Person v. Board of State Tax Com'rs

• Decision Date: 20 December 1922
• Docket Number: 250.
• Citation: 115 S.E. 336,184 N.C. 499
• Parties: PERSON v. BOARD OF STATE TAX COM'RS ET AL.
• Court: North Carolina Supreme Court

115 S.E. 336

184 N.C. 499

PERSON v. BOARD OF STATE TAX COM'RS ET AL.

No. 250.

Supreme Court of North Carolina

December 20, 1922

Appeal from Superior Court, Franklin County; Calvert, Judge.

Petition for mandamus by W. M. Person for himself and other taxpayers against the Board of State Tax Commissioners, in which A. D Watts, as Revenue Commissioner, was thereafter made a party defendant and the suit prosecuted against him alone. From a judgment sustaining demurrer to the petition, plaintiff appeals. Action dismissed.

Clark C.J., dissenting.

Though the writ of mandamus, originally prerogative, is now substantially a proceeding to enforce legal rights, it is nevertheless limited by conditions not applicable to an ordinary suit and is employed as an extraordinary remedy in cases where other remedies fail and generally invoked to enforce a ministerial act or duty where there is no specific remedy and uniformly denied where it would be nugatory or unavailing.

For purposes of taxation it is not necessary that a distinction be made between common and preferred stock of corporations and the preferred stock taxed as bonds, since the holders of both kinds of stock are creditors of the corporation in the sense that it owes them a return on their investment, but the preferred stockholder is given a prior lien on the earnings and property of the company and as an equitable balance the holders of the common stock are usually intrusted with the management of the business.

W. M Person, of Louisburg, for appellant.

James S. Manning, Atty. Gen., and Frank Nash, Asst. Atty. Gen., for appellee.

ADAMS J.

At the session of 1901 the General Assembly constituted the Corporation Commission a Board of State Tax Commissioners and imposed upon such Board certain duties relative to the listing, assessment, and taxation of property. The statutes defining and circumscribing these duties, as modified or amended from time to time, have since been continued in force and effect; but on March 8, 1921, the duties of the State Tax Commissioners were transferred to the state Department of Revenue to be performed after May 1 by the Commissioner of Revenue, except as otherwise provided, and thereupon the Tax Commission became functus officio. The original summons in the proceeding was issued against the Board of State Tax Commissioners on May 6, 1922, and purports to have been served on the chairman of the Board, but A. D. Watts, the Commissioner of Revenue, was thereafter made a party defendant, and the suit is prosecuted against him alone.

On the day the summons was issued, the plaintiff filed his "complaint and petition." After reciting certain duties of the Tax Commission, the constitutional mandate that property shall be taxed by a uniform rule, and the statutory provisions for listing corporate property for taxation, he alleges, in substance, that all "exempting statutes" are unconstitutional, that shareholders in corporations by means of "device, camouflage, and fraud" evade the payment of all taxes except an "irreducible minimum on their visible property" and bear none of the burdens of government, but leave them to be borne by the "rural homesteader" and the dwellers in cities and towns. He further alleges that the contention that a tax on stocks is paid by the corporations in which they are held is a "smoke screen to hide the duplicity" of the owners from the "burdened taxpayers of the visible property of North Carolina," and that the "Board of State Taxation" should require, not only the capital stock of corporations, but the stocks held by individuals to be listed for taxation at their true value in money.

The defendant demurred and moved to dismiss the petition on the ground that it does not state a cause of action, and that the court had no jurisdiction to grant the relief demanded. His honor sustained the demurrer, and the plaintiff appealed.

Shorn of verbiage, the contention of the plaintiff is this: That the Constitution of North Carolina, art. 5, § 3, provides that "laws shall be passed taxing, by a uniform rule, all moneys, credits, investments in bonds, stocks, joint-stock companies, or otherwise"; that stockholders should therefore list for taxation in their own names all shares of stock held by them; that all statutes purporting to exempt the individual owner from the necessity of listing his stocks in this manner are void and of no effect; and that it is the duty of the defendant to enforce compliance with this construction of the constitutional provision.

