Commonwealth v. Louisville Gas Co.

• Decision Date: 05 November 1909
• Citation: Commonwealth v. Louisville Gas Co., 135 Ky. 324, 122 S.W. 164 (Ky. Ct. App. 1909)
• Parties: COMMONWEALTH ex rel. AUDITOR'S AGENT v. LOUISVILLE GAS CO.
• Court: Kentucky Court of Appeals

122 S.W. 164

135 Ky. 324

COMMONWEALTH ex rel. AUDITOR'S AGENT v. LOUISVILLE GAS CO.

Court of Appeals of Kentucky.

November 5, 1909

Appeal from Circuit, Court, Jefferson County, Chancery Branch Second Division.

"To be officially reported."

Proceeding by the Commonwealth, on relation of the Auditor's Agent against the Louisville Gas Company. From a judgment for the Gas Company, the Commonwealth appeals. Affirmed.

M. J Holt, for appellant.

Humphrey, Davie & Humphrey, for appellee.

O'REAR J.

This is a proceeding begun in the Jefferson county court to assess as omitted property certain stocks and bonds of another corporation owned by appellee gas company. The judgment was for the taxpayer. Formerly the Louisville Gas Company operated in Louisville, in addition to its plant for the manufacture of gas, an electric light plant. In 1902 it sold the light plant, and took in part payment $1,500,000 5 per cent. bonds of the purchasing company, called the Louisville Lighting Company, and 16,667 shares of the capital stock of the latter company of the par value of $100 a share. These bonds and stock were owned by appellee for the tax year of 1904. In August, 1904, it sold all the bonds except $670,000 worth, par value, since which date it has owned that amount of bonds and the stock named. The capital stock of appellee is $3,600,000. The bonds of the lighting company had during the years in question (which are the years of 1904 and 1905) a market value of 102 and 103, and the stock paid regularly a dividend of 4 per cent. Appellee is what is called a "public service corporation." It is, by the provisions of section 4077, Ky. St. (Russell's St. § 6050), required to pay, "in addition to the other taxes imposed on it by law," "annually a tax on its franchise" to the state, and "a local tax thereon to the county, incorporated city, town and taxing district, where its franchise may be exercised."

The first question is, What is the franchise to be taxed? the second is, How is its value to be ascertained? the third is, Has it been done in the manner provided by the statute?

Appellant contends that the franchise to be taxed is not the intangible property of the corporation, but is a privilege tax; that is, it is a tax imposed upon the privilege of engaging in a business that a natural person could not engage in. But that position cannot be maintained of the Kentucky Statutes. Natural persons may engage in the business of manufacturing and selling gas, as well as in some of the other business that is subjected to this tax. When they do, they are taxed upon the same principle as corporations are that are engaged in like business. Section 4082, Ky. St. (Russell's St. § 6055); Providence Bk. Co. v. Webster Co., 108 Ky. 527, 57 S.W. 14, 22 Ky. Law Rep. 214. Nor is a tax imposed upon the right to be such a corporation. The organization tax imposed by section 4225, Ky. St., which is one-tenth of 1 per cent. of the authorized capital of such corporation, is the only tax exacted of a corporation for being and exercising the trade allowed by its charter. The Constitution requires taxes to be imposed alike upon the property of corporations and natural persons (section 174), and it allows in addition the imposition of a license tax, an income tax, and a franchise tax, as the Legislature may determine upon. So far the Legislature of this state has not provided for an income tax, and license taxes are imposed upon certain kinds of business, but not upon that of serving the public as do corporations like appellee gas company. The assessing board created and empowered by the statute (section 4077, supra) to value the franchises subjected to the tax is given a large discretion in the manner of its procedure; but it is required of the property owner subjected to the tax to make a report showing, among other things, the amount of the capital stock of the corporation, the nature of its business, how its shares are divided, the amount of paid-up stock, its par and market values, the highest price at which the stock has been sold at a bona fide sale in the preceding 12 months, the amount of surplus fund and undivided profits, "and all other assets"; the total indebtedness as principal; the gross and net income, "and including interest on investments"; the value of its tangible property, "and such other facts as the auditor may require" (section 4078, Ky. St.); the length of line of railroads and other common carriers, and other provisions especially applicable to corporations doing an interstate business. The direction to the board is then summed up (section 4079, Ky. St.): "Said board from said statement, and from such other evidence as it may have, if such company, corporation or association be organized under the laws of this state, shall fix the value of the capital stock of the corporation, company or association as provided in the next preceding section (4078), and from the amount thus fixed shall deduct the value of all tangible property assessed in this state, or in the counties where situated. The remainder thus found shall be the value of its corporate franchise subject to taxation as aforesaid."

It is thus made clear that the tax imposed is a property tax, pure and simple. It groups all the property of the corporation and values it according to its earning or producing capacity. In a sense the capital stock of the corporation represents all its property; but it was known that sometimes the market value of such stock differs from its actual or earning value. The franchise value takes into consideration all these elements which go to make the real value of the corporation property considered as an entirety. It has been so construed and held in Henderson Bridge Co. v. Commonwealth, 99 Ky. 623, 31 S.W. 486, 17 Ky. Law Rep. 389, 29 L.R.A. 73; Hager v. American Surety Co., 121 Ky. 791, 90 S.W. 550, 28 Ky. Law Rep. 782; Commonwealth v. Cumberland Tel. Co., 124 Ky. 535, 99 S.W. 604, 30 Ky. Law Rep. 723; Henderson Bridge Co. v. Kentucky, 166 U.S. 154, 17 S.Ct. 532, 41 L.Ed. 953; Louisville Tobacco Warehouse Co. v. Commonwealth, 106 Ky. 165, 49 S.W. 1069, 57 L.R.A. 33; Ætna Life Insurance Co. v. Coulter, Auditor...