Hager v. American Surety Co.

• Decision Date: 23 January 1906
• Citation: Hager v. American Surety Co., 121 Ky. 791, 90 S. W. 550 (Ky. Ct. App. 1906)
• Parties: HAGER et al. v. AMERICAN SURETY CO.
• Court: Kentucky Court of Appeals

90 S.W. 550

121 Ky. 791

HAGER et al. v. AMERICAN SURETY CO.

Court of Appeals of Kentucky.

January 23, 1906

Appeal from Circuit Court, Franklin County.

"To be officially reported."

Suit by the American Surety Company against S.W. Hager and others, as the state board of valuation and assessment, to restrain defendants from making a certain assessment of complainant's franchise.From a judgment sustaining a demurrer to the answer, defendants appeal.Affirmed.

N. B Hays, Atty. Gen., and C. H. Morris, for appellants.

Thos A. Bullitt and A. Scott Bullitt, for appellee.

SETTLE J.

AppelleeAmerican Surety Company of New York, is a corporation created and organized under the laws of the state of New York.The business it is authorized to engage in, and which it is pursuing in Kentucky and other states and territories of the United States, is expressed in its charter as follows: "The kind of business to be undertaken by the company shall be the guarantying the fidelity of persons holding places of public or private trust, guarantying the performance of contracts other than insurance policies, and executing or guarantying bonds and undertakings required or permitted in all actions or proceedings or by law allowed."It appears that appellee has complied with all the conditions prescribed by the laws of Kentucky to entitle it to do business in the state, and in fact has for many years conducted therein the business authorized by its charter and the laws of the state.Among other things required of it and other corporations, both foreign and domestic, by the laws of Kentucky, is the payment of a franchise tax for state, county, and municipal purposes and the making of annual written reports to the Auditor of Public Accounts, presenting the data necessary to the fixing of the amount of such franchise tax.Such a report was made by appellee between the 15th day of September and the 1st day of October, 1904.The salient features of that report furnished the Auditor the following information: (1) That appellee has no preferred capital stock.(2) That its common stock consists of 50,000 shares, of the par value of $50 each, fully paid up, aggregating $2,500,000.(3) That its surplus fund was $1,000,000; undivided profits, $1,017,849.53--total, $2,017,849.53.(4) That the highest price at which the stock was sold at a bona fide sale within 12 months next before September 15, 1904, was $82.50, or 50,000 at $82.50 per share, $4,125,000.(5) That the gross earnings and income of appellee from all sources for 12 months next before September 15, 1904, was $2,098,363.95.(6) That appellee's net earnings and income from all sources during same period of 12 months was $232,092.98.(7) That its gross income on business done in the state of Kentucky within 12 months next before September 15, 1904, was $9,152.51.(8) That its net income on business done in Kentucky during same period was $4,496.27.

On January 31, 1905, the state board of valuation and assessment, consisting of appellants, S.W. Hager, Auditor of Public Accounts, H. M. Bosworth, Treasurer, and H. V. McChesney, Secretary of State, having no other evidence before them than the foregoing report and claiming to act upon the information it furnished, fixed the tentative assessment of appellee's franchise for the year 1905 at $74,938, the tax on which, at 50 cents on the $100, would amount to $374.69.Written notice of the tentative assessment was at once given appellee by the state board of valuation and assessment, with the information that it would have 30 days to be heard on the subject of the valuation.On February 9, 1905, the state board of valuation and assessment by formal action confirmed and made permanent the tentative assessment made of appellee's franchise at the previous meeting of January 31st, and by written notice advised it of the action of the state board in the premises.Thereupon appellee brought this equitable action in the Franklin circuit court against appellants as members of the state board of valuation and assessment for the purpose of preventing such assessment of its franchise and the collection of the tax attempted to be imposed by reason thereof, and upon appellee's application a temporary injunction was issued by the judge of the Franklin circuit court in manner and form as prayed in the petition.A demurrer was interposed by appellee to the answer filed by appellants, and sustained by the lower court.Appellants refusing to plead further, judgment was entered perpetuating the injunction, and from that judgment this appeal is being prosecuted.

The question brought to us by the appeal is: What is the proper statutory method by which the state board of valuation and assessment should ascertain and determine the value of appellee's corporate franchise for purposes of state, county, and municipal taxation?In arriving at the value of appellee's corporate franchise in this case, the board simply took its net earnings in this state for the previous year as shown by the last report to the Auditor, which was $4,496.27, and ascertained what sum at 6 per cent. would produce such net income.As $74,938 was found to be the sum that at 6 per cent. would make a sum equal to the net income, $74,938 was therefore adopted as the value of the franchise, the tax upon which, at 50 cents on the $100, would amount to $374.69, the amount demanded of appellee.It is insisted for appellee that the foregoing method is inapplicable to the assessment of the corporate franchise of a foreign corporation.

Ky. St 1903, § 4077, provides: "Every railway company or corporation and every incorporated bank, trust company, guarantee or security...