Crown Cork & Seal Co. v. State

Roberts, J., delivered the opinion of the Court. This suit was brought by the State of Maryland in the Court of Common Pleas of Baltimore City to recover from ⁶⁹⁴ the appellant certain taxes assessed upon its capital stock and claimed to be due the State for the year 1895. The case was tried before the Court below, without the aid of a jury. At the trial below the State, appellee here, offered in evidence the tax bill properly certified, when it was admitted that the State Tax Commissioner had duly assessed the capital stock of the appellant, for the year 1895, and that the appellant refusing to abide by the action and determination of the Tax Commissioner, took its appeal to the Comptroller and Treasurer of the State, in accordance with the provisions of the Code, and it is conceded that the assessment on which the taxes are claimed, is in accordance with the valuation fixed by the Treasurer and Comptroller on such appeal.

The appellee then closed its case and the appellant offered evidence of similar character to that of the appellee, showing the valuations of its stock as made by the Tax Commissioner and on appeal by the Comptroller and Treasurer, and that the same are proper evidence of the facts stated. The appellant, as shown by the record, was incorporated on the 9th of March, 1892, under the general incorporation laws of the State of Maryland, for the purpose of “acquiring, developing, improving, using, working or otherwise utilizing and disposing of the patented inventions, following, for which patents have been granted in the United States and Canada; ” then follows a list of the patents referred to which do not require enumeration here. The appellant transacts its business in this State and elsewhere and owns real and personal property other than the patent rights mentioned herein. The aggregate authorized capital stock of the appellant is one million dollars, divided into ten thousand shares of the par value of one hundred dollars each.

The charter of the appellant in express terms, provides that ‘Mhe said corporation is formed upon the articles, conditions and provisions herein expressed and subject in all particulars to the limitations relating to corporations, which are contained in the general laws of this State.” The appellant also offered evidence to show the ⁶⁹⁵ minutes of a meeting of its shareholders on the ioth of March, 1892, at which all of its stock was subscribed for, except four hundred and ninety-five shares, and paid for by a lot and factory and chattels to the value of $57,791.09 and the assignment of valuable United States patents, claimed to be essential to the business of the appellant, and it was further proved that the Canadian patents were never used by it, and that it has never engaged in the manufacture of its patented product in Canada. The aforegoing statement substantially presents the facts essential to a proper understanding of the nature and character of the controversy, arising on this appeal. The appellee offered one instruction in the Court below which was granted and sought to exclude certain testimony, by means of four motions offered for that purpose, each of which was overruled by the Court. The appellant offered six prayers all of which were rejected except the fifth, which was granted.

The finding and judgment being against the appellant, it prosecutes this appeal. The questions here presented are important to the interests of both parties. Important to the appellee, not only because its revenues are affected by the determination of the issues here presented, but because it adopts and declares the rule of law to be adhered to.in all cases of like character with the one now under consideration. It is clearly important to the appellant by virtue of the fact that it involves the question of its liability for the payment, vel non, of the taxes assessed upon a large and valuable property, which the Court of last resort of an adjoining sister State, whose decisions are entitled to and receive the highest consideration by this Court, has declared adversely to the contention of the appellee advanced and sought to be maintained on this appeal.

The leading question which this appeal presents is, whether in the assessment of the capital stock of the appellant company for purposes of taxation, the appellant is entitled to have the assessment limited to the value of the ⁶⁹⁶ property other than the patents granted by the United States. There is another question closely interwoven with the main proposition just stated, and will be considered in the course of this opinion, which relates to the constitutionality, both Federal and State, of the contention of the appellee. It will not be necessary to burden the report of this case with the various provisions of the Code relating to the taxation of the shares of stock of corporations incorporated under the laws of this State, as they are lengthy and can be conveniently found by reference to sections 2, 4, 141 and 144 of the Code, contained in Article 81. Mr. Chief Justice McSherry speaking for this Court n the case of The Electric Power and Light Co. v. State, 79 Md. 70 , has forcibly said that, “ The taxable value of shares of capital stock is fixed by the State Tax Commissioner.

