American Inv. Corporation v. State Tax Commission

Citation120 P.2d 331,101 Utah 189
Decision Date19 December 1941
Docket Number6312
CourtSupreme Court of Utah
PartiesAMERICAN INV. CORPORATION v. STATE TAX COMMISSION et al

Rehearing Denied February 25, 1942.

Proceeding by the American Investment Corporation against the State Tax Commission of Utah and others, to review a decision of the State Tax Commission directing plaintiff to pay a deficiency upon its corporation franchise tax for the year 1937.

Order of commission annulled and set aside.

Devine Howell & Stine and Neil R. Olmstead, all of Ogden, for plaintiff.

Richard L. Bird, Jr., Alvin I. Smith, and Grant A. Brown, all of Salt Lake City, for defendants.

LARSON Justice. MOFFAT, C. J., and PRATT, J., concur. WOLFE, Justice, McDONOUGH, Justice, dissenting.

OPINION

LARSON, Justice.

This is a proceeding to review a decision of the State Tax Commission of Utah, hereinafter called the commission, directing plaintiff to pay a deficiency upon its corporation franchise tax for the year 1937. There is no dispute as to the facts. The plaintiff is a Nevada corporation, authorized to do business in Utah. Most of its stock was owned, and it was dominated and controlled by men residing at Ogden, Utah. During 1937 the books of the plaintiff company were kept at Ogden; directors meetings were held there; its bank account was kept there, and such disbursements as it had were made at Ogden. It owned the controlling stock in the Idaho Bank and Trust Company, an Idaho corporation engaged in the banking business at Pocatello, Idaho, and also in the Commercial Security Bank of Ogden, a Utah banking corporation. It also held some stock in the Ohio Oil Company, an Ohio corporation having its principal place of business at Findlay, Ohio; and some stock in the Socony-Vacuum Oil Company, a New York corporation, with its principal office at New York City. The stock in the last two corporations was purchased on the New York Stock Exchange, New York City, through J. A. Hogle & Company, a member of the Exchange. This stock was sold in 1937 on the New York Exchange through the same member of the exchange.

In its tax return to the commission, filed for the purpose of fixing the amount, if any, of its franchise tax to the state, the plaintiff deducted from its income for 1937 the following sums: $ 125 received as dividends on the Socony-Vacuum Oil stock; $ 200 received as dividends from the Ohio Oil stock, and $ 6,016.60 dividends on the stock in the Idaho Bank & Trust Co. It also deducted $ 4,424.30 received from the sale of the Socony-Vacuum stock, and $ 299.40 received from the sale of the Ohio Oil stock. The commission disallowed all these deductions and ordered payment of a franchise tax computed thereon. The plaintiff brings certiorari contending: (1) That it is a "holding company" and therefore exempt under the provisions of subdivision (16) of Section 80-13-5, R. S. U. 1933. (2) That even though plaintiff were not exempt, the dividends received from the Idaho Bank were not receipts from business done in Utah and are therefore deductible. (3) The money received from the sale of the stock was the result of business done in New York, and therefore should not be included in receipts on which the tax is to be computed. We note them in order.

(1) The statute, Section 80-13-3, R. S. U. 1933, provides that every bank or corporation, other than a national bank or corporation exempted in Section 80-13-5, shall annually pay to the State for the privilege of exercising its corporate franchise or doing business in the state, a tax based upon its net income allocated to the state, California Packing Corporation v. State Tax Commission, 97 Utah 367, 93 P.2d 463. The tax imposed by this section is not a property tax, nor an organization tax, but a tax on the privilege of exercising the corporate franchise. People v. Miller, 177 N.Y. 51, 69 N.E. 124, reversing 85 A.D. 211, 83 N.Y.S. 185; People v. Knight, 174 N.Y. 475, 67 N.E. 65, 63 L.R.A. 87, reversing 67 A.D. 333, 73 N.Y.S. 745; People v. Roberts, 116 A.D. 30, 101 N.Y.S. 184. The exemption section, 80-13-5, reads:

"The following corporations are exempt from the provisions of this chapter, to wit:"

Then follows 16 subdivisions defining the various types of corporations exempt, number (16) reading:

"Corporations whose sole business consists of holding the stock of other corporations for the purpose of controlling the management of affairs of such other corporations, if such other corporations make return under this chapter."

We held in the case of First Security Corporation v. Tax Commission, 91 Utah 101, 63 P.2d 1062, that the requirement that the "other corporations" make return under the chapter, applied only to such corporations as did business in the State of Utah, and therefore a holding company was not taxable on its receipts from stock it held in companies which did no business in the State of Utah.