On the other hand the defendant insists that the plaintiff's contention is based on a misconception, both of the constitutional requirement and of the laws enacted for the purpose of carrying it into effect, and that the existing method of taxing property, corporate and individual, is in strict compliance with the mandate of the organic law.

These respective contentions illustrate a situation out of which have arisen two theories concerning the taxation of investments in the stocks of corporations. The first is that the statutory method just referred to is such an evasion of article 5, § 3, of the Constitution as exempts from taxation practically all shares of stock in corporations (with a few exceptions) organized under the laws of North Carolina, and that, while the corporation should pay a tax upon the capital stock, the shareholder should likewise pay a tax upon his investment in or contribution to such capital stock, the alleged reason being that the shares or certificates of stock are the individual property of the shareholder and are separate and distinct from the capital stock of the corporation. The advocates of the other theory concede that the property of a shareholder in the stock of a corporation is for certain purposes and in a restricted sense distinct from the property owned by the corporation as a legal entity, but they say that shares of stock are and for many years have been returned for taxation by the proper officer of the corporation on behalf of the owner and that the tax assessed thereon is paid by the company; that the situs of the shares for taxation is transferred from the residence of the owner to the place where the principal office of the corporation is situated, and that this method assures the taxation of all shares of stock, many of which, especially those of nonresident owners, had previously escaped taxation; that in no other way is the stockholder relieved of the direct payment of tax on his stock; and that under these circumstances the payment of a tax on his shares by the individual owner would amount to double taxation which, while not prohibited by the Constitution, has not been sanctioned by the General Assembly. It is further insisted that this method has been adopted by the Legislature as the most effective means of securing the best financial returns from such taxation, and that provision has been made for imposing upon all classes of assessable corporate property, real and personal (including the capital stock, the franchise, and shares of stock) a just and equitable proportion of the burdens of government.

We have referred to these theories (to the first of which the plaintiff evidently adheres) for the purpose of showing the background of the plaintiff's position and the basis upon which his complaint is made to rest; and upon inspection of the complaint, the demurrer, the motion to dismiss, and the argument of counsel, we have concluded that there are several cogent reasons for holding that the instant proceeding has been improvidently instituted and that it cannot be maintained.

In the first place, the relief sought could not be obtained in any event without the exercise of legislative functions, and the plaintiff's fatal error is found in the assumption that such functions may be exercised by the courts, notwithstanding the constitutional separation of the several departments of the government. The Declaration of Rights provides:

"The legislative, executive and supreme judicial powers of the government ought to be forever separate and distinct from each other." Section 8.

As to the wisdom of this provision there is practically no divergence of opinion--it is the rock upon which rests the fabric of our government. Indeed, the whole theory of constitutional government in this state and in the United States is characterized by the care with which the separation of the departments has been preserved and by a marked jealousy of encroachment by one upon another. In Black's Constitutional Law it is said:

"It is a fundamental maxim of political science, recognized and carried into effect in the federal Constitution and the Constitution of all the states, that good government and the protection of rights require that the legislative, executive, and judicial powers should not be confided to the same person or body, but should be apportioned to separate and mutually independent departments of government." Page 83.

"* * * As the rule, it may be said that the American state Constitutions now divide the powers of government, and provide that no person or body belonging to one branch shall exercise powers or functions belonging to the others. But even in the absence of such an explicit declaration, the creation of the several departments and the description of their respective powers would be sufficient to secure each against encroachments by the others." Id. p. 86.

The power to levy taxes is vested exclusively in the legislative department of the government. Constitution, art. 5.

"Within constitutional limits the power of the Legislature in matters of taxation is supreme, and its action cannot be revised or annulled by the judicial department. Nor can the courts be authorized or required by statute to levy and...