Union Electric Co. v. Morris, No. 41093.

• Court: United States State Supreme Court of Missouri
• Writing for the Court: Dalton
• Citation: 222 S.W.2d 767
• Decision Date: 11 July 1949
• Docket Number: No. 41094.,No. 41093.
• Parties: UNION ELECTRIC COMPANY OF MISSOURI, a Corporation, (Plaintiff) Respondent, v. M.E. MORRIS, as Director of Revenue of the State of Missouri, and J.E. TAYLOR, as Attorney General of the State of Missouri, (Defendants) Appellants.

222 S.W.2d 767 UNION ELECTRIC COMPANY OF MISSOURI, a Corporation, (Plaintiff) Respondent,
v.
M.E. MORRIS, as Director of Revenue of the State of Missouri, and J.E. TAYLOR, as Attorney General of the State of Missouri, (Defendants) Appellants. No. 41093. No. 41094. Supreme Court of Missouri. Division One, July 11, 1949. Motion for Rehearing or to Transfer to Banc Overruled, September 12, 1949.

Appeal from Cole Circuit Court; Hon. Sam C. Blair, Judge.

AFFIRMED.

J.E. Taylor, Attorney General, and Will F. Berry, Jr., Assistant Attorney General, for appellants.

The court erred in holding that the shares of stock owned by respondent in foreign corporations were not "property and assets in this state." Mo. R.S. Ann., sec. 4997.135; St. Louis-S.F. Railroad Co. v. Middlekamp, 41 S. Ct. 489, 256 U.S. 226, 65 L. Ed. 905; Sec. 655, R.S. 1939; State ex rel. Koeln v. Lesser, 141 S.W. 888, 237 Mo. 310; Strong v. Crancer, 76 S.W. (2d) 383, 335 Mo. 1209; 4 Words and Phrases, (Perm. Ed.) 457; particularly 1949 Pocket Parts, p. 76; Oram v. Kirchik, 58 N.Y.S. (2d) 431; 34 Words and Phrases, (Perm. Ed.), p. 391; particularly p. 513, et seq.; People ex rel. Edison Electric Light Co. v. Campbell, 138 N.Y. 543, 34 N.E. 370; People v. Wemple, 148 N.Y. 690, 43 N.E. 176; People ex rel. Chicago Junction Rys. Co. v. Roberts, 154 N.Y. 1, 47 N.E. 974; People ex rel. New York C.R. v. Knight, 173 N.Y. 255, 65 N.E. 1102; New York Laws of 1885, Chap. 501, Sec. 11; New York Laws of 1896, Chap. 908, Sec. 182; First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 81 L. Ed. 1061, 57 S. Ct. 677, 113 A.L.R. 228; In re Hillmark Associates, 47 Fed. Supp. 605; St. Louis v. Wiggins Ferry Co., 11 Wall. 423, 20 L. Ed. 192; Mo. R.S. Ann., Sec. 11456.4; State v. Gehner, 8 S.W. (2d) 1057, 320 Mo. 702.

Robert J. Keefe, William H. Ferrell and Igoe, Carroll, Keefe & Coburn for respondent.

(1) The statute excludes from the franchise-tax base the value of that part of a corporation's property which represents capital employed in business outside Missouri. Secs. 4997.135-4997.137, Mo. R.S.A.; Laws 1943, pp. 475, sec. 135; Laws 1945, pp. 713-14, secs. 136, 137; State ex rel. Marquette Hotel Inv. Co. v. State Tax Commission, 282 Mo. 213, 221 S.W. 721. (2) The lower court correctly held that the value of the stock of the two foreign corporations, wholly owned by respondent, the properties and businesses of which were outside Missouri, should not have been included in the franchise-tax base. The part of respondent's capital invested in those corporations was employed in business outside Missouri. cf. Petition of Union Electric Co. of Mo., 349 Mo. 73, 161 S.W. (2d) 968. (3) Consequently the true tax base included only the value of respondent's other property — i.e., the value of its property "employed in Missouri". Sec. 4997.135, Mo. R.S.A.; Laws 1943, p. 475, sec. 135. (4) Such a tax base cannot be made to include the value of investments in foreign corporations, the properties and businesses of which are wholly outside this state. People ex rel. Edison Elec. Light Co. v. Campbell, 138 N.Y. 543, 34 N.E. 370; People v. Wemple, 148 N.Y. 690, 43 N.E. 176; People ex rel. Chicago Junction Rys. v. Roberts, 154 N.Y. 1, 47 N.E. 974; People ex rel. New York Central Railroad Co. v. Knight, 173 N.Y. 255, 65 N.E. 1102. (5) The corporation-franchise tax is not a tax on property but an excise tax upon the right of the corporation to transact business in this state. Secs. 4997.135-4997.137, Mo. R.S.A.; State ex rel. Marquette Hotel Inv. Co. v. State Tax Commission, 282 Mo. 213, 221 S.W. 721. (6) Stock in a foreign corporation is not taxed as property in Missouri, though it be held by a resident of Missouri; and the situs of such stock is not in Missouri but in the state of the domicile of the foreign corporation. State ex rel. Koeln v. Lesser, 237 Mo. 310, 141 S.W. 888; State ex rel. North American Co. v. Koerner, 211 S.W. (2d) 698; Richardson v. Busch, 198 Mo. 174, 95 S.W. 894. (7) Upon the question which these cases present the statute is to be strictly construed in favor of the taxpayer and against the taxing authority, State ex rel. Ford Motor Co. v. Gehner, 224 Mo. 24, 27 S.W. (2d) 1; Petition of Union Electric Co. of Mo., 349 Mo. 73, 161 S.W. (2d) 968.

