Gaar, Scott & Co. v. Shannon

• Citation: 115 S.W. 361
• Parties: GAAR, SCOTT & CO. v. SHANNON, Secretary of State.<SMALL><SUP>†</SUP></SMALL>
• Decision Date: 16 December 1908
• Court: Court of Appeals of Texas

115 S.W. 361

GAAR, SCOTT & CO. v. SHANNON, Secretary of State.^†

Court of Civil Appeals of Texas.

December 16, 1908.

Rehearing Denied January 20, 1909.

Appeal from District Court, Travis County; V. L. Brooks, Judge.

Action by Gaar, Scott & Company against O. K. Shannon, Secretary of State. From a judgment sustaining a demurrer to the petition, plaintiff appeals. Affirmed.

Bulkley, Gray & More and J. M. Patterson, for appellant. R. V. Davidson, Atty. Gen., and Claude Pollard, Asst. Atty. Gen., for appellee.

RICE, J.

Appellant instituted this suit against appellee individually, to recover the sum of $575, with interest thereon, $287 of which was alleged to have been paid by it to him as Secretary of State on or about the 28th day of April, 1905, and $288 of which was paid to him as Secretary of State on April 30, 1906, which said amounts were paid as a franchise tax, claimed to be due from it to the state by virtue of Acts 29th Leg. 1905, pp. 21, 100, cc. 19, 72, for said years. The suit was predicated on the contention that said acts of the Legislature under which the tax was collected were and are unconstitutional and void. After all formal requisites were stated, the petition alleged, substantially, that the state in 1901 granted it a permit, under the then existing law, to transact business within the state for a period of 10 years, and that it paid the franchise tax then imposed for said privilege; that thereafter, in the years 1905 and 1906, the Secretary of State, by virtue of the acts of the twenty-ninth Legislature, heretofore mentioned, demanded and received from appellant the amounts sued for as a franchise tax for said years; that said tax was so paid by it under written protest, on the ground that said law was unconstitutional and void, but the points relied upon were not set forth in said protest. The petition, however, asserts the invalidity of said law chiefly upon the following grounds, viz.: That, having been granted a permit under the laws of 1901 for a period of 10 years, and having paid the tax therefor the Legislature had no authority by a subsequent act to impose an additional tax, and to do so would be violative of the provision of both the state and federal Constitutions, which forbids any state to pass any law impairing the obligation of contracts. It further alleged that said law imposed a greater burden upon foreign than upon domestic corporations, and was therefore an unjust discrimination as against it in favor of domestic corporations; that the same was an Indiana corporation, doing wholly an interstate business, and was therefore not subject to the payment of the franchise tax, and was not required to obtain a permit, and to demand the same would be in violation of law. There were other allegations under which it is claimed that said franchise tax was illegal, which we deem unnecessary to set out. A general demurrer to this petition being sustained by the court appellants excepted, and gave notice of appeal, so that the only question for our consideration is as to the correctness of the judgment of the trial court sustaining said demurrer.

By its third assignment of error appellant insists that the court erred in sustaining the general demurrer to its petition, because it appeared therefrom that the franchise laws of the state of Texas were unconstitutional and void, being in contravention of the Constitution of the United States and of this state. By its first proposition thereunder it is insisted that said acts impair the obligation of the contract entered into between the state and plaintiff on the 23d day of May, 1901. The act of the Legislature under consideration provided for the payment, by every foreign corporation heretofore authorized, or thereafter authorized, to do business in this state, of a certain franchise tax, based upon the authorized capital stock of such corporation, providing the time for its payment, and prescribing a penalty of 25 per cent. on the amount of the taxes due for failure to pay the same, as well as forfeiture of right to do business in the state, and directing the Secretary of State to declare such forfeiture without judicial ascertainment, by entering the same upon a ledger, to be kept in his office, relating to such corporations. Section 1, c. 19, pp. 21-23, Acts 29th Leg. 1905. And by an amendment thereto, section 1, c. 72, page 100, Acts 29th Leg. 1905, it was further provided that it should be a misdemeanor, on the part of the officers of said corporations, subject to the payment of such franchise tax, to fail to give under oath accurate information as to the amount of its capital stock, when demanded by said Secretary of State. There was a somewhat similar provision in the Revised Statutes in force in 1901 (Rev. St. 1895, art. 5243i) relative to the right of granting permits to foreign corporations to do business within this state, but the amount of such tax was increased by the acts of the twenty-ninth Legislature. Laws 1905, p. 22, c. 19, § 1.

