Schuylkill Trust Co v. Commonwealth of Pennsylvania

• Decision Date: 03 January 1938
• Docket Number: No. 447,447
• Citation: 302 U.S. 506,82 L.Ed. 392,58 S.Ct. 295
• Parties: SCHUYLKILL TRUST CO. v. COMMONWEALTH OF PENNSYLVANIA
• Court: U.S. Supreme Court

302 U.S. 506

58 S.Ct. 295

82 L.Ed. 392

SCHUYLKILL TRUST CO.

v COMMONWEALTH OF PENNSYLVANIA.

No. 447.

Argued Dec. 6, 1937.

Decided Jan. 3, 1938.

Mr. John Robert Jones, of Philadelphia, Pa., for appellant.

Mr. Manuel Kraus, of Pittsburgh, Pa., for appellee.

[Argument of Counsel from page 507 intentionally omitted] Mr. Justice ROBERTS delivered the opinion of the Court.

In Schuylkill Trust Company v. Pennsylvania, 296 U.S. 113, 56 S.Ct. 31, 80 L.Ed. 91, we held an act of Pennsylvania¹ invalid as construed and applied in the calculation of the amount of the tax thereby imposed. The statute requires every trust company chartered under the general corporation law to report annually to the Department of Revenue the number of outstanding shares and their actual value at the close of the preceding calendar year. The department is to assess the shares for taxation at five mills upon the dollar. The taxable value of each share is to be ascertained by adding together so much of the amount of paid-in capital stock, surplus, and undivided profits as is not invested in shares of corporations liable to pay or exempted from payment of the Pennsylvania capital stock tax, or relieved from the payment of a tax on shares, and dividing this amount by the number of shares. The company must pay the tax from its general fund within 60 days after assessment, or collect it from the shareholders and pay it over. Provision is made for posting notice of the assessment in the company's office so that shareholders shall be advised of the amount of the assessment and for a hearing of any shareholder who objects to the valuation of the shares.²

Securities owned by a trust company may have been purchased out of deposits or from the capital, surplus, and undivided profits. Since securities, the value of which is by the act deductible from the tax base, may have been purchased out of either of the two funds, it is open to the company to prove that they or any of them were purchased out of capital, surplus, or undivided profits. Upon such a showing these securities are fully exempt from tax. Where the company has not made this showing the practice in assessing the tax has been to grant a so-called proportionate deduction in respect of such exempt securities.³ This is accomplished by the use of the following formula: A fraction, the numerator of which is the capital, surplus, and undivided profits at book value, less the book value of those investments, if any, for which a full deduction has been made, and the denominator, the book value of the permanent investments, less the book value of those investments, if any, for which a full deduction has been made, is applied to the book value of the securities which are to be apportioned, after adjustment for appreciation or depreciation of those securities, and the resulting sum is deducted from the capital, surplus, and undivided profits. In this manner a portion of the value of each exempted security reflected in the capital, surplus, and profits is deducted before the value per share is determined by dividing the capital surplus and profits so diminished by the number of shares outstanding.

Upon the former appeal it was shown that whereas a proportionate deduction was allowed for shares of Pennsylvania corporations previously taxed, or shares of such corporations exempt from tax, no deduction was accorded in respect of shares of a national bank and bonds of the federal government and its instrumentalities owned by the company. The appellant's position was that the act, though it purported to tax the shares, in fact taxed the net assets of the company which included shares of stock of a national bank and securities of the federal government and its instrumentalities owned by the appellant. An alternative claim was that, if the levy was upon the shares as such, the application of the act worked a discrimination against national bank shares and other federal securities by excluding from the base a proportionate part of the value of shares of certain Pennsylvania corporations while leaving in the base national bank shares and federal securities; and that, if the tax was upon the shares, it was bad as the Commonwealth was without power to tax the shares of nonresident stockholders. The Commonwealth insisted the tax was upon the shares and not upon assets, that the application of the statute involved no discrimination against federal securities and that the State had jurisdiction to tax the shares of nonresident shareholders.

