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A ay . = — —_ em wt IS totes ie iy ' sale above. UF MEV ERE be O Roe Sab ty i? OF DAUPHIN COUNTY Ae . ai AND THE ie 1 ne La e ME COURT OF PENNSYLVANIA, * me aca : me _ CONSTRUING ren ACTS OF ASSEMBLY > : 4 ee, IMPOSING TAX ON CAPITAL STOCK, RENAL _ARRANGED BY JOHN A GLENN, CORPORATION DEPUTY. y é ¢ Lee Mester 479 ' ’ ee AUDITOR GENERAL’S DEPARTMENT. phlei ae een Laie at é C2 oC. MoGabiILEY, oo. haar Ei 0 mek AUDITOR GENERAL, _ 2. Del. Susq. and Schuylkill R. R., C ' 2. we oe 6 are “ aes ie 2. N. Y., Penn’a and Ohio, R. aR x ‘2 66 66 6 2. ‘Ontario, Scranton and Carb. R. Rech as a vey Spe: ting ones! 2 Manor Gas Coal, : EI 66 6é 6é 2. Fall Brook Ry., 2. Rogge ce AG 2. Beech Creek R. R,, eure NG Giese 66 66 «2, Pine Creek Ry., - D} Sh 6 ce 66 D.S. & §.:R. R.-(C. P.) o’NDINGS OF FACT AND OPINIONS OF THE COURT OF COM- MON PLEAS OF DAUPHIN ‘COUNTY, AND THE OPINIONS OF THE SUPREME COURT OF PENNSYLVANIA. Jommonwealth of Pennsylvania, "WS. ‘he Delaware, Susquehanna and Schuylkill Railroad Company. | sy the Court: This is an appeal by the corporation defendant from the set- lement of an account against it by the Auditor General and State ‘reasurer for tax on capital stock for the year ending the first Monday f November, 1892, and it was tried by the court without a jury under he act of atl 29, 1874. Dauphin County Common Pleas. 302 March Term, 1893. Tax on Capital Stock. FINDINGS OF FACT. 1. Defendant is, and was during the year 1892, a corporation of, nd doing business in the State of Pennsylvania, chartered in April, 890, with an authorized capital of $1,000,000, of which $400,000 was ‘aid in prior to June, 1892, and the balance at that time. Its rail- oad was located in the anthracite coal region of Eastern Pennsy]- ania, and, including branches, is about sixty miles in length. It uns in a devious course, and thus, and by means of branches from the 1ain line, reaches a number of collieries nearly all of which are owned nd controlled by the firm of Cox Brothers and Company, who also wn nearly all the shares of stock in the railroad company; it was uilt for the purpose of connecting these collieries with the various ailroads which traverse that region, and does connect with the ‘ennsylvania, the Reading, the Lehigh Valley, and the Jersey Cen- ral railroads; thus giving the owners of these collieries, and of this ailroad, not merely access to the various markets for coal, east, orth, and west, but also choice of roads over which to reach these 1arkets, and with which to make traffic contracts. Nearly all the reight carried by the defendant is coal, and should this traffic fail, c be withdrawn, its capital stock would be comparatively valueless; ut there is no evidence in the case tending to show that there is any resent prospect that this will occur; and, in view of the fact that 1is railroad and these collieries are ened by the same persons, it es not seem probable, so long as the coal mines are not exhausted; ris there any evidence that this will take place for many years to me, 7S .266 Oy ee te Cae 2 2. The gross earnings of the defendant during the tax year 1892 were $739,914.15, and its net earnings were $523,248.15, and it made one dividend during the year, on October 15, 1892, of forty (40) per cent., amounting to $400,000, out of net earnings realized to June 30, 1892; its net earnings from June 30, 1892, to February 28, 1893, were about $450,000, and the amount of its surplus on the first Mon- day of November, 1892, was $242,142.89, in addition to book account amounting to about $100,000 in excess of its current indebtedness; and there is no evidence in the case tending to show that its net earnings will be less in the future, except in so far as they may be affected by the general financial depression. The total cost of de- fendant’s railroad, which was completed in February, 1893, including equipment, was $1,159,323.70. 7 3. Defendant’s president and treasurer made to the Auditor Gen- eral, under the sanction of the prescribed oath, the report and ap- praisement required by Sec. 4 of the act of 1891 (P. L. 229), apprais- ing defendant’s capital stock at $2,000,000, which is double its par value. There were no sales of shares of the stock during the tax year. _ 4. The Auditor General and State Treasurer were not satisfied with, and did not accept this appraisement; but, as they understood to be their duty under the law, made an appraisement and fixed the value of said capital stock at $8,720,719.16. In making this appraise- ment they had before them no other evidence of its actual value than that contained in the report made by the officers of the corpo- ration, as above stated; and this amount was adopted by them as the value of the capital stock, because it was the sum which at six per centum would produce $523,234.15, the amount of net earnings made by the defendant, as shown by said report. On this valuation, so made by the Auditor General and State Treasurer, an account was settled against defendant for tax, at the rate of five mills, amounting to $43,603.59, from which settlement defendant appealed to this court. 5. We find from the evidence that the actual value in cash of de- fendant’s capital stock, between the 1st and 15th days November, 1892, was not $8,720,719.16, the amount at which it was appraised by the Auditor General and State Treasurer; but having in view all the evidence and considering all the facts which are in our judgment relevant, on the principles more fully explained below, we find the actual value in cash of defendant’s capital stock at the date mentioned was $4,000,000. We have decided in opinions recently filed in Commonwealth vs. Sharon Coal Co., 23 June Term, 1898, and Commonwealth vs. Edger- ton Coal Co., 21 June Term, 1898, that the intent and meaning of Sec. 4 of the revenue act of 1891 (P. L. 229), is that only so much of Line kee tes (Cae) 3 the income of a corporation—using this word as an equivalent for both net earnings and amount of profit made—as is “made and either declared in dividends or carried into surplus or sinking fund,” is to be taken as the test of minimum value in appraising the capital stock of a corporation; and that the amount and rate per cent. of divi- dends made and the amount carried into surplus or sinking fund during the tax year do not furnish an absolute indication or measure of the actual value in cash of the capital stock, but are to be consid- ered with all other relevant facts in determining what is its actual value in cash. These decisions settle, for us, the law of this case on the points thus decided, and lead to the result that the appraisement made by the Auditor General and State Treasurer, and the settlement based thereon, cannot be sustained merely as a conclusion of law, but must Stand or fall on the actual facts of the case. In other words, the question we have to decide on this appeal is, what is the actual value in cash of defendant’s capital stock? It has been settled by numerous decisions, which are cited and affirmed in Commonwealth vs. Standard Oil Co., 101 Pa. 119, that the tax on capital stock imposed by the taxing acts of this State is not a franchise or license tax, but is a tax on the property and assets of the corporation. But it by no means follows that the capital stock and the tangible property and assets are identical either in substance orin value. The capital stock it is true, represents the property and assets of the corporation, but it represents also the value of its fran- chises and privileges and facilities for doing business, and the suc- cess with which the business is actually carried on, so far as these are denoted and expressed by the pecuniary results realized; and the tax on capital stock is by the express terms of the act of 1891 in- tended to reach these elements of value. See Preamble 6, P. S., 1891, p. 229. | The case of Commonwealth vs. Hamilton Manfg. Co., 12 Allen 291, contains an admirable discussion and exposition by Bigelow, C. ales of the difference which may exist between the value of the tangible property and assets of a corporation and the value of its capital stock, which is so apt for our purpose that we make copious extracts therefrom, with the remark that the whole opinion ought to be read in its connection. Assuming that the value of the capital stock of a corporation is equal to the value of all its shares—the theory of the act of 1891 which makes the market price of the shares a test of the actual value of the capital stock—he says: “The aggregate market value of all shares, by which we understand the cash price for which the shares will sell in the market, does not necessarily indicate the actual value or amount of property which a corporation may own. The price for which all the shares would sell may greatly exceed the S.& 8. R. R. (C. P.) ? 4 3 Z 2s aggregate of the corporate property, or it may fall very short of it. Undoubtedly the amount of property belonging to a corporation is one of the considerations which enters into the market value of its shares; but such market value also embraces other essential elements. It is not made up solely by the valuation or estimate which may be put on the corporate property, but it also includes the profits and gains which have attended its operations, the prospects of its future SUCCeSS, the nature and extent of its corporate rights and privileges, and ine skill and ability with which its business is managed. In other words, it is-the estimate put on the potentiality of a corpora- tion, on its capacity to avail itself profitably of its franchise, and on the mode in which it uses its privileges as a corporate body, which materially influences and often controls its market value.” * * * “There may be two corporations organized with similar powers, hay- ing the same number of shares, the same amount of property, of cap- ital, and both may be engaged in the same branch of business. The market value of the shares in one corporation may be double that of the other, because one is prosperous and likely to make large gains, while the other is unsuccessful, and is carrying on a business which may prove unprofitable or lead to heavy loss. The tax is therefore laid, not on capital stock as signifying the money paid in to carry on the business of the corporation, or the property purchased and owned by the corporation, but on capital stock representing the ag- gregate of the market value of the shares. The price for which shares may be sold does not depend on the value or amount of property be- longing to a corporation, but rather on the capacity of the corporation to use its property in connection with its corporate powers and privi- leges advantageously and profitably, and upon the present prosperity, prospective earnings and profitable final results of the corporate business.” * * * “Nor are we able to see any reason why the aggregate market value of all the shares of a corporation, represent- ing as it does the estimate put, not merely on the property of the cor- poration, but also on the rights, privileges, capacities and present and prospective results of the corporation organization and business—in other words, on its franchise—is not a legitimate and just method of arriving at a basis on which to calculate an excise or tax.” These extracts, and still more the whole opinion from which they are taken, abundantly show that the actual value in cash of defend- ant’s capital stock is not to be determined solely by ascertaining the value of its tangible property and assets, but that many other ele- ments of value are to be considered. Chief Justice Bigelow’s discus- sion, it is true, leads him to the conclusion that the tax he is consid- ering is a franchise tax and not a tax on tangible property; but this view, when the case was considered in the Supreme Court of the United States in Hamilton Company vs, Massachusetts, 6 Wall. 682, D.S. & 8. R. R. (C. P.) 5 was accepted only because it was thought to be required by the pe- culiar provision of the Constitution of the State of Massachusetts, and the construction which had long been put upon it by the Su- preme Court of that state, which as a question of the construction of a state statute was binding on the federal court. Thus, Mr. Jus- tice Clifford, delivering the opinion and referring to the decision that the tax in question was a franchise tax, at page 639, said: “Separated from the peculiar provision of the state constitution and the long practice under the original decision” (In Portland Bank vs. Apthorp, 12 Mass. 252) “the present decision of the state court upon the sub- ject might well be criticised as founded in unsubstantial distinctions, but when weighed as an exposition of that peculiar clause” (of the state constitution) ‘and in view of the long practice of the state, com- mencing long before the prior decision was made, it is not possible to withhold from the conclusion a full and unqualified concurrence. i il Fifty years have elapsed since that decision was made, and the practice in substance and in effect is still continued, having been repeatedly sanctioned by the unanimous decisions of the highest judicial authority of the state.” The Chief Justice and Justices Grier and Miller refused to be bound by the construction put upon the statute by the state court and dissented, on the ground that the tax in question was a tax on the property of the corporation and not a franchise tax. On the subject of taxing corporate franchises as property Justice Clifford said: “Corporate franchises * * * are legal estates and not mere naked powers granted to the corporation, but powers coupled with an interest which vest in the corporation by virtue of their charter, and * * * the privileges and franchises of a private corporation, unless exempt in terms which amount to a contract, are as much the legitimate subjects of taxation as any other property of the citizens within the sovereign power of the state.” And in Wilmington Railroad vs. Reid, 18 Wall. 264, Mr. Justice Davis delivering the opinion of the court said: “It is insisted how- ever, that the tax on the franchise is something entirely distinct from the property of the corporation, and that the Legislature was, there- fore, not inhibited from taxing it. This position is equally unsound with the others taken in this case. Nothing is better settled than that the franchise of a private corporation—which in its applica- tion to a railroad is the privilege of running it and taking fare and freight—is property, and of the most valuable kind, as it cannot be taken for public use even without compensation. It is true, it is not the same sort of property as the rolling stock, road bed, and depot grounds, but it is equally with them covered by the general term ‘the property of the company.’ ” There is therefore no legal principle in the way of holding that D.S°& 8) RRC yP. | 6 the tax on capital stock in this State is a tax on property and at the same time including in the appraisement the value of the franchises and privileges enjoyed and exercised by the corporation, and, deter- mining the value of these by the material result of their existence. Acting on the principles suggested by the foregoing discussion, the members of this court, both of whom sat at the trial, concur in the findings of fact above set forth, and in the conclusion that defendant’s capital stock was between the 1st and 15th of November, 1892, of the actual value in cash of $4,000,000; and the Commonwealth is there- fore entitled to judgment as follows: Value of capital stock, 2etet is ess. $4,000,000 Tax: Smiles tec oe ae eect eee ee ae $20,000 Interest from April 1, 1893, to January 1, 1894, at 12 per cent. per annum, ......... 1,800 | Attorney General’s commission, 5 per cent., — 1,000 TBO ae ies eye setae eens Aen ee $22,800 For which amount judgment is directed to be entered in favor of the Commonwealth and against the defendant if exceptions be not filed within the time limited by law. J. W. SIMONTON, Prd. Filed December 26, 1893. D.S. & S.R.R. (8. C.) OPINION OF THE SUPREME COURT. McCollum, J.: The defendant company complains on this appeal of the finding that the actual value in cash of its capital stock between the 1st and 15th of November, 1892, was $4,000,000, and that its franchises were considered as an element or factor in ascertaining such value. It also complains that its motion for a new trial was overruled. - The actual cash value of the company’s capital stock, at the time ‘stated, was, under the stipulation filed, a fact to be found by the court upon relevant testimony. If the evidence submitted for the purpose of ascertaining this fact was pertinent to the issue and sufficient to warrant the finding complained of the latter must stand as the basis of the taxation in question. The finding of the court is on the footing of the verdict of a jury. An examination of the evidence before the court in this case has satisfied us that it authorized the finding in respect to the value of the stock, and that we would not therefore be justified in setting the same aside. The motion for a new trial was based upon the allegation that after the hearing was concluded, the defendant company’s contract with the Philadelphia and Reading Railroad Company was annulled by the Receivers and that in consequence thereof the defendant com- pany sustained a loss which might injuriously affect the value of its capital stock. The motion was made after the opinion of the court was filed and while exceptions thereto were pending. The allowance or refusal of this motion was within the discretion of the learned court below and it is not a matter for review on this appeal. In ascertaining the actual value of the capital stock was it proper to take into consideration as affecting that value the franchises of the company? We think this question is affirmatively answered by the act of June 8, 1891, under which the valuation was made. The capital stock represents the franchises as well as other property of the company. In the 6th preamble of the act there appears a plain legislative purpose to include the franchises in fixing the value of the stock, and this is in harmony with the title and the provision in respect to the taxation of it. The specifications of error are overruled. Judgment affirmed. Argued May 30, 1894. Opinion filed November 12, 1894. Noi Yeg ey OesOr Pee tts, (Co B.) Commonwealth of Pennsylvania, VS. New York, Pennsylvania and Ohio Railroad Company. Dauphin County Common Pleas. | No. 691 Commonwealth Dock- et, 1896. Appeal from settle- ment of account for tax on cap- ital stock. By the Court: | This is an appeal from a settlement made by the Auditor General and State Treasurer against the corporation defendant June 30, 1896, for tax on capital stock for the tax year 1895. It was tried by the court without a jury as provided by the act of April 22, 1874, and on the testimony and documentary evidence we find the following: FACTS. 1. Defendant is a corporation chartered under the laws of the States of New York, Pennsylvania and Ohio, owning a line of railroad ex- tending from Salamanca, New York, across the northwestern part of the State of Pennsylvania to Dayton, Ohio, a distance of 388.04 miles. Of this line 92.4 miles are within the State of Pennsylvania and the remainder in either New York or Ohio. Defendant also owns a line of railroad 33.78 miles in length known as the Franklin Branch, extending from Buchannon to Oil City, all in Pennsylvania. It also owns a branch 7.7 miles in length in Ohio; making the total mileage owned by it 429.59 miles. It is also lessee of 168.09 miles of road, of which 34.54 miles are in Pennsylvania and the remainder in Ohio. It connects at Salamanca, its eastern terminus, with the railroad of the New York, Lake Erie and Western Railroad Company, and by a connection at Dayton, Ohio, its western terminus, it forms by means of leases and trackage contracts part of the through line of the last named road from the city of New York to the cities of Cincinnati and Chicago. 2. Defendant’s capital was in 1895 $44,999,350, divided into 899,987 shares of the par value of $50 each; 200,000 shares, or $10,000,000 being preferred stock, and 699,987, or $34,999,350, common stock. The cost of defendant’s road and equipment was $170,987,519.58. No dividends were ever paid on either the preferred or common stock. 3d. In 1895 defendant’s indebtedness amounted to $129,853,080.72, as follows: Prior lien bonds, $8,000,000; first mortgage bonds, $44,- NewS Pee OSReRS (Cle) 10 337,000; deferred warrants converted into first mortgage bonds, rep- resenting unpaid interest on first mortgage bonds, $27,640,345.75; second mortgage bonds, $14,500,000; third mortgage bonds, $30,000,- 000; car trust agreements, subject to which the company held its — active rolling stock, $1,950,000; and a small unsecured balance. De- fendant has not for many years earned or paid any interest on its second or third mortgage bonds, and no interest was paid in 1895 on its first mortgage bonds, though some was earned. ‘The interest on the $8,000,000 prior lien bonds was paid. Nearly all defendant’s indebtedness is due to citizens or corporations of other states and countries than Pennsylvania. 4. In April, 18838, it leased its line and road to the New York, Lake Erie and Western Railroad Company for ninety-nine years, the terms of the lease requiring the lessee to pay defendant thirty-two per cent. of the gross receipts derived from the operation of the road. The gross receipts in the tax year 1895 amounted to $6,332,317.52, and the proportion due to defendant was $2,062,000. In 1893 the lessee became insolvent and passed into the hands of receivers ap- pointed by the Circuit Court of the Southern District of New York, and by virtue of an arrangement not clearly explained in the evi- dence and of a decree of that court, the receivers were ordered to pay to the defendant instead of the agreed rental only the net earnings received from the operation of its road, not less however than $1,500,- 000, and defendant during the tax year 1895 actually received as rental only $1,411,573.96, and it had during that time receipts from other sources amounting to $52,029.49. During its fiscal year ending June 30, 1895, its gross income from all sources was $2,042,307.15, and during 1895 there were expended upon its road in betterments $2,931,- 686.31. From what source the amount thus expended was derived is not definitely shown by the evidence. 5. During the months of April, May and June of 1895, 4,200 shares of the preferred stock of the defendant were sold in the city of New York at prices ranging from 624 to 874 cents per share, the average price being 75 cents. There were no shares of common stock sold during the tax year 1895. 6. An order of sale of defendant’s road was granted in June, 1896, at the suit of the holders of the bonds secured by the first mortgage on its road and franchises, and in pursuance of this order all of its property, leasehold and otherwise including, defendant’s franchises, was on the 26th of February, 1896, sold at public auction at the court house in Akron, Ohio, for the sum of $10,000,000, subject to the prior lien mortgage of $8,000,000; and the proceeds of the sale were appro- priated towards the payment of the first mortgage bonds, the holders of subsequent liens receiving nothing. Wite¥ny err Os ine See CC. Ew) 11 ¢. On February 21, 1896, the secretary and treasurer of the defend- ant company, after having taken the oath prescribed by the act of June, 1891, made the report to the Auditor General required by said act, and appraised the capital stock of said corporation as of no value whatever. The Auditor General and State Treasurer, being dissatisfied with the appraisement and valuation so made and returned, valued and appraised the capital stock of defendant for the tax year 1895 at $34,480,577.70, stating at length in their appraisement their reason for so doing, and settled an account in accordance with said appraise- ment, charging defendant with a tax at the rate of 5 mills, amount- ing to $172,402.88, from which settlement defendant appealed to this court, and on the trial the report and appraisement made by defend- ant’s officers, the appraisement and settlement made by the Auditor General and State Treasurer, defendant’s specifications of objections to the settlement, and other evidence, oral and documentary, was offered and heard. 8. After a full consideration of all the relevant evidence in the case, we find that the apprasiement made by defendant’s officers is not correct, and that the appraisement made by the Auditor General and and State Treasurer is excessive; and we further find that the actual value in cash of defendant’s capital stock representing its tangible property and assets and its franchises between the 1st and 15th of November, 1895, was $15,000,000, and that defendant is taxable for the tax year at the rate of five mills on pales of said $15,000,000, that being the proportion of defendant’s capital stock which represents the proportion of its road, property, assets, franchises and privileges in Pennsylvania calculated on the mileage basis. DISCUSSION. In Commonwealth vs. Standard Oil Co., 101 Pa. 119, Mr. Justice Paxson, delivering the opinion of the court, said: “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;” citing a number of cases in this State, and many from other states, In Fox’s Appeal, 112 Pa. 337, it was held that the mortgages owned by corpo- rations are taxed through the tax on capital stock in substantially the same manner as the mortgages belonging to individuals are taxed by the act of 1885, which requires them to report to the assessors and pay a tax upon the par value of their mortgages; and that if corpora- tions were required to report and pay tax under the act of 1885, the result would be double the taxation. Speaking in this case of capital stock in itself considered, Justice Paxson says: “The capital stock is nothing; a myth; a mere name excepting in so far as it is repre- sented by investments made with the money paid into the treasury Nive PG 088. ele be : 12 of the corporation on account of such capital stock. Hence it is that the courts have long since declared that a tax upon the capital stock of a corporation is a tax upon the assets and property of such corpo- ration.” . : The opinion of the court below in Commonwealth vs. Western Land and Improvement Co., 156 Pa. 455, contains a history of this tax and shows that it has always been assessed on the basis of the rate per cent. of dividends when the dividends during the tax year equalled or exceeded six per cent.; and, when no dividend was made, on an appraisement of the capital stock. And when the dividend was less than six per cent., under some of the acts, the tax was assessed on the basis of the rate per cent. of the dividends, and under others, on the assessed value of the capital stock. That case decides that when the tax is measured by the rate per cent. of the dividend that is the only test; and some of the cases there cited illustrate this very forcibly, and show that the value indicated by the rate per cent. is sometimes very different from the actual value. Thus in Atlantic and Ohio Telegraph Co. vs. Commonwealth, 66 Pa., 57, where the report of the officers of the corporation stated that a dividend of ten per cent. had been made, it was held that the dividend reported furnished the measure of the tax, although the corporation provided that it had in reality been paid upon a part only of the stock. And in Columbia Conduit Co. vs. Commonwealth, 90 Pa. 307, where, after declaring dividends amounting to $200,000, a loss by fire occurred to which nearly one-half of the amount divided was applied, instead of being paid to the stockholders, the whole dividend was nevertheless held to furnish the measure of the tax. And in Matson’s Ford Bridge Co. vs. Commonwealth, 117 Pa. 265, where all the property of a corporation with a capital of the par value of $45,000 was converted into money and amounted to $75,000, the excess of $30,000 above the par value of the capital stock was held to be a dividend, and the company was assessed thereon with a tax of one-half mill on each one per cent., amounting to $1,500, which would be a three mill tax upon $500,000. And in Commonwealth vs. Fall Brook Coal Company, 156 Pa., 488, it was decided that a tax on the capital stock of the Fall Brook Railway Company was a tax on $3,500.