Commonwealth v. Mortgage Trust Co. , 227 Pa. 163 ( 1909 )

Opinion by

Mr. Justice Elkin,

June 22, 1909:

The tax settlement in this case is for that part of the fiscal year extending from the first Monday of November, 1906, to June 20, 1907. The principal contention of the appellee company in the court below and here is that the Act of June 13, 1907, P. L. 640, taxing the shares of capital stock of trust companies, violates sec. 1 of art. IX of the constitution, which provides that all taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax. The learned court below after giving the parties a patient hearing and the case intelligent and exhaustive consideration held the act to be unconstitutional. We, however, cannot agree with the views expressed on the controlling questions involved, nor with the conclusion reached. The act of 1907 is a revenue measure and provides for the levying of a tax upon the shares of stock of what are popularly known as trust companies. A brief recital of the legislative history of these companies and of the’ policy of the state in taxing their capital stock, together with an understanding of the basis for ascertaining the actual value of shares of stock in banking institutions proper, will be helpful in the consideration of the questions here raised. What are known as trust companies are incorporated under the general corporation act of 1874, and the original purpose for which they were created was to engage in the business of title insurance. In 1881, the legislature broadened the scope and character of their business, and in 1889 the statutory door was more widely opened to this class of corporations. They grew in public favor until the legislature in 1895 conferred upon them the power to receive moneys on deposit and issue their obligations therefor, to invest their funds in and to purchase real and personal securities, and to loan money on real and personal securities. While these acts in express language denied to companies so incorporated the right to engage in the business of banking, they were in fact authorized to do some of the things for which banks are organized. It is true they are not banks of issue, nor of discount and deposit, in the technical sense, yet in the commercial world their transactions are regarded as in the nature of banking business. The policy of the commonwealth for more than twenty years was to tax the capital stock of these companies in the same manner as other corporations created under the general corporation act of 1874 were taxed. They made their reports to the auditor general under the general revenue acts of 1879, 1889 and 1891, and other statutes, just as other private corporations did, and the valuation of their capital stock was ascertained and the tax settlement made upon the same basis. This method of taxing the capital stock of these institutions continued in force until the act of 1907 was passed. As the trust company business grew in magnitude, as it did grow after the passage of the act of 1895 which conferred quasi banking privileges, the question of the proper method of taxing the capital stock of these corporations frequently arose. It was contended in their behalf that banks were their natural competitors; that their business partook of the nature of banking; and that they should be taxed in like manner. As a result of this feeling and the agitation which followed it the act of 1907 was passed. It is apparent that the legislature intended to tax trust companies on the same basis as banks. In this connection it will be helpful to consider the policy of the commonwealth in taxing bank stocks. The old acts of 1850, 1867, 1868, 1869 and 1870, relating to the taxation of banks and shares of stock in banking institutions were superseded by the act of 1891, which provided that any bank or savings institution incorporated lay this state or by the United States may collect from its shareholders and pay into the state treasury a tax of eight mills on the par value of its shares in lieu of all taxation except upon its real estate; and upon failure to so elect to . pay a tax upon the par value as above indicated, it shall be subject to a tax of four mills upon the actual value of its shares of capital stock without any exemption. This act provided alternative methods of levying a tax on bank shares. In its practical operation it produced great inequality of burden as applied to different banking institutions. Several national banks in the city of Pittsburg raised the question of its constitutionality before the auditor general and afterwards in the courts on the ground that it was repugnant to that provision of the constitution which requires taxes to be uniform upon the same class of subjects. When that case was heard before the court of common pleas in Dauphin county the evidence produced showed many inequalities upon the basis of what was considered the actual value of the shares of stock in different banking institutions. Notwithstanding these inequalities this court held the act to be valid and the taxes levied thereunder to be uniform within the meaning of the constitution: Com. v. Merchants’, etc., Nat. Bank, 168 Pa. 309. That case was appealed to the supreme court of the United States, and every question argued in the court below and pressed here in the case at bar was then raised and considered with the result that the judgment of this court was affirmed: Merchants’, etc., Nat. Bank v. Pennsylvania, 167 U. S. 461. It is true, these cases arose under the act of 1891, which was repealed by the act of 1897. The latter act, remedial in character, was intended to correct some of the inequalities about which complaint was-made in the case above cited. The tax rate of four mills on the actual value of the shares of stock was not changed by the act of 1897, but a definite method of ascertaining the actual value of each share was provided, which method consisted in adding together the amount of capital paid in, the surplus and undivided profits and dividing the amount so ascertained by the number of shares. Each bank, however, had the right to elect to collect annually from its stockholders a tax of ten mills on the par value of its share in lieu of all other taxes, except upon real estate. The act of 1897 increased the tax rate from eight to ten mills on all banks electing to pay on the par value of their shares, but the tax rate on the actual value of the shares of those banks not electing to pay on par value remained the same as under the act of 1891. All this was done to make more nearly uniform the taxes paid by banks under this method of taxation and to correct to some extent the inequalities complained of under the old act. Certainly the inequalities of burden are not so great under the act of 1897 as they were under the act of 1891, and since that act stood the constitutional test in all the courts, it would seem as though the later act should be reasonably secure from attack on the ground indicated.

