McLane v. State Tax Commission

Parke, J., delivered the opinion of the Court. Charles E. McLane, a resident of Baltimore County, and Henry C. Biggs, a resident of Anne Arundel County, are partners and carry on their business of brokers and dealers in stocks and securities under the firm name of Biggs & McLane in their place of business in Baltimore City. The firm was assessed for its office furniture by Baltimore City, ¹³⁵ when the municipal corporation attempted to assess it in the further sum of one hundred thousand dollars for its “merchandise securities located at 32 South Street,” which is the location of their business in Baltimore City. The assessment was resisted, and the matter was carried by the firm to the Appeal Tax Court of Baltimore City and thence to the State Tax Commission.

The State Tax Commission found the facts as here recited and that the partnership was the owner during the period in question of bonds, certificates of indebtedness, and shares of stock in foreign corporations, which, under section 225 of article 81 of the Code, are made taxable to the owner for state and local purposes at the place where the owner resides if in Maryland, and that such securities amounted in value to not less than $100,000, and were kept by the owner either at its office, 32 South Street, Baltimore, or elsewhere in said city; and decided that the co-partners, trading as Biggs & McLane, be assessed in Baltimore City in the sum of $100,000 for the securities owned by them. Charles E. McLane, who for many years has been a resident of Baltimore County, instituted in the Circuit Court for Baltimore County the pending' proceedings for the purpose of having the order of the State Tax Commission reversed. The State Tax Commission produced and filed in the cause the transcript of the record of the proceedings before it as prayed by the petitioner and provided by section 259 of article 81 of the Code. The judges of the Appeal Tax Court of Baltimore City, the Mayor and City Council of Baltimore, and the Slate Tax Commission of Maryland, which were made the defendants, appeared specially in the cause for the purpose, and moved that the proceedings be dismissed for want of jurisdiction in the Circuit Court for Baltimore; County.

An appeal from the decision of the State Tax Commission is restricted to questions of law, and is confined “to the court in that county where the property is situated, if real estate or tangible personal property, or where the owner resides, if intangible personal property.” Code, art. 81, sees. 253, 259. ¹³⁶ The partnership property in the instant case was stocks, bonds, and other securities, and, in order that the Circuit Court for Baltimore County have jurisdiction on its appeal, it was necessary that the owner of this intangible personalty be a bona, fide resident of Baltimore County. The trial court was of the opinion that the owner of the intangible personalty of the partnership was not a resident of Baltimore County, but of Baltimore City, and so dismissed the petition. If the partners had been trading in tangible personal property, the firm would unquestionably have been assessed in Baltimore City on the theory that the stock carried in trade was goods and chattels there permanently located. Hopkins v. Baker, 78 Md. 363 ; Myers & Houseman v. Baltimore County, 83 Md. 387 .

These decisions, however, leave open the question whether the situs for taxation of the intangible personal property of a firm whose members are residents of the state, but not of the county or city where the firm business is located, is the respective residences of the members of the partnership, or the city or county within which the business is carried on. In the solution of that question, which is the one presented by this record, reference must be first had to the statutory law, since the Legislature has the power, within the limitations prescribed by the Constitution, to treat the partnership as a distinct legal entity for the purpose of the assessment and the imposition of taxes. The inquiry, therefore, will be whether the Legislature has, for the purpose of taxation, recognized a partnership to be a legal entity; owning the property and, so far as its intangible personalty is concerned, subject to taxation in the city or county where the firm is resident; and, if so, whether the Legislature was within its constitutional rights. 1. The case of Hopkins v. Baker, 78 Md. 349 , was decided in 1894, and there the court, reserving the question now at bar, said: “We do not deem it necessary to determine whether this stock could be taxed in Baltimore City by reason of the fact that it is owned by a firm transacting its business there.

We are of the opinion, however, that it is perfectly proper to ¹³⁷ assess the property to the firm, instead of to the individual members thereof according to their respective interests. There are many reasons why this should be so. The interest of the partners may vary from time to time, and should it be necessary at any time to sell the property for taxes, it might he very inconvenient and cause serious delay in the collection of taxes, if the interests of partners must be determined as they would likely have to be before any one would purchase. As partnership assets are liable for partnership debts before they are for the debts of the individual members of the firm, it- would he proper to levy the taxes against the firm.

Assessing the firm instead of the individual members will save much inconvenience to the authorities, and do no injustice to any one.” The quotation is taken at length from the opinion, because, although speaking with reference to tangible personal property constituting the stock in trade of the partnership, the reasoning of the court is equally, if not more, applicable to its intangible personal assets, and because the decision is a clear adoption of the conception of a partnership as a distinct legal entity for the ends of taxation. Myers & Houseman v. Baltimore County (1896), 83 Md. 385 . The conclusion of our predecessors was supported by authority and practice. The general rule is thus stated by Judge Cooley: “Partnership property is taxable as an entity at the domicile of the firm rather than at the residences of 'the several owners; and the domicile of a partnership, for the purposes of taxation, is its place of business.” Cooley on Taxation (4th Ed.), secs. 596, 473, 1105; 1 Desty on Taxation, sec. 62.

