Schley v. Lee

Schmucker, J., delivered the opinion of the Court. This appeal and the following one of the present appellant vs. the County Commissioners of Montgomery County, No. 40 of the present docket, were heard together. The cases in which the two appeals were taken were instituted at the same time, on the equity side of the Circuit Court for Anne Arundel County, for the same purpose and the two records present the same state of pleadings. The only practical difference between the cases is that the present one was instituted by the appellant, Blair Lee, on behalf of himself and the other tax ³⁹² payers of Montgomery County, and No. 40 was instituted by the County Commissioners of Montgomery County.

The common purpose of the two suits was to have the appellant as State Tax Commissioner restrained from making the assessment for the year 1907 under sec. 159 of Art. 81 of the Code, of the shares of stock of two national banks and the assets of one fire insurance company, in the method which he has heretofore pursued and which he'declares it to be his purpose to continue to pursue and to require him to make the assessments in the manner alleged by the bills to be the correct one. The bills of complaint, allege his methods to be erroneous and unlawful both in ascertaining the value of the shares of the banks and of the assets of the insurance company and also in making certain deductions therefrom in arriving at their final or assessment valuations. We will consider in this opinion the legality of the deductions which the appellant as Tax Commissioner proposes to make from the value of the shares of stock of the banks and the assets of the insurance company, and will reserve for the opinion in the County Commissioners case the question of his proposed method of ascertaining the respective values from which to make the deductions. Upon the filing the respective bills with their exhibits the Court below passed in each case an orderfor a preliminary injunction in accordance with the first and second prayers of the bill.

The defendant having first demurred to the bill appealed from the order. The bill in this case alleges that the plaintiff is a citizen of this State and a resident and taxpayer in Mongomery County and that the defendant is the State Tax Commissioner having his office at Annapolis in Anne Arundel County, and that the three corporations hereinafter mentioned have their principal places of business in Montgomery County. The substance of the further averments of the bill is as follows: That shares of the capital stock of the Montgomery County National Bank and the First National Bank of Gaithersburg owned by residents of Montgomery County and by non-residents of this State constitute property taxable in said county, ³⁹³ as do also the property and assets of the Mutual Fire Insurance Company of Montgomery County which has no capital stock divided into shares. The Montgomery Co. National Bank owns real estate assessed for taxation at $30,000, and also $118,200 of the stock or funded debt of Baltimore City on which that city has agreed to pay the State taxes, and the First National Bank of Gaithersburg owns real estate assessed for taxation at $3,200 and also $10,000 of Baltimore City stock of the character aforesaid, and that certain of the stockholders of each of said banks reside in Montgomery County and others are non-residents of this State.

The said Fire Insurance Company owns $96,500 of the same character of Baltimore City stock and also $13,000 of Montgomery County bonds exempt from county and municipal taxation, but subject to taxation for State purposes. The bill further avers that the appellant admits that he, as State Tax Commissioner, is required by law to return to the County Commissioners for county and municipal taxation the identical assessment of the stock of the said corporations that he returns to the State Comptroller for State taxation, and he has informed the appellee that he intends, in making said assessment for the year 1907, to deduct, from the value of the capital stock of each of the said two banks, not only the assessed value of the real estate held by it but also the face value of the Baltimore City stock owned by it, and to deduct from the property and assets of the said Fire Insurance Company the face value of its Baltimore City stock and also of its Montgomery County bonds. That the assessment which the Tax Commissioner has thus announced his purpose to make will be unlawful and contrary to the duty imposed upon him by the existing law of this State which requires him to ascertain the assessable value of the shares of capital stock of said banks, by deducting only the assessed value af the real estate held by each of them from the aggregate true value of all of the shares of its capital stock and dividing the remainder by the number of the shares, and provides that the quotient thus obtained shall be the taxable value of each share of the stock ³⁹⁴ for State, county and municipal taxation. That the law also requires him to ascertain the assessable value of the property and assets of said Fire Insurance Company by deducting from their true value only the assessed value of the real estate, if any, owned by it.

