Thomson Elec. Welding Co. v. Commonwealth

Decision Date27 May 1931
Citation275 Mass. 426,176 N.E. 203
PartiesTHOMSON ELECTRIC WELDING CO. v. COMMONWEALTH.
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

OPINION TEXT STARTS HERE

Case Reserved from Supreme Judicial Court, Suffolk County; W. C. Wait, Judge.

Petition by the Thomson Electric Welding Company against the Commonwealth of Massachusetts for the abatement of an excise assessed. The case was reserved upon the pleadings.

Petition dismissed.

S. L. Kaplan, of Boston, for plaintiff.

C. F. Lovejoy, Asst. Atty. Gen., for the Commonwealth.

RUGG, C. J.

This is a petition for the abatement of an excise assessed upon a domestic corporation for the privilege of transacting business as a corporation within and under the protection of this Commonwealth. It is based upon the contention that so much of the petitioner's income as was derived from royalties received from patents granted by the United States could not under the Federal Constitution be considered in computing the net income by which the excise was in part measured. The respondent demurred. The case was reserved upon the pleadings. All facts well pleaded in the petition must be taken to be true for the purposes of this decision. The proceeding is entitled Petition for Abatement of Excise Tax under General Laws, Chapter 63, Section 77.’

The petitioner is a corporation organized under the laws of this Commonwealth for the purpose of carrying on business, with its principal place of business at Lynn within this Commonwealth. On March 25, 1929, it duly filed with the commissioner of corporations and taxation the excise tax return for the fiscal year 1928 required of it in conformity with G. L. c. 63, as amended, and the rules and regulations of the commissioner. The petitioner was the owner of certain patents granted by the United States. It received during the fiscal year 1928 royalties from licenses under these patents, which were considered in the computation of its net income on which the excise was levied.

The pertinent statutes are these: G. L. c. 63, § 32, as amended by St. 1927, c. 258, § 3: ‘Except as otherwise provided in section thirty-four, every domestic business corporation shall pay annually, with respect to the carrying on or doing of business by it, an excise equal to the sum of the following, provided, that every such corporation shall pay annually a total excise not less in amount than one twentieth of one per cent. of the fair value of its capital stock on the day fixed for determination of the value of its corporate excess:-(1) An amount equal to five dollars per thousand upon the value of its corporate excess. (2) An amount equal to two and one half per cent. of its net income determined to be taxable in accordance with the provisions of this chapter.’ G. L. c. 63, § 30, par. 5, as amended by St. 1925, c. 265, § 1: ‘5. ‘Net income,’ except as otherwise provided in sections thirty-four and thirty-nine, the net income for the taxable year as required to be returned by the corporation to the federal government under the federal revenue act applicable to the period, adding thereto any net losses as defined by said federal revenue act that have been deducted, and, in the case of a domestic business corporation, such interest and dividends, not so required to be returned as net income, as would be taxable if received by an inhabitant of this commonwealth; less, both in the case of a domestic business corporation and of a foreign corporation, interest, so required to be returned, which is received upon bonds, notes and certificates of indebtednessof the United States.' The exceptions stated in these quoted provisions have no relevancy to the question here presented.

The force and validity of these sections of the governing statute have not been in any degree affected by the ineffectual attempt by the Legislature to amend by an act stricken down by Macallen Co. v. Massachusetts, 279 U. S. 620, 49 S. Ct. 432, 73 L. Ed. 874, as contrary to the Federal Constitution. The reasons were given at length with adequate review of authorities in Re Opinion of the Justices, 269 Mass. 611, 168 N. E. 536, 66 A. L. R. 1477. Those reasons are here adopted and affirmed. The contrary has not been argued. The statutes make no mention of royalties from patents and contain no provision for the deduction or omission of sums received by the corporation for royalties on patents owned by it in computing the amount of the excise. The sole question is the constitutionality of the statutes under the Constitution of the United States. The language of the statutes is entirely general and in no sense specific save in the express exemption of income from bonds, notes and certificates of indebtedness of the United States.

