Opinion
April 9, 1928.
1. CORPORATION FRANCHISE TAX ACT OF 1921: Title: Designation of Portions of Property Taxed: Details. The purpose of the provision of the Constitution relating to the title of a bill (Sec. 28, Art. IV) was to require the title to present in a clear and comprehensive manner the purpose of the act, and in so doing it is not necessary to enter into details, if those omitted are germane to the principal features of the act. It was not necessary that the title of the Corporation Franchise Tax Act of 1917 (Laws 1917, p. 237) should designate the portions of the capital stock and surplus of the corporation on which the tax is to be laid. The act has but one subject, namely, the levying of an annual franchise tax on domestic and foreign corporations, and the title, and particularly its words "providing the method of procedure for ascertaining the amount thereof and for enforcing collection thereof," clearly indicates that one subject and the general contents of the act, and therefore it was not necessary that the details looking to the enforcement of the act should be set forth in the title.
2. ____: Burden on Interstate Commerce. The Corporation Franchise Tax Act of 1921 (Laws 1921, 1 Ex. Sess., p. 121) does not impose an unlawful burden on interstate commerce. To use the full value of a railroad company's assets employed in this State in both interstate and intrastate commerce to determine the amount of the company's state franchise tax, is not a laying of a tax on interstate commerce which violates the clause of the U.S. Constitution empowering Congress to regulate commerce among the States. The part of the property within the State which is used in interstate commerce is subject to a state franchise tax, as well as to a state property tax.
3. CORPORATION FRANCHISE TAX ACT OF 1921: Report: Liabilities. The Corporation Franchise Tax Act of 1921 was not rendered invalid by the addition to Section 9837 thereof of Section 15, which required corporations liable to such tax to report the amount of their liabilities, but such addition is essential to enable the Tax Commission to reach a proper estimate of the value of the franchise to be taxed.
4. ____: ____: Discrimination. Section 9845 of the Corporation Franchise Tax Act of 1921 (Laws 1921, 1 Ex. Sess., p. 126), which declares that such corporations as insurance companies and building-and-loan associations shall not be required to set out in their reports the value of their properties, does not render the act invalid. The differentiation in favor of those corporations is a reasonable one, in view of the difference between their organizations and those of other corporations which come within the purview of the act. Besides, that section could be held invalid without affecting the structural validity or operative force of the remainder of the act.
5. ____: Double Taxation: Excise. Section 9836 of the Corporation Franchise Tax Act of 1921 provides unequivocally that the corporations therein named shall pay an annual franchise tax equal to one-twentieth of one per cent of the par value of their capital stock, surplus, etc., and that tax is not in the nature of a property tax, but clearly, by the terms of the act and in its essence, is in the nature of an excise, and therefore the act does not violate the clause of the Missouri Constitution declaring that all property subject to taxation shall be taxed according to its value, or the due-process provision of either the Federal or State Constitution, and therefore it cannot be said that the tax imposed by the act results in double taxation.
6. ____: Surplus: Deduction of Debts. The word "surplus" used in the Corporation Franchise Tax Act of 1921 does not mean the remainder after deducting debts and liabilities from income and earnings. Neither a natural nor an artificial person is allowed under Missouri law to deduct indebtedness from assets before returning property for assessment for purposes of taxation. The word "surplus" used in the act means the difference between the amount of the par value of the stock and the amount of the assets excluding the liabilities. If the corporation is an interstate railroad, the tax should be assessed on the proportionate part of its capital stock, surplus and undivided profits employed in this State, unreduced by its liabilities.
7. ____: ____: ____: Stock in Other Corporations: Double Taxation. The fact that the corporation is the owner of stock of another corporation does not entitle it to have such stock deducted from the assets on the theory that by including it the stock is subjected to double taxation, but such stock constitutes but an addition to its assets, and as such must be returned for assessment.
