Southern Building and Loan Association v. Norman, Auditor
| Decision Date | 20 November 1895 |
| Citation | 98 Ky. 294 |
| Parties | Southern Building and Loan Association v. Norman, Auditor. |
| Court | Kentucky Court of Appeals |
APPEAL FROM FRANKLIN CIRCUIT COURT.
KNOTT & EDELEN FOR APPELLANT.
W. G. BULLITT ON SAME SIDE.
WM. J. HENDRICK, ATTORNEY-GENERAL, FOR APPELLEE.
JUDGE HAZELRIGG DELIVERED THE OPINION OF THE COURT.
This appeal involves the constitutionality of the statute requiring every foreign building and loan association doing business in the State to pay into the treasury annually $2 on every $100 of its annual gross receipts. (Kentucky Statutes, section 4228.)
The law is assailed as being, (1), in violation of section 174 of the State constitution; (2), as impairing the obligation of contracts in existence when the law became operative; (3), as an unwarrantable interference with the freedom of commerce between the States; and (4), as denying to the association the equal protection of the laws.
It is apparent that a brief inquiry into the nature of the business done by the association is pertinent to a proper understanding of each of these contentions, and especially in so far as the business is supposed to be affected with an interstate character. We say brief inquiry because the general characteristics of these associations are alike, and in recent years have become well known.
The appellant's principal office is at Knoxville, Tennessee. Its course of business is this: Each subscribing member contracts to contribute each month a stated sum, which the company agrees to invest on bond and mortgage, collecting the interest monthly and reinvesting at frequent intervals the entire moneys received from all sources for the benefit of the stockholders, share and share alike. These contributions are made at the rate of sixty cents per month on each share of stock subscribed for until the time when such installments and their accumulations shall amount to the sum of $100 for each share. This period is approximately seven years.
Prior to the 11th of November, 1892, when the law in question became operative, none of the stock had matured, though the appellant had been doing business in the State and had made numerous contracts. From the date named until June 1, 1893, the gross receipts of the association were $93,057.60, but how much of this was old and how much was new business does not appear.
(1). Is the statute in conflict with section 174 of the State constitution? The section reads as follows:
In this connection it is pertinent to read a portion of section 181 of the same instrument: "The General Assembly may, by general laws only, provide for the payment of license fees on franchises, stock used for breeding purposes, the various trades, occupations and professions, or a special or excise tax."
It is said that the imposition of the levy of two per cent. on the gross receipts of the association is not in the nature of a license tax, because, as those terms imply, such a tax is enforced to obtain a license to do business in the future, and can not, in the nature of things, be an exaction on past business. A license, it is said, is a permission, and the payment of a license tax proper is required as a condition precedent to doing a business otherwise prohibited. It is not an income tax, because the company has no property out of which an income may arise, and it is not a franchise tax, it is said, because the State has granted no franchise, that being a grant of another sovereignty.
The conclusion is reached, therefore, that the statute imposes a tax on the business of the association. As this business in this State consists solely in selling shares of stock to Kentucky members, it is manifest the company can have no gross receipts except from payments made by its Kentucky subscribers. These subscribers, under section 4093, Kentucky Statutes, are required to pay taxes on their shares of building and loan association stock as on other individual personal property. Therefore, say counsel, undisguised double taxation, and hence taxation not in proportion to its value, is imposed, not as sometimes unavoidably happens on the same property in the hands of different owners, but double taxation of the same property in the hands of the same owners, because the association is a purely mutual one, and the assets belong exclusively to the shareholders.
The fallacy of the argument, it seems to us, lies in the assumption that this statute imposes a tax on property at all. Certainly it is not an ad valorem tax. The associations of the kind described generally have no tangible property within the State, and we do not regard the purpose of the statute to be to force an artificial situs on the obligations due the association from its members for stock, dues, etc. Indeed those contracts can not be said to have any certain value. The members owe the contracts of subscription, it is true, but upon notice they may retire from membership and withdraw the value of their payments, subject to conditions not necessary to notice. The business, nevertheless, is a valuable one, and it is for the privilege of doing this business that the tax is imposed. It is not a tax on the corporate franchise, for the conclusive reason that the State does not grant this, but it is a tax on the franchise of doing business in this State, and in this sense a franchise tax. It is true the amount of the gross receipts of the company is taken as the measurement of the tax, but this is only the adoption of a fair and just standard. Such taxes may be measured by dividends, by the amount of the capital stock, by the extent of the business transacted, by the net earnings, by the gross receipts, etc.
In the earlier cases a tax upon the gross receipts of a railroad company was held not to be a direct tax on the property, but a tax upon the franchise of the corporation, measured by the extent of its business. (State Tax on Railway Gross Receipts, 15 Wall., 284.) But subsequently the same court, in Fargo v. Michigan, 121 U. S., 230, and Philadelphia, &c. v. Pennsylvania, 122 U. S., 326, modified or rather denied the right of the State to thus tax an interstate agency under such a guise.
With this feature of the taxing power, however, we have nothing to do here. To the extent that such a claim is urged by counsel we shall notice presently. Regarded as a tax for doing business in the State, we see at once that the plea of want of uniformity and failure to tax in proportion to value becomes unavailing. So also the contention that there is double taxation. If the tax is found to be in effect a franchise tax, the complaint can not be made that the property of the corporation is otherwise taxed or is non-taxable. (Society for Savings, &c. v. Coite, 6 Wall., 594; People v. Home Ins. Co., 92 N. Y., 328.)
In our opinion, however, there is, in fact, no unequal or double taxation imposed. So far as borrowing members are concerned they do not list...
To continue reading
Request your trial
-
Fidelity & Casualty Co. v. City of Louisville
... ... In the case of Association v. Norman, 98 Ky. 294, 32 ... S.W. 952.-- a case ... building and loan associations of $2 on each $100 of its ... ...