The next general assessment statute following the decision in Hopkins v. Baker, supra, was chapter 120 of the Acts of 1896, and, in that law, a partnership' was, for the first time, so far as the court is advised, classified as a separate entity for the purpose of taxation. By section 173 of that statute it was provided that the assessors in Baltimore City and the counties should send to every person in their respective assessment districts, who should own any real or per ¹³⁸ sonal property subject to taxation, forms or schedules and interrogatories for real and personal property; and that such persons should make a full and complete return of their property under oath. The term “person” was used collectively and its scope was defined by the statutory declaration that “every partnership concern, corporation, trustee, administrator, guardian, committee of a lunatic and every agent of any person not residing or being at that time in the said county or city, and every person having any manner of title, either legal or equitable (if the legal, title to- said property be in a nonresident) to-, or having possession of, holding or claiming in any manner, anything required to be returned in said schedule, shall be within the provisions of this section and comply with the same. * * * Every schedule of partnership property shall be sworn to by at least one of the members of the partnership.”- Sections 173, 174. Again, the same statute provides that “if any taxable person or members of any copartnership, unincorporated association or company, officer or stockholder, or member of any limited partnership, joint stock association or corporation shall agree or enter into any agreement or undertaking, that upon the failure of such taxable person, co-partnership^ unincorporated association, company, limited partnership-, joint stock association or corporation to make the return required by section 173 of this Act, to be made, such assessor shall return a less amount of property made taxable by this Act, than should have been returned by such taxable person, co-partnership, unincorporated association, company, limited partnership, joint stock association or corporation, the person entering into such agreement, arrangement or understanding shall be guilty of conspiracy.” Section 177.

Similar provisions are found in chapter 300, p. 251, of the Acts of 1910, which was the succeeding assessment law, but which was applicable -only to-the counties of the state, except Somerset and Worcester. The Legislature made no further provision for a general assessment until it created the State Tax Commission of Maryland by the Acts of 1914, eh. 234. This body is given general supervision over the administration -of the assess- ¹³⁹ meat and tax laws of the state, and has the power and authority to enforce and execute a¡ continuing method of assessment and to require that all property in the state be reviewed for assessment at least once in every five years. Among the powers and duties of the State Tax Commission are: “To have general supervision over all supervisors of assessments and to have the final determination of assessments of all property in all the counties, cities, town and villages of the state to the end that all taxable property shall be placed upon the assessment books and equalized between persons, firms and corporations in all the counties, districts, towns and villages of the state, so that all persons, firms and corporations shall be assessed alike for like kinds of property; ” and “to require individuals, firms and corporations to furnish complete information as to the ownership of all property taxable or exempt, and as to all facts relative to the value thereof.” Acts of 1914, ch. 841, sec. 234, now Code, art. 81, sec. 249, sub-secs.

(1), (6), (2), (7). The passages quoted, with their context, make clear that, so far as taxation is concerned, the legislature has made the partnership or firm a legal entity, within the tax district in which its place of business is resident or domiciled. This is conclusively shown by the association in the statutes of a. firm or partnership with the individual and corporation as. coordinate taxable entities; and from the fact that within the tax district every one of these taxable entities is similarly bound to make a return, to suffer an assessment and to pay tlie tax levied. By ascribing to the firm or partnership the ownership of the property for the purpose of taxation where the firm was resident, the legislature brought about greater uniformity and equality in the imposition of taxes, and secured the payment of local taxes to the political division of the state that afforded protection to the business at the place where it was conducted.

The case on the record is an admirable illustration. _The business was carried on with fire and police protection, and with the benefit of lighting, highways, sewerage and water service, which were all supplied by the tax ¹⁴⁰ payers of Baltimore City, and which the firm enjoyed in comm on with other similar firms whose partners were residents of that municipality. It would seem both just and logical in the legislature to require a firm so located and doing business to contribute to the government of the political division in which it} resided by paying taxes upon its intangible assets there employed, rather than to permit its nonresident members to pay to' another political division taxes on such intangible partnership personalty, according to their respective interests, at the variant rates of taxation prevailing in the respective counties in which they severally reside. Furthermore, the assessment and levy of a tax at the place where the business is; conducted is more certain, convenient and economical. 2. While the argument of convenience, equality, and uniformity is an aid in the ascertainment of the legislative intent and justifies the interpretation here made upon economic and political grounds, nevertheless the enactment to be effective must be constitutional.

The general rule of law is that the legislature has absolute power of taxation over all the property within the state, except as restricted by the federal