Stanley Securities Co. v. United States

Full title: STANLEY SECURITIES CO. v. UNITED STATES

Court: Court of Claims

Date published: Mar 3, 1930

38 F.2d 907 (Fed. Cir. 1930)

Opinion

No. H-446.

March 3, 1930.

Suit by the Stanley Securities Company against the United States.

Judgment dismissing the petition.

The sole issue involved in this suit is whether or not the plaintiff corporation was a corporation "doing business" during the years 1924-25 and 1925-26 within the meaning of section 700 of the Revenue Act of 1924 ( 26 USCA § 223 note) imposing a tax on corporations "with respect to carrying on or doing business."

The court, upon the report of a commissioner and the evidence, makes the following special findings of fact:

(1) The plaintiff herein is, and during the entire period involved in this action was, a corporation, with its offices in the city of New Britain in the state of Connecticut. It was incorporated as the Stanley Rule Level Company under the provisions of a joint resolution adopted by the Senate and the House of Representatives of the state of Connecticut, and approved May 11, 1903. At the time of its incorporation the plaintiff was engaged in the manufacture, purchase, and sale of rules, levels, and planes, and other hardware. It continued in that business until the year 1920, when it sold all of its physical assets to the Stanley Works, a company engaged in the same general line of business as that of the plaintiff, but not affiliated with it.

In 1921, by an act of the Senate and House of Representatives of the state of Connecticut, the name of the Stanley Rule Level Company was changed to the Stanley Securities Company, and by its new name the plaintiff corporation was authorized to exercise all the rights, powers, and privileges granted by its original charter. It was also authorized to buy, hold, sell, and deal in real estate, corporate, municipal, government, and other securities and interests therein.

(2) The plaintiff received $5,800,000 in preferred stock of the Stanley Works in exchange for the property transferred to it in 1920. Prior to that time the plaintiff had accumulated cash and securities of the value of $4,200,000, so that, when the transfer had been completed, the plaintiff virtually became a holding company with assets aggregating $10,000,000. It had stock issued and outstanding of the par value of $2,000,000. Because of the decided change in character of the company's business, the plaintiff extended to its stockholders the option of either liquidating their stock holdings at their book value for cash, or of liquidating their stock holdings by accepting their prorata shares of the preferred stock of the Stanley Works and cash for the balance, or of retaining their stock holdings in the Stanley Securities Company As a result of that offer, about nine-twentieths of the company's capital stock was immediately retired, thereby reducing the company's outstanding capital stock from $2,000,000 to $1,100,000, with a proportionate decrease in the surplus account. With a view to the ultimate liquidation of the company, the stockholders were given the privilege of surrendering their stock and of exercising any of the foregoing options at any quarterly dividend paying date.

(3) During the years involved herein, the plaintiff company maintained two rooms in the city of New Britain, Conn., as its offices, and paid a monthly rental of $45. One of these rooms was used by the stenographer-clerk, Miss Birtles, and housed the records. The other room was reserved for directors' meetings and an office for the officers when they were there. Five directors' meetings were held each year; the fifth being for the election of officers and following the annual stockholders' meeting.

Following the sale of the plaintiff's manufacturing properties in 1920, its personnel was largely absorbed by the Stanley Works. Mr. A.W. Stanley, president of the plaintiff, who had been associated with the company since his boyhood days, and who, together with his wife, was by far the largest stockholder, continued on as president and looked after the plaintiff's investments until October, 1924. At that time he desired to be relieved of his active duties so that he might spend more time abroad. Since he was relieved of the active duties, Mr. Stanley has, nevertheless, received monthly reports as to the plaintiff's affairs, and has given his advice at all times as to its management. For this he received a salary of $9,000 a year.

Mr. M.W. Whaples, the company's vice president, received a salary of $1,500 a year, and it was his duty to attend directors' meetings and give his advice, as it was needed, for the proper investment of funds.

The secretary of the plaintiff received no salary and had no duties other than those of keeping the records of the directors' and stockholders' meetings.

Upon the retirement of Mr. Stanley from the active management of the plaintiff's affairs in 1924, Mr. Frank G. Vibberts, president of the New Britain Trust Company, and secretary of the Burritt Mutual Savings Bank, was appointed treasurer, with a salary of $2,000 a year. It was the duty of Mr. Vibberts to attend to the investment of the plaintiff's moneys. His duties in this connection necessitated the receiving of a daily report from Miss Birtles, the reading over of Moody's and Standard Statistics investment services, the receiving of advice from a local and a New York brokerage house, and the careful examination at all times of the plaintiff's holdings and of shifts or purchases that should from time to time be made. In common with the other officers and directors of the plaintiff company, Mr. Vibberts did not go often to the plaintiff's offices. There were no other officers nor employes of the plaintiff than those herein referred to.