That plaintiff was a holding corporation engaged in the business of holding stock in other corporations for the purpose of controlling the management of affairs of such other corporations is expressly found as a fact by the commission. But that body also found that because plaintiff had purchased, and in 1937 sold the stock in the Socony-Vacuum, and in the Ohio Oil companies, its sole business was not that of a holding company, and it therefore was not exempt. This brings us to the consideration of the meaning and significance of the expression "corporations whose sole business consists of" in the exemption provision quoted above. Is that matter to be determined by the articles of incorporation, by the purposes for which it was organized, by the things it is authorized to do by the law of its creation and charter, by the business it is authorized to do in this state by the very franchise for which the commission seeks to collect a fee, or is it to be determined by what the company actually does in the state? If a holding corporation wrongfully and unlawfully does business in the state, does business it is not licensed or franchised to do, does that take it out of the exemption clause? It is evident that the question must be determined by the articles of incorporation, by the business it is licensed or permitted by its franchise to do. This is a franchise tax, a tax on the right or privilege of doing business in the state. What business? Why, lawful business; business it may do without violating the law; the business it may do under the franchise for which it pays the tax. The state cannot collect a franchise tax unless it gives a franchise therefor. And it cannot be said that the state intended to collect franchise taxes for the right to do business unlawfully. A franchise for engaging in a certain business makes the doing or carrying on of that business lawful, and engaging in the business without a franchise is unlawful. See Sections 18-8-1 and 18-8-4, R. S. U. 1933, providing a penalty up to $ 5,000. The exemption section of the Franchise Tax Law lists 16 groups or types of corporations that are exempt. The gist of the section is to exempt corporations which may be characterized by these features: They are organized and operated not for profit but for the benefits of their members, and they cannot under their articles engage in the trade, commerce or business in the state. Since the tax is upon the franchise or the privilege of doing business in the state it matters not as to the extent to which the franchise is exercised. It is still taxable if not exercised, or if only partially exercised. The privilege of exercising corporate franchise is that for which the state requires this annual tax. The tax law does not make the payment of a tax for these franchises dependent upon their exercise. The mere right or privilege of exercising them, possessed by the corporation, subjects it to the tax. Cayuga, etc., R. Co. v. Delaware, etc., R. Co., 215 A.D. 429, 213 N.Y.S. 586. The amount of the tax is computed according to the extent to which the franchise is exercised, as measured by the net income derived from such use. The test therefore as to whether a corporation is exempt is what business it may engage in under its franchise. If under its franchise, which is coextensive with its articles, it may not engage in trade and commerce, and business for a profit in the state, it is exempt from the tax. If on the other hand under its franchise it may engage in trade, commerce, and business in the state for a profit, it is subject to the tax for that privilege. It follows therefore that a corporation which holds stock in other corporations for the purpose of managing their affairs, and which under its franchise from the state may for profit lawfully engage in business in the state, other than the business incident to its "holding" business is subject to the tax, but such a corporation, limited by its franchise to doing in the state the business incidental to its "holding business" is exempt from the franchise tax provided that its Utah subsidiaries make tax returns under the chapter. People ex rel. Butterick Co. v. Gilchrist, 213 A.D. 533, 211 N.Y.S. 75; People v. Kelsey, 101 A.D. 205, 91 N.Y.S. 709; People v. Roberts, supra; Adjustment Bureau v. Conley, 44 Idaho 148, 255 P. 414. The record before us is not clear as to whether the plaintiff was authorized under its franchise to engage in any business in Utah other than that incident to its holding company business. The tax return filed by plaintiff lists its business as "Bank Holding Co."; it lists all its assets as "stocks of domestic (U. S.) corporations"; its liabilities consist of $ 12,000 in notes payable; $ 5,275.76 as undivided profits; and $ 254,989.82 in stocks. On the questionnaire prepared by the commission and filled out by the plaintiff is the following:

"Purpose...

To continue reading

Request your trial
5 cases
  • Marchant v. National Reserve Co. of America
    • United States
    • Utah Supreme Court
    • May 12, 1943
    ... ... corporation, hereinafter called the Reserve Company, against ... the ... In September, 1933, the ... Utah State Bank Commissioner took over the Utah Company as ... v ... American Chemical & Ozokerite Co. , 58 Utah ... 219, 198 P. 170 ... ...
  • Jackson Land & Livestock Co. v. State Tax Commission
    • United States
    • Utah Supreme Court
    • July 20, 1953
    ...U.C.A.1953 contains 16 types of corporations exempted from the state franchise tax all of which as stated in American Investment Corporation v. State Tax Commission, 101 Utah 189, on page 195, 120 P.2d 331, on page 334: '* * * may be characterized by these features: They are organized and o......
  • J. M. & M. S. Browning Co. v. State Tax Commission
    • United States
    • Utah Supreme Court
    • January 9, 1945
    ... ... Commission. The Commission, after auditing the returns, gave ... the corporation notice of a proposed deficiency tax ... assessment of $ 1,240.26 for 1937 and $ 1,201.94 for 1938 ... privilege of doing business in Utah. See American ... Inv. Corp. v. State Tax Commission, ... 101 Utah 189, 120 P. 2d. 331. The method of computing ... ...
  • Neill v. Royce
    • United States
    • Utah Supreme Court
    • December 29, 1941
    ... ... Kent, Commentary ... on American Law, 14th Ed.; Bouvier's Institutes, Ch ... XXIII, p. 92; ... ...
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT