Gartland S.S. Corp. v. Michigan Corp. & Securities Commission

• Decision Date: 07 June 1954
• Docket Number: No. 45,45
• Citation: 64 N.W.2d 886,339 Mich. 661
• Parties: GARTLAND S. S. CORP. v. MICHIGAN CORPORATION & SECURITIES COMMISSION.
• Court: Michigan Supreme Court

Page 886

64 N.W.2d 886

339 Mich. 661

GARTLAND S. S. CORP. v. MICHIGAN CORPORATION & SECURITIES COMMISSION.

No. 45.

Supreme Court of Michigan.

June 7, 1954.

Jordan Jenkins, Lansing Scott H. Elder, Cleveland, Ohio, for appellant Johnson, Branand & Jaeger, Schlitz & Petersilge, Cleveland, Ohio, of counsel.

Frank G. Millard, Atty. Gen., Edmund E. Shepherd, Sol. Gen., Lansing, Daniel J. O'Hara, Gregory H. Frederick, Assts. Attys. Gen., for appellee.

Before the Entire Bench.

KELLY, Justice.

Gartland Steamship Company, a Delaware corporation (hereinafter referred to as Gartland), appeals from the determination of the Michigan corporation tax appeal board affirming the Michigan corporation and securities commission's assessment of a 1952 privilege tax. The question to be determined is whether said tax violated Gartland's privilege of carrying on interstate and foreign commerce. U.S. Const. art. 1, § 8.

In 1950 the corporation and securities commission issued to Gartland certificate of authority to carry on its business in Michigan in accordance with the provisions of C.L.1948, § 450.93. Gartland's only office in Michigan is that of its statutory agent; ti employs no persons in Michigan nor does it have any property located in Michigan. Gartland's sole business is transportation of commodities between ports on the Great Lakes by means of 4 vessels duly enrolled and licensed for trade and commerce on the Great Lakes under the laws of the United States.

Gartland engages in transportation between the ports of the several States bordering on the Great Lakes and between the ports of those States and ports in Canada likewise bordering on the Great Lakes. The vessels are at all times navigated in waters which are navigable waters of and are under the exclusive jurisdiction and control of the United States or Canada.

During 1951 Gartland transported a total of 1,877,875 tons of commodities, of which 35,840 tons were transported between ports in Michigan, 612,683 tons were transported between ports in Michigan and ports of other States of the United States or the Province of Ontario, Canada, and 1,229,352 tons were transported between ports wholly outside Michigan. The total tonnage of revenue cargo loaded and unloaded in Michigan ports and transported between such ports was 71,680 and the total tonnage of such cargo loaded and unloaded in all Great Lakes ports was 3,755,750. The commodities which Gartland transports to or from Michigan ports, such as iron ore, limestone, sand and coal, are neither loaded into its vessels nor unloaded from them by means of any shore facilities in which Gartland has any proprietary interest or which Gartland operates, directs or controls.

Gartland's income from the transaction of its transportation business consists solely of freight for the service of transporting commodities. That service is performed by navigating or moving vessels to docks of various ports on the Great Lakes, including the ports of Michigan, where the cargoes are loaded or unloaded, as the case may be, and navigating the vessels between loading and unloading ports. The freight charges on cargoes transported by Gartland, whether they involve Michigan ports or not, are paid to Gartland outside Michigan.

Gartland timely filed its franchise fee return for 1952, computing the fee as follows:

71,680 T x $1,561,981 x .004 = $119.24.

3,755,750 T

In making this computation Gartland included in the numerator the tonnages of only those cargoes which were both loaded and unloaded in Michigan and transported between Michigan ports.

The corporation and securities commission changed the computation by adding into the numerator the tonnages of all cargoes which were either loaded or unloaded in Michigan ports and which were transported in interstate or foreign commerce to or from Michigan ports. The computation of the commission is as follows:

71,680 T k 612,683 T x $1,561,981 X .004 = $1,138.15

3,755,750 T

to which was added a filing fee of $2, making the total $1,140.15.

P.A.1921, No. 85, as amended by P.A.1952, No. 183, C.L.1948 and C.L.S.1952, § 450.301 et seq., Stat.Ann. and Stat.Ann.1953 Cum.Supp. § 21.201 et seq., provides in part:

'Sec. 4. Every * * * profit corporation organized or doing business under the laws of this state, or having the privilege to do business, employing capital or persons, owning or managing property or maintaining an office, or engaging in any transaction, in this state, * * * shall pay, at the time of filing the annual report with the Michigan corporation and securities commission, as required by sections 81 and 82 of Act No. 327 of the Public Acts of 1931, being sections 450.81 and 450.82 of the Compiled Laws of 1948, an annual fee of 4 mills upon each dollar of its paid-up capital and surplus, but such franchise fee shall in no case be less than $10.00 * * *.

