State of New Jersey v. William Anderson

Decision Date10 December 1906
Docket NumberNo. 49,49
Citation203 U.S. 483,51 L.Ed. 284,27 S.Ct. 137
PartiesSTATE OF NEW JERSEY, Appt., v. WILLIAM F. ANDERSON, Trustee of Cosmopolitan Power Company
CourtU.S. Supreme Court

This is an appeal from the judgment of the circuit court of appeals for the seventh circuit, affirming the order of the district court, which affirmed the finding of the referee in bankruptcy, denying to the state of New Jersey a preference for alleged franchise taxes from the estate of a bankrupt, the Cosmopolitan Power Company.

On December 21, 1903, the claim for the state was filed, under the provisions of § 64a of the bankrupt law. [30 Stat. at L. 563, chap. 541, U. S. Comp. Stat. 1901, p. 3447.] The claim is set forth as follows:

                     Tax--1902..................... $5,750 00
                     Interest to October 15
                      1903............................ 891 25
                     Costs on injunction
                      proceedings, because of
                       nonpayment of taxes............. 26 15
                     Tax--1903...................... 2,500 00
                     Interest to October 15
                      1903............................. 87 50
                                                    $9,254 90

The Cosmopolitan Power Company is a corporation organized under the laws of the state of New Jersey on April 30, 1900, for the purpose of dealing in engines, machines, etc. By its charter it had power to do business in any state or territory of the United States. While it had its principal office in the state of New Jersey, located under the terms of its certificate of incorporation, it had no property in that state, and conducted its business in the state of Illinois.

The capital stock of the corporation on January 1, 1902, was forty millions of dollars, of which there was ten millions outstanding. On May 13, 1902, its capital stock, pursuant to the laws of New Jersey, was reduced to $2,500,000. The company was adjudicated a bankrupt on April 23, 1903, upon an involuntary petition filed in the district court for the northern district of Illinois.

On November 7, 1902, the state board of assessors of New Jersey, the company having failed to make return, levied an assessment for the license or franchise tax in question for the year 1902 in the sum of $5,750.00. On June 1, 1903, there was assessed against the company for the year beginning January 1, 1903, a similar tax on outstanding capital stock in the sum of $2,500.00, in accordance with the return of the company filed on May 1, 1903.

On February 12, 1904, the state of New Jersey filed its motion before the referee for the payment of said taxes as a preferential debt. The referee disallowed the 1903 tax altogether, and allowed the 1902 tax as a general claim against the estate for the sum of $4,949.08. This reduction was made from the assessment for the year 1902, because the state board had made the assessment upon the basis of $40,000,000 of outstanding capital stock, whereas, in fact, only $10,000,000 was then issued and outstanding, upon which basis the referee made the allowance. The district court affirmed the order of the referee. Upon appeal to the circuit court of appeals that court modified the judgment of the district court so as to allow the taxes claimed for the year 1903, as a general debt, and in other respects affirmed the district court. 70 C. C. A. 388, 137 Fed. 858. The case was then brought here.

Messrs. Edward D. Duffield, Robert H. McCarter, and Levy Mayer for appellant.

[Argument of Counsel from page 485 intentionally omitted] Messrs. Frederick D. Silber and Horace Kent Tenney for appellee.

[Argument of Counsel from page 486 intentionally omitted] Mr. Justice Day delivered the opinion of the court:

The provisions of the bankrupt law governing the payment of taxes are found in § 64a, act of 1898 (30 Stat. at L. 563, chap. 541, U. S. Comp. Stat. 1901, p. 3447), which reads:

'Sec. 64a. The court shall order the trustee to pay all taxes legally due and owing by the bankrupt to the United States, state, county, district, or municipality, in advance of the payment of dividends to creditors, and, upon filing the receipts of the proper public officers for such payment, he shall be credited with the amount thereof, and in case any question arises as to the amount or legality of any such tax, the same shall be heard and determined by the court.'