We do not think that because a permit was granted to appellant under a former law, the state would be thereby precluded from passing any further franchise tax upon the same subject, even though it changed the conditions and imposed a greater tax than the former law. At the time that said permit was first granted our statute (Rev. St. 1895, art. 650) expressly provided that "all charters or amendments to charters under the provisions of this chapter shall be subject to the power of the Legislature to alter, reform or amend the same." And while this act might be regarded as applicable alone to domestic corporations, there seems to be no good reason why this should not be held to be the law in the absence of such a statute, because it has been held that, unless the grant of a franchise to a foreign corporation expressly exempted it from license taxation, the imposition of such tax is not invalid, and does not impair the obligation of any contract, and that no corporation could claim an immunity from taxation or from license because it paid a consideration for its charter or franchise, in the absence of a stipulation on the part of the state or other taxing power that the bonus was received in lieu of any further or future taxation. Even a provision in a charter fixing a specified sum to be paid as taxes, but not providing that such sum shall be in lieu of other taxes, is not a contract that no greater tax shall be laid. New Orleans City R. R. Co. v. New Orleans, 143 U. S. 192, 12 Sup. Ct. 406, 36 L. Ed. 121; Delaware R. R. Tax v. P. W. & B. R. R. Co., 18 Wall, 206, 21 L. Ed. 888; Ry. Co. v. Philadelphia, 101 U. S. 528, 25 L. Ed. 912; Citizens' Savings Bank v. Owensborough, 173 U. S. 636, 19 Sup. Ct. 530, 571, 43 L. Ed. 840; Covington v. Kentucky, 173 U. S. 231, 19 Sup. Ct. 383, 43 L. Ed. 679; Louisville Water Co. v. Clark, 143 U. S. 1, 12 Sup. Ct. 346, 36 L. Ed. 55; Wyandotte v. Corrigan, 35 Kan. 21, 10 Pac. 99; Gray on Limitations of Taxing Power, pars. 1001-1008; Murfree on Foreign Corporations, pars. 34-36. Besides this, our state Constitution provides "that the power to tax corporations and corporate property shall not be surrendered or suspended by act of the Legislature by any contract or grant to which the state shall be a party" (article 8, § 4), which was in force when appellant secured its permit. We, therefore, hold that, notwithstanding a former permit had been granted, the inherent power remained in the state to change or amend the law at any time thereafter, even to the extent of levying an additional burden for the permission granted to foreign corporations to do business within the state, and that such change of the law would not be in violation of the Constitution prohibiting the passage of any act impairing the obligation of contracts.

By its eleventh proposition under this assignment appellant urges that the tax in question was a property tax, and by its twelfth that fees paid to the Secretary of State for obtaining a permit for incorporation are not taxes, and by its thirteenth that graduated taxes are illegal, and therefore that the acts of the Legislature under consideration are in violation of the Constitution of the state. Appellee, on the other hand, insists that the tax in question is not a property tax, but is a privilege or license tax, and is therefore in no respect invalid or illegal. It is well settled that a state has the absolute right to exclude or permit foreign corporations from doing business within its boundaries, and that it is an act of comity or grace on its part to permit their coming in at all, and it has the right to impose such conditions as it may see proper in granting said permission. In Beale on Foreign Corporations, § 508, it is said: "The granting of such right or privilege rests entirely within the discretion of the state, and of course when granted may be accompanied with such conditions as its Legislature may...