- 000, which the Fall Brook Coal Company held invested in the shares of the railway company, and that to tax that amount of the capital stock of the coal company after the railway company had paid the tax on its capital stock would be double taxation. ‘It thus appears that under the acts taxing capital stock, as they stood prior and up to 1891, the amount of dividends declared during the tax year was the only test of the amount of the tax, and that this had no necessary relation to the actual value of the capital stock of the corporation. | N. Y., P. & O. R.R. (C. P.) 13 When the dividends did not amount to the rate which by the tax- ing acts was made the measure of the tax, the capital stock of the company was required to be appraised, and a tax at the rate of orig- inally three mills, afterwards five, was assessed upon its appraised value. This appraisement, it is true, was formally of the capital stock, and not of the property of the corporation, and the data re- quired to be furnished to the Auditor General, by the terms of the acts, to enable him to judge of the correctness of the appraisement, related to the operations of the company during the year, the amount of its capital stock, and the value of its shares, more directly than to the quantity, quality and value of its assets and property. The inference sought to be drawn from this by the learned counsel for defendant, is, that as the value of the shares would be affected by the amount of indebtedness and encumbrances upon the property of the corporation, the practical result was that the tax, so far as it was a tax upon the property of the company, was a tax only on the value of its property less the amount of its indebtedness and encumbrances. But it must be remembered that this basis of assessment was adopted in 1844, when the corporations to which it applied were mainly banks and other moneyed institutions which did not have encumbrances, and whose indebtedness was mainly for deposits, that were a source of profit to the corporations. The subjects of the tax are said in the act of 1844, P. L. 486, to be ‘“‘all banks, institutions and companies.” An appraisement of the shares of such corporations at not less than the price at which they sold in the market would furnish a fairly ac- curate measure of the value of the assets and property of the com- pany. That by “institutions” in the act of 1844, the Legislature intended moneyed corporations, is shown by the act of April 16, 1845, P. L. 507, where the subjects of the tax on capital stock imposed by the act of 1844 are styled “banks and savings institutions.” And in the capital stock act of 1859, P. L. 529, the subjects of the tax are styled “banks, savings institutions and companies whatsoever.” - It was not until after the passage of the act of February 23, 1866, P. L. 82, that banks ceased to be the principal corporations subject to the tax on capital stock. By the act of May 1, 1868, P. L. 108, the amount of the dividend declared by the corporation was made the measure of the tax on its capital stock in every case where any dividend was made, and it was only in cases where no dividend whatever was made that the officers of the corporation were required ‘to estimate and appraise the cap- ital stock of such companies at its actual value in cash.” This act contains no suggestion that the appraised value should be the value of the property and assets of the corporation less its indebtedness. The act of April 24, 1874, P. L. 68, which superseded the act of May New; Pe 0.-RO Re (CaP) 14 1, 1868, was practically identical with it on this subject, except that the officers of the corporation were required “to estimate and appraise the capital stock of such companies upon which no dividend had been made or declared, at its value, not less than the average price which said stock sold for during said year;” and that it also contained the proviso, “That if the Auditor General or State Treas- urer, or either of them, is not satisfied with the valuation so made and returned, they are hereby authorized and empowered to make a valuation thereof and to settle an account upon the valuation so made by them for the taxes, penalties and interest due the Common- wealth.” This proviso contains at least an implication that even if the appraisement were not less than the average selling price, it might be too low, and no restriction was put upon the accounting of- ficers in making the appraisement, nor did the act require them to deduct encumbrances. The act of June 7, 1879, required the capital stock to be appraised when no dividend or dividends less than six per cent. had been de- clared during the year, and contained a further limitation or minimum value in the appraisement, by requiring not only that it should be “not less than the average price which said stock sold for during said year,” but also that it must be “not less than the average price or value as indicated or measured by the amount of dividends made or declared.” Under this act occurred the case of Hamilton Steel Wheeled Com- pany vs. Commonwealth, 12 W. N. 328, where $1,000,000, the whole capital of the corporation, had been invested in patent rights which would soon expire, and the officers of the company appraised the cap- ital stock for the year 1879 at $110,000, and for the year 1880 at $100,000, on the theory that as the patent had only two years to run and the whole value of the capital stock was invested in the patents, the stock was not worth more than that amount. The company, how- ever, had made a dividend of four per cent., which in the judgment of the accounting officers indicated a value of at least $500,000, and they therefore assessed it at that amount. The court below decided that under the circumstances the value of the capital stock “must be as measured and indicated by the amount of dividends made and declared. However unjustly it might operate in particular cases, there can be no doubt of its meaning and the manner of valuing which it indicates and points out.” On appeal to the Supreme Court this ruling was affirmed on the opinion of the learned judge of the court below, President Judge Pearson. The next act in order was the act of 1889, which contained the same minimum limitation of value as the act of 1879. We thus find that under all the acts taxing capital stock, the amount of the tax was either fixed by the rate per cent. of the divi- Nhs ee Oa Eee he A Cas} 1 Ol dends—in which case that was the sole measure of the tax, regardless of the actual value of the property and assets of the corporation—or it was imposed on the appraised value of the stock, subject to the limitation, in the earlier acts, that the amount of the appraisement should not be less than the value indicated by the selling price of the stock—which would fairly indicate its value when the subjects of the tax were banks and institutions of that nature—and afterwards by the limitation that it should not be less than the value indicated by the amount of dividends or profits made. The nature of the test of value was in all cases an inquiry into the result of the activity of the corporations for the tax year and an inference of value from these results rather than a direct estimate of the value of the tangible prop- erty and assets of the corporation. There was, we think, ample reason for this. The value of the prop- erty and assets of a railroad corporation, for instance, cannot be ascer- tained by appraising its buildings, rails, bridges, cars, &c.; it is all these in operation, their use as a railroad, with the franchise or right to use them, and to charge fares and freight for so doing, that really constitute the property and assets of the corporation, and this is what is represented by its capital stock. There has been, however, a large class of cases in which it became necessary to have a more direct reference to the tangible property and assets of the corporation in making the appraisement. This was so in all cases where, by the terms of the taxing act, or because of the na- ture or situs of the property of the corporation, some of it was subject to taxation and some exempt. Thus, the capital stock of manufactur- ing corporations has been since 1885 exempt from taxation; but as this exemption was held to apply only to the proportion of the capital stock that represented property actually used in the business of manu- facturing, while property not so used was held taxable, it became nec- essary to ascertain the value of the property in order to determine the proportion of the capital stock taxable and exempt. And when cor- porations, whose capital stock was subject to the tax, owned property which could not be taxed because of its nature, as, for instance, pat- ent rights or United States bonds, or because it was located out of the State, it became necessary to ascertain the actual value of the prop- erty. Commonwealth vs. Westinghouse Air Brake Co., 151 Pa. 276; Commonwealth vs. Westinghouse Electric and Manufacturing Co., 151 Pa. 265; Commonwealth vs. Juniata Coke Co., 157 Pa. 507; Com- monwealth vs. Pa. Coal Co., and Commonwealth vs. Montgomery Lead and Zine Mining Co., 5 C. C. R. 89 and 91, are cases of this kind; as is also Commonwealth vs. Standard Oil Company, 101 Pa. 119. Another like case is Commonwealth vs. Pennsylvania Co., 145 Pa. 274, to which the learned Attorney General has referred. This case was elaborately argued and considered in the court below, where it N. Y., P. & O. R. R. (C. P.) 16 was conceded that if the corporation was taxable at all—which was denied—the tax was upon its property and assets; and that the value and nature, and situs, of these must be ascertained in order to deter- mine the amount of the tax; and the data from which these could be ascertained was furnished by the defendant. The court below de- cided that the defendant was taxable on the amount of its capital stock represented by investment in real estate in Pennsylvania, per- sonal property in Pennsylvania, stocks of foreign corporations, bonds of foreign corporations, and bonds of domestic corporations, and on the proportion of its capital stock represented by investments in equipment or rolling stock which was found to be within the State, by apportioning the whole amount invested in equipment on the basis of its mileage within and without the State, as shown by the facts and exhibits. The case was appealed to the Supreme Court, and error was there assigned to these rulings, and to these only, and the case was argued on the questions thus raised but none of these questions were decided by the Supreme Court. The only point decided was, as stated at the close of the opinion, 145 Pa. 283: “That after the lapse of a year from the time of payment of the taxes of a current year, without any request for the re-statement of the account of the taxpayer, the account is closed, except as to clerical mistakes, and can only be re-opened by an order of the board of revision.” _ | This was an application of the provisions of section sixteen of the act of March 30, 1811, relative to public accounts—which had been applied by the court below to the settlements for 1872 and 1873, be- cause for those years the accounts were re-settlements—to the settle- ments for the subsequent years, which were original settlements, and not re-settlements. That this was done under a uate ais of the facts is mani- fest. The learned justice who wrote the opinion evidently supposed that all the State taxes to which a corporation is subject for a given year are settled and included in one account, and did not know that it is and always has been the uniform practice of the accounting department to require reports and settle accounts separately for each kind of tax to which a corporation is subject, and that a settlement for one kind of tax does not imply any consideration or determination of its liability or otherwise for tax of a different kind. An account or settlement is a physical, tangible thing, a paper with figures and writing upon it, signed by the Auditor General and State Treasurer, endorsed, copied into a ledger and filed away in its appro- priate place. Whether such settlement had