Commonwealth v. Standard Oil Co. , 1882 Pa. LEXIS 227 ( 1882 )

Mr. Justice Paxson

delivered the opinion of the court, November 20th 1882.

Each party to this controversy is dissatisfied with the judgment of the court below, and has taken its writ of error. We will first consider the case as presented upon the Commonwealth’s writ.

The principal contention is as to the extent the Standard Oil Company is liable to taxation under the several Acts of Assembly taxing foreign corporations “ doing business within this Commonwealth.” The court below found the fact that the company was doing business here ; indeed, it is not seriously denied that it has rendered itself liable to taxation. It was contended on the part of the Commonwealth that according to the letter of the statutes the tax should be imposed upon all of the capital stock of the company, while on the other side it was urged that only so much of the stock was intended to be taxed as is represented by property of the company invested and used in the state of Pennsylvania.

It has been repeatedly decided, and is settled law, that a tax upon the capital stock of a company is a tax upon its property and assets: Saving Fund v. Yard, 9 Barr 359; Lehigh Coal & Navigation Company v. Northampton County, 8 W. & S. 334; West Chester Gas Co. v. County of Chester, 6 Casey 232; Lackawanna Iron & Coal Co. v. County of Luzerne, 6 Wright 424; New York & Erie R. R. Co. v. Sabin, 2 Casey 242; Erie R. R. Co. v. Com., 16 P. F. S. 84; County of Lackawanna v. The Bank, 13 Norris 221; Coatesville Gas Co. v. Chester County, 1 Outerbridge 476; Phœnix Iron Co. v. The Com., 9 P. F. S. 104; Mutual Ins. Co. v. Supervisors of Erie, 4 N. Y, 442; International Life Ins. Society v. Commissioners, 28 Barb. 318; New Haven v. Bank of New Haven, 31 Conn. 106; Nichols v. New Haven Co., 42 Id. 103; Mechanics’ Bank v. Bridges, 30 N. J. 112; State v. Haight, 34 Id. 319; State Bank v. Brackenridge, 7 Blackf. 395; Auditor v. New Albany R. R. Co., 11 Ind. 570; Whitney v. Madison, 23 Id. 331; State v. Hamilton, 5 Id. 310; Michigan R. R. Co. v. Porter, 17 Id. 380; Quincy R. R. Bridge Co. v. Adams, 88 Ill. 615; Hannibal & St. Joseph R. R. Co. v. Shacklett, 30 Mo. 558; Rome Railroad v. Rome, 14 Ga. 275; National Bank v. Com., 9 Wallace 353; Illinois R. R. Tax Cases, 2 Otto 598; Bibb Co. v. Central R. R. Co., 40 Ga. 646; Gordon v. Mayor, 5 Gill 231. Equally well" settled is the principle that the power of taxation, however vast in its character and searching in its extent, is necessarily limited to subjects within the jurisdiction of the state; these subjects are persons, property, and business. See State Tax on Foreign-held Bonds, 15 Wallace 319; Maltby v. Reading & Columbia R. R. Co., 2 P. F. S. 146; McCulloch v. State of Maryland, 4 Wheaton 316.

It is undoubtedly competent for the legislature to lay a franchise or license tax upon foreign corporations for the privilege of doing business within this state. The Act of 1868 (P. L. 83), to revise, amend and consolidate the several laws regulating the licensing of foreign insurance companies is such an act. It required a license, and imposed a tax; heavy fines were indicted upon any such company doing business without a license, and it was made a misdemeanor for any person to act as agent or transact business for an unlicensed company. A license tax is evidently intended as a compensation to the state for the protection which it affords foreign corporations who have an office within its borders for the convenience of its officers, but upon whose property it could, impose no tax because not within its jurisdiction. The tax in this case is in no sense a license tax. The state never granted a license to the Standard Oil Company to do business here. It merely taxes its property, that is, its capital stock, to the extent that it brings such property within its borders in the transaction of its business. It was contended on behalf of the Commonwealth, and pressed with much learning and ability, that when a foreign corporation enters the state to do business, it brings its entire capital stock, with it. This position is ingenious, but unsound. It is a fundamental principle that the person must have a domicile in the state in order to be taxed, and the thing must have a situs therein : Hays v. Pacific Mail Co., 17 Howard 596; Morgan v. Parham, 16 Wallace 471; St. Louis v. The Ferry Co., 11 Wallace 423. Persons and property in transitu cannot be taxed: Hoyt v. Commissioners of Taxes, 23 N. Y. 224. The domicil of a corporation is the state of its origin: Potter on Corporations, sec. 10; and it cannot migrate to another sovereignty: Bank of Augusta v. Earle, 13 Peters 586; Paul v. Virginia, 8 Wallace 168; St. Louis v. The Ferry Co., 11 Wallace 423. The domicile of the Standard Oil Company is in the state of Ohio. Being a corporation, it is an invisible, artificial, and intangible thing. When it sent its agents to this state to transact business, it no more entered the state in point of fact than any other foreign corporation, firm or individual who sends an agent here to open an office or branch house. Nor does it bring its capital here constructively. A corporation .must be considered as a person, an artificial one, it is true; and it would be as reasonable to assume that a business firm in Ohio brought its entire capital here, because it sent an agent here to establish a branch of its business, as to hold that the Standard Oil Company by employing certain persons in this state to transact a portion of its business, thereby brought all its property or capital stock within our jurisdiction. There is neither reason nor authority for such a proposition.

