Commonwealth v. Walsh's Trustee

• Decision Date: 25 March 1909
• Citation: 117 S.W. 398,133 Ky. 103
• Parties: COMMONWEALTH v. WALSH'S TRUSTEE.
• Court: Kentucky Court of Appeals

117 S.W. 398

133 Ky. 103

COMMONWEALTH v. WALSH'S TRUSTEE.

Court of Appeals of Kentucky.

March 25, 1909

"To be officially reported."

On motion for rehearing. Rehearing granted, former opinion reversing the judgment withdrawn, and judgment affirmed.

For former opinion, see 106 S.W. 240.

Nunn J., dissenting.

O'REAR 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 subject to 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 shares to be nontaxable, and the commonwealth has appealed. 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. 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 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 contended by counsel for appellee that section 4088 of the Kentucky Statutes (Russell's St. § 6061) 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 corporations which are, by this article, required to report and pay taxes upon their corporate franchises 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." There are two kinds of corporations treated of in our statutes on revenue and taxation. One kind is that which has or exercises some special or exclusive privilege or franchise not allowed by law to natural persons, or performing some public service, many of which are named, but all classified as corporations which must pay a franchise tax "in addition to other taxes imposed by law" (section 4077, Ky. St. [Russell's St. § 6050]) the other is the commercial corporation, which enjoys no privilege not exercised by natural persons, and which does not pay a franchise tax. Louisville Tobacco Warehouse Co. v. Commonwealth, 106 Ky. 165, 49 S.W. 1069, 57 L.R.A. 33; section 4085, Ky. St. (Russell's St. § 6058). Not a little confusion has existed as to what the franchise is that it is subjected to taxation by the statute. But from the first decision of this court construing it--Henderson Bridge Co. v. Commonwealth, 99 Ky. 623, 31 S.W. 486, 29 L.R.A. 73--to the latest, and consistently throughout, it has been held that the tax laid upon the corporate franchise is a property tax purely, and is in fact the taxation of all the intangible property of the corporation, including its capital. Throughout the whole scheme of taxation adopted by this state there is an evident purpose to avoid double taxation, not alone in not taxing the same property twice in the same year for the same purpose, but as well in not taxing the same thing, whatever its form, twice in the same year for the same purpose. Double taxation is recognized as oppressive, and, where it is imposed upon some classes of property and not upon others, works an inequality that is fundamentally vicious. While the Constitution requires that all property shall be taxed (Const. § 171) and the General Assembly is prohibited from exempting any property from taxation not specifically exempted by section 170 of the Constitution, it is not required that every phase of property shall be taxed. Nor is it. Nor has it ever been. Property is the right to or interest in a thing. A life tenant owns property in land; so does the remainderman; so does the reversioner; so does the tenant for a term of years. Yet there is but the one thing. A corporation owns land. All its capital is invested in the land. The corporation owns its capital stock. The shareholders own each their share of capital stock. Each is property. Yet, there is but one thing. When the thing itself is taxed at its full value, every element of it is made to bear the tax. The whole includes all its parts. When the state lays a tax upon the whole, it has made each of its constituent parts contribute to the support of the government. The manner of classifying property for purposes of taxation, so as to tax all that is not exempted by the Constitution, is a matter left to the legislative wisdom. While it would be permissible without double taxation as that term is used to tax the corporation upon its capital, and the shareholder upon his share, or the life tenant upon his estate, and the remainderman upon his, whether the state should resort to that form, or to the simpler one of taxing once and at full value the thing which represents the various properties based upon it, is a matter of legislative discretion always. It may be remarked that no state taxes every right or interest in things which the law recognizes as property. On the contrary, the general course is to lay the tax upon the thing itself, whether land, chattel, chattel real, or chose in action, without noticing the various minute subdivisions of property that may be carved out of or imposed on the thing upon the notion that property for purposes of taxation is the sum of its various estates and rights. Instances occur where the particular estates or interests each are taxed. But they are comparatively rare, and upon examination will be found to present exceptional reasons for the legislative action in seggregating the principal thing into parts for the purpose of taxation. As we have said, and repeated, a corporate franchise for purpose of taxation is the sum of its intangible property. The Legislature might have directed the constituents of the franchise to have been assessed separately, as for example, its capital, its surplus, its choses in action. But it has seen proper, instead, to group these things into one, and tax the sum. In no instance does the state require the corporation and the shareholder to each pay the tax upon the actual property, the title to which is in the corporation. On the contrary, it is expressly provided in every instance that, where one pays the tax, the other need not. It is a misnomer to say that that is an exemption from taxation. It is not. It is choosing the form of the property from among several forms it may have assumed, which the state prefers for its own convenience and security to lay the tax upon.

Domestic and foreign corporations that pay a...