Ray Consol Copper Co v. United States

• Decision Date: 25 May 1925
• Docket Number: No. 443,443
• Citation: 268 U.S. 373,69 L.Ed. 1003,45 S.Ct. 526
• Parties: RAY CONSOL. COPPER CO. v. UNITED STATES
• Court: U.S. Supreme Court

268 U.S. 373

45 S.Ct. 526

69 L.Ed. 1003

RAY CONSOL. COPPER CO.

v UNITED STATES.

No. 443.

Argued Jan. 13, 1925.

Decided May 25, 1925.

Mr. Arthur A. Ballantine, of New York City, for appellant.

Mr. James M. Beck, Sol. Gen., of Washington, D. C., for the United States.

Mr. Justice BRANDEIS, delivered the opinion of the Court.

The Revenue Act of 1918, February 24, 1919, c. 18, title 10, § 1000a(1), 40 Stat. 1057, 1126 (Comp. St. Ann. Supp. 1919, § 5980n), provides:

'Every domestic corporation shall pay annually a special excise tax with respect to carrying on or doing business, equivalent to $1 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. In estimating the value of the capital stock the surplus and undivided profits shall be included.'

How the value shall be determined is the main question for decision.

Ray Consolidated Copper Company, a domestic corporation engaged in the business of mining and smelting, has a capital stock of $15,771,790, divided into 1,577,179 shares of common stock of the par value of $10 each. Under the above provision, the company filed, on July 30, 1920, with the appropriate collector of internal revenue a return for the special tax for the year ending June 30, 1921, in which it reported that the fair average value of its capital stock for the preceding year was $34,803,608.99. The value so reported was arrived at by finding the average selling price of the stock on the New York Stock Exchange during the calendar year 1919 and multiplying the price so found—about $22 a share—by the number of shares outstanding. The stock is listed on the New York Stock Exchange, was traded in almost daily, and the aggregate number of shares so sold during the year equalled nearly one-third of the total stock outstanding. The Commissioner of Internal Revenue refused to accept the company's valuation; took into consideration for the purpose of estimating the value of the capital stock, among other things, the value of the mining property theretofore established in connection with other federal taxes; concluded that the fair value of the capital stock considered as a whole was not materially less than the net fair value of the assets; fixed the value of the capital stock higher than the company had reported; and exacted an additional tax. Refund being denied, this suit was brought in the Court of Claims to recover the additional amount paid. Before the trial the Commissioner refunded a part of the additional tax. As to the balance, that court upheld the assessment. 59 Ct. Cl. 686. The case is here on appeal under section 242 of the Judicial Code (Comp. St. § 1219).

The company insists that the term 'fair average value of its capital stock' means fair average value of the aggregate shares of its stock and not the value of the corporate assets; that the fair average value of the shares, based upon bona fide sales of the stock in reasonable volume, was correctly stated in its return; that the aggregate value of the shares so determined by the fair average selling price of the individual shares must be adopted as the single standard for determining the value of the capital stock; that such determination cannot lawfully be modified by any consideration of the value of the corporation's assets; that the Commissioner based his determination upon the net fair value of the assets; and that the additional tax was therefore illegally assessed.

The tax is a special excise imposed on the privilege of carrying on business in the form of a corporation. Congress might have measured the value of the privilege by the net income of the year, as in the corporation tax, Flint v. Stone-Tracy Co., 220 U. S. 108, 174, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312; by the annual gross receipts, as in the sugar refiners' tax, Spreckels Sugar Refining Co. v. McClain, 192 U. S. 397, 24 S. Ct. 376, 48 L. Ed. 496; by the amount of capital employed, as in the bankers' tax, Fidelity Title & Trust Co. v. United States, 259 U. S. 304, 308, ...