Newark Fire Ins Co v. State Board of Tax Appeals Universal Ins Co v. Same

• Decision Date: 29 May 1939
• Docket Number: 456,Nos. 449,s. 449
• Citation: 307 U.S. 616,307 U.S. 313,59 S.Ct. 918,83 L.Ed. 1312
• Parties: NEWARK FIRE INS. CO. v. STATE BOARD OF TAX APPEALS et al. UNIVERSAL INS. CO. et al. v. SAME
• Court: U.S. Supreme Court

307 U.S. 313

59 S.Ct. 918

307 U.S. 616

83 L.Ed. 1312

NEWARK FIRE INS. CO.

v STATE BOARD OF TAX APPEALS et al.

UNIVERSAL INS. CO. et al.

v. SAME.

Nos. 449, 456.

Argued April 18, 19, 1939.

Decided May 29, 1939.

As Corrected June 5, 1939.

Mr. Arthur T. Vanderbilt, of Newark, N.J., for appellant Newark Fire ins. co.

Messrs. John G. Jackson, of New York City, and Jehiel G. Shipman, of Newark, N.J., for appellants Universal Ins. Co. and another.

Mr. Donald R. Richberg, of Washington, D.C., for appellees.

[Argument of Counsel from page 314 intentionally omitted] Mr. Justice REED announced an opinion in which the CHIEF JUSTICE, Mr. Justice BUTLER and Mr. Justice ROBERTS, concurred.

The controversy in No. 449 relates to the jurisdiction of New Jersey to tax the appellant upon the full amount of its capital stock paid in and accumulated surplus. The case is here by appeal under Section 237(a) of the Judicial Code. ¹

Chapter 236 of the Laws of 1918² is a general act for the assessment and collection of taxes. Section 202, N.J.S.A. 54: 4—1, subjects all real and personal property within the jurisdiction of New Jersey to taxation annually at its true value. By Section 301, N.J.S.A. 54:4—9, the tax on other than tangible personal property is assessed on each inhabitant in the taxing district of his residence on the first day of October in each year. Section 305, N.J.S.A. 54:4—18, deals with domestic corporations as residents of the district in which their chief office is located and renders their personal property taxable in the same manner as that of individuals, except as otherwise provided. Section 307, N.J.S.A. 54:4—22, the most vital in the case, provides:

'Every fire insurance company and every stock insurance company other than life insurance, shall be assessed in the taxing district where its office is situate, upon the full amount of its capital stock paid in and accumulated surplus. * * * No franchise tax shall be imposed upon any such fire insurance company or other stock insurance company included in this section.'

The appellant is a stock fire insurance corporation organized under the laws of New Jersey which at the time of this assessment required it to locate its principal office and to conduct its general business in the state.³ It is stipulated that a registered office is maintained in Newark, New Jersey, together with such books as the law requires to be kept within the state. The only business carried on in this Newark office is a local or regional claim and underwriting department for Essex and three other counties. No executive officer is there and reports are sent to the New York office. The stipulation further shows that the company's 'executive officers and its executive office are located at 150 William Street, New York City. The general accounts of the company are kept in the office in New York City. The general accounting, underwriting and executive offices of the company are all located at the main office at 150 William Street, New York City. All cash and securities of the company are located there or in banks in that City or in other banks outside of the State of New Jersey, with the exception of the sum of $6,425.32 on deposit in New Jersey banks. All of the general affairs$of the company are conducted at the main office in New York City and have been so conducted there since appellant moved its main office from Newark six years ago.' No personal property tax is paid in New York. The company does pay there a franchise tax based upon premiums.

The Board of Assessment of the City of Newark made an assessment, as of October 1, 1934, upon the capital stock paid in and accumulated surplus of the appellant, with deductions for debts and exemptions allowed by law. The assessment was sustained, in succession, by the Essex County Board of Taxation, by the New Jersey State Board of Tax Appeals, now an appellee, by the Supreme Court,⁴ and by the Court of Errors and Appeals, the highest court in the state.⁵ Throughout the proceedings below the appellant resisted the jurisdiction of New Jersey to tax on the ground that its intangibles had acquired a business situs and the corporation a tax domicile in New York. Throughout, the state tribunals treated the assessment as upon personal property with a business situs in the sister state. The Supreme Court characterized the exaction as a personal property tax and discussed its validity 'in the light of the proofs * * * upon the inescapable premise that * * * the securities, the personalty involved, have become an integral part of (appellant's) business situs in New York. * * *'⁶ It held that the state of domicile may impose a personal property tax upon intangibles which have acquired a business situs in another state and added that, in the absence of a New York personal property tax, multiple taxation was impossible. The Court of Errors and Appeals of New Jersey, per curiam, affirmed the judgment for the reasons expressed in the opinion of the Supreme Court.⁷

