Seaboard Commercial Corp. v. State Tax Commission

• Decision Date: 07 December 1942
• Docket Number: 77.
• Citation: 29 A.2d 294,181 Md. 234
• Parties: SEABOARD COMMERCIAL CORPORATION v. STATE TAX COMMISSION.
• Court: Maryland Court of Appeals

29 A.2d 294

181 Md. 234

SEABOARD COMMERCIAL CORPORATION v. STATE TAX COMMISSION.

No. 77.

Court of Appeals of Maryland

December 7, 1942

Appeal from Circuit Court No. 2 of Baltimore City; Eugene O'Dunne, Judge.

The Seaboard Commercial Corporation was subjected to an assessment of capital stock tax made by the State Tax Commission of Maryland. From an order affirming the action of the State Tax Commission, the Seaboard Commercial Corporation appeals.

Order affirmed.

Carlyle Barton and Henry W. Schultheis, both of Baltimore (Robert S. Middleton, of Baltimore, on the brief), for appellant.

Hall Hammond, Deputy Atty. Gen. (William C. Walsh, Atty. Gen., on the brief), for appellee.

Before SLOAN, JOHNSON, DELAPLAINE, COLLINS, FORSYTHE, MARBURY, and GRASON, JJ.

MARBURY Judge.

Appellant a foreign finance corporation, appeals from an assessment of its capital stock made by the State Tax Commission and affirmed by Circuit Court No. 2 of Baltimore City. The appeal was taken under Section 194(b) of Article 81, which provides for such appeal from final action of the State Tax Commission in the exercise of its original jurisdiction in assessing any property.

The business of the appellant, as shown by the record, is divided into two classes or types. One is financing accounts receivable. None of this is done in Maryland. The other which constitutes its entire operation in Maryland, is the purchase of motor vehicle installment paper. This paper is purchased from automobile dealers and not from automobile owners. The authority to assess the stock of such a corporation is found in Article 81, Section 16(b), first enacted in 1939. Prior to that year, only stock in domestic finance corporations was assessed.

This was done under Section 16 of Article 81 as it was enacted by Chapter 226 of the Acts of 1929. That Section is now Section 16(a) of Article 81. It provides that all taxes assessed under it shall be subject to the provisions of Paragraph (e) of Section 15 of Article 81. Paragraph (e) provides that shares of stock assessed under Section 15 (and by reference under Section 16(a) shall be taxed to the owners and the taxes shall be debts of such owners but may be collected from the corporation which shall be bound to pay the same for the account of its stockholders as if the corporation were the ultimate taxpayer, but it may obtain reimbursement from its respective stockholders. A tax levied under this Section was construed in the case of Fidelity and Guaranty Fire Corporation v. State Tax Commission, 172 Md. 652, 193 A. 164, and it was there held that the tax levied on an assessment made under Section 16(a) is a tax on the shareholders. The tax to be levied under Section 16(b) is not a tax on the shareholders of foreign finance corporations, although the Section provides that the stock of foreign finance corporations shall be assessed in the same way as that of domestic finance corporations. The statute sets out its purpose in the following words: 'The intention being that a foreign finance corporation doing business in Maryland shall be assessed on its own account in the same amount as it would have been assessed, on account of its shareholders, if it were a domestic corporation.' In this state of the law, the appellant claims that the method of assessment against the corporation is void, although it has been held good in making an assessment against shareholders.

In the consideration of this question, there are other applicable sections of the taxation laws. Section 6 of Article 81 which is placed in the Code under the heading of 'What Shall Be Taxed and Where' provides in subsection (7) that there shall be subject to assessment and taxation for ordinary taxes 'so much of the capital stock of foreign finance corporation doing business in Maryland as represents the business done in this State.' The method of assessing under 16(b) is the same as that under 16(a). 16(a) refers back to Section 15, and this Section gives the rule under which the Commission is to assess. It is first to ascertain the total aggregate value of the shares of stock of the corporation by considering three things: (1) The market value, if any, (2) the net earnings or income, (3) the net value of its assets. There is a further proviso that such aggregate value shall never be ascertained to be less than the fair aggregate value of all the property and assets of the corporation less the indebtedness or other liabilities, exclusive of the capital stock, and such aggregate value shall never be less than the total value of the real estate and tangible personal property owned by the corporation in the state.