At the directors' meetings, any sales or purchases of securities which may have been made by Mr. Vibberts were discussed and submitted to the directors for their approval. By virtue of its ownership of preferred stock in the Stanley Company, the plaintiff was entitled to and did elect three members of the board of directors of such company, and these directors took an active part in the management of that company for the safeguarding of their own preferred stock therein.

(4) On June 30, 1924, the plaintiff owned the following securities:

Bonds Preferred stocks

================================================================================= Amount | Name | Maturity | Rate | Cost --------|----------------------------------|------------|-----------|------------ 25 M | Northwestern Telegraph ......... | 1934 | 4½ | $26,000.00 25 M | Consolidated Gas (Baltimore) ... | 1935 | 4½ | 20,000.00 50 M | Houghton County Traction ....... | 1937 | 5 | 48,250.00 25 M | Laurentide Power ............... | 1946 | 5 | 20,875.00 25 M | Windsor Locks Water ............ | 1951 | 5 | 26,125.00 25 M | Japanese Government ............ | 1954 | 6½ | 23,156.25 100 M | Federal land bank .............. | 1954-34 | 4¾ | 100,750.00 20 M | Knoxville, Tenn. ............... | 35-42 | 4¾ | 20,056.70 5 M | Knoxville, Tenn. ............... | 1947 | 5 | 5,175.07 15 M | Hillsborough, Fla. ............. | 1949 | 5 | 15,252.00 15 M | Shreveport, La. ................ | 1964 | 5 | 15,594.00 25 M | Chattanooga, Tenn. ............. | 1954 | 5 | 26,012.50 25 M | Memphis, Tenn. ................. | 60-61 | 5 | 26,295.99 25 M | Fort Worth, Tex. ............... | 1954 | 5 | 26,194.10 10 M | Charlottesville, Va. ........... | 1963 | 5 | 10,352.64 795 M | 2d Liberty loan ................ | 1942 | 4¼ | 672,330.40 380 M | 3d Liberty loan ................ | 1928 | 4¼ | 374,786.25 --------------------------------------------------------------------------------- ========================================================================= No. of | | | shares | Name | Rate | Cost ----------|---------------------------------|-----------|---------------- 115,029 | The Stanley Works ............. | 7 | $2,875,725.00 250 | Consolidated Gas (Baltimore) .. | 6½ | 25,250.00 250 | Rochester Gas Electric ...... | 7 | 26,625.00 1,000 | Niagara Falls Power ........... | 7 | 27,125.00 500 | Asheville Light Power ....... | 7 | 49,000.00 250 | Curtis Publishing Co. ......... | 8 | 28,312.50 250 | Memphis Power Light Co. ..... | 7 | 24,250.00 250 | Pennsylvania Power Light .... | 7 | 24,750.00 250 | Portland R.R. Pr. Lt. ....... | 7 | 24,500.00 200 | Southwestern Power Light .... | 7 | 19,300.00 150 | Duquesne Power Light ........ | 7 | 15,531.25 250 | Kansas City Power Light ..... | 7 | 24,093.75 44 | Scranton Electric Pr. Lt. ... | 6 | 3,965.00 100 | Union Electric (Mo.) .......... | 7 | 10,400.00 1,721 | New Britain Machine ........... | 8 | 166,937.00 ------------------------------------------------------------------------- The only assets of the plaintiff other than the above-listed securities consisted of the following:

Cash ............................ $10,508.83 Bond and mortgage ............... 6,500.00 Notes accounts receivable ..... 2,449.29 Furniture Fixtures ............ 1,280.00 Miscellaneous items ............. 1,518.00

(5) During the taxable year ended June 30, 1925, the sole function of the plaintiff, with the exception of the transactions set forth below, consisted of the collection of dividends and interest on the aforesaid securities (and a small amount of interest on bank balances and on the notes and accounts referred to at the end of Finding 3) and the distribution of such collections (less expense) to its stockholders. The excepted transactions were as follows:

Securities sold or retired Securities purchased

================================================================================== (a) | | Date | Description | Proceeds ----------|-----------------------------------------------------------|----------- 1924 | | Aug. 14 | $20,000 2nd Lib. bonds .................................. | $20,325.00 Sept. 4 | $30,000 2nd Lib. bonds .................................. | 30,290.63 Sept. 19 | $60,000 2nd Lib. bonds .................................. | 60,993.75 Oct. 8 | $20,000 2nd Lib. bonds .................................. | 20,287.50 Nov. 15 | $10,000 2nd Lib. bonds .................................. | 10,121.88 | | ========== (c) | | 1925 | | Jan. 6 | 3 shs. Curtis Pub. Co. pfd. stk. called for retirement .. | 330.00 Feb. 28 | 28,724 shs. Stanley Works pfd. called for retirement .... | 791,920.68 | | ========== (e) | | 1925 | | May 15 | $70,000 3rd Lib. Loan bonds ............................. | 71,203.13 ---------------------------------------------------------------------------------- ========================================================================================== (b) | | Date | Description | Cost ----------|------------------------------------------------------------------|------------ 1924 | | Aug. 1 | 100 shs. Scranton Elec. pfd. stk. .............................. | $9,100.00 Sept. 4 | 137 shs. Union Elec. (Mo.) pfd. ................................ | 14,229.29 Sept. 19 | 250 shs. Utica Gas pfd. stk. ................................... | 24,875.00 Oct. 1 | $10,000 Los Angeles bonds ...................................... | 10,817.00 | $25,000 Winston-Salem bonds .................................... | 25,882.50 | $25,000 Greensboro bonds ....................................... | 27,004.00 Oct. 8 | 52 shs. Scranton Elec. pfd. stk. ............................... | 4,732.00 | 160 shs. New Departure pfd. stk. ............................... | 17,600.00 Oct. 18 | 113 shs. Union Elec. pfd. stk. ................................. | 11,978.00 | 25 shs. Scranton Elec. pfd. stk. ............................... | 2,275.00 Nov. 15 | 25 shs. Scranton Elec. pfd. stk. ............................... | 2,275.00 Nov. 20 | 4 shs. Scranton Elec. pfd. stk. ................................ | 365.00 | | =========== (d) | | 1925 | | Jan. 24 | 10 shs. New Departure pfd. stk. ................................ | 1,100.00 Mar. 2 | 150 shs. Stanley Works pfd. stk. ............................... | 4,125.00 | $400,000 3rd Lib. loan bonds ................................... | 405,000.00 Mar. 3 | $200,000 3rd Lib. loan bonds ................................... | 253,046.88 Mar. 12 | 300 shs. Radio Corp. of Amer. preferred ........................ | 15,490.00 Mar. 14 | 400 shs. Radio Corp. of Amer. preferred ........................ | 20,732.50 Mar. 17 | 300 shs. Radio Corp. of Amer. preferred ........................ | 15,502.50 | | =========== (f) | | 1925 | | May 21 | 10 shs. New Departure pfd. stk ................................. | 1,090.00 | 51 shs. Stanley Securities Co. stock (plaintiff's own stock) ... | 29,241.87 May 22 | 250 shs. American Superpower pfd. stock ........................ | 23,750.00 May 27 | | | to | 11 shs. Stanley Sec. Co. stk. (plaintiff's own stock) ....... | 6,277.00 June 30 | | | ------------------------------------------------------------------------------------------

(g) Aug. 15, 1924 — Delivered to a stockholder of the plaintiff, 2 shs. New Britain Machine Co. pfd. stock, 133 shs. Stanley Works pfd. stock, and $2,019.30 cash, in exchange for 10 shs. of Stanley Securities Co. stock (plaintiff's own stock).

Feb. 28, 1925 — Delivered to a stockholder of the plaintiff 13 shs. New Britain Machine Co. pfd. stock, 662 shs. Stanley Works pfd. stock and $19,317.11 cash in exchange for 66 shs. of Stanley Securities Co. stock (plaintiff's own stock).

