In Re Nelson Brothers Co.

The State of Michigan has appealed from the denial of its claim for franchise fees for the year 1936 against the receiver of Nelson Brothers Company, a Michigan corporation. The State filed a claim for $7,015.02, for corporation privilege taxes under 2 Comp. Laws 1929, § 10140, as amended by Act No. 13, Pub. Acts 1933 (Ex. Sess.) (Comp. Laws Supp. 1940, § 10140, Stat. Ann. § 21.205). The receiver tendered the sum of $4,010.07. This amount excluded the sum of $2,804.95, which was claimed by the State for the 1936 privilege fee. The State appeals from a decision sustaining the position of the receiver.

The corporation charter automatically became void on September 1, 1935, under Act No. 327, § 91, Pub. Acts 1931, as amended by Act No. 96, Pub. Acts 1933 (Comp. Laws Supp. 1940, § 10135-91, Stat. Ann. § 21.91). On September 5, 1935, upon petition of the corporation and payment of one-fourth of the fees then delinquent, the State granted an extension of time for payment of the balance due until May 1, 1937, in accordance with Act No. 67, § 1, Pub. Acts 1935 (Comp. Laws Supp. 1940, § 10135-91d, Stat. Ann. § 21.238), and thereby reinstated the company with full and complete corporate powers. On August 31, 1936, when the privilege fee of 1936 became due, the State extended the time for payment to May 1, 1937, in accordance with Act No. 67, Pub. Acts 1935. The corporation subsequently paid delinquent privilege fees for the years 1933 and 1934, but no other fees were paid.

There is only one question involved in the case. Act No. 67, Pub. Acts 1935, provides that if any corporation shall fail to pay the balance due within such extended time, the charter shall become void as of the date of final extension. Does this mean that the corporation could do business after August 31, 1936, and until May 1, 1937, and be exempt from payment of the 1936 privilege fee and claim, under its interpretation of the act, that its charter was void during such interim, notwithstanding the fact that it continued to do business without the payment of such privilege fee? There is no direct language in the act that excuses the corporation from payment of the privilege fee for the extended period. The salutary purpose of Act No. 67, Pub. Acts 1935, was to give corporations additional time in which to pay the privilege taxes. The statute, being remedial, should be liberally construed in favor of the corporation to avoid forfeiture of its charter. Defendant contends that the act retroactively voids the corporation's charter as of the date when the last extension was granted, but that it nevertheless could do business and be a live corporation without payment of the privilege fee in the interim. The applicable rule is well stated by Justice Cardozo in Michigan v. Michigan Trust Co.,286 U.S. 334, 346 (52 Sup. Ct. 520, 76 L.Ed. 1136), as follows:

"To protect through a receiver the enjoyment of the corporate franchise and then to use the appointment as a barrier to the collection of the tax would be an injustice to the State and a reproach to equity."

While the cited case presented somewhat different facts, it nevertheless fully discusses the Michigan law and particularly refers to In re Detroit Properties Corp., 254 Mich. 523, and notes the distinction therein made between a corporation's right to "be," or exist, and the right to "do," or transact, business. The obligation of a corporation to pay the privilege tax is a liability that becomes due and owing on the date prescribed by law. In re Johnston-Newton Co., 225 Mich. 53. The privilege fee required by Act No. 327, Pub. Acts 1931, is in the nature of an excise tax for the right to do business rather than the right to be, or exist, and it must be paid by the receiver who continues to carry on the business of the corporation. In re Detroit Properties Corp., supra; DetroitTrust Co. v. Detroit City Service Co., 265 Mich. 312. In ReDetroit Properties Corp., supra, 525, 526, 531, we said:

"The privilege fee is an excise tax, not upon the right to be a corporation, but upon the activities of the corporation in the exercise of its corporate franchise, or, as it is sometimes expressed, upon the franchise 'to do,' not upon the franchise 'to be.' Union Steam Pump Sales Co. v.Secretary of State, 216 Mich. 261, 272; In re Detroit WindsorFerry Co., 232 Mich. 574; In re Truscon Steel Co., 246 Mich. 174; Cobbs Mitchell v. Corporation Tax Appeal Board,252 Mich. 478, 481. Actual transaction of business by a domestic corporation is not a condition of the tax. It is imposed on the right to transact. In re G. H. Hammond Co., 246 Mich. 179; 2 Comp. Laws 1929, § 10140. * * *

"So it follows that, in conducting the business under order of court, the receiver is exercising the franchise 'to do' of the corporation. Substantially all of the above authorities sustaining the tax so hold. * * *

"The tax is on the franchise, and, as the franchise is being exercised by the receiver, the tax is valid."

In 1937, Act No. 53 (Comp. Laws Supp. 1940, § 10135-92f etseq., Stat. Ann. 1940 Cum. Supp. § 21.243 et seq.), was passed, extending the time for payment of privilege fees, upon certain conditions, to September 1, 1939. It stated at the end of section 1 of the act that "if any corporation shall fail to pay the balance due within such extended time, the charter shall become void as of the date of the expiration of the period for which said charter may be extended by the Michigan corporation and securities commission." While the later statute uses more explicit language, we do not believe that it in any way constitutes a change from the former act, and we hold that Act No. 67, Pub. Acts 1935, did not grant the corporation the right to do business during such extended period without payment of the privilege tax or avoid and make unlawful the transactions of the corporation during the period of the extension, or provide that the corporation had ceased to function lawfully during the interim in which it was transacting business. The claim should be allowed.

The order of the lower court is reversed and the case remanded with instructions to allow the claim of the State for the full amount of its claim with interest. A public question being involved, no costs will be allowed.

SHARPE, C.J., and BUSHNELL, BOYLES, CHANDLER, NORTH, McALLISTER, and WIEST, JJ., concurred.