Pullman Co. v. Commissioner of Taxation

• Decision Date: 04 January 1947
• Docket Number: 33977,33979.
• Citation: 25 N.W.2d 838,223 Minn. 96
• Parties: PULLMAN CO. v. COMMISSIONER OF TAXATION.
• Court: Minnesota Supreme Court

25 N.W.2d 838

223 Minn. 96

PULLMAN CO. v. COMMISSIONER OF TAXATION.

Nos. 33977, 33979.

Supreme Court of Minnesota

January 4, 1947

Rehearing Denied Jan. 23, 1947.

Certiorari to Board of Tax Appeals.

Syllabus by the Court.

1. Held that franchise tax imposed by L.1933, c. 405, s 2, is an ad valorem property tax.

2. The taxing of the franchise of sleeping car companies as property under the gross receipts tax act, L.1913, c. 480, s 2, precludes the imposition of a franchise tax on such sleeping car company franchise under L.1933, c. 405, s 2.

3. Held, that imposition of franchise tax on sleeping car company, which is subject to gross receipts tax, is violative of the rule against double taxation and is in contravention of the uniformity provision of Minn.Const. art. 9, s 1.

Stearns & Stearns and Michael N. Lyons, Jr., all of St. Paul, Frank A. Malone, of Chicago, Ill. (Lowell M. Greenlaw and Herbert S. Anderson, both of Chicago, Ill., of counsel), for relator.

J A. A. Burnquist, Atty. Gen., and David W. Lewis, Asst. Atty Gen., for respondent.

CHRISTIANSON Justice.

This matter which has come to the writer by reassignment, involves demands for refund of franchise taxes paid by relator, The Pullman Company, for the years 1934, 1936, and 1937. Such taxes were paid under and pursuant to L.1933, c. 405, s 2. The amounts thus paid and refunds of which are here sought are $154.30 for 1934, $1,279.90 for 1936, and $1,829.73 plus interest of $380.64, for 1937.

Proceedings to secure refunds in all the cases were had before the commissioner of taxation and, upon denial of the relief sought, appeal was taken to the board of tax appeals, where relator was likewise unsuccessful. Thereupon, the matters were brought here for review by certiorari. The three cases have been consolidated on appeal, but only one opinion will be written.

It is the contention of relator that it is entitled to a refund of the franchise taxes paid for the years 1934 and 1936 because in such years it was subject to and had paid the gross receipts tax under L.1913, c. 480, s 2, which gross receipts tax was by the provisions of c. 480, s 2 expressly stated to be 'in lieu of all taxes and assessments upon all taxable property, of said company within this state, * * *.' Refund of the franchise tax paid for 1937 is claimed on the ground that during that year relator was subject to and paid a gross receipts tax under c. 480, s 2, as amended by Ex.Sess.L.1937, c. 3, s 2, being Minn.St.1945 and M.S.A. s 295.29, which gross receipts tax was by the amendment of 1937 expressly stated to be 'in lieu all Ad valorem taxes upon all taxable property said company within this state, * * *.'

It is urged by relator that the franchise tax which it was thus compelled to pay for the years 1934, 1936, and 1937 is in fact an ad valorem property tax and therefore could not properly be imposed upon and collected from relator inasmuch as during those years relator was subject to and paid the gross receipts tax above referred to, which gross receipts tax was also a property tax, which by its terms was an exclusive tax upon the entire property of relator within the state, including relator's franchise. If relator is correct in its contention that the franchise tax is an ad valorem property tax and that the gross receipts tax, under the gross receipts tax act prior to its amendment in 1937, was in fact a tax to be imposed 'in lieu of all taxes and assessments upon all taxable property, of said company within this state,' nd that from and after the amendment of 1937 such gross receipts tax was in fact, as stated in the amendment, 'in lieu of all Ad valorem taxes upon all taxable property of said company within this state,' then, clearly, it should prevail in these proceedings. If, on the other hand, as is contended by the state, the franchise tax is not an ad valorem property tax, but an excise tax, then such franchise tax may properly be imposed upon and collected from relator.

It is therefore necessary to decision here that we determine the character of the taxes involved--whether the franchise tax is an ad valorem property tax or an excise tax, and whether the gross receipts tax, both before and after the 1937 amendment thereto, is a property tax to be imposed on the entire property of relator in the state exclusive of all other taxes.