That the appellant has construed and persists in construing sec. 160, of Art. 81 of the Code, which relates only to credits to be allowed to corporations in the “Settlement of taxes,” as forming part of the law relating to the assessment by the Tax Commissioner of the shares of their capital stock for the purpose of taxation; and that his plan of assessing the shares in question results in the practical exemption of the shares of stock of such corporations, to the extent of the value of said Baltimore City stock from all taxation for county and municipal purposes, as the County Commissioners are required by law to accept his assessment of the said shares for purposes of süch taxation. That under the laws of the United States the said Baltimore City stock while held by the said national banks are not subject to assessment or taxation for State, county or municipal purposes, that no State tax has in fact been paid thereon and that therefore such stocks so held cannot be lawfully regarded as tax paying investments or used as credits in the settlement of State, county or municipal taxes. The bill insists that it is therefore beyond the power ■of the Tax Commissioner to assess the shares of capital stock of the said corporations in the manner proposed by him. With the bill were filed, as exhibits, copies of letters which passed between the plaintiff and the Tax Commissioner, prior to the institution of this suit on the subject of the assessment of the shares of the corporation, about to be made by the commissioner.

The bill then further alleges that the proposed action by the . Tax Commissioner will, if not prevented, be in violation of the laws of the State and will inflict serious injury upon the plaintiff and the other taxpayers of Montgomery County and that, as the law allows them no appeal from the assessment which will be made in the manner aforesaid, unless prevented by the order of this Court, they are without remedy at law to prevent' the wrongs complained of. ³⁹⁵ The prayer of the bill is for first a preliminary injunction and in due course a final one preventing the Tax Commissioner from making the assessment in the manner intended by him, and that he may be required to make the assessment and return of the shares of stock of the said corporation without deducting from his valuations thereof the value of the Baltimore City stock held by them, and so that the $13,000 of Montgomery County bonds be assessed against the insurance company for State purposes only, and for general relief. The demurrer filed to the bill by the appellee, as Tax Commissioner, assigns for its ground, in addition to the general want of equity in the bill, 1st the want of jurisdiction in the Court to control the defendant in the exercise of the official discretion conferred on him by law, and 2ndly, the fact that the corporations, mentioned in the bill, whose interests are attempted to be affected by the suit have not been made parties to it. We will now consider the several grounds of demurrer.

The statute law immediately affecting the question presented by the record is mainly found in secs. 148, 159, 160 and 162 of Art. 81 of the Code of 1904. Sec. 148 requires the State Tax Commissioner, before the 15th of May in each year, to assess for State purposes the shares of capital stock of all banks, State or National, banking associations or other incorporated institutions or companies incorporated by or located and doing business in this State whose shares are liable to assessment and taxation, and to report the amount of the basis of the assessment for State purposes, and makes the assessment subject to appeal as provided in sec. 162 by the corporation whose shares have been assessed. Sec. 162 requires the Tax Commissioner to certify and return, his assessment of the shares of stock and banks and other corporations as soon as made, to the Comptroller who is required to at once notify the president or other proper officer of the corporations of the assessment by transmitting to him an account of the State taxes due by his corporation under the valuation. The right of appeal to the Comptroller and State Treasurer from such valuation is then given to the corporation ³⁹⁶ for thirty days, after which in the absence of an appeal the assessment becomes final.