The act of 1907 under which the tax is claimed in the present case, makes what is commonly known as trust companies, a class of corporations for the purpose of taxation, and substantially re-enacts the provisions of the act of 1897, as the basis of determining the valuation of the shares of capital stock. The act of 1907 provides, as does the act of 1897, that the actual value of each share of stock shall be ascertained and fixed for the purpose of taxation by adding together the amount of capital paid in, the surplus and undivided profits and dividing this amount by the number of shares. Every argument made against the act of 1907, could as well be made against the act of 1897, which for a period of twelve years has remained unchallenged as the basis for taxing shares of bank stocks. The power of the legislature to make trust companies a class for the purpose of taxation is conceded, as indeed it must be, under the rule of our cases. The power to classify being conceded, our only concern in the present case is to determine whether the method of taxing the shares of trust company stocks under the act of 1907 is uniform upon this class of subjects. This exact question as applied to bank stocks was settled in the bank case above referred to in favor of the commonwealth and against the contention made by the appellee here. The constitutional mandate only requires taxes to be uniform upon the same class of subjects. The legislature has the power to classify taxable subjects within reasonable limits, to fix the tax rate and to provide a method by which to ascertain the taxable value in each particular class. This power was exercised in 1907 by making trust companies a class for the purpose of taxation, and a uniform tax rate and method of ascertaining taxable value applicable to the entire class were provided in that act. The method provided for ascertaining the value of shares of stock, the kind and character of the report to be made to the auditor general, the penalty for making a false return or ho return, and the rate of taxation, apply to all trust companies incorporated and doing business under the laws of the commonwealth. Up to this point at least the constitutional injunction that all taxes shall be uniform upon the same class of subjects has been fully met by this act. The only complaint that can be made, and it has been made with great force and ability by the learned counsel for the appellee, is that the statutory method of determining the actual value of the shares in practical operation produces such inequality of burden as to • offend against the constitutional provision requiring uniformity. We think this is no longer an open question in Pennsylvania. It was finally settled in the bank case above cited fourteen years ago. It is true, the act of 1891 under which that case arose did not provide a definite method of ascertaining the actual value of shares of stock, but it is equally true that the alternative method therein provided, did produce greater, inequality of burden than anything complained of in the case at bar. The contention then made was, and it now is, that the taxes levied were not uniform, because as measured by the actual value of the shares of stock upon which the settlement was made great inequality of burden .resulted. This court pointed out in that case that the inequalities complained of were due to causes that the legislature could not be required to foresee and provide against. The act was held to be a valid exercise of legislative power because the tax rates and methods of determining taxable value were uniformly applied notwithstanding the inequalities of results. The legislature has the general power to fix the valuation of shares of stock for the purpose of taxation upon the basis of actual value to be ascertained by including all elements of value, or of general market value, or of selling value between particular dates, or real intrinsic value based upon assets and earnings, or upon any other uniform basis of valuation applicable to each member of the class. We can see no reason why the legislature may not definitely provide a method to determine how the taxable value shall be ascertained. The act of 1907 provides that the actual value of each share of stock shall be determined by adding together the capital paid in, the surplus and undivided profits and dividing the result thus obtained by the whole number of shares issued and outstanding. It is doubtful whether any better method of ascertaining the real intrinsic actual value of the shares could be adopted. It has the advantage of being a definite fixed basis sustained by business experience, and in most instances is the surest test of the real value of the shares. It does not take into account selling value on the stock exchange or in the open market, and this fact is strongly urged against the act, but it was within the power of the legislature either to include or exclude such selling value as an element to be considered in ascertaining taxable value. In this instance selling value was not included, which in our view of the law is a legislative and not a judicial question. Some confusion has arisen in the consideration of the present case by making comparison between the method of ascertaining the actual value of shares of stock under the general revenue act of 1891 and the method provided in the act of 1907. A little reflection will show the error of such comparison. The act of 1891 did provide for the taxation of the shares of capital stock of corporations on the basis of actual value, and indicated the elements to be considered in ascertaining that value. Courts in construing this and other similar acts have said the legislative intention voiced therein was to require the accounting officers in ascertaining the taxable value to take into consideration all necessary elements of value, such as dividends, profits, earning power, indebtedness, value of franchise and market price. But the courts have done nothing more than to define and limit the powers of the legislature under the constitution. It is the duty of the legislature to fix a uniform tax rate and to provide a uniform method of valuation, and this was done in the act of 1907. The act of 1891 provides what elements shall be considered in ascertaining the actual value of shares of stock, and the courts have enforced the statutory requirements. The legislature, in 1907, made a new class of taxable subjects and provided in express terms a definite method of determining the actual value of the shares of stock belonging to this taxable class. It is likewise the duty of the courts to enforce this act according to its provisions, unless the constitution forbids. As has been hereinbefore stated the inequality of burden complained of is not sufficient to justify the striking down of the act. The inequalities elaborated in the court below and dwelt upon here depend upon what basis is taken for fixing the actual value of the shares. If the actual value of all the shares of a particular corporation is to be ascertained upon the basis of what a few shares may sell for in the stock market, in some instances to make a fictitious value in others for speculative purposes and in still others to obtain corporate control, of course great inequality may be figured out upon such bases. It is apparent from the record in this case that it was sales of this character that were largely considered in speaking of the actual value of the shares. Such sales are unreliable and unsatisfactory in determining real fixed actual value. As applied to trust companies generally, it is a reasonable assumption, based upon sound business judgment, that the actual intrinsic value of the shares of stock of every such institution is best measured by the amount of capital paid in, the surplus and the undivided profits. This is the basis adopted by the legislature for ascertaining the actual value of the shares of stock for the purposes of taxation in the act of 1907.

