Wisconsin & Mich. S. S. Co. v. Corporation and Securities Com'n

• Decision Date: 04 September 1963
• Docket Number: No. 4,4
• Citation: 123 N.W.2d 258,371 Mich. 61
• Parties: WISCONSIN & MICHIGAN STEAMSHIP COMPANY, Petitioner-Appellant, v. CORPORATION AND SECURITIES COMMISSION, Respondent-Appellee.
• Court: Michigan Supreme Court

Page 258

123 N.W.2d 258

371 Mich. 61

WISCONSIN & MICHIGAN STEAMSHIP COMPANY, Petitioner-Appellant, v. CORPORATION AND SECURITIES COMMISSION, Respondent-Appellee.

No. 4.

Supreme Court of Michigan.

Sept. 4, 1963.

Sparkman D. Foster, Foster, Meadows & Ballard, Detroit, for appellant.

William D. Dexter, Lansing, for appellee.

Before the Entire Bench, except SMITH, J.

SOURIS, Justice (for affirmance).

Appellant steamship company is a Wisconsin corporation carrying passengers, automobiles and other freight across Lake Michigan between the ports of Milwaukee, Wisconsin and Muskegon, Michigan. In 1941, upon its own application, it was admitted to do intrastate business within Michigan. From 1952 through 1959, it filed the annual reports required by law to be filed with the corporation and securities commission by every domestic and foreign profit corporation granted the privilege of doing such business within this State. Section 4 of P.A.1921, No. 85, as amended (C.L.S.1956, § 450.304 [Stat.Ann.1959 Cum.Supp. § 21.205]). This appeal from the corporation tax appeal board concerns the amount due the State during those years (except 1955) as appellant's annual franchise fee payable at the time of filing its annual reports.

Appellant does not claim that the State seeks to impose a tax upon it, a foreign corporation, for the privilege of conducting its interstate business in Michigan. Nor does the State claim in this case that it could do so lawfully. Instead, appellant voluntarily applied for admission to do business locally within this State and was granted that privilege. While appellant concedes the State may charge it the statutory minimum fee of $10 annually for the local privilege granted notwithstanding its professed failure to date to exercise the granted privilege, it denies the State's right to charge it a privilege fee based upon any formula which takes into account any of the appellant's interstate business. Appellant and the State spend considerable effort in arguing whether appellant's activities in Michigan constitute exercise of its local privilege. Were this a case in which the State sought to compel appellant to qualify for admission and to pay a privilege fee therefor on the ground that its activities in Michigan constituted local business, we would be required to resolve the parties' argument. However, this is not such a case. Appellant does not deny that it is liable for some fee for its voluntarily acquired privilege, whether exercised or not. The only question is its amount and the answer to that question does not depend upon whether or to what extent appellant engages in what may be called purely local business.

Michigan's annual franchise fees are imposed alike upon domestic corporations and foreign corporations admitted to do business within the State. Corporations, both domestic and foreign, not maintaining a regular place of business outside this State, other than a statutory office, paid, during the period here in controversy, an annual privilege fee of 4 mills upon each dollar of their entire paid-up capital and surplus. ¹ Except for certain classes of carriers, of which appellant is one, other corporations are required to pay annual franchise fees measured by that proportion of their paid-up capital and surplus attributable to Michigan in accordance with an apportionment formula known as the Massachusetts formula. ² The annual franchise fees of motor carriers of property and all carriers by water, such as appellant, whether domestic corporations or foreign corporations admitted to do business in Michigan, are measured by the apportionment formula set forth in the margin. ³ This formula provides for the allocation of a portion of the carrier's paid-up capital and surplus to Michigan, and thereby subject to Michigan's 4 mill franchise fee rate, in proportion to the ratio which the carrier's total tonnages of revenue passengers ⁴ and cargo received or discharged within Michigan bears to its total tonnages received and discharged everywhere.

It is appellant's claim that inasmuch as it engaged solely in interstate commerce in Michigan, the annual franchise fee claimed from it by the State, determined in accordance with the statutory formula which takes into account appellant's interstate tonnages, constituted a direct burden by the State on interstate commerce in contravention of the commerce clause of the Federal Constitution. Art. 1, § 8. Relying upon Gartland Steamship Company v. Corporation & Securities Commission, 339 Mich. 661, 64 N.W.2d 886, and Panhandle Eastern Pipe Line Company v. Corporation & Securities Commission, 346 Mich. 50, 77 N.W.2d 249, appellant argues that none of its interstate passenger and cargo tonnages should have been considered in computing the apportionment factor to be applied to its paid-up capital and surplus for determining what portion thereof was subject to the 4 mill franchise fee rate. Since appellant's entire business in Michigan, according to its view, was in interstate commerce, it contends that none of its tonnage properly could be taken into account and that the apportionment factor under such circumstances should have been zero. That result, of course, would have relieved appellant of all liability under the statutory formula (although appellant concedes liability for the annual $10 minimum fee required by C.L.S.1956, § 450.304 [Stat Ann.1959 Cum.Supp. § 21.205]). ⁵ In support of its contention that inclusion of its interstate tonnage in application of the statutory apportionment formula results in a direct burden by the State upon interstate commerce forbidden by the commerce clause, appellant cites Spector Motor Service, Inc. v. O'Connor, 340 U.S. 602, 71 S.Ct. 503, 95 L.Ed. 573; Cooney v. Mountain States Telephone & Telegraph Co., 294 U.S. 384, 55 S.Ct. 477, 79 L.Ed. 934; and Ozark Pipe Line Corporation v. Monier, 266 U.S. 555, 45 S.Ct. 184, 69 L.Ed. 439, among many others.