Corpus Juris-Cyc. References: Commerce, 12 C.J., Section 154, p. 110, n. 39. Constitutional Law, 12 C.J., Section 1047, p. 1255, n. 27. Statutes, 36 Cyc, p. 982, n. 47; p. 1044, n. 1. Taxation, 37 Cyc, p. 761, n. 62; p. 1025, n. 48.
WRIT QUASHED.
Edwin J. White, Otto Potter and James F. Green for relator.
(1) The Franchise Tax Law, adopted in the year 1917, is in violation of the Constitution of the State, in that the subject thereof is not clearly expressed in the title of the act. Sec. 28, Art. 4, Constitution; State v. Sloan, 258 Mo. 313; Williams v. Railroad, 233 Mo. 676; State v. Burgdoefer, 107 Mo. 19; State v. Coffee Tea Co., 171 Mo. 643; State ex rel. v. Hedrick, 294 Mo. 62. (2) The Franchise Tax Act provides for a property tax and constitutes a burden on interstate commerce. Int. Paper Co. v. Mass., 246 U.S. 135; Southern Gum Co. v. Laylin, 66 Ohio St. 578; Airway Corp. v. Day, 266 U.S. 42. (3) Subsequent to the decision of this court in the Marquette Hotel case, 282 Mo. 213, the General Assembly, by amendatory act, required "the amount of liabilities" of corporations to be reported to the State Tax Commission. Laws 1921, pp. 122, 123. The term "surplus" as used in the Franchise Tax Law implies that debts and liabilities should be deducted from assets, income and earnings in order to ascertain same. Fidelity Trust Co. v. Equalization Board, 71 N.J. 128; Green v. Eq. Ins. Co., 169 N.Y. 19; Bank of Commerce v. Tennessee, 161 U.S. 134; People v. Tax Commission, 76 N.Y. 64; Parker v. Ins. Co., 35 N.J.L. 575.
North T. Gentry, Attorney-General, and Walter E. Sloat, Special Assistant Attorney-General, for respondents.
(1) The Franchise Tax Law is not violative of Sec. 28, Art. 4, of the Constitution of Missouri, because the subject is clearly expressed in the title of the act. The title of an act must serve as a clear and comprehensive indicator of the purpose of the act, and is sufficient if the title does not mislead as to the chief topic of the act. When it sufficiently indicates the substantial purpose of the act, it will not be violative of the Constitution, and it is only necessary that the title shall indicate the subject of it in a general way without entering into details. State ex rel. v. County Court, 128 Mo. 441; State v. Whitaker, 160 Mo. 59; State v. Sloan, 258 Mo. 313; State ex rel. v. Roach, 258 Mo. 559; Coca Cola Bottling Co. v. Mosby, 289 Mo. 472; State ex inf. Barrett v. Imhoff, 291 Mo. 619; State v. Mullinix, 301 Mo. 390. (2) The franchise tax is not a property tax, and does not burden interstate commerce. (a) The great weight of authority is to the effect that a franchise tax is not a property tax. State v. Freehold Inv. Co., 264 S.W. 703; Southern Gum Co. v. Laylin, 66 Ohio St. 596; State v. Railroad Co., 45 Md. 361; Phoenix Carpet Co. v. State, 118 Ala. 151; People ex rel. v. Knight, 174 N.Y. 478; People v. Insurance Co., 92 N.Y. 344. (b) The Franchise Tax Act is not a burden on interstate commerce, and does not become a property tax because it is assessed on capital stock and surplus. A state may use any method it desires as a means of arriving at the basis for assessing a franchise tax. St. Louis-San Francisco Ry. Co. v. Middelkamp, 256 U.S. 231; Maine v. Grand Trunk Ry. Co., 142 U.S. 228; Home Ins. Co. v. People, 134 U.S. 600. (3) Subsection 14 of Sec. 9837, Laws 1921, 1 Extra Sess., page 123, which requests the amount of liabilities, was merely added to assist the Tax Commission in properly assessing the franchise tax. It cannot and does not affect the tax in any manner. (4) The franchise tax is not a property tax, hence relator is properly taxed on stock held in domestic corporations. The smaller companies owned by relator are enjoying corporate privileges, consequently, they must pay for them. The stock in other domestic corporations held by relator is carried as an asset of the corporation, and as such is taxable because it is employed in Missouri. State ex rel. Marquette Hotel v. State Tax Comm., 282 Mo. 221. Stocks owned by a corporation in another domestic corporation are assessable for the purpose of a franchise tax. People v. Campbell, 138 N.Y. 545; People ex rel. v. Knight, 