The inequalities of taxable burden upon which the learned counsel for appellee rely to have this act declared unconstitutional are no greater, indeed not so great, as in Com. v. Canal Co., 123 Pa. 594, or in Com. v. Brush Electric Light Co., 145 Pa. 147. ' In both of these cases this court held the acts under which the taxes were imposed to be a valid exercise of legislative power and not repugnant to the constitutional requirement as to uniformity. The authority of these cases has always been recognized and followed. There has been no departure from the principle therein laid down although the question has been frequently raised. To affirm the judgment entered by the court below would mean the overruling of these cases and would in effect declare the act of 1897 invalid for the same reason. Nothing but imperative constitutional necessity would warrant such a sweeping result, and we are not convinced that there is any such necessity.

The question has been raised whether the act of 1907 was in force during the period for which taxes are claimed in the present case. We agree in this respect with the contention of the learned counsel for appellee, which is, that the act of 1907 was not intended to be, and is not, retroactive in its operation. It was not in force during the period for which taxes are claimed under the settlement made in the case at bar. However, this is not an insurmountable difficulty for the commonwealth. It is perfectly clear that the old law was in force until the new act became operative, and either the old law or the new act covers the period in question. In point of fact, however, the act of 1891 was in force during the entire period, and the actual value of the shares should have been ascertained as required by that act. There is nothing on the face of the record to show under what authority the tax settlement was made. On appeal from the settlement made by the accounting officers of the commonwealth it was the duty of the court to determine the valuation of the shares of stock under the law in force during the period for which taxes are claimed. When, therefore, the record is remitted the court below can proceed to hear and determine the proper valuation of the shares of capital stock under the act of 1891.

Judgment reversed and record remitted with directions to the court below to hear the parties and determine the actual value of the shares of stock as above indicated.

Opinion by

Mr. Justice Elkin,

February 14, 1910:

After the opinion had been handed down and the record remitted directing the court below to proceed to determine the valuation of the shares of stock of appellant corporation under the law in force when the act of 1907 went into effect, application was made to this court for a rehearing upon the question whether a tax settlement can be made under the act of 1891 for the period in question and the amount in taxes so ascertained can be collected after the repeal of the statute.

