Sealed Power Corp. v. Stokes

• Court: Tennessee Supreme Court
• Writing for the Court: CHAMBLISS, Justice.
• Citation: Sealed Power Corp. v. Stokes, 174 Tenn. 493, 127 S.W.2d 114 (Tenn. 1939)
• Decision Date: 01 April 1939
• Parties: SEALED POWER CORPORATION v. STOKES.

127 S.W.2d 114

174 Tenn. 493

SEALED POWER CORPORATION v. STOKES.

Supreme Court of Tennessee.

April 1, 1939

Appeal from Chancery Court, Davidson County; R. B. C. Howell Chancellor.

Suit by the Sealed Power Corporation against Walter Stokes, Jr., to recover state taxes paid under protest. From a decree in favor of the plaintiff, the defendant appeals.

Decree reversed and bill dismissed.

Cornelius McKinney & Gilbert, of Nashville, and Harold W. Charter, of Muskegon, Mich. (Joseph H. Ballew, of Nashville, of counsel) for complainant.

Dudley Porter, Jr., and Edwin F. Hunt, Asst. Attys. Gen., for defendant.

CHAMBLISS Justice.

This is a suit to recover State taxes paid under protest. Complainant is a foreign corporation which confines the business it does in Tennessee to that described in Section 1 of Chapter 106, Public Acts of 1937, namely, the storage of goods in and distribution thereof from a public warehouse owned in Tennessee, for the purpose of convenient delivery of such goods in consummation of interstate sales as made.

Section 2 of this Act relieves a foreign corporation, confining its business in Tennessee within the limits prescribed in Section 1, from the obligation to file a copy of its charter with the Secretary of State and pay the required $300 fee; provided, it designates an agent on whom process may be served and files his name and address with the Secretary of State, and pays a fee of $20 for the filing.

Section 3 provides, with the quite apparent purpose of making it clear that the exemption from taxation provided by this Act is limited to that specified in the preceding Section, "That nothing in this Act shall be construed as exempting any foreign corporation, or its property from liability for any ad valorem, excise, privilege, or other tax applicable to any of its transactions within the State of Tennessee, other than as is herein provided," that is, by the foregoing Section 3, wherein alone any exemption is in terms provided.

Franchise and excise taxes were demanded of complainant, refused, paid under protest, and this suit brought to test its liability, the theory of complainant being that, on the facts above stated, and having complied with the provisions of Section 2, it is exempt from excise and franchise taxes, as well as from the filing fee.

The Chancellor overruled the State's demurrer challenging the right to a recovery of the taxes paid and the State has appealed.

We do not understand complainant below to deny liability for the taxes involved, but for the alleged excluding provisions of Chapter 106, supra, for it appears to be well settled that a foreign corporation (unless excused by this Act), carrying on in Tennessee the business being carried on by complainant, is doing an intrastate business subjecting it to liability for the franchise and excise privilege taxes, now set forth in Chapter 100, Public Acts of 1937, Section 1316 et seq. of the Code, as amended by Chapters 99 and 176 of the Public Acts of 1937. American Steel & Wire Co. v. Speed, 110 Tenn. 524, 525, 75 S.W. 1037, 100 Am.St.Rep. 814; American Steel & Wire Co. v. Speed, 192 U.S. 500, 24 S.Ct. 365, 48 L.Ed. 538; General Oil Co. v. Crain, 209 U.S. 211, 231, 28 S.Ct. 475, 52 L.Ed. 754, 766; Sonneborn Bros. v. Cureton, 262 U.S. 506, 509, 43 S.Ct. 643, 67 L.Ed. 1095, 1097.

The question presented calls for construction of this Act as a whole, including its caption, and it is, therefore, necessary to quote it, as follows:

"An Act to further define what shall not constitute doing business in Tennessee by any foreign corporation, and to exempt any foreign corporation confining its business operations in Tennessee, within the limitation of the definition herein provided, from the requirements of filing its charter in the office of the Secretary of State or otherwise qualifying or becoming domesticated in the State of Tennessee.

"Section 1. Be it enacted by the General Assembly of the State of Tennessee, That neither shall the ownership by any foreign corporation of goods, wares or merchandise which may be stored or brought to rest in public warehouses owned, controlled or operated within the State of Tennessee by any individual partnership or corporation qualified to do business in Tennessee, nor shall the delivery or distribution of such goods, wares or merchandise in consummation of contracts of sale made by such foreign corporation outside of the State of Tennessee, or other agreements made in relation to such goods, wares or merchandise by such foreign corporation outside of the State of Tennessee, be construed, deemed or treated as doing or attempting to do business by such foreign corporation in this State.

"Sec. 2. Be it further enacted, That no such foreign corporation organized or chartered under the laws of any other State and / or Country, and confining its business operations in Tennessee within the limits of the foregoing Section 1, shall be required to qualify to do business in this State by filing its charter in the office of the Secretary of State or to pay the privilege tax or fee of Three Hundred Dollars ($300.00) required to be paid by foreign corporations under Section 2 of Chapter 13 of the Public Acts of the Extraordinary Session of 1929 of the General Assembly of Tennessee. But any such foreign corporations shall be required to appoint and designate in writing an agent for the service of process upon it in all actions or suits brought against it in the Courts of this State: Said designation of the name and address of such agent shall be filed in the office of the Secretary of State who shall be paid a fee of twenty dollars ($20.00) for the filing of same. And such foreign corporations shall be subject to process in all actions and suits against them as provided in said Chapter 13 of said Extraordinary Session of 1929.

"Sec. 3. Be it further enacted, That nothing in this Act shall be construed as exempting any foreign corporation, or its property from liability for any ad valorem, excise, privilege, or other tax applicable to any of its transactions within the State of Tennessee, other than as is herein provided."

We understand the substance of the theory of complainant to be that, since its business in this State is confined within the limits fixed by the terms of Section 1 of Chapter 106, and since that section provides that the doing of this business shall not be "construed, deemed or treated as doing or attempting to do business *** in this State", no tax liability can arise out of the business so done.

On the other hand, the substance of the State's reply is that the purpose and proper scope of the Act, as indicated by its caption and the recitals of Sections 2 and 3, is to relieve foreign corporations confining their business within the limits set forth in Section 1, from filing copies of their charters and the payment of the fixed $300 fee incident thereto; and, with direct reference to the issue here presented, the State stresses the express and unequivocal limiting provisions of Section 3.

The decree overruling the State's demurrer thus expresses the views of the Chancellor:

"The Court is of opinion that Chapter 106 of the Public Acts of Tennessee for the year 1937 had as its primary purpose the defining of 'doing business' in Tennessee, in order to limit and restrict the application of previous Court decisions defining the phrase 'doing business' and to exempt from the application of such Court decisions the transactions mentioned and described in Section 1 of the Act; further, that the Act having declared in Section 1 that the transactions described should not 'be construed, deemed or treated as doing or attempting to do business by such foreign corporation in this State' engaging only in the transactions mentioned and described in Section 1 of the Act, the purpose and intention of Section 3 of the Act was simply to express the legislative intention of not exempting from applicable taxes any transactions by such foreign corporation outside of and beyond those mentioned and described in Section 1."

The question presented is not free from difficulty and this view has plausibility, but we think undue decisive weight is given the language quoted by the Chancellor from Section 1, when the Act as a whole is considered. The case is peculiarly within the rule which requires that an Act shall be construed as a whole. The specifications of its purpose set forth in Section 2 are apparently expressive of its dominant purpose, and limitation thereto is strongly emphasized by the recitals of Section 3.

We are unable to escape the conclusion that the dominant purpose of this Act was to relieve foreign corporations confining their transactions in Tennessee within the narrow limits fixed by the definition in Section 1 from the manifest hardship of paying a filing fee charge wholly out of proportion to the volume of business done, or the profits possible to earn thereon. Here is to be found justification for what otherwise would work a discrimination and inequality in taxation. This limitation of volume is a natural incident of the limitation fixed in the definition, and is illustrated in the instant case, where the bill shows that the amount of the disputed taxes complainant has been required to pay,--percentages on net annual earnings, --was but $14.10 for 1936, $20.40 for 1937, and $11294 for 1938.

A fundamental distinction exists between the method, or basis of the franchise tax and that of the tax or charge which this Act exempts from. The one is determined wholly by the volume of the corporation's transactions, the other without regard thereto. One is flexible, and the other pre determined and arbitrary in amount. Classification and exemption is obviously...