Northern Central Railway Co. v. Fidelity Trust Co.

Urner, J., delivered the opinion of the Court. In the course of their administration, the executors of the will of Mary Ann Henrietta Watts, a citizen of Maryland, who died in the City of Baltimore, were directed to transfer to the Fidelity Trust Company and Frank W. Watts, trustees under the will, two hundred and eighty shares of the stock of the Northern Central Railway Company, forming part of the decedent’s estate. The stock is transferable on the books of the railway company at its principal office in Baltimore. The company declined to make the proposed transfer of the stock from the executors to the trustees without the consent of the State of Pennsylvania, evidencing the payment or tvaiver of an inheritance tax imposed by one of its laws upon transfers of stock of Pennsylvania corporations.

The Northern Central Railway Company was formed in 1854 by the consolidation of four railway companies, three of which had been incorporated under the laws of Pennsylvania and one under a Maryland statute. Concurrent legislative acts of the two states authorized the consolidation. Under the dual incorporation thus accomplished, the North ⁹⁶ ern Central Railway Company operates as a single railroad organization. The Pennsylvania statute imposing the tax | in question specifically includes transfers of stock held byj non-resident owners.

It subjects to a penalty any corpora-^ tion of that state making a taxable transfer before the prescribed tax has been paid. The question to be decided inf this suit is whether, in view of the Fourteenth Amendments of the Federal Constitution, the Pennsylvania tax is validly ¡ chargeable on the transfer of Northern Central Railway ' stock owned by a resident of Maryland and passing, as part of an estate administered under its laws, to beneficiaries j who are not residents of Pennsylvania. The effect of the consolidation, under Maryland legislative sanction, of the constituent railway companies forming the Northern Central Railway system, was to create a corporation of distinctly Maryland origin. While there was a similar and contemporaneous consolidation in Pennsylvania, the creation of the new corporation in this state was an independent exercise of Maryland sovereignty.

The legal entity thus brought into existence was as completely a Maryland corporation as though the Pennsylvania consolidation had not occurred. State v. Northern Central Railway Co., 18 Md. 193 , 44 Md. 131 , 90 Md. 447 ; Northern Central Railway Co. v. Herring, 93 Md. 164 . At the same time the Northern Central Railway Company is a Pennsylvania corporation, deriving full and efficient corporate powers from that state, Each of the co-existing corporations bearing that name is invested with the title to the entire railway system mentioned in the Pennsylvania and Maryland statutes by which their creation was respectively authorized. In unity of administration, and with respect to their capital stock, they are practically one corporation, but as legal entities they are distinct.

It was said by this Court, in the first of the cases above cited, that the Northern Central Railway Company “must, for the purposes of justice, be treated as a separate corporation by the courts of justice of each government from which it derives its being, that is, as a domestic legal entity ⁹⁷ to the extent of the government under which it acts, and j as a foreign corporation as regards the other sources of its j existence.” The Supreme Court of Pennsylvania, in Allegheny v. Cleveland and Pittsburgh R. Co., 51 Pa. St. 228, held that the defendant company, having been incorporated first by Ohio and then by Pennsylvania, “became thus a separate corporation in each state.” This conclusion was based upon the opinion delivered by Chief Justice Taney, in Ohio and Mississippi R. Co. v. Wheeler, 1 Black, 286 . The relations of a Northern Central stockholder to the two railway corporations of that name are identical. Thei certificate for his shares represents precisely similar interests J in the Northern Central Railway Company in each of its i separate capacities as a corporation independently created under the laws of the two commonwealths.

In considering, t therefore, whether the transfer of the stock involved in this ease is taxable by the State of Pennsylvania, we must give l due regard to the fact that the stock is not the issue solely S of the Maryland corporation, but is equally attributable to j the Pennsylvania corporation simultaneously created for the jj same purposes. The case of Rhode Island Hospital Trust Co. v. Doughton, 270 U. S. 69 , is said to bq conclusive of the question here presented. In that case it was held by the Supreme Court f that a North Carolina inheritance tax on the stock of a!: New Jersey corporation, owned by a resident of Rhode Í Island, and passing under his will in that state, could not j be sustained merely because the corporation was doing busi- j ness in North Carolina and a large proportion of its prop-1 erty was there located. Mr. Chief Justice Taft said: “The tax here is not upon property, but upon the right of succession to property, but the principle that the subject to be taxed must bo within the jurisdiction of the state applies as well in the case of a transfer tax as in that of a property tax.

