In re Detroit Props. Corp.

• Decision Date: 01 June 1931
• Docket Number: No. 9,April Term.,9
• Parties: In re DETROIT PROPERTIES CORPORATION et al.
• Court: Michigan Supreme Court

254 Mich. 523

236 N.W. 850

In re DETROIT PROPERTIES CORPORATION et al.

No. 9, April Term.

Supreme Court of Michigan.

June 1, 1931.

Certiorari to Corporation Tax Appeal Board.

In re Detroit Properties Corporation and Union Guardian Trust Company, receiver. Certiorari to the Corporation Tax Appeal Board to review affirmance of a levy of corporation privilege tax by the Secretary of State.

Determination of board affirmed.

Argued before the Entire Bench. Beaumont, Smith & Harris, of Detroit (M. S. Harlan and Richard W. Larwin, both of Detroit, of counsel), for plaintiffs.

Paul W. Voorhies, Atty. Gen., and Charles Rubiner, Asst. Atty. Gen. (Alice E. Alexander, of Lansing, of counsel), for defendants.

FEAD, J.

This is certiorari to the Corporation Tax Appeal Board to review affirmance of a levy of corporation privilege tax by the secretary of state.

The Detroit Properties Corporation was incorporated under the laws of this state to buy and hold real estate, stocks, bonds, or other securities and to deal in the same. A bill of complaint was filed against it by a creditor, alleging, in substance, that the corporation was solvent, but confronted with immediate financial embarrassment, and praying, among other things, for the appointment of a receiver, with authority to continue the business of the defendant and ‘to protect and preserve its franchise and privileges.’ The court appointed Union Guardian Trust Company temporary receiver with the usual powers and also authority ‘in general to operate the business of the defendant as fully as the defendant operated same and in the manner best calculated in the opinion of the receiver to fully protect that business, to the end that the business of the defendant may be preserved as well as its assets.’

The issue is whether the corporation is subject to the privilege fee which, by C. L. 1929, § 10140, every domestic corporation is required to pay ‘for the privilege of exercising its franchise and of transacting its business within this state,’ and which accrued after the appointment of the receiver and its taking control of the corporate property and business. The question is one of first impression with this court.

The privilege fee is an excise tax, not upon the right to be a corporation, but upon the activities of the corporation in the exercise of its corporate franchise, or, as it is sometimes expressed, upon the franchise ‘to do’, not upon the franchise ‘to be.’ Union Steam Pump Sales Co. v. State, 216 Mich. 261, 272, 185 N. W. 353;In re Detroit & Windsor Ferry Co., 232 Mich. 574, 205 N. W. 102;In re Truscon Steel Co., 246 Mich. 174, 224 N. W. 653;Cobbs & Mitchell v. Corporation Tax Appeal Board, 252 Mich. 478, 481, 233 N. W. 386. Actual transaction of business by a domestic corporation is not a condition of the tax. It is imposed on the right to transact. In re G. H. Hammond Co., 246 Mich. 179, 224 N. W. 655; C. L. 1929, § 10140.

In all the cases cited or found, where the power to impose a similar tax during receivership has been denied, it has appeared that the corporation was insolvent, or in process of liquidation, or had been prohibited by law or injunction from exercising its franchises, or the proceedings were for dissolution, the receiver was not operating the business, and the life or right of the corporation to do business had ceased. Jones v. Winthrop Savings Bank, 66 Me. 242;Johnson v. Johnson Brothers, 108 Me. 272, 296, 80 A. 741, Ann. Cas. 1913A, 1303;State v. Bradford Savings Bank & Trust Co., 71 Vt. 234, 44 A. 349;Commonwealth v. Lancaster Savings Bank, 123 Mass. 493;Greenfield Savings Bank v. Commonwealth, 211 Mass. 207, 97 N. E. 927;Keeney v. Dominion Coal Co. (D. C. Ohio) 225 F. 625;State of Ohio v. Harris (C. C. A.) 229 F. 892.

