Hart v. Smith

• Decision Date: 27 June 1902
• Docket Number: 19,825
• Citation: 64 N.E. 661,159 Ind. 182
• Parties: Hart et al. v. Smith et al
• Court: Indiana Supreme Court

64 N.E. 661

159 Ind. 182

Hart et al. v. Smith et al

No. 19,825

Supreme Court of Indiana

June 27, 1902

From Marion Superior Court; J. L. McMaster, Judge.

Suit by Delavan Smith and Charles R. Williams to enjoin William H Hart, Auditor of State, from certifying an assessment to the auditor of Marion county made by the state board of tax commissioners against the Indianapolis News Company and also to enjoin the treasurer of Marion county from collecting the tax. From a judgment in favor of plaintiffs, defendants appeal.

Affirmed.

W. L Taylor, Attorney-General, Merrill Moores, C. C. Hadley, M. M Hugg and Frank McCray (amicus curioe) for appellants.

F. Winter and Clarence Winter, for appellees.

OPINION

Gillett, J.

This suit involves the validity of an assessment for taxation, made, on appeal, by the state board of tax commissioners against appellees, Delavan Smith and Charles R. Williams, as partners, engaged in the publication of a newspaper, known as the Indianapolis News, under the name and style of the Indianapolis News Company.

The state board added to appellees' assessment of $ 47,657.31, based on their accounts and tangible personal property, the latter being itemized, the additional sum of $ 352,340, without in any manner indicating what items, if any, it applied to, and it is charged, in effect, that said increased assessment was based on the good-will of appellees' said business, and on its membership in a news gathering corporation, known as the Associated Press, which membership it may be inferred, although the allegations of the complaint are somewhat vague upon the subject, was based on appellees' ownership of eight shares of the stock of said corporation. It is not necessary to set out any further averments of the complaint, as the case, except as hereinafter mentioned, has been argued on the substantial question as to the authority of the state board in the premises. Appellants demurred to the complaint below, their demurrer was overruled, and they excepted. As they elected to abide their demurrer, and declined to plead further, a decree was rendered in appellee's favor.

We address ourselves first to the determination of the question whether the good-will of the Indianapolis News Company is subject to taxation. The power of taxation is one of the highest attributes of sovereignty. When society erects a state, creating the three great departments of government,--the legislative, the executive, and the judicial,--it is not necessary to grant to the legislative department the power of taxation; for, in the absence of other restriction, that authority vests in the legislative department by virtue of the general grant of legislative power. State, ex rel., v. Smith, 158 Ind. 543, 63 N.E. 25; State Board, etc., v. Holliday, 150 Ind. 216, 42 L. R. A. 826, 49 N.E. 14. The Constitution of Indiana ordains that, "The General Assembly shall provide, by law, for a uniform and equal rate of assessment and taxation; and shall prescribe such regulations as shall secure a just valuation for taxation of all property, both real and personal, excepting such only, for municipal, educational, literary, scientific, religious, or charitable purposes as may be especially exempted by law." Art. 10, § 1. This provision requires all property, not especially authorized to be exempted, to be taxed, but beyond it there is room for the abundant exercise of legislative authority. Indeed, the question as to the right to subject good-will to the burden of taxation is not a question of legislative power, but a question of legislative will.

