Commonwealth v. Lehigh Valley R. Co.

commonwealth’s appeal.

Opinion,

Me. Justice Clark :

This case, in the court below, was an appeal by the Lehigh Valley Railroad Company from an account settled by the auditor general, etc., on January 21,1887, for tax oh bonds, scrip, and certificates of indebtedness of the company, “ for the year ending first Monday of November, 1886,” under the fourth section of the act.of June 30,1885, P. L. 193.

The Lehigh Valley Railroad Company is a corporation of Pennsylvania, chartered by the acts of assembly of April 21, 1846, P. L. (1848) 575, and January 7, 1853, P. L. 1. In pursuance of authority conferred by its charter, this company borrowed money, securing the same by bonds and mortgage, to the amount of $25,458,000. On the first Monday of November, 1886, their bonds were held as follows:

1. By individuals resident in Penna. . . $13,141,000

2. “ “ not resident in Penna. . 1,322,000

. Amount carried forward,

. $14,463,000

Amount brought forward, . ' . $14,463,000

3. By persons residence unknown ($6,000,000 of which were issued in London) 7,482,000

By persons whose residence is unknown, as follows:

4. By individual trustees, residents of Pennsylvania ....... 209.000

6. By individual trustees, non-residents of Pennsylvania ....... 10,000

6. By individual trustees, residence unknown 78,000

7. By corporations of Pennsylvania, acting as trustees . . . . . . 633.000

8. By corporations of Pennsylvania as owners 2,583,000

Total......$25,458,000

The treasurer made a return of the indebtedness of the company, as required by the fourth section of the act of 1885, but failed either to assess or collect the tax of three mills, as therein provided, paying the interest in full as it matured to the company’s creditors. Thereupon the auditor general and state treasurer settled an account against the company for tax upon all of the bonds above enumerated, excepting upon the amount at number 2, held by non-residents of the state, which, under the ruling, In re Foreign-held Bonds, 15 Wall. 300, were conceded not to be liabletaxation.

The case was brought into the Court of Common Pleas of Dauphin county on an appeal, pursuant to the provisions of the act of March 30,1811, 5 Sm. L. 230, and was tried by the court without a jury, under the act of April 22(1874, P. L. 109.

Prior to the passage of the act of 1885, corporate bonds and securities of whatever character were taxable upon th-Qir actual value; and, as neither the act of June 7, 1879, nor'that of June 10,1881, provided any means of assessment or valuation, it was held in the case of the Commonwealth v. Lehigh Valley R. Co., 104 Pa. 89, that it was the duty of the local assessor^,. in making the general assessment of subjects liable to taxation for state purposes, to value and assess corporate bonds, wherever found, in the hands of resident owners, and that it was not to be presumed that the assessors failed in the discharge of their duty. The learned judge of the court below found as matter of fact, in substance, that for the year 1885 all mortgages, money owing by solvent debtors, etc., had been valued for taxation under the ordinary general processes by the local assessors for the calendar year of 1885, and that the state tax was in fact paid thereon at the rate of four mills on the dollar. Some tes-’ timony was offered to rebut this presumption, but the finding of the court is as binding upon us as the verdict of a jury: Jamison v. Collins, 83 Pa. 359; Bradlee v. Whitney, 108 Pa. 362.

The learned judge was right in assuming that the state tax on these bonds must be presumed to have-been paid for the calendar year 1885; but we are not clear that he was right in charging the defendants with ten months’ taxes only, being for a part of the year 1886, that is to say, from January 1,1886, to the first Monday in November of the same year, upon the presumption that under the act of 1885 the taxing year ended upon the latter date.