We found it unnecessary to determine whether the tax was upon shares or assets. Amongst the assets were shares of national bank stock which had been taxed to the company as owner, pursuant to R.S. § 5219, as amended.⁴ These we held must be excluded from the base upon which the tax was calculated. We held further that the exclusion from the base of a proportion of the value of tax-exempt shares of Pennsylvania corporations, and the refusal of like treatment of federal securities, operated as an unconstitutional discrimination against the latter. We reversed the judgment of the Supreme Court of Pennsylvania and remanded the cause for further proceedings not inconsistent with our opinion.

After our mandate went down the Commonwealth moved the trial court to redetermine the tax by disregarding the amendatory statute involved in our decision and reverting to the basic act of June 13, 1907,⁵ which was claimed not to be affected by the infirmity of the amendatory act. The appellant insisted that as we had set aside the judgment and held the amendatory act of April 25, 1929,⁶ invalid as construed and applied, the only action open to the trial court was the entry of a judgment for the appellant. The court refused to follow either of the suggested courses, holding that the Legislature, by the act of 1929, intended to exercise only such power as it lawfully possessed and did not attempt to impose a tax upon securities exempted by federal law. It found that the purpose of the statute could be accomplished by eliminating the national bank shares from the tax base and by treating the other federal securities in the same manner as tax-exempt stock of state corporations. It accordingly recalculated the tax. The appellant took the case to the Supreme Court of the Commonwealth which affirmed the judgment.⁷

By appropriate exceptions and assignments of error the appellant challenges the new judgment upon these grounds: That the courts below have disregarded the mandate of this court and have exceeded their powers in reassessing the tax; that the tax is one upon assets and not upon shares, and federal securities are left in the tax base as to at least a portion of their value; that, if the tax is upon the shares rather than upon the assets, there is still a discrimination against federal securities because the stockholders of appellant and other similar corporations are wholly exempted from any tax calculated upon the value of the shares of national banks whereas at least a portion of the value of other federal securities still remains in the tax base; and that, in any event, the impost is bad so far as it is laid upon the shares of nonresident shareholders. The Commonwealth argues that the tax is upon the shares as such and not upon assets; that in assessing it no discrimination is practiced against federal securities and in favor of the exempted stock of Pennsylvania corporations; and that, if the tax is otherwise valid, the fact that it is laid upon all shareholders, including nonresidents, does not void it as respects the latter.

First. When the case was previously heard we held the statute invalid as construed and applied and remanded the cause for further proceedings not inconsistent with our opinion. It is clear that the State courts were not precluded from construing the statute so as to eliminate the unconstitutional features. It follows that the appellant was not entitled, as a matter of right, to a general judgment in its favor exempting it from all tax.

Second. The contention that the State courts really have not construed the act but have themselves amended it, and that this is judicial legislation forbidden by the Constitution of Pennsylvania, is not open here. As the trial court pointed out, courts, in applying a statute, general and sweeping in its terms, may construe it as not intended to reach subjects which, by reason of constitutional prohibition, the Legislature is without power to touch. Whether the courts of the Commonwealth exceeded their powers under the State Constitution is not a federal question. We accept their construction of the act.

Third. As the case is now presented, we find it necessary to determine whether the tax is upon the shares as such or upon the capital, surplus, and profits of the company. The statute on its face lays the tax upon the property of the stockholder, represented by the shares he owns. The State courts, and the local federal court, have held the imposition a tax upon the shares.⁸ The history of legisla- tion respecting taxation of banks and trust companies in Pennsylvania leads to the same conclusion.⁹ We are of opinion that the tax is one upon the shares as such and not upon the assets of the company.

Fourth. The State need not have made any exemption or concession in taxing the property in the shares on account of value therein reflected from the company's ownership of obligations of the government or its instrumentalities other than national bank stock.¹⁰ And the discrimination found upon the earlier appeal in failing to accord proportionate exemption to federal securities similar to that extended to exempt shares of domestic corporations has been removed, for all are now accorded like treatment by way of deduction.

Fifth. The fact that the shareholders of a trust company whose investments consist of national bank stock would pay no tax, because R.S. § 5219, 12 U.S.C.A. § 548, permits but a single tax thereon which has been...