After the total aggregate value of the shares has been ascertained, the appellee is directed to deduct (1) the assessed value of all real estate in this state assessed to the corporation, (2) the net assessed value of shares of stock in any national bank in the state, the taxes on which are required to be paid for the account of the holders, (3) the fair value of property exempt under Section 7(26). This last deduction refers to vessels and air craft. When these deductions have been made, the residue shall be divided by the number of shares outstanding and the quotient shall be the assessable value of each share, with appropriate provisions in case there are two or more classes of stock. A modification of the computation provided by Section 15 is made for domestic finance corporations in 16(a) and for foreign finance corporations by reference in Section 16(b). This modification is that the property and business outside of the state shall be excluded and in apportioning the value of the shares between the business within and without Maryland it shall be presumed in the absence of clear evidence to the contrary that the value of the property and business within Maryland bears to the value of the total business and property the same ratio which the gross receipts or earnings in Maryland (exclusive of income from permanent investments) bears to the total gross receipts or earnings (exclusive of income from permanent investments.)

The point is made on behalf of the appellant that in arriving at the net value of the assets, all assets, whether tax exempt or not, must be considered, and that when they are considered, the tax is laid on assets of a corporation which the state may not be permitted to tax, such as tax exempt securities held by it. In making this contention the appellant stresses the difference between a tax on the corporation, and tax on the stockholders. The theory necessarily excludes the contention of the appellee that the tax is not on the property of the corporation, but is a tax on the privilege of doing business in the state.

Under Section 7(21) of Article 81, which is the exemption section, it is provided that there shall be exempt from taxation any property exempted from taxation by this state, by the Constitution of the United States, or by any act of Congress passed pursuant to and in conformity with the Constitution of the United States. The Commission, in an appropriate case, is authorized by this provision to eliminate exempt securities from any taxable base on which a tax is laid. However, it does not appear in the record that the appellant owned any tax exempt securities, and it was admitted in the argument that it did not. The appellant, therefore, is not in a position to question the constitutionality of the statutes involved for this reason, because no question of exempt securities affects it. Nor has the Court any power to pass upon a question which is not involved in the case it is considering. State v. Insley, 64 Md. 28, 20 A. 1031; State v. Case, 132 Md. 269, 103 A. 569; Brown v. State, 177 Md. 321, 9 A.2d 209; Maryland Theatrical Corporation v. Brennan, 180 Md. 377, 24 A.2d 911.

Another point made as a ground for invalidating the taxing statute is that it imposes on foreign finance corporations which have built up a business in the state, a burden which is not imposed on similar domestic corporations.

This, it is claimed, is a violation of the Fourteenth Amendment. The inequality is alleged, for one reason, because, under the Maryland income tax, dividends from stock of a foreign finance corporation are taxed to the Maryland shareholders, while those of domestic finance corporations are not. The statement of this contention would seem to be its answer. The income tax is laid against the income of the shareholders, and not against the corporation. The appellant, in connection with its argument on this point, claims that taxes paid by a corporation 'on its own account' are in reality paid by its shareholders. If this point of view is adopted, any claim of double taxation must be made by Maryland stockholders of foreign finance corporations. Such question does not arise here.

Another point of discrimination is made, because a new burden is now placed upon a corporation, which has been here for over twenty-five years and has built up a substantial business. It is true that in some cases, this has been held to be a denial of the equal protection clause of the Federal Constitution but only where the new burden is one not placed on domestic corporations. Thus, an Alabama statute was so held invalid where it imposed an additional franchise on foreign corporations, and no such tax was imposed on domestic corporations doing precisely similar business. Southern Railway Co. v....