In re Pers. Prop. Tax of Girard Trust Co. for the Year 1937

• Decision Date: 29 December 1938
• Parties: In re PERSONAL PROPERTY TAX OF GIRARD TRUST CO. FOR THE YEAR 1937.
• Court: Pennsylvania Supreme Court

3 A.2d 252

In re PERSONAL PROPERTY TAX OF GIRARD TRUST CO. FOR THE YEAR 1937.

Supreme Court of Pennsylvania.

Dec. 29, 1938.

3 A.2d 252

[Copyrighted material omitted.]

3 A.2d 253

MAXEY, DREW, and LINN, JJ., dissenting.

Appeal No. 340, January term, 1938, from Court of Common Pleas No. 7, Philadelphia County; Joseph Sloane, Judge.

Proceeding in the matter of the Personal Property Tax of Girard Trust Company, trustee for the General Accident Fire & Life Assurance Corporation Limited, for the year 1937. From a decree dismissing the trust company's exceptions to an adjudication of the Board of Revision of Taxes, the trust company appeals.

Reversed.

Argued before KEPHART, C. J., and SCHAFFER, MAXEY, DREW, LINN, STERN, and BARNES, JJ.

George Wharton Pepper, Frederick H. Spotts, and Richard Benson, all of Philadelphia (Pepper, Bodine, Stokes & Schoch, of Philadelphia, of counsel), for appellant.

Abraham Wernick, Asst. City Sol., and Joseph Sharfsin, City Sol., both of Philadelphia, for appellee.

Guy K. Bard, Atty. Gen., Edward Shippen Morris and E. Russell Shockley, Asst. Attys. Gen., and John A. M. McCarthy, of Philadelphia, Pa., for interveners.

KEPHART, Chief Justice.

In 1911 the General Accident Fire and Life Assurance Corporation, Ltd., a corporation formed under the laws of the United Kingdom and registered to do business in Pennsylvania, executed a written agreement with the Girard Trust Company, as trustee, transferring certain securities and property in trust for the uses and purposes therein set forth. The deposit of these securities in some state in the United States was required under the insurance laws; see Section 601, Act of May 17,

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1921, P.L. 682, 40 P.S. § 721. The settlor-insurance company, under the agreement, retained absolute dominion and control over the fund, its investment, reinvestment and general management, and reserved an unqualified power to revoke the agreement at any time after the expiration of one year from the date thereof. The only circumstances under which the Girard Trust Company will acquire any degree of control are in the event that (1) the insurance company's auditors notify the trustee that the reserve is impaired, (2) the company ceases to do business, or (3) the company fails to satisfy a judgment on a policy claim within a fixed time. None of these contingencies appears to have arisen; the insurance company in fact has at all times exercised absolute control over the fund; and the trustee has merely held custody of the fund, the value of the part involved in these proceedings having been $7,271,908 on the assessment date.

On or about January 20, 1937, the assessors for Philadelphia County made an assessment in this amount for the taxable year 1937 against the Girard Trust Company, as trustee, from which an appeal was taken to the Board of Revision of Taxes. This appeal was dismissed, which action was sustained by the court below in a proceeding brought under the Act of May 22, 1933, P.L. 853, section 518, 72 P.S. § 5020—518.

The appeal under consideration requires a very careful analysis of the Personal Property Tax Act of June 17, 1913, P.L. 507, section 1, last amended by the Act of April 21, 1933, P.L. 54, section 1, 72 P.S. § 4821. The first part of this section provides that "all personal property of the classes hereinafter enumerated, owned, held or possessed by any person * * * or company, resident, located, or liable to taxation within this Commonwealth, or by any * * * bank or corporation * * * liable to taxation * * * whether such personal property be owned, held, or possessed * * * in his, her, their, or its own right, or as active trustee * * * for the use * * * of any other person * * * company * * * or corporation, —is hereby made taxable annually for county purposes * * * at the rate of four mills * * *."

These provisions, without more, establish a very broad plane of taxation on personal property, but it is apparent from the succeeding portions of the section that the legislature was endeavoring to lay a four mill tax only on certain species of personal property. When enumerating the various classes of intangible property to be taxed, and providing for definite exemptions, the legislature no doubt had in mind either its legal inability to subject these exempted intangibles to a tax, or that the exempted intangibles had already been taxed in another form for State purposes. In a word, the legislature wished among other things, to avoid double taxation. There are other exemptions noted which cannot be explained on these two grounds, but rest on other policies.