174 N.Y. 475; People ex rel. v. Morgan, 178 N.Y. 433. (5) The amendment to Section 9836 which exempts bank deposits from taxation under this act, has a saving clause relative to the bank section; and the act is consequently good, even though the exemption of bank deposits is not constitutional. (a) Although part of a statute may be held bad, the remainder will stand if it sufficiently shows the legislative intent. State ex rel. v. St. Louis, 241 Mo. 247; Simpson v. Iron Works Co., 249 Mo. 391; Nally v. Home Ins. Co., 250 Mo. 467; Greene County v. Lydy, 263 Mo. 87; State ex inf. v. Duncan, 265 Mo. 45; State ex rel. v. Gordon, 268 Mo. 736; State ex rel. v. Hackmann, 275 Mo. 543. (6) What the term "surplus," as used in the Franchise Tax Act, means, is no longer open to discussion, but is stare decisis. State ex rel. Marquette Hotel Inv. Co. v. State Tax Comm., 282 Mo. 213.
This is an original proceeding by certiorari to quash the proceedings of the State Tax Commission and the records of the officers named, in the assessment of certain franchise taxes against the railroad company for the year 1927.
The statute authorizing the collection of a corporation franchise tax was first enacted in 1917, Laws 1917, page 237. It underwent several amendments not necessary to be noted here; and as incorporated in the Revised Statutes of 1919 (Chap. 20, Art. I), the sections relative to the tax are 9836, 9837, 9838, 9839, 9840, 9841, 9843 and 9845. These sections were repealed and new sections, with like numbers, were enacted in 1921, Laws 1921, First Extra Session, pages 121-126, except as to the title to the initial act. It is with this statute we are concerned, in the determination of the matter in controversy.
It is conceded that the respondents' statement of the facts correctly submits the issues. The principal contention is in regard to the method to be used in ascertaining the basis for computing the tax. The relator contends that it should be assessed on the proportionate part of its capital stock, surplus and undivided profits employed in Missouri, without taking into account its liabilities.
The respondents contend that the tax should be assessed on the proportionate part of the relator's capital stock, surplus and undivided profits employed in Missouri, plus its liabilities; or as stated differently by respondents, "the property of the relator used in determining the tax should include its total assets, less deductions held by respondents not taxable." In conformity with the statute, in question, the relator filed its report with the State Tax Commission for the year ending December 31, 1926, as follows:
"Paid up capital stock __________________________ $154,639,600.00 Surplus and undivided profits ___________________ 50,082,183.36 Total surplus and undivided profits _____________ 204,721,783.37 Liabilities, less capital stock and surplus _____ 359,441,211.37"
It is the contention of the relator:
(1) That the Franchise Tax Law is invalid in that the title to the initial act in 1917 did not conform to the requirements of the State Constitution.
(2) That the Franchise Tax Law constitutes a burden on interstate commerce.
(3) That subsequent to the decision of this court in State ex rel. Marquette Co. v. State Tax Commission, 282 Mo. 213, the Legislature amended the Franchise Tax Law to require the return for taxation "of the amount of liabilities."
(4) That the word "surplus" as used in this law means that the debts and liabilities should be deducted from the gross assets and earnings to ascertain the amount of relator's property subject to the tax.
The title to the Act of 1917 is as follows:
"AN ACT requiring domestic and foreign corporations doing business in this State to pay an annual franchise tax; providing the method of procedure for ascertaining the amount thereof and for enforcing collection thereof; establishing a lien in support thereof; prescribing the duties of the State Tax Commission or of the State Board of Equalization; the State Auditor; the State Treasurer and other officers in connection therewith and prescribing the penalties and forfeitures for violations." [Laws 1917, p. 237.] Italics ours.