To the extent that it brought its property here it is taxable, and no further. An act of assembly must have a reasonable construction. When it says “ all ” horses, “ all” carriages shall be taxed, it does not mean all horses and all carriages in the state of Ohio. It refers to all such things as are within the jurisdiction of the taxing power. Regarding the words “ capital stock ” in the act of assembly as the equivalent of the property and assets of the corporation, we must construe them to mean so much of the capital stock measured by the property actually brought within the state by the company in the transaction of its business. This construction is in entire accord with the practice heretofore existing in the auditor-general’s office, and the repeated decisions of the courts. It has been distinctly recognized and affirmed in the Com. v. The Trenton Bridge Co., 9 Am. L. Reg. O. S. 298; Com. v. Pittsburg & Connellsville Railroad Co., 2 Pearson 389. In Pittsburg, Ft. Wayne & Chicago Railway Co. v. The Com., 16 P. F. S. 73, it was said : “It cannot be pretended that a state can by.Jaw impose a tax upon that which is entirely beyond its jurisdiction, or on property to which its laws afford no protection. The custom to assess pro rata has received the sanction of the court in several cases when applied to the stock of corporations.” To the same effect are Com. v. C. P. & A. R. R. Co., 5 Casey 370; Buffalo & Erie R. R. Co. v. Com., 3 Brewster 374; Com. v. Erie R. R. Co., 11 W. N. C. 89, and Petroleum Co. v. The Com., 25 Legal Inte. 316. The Com. v. Gloucester Ferry Company, 10 W. N. C. 509, is not in conflict with this view. That case came up upon a case stated, and the amount of the tax was therein fixed, provided the company should be held liable at all. My impression is, the tax was upon half the capital stock, the company being a New Jersey corporation engaged in carrying passengers and freight between Philadelphia and Gloucester, N. J., and having an office and wharf at each place. There was nothing in the case to militate against the apportionment of taxes. In the Erie Railway case, decided at the same term, it was said by our brother Trunkey : “ It is conceded that the Act of 1874 does not impose a tax upon the entire stock of the Erie Railway Company; only upon a fair proportion, with reference to so much of the road as is located in Pennsylvania: 11 W. N. C. 89.

Speaking for myself, I doubt the power of the legislature to tax the entire property and assets, i. e., the entire capital stock of a foreign corporation whose necessities compel it to transact a portion of -its business, however small, within this state. I concede the power of the Commonwealth to exclude foreign corporations altogether from her borders ; or .she may impose a license tax so heavy as practically to amount to the same thing. But great and searching as her taxing power is, I deny that it can t'ax either persons or property not within its jurisdiction. A foreign corporation has no domicile Jiere, and can have none; hence, it cannot be said to draw to itself the constructive possession of its property located elsewhere. There are a large number of foreign insurance companies doing business here under license froni the state. Some of them have a very large capital. It is usually invested at the domicile of the company. If the position of the Commonwealth is correct, she can tax the entire property of the Royal Insurance Company, although the same is located almost wholly in England, or the assets of the New York Mutual,, located in New York. Whether I am correct in this view or not, it is very certain that a sense of its injustice, or pei-haps that courtesy which springs from the comity between the states, has prevented the legislature heretofore from asserting a power of so doubtful a character. We will not impute such a purpose to it now, in the absence of any such clearly expressed intent. It would be the more improper to do so in view of the fact that when the Acts of 1868, 1874, 1877, and 1879, were passed the legislature were perfectly aware of the construction given to similar acts by the auditor-general and by the courts. That they made no change in those acts in this respect is persuasive evidence that they were satisfied with the law as thus construed, and intended to continue it.