He is required by the statutes to deduct from the aggregate value of all the shares of the capital stock of banks and other corporations the assessed value of the real estate owned by the company, and to divide the residuum by the number of shares of the stock, and the quotient is declared to be taxable value of each share for State purposes of taxation. Upon the valuation thus ascertained the State tax is levied. But the tax is not a tax upon the stock or upon the corporation, but upon the owners of the shares of stock, though the. officers of the corporation are made the agents of the State for the collection of the State tax. It is not material what assets or other property make up the value of the shares.

Those shares are property, and under existing laws are taxable property. They belong to the stockholders respectively and individually, and when for the sake of convenience in collecting the tax thereon, the corporation pays the State tax upon these shares into the State Treasury, it pays the tax not upon the company’s own property, nor for the company, but upon the property of each stockholder and for each stockholder respectively, by whom the company is entitled to be reimbursed. Hence when the owner of the shares is taxed on account of his ⁶⁹⁷ ownership and the tax is paid for him by the company, the tax is not levied upon or collected from the corporation at all.” This statement of the law recently announced by this Court gives to the statute a construction so clear and free of doubt that no suggestion of uncertainty can fairly arise as to its meaning and effect. Under the sections of the Code just referred to, the taxes in controversy here have been levied and assessed, without regard to the value of the United States patents.

The State Tax Commissioner has, in the proper discharge of his official duty, assessed the value of the shares of stock in the appellant corporation, and has certified and returned said valuation and assessment to the Comptroller of the Treasury, who has duly notified the appellant of such valuation and assessment, and upon appeal the Comptroller and Treasurer have corrected the same and made their final valuation and assessment, which is final and absolute unless they shall have committed some error in the discharge of their official duties. It is insisted that they have erroneously valued and assessed the Patent Rights in question, and this is the chief grievance of the appellant. But why should not the shares of stock in the appellant corporation be valued and assessed and taxes paid thereon ? The number of corporations incorporated under the laws of this State, engaged in business here, employing vast sums of money and possessed of extensive property rights, is almost unlimited and yet most of them, in the proper and successful management of their business, have been compelled to purchase and use patent rights, to enable them to compete successfully with other corporations engaged in a similar business.

They are without exception compelled to pay taxes on their shares of stock levied and assessed in like manner with those in controversy here. It is a total misconception of the object sought to be maintained on this appeal to assert that this is an effort to tax patent rights. It is not, however, necessary to the determination of the rights involved in this controversy, to decide any such ques ⁶⁹⁸ tion. It is a proposition about which there is no lingering doubt, that patent rights are personal property and entitled to the same protection as any other property (Cammeyer v. Newton, 94 U. S. 225 ); and it will remain for future consideration, whether a patent right may not of itself be a proper subject of taxation, but that as just stated is not a question necessary to be decided on this appeal.

It has been elsewhere maintained that a patent right resembles a franchise in being a privilege which concerns, and is intended to benefit the public, which depends for existence and preservation upon the authority which confers it. It has also been argued in the hearing of this appeal that a patent contains a bargain made with the. Government and the patentee, to be judged like other bargains. Conceding both propositions to be correct, how does either tend to affect the questions under consideration here?

To say that the shares of stock of a corporation incorporated under the laws of this State cannot be taxed because the corporation enjoys certain franchises, the very use of which enables it to successfully carry on its business, would be to strike down our entire system of taxation relating to corporations. And even if it be true that a patent right exists through the medium of a contract with the Federal Government, its only effect upon the value of the shares of stock of a corporation, which are unquestionably taxable, is to aid in the development of the business interest of such corporation, and largely multiply the chances of its successful management. So that it is not a question as to how the value of the shares of stock of such corporation have been enhanced, whether by the aid of patent rights, or by the sale of the manufactured product obtained by the use of such patent rights, or by the superior business qualifications of the agents of the corporation, who manage and control its affairs. It matters not how numerous nor how valuable its patent rights might have been at the inception of the appellant’s business enterprise, the shares of its stock would now be comparatively valueless had not other agencies, ⁶⁹⁹ forceful and active, put life and energy into the undertaking.

The Supreme Court of Ohio speaking with respect to the meaning of the Patent Laws of the