Commonwealth v. Eastern Securities Co.

Decision Date26 September 1932
Docket Number9
Citation163 A. 157,309 Pa. 44
PartiesCommonwealth v. Eastern Securities Co., Appellant
CourtPennsylvania Supreme Court

Argued May 25, 1932

Appeal, No. 9, May T., 1932, by defendant, from judgment of C.P. Dauphin Co., No. 2 Commonwealth Docket 1930, for plaintiff, on appeal from tax settlement, in case of Commonwealth v. Eastern Securities Company. Affirmed.

Appeal from tax settlement.

Case tried by the court without a jury. Before FOX, J.

The opinion of the Supreme Court states the facts.

Judgment for plaintiff. Defendant appealed.

Error assigned, inter alia, was judgment of the court, quoting record.

Judgment affirmed.

George Ross Hull, of Snyder, Miller, Hull & Hull, for appellant. -- In arriving at the taxable value of the capital stock of A, a domestic corporation, which owns shares of stock of other domestic corporations which have paid or are liable to pay a tax on their capital stock, the accounting officers of the Commonwealth should allow a deduction or credit equal to the full amount at which the shares so held have already been taxed, and should deduct such amount from the actual value in cash of the capital stock of the A corporation, even though the deduction is equal to or greater than said value and results in relieving the A corporation entirely from the payment of any capital stock tax: Com. v. P.R.R., 297 Pa. 308; Callery's App., 272 Pa. 255; Lycoming Co. v. Gamble, 47 Pa. 106; McKeen v. Northampton Co., 49 Pa. 519; Whitesell v. Northampton Co., 49 Pa. 526; Com. v. Coal Co., 156 Pa. 488; Com v. C. & N. Co., 162 Pa. 603; Com. v. Furnace Co., 268 Pa. 283; Missouri v. Gehner, 281 U.S. 313.

John Robert Jones, Special Counsel, with him William A. Schnader, Attorney General, for appellee. -- The position of the Commonwealth is that the nontaxable shares of stock were to be eliminated entirely from consideration because they were nontaxable in accordance with the decision of this court in the case of Com. v. Coal Co., 156 Pa. 488, which was expressly approved by this court in its decision in the case of Com. v. R.R., 297 Pa. 308.

The capital stock tax, therefore, is a tax on the assets and property of a corporation represented by its capital stock: Com. v. Oil Co., 101 Pa. 119; Com. v. R.R., 188 Pa. 169.

The capital stock tax is a tax on the assets or property at their representative capital stock value and such value is a fact question. The rate of the tax is five mills on each dollar of the actual value of the capital stock, not five mills on each dollar of the actual asset or property value.

The findings of fact by the lower court were, as appears from the testimony presented by the Commonwealth, from the report of the appellant and the stipulation as to facts, founded on sufficient evidence and therefore, under the decisions of this court, are conclusive: Frank B. Hall & Co., Inc., v. Lyon, Singer & Co., 286 Pa. 119; McDonald Construction Co. v. Gill, 285 Pa. 305.

The taxable value of the capital stock is determined without consideration of the nontaxable shares of stock owned by the coal company: Com. v. Coal Co., 156 Pa. 488; Com. v. C. & N. Co., 162 Pa. 603.




Appellant, a holding company, dissatisfied with the settlement of capital stock tax made by the accounting officers of the Commonwealth for the year 1928, appealed to the court below. The case was tried without a jury pursuant to the Act of April 22, 1874, P.L. 109, and resulted in a tax of $106.57.

Appellant complains of unauthorized double taxation, and contends it should pay no capital stock tax, although possessed of taxable property. It had assets as follows:

1, shares of stock of Pennsylvania corporations taxed to

the corporations that issued them at


2, bonds of other corporations


3, cash and current assets


Total assets


It has an issued capital stock of $150,000 par; reported indebtedness of $92,513.26, consisting of bills and accounts payable, $90,000, and accrued liabilities not due, $2,513.26. It also has a large surplus. It paid $7,500 in dividends in 1928, and had paid the same sum for a number of years. In 1928, its net income was $24,916, and during the preceding five years, its average net income exceeded $20,000 a year. No sales of its shares during the tax year were reported.

In the court below a stipulation of facts was filed. In addition to the reports made by the corporation, the settlement of the accounting officers, and the stipulation, the record contains the evidence of a witness, the deputy secretary of revenue called by the Commonwealth.

There can be no doubt that the assets included in the items "bonds of other corporations" and "cash and other current assets," $29,755.36, are taxable, and, for convenience, we shall refer to them as "taxable asset." Appellant agrees that ordinarily they would be taxable, but contends that, for a reason to be considered later in this opinion, they should not be taxed.

The statute provides, inter alia, that the capital stock value shall be, "second, not less than the price or value indicated or measured by net earnings or by the amount of profit made and either declared in dividends, expended in betterments, or carried into the surplus or sinking fund; and, third, not less than the actual value indicated or measured by consideration of the intrinsic value of its tangible property and assets, and of the value of its good will and franchises and privileges, as indicated by the material results of their exercise, taking also into consideration the amount of its indebtedness. . . . If the auditor general and state treasurer, or either of them, is not satisfied with the appraisement and valuation so made and returned, they are hereby authorized and empowered to make a valuation thereof, based upon facts contained in the report herein required, or upon any information within their possession or that shall come into their possession, and to settle an account on the valuation so made by them for the taxes, penalties, and interest due the Commonwealth thereon. . . .": Act of May 4, 1927, P.L. 742. In Com. v. P.R.R., 297 Pa. 308, 317, we said: "So that the value of capital stock is not a matter of strict formula but a matter of judgment. 'Common sense and practical every day business experience are the best guides for those entrusted with the administration of tax laws. Taxation is a practical and not a scientific problem': Phila. & Reading Coal & Iron Co. v. Northumberland Co. Comrs., 229 Pa. 460, 471 ."

The deputy secretary of revenue, on the witness stand, was asked to give "the taxable value of [appellant's] capital stock in the light of the nontaxable assets there [in the reports and stipulation], consisting of the bonds of other companies and the cash and current assets," and replied that "it was as shown in your stipulation $21,314." He stated that he would make the same valuation even "if you disregard the apportionment method and eliminate, from consideration of the valuation here, the ownership of the shares of other Pennsylvania corporations, which are admittedly nontaxable. . . ." In arriving at his valuation, he testified in cross-examination that he "took into account, first, the type or character of the business of the corporation, which is one of an investment company, that is, in a classification of a very large number of brokerage or investment companies, sort of a personal feature about them; the business requires a very small, if any, investment in tangible property, they may have no real estate, no machinery of course, no equipment and fixtures in many cases except little office furniture; in most cases their assets consist entirely of intangibles by way of...

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