In holding a receiver liable for a tax ‘for the privilege of operation of the street railway in public ways' in Collector of Taxes v. Bay State Street Ry., 234 Mass. 336, 342, 125 N. E. 614, 616, the court used language applicable to all the above cases: ‘There are numerous cases which have held that a corporation in the hands of a receiver is not subject to a franchise tax. Those are cases, however, where the corporation has been prohibited by law or by injunction from exercising its franchises and the receiver is not using them, or the corporation is in process of liquidation.’

The cases in which the power to tax has been upheld are many, but some of them have aspects which cause them to be more or less distinguishable from that at bar.

In some states the tax is on the franchise of the corporation ‘to be’ and seems to be collectible until legal dissolution or its equivalent. Kirkpatrick v. State Board of Assessors, 57 N. J. Law, 53, 29 A. 442;In re United States Car Co., 60 N. J. Eq. 514, 43 A. 673;Duryea v. American Woodworking Machine Co. (C. C. N. J.) 133 F. 329;Conklin v. United States Shipbuilding Co. (C. C. N. J.) 148 F. 129;In re Malko Milling & Lighting Co. (D. C. Md.) 32 F.(2d) 825;State v. Bradley, 207 Ala. 677, 93 So. 595, 26 A. L. R. 421.

In some other states statutes provide for the collection of such taxes from a receiver. The courts, however, have not laid decision upon the ground that such special provision created the liability of the receiver for franchise taxes, but have founded liability upon general principles as well. Bright v. State of Arkansas (C. C. A.) 249 F. 950;Armstrong v. Emmerson, 300 Ill. 54, 132 N. E. 768, 18 A. L. R. 693. In Ohio, where such a statute exists, it has been held, in conformity with the rule elsewhere, that an insolvent corporation which could not exercise its franchise is not subject to the tax when under receivership. Keeney v. Dominion Coal Co. (D. C.) 225 F. 625;State of Ohio v. Harris (C. C. A.) 229 F. 892. But where the receiver continued the business of the corporation, the tax was sustained. Morley v. Cleveland Hippodrome Co., 23 Ohio Cir. Ct. R. (N. S.) 295;Gerke Brewing Co. v. Kuerze, 7 Ohio App. 37;Guardian Savings & Trust Co. v. Templar Motors Co., 116 Ohio St. 95, 155 N. E. 691.

The New York statute, Cahill's Consol. Laws of New York, 1930, C. 61, § 209, usually reported in the cases as Consol. Laws, c. 60, provides a tax on corporations generally, ‘for the privilege of exercising its franchise in this state in a corporate or organized capacity’; and for railroad companies in substantially the same language, Chapter 61, § 184. See People v. State Tax Commission, 189 App. Div. 347, 178 N. Y. S. 486. It is held that the tax may be levied during a receivership when the receiver is authorized to carry on the business of the corporation. Central Trust Co. v. New York, C. & N. R. Co., 110 N. Y. 250, 18 N. E. 92,1 L. R. A. 260;People v. State Tax Commission, 189 App. Div. 347, 178 N. Y. S. 486;New York Terminal Co. v. Gaus, 204 N. Y. 512, 98 N. E. 11;People v. Hopkins (C. C. A.) 18 F. (2d) 731;Providence Engineering Corp. v. Downey Shipbuilding Corp. (D. C.) 8 F.(2d) 304, 305. See, also, New York Trust Co. v. Island Oil & Transportation Corp. (D. C.) 7 F.(2d) 416;Philadelphia & R. R. Co. v. Commonwealth, 104 Pa. 80.

To complete the review of authorities, we are informed by counsel that the federal District Court of the Western District of Michigan and the standing master in chancery of the Eastern District, in unreported cases, have sustained the Michigan tax under conditions similar to those at bar.

It appears, then, that the courts are unanimous in holding a receiver liable for the franchise or privilege tax where he operates the business of the corporation. May the rule be sustained in principle?

Plaintiffs seek to draw a distinction between public utility corporations with special and public functions and private corporations, but we do not find that the courts have done so, except in Mather's Sons Co.'s Case, 52 N. J. Eq. 607, 30 A. 321, where it was pointed out that the receiver of a public utility corporation must pay the tax because it is his duty to preserve the franchise, while the receiver of a private corporation pays only as long as he uses the franchise, and, when the...