I. Relator's first contention is that the title to the act is in violation of Section 28, Article IV, of the State Constitution, in that it does not designate the portions of the capital stock and surplus of corporations on which the tax is to be laid. This contention misconceives the purpose of the constitutional Title. provision, which is to require a title to present in a clear and comprehensive manner the purpose of the act, and in so doing it is not necessary to enter into details, if those omitted are germane to the principal features of the act. Under this rule, if as at bar, the act has reference to only one subject and if the title clearly indicates the same, the details looking to the enforcement of the act need not be set forth in the title. [State ex inf. Barrett. ex rel. Bradshaw v. Hedrick, 294 Mo. 21, 241 S.W. 402; State ex inf. Barrett v. Imhoff, 291 Mo. 603, 238 S.W. 122.]
As we said in effect in Coca Cola Bottling Co. v. Mosby, 289 Mo. l.c. 472, 233 S.W. 446: "The State Constitution (Sec. 28, Art. 4) is read to little purpose if it be held to require that the title of an act must present the particularity of an itemized account or the minutiae of a chemical analysis. When the Constitution provides, therefore, that `no bill . . . shall contain more than one subject which shall be clearly expressed in its title,' it simply means that the title shall indicate in an unmistakable manner the general contents of the act; it does not require, nor was it intended that it should descend into particulars, but that it will be sufficient if it defines the nature of the statute and thus inform the reader as to its purpose. The nature of this constitutional provision being thus understood, the tendency of the courts in numerous rulings has been to construe it liberally in aid of all well directed legislative power."
An apposite ruling which fits like a glove the facts in the instant case is that of State v. Mullinix, 301 Mo. 385, 390, 257 S.W. 121, in which the court said:
"The generality of a title will not affect its validity where it does not tend to cover up or obscure legislation which is in itself incongruous. A requisite to congruity is that the amendatory act shall pertain to and admit of being made a consistent part of the law to be amended. The disposition of the courts has always been to avoid thwarting the efficiency of the evident salutary effect of legislative action by a liberal interpretation of the constitutional provision. [Burge v. Railroad, 244 Mo. 76, 148 S.W. 925; Booth v. Scott, 205 S.W. (Mo.) 633.]"
The act at bar relates to but one subject, viz., the franchise tax required to be paid by corporations. The title makes a clear and comprehensive reference to the same and provides a method of procedure for ascertaining the amount thereof and for enforcing its collection. In addition, reference is made to the duties of the Tax Commission, and that of the state officers charged with the duty of enforcing the law. All of these are congruous with the general purpose of the act. Not only is this title in no wise vague, uncertain or misleading, but in addition to declaring the purpose of the act it is definitely indicative of the course to be pursued in the enforcement of the same. He who runs therefore may, upon an inspection of this title, not only readily divine the purpose of the act, but understand as well that it contains the particulars necessary to render its operation effective. Thus informed no one of average intelligence, lawyer or layman, can be held to be misled thereby. The object of the title therefore is, under the Constitution, fully met and the relator's contention is devoid of merit.
II. The contention is made that the act is a burden on interstate commerce. This court in State ex rel. Wabash Ry. Co. v. Williams, 284 Mo. 456, 224 S.W. 822, held that in using the full value of a railroad's Missouri assets, employed Burden on in both intrastate and interstate commerce, in Interstate determining the amount of the railroad's franchise Commerce. tax, does not violate the Federal Constitution (Art. I, sec. 8) by laying a tax on interstate commerce.
As we held in State ex rel. Hagerman v. Electric Ry. Co., 279 Mo. 616, 629, 216 S.W. 763, while it is not within the power of the states to put a direct burden on interstate commerce, the exclusive regulation of which is granted to Congress, this provision does not prevent the assessment of property situated in the several states, because it is a part of a unified system which is appropriated to interstate commerce. "In such cases," as Judge BOND, speaking for the court in the Hagerman case, said, "the property `may be taxed at its value as it is, in its organic relations, and not merely as a congeries of unrelated items; and taxes on such property have been sustained that took account of the augmentation of value from the commerce in which it was engaged'" (citing cases).
