Argued April 10, 1905. Decided May 15, 1905.
A tax on the value of the capital stock of a corporation is a tax on the property in which that capital is invested, and therefore no tax can be levied upon the corporation issuing the stock which includes property that is otherwise exempt. The same rule that requires the exclusion from the assessment of valuation of capital stock of tangible personal property permanently situated out of the State applies to property sent out of the State to be sold and which is actually out of the State when the assessment is made. As a State cannot directly tax tangible property permanently outside the State and having no situs within the State, it cannot attain the same end by taxing the enhanced value of the capital stock of a corporation which arises from the value of property beyond its jurisdiction. While an appraisement of value is in general a decision on a question of fact and final, where it is arrived at by including property not within the jurisdiction of the State, it is absolutely illegal as made without jurisdiction. The collection of a tax on a corporation on its capital stock based on a valuation which includes property situated out of the State would amount to the taking of property without due process of law and can be restrained by the Federal courts. In assessing the value of the capital stock of a corporation of Pennsylvania under the act of that State of June 8, 1891, coal which is owned by the corporation, but at the time of the assessment situated in another State not to be returned to Pennsylvania, should not be included.
Mr. M.E. Olmsted, with whom Mr. W.W. Ross and Mr. A.C. Stamm were on the brief, for plaintiff in error:
The tax claimed is a tax on property. Pennsylvania v. N.Y., Penna. O.R.R. Co., 188 Pa. 169; Bank of Commerce v. New York City, 2 Black, 620; Bank Tax Case, 2 Wall. 200; Commonwealth v. Standard Oil Co., 101 Pa. 145.
It was not within the intent or power of the legislature to impose a tax on tangible property without the territorial limits, and protection of the laws, of the State. Commonwealth v. Del., L. W. Ry. Co., 145 Pa. 96; Commonwealth v. Mining Co., 5 Pa. County Ct. Rep. 89, and other cases in note thereto; Commonwealth v. Westinghouse Co., 151 Pa. 265; Commonwealth v. Dredging Co., 122 Pa. 386.
The coal involved in this case was permanently located and actually taxed in other States. Commonwealth v. Coal Co., 197 Pa. 351.
This coal is exempt in Pennsylvania as it is taxable in other States under Brown v. Houston, 114 U.S. 622; Coe v. Errol, 116 U.S. 517; Coal Co. v. Balis, 156 U.S. 577; United States v. Knight, 156 U.S. 1, 13; Kelley v. Rhoads, 188 U.S. 1; Diamond Match Co. v. Ontonagon, 188 U.S. 82; Finley v. Philadelphia, 32 Pa. 381.
Taxing property having its situs in another State violates the Federal Constitution. It violates interstate comity and interstate commerce. McCulloch v. Maryland, 4 Wheat. 316, 429; St. Louis v. Ferry Co., 11 Wall. 423; Hays v. Pacific Mail, 17 How. 596; State Tax on Foreign-held Bonds, 15 Wall. 300; Railroad Co. v. Jackson, 7 Wall. 262; Pullman Co. v. Pennsylvania, 141 U.S. 18; Adams Express Co. v. Ohio, 165 U.S. 194; Adams Express Co. v. Ohio, 166 U.S. 185, 224; Am. Refrigerator Co. v. Hall, 174 U.S. 70.
Mr. Hampton L. Carson, Attorney General of the State of Pennsylvania, with whom Mr. Frederic W. Fleitz was on the brief, for defendant in error:
The tax claimed is not a tax directly laid upon tangible property situate outside of the State, but is a capital stock tax imposed directly upon the capital stock of a Pennsylvania corporation at a fixed rate of five mills upon each dollar of the actual value of the whole capital stock, including bonds, mortgages, moneys at interest, owned by the company, franchises and property of other kinds. Commonwealth v. Railroad Co., 188 Pa. 185; Commonwealth v. Coal Co., 197 Pa. 553; Laws of Pennsylvania, 1891, 229.
The legislature has a general power of taxation which is necessary for the existence and preservation of the government.
It may be exercised to any extent to which the State may choose to carry it, not in violation of the powers granted to the Federal Government or the restrictions set forth in the state constitution. Sharpless v. Philadelphia, 21 Pa. 160.
The legislature may tax the same subject once, twice or oftener. Such power is not prohibited by the constitution, the only feature required being that the intention must be clear. Commonwealth v. Coal Co., 156 Pa. 488; Commonwealth v. Lehigh C. N. Co., 162 Pa. 603.