been made against a given corporation, for a tax of a given year, is therefore a question of fact, to be ascertained by looking in the proper place for the settle- ment. Such inspection showed at the time this case was tried, and it would now show, that there had never been any settlement made Ni Yes bac Ookvats (C;.2:) 17 against the Pennsylvania Company for the years from 1874 to 1887, inclusive, for tax on capital stock, and the court below found this as one of the facts in the case. The settlements then in question for those years were therefore original settlements, and not re-settle- ments, aS was supposed; while those for 1872 and 1875 were re-settle- ments, and this is the reason why the court below held the latter in- valid and those for the subsequent years valid. It was not claimed by the counsel for defendant, who are experts in tax cases, that the settlements for the years subsequent to1873 were re- settlements, and therefore the ruling of the court below on this subject was not assigned for error, and hence the supreme court were not as- sisted by the argument of counsel in coming to the conclusion reached by them, which probably accounts for the misapprehension. The re- sult is, that we are without a decision of the court of last resort on the questions decided in the court below, and discussed in the supreme court. The case is, however, valuable, as it shows that it was con- ceded and understood, both by the counsel and the court, that the tax in question was a tax upon the property of the corporation, the value of which it was necessary to appraise, and that the only controversy— if the corporation was taxable—was as to the method of apportion- ment; and that it was not even suggested by the learned counsel, that the indebtedness of the corporation should be deducted in order to ascertain the value. We have now reviewed all the acts taxing capital stock prior to the act of June 8, 1891, P. L. 229, and referred to many of the decisions in which these acts are construed and applied, and we have nowhere found it to be enacted or decided that in estimating and appraising the value of the capital stock, any deduction is to be made because of the fact that the property of the corporation is encumbered. This question has, it is true, never been directly litigated and adjudicated, but the implication contained in the acts, from the fact that there is no provision on the subject, and that no claim has ever been made for a deduction on this account, is strong that such was not the inten- tion of the acts. It remains to consider the effect of the act of 1891, under which the settlement appealed from in this case was made. ‘The title to this act is “An act to provide increased revenue for the purpose of relieving the burdens of local taxation * * * and providing for greater uniformity of taxation by taxing all of the property of corporations, limited partnerships and joint-stock associations having capital stock, at the rate of five mills on each dollar of its actual value.” We think we find here a distinct declaration that the purpose of the act is to impose a tax upon the property of the corporations to which it applies. Defendant’s counsel contends that the antecedent of “its” in the concluding words of the title, “five mills on each dollar 2 ANS aoe! ae, @ Bes el BAT YG 18 of ‘its’ actual value is ‘capital stock.’” But the plain reading of the sentence, required alike by its grammatical and logical construction, is that it declares an intention to tax “at its actual value in cash all the property” of certain corporations, limited partnerships and joint- stock associations, to wit, those “having capital stock.” This con- struction is not in conflict with the expressions used in preamble six, where it is evident that capital stock is used as a synonym for “bonds, mortgages and moneys at interest, and franchises and property of other kinds;” and being so used in the preamble we think we are warranted in assuming that it is used in the same sense in the body of the act. This act also made important changes in the method of assessing the tax. The rate per cent. of dividend is no longer the measure of the amount of tax, but in all cases the capital stock is to be esti- mated and appraised by the officers of the corporation “at its actual value in cash, not less however than the average price which said _ stock sold for during said year, and not less than the price or value indicated or measured by net earnings or by the amount of profit made and either declared in dividends or carried into surplus or sinking fund.” And the act further provides, “That if the Auditor General and State Treasurer, or either of them, is not satisfied with the ap- praisement and valuation so made and returned, they are hereby authorized and empowered to make a valuation thereof, based upon the facts contained in the report herein required, or upon any infor- mation within their possession or that shall come into their posses- sion, and to settle an account on the valuation so made by them for the taxes, penalties and interest due the Commonwealth thereon.” And while it is the “capital stock” that is to be appraised, we have just seen that the title of the act declared that the property is to be taxed, and preamble six defines what is meant by “capital stock” when it declares that the tax is to be imposed on “their whole capital stock, including as well their bonds, mortgages and moneys at interest, as their franchises and property of other kinds.” In settling accounts against various corporations for the first year after this act came into force, the Auditor General construed the pro- viso, that the actual value in cash was to be “not less than the price or value indicated or measured by net earnings, or by the amount of profit made and either declared in dividends or carried into surplus or sinking fund,” to prescribe a hard and fast rule that the capital stock must be appraised at not less than a principal sum, six per cent. of which would equal the net earnings of the corporation for the tax year; and he settled accounts on that basis against a number of corporations, from which settlements they appealed to this court, where, on the trial of the cases, it was decided that this construction of the act was erroneous, that the net earnings constituted only one INGA s5) bo 6c Uy £4, tee (Cy PS) 19 fact to be considered in determining the actual value of the capital stock, and that the amount and rate per cent. of dividends made and the amount carried to surplus and sinking fund during the tax year, do not furnish an absolute indication or measure of the actual value in cash of the capital stock of a corporation, but are to be considered with all other relevant facts in determining what is its actual] cash value. That the prominent idea or thought of the whole act was to base taxation on the actual cash value, and that this should be deter- mined from facts and not theories in all cases, except the one that this value should in no case be less than the average price at which the stock sold during the year: Commonwealth vs. Edgerton Coal Co., 164 Pa. 284. And in Commonwealth vs. Haney Transfer Co., 141 Jan- uary Term, 1895, decided by this court and not reported, it was said, in the opinion by Judge McPherson, that the question of actual value in cash is a question of fact which must be determined by considering the value of defendant’s tangible property, the amount of its business, the rate of dividend declared, and the extent and value of its good will and franchises and privileges, as indicated by the evidence bear- ing upon those subjects at that particular time. In Commonwealth vs. Delaware, Susquehanna and Schuylkill Rail- road, 165 Pa. 44, it was contended by the defendant that the fran- chises of a corporation were not to be included and appraised in esti- mating the value of its capital stock. But we decided that the fran- chise of the corporation was an element to be considered in ascer- taining the value of the capital stock, and it was said in the opinion of the Supreme Court affirming this decision, page 54: “In ascertain- ing the actual value of the capital stock, was it proper to take into con- sideration, as affecting that value, the franchises of the company? We think this question is affirmatively answered by the act of June 8, 1891, under which the valuation was made. The capital stock rep- resents the franchises as well as other property of the company. In the 6th preamble of the act there appears a plain legislative purpose to include the franchises in fixing the value of the stock, and this is in harmony with the title and the provisions in respect to the taxation Onat.’? The able counsel for defendant lays great stress on the fact that in the taxing acts and in the decisions of the courts construing them, it is the capital stock which is said to be taxed. Buta careful reading of the acts and the decisions will show that the words “capital stock” are used as a convenient term to connote property, tangible and intan- gible, of the corporation. This is implied when it is said that a tax on the capital stock is a tax on the property and assets of the com- pany; and when it is enacted that the tax shall be “at a fixed rate of five mills upon each dollar of the actual value of their whole capital stock, including as well their bonds, mortgages and moneys at in- Now bee 0. a ae 20 terest, as their franchises and property of other kinds;” and more defi- nitely still when it is declared in the act of 1891, “That for the pur- pose of this act, interests in limited partnerships or joint stock asso- ciations shall be deemed to be capital stock and taxable accordingly.” That is to say: As a matter of fact, a limited partnership has no cap- ital stock in the common acceptation of the term, but every partner has a definite proportional interest in the assets of the company, and for the purpose of taxation under this act, this interest “shall be deemed to be capital stock and be taxable accordingly.” Clearly, } then, when nominally the capital stock is taxed, it is in reality the property and assets of the company that are taxed; and the only way in which the value of the capital stock can be ascertained is by ascer- taining the value of the property and assets. This illustrates the truth of the remark made by Mr. Justice Paxson, already quoted, that “The capital stock is nothing; a myth; a mere name, excepting in so far as it is represented by investments made with the money paid into the treasury of the corporation on account of such capital stock.” In a limited partnership it is literally nothing but a name apart from the assets, and in a corporation proper it is really nothing more, al- though we are accustomed to conceive of it as a separate entity. Counsel also argues that the form of the report required to be made by the act of 1891 does not call for a settlement of the amount and value of the property and assets of the corporation, and therefore that it is not the property that is to be appraised. But, as we have seen, the value of the property must be ascertained whenever the tax is to be apportioned or a limited partnership is to be taxed; and while ~ it is true that the form of the report does not call for such definite in- formation as to the actual value of the property and assets of the ~ corporation as it might, the reason probably is that in the main it was copied from the prior acts, without careful attention to the change. The conclusion that the value of incumbrances should not be de- ducted would seem to be greatly strengthened when the matter is examined in the light of the doctrines declared in Commonwealth vs. Fall Brook Coal Company, 56 Pa. 488. It is there decided that the capital stock of a corporation and the shares into which the capital is divided are, at least for the purposes of taxation, identical, and that the shareholders are the real owners of the property and assets, which ~ both the capital stock and the shares represent, and that they are the persons who are taxed when a tax is imposed upon either the capital stock or the shares. A corporation is, on page 494, said to be “An artificial person created by law for the purpose of becoming the business representative, agent or trustee of So many persons as may join to furnish the money with which the business to be done by the corporation may be carried on. * * * The money furnished by NY «br. eOekea..