A state has no power to tax the devolution of the prop ⁹⁸ erty of a non-resident unless it has jurisdiction of the property devolved or transferred. In the matter of intangibles, like choses in action, shares of stock and bonds, the situs of which is with the owner, a transfer tax of course may be properly levied by the state in which he resides. So, too, it is well established that the state in which a corporation is organized may provide in creating it for the taxation in that state of all its shares, whether owned by residents or nonresidents. Hawley v. Malden, 232 U. S. 1, 12 ; Hannis Distilling Co. v. Baltimore, 216 U. S. 285, 293, 294 ; Corry v. Baltimore, 196 U. S. 466 ; Tappan v. Bank, 19 Wall. 490, 503 .” “In this case the jurisdiction of North Carolina rests on the claim that because the New Jersey corporation has two thirds of its property in North Carolina, the state may treat shares of its stock as having a situs in North Carolina to the extent of the ratio in value of its property in North Carolina to all of its property.

This is on the theory that the stockholder is the owner of the property of the corporation, and the state which has jurisdiction of any of the corporate property! has pro tanto jurisdiction of his share of stock. We cannot) concur in this view. The owner of the shares of stock in a j company is not the owner of the corporation’s property. He has a right to his share in the earnings of the corporation, as they may be declared in dividends, arising from the use of all its property.

In the dissolution of the corporation he may take his proportionate share in what is left, after all the debts of the corporation have been paid and the assets are divided in accordance with the law of its creation. Butf he does not own the corporate property. * * * North Caro-i, lina can not control the devolution of New Jersey shares. That is determined by the laws of Rhode Island where the decedent owner lived or by those of New Jersey, because the shares have a situs in the state of incorporation. * * * “In an addendum to its opinion in this case, the Supreme Court of North Carolina suggests that the jurisdiction of the state to tax the shares of the New Jersey corporation may be ⁹⁹ based on the view that the corporation has been domesticated in North Carolina. So far as the statutes of the state show, it has been authorized to do and does business in the state, and owns property therein and pays a fee for the permission to do so.

It has not been re-incorporated in the state. It is h still a foreign corporation and the rights of its stockholders f are to be determined accordingly.” ^ An important difference between the case just cited and the one now under decision is in the fact that the tax here in question is upon the transfer of stock of a corporation created ' by the state whose power to impose the tax is the subject of inquiry. If the Hew Jersey corporation had been “re-incor- \ porated” in Horth Carolina, the two eases would be more j analogous. In that event the position of Horth Carolina ¡ would have been comparable to that of Pennsylvania in the present case.

The principle that shares of corporate stock j have a situs in the state of incorporation might then have! been found applicable. There was an application of that! principle in Welch v. Treasurer etc., 223 Mass. 87 , one of the cases cited with approval in the opinion delivered by Mr. Chief Justice Taft from which we have quoted. In the Massachusetts case one of the inquiries was whether stock of ^ a deceased resident of that state in the Chicago and Horth-1 western Railway Company, a corporation organized under ; the laAvs of Illinois, Wisconsin, and Michigan, but haA’ing one! capital stock and operating as a single company, Avas legally jj subject to a Michigan inheritance tax. In deciding that ques- j tion the Supreme Judicial Court of Massachusetts, in an j opinion delivered by Chief Justice Rugg, said: k “A different situation exists as to the succession tax on the shares of stock in the Chicago and Horthwestern Railway.

That corporation was a single corporation so far as concerned its operation, management, stock and profits, but it owed corporate allegiance to each of the states in which it was incorporated. Attorney General v. N. Y., N. H. & H. R. R., 198 Mass. 413 ; Nashua and Lowell R. R. v. Boston and Lowell R. R., 136 U. S. 356 , and cases cited. It follows that Michigan as one of the incorporating states had jurisdiction over j ¹⁰⁰ the corporation and could exercise power over the transfer or succession of its stock. That was settled for this Com m onwealth by Kingsbury v. Chapin, 196 Mass. 533 , in a characteristically luminous and convincing opinion by Chief Justice Knowlton.

There is no doubt, therefore, of the jurist diction of Michigan over that corporation for the purpose of j imposing a succession tax on the transmission of its shares. The rule enforced by the inferior Michigan court was to collect a succession tax like in amount to that which could have been enforced if