Roberts Schaefer Co v. Emmerson, 210

• Decision Date: 12 April 1926
• Docket Number: No. 210,210
• Citation: 46 S.Ct. 375,271 U.S. 50,70 L.Ed. 827,45 A. L. R. 1495
• Parties: ROBERTS & SCHAEFER CO. v. EMMERSON, Secretary of State of Illinois
• Court: U.S. Supreme Court

271 U.S. 50

46 S.Ct. 375

70 L.Ed. 827

ROBERTS & SCHAEFER CO.

v EMMERSON, Secretary of State of Illinois.

No. 210.

Argued March 12, 1926.

Decided April 12, 1926.

Messrs. Paul O'Donnell, of Chicago, Ill., and Albert L. Hopkins, and Richard S. Doyle, both of Washington, D. C., for plaintiff in error.

Messrs. Bayard Lacey Catron, of Springfield, Ill., and Edward J. Brundage, of Chicago, Ill., for defendant in error.

Mr. Justice STONE delivered the opinion of the Court.

The plaintiff in error, a corporation organized under the laws of Illinois, and doing business in that state, filed its bill in the circuit court of Sangamon county, Illinois, for a mandatory injunction to compel the defendant in error, as secretary of state for Illinois, to accept the sum of $75.00 in full discharge of its liability for an annual franchise tax for the year 1923, imposed by section 105 of the Illinois Corporation Act, and to enjoin the defendant in error from collecting more than that amount.

The plaintiff corporation was originally organized with an authorized capital stock of $100,000, divided into one thousand shares of the par value of $100. In 1921, the Illinois Corporation Act was amended so as to allow corporations to issue shares of no par value. Rev. Stats. Ill. (Cahill, 1925) c. 32, § 32, as amended by Act of June 11, 1921 (Laws 1921, p. 365). Shortly after the passage of this act, the corporation, by amendment of its charter, converted its outstanding stock into preferred stock, and authorized and issued forthwith 10,000 shares of common stock of no par value.

Section 105 of the Corporation Act then provided:

'Each corporation for profit * * * organized under the laws of this state or admitted to do business in this state, and required by this act to make an annual report, shall pay an annual license fee or franchise tax to the secretary of state of five cents on each one hundred dollars of the proportion of its capital stock, authoirzed by its charter in the office of the secretary of state, represented by business transacted and property located in this state. * * *'

The secretary of state demanded of the plaintiff corporation, under this statute, the payment of five cents on each share of no par stock, on the assumption that for the purpose of the tax, no par shares were to be valued at $100. The plaintiff took the position that there was no statutory authority for the assessment of the tax on that basis, and that, since its no par value shares had been issued as 'fully paid up and nonassessable upon the payment of five dollars for each share in cash or property,' it was liable to a tax only on the basis of that valuation, and tendered the tax so computed to the secretary of state. In a mandamus proceeding brought by the plaintiff corporation, the Supreme Court of Illinois upheld this contention and ordered the secretary of state to accept the lesser sum in satisfaction of the tax. People ex rel. Roberts & Schaefer Co. v. Emmerson, 137 N. E. 202, 305 Ill. 348.

After this decision, the Legislature of Illinois amended section 105 (Laws 1923, p. 280) by adding the sentence:

'In the event that the corporation has stock of no par value, its shares, for the purpose of fixing such fee, shall be considered to be of the par value of $100 per share.'

The plaintiff's bill in the case before us attacks the validity of the franchise tax imposed on it pursuant to this amendment, on the ground that the amendment is unconstitutional. The circuit court dismissed the bill for want of equity. On appeal, the Supreme Court of Illinois affirmed the judgment (144 N. E. 818, 313 Ill. 137), holding that the tax was lawfully assessed. The plaintiff comes here on writ of error. Judicial Code, § 237 (Comp. St. § 1214).

It is urged that the selection of authorized capital stock as the basis for the franchise tax or license fee is arbitrary, and has no tendency to procure equality, and results in imposing different rates of taxation on corporations having the same issued capital stock holding the same amount of property and doing the same amount of business, whenever they have different amounts of authorized capital stock; that the mere number of authorized no par value shares regardless of their value or the amount of money or property for which they are or may be issued, is not a reasonable basis for a franchise tax, but is wholly arbitrary; that the provision of section 105 assigning an arbitrary valuation of $100 per share to no par stock for the purpose of computing the tax in question, results in a discrimination against corporations which issue shares of no par value, and in favor of those which issue them at a par value. Reliance is also placed on the invalidity of the amendment as impairing the obligation of contract (Constitution, art. 1, § 10) in that the shares of the plaintiff were issued before the amendment of section 105, and at a time when, it is alleged, the law of Illinois provided that, for the purpose of this tax, no par stock was to be valued at the amount for which it was actually issued.

In support of the argument that authorized capital stock is not a permissible basis for a franchise tax, the plaintiff relies on Air-Way Electric Appliance Corp. v. Day, 45 S. Ct. 12, 266 U. S. 71, 69 L. Ed. 169. That case dealt with a privilege tax laid by Ohio on a foreign corporation engaged in interstate and intrastate commerce in that and other states. It was held that a tax on such a corporation for the privilege of doing business in Ohio, where the tax was measured by that proportion of its total authorized capital stock which its business done and property owned in Ohio bore to its total business done and property owned everywhere, was invalid as an unconstitutional burden on interstate commerce, and a denial of the equal protection of the laws. While one factor in the computation of the tax was properly the proportion of the corporation's business done and property owned within the state, the other factor was the amount of its authorized capital stock, only a part of which had actually been issued. The authority to issue its capital stock was a privilege conferred by another state and bore no relation to any franchise granted to it by the state of Ohio or to its business and property within that state. When authorized capital stock is taken as the basis of the tax, variations in the amount of the tax are obtained, according as the corporation has a large or small amount of unissued capital stock. This was held, in the Air-Way Case, to be an unconstitutional discrimination, since it resulted in a tax larger than the tax imposed on other corporations with like privileges and like business and property within the state, but with a smaller capital authorized under the laws of the state of their creation.

In the present case, the plaintiff corporation is organized and does all its business in Illinois. We cannot say that a state may not impose a franchise tax on a domestic corporation, measured by its authorized capital stock. See Kansas City Ry. v. Kansas, 36 S. Ct. 261, 240 U....