Household Finance Corp. v. State Tax Commission

Hornby, J., delivered the opinion of the Court. This is an appeal from an order of the Circuit Court of Baltimore City affirming a tax reassessment made by the State Tax Commission of Maryland (the Commission) against Household Finance Corporation (Household) after the decision of this Court in Household Finance Corporation v. State Tax Commission, 212 Md. 80 , 128 A. 2d 640 (1957). Household, a Delaware corporation with its principal office in Chicago, is a nation-wide finance company doing business in Maryland. It also owns and operates several subsidiaries in the same type of business.

Maryland imposes an annual tax on “[s]o much of the capital stock of foreign finance corporations doing business in Maryland as represents the business done in this State * * Code (1951), Art. 81, § ^ (7), [codified as § 8 (7) in the 1957 Code], The Commission, by § 20 (a) [§ 21 (a) 1957] of Article 81, is directed to determine the total value of all the capital stock of a finance company and allocate to Maryland that portion of the total value as fairly represents the business done in Maryland. Specifically, the statute provides that: “* * * in apportioning the value of the shares between the business within and without Maryland, it shall be presumed in the absence of clear evidence to the contrary that the value of the property and business within Maryland bears to the value of the total business and property the same ratio which the gross receipts or earnings in Maryland * * * bears to the total gross receipts * * * [or] earnings * * >;< >* For the year 1953, the Commission arrived at $163,262,300 as the total value of all the capital stock. In order to allocate to Maryland its proper portion of this valuation, the Commission multiplied the total value by a fraction, the numerator of which was the gross receipts of Household in Maryland ($2,481,626), and the denominator of which was ³³⁰ the total gross receipts of Household wherever situated ($61,812,951). This last figure was not the gross receipts of Household and all its subsidiaries figured on a consolidated basis (approximately $75,000,000); it was the gross receipts of the parent company alone.

We held on the previous appeal that the failure of the Commission’s gross receipts fraction to include in its denominator consolidated gross receipts of the parent company and its subsidiaries necessarily resulted in a larger portion of the capital stock being attributed to Maryland than should have been, and that the tax was invalid because it was not imposed in accordance with the statute. In the previous decision, at p. 98, Judge Prescott clearly stated the basis of the view of the majority as follows: “* * * if the Commission sees fit to arrive at the total value of a unitary enterprise on a consolidated basis, it cannot in fairness apportion that value as between Maryland and other jurisdictions on a basis which is inconsistent with, and which rejects, an element used in building up that value. Here, of course, that element is the earnings of the subsidiaries. They have been discarded and the gross earnings of the parent company only have been used for the apportionment.” By a divided Court, the Commission was directed to redetermine the value of the capital stock of Household in Maryland by such “formula or combination of formulas which it may deem proper and which may meet statutory and constitutional tests.” 1 The Commission in making the reassessment included in the denominator of its fraction the consolidated gross receipts of Household and all its subsidiaries, and, in addition, included in the numerator the gross receipts of business done ³³¹ in Maryland by one of its subsidiaries, the Installment Loan and Finance Company (Installment).

This subsidiary is also a Delaware corporation, primarily engaged in the business of making installment loans in Maryland. During the tax year 1953, the total gross receipts of Installment were $306,129, of which $304,044 (99.31% of its business) were derived from business done in Maryland. Installment has an administrative office in Chicago, and apparently, its stock is held by Household in that city, but, of course, its chief business office is in Maryland. Household contends that the inclusion of the Maryland receipts of Installment in the numerator is incorrect.

Its argument is based on the assumption that Household’s property and business “in respect to Installment” is outside of Maryland and is therefore excludable from taxation in Maryland. The theory is that Household’s business of owning, holding, and managing the capital stock of Installment and of controlling and supervising its business takes place in Chicago, or perhaps in Delaware, but certainly not in