Household Finance Corp. v. State Tax Commission, 42
| Citation | 212 Md. 80,128 A.2d 640 |
| Decision Date | 17 January 1957 |
| Docket Number | No. 42,42 |
| Parties | HOUSEHOLD FINANCE CORP., etc. v. STATE TAX COMMISSION of Maryland. STATE TAX COMMISSION of Maryland. v. HOUSEHOLD FINANCE CORP., etc. |
| Court | Court of Appeals of Maryland |
Floyd E. Britton, Chicago, Ill. (James F. Thrift and Guy B. Brown, Baltimore, on the brief), for Household Finance Corp., etc.
Joseph S. Kaufman, Asst. Atty. Gen. (C. Ferdinand Sybert, Atty. Gen., Norman P. Ramsey, Deputy Atty. Gen., and David Kauffman, Asst. Atty. Gen., on the brief), for State Tax Comms. of Md.
Before BRUNE, C. J., and COLLINS, HENDERSON, HAMMOND and PRESCOTT, JJ.
This appeal involves the assessment of the value of the capital stock of a foreign finance corporation and the apportionment thereof, so as to allocate the portion that fairly 'represents the business done in this State', for the year 1953.
Household Finance Corporation (Household) was, and is, such a corporation and appealed to the Circuit Court of Baltimore City from an assessment, and allotment (business within and without the State), of its capital stock made by the State Tax Commission (Commission). After consideration of the appeal, the Commission's action was affirmed in the assessment made and partly so in the allocation, but was remanded, with directions, in regard to the remainder of the apportionment. Thereupon, Household appealed to this Court from that part of the decree that affirmed the assessment and denied its contentions concerning the allocation, and the Commission cross-appealed as to the part that remanded, with directions, in regard to the remainder of the apportionment.
Household is a Delaware corporation having its principal offices at Chicago, Illinois, with regional headquarters in New York, Philadelphia, and Los Angeles, and as to its Canadian subsidiaries, in Toronto, Canada. The taxpayer is engaged in the business of making installment cash loans to consumers. At the end of 1952, it and its wholly owned subsidiaries were so engaged at 577 branch offices in 389 cities of 29 states and 10 Canadian provinces. During 1952, taxpayer was so engaged at 13 branch offices in 6 cities in Maryland.
Except for periodic examinations of these Maryland branch offices by administrative personnel, the administration of the affairs of the taxpayer and of its subsidiaries was outside the state of Maryland. Only branch office operations were conducted in Maryland. Each such office operated in rented quarters and maintained necessary office equipment and operating cash on hand and in bank. Employees consisted of a manager, one or more assistant managers, and a number of steno-cashiers who handled office detail and outside representatives who made outside credit investigations and calls upon delinquent borrowers.
The taxpayer owned all, or substantially all, of the capital stock of 10 subsidiary corporations, nine of whom carried on the same business as the parent company.
The capital stock of the taxpayer was listed on the New York Stock Exchange. In its published annual reports, balance sheets and earnings statements, the subsidiaries, except one, were consolidated with the parent. For the purposes of the figures cited to us, however, this one was consolidated with the others.
None of the U. S. subsidiaries had ever paid any dividends, all profits having been placed back into the business. The only receipts, therefore, from the U. S. subsidaries have been interest and supervision fees. The taxpayer received no interest or supervision fees from Peoples Industrial Bank, one of the subsidiaries, since that bank was not indebted to the taxpayer and the bank furnished its own administration. The bank had paid no dividends. In addition to interest and supervision fees, the Canadian 'subs', however, had for several years paid dividends.
Household's consolidated balance sheet, as of the last day of 1952, showed assets in excess of $340,000,000; consolidated gross income for that year of approximately $75,000,000; and consolidated net income of over $13,000,000.
Figures in the record, furnished by it, showed a book value of over $102,000,000; consolidated net earnings capitalized at 10% were over $136,000,000; and the average consolidated net earnings for the previous 5 years capitalized at the same percentage were over $114,000,000.
These facts have been set forth in some detail to show the taxpayer operated a very large and extensive business enterprise, with tremendous assets and widespread interests of great value, that seem to demonstrate with clarity and certainty, it was engaged in a unitary undertaking.
