State v. Margay Oil Corporation

• Decision Date: 02 February 1925
• Docket Number: 141
• Parties: STATE v. MARGAY OIL CORPORATION. STATE v. ENFISCO OIL CORPORATION
• Court: Arkansas Supreme Court

269 S.W. 63

167 Ark. 614

STATE v. MARGAY OIL CORPORATION.

STATE v. ENFISCO OIL CORPORATION

No. 141

Supreme Court of Arkansas

February 2, 1925

Appeal from Pulaski Chancery Court; John E. Martineau, Chancellor reversed

Decree reversed, and cause remanded.

J. S Utley, Attorney General; Sam M. Wassell, of counsel, for appellant.

The tax involved in this case is not a property tax, but only a franchise tax. 19 Cyc. 1456, 1463, and cases cited; 153 Ark 114; 160 Ark. 17; 5 Ark. 591. On the question of the limits to which the Legislature may or may not go in the matter of establishing franchise or charter fees to be collected from corporations, foreign and domestic, in this State, for the franchise or right of conducting their operations within the State, and the construction of such statutes with reference to their constitutionality, see 82 Ark. 309; 2 Lewis' Sutherland on Statutory Construction, 948; 63 Ark. 576; Cooley's Constitutional Limitations, 6th, ed., 218; 3 Thompson on Corporation, 2nd ed. § 2921; 134 U.S. 594; 51 N.E. 924; 29 N.E. 812. The matter of fixing a franchise tax is solely within the province of the Legislature, and objectors should seek relief from that body and not from the courts. 33 L. ed. U. S. S.Ct. Reports 594; 155 U.S. 648. Whereas the law of Delaware, under which appellee companies were incorporated, fixes a value of $ 100 per share on certificates of stock of non-par-value, the act 367, Acts 1923, gives the non-par-value share the merely nominal value of $ 25, which is evidence that the State is not attempting to act arbitrarily, capriciously, or in such manner as to effect a confiscation of property. 14th Amendment, U. S Const.; 111 U.S. 704, 28 L. ed. 569; Hall's Cases on Constitutional Law, 408; 153 Ark. 114; 160 Ark. 17. The requirement as to equality and uniformity applies only to taxes in the popular sense of the word, levied with the object of raising revenue for general purposes, and not to such as of an extraordinary and unusual kind, or to burdens, charges or impositions which are not, properly speaking, taxes. 37 Cyc. 731-2. Taxation is at best an approximation, and perfect equality, however desirable, is neither demanded nor expected. 181 U.S. 396-8, 45 L. ed. 914; 251 U.S. 182; 256 U.S. 242, 65 L. ed. 1139; 260 U.S. 519-530; 235 U.S. 350; 200 U.S. 226. The act provides that all non-par-value shares of stock, for the purpose of assessing franchise fees or taxes only, shall be uniform. The Constitution authorizes classification for this purpose. Art. 16, § 5, Const. 1874; 63 Ark. 576. There is a defect of parties here in that the Railroad Commission, who established the tax, were not made parties. They are necessary parties. 180 N.W. 633; 75 So. 491; 72 So. 996; C. & M. Digest, § 9802-34.

Rose, Hemingway, Cantrell & Loughborough, for appellee.

1. The act is invalid because it is violative of Amendment No. 14 of the Constitution of the United States, and of §§ 8 to 21, art. 2, of the Constitution of this State, in that it deprives the plaintiff of it property without due process of law, by taxing the property of the plaintiff which is outside of this State, and because it is arbitrary and confiscatory. 216 U.S. 1; Id. 147; 245 U.S. 178; 246 U.S. 144; 235 U.S. 362;

2. It is invalid because violation of Amendment No. 14, supra, in that it deprives the plaintiff of the equal protection of the laws, by increasing the rate of taxation upon foreign corporations having no par-value stock, without a similar increase as to domestic corporation, and by taxing the plaintiff at a higher rate than is applied to other corporations, domestic and foreign, not having non-par-value stock, and by taxing plaintiff at a higher rate than is applied to other corporations domestic and foreign, not having non-par-value stock and by taxing plaintiff at a higher rate than is applied to other corporations having non-par-value stock divided into smaller shares. 165 U.S. 150; 134 U.S. 232; 79 N.E. 884; 195 N.Y.S. 184; Airway Electric Appliance Corporation v. Day, Treasurer of Ohio, 266 U.S. 71.