A careful examination and analysis of the provisions of tbe fourth section of the act of 1885, is necessary to a clear understanding of the purpose of the legislature. It will be observed that the tax, which the treasurer of the corporation is by this section authorized and directed to assess and collect, is' “ the tax imposed and provided for state purposes; ” that is to say, the tax which is imposed and provided by the first section of the same act, upon the general class of subjects, consisting of mortgages, money owing by solvent debtors, etc., at the rate of three mills on the dollar of the value thereof, annually. The effect of the fourth section, as we said in Commonwealth v. Delaware Div. Canal Co., 123 Pa. 594, was to subdivide this general class into two particular classes, one embracing the debts of private corporations, to be taxed at the rate specified on their nominal value, the other embracing the residue of the general class, except the bonds of municipal corporations, to be taxed at the same rate upon their value to be ascertained under the ordinary processes of assessment by the local assessor. It is plain, then, that the tax in question, although rated upon the nominal value, is the state tax imposed and provided on mortgages, money owing by solvent debtors, etc., generally by the first section of the act of 1885. The tax thus imposed annually by the first section is undoubtedly for the calendar year, and whatever may have been the practice pursued heretofore in the office of the auditor general, it is plain that there is nothing in the fourth section to indicate that the tax upon corporate loans was in this respect an exception to the general rule provided, or was to be regulated within the limits of any other year than the calendar year. This section provides that it shall be the duty of the treasurer to assess the tax in each case respectively, upon the payment, or at the time of payment, of the interest; to deduct it from the interest, and to return the. aggregate amounts thus assessed and deducted into the state treasury, within fifteen days after the close of the calendar year. There is no provision either for the assessment or collection of the tax on the first Monday of November. On that day, however, it is the duty of the treasurer, annually, to return the amount of the indebtedness of the corporation, owned by residents of the commonwealth, as nearly as the same can be ascertained, as a basis, perhaps, for settlement of the tax in default of an assessment and collection by the treasurer. The first Monday of November was fixed, because on that day in each year, by the act of 1879, the same corporations are held for their return to the auditor general of the amount of their stocks and dividends; and, as some day in the year must, of necessity, be designated for the return of their indebtedness, the first Monday of November was, for the reason stated, doubtless deemed convenient for the purpose, as all the requirements of the several statutes might thus be complied with in the same report.

The tax being assessed and collected at the interest paying periods, a change of ownership between the date of the assessment and the collection could not occur. The obligation to pay the tax arises out of the assessment; and, that act being contemporaneous with the payment of the interest, the obligation to pay attaches to the then holder of the bond, and no intermediate change of ownership, either by the transfer of a resident to a non-resident holder, or, conversely, by a nonresident to a resident holder, could embarrass the rights of the company or of the commonwealth. It is not for the company to complain, therefore, that in this settlement they may be charged with taxes upon bonds, which, by an intermediate transfer before this settlement was made, became the property of non-resident holders who are not liable to the tax; for a compliance with the law on the part of the company would have enabled them to fix the obligation for payment of the tax upon the resident holder of the bond at the very time of the payment of the interest, and the rights of non-resident holders could not have intervened. These consequences, if any such exist, result from a wilful disregard of a plain duty imposed by law, and the company is in no condition now to complain.

Where an act is required to be done annually, and no day is designated, either in express words or by implication, for the beginning of the year, it will ordinarily be presumed that the calendar year is intended. By the act of June 7, 1879, P. L. 112, fixing the rate of taxation of the shares of capital stock of certain corporations, it is expressly provided that the tax shall be computed upon the dividends made and declared “ during any year ending with the first Monday of November,” and to the same effect were the previous acts of March 20, 1877, P. L. 6; April 24, 1874, P. L. 68; May 1, 1868, P. L. 108; April 21, 1858, P. L. 419, relating to the same subject. For thirty years or more, therefore, the taxes upon capital stocks have been rated and imposed according to the amount of dividends made within a fiscal year, ending on the first Monday of November, but no such thing is found in the act of 1885, nor is there anything in the act from which any implication could arise that any other than the calendar year was intended. We are clearly of opinion, therefore, that “ the tax imposed and provided for state purposes ” is the tax imposed and provided in the first section of the act; that it is a tax for the calendar year, and the fourth section was intended merely to provide a different method of assessment and collection.

The company was bound to see to it that the treasurer performed his duty in assessing the tax and retaining the amount out of the interest; if he made default in this, his default must be visited upon the company which he represents and for which he acts: Commonwealth v. Delaware Div. Canal Co., 123 Pa. 594. The settlement is made against the company, not for taxes of the company, but for taxes which the company, through its treasurer, ought to have collected. If thé treasurer has failed or refused to perform what the law plainly required him to do, and has thereby relinquished his right to charge the creditors upon whom the primary obligation would otherwise have rested, the company whose interests he represented and whose instructions he is presumed to have pursued, is rightly held for the consequences of such wilful default: Commonwealth v. Lehigh Valley R. Co., supra; Commonwealth v. Delaware Div. Canal Co., supra.

The settlement made in this case by the auditor general, etc., is in the following form:

“ In account with the Commonwealth of Pennsylvania, Dr.

“ LEHIGH VALLEY RAILROAD COMPANY.