(6) During the taxable year ended June 30, 1926, the sole function of the plaintiff, with the exception of the transactions mentioned below, consisted of the collection of dividends and interest on the securities held by it (and a small amount of interest on bank balances and on notes and accounts receivable) and the distribution of said collections (less expense) to its stockholders. The excepted transactions were as follows: Securities sold or retired Securities purchased

============================================================================= (a) Date | Description | Proceeds ----------|-----------------------------------------------------|------------ 1925 | | July 2 | 12 shs. Curtis Pub. Co. pfd. stock called ......... | $1,320.00 Aug. 4 | $20,000 3rd Liberty loan bonds .................... | 20,243.75 Sept. 4 | $10,000 3rd Liberty loan bonds .................... | 10,134.38 Sept. | | 11-17 | $20,000 3rd Liberty loan bonds .................... | 20,252.36 Dec. 8 | $10,000 3rd Liberty loan bonds .................... | 10,100.00 | | =========== (c) 1926 | | Jan. 2 | 235 shs. Curtis Pub. Co. pfd. stock sold .......... | 27,847.50 Feb. 6 | $40,000 3rd Liberty loan bonds .................... | 40,325.00 Mar. 3 | $10,000 3rd Liberty loan bonds .................... | 10,112.50 Apr. 14 | $50,000 Houghton County Traction Co. bonds ........ | 24,634.00 May 21 | $40,000 2nd Liberty bonds ......................... | 40,273.61 May 26 | $240,000 2nd Liberty bonds ........................ | 241,677.09 June 7 | 500 shs. Asheville Power Light Co. pfd. stock ... | 52,381.39 ----------------------------------------------------------------------------- =================================================================================== (b) Date | Description | Cost ----------|-----------------------------------------------------------|------------ 1925 | | Aug. 4 | 15 shs. Syracuse Lighting pfd. stock .................... | $15,150.00 Aug. 27 | 5 shs. New Departure pfd. stock ......................... | 545.00 Sept. | | 11-17 | 50 shs. Stanley Securities Co. (plaintiff's own stock) .. | 28,000.00 Nov. 21 | 4 shs. Stanley Securities Co. (plaintiff's own stock) ... | 2,308.00 Nov. 24 | 5 shs. Stanley Securities Co. (plaintiff's own stock) ... | 2,889.50 Dec. 3 | 150 shs. Georgia R.R. Power Co. pfd. stock ............ | 15,000.00 Dec. 9 | 300 shs. Stanley Works pfd. stock ....................... | 8,250.00 | | =========== (d) 1926 | | Jan. 22 | 125 shs. Stanley Works pfd. stock ....................... | 3,437.50 Mar. 1 | 132 shs. Stanley Works pfd. stock ....................... | 3,360.00 Mar. 3 | 200 shs. Stanley Works pfd. stock ....................... | 5,500.00 Apr. 1 | 200 shs. Stanley Works pfd. stock ....................... | 5,500.00 May 21 | 200 shs. Stanley Works pfd. stock ....................... | 5,500.00 May 21 | 124 Shs. Stanley Securities Co. (plaintiff's own stock) . | 71,402.92 May 26 | 400 shs. Stanley Securities Co. (plaintiff's own stock) . | 233,000.00 -----------------------------------------------------------------------------------

(7) Prior to the sale of the Liberty bonds bracketed opposite (a) of finding 5 above, the officers of the plaintiff who were directors of the Stanley Works knew that part or all of the preferred stock of the Stanley Works would probably be retired shortly. In anticipation of such retirement, and in view of the fact that the selection of investment securities to replace the retired stock would take some months, the plaintiff sold the said Liberty bonds and proceeded to invest the proceeds in the securities listed opposite (b) of finding 5. The Liberty bonds were all sold at a profit to the plaintiff.

(8) In February, 1925, 28,724 shares of the preferred stock of the Stanley Works held by the plaintiff were called for retirement (finding 5 [c]). The bulk of the proceeds of these shares was invested in the third Liberty loan bonds referred to in finding 5(d). The Liberty bonds thus bought represented a short-term investment. They were bought because they were the best available short-term investment the plaintiff could get pending the opportunity to invest in more permanent form in public utility preferred stocks.

(9) The 235 shares Curtis Publishing Company preferred stock listed opposite (c) of finding 6 were sold because the investment character of the stock had been weakened by reason of a change in the capital structure of the Curtis Publishing Company. The shares were sold at a profit of from 3 to 10 points.

(10) The 500 shares of Asheville Light Power Company preferred stock listed opposite (c) of finding 6 were sold by the plaintiff, not for profit, but for the following reason:

It had been the policy of the plaintiff to buy shares only in operating companies and not in holding companies. The Asheville Company was merging with several other public utility companies, and the plaintiff was offered in exchange for its preferred stock in the Asheville Company the preferred stock of the new holding company, and, since it was contrary to its policy to hold stock in other than operating companies, the Asheville stock was sold.