If it be granted that good-will is property, yet it cannot be taxed unless the General Assembly has authorized it. Notwithstanding the constitutional requirement as to the taxation of property, such provision is not self-executing, and a tax can not be laid unless the General Assembly selects the particular species of property to bear the burden of taxation. Riley v. Western Union Tel. Co., 47 Ind. 511; Hyland v. Brazil Block Coal Co., 128 Ind. 335, 26 N.E. 672; State Board, etc., v. Holliday, supra. So, in any event, the question is one of legislative intent. If, however, good-will is property, and, therefore, ought to be taxed, then, in the construction of the legislative scheme of taxation, we ought to impute to the General Assembly an intent to obey the constitutional mandate, if its enactments fairly admit of such a construction. Orr v. Baker, 4 Ind. 86; Trustees, etc., v. Ellis, 38 Ind. 3; Read v. Yeager, 104 Ind. 195, 3 N.E. 856. We therefore proceed to an examination of the question whether good-will is property. Despite the almost universal recognition at the present day of good-will as in the nature of property, the law on this subject is of comparatively recent growth. The cases greatly confound the thing itself with the means of transferring it, and with the rights an assignee acquires in order to effect that transfer. There is a kind of local good-will, that Lord Eldon characterized as "nothing more than the probability, that the old customers will resort to the old place." Cruttwell v. Lye, 17 Ves. 335, 346. Good-will of this character may inhere in real property and give to it additional value. As civilization became more complex, the realization was forced upon the courts that the right to carry on an established business, and to represent that it is the old business that is carried on, is often a thing of value, since men were willing to pay for the privilege and contended for it at the forum, and therefore the courts have, by evolutionary processes, so adjusted themselves to conditions as to treat such privileges, even where not connected with real estate, as in the nature of assets. The trend of authority is that they will be so regarded and protected, not only where they are made the subject of express contract in connection with the voluntary sale or the bequest of a business, made in connection with the disposition of property, but, except where the business is of a purely personal character, depending for its existence solely upon the skill of the person carrying it on, that such interests will be protected in the winding up of partnership affairs and in cases of compulsory sales. On many questions relative to the disposition of these interests there is a most distressing conflict and uncertainty in the adjudged cases, and we have no disposition to tempt such a field. Some of the cases seem to treat good-will as property, while in other cases courts have attained the result by the exercise of control over the assignor. In cases of voluntary transfers this seems eminently proper, since it is not honest to sell the custom and steal away the customers; to pocket the price, and then to recapture the subject of the sale. See Chadwick v. Covell, 151 Mass. 190, 23 N.E. 1068, 6 L. R. A. 839, 21 Am. St. 442; Trego v. Hunt, (1896) App. Cas. 7.

We regard it as clear, however, that good-will is not in and of itself property, but that it is an incident that may attach to, or, in some cases, be connected with it. In Rawson v. Pratt, 91 Ind. 9, 16, it was said: "'Good-will,' as property, is intangible, and merely an incident of other property. It was not in this case an incident of the stock of hardware, tools, and machinery, which seem to have been the only tangible property purchased by the appellants from the appellees." In our judgment, in a case of this kind the transfer of a good-will, involving the right to carry on the old business and to represent that it is the old business that the purchaser is carrying on, is really based, not so much on the sale of the property that is itself conveyed, as it is upon the sale of the business as a going concern. This seems to be the view of the Supreme Court of the United States, as expressed in Metropolitan Bank v. St. Louis Dispatch Co., 149 U.S. 436, 446, 13 S.Ct. 944, 947, 37 L.Ed. 799, where it was said: "Undoubtedly, good-will is in many cases a valuable thing, although there is difficulty in deciding accurately what is included under the term. It is tangible only as an incident, as connected with a going concern or business having locality or name, and is not susceptible of being disposed of independently. * * * As applied to a newspaper, the good-will usually attaches to its name rather than to its place of publication." Assuming these statements of the federal supreme court to be the law, as we are disposed to, and it will be realized how shadowy a thing a good-will is in the case of a newspaper. As Professor Parsons said, in his work on Partnership (4th ed.), § 181: "The only proper signification of the word must be, that benefit or advantage which rests only on the good-will, or kind and friendly feelings of others. * * * It is a hope or expectation, which may be reasonable and strong, and may rest upon a state of things that has grown up through a long period, and been promoted by large expenditures of money. And it may be worth all the money it has cost, and a great deal more; but it is, after all, nothing more than a hope, grounded on a probability."

In the case of a good-will attaching to real property, the good-will becomes an integral part of the value of such property, and in the case of a corporation possessing a good-will, the value thereof may find a reflex in the value of its shares of stock. We hold, however, that the good-will that attaches to the business of conducting a newspaper belonging to an individual or a copartnership is not, in and of itself, property within the meaning of the constitutional mandate; and while it might be taxed, since the law protects it, yet the a priori argument, that the Constitution commands it to be taxed, is gone. We think that this is the proper doctrine in all such cases, where...