Bradley v. Bauder, 36 Ohio St. 28

1. By tlie provisions of the act of May 11, 1878 (75 O. L. 436) an owner, residing in Ohio, of shares of stock in a foreign corporation, is required to list the same for taxation, notwithstanding the capital of the corporation is taxed in. the State where the corporation is located.

2. The provisions of said act subjecting such shares of stock so owned to taxation in this State, are not in conflict with the constitution.

Appear. Reserved in the District Court of Cuyahoga county.

This action was brought to enjoin the auditor of the county of Cuyahoga from placing upon the duplicate for taxation, in pursuance of a direction from the Board of Equalization of the city of Cleveland, investments in the capital stock of corporations created in other States, owned by the plaintiffs, residents of this State.

The corporations were railroad, mining, manufacturing and express companies, and each derived its franchises wholly from the State where it was located.

The petitioji avers that their capital stock is all invested in real estate and other fixed property, situated in other States, where the same is annually listed and taxed, and where their entire business is transacted, and that no part of either is within this State, or subject to its jurisdiction.

The defendant demurred to the petition for want of sufficient facts to constitute a cause of action.

On appeal to the district court, a preliminary injunction was granted, and on plaintiffs’ motion the cause was reserved for decision by this court.

P. P. Panney, for plaintiffs :

1. No word in the constitution or laws expressly defines such interests as the subjects of taxation. If they are covered at all, it is only by general language, which it is completely settled must be restrained by construction to persons and things within the territorial limits of the State. Steamboat Ohio v.

Stunt, 10 Ohio St. 582; Booth v. Hubbard, 8 Ohio St. 243; Stetson v. Bank, 2 Ohio St. 174; Woodward v. Railroad, 10 Ohio St. 122; Miller v. Ewer, 27 Me. 509 ; Farnum v. Blackstone, 1 Sumn. 46.

2. The basis of taxation in this State is property alone, and property within the jurisdiction of the State. The residence of the owner is wholly immaterial. Exchange Bank v. Hines, 3 Ohio St. 1; City of Zanesville v. Richards, 5 Ohio St. 589 ; Carrier v. Gordon, 21 Ohio St. 605; People ex rel. Hoyt v. Com'rs of Taxes, 23 N. Y. 224.

3. To tax property situated in other States, and there, rightfully subjected to taxation, is double taxation, and subjects, the same owner to a burden of taxation twice as large as that imposed upon property differently situated — and is a positive violation of the principle of equality ordained by the constitution. See authorities above cited.

4. The statute itself defines “investments” in the stock of corporations as personal property (not debts or choses in action), from which no deductions can be made. Its actual situs —the place where the investment is made and remains — is the place of its rightful taxation, and if beyond our territorial limits cannot be legally taxed here. Story on Conflict of Laws, § 383; Railroad Co. v. Wheeler, 1 Bl. 286; Bank v. Earl, 13 Pet. 512; Tappan v. Bank, 19 Wall. 499; Railroad Co. v. Cary, 28 Ohio St. 211.

5. It stands admitted by the pleadings that all the assets and property of these corporations consist of real estate and. fixed property in the States incorporating them, and that the-entire capital of each is invested therein; that upon all this property (and in one of the States the entire market value of the stock and franchises in addition), taxes are regularly levied and paid where it is situated. Under such circumstances there is no “ value in money ” to the shares of stock outside of the property in which they are invested. That property being, taxed “ in the name of the company ” — the trustee of the. shareholders — the “shares of the capital stock” in the hands of the shareholders is expressly exempted from further taxation by section 13 of the- act of-. 1878 (56; O. L. 175).

It is now completely settled that “ the power of taxation of a State is limited to persons, property, and business witliin her jurisdictionand that “ all taxation must relate to one of these subjects.” Railroad Co. v. Pennsylvania, 15 Wall. 300; 3 Wall. 598; 18 Wall. 229; Tappan v. Bank, 19 Wall. 499. The first and the last of these subjects may be laid out of the present case — the first because such taxation is absolutely prohibited in this State, and the last, because it is conceded that no business is done in the State. And thus, the whole matter is reduced to the single question whether investments in real and fixed property in another State, held by a corporation there, and constituting its capital stock, and there paying full taxes according to its value — ai’e again subject to taxation in this State. If such property were held by the natural persons who compose the corporation, either by legal or equitable title, ixo one would pretend that it could be, although tlxe ownci’s continued to reside in this State. ■

