Commonwealth v. Fall Brook Coal Co.

• Decision Date: 19 July 1893
• Docket Number: 21
• Citation: 26 A. 1071,156 Pa. 488
• Parties: Commonwealth v. Fall Brook Coal Co., Appellant
• Court: Pennsylvania Supreme Court

26 A. 1071

156 Pa. 488

Commonwealth v. Fall Brook Coal Co., Appellant

No. 21

Supreme Court of Pennsylvania

July 19, 1893

Argued May 30, 1893

Appeal, No. 21, May T., 1893, by defendant, from judgment of C.P. Dauphin Co., June T., 1893, No. 329, in favor of Commonwealth on appeal from tax settlement.

Appeal from tax settlement.

The case was tried by the court without a jury, the facts being found as follows by SIMONTON, P.J.:

"1. A certain person, now deceased, commenced in his lifetime the development and operation of a coal property in Pennsylvania and the construction of a railroad partly in Pennsylvania chiefly for the transportation of the product of said mines to market. The whole of the money for the purchase development, construction and completion of said coal and railway properties was furnished either by him in his lifetime or from his estate by the trustees thereof after his death. The coal property is held in the name of a corporation of Pennsylvania, styled the Fall Brook Coal Company, the defendant in this suit, and the railway in the name of a corporation called the Fall Brook Railway Company, chartered by the two states of Pennsylvania and New York. Part of the capital stock of the railway company stands in the name of the trustees of said estate, and the balance of it in the name of the Fall Brook Coal Company, and all of the stock of the Fall Brook Coal Company is held by the trustees aforesaid, who thus directly or indirectly own or control both corporations.

"2. The capital stock of the Fall Brook Railway Company is $5,000,000, consisting of 100,000 shares of the par value of $50.00 each, of which 30,000 shares, or $1,500,000, are invested in New York, and 70,000 shares, or $3,500,000, are invested in Pennsylvania; all of the $3,500,000 invested in Pennsylvania is owned by the Fall Brook Coal Company, defendant.

"3. For the tax year 1892 the Fall Brook Railway Company reported to the auditor general the 70,000 shares of stock invested in Pennsylvania, and appraised the same at $50.00 per share, or $3,500,000, upon which said capital stock so invested in Pennsylvania a tax was charged by the auditor general at the rate of five mills per annum, said tax amounting to $11,083.33 (a part of the stock having been issued within the year had been in existence only four and two thirds months). The tax thus charged by the auditor general upon the capital stock of the railway company has been paid into the state treasury.

"4. The capital stock of the Fall Brook Coal Company, the defendant, is $100,000, divided into 1,000 shares of $100 each. For the tax year 1892 its proper officers made report to the auditor general, valuing the same at $375 per share, or $375,000, stating, however, that this valuation did not include 'the value of the capital stock of the Fall Brook Railway Company, owned by the Fall Brook Coal Company, and upon which tax is payable by the railway company.' This report was accompanied by a letter or statement from George J. Magee, president of both companies, and also one of the trustees of the estate aforesaid, fully and fairly setting forth the relations of the two companies to each other, and the relation of said trust estate to both of them. From this report and statement the auditor general, after some hesitation, settled an account against the defendant coal company, charging it not only with a tax of $1,875, being five mills upon the valuation of $375,000 aforesaid, but also with an additional tax of $11,083.33, being five mills upon the value of the shares owned by the coal company in the capital stock of the railway company, which was invested in Pennsylvania, and being the shares of the same capital stock upon which a tax was charged against and paid by the railway company, making the total charge of tax against the coal company $12,958.33. The coal company paid into the state treasury the sum of $1,875, which it admitted to be due, and appealed from the additional charge of $11,083.33, claiming that charge to be in duplication of the one already made against and paid by the railway company, as shown in finding of fact No. 2.

"5. The $1,500,000 of the railway company's capital stock invested in New York has been taxed by that state for the year 1892, and the railway company has also paid in that state the state and local taxes upon the valuation of the railway property in which said stock is invested.

"6. All taxes paid by the Fall Brook Railway Company and the Fall Brook Coal Company, or either of them, fall ultimately upon the trust estate aforesaid.

"7. No state tax is collected in Pennsylvania upon shares of stock of railroad and coal companies in the hands of individuals holding the same.

