Lenox Realty Co. v. Hackett

• Decision Date: 06 November 1936
• Citation: 187 A. 895,122 Conn. 143
• Parties: LENOX REALTY CO. v. HACKETT, Tax Com'r.
• Court: Connecticut Supreme Court

187 A. 895

122 Conn. 143

LENOX REALTY CO. v. HACKETT, Tax Com'r.

Supreme Court of Errors of Connecticut.

November 6, 1936

Case Reserved from Superior Court, Hartford County; John A Cornell, Judge.

Proceeding to assess a corporation business tax. From a ruling of William H. Hackett, Tax Commissioner, the Lenox Realty Company appeals. Reserved for the advice of the Supreme Court of Errors.

Questions reserved answered in the affirmative.

Under statute imposing corporation tax calculated in part from par value of all interest-bearing indebtedness of company taxed where indebtedness secured by mortgages on property of corporate taxpayer was not contracted or assumed by it and it was not personally liable therefor, it was error to include par value of mortgages in reckoning tax, though in fact taxpayer might have had to pay mortgages to save property. Gen.St.Supp.1935, §§ 421c, 435c (Rev.1949, §§ 1900, 1917).

Henry J. Marks, of Hartford, for plaintiff.

Richard F. Corkey, Asst. Atty. Gen., Edward J. Daly. Atty Gen., and Charles J. McLaughlin, Deputy Atty. Gen., all of Hartford, for defendant.

Argued before MALTBIE, C.J., and HINMAN, BANKS, AVERY, and BROWN, JJ.

HINMAN, Judge.

The General Assembly at its 1935 session passed an act, General Statutes, Cum. Sup., chapter 66b, " The Corporation Business Tax Act," which provided (section 421c) that " each company subject to the provisions of this chapter," except certain specified corporations of which the plaintiff is not one, " shall pay for the privilege of carrying on or doing business within the state, the larger of (A) the tax imposed by section 418c [of two per cent on its net income as therein defined] and (B) a tax of one mill per dollar of the amount derived (a) by adding (1) the par value of all interest-bearing indebtedness of such company outstanding at the end of the income year, exclusive of any such indebtedness evidenced by securities owned by, or held in trust for, such company, (2) the issued and outstanding capital stock, the surplus and the undivided profits at the end of the income year and (3) all reserves, or any part thereof, which can be reasonably expected to accrue to the stockholders or owners of equitable shares in the assets of such company at the end of the income year, (b) by subtracting from the sum so calculated (1) the amount of any deficit carried on the balance sheet and (2) the amount of any holdings of stock of private corporations shown on the balance sheet and (c) by allocating the remainder so derived between this and other states under the provisions of section 422c."

The plaintiff is a Connecticut corporation liable for the payment of a tax in accordance with the provisions of that act. The tax return filed by it for the fiscal year ending September 30, 1935, disclosed a loss during that year, so that it had no net income, hence was taxable under (B) of section 421c, above quoted. The return disclosed that in addition to unquestioned interest-bearing indebtedness of the plaintiff, secured by mortgages, which it included in the computation of its tax, there were mortgages on other properties owned by the plaintiff, which it had acquired by foreclosure of junior mortgages or by quitclaim deed in lieu of foreclosure and on which it had previously held junior mortgages. The outstanding indebtedness, amounting to $1,065,930, secured by these mortgages was not contracted by the plaintiff or assumed by it, and it was not and is not personally liable therefor. These mortgages were not included in the plaintiff's computation of its tax, but the tax commissioner ruled that the par value thereof should be included, and assessed an additional tax of 1 mill per dollar thereon, which the plaintiff paid under protest, and brought this appeal, pursuant to section 435c, which provides that any taxpayer aggrieved because of any tax laid under the provisions of the chapter may appeal therefrom to the superior court for Hartford county, which may grant such relief as may be equitable, and, if the tax shall have been paid, order the treasurer to repay the amount of such relief, with interest. The stipulation for the purposes of this reservation includes the material facts above stated, also that the mortgages in question bear interest; and that the plaintiff exercised control and dominion over the real estate, collected certain rents yielded thereby, and paid all the expenses for repair and maintenance, and the taxes on some of the parcels, taxes on the others remaining unpaid.

The questions reserved are: (A) Whether or not the tax commissioner erred in including the par value of the indebtedness secured by these mortgages in his computation of the tax, and (B) whether or not the plaintiff is entitled to a refund of that portion of the tax ($1,065.93) representing the assessment on that indebtedness, with interest from the date of payment? The primary inquiry presented concerns the scope of the expression " indebtedness of such company" as employed in the act-specifically whether it is broad enough to include the mortgages here involved.

A standard definition of " indebtedness" is " the sum owed; debts collectively." " Debt," in the present connotation, is defined as " that which is due from one person to another, whether money, goods, or services; that which one person is bound to pay to another or to perform for his benefit; thing owed; an obligation or liability." Webster's New International Dictionary (2d Ed.). We have, on occasion, adopted this definition with the addition: " " ‘ That of which payment is liable to be exacted." ’ Guilford Chester Water Co. v. Guilford, 107 Conn. 519, 529, 141 A. 880, 883; Cook v. Bartholomew, 60 Conn. 24, 26, 22 A. 444, 13 L.R.A. 452. Debt " contemplates not only an obligation upon the debtor to pay, but a reciprocal right on the part of the creditor to enforce payment by appropriate proceedings." Guilford-Chester Water Co. v. Guilford, supra, 107 Conn. 519, at page 529, 141 A. 880, 883; 1 Jones, Mortgages (8th Ed.) p. 390. " Indebtedness is a state of being in debt, and a debt is defined to be ‘ that which one person is bound to pay to another; ’ or an ‘ obligation." ’ Levy v. McClellan, 196 N.Y. 178, 200, 89 N.E. 569, 574. See, also, 4 Words and Phrases, First Series, p. 3528; 2 Words and Phrases, Second Series, p. 1025; 4 Words and Phrases, Third Series, p. 208; 2 Words and Phrases, Fourth Series, p. 322. Indebtedness, in its strict legal significance, applies only to an obligation arising from contract, express or implied, but in its broader sense " it may include every obligation by which one person is bound to pay money, goods, or services to another, *** however contracted." City of Perry v. Johnson, 106 Okl. 32, 34, 233 P. 679, 680. This broader significance is, however, subject to the inherent limitation that the indebtedness created or constituted by a debt is, necessarily, that only of the party from whom the debt is owing, who is under an obligation to the creditor to pay, and against whom the latter has a right to receive and enforce payment. Trask v. Livingston County, 210 Mo. 582,...