Michigan's corporate franchise fee is not an ad valorem tax on property, nor is it an income tax, a gross receipts tax nor a sales tax. Keeping in mind what Michigan's franchise fee is not, it may be conceded that the State may not otherwise impose a charge upon appellant for the privilege of doing an interstate business in Michigan. For this proposition of law Spector, Cooney and Ozark, supra, relied upon by appellant, are only a few of the authorities that may be cited. See Duluth, South Shore & Atlantic Railroad Co. v. Corporation & Securities Commission, 353 Mich. 636, at p. 655, 92 N.W.2d 22 at p. 33 appeal dismissed and certiorari denied, 359 U.S. 310, 79 S.Ct. 876, 3 L.Ed.2d 831. But these authorities are inapposite to determination of the validity of the privilege fee sought to be charged to this appellant.

As we have noted before, it is a fee imposed by the State, upon domestic as well as foreign corporations, for the privilege of exercising corporate franchises within this State. Union Steam Pump Sales Co. v. Secretary of State, 216 Mich. 261, 185 N.W. 353; In re Detroit International Bridge Co. v. Corporation Tax Appeal Board of Michigan, 287 U.S. 295, 53 S.Ct. 137, 77 L.Ed. 314; Cleveland-Cliffs Iron Co. v. Corporation & Securities Commission, 351 Mich. 652, 88 N.W.2d 564, and Duluth, supra. The fee charged is for the privilege granted, as the legislature itself has stated, 'irrespective of whether any such corporation chooses to actually exercise such privilege during any taxable period.' C.L.S.1956, § 450.304 (Stat.Ann.1959 Cum.Supp. § 21.205). See Holland Hitch Company v. State of Michigan, 318 Mich. 474, 479, 28 N.W.2d 242.

It is not the privilege to do interstate business in Michigan for which appellant applied to the State and for the grant of which the State seeks to charge it an annual fee. Its right to engage in such interstate business in Michigan is not subject to the State's grant or denial. Appellant sought, and was granted, the privilege to do intrastate business in Michigan. ⁶ Whether or not appellant actually exercised its corporate franchises in Michigan in the conduct of intrastate business, it was granted the privilege to do so, upon its own application, and, so, must pay. As Mr. Justice Edwards pointed out in Duluth, 353 Mich. 636, at p. 657, 92 N.W.2d 22 at p. 33, the United States Supreme Court has frequently upheld such state privilege or franchise fees levied upon the right to do intrastate business as not offensive to the commerce clause. St. Louis-San Francisco R. Co. v. Middlekamp, 256 U.S. 226, 41 S.Ct. 489, 65 L.Ed. 905; Hump Hairpin Manufacturing Co. v. Emmerson, 258 U.S. 290, 42 S.Ct. 305, 66 L.Ed. 622; International Shoe Co. v. Shartel, 279 U.S. 429, 49 S.Ct. 380, 73 L.Ed. 781; Ford Motor Co. v. Beauchamp, 308 U.S. 331, 60 S.Ct. 273, 84 L.Ed. 304; International Harvester Co. v. Evatt, 329 U.S. 416, 67 S.Ct. 444, 91 L.Ed. 390; Interstate Oil Pipe Line Co. v. Stone, 337 U.S. 662, 69 S.Ct. 1264, 93 L.Ed. 1613. The only meritorious issue before us is whether Michigan may determine the amount of such privilege fee by reference to appellant's total business transacted in Michigan which, for our purposes we may assume, as appellant claims, was solely interstate in character, or whether it may be charged a franchise fee in excess of the $10 minimum fee provided by the statute only when it actually conducts intrastate business in Michigan and then by reference only to such intrastate business.

The Gartland case, 339 Mich. 661, 64 N.W.2d 886, seemingly supports appellant's contention that interstate business must be excluded from consideration in determining the apportionment formula used in computing the franchise fee. Panhandle, 346 Mich. 50, 77 N.W.2d 249, likewise seemingly supports appellant's contention. In the Duluth case, 353 Mich. 636, 92 N.W.2d 22, however, this Court severely limited the opinions in Gartland and Panhandle and, realistically considered, overruled their holdings to the extent that they could be...