1. We will first consider the character of the franchise tax imposed by L.1933, c. 405, s 2, which tax relator here contends is an ad valorem property tax and therefore not properly imposed upon and collectible from relator. Section 2 provided for the imposition upon every domestic and foreign corporation of an annual tax for the privilege of existing as a corporation or of transacting any local business within the state during any part of its taxable year, such tax to be measured by the corporation's taxable net income for the year, to be computed in the manner and at the rates specified in the act. Subsequent modifications of the act have not changed the material provisions thereof.

This court has heretofore had the foregoing section before it for consideration, and in the course of such consideration it designated the tax imposed by such enactment as a property tax rather than an excise tax. We call attention to Bemis Bro. Bag Co. v. Wallace, 197 Minn. 216, 266 N.W. 690, and State v. Duluth, Missabe & Northern Ry. Co., 207 Minn. 618, 623, 292 N.W. 401, 404. In the latter case, the court said in the course of its opinion:

'The tax imposed upon a corporation by c. 405, s 2, is described by the legislature in that section as a tax, 'for the privilege of existing as a corporation or of transacting any local business within this state during any part of its taxable year, measured by its taxable net income for such year.'

'Is this a property tax upon the franchise? If so, then it is a tax upon a subject covered by the gross earnings tax and is invalid without a vote of the people to approve it. The state contends that it is an excise tax, and presents an elaborate and learned argument to that effect. We think, however, that the question is completely and conclusively answered in favor of defendants by the decision of this court in the case of Bemis Bro. Bag Co. v. Wallace, 197 Minn. 216, 266 N.W. 690. The question there presented was whether the corporate excess tax provided for in s 2021, (1) Mason's Minn.St.1927, was superseded and repealed by implication by various tax statutes subsequently enacted. A part of the problem there confronting the court was adjudication of the character of the tax imposed by c. 405, s 2. We there held that both the goodwill and franchises, as property, are included within the expressed subject of c. 405, s 2, which for convenience is referred to as the income tax law. This holding was addressed to the merits of the question then before this court. Other cases might be cited, but we deem the Bemis case conclusive on this point.

'Like the gross earnings tax law, c. 405, s 2, is a tax upon property measured by the net taxable income of the corporation. By its terms the section makes the tax a property tax and not an excise tax.' (Italics supplied.)

That a franchise is property and taxable as such was the view of this court long before the Bemis and the Duluth, Missabe cases were decided. In State v. Duluth G. & W. Co., 76 Minn. 96, 103, 78 N.W. 1032, 1033, 57 L.R.A. 63, Mr. Justice Mitchell stated in the course of the court's opinion:

'* * * It is well settled that these franchises, although neither visible nor tangible, are property which may be taxed the same as any other property.'

Nor is there anything novel or unique in holding, as this court has heretofore done, that the franchise tax here involved is a property tax.

'* * * It is held with practical unanimity that the franchise is property and may be taxed as such. Whenever a corporation is legally formed, the right to exist as a corporation and to perform the functions named in the charter, even if they are such as may be performed by individuals without any grant from the state, is a franchise which may be taxes as property, * * *.' 26 R.C.L., Taxation, s 138.

At an early day the United States Supreme Court said in the case of Wilmington & W. Railroad Co. v. Reid, 80 U.S. 264, 268, 13 Wall. 264, 268, 20 L.Ed. 568, 570:

'It is insisted, however, that the tax on the franchise is something entirely distinct from the property of the corporation, and that the legislature, therefore, was not inhibited from taxing it. This position is equally unsound with the others taken in this case. Nothing is better settled than that the franchise of a private corporation--which in its application to a railroad is the privilege of running it and taking fare and freight--is property, and of the most valuable kind, * * *.'

There appearing to be no impelling considerations of justice requiring a departure therefrom, we adhere to the past decisions of this court and hold that the franchise tax here involved is a property tax. The fact that such view, long ago adopted by this court, may now be a minority view is not of itself sufficient reason for reversing decisions which adopted a rule that has here long been accepted and followed.

Inasmuch as the gross receipts tax act by its 1937 amendment provided that the gross receipts tax was 'in lieu of all Ad valorem taxes upon all taxable property of said company within this state,' we will next consider whether the franchise tax here imposed is in fact an ad valorem (according to value) tax.

The fact that the tax imposed is, according to the terms of the franchise tax act (L. 1933, c. 405, s 2), to be 'measured by its (such corporation's) taxable net income for such year' for which the tax is imposed is...