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January 5, 1914



White, McKenna, Holmes, Day, Hughes, Van Devanter, Lamar, Pitney

Author: Hughes

[ 232 U.S. Page 8]

 MR. JUSTICE HUGHES delivered the opinion of the court.

The plaintiff in error, a resident of the city of Malden, brought this action to recover the amount of certain taxes which he had paid under protest. The taxes were assessed upon shares which he held in foreign corporations most of which did no business and had no property within the State of Massachusetts. It was alleged that the levy and collection were in violation of the due process and equal protection clauses of the Fourteenth Amendment. Demurrer to the declaration was sustained by the Superior Court and the case was reported to the Supreme Judicial Court of the Commonwealth which directed judgment for the defendant. 204 Massachusetts, 138.

It is conceded that the objection that the statute authorizing the tax [Rev. Laws (Mass.), c. 12, §§ 2, 4, 23] denies to the plaintiff in error the equal protection of the

[ 232 U.S. Page 9]

     laws is not well taken; but it is contended that the shares were not within the jurisdiction of the State and hence that the enforcement of the tax constitutes an unconstitutional deprivation of property.

The power thus challenged, as the state court points out, has been continuously exercised by the State of Massachusetts for more than three-quarters of a century. Substantially the same statutory provision, derived from an earlier enactment, is found in Rev. Stats. (Mass.), c. 7, § 4, and its constitutionality has been sustained by repeated state decisions. Great Barrington v. County Commissioners, 16 Pick. 572; Dwight v. Mayor & Aldermen of Boston, 12 Allen, 316; Frothingham v. Shaw, 175 Massachusetts, 59, 61. And other States through a long period of years have asserted a similar authority. Union Bank of Tennessee v. State, 9 Yerg. (Tenn.) 490; McKeen v. County of Northampton, 49 Pa. St. 519; Whitesell v. Same, id. 526; State v. Branin, 23 N.J. Law, 484; State v. Bentley, id. 532; Worthington v. Sebastian, 25 Oh. St. 1; Bradley v. Bauder, 36 Ohio St. 28; Dyer v. Osborne, 11 R.I. 321; Seward v. Rising Sun, 79 Indiana, 351; Ogden v. St. Joseph, 19 Missouri, 522; Worth v. Ashe County, 90 N. Car. 409; Jennings v. Commonwealth, 98 Virginia, 80; Appeal Tax Court v. Gill, 50 Maryland, 377; State v. Nelson, 107 Minnesota, 319; Bacon v. State Tax Commissioners, 126 Michigan, 22; State v. Kidd, 125 Alabama, 413; Commonwealth v. Lovell, 125 Kentucky, 491; Stanford v. San Francisco, 131 California, 34; Judy v. Beckwith, 137 Iowa, 24; Greenleaf v. Morgan County, 184 Illinois, 226. It is well settled that the property of the shareholders in their respective shares is distinct from the corporate property, franchises and capital stock, and may be separately taxed (Van Allen v. Assessors, 3 Wall. 573, 584; Farrington v. Tennessee, 95 U.S. 679, 687; Tennessee v. Whitworth, 117 U.S. 129, 136, 137; New Orleans v. Houston, 119 U.S. 265, 277); and the rulings in the state cases which we have

[ 232 U.S. Page 10]

     cited proceed upon the view that shares are personal property and, having no situs elsewhere, are taxable by the State of the owner's domicile, whether the corporations be foreign or domestic.

It is said that the question of the constitutional validity of such taxation has not hitherto been raised definitely in this court and has not been directly passed upon. There is no doubt, however, that the existence of the state authority has invariably been assumed. In Sturges v. Carter, 114 U.S. 511, the action was brought to recover taxes imposed under the law of Ohio upon shares of stock owned by a resident of Ohio in the Western Union Telegraph Company, a New York corporation. The right of the State to tax the shares was not questioned and as it was found that a statutory exemption which was relied upon in defense did not apply, the recovery of the tax was sustained. Again, in Kidd v. Alabama, 188 U.S. 730, it was not disputed that the State was entitled to tax shares owned by its citizens in foreign corporations. The argument was that the statute in that case created an unconstitutional discrimination and, this point being found to be without merit, the tax was upheld. In Wright v. Louisville & Nashville R.R. Co., 195 U.S. 219, the question was whether shares of stock in a railroad corporation of another State, which were owned by a Georgia corporation were taxable under the constitution and laws of Georgia. The State's power to tax the shares was not denied, so far as the Constitution of the United States was concerned, but it was contended that this power had not been exercised. The constitution of Georgia provided that all taxation should "be uniform upon the same class of subjects, and ad valorem on all property subject to be taxed within the territorial limits of the authority levying the tax," and should be levied and collected under general laws. The general tax act had authorized a tax on all of the taxable property of the State. It was clear that the