The types of personal property to be taxed under the Act, or as the Act reads, "the classes hereinafter enumerated" include: mortgages; all money owing by solvent debtors, such as notes, bonds, et cetera; public loans, except, those issued by the Commonwealth or the United States; all loans issued by any corporation, et cetera, except, those taxed under Section 17 of the Act, 72 P.S. § 2121; all shares of stock, except, shares of stock in any corporation that may be liable to a tax on its shares or capital stock for state purposes, or is relieved from the payment of the tax on its shares or capital stock. Other exemptions follow until we read, "provided further, That corporation * * * liable to tax on capital stock for State purposes, shall not be required to make any report or pay any further tax, under this section, on the mortgages, bonds, and other securities owned by them in their own right".

It will be observed that in the Act, as thus stated, the exempted property is related to both classes. Exempted property owned, held or possessed by any person or corporation in its own right is not subject to the four mill tax, and it is equally clear that all such exempted property owned, held or possessed by an individual or a corporation as active trustee for the use, benefit or advantage of another person or corporation is likewise excluded from the tax.

The clause in Section 1, 72 P.S. § 4821, which seems to give trouble, and the one which it is urged challenges this conclusion, is the following: "but corporations, limited partnerships, and joint-stock associations, holding such securities as trustees * * * or in any other manner, shall return and pay the tax imposed by this section upon all securities so held

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by them as in the case of individuals". It should not be doubted at this late date under the practical operation of the Act that a trust res in the hands of trustees, consisting of property specifically exempted by the Act is free from the tax. If we were to hold, however, that the tax is against the trustee measured by the gross value of the property in the trust, we would subject all the exempted property to tax; and if we were to hold that the words "all securities so held by them" intended to include this exempt property, then, in either case, the words that follow, "as in the case of individuals", would have no place in the Act. If the exempted properties in the hands of individuals would not be taxed, to include in the gross value of an estate, for tax purposes, the value of the exempted properties simply because they happen to be held by a trustee, would wipe out the clear intent and purpose of the legislature to exempt this class of property from tax no matter in whose hands it is held. We conclude, therefore, that the Act intended to exclude such property from the county four mill tax, and that the mere fact that it happens to be held by a trustee in either an active or a passive trust, revocable or irrevocable, should not, and does not change the status of exempted property included in the trust res.

Since the tax, by the express words of the Act, is imposed only upon property, it cannot be construed to be a tax upon the transaction in placing the securities in trust, measured by their value.

Further, to demonstrate that the trustee, as trustee, is not taxed, he must segregate such property, that is, separate the exempted property from the non-exempt, make a report of the non-exempt under the Act and pay the tax. This does not cause the tax to be a tax on the trustee, as such; it is a tax on the property in the hands of the trustee. The trustee is merely the reporting and collecting agency for the municipal government.

The concluding exemption of property of persons and corporations non-resident or not located within the State or doing business here, held in trust by a Pennsylvania trustee, does not mean that all other classes of property held by a trustee should be subjected to the four mill tax. This exemption must be read in connection with all the other exemptions so as to carry out the full intent and purposeerty, no matter how it is held, is excluded from the tax.

Conceding then, that the clause in question, quoted above, does not include property exempted in the section, our next concern is whether appellant's property is within any of the classes of exempted property. There are the further questions of whether the legislature intended to include revocable trusts in the class of trusts that are mentioned in the Act, and whether the legislature could include property for tax, the domicile of the real owner being outside of the State and the property here under a deposit or trust that had been ordered and directed by the legislature to be maintained either in this State or some other state. These latter questions, while they are interesting, need not be determined in this opinion. We will concern ourselves only with the question whether or not this property is within any of the exempted classes.

It is apparent that the Act makes two distinct types of property exemption:

(a) Exemption based upon the inherent qualities of the property itself, such as shares issued by a corporation liable to a capital stock tax; Commonwealth and Federal bonds; securities subject to the corporate loans tax, et cetera. This exemption attaches to the property...