In re Thermiodyne Radio Corporation

• Decision Date: 18 May 1928
• Docket Number: No. 579.,579.
• Citation: 26 F.2d 713
• Parties: In re THERMIODYNE RADIO CORPORATION.
• Court: U.S. District Court — District of Delaware

26 F.2d 713 (1928)

In re THERMIODYNE RADIO CORPORATION.

No. 579.

District Court, D. Delaware.

May 18, 1928.

Albert Ottinger, Atty. Gen. of New York, and Robert P. Beyer and William Matthews, Deputy Asst. Attys. Gen., for State of New York.

James I. Boyce, of Wilmington, Del., and Ralph M. Arkush, of New York City, for trustee.

MORRIS, District Judge.

Upon this review of an order of the referee disallowing a claim of $15,000, filed by the state of New York, the sole question is the constitutionality of the statute of New York upon which the claim is based. That statute, section 181, article 9, of the Tax Law of that state (Consol. Laws, c. 60), prescribes the "license fee" to be paid by a foreign corporation for the privilege of exercising its corporate franchises or carrying on its business in the state of New York. Acting under this statute the state tax commission, on December 21, 1926, fixed the amount of the license fee due by the bankrupt, a Delaware corporation, at $15,000, for which the claim was filed.

The clause of the Constitution, asserted by the trustee and held by the referee to invalidate the statute, is that found in the Fourteenth Amendment, forbidding a state to "deny to any person within its jurisdiction the equal protection of the laws." The part of the statute wherein the trustee finds more particularly the crux of the denial of equality to the bankrupt, all of whose 250,000 shares of issued capital stock is without par value, is that fixing without regard to the value of the shares or the assets represented thereby a fee of 6 cents on each such share employed in the state of New York of any corporation issuing shares without designated monetary value. It is not disputed that all of the outstanding shares of the bankrupt were employed in that state.

That a tax computed upon such basis is lacking in equality was settled by the Supreme Court, in Air-Way Corp. v. Day, 266 U. S. 71, 85, 45 S. Ct. 12, 15, 69 L. Ed. 169, where the court, considering the validity of an Ohio statute prescribing an annual fee computable in like manner and payable by each foreign corporation having stock without par value, said:

"It is clear that the mere number of authorized nonpar value shares is not a reasonable basis for the classification of foreign corporations for the purpose of determining the amount of such annual fees. Such a classification is not based on anything having relation to the purpose for which it is made. Southern Ry. Co. v. Greene, 216 U. S. 400, 417 30 S. Ct. 287, 54 L. Ed. 536, 17 Ann. Cas. 1247; Royster Guano Co. v. Virginia, 253 U. S. 412, 415 40 S. Ct. 560, 64 L. Ed. 989. The act has no tendency to produce equality, and it is of such a character that there is no reasonable presumption that substantial equality will result from its application. Martin v. District of Columbia, 205 U. S. 135, 139 27 S. Ct. 440, 51 L. Ed. 743; Gast Realty Co. v. Schneider Granite Co., 240 U. S. 55, 58 36 S. Ct. 400, 60 L. Ed. 526; Kansas City Southern Ry. Co. v. Road Improvement District, 256 U. S. 658, 660 41 S. Ct. 604, 65 L. Ed. 1151. The act violates the equal protection clause of the Fourteenth Amendment."

The state of New York, however, as I understand it, makes no contention that the statute is productive of equality. On the contrary, showing that a foreign corporation is not a citizen within the meaning of article 4, § 2, of the federal Constitution (Security Mutual Life Insurance Co. v. Prewitt, 202 U. S. 246, 26 S. Ct. 619, 50 L. Ed. 1013; National Council U. A. M. v. State Council, 203 U. S. 151, 27 S. Ct. 46, 51 L. Ed. 132; Horn Silver Mining Co. v. New York, 143 U. S. 305, 12 S. Ct. 403, 36 L. Ed. 164; Philadelphia Fire Association v. New York, 119 U. S. 110, 7 S. Ct. 108, 30 L. Ed. 342; Pembina Mining Co. v. Pennsylvania, 125 U. S. 181, 8 S. Ct. 737, 31 L. Ed. 650; Norfolk, etc., R. R. Co. v. Pennsylvania, 136 U. S. 114, 10 S. Ct. 958, 34 L. Ed. 394), and that a foreign corporation must first have come within the jurisdiction of the taxing state before it can claim the protection of the Fourteenth Amendment against discriminatory legislation (Sully v. American National Bank, 178 U. S. 289, 303, 20 S. Ct. 935, 44 L. Ed. 1072; Blake v. McClung, 172 U. S. 239, 260, 19 S. Ct. 165, 43 L. Ed. 432), it urges only that the fee here sought to be collected, being for the privilege of the bankrupt's exercising its corporate franchises in the state of New York during the first year in which its business was there carried on, is a tax made in legal contemplation against a person not "within its jurisdiction," and, consequently, not within the Fourteenth Amendment.

The line of demarcation separating foreign corporations that are without the equal protection clause from those that come within it was graphically depicted by the Supreme Court in Hanover Ins. Co. v. Harding, 272 U. S. 494, 510-517, 47 S. Ct. 179, 183 (71 L. Ed. 372, 49 A. L. R. 713), where it was said:

"In subjecting a law of the state which imposes a charge upon foreign corporations to the test whether such a charge violates the equal protection clause of the Fourteenth Amendment, a line has to be drawn between the burden imposed by the state for the license or privilege to do business in the state, and the tax burden which, having secured the right to do business, the foreign corporation must share with all the corporations and other taxpayers of the state. With respect to the admission fee, so to speak, which the foreign corporation must pay, to become a quasi citizen of the state and entitled to equal privileges with citizens of the state, the measure of the burden is in the discretion of the state, and any inequality as between the foreign corporation and the domestic corporation in that regard does not come within the inhibition of the Fourteenth Amendment; but, after its admission, the foreign corporation stands equal, and is to be classified with domestic corporations of the same kind.

"In this class of cases, therefore, the question of the application of the equal protection clause turns on the stage at which the foreign corporation is put on a level with domestic corporations, in engaging in business within the state. * * * By compliance with the valid conditions precedent, the foreign insurance company is put on a level with all other insurance companies of the same kind, domestic or foreign, within the state, and tax laws made to apply after it has been so received into the state are to be considered laws enacted for the purpose of raising revenue for the state and must conform to the equal protection clause of the Fourteenth Amendment. * * *"

The validity of the statute, and so of the claim, is thus made to turn upon whether or not the statute in question prescribes conditions precedent to the admission of the foreign corporation to quasi citizenship, or applies to the foreign corporation only after all conditions precedent have been complied with and the corporation been duly received into the state. In solving this problem, section 181 of the Tax Law must be considered in connection with sections 15 and 16 of the General Corporation Law of...