(C. BP.) 21 those whose representative it is to be, is its capital stock. The amount that each person contributes to this fund is his share in the venture, and is called his share or shares in the stock. The legal title to the whole sum so contributed is in the corporation, and so is the legal title to all the property, real or personal, in which it may be invested. The equitable title, that is, the right to the profits from the business done, and to a return of the capital when the corporation is dissolved, is in the stockholders. * * * As in the ordinary case of trust and cestui que trust, the real owners are the beneficiaries.” The opinion in this case also states, that the principle upon which it is proper to tax land without regard to the incumbrances upon it is, that there is no community of interest between the owner of the land and the owner of the money borrowed and invested in the land, and that to tax both is not double taxation; that “in that case there are two distinct subjects of taxation, each of which is made taxable by an express provision of the law. The farm is taxable as land, against whoever may be the owner, without regard to the incumbrances upon it. The sum secured by the mortgage is taxable as money at interest, regardless of the use the borrower may make of it. If the owner of the land is compelled to incumber it, it may be his misfortune, but the man who lends money to him has no connection with him in title. There is in such case no double taxation. The land is taxed once to its owner. The money at interest is taxed once to its owner. They are distinctly different taxpayers and pay taxes upon distinctly dif- ferent subjects of taxation.” We have then these principles: A tax on the capital stock of a cor- poration is a tax on its property and assets. The corporation is sim- ply a trustee for its-stockholders and they are the real owners of the property. or, as expressed by the learned justice, it is “the ordinary case of trustee and cestui que trust.” The beneficiaries are the real owners. And whether the property is taxed in the name of the cor- poration or in the name of the shareholders, the ultimate burden falls on the same persons. The fact that the tax is called a tax on capital stock is therefore not of the essence of the matter. Whatever called, it is tax on the property and assets of the shareholders for whom the corporation is simply trustee. Neither is it vital that it is taxed in the name of the trustee. The shareholders are the real owners of the property taxed, and the tax is therefore a tax on their property. But when the property of individuals is taxed, no reduction is made because the property is incumbered. It is therefore not easy to see why there should be any specific reduction made for individuals simply because their trustee is a corporation. As was said by Mr. Justice Miller in State Railroad Tax Cases, 92 U.S., at page 605: “Individuals do not escape taxation on their real and personal property because they are insolvent. * NO: Ska Le No Y:, P-&.0.R. Re (CG. P.) 22 has ventured to establish the principle of permitting its visible tan- gible property to escape taxation relying solely on a tax imposed on the individual on the basis of his estimated wealth in excess of his debts.” The consequence of establishing such a principle in Penn- Sylvania would be so serious that we cannot believe the Legislature has ventured so to do. There are, as it is well known, many railroad cor- porations in the State which, like the one in question in this case, were built at an extravagant cost, met chiefly by borrowed money, which are now insolvent, and whose net earnings are not sufficient to pay the interest on their sometimes enormous funded debt, yet they have valuable franchises which have been granted by the State as well as tangible property which for the uses to which it is applied is worth in many cases millions of dollars. All these under the construction of the act of 1891 contended for on behalf of defendant would en- tirely escape taxation by the State and are not subject to local taxa- tion, while the property of individuals who have no franchise from the State is taxed without regard to their insolvency. And the in- justice and impolicy of such a construction is presented in a yet stronger light when we remember that in many cases—and notably in the one now before us—nearly all the funded debt secured by the incumbrances on the insolvent corporation’s property is held by resi- dents of other states or foreign countries, so that if it is not taxable against the insolvent corporation, neither can it be reached, in theory even, by taxing the evidences of indebtedness. The result would be, that property within the borders of the State worth many millions of dollars would be entirely exempted from taxation. CONCLUSIONS OF LAW. 1. A tax on the capital stock of a corporation is a tax on its prop- erty and assets including its franchises. The question of the actual value in cash of the capital stock is a question of fact which must be determined by considering the value of defendant’s tangible property and assets of every kind including its bonds, mortgages and money at interest, and its franchises and privileges, and the amount of the incumbrances on its property and franchises is also a relevant fact to be considered, but it is not to be specifically deducted from the valua- tion so ascertained and determined. 2. The Commonwealth is entitled to recover from defendant in this case a tax at the rate of five mills on the dollar on the actual value in cash of 12,618,429.59 parts of the capital stock of defendant, AMOUNTING TO. Pei were , with interest at the rate of twelve (12) per cent., from Sept. 30, 1896, and Attorney General’s commission at the rate of five (5) per cent. 3. Judgment is therefore directed to be entered in favor of the Com- monwealth and against the defendant as follows: Nery rents te (Oy es) 23 EL ASAAIY Orla) TOUTS OM os oe o's wee aang <2 ieee ses Interest at twelve (12) per cent. per annum IOI tn tee! bs CO ee rer tae as coe keel) at le ilsie.s Attorney General’s commissions, .......... PE OLS ame tment y: case scar ohare te Sadae eitesne se eg (Signed.) J. W. SIMONTON, ie Opinion filed April 8, 1897. (Opinion of Supreme Court page 24.) Neale ec OB Mae) 24 OPINION OF THE SUPREME COURT. Dean, J.: All the material facts of this case, are stated in the opinion of the court below. The finding of a fact, determines the amount of the judgment; the accounting officers of the Commonwealth and the court adopt a like construction of the statute, but differing in their views of the evidence, differ in results. The officers of the defendant corpo- ration, putting a wholly different construction on the statute, largely differ from both as to the fact. The defendant appraises its capital stock as of no value whatever; the Commonwealth appraises it as $34,480,577.70; the court below appraises it at less than half that amount. The main dispute between the Commonwealth and the defendant is, as to the construction of the act of 1891. It may be conceded at once that the legislative intent to levy a higher amount must be express, or result from necessary implication, for if in a tax law, the intent be doubtful, it does not exist. The title of the act declares the purpose to be, to tax “all the property of corporations, limited partnerships and joint-stock associations, having capital stock, at the rate of five mills on each dollar of its actual value.” Could legislative language be plainer? All the property of corporations is to be taxed at the rate of five mills on each dollar of its actual value. The words “having capita] stock,” are used to distinguish such corporations from bene- ficial, religious, and other corporations having membership, but not capital stock representing the respective interests of members in the corporate property. Then, preamble six of the act, further declares it to be the purpose to tax “all corporations, limited partnerships and joint-stock associations having capital stock, at a fixed rate of five mills, upon each dollar of the actual value of their whole capital stock, including as well their bonds, mortgages and moneys at interest, as their franchises and property of other kinds.” In Commonwealth vs. Standard Oil Co., 101 Pa. 119, speaking by Paxson, J., this court held: “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.” Then in Fox’s Appeal, 112 Pa., 354, it is said: “The capital stock is nothing; a myth; a mere name, ex- cepting in so far as it is represented: by investments made with the money paid into the treasury of the corporation on account of such capital stock. Hence it is that the courts have long since declared ING ope Oe Oy Beetles (Sy. C;) 25 that a tax upon the capital stock of a corporation is a tax upon the assets and property of such corporation.” In Commonwealth vs. Delaware, Susquehanna and Schuylkill] R. R. Co., 165 Pa. 44, opinion by McCollum, J., we said: “In ascertaining the actual value of the capital stock, was it proper to take into consideration, affecting that value, the franchise of the company? We think this question is af- firmatively answered by the act of June 8, 1891, under which the valuation was made. The capital stock represents the franchises as well as other property of the company. In the 6th preamble of the act there appears a plain legislative purpose, to include the fran- chises in fixing the value of the stock, and this is in harmony with the title and the provisions in respect to the taxation of it.”” There are other cases to the same effect. The statute, having thus, in ex- press terms, declared the subject of taxation to be all the property of corporations having capital stock, and the settled interpretation by this court of a tax on capital stock of a corporation, being, that it is a tax upon all the property of the corporation, it is clear the learned judge of the court below committed no error in the first sentence of his conclusion of law, thus: “A tax on the capital stock of a corpora- tion is a tax on its property and assets, including its franchises.” The main contention, however, is over the last part of the con- clusions, as follows: “The question of the actual value in cash of the capital stock, is a question of fact, which must be determined by con- sidering the value of defendant’s tangible property and assets of every kind, including its bonds, mortgages and moneys at interest, and its franchises and privileges, and the amount of the incumbrances on its property and franchises is also relevant fact to be considered but is not to be specifically deducted from the valuation so ascer- tained and determined.” The contention of appellant’s counsel, in substance is, that to ascertain the actual value there should be de- ducted the amount of the corporation indebtedness from the aggre- gate fairly appraised value of the corporate property; the remainder would then represent the actual value of the capital stock. This would, in many cases, hide the tangible property and turn the Com- monwealth over to the assessment and collection of its revenues from nothing; in the face, too, of what we have repeatedly decided, that a tax upon the capital stock of a company is a tax upon its property and assets. The Legislature might have so worded the statute, that such result as that contended for would follow, namely, that solvent corporations should pay taxes and insolvent ones not; but, with our decisions in 1882 and 1886, and the declared law long preceding them, that capital stock in taxing statutes meant the property and assets of the corporation, hefore them, they declared, in the act of 1891, pre- cisely to the contrary. In fact, from the wording of preamble six of the act of 1891 we do not doubt. that at least the framer of the act was familiar with the opinion of this court in Com. vs Oil Co., supra. Net ey ey Oo On Ee Ags: Wed 26 In supporting their argument on each side, counsel have given undue significance to the indebtedness of the corporation, strictly speaking, in view of the purpose of this statute, the debt is almost as much of a myth as the certificate of capital stock. The declared purpose is, to tax the capital stock by ascertaining its value in view of the tangible assets of corporations, what was owing to them, the value of their franchises, and the rights and privileges they possessed under their grants. The Commonwealth no more souglkt by the act of 1891 to ascertain and tax the net assets of these artificial beings than by the usual tax laws, she seeks to tax the net assets of natural ones; in the latter case she rarely inquires as to what the taxpayer owes; she does not ask what he is possessed of; it is only when the attempt is made to tax his creditor, that, incidentally, what is owing by the debtor, becomes of interest to the taxing power. We have no hesitation in holding, that it would be manifest error to adopt the amount of the debt as a part of the value of the corporate property ; and it would be just as erroneous to hold, that it should be deducted from the aggregate value of the property, and thereby withdraw tan- gible property to that extent from taxation; in either case, it would be dragging in a fact, of but slight consequence, and making it the prominent and controlling one in the issue, in the face of the declared purpose of the statute, to tax the actual value of the capital stock, as indicated by the franchises and property. In the case of Com- monwealth vs. Standard Oil Co., supra, Paxson, J., in referring to the fact, that the certificates of stock were in possession of the owner in Ohio, where the corporation was domiciled, says: “It follows necessarily, that shares of stock in a Pennsylvania corporation, held by a corporation or individual, domiciled in another state, cannot be taxed here. 