Com., on Inf. of McElroy v. Walsh's Trustee

Citation106 S.W. 240
PartiesCOMMONWEALTH, ON INF. OF MCELROY, v. WALSH'S TRUSTEE.
Decision Date13 December 1907
CourtCourt of Appeals of Kentucky

Appeal from Circuit Court, Fayette County.

"To be officially reported."

Proceeding by the commonwealth by John McElroy, sheriff, against Clara Bell Walsh's trustee, to enforce a tax. Judgment for defendant, and the commonwealth appeals. Reversed.

G. S Shanklin, J. R. Morton, and Geo. C. Webb, for appellant.

J. R Allen, John T. Shelby, and J. D. & J. R. Hunt, for appellee.

NUNN J.

The sole question on this appeal is whether 500 shares of the capital stock of the Western Union Telegraph Company, held by appellee at the several assessment periods for taxation for the years 1902, 1903, 1904, and 1905, were by the laws of Kentucky exempt from taxation. It is agreed that appellee owned the stock in the several years named, and did not list it for taxation, and that each share of stock was worth $90. The lower court held the stock to be exempt, and the commonwealth has appealed. It is also agreed that the corporation itself, the Western Union Telegraph Company fully complied with the laws of Kentucky governing the taxation of foreign corporations doing business and exercising a franchise within this state; that it made reports to the state board of valuation and assessment conforming in all respects to the law, as the basis of the assessment of its franchise as provided by law, which reports were approved and accepted by the state board; and that the corporation had paid in full the state, county, and city taxes due on the assessment, and also all taxes due on tangible property owned by it in this state. It is conceded that only about 1 per cent. of the property of the Western Union Telegraph Company is situated and taxed in the state of Kentucky, and 99 per cent. of it is situated and taxed in other states.

It is conceded by counsel for appellee that section 4088, of the Kentucky Statutes of 1903, unequivocally exempts from taxation the shares of stock of that corporation in the hands of its stockholders. The section reads as follows: "The individual stockholders of the corporation which are, by this article, required to report and pay taxes upon the corporate franchise, shall not be required to list their shares in such companies so long as the corporations pay the taxes on the corporate property and franchise as herein provided." After a careful consideration we cannot agree to the construction placed upon this section by appellee. We are of the opinion that such construction, in the first place, was not intended by the General Assembly; and, second, if so intended, it had no power to grant the exemption. In the case of Franklin County Court, etc., v. Deposit Bank of Frankfort, 87 Ky. 370, 9 S.W. 212, this court said "It may be regarded as settled by the current of authority, and for the purpose of this investigation we will concede that it is so settled, that the appellee's capital stock and the shares of its stock are distinct things. * * * The shareholder is entitled only to share in the profits. So the capital stock and the shares of capital stock are distinct things, and both may be taxed."

Appellee's counsel conceded this principle; but says that the General Assembly had the power to exempt appellee's stock from taxation, and it did so by the section referred to. The meaning of the section referred to is that so long as a corporation pays the taxes on the corporate property and franchise, as therein provided, the stockholders of the corporation shall not be required to list and pay taxes on their shares. But when it says to pay taxes on the corporate property it was not intended to mean that when the corporation pays taxes on 1 per cent. of the value of the corporate property the stockholder should be relieved from taxation. Manifestly the meaning of the statute and the obvious intention of the General Assembly was to recognize the rule that the shares of stock in a corporation were subject to taxation, and should pay their proportion of revenue to the state. Each one of the shares of stock represent an interest in the entire property of the corporation wherever it may be situated, and if all the property of the corporation was in Kentucky, and the taxes paid thereon in Kentucky, the General Assembly seemed to realize that in such a case to require the shareholders also to pay taxes on their stock would be double taxation. It is conceded that shares of stock in a foreign corporation, which is not doing business in this state, nor paying taxes here, owned by a resident of this state, are subject to taxation; but it is contended that such shares of stock are exempt, provided the foreign corporation does business and pays taxes to the state, and it matters not how infinitesimal the amount as compared to the whole of its property throughout the states. Such construction of the statute was never intended by the General Assembly. In the case of Commonwealth, by, etc., v. Lovell, Jr.'s Trustee, 101 S.W. 970, 31 Ky. Law Rep. 105, this court said: "As the case must be reversed for the error pointed out, we think it is proper to say that, on the merits, the stock owned by the trustee in the foreign corporation was not exempt from taxation, because the foreign corporation paid taxes on certain real property in this state. Section 4088, Ky. St. 1903, upon which the theory of exemption is based, is as follows: 'The individual stockholders of the corporation which are, by this article, required to report and pay taxes upon the corporate franchise shall not be required to list their shares in such companies so long as the corporation pays the taxes on the corporate property and franchise as herein provided.' The foreign corporation does not pay taxes to this state upon its corporate franchise, or upon any of its personal property, and therefore its shares of stock do not come within the purview of the statute. In the case of Sturges v. Carter, 114 U.S. 511, 5 S.Ct. 1014, 29 L.Ed. 240, the Supreme Court of the United States, in reviewing the statute of Ohio, substantially the same as section 4088 of our statute, and where the same question we have here arose, said: 'The exemption from taxation of investments in stocks, provided...

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