Franchise tax

“ Our state has fixed a franchise tax based solely 'upon the proportion of outstanding capital stock of corporations represented by property owned and used in business transacted in this state.' The act in question seems to have been drawn with great care and with the evident purpose to exclude any contention that the tax was made upon interstate commerce. ”

“ The statute does not in terms impose a franchise tax as distinguished, or separated, from a tax on personal property, but the Supreme Court of the state construes the tax upon this additional amount as a tax, 'in substance or effect, to some degree at least, upon the privilege of being a corporation,' or, in other words, a tax upon the corporate franchise granted it by the state. Individuals are not required to include in their lists of taxable property any share or portion of the capital stock or property of any corporation which such corporation is required to list. ”

“ By the same token, the validity of a franchise tax, imposed on a domestic corporation engaged in foreign maritime commerce and assessed upon a proportion of the total franchise value equal to the ratio of local business done to total business, is not impaired by the fact that the total value of the franchise was enhanced by property and operations carried on beyond the limits of the State. ”

“ Appellant contends that this tax is not in reality a franchise tax, but is rather in the nature of a direct property tax on the immune federal obligations. Corporate franchises granted by a State create a relationship which may legitimately be made the subject of taxation, Home Ins. ”

“ Let me turn to the particular provisions of the statute, and ascertain upon what it commands the tax to be levied. Section 4020, in enumerating the objects of taxation which shall be assessed as part of the franchise, provides for all intangible property to be thus included in the franchise, whether the property be in or out of the state. Can it be said, when the law in mandatory terms directs the inclusion in the franchise to be assessed of property, whether in or out of the state, that it means that only the franchise granted by the state to a corporation to exist and such shall be assessed? ”

“ Respecting other moneyed capital, trust companies, by § 188, are subjected to an annual franchise tax 'equal to 1 per centum, on the amount of its capital stock, surplus, and undivided profits.' The practical burden of such a tax (which of course falls eventually upon the stockholder) is presumably not materially different from the burden of a tax at the same rate, imposed upon the individual stockholder on a valuation of his shares, arrived at by taking into consideration the same elements of capital stock, surplus, and undivided profits. ”

“ The adoption of the taxing act, as recommended by the commission, may therefore be taken, as appellant contends, to evidence a definite and specific legislative purpose to levy a new type of franchise tax, measured by corporate net income, including the tax exempt income from federal and state bonds. ”

“ It is obviously unjust, when introducing a system under which we believe that these franchises will for the first time be fully and fairly taxed according to their respective values, not to allow for this existing and inequitable taxation. Accordingly it should be provided that from the sum assessed by the State authorities as the tax which a corporation must pay because of its local franchise, there shall be deducted the amount already annually paid by it to the locality for such franchise. In no other way is it possible to tax these corporations with uniformity and equity. ”

“ By reason of that provision the annual franchise tax takes priority over incumbrances on the corporate property. New York Terminal Co. v. Gaus, 204 N. Y. 512, 98 N. E. 11. Under the earlier law a debt for franchise taxes was not 'a technical lien on specific property' and had been ordered paid out of moneys in receivers' hands. Central Trust Co. v. New York City & Northern R. R. Co., 110 N. Y. 250, 259, 18 N. E. 92, 1 L. R. A. 260. In the case at bar the District Judge relied upon section 197 as justifying him in giving priority for the claim for annual franchise taxes ”

“ It is not to be questioned that the States may tax the franchises of companies created by them, and that the tax may be proportioned either to the value of a franchise granted, or to the extent of its exercise; nor is it deniable that gross receipts may be a measure of proximate value, or, if not, at least of the extent of enjoyment. If the tax be, in fact, laid upon the companies, adopting such a measure imposes no greater burden upon any freight or business from which the receipts come than would an equal tax laid upon a direct valuation of the franchise. ”

“ It is said that, as section 12 operates, by reference to the Franchise Tax Law, to change the tax on corporations having nonpar stock, it is in effect a taxing act, and hence its title does not clearly express the subject of the legislation. But its subject was the method of ascertaining the value of nonpar shares for taxation and other statutory purposes, a subject-matter clearly embraced in the title which described the legislation as 'regulating' corporations having nonpar stock and as 'prescribing the method of determining * * * the capital of corporations' issuing such shares. ”