Upon an appeal of the Hagerman case to the Supreme Court of the United States, 256 U.S. 314, 318, 41 S.C. Rep. 288, that court, in affirming the ruling of the Supreme Court of Missouri, held that "while a State may not, in the guise of taxation, constitutionally compel a corporation to pay for the privilege of engaging in interstate commerce, yet this immunity does not prevent the State from imposing an ordinary property tax upon property having a situs within its territory and employed in interstate commerce." Having thus ruled in regard to a property tax the court further held, as especially applicable to the matter under consideration, that (p. 318) "even the franchise of a corporation, if not derived from the United States, although that franchise is the business of interstate commerce, is subject to state taxation as a part of its property."
In St. L. S.F. Ry. Co. v. Middlekamp, 256 U.S. 226, Mr. Justice HOLMES, speaking for the court in regard to the act in question (p. 231), says: "There is no contravention of the Commerce Clause. It is said that the value of the franchise taxed is derived partly from the fact that the corporation does interstate business, but that does not invalidate the tax" (citing cases).
Further than this, the relator's contention that this act levies a tax on interstate commerce is held to be unsound in St. Louis So. West. Ry. Co. v. Arkansas, 235 U.S. 350. This ruling is cited with approval in State ex rel. Wabash Ry. Co. v. Williams, supra, to this effect: that the tax is not in any wise based upon the receipts of the railroad company from interstate commerce, either taken alone or in connection with the receipts of its intrastate business. Since, therefore, the amount of the imposition is not made to fluctuate with the volume of the value of the business done, we are relieved from those difficulties that arise where state taxes are based upon the earnings of interstate carriers, as in the cases cited in support of the foregoing (284 Mo. l.c. 463).
In an able dissenting opinion by Mr. Justice BRANDEIS in Ozark Pipe Line Co. v. Monier, 266 U.S. 567, the entire range of United States court cases concerning the levying of a burden by taxation on interstate commerce are cited and discussed with a holding in harmony with the cases here reviewed.
III. The further contention is made that the Franchise Act of 1921 (Laws 1921, 1st Ex. Sess., pp. 121, 126), is invalid in that there is added to Section 9837 a provision, as Section 15, requiring corporations liable to such tax to report Report: "the amount of liabilities." How or in what manner Liabilities. this added section can affect the validity of the act we are unable, after a careful analysis of the contention, to determine. The added provision is not incongruous with others required to be made by corporations liable to the tax; and it is an essential addition to enable the Tax Commission to reach a proper estimate of the value of the franchise to be taxed.
Nor do we regard as rendering the act invalid the addition of Section 8 of the Act of 1921 (p. 126), otherwise designated as Section 9845, which requires: "All insurance Discrimination. companies, building and loan associations, and other corporations, the fees of which are fixed at lump sums by this article, and all corporations which employ all their property and all their outstanding capital stock in this State, or which will report and pay the fees on all of its outstanding capital stock, whether employed in this State or not, shall not be required to set out in the report required by this article the value of its property within this State or without the State." This amendment could be held invalid without affecting the structural validity or operative force of the remainder of the act.
The differentiation of the corporations named in the amendment and the consequent requirement as to the character of their reports to the Tax Commission is a reasonable one in view of the difference between their organization and those of other corporations within the purview of the act. No constitutional provision is violated in the addition of this section to the act, and the contention is without merit.