(11) The Houghton County Traction bonds listed opposite (c) of finding 6 were sold because of a default in the payment of interest on the bonds. The object of the sale was not to make a trading profit or to curtail a trading loss, but to conserve the assets of the plaintiff.

(12) The acquisition of plaintiff's own stock, listed opposite (f) and (g) of finding 5, and opposite (b) and (d) of finding 6, was not made with a view to resale nor for any purpose of gain.

(13) Pursuant to section 1002 of the Revenue Act of 1924 ( 26 USCA § 1254) and other acts of Congress provided, the plaintiff, on or about September 29, 1924, and on or about July 31, 1925, on official form 707, made to the Commissioner of Internal Revenue its returns for the taxable years ended June 30, 1925, and June 30, 1926, respectively, for capital stock taxes imposed by section 700 of title 7 ( 26 USCA § 223 note) of the Revenue Act of 1924. In said returns, the plaintiff made claim for exemption from the capital stock tax for the reason that it was not "carrying on or doing business" during said taxable periods within the meaning of section 700 of the Revenue Act of 1924.

(14) Thereafter, the Commissioner of Internal Revenue of the United States ruled that the plaintiff was, during the aforesaid taxable years, "carrying on or doing business" within the meaning of section 700 of the Revenue Act of 1924, and accordingly assessed the plaintiff $5,000 as capital stock taxes for the taxable year ended June 30, 1925, and $4,897 as capital stock taxes for the taxable year ended June 30, 1926; said assessments being based on the plaintiff's returns for the respective periods.

(15) On August 11, 1926, the plaintiff paid to the collector of internal revenue at Hartford, Conn., the $5,000 assessed as capital stock taxes for the taxable year ended June 30, 1925, and the $4,897 assessed as capital stock taxes for the taxable year ended June 30, 1926.

(16) On or about October 8, 1926, pursuant to section 1011 of the Revenue Act of 1924, re-enacting section 1315 of the Revenue Act of 1921 ( 26 USCA § 149), and pursuant to other acts of Congress provided, the plaintiff duly filed with the Commissioner of Internal Revenue a claim for refund of $9,897 — being the amount of capital stock taxes assessed and paid as set forth in findings 14 and 15.

(17) On or about February 9, 1927, the plaintiff's said claim for refund was rejected by the Commissioner of Internal Revenue.

(18) No other action than as aforesaid has been had on this claim in Congress or by any of the departments. The plaintiff has at all times borne true allegiance to the government of the United States. It has not in any way voluntarily aided, abetted, or given encouragement to rebellion against such government. It is and always has been the sole and absolute owner of the claim here presented. It has made no transfer or assignment of said claim or of any part thereof or of any interest therein.

Bernhard Knollenberg, of New York City (Lord, Day Lord, of New York City, on the brief), for plaintiff.

Arthur J. Iles, of Indianapolis, Ind., and Herman J. Galloway, Asst. Atty. Gen., for defendant.

Before BOOTH, Chief Justice, and WILLIAMS, LITTLETON, GREEN, and GRAHAM, Judges.

WILLIAMS, Judge.

The plaintiff in this suit seeks to recover $9,897, capital stock taxes, with interest thereon, assessed against it for the taxable fiscal years of 1924-25 and 1925-26.

The sole question to be determined is whether or not the plaintiff during the years in question was a corporation "carrying on or doing business" within the meaning of section 700 of the Revenue Act of 1924, 43 Stat. 325 ( 26 USCA § 223 note), which reads as follows:

"(a) On and after July 1, 1924, in lieu of the tax imposed by section 1000 of the Revenue Act of 1921 —

"(1) Every domestic corporation shall pay annually a special excise tax with respect to carrying on or doing business, equivalent to $1 for each $1,000 of so much of the fair average value of its capital stock for the preceding year ending June 30 as is in excess of $5,000. In estimating the value of capital stock the surplus and undivided profits shall be included;

"(2) Every foreign corporation shall pay annually a special excise tax with respect to carrying on or doing business in the United States, equivalent to $1 for each $1,000 of the average amount of capital employed in the transaction of its business in the United States during the preceding year ending June 30.

