinguished from any other kind of taxation, established by our own decisions, was held in Baltic Mining Co. v. Massachusetts, 231 U. S. 68, 84, 34 S. Ct. 15, 58 L. Ed. 127, where the judgments in Baltic Mining Co. v. Commonwealth, 207 Mass. 381, 93 N. E. 831, and in S. S. White Dental Co. v. Commonwealth, 212 Mass. 35, 98 N. E. 1056, Ann. Cas. 1913C, 805, both marking and resting upon that distinction, were affirmed. The exaction required by G. L. c. 63, § 39, of foreign corporations is calculated on the same general principles as that required of domestic corporations, though with some incidental differences, and it is levied ‘with respect to the carrying on or doing of business * * * within the commonwealth.’ In that particular the words of section 39 descriptive of the commodity made subject to the exaction are the same as those in the section under which the present exaction was levied. It was held in Alpha Cement Co. v. Massachusetts, 268 U. S. 203, 216, 45 S. Ct. 477, 480, 69 L. Ed. 916, 44 A. L. R. 1219, touching exactions levied under said section 39, that the assertion that “The taxes complained of were excises and not property taxes.' ‘Being excises these taxes are not taxes on property or net income, but taxes measured by property and net income. * * *’ See Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47 [136 N. E. 375, 27 A. L. R. 1131],' was the ‘view of the nature of the exaction * * * adopted by the court below, and we think it is the correct one.’ The ‘view of the nature of the exaction * * * adopted by the court below’ on this point is set forth with some amplification in Alpha Portland Cement Co. v. Commonwealth, 244 Mass. 530, at 545 to 548, 139 N. E. 158. We interpret the sections involved in the case at bar to mean the same as to the nature of the exaction as the sections interpreted in 244 Mass. at 545, 548, 139 N. E. 158, and succinctly affirmed in the quotation just made from 268 U. S. at 216, 45 S. Ct. 477, 69 L. Ed. 916, 44 A. L. R. 1219. It is an excise with respect to the carrying on or doing of business by the corporation, measured by property and net income. It is not a tax on property and net income.

The pertinent provisions of the statute under which the present tax was assessed are G. L. c. 63, § 32, as amended by St. 1923, c. 424, § 1, in these words:

‘Except as otherwise provided in sections thirty-four and thirty-four A, every domestic business corporation shall pay annually, with respect to the carrying on or doing of business by it, an excise equal to the sum of the following, provided that every such corporation shall pay annually a total excise not less in amount than one twentieth of one per cent. of the fair cash value of all the shares constituting its capital stock on the first day of April when the return called for by section thirty-five is due: (1) An amount equal to five dollars per thousand upon the value of its corporate excess. (2) An amount equal to two and one half per cent. of that part of its net income, as defined in this chapter, which is derived from business carried on within the commonwealth.’

And G. L. c. 63, § 30, cl. 5, as amended by St. 1925, c. 343, § 1A, in these words:

“Net Income,' except as otherwise provided in sections thirty-four and thity-nine, [shall mean] the net income for the taxable year as required to be returned by the corporation to the federal government under the federal revenue act applicable for the period, adding thereto any net losses as defined in said federal revenue act that have been deducted, and all interest and dividends not so required to be returned as net income except dividends on shares of stock of corporations organized under the laws of the commonwealth and dividends in liquidation paid from capital.'

It is plain and is conceded by the Commonwealth that these provisions of the law were followed in computing the excise. It is equally plain that the excise was larger than it would have been if the income from the tax exempt securities had not been added to other items in making up the factor of ‘net income.’ This income, however, was not taxed; it simply was employed in connection with other factors in ascertaining the measure for computing the excise ‘with respect to the carrying on or doing of business' by the petitioner. All the property of the petitioner other than real estate and machinery used in the conduct of its business was expressly exempted from State and local taxation G. L. c. 59, § 5, cl. 16, as amended by St. 1924, c. 321, § 1, and by St. 1926, c. 279, § 1. See, also, St. 1924, c. 321, § 2. Its only contribution to the support of government with those exceptions was by way of the excise here in issue.

We regard the validity of the excise thus measured as settled by authority. In Provident Institution v. Massachusetts, 6 Wall. 611, 18 L. Ed. 907, assault was made on the validity of an excise levied by the authority of a statute of this Commonwealth whereby the amount of deposits in a savings bank was used as the measure of the excise. A substantial proportion of the deposits of that particular bank was invested in bonds of the United States expressly...