Conceding that instrumentalities of interstate commerce cannot be taxed by the State where the taxation interferes with the commerce itself it is a well settled principle as to tangible property that at times it is to be treated as practically intangible because of its roving character. Vessels engaged in foreign or interstate commerce have their situs at their port of registry and are taxable there, and shares of stock in national banks, located in this State, owned by non-residents of this State are taxable here. Vessels, if unregistered, have their situs for taxation in the State which is the domicil of their owner. Commonwealth v. Standard Oil Co., 101 Pa. 119; Pullman Co. v. Commonwealth, 107 Pa. 156; aff'd Pullman Co., v. Pennsylvania, 141 U.S. 18; Commonwealth v. Dredging Co., 122 Pa. 386; Commonwealth v. D., L. W.R.R. Co., 145 Pa. 96; Commonwealth v. Coal Co., 197 Pa. 551.
The principal subjects of corporate taxation in Pennsylvania are capital stock, shares and franchises. The tax on capital stock of corporations has always been levied upon capital stock according to the value of the property which it represents. Commonwealth v. Standard Oil Co., 101 Pa. 119; Whitworth on Tax. of Corp. in Pennsylvania, ch. I, § 14, pp. 59-140.
The capital stock tax claimed is not a tax laid, or sought to be laid, directly upon tangible property beyond the territorial limits of Pennsylvania or the protection of her laws. Deductions from the value of the capital stock of a Pennsylvania corporation cannot be allowed for property which has not acquired a foreign situs, because of its return in value to the treasury of the company. It is the value of the stock that is taxed and not the property representing that value. Commonwealth v. Mining Co., 5 Pa. County Ct. Rep. 89; Commonwealth v. Coal Co. 19 7 Pa. 551.
We do not concede that the coal in question was permanently located and actually taxed in States other than Pennsylvania; nor do we concede the pertinency of the case of Brown v. Houston, 114 U.S. 622, and the authorities cited in support and confirmation thereof.
Before the coal had started on its journey, the right of Pennsylvania to tax capital stock, into the value of which the value of the coal had entered, had attached and could not be divested.
The cases cited by plaintiff in error as to state taxes on goods in course of transportation are inapplicable to this case.
The Supreme Court of Pennsylvania bases its decision in this case on the authority of Commonwealth v. Pennsylvania Coal Co., 197 Pa. 551, which it regards as controlling upon the question involved. The right to include the value of the coal in question in the valuation of the capital stock of the company is based upon the construction given by the Supreme Court of Pennsylvania to the Pennsylvania statute of 1891, and this court is concluded by that construction. People v. Weaver, 100 U.S. 539, 541.
The only question for this court to determine is whether, in refusing to deduct the value of the coal mined in Pennsylvania, and which at the time of the appraisement was situated outside the jurisdiction of the State, from the value of the capital stock, the state court denied any right of the plaintiff in error, which was protected by the Federal Constitution.
The coal itself, when the appraisement of the value of the capital stock was made, was concededly beyond the jurisdiction of the State of Pennsylvania. It was taxable (and in fact was taxed) in the States where it rested for the purpose of sale, at the time when the appraisement in question was made. Brown v. Houston, 114 U.S. 622. In that case the court held that the coal was properly taxed by the State of Louisiana, though it had but lately arrived from the State of its origin, Pennsylvania, and was at the time of the taxation awaiting sale in Louisiana, and was, in fact, soon thereafter sold and taken out of the country to a foreign State. It was said that the coal, on arrival at New Orleans for the purpose of sale, at once became intermingled with the general property of the State of Louisiana and was taxable like any other tangible property therein. In Coe v. Errol, 116 U.S. 517, the question was relative to the validity of the tax on the lumber imposed in the State of its origin, as that State had taxed the lumber before it had actually left the State, although it was intended for transportation to another State for sale. It was held that the tax was proper, so long, and so long only, as such transportation had not yet actually commenced. After that the State had no right to tax it. In the case at bar the coal had been transported to and was actually resting in another State for sale when the appraisement was made, and under the foregoing cases it was then intermingled with property in the foreign State where it rested and was at that time liable to taxation therein. The right of the foreign State to tax under such circumstances was again upheld in Pittsburg Southern Coal Co. v. Bates, 156 U.S. 577, where the coal was taxed while awaiting sale in such State. See Kelley v. Rhoads, 188 U.S. 1; Diamond Match Co. v. Ontonagon, 188 U.S. 82. We must, therefore, take it as plain, under the foregoing decisions, that this coal, at the time of the appraisement of the value of the capital stock for taxation by Pennsylvania, had become intermingled with the mass of property in the other States, to which portions of it had respectively been sent, and that it was a proper subject for taxation for both state and local purposes in such States. Where the proceeds of the sale might go when the coal was sold, whether into the treasury of the company at its offices in New York City, or indirectly to the State of its incorporation, is not important. The coal had not been sold when the appraisement of the value of the capital stock was made, and at that time it was outside the jurisdiction of the State of Pennsylvania. A tax on that coal, eo nomine, or specifically, could not then be laid by that State, as counsel concede.
