Fidelity & Guaranty Fire Corp. v. State Tax Commission

Sloan, J., delivered the opinion of the Court. This appeal is from a decree affirming an assessment of the shares of an insurance corporation, the Fidelity and Guaranty Fire Corporation, appellant, owning a large amount, of federal securities which, it contends, should have been excluded in the valuation by the State Tax Commission. The assessment is made by the authority and in thei manner set out in section 15, Article 81, of the Code, Act of 1929, ch. 226, which is: 15. (a) In computing the assessable value of shares of stock in any national bank located in this state, or in any domestic corporation (other than finance corporations) having a capital stock divided into shares, which are subject to assessment and taxation under this Article, the State Tax Commission shall first ascertain the total aggregate value of the shares of capital stock of such, corporation by considering (1) the market value, if any, of the shares of such stock, without reference to sales at abnormal prices, rendering market quotations not a fair index of actual value of the shares of stock as a whole; (2) the net earnings or income of such corporation and, (8) the net value of its assets provided (a) that such aggregate value of the shares of capital stock shall never be ascertained to be less ⁶⁵⁵ than the aggregate fair value of all the property and assets of such corporation of whatsoever kind and wheresoever situate, less the indebtedness or other liabilities of such corporation, exclusive of the capital stock, but with a fair allowance for contingent liabilities, and, (b) that such aggregate value of the shares of the capital stock shall never be ascertained to be less than the total value of the real estate and tangible personal property owned by such corporation in this state.

(b) From the amount so ascertained as the total value of the capital stock of such corporation shall be deducted: (1) the assessed value of all real estate assessed to such corporation. (2) If such corporation is a fire insurance company or a life insurance company, the value of any mortgages on any real estate in this state held by it. (3) The net assessed value of shares of stock in any national bank situated in this state or in any domestic corporation which are taxable to the holders under this Article, and the taxes on which are hereunder required to be paid by such national bank or corporation for the account of the holders and which shall have been held by the reporting corporation continuously for more than six months prior to the first of January as of which the report is made. (4) The fair value of property exempt under section 7 (28) of this Article.

(c) After making the deductions specified in paragraph (b) of this section from the total value of the capital stock ascertained under paragraph (a) the residue shall be divided by the number of shares outstanding and the quotient shall be the assessable value of each share. (d) If two or more classes of stock of such corporation shall be outstanding, the State Tax Commission shall ascertain how much of the total value of the capital stock, after making the deductions specified in paragraph (b) of this section should fairly be distributed to each class and the amount so ascer ⁶⁵⁶ tained shall be divided by the number of such shares of such capital stock outstanding, and the quotient shall be the assessable value of each share of such class of stock. (e) Shares of stock assessable under this section shall be taxed to the several owners thereof, and the taxes thereon shall be debts of such owners, but may be collected in each case from the bank or other corporation, which shall be bound to pay the same for account of its stockholders, whether or not dividends are declared thereon, as if such corporations were the ultimate taxpayer, but may obtain reimbursement therefor from the respective stockholders, and may charge the same in reduction of any amounts due to the several shareholders as dividends or otherwise. The Tax Commission found the net valuation of 10.0,000 shares to be $2,000,000, from which it deducted real estate assessed at $205,120 and tax-paying shares, $80,134, leaving a net valuation for all shares for county and town (outside of Baltimore City) of $1,714,746, or $17.14 a share.

The corporation had no real estate mortgages. For Baltimore City the commission made a further deduction of $279,300, being the assessed valuation of certain city stock named in section 17 of article 81, which reduced the valuation per share to $14.35, so that Baltimore City could only collect taxes on the reduced assessment. The taxpaying shares exempted are as follows: Shares Name of CorPoration 95 shares Baltimore Natl. Bank, Baltimore......$ 950.00 500 shares Cons.

Gas, Elec. Light & Power Co. Baltimore, Md., common............................................. 8,115.00 100 shares Cons. Gas, Elec. Light & Power Co. Baltimore, Md., 6 % preferred.............................. 3,288.00 2066 shares First National Bank, Baltimore, Md.......................................................................-....................... 55,451.00 500 shares Equitable Trust Co., Baltimore, Md. 5,115.00 ⁶⁵⁷ 140 shares Maryland Trust Co., Baltimore, Md................................................................................................ 95.00 1000 shares Merchants and Miners Transportation Co. ..................................................................................... 7,120.00 $80,134.00 Amongst the assets of the appellant were United States Treasury notes and bonds and Federal Land Bank bonds of the par value of $650,000, market value $671,150, all exempt from taxation by federal law.

The facts are agreed to as stated, but on the law the parties disagree. The appellant contends that, no matter what the statute calls the assessment, it is an assessment on the capital stock and not on the shares, and the value of the exempt federal securities should have been deducted from the total valuation, and that the assessment discriminates against the federal securities in favor of other tax exempt property. In support of its contention that the assessment is against the corporation and not on the shares and therefore a direct tax on federal exempt securities, and1 is discriminatory, the appellant’s chief reliance is on the decision in the case of Schuylkill Trust Co. v. Pennsylvania, 296 U. S. 113 , 56 S. Ct. 31 , 80 L. Ed. 91 , which the appellees, State Tax Commissioners, contend has no application because the assessment Is on the shares and the tax is on the stockholders, and is not discriminatory. As we read the majority opinion in the Schuylkill case, the assessment made in pursuance of the Pennsylvania statute offended, (1) because it failed to exempt certain stock held by the corporation in a national bank, and, (2) in measuring the tax it discriminated against corporations owning federal securities in favor of those having stocks exempt from taxation under the laws of Pennsylvania, or already taxed. 49 Harvard Law Revieio, 480.