We see no error in the conclusion of law which the learned judge arrived at upon his fourth finding of facts. That the purchases of oil in this state by a foreign corporation, for the purpose of shipping to its refineries without the state, is doing-business within this state, is a proposition that does not need serious discussion. It is true the charter of the Standard Oil Company authorizes it to deal in oil, but the finding of fact does not include such dealing. On the contrary, the court finds that the petroleum was shipped to and refined at the company’s refineries beyond the limits of the state. Thousands of corporations and individuals in other states make their purchases of supplies of raw material here, but it has never been seriously asserted that they were doing business within this state. It has not been the policy of the state at any time, as evidenced by its tax laws, to embarrass the development and sale of her rich products, mineral and agricultural, by levying tolls upon strangers who come here to buy ; and it is not the province of the courts to erect a judicial Chinese wall around the state, which could not fail to affect injuriously the best interests of the people.

Nor do we think the company liable to taxation here upon its shares of stock in Pennsylvania corporations, including limited partnerships. These corporations have already contributed their proportion of the state’s burdens. That the capital stock of a corporation is a different thing from shares of stock appears from Lycoming County v. Gamble, 11 Wright 110. The capital stock represents the property and assets of the company, which may consist in whole or in part of real estate. The certificates or shares of stock are the evidence of an interest which the holder has in the corporation, and it is well settled that this interest is personal property: Bouvier’s Law Dict., 4 Davis, Ab. 670; and, as such, follow the person of the owner: McKeen v. County of Northampton, 13 Wright 519. It was held in the case last cited that shares of stock were taxable at the domicile of the owner, although the shares were the stock of a corporation of another state. It follows necessarily that shares of stock in a Pennsylvania corporation, held by a corporation or individual domiciled in another state, cannot be taxed hero. One sufficient reason is, that there is nothing here to tax. The capital stock, that is, the property and assets, are here, and are taxed. But the shares, or certificates of stock, are not here. They are actually, and constructively, at the domicile of the owner, at which place they are subject to taxation by the taxing power of the place. The Standard Oil Company, as before observed, is domiciled in the state of Ohio. It has never been here, for it cannot migrate. It is recognized in this. and other states, and has its agents here who attend to its affairs.

We are of opinion that the commonwealth has no occasion to complain of the rulings of the court below, and upon its writ of error the judgment must be affirmed.

It remains to consider the case, as presented upon the writ of error taken out by the Standard Oil Company.

The onty important error assigned is, that “ the court erred in finding as a conclusion of law that defendant is liable for interest at twelve per centum per annum, and penalty of ten per centum of the amount of tax due."

The third section of the Act of May 1st 1868, P. L. 108, provided that if the officers of corporations taxed under said act should neglect or refuse to furnish the report required by the second section of said Act on or before the 81st day of December, a penalty of ten per centum should be added to and collected with the tax. The commonwealth claimed, and the court below, allowed this penalty. The difficulty in the way of the commonwealth is, that the third section of the Act of 1868, giving the penalty, was repealed before the suit was commenced below or any claim made for either the tax or penalty. The 11th section of the Act of April 24th 1874 (P. L. 68), provided “That all laws or parts of laws inconsistent.herewith, and the 1st, 2d, 3d, 4th, 7th, 8th and 9th sections of an act entitled ‘an act to revise, amend and consolidate the several laws taxing corporations, brokers and bankers,’ approved the first day of May 1868, and the fourth section of an act entitled ‘ an act relating to the revenues of the commonwealth,’ approved the 21st day of March 1873, be, and the same is hereby repealed, saving, reserving and excepting unto the commonwealth the right to collect any taxes accrued or accruing under any of said sections or acts, prior to the repeal of the same. In like manner the 3d section of the Act of April 24th 1874, imposing a similar penalty, was repealed with others by the 8th section of the Act of March 20th 1877 (P. L. 6); and the second section of the Act of 1877, imposing a like penalty, was repealed by the IStli section of June 7th 1879, P. L. 112. Each of the last named repealing Acts contained a similar reservation to the one in the Act of 1874, as to the right of the Commonwealth to collect all taxes accrued or accruing prior to the repeal.

The law upon this state of facts is well settled. The Commonwealth reserved the right to collect this tax only. The right to the penalties was gone. No judgment can be rendered in any suit for a penalty after the repeal of the Act by which it was imposed. The repeal of a statute puts an end to all suits founded upon it, even though commenced before the date of the repeal: Rex v. Justices of London, 3 Burr. 456; Schooner Rachel v. United States, 6 Cranch 329; The Irresistible, 7 Wheaton 551; United States v. Preston, 3 Peters 57; Pope v. Lewis, 4 Alabama 489; Lewis v. Foster, 1 New Hampshire 61. The repeal of an act imposing a penalty is itself a remission : Maryland v. Balt. & O. R. R. Co., 3 Howard 534; Norris v. Crocker, 13 Id. 429. In reserving, in the repealing Acts, all taxes accrued and accruing the Commonwealth reserved the right to employ all the ordinary remedies for their collection. But the penalties are in no sense such remedy. They are merely a punishment for the omission to make the reports required by law. The state might have also excepted the penalties from the operation of the repealing Acts, but did not do so. Penal statutes must be construed strictly, and never extended by implication : Andrews v. United States, 2 Story 203. When there is such an ambiguity in a penal statute as to leave reasonable doubt of its meaning, it is the duty of a court not to inflict the penalty: The Schooner Enterprise, 1 Paine C. Ct. 32.

