Chi., Duluth & Georgian Bay Transit Co. v. Mich. Corp. & Sec. Comm'n

• Decision Date: 13 October 1947
• Docket Number: No. 6.,6.
• Citation: 29 N.W.2d 303,319 Mich. 14
• Court: Michigan Supreme Court
• Parties: CHICAGO, DULUTH & GEORGIAN BAY TRANSIT CO. v. MICHIGAN CORPORATION & SECURITIES COMMISSION.

319 Mich. 14

29 N.W.2d 303

CHICAGO, DULUTH & GEORGIAN BAY TRANSIT CO.

v.MICHIGAN CORPORATION & SECURITIES COMMISSION.

No. 6.

Supreme Court of Michigan.

Oct. 13, 1947.

Appeal from Corporation Tax Appeal Board.

The Michigan Corporation & Securities Commission determined that the Chicago, Duluth & Georgian Bay Transit Company, an Indiana corporation, was liable for a certain corporation privilege fee for the year 1944, and the corporation appealed to the Corporation Tax Appeal Board. The Commission's determination was affirmed by the board, and the corporation appeals.

Privilege fee set aside and case remanded to commission for recomputing privilege fee.Before the Entire Bench, except DETHMERS and BUTZEL, JJ.

Lucking, Van Auken, Schumann & Greiner, of Detroit, for plaintiff-appellant.

Eugene F. Black, Atty. Gen., Edmund E. Shepherd, Sol. Gen., of Lansing, and Daniel J. O'Hara and Gregory H. Frederick, Assts. Atty. Gen., for appellee.

NORTH, Justice.

This appeal involves determination of the amount of plaintiff's corporation privilege fee for the year 1944. From the decision of the Michigan corporation and securities commission as affirmed by the corporation tax appeal board, plaintiff has appealed, leave having been granted. Plaintiff, the Chicago, Duluth & Georgian Bay Transit Company, is incorporated under Indiana laws. As such foreign corporation, admitted to do business in Michigan, under the law of this State it is required to pay annually a corporation privilege fee. In part the statute reads: ‘Sec. 4. Every corporation organized or doing business under the laws of this state (with specified exceptions) shall * * *, for the privilege of exercising its franchise and of transacting its business within this state, pay to the secretary of state an annual fee of two and one-half [2 1/2] mills upon each dollars of its paid-up capital and surplus.’ 2 Comp.Laws 1929, § 10140, Stat.Ann. § 21.205.

As to the method of computing the amount of privilege fees, by statute it is provided: ‘Sec. 5. * * * such computation shall be made upon the corporation's property, both tangible and intangible, owned or used in Michigan in the ratio that such property bears to the entire property of the corporation, and such ratio shall be applied by the secretary of state to determine the amount of the authorized capital stock owned or used in Michigan, and to determine what portion of the corporation's paid-up capital and surplus, severally, are owned or used in Michigan. The term ‘surplus' as used in this act, shall be taken and deemed to mean the net value of the corporation's property, less its outstanding indebtedness and paid-up capital * * *. None of the property or capital of any corporation subject to paying the privilege fee prescribed in section four [4] which is located without the state of Michigan, and none of the capital or surplus of such corporation represented by property exclusively used in interstate commerce, shall in any case enter into the computation of the net amount of the authorized capital, or the capital and surplus, as the case may be, upon which the computation of the privilege fees shall be made: Provided, That in determining the amount or value of intangible property, including capital investments, owned or used in this state by either a domestic or foreign corporation, such property shall be considered to be located, owned or used in this state for the purposes hereof, if used in or acquired from the conduct of its business in this state, irrespective of the domicile of the corporation. * * *’ 2 Comp.Laws 1929, § 10143, Stat.Ann. § 21.208.

Hereinafter we refer to the above italicized portion of the statute as the 1929 amendment. Plaintiff's principal business is the operation of two steamships on the Great Lakes between ports in New York, Ohio, Michigan, Illinois, Minnesota and the Dominion of Canada. The port of call or home port of plaintiff's steamships is Michigan City, Indiana; and taxes on the vessels are there paid. Plaintiff maintains a traffic office in Chicago. It has ticket offic at Chicago, Duluth, Buffalo, Clevelana, Detroit and Mackinac Island. Its principal bank accounts are in Chicago. Its executive offices are in Detroit, Michigan. All of plaintiff's officers are residents of Detroit; and with one exception its five directors likewise reside in Detroit.

The Michigan ports at which plaintiff's vessels land are Detroit, Mackinac, Sault Ste. Marie, Houghton and Isle Royale. But only comparatively a small part (2.98%) of plaintiff's revenue is derived from its business between Michigan ports. Only 11.33% of its passengers and 7.16% of its mileage are incident to plaintiff's business between Michigan ports. It is conceded that the international boundary line is crossed by plaintiff's ships on trips between some of the Michigan ports.

It is the contention of plaintiff-appellant that the Michigan corporation and securities commission and the corporation tax appeal board were in error when in the computation of plaintiff's privilege fee there was included each of the following items.

(1). $137,106.25, being 80% of the value of plaintiff's two vessels, less depreciation;

(2). $2,741 inventories of propellers located outside of Michigan;

(3). $145,115.76, deposits in banks outside of Michigan.

The Michigan corporation and securities commission, and finally the corporation tax appeal board in including each of the three above noted items in computing plaintiff's privilege fee, held (1) that plaintiff had a business situs in Michigan, (2) that for the purpose under consideration all of plaintiff's capital and surplus was located in Michigan, and (3) that none of the above noted items were ‘exclusively used in interstate commerce.’

As against the correctness of the commission's determination, appellant makes the following contentions. (a) That the doctrine of commercial domicile has not been adopted by statute and does not prevail in Michigan, and that the business situs doctrine as adopted by statute in this State is limited to intangible property used in or acquired from Michigan business; (b) that the value of appellant's two vessels should be entirely excluded or at most included ‘in proportion to appellant's interstate business' in computing the privilege fee because such vessels are used exclusively in interstate commerce and are continuously moving in and out of Michigan territory; (c) that item (2), $2741.00 inventories of propellers, was erroneously included as a basis of computing appellant's privilege fee, because this item of tangible personal property has at all times been located outside of Michigan; and (d) that the commission erred by including in the computation of appellant's privilege fee the $145,115.76, bank deposits outside of Michigan, because this item was not used in or acquired from appellant's Michigan business.

At the outset it may be noted that the following is settled law in this jurisdiction. An annual privilege fee levied upon a corporation is not a property tax. Instead, it is a tax on the franchise to do business as a corporation within this State. Union Steam Pump Sales Co. v. Secretary of State, 216 Mich. 261, 185 N.W. 353. And the tax imposed upon the intangibles of a corporation under this act is not a property tax but an excise tax in which the property is merely used as a yardstick or basis of computation. In re Truscon Steel Co., 246 Mich. 174, 224 N.W. 653;In re Detroit Properties Corp., 254 Mich. 523, 236 N.W. 850. In view of the above it is obvious that Roberts v. Township of Charlevoix, 60 Mich. 197, 26 N.W. 878, which involved only the right to collect an ad valorem tax, is not controlling of the instant case. Likewise Graham v. Township of St. Joseph, 67 Mich. 652, 35 N.W. 808, involved only an ad valorem assessment under the general tax law and is not at all decisive of the case at bar.

Also at the outset, it is of prime importance to determine whether the record in the instant case discloses that plaintiff has a commercial domicile or a business situs as to its intangibles in Michigan. In Udylite Corporation v. Michigan Corporation & Securities Commission, Mich., 29 N.W.2d 132, we held that by the 1929 amendment to the statute hereinbefore quoted, the legislature of this State gave recognition to the theory or doctrine of commercial domicile and of business situs for the purpose of computing and imposing franchise and privilege fees. The theory and factual justification of such legislation has been stated as follows: ‘We perceive the law to be that where the corporation has only a paper domicile, where the only function performed by the state of incorporation is to breathe life into the corporation, and where no substantial corporate activities are thereafter carried on in that state, then the law looks at such corporation and says that that state where, under the facts, the corporation receives its greatest protection and benefits, that state where the greatest proportion of its control exists, that state shall be the commercial domicile, with constitutional power to tax income from intangibles.’ Southern Pacific Co. v. McColgan, 68 Cal.A.2d 48, 81, 156 P.2d 81, 100. See State v. First Bank Stock Corp., 197 Minn. 544, 267 N.W. 519,269 N.W. 37, affirmed by the U. S. Supreme Court, 301 U.S. 234, 57 S.Ct. 677, 81 L.Ed. 1061, 113 A.L.R. 228. Also Memphis Natural Gas Co. v. Beeler, 315 U.S. 649, 62 S.Ct. 857, 86 L.Ed. 1090.

As to the factual aspect of the instant case, we have already noted that plaintiff's executive offices are in Detroit, Michigan. All of its officers reside there. So do all of its directors with one exception. Its president, a vice president and treasurer have offices in the National Bank building, Detroit. Its secretary and general counsel has an office in the Ford building. The somewhat voluminous correspondence in this record and all procedural papers concerning the controversy involved in the instant case, a...