The exemption of real estate is expressly permitted by the federal statute authorizing the assessment by the states of national bank stocks. Section 5219 of the Revised Statutes; Mercantile Nat. Bank v. City of New York, ⁶⁵⁸ 121 U. S. 138 , 7 S. Ct. 826 , 30 L. Ed. 895 ; Des Moines Nat. Bank v. Fairweather, 263 U. S. 103 , 44 S. Ct. 23 , 68 L. Ed. 191 .

In Hepburn v. School Directors, 9 Wall. 468 , 23 L. Ed. 112 , it was held that the exemption from taxation by statute of “all mortgages, judgments, recognizances, and moneys owing upon articles of agreement for the sale of real estate” did not operate as a discrimination against investments in national bank shares, the court saying: “It could not have been the intention of Congress to exempt bank shares from taxation because some moneyed capital was exempt.” Mercantile Nat. Bank v. New York, 121 U. S. 138, 151 , 7 S. Ct. 826 , 30 L. Ed. 895, 900 . In the Schuylkill case both opinions agree that the stock of the national bank owned by the trust company should have been exempted by the statute and excluded by the assessor, as section 5219, Revised Statutes, has been interpreted by the Supreme Court. Bank of California v. Richardson, 248 U. S. 476 , 39 S. Ct. 163 , 63 L. Ed. 372 .

This exemption is required by the Maryland statute! (section 15 (b),- (3), article 81), and was allowed by the Tax Commission, so in that respect the assessment is not offensive. In another particular, however, the Pennsylvania and Maryland statutes bear a strong likeness, and very material to the decision in the Schuylkill case, and, for the same reason, important in the decision of this appeal. The Pennsylvania statute (see 72 P. S. Pa. sec. 2001) pertaining to the assessment of shares in a trust company, provided that the value of each share of stock should be ascertained by adding together so much of the amount of capital stock paid in, surplus and undivided profits, as is not invested in the shares of stock of corporations liable to pay to the Commonwealth a capital stock tax or tax on shares, and dividing the sum by the number of outstanding shares.

In addition to such taxpaying corporations, the Act (see 72 P. S. Pa. sec. 1892) excluded ‘from assessment manufacturing, laundering and meat-packing corporations, limited partnership and ⁶⁵⁹ joint stock associations, which are tax-exempt. In declaring these exemptions to invalidate the law and the assessment, the court, ( 296 U. S. 113, 120 , 56 S. Ct. 31, 35 , 80 L. Ed. 91, 97 ), said: “We think that the issue of discrimination is not to be resolved by a choice between the two contentions as to the nature of the tax, whether the exaction be from the company or its shareholders. * * * The state has exempted certain assets on the theory that to measure the tax in part by their value would in effect be to tax them twice. If to measure the shareholders’ tax by inclusion of these taxed or exempted securities found amongst the company’s assets would be to tax the shareholder in virtue of the company’s ownership of these securities, it seems clear that to refuse to exempt United States securities from the measure of the tax is to lay a tax reckoned upon their value. To put it otherwise, if to exclude securities already taxed or exempted from tax pursuant to the policy of the Commonwealth avoids double taxation, to include United States securities in the measure of the tax seems inevitably to increase the burden of the tax by reason of their ownership.

If the burden of the tax be lifted in respect of some securities (as it is by confession from those issued by certain Pennsylvania corporations) it must necessarily fall on the remaining securities owned by the company. If the tax is lifted from the shares of certain trust companies because those companies own only stocks already taxed or relieved from taxation by the State, and shares in other trust companies are taxed amongst whose assets there are United States bonds or other securities entitled to exemption because issued by federal instrumentalities, which are figured in the base of the tax, it is impossible to avoid the conclusion that the law discriminates in favor of the former and against the latter, solely by reason of ownership of such federal securities.” The quoted portion of the Schuylkill opinion seems to declare that a state, in valuing the stock of a corporation for purposes of taxation, cannot exempt any of its securities, whether tax exempt or not, when amongst its assets ⁶⁶⁰ are national bank stocks or federal securities, unless they also are exempted, in which event the local tax exempt property or securities would also be exempted. In other words, the federal policy seems to be with respect to the taxing of shares in domestic corporations owning national bank shares, federal securities, tax exempt or already taxed shares, to tax all or omit the national bank stocks and federal securities. In holding, in the Schuylkill case, that Pennsylvania could not exempt the stock of tax exempt manufacturing corporations and include federal securities in the computation of the tax, it appears to us to have followed MacAllen v. Massachusetts, 279 U. S., 620, 628 , 49 S. Ct. 432, 434 , 73 L. Ed. 874, 878 , which qualified National Life Ins.

Co. v. United States, 277 U. S. 508 , 48 S. Ct. 591 , 72 L. ed. 968, and to oppose Adams v. Nashville, 95 U. S. 19 , 24 L. ed. 19, where it was said, “the Act of Congress was not intended to curtail the state power on the subject of taxation. It simply required that capital invested in national banks should not be taxed at a greater rate than like property similarly invested. It was not intended to cut off the power to exempt particular kinds of property if the legislature chose to do so.” See Mercantile Nat. Bank v. City of N. Y., 121 U. S. 138, 150 , 7 S. Ct. 826 , 30 L. ed. 888, 900.

But Schuylkill Trust Co. v. Pennsylvania, 296 U. S. 112 , 56 S. Ct. 31 , 80 L. ed. 91 is the last word on the subject, which this court is not only required to recognize, but