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.” In other words, the shares themselves, which rep- resent the owner’s interest less debts, have so little to do with the subject of taxation, the capital stock, that it is immaterial where they are held, or who holds them; the property and assets, the capital stock, being in this State, that alone is within reach of the tax- ing power. Now, what change is worked in this tangible property by subjecting it to a debt of the owner? In the case cited, the cer- tificates and owner were both in a foreign jurisdiction, yet the prop- erty and franchise being within the jurisdiction, the authority of the Commonwealth to tax the capital stock, on ascertaining its value from what was within the jurisdiction, was upheld. If he cannot withdraw his tangible property from taxation, by taxing his title to it, and persons, outside state boundaries, how can he do so by volun- tarily pledging it for a debt? That the owner subjects it to a debt in no way changes the relation of the Commonwealth to it as a subject bb Meet Ee COE a sl LOR 27 of taxation; it constitutes precisely the same capital stock as before; his relation to his own property has been somewhat changed, for by the mortgage debt he has admitted others to a share of the income, and has given them a lien for their debt; his title, however, remains just the same, as if the owner of the legal title to land had placed a mortgage upon it. All the indications of ownership, the possession of the deed and dominion over the property continue, as if no debt had been created. As is said by our Brother Williams in Common- wealth vs. Fall Brook Coal Co., 156 Pa. 488, speaking of the power of the Commonwealth to tax the land as well as the mortgage upon it:“In that case, there are two distinct subjects of taxation, each of which is made taxable by an express provision of the law. The farm is taxable as land, against whoever may be the owner, without regard to the incumbrances upon it. * * * The land is taxable once to the owner. The money is taxed once to its owner. They are distinctly different taxpayers, and pay taxes upon distinctly different subjects of taxation.’ The debt, as an item of evidence, may have bearing in fixing the value of the franchise, but from the nature of the prop- erty and the character of the debt, its affirmative weight in estab- lishing value is insignificant; for all forms of debt, as an indication of actual value of the thing pledged, the ordinary railroad mortgage is the most unreliable, and especially is this the case, when the mort- gage is executed to carry out a reorganization plan of security holders ina bankrupt road. Without adverting to the history of this road it is sufficient to say, that its mortgage debt was always far in excess of any possible value of the property. We do not know just what prom- inence was given by the learned judge of the court below to the amount of indebtedness in reducing the actual value of the capital stock. He says, in the conclusion of law already quoted, that the question of actual value in cash of the capital stock, is one of fact to be determined by considering the value of defendant’s tangible prop- erty, etc. “And the amount of incumbrances on its property and franchises is also a relevant fact to be considered, but it is not to be specifically deducted from the valuation so ascertained and deter- mined.” That he gave no weight whatever to this, even as affirma- tive evidence tending to establish the value of the stock as claimed by the Commonwealth, is clear; that he treated it as a relevant fact favoring defendant, and tending to reduce the actual value, although not to be specifically deducted, is also clear. And in this he was cor- rect. That a large debt, one largely out of proportion to the value of the property, secured by mortgage, with interest payable semi- annually, constituting what is called a fixed charge, seriously depre- ciates the actual value of the property, cannot be questioned. De- fault in any payment of interest puts the property in peril of seizure and sale, to satisfy not only the overdue interest but the whole debt. NYS Pe & ORR (SC) 28 A property heavily incumbered, as is this one, is liable to pass into the hands of the mortgage creditors at any time. But counsel for defendant planted himself on a demand for an absolute deduction of the whole amount from the appraised value, and made no request for a specific finding of fact in this particular. It was not, therefore, incumbent on the court to specify in the finding exactly what weight was given to a particular fact, and we assume that it had all the effect it was entitled to. The argument, that different methods were adopted by the Com- monwealth’s officers in ascertaining the actual value of the capital stock of corporations, and therefore, there has been want of unifor- mity and a discrimination, is not well founded. As the learned judge of the court below shows, prior to the act of 1891 the basis of taxa- tion value, by the taxing acts, was the net earnings, but the latter act declares that the capital stock shall be appraised “at its actual value in cash, not less, however, than the average price which said stock sold for during said year, and not less than the price or value indicated or measured by net earnings, or by the amount of profit made, and either declared in dividends or carried into surplus or sinking fund.” A minimum appraisement is here fixed for solvent corporations; in most cases, doubtless, the corporation officers and the Commonwealth in estimating the actual value of a solvent, well managed road, would adapt it, and properly too, as a fair basis in esti- mating the actual value of the capital stock. But the act of 1891 was intended to reach also the bankrupt road, which may have the same mileage, the same traffic, and the same privileges as the solvent one; the State conferred upon it the right of eminent domain, for location and extension of branches or feeders, as well as for necessary improvements; being constructed, it now has the right, under the protecticn of the laws, to operate it in carrying freight and passen- gers. As the same rule for a fair estimate of the actual value ef the capital stock cannot be adopted, as in case of the solvent roads, and the Commonwealth’s officers being dissatisfied with the corporate officer’s appraisement, they proceed under the authority expressly given, to make an appraisement upon the facts in the report, and other information within their possession. Upon appeal, the court differs from them in their inference, and reduces largely the amount subject | to tax. On the number of miles of road in Pennsylvania, about 127 out of a total of 430, with a capital stock of the actual value as a whole of $15,000,000, the court fixes the actual value of the capital stock of the 127 miles in this State at only a little over $3,500,000. The method of determining the proportion of stock taxable in Penn- sylvania has been repeatedly decided to be the correct one. The figures, certainly, do not indicate an excessive valuation of the cap- ital stock of 127 miles of railroad. As between the defendant and Nov, P& ORR: (8; 0.) 29 ‘solvent roads of the same physical character, there is no discrimina- tion as concerns results, in favor of the solvent ones, for the latter are rated as high as $40 to $52 per share, while this one is less than one-third that amount. The actual value being a pure question of fact, appellant has no standing to complain of discrimination in methods so long as its stock is not assessed in excess of that value. It may be that the Reading and some other corporations are taxed on less than the actual value of their capital stock, if so, the Common- wealth is not here appealing, and consequently it is not our business to inquire into the matter. We can only say, that after a most careful examination of the whole case, we find neither error of fact or law in the judgment of the court below, and it is therefore affirmed. Opinion filed October 17, 1898. 0.,C.&58. R. R. (C. P.) | Commonwealth of Pennsylvania, ) Dauphin County Common Pleas. VS. | 612 Commonwealth Docket, Ontario, Carbondale and Scran- C 1896. Appeal from settlement ton Railway Company. J for tax on capital stock. By the Court: This is an appeal from a settlement made by the Auditor General and State Treasurer June 30, 1896, against the corporation defendant, for tax on capital stock for the tax year 1895. It was tried by the court without a jury, as provided by the act of April 22, 1874, and on the testimony and documentary evidence we find the following: FACTS. 1. The defendant is a corporation created under the laws of the State of Pennsylvania, and by consolidation with certain corporations of the state of New York, it is the owner of 53.66 miles of railroad, of which 50.75 are in Pennsylvania and the remainder in the state of New York, and it has been leased to a New York corporation, the New York, Ontario and Western Railroad Company, for the term of ninety-nine years, the lessee agreeing to pay a rental of $75,000 per annum and such sum as may be necessary to maintain the organiza- tion of the corporation defendant, not exceeding $3,000, and in addi- tion 5 per cent. of the gross earnings, tolls and income derived by the lessee from the use and occupation of defendant’s railway, not exceed- ing $75,000 per annum. 2. Defendant has an authorized and paid up capital stock of $1,500,- 000, divided into 15,000 shares of the par value of $100 each. Its in- come received from the corporation lessee during the tax year 1895 was $103,867, and it has a funded debt outstanding of $1,500,000. There were no sales of its stock during said tax year. Al] of its bonds and capital stock are owned by the lessee, the New York, Ontario and Western Railroad Company. The cost of defendant’s road was $3,750,523.16. 3. In December, 1895, defendant’s president and treasurer after having taken the oath prescribed by law, made the report to the Auditor General required by the act of June, 1891, and appraised defendant’s capital stock at $10 per share for 15,000 shares, amount- OC éc.8e RR. (CPs) 32 ing in all to $150,000, and defendant has paid the tax due upon said $150,000, amounting to $750. The Auditor Genera] and State Treasurer being dissatisfied with the appraisement and valuation so made and returned, valued and appraised the proportion of the capital stock of defendant for the tax year 1895 taxable in Pennsylvania at $1,318,770.17, stating at length in their appraisement their reasons for so doing, which are hereby referred to and made part of this finding, and settled an ac- count in accordance with said appraisement, charging defendant with a tax at the rate of five mills, amounting to $6,593.85, from which set- tlement defendant appealed to this court, and on the trial the report and appraisement made by defendant’s officers, the appraisement and settlement made by the Auditor General and State Treasurer, defend- ant’s specifications of objections to the settlement, and other evidence, oral and documentary, was offered and heard. 4. After a full consideration of all the relevant evidence in the case, we find that the appraisement made by defendant’s officers is not correct, and that the appraisement made by the Auditor General and State Treasurer is greater than the actual value in cash of de- fendant’s capital stock, and we further find that the actual value in cash of defendant’s capital stock, representing its tangible property and assets, and its franchises, between the 1st and 15th of Novem- ber, 1895, was $1,000,000. CONCLUSIONS OF LAW. For the reasons given in the opinion filed April 8, 1897, in 691 Com- monwealth Docket, 1896, Commonwealth vs. New York, Pennsyl- vania and Ohio Railroad Company, which is hereby adopted as the law in the case, we find: 1. A tax on the capital stock of a corporation is a tax on its prop- erty and assets, including its franchises. The question of the actual value in cash of the capital stock is a question of fact, which must be determined by considering the value of defendant’s tangible prop- erty and assets of every kind, including its bonds, mortgages and money at interest, and its franchises and privileges; and the amount of encumbrances on its property and franchises is also a relevant fact to be considered, but it is not to be specifically deducted from the valuation so ascertained and determined. 2. The Commonwealth is entitled to recover from defendant in this case a tax at the rate of five mills on the dollar of ae of the actual value in cash of defendant’s capital stock, which we have found to be $1,000,000, with interest at the rate of 12 per cent. per annum from July 29, 1896, and Attorney General’s commission at the rate of 5 per cent. 5. Judgment is therefore directed to be entered in favor of the Commonwealth and against defendant as follows: 0. C&S. Ri R. (C> P.) 33 Tax on $945,957.32 at 5 mills, .............. $4,729 87 oR as ce Ri AO a om ee erie scaly Bis AR iat aS 750 00 Rea UCO nari tare. Sa weg ase, yc, ee POU LO. St Interest at 12 per cent. per annum from July CM ESTES Li oe 6 LE Bw Lee Ba GUN ee, Aenea a a ae 367 47 Attorney General’s commission, 5 per cent., 198 99 SRST) 92, he centeaah URE aes eed a eee ne $4,546 33 For which amount the prothonotary is directed to enter judgment in favor of the Commonwealth and against defendant, if exceptions be not filed within the time limited by law. (Signed.) J. W. SIMONTON, Eta Opinion filed May 7, 1897. 0. C.& SR; Re 68.702) 34 OPINION OF THE SUPREME COURT. Dean, J.: The defendant railroad is 53.66 miles in length, running from Scranton, Pennsylvania, to Hanover Junction, in New York; the number of miles in this State is 503. It has a paid up capital of $1,500,000, divided into 15,000 shares of the par value of $100 per share; its funded debt is $1,500,000. It is operated by the New York, Ontario and Western Railroad Company, under a lease for ninety- nine years; an annual rental of $75,000 is to be paid, also a sufficient sum to maintain the organization of the lessor company, not exceed- ing $3,000 annually; all the bonds and stock of the lessor company are owned by the lessee, a corporation chartered under the laws of New York. There were no sales of stock during the tax year 1895. The company officers made report to the Commonwealth, appraising the 15,000 shares of capital stock at the rate of $10.00 per share, or $150,000 for the whole, making the tax, at five mills, under the act of 1891, $750. The Auditor General and State Treasurer being dissatisfied with this appraisement, from the facts in this report and the company’s returns to the rail- road commissioners of New York, raised the valuation to $1,318,- 770.17. The company appealed from this appraisement to the court of common pleas. After full hearing of evidence, oral and docu- mentary, the court found the actual value in cash of the capital stock to be $1,000,000, this sum representing the company’s tangible prop- erty, assets and franchises. 7 From the judgment entered on this finding, the company appeals, assigning eleven errors, which may be treated .as practically two, for, except the first, the alleged errors are the construction put by the court upon the act of 1891. The court adopted the same view of that act, as in Com. vs. New York, Penna. and Ohio R. R. Co., in which opinion of this court is handed down this day. There being no sales of the stock for that year, of course the court had not the aid of sales or average sales in finding the actual value of the capital stock; if such sales had been made, what effect they would have had on the finding is altogether problematical. There is nothing, however, on the face of the report, or in the facts proven, which point to any error in the judgment. In the report of the com- pany’s officers the “gross earnings during the year from the lease of the road,” are put at $103,867. The application of the larger part of this income to indebtedness of the lessor company is claimed to be shown from the book account, leaving only a surplus of $26,269.89. OF CaGeee Ray hy (S02) 35 But, however this may be, it seems to us a road with such an earning capacity must necessarily have a very valuable property and fran- chise. In the return the actual value of the capital stock is put at only $150,000. The court below found the actual value to be much higher. There is nothing in the facts indicating error in this change. As the court was not bound to elaborate its reasoning from the evi- dence, or particularize the mental process by which its finding of fact was arrived at, we must assume the correctness of it, when there was evidence, as there was, to sustain it. Appellant does not seriously contend that the rule adopted by the court below, and expressly affirmed by this court in Com. vs. Dela- ware, Susquehanna and Schuylkill R., 165 Pa. 44, does not, in ascer- taining the actual value of the capital stock, authorize an estimation of the value of the franchise, but he does argue that that was a novel and extreme case, and should not be extended to cases where the facts are entirely different. But we see no reason why the same principle should not be applied to any case of undervaluation of the capital stock by the company’s officers. In that case the company appraised its capital stock at 42,000,000; the total cost of its road was about $1,160,000, yet the evidence showed it had paid one dividend during the year of 40 per cent. on its full paid up capital of $1,000,000. The court below was of the opinion that the actual value of the capital stock, including the franchises and privileges enjoyed by the com- pany was $4,000,000, exactly doubling the amount of the appraise- ment by the company’s officers. On appeal, in opinion by our Brother McCollum, the judgment was affirmed, on the ground that the actual value of the capital stock was a fact to be found by the court under the agreement waiving a jury trial, and in ascertaining the fact it was proper, under the act of 1891, to take into consideration the value of the franchise. Why is not that case a precedent in such as the one before us? In it there was a large undervaluation by the company’s officers, which, it was held, was not binding on the Commonwealth’s officers or the court; it is the same here. In that case, in doubling the valuation, the court took into view the value of the franchises and privileges enjoyed by the corporation; in this case, the court considers the cor- poration’s tangible property, assets and franchises. The construc- tion of the 6th preamble of the act of 1891, and the method adopted by the court in ascertaining the actual value of the capital stock in the case cited, are directly in point here, and in all cases of underval- uation. We see no reason to modify or restrict the decision in Com. vs. Delaware, Susquehanna and Schuylkill R. R., supra, by the facts in this case; indeed, we could not do so, without modifying or restrict- ing the plain terms of the act of 1891. 0.,C.& 8. R. R. (S. C.) 36 As to the first assignment, that the court did not find as a fact, that by the lease, the lessor company was to furnish the equipment, and having failed to do so, it was furnished by the lessee company, at an expense of about $800,000, we do not think the failure to for- mally find the fact of record, material. If the fact be as claimed, then the lessor company failed to keep its covenant with the lessee in that particular; if this had the effect of depreciating the actual value of the © capital stock, we have no doubt appellant had the benefit of it. It is by no means clear to us that it could have had any such effect; certainly not to the extent which would warrant a reversal of judg- ment. All the assignments of error are overruled, and the judgment is affirmed. Argued June 2, 1897. Re-argued February 23, 1898. Opinion filed October 17, 1898. Manor Gas (C. P.) ot Dauphin Common Pleas. 699 Commonwealth Docket, 1896. Appeal from settlement for tax on capital stock. Commonwealth of Pennsylvania, VS. Manor Gas Coal Company. By the Court: This is an appeal from a settlement made by the Auditor General and State Treasurer July 22, 1896, against the corporation defendant for tax on capital stock for the tax year 1895. It was tried by the court without a jury, as provided by the act of April 22, 1874, and on the testimony and documentary evidence we find the following: FACTS. 1. The defendant is a Pennsylvania corporation with a total author- ized and paid-in capital stock of $500,000, divided into 10,000 shares of the par value of $50 each. During the tax year 1895 defendant declared no dividends, nor were there any sales of defendant’s shares, and it had a funded debt outstanding of $200,000, with a floating in- debtedness of $47,745.58. Defendant’s property consists of coal rights and mining rights, which cost, together with the personal prop- erty incident to its operations, $300,000. Defendant’s receipts from the sale of coal and other sources during the tax year 1895 were $20,693.69, and its expenses, including $10,000 interest on its funded indebtedness, $2,218.05, interest on current loans were $22,841.50, leaving a deficit of $2,147.81. 2. In December, 1895, defendant’s president and treasurer, after having taken the oath prescribed by law, made a report and appraise- ment of defendant’s capital stock, appraising the 10,000 shares at $5 each, amounting on the whole to $50,000. 3. The Auditor General and State Treasurer not being satisfied with the appraisement and valuation so made and returned by de- fendant’s officers, estimated and appraised defendant’s capital stock at the sum of $161,670, that being the “assessed valuation of the real estate and personal property of the defendant as set forth in its an- nual report to this department,” and settled an account against defendant charging it with a tax at the rate of five mills on said $161,670, amounting to $808.35, from which settlement defendant arrealed to this court. Manor Gas (C. P.) 38 4. After a full consideration of all the relevant evidence in this case, we find that the appraisement made by defendant’s officers is not correct, and that the appraisement made by the Auditor General and State Treasurer is not too great. CONCLUSIONS OF LAW. On the facts of this case we find that the Commonwealth is entitled to recover from defendant the amount of tax charged against it in the settlement appealed from, namely, $808.35, with interest from October 22, 1896, at the rate of twelve per cent. per annum, and five per cent. Attorney General’s commission, and the prothonotary is directed to enter judgment in favor of the Commonwealth against defendant for said amount when properly calculated, if exceptions be not filed within the time limited by law. 7 (Signed.) J. W. SIMONTON, P. J. Opinion filed April 27, 1897. Manor Gas (S. C.) 39 OPINION OF THE SUPREME COURT. Dean, J.: The authorized capital stock of defendant company is $500,000. divided into 10,000 shares of the par value of $50 each. Its property consists of coal rights, mining rights and such personal property as is necessary in carrying on coal mining and shipping. There is upon the property a mortgage debt of $200,000; besides the company has a floating debt of $47,745.58. In the tax year 1895 after paying oper- ating expenses, interest on mortgage and floating debt, there was a deficit of over $2,000. In their return the corporate officers appraised the actual value of the capital stock at $10 per share, or $50,000. The Commonwealth’s officers being dissatisfied with this, raised the ap- praisement to $161,670; from this appraisement the company appealed to the court of common pleas, which, after hearing concurred in the Commonwealth’s settlement, and we now have this appeal by the company. | The principal complaint of appellant is that the court erred in adopting but one fact as the basis of actual value of the capital stock, to wit, the assessed valuation of the company’s real and personal property for local taxation, without taking into consideration, as relevant facts, the indebtedness, net earnings, and inability to pay dividends, ete. That the Commonwealth’s officers and the court, following their settlement by its approval, took into consideration only this one fact in fixing the value, is clear from the report. They say in the settle- ment: “The Auditor General and State Treasurer not being satisfied with the appraisement * * * do hereby estimate and appraise the capital stock of said corporation at the sum of $161,670, that being the value indicated by the assessed valuation of the real estate and personal property of the company, as set forth in the annual re- port to this department.” In the report, among many statements tending to show the value of the corporate property, is this answer to the 17th interrogatory: “Assessed value of real and personal property, $161,670.00.” In fixing the actual value of the capital stock, of course, it was proper this assesed value should be given consideration; but, there were many other relevant facts, which should also have been consid- ered. While the indebtedness should not have been specifically de- ducted, it was a fact, which, as we have held in Commonwealth vs. Manor Gas (S. C.) ‘40 New York, Penna. and Ohio Railroad Co., opinion handed down this day, was for consideration; also the earnings, net and gross, the fran- chises, and all the facts tending to establish the actual value of the capital stock. There is no room for presuming that any other than the one fact was considered in raising the appraisement; no evidence was given in the court below, except the company’s report, and the Commonwealth’s settlement, as we have quoted it. Clearly, ap- pellant is justified in invoking the maxim, “Expressio unius, exclusio alterius.” This being the case the judgment is reversed and the record remitted with directions that the parties be heard as to all the facts relevant to an ascertainment of the actual value of defendant’s capital stock. Argued May 31, 1897. Re-argued February 28, 1898. Opinion filed October 17, 1898. Fall Brook Ry. (C. P.) 41 ) Dauphin County Common Pleas. ’ | 658 Commonwealth Docket, 1896. Appeal from settlement for tax on capital stock. Commonwealth of Pennsylvania VS. Fall Brook Railway Company. | By the Court: This is an appeal from a settlement made by the Auditor General and State Treasurer June 30, 1896, against the corporation defendant, for tax on capital stock for the tax year 1895. It was tried by the court without a jury as provided by the act of April 22, 1874, and on the testimony and documentary evidence we find the following: FACTS. 1. Defendant is a corporation of the States of New York and Penn- Sylvania, having been formed by the merger of a New York and a Pennsylvania corporation, under authority of the act of Assembly of the State of Pennsylvania of March 24, 1865 (P. L. 49), the seventh Section of which enacts, that “That portion of the road of such con- solidated company in this Commonwealth and all its real estate and other property shall be subject to like taxation, and assessed in the same manner and with like effect as property of other railroad com- panies within this Commonwealth.” Defendant’s total capital stock consists of 500,000 shares of the par value of $50 each, amounting to $5,000,000, and from proceedings heretofore had in this court and from a statement made to the Auditor General of Pennsylvania in 1892, when defendant’s capital stock was increased, it has been deter- mined that $3,500,000 of said capital stock is invested in, and is the proportion properly taxable in Pennsylvania. 2. During the tax year 1895 defendant paid dividends upon its said capital stock in Pennsylvania, amounting in the aggregate to six per cent. There were no sales of defendant’s stock during said year. The funded debt of defendant during 1895 was $350,000, and no evi- dence has been offered to show that defendant had any real estate and property not subject to taxation, or to show the assesed value of its real estate, if any, taxable locally, or the value of the shares and funded debt of other companies of Pennsylvania owned and taxa- ble thereon, nor the value of defendant’s property outside of the State. Fall Brook Ry. (C. P.) 42 Defendant does not own any shares of stock in any other corpora- tions, nor does it own any portions of the funded debt of other corpora- tions. o. In November, 1895, the vice president, the secretary and the treasurer of defendant, having been first duly sworn as prescribed by law, made the report and appraisement required by law to the Auditor General, and estimated and appraised the proportion of the capital stock of defendant taxable in Pennsylvania, namely, 70,000 shares at $50 per share, amounting in the whole to $3,500,000, and made proper return thereof to the Auditor General. 4. The Auditor General and State Treasurer not being satisfied with the appraisement so made by the officers of the company defendant, on the 30th day of June, 1896, estimated and appraised the value of the capital stock of defendant taxable in Pennsylvania at $4,553,228, stating that said “value for the purpose of taxation in the State of Pennsylvania of the property of said company was indicated or meas- ured as follows: That is to say, by adding the value of the shares and the value of the funded debt together, deducting so much of the real estate and personal property not subject to taxation; also the assessed value of the real estate taxed locally; the value of the shares and funded debt of other companies in Pennsylvania owned and tax- able therein; also the value of the property outside of the State based upon the proportion of the miles within and without the State.” And they thereupon settled an account in accordance with their said - appraisement, charging defendant with a tax at the rate of five mills upon $4,553,228, amounting to $22,766.14, from which settlement de- fendant appealed to this court; and on the trial the report and ap- praisement made by defendant’s officers, the appraisement and set- tlement made by the Auditor General and State Treasurer, defend- ant’s specifications of objections to the settlement, and other evidence, oral and documentary, was offered and heard. 5. After a full consideration of all the relevant evidence in the case, we find that the appraisement made by the defendant’s officers is less, and that the appraisement made by the Auditor General and State Treasurer is greater than the actual value in cash of defendant’s capital stock; and we further find that the actual value of the pro- portion of defendant’s said capital stock, taxable in Pennsylvania, representing its tangible property and assets and its franchises, be- tween the 1st and 15th of November, 1895, was $4,200,000, and that defendant is taxable for the tax year 1895 at the rate of five mills on said amount. CONCLUSIONS OF LAW. In accordance with the principles decided in Commonwealth vs. Coal Companies, 164 Pa. 284; Commonwealth vs. Delaware, Susque- hanna and Schuylkill R. R. Co., 165 Pa. 44; and the opinion in Com- Fall Brook Ry. (C. P.) 43 monwealth vs. New York, Pennsylvania and Ohio Railroad Co., 691 Commonwealth Docket, 1896, recently filed in this court, we find: 1. A tax on the capital stock of a corporation is a tax on its prop- erty and assets, including its franchises. The question of the actual value in cash of the capital stock is a question of fact which must be determined by considering the value of defendant’s tangible property and assets of every kind, including its bonds, mortgages and money at interest, and its franchises and privileges, and the amount of in- cumbrances on its property and franchises is also a relevant fact to be considered, but it is not to be specifically deducted from the val- uation so ascertained and determined. 2. The Commonwealth is entitled to recover from defendant in this case a tax at the rate of five mills on the dollar on $4,200,000, the actual value in cash of defendant’s capital stock, with interest from September 30, 1896, at the rate of 12 per cent. per annum, and 5 per cent. Attorney General’s commission, and judgment is directed to be entered in behalf of the Commonwealth against defendant for said amount when properly calculated, if exceptions be not filed accord- ing to law. (Signed.) J. W. SIMONTON, | neg Opinion filed April 12, 1897. Fall Brook Ry. (S. C.) 44 OPINION OF THE SUPREME COURT. Dean, J.: The defendant is a corporation formed by the consolidation of Penn- sylvania and New York corporations, under the provisions of the act of 24th of March, 1865. The seventh section of the special act pro- vides: “That a portion of the road of such consolidated company in this Commonwealth, and all its real estate and other property, shall be subject to like taxation and assessed in the same manner and with like effect, as property of other railroads within this Com- monwealth.” Its capital stock is 100,000 shares of the par value of $50, making a total of $5,000,000, of which the proportion in Penn- sylvania is found to be $4,200,000, there being out of its whole length of 100 miles, about 85 in this State. Of its stock, 10,000 shares are preferred and 90,000 common stock. In the tax year 1895 it declared four dividends, each of one and one-half per cent. on its common stock, and dividends on the preferred of seven per cent. Be- sides, it had on hand assets, cash, bills receivable, accounts, etc., $961,354.68. The funded debt of the company is $350,000. Its gross income from operations of the road, interest, rentals, etc., during the year, was $835,845.59, from which deduct operating expenses, $439,690.67, leaving a net income of $396,154.92. There were no sales of stock during the tax year. The corporate officers, in their return to the Commonwealth, appraised the capital stock at $50 per share on 70,000 shares, or $3,500,000, taxable in Pennsylvania. The Com- monwealth’s officers being dissatisfied with this appraisement, ap- praised the actual value of the capital stock in Pennsylvania at $4,553,228, from which defendant appealed to the court of common | pleas; the learned judge of that court after full hearing of the evi- dence, appraised the actual value of the capital stock at $4,200,000, and directed judgment at 5 mills on the dollar of that amount. Hence this appeal by the railroad company. The road is undoubtedly solvent, but there were no sales of its stock during the tax year; the court must, therefore, from the facts apparent from the report of the company, and other documentary as well as oral evidence, determine the actual value of the capital stock, which in its finding of facts, it declared it did. Under the act of 1891 it held that a tax on the capital stock of a corporation is a tax on its property and assets, including its franchises. The construction, in Fall Brook Ry. (S. C.) 45 Commonwealth vs. New York, Penna. and Ohio R. R. Co., opinion handed down this day, we have decided to be a correct one of that Act. Outside of the Construction of the Act of 1891, one of appellant’s complaints is, however, that the court below erred in fixing by the mileage basis the proportion of the capital stock in Pennsylvania. It appears that in the returns for the years 1892, 1893 and 1894, which were accepted without objection by the Commonwealth, the propor- tion of the capital stock was 70,000 shares for Pennsylvania, leaving 30,000 for the New York end of the road. This is not the mileage basis, as approved and adopted by this court. Taking the whole length at 100 7-100 miles, then 85 70-100 miles being in Pennsylvania, that proportion of the whole capital stock is taxable here. There is nothing in the facts or the law which confines the Commonwealth to the proportion first adopted; that was a mistake and the court below properly corrected it by adopting the true basis. The decided weight of the evidence showed that the road was pro- jected as a coal carrying road and that the coal fields which it tapped would, in a “few years,” be exhausted; as a consequence the hitherto and present large traffic must greatly fall off. The approximate date of this exhaustion was quite indefinite. The affidavit of Vice Presi- dent Lang avers that the mines “will hold out but a few years longer.” This is so vague that it would be difficult for the court below to give to the fact of probable exhaustion the exact effect one of so much importance was entitled to. What does a “few years” mean in speaking of the rapid exhaustion of a coal field? The scientist, min- eralogist and geologist, when referring to the subject, speak of fifty, a hundred, and even more years, as rapid exhaustion; the coal opera- tor, or the coal carrier, may think five, ten or twenty, as a few years in which the coal will be exhausted. It is very clear that if in five or ten years the freight on which defendant’s road depends for pros- perity no longer exists, the actual value of its capital stock is seriously depreciated; for the value of its franchise, privileges and assets must be based not only on past but on future probable prosperity. But vague as the evidence was, we have no doubt the court below gave it due consideration. We see nothing in the evidence which would warrant us in disturb- ing the judgment; the assignments of error are therefore overruled and the judgment affirmed. Argued June 2, 1897. Re-argued February 23, 1898. Opinion filed October 17, 1898. Beech Creek R. R. (C. P.) 47 Commonwealth of Pennsylvania, | In Court ef Common Pleas, Dau- VS. + phin County. No. 663, Com- Beech Creek Railroad Company. ) monwealth Docket, 1896. By the Court: This is an appeal from a settlement made by the Auditor General and State Treasurer, June 30, 1896, against the corporation defend- ant, for tax on capital stock for the tax year 1895. It was tried by the court without a jury, as provided by the act of April 22, 1874, and on the testimony and documentary evidence we find the following: _ FACTS. 1. The defendant is a corporation of the State of Pennsylvania, or- ganized in 1886, by the purchase at sheriff’s sale of the Beech Creek, Clearfield and Southwestern railroad. It owns 149.73 miles of rail- road, including main line and branches, constructed at a cost of $10,731,358.40, mainly for the purpose of transporting coal from the bituminous coal regions of Clearfield and Centre counties. On the first day of October, 1890, defendant sold to the New York Central Railroad Company all its tangible property and assets of every kind, except its railroad and equipment, and the said company assumed all the liabilities and indebtedness of the defendant. At the same time defendant leased its railroad and equipment to the said New York Central Railroad Company for nine hundred and ninety-nine years from the 1st day of October, 1890, the lessee agreeing to pay as rental the interest on the bonded indebtedness of the defendant, which at that time amounted to $5,000,000 4 per cent. bonds, and in addition quarterly dividends at the rate of four per cent. on the capi- tal stock of defendant, which amounted to $5,500,000. The lessee also agreed to pay the interest upon any bonds subsequently issued with its permission, and to pay the same rate of dividends upon any capital stock subsequently issued on the same conditions. The bonded in- debtedness was subsequently increased by the issue of $500,000 5 per cent. bonds, secured by a second mortgage. Prior to the making of this lease defendant has never paid during any one year as much as 4 per cent. upon its entire capital. Beech Creek R. R. (C. P.) 48 2. In November, 1895, the treasurer and comptroller of the company defendant, having first taken the oath prescribed by law, estimated and appraised defendant’s capital stock as of the actual value in cash of $45 per share, or in all $4,950,000, and returned said appraisement to the Auditor General. During the tax year 1895, for which said report and appraisement were made, defendant had no gross or net earnings, except that as required by the terms of the lease the lessee paid the interest upon its bonded debt and 4 per cent. dividends upon its capital stock, and it had no surplus or sinking fund, and there were no Sales of its stock during the tax year 1895. 3. The Auditor General and State Treasurer were not satisfied with, and did not adopt, the appraisement made by the company’s officers,. as above set forth, but on the 30th day of June, 1896, themselves made an appraisement and valuation of defendant’s capital stock, apprais- ing it at $10,097,288.16, upon which appraisement they settled an account, charging defendant with a tax of five mills on the dollar of said sum, amounting to $50,486.44, from which account defendant appealed to this court; and on the trial the report and appraisement made by defendant’s officers, the appraisement and settlement made by the Auditor General and State Treasurer, defendant’s specifica- tions of objections to the settlement, and other evidence, oral and documentary, was offered and heard. 4. After a full consideration of all the relevant evidence in the case, we find that the appraisement made by the defendant’s officers is not correct, and that the appraisement made by the Auditor Gen- eral and State Treasurer is excessive; and we further find that the actual value in cash of defendant’s capital stock, representing its tangible property and