"(b) The taxes imposed by this section shall not apply in any year to any corporation which was not engaged in business (or, in the case of a foreign corporation, not engaged in business in the United States) during the preceding year ending June 30, nor to any corporation enumerated in section 231, nor to any insurance company subject to the tax imposed by section 243 or 246."

The Stanley Rule Level Company was organized under the laws of the state of Connecticut in 1854, and had its main offices and place of business at New Britain in said state. It engaged in the business of manufacturing and selling hardware from the time of its organization until the year 1920, when it sold its plant and business to the Stanley Works, Inc., also a Connecticut corporation. The plaintiff was duly incorporated under the provisions of a joint resolution adopted by the Senate and the House of Representatives of the state of Connecticut, and approved May 11, 1903.

Shortly after selling its plant and business to the Stanley Works, a company engaged in the same general line of business as that of the plaintiff, the name of the Stanley Rule Level Company was by an act of the Senate and House of Representatives of the state of Connecticut changed to the Stanley Securities Company, and by its new name the plaintiff corporation was authorized to exercise all the rights, powers, and privileges granted by its original charter, and it was also authorized to buy, hold, sell, and deal in real estate, corporate, municipal, government, and other securities and interests therein. The plaintiff from the date on which it received its new charter has functioned as an investment corporation, holding, selling, investing, reinvesting the capital and assets of such corporation, and distributing the profits accruing to its stockholders.

The plaintiff company received $5,800,000 in preferred stock of the Stanley Works in exchange for its plant and business. It also had on hand at the time of such sale and transfer cash and securities in the amount of $4,200,000, making its assets at the time it entered business as an investment company $10,000,000.

Its outstanding stock had a par value of $2,000,000. At the time the plaintiff changed the character of its business from that of a corporation manufacturing and selling hardware to that of an investment company, it gave its stockholders the option of retaining their stock holdings in the Stanley Securities Company or accepting in exchange for their stock cash at the book value thereof, or of liquidating their stock by accepting their pro rata shares of the preferred stock of the Stanley Works and cash for the balance. About nine-twentieths of the plaintiff company's capital stock was retired as a result of this option, leaving its capital stock $1,100,000 and assets and surplus to the amount of $5,500,000.

Since receiving its new charter in 1921, the plaintiff has carried on the business of collecting dividends and interest on the securities owned by it, marketing such securities from time to time, and reinvesting the funds derived therefrom in desirable securities, and in distributing to its shareholders, as its board of directors authorized, the profits and income received from the business.

The plaintiff corporation had a board of directors consisting of seven members. Five directors' meetings were held each year, four of which were regular quarterly meetings. At the quarterly meetings of the board of directors, the sale of securities held and owned by the plaintiff were discussed and determined upon, also the reinvestment of funds received from such sales in other securities. The character and value of the securities held by the plaintiff were scrutinized and appraised by the directors at their quarterly meetings, and such securities as were deemed of doubtful or weakened value were ordered to be disposed of and more desirable securities purchased with the funds realized.

The fifth meeting of the directors was an annual meeting held for the election of officers, which followed immediately after the election of directors at the annual stockholders' meeting. In addition to its board of directors the plaintiff corporation had a president, vice president, treasurer, and secretary. The duties of the president, who has been abroad most of the time since 1924, have been nominal, although he keeps in touch with the corporation's activities through monthly reports and gives advice as to the management. The treasurer, Mr. Frank G. Vibberts, who is president of the New Britain Trust Company and secretary of the Burritt Mutual Savings Bank, is more active in the corporation's business and more responsible for its management than any other official. He draws a salary of $2,000 per year, and is charged with the duty of investing the plaintiff's money. He receives a daily report of the company's business, keeps in close touch with the securities market, consults local and New York brokerage houses, and makes careful examination at all times of the plaintiff's holdings and of its sales and purchases of securities.

It is true, as contended by the plaintiff, that neither Mr. Vibberts, the treasurer, nor other officers of the plaintiff corporation go often to the plaintiff's offices, and do not devote a great part of their time to its business. They do, however, devote sufficient time to the management of plaintiff's business to properly take care of its affairs and to assure the profitable and advantageous handling of its properties.

This was the character of the activities of the plaintiff corporation for the taxable years of 1924-25 and 1925-26.

The question to be determined is whether or not these activities constitute the "carrying on or doing business" within the meaning of the Revenue Act of 1924.