IV. The validity of the act is challenged on the ground that the burden imposed results in double taxation.
If the manner in which the levy is to be laid and the amount of the tax is to be estimated was indefinite, some difficulty might be encountered in determining whether this is a Double property or an excise tax. If the former, then the Taxation. contention has merit and the applicability of the constitutional rules as to due process and the equal protection of the law are to be considered. If the latter, these rules are not governing and the validity of the act is not in this regard in question. The terms of the act, however, dissipate any doubt and remove any difficulty that might otherwise arise in its construction. It (Sec. 9836) provides unequivocally that the corporations, therein named, shall pay an annual franchise tax equal to one-twentieth of one per cent of the par value of their outstanding capital stock and surplus, etc. The franchise, therefore, is graded in proportion to the par value of the stock and the tax imposed is in the nature of an excise. Thus classified we have held in several cases that the act is not in the nature of a property tax and does not violate that clause of the State Constitution which declares that all property subject to taxation shall be taxed according to its value; nor does it violate the due-process provision of the State Constitution or the Fourteenth amendment of the Federal Constitution. As we held in State v. Freehold Investment Co., 305 Mo. 88, 264 S.W. 702, the violation of the State or the Federal Constitution by the terms of the franchise act (Laws 1921, 1st Ex. Sess. pp. 121-126), "is no longer an open question," (citing cases). The great weight of authority is to the effect that a franchise law which requires the tax to be levied as in the act in question, is not a property tax. A like ruling as to the constitutionality of the act was made in State ex rel. Wabash Ry. Co. v. Williams, 284 Mo. 456, 462, 224 S.W. 822. In State ex rel. Hagerman v. Elec. Ry. Co., 279 Mo. 625, 216 S.W. 763, in discussing the taxation of the use of a right of way over a bridge we held it was not double taxation.
While it is true that the interpretation given to the franchise act in the Marquette Hotel case, 282 Mo. 213, 221 S.W. 721, and the Freehold Investment Co. case, supra, had reference to the law as it existed in 1917, this contention does not have weight as contradistinguishing the act as it then existed from its reenactment in 1921, so far as concerns the character of the legislation, or more concretely, the nature of the tax created. The manner of ascertaining the amount to be levied then as now was the same. Under each statute the basis on which the tax was to be estimated was the "par value of the outstanding stock and surplus." This, under each enactment gave the law its excise character and eliminated any question as to double taxation. The Supreme Court of the United States so held in the Middlekamp case, 256 U.S. 226, 231, in construing the act at bar.
V. Under the well defined ruling of this court there is no room for cavil as to the meaning of the word "surplus" as used in the act. In the Marquette case, supra, we held that the whole purpose of the act intended the word "surplus" to mean the Surplus. difference between the amount of the outstanding capital stock of a wholly domestic corporation, such as the relator, and the amount of the assets of that corporation excluding its liabilities.
The contention of the relator is that the term surplus, as used in the franchise law, means the remainder after deducting debts and liabilities of a corporation from income and earnings. In the light of our ruling in the Marquette Hotel case, as above quoted, it is enough to say that the relator's interpretation of the term is incorrect. That indebtedness should be deducted from surplus assets for assessment purposes has never been the policy of taxation in this State. Neither a natural nor an artificial person is allowed under our present system to deduct indebtedness from assets before returning property for assessment for the purpose of taxation. To contend, therefore, that the Legislature intended to depart from the constitutional rule of equity and uniformity in the levying of a franchise tax and not otherwise, does not merit serious consideration. The fact that the relator is the owner of stock or perhaps has a controlling interest in other domestic corporations, is stressed as an evidence of double taxation. Aside from the legality of such holdings under its charter and the statutes limiting its creation, which we do not discuss, this fact remains, that the ownership in such stock constitutes but an addition to the assets of the relator; and as such is, of course, within the meaning and purpose of the act, intended to be returned for assessment as essential to the information of the Tax Commission in estimating the basis for the levying of the relator's franchise tax.
This act in all of its material features, from its enactment in 1917 to and including the present statute, has not only been subjected to the scrutiny of this court, but of the Supreme Court of the United States, to determine its validity on constitutional and other grounds. In each instance its validity has been upheld with cogent reasoning.
There is no merit in this proceeding and the writ is quashed. All concur, Ragland, J., in the result; White and Graves, JJ., not sitting.