Sec. 159 prescribes the method in which the Tax Commissioner is to make his annual valuation and assessment of the shares of stock of corporations for State purposes and introduces the further provision that such assessment shall also furnish the valuation at which such shares of stock shall be taxed1 for county and municipal purposes. After directing the president or other proper officer of every corporation, created by or doing business in this State, to procure the assessment, by the County Commissioners or Appeal Tax Court, of any real estate owned, by it and to furnish a copy of the assessment to the Tax Commissioner, it further says, “The respective taxable value of the shares of stock in such bank, corporation and joint stock companies shall be ascertained by the State Tax Commissioner in the manner following. He shall deduct the assessed value of such real property belonging to the said respective banks, corporations or joint stock companies from the aggregate value of all shares of such respective banks, corporations or joint stock companies and divide the remainder by the number of shares of the capital stock or shares of such respective banks, corporations or joint stock companies and the quotient shall be the taxable value of each of such respective shares for State purposes, and all State taxes thereon shall be paid as provided now or hereafter by law, and when the valuation and assessment of the shares of the capital stock or shares of such banks, corporations or joint stock companies shall have been finally determined or made for State purposes, the State Tax Commissioner shall certify to the County Commissioners of each county where any of the stockholders or shareholders may reside and to the Appeal Tax Court of Baltimore City, if any of said stockholders or shareholders, reside in said city, and to the Coünty Commissioners of the county in which such bank, corporation or joint stock company is situated or to the Appeal Tax Court of Baltimore City, if it is situated in said city, the assessed taxable value of such respective shares of stocks or shares so ascertained as aforesaid. And the said ³⁹⁷ taxable value of such respective shares of stock or shares in such banks, corporations or joint stock companies owned by residents of this State and taxable within this State shall, for county and municipal purposes, be valued to the owner thereof in the county or city in this State in which such owners shall respectively reside and the said taxable value of such of said stock or shares as are held by non-residents of this State shall, for county and municipal purposes, be valued to the owners thereof in the county or city in which said bank, corporation or joint stock company is situated.” Sec. 159 further provides that all county and municipal taxes assessed on the taxable value of the shares of stock in said corporations shall be collected from the corporation; and sec. 150 provides that the State taxes thereon shall be paid to the State Treasurer by the corporation for the shareholders.

Sec. 1 59 also provides that the State, county and city taxes on the assessed value of the real estate, thus deducted in assessing the shares of stock, shall be paid by the corporation owning it as the taxes on other real estate are paid. These provisions of the Code provide a simple and effective system, for the assessment and collection of both State and local taxes upon the shares of stock of corporations created by or doing business in this State, and if they were the only provisions applicable to the subject the practical operation of the system would cause neither difficulty nor embarrassment. It is to be observed that under this system the powers and duties of the State Tax Commissioner relate exclusively to making and returning the assessment of the shares of stock and that he is to make but one assessment and is required to certify that to the Comptroller for purposes of State taxation and to the County Commissioners and Appeal Tax Court for purposes of local taxation. As the State and local taxes on the real estate owned by the corporations are required by law to be paid by them in the same manner that other persons pay the taxes on their real estate, it becomes necessary to deduct the value of the corporation’s real estate in assessing the aggregate value of its shares of stock in order to prevent double ³⁹⁸ taxation.

Under this system the one valuation and assessment of the shares of stock by the Tax Commissioner forms an equally just basis for both State and local taxation. The disturbing element is introduced into the system by sec. 160, which makes provision for the taxation for State pur-, poses of the stock of corpora:ions holding, as investments of their capital, any State or Baltimore City stock, or the shares of any other corporation on which the payment of the State tax is otherwise provided for. The essential portion of that section, as amended by the Act of 1906, ch. 467, is as follows: “160. Any corporation having a capital stock divided into shares, and owning as an investmeut of part of its capital any' of the stock debt of this State, upon which the State tax has been deducted by the Treasurer, or of the stock debt of the city of Baltimore on which the State taxes have been paid or are payable by said city, or shares in any bank, or other corporation of this State upon which the State and county or city taxes are levied and paid, or are payable by such bank or other corporation, may report the same in detail under the oath of the president, cashier, treasurer or other proper officer, to the State Tax Commissioner, and the amount of such stock debt or debts, or the assessed value of such capital stock so owned, and upon which such taxes are paid or payable as aforesaid, shall be allowed as a credit, in the settlement of the taxes, on the shares of capital stock of such corporation so owning the same; and any corporation not having capital stock divided into shares, and owning as an 'investment of part of its assets any of the stock debt of this State upon which the State tax has been deducted by the Treasurer, or of the stock debt of the city of Baltimore on which the State taxes have been paid or are payable by said city, or shares of the capital stock of any bank or other corporation of this State, upon which the State and county or city taxes are levied and paid, or are payable by such bank or other corporation, may report the same in detail, under the oath of its president, cashier, treasurer or other proper officer, to the State Tax Commissioner, and the amount of such stock, debt, or debts, or the assessed value of ³⁹⁹ such shares of capital stock so owned, and upon which such taxes have been paid or are payable as aforesaid, shall be allowed as a credit in the settlement of the taxes on the assets of such corporation so owning the same; but no credit shall be allowed to any such corporation by reason of any investments on