3. Foreign corporations with non-par stock could be taxed without the act 367. 221 S.W. 728; 181 P. 625; 250 S.W. 293.

OPINION

McCULLOCH, C. J.

The appellee in each of these two cases is a foreign corporation whose stock does not express any par value, the stock of each of the corporations being what is termed non-par-value stock. Each of the corporations entered the State several years ago and paid its respective franchise tax up to the year 1923 when the present controversy arose over the basis on which the franchise tax should be imposed, and these actions were instituted by appellee to restrain the Attorney General from enforcing what is claimed by appellees to be unjust exactions with respect to this tax.

The General Assembly of 1923 enacted a statute (General Acts 1923, p. 190) authorizing the formation or reorganization or merger of corporations with shares of stock without nominal or par value. Section 8 of that statute provides that the annual franchise tax on a corporation having shares without nominal or par value "shall be treated and considered as having and being of the value actually received by the corporation for the issuance of such shares." Later, during the same session of the General Assembly, another statute was enacted (Acts 1923, p. 317), which prescribed a schedule of fees for filing articles of incorporation and also a schedule of franchise taxes, and one of the sections of that statute, after referring to the other statute just referred to, relating to corporations operating thereunder, provided that "for the purpose of the taxes or fees prescribed by law to be paid on the filing of any certificate or other paper relating to corporations and of franchise taxes prescribed by law be paid by corporations to the State of Arkansas, but for no other purpose, such shares shall be taken to be of the par value of twenty-five dollars each."

Each of the appellees filed with the Railroad Commission, which is now the Tax Commission of the State, its annual report for the year 1923, pursuant to the statute (Crawford & Moses' Digest, § 9802), including, among other things, the number of shares of its subscribed and paid-up capital stock and the value of same, and the value of its property owned and used in this State, as well as the value of its property owned and used outside of the State.

Section 9804, Crawford & Moses' Digest, provides that, upon the filing of a report by a corporation, the Commission "from the facts thus reported and any other facts coming to its knowledge bearing upon the question, shall determine the proportion of the authorized capital stock of the corporation represented by its property and business in this State," and shall report the same to the Auditor of State, who shall charge and certify it to the Treasurer, and that a tax of "one-tenth of one per cent. each year upon the proportion of the subscribed, issued and outstanding capital stock of the corporation represented by property owned and used in business transacted in this State" shall be charged.

The act of 1923, supra, provides that the franchise Tax of corporations shall be "one-tenth of one per cent. each year upon the proportion of the subscribed, issued and outstanding capital stock of the corporation employed in Arkansas." Pursuant to these statutes, the Railroad Commission certified to the Auditor the franchise tax of each of appellee corporations for the year 1923. Appellee Margay Oil Corporation showed by its report the valuation of property owned and used in the State of Arkansas in the sum of $ 200,000, and the Commission in fixing the amount of its franchise tax figured the shares of capital stock at twenty-five dollars per share, in accordance with the statute, on the basis of the same proportion as the value of the property situated in Arkansas bears to the value of the entire property of the corporation. This made the tax on that corporation the sum of $ 2,580.42, and made the tax on the other appellee, figured on the same basis, the sum of $ 2,549.35.

Appellees in this suit attack the validity of the statute fixing the basis of valuation of non-par-value stock. The Commission followed the terms of the statute in fixing the amount of the tax, so the case turns on the question of the validity of the statute.

The only method by which the statutory requirement, in basing the tax upon "the proportion of the...