Now, was this tax, in substance and effect, laid upon the coal which was beyond the jurisdiction of Pennsylvania? The Supreme Court of Pennsylvania has held that a tax on the value of the capital stock is a tax on the property and assets of the corporation issuing such stock. Commonwealth v. Standard Oil Co., 101 Pa. 119, 145; Fox's Appeal, 112 Pa. 337; Commonwealth v. Delaware c. R.R. Co., 165 Pa. 44. This court has also frequently held that a tax on the value of the capital stock of a corporation is a tax on the property in which that capital is invested, and in consequence no tax can thus be levied which includes property that is otherwise exempt. Bank of Commerce v. New York City, 2 Black, 620; Bank Tax Case, 2 Wall. 200; Pullman's Car Co. v. Pennsylvania, 141 U.S. 18, 25; Fargo v. Hart, 193 U.S. 490, 498, 499.
The cases of the taxation upon the value of the capital stock of the banks, or on a valuation equal to the amount of their capital stock paid in or secured to be paid in, as reported in 2 Black and 2 Wall., supra, involved the question of the taxation of United States bonds and other securities of the United States, in which the capital of the banks was invested, which were exempt from taxation; but the holding of the court was that those bonds and securities were in fact taxed by a tax upon the value of the capital of the bank, which was invested in such bonds and securities. Of course, the distinction between the capital stock of a corporation, and the shares into which it may be divided and held by individual shareholders, is borne in mind and recognized, and nothing herein affects that distinction. The question here is simply as to the value of the capital stock with reference to the assessment and taxation upon the corporation itself which issues it, and has nothing to do with the individual shareholder. Van Allen v. Assessors, 3 Wall. 573; Bank of Commerce v. Tennessee, 161 U.S. 134, 146.
Counsel for defendant in error find no fault with the principle stated in Brown v. Houston, supra, and that line of cases, nor with the general proposition laid down in the other cases cited, that a tax on the value of the capital stock is a tax on the property of the corporation in which the capital is invested. They deny, however, their applicability to the facts of this case. They concede that the courts of Pennsylvania have held that tangible property, permanently located outside of the State, for the use and benefit of the corporation, and owned by it, is exempt from taxation under this statute. They also concede that it was never within the intent or the power of the legislature to impose a tax upon tangible property when held outside of the territorial limits of the State; but they insist that this tax is not eo nomine or specifically upon tangible property outside the State, and they contend that the State has the right to consider the value of the coal as having entered into the value of the capital stock as soon as it was mined, and that the State then had the right to treat the coal as one of the items that went into the value of the capital stock, just the same as they contend for the right to so treat the money realized from the coal upon its sale in the foreign State when it has been returned to the State and has gone into the surplus fund. The position of the defendant in error, then, is this: The tax in question is not a tax upon coal, treated as tangible property and a tangible asset specifically subject to tax, but is a tax upon the value of the capital stock of the Pennsylvania corporation at the fixed rate of five mills for each dollar of the actual value of the whole capital stock, including bonds, mortgages, moneys at interest, franchises, and property of other kinds, and that the statute in question does not impose a tax on the coal itself. Counsel do not contend that a tax on the value of the capital stock of a corporation is not a tax on its property in a certain sense, but they contend that while a tax on capital stock is a property tax, yet the property of the corporation, for the purpose of taxation, is reached through the tax imposed directly upon the stock ( 197 Pa. 553), and that there is a distinction between a tax on capital stock and a direct tax on personal property. Therefore tangible property situated outside the State, under the circumstances set forth in this case, is not directly taxed by a tax on the value of the capital stock, or at least there is no specific tax upon it, and the tax is not illegal. It is also said that by reason of the alleged transitory character of the coal it has never, in law, lost its original domicil, which still remains in Pennsylvania and is subject to be there included in the value of the capital stock of the corporation.