Part of the value of the capital stock of this class of corporations is subject to taxation in Maryland. The Commission, as the administrative body in charge of fixing assessments, issues several reporting forms for the taxpayer to complete and return. Household completed Form No. 7 with attached schedules, and listed therein the market price of its stock on January 1, 1953. The Commission incorporated this listing in their aggregate valuation, the details thereof will be shown when we quote from the 'Statement of Facts Considered By the Commission on which its findings are Based'.
Taxpayer also completed Form No. 8, in which this information was supplied:
1. Gross receipts or earnings from all
sources during calendar year 1952 ..... $ 61,812,951.26
2. Gross receipts or earnings derived
from business done in Maryland
during calendar year 1952? ............ $ 2,481,626.70
3. Value of property (tangible and
intangible) in Maryland? .............. $ 10,200,625.92
4. Value of property (tangible and
intangible) outside of Maryland? ...... $317,034,611.52
5. Income from permanent
investments? ............................
With these facts and figures, among many others, before it, the Commission proceeded to assessment. The statutory direction for that type of tax is first, to ascertain the valuation of the capital stock, and then to apportion such part as represents the business done in this State. We will deal with the action of the Commission in that order; but, before doing so, will set forth the laws relating thereto.
The statutory provisions pertinent to the assessment herein are contained in Article 81 of the Annotated Code of Maryland 1951. Sec. 13 () required property to be assessed 'at the full cash value thereof on the date of finality'. Sec. 12(b) provided for the assessment and taxation of as much of the capital stock of foreign finance corporations 'as represents the business done in this State'. Sec. 20(b) required the assessment of the stock of foreign finance corporations doing business in Maryland to be computed in the same manner as domestic finance corporations, the intention being the foreign one shall be assessed on its own account in the same amount as it would have been assessed, on account of its shareholders, if it were a domestic one. Sec. 20(a) set forth the method of assessing the value of shares of stock in domestic finance corporations (because of sec. 20(b) above, it also became the method for foreign ones). It directed the Commission to proceed in the same manner prescribed in sec. 19, except (1) that the property and business outside of this State shall be excluded, to the end and intent that so much only of the value of the shares as represented business done in Maryland was to be taxed, and (2) that in apportioning the value of the shares between the business within and without Maryland, it was to be presumed, in the absence of clear evidence to the contrary, that the value of the property and business within Maryland bore to the value of the total business and property, the same ratio that gross receipts or earnings in Maryland (exclusive of income from permanent investments) bore to the total gross receipts or earnings (with the same exclusion). This section made taxes assessed thereunder subject to sec. 19(e) which stated they shall be taxed to the owners thereof, but may be collected from the corporation. Sec. 19(a) () provided, in part, the Commission shall first ascertain the total aggregate value of the capital stock by considering: (1) the market value, if any, thereof without reference to abnormal prices, rendering market quotations not a fair index of actual value of stock as a whole; (2) the net earnings or income; and (3) the net value of its assets. Sec. 255(b) permitted appeals to the Circuit Courts, in equity. It then provided if the Court found the action of the Commission was unlawful, unreasonable or against the substantial weight of the evidence, it should remand the case to the Commission; otherwise, such action was to be affirmed. It further provided for an appeal to the Court of Appeals. Sec. 1, of the 14th Amend. to the U. S. Constitution says: '* * * nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws'.
In an appeal of this nature, the burden is upon the taxpayer to show error committed by the Commission. State Tax Comm. v. Brandt Cabinet Works, 202 Md. 533, 544, 97 A.2d 290; State Tax Comm. v. Chesapeake & Potomac Tel. Co., 193 Md. 222, 231, 66 A.2d 477. And to like effect see Butler Bros. v. McColgan, 315 U.S. 501, 62 S.Ct. 701, 86 L.Ed. 991, and Norfolk & W. Ry. Co. v. State of North Carolina, 297 U.S. 682, 56 S.Ct. 625, 628, 80 L.Ed. 977, wherein Justice Cardozo said: 'We must bear in mind steadily that the burden is on the taxpayer to make oppression manifest by clear and cogent evidence.'
Household disputes: (1) the method of assessment of the value of its capital stock as not complying with the requirement of sec. 19; and (2) the gross receipts fraction used as a formula for apportioning capital stock...
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