MacAllen Co. v. Commonwealth
| Decision Date | 20 September 1928 |
| Parties | THE MACALLEN COMPANY v. COMMONWEALTH. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
January 10, 1928.
Present: RUGG, C.
J., BRALEY, CROSBY PIERCE, & CARROLL, JJ.
Tax, Excise on corporation. Corporation, Taxation. Constitutional Law Taxation, Impairment of obligation of contract, Ex post facto law. Statute, Construction.
Section 1, so that those words should mean "the net income for the taxable year as required to be returned by the corporation to the
Federal government . . . adding thereto . . . all interest and dividends not so required to be returned as net income . . . [with certain exceptions]," was not a levy, nor an attempt to levy, a tax on income derived by domestic corporations from tax exempt property, but established an excise as above described; and that statute is valid so far as it required the inclusion, in the computation of the "net income" of a certain domestic corporation, of interest received by the corporation from Liberty bonds issued by the United States, which, by
Federal statute, were "exempt . . . from all taxation . . . by any State . . . upon the income or profits of . . . corporations"; and from
Federal farm loan bonds of Federal land banks, which, by Federal statute, were "exempt from Federal, State, municipal, and local taxation."
The exemption from taxation of bonds and notes of counties and municipalities of this Commonwealth under G.L.c. 59, Section 5,
Twenty-fifth, relates solely to local taxation, and not to excises; and
St. 1925, c.
343, Section 1A, amending G.L.c. 63, Section 30, cl. 5, so far as it requires the inclusion of interest received by a domestic corporation from such bonds and notes in the computation of the "net income" of the corporation to determine the excise imposed upon it by
G.L.c. 63, Section 32, as amended by St. 1923, c. 424, Section 1, is not in conflict with that part of art. 1, Section 10, of the Constitution of the United States which forbids a State to "pass any . . . ex post facto law, or law impairing the obligation of contracts."
PETITION, filed in the Supreme Judicial Court for the county of Suffolk on March 4, 1927, for the abatement of a tax under G.L.c. 63, Section 77, as amended by St. 1922, c. 520, Section 14.
The petition is described in the opinion. The respondent filed a demurrer which was heard by Sanderson, J. A final decree was entered sustaining the demurrer and dismissing the petition, and the petitioner appealed.
T. Allen, for the petitioner. R.A. Cutter, Assistant Attorney General, for the respondent.
This petition for the abatement of a tax under G.L.c. 63, Section 77, as amended by St. 1922, c. 520, Section 14, comes before us on appeal from a final decree whereby a demurrer filed by the defendant was sustained and the bill dismissed. All facts well pleaded must be taken as true for the purposes of this decision.
The petitioner is a corporation established under the laws of this Commonwealth and has duly filed its excise tax returns as required by law. The commissioner of corporations and taxation, acting pursuant to G.
L.c. 63, Section 32, and Section 30 as amended by St. 1925, c. 343, Section 1A, added to the net income of the petitioner as determined by its Federal income tax return, sums received by it as interest from Liberty bonds issued by the United States, from Federal farm loan bonds of Federal land banks, and from bonds or notes of counties and municipalities of this Commonwealth, all of which bonds and notes were owned by the petitioner. The Liberty bonds are "exempt, both as to principal and interest from all taxation now or hereafter imposed by any State [with exceptions not here material] . . . upon the income or profits of individuals, partnerships, associations, or corporations." Act of Congress approved September 24, 1917, 40 U.S. Sts. at Large, 288, 291, c. 56, Section 7, as amended by Act of Congress approved April 4, 1918, 40 U.S. Sts. at Large, 502, 504, c. 44, Section 3. The Federal farm loan bonds "and the income derived therefrom" are "exempt from Federal, State, municipal, and local taxation." Act of Congress approved July 17, 1916, 39 U.S. Sts. at Large, 360, 380, c. 245, Section 26. The county and municipal bonds and notes were issued in accordance with law so as to be "exempt from taxation" under G.L.c. 59, Section 5, Twenty-fifth. It is conceded that the excise tax was assessed, computed and levied in accordance with the requirements of the terms of the statutes of the Commonwealth. The single contention urged is that the part of St. 1925, c. 343, Section 1A, whereby income of the petitioner derived from its investments already described was used, in combination with other factors, in ascertaining its net income as partial basis of the excise tax, is unconstitutional on several grounds. No other part of the excise tax law is assailed. The argument of the petitioner is confined to said Section 1A and its effect upon the amount of its excise tax.
