Opinion
(Filed 31 March, 1920.)
1. Taxation — Corporations — Stockholders.
Under the provisions of the Machinery Act of 1917, ch. 23, in order for the stockholder to be relieved from paying taxes on his shares of stock in a domestic corporation it must appear that the corporation itself pays a tax on its capital stock, and in foreign corporations, that two-thirds in value of its entire property is situated and taxed in this State, and that the said corporation pays a franchise tax on its entire issued and outstanding capital stock at the same rate paid by domestic corporations.
2. Same — Foreign Corporations — Domestic Corporations — Railroads — Payment by Corporation.
Under the provisions of ch. 77, Laws of 1899, being "An act to ratify the consolidation of the Petersburg Railroad Company with the Richmond and Petersburg Railroad Company, under the name of the Atlantic Coast Line Railroad Company of Virginia, and to incorporate the said Atlantic Coast Line Railroad Company in North Carolina," a corporation is created with power to sue and be sued, etc., and it is a domestic corporation.
3. Constitutional Law — Taxation — Corporations — Foreign Corporations — Domestic Corporations.
Ch. 23, sec. 4, Laws of 1917, being the Machinery Act, relieving the shareholders in foreign and domestic corporations from paying tax on their shares therein when, in case of domestic corporations, the corporation itself pays this tax on its capital stock, and in case of foreign corporations, when two-thirds of the value of their property is situated in North Carolina, and they pay a certain franchise tax, etc., is within the constitutional powers conferred on the Legislature, and is a valid enactment.
4. Taxation — Corporations — Shareholders.
The plaintiff's stock was issued by the Atlantic Coast Line Railroad Company of Virginia, a corporation created by the act of the Legislature of Virginia, and not by the corporation created by the General Assembly of North Carolina, and it not appearing that two-thirds in value of the property of the Virginia corporation is situated in this State, and it not appearing that said foreign corporation pays a franchise tax on its entire issued and outstanding stock in accordance with the statute, the plaintiff's stock is taxable in the hands of the shareholder, and does not come within the proviso in the statute.
INJUNCTION, returnable before Stacy, J., at Spring Term, 1920, of NEW HANOVER.
J. O. Carr and Tillett Guthrie for plaintiffs.
Attorney-General Manning, Assistant Attorney-General Nash, and Marsden Bellamy for city of Wilmington.
Robert Ruark for county of New Hanover.
WALKER, J., not sitting; CLARK, C. J., concurring; ALLEN, J., dissenting, but agreeing that the statute is constitutional.
An injunction was issued in this case restraining the defendant from collecting taxes assessed and levied upon certain shares of stock issued by the Atlantic Coast Line Railroad Company of Virginia, and belonging to the plaintiff and his associates. The injunction was returnable before Stacy, J., in the county of New Hanover, on 29 July, 1919. His Honor dissolved the injunction, and the plaintiffs appealed to the Supreme Court.
This action is brought to enjoin the sheriff of New Hanover county from collecting taxes upon the shares of stock issued by a corporation called the Atlantic Coast Line Railroad Company of Virginia, owned by the plaintiffs, all of whom are residents and citizens of the State of North Carolina. It is contended that the plaintiffs are not required to list or pay the taxes upon said stock under the Machinery Act of 1917, ch. 23, latter part of sec. 4, which reads as follows:
"Individual stockholders in any corporation, joint-stock association, limited partnership or company paying a tax on its capital stock shall not be required to pay any tax on said stock or list the same, nor shall corporations legally holding capital stock in other corporations upon which the tax has been paid by the corporation issuing the same be required to pay any tax on said stock or list the same.
"Nor shall any individual stockholder of any foreign corporation be required to list or pay taxes on any shares of its capital stock if two-thirds in value of its entire property is situated and taxed in the State of North Carolina, and the said corporation pays a franchise tax on its entire issued and outstanding capital stock at the same rate as paid by domestic corporations."
The General Assembly for a long number of years has required domestic corporations to pay the tax upon the corporate stock, and when so done the shareholder is not required to list the stock for taxation. It is not necessary for us to discuss the reasons which have prompted the General Assembly to subsequently reenact the above quoted statute for so many years.
In order that the stockholder shall get the benefit of the statute, it must appear not only that the corporation is a domestic corporation, but that the corporation itself pays a tax on the capital stock. In the answer of the Tax Commission in this case, it is expressly denied that "the said corporation has paid taxes upon any valuation of its property which included the value of the capital stock of the Atlantic Coast Line Railroad Company, or that the said company pays a tax on its capital stock in this State."
