Commonwealth v. Muir

• Decision Date: 30 May 1916
• Citation: 170 Ky. 435
• Parties: Commonwealth v. Muir. Commonwealth v. Halstead.
• Court: Kentucky Court of Appeals

170 Ky. 435

Commonwealth v. Muir.

Commonwealth v. Halstead.

Court of Appeals of Kentucky.

Decided May 30, 1916.

Appeals from Nelson Circuit Court.

REDFORD C. CHERRY and M. M. LOGAN, Attorney General, for appellant.

NAT W. HALSTEAD and OSSO W. STANLEY for appellees.

OPINION OF THE COURT BY CHIEF JUSTICE MILLER — Reversing.

These two proceedings were instituted in the Nelson county court by the Commonwealth through its revenue agent, under section 4260 of the Kentucky Statutes, for the purpose of assessing for taxation for the years 1909 to 1913, inclusive, certain shares of the common and preferred stock in the United States Steel Corporation, which are owned by the appellees.

The Commonwealth prevailed in the county court; but upon appeal to the Nelson circuit court, that court held the shares were not taxable, and dismissed the proceedings in each case. From those judgments the Commonwealth prosecutes these appeals.

The cases were tried upon an agreed statement of facts, from which it appeared that the United States Steel Corporation is a New Jersey corporation; that it paid the taxes on all of its property of every kind, whereever situated in the states where such property was located and assessable for the years mentioned; that it does not now own and never has owned, or assessed in its corporate name, any property of any character whatsoever, in the State of Kentucky, either franchise, realty, personalty, tangible or intangible; that it is and has been since its organization, what is known as a holding company, owning much property directly in states other than Kentucky, and as such holding company it owns substantially all the stock of numerous subsidiary foreign corporations; that two, and only two, of said foreign and subsidiary corporations, namely, the American Bridge Company and the American Steel & Wire Company, own and hold property in Kentucky in their respective corporate names, and are qualified to do business in Kentucky; that said two last named corporations have paid regularly during the years above mentioned, an annual license fee or tax for such authorization; that said American Bridge Company has no property in the State of Kentucky, and has not had any during the period herein involved, upon which it paid taxes, except at such times as it has undertaken the erection of a bridge or building, in which case its erection plant is brought into the State of Kentucky for such work, and removed therefrom when said work is completed; that said American Steel & Wire Company owned, during the period in question, a warehouse in Louisville, Jefferson county, Ky., in which it has for the last ten years carried a stock of standard steel material; that during the years mentioned said warehouse and contents have been listed for taxation by the American Steel & Wire Company, and the taxes thereon were paid by it to the State of Kentucky; that both of said corporations, the American Steel & Wire Company and the American Bridge Company, are foreign corporations, duly organized as such, holding all their corporate property in their respective names, and that that portion of their corporate property located in Kentucky is, and during the period herein in controversy was, listed and assessed by said two subsidiary corporations in their respective names and the taxes paid to the State of Kentucky by each of them respectively; that substantially all of the capital stock of each of said subsidiary corporations is owned and held by the said United States Steel Corporation, and that the American Bridge Company and the American Steel & Wire Company are under the managements of separate boards of directors. To simplify the discussion, no further mention will be made of the American Bridge Company. The questions raised can be fully discussed upon the case presented by the American Steel & Wire Company, and its relation to the United States Steel Corporation. That is a concrete case and presents appellees' contention in its strongest form.

The right to assess these shares of stock, as well as their exemption from taxation, is claimed under section 4085 of the Kentucky Statutes, which reads as follows:

"The property of all corporations, except where herein differently provided, shall be assessed in the name of the corporation in the same manner as that of a natural person, except that, when legally called on, the chief officer shall report a full statement of the property of such corporation for taxation, and, for a failure, shall be subject to the penalties in this article provided; and so long as said corporation pays the taxes on all its property of every kind, the individual stockholders shall not be required to list their shares in said corporation."

Considerable confusion had resulted from the application of this statute, and the constructions that had been given to it in Commonwealth v. C. & O. Ry. Co., 116 Ky. 951; Commonwealth v. Lovell, 125 Ky. 491; Commonwealth v. Harris, 118 S. W. 294; Commonwealth v. Steele, 126 Ky. 670; Commonwealth v. Ledman, 127 Ky. 603, and Commonwealth v. Walsh, Trustee, 133 Ky. 103.

These cases were, however, all carefully reviewed by this court in Commonwealth v. Fidelity Trust Company, 147 Ky. 77, with a view of reconciling them and laying down a certain rule for future guidance. Without repeating that discussion, it is sufficient to say that the result of that examination was stated by the court as follows:

"We have endeavored to so state the authorities and their relation to this case as to avoid future confusion upon the subject. It is just to the rights of established property that the whole involved subject should be understood once for all. The conclusions reached are easily understood, i. e., that the holders of shares of stock in domestic or foreign corporations, whether franchise or non-franchise in nature, need not list nor pay taxes upon their shares of stock when the corporation in which the stock is held has paid all taxes due from it, and assessable against it, upon its property located in the State of Kentucky, whether that property be realty, personalty, tangible or intangible, or franchise, in nature."

This language is general and sweeping in its nature, and would seem to be incapable of a doubtful meaning. But, in the subsequent case of Slater v. Commonwealth, 166 Ky. 250, a case arose which was not covered by the rule theretofore announced in Commonwealth v. Fidelity Trust Co., supra. In the Slater case, Mrs. Slater claimed that her shares of stock in the Long-Bell Lumber Co. and the Minnetonka Lumber Company, Missouri corporations not doing business in Kentucky, were non-taxable in Kentucky because each of the Missouri corporations owned a building lot in Shelbyville, upon which it had paid all the taxes due thereon, or demanded by this Commonwealth; thus technically bringing Mrs. Slater within the protection of the rule announced in Commonwealth v. Fidelity Trust Co., supra.

In the Slater case, however, the Commonwealth insisted that section 4085, supra, referred only to property held by the corporation for corporate purposes and in pursuance of the corporate business, and had no application to property subject to escheat for non-user, and incapable for corporate use. This court accepted as correct the view taken by the Commonwealth in the Slater case, and modified the rule theretofore announced in Commonwealth v. Fidelity Trust Co., supra, as follows:

"Under that rule, wherever the corporation owns property within this State, and uses it bona fide in its business, be it ever so little or insignificant a proportion of its entire property, the payment of taxes thereon by the corporation exempts the stockholder from taxation upon his stock. But the property must be acquired in good faith, and for the corporate use and purposes, and not for the sole purpose of rendering the stock in the hands of a resident stockholder exempt from taxation. We believe this to be the full meaning of the opinion in Commonwealth v. Fidelity Trust Co., supra, when applied to the facts of this case, and that the judgment of the trial court was correct."

In order, therefore, to bring these appellees within the operation of the statute so as to exempt their shares in the United...