State ex rel. State Corp. Comm'n v. Old Abe Co.

Decision Date12 September 1939
Docket NumberNo. 4418.,4418.
CourtNew Mexico Supreme Court


Appeal from District Court, Bernalillo County; Thomas J. Mabry, Judge.

Action by the State of New Mexico, on the relation of the State Corporation Commission, against Old Abe Company, a corporation, to recover franchise taxes. From an order dismissing plaintiff's complaint, plaintiff appeals.


An annual franchise tax upon foreign corporations for the privilege of engaging in business in the state, of $1 for each $1,000 of par value of the proportion of its issued capital stock represented by its property and business in the state, is properly denominated a “franchise tax” since the property of the corporation is not taxed nor its capital stock. Laws 1935, c. 116.

Frank H. Patton, Atty. Gen., and Richard E. Manson, Asst. Atty. Gen., for appellant.

W. A. Keleher and Theo. E. Jones, both of Albuquerque, for appellee.

MOISE, District Judge.

The State of New Mexico, on relation of the State Corporation Commission, appeals from an adverse ruling, in an action wherein it sued the Old Abe Company to recover franchise taxes in the amount of $60.00, levied and assessed against the corporation for the year 1937, under Chapter 116 of the 1935 Session Laws.

The case was tried below on the appellant's complaint, appellee's answer, and a stipulation of facts. These documents disclose the facts to be as follows: That the appellee is a corporation organized under the laws of New Mexico, that it has authorized, issued and outstanding 12,000 shares of fully paid up stock of the par value of $5 per share, and having a total par value of $60,000; that assets consist of certain patented lode mining claims, claims to unpatented placer mining claims and coal lands, all located in the State of New Mexico, together with personal property, and improvements to be used in connection with the same; that said appellee corporation was organized for the purpose of mining said claims and lands, and for the purpose of extracting therefrom coal and other minerals; that during the year 1937, the only activity of appellee was to hold a stockholders' meeting for the purpose of appraising the corporation's financial condition and electing officers; the holding of an annual directors' meeting for organization purposes only; the borrowing of sufficient money to pay taxes, and the actual payment of taxes; the filing of reports and tax schedules required by governmental agencies; and the filing of notice to hold an unpatented placer mining claim pursuant to Act May 18, 1933, 48 Stat. 72, U.S.C.A. Title 30, Section 28a note. That appellee received no income during the year 1937, maintained no office, except as required by law to maintain corporate existence, and paid no salaries, although a nominal salary was voted to the president, but not paid.

Appellee defended on the ground that it was not engaged in business during the year 1937, so as to be liable for the tax, and it was the contention of the appellant that the tax accrued whether or not appellee engaged in any business activity, since the tax is one levied on the “privilege of carrying on, doing business, or the continuance of its charter within this State”, and not upon the doing of business, and secondly, that if the doing of business is a condition to liability for the tax, the appellee was actually engaged in doing business, so the liability attached.

We thus have two questions presented for decision, viz:

1. Does the tax levied by Chapter 116 of 1935 Session Laws attach whether or not the corporation is carrying on any of the activities for which it was incorporated; and

2. If the tax is conditioned on the carrying on of corporate activities, was the appellee so engaged so as to be liable for the tax during the year 1937?

The material portions of the Act to be construed are as follows:

“An Act to Levy an Annual Franchise Tax on Domestic and Foreign Corporations for Profit Doing Business in This State, for the Privilege of Carrying on, Doing Business, or the Continuance of its Charter Within This State; to Provide for Reports to the State Corporation Commission by Said Corporations, and to Provide for the Determination and Collection of Said Tax; to Provide for Penalties for Failure to Comply with the Provisions of This Act; to Provide for the Payment of the Same into the ‘Relief Fund’, and to Repeal Chapter 10, of the Laws of 1935 (Senate Bill 47, Approved February 5, 1935.)