“ For tax on scrip, bonds, and certificates of indebtedness, per § 4 of the act of June 30, 1885, for the year ending first Monday of November, 1886, as per report herewith filed: Nominal value of scrip, bonds, and certificates

owned by residents of Pennsylvania, . - $24,136,000 00

Tax, three-mills,..... 72,408 00

Deduct treasurer’s commission, . . . 412 00

Due commonwealth, .... 71,995 96 ”

In charging the tax for the year ending the first Monday of November, 1886, it is probable that the auditor general followed the practice which had been pursued in his office under the act -of 1879, and the other acts already referred to, assuming that the tax on corporate securities was to be rated for the same :fiscal year as taxes on capital stocks. In this he was certainly mistaken, but the tax was not settled until it was due for the ■calendar year; it was settled at the proper time, and for the period and amount which the company was under legal obligation to pay; it was settled under authority of, and by express ■.reference to the act of June 30, 1885, and upon the basis of the .report made on the first Monday of November, 1885. The statement that it. was for the year ending the first Monday of November was but a clerical blunder, which was open to corirection and amendment. The commonwealth’s claim was in 'terms “for tax.....per § 4 of the act of June 30,1885;” ■¡the words “ending first Monday of November,” were mere ¡surplusage, and should have been stricken from the record.

It appears further by the findings of the court below, that at ¡the date of the return, bonds of the Lehigh Valley Railroad Company, amounting to.$633,000 were held by certain corporations ¡of .the state as trustees for various persons, whose residence is unknown, and the learned judge was of opinion, and he found as matter of law, that such securities under our ruling in Fox’s App., 112 Pa. 337, were not taxable under the act of 1885 for state purposes, and that, therefore, the defendant company was not properly chargeable with the taxes thereon, in the settlement made for the year 1886. In Fox’s Appeal, supra, it was held, following the construction given to the act of March 25,1831, P. L. 206, in School Directors v. Carlisle Bank, 8 W. 289, that the phrase, “Any person or persons whatsoever,” in the first section of the act of 1885, was not in conflict with the constitution upon this ground, as the tax upon the capital stock, under the act of 1879, was in effect a tax upon the property and assets of the corporation of which its mortgages, etc., constituted a part. Fox’s Appeal was followed by Hunter’s Appeal, Adair’s Appeal, and Barry’s Appeal, 18 W. N. 411, which are to the same effect. The ruling of all these cases was afterwards approved in Loughlin’s App., 19 W. N. 517. In the case last cited it was further contended by the commonwealth that if mortgages, etc., of corporations were not taxable under the act of 1879, and the supplementary acts of 1881 and 1885, they were still taxable under the acts of April 29, 1844, P. L. 497, and April 22, 1846, P. L. 486; but this court was unwilling to accept this view of the law, and in a Per Curiam opinion we said: “In consideration of the very comprehensive character of the legislation contained in these acts (acts of 1879,1881, and 1885) in reference to the taxation as well of mortgages as of other forms of personal property, it is a matter of the gravest doubt whether the acts of 1844 and 1846, so far as they relate to the taxation of mortgages in the hands of corporations, are now in force. We do not think it is the proper function of the judiciary department of the government to impose taxation, which is a species of confiscation,' by a strained construction of doubtful legislation. The proper remedy for that kind of difficulty is legislation which is not doubtful. The .repealingmlauses of the acts of 1879 and 1885 embrace all prior laws which are ‘ inconsistent ’ with, or are ‘substantially re-enacted’ by, those acts. It is impossible for us to say that the acts of 1844 and 1846 are not ‘inconsistent’ with, or ‘substantially re-enacted’ by the acts of 1879 and 1885. So far as the taxation of mortages is concerned, the latter legislation appears to provide a system full, complete, substitutionary in character, aiid seemingly intended to take the place of the former. In the very best view of the subject for the commonwealth, it is exceedingly doubtful whether the earlier acts can be considered as now in force for the purpose of taxing mortgages in the hands of corporations, and the mere fact of such doubt interdicts the proposed taxation.” An injunction was accordingly entered to restrain the assessment of such securities and the collection of taxes thereon, under the acts of 1844 and 1846. We must start then with the assumption that these portions of the acts of 1844 and 1846 have been supplied by the later acts and are no longer in force.