DALTON, C.

Defendants have appealed from decrees enjoining the collection of $47,646.25 of the corporation franchise tax assessed against respondent for the year 1946 and $47,226.25 of such tax assessed against respondent for the year 1947. A construction of Sec. 135 of the General and Business Corporation Act, Laws 1943, pp. 410, 475, Sec. 4997.135 R.S.A. is required.

The facts are not in dispute and the cause was submitted upon the pleadings. Respondent, a domestic corporation, owned the shares of stock of two Illinois corporations which were not engaged in business in the state of Missouri. None of the property or assets of either of said corporations, represented by the shares of stock owned by respondent, was located or employed

222 S.W.2d 768

in the state of Missouri during said years. In computing the Missouri corporation franchise tax due from respondent for the years mentioned, the Missouri Tax Commission considered the market value of such stocks as a part of the franchise tax base for the purpose of determining the amount of tax due from respondent. Respondent refused the payment of that portion of the tax so computed, which was attributable solely to the inclusion of the market value of such shares of stock, but it paid the balance of the tax for each of said years. The decrees appealed from not only restrained appellants from further attempting to collect this remaining portion of the tax for the said years, but further directed appellant Director of Revenue to show upon his tax books that the amount of the corporation franchise tax due from respondent for said years had been paid.

Section 135, supra, reads in part as follows: "For the taxable year of 1943 and thereafter every corporation of this state organized under or subject to this Act or under any other laws of this state shall, in addition to all other fees and taxes now required or paid, pay an annual franchise tax to the State of Missouri equal to one-twentieth of one per cent of the par value of its outstanding shares and surplus ... If such corporation employs a part of its outstanding shares in business in another state or country, then such corporation shall pay an annual franchise tax equal to one-twentieth of one per cent of its outstanding shares and surplus employed in this state, and for the purposes of this Act such corporation shall be deemed to have employed in this state that proportion of its entire outstanding shares and surplus that its property and assets in this state bears to all its property and assets wherever located... . ." (Italics ours).

The word "shares" is defined in Sec. 2(f), Laws 1943, p. 410, Sec. 4997.2(f), as "the units into which the shareholders' rights to participate in the control of the corporation, in its surplus or profits, or in the distribution of its assets, are divided."

Appellants contend the decrees are erroneous because the shares of stock owned by respondent in the two foreign corporations were "property and assets in this state" and, therefore, that the value of such shares were properly included as a part of the tax base of respondent in determining the total amount of its corporation franchise tax for said years. Appellants rely upon the last quoted part of the statute, supra, and say that "the Missouri franchise tax is not one computed upon a base limited to capital assets `employed' in this state"; and that "the legislative directive ... clearly discloses that the tax base of a corporation is not to be limited to such property and assets as may be actually used in taxpayers business, but rather all property and assets in the state are to be considered." Appellants' theory is that "all of the property and assets in the state are deemed to be employed here"; that the shares of stock in the two foreign corporations are property and assets owned and held in this state; and that the word "property" includes real and personal property, and "personal property" includes "money, goods, chattels, things in action and evidence of debt." Sec. 655 R.S. 1939, Sec. 655, R.S.A.

Appellants further insist that the provision as to what "shall be deemed to have been employed in this state" differentiates the statute from a New York statute basing a franchise tax "upon the amount of capital stock employed within this state." Cases construing the New York statute have held that the mere collection of dividends and interest on the stocks and...