Commonwealth v. Western Land & Improvement Co. , 156 Pa. 455 ( 1893 )

Opinion by

Mr. Chief Justice Sterrett,

By agreement of parties, this case was tried by the learned president of the common pleas without a jury. He found, among other things, that defendant company was incorporated in October, 1887, for the purpose of purchasing, holding, leasing, improving, selling and otherwise dealing in real estate, with a capital of $100,000, divided into shares of $50.00 each.

Prior to the tax year, ending first Monday of November, 1891, the company was actively engaged in several branches of said business, but having reinvested the proceeds thereof in street improvements, buildings, etc., no dividends were declared in 1889 and 1890. During those years its capital stock was appraised at $150 per share and taxed three mills on that valuation. During the tax year of 1891, it received from rents and sale of real estate $85,000, being 85 per cent of the par value of its paid up stock, which it distributed among its stockholders in proportion to their respective holdings. This distribution was reported to the auditor general by the company’s treasurer, as required by law. He also reported that the average market value of the stock during that year was $95.00 per share; but, in same report, he averred that owing to the nature of the business the gross earnings and net earnings “ cannot be estimated.” Shortly afterwards he made affidavit which was treated as testimony, in which he undertook to furnish an estimate of said earnings. Passing upon that conflicting testimony the learned judge found as a fact, that the nature of the business in which defendant company was engaged precluded the possibility of estimating either gross or net earnings with any reasonable degree of accuracy, and hence the treasurer’s averment in his report to the auditor general was correct.

On the basis of that report, the settlement, for state tax on capital stock under the acts of June 7, 1879, and June 1, 1889, was made against defendant, charging it with 42|- mills, or, in the language of the act of 1889, “ at the rate of one half mill upon the capital stock for each one per centum of dividend so made or declared.” From that settlement it appealed to the common pleas and specified only three objections thereto. Two of these, relating to matters of fact, are fully disposed of by the learned judge’s findings of fact.

The remaining objection to the settlement involves the questions, whether the sums divided among the shareholders are to be regarded as dividends within the meaning of the act of 1889, and, if so, whether, for the year in which they were declared and paid, the defendant is taxable at the rate of one half mill for each one per cent of dividend, or at the rate of three mills on the appraised value of its-mapital stock.

The court was clearly right in holding that the sums distributed, during the tax year in question, were dividends. It cannot be pretended that they were part of the company’s $100,000 capital. That remained intact, as is conclusively shown by the undisputed fact that the market value of the stock was $95.00 per share, nearly double its par value. The only rational conclusion that can be drawn from the facts is that the sums distributed were earnings of the company divided among its shareholders in proportion to their respective holdings, and therefore dividends within the meaning of the law.

The learned judge was also right in disposing of the next question as he did. He could not have ruled otherwise without ignoring the plain and explicit language of the act of June 1, 1889, P. L. 428. The 20th section requires the secretary or treasurer of every corporation, taxable under the provisions of the act, to report in writing to the auditor general annually the amount of its capital stock, and the amount, date and rate per cent of all dividends made or declared during the year ; and the 21st section declares that every such corporation “ shall be subject to pay .... annually a tax to be computed as follows, namely: If the dividend or dividends made or declared by such corporation .... during any year ended with the first Monday of November, amount to six or more than six per centum upon the par value of its capital stock, then the tax to be at the rate of one half mill upon the capital stock for each one per centum of dividends so made or declared.” It further provides, that if no dividend or one of less than six per centum be made or declared, the capital stock is to be appraised and “ then the tax to be at the rate of three mills upon each dollar of a valuation of the said capital stock.”

It will be observed that when the dividend made or declared equals or exceeds six per centum of the par value of the stock, the act in unequivocal terms fixes the rate as well as the mode of assessing the tax. In such cases, there is no provision for an appraisement of the capital stock or for assessing the tax at any other rate. It is only when no dividend is made or declared, or when that made or declared is less than six per centum, that a valuation of the stock is resorted to as a basis for taxation. When it is six per centum or more the amount becomes1 an essential factor in determining the tax to be paid.

An examination of the record discloses no error in the learned judge’s findings of fact, nor in the legal conclusions drawn therefrom. The subject has been so fully and ably considered by him that elaboration of the questions involved is unnecessary. Neither of the assignments of error is sustained.

Judgment affirmed.