The charge of interest at 12 per cent, is also a penalty, and is governed by the same rules. Easton Bank v. The Com., 10 Barr 451, would seem to be conclusive upon this branch of the case.

The Act of March 20th 1877, contains no provision for the addition of any interest to the taxes imposed. The 13th section of the Act of June 7th 1879 imposed interest at 12 per cent, for non-payment of the tax, but there is a strong implication from the proviso of the Act that the corporation shall be in default after “the auditor-general shall first have sent to such corporation a statement of amount due.”

We are of opinion that the commonwealth can only claim interest from the time of notice and demand by the auditor-general.

The judgment is reversed upon the Standard Oil Company’s writ of error, and a procedendo awarded.

Gordon, Trunkey, and Steerett, JJ., dissented.

June 9th 1883. Henry W. Palmer, Attorney-General, on behalf of the Commonwealth, made a motion for an order for a re-argument and assigned the following reasons, viz.:

First, as to money invested in Limited Partnerships.

In the opinion of the court interests in such limited partnerships in Pennsylvania are treated as shares, of stock in Pennsylvania corporations; such shares were held not taxable in defendants’ hands, because (1) these Pennsylvania- corporations pay taxes; and (2) there is nothing here to tax ; neither of these reasons apply to the case of limited partnerships; (1) they were not taxed prior to 1879; (2) nor are those for manufacturing and mercantile purposes taxed by that act; (3) there is no such thing as a share of stock in limited partnerships; and (4) the right of the state to tax the money invested in general partnership is granted, and she should have the same right as to money invested in limited partnerships; the two kinds of partnerships are identical, with the exception of a.limited liability.

Second, as to money invested in oil purchased here and transported beyond our borders for refinement.

The defendant is treated as though it did no business in the state besides purchasing oil for export: the fact that it held real estate and was a refiner, transporter and manufacturer in the state was overlooked ; if the oil bought here had been refined here, the capital so invested would have been taxable; and as to the taxes on the investment here, it is immaterial what was done with the oil in which the capital was invested.

The court is of the opinion that the findings of fact do not include a dealing in oil here, but it was found that this company owned interests in refineries engaged in purchasing, refining and selling oil. Surely this was exercising the corporate functions “to deal in oil” in this state.

Third, as to interest and penalties.

In the case of the Pacific and Atlantic Telegraph Co. v. Com., 3 Brews. 517, the supreme court held that taxes accrued under a repealed statute, including interest and penalties, could be collected after the repeal, without a saving clause, in the absence of a clearly expressed legislative intent that such taxes were to be forgiven : this case was not brought to the attention of this court.

Fourth. If the principle that the tax on capital is a tax on tangible property, and that the state cannot by a tax on capital indirectly tax property not within its borders, is correctly applied, then our system of taxation on Pennsylvania corporations owning no tangible property in the state is erroneous. The principles upon which our tax system is founded, and $700,000, are involved in this case.

January 22d 1883. Per Curiam. Motion denied.

Note. On January 24th 1883, the Court of Common Pleas of Dauphin county, on motion of Robert Snodgrass, Esq., deputy attorney-general, ordered the judgment, theretofore entered in this case, to be corrected by striking out the interest accrued prior to the settlement and the penalties, in accordance with the above opinion of the Supreme Court. Upon the same day the amount was liquidated by the prothonotary at the sum of $22,660.10 and costs; and this judgment was eo die paid by the company and satisfied of record by the direction of the attorney-general. This judgment so satisfied was composed of the following items, viz.:

Total amount of taxes; same as in original judgment........$18,289.03

Interest at 12 per cent, from June 29th 1881 (60 days from the settlement by the accounting officers), to January 24th 1883, as per Act June 7th 1879.......................... 3,456.62

Attorney-general’s Commissions 5 per cent, on $18,289.03.

In the judgment originally made these were by mistake calculated on the total of taxes interest and penalties thus found due; see Act 7th Apr. 1870, § 3 P. L. 57......... 914.45

$22,660.10

Costs.............................. 19.70

Total $22,679.80'