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the rule by which the tax was measured as approximately just, although arbitrary, and hence one which the legislature of a State is at liberty to adopt. In the opinion of the court, Mr. Justice Field, among other things, said: "The State may impose taxes upon the corporation as an entity existing under its laws, as well as upon the capital stock of the corporation or its separate corporate property. And the manner in which its value shall be assessed and the rate of taxation, however arbitrary or capricious, are mere matters of legislative discretion. It is not for us to suggest in any case that a more equitable mode of assessment or rate of taxation might be adopted than the one prescribed by the legislature of the State; our only concern is with the validity of the tax; all else lies beyond the domain of our jurisdiction.”1 The stress of the question lay in the proposition advanced in opposition to the tax, and impliedly conceded by the court, that if such were the character of the tax, it was beyond the power of the State to lay it, since it was beyond the power of the State to lay a tax upon personal property, the situs of which was beyond its territorial boundaries.2

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§ 2818. Further of this Subject. In many cases such taxes are described in the statutes imposing them, as taxes upon the capital of the corporation, in all which cases there is no difficulty, in the absence of special elements in the statute, in concluding that a tax upon the shares distributively was not intended. In other cases the statute, after imposing a tax upon the capital, makes its meaning more clear, by way of contrast, by providing that the shares shall not be taxed where the capital is taxed. Such was the following statute of Illinois, which was held to be a tax upon the capital of the company, and not a tax upon the shares of its stock: 3 "The capital stock of all companies and associations, now or hereafter created under the laws of this State, shall be so valued by the State board of equalization as to ascertain and determine, respectively, the fair cash value of such capital stock, including the franchise, over and above the assessed value of the tangible property of such com

The Delaware Railroad Tax, 18 Wall. (U. S.) 206, 231.

2 See on this question, post, §2846.

3 State Railroad Tax Cases, 92 U. S. 575, 603.

pany or association. Said board shall adopt such rules and principles for ascertaining the fair cash value of such capital stock as to it may seem equitable and just; and such rules and principles, when so adopted, if not inconsistent with this act, shall be as binding and of the same effect as if contained in this act, subject, however, to such change, alteration, or amendment, as may be found from time to time to be necessary by said board: Provided, that in all cases where the tangible property or capital stock of any company or association is assessed under this act, the shares of capital stock of any such company or association shall not be assessed or taxed in this State. This clause shall not apply to the capital stock, or shares of capital stock, of banks organized under the general banking laws of this State." Although one court has held that an assessment of the aggregate value of the share capital of a company is an erroneous basis of assessment,1 yet the Supreme Court of the United States has held, under the statute above quoted, that a basis of assessment which includes the market or fair cash value of the shares of capital stock of a company, and which provides for the taxation of its franchise or business possibilities or opportunities under its charter, and for the deduction from its aggregate value of the value of its tangible property, is not only not a tax against the shares distributively, but is a tax against the corporation, founded on perhaps as just and equitable a basis as could be devised.2

§ 2819. Rule how Affected by Default of Corporation or Shareholders.- On the one hand, it has been held that the mere fact that a corporation fails to make a return of its property to the tax assessor, as required by the statute, does not authorize the assessor to lay an assessment against the shares of the stockholder in the corporation, where so to do might create a double. taxation contrary to the provisions of the statute. On the other hand, if the tax assessor, proceeding in violation of such a statute, does lay an assessment against the shares of a stockholder, and afterwards lays an assessment, such as is authorized by law,

1 People v. Coleman, 126 N. Y. 433. State Railroad Tax Cases, 92 U.

S. 575, 604.

3 Gillespie v. Gaston, 67 Tex. 599.

127

2017

66

against the property of the corporation, the latter cannot, in a proceeding to set aside the assessment against its property, set up the fact that the illegal assessment has been made against the shareholder. Here it was reasoned that while, under the terms of the statute, the shareholders could not be legally assessed on their shares, yet if they listed such shares for assessment it was their own fault. They could, if they so desired, have avoided such a tax. But, even if they did not, it concerns themselves alone, and in no wise affects the appellants [the corporation], who can only see to the taxes levied on the corporation." 1 The principle of these two decisions is, that the shareholder cannot, on the one hand, be deprived of his legal rights by the misprision or default of the corporation; and that the corporation cannot, on the other hand, acquire an advantage against the State in consequence of the error or neglect of its shareholders.

SECTION

ARTICLE III.