Plainly, income received from royalties on patents cannot be taxed as income to an individual recipient. Rockwood v. Commissioner of Corporations & Taxation, 257 Mass. 572, 154 N. E. 182, 55 A. L. R. 928, affirmed sub nomine Long v. Rockwood, 277 U. S. 142, 48 S. Ct. 463, 72 L. Ed. 824. The tax here assailed is not a tax on an individual and it is not a tax on income. It is an excise upon a domestic corporation for the privilege of carrying on business as a corporation. The distinction between an excise upon the privilege of carrying on business as a corporation and a tax upon personal property, such as is a tax on income under our Constitution and laws, is vital and fundamental under the Constitution of this Commonwealth. It has long been recognized and applied in decisions of this court. So far as this court has jurisdiction to interpret the meaning and declare the purpose of the statute under which this excise was laid, it is not now open to discussion that an excise is thereby levied upon the privilege of doing business as a corporation and not a tax upon the property or income of the corporation. The General Court has asserted by section 32, as amended, that it is an excise. The validity of the tax under part 2, c. 1, § 1, art. 4, of the Constitution of this Commonwealth can be upheld only on the ground that it is in truth an excise and not a property tax. By article 4 all property taxes must be ‘proportional,’ but excises may be levied upon principles not proportional. This excise is not proportional. The general method of taxation of corporate franchises for a long time in this Commonwealth has not differed from that embodied in the statute here attacked. It has always been held to be an excise and not a property tax. Commonwealth v. People's Five Cents Savings Bank, 5 Allen, 428;S. S. White Dental Manuf. Co. v. Commonwealth, 212 Mass. 35, 38-41, 98 N. E. 1056, Ann. Cas. 1913C, 805, where numerous earlier cases are cited and reviewed, and the history of the distinction under our Constitution between an excise and a property tax is traced. Farr Alpaca Co. v. Commonwealth, 212 Mass. 156, 159, 98 N. E. 1078;Eaton, Crane & Pike Co. v. Commonwealth, 237 Mass. 523, 527, 528, 130 N. E. 99. The present statutes have been declared to require excise rather than property taxes in Springdale Finishing Co. v. Commonwealth, 242 Mass. 37, 40, 136 N. E. 250;National Leather Co. v. Commonwealth, 256 Mass. 419, 152 N. E. 916, affirmed in National Leather Co. v. Massachusetts, 277 U. S. 413, 48 S. Ct. 534, 72 L. Ed. 935;Carlos Ruggles Lumber Co. v. Commonwealth, 261 Mass. 445, 449, 158 N. E. 897;Id., 261 Mass. 450, 453, 158 N. E. 899;Alpha Portland Cement Co. v. Massachusetts, 268 U. S. 203, 216, 45 S. Ct. 477, 69 L. Ed. 916, 44 A. L. R. 1219. It may be added that this system of taxation of corporations by an excise upon the privilege of doing business as a corporation has stood under the shelter of express decisions of the Supreme Court of the United States upholding its validity even though factors free from direct taxation by the States under the Constitution of the United States were included in calculating the amount of the excise. Hamilton Co. v. Massachusetts, 6 Wall. 632, 18 L. Ed. 904;Provident Institution v. Massachusetts, 6 Wall. 611, 18 L. Ed. 907.

The nature of the tax in any particular case must be determined by its operation rather than its specially descriptive phrase. The contentions of the petitioner seem to us to have been settled adversely to it by Educational Films Corporation of America v. Ward, 282 U. S. 379, 51 S. Ct. 170, 75 L. Ed. 400, decided since the argument in the case at bar. In that case a tax law of New York laid upon every domestic corporation of certain classes, for the privilege of exercising its franchise, a tax upon so much of its entire net income derived from any source as was allocated to business carried on within the State. Embraced within net income as thus defined were royalties received from licensing copyrights granted by the United States upon motion picture films and owned by the corporation. It was contended by the corporation that this tax was invalid under the Federal Constitution because (page 386 of 282 U. S.,51 S. Ct. 170, 171), ‘first, * * * the copyrights and all income derived from them are immune from state taxation since they like patents, are instrumentalities of the federal government, taxation of which the Constitution impliedly forbids (see Long v. Rockwood, 277 U. S. 142, 48 S. Ct. 463, 72 L. Ed. 824); and, second, * * * the present tax, measured by net income, is void, so far as the measure includes income from the copyrights, because a tax on federal instrumentalities.’ Since the Supreme Court of the United States directed its attention to the second of these contentions, that decision may be presumed in the case at bar to proceed upon the assumption that royalties from copyrights stand upon the same footing as royalties from patents. The further contention of that corporation (as it is of the present petitioner) was that ‘the tax, although stated in the Taxing Act to be on corporate franchises, is in reality a tax...

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