Diamond Match Co. v. State Tax Commission

Parke, J., delivered the opinion of the Court. The appeal in this case is from the judgment of the Circuit Court of Baltimore City holding that the Diamond ²³⁷ Match Company, a business corporation, which had for some prior years been incorporated under the laws of the State of Maryland, but which had been duly dissolved on March 31st, 1936, is subject to a special franchise tax under the provisions of chapter 10 of the Acts of 1936, Sp. Sess., which later became operative on April 4th, 1936. The Diamond Match Company, a domestic ordinary business corporation, was incorporated on May 7th, 1930, under the laws of the State of Maryland.

The office and manufacturing operations of the corporation were in the State of New York, and its only property in the State of Maryland was its merchandise and stock in trade of the yearly average value of $31,112. The aggregate capital stock on which the franchise tax is calculated was $25,000,000. The regular franchise tax on this amount is $900, and an assessment was so entered on April 16th, 1936. The company does not dispute that it owes this tax, as the company was in existence on January 1st, 1936.

On June 30th, 1936, a special or additional franchise tax of $1,800 for the year 1936 was assessed against the corporation under the provisions of chapter 10 of the acts of 1936, sec. 4, to be known as section 139A of article 81 of the Code. Thus the company, a Maryland corporation, was in being, with capital stock, and doing business in Maryland, on January 1st, 1936. By regular proceedings and in good faith, proceedings were begun on January 23rd, 1936, for the purpose of obtaining a legal dissolution of the corporation. Without any regard to the tax now in controversy, the proceedings were regularly carried forward to a dissolution of the corporation on March 31st, 1936.

At a special session of the General Assembly of Maryland, which began on March 4th, 1936, and ended on April 2nd, 1936, a special franchise tax was imposed by chapter 10 of -the Acts of the Special Session of 1936, and this act became effective on April 4th, 1936, as an emergency measure. On June 30th, 1936, the company was assessed a special franchise tax in the amount of ²³⁸ $1,800. The company resisted this assessment on the ground that, ¡by reason of its dissolution before the passage of the statute, the company was riot liable. The legality of the assessment thus imposed depends upon whether the legislation in question is retroactive; and, if such be the construction, is the act unconstitutional because in violation of the due process clauses of the Maryland and Federal Constitutions.

The portion of the enactment which is involved in this controversy is in these words: “139A. Every domestic corporation having capital stock and doing business in this State on the first day of January, 1936, * * * shall pay to the State Treasurer, for the use of the State, a special tax for the year 1936, for its franchise to be a corporation (in addition to the franchise tax imposed by Section 136 of this Article, and any other tax imposed by law), at the following rates, that is to say: “On the amount of its capital stock issued,- outstanding and/or subscribed for, on the first day of January, 1936: * * * “Every domestic corporation having capital stock and doing business in this State on the first day of January, 1936, which had no part of its capital stock issued, subscribed for or outstanding on the first day of January, 1936, shall pay for such franchise an additional tax of twenty dollars. * * * “The State Tax Commission, on or before the fifteenth day of May, 1936, shall ascertain and certify the amount of each such tax to the State Comptroller, who shall forthwith transmit to the corporations subject to the tax hereby imposed a bill for the amount of the special franchise tax hereby imposed,- and such tax shall be payable to the Treasurer without interest at any time on or before the fifteenth day of June, 1936, provided the bill is mailed on or before May 15, 1936 and if the bill shall not be mailed after the fifteenth day of May, 1936, the same shall be payable without interest at any time within thirty days after the mailing of such bill.” ²³⁹ In the passage of this enactment, the General Assembly acted under the pressure of an emergency which demanded the procuring of funds for relief of the needy. The special franchise tax was levied for the single calendar year of 1936, and not for any succeeding year. Its enactment was not for the purpose of the inauguration of a continuing change in the system or rate of taxation, but was designed to be a temporary measure to meet immediate financial obligations.

The special tax ended by its imposed limitations, and was not revived in the legislation of 1987 for any purposes. It is apparent that to compute the probable net yield of this single levy of a special emergency franchise tax a certain day preceding the enactment was necessary to be taken, to ascertain the domestic corporations then in operation, so that thereby the subjects of taxation and the basis might be known to guide the legislators in fixing the rate to produce the required sum thus to be raised. The considerations mentioned are of material significance in the ascertainment of the legislative purpose. In its approach to this question, the court will keep in mind the rule, that tax laws are to be given effect with due regard to the public necessities subserved.

