Nunnally Inv. Co. v. Rose

• Decision Date: 29 June 1926
• Citation: 14 F.2d 189
• Parties: NUNNALLY INV. CO. v. ROSE, Collector of Internal Revenue.
• Court: U.S. District Court — Northern District of Georgia

14 F.2d 189 (1926)

NUNNALLY INV. CO. v. ROSE, Collector of Internal Revenue.

District Court, N. D. Georgia.

June 29, 1926.

Anderson, Rountree & Crenshaw, of Atlanta, Ga., for plaintiff.

C. P. Goree, Asst. U. S. Atty., of Atlanta, Ga., for defendant.

SIBLEY, District Judge.

This case was submitted to the court without the intervention of a jury. The Nunnally Investment Company was, for the years ending June 30, 1922, 1923, and 1924, assessed an excise tax, measured by its capital stock, as a domestic corporation doing business under section 1000 of the Revenue Acts of 1919 and 1921 (Comp. St. Ann. Supp. 1919 and Comp. St. Ann. Supp. 1923, § 5980n). The tax was collected, refund refused, and this suit brought to recover the amounts paid.

On the trial it was conceded that there existed liability for the taxes collected for the last year, and the taxes for the other two years alone are now contended for. As to them the sole question is whether the corporation, during those two years, was "doing business" within the meaning of the statutes laying the tax. That language in each statute is: "Every domestic corporation shall pay annually a special excise tax with respect to carrying on or doing business, equivalent to $1.00 for each $1,000 of so much of the fair average value of its capital stock for the preceding year ending June 30 as is in excess of $5,000."

Similar or identical language was construed by the Supreme Court in Flint v. Stone Tracy Co., 220 U. S. 107, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312, Zonne v. Minneapolis Syndicate, 220 U. S. 187, 31 S. Ct. 361, 55 L. Ed. 423, McCoach v. Minehill Railroad Co., 228 U. S. 295, 33 S. Ct. 419, 57 L. Ed. 842, United States v. Emery, 237 U. S. 28, 35 S. Ct. 499, 59 L. Ed. 825, and Von Baumback v. Sargent Land Co., 242 U. S. 503, 37 S. Ct. 201, 61 L. Ed. 460, and by Circuit Courts of Appeal in Traction Co. v. Collector, 223 F. 984, 139 C. C. A. 360, Lane Timber Co. v. Hynson, 4 F. (2d), 666, 40 A. L. R. 1448, and Gatt v. United States, 9 F.(2d) 388. These cases establish that this tax is laid, not on the existence of the corporation, but on its activities as such. The charter powers and purposes may be considered in determining whether the corporation is in business or out of business, but the use rather than the existence of corporate powers is the true point. If the only substantial corporate activity is the ownership and preservation of real and personal property, the receipt of its ordinary income, which arises from the property itself, rather than from active use and management of it, and the distribution of such income to the stockholders, with only such corporate organization and activity as is necessary thereto, there is not such a doing of business as is meant by the act. While such activity is "business" in a broad sense, a tax upon such business would be in substance one on the mere ownership of property, becoming thus a direct tax and beyond the power of Congress, except when apportioned to the states according to population.

A corporation which exists, therefore, only for the holding of fixed properties, and does not deal in the properties by buying and selling them for profit, nor by using them in some business, or by lending for interest or renting for profit to members of the public, is not doing a corporate business for which it may be taxed. The matter was thus summarized in the Von Baumback Case at page 516 (33 S. Ct. 204): "Decision in each instance must depend upon the particular facts before the court. The fair test to be derived from a consideration of all of them is between a corporation which has reduced its activities to the owning and holding of property and the distribution of its avails, and doing only the acts necessary to continue that status, and one which is still active, and is maintaining its organization for the purpose of continued efforts in the pursuit of profit and gain, and such activities as are essential to those purposes."

There is no contradiction in the evidence here. I find the important facts to be these: The plaintiff corporation has but four stockholders, Mr. and Mrs. J. H. Nunnally, their son, Winship Nunnally, and daughter, Mrs. Frances Nunnally Wheatley. Prior to 1920 it did a large candy business, but sold it to another corporation, the present Nunnally Company of Delaware. The assets of the plaintiff then consisted of the proceeds of this sale, being partly shares of stock in the buying company. Plaintiff, on January 9, 1920, amended its charter, changing its name and altering its powers, so as to exclude many of its former activities, but to permit it still to "buy, hold, own, and sell or dispose of stocks, bonds, evidences of indebtedness, whether secured or not secured, and any other personal property which it desired to deal in, to buy, hold, own, improve, subdivide, deal in, sell, or otherwise dispose of real property," besides other powers under the original charter, and "either for its own account, or as agent or broker representing other persons, and when the latter to charge such reasonable commissions or other compensation for its services as may be lawful and as may be agreed upon."

Prior to June 30, 1921, business was confessedly...