EXEMPTIONS FROM TAXATION. 2

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SECTION

2831. Tangible property of corporations exempt where the tax is laid upon the shares.

2832. Contrary view that an exemption of the shares does not necessarily exempt the corporation.

2833. Whether preferred stock exempt from taxation as shares or taxable as a credit.

2834. Earnings invested in preferred
stock of another corporation
lose their exemption.

2835. Not entitled to reduction in re-
spect of preferred stock of
another corporation, under
the head of "credit."
2836. Sinking fund deductible as a
credit.

2837. Deduction on account of real
estate held in other States.

2 See also post, Ch. 121.

SECTION

2838. Exemption of corporation exempts dividends of shareholders.

2839. An exemption in favor of stock attaches to a lawful increase

of stock.

SECTION

2840. Shareholder not entitled to ex

emption because corporate funds invested in non-taxable securities.

§ 2823. No Presumption in Favor of Exemption from Taxation. All judicial opinion appears to unite upon the proposition that where an exception or exemption from taxation is claimed, the intention of the legislature to except or exempt must be expressed in clear and unambiguous terms. "The exemption," it has been said, "must be shown indubitably to exist. At the outset every presumption is against it. A wellfounded doubt is fatal to the claim. It is only where the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported." It has also been said that an intent to confer immunity from taxation must be clear beyond a reasonable doubt; for, as in case of a claim of grant, nothing can be taken against the State by presumption or inference.2

§ 2824. No Exemption From Taxation Under General Words in Statutes. The doctrine elsewhere stated that statutes under which exemptions from taxation are claimed should be strictly construed in favor of the State and against the party claiming the exemption, has led the courts, in several cases, to hold that a statute creating an exemption in general terms in favor of shareholders in corporations, the stock of which is separately taxed, or giving them a right to deductions to the extent of their proportions of any tax separately laid upon the capital or tangible property of the corporation, - does not extend to resident shareholders in foreign corporations. On the

1 West Wisconsin R. Co. v. Supervisors, 93 U. S. 595; Tucker v. Ferguson, 22 Wall. (U. S.) 527; Lee v. Sturgess, 46 Oh. St. 153, 159.

2 Delaware Railroad Tax, 18 Wall. (U. S.) 206; Kirtland v. Hotchkiss, 42 Conn 426; s. c. 19 Am. Rep. 546; Cincinnati College v. State, 19 Ohio, 110;

Vicksburg &c. Co. v. Dennis, 116 U. S. 665; Farrington v. Tennessee, 95 U. S. 679; Chicago &c. Co. v. Guffey, 120 U. S. 569; Portland &c. R. Co. v. Saco, 60 Me. 196; Lima v. Cemetery Association, 42 Ohio St. 123; s. c. 51 Am. Rep. 809.

3

Post, Ch. 121.

other hand, the same principle, as already seen, requires that general words in statutes subjecting shares in corporations to taxation be held to extend to shares held by residents in the stock of foreign corporations. Proceeding upon these principles, the Supreme Court of Ohio, in a very fully considered case, have held, on the one hand, that the term "investments in the stocks in a revenue statute extends to investments in the stocks of foreign corporations; and, on the other hand, that no exemption from taxation is created in favor of the holder of such investments by the following statutory provisions: "No person shall be required to include in his statement, as a part of the personal property, moneys, credits, investments in bonds, stocks, jointstock companies or otherwise, which he is required to list, any share or portion of the capital or other property of any company or corporation which is required to list or return its capital and property for taxation in this State."1 "No person shall be required to list for taxation any certificate of the capital stock of any company, the capital stock of which is taxed in the name of said company." The court took the view that these provisions did not apply to shares of a foreign corporation, although the capital of such corporations is taxed in the State where located, and although the corporation has substantial property in Ohio on which it pays taxes to that State; nor did it apply to shares of a railroad company which had been formed by the consolidation of an Ohio company with companies of other States, notwithstanding the consolidated company paid taxes in Ohio on the portion of its property which was situated there. In like manner, the Supreme Court of the United States, following the interpretation put upon the second statutory provision above quoted by the Supreme Court of Ohio in a previous decision, held that it did not apply to shares in a foreign corporation which paid taxes in Ohio on a portion only of its property situated within that State. The court reasoned that the statute referred only to those corporations which were required to return all, or substantially all, of their capital or property for taxation in Ohio. In the view of the court, there was no rule of

2

1 Ohio Act of Apr. 5, 1859 (S. & C. 1438), § 3, sub. 9.

2 Ibid., § 59.

3 Lee v. Sturges, 46 Ohio St. 153; s. c. 19 N. E. Rep. 560; Owen, C. J., and Dickman, J., dissenting.

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