Bellows Falls Power Co. v. Commonwealth

• Decision Date: 16 September 1915
• Citation: 222 Mass. 51,109 N.E. 891
• Parties: BELLOWS FALLS POWER CO. v. COMMONWEALTH.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

222 Mass. 51

109 N.E. 891

BELLOWS FALLS POWER CO.

v.COMMONWEALTH.

Supreme Judicial Court of Massachusetts, Suffolk.

Sept. 16, 1915.

Report from Supreme Judicial Court, Suffolk County.

Petition by the Bellows Falls Power Company against the Commonwealth for the recovery of a tax. Petition dismissed.

Richard Y. Fitzgerald, of Boston, for petitioner.

Roger Sherman Hoar, Asst. Atty. Gen., for the Commonwealth.

RUGG, C. J.

This is a petition for the recovery of an excise tax levied upon a domestic corporation under sections 41 and 43 of part 3 of the Tax Act, St. 1909, c. 490, which is alleged to have been excessive. The questions presented are whether certain stocks and bonds of Vermont corporations are ‘securities which, if owned by a natural person resident in this commonwealth,’ by section 41, ‘would not be liable to taxation,’ or by section 43 ‘would be liable to taxation,’ and also whether such stock is ‘property situated in another state or county and subject to taxation therein,’ by section 41. The pertinent parts of the statute are printed in a note.¹

The petitioner owned a large number of shares of stock in a Vermont corporation, the value of which the tax commissioner refused to deduct from the true market value of the corporate franchise of the petitioner, for the purpose of determining its excise tax. It is contended by the petitioner that the tax commissioner was in error for two reasons: (1) Because the stock of the Vermont corporation would not be subject to taxation in this commonwealth if owned by a natural person, and (2) because such stock is property situated in another state and subject to taxation therein. These two contentions rest on statutes of the state of Vermont, which are printed in a footnote.²

Plainly these contentions would have no merit in law were it not for the special provisions of the Vermont Statute. It was early decided in this commonwealth that shares of stock in a foreign corporation were taxable as property to the owner resident here, although the place of business and the entire property of the corporation were in another jurisdiction. Great Barrington v. County Commissioners, 16 Pick. 572. This principle of taxation has been repeatedly upheld, the latest instance being Hawley v. Malden, 204 Mass. 138, 90 N. E. 415. That decision was affirmed in 232 U. S. 1, where, at pages 12, 13, 34 Sup. Ct. 201, at page 203, 58 L. Ed. 477, it was said by Mr. Justice Hughes in delivering the opinion:

‘Whether in the case of corporations organized under state laws, a provision by the state of incorporation fixing the situs of shares for the purpose of taxation, by whomever owned, would exclude the taxation of the shares by other states in which their owners reside is a question which does not arise upon this record and need not be decided.’

We are not aware that this question ever has been determined by this court or by the Supreme Court of the United States. It now is presented. It must be taken as the settled purpose of our tax law to assess to the owners resident in this commonwealth a tax upon all shares of foreign corporations. It is provided in the Tax Act (St. 1909, c. 490) in part 1, section 2, that:

‘All property real and personal situated within the commonwealth, and all personal property of the inhabitants of the commonwealth wherever situated, unless expressly exempted by law, shall be subject to taxation.’

Part 1, section 23, provides that:

‘All personal estate, within or without the commonwealth, shall be assessed to the owner in the city or town in which he is an inhabitant on the first day’

of April, with exceptions not here material, save than by St. 1909, c. 516, § 1:

‘Merchandise, machinery and animals owned by inhabitants of this commonwealth but situated in another state shall be exempt from taxation.’

Part 1, section 4, chapter 490, provides that:

‘Personal estate for the purpose of taxation shall include: * * * Third, public stocks and securities * * * bonds of railroads and street railways, stocks in turnpikes, bridges and monied corporations within or without this commonwealth * * *’

with exceptions not now of consequence. In substance, the only question is whether these provisions of the law, which plainly include in their scope stock such as is owned by this petitioner in the Vermont corporation, conflict as applied to such shares with any provision of the state or federal Constitution.

[2] Vermont has the power to tax all the shares of corporations organized under its laws, whether owned by its residents or by those of other states or countries. This expressly was decided in Corry v. Baltimore, 196 U. S. 466, 25 Sup. Ct. 297,49 L. Ed. 556, and in St. Albans v. National Car Co., 57 Vt. 68. The principle was applied in Tappan v. Merchants National Bank, 19 Wall. 490, 22 L. Ed. 189. It was recognized in Greves v. Shaw, 173 Mass. 205, 208, 53 N. E. 372;Kingsbury v. Chapin, 196 Mass. 533, 535, 82 N. E. 700,13 Ann. Cas. 738, and Kennedy v. Hodges, 215 Mass. 112, 114, 102 N. E. 432.