Section 1. *** The term ‘domestic corporation for profit’ means any corporation, joint stock company or association organized under the laws of the State of New Mexico, except state banks, insurance companies, and those corporations organized and conducted for religious, charitable, educational or social purposes, and not for profit. ***

Section 2. Every domestic or foreign corporation for profit engaged in any business in this State, beginning with the calendar year 1935, shall pay to the Corporation Commission on or before the first day of May of each year, an annual franchise tax at the rate of One ($1.00) Dollar for each One Thousand ($1,000.00) Dollars, or fraction thereof, of the par value of that proportion of its authorized and issued capital stock represented by its property and business in this state, to be assessed by the State Corporation Commission as provided in this Act. The tax hereby imposed shall be in addition to all property taxes and other taxes and fees now or hereafter required by law.”

The controversy arises because in the title to the Act it is stated that the tax is one on “the Privilege of Carrying on, Doing Business, or the Continuance of its Charter Within This State”, whereas, Section 2 levies the tax upon “every domestic *** corporation for profit engaged in any business in this State, ***.”

The same question was discussed in the case of Lowden v. State Corporation Commission, 42 N.M. 254, 76 P.2d 1139, 1140, recently decided by this court, but in that case there being an even division in the court, the proposition was not decided, it being stated there by Mr. Justice Brice, concurred in by Mr. Justice Bickley: “It is a privilege tax, not upon the right to be a corporation or to exist, and not on the actual doing of business, but for the right or privilege to do the business and exercise the franchise granted by its permit to do business in this state, whether it transacts business or not; that being a matter about which the state is not concerned in assessing the tax.”

Mr. Justice Sadler, in an opinion concurred in by Mr. Justice Zinn, took a different view, saying: “It will thus be seen that I disagree with the main opinion in its conclusion that this is a tax on the right to do business whether any business is transacted or not. In my view, the tax is essentially on the enjoyment of the privilege, the exercise of the corporate franchise, rather than upon the mere privilege itself.”

Being again called upon to decide the proposition, we undertake a re-examination of the act, in an effort to determine the intention of the legislature, and to give the same effect as intended, this being the proper test in circumstances such as we have here. State v. Southern Pac. Co., 34 N.M. 306, 281 P. 29.

Disregarding for the moment the language of the title to the present act, we find that many states, as well as the United States, have franchise tax acts, none of which have been determined to be identical with ours, but which should be of assistance in arriving at an understanding of our own act.

The United States in 1909 passed a “corporation tax” law. 36 Stat. 11, 112-117, Chap. 6, U.S.Comp.Stat.Supp.1909, pp. 659, 844-849, which law was first before the Court in the case of Flint v. Stone Tracy Co., 220 U.S. 107, 31 S.Ct. 342, 346, 55 L. Ed. 389, Ann.Cas.1912B, 1312.

The law there in question was not unlike Chap. 116 of 1935 Session Laws, providing “That every corporation *** organized for profit *** and engaged in business in any State ***, shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation ***.”

The Court held that the tax was one levied on the conducting of a business, and that such conduct of the business was a necessary condition to liability for the tax. Quoting from the decision:

[1] “While the mere declaration contained in a statute that it shall be regarded as a tax of a particular character does not make it such if it is apparent that it cannot be so designated consistently with the meaning and effect of the act, nevertheless the declaration of the law-making power is entitled to much weight, and in this statute the intention is expressly declared to impose a special excise tax with respect to the carrying on or doing business by such corporation, joint stock company or association, or insurance company. It is therefore apparent, giving all the words of the statute effect, that the tax is imposed not upon the franchises of the corporation, irrespective of their use in business, nor upon the property of the corporation, but upon the doing of corporate or insurance business, and with respect to the carrying on thereof, in a sum equivalent to 1 per centum upon the entire net income over and above $5,000 received from all sources during the year; that is, when imposed in this manner it is a tax upon the doing of business, with the advantages which inhere in the peculiarities of corporate or joint stock organizations of the character described. As the latter organizations share many benefits of corporate organization, it may be described generally as a tax upon the doing of business in a corporate capacity. In the case of the insurance companies, the tax is imposed upon the transaction of such business by companies organized under the laws of the United States or any state or territory, as heretofore stated.”

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