State v. Anglo-Chilean Nitrate Sales Corporation

• Decision Date: 12 May 1932
• Docket Number: 3 Div. 996.
• Citation: 225 Ala. 141,142 So. 87
• Parties: STATE v. ANGLO-CHILEAN NITRATE SALES CORPORATION.
• Court: Alabama Supreme Court

142 So. 87

225 Ala. 141

STATE v. ANGLO-CHILEAN NITRATE SALES CORPORATION.

3 Div. 996.

Supreme Court of Alabama

May 12, 1932

Rehearing Denied June 9, 1932.

Appeal from Circuit Court, Montgomery County; Walter B. Jones Judge.

Appeal to the circuit court by the Anglo-Chilean Nitrate Sales Corporation from an assessment made against it by the State Tax Commission for franchise tax. From a decree annulling the assessment, the State appeals.

Reversed and remanded, with directions.

Thos E. Knight, Jr., Atty. Gen., and Frontis H. Moore, Asst. Atty Gen., for the State.

Lange, Simpson & Brantley, of Birmingham, for appellee.

GARDNER J.

The appeal is by the state from the decree of the equity court overturning the final assessment of a franchise tax of the Anglo-Chilean Nitrate Sales Corporation, a foreign corporation, for the year 1930, entered by the tax commission of this state. The assessment was based upon the valuation of the capital employed within the state, as authorized by our statute passed in obedience to the mandate of our Constitution. Gen. Acts 1927, p. 176; section 232, Constitution of Alabama; Louisville & N. R. R. Co. v. State, 201 Ala. 317, 78 So. 93; Ellis v. Handley, 214 Ala. 539, 108 So. 343; Kansas City, M. & B. R. R. Co. v. Stiles, 182 Ala. 138, 62 So. 734; Louisville & N. R. R. Co. v. State, 248 U.S. 533, 39 S.Ct. 18, 63 L.Ed. 406.

The cause was tried in the court below upon an agreed statement of facts which appears in the report of the case.

The corporation defended upon the theory, evidently accepted by the chancellor, that the basis of the assessment was the valuation of the nitrate imported from Chile, stored in a public warehouse in Mobile, Ala., in the original packages or sacks of one hundred pounds each, and as such constituted imports, immune from state taxation under the provisions of our Federal Constitution, article 1, § 10, cl. 2, as construed in Brown v. Maryland, 12 Wheat. 419, 6 L.Ed. 678; Cook v. Pennsylvania, 97 U.S. 566, 24 L.Ed. 1015; May v. New Orleans, 178 U.S. 496, 20 S.Ct. 976, 44 L.Ed. 1165.

The defendant duly qualified as a foreign corporation to do business in this state, appointed a resident agent, and that it actually engaged in business in Alabama by selling its nitrate through a salesman both within and without the state appears as an uncontroverted fact. It seeks to be relieved from this franchise tax solely upon the theory the imported nitrate, the sale of which constituted its business, was immune from state taxation.

But we think the argument stresses too far the inhibition against state taxation of imports found in our Federal Constitution and overlooks the nature of the tax here in question. The Federal Constitution, in the respect here pertinent, is that "no State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws." The franchise tax here imposed applies alike to all foreign corporations engaged in business in this state. It makes no reference to imports, which are here involved solely because of the business in which the corporation was engaged. The following familiar general principle of law is not questioned: "It must be regarded as finally settled by frequent decisions of this court that, subject to certain limitations as respects interstate and foreign commerce, a state may impose such conditions upon permitting a foreign corporation to do business within its limits as it may judge expedient, and that it may make the grant of privilege dependent upon the payment of a specific license tax, or a sum proportioned to the amount of its capital used within the state." New York v. Roberts, 171 U.S. 658, 19 S.Ct. 58, 59, 43 L.Ed. 323. And in Horn Silver Mining Co. v. New York, 143 U.S. 305, 12 S.Ct. 403, 404, 36 L.Ed. 164, the opinion quotes from the early case of Paul v. Virginia, 8 Wall. 168, 19 L.Ed. 357, as follows: "Having no absolute right of recognition in other states, but depending for such recognition and the enforcement of its contracts upon their assent, it follows, as a matter of course, that such assent may be granted upon such terms and conditions as those states may think proper to impose. They may exclude the foreign corporation entirely, they may restrict its business to particular localities, or they may exact such security for the performance of its contracts with their citizens as, in their judgment, will best promote the public interest. The whole matter rests in their discretion."