This question was not argued when the case was first presented and the court concluded to withhold the opinion and to grant a rehearing on the single question thus raised. Additional briefs have been filed, oral arguments made, and the exact question raised is now before us for decision. It is contended for appellant that the act of 1907 unconditionally-repealed all prior acts or parts of acts relating to the valuation for taxation purposes of the shares of capital stock issued by trust companies, and that the commonwealth having failed to expressly reserve the right to collect taxes which had accrued under the repealed statutes during the period before the new law became operative has lost its right to collect such taxes at all. In other words, that the repeal of the old law without a saving clause in the new act reserving the right to collect taxes accrued at the time of the repeal, releases such corporations from liability for the taxes thus accrued but not paid. No doubt the general rule is that when a statute is repealed without a saving clause, it is to be considered as though it had never existed except as to transactions past and closed. The rule, however, like any other legal principle of general application must be understood and applied, if at all, so as to give effect to the legislative intention. It is not so much what the general rule of construction is as what did the legislature inténd by repealing all acts or parts of acts inconsistent with the new law which did not abolish taxation on this particular class of corporations but only provided a different method of ascertaining the taxable value. It certainly cannot be seriously contended that when the legislature passed the act of 1907, which only changed the method of determining the value of shares of stock issued by trust companies, it was intended to release these same corporations from liability to pay taxes which had accrued at that time. The only rational interpretation of the legislative intention as expressed in the statute is that the taxation of such shares of stock should continue after the passage of the act as it had existed for many years prior to that time except as to the basis of valuation. The act of 1907 did not provide a new system of taxation, nor did it introduce new taxable subjects. It was a revenue statute and was not intended to defeat the right of the commonwealth to collect her taxes. We think the sound rule is, especially as to acts which provide for the assessment and collection of annual taxes, that a statute repealing former laws on the same subject does not abolish all rights and remedies under the repealed acts, if the legislative intent not to abolish them appears. This view of the law finds ample support in Hickory Tree Road, 43 Pa. 139; Telegraph Company v. Com., 66 Pa. 70, and Wright v. Oakley, 46 Mass. 400. The learned counsel for appellant rely on Com. v. Standard Oil Co., 101 Pa. 119, to support the contention that no tax can be collected in the present case because of the repealing clause of the act of 1907. It is true that this case gives some color to this contention, but what was there said must be understood to have reference to the particular facts under which the right to collect a penalty was asserted. The commonwealth claimed a penalty from the corporation, and this court pointed out that the penalty had been repealed by subsequent legislation and that while the subsequent act expressly reserved the right to collect all taxes accrued under former statutes, no such reservation was made as to the penalty. From this it was argued, and this court so held, that the legislative intention to release from the liability to pay such penalty appeared in the act itself when it reserved the right to collect the taxes but not the penalties. Even that case was put upon the ground of legislative intention. In the case at bar the legislative intent to release from the payment of accrued taxes does not appear, and we think it is clear nothing of the kind was intended.

There are additional reasons why the case at bar should not be considered within the rule contended for by appellant. The accounting officers of the commonwealth in making settlements of taxes against corporations derive their authority from the act of 1811 which has been in force for almost a century. It was in force during the period for which taxes are claimed, and is still in force. The right of appeal is given under this act, and the jurisdiction of the court to hear and determine tho questions raised is conferred by the same act. This act was in no way affected by the acts of 1891 and 1907, so that the remedy for the settlement and collection of the tax in question as well as all other taxes was not changed, or modified or repealed. The remedy has remained undisturbed by any subsequent legislation. When the case came into the court below on appeal from the settlement made by the accounting officers, the whole proceeding was de novo. The court then had the power to hear and determine the questions raised and fix the valuation of the shares of stock according to the method of ascertaining that value provided by law. The case therefore being before the court on appeal under an act still in force, we think the power of the court to hear the case and to determine the valuation of the shares of stock according to the method fixed by the law in force during the period for which taxes are claimed is not open to serious qúestion in view of what has been hereinbefore stated in reference to the repealing clause.

The question has been raised whether this annual tax can be apportioned so as to be collected for a fractional part of the year. The established practice is to treat taxes of this character as apportionable when the equities or necessities of the case so require. We can see no legal objection to this method of procedure, especially in view of the fact that the tax is imposed “at the rate of five mills upon each dollar of the actual value of its capital stock.” There is much force in the argument of learned counsel for the commonwealth that when in a contract it is provided that interest shall be paid “at the rate of six per cent per annum,” it means'that interest shall only be paid at that rate for the fractional part of the year when the contract was in force. It frequently happens that corporations are formed in the middle or near the close of a fiscal year, and it is apparent that in such cases the commonwealth should not lose the tax for that part of the year during which the capital stock was outstanding, and it would be unfair to impose the tax for the whole year upon a corporation which was in existence only for a few months. This is why the practice has grown up of apportioning the tax to the time the capital stock was outstanding. This practice is founded on equitable principles and just considerations, and we can see no legal reason why it should be disturbed. It is within the power of the accounting officers of the commonwealth in the first instance, or of the court on appeal in a proper case, to apportion the tax according to the time the stock is outstanding, or to determine the amount of tax due for that portion of the year for which'taxes are claimed.

After due consideration we have concluded that the court has the power to ascertain the value of the shares upon the basis indicated in our first opinion and that the order then made should not be disturbed. Record remitted so that the value of the shares may be ascertained according to the views hereinbefore expressed.