The question, therefore, turns upon the true and proper construction of the act of 1885. The first section provides that all mortgages, etc., owned or possessed by any person or persons whatsoever, except, etc., “ and all other moneyed capital in the hands of individual citizens of the state,” shall be taxable for state purposes. Conceding, for it must now be considered as settled, that the phrase, “ by any person or persons whatsoever,” does not embrace corporations, it must certainly be admitted that the plain purpose and intent of the legislature was to include all sorts of securities and moneyed capital, owned or possessed by'individuals; and, as the act of 1846, which authorized the assessment of such securities, when held in trust in the name of the trustee of the legal owner, is no longer in force, we can see no reason why the assessment should not be made in the name of the beneficial owner. Whilst the cestui que trust of the bonds in question may not “ possess ” them, he may in some sense be said to own them, and it is all mortgages owned or possessed by any person or persons which are taxable for state purposes. We are not unmindful of the fact that in the interpretation of the acts of 1831, 1840, and 1844, this court, in several cases, expressed the opinion that “ from their context in those acts, the words ‘owned or possessed’ applied only to choses in action, and other property, the legal title to which is vested in the same persons who received and enjoyed the proceeds and usance thereof:” Spangler v. York Co., 13 Pa. 322. And it was doubtless owing to the general impression that this was so, that specific provision was made for the taxation of trust securities in the name of the trustee by the act of 1846. But the words are readily and reasonably susceptible of a different and a wider signification, and the context in the act of 1885 justifies a more enlarged and comprehensive interpretation. “ Moneyed capital ” is not money merely; it is money employed as such in trade, and moneyed capital in- the hands of the individual citizen is money thus employed*..by him or for his benefit. Bonds held by a corporation in trust for others constitute no part of the moneyed capital or stock of the corporation, and as it is taxable as moneyed capital, it seems reasonable, where no other provision is made, that it should be taxed to the person whose capital it is, and for whose, .benefit it is employed. We are well satisfied that the act of 1885 was intended to be more comprehensive than the act of 1844; the addition of “ all other moneyed capital,” etc., clearly indicates this, and that other forms of individual securities, not included within the words taken from the act of 1844, were intended to be embraced. It certainly was not in the mind- of the legislature to permit this class of securities to escape taxation. Such a construction of this section of the act would bring it in direct conflict with the provision of the constitution of the state, which' provides that all taxes shall be uniform on-the same class of subjects, and it is our duty to give this section of the act such a reasonable construction as will not entirely defeat its purpose and effect. We are of opinion that the bonds of the Lehigh Valley Railroad Company, held in trust by corporations, were properly taxable, not in -the name of the corporations holding them, perhaps, but in the name of the beneficial owners thereof. If this were not so, the holders of corporate bonds would have it in their power, at their pleasure, by a mere transfer and deposit in trust for their own use, or the use of another, to place their bonds outside of the operation of this act, and by a mere device or shabby trick to evade the payment of a state tax thereon. There is neither reason nor authority to support such a proposition ; it is absurd to suppose the legislature could have so intended.

The $633,000 of bonds in question are returned as held in trust,, for persons whose residence is unknown, but the bonds were, issued by a corporation of this state, doing business therein. They were separated from the person of the owners, and were found actually within the state in the hands of a resident trustee, who presented the interest coupons for payment. In a case where the corporation wholly disregarded its duty and refused to assess the tax, or to make any effort whatever to collect it, and especially in the absence of any proof to the contrary, these bonds must be presumed to be owned by residents of Pennsylvania.

We are of opinion, for the reasons stated, the defendants are rightly held for the taxes upon the $633,000 of their loans, held by corporations of Pennsylvania acting as trustees.

For the reasons indicated, the judgment entered in the court below is reversed, and judgment is now entered in favor of the commonwealth for the sum of sixty thousand nine hundred and sixty-five dollars with- interest thereon, according to law, and costs.

Tax at the rate of three mills ,949.00

Ten per cent penalty .... 4,194.90

Attorney-general’s commission, 5 per cent 2,097.40

Interest at 12 per cent..... 12,724.52

,965.00

LEHIGH Y. B. CO.’S APPEAL.

Opinion,

Mb. Justice Clabk:

This case was brought into the Common Pleas of Dauphin’ county upon an appeal by the Lehigh Yalley Railroad Company from the account settled by the auditor general and state treasurer, for tax on the bonded debt of the company, under the fourth section of the act of June 30, 1885, P. L. 193, for the year 1886. Neither party being satisfied with the judgment of the court, it is brought here, not only upon an appeal by the commonwealth, but also upon an appeal by the company.

The company’s contention is:

1. That the fourth section of the act of 1885 is repugnant to § 1 of article IX. of the constitution of this state, which provides that all taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax, and that they shall be levied and collected under general laws.