[ 232 U.S. Page 11]

     State had directed shares in foreign corporations to be taxed, provided these could be considered to be "property subject to be taxed within the territorial limits" of the taxing authority. And such shares when held by a resident being deemed to fall within this description, it was decided that the state officer was entitled to collect the tax. "Putting the case at the lowest," said the court (p. 222), "the above cited section of the constitution was adopted in the interest of the State as a tax collector, and authorizes, if it does not require, a tax on the stock." So also, in Darnell v. Indiana, 226 U.S. 390, the authority of the State to tax the shares of its citizens in foreign corporations was recognized, the tax being sustained against objections urged under the commerce clause, Art. I, § 8, and the equal protection clause of the Fourteenth Amendment.

To support the contention that this familiar state action, hitherto assumed to be valid, is fundamentally violative of the Federal Constitution, the plaintiff in error invokes the doctrine that a State has no right to tax the property of its citizens when it is permanently located in another jurisdiction. Louisville & Jeffersonville Ferry Co. v. Kentucky, 188 U.S. 385; Del., Lack. & West. R.R. Co. v. Pennsylvania, 198 U.S. 341; Union Transit Co. v. Kentucky, 199 U.S. 194. But these decisions did not involve the question of the taxation of intangible personal property (Union Transit Co. v. Kentucky, 199 U.S. p. 211); nor do they apply to tangible personal property which, although physically outside the State of the owner's domicile, has not acquired an actual situs elsewhere. Southern Pacific Co. v. Kentucky, 222 U.S. 63, 68. When we are dealing with the intangible interest of the shareholder, there is manifestly no question of physical situs, so far as this distinct property right is concerned, and the jurisdiction to tax it is not dependent upon the location of the lands and chattels of the corporation.

[ 232 U.S. Page 12]

     The argument, necessarily, is that shares are to be deemed to be taxable solely in the State of incorporation. It is urged that these rights rest in franchise and that the principle of the decision in Louisville &c. Ferry Co. v. Kentucky, supra, holding that a ferry franchise granted by Indiana to a Kentucky corporation was not taxable in Kentucky is applicable to shares of stock. But that case went upon the ground that the franchise was an incorporeal hereditament and hence had its legal situs in Indiana, 188 U.S. p. 398. Shares fall within a different category. While the shareholder's rights are those of a member of the corporation entitled to have the corporate enterprise conducted in accordance with its charter, they are still in the nature of contract rights or choses in action. Morawetz on Corporations, § 225. As such, in the absence of legislation prescribing a different rule, they are appropriately related to the person of the owner, and, being held by him at his domicile, constitute property with respect to which he is under obligation to contribute to the support of the government whose protection he enjoys. Kirtland v. Hotchkiss, 100 U.S. 491; Bonaparte v. Tax Court, 104 U.S. 592; Covington v. First National Bank, 198 U.S. 100, 111, 112; Southern Pacific Co. v. Kentucky, supra ; Cooley on Taxation (3d ed.), 26.

Undoubtedly, the State in which a corporation is organized may provide, in creating it, for the taxation in that State of all its shares whether owned by residents or non-residents. Corry v. Baltimore, 196 U.S. 466. This is by virtue of the authority of the creating State to determine the basis of organization and the liabilities of shareholders. Id., 476, 477; Hannis Distillery Co. v. Baltimore, 216 U.S. 285, 293, 294. So, by reason of its dominant power to provide for the organization and conduct of national banks, Congress has fixed the places at which alone shares in those institutions may be taxed. Rev. Stat., § 5219. Whether, in the case of corporations organized

[ 232 U.S. Page 13]

     under state laws, a provision by the State of incorporation fixing the situs of shares for the purpose of taxation, by whomever owned, would exclude the taxation of the shares by other States in which their owners reside is a question which does not arise upon this record and need not be decided. No such provision is here involved, and the present case must be determined by the application of the established principle which has been stated.

The real ground of complaint in this class of cases is not that the shares are taxed in one place rather than in another but that they are taxed at all, when presumably the property and franchises of the corporation which give to the shares their value are also taxed. As to this we may repeat what was said in Kidd v. Alabama, 188 U.S. 730, 732, "No doubt it would be a great advantage to the country and to the individual States if principles of taxation could be agreed upon which did not conflict with each other, and a common scheme could be adopted by which taxation of substantially the same property in two jurisdictions could be avoided. But the Constitution of the United States does not go so far."

The judgment is affirmed.



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