'Sec. 5c. (1) In the case of * * * carriers by water, the annual franchise fee shall be measured by that portion of the corporations's paid-up capital and surplus as the sum of the tonnage of revenue passengers and revenue cargo first received or finally discharged by the carrier within this state is to the total of such tonnage so received and so discharged by such carrier within and without this state. * * *

'Sec. 5e. If it shall appear on the application of the taxpayer or otherwise that an allocation factor determined pursuant to this act does not properly reflect the activity, business, receipts and capital of a taxpayer reasonably attributable to the state, the commission shall adjust it by:

'(1) Excluding 1 or more of the factors or any component thereof;

'(2) Including 1 or more other factors, such as expenses, purchases, contract values (minus subcontract values);

'(3) Excluding proportionately 1 or more asset items in computing entire paid-up capital and surplus; or

'(4) Applying any other similar method calculated to effect a fair and proper allocation according to the receipts, activity, business and capital reasonably attributable to this state.'

In Chicago, Duluth & Georgian Bay Transit Co. v. Michigan Corporation & Securities Commission, 319 Mich. 14, 29 N.W.2d 303, 306, we said:

'At the outset it may be noted that the following is settled law in this jurisdiction. An annual privilege fee levied upon a corporation is not a property tax. Instead, it is a tax on the franchise to do business as a corporation within this State. Union Steam Pump Sales Co. v. Secretary of State, 216 Mich. 261, 185 N.W. 353.'

The tax imposed was under C.L.1929, § 10140, as amended by P.A.1933 (Ex.Sess.), No. 13, which is C.L.1948, § 450.304. This is section 4 of the act above quoted and as now amended by P.A.1952, No. 183.

The Constitution gives to Congress the sole right and power to regulate interstate commerce and the States are prohibited from doing that which would substantially or unreasonably burden or obstruct the free flow of such commerce. Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S. 157, 74 S.Ct. 396; Puget Sound Stevedoring Co. v. Tax Commission, 302 U.S. 90, 58 S.Ct. 72, 82 L.Ed. 68; Joseph v. Carter & Weekes Stevedoring Co., 330 U.S. 422, 67 S.Ct. 815, 91 L.Ed. 993.

A tax cannot be imposed on interstate commerce because Gartland's boats are loaded or unloaded at docks within the State. Such a tax cannot be sustained on the theory that said loading or unloading constitutes doing business within the State.

The State of Pennsylvania assessed a tax on the capital stock of a New Jersey corporation which operated a ferry between New Jersey and Pennsylvania. The State endeavored to sustain the tax by showing that the corporation landed and received passengers and freight at a leased dock in Pennsylvania. In the case of Gloucester Ferry Co. v. Commonwealth of Pennsylvania, 114 U.S. 196, 5 S.Ct. 826, 827, 29 L.Ed. 158, the United States Supreme Court held the tax invalid and said:

'As to the first reason thus expressed, it may be answered that the business of landing and receiving passengers and freight at the wharf in Philadelphia is a necessary incident to, indeed is a part of, their transportation across the Delaware river from New Jersey. Without it that transportation would be impossible. Transportation implies the taking up of persons or property at some point and putting them down at another. A tax, therefore, upon such receiving and landing of passengers and freight is a tax upon their transportation; that is, upon the commerce between the two states involved in such transportation.'

The fact that the corporation could not lease its wharf in Philadelphia except by the implied consent of the legislature, was held by the court to be of no significance for:

'* * * if by reason of landing or receiving passengers and freight at wharves, or other places in a state, they can be taxed by the state on their capital stock, on the ground that they are thereby doing business within her limits, the taxes which may be imposed may embarrass, impede, and even destroy such commerce with the citizens of the state.'

In the case of Puget Sound Stevedoring Co. v. Tax Commission, supra, the United States Supreme Court decided that the supreme court of Washington was in error in finding that a stevedoring corporation which loaded and unloaded ships was an independent contractor engaged in local business. The Court held [302 U.S. 90, 58 S.Ct. 73]:

'The business of appellant, in so far as it consists of the loading and discharge of cargoes by longshoremen subject to its own direction and control, is interstate or foreign commerce.

'Transportation of a cargo by water is impossible or futile unless the thing to be transported is put aboard the ship and taken off at destination. A stevedore who in person or by servants does work so indispensable is as much an agency of commerce as shipowner or master. * * * The longshoreman busied in the same task bears the same relation as the crew to the commerce that he serves....