It may be urged on the one side that the nature and the incidents of the shares of stock are fixed by the law by which the corporation is created; that the provisions of that law are limitations upon the essential characteristics of shares and follow them wherever they may go: and that if the situs of the shares for purpose of taxation is declared by that law to be in the state of its domicile, that is an inherent restriction which everywhere must be recognized as an incident of the property represented by the shares: that this provision as to situs for tax purposes is contractual in substance and may be invoked by the owner in exoneration of liability as much as others which are obligatory are resorted to by creditors to establish a liability, Converse v. Ayer, 197 Mass. 443, 453, 84 N. E. 98;Whitman v. Oxford National Bank, 176 U. S. 559, 20 Sup. Ct. 477, 44 L. Ed. 587; that by virtue of the Vermont statute this stock is divested of its taxable character as intangible property and clothes with an immovable garment of tangibility located in Vermont alone, and hence, that these shares stand on the same footing as merchandise and other tactile personal effects which cannot be taxed to their owner in a jurisdiction other than that in which they permanently are placed, Delaware, Lackawanna & Western Railroad v. Pennsylvania, 198 U. S. 341, 25 Sup. Ct. 669, 49 L. Ed. 1077;Old Dominion Steamship Co. v. Virginia, 198 U. S. 299, 25 Sup. Ct. 686, 49 L. Ed. 1059, 3 Ann. Cas. 1100. Expressions by eminent judges are laid hold of as countenancing the soundness of these contentions. It was said by Chief Justice Waite in Tappan v. Merchants National Bank, 19 Wall. 490, at page 499, 22 L. Ed. 189:

‘Shares of stock in national banks are personal property. * * * They are a species of personal property which is, in one sense, intangible and incorporeal, but the law which creates them may separate them from the person of their owner for the purposes of taxation and give them a situs of their own. This has been done. [Here is quoted the section of the National Banking Act to that effect.] This is a law of the property. Every owner takes the property subject to this power of taxation under state authority, and every non-resident, by becoming an owner, voluntarily submits himself to the jurisdiction of the state in which the bank is established for all the purposes of taxation on account of his ownership.’

In Covington v. First National Bank, 198 U. S. 100, at page 111, 25 Sup. Ct. 562, at page 565, 49 L. Ed. 963, it was said by Mr. Justice Day:

‘The situs of shares of foreign-held stock in an incorporated company, in the absence of legislation imposing a duty upon the company to return the stock within the state as the agent of the owner, is at the domicile of the owner.’

It is to be noted, however, that both these cases relate to shares in national banks. The subject of national banking is within the exclusive control of Congress and its mandate respecting any subject within its sphere is supreme and binding upon all the states. The National Bank Act is explicit as to the situs of shares of stock in national banks for taxation. These expressions, therefore, were directed to a different subject and are of slight value in considering the present question which expressly was left open in Hawley v. Malden, 232 U. S. 1, 13, 34 Sup. Ct. 201, 58 L. Ed. 477. See Grether v. Wright, 75 Fed. 742, 23 C. C. A. 498-512.

Weighty as are the suggestions which have been noted above, we are of opinion that the constitutionality of the statute requiring the taxation of shares like these in question must be sustained. The fundamental ground is that the power to tax all property within its jurisdiction is a necessary attribute of sovereignty, and that there is a certain quality of property in these shares attaching to the person of the owner and hence taxable at his domicile.

It is too well settled to require the citation of authorities that the several states of the Union are foreign to each other except so far as the United States is paramount as the dominating government, and except so far as they are bound to recognize the fraternity among sovereignties established by the Constitution of the United States. No state taxation laws can have extraterritorial effect. Each state, so far as relates to the power of taxation, is an independent sovereignty. It is not concerned with what other states may do as to property within its jurisdiction, which may be made the subject of taxation by itself. Dwight v. Boston, 12 Allen, 316, 90 Am. Dec. 149;Sturges v. Carter, 114 U. S. 511, 5 Sup. Ct. 1014, 29 L. Ed. 240;Seward v. Rising Sun, 79 Ind. 351;Bacon v. State Tax Commissioner, 126 Mich. 22, 85 N. W. 307,60 L. R. A. 321, 86 Am. St. Rep. 524;Judy v. Beckwith, 137 Iowa, 24, 114 N. W. 565,15 L. R. A. (N. S.) 142,15 Ann. Cas. 890;McKeen v. County of Northampton, 49 Pa. 519, 88 Am. Dec. 515; State v. Branin, 23 N. J....