Garysburg Mfg. Co. v. Pender County
| Decision Date | 05 July 1930 |
| Citation | 42 F.2d 500 |
| Parties | GARYSBURG MFG. CO. v. PENDER COUNTY et al. |
| Court | U.S. District Court — Eastern District of North Carolina |
Rountree & Carr, of Wilmington, Del., and Spruill & Spruill, of Rocky Mount, N. C., for complainant.
McCullen & McCullen, of Burgaw, N. C., for respondent.
This cause is before me on the pleadings — bill and answer — and the affidavit of J. Ross McNeal, former vice president, and at present secretary and treasurer, of the Garysburg Manufacturing Company. The facts, though long, and perhaps tedious, are plain and more or less admitted — mostly admitted, and are as follows:
(a) That the complainant, the Garysburg Manufacturing Company, hereinafter called complainant, is a corporation duly organized and existing under the laws of this state, and has its plant and principal office in the town of Burgaw, in the county of Pender, in the state of North Carolina.
(b) That complainant duly filed with the state board of assessment its annual report for the year 1925, by which it was shown that the total actual cash value of its capital stock for that year was $350,000, and that the assessed value of real property listed with local assessors for that year was $21,855, and the assessed value of personal property listed with local assessors was $88,701.63, a total of $110,556.63, which, deducted from the total valuation of $350,000, left a "corporate excess" of $239,443.37, and the state board of assessment accepted the report as correct, both as to the items of property owned by complainant and their valuation, and certified down to the county of Pender an account showing that the "corporate excess" of complainant amounted to the sum of $239,443.37.
(c) That in that account so certified by the state board of assessment to the county of Pender, hereinafter called respondent county, was included 225 shares of the capital stock of the Argent Lumber Company, a corporation of the state of South Carolina, and which shares of stock were worth the sum of $225,000, and were so reported in the certificate of the state board of assessment.
(d) That respondent county undertook to levy a tax, at the rate of 2 per centum, upon the total sum of $230,443.37 so certified down by the state board of assessment, and which included the sum of $225,000, the par and actual value of the 225 shares of the capital stock of the Argent Lumber Company of South Carolina, and directed the sheriff of respondent county, the respondent J. T. Brown, hereinafter called respondent Brown, to proceed to collect the same, and respondent Brown demanded from complainant the sum of $4,788.86, which was the total amount of tax on the whole sum of $239,443.37, at the tax rate of 2 per centum, which was the rate fixed for the year 1925, and threatened to seize and sell by public auction the property of complainant, unless the tax was promptly paid.
(e) That complainant refused to pay the tax upon the 225 shares of stock in the Argent Lumber Company of South Carolina, but tendered, and still tenders, the sum of $288.87, the amount of the tax due at the rate of 2 per centum upon $14,443.37, the amount of the "corporate excess" in excess of the value of the shares of stock in the Argent Lumber Company of South Carolina, upon the ground that the 225 shares of stock was property owned by complainant in a South Carolina company, and under the law of North Carolina had its situs in South Carolina, and was not taxable if owned by an individual resident of the state of North Carolina.
(f) That respondent county declined to accept this tax and respondent Brown threatened to seize and sell the property of complainant for the purpose of paying the tax on the whole amount of the "corporate excess," including the $225,000 worth of shares of stock in the Argent Lumber Company, and complainant brought this action to enjoin such seizure and sale, claiming that the assessment and taxation of the shares in the Argent Lumber Company (shares of a foreign corporation) is a violation of the "Equal Protection" secured under the Fourteenth Amendment to the Constitution of the United States, in that like shares, if held by an individual or by an unincorporated association of citizens (owners), are not taxed by the state.
The legal question involved in this case is of public importance, because it involves the constitutionality of a tax statute of the state of North Carolina. In the last clause of the first section of the Fourteenth Amendment to the Constitution of the United States it is laid down: That no state shall deprive any person under its jurisdiction of the equal protection of the law.
For most purposes, and subject to some qualifications, later more fully discussed, a corporation is within the meaning and the protection of the Federal Constitutional guarantee, as well as a natural person.
To declare a statute of this state unconstitutional, or any authorized action under its authority illegal, is not to be lightly considered, and is to be done only upon a clear and undoubted showing and upon the most convincing authority; particularly is this true of a state statute authorizing the imposition of a state tax and the raising of state revenue.
Upon unquestioned authority, a broad and liberal latitude is allowed to the states in the matter of arranging their tax systems according to their peculiar situation, needs, and demands.
Distinctions and apparent discriminations in tax systems of the various states are largely a matter of local, political, and economic necessity, and are not to be disturbed on the mere allegation of unconstitutionality.
To justify their annulment, as contrary to the Constitution of the United States, there must appear an arbitrary and plain violation of both the letter and spirit of the superior law of the Union.
Such being the gravity of this case and some of the principles that must govern its consideration, it seems needless to quote any authority in support of the proposition, that the jurisdiction of this court must likewise clearly and affirmatively appear before it is justified in even considering the case. The question of this court's jurisdiction is raised, and must therefore be a prerequisite of any determination of the matter on the substantial issues at stake between the parties.
In this case the federal jurisdiction is invoked, under the claim of constitutional protection that is guaranteed by the Fourteenth Amendment to the Constitution of the United States. There should be a determination of the question so raised under the Fourteenth Amendment to the Constitution of the United States as to the constitutionality of the North Carolina statute, exempting stock held in foreign corporations by citizens of this state, regarded as individuals, and providing for the taxation of shares in foreign corporations held by corporations of this state, that is, by corporations incorporated in the state of North Carolina, and therefore I shall, for that purpose, assume jurisdiction and consider such question.
The particular section of the statute of North Carolina, Acts 1925, c. 101, § 4, involved in this case, is as follows:
Complainant, holding stock in a South Carolina corporation, was assessed on its stock under this section of the law of the state of North Carolina, and it is conceded that under such law an individual holder of such stock would not be assessed therefor in the state, under this statute. Is this discrimination between a corporate holder and an individual holder of stock in a foreign corporation an illegal discrimination, under the equal protection clause of the Fourteenth Amendment to the Constitution of the United States?
While the Supreme Court of the United States has never, so far as I am advised, decided the identical question here presented, it has, in a number of cases, had before it the principle involved here, and has laid down general rules of law applicable to the question that appears controlling in this case.
Corporations created by a state are granted by the state with certain definite and limited powers, and a corporation is therefore always subject to the reasonable control of the state, because to a fair and reasonable extent the state has the right, reserves the right, to attach certain conditions to the corporations it creates and empowers to do business.
While it cannot arbitrarily discriminate between corporations of the same character, between domestic and foreign corporations, not without reason, and substantial reason, or unreasonably discriminate between individuals and a corporation, the state can, in many ways, and such authority has been repeatedly upheld by the courts, grant and withhold powers from a corporation not possessed by a natural person. It can absolutely prohibit a corporation created under its jurisdiction from holding stock in other corporations. This it cannot do as to an individual. While the state can restrict, under its broad police power, individuals being directors in connected or affiliated corporations, it has not the constitutional power to prohibit an individual from holding any legal property. The state may, in the...
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