And, after stating that this doctrine is settled by the decisions and may be considered at rest, the opinion proceeds: "Only two exceptions or qualifications have been attached to it in all the numerous adjudications in which the subject has been considered, since the judgment of this court was announced more than a half century ago in Bank [of Augusta] v. Earle, 13 Pet. 519, . One of these qualifications is that the state cannot exclude from its limits a corporation engaged in interstate or foreign commerce, established by the decision in Pensacola Telegraph Co. v. Western Union Telegraph Co., 96 U.S. 1, 12 . The other limitation on the power of the state is where the corporation is in the employ of the general government. *** Having the absolute power of excluding the foreign corporation, the state may, of course, impose such conditions upon permitting the corporation to do business within its limits as it may judge expedient; and it may make the grant or privilege dependent upon the payment of a specific license tax, or a sum proportioned to the amount of its capital."

It has also become equally as well settled that an excise tax may properly be measured by tax immune property. In discussing this question the court in Home Ins. Co. v. New York, 134 U.S. 594, 10 S.Ct. 593, 595, 33 L.Ed. 1025, used the following expressions: "The validity of the tax can in no way be dependent upon the mode which the state may deem fit to adopt in fixing the amount for any year which it will exact for the franchise. No constitutional objection lies in the way of a legislative body prescribing any mode of measurement to determine the amount it will charge for the privileges it bestows. It may well seek in this way to increase its revenue to the extent to which it has been cut off by exemption of other property from taxation. *** From the very nature of the tax, being laid upon a franchise given by the state, and revocable at pleasure, it cannot be affected in any way by the character of the property in which its capital stock is invested."

This principle was fully recognized and given application in the recent case of Educational Films Corporation v. Ward, 282 U.S. 379, 51 S.Ct. 170, 171, 75 L.Ed. 400. There the corporation challenged the franchise tax assessed against it so far as it was measured by the amount of royalties received from copyrights which were immune from state taxation. The court denying relief, considered the question answered in Flint v. Stone Tracy Co., 220 U.S. 107, 31 S.Ct. 342, 353, 55 L.Ed. 389, Ann. Cas. 1912B, 1312, where was reaffirmed the distinction, repeatedly made, between a tax, invalid because laid directly on governmental instrumentalities or income derived therefrom, and an excise which is valid because imposed on corporate franchises, even though the corporate property or income which is the measure of the tax embraces tax exempt securities or their income, and numerous illustrations from the adjudicated cases are noted, among them those holding a state inheritance tax valid, although measured by the value of United States bonds which are transmitted (Plummer v. Coler, 178 U.S. 115, 20 S.Ct. 829, 44 L.Ed. 998); a tax on net income, though receipts from exports are included in the compilation (Peck & Co. v. Lowe, 247 U.S. 165, 38 S.Ct. 432, 62 L.Ed. 1049); the inclusion in a state income tax of receipts from interstate commerce, held not a prohibited burden on such commerce (United States Glue Co. v. Oak Creek, 247 U.S. 321, 38 S.Ct. 499, 62 L.Ed. 1135, Ann. Cas. 1918E, 748). Further illustrative is Kansas City, F. S. & M. R. Co. v. Botkin, 240 U.S. 227, 36 S.Ct. 261, 60 L.Ed. 617, where it is held that, though a state may not tax tangible property located beyond its boundaries (Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194, 26 S.Ct. 36, 50 L.Ed. 150, 4 Ann. Cas. 493), yet it may measure a tax on franchises of domestic corporations by corporate property, even though without the state.

And, after observing that the franchise statute there in question could have no application independently of the corporation's enjoyment of the privilege of exercising its franchise, the tax obviously was not exclusively a tax on income apart from the franchise, the court in the Ward Case, supra, made the following observations which we consider as having some bearing upon the instant case:

"Under the Constitution the privilege of exercising the corporate franchise is the legitimate object, and the immunity of federal instrumentalities from taxation, a legitimate restriction, of the state power to tax. To give both to the power and to the immunity such a practical construction as will not unduly restrict the power of the government imposing the tax, or the exercise of the functions of the government which may be affected by it, is the problem necessarily involved in determining the extent of the immunity. See Metcalf & Eddy v. Mitchell, 269 U.S. 514, 523, 524, 46 S.Ct. 172, 70 L.Ed. 384. So far as it concerns the power of a state to impose a tax on corporate franchises, the problem has long since ceased to be novel. While this court, since McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579, has consistently held that the

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