§ 2805. Taxability of Stockholders in Distillery Companies Under United States Internal Revenue Law. The stockholders in a corporation engaged in operating a distillery tion, in double taxation, the burden of which always falls in the end on the debtor or borrower. This question has been the subject of a succession of judicial decisions in California, under the following provision of the constitution of 1849 of that State: "Taxation shall be equal and uniform throughout the State. All property in this State shall be taxed in proportion to its value, to be ascertained as directed by law." Cal. Const. 1849, Art. XI., Sec. 13. In People v. McCreery, 34 Cal. 432, it was held, after a very elaborate consideration of the question, that a debt secured by a mortgage upon real property was taxable as the "property" of the creditor, and that a stitute by which the legislature undertook to exempt such property from taxation would be unconstitutional. The general doctrine of this case, that the revenue laws of the State are unconstitutional in so far as they attempt to exempt private property from taxation, and that such statutes are to be read with the exemption clause omitted, was reaffirmed in People v. Gerke, 35 Cal. 677, in respect of a statute assuming to exempt growing crops from taxation. People v. Black Diamond Coal Mining Co., 37 Cal. 54, the same doctrine was reaffirmed, and the court held that a clause in a revenue law assuming to exempt from taxation possessory claims and improvements upon the public lands, was unconstitutional and void. It should be observed that it had been previously held, in several cases in that State, that the possession of and claim to public land - in other words, what has been often called in our western frontier life" a squatter right" "-was taxable to the claimaut. In 126 People v. Shearer, 30 Cal. 645, 656; People v. Frisbie, 31 Cal. 146; People v. Cohen, 31 Cal. 210. The question of the power of the legislature to exempt solvent credits from taxation was re-agitated in People v. Eddy, 43 Cal. 331; s. c. 13 Am. Rep. 143, in which the court reaffirmed the doctrine of People v. McCreery, supra, and again held that a solvent debt, secured by promissory notes and mortgages upon real estate, is "property " within the constitutional provision above quoted, and that an act of the legislature exempting it from taxation in the hands of the creditor is hence unconstitutional and void. Rhodes, J., wrote the opinion of the court, and the doctrine was adhered to after a rehearing. But in people v. Hibernia, &c. Bank, 51 Cal. 243; s. c. 21 Am. Rep. 704, the question was again stirred, and the doctrine of People v. McCreery and People v. Eddy, supra, was overruled, the court now taking the position that credits are not "property," in the sense in which the word "property" is used in the constitutional provision above quoted, and cannot be assessed for taxation or taxed as property, even if secured by a mortgage; and this notwithstanding a provision of the Political Code requiring that all property shall be taxed, and declaring that "personal property shall include money, goods, chattels, evidences of debt, and things in action." The scope of this decision seems to be that, the legislature having seen fit not to enact in terms that solvent credits shall be taxed as property, the constitutional provision above quoted does not require the assessing officers to list such credits for taxation. Mr. Justice Rhodes dis2001 have been held to be " persons interested in the use of the distillery," within the meaning of a statute of the United States,1 which declares that "every proprietor or possessor of, and every person in any manner interested in the use of, any still, distillery, or distilling apparatus, shall be jointly and severally liable for the taxes imposed by law on the distilled spirits produced therefrom."' 2 § 2806. When Joint-stock Companies Taxable as Corporations. In the State of New York, joint-stock companies, as is well known, are organized under certain enabling statutes which confer upon them the chief incidents of business corporations, although under the name of joint-stock companies or associations. They are hence regarded as corporations rather than as partnerships. For instance, where a joint-stock company, so organized, carries on the business of a common carrier, one of its members may maintain an action, in the nature of an action at law, against it, for the loss of goods intrusted to it for carriage. Such a company was, in another case, regarded as hav sented. 