Appellant urges error in sustaining the assessment in the face of the conclusion that the tax is a property tax upon intangibles with a business situs in New York, the commercial domicile of the corporation. Such approval, it is claimed, violates the due process clause of the 14th Amendment, U.S.C.A.Const.

The present tax, as administered, is levied upon an assessment of the full amount of capital stock and surplus. It is a tax on the net value of the corporation less allowable deductions, reached by taking liabilities from gross value of assets and subtracting exempt items from the remainder. This is apparently because capital stock and surplus are treated as invested in the exempt assets.⁸ The value thus assessed is not determined by specific items but is the result of a calculation in which all assets are involved except those definitely exempted. Our conclusion makes it unnecessary to resolve doubts as to whether this is a property tax.

When a state exercises its sovereign power to create a private corporation, that corporation becomes a citizen, and domiciled in the jurisdiction, of its creator.⁹ There it must dwell.¹⁰ The dominion of the state over its creature is complete.¹¹ In accordance with the ordinary recognition of the rule of mobilia sequuntur personam to determine the taxable situs of intangible personalty,¹² the presumption is that such property is taxable by the state of the corporation's origin.¹³ This power of New Jersey to tax is made effective by section 307 of the Act of 1918, heretofore quoted. It is the only tax sought by the state from corporations of this type, as the franchise tax, at one time levied,¹⁴ was repealed by the Act of April 8, 1903.¹⁵

There are occasions, however, when the use of intangible personalty in other states becomes so inextricably a part of the business there conducted that it becomes subject to taxation by that state.¹⁶ The carrying on of the business of the corporation in New York, it is urged, has withdrawn its intangibles completely from the tax jurisdiction of New Jersey. With the assumption of a business situs and commercial domicile in New York, that state, under the authorities cited, would have the right to tax intangibles with this relation to its sovereignty. Appellant contends that if New York may levy a property tax on these intangibles, it will violate the due process clause of the 14th Amendment, U.S.C.A.Const., to permit New Jersey to do the same thing; that property cannot be in two places; that if it is in New York for tax purposes, it cannot be in New Jersey. We are asked to decide that both states have not the power to tax the same property for the same incidents. This question has been heretofore reserved.¹⁷ We do not find it necessary to answer it in this case.

Where consideration has been given to the existence of a business situs of intangibles for taxation by a state other than the state of domicile, there has been definite evidence that the intangibles were integral parts of the business conducted. In so far as the conclusion as to the existence of a business situs for the purpose of taxation, distinct from the domiciliary situs, is the basis for a claim of a Federal right, the duty of inquiring into the evidence which establishes such business situs rests upon this Court.¹⁸

In the Stempel, Bristol, Comptoir National, Metropolitan and Liverpool cases, cited in note 16, supra, the integration of the foreign-owned intangibles with local activities was evident from the continued course of business. The presence or absence of the evidences of the credits from the jurisdiction was immaterial.¹⁹ The non-resident individuals and corporations carried on continuously a course of lending money or granting credits within the taxing states. The taxed intangibles grew out of these transactions. They were, in fact, a part of them. In the Wheeling Steel case, the same type of amalgamation occurred. West Virginia sought to tax a Delaware corporation on counts receivable and bank deposits. The opinion points out, 298 U.S. at pages 212 and 213, 56 S.Ct. at page 778, 80 L.Ed. 1143, that these choses in action were the indebtedness for or the proceeds of sales confirmed in West Virginia, attributable 'to the place where they arise in the course of the business of making contracts of sale.' In First Bank Stock Corporation v. Minnesota, supra, another Delaware corporation was found to have established a commercial domicile for itself and given a business situs to certain of its intangibles. The intangibles in question were stocks of Montana and North Dakota state banks, purchased and held as part of the corporation's assets in its Minnesota business of holding the shares and managing, through stock ownership, the business of numerous banks, trust companies and other financial institutions of the Ninth Federal Reserve District. As this business was localized in Minnesota, the stocks of these banks were an essential factor of that...