No single reason upon which taxation has been supposed to be foxxnded, would justify such an imposition. It would receive no protection from our laws, and would owe nothing for any protection. And yet, while the property remains exactly the same in nature and. kind, and the respective interests of the proprietors ixi it the same, because the State in which it is situated, the better to enable the proprietors to use and improve it, sees fit to confer upon them corporate unity and perpetual succession, and thereby more completely localizing both property and proprietors, and justly entitling itself to impose taxes upon it all for the franchises confen’ed and protection afforded —it is claiined that this very process brings it all, and its whole value, into Ohio for the purpose of- imposing another tax upon it here. When gross absurdity, instead of the “ perfeetioxx of human reason,” comes to be the foundation of jurisjxrudence, such a proposition may be maintained, and never before. Mechanics’ Bank v. Railroad, 13 N. Y. 627; Railroad v. Schuyler, 17 N. Y. 595 ; Maltby v. Railroad, 52 Penn. St. 140.

Marvin, Laird & Oadwell, for defendant:

II. As to double taxation, see Farrington v. Tennessee, 95 U. S. 686-7; Curran v. Arkansas, 15 How. 304; Gordon v. Appeal Tax Court, 3 How. 133; People v. Commissioners, 4 Wall. 244; Van Allen v. Assessors, 3 Wall. 573; Queen v. Arnaud, 9 Ad. & E. N. S. 806; Bank Tax Cases, 2 Wall. 200; Angell & A. on Corp. §§ 556, 557; Union Bank v. State, 9 Yerg. (Tenn.) 490; McCulloch v. Maryland, 4 Wheat. 316 ; Wood v. Dummer, 3 Mass. 308; Bradley v. People, 4 Wall. 459 ; Queen v. Arnaud, supra ; National Bank v. Commonwealth, 9 Wall. 353; State v. Brannin, 3 Zab. (N. J.) 484.

From these authorities we learn that these shares have no actual sitias, and hence fasten themselves to the situs of their owners.

That these shares, belonging to residents of Ohio, cannot be taxed by another State. See 15 Wall. 300.

Grcvrmis & Griswold, also for defendants, as opposed to the proposition:

That shares of stock in foreign corporations owned by citizens of Ohio are not property within the meaning of the Constitution of the State, but simply evidence of title to property situate in foreign jurisdictions, cited Minot v. Railroad Co., 18 Wall. 206 ; Kirtland v. Hotchkiss, 42 Conn, 438.

Boynton, J. The sole question arising upon the demurrer to the petition, is whether the shares of stock in corporations' created in other States, which shares are owned by persons residing here, are taxable under our constitution and laws, where the capital stock of the corporation is invested in real and fixed property situated in the State in which the corporation exists, and where by the laws of such State the same is required to be listed for taxation.

The claim of the learned counsel for the plaintiffs is, that the right, in such case, to levy and collect a tax upon the shares of stock of such owner, finds no warrant either in the constitution or the. statute.

The constitutional power to tax shares of stock in foreign companies, owned by residents of Ohio, was directly involved in Worthington v. Sebastian, 25 Ohio St. 1, where it was held, that the duty imposed by the statute to tax such shares was neither in violation of the constitution of the State, nor of the United States.

The question arose under the act of 1859 (2 S. & 0. 1138); but the provisions of that act, in respect to property made-subject to taxation, were substantially the same as those of the act of 1878, under which the right in the present case is asserted to tax the shares of the plaintiffs in foreign compa-. nies.

No provision of the constitution is more explicit in its terms, or less open to construction, than that relating to the subject of taxation. "With few exceptions, in which a discretion is left to the' legislature to impose a tax or not, -the constitution imperatively enjoins the passage of laws ’taxing by a uniform rule “ all moneys, credits, investments in stocks, joint stock companies, or-otherwise ; and also all real and personal property, according to its true value in money.” Article 12, § 2.

To carry this provision into effect, it was provided by the act of 1818, and now by the Revised Statutes, that “ all property, whether real or personal, in this state, and whether belonging to individuals or corporations; and all moneys, credits, investments in bonds, stocks or otherwise, of persons residing in this state, shall be subject to taxation, except only such as may be expressly exempted therefrom.”