(Hardesty v. Taft, 23 Md. 512 ; Union Trust Co. v. State, 116 Md. 368 , 81 A. 873 ; Havre de Grace v. Bauer, 152 Md. 521 , 137 A. 344 ), but will, nevertheless, not give a retroactive effect to the terms employed (Helmsley v. Hollingsworth, 119 Md. 431 , 87 A. 506 ; Ellicott City v. Howard County, 127 Md. 578 , 96 A. 798 ; State v. Safe Dep. & Tr. Co., 132 Md. 251 , 103 A. 435 ; Ireland v. Shipley, 165 Md. 90 , 166 A. 593 ; Jones v. Gordy, 169 Md. 173 , 180 A. 272 ; Dashiell v. Holland Maide Candy Shops, 171 Md. 72 , 188 A. 29 ), unless that is the clear and imperative legislative intent. Alexander v. Worthington, 5 Md. 471 ; Gill v. Gacy, 49 Md. 248 ; Appeal Tax Court v. Western Maryland R. Co., 50 Md. 274 ; Smith v. State, 66 Md. 215 , 7 A. 49 ; Hooper v. Creager, 84 Md. 195 , 35 A. 967, 1103 , 36 A. 359 ; Commercial Building & Loan Assn. v. Mackenzie, 85 Md. 132 , 36 A. 754 ; Vandiver v. Fidelity Savings ²⁴⁰ Bank, 120 Md. 619 , 87 A. 1086 ; Overton v. Harrington, 126 Md. 32 , 94 A. 325 ; Jeavons v. Pittman, 126 Md. 650 , 95 A. 1070 ; Brenner v. Brenner, 127 Md. 189 , 96 A. 287 ; State v. Safe Dep. & Tr. Co., 132 Md. 251 , 103 A. 435 ; State Tax Commn. v. Eureka Life Ins.

Co., 150 Md. 380 , 133 A. 63 ; Dashiell v. Holland Maide Candy Shops, 171 Md. 72, 74 , 188 A. 29 . Should, however, the legislative intent to give a retroactive operation to its provisions be made manifest beyond any controversy, there is no occasion for the aid of canons of construction. The precise expression of the legislative purpose must be given its effect, if the uaw be otherwise valid. When thus declared, and, at the time specified, the corporation was subject to the tax, the obligation to pay the tax is not extinguished if, after such date of statutory imposition or levy, the corporation should cease to do business in the state, or' duly undergo dissolution.

The basic reason for the, franchise tax being fixed as of a certain day, and thereafter remaining payable by the corporate taxpayer as of that date, arises from the practical and economic necessity that the liability to pay shall be made certain and exempt from contingencies, so as to prevent fluctuation, doubt, and uncertainty in its collection. In re Babcock, 115 N. Y. 450 , 22 N. E. 263 ; Hopkins v. Van Wyck, 80 Md. 7, 15 , 30 A. 556 . The company concedes its liability to pay the ordinary franchise tax created by section' 136 of article 81 of the Code (Supp. 1935). This tax is imposed upon domestic corporations having capital stock issued, outstanding and subscribed for on the first day of the preceding January and is payable on or before the first of August in each year succeeding the date of its incorporation.

It will be observed that this tax is payable no matter whether the corporation is engaged in business or not. Since the additional particular franchise tax is not payable if the corporation be not engaged in business on January first, the ordinary franchise tax is open to an objection not available against the additional franchise. The levy of a tax by the State is not within the inhi ²⁴¹ bition of the Federal Constitution merely because the statute which imposed it made it retroactive in its operation. League v. Texas, 184 U. S. 156 , 22 S. Ct. 475 , 46 L. Ed. 478 ; Winona & St. Paul Land Co. v. Minnesota, 159 U. S. 526 , 16 S. Ct. 83 , 40 L. Ed. 247 ; Kentucky Union Co. v. Kentucky, 219 U. S. 140 , 31 S. Ct. 171 , 55 L, Ed. 137; Seattle v. Kelleher, 195 U. S. 351 , 25 S. Ct. 44 , 49 L. Ed. 232 ; Leser v. Wagner, 120 Md. 671 , 87 A. 1040 , affirmed in 239 U. S. 207 , 36 S. Ct. 66 , 60 L. Ed. 230 ; Baltimore v. Ulman, 79 Md. 469 , 30 A. 43 .

Nor is there in the Constitution of Maryland any provision against retrospective laws, except those which relate to the imposition of a criminal penalty. Declaration of Rights, article 17; Niles on Maryland Constitutional Law, pp. 37-89; Grinder v. Nelson, 9 Gill 299 ; Harrison v. State, 22 Md. 468 . So, the levy of a franchise tax may have a retroactive effect and take effect on the basis of the issued, outstanding, and subscribed for capital stock of a domestic corporation as of a date before the day of the passage of the statute making the levy (Kentucky Union Co. v. Kentucky, 219 U. S. 140, 152, 153 , 31 S. Ct. 171 , 55 L. Ed. 137 ; Billings v. United States, 232 U. S. 261, 282 , 34 S. Ct. 421 , 58 L. Ed. 596 ; Locke v. New Orleans, 4 Wall. 172 , 18 L. Ed. 334 ; Leser v. Wagner, 120 Md. 671 , 87 A. 1040 ; Wagner v. Leser, 239 U. S. 207 , 36 S. Ct. 66 , 60 L. Ed. 230 ; Reinecke v. Smith, 289 U. S. 172, 175 , 53 S. Ct. 570, 572 , 77 L. Ed. 1109 ; United States v. Hudson, 299 U. S. 498, 500 , 57 S. Ct. 309 , 81 L. Ed. 370 ; Brushaber v. Union