State v. Pullman-Standard Car Mfg. Co. , 235 Ala. 493 ( 1938 )

We have given careful consideration to the cases cited by the State on its contention that the court should set aside the corporate set up and assess the franchise tax against the foreign corporation on the basis of capital employed by a State corporation on whose capital stock a franchise tax is paid according to the Constitution and laws of Alabama, because they are affiliated. None of them relate to this situation. They are income tax cases, and the question goes to the beneficial ownership of the income as a basis for such tax. And as typical, it is said in Commissioner of Internal Revenue v. Eldridge, 9 Cir., 79 F.2d 629, 102 A.L.R. 500, that the separate entity of corporations is sometimes disregarded in tax cases (citing income tax cases), "but only when warranted by exceptional circumstances. Generally, in tax cases, as in other cases, a corporation and its stockholders are to be treated as separate entities." But it is there also said: "A taxpayer may resort to any legal method available to him to diminish the amount of his tax liability." And in Gregory v. Helvering,293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596, 97 A.L.R. 1355, "The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted."

That is exactly this situation. This tax payer has simply and only set itself up in conformity to the law and proposes to pay the taxes which the law says are payable when so set up. The State cannot complain when the tax payer resorts to a legal method available to him to compute his tax liability. The State is now saying to him that although you did what we said you could do with a certain result, that result is more beneficial to you than we intended. This Court cannot change the law as thus made by our Constitution and statutes.

Every corporation was created as a legal method of avoiding a personal liability of its stockholders, or to have the benefit of some other law enacted for the purpose of stimulating such a business enterprise. It seems that it is more to the discredit of the State to seek to withdraw such benefits after they have been accepted and acted upon, than to those who thus act in reliance upon their effective operation.

Again the tax payer urges on its cross-assignment of errors that the State Tax Commission was in error when it computed the amount of accounts receivable on December 31st, as a part of the capital employed by the corporation. We dealt with the question urged on the submission that they are intangibles and have no situs in Alabama for taxation. The contention is now again made that they cannot be considered as fairly representative of any amount of capital employed, because (1) it cannot be said with certainty when the business was created, so as to fix it for that tax year; and (2) that they include items of cost, which did not accrue in Alabama, such as overhead, sales expense and management.

It was not in any sense our purpose to establish as a precedent that the amount of accounts receivable at any certain time should be taken as a matter of law to represent that amount of capital employed. But the tax commission in making the assessment will be presumed to have gone into the whole question of employed capital during the year. Accounts receivable entered into the consideration of the subject, as it related to the scope of business conducted, as illustrative of the need of operating capital: not that such accounts separately considered furnish a legal standard. But furnish a circumstance along with the other items mentioned as evidence of the amount of capital which was probably used in operating the business in Alabama.

The courts are here reviewing the assessment made by the commission. It is not an assessment of certain items either as property values or as a legal method of measuring the amount of capital employed, but the items are set out as a basis of computation, upon a finding by the commission that operating capital was necessary, and when all those items are taken together and considered in connection with pay rolls and other expenses, they fairly represent such amount. We hold as a matter of law that the amount invested by another company in its plant leased to the tax payer cannot be taken as representing capital employed by the tax payer. But we cannot say as to the other items included in the computation that they cannot be so considered.

The Act which authorizes this review is that approved April 21, 1936, Gen. Acts 1936, Ex.Sess., p. 172. By it on such appeal, the assessment is prima facie correct, and the burden is on the tax payer to show that the total sum of employed capital on the basis of which the tax is computed is erroneous, and wherein it is so. In other words, it must show that the tax payer did not employ that amount of capital in Alabama, and the amount which was so employed. They have not met that burden, except in respect to the value of the plant. They have offered no evidence which tends to show that they did not employ in Alabama the amount of capital on which the tax is to be computed, except as to the large sum supposed to be represented by the plant.

It must be kept steadily in mind that this tax is not upon the several items which entered into the computation. It is upon the privilege of exercising its corporate functions in Alabama, measured by the amount of its capital employed in Alabama. It did a business in Alabama for that year of over $600,000.00, in the manufacture and sale of its products, at the selling price at the plant in Alabama.

The tax payer has offered no evidence which reflects upon the finding of the commission fixing the amount of capital employed in Alabama to produce that business, except as to one item of the computation.

The tax payer also insists on this application that no sum should have been added on the basis of the amount paid as rent, and cites the fact that a cash item of $38,000.00 was included, and insists that it was sufficient for that purpose.

But there are other items of expense which need operating capital in addition to those included in the computation. We must presume that the commission gave consideration to the whole picture. We know that nothing was included for the lease because the whole value was included. So that the other items represented their estimate without the allowance of anything for the lease. There is no evidence to discredit the basis of computation in other respects. We see no reason to disturb our former opinion.

We observed in it, however, upon the authority of an old case that a judgment for costs cannot be rendered against the State. Our attention has been called to section 7221, Code, which authorizes such a judgment in civil suits in which the State is plaintiff. Whether that statute contravenes section 14, Constitution, is not necessary for us to decide. This is not such a case. This is an appeal by a tax payer from an assessment for taxes as made by the State Tax Commission under the Act of 1936, page 172. The case cited is authority at least that no such judgment is available without an act of the legislature. There is none here applicable. So that the result was correct, as we declared.

The application is overruled.

ANDERSON, C. J., GARDNER and BOULDIN, JJ., concur.