3 66 Such was the state of the law in California at the time of the rendition of the decision in San Francisco v. Flood, 64 Cal. 504, the doctrine of which is stated in the text, where it was held that, notwithstanding the decision in People v. Hibernia Bank, supra, shares of stock in corporations in that State are assessable as property" under the constitutional mandate and under the designation of "property" in revenue laws, unless it is made to appear, under section 3640 of the Political Code, that the entire capital or property of the corporation in which the shares are owned is otherwise assessed. The last decision has been, in its turn, annulled by the people of California, in establishing their new constitution of 1877, in which they inserted these provisions: "All property in the State, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law. The word 'property,' as used in this article and section, is hereby declared to include moneys. credits, bonds, stocks, dues, franchises, and all other matters and things, real, personal, and mixed, capable of private ownership; provided, that growing crops, property used exclusively for public schools, and such as may belong to the United States, this State, or to any county or municipal corporation within this State, shall be exempt from taxation. The legislature may provide, except in the case of credits secured by mortgage or trust deed, for a reduction from credits or debts due to bona fide residents of this State." 1 Rev. Stat. U. S., § 3251. 2 United States v. Wolters, 46 Fed. Rep. 509. 3 Westcott v. Fargo, 6 Lans. (N. Y.) 319; s. c. affirmed, 61 N. Y. 542: s. c. 19 Am. Rep. 300. ing all the attributes and incidents of a corporation, except a common seal. They are therefore taxable, under the statutes of that State, in a manner similar to that in which corporations are taxable.2 In Massachusetts, where there does not appear to be any such enabling statute, but where unincorporated jointstock companies must be formed, if at all, by instruments of writing in the nature of deeds or declarations of trust, which stand on the footing of a mere private compact among the members and their successors, and where there is no separate scheme of taxation applicable to unincorporated joint-stock companies, and no distinct statutory provision for the taxation of shares of such companies, it is held that such shares are not taxable against their members, but that the taxing power exerted by the legislature of that State in respect of such companies is exercised in the taxation of their tangible property at its situs; and a confirmation of this view is discovered in the fact that under the statutory system of taxation existing in that State applicable to corporations, the value of the tangible property is deducted in assessing the value of the share capital; whereas, if the shares of unincorporated joint-stock companies were held to be taxable as separate items of personal property against their holders, this would result in a double taxation and would be inequitable. But a foreign unincorporated joint-stock insurance company, doing business in Massachusetts under the permission of its statutes relating to foreign insurance companies, has been held to be, in substance and effect, a corporation, so as to come within the purview of a statute of that State relating to the taxation of foreign corporations.* 1 Waterbury v. National Union Ex. Co., 50 Barb. (N. Y.) 158. See also Robbins v. Wells, 1 Rob. (N. Y.) 666. 2 People v. Wemple, 117 N. Y. 136; s. c. 6 L. R. A. 303; 27 N. Y. State Rep. 341; 7 Rail. & Corp. L. J. 127; 22 N. E. Rep. 1046; 2 Inters. Com. Rep. 735; 29 Am. & Eng. Corp. Cas. 610; affg s. c. 52 Hun (N. Y.), 434; 24 N. Y. State Rep. 668; 5 N. Y. Supp. 581. 3 Hoadley v. County Commissioners, 105 Mass. 519. 