"We are unable to discover any distinction in principle between this case and those of Com. v. Lehigh Coal & Navigation Co., 444 Sept. T., 1891, and Com. v. United Gas Impt. Co., 26 Jan. T., 1892, both of which are cited at length in note to Com. v. Westinghouse Air Brake Co., 151 Pa. 281, in which it was held by this court, Judge McPHERSON writing the opinion in the last mentioned case, that the capital stock of a corporation and the shares of stock in the hands of its holders are not identical; thus to impose a tax upon the one and also upon the other is not the imposition of duplicate taxation upon the same thing, and that, therefore, a corporation is not exempt from taxation upon any part of its capital stock because of the fact that it is invested in shares of other corporations of this state which have paid tax on their capital stock for the same tax year. The exceptions specified in defendant's appeal are overruled, and judgment directed to be entered in favor of the commonwealth as follows:

"Tax,

$12,958.33

"Less amount paid by defendant,

1,875.00

"Balance of tax,

$11,083.33

"Attorney general's commission,

554.16

"Total,

$11,637.49

unless exceptions are filed as provided by law."

Exceptions were overruled and judgment entered. Defendant appealed.

Error assigned was entry of judgment as above.

The judgment in this case cannot be sustained upon any decision of this court, upon the provisions of the statute under which the tax is assessed, nor upon principle, and it is now reversed.

M. E. Olmsted, for appellant. -- The system of taxing capital stock has been in force for more than forty years. Under the acts of 1840, 1844, 1846, 1859, 1868, 1874, 1877, 1879, 1889 and 1891, there have been different methods of valuation, and different rates of taxation, but the general system and the character of the tax have remained the same. A very important part of that system is found in § 5 of the act of May 1, 1868, P.L. 108. This section has never been repealed and remains as a necessary part of the tax system, and the tax on capital stock as imposed by later laws is to be deducted from dividends paid shareholders, or, if necessary, to be collected from assessments upon the shares: Catawissa R.R. Co.'s Ap., 78 Pa. 59.

It has been repeatedly decided by this court that a tax upon the capital stock of a corporation is a tax upon its property and assets: Com. v. Standard Oil Co., 101 Pa. 119. It is a tax upon U.S. bonds owned by the company: Com. v. Penna. Coal Co., 5 Pa. C.C.R. 90. It is a tax upon bonds, mortgages, shares of stock, etc., owned by the company: Fox's Ap., 112 Pa. 337; Fidelity Co. v. Loughlin, 139 Pa. 612. And therefore, as a proposition of law, it is true that a tax upon the capital stock of the Fall Brook Coal Company is a tax upon the shares which it owns in the capital stock of the railway company. And the same capital stock and the same shares having been taxed against the railway company, the additional charge against the coal company is certainly duplicate taxation, which, while it may sometimes be lawful, is never presumed to have been intended by the legislature in the absence of a clear expression of such intent. Double taxation is never to be implied unless the implication is unavoidable: Com. v. Penna. Co., 145 Pa. 266; Penna. Co. for Ins. on Lives, etc., v. Com., 22 W.N. 340. This last case is referred to in 137 Pa. 411, in such a way as to discredit it as an authority, but such report is utterly unwarranted by the facts. The motion for reargument did not involve the principle decided. See 2 Mona. 776.

Not only the legislatures of the different states, but also the national Congress have similarly treated the matter. Thus, in the National Banking Act it is provided that a tax upon the shares in the hands of the shareholders shall be treated as the equivalent of a tax upon the property of the bank, and it has been held over and over again that the property of such banks cannot be taxed in any other way than through the taxation of the shares in the hands of the shareholders: National State Bank of Oskaloosa v. Young, 25 Iowa 311; Co. Com'rs v. Farmers' and Mechanics' National Bank of Frederick, 48 Md. 117; Gordon's Ex. v. M.M. & C.C.B., 5 Gill, 231.

James A. Stranahan, deputy attorney general, and W. U. Hensel attorney general, with him, for appellee. -- The question involved in this case has already been decided by this court in Com. v. Westinghouse Electric & Mfg. Co., 151 Pa. 265, and Com. v. Westinghouse Air Brake Co., 151 Pa. 276. In Com. v. Westinghouse Electric & Mfg. Co., supra, tax was levied against defendant for "shares of stock in sundry corporations received in payment for manufactured products sold, of the value of $240,000," and shares of stock in sundry corporations, purchased to obtain control of exclusive license to operate under patents owned by said corporation; estimated value, $678,084.18. In the case of the Westinghouse Air Brake Co., Limited, supra, tax was levied against the defendant on $365,077.94, the value of shares...