The asserted transitory nature of this property does not seem to us to be material. At the time of the appraisement it had been transported beyond the jurisdiction of the State, never to return in kind, but was intended to be sold in the foreign State. Such property is entirely unlike the property involved in Commonwealth v. American Dredging Co., 122 Pa. 386. That property consisted of vessels, or scows, or tugs, only temporarily out of the State of Pennsylvania, for the purpose of engaging in business, and liable to return to the State at any time, and was without any actual situs beyond the jurisdiction of the State itself. However temporary the stay of the coal might be in the particular foreign States where it was resting at the time of the appraisement, it was definitely and forever beyond the jurisdiction of Pennsylvania. And it was within the jurisdiction of the foreign States for purposes of taxation, and in truth it was there taxed. We regard this tax as in substance and fact, though not in form, a tax specifically levied upon the property of the corporation, and part of that property is outside and beyond the jurisdiction of the State which thus assumes to tax it. This is not a question as between direct or indirect taxation, such as arises under the Federal Constitution when Congress lays and collects taxes by virtue of the power given it by that instrument. No question of uniformity or apportionment of taxes arises here. The question now discussed is simply whether, under this statute of the State, property of the corporation is in substance and effect taxed while it is beyond the jurisdiction of the State and is never to return. When the Federal Constitution says no tax or duty shall be laid on articles exported from any State, such articles cannot be taxed, directly or indirectly, and a tax on foreign bills of lading is void because it in effect is a tax on exports. Fairbank v. United States, 181 U.S. 283, 289.
So, if the State cannot tax tangible property permanently outside the State and having no situs within the State, it cannot attain the same end by taxing the enhanced value of the capital stock of the corporation which arises from the value of the property beyond the jurisdiction of the State.
We think the state court is right in deducting, as it does, the value of the tangible property, when permanently held in another State, and we think that for the same reason the same rule should obtain in the case of tangible property situated, as this coal was. We cannot see the distinction, so far as the question now before the court is concerned, between a tax assessed upon property, eo nomine, or specifically, when outside the State, and a tax assessed against the corporation upon the value of its capital stock to the extent of the value of such property, and which stock represents to that extent that very property. If the property itself could not be specifically taxed because outside the jurisdiction of the State, how does the tax become legal by providing for assessing the tax on the value of the capital stock to the extent it represents that property and from which the stock obtains its increased value? Can the mere name of the tax alter its nature in such case? If so, the way is found for taxing property wholly beyond the jurisdiction of the taxing power by calling it a tax on the value of capital stock or something else, which represents that property. Such a tax, in its nature, by whatever name it may be called, is a tax upon the specific property which gives the added value to the capital stock.
Although the coal may have entered into the value of the capital stock when mined, the question is whether the value of the stock in November, 1899, when the appraisement was directed by the statute to be made, should not be decreased by deducting the value of the coal therefrom which was not in the State at the time of the appraisement. We think it should; otherwise the tax amounts in substance to a specific tax on the coal. Taking the different prices of the stock at different times in the year, and the average price thereof, and otherwise following the provisions of the statute, simply makes a way of finding the value of the stock between the first and fifteenth of November in each year. That is the material time when the value is to be ascertained, and at that time this coal was not in the State. An appraisement thus made, which includes such property, is to that extent without jurisdiction and illegal. It is true that in general an appraisement of, or an assessment of a tax upon, value is a decision upon a question of fact, and a difference of opinion as to the value between the assessing officer and the court is immaterial, and the decision of the former is final. But where the appraisement is arrived at by including therein tangible property, which is beyond the jurisdiction of the State, and which, therefore, the assessing officers had no jurisdiction to appraise (and none could be given them by the statute), such an appraisement or assessment is absolutely illegal, as made without jurisdiction.
