New England & Savannah S.S. Co. v. Com.

• Decision Date: 15 May 1907
• Citation: 81 N.E. 286,195 Mass. 385
• Parties: NEW ENGLAND & S. S. S. CO. v. COMMONWEALTH. BOSTON & G. STEAMBOAT CO. v. SAME.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

195 Mass. 385

81 N.E. 286

NEW ENGLAND & S. S. S. CO. v. COMMONWEALTH.

BOSTON & G. STEAMBOAT CO. v. SAME.

Supreme Judicial Court of Massachusetts, Suffolk.

May 15, 1907

COUNSEL

Arthur

H. Russell, for petitioners.

Dana Malone and Fred T. Field, for the Commonwealth.

OPINION

HAMMOND J.

These petitions are brought under St. 1903, p. 452, c. 437, § 84 each for the abatement of an excise tax assessed upon the petitioner under section 74 (page 449) of that statute. Each petitioner is a domestic corporation owning steamships and as we understand, using them in the coastwise transportation of freight and passengers between domestic ports. In each case is raised the question whether such steamships are merchandise within the meaning of that term as used in the last-named section. If the answer be in the affirmative, then each petition must be dismissed.

In considering this question it is useful to look over briefly the history of the legislation upon the subject of the taxation of corporations, and to note the circumstances under which this statute was passed. It is to be observed also that the tax in question is not a property tax but is a franchise tax. It is a tax upon the right of the corporation to exist. Under the early tax acts a domestic corporation was assessed for its real estate only, while its personal property was reached for taxation only through an assessment upon the shareholders based upon the market value of the shares. Salem Iron Factory Co. v. Danvers, 10 Mass. 514. This was liable to result in double taxation so far as respected the value of the real estate. This system was considerably modified by St. 1832, c. 158, which provided that machinery belonging to a corporation should be assessed in the place where the machinery was situated, and that in assessing the shares of a manufacturing corporation there should 'first be deducted from the value thereof the value of the machinery and real estate belonging to such corporation otherwise specifically taxed.' As thus modified the system with some changes not here material stood for many years. Rev. St. c. 7, § 10; Gen. St. 1860, c. 11, § 12; Worcester v. Board of Appeal, 184 Mass. 460, 69 N.E. 330.

But for obvious reasons this method of reaching for taxation the personal property of domestic corporations, especially that part of it whose value was represented by shares held by shareholders residing out of the commonwealth, was defective and during the civil war, public attention having been called more sharply to the question of taxation, an attempt was made by St. 1863, p. 536, c. 236, to tax the interest of nonresident stockholders. This statute was declared unconstitutional. Oliver v. Washington Mills, 11 Allen, 268. But before this decision was announced the statute had been repealed and by St. 1864, p. 131, c. 208, a valid franchise tax had been substituted. Commonwealth v. Hamilton Manuf. Co., 12 Allen, 298.

This statute marks the change from a property tax to a franchise tax. Roughly speaking, the statute provided for a franchise tax upon every domestic corporation of 1 1/10 per cent. of the market value of all the shares of its stock less certain deductions. In the case of certain corporations including those like these petitioners, the only deductions to be made were the value of the real estate and machinery. These were to be locally assessed where situated. The shareholders were not to be assessed for their stock. By St. 1865, p. 661, c. 283, the rate was changed from 1 1/10 per cent. to the average tax rate of all the cities and towns. The system thus established by these two statutes was substantially continued down to the enactment of St. 1903, p. 418, c. 437, under which these cases arise. Pub. St. 1882, c. 13, §§ 38-41; Rev. Laws, c. 14, §§ 37-42. As before stated, under this system the real estate and machinery were assessed to the corporation where the property was situated. There was no tax upon the personal property as such, either to the corporation or the individual shareholders, nor were the shareholders assessed for these shares, but instead thereof there was a franchise tax upon the corporation based upon the market value of its shares less the value of its real estate and machinery.

The state of the law at that time as to the taxation of foreign corporations will be hereinafter considered.

In 1902, the Legislature, desiring to have more light upon the general condition of corporations for the purpose of ascertaining whether it was advisable to make any changes in the law affecting them, passed a statute providing for the appointment by the Governor of a committee of three persons to investigate and report to the next Legislature. So. 1902, p. 251, c. 335. This committee were 'to examine and consider the laws of the commonwealth, in relation to the formation, taxation and conduct of all corporations, foreign or domestic, except municipal, banking and public service corporations,' and to 'compare the said laws, and their effect upon trade, commerce and manufactures, with the corresponding laws, and their effect, in other states and countries, especially in respect to matters of taxation.' The committee were 'to determine what legislation, if any, is necessary to make the relations existing between the commonwealth and said corporations more advantageous to the commonwealth and to the public interest.' They were to report to the next Legislature, the report to be accompanied by such bills as were necessary to carry out their recommendations.

The committee in due time made a very elaborate report, and the report was accompanied by a bill. These were referred to the joint legislative committee of 1903 on the revision of the laws, who reported the bill which was finally enacted as St. 1903, p. 418, c. 437, the statute now under consideration. For convenience the committee appointed under the statute of 1902 will be called the 'committee,' while the legislative committee of 1903 will be called the 'joint committee.'

It is plain from the report of the committee that they construed the statute as limiting their investigations to such corporations as have a capital stock and are established for the purpose of carrying on business for profit under the general and special laws of the commonwealth, excepting those named in the second section of the act and insurance companies. Upon the matter of taxation, which is very carefully considered, the committee, after saying (page 31) that 'There is substantial agreement in the conclusion that the existing law governing the taxation of corporations particularly manufacturing and trading corporations, is so burdensome upon certain classes of these corporations that they are in many cases compelled to organize under the laws of other states,' proceed to a brief historical review of the taxation of corporations, both domestic and foreign, and to a statement of the present condition of the law on that subject. They recognize (page 35) that 'There is no express provision for the taxation of foreign corporations, but they are taxed in the same manner as individuals'; that (page 36) 'as a foreign corporation is legally a nonresident, and as the situs of intangible property follows the residence of the owner,' a property tax can be laid only upon 'its tangible property within the commonwealth'; and further, that 'The practical effect of this is to limit the taxation of foreign corporations to their real estate, machinery and merchandise, which by the terms of section 23 [meaning Rev. Laws, c. 12, § 23], are expressly made taxable to nonresidents. In other words, foreign corporations are taxed as individual residents of the commonwealth, except that they escape taxation on their money, credits and...