The capital stock tax is an excise tax laid on the privilege of doing business in a corporate capacity with the advantages and privileges inherent in that form of organization. Edgar Estates Corporation v. United States, 65 Ct. Cl. 415; Flint v. Stone Tracy Co., 220 U.S. 107, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312.

The decision of whether a corporation is carrying on business within the meaning of the corporation tax law must depend in each instance on the particular facts before the court; no particular amount of business is required.

The fair test to be derived from a consideration of all of them is between a corporation which has reduced its activities to the owning and holding of property and the distribution of its avails and doing only the acts necessary to continue that status and one which is still active and is maintaining its organization for the purpose of continued efforts in the pursuit of profit and gain and such activities as are essential to those purposes. Von Baumbach v. Sargent Land Co., 242 U.S. 503, 517, 37 S. Ct. 201, 61 L. Ed. 460.

"If the corporation was one that Congress had power to tax in this way, it is hard to say that it is not within the taxing acts. It was organized for profit and was doing what it principally was organized to do in order to realize profit. The cases must be exceptional, when such activities of such corporations do not amount to doing business in the sense of the statutes. The exemption `when not engaged in business' ordinarily would seem pretty nearly equivalent to when not pursuing the ends for which the corporation was organized, in the cases where the end is profit." Edwards v. Chile Copper Co., 270 U.S. 452, 46 S. Ct. 345, 346, 70 L. Ed. 678.

In Edgar Estates Corporation v. United States, supra, this court had before it a case where the heirs of a deceased person, in order to more advantageously hold and dispose of decedent's property, formed a corporation to take title, manage the property, sell the same, and pay out the proceeds. In holding that the corporation so formed was "carrying on and doing business" within the meaning of the statute, the court said:

"The nature of the capital-stock tax is obvious. It is, as settled by judicial decision too familiar to cite, an excise tax imposed upon the privilege of doing business as a corporation. The plaintiff in this case was prompted to incorporate in view of a situation wherein incorporation offered, at least in the opinion of the stockholders, a distinct advantage and profit over the ordinary course of law applicable to their situation. The corporation came into existence, manifestly, because it enabled the stockholders, the residuary legatees and devisees * * * to conserve an estate of considerable proportions, curtail expenses, and provide for expeditious management and disposition in a way and by a method superior to the established laws of the State respecting the administration of deceased persons' estates and the sale and division of realty owned by tenants in common. * * * The corporation came into being to manage, control, and dispose of this estate; it had no purpose to continue longer, and while so engaged did carry on and complete all the necessary business activities for which it was distinctly incorporated. Surely this was a privilege. Clearly it was the exercise of a legal option to take from the channels of ordinary and customary legal procedure * * * estate in lands and personal property, erect a legal entity, and thereby accrue an advantage which ownership in common did not afford those entitled to the property. The fact that overhead expense was nominal, proven profits from investment small, and business activities not especially exacting, in nowise militates against the rule. If the corporation was pursuing the object for which it was organized and doing all the essential things to accomplish that object, it cannot claim a classification of an inactive corporation, doing no more than liquidating its assets."

We think what was said by the court in the case just cited is entirely applicable to the instant case. The plaintiff, as a corporation, had for many years been engaged in the business of manufacturing and selling hardware. In 1920 it sold its business, including its plant, to another corporation, and discontinued its business in that respect entirely. It did not, however, surrender its charter and cease to exist as a corporate entity. It proceeded to have its charter amended, changed its name from the Stanley Rule Level Company to the Stanley Securities Company, and was granted authority "to buy, hold, sell, and deal in real estate, corporate, municipal, Government, and other securities and interests therein." With the corporate authority with which it was invested by its amended charter, the plaintiff assumed the control and management of the securities, cash, and other assets belonging to the plaintiff company of a value of several million dollars. It bought and sold securities, declared and paid dividends to its stockholders, maintained business offices, held regular meetings of its board of directors, paid salaries to its president, vice president, and treasurer, and engaged in such activities as characterize ordinary investment corporations.

In view of these facts, we think it cannot properly be classified and held to be other than a corporation "carrying on or doing business" within the provisions of section 700 of the Revenue Act of 1924 ( 26 USCA § 223 note).

The taxes in question were properly and legally assessed. The Commissioner of Internal Revenue was correct in denying plaintiff's claim for refund.

Plaintiff's petition should be, and is hereby, dismissed. It is so ordered.

BOOTH, Chief Justice, and LITTLETON, GREEN, and GRAHAM, Judges, concur.