The next question is whether there is a right to relief in a case like this, founded upon the provisions of the Federal Constitution. We think there is. The collection of a tax under such circumstances would amount to the taking of property without due process of law, and a citizen is protected from such taking by the Fourteenth Amendment. In Louisville c. Ferry Co. v. Kentucky, 188 U.S. 385, the ferry company was operating a ferry across the Ohio River between Jeffersonville in Indiana and Louisville in Kentucky, under two franchises, one granted by the proper authorities of Indiana for maintaining a ferry across that river from the Indiana shore to the Kentucky shore, and the other granted by the State of Kentucky to carry on a ferry business from the Kentucky to the Indiana shore. The tax was laid by Kentucky upon the company, a part of which the company insisted was a tax upon it by reason of its ownership of the Indiana franchise, which it contended was property situated in Indiana and beyond the jurisdiction of Kentucky. The courts of Kentucky held that, under the statute, "the board of valuation and assessment did not attempt to assess or tax its revenues coming from the exercise of its franchise in the transportation of persons and property over the Ohio River. But under certain sections of the Kentucky statutes it assessed the value of appellant's franchise, which is its intangible property. The board did not assess, or attempt to assess, the property, either tangible or intangible, which it owned in the State of Indiana." This court stated: "It thus appears from the admitted facts and from the opinion of the court below that the state board, in its valuation and assessment of the franchise derived by that company from Kentucky, included the value of the franchise obtained from Indiana for a ferry from its shore to the Kentucky shore. In short, as stated by the Court of Appeals, the value of the franchise of the ferry company was fixed `as if it conducted all its business in the territorial limits of the State of Kentucky,' making no deduction for the value of the franchise obtained from Indiana." It was held that the franchise granted by Indiana to maintain a ferry from the Indiana shore was wholly distinct from the franchise obtained from Kentucky to maintain the ferry from the Kentucky shore, although the enjoyment of both was essential to a complete ferry right for transportation of persons and property across the river both ways And each franchise was property entitled to the protection of the law. After holding that the privilege of maintaining a ferry in Kentucky from the Indiana shore to the Kentucky shore was a franchise derived from Indiana, and as that franchise was a valuable right of property, the question arose whether it was within the power of Kentucky to tax it, directly or indirectly, and this court said: "It is said that the Indiana franchise has not been taxed, but only the franchise derived from Kentucky; that the tax is none the less a tax on the Kentucky franchise, because of the value of that franchise being increased by the acquisition by the Kentucky corporation of the franchise granted by Indiana. This view sacrifices substance to form. If the board of valuation and assessment, for purposes of taxation, had separately valued and assessed at a given sum the franchise derived by the ferry company from Kentucky, and had separately valued and assessed at another given sum the franchise obtained from Indiana, the result would have been the same as if it had assessed, as it did assess, the Kentucky franchise as an unit upon the basis of its value as enlarged or increased by the acquisition of the Indiana franchise." And again: "We recognize the difficulty which sometimes exists in particular cases in determining the situs of personal property for purposes of taxation, and the above cases have been referred to because they have gone into judgment and recognize the general rule that the power of the State to tax is limited to subjects within its jurisdiction or over which it can exercise dominion. No difficulty can exist in applying the general rule in this case; for, beyond all question, the ferry franchise derived from Indiana is an incorporeal hereditament derived from and having its legal situs in that State. It is not within the jurisdiction of Kentucky. The taxation of that franchise or incorporeal hereditament by Kentucky is, in our opinion, a deprivation by that State of the property of the ferry company without due process of law in violation of the Fourteenth Amendment of the Constitution of the United States; as much so as if the State taxed the real estate owned by that company in Indiana." And in conclusion it was said: "We decide nothing more than it is not competent for Kentucky, under the United States, to tax the franchise which its corporation, the ferry company, lawfully acquired from Indiana, and which franchise or incorporeal hereditament has its situs, for purposes of taxation, in Indiana."
It is plain that in the case at bar the coal had lost its situs in Pennsylvania by being transported from that State to foreign States for the purposes of sale, with no intention that it should ever return to its State of origin. It was, therefore, as much outside the jurisdiction of the State of Pennsylvania to tax it as was the Indiana franchise in the case just cited, and it has been taxed just as directly and specifically under the facts stated in this case as was the Indiana franchise taxed in Kentucky by the valuation of the Kentucky franchise, which value was increased by the value of the franchise created by Indiana. Taxation of the coal in this case deprived the owner of its property without due process of law, as is held in the above case, and the owner is entitled to the protection of the Fourteenth Amendment, which prevents the taking of its property in that way.
The judgment of the Supreme Court of Pennsylvania is reversed and the cause remanded for further proceedings not inconsistent with the opinion of this court.
The CHIEF JUSTICE dissented.