It is plain that, under our system of taxation of domestic corporations, the tax here attacked is a pure excise as distinguished from a property tax. It is declared by G.L.c. 63, Section 32, to be an "excise" "with respect to the carrying on or doing of business" by the corporation. Although there have been differences of detail as to the calculation of the tax upon domestic corporations, the unbroken current of decisions of this court has been to the effect that our method of taxing domestic corporations has been by excise as distinguished from a property tax. Indeed, only in that way can the validity of the general method of our corporation tax be upheld under c. 1, Section 1, art. 4 of the Constitution of this Commonwealth, which requires all property taxes to be "proportional," but permits "excises" to be levied upon principles not proportional. Only a few of the many cases to this point need be cited. Commonwealth v. People's Five Cents Savings Bank, 5 Allen, 428. S.S. White Dental Manuf. Co. v. Commonwealth, 212 Mass. 35 , 38-41, where most of the earlier cases are collected and reviewed. Farr Alpaca Co. v. Commonwealth, 212 Mass. 156 , 159. Eaton, Crane & Pike Co. v. Commonwealth, 237 Mass. 523, 527, 528. Springdale Finishing Co. v. Commonwealth, 242 Mass. 37 , 40. National Leather Co. v. Commonwealth, 256 Mass. 419 , 425, affirmed in National Leather Co. v. Massachusetts, decided on May 28, 1928, 277 U.S. 413, Carlos Ruggles Lumber Co. v. Commonwealth, 261 Mass. 445 , 449; Same v. Same, 261 Mass. 450 , 453.
The proposition that our method of collecting revenue is an excise and not a property tax was expressly declared after full discussion in Hamilton Co. v. Massachusetts, 6 Wall. 632, 639, 640. That the nature of our system of exactions from corporations is an excise as distinguished from any other kind of taxation, established by our own decisions, was held in Baltic Mining Co. v. Massachusetts, 231 U.S. 68, 84, where the judgments in Baltic Mining Co. v. Commonwealth, 207 Mass. 381 , and in S.S. White Dental Manuf. Co. v. Commonwealth, 212 Mass. 35 , both marking and resting upon that distinction, were affirmed. The exaction required by G.L.c. 63, Section 39, of foreign corporations is calculated on the same general principles as that required of domestic corporations, though with some incidental differences, and it is levied "with respect to the carrying on or doing of business . . . within the Commonwealth." In that particular the words of Section 39 descriptive of the commodity made subject to the exaction are the same as those in the section under which the present exaction was levied. It was held in Alpha Portland Cement Co. v. Massachusetts, 268 U.S. 203, 216, touching exactions levied under said Section 39, that the assertion that was the "view of the nature of the exaction . . . adopted by the court below, and we think it is the correct one." The "view of the nature of the exaction . . . adopted by the court below" on this point is set forth with some amplification in Alpha Portland Cement Co. v. Commonwealth, 244 Mass. 530 , at pages 545-548. We interpret the sections involved in the case at bar to mean the same as to the nature of the exaction as the sections interpreted in 244 Mass. at 545, 548, and succinctly affirmed in the quotation just made from 268 U.S. at page 216. It is an excise with respect to the carrying on or doing of business by the corporation, measured by property and net income. It is not a tax on property and net income.
The pertinent provisions of the statute under which the present tax was assessed are G.L.c. 63, Section 32, as amended by St. 1923 c. 424, Section 1, in these words: ...
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