Thus, both the constitution and the statute expressly designate “investments in stocks” as one of the subjects of taxation, without any restriction or limitation as to the place or state where such “ stocks ” may be authorized or issued. And that the meaning of the term should admit of no doubt, it was declared “ to include all moneys invested in the capital or stock of any association, corporation, joint stock company, or other company, the capital or stock of which is or may be divided into shares, which are transferable by each owner, without the consent of the other partners or stockholders, for the taxation of which no.special provision is made by law, held by persons residing in this state, either for themselves or others.”

In view of these provisions, it is perfectly obvious that shares of stock in corporations, wherever located, owned by our citizens, are subject to taxation, except in cases falling within the operation of the proviso of section 13, unless the statute is open to constitutional objection. The proviso to the 13th section, exempting from taxation any share or shares of stock in any company, the capital stock of which is taxed in the name of the company, is a substitute for the same provision found in the first clause of section 59, of the act of 1859. It had, in that act, as in the act of 1878, no reference to shares of stock in foreign companies. It is only where the capital stock of the company is required to be taxed in Ohio, that the right to such exemption obtains. The puipose of the proviso ■was to exempt from taxation the shares of stock in corporations, where the state had exercised the right to tax the capital stock in the name of the company. No such tax could be imposed upon the property of foreign companies not situate within the state. The capital of the corporation is the property of the corporation, and it can only be taxed in the State where the property is located. It is very clearly settled, that the right of taxation is limited to persons, property and business within the jurisdiction of the State where the right is attempted to bo exercised. Railroad Company v. Pennsylvania, 15 Wall. 300. But investments in stocks in foreign companies, owned by residents here, being property within the state,, are not only made subject to taxation by the constitution, but, as we have seen, their taxation is expressly required by the statute.

But it is said, that because the capital of the company is invested in real and fixed property in the state where the corporation is located, and in which state, taxes upon the same are regularly levied and paid, a tax here upon the shares of stock of those residing here, is a tax upon the same property, and therefore results in double taxation.

The argument is : that the capital of the corporation is invested in property which is taxed in the name of the coloration, and that the shares in the capital stock, when owned by individuals, ooly represent proportions in the ownership of such property, and hence, to tax the shares is another mode of taxing the property of the corporation, and that a tax upon both, although the tax upon one is imposed by another state, violates the rule or principle of equality established by the constitution. This argument, however plausible it seems, hast never met with favor from the courts. Double taxation, in a legal sense, does not exist, unless the double tax is levied upon the same property within the same jurisdiction. Here the property owned by the plaintiffs is not only not the same as that owned by the corporation, but its situs, so far as shares of stock are capable of one, is in a different state.

The same principle governs a chose in action ; for purposes of taxation, its situs is that of the domicil of the owner, although the debt is secured by a mortgage upon realty in another state, and by agreement of the parties expressly made subject to its laws. Kirtland v. Hotchkiss, 42 Conn. 426. See same case in 100 U. S. 491.

The constitutional power to tax shares of stock, owned by our citizens in corporations located without the state, does not depend on whether the capital of the corporation is or is not taxed in the state where the corporation is created. The power is the same, whether the capital of the corporation is there taxed or not; otherwise, the power of taxation conferred by the constitution would be made to depend upon the operation of laws of a foreign jurisdiction — a proposition so obviously ill founded that the moment it is stated its falsity becomes apparent.

In Dwight v. Mayor, 12 Allen, 316, the plaintiff, the owner .of shares in a foreign railroad corporation, sought a deduction from the tax upon his stock, by reason of the tax on the property of the corporation in the state where the same was located. The right to such deduction was denied, the court remarking that “ shares in a foreign railroad corporation held by citizens of this state are fully taxed here, and no deduction is made for any taxation to which the corporation is subject, in the states where they are located. So it is in regard to shares hold by our citizens in banks, insurance companies, and other moneyed corporations, situated in other states. Such shares, when held by our citizens, are here treated as so much personal estate, following the person of the owner, and taxable at their full value .in this commonwealth, regardless of what may be the foreign law as to taxation of the capital or any part of it elsewhere.”

This case is but one of a great number that hold the same doctrine.

The demurrer is sustained, the injunction vacated, and petition dismissed.