The statute of the state of New Jersey (Gen. Stat. 1895, §§ 251, 252, 257, 258, 260) by its title undertakes to provide for the imposition of state taxes upon certain corporations, and for the collection thereof. It requires the corporation to make return to the state board of assessors on or before the first Tuesday in May of each year, and to pay an annual license fee or franchise tax of a certain per cent on its capital stock issued and outstanding on January 1 of each year, up to and including $3,000,000; a different per cent on sums in excess of $3,000,000, and not exceeding $5,000,000, and on outstanding capital stock exceeding $5,000,000, $50 per million or any part thereof. In case the corporation shall fail to make return the state board shall ascertain and fix the amount of the annual license fee or franchise tax, and shall report to the comptroller on or before the first Monday in June the basis and amount of the tax as returned by each company to, or ascertained by, the board, which shall then become due and payable, and it shall be the duty of the state treasurer to receive the same. If the tax remains unpaid on July 1st after the same becomes due it shall thenceforth bear interest at the rate of 1 per cent per month. That the tax shall be a debt due from the company to the state, for which it may maintain an action at law for recovery thereof, after the same shall have been in arrears for the period of one month, and the tax shall be a preferred debt in cases of insolvency, and in cases of arrears for three months the state may apply for an injunction to restrain the company from exercising its corporate franchise; and that if any corporation shall be delinquent for two years its charter shall be void, unless further time to given for the payment of taxes.

It is contended for the appellee that these provisions do not entitle the state to the payment of its claim as a preferred tax within the meaning of the bankrupt act. It is insisted, in the first place, that a proper construction of the act of 1898 does not require the payment of taxes to a state wherein the bankrupt has no property, and the state no means of collecting the tax from property within its jurisdiction. And it is urged that the taxes to be paid are those legally due and owing to the United States, state, county, district, or municipality, which does not contemplate payment to any and all states, but only to THE state, which, it is insisted, should be interpreted with the limitation stated.

It is to be noted that there is a very significant difference in this respect, in the act of 1898, from the provisions of the bankrupt act of 1867 (14 Stat. at L. 530, chap. 176), the law in force last before, and doubtless in the view of Congress when the present law was drafted. That act of 1867 gave priority of payment to all debts due to the United States, and all taxes and assessments under the laws thereof, all debts due to the state in which the proceedings in bankruptcy were pending, and all taxes and assessments made under the laws of such state, and provided that nothing contained in the act should interfere with the assessment and collection of taxes by the authority of the United States or any state.

The requirement of the present law is a wide departure from the act of 1867, and specifically obliges the trustee to pay all taxes legally due and owing, without distinction between the United States and the state, county, district, or municipality.

An argument is made as to the alleged injustice of this requirement, in that it may take away from the local creditors in the state where the property of the corporation is situated practically all the assets of the corporation in favor of the state where the corporation is organized, but has no business or property. And it is urged that to permit a state, under such circumstances, to have a preference in the payment of taxes, would give to it an advantage which it could not otherwise obtain for want of charge or lien upon the property. But considerations of this character, however properly addressed to the legislative branch of the government, can have no place in influencing judicial determination. It is the province of the court to enforce, not to make, the laws, and, if the law works inequality, the redress, if any, must be had from Congress.

The question is, Is the claim a tax legally due and owing to the state of New Jersey? We have been cited to many cases in the state of New Jersey, some of which, it is alleged, maintain the theory of the appellant that this is a tax, and some the contrary view.

Without undertaking to analyze these numerous cases or to harmonize the views expressed by different judges, we think the weight of judicial decision in that state favors the view that this is a tax imposed upon the right of the corporation to continue to be a corporation, with power to exercise its corporate franchises, based upon the amount of its capital stock issued and outstanding.

In Hancock v. Singer Mfg. Co. 62 N. J. L. 289, 42 L.R.A. 852, 41 Atl. 846, it was said:

'The act of 1884 (Pamph. L. p. 232) is entitled 'An Act to Provide for the Imposition of State Taxes upon Certain Corporations and for the Collection Thereof.'

'In this act this imposition is called a yearly license fee or tax.

'In a supplement passed to the act of ...

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