“ The theory upon which the tax is laid upon dividends realized from out-of-state business while leaving dividends realized from domestic business untaxed, is that the 2 per cent. franchise tax, especially with the property tax added, has the effect of indirectly imposing a tax burden upon the latter measurably equivalent to that imposed directly upon the former. ”

“ While the charter fees of domestic corporations are smaller than the entrance fees of foreign corporations, Virginia levies upon foreign corporations, after admission, less in taxes than it does upon domestic corporations. A domestic corporation with an authorized capital of $100,000,000 is required to pay a charter fee of only $600; but it must pay each year a franchise tax of $8,850. A foreign corporation of that authorized capital is required to pay an entrance fee of $5,000, but pays no franchise tax whatever. ”

“ Some suggestion is made in argument of the possibility of treating the franchise tax as not repugnant to the Constitution although that result be necessarily reached as to the permit tax. But we are of opinion that the proposition is without merit as the interdependence of the two provisions obviously results from the character of the subjects with which they deal and the mode in which the statutes deal with them. ”

“ The franchise tax law is framed with the intent of securing exact and equal justice, no more and no less. It is not in any way intended as a means for persecuting or oppressing corporations. It is not intended to cut down legitimate dividends; still less to cut down wages or to prevent a just return for the far-sighted business skill of some captain of industry who has been able to establish a public service greatly to the advantage of the localities concerned, where before his time men of less business capacity had failed. ”

“ It is urged that the selection of authorized capital stock as the basis for the franchise tax or license fee is arbitrary, and has no tendency to procure equality, and results in imposing different rates of taxation on corporations having the same issued capital stock holding the same amount of property and doing the same amount of business, whenever they have different amounts of authorized capital stock ”

“ They differ from property taxes, as levied for state and municipal purposes in the basis prescribed for computing the amount, in the manner of assessment, and in the mode of collection.' And again: 'Comparative valuation, in assessing property taxes, is the basis of computation in ascertaining the amount to be contributed by an individual; but the amount of a franchise tax depends upon the business transacted by the corporation, and the extent to which they have exercised the privileges granted in their charter.' Pages 631, 632. ”

“ In any discussion of the right of Congress to tax the agencies of or franchises granted by a state, the distinction must be borne in mind between a tax upon property acquired by means of the franchise from the state and a tax upon the exercise of the franchise itself. ”

“ New Jersey, New York, Maine, West Virginia, and the laxer States, practically allow their directors to issue stock for anything they choose—labor, contracts, property, or a patent right—and their judgment on the value of such property is held to be final in the absence of fraud. Corporations are usually taxed, like individuals, on their tangible, visible property, real and personal, and in many States there is also a franchise tax on their shares. ”

“ Subsequently to this act being passed-within the fifteen years, and the annual profits not yet exceeding eight per cent-the legislature of the State passed an act taxing the franchise of the road.
'The only way in which the property of this company could be reached for taxation at all, was after the limitation of the fifteen years had expired. The legislature was then at liberty to tax the individual shares of the stockholders, whenever their annual profits exceeded eight per cent. When a statute limits a thing to be done in a particular mode, it includes a negative of any other mode. ”

“ Massachusetts, 6 Wall. 632, a statute of Massachusetts which required corporations having a capital stock divided into shares to pay a tax of a certain percentage upon the excess of the market value of such stock over the value of its real estate and machinery was sustained as a statute imposing a franchise tax, notwithstanding a portion of the property which went to make the excess of the market value consisted of securities of the United States ”

“ Unless the franchise is regarded in this way, as belonging to real estate, or as forming a taxable entity apart from other property, it would be simpler to reach it through a corporation tax in one of the many ways open for applying that tax.
Enough has been said to demonstrate the extremely faulty condition of tax methods in the United States. Uniformity is highly desirable, but equality of burden is even more to be desired. ”

“ The franchise of the company is the right to hold property and exercise its corporate privileges. The Supreme Court of the United States has decided that where a corporation is exempted from taxation, it is not subject to a tax on its franchise. ”

“ The constitution of the State does not authorize an assessment of the franchise of a corporation by valuation.
An excise tax may be imposed under art. 9 of the State constitution upon a franchise, in the same manner as such a tax may be imposed upon jugglers, showmen, &c., having special privileges. ”