4 Oliver v. Liverpool &c. Ins. Co., 100 Mass. 531; s. c. affirmed, 10 Wall. (U. S.) 566; ante, § 3. While this is so, it has been held in Massachusetts that the statutes of another State authorizing the formation of jointstock companies, with the incidents usual to corporations, and providing that they may be sued in the name of their president or treasurer, and that a judgment, rendered against such an officer in the name of the company, cannot form the basis of a demand against the individual members § 2807. Taxation of an Unauthorized Over-issue of Shares. Under a statute providing that no tax shall be assessed upon the capital of any bank or banking association, but that the stockholders shall be assessed and taxed on the whole of their shares of stock therein,1 it has been held that, in case of an unauthorized or ultra vires excess of stock, the State cannot maintain a bill in equity against the corporation or its managing officers for a recovery of the taxes assessed against the corporation in respect of such shares, since the cause of action is not against the individual owners of such over-issue of shares; but even if the assessment were then against them individually, it would be necessary for them to be parties to the suit.2 SECTION ARTICLE II. DOUBLE TAXATION IN RESPECT OF SHARES. 2810. Distinction between capital and shares. 2811. Taxation of shares not a taxation of capital, and vice versa. 2812. View that taxation of both shares and capital is not double taxation. 2813. Contrary view that the taxation of both capital and shares is double taxation. 2814. An intent to impose a double tax not imputable to the legislature. SECTION 2815. Taxing the difference between 2816. The same subject continued. 2818. Further of this subject. 2819. Rule how affected by default of § 2810. Distinction Between Capital and Shares.— At the outset it is necessary to recur to the distinction already stated3 between corporate capital, or corporate franchises, or corporate property, on the one hand, and corporate shares, on the other. We have seen that the shareholders are not part owners of the 4 until execution against the company is returned unsatisfied-are local in their operation, so far as regards legal remedies for debt in Massachusetts; but the members may there be sued as partners. Taft v. Ward, 106 Mass. 518. See further as to the status of the members of such associations, as partners in Massachusetts: Tappan . 1 Thomp. & S. Tenn. Code, § 541c. 3 Ante, § 1065, et seq. corporate property either at law or in equity; but that the title of all the corporate property is vested in the ideal being which acts through the board of directors, and other officers, under the corporate name. From this it follows that the taxation of the capital owned by an incorporated bank, returned in gross by its president in pursuance of a revenue law, is not deemed a taxation of the shares of stock of the bank. The shares of stock are deemed the property of the individval shareholders,' and are in the nature of credits based upon the existing capital of the bank. Confusion has sprung up in dealing with this subject from the use of the word "stock" to designate, on the one hand, the capital stock of the company, and, on the other hand, the shares of its members. This stake, subscribed for and paid in or secured, upon which the corporation embarks upon its business, is its capital stock. The collection of rights in its capital stock, in its management and in its profits, known as its "shares," are sometimes called its "share stock," to distinguish this species of property from the capital stock. The two things are distinct kinds of property: the capital stock is exclusively the property of the corporation, while the share stock is exclusively the property of the stockholders.3 § 2811. Taxation of Shares not a Taxation of Capital, and Vice Versa. A leading proposition, then, is that the taxation of the property of a corporation is not a taxation of its shares, and vice versa. The present chapter is chiefly devoted to a consideration of the consequences which flow from the foregoing Reg. v. Arnand, 9 Ad. & El. (N. S.) 806; Van Allen v. Assessors, 3 Wall. (U. S.) 573, 584; Farrington v. Tennessee, 95 U. S. 679, 686; Porter v. Rockford &c. R. Co., 76 Ill. 561, 567; Delaware Railroad Tax, 18 Wall. (U. S.) 206, 229; Lee v. Sturges, 46 Oh. St. 153, 161; Bradley v. Bander, 36 Oh. St. 28, 35; s. c. 38 Am. Rep. 547; Conwell v. Connersville, 15 Ind. 150; McKeen v. Northampton County, 49 Pa. St. 519, 525; s. c. 88 Am. Dec. 515. 2 St. Louis &c. Association v. Lightner, 42 Mo. 421. 3 The distinction between these two species of property is thrown into clear light in the opinion of the Supreme Court of Ohio, delivered by Boynton, J., in Jones v. Davis, 35 Oh. St. 474, 476. The same distinction is, if possible, thrown into a clearer light, in an opinion of the Court of Appeals of New York, delivered by Finch, J., in People v. Coleman, 126 N. Y. 433, 437. It is clearly stated by Battle, J., in State v. Petway, 2 Jones Eq. (N. C.) 396, 406. |