There is no evidence whatever in this record nor any finding of fact to justify the conclusion that the Atlantic Coast Line Company pays taxes upon its capital stock to the State of North Carolina.
We agree with the learned counsel that the Atlantic Coast Line Railroad Company of Virginia is a corporation of the State of North Carolina, and that it was so decided in Staton v. R. R., 144 N.C. 145, and affirmed in R. R. v. Spencer, 166 N.C. 522.
While this is true, there is another corporation known as the Atlantic Coast Line Railroad Company of Virginia, which was incorporated by the Legislature of Virginia, and is a foreign corporation.
The Atlantic Coast Line Railroad Company referred to in the Staton case is a domestic corporation, created by the General Assembly of North Carolina on 13 February, 1899, ch. 77, Act 1899, the title of the act being as follows: "An act to ratify the consolidation of the Petersburg Railroad Company with the Richmond and Petersburg Railroad Company, under the name of the Atlantic Coast Line Railroad Company of Virginia, and to incorporate the said Atlantic Coast Line Railroad Company of Virginia in North Carolina." This is the only statute enacted by any General Assembly of North Carolina relating to this matter. It creates a North Carolina corporation by the same title as the Virginia corporation, and enables it to own and operate certain railroads, etc., upon condition that the property of the said Atlantic Coast Line Railroad Company of Virginia, in this State, shall always be liable to taxation under the Constitution and laws of this State, and that the said corporation shall be subject to the tariffs, rules, and regulations prescribed by the board of railroad commissioners.
It is a well known fact that prior to that act, the Wilmington Weldon Railroad Company, a part of the Atlantic Coast Line system, claimed entire exemption from taxation on its property under the terms of its original charter. This Act of 1899 contains no special provisions fixing the amount of the capital stock, the number of shares, or the conditions under which it may be issued. It is perfectly apparent that there was no purpose to issue any stock certificates under the authority of that act, and it is not claimed that any were ever issued by its authority.
It seems to us too plain for argument that there are two corporations called by the name of Atlantic Coast Line Railroad Company of Virginia, one created by the Legislature of North Carolina, a domestic corporation, hereinbefore referred to, and one created by the Legislature of Virginia, which is a foreign corporation.
The North Carolina corporation is simply an ancillary corporation of the Atlantic Coast Line system, which is empowered to own property and may sue and be sued, but has never issued any stock. All of the stock of the Atlantic Coast Line was issued by the parent corporation, chartered by the Legislature of Virginia, which is plainly a foreign corporation. The stock certificates themselves show on their face that they were issued by a corporation "incorporated under the laws of the State of Virginia." Thus it is manifest that the plaintiff's stock was not issued by a domestic corporation and by authority of the State of North Carolina, but by a foreign corporation, and by authority of the State of Virginia.
In order that the plaintiffs may avail themselves of the latter clause of the act of 1917, hereinbefore quoted, the statute is peremptory that it must appear that two-thirds in value of the entire property of the Atlantic Coast Line Railroad Company of Virginia (the foreign corporation) is situated and taxed in the State of North Carolina, and that the said corporation pays franchise tax on its entire issued and outstanding capital stock at the same rate as paid by domestic corporations. Nothing of that sort appears in this record, and we do not understand that it is claimed that it does.
It is said that this stock has not been listed for taxation by its owners under the generally accepted belief that it was not required, and that this interpretation of the law has been heretofore acquiesced in by the State taxing officials. This may be true, as the matter has never been brought to this Court before. While the writer sincerely regrets the misunderstanding and consequent disappointment to owners of the stock growing out of such misunderstanding, yet each judge must interpret the legislative will as he finds it written according to his sincere convictions, and to the majority of this Court the conclusion seems to be irresistible that the plaintiff's stock was issued by a foreign corporation, and, being owned by citizens of North Carolina, it is subject to the tax levied by the General Assembly, inasmuch as it does not come within the exception contained in the statute.
The Southern Railway is a Virginia corporation, chartered by the Legislature of that State. Its stock is issued just as the Atlantic Coast Line stock is issued, by authority of the Legislature of Virginia. The stock of the Southern Railway owned by citizens of North Carolina has always been required to be listed for taxation.
In conclusion, we do not question the validity of the statute hereinbefore quoted, which has been the legislative tax policy of this State for so many years. Acting within its constitutional powers, it is for the Legislature to determine the subjects of taxation, and it is not ours to declare what it shall include and what it shall omit.
Affirmed.
WALKER, J., not sitting.