2. That the provisions of the act of 1885 are in conflict with the constitution of the United States as follows: First with § 10 of article I., which forbids the passage of any law impairing the obligations of a contract; second, with article V. of the amendments, which provides that no person shall be deprived of„ his property without due process of law; and, third, with § 1 of article XIV., which provides that no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States,'deprive any person of life, liberty or property, without due process of law, or deny to any person within its jurisdiction the equal protection of the laws.,

3. • That in any event the company is not liable for the tax upon its bonds, excepting for that proportion of a year’s tax which accrued between December 31, 1885, and the date at which the last payment of interest was due and payable upon the bonds within the year ending first Monday of November, 1886,

As the matters involved in the first and second questions presented were fully discussed and decided in the very recent case of the Commonwealth v. Delaware Div. Canal Co., 123 Pa. 594, it is not necessary now to enter upon any futher discussion of them. We are well satisfied' that the case referred to was rightly decided; and, as this case in this respect is identical in principle, it would be useless to repeat the reasons there assigned for the judgment entered. The opinion filed in the Commonwealth v. Delaware Div. Canal Co., supra, is confined mainly to a discussion of the question of the alleged conflict of the fourth section of the act of 1885, with the constitution of this state; but the same considerations which prevailed in the discussion of that question were then, and are now, supposed to be sufficient in the main to establish its consistency with the provisions of the federal constitution. In the opinion filed in that case, it was our purpose to show that the tax was in the nature of a specific tax, not a tax upon actual value; that the legislature having fixed the nominal value of the bonds as the basis ®f taxation, no further assessment, properly so called, was required; that it was a proper exercise of legislative power to require the company’s treasurer to “ assess ” the tax, that is to say, to determine the amount of the company’s loans liable to taxation at their nominal value, and to apply thereto the rate fixed by law, the taxation being the result of the rate thus applied.

Taxes have been levied and collected in Pennsylvania in this form for more than a half a century. The fourth section of the act of 1885 is but a transcript of the forty-second section of the act of 1844, which provides the only method since its passage for the assessment and collection of taxes upon municipal loans. The act of 1844 is still in force, and its validity, until the very recent case of Commonwealth v. Chester City, 123 Pa. 626, has never been disputed. On the trial of cases involving the construction and validity of other statutes differing from that of 1844, this provision of the last mentioned act has been uniformly and consistently recognized as a valid exercise of legislative power: Maltby v. Reading etc. R. Co., 52 Pa. 140. Specific taxes for a long series of years have been imposed within this state, not only upon particular classes of property, but upon classes of persons, and we have never known the power, when properly exercised, to have been called in question.

Taxes are generally classified as specific, ad valorem, and for public benefit. The last two classes are necessarily based upon an assessment of actual values; whereas, in the first class the valuation is either fixed by statute, or the tax is intended to subserve some supposed public interest or policy. “ Of the different taxes which the state may impose,” says Mr. Justice Field, in Hagar v. Reclamation District, 111 U. S. 709, “there is a vast number, of which, from their nature, no notice can be given to the tax payer, nor would notice be of any possible advantage to him, such as poll taxes, license taxes (not dependent upon the extent of his business), and generally, specific taxes on things, or persons, or occupations. In such cases the legislature, in authorizing the tax, fixes its amount, and that is the end of the matter. If the tax be not paid, the property of the delinquent may be sold, and be be thus deprived of his property. Yet there can be no question that the proceeding is due process of law, as there is no inquiry into the weight of evidence, or other element of a judicial nature, and nothing could be changed by hearing the taxpayer. No right of his is, therefore, invaded.”

“ Though differing from the ordinary forms pursued in courts of justice, the general system of procedure for the levy and collection of taxes, if not arbitrary, oppressive, and unjust, has always been regarded as due process of law: ” Kelly v. Pittsburgh, 104 U. S. 78; Davidson v. New Orleans, 96 U. S. 97. It is difficult to see how the imposition of a tax upon money at interest can üe supposed to impair the obligations of the contract which secures payment. The tax is upon the debt; the debtor is simply the collector of the tax, and his remedy for collection is to defalk it from the interest; this, and no more, is the legal effect of the statute. The whole question turns upon the validity of the tax, for if the tax is valid the creditor' certainly cannot complain of the remedy provided for its collection. The contract is in no sense impaired ; the debtor is held for the payment of the whole debt, but upon the exact footing of his contract; he is simply permitted to defalk such part thereof as he has, under legal obligation, paid, laid out, and expended in behalf of the creditor.

The questions of classification and of uniformity are fully considered in the case of the Delaware Div. Canal Company, and we deem it unnecessary to enter into any discussion of those subjects. We are well satisfied with the views there expressed, and are unwilling to recede from the conclusions to which they lead. We cannot see that the company has any cause of complaint, grounded either in the provisions of the ‘constitution of this state or of the United States.

The third branch of this case, covered by the first assignment of error, is wholly without merit. The reasons which we think justify this conclusion will be found fully stated in the opinion filed in the Commonwealth’s Appeal, in the case of Commonwealth v. the Lehigh Valley Railroad Co., a writ of error from the same judgment and argued with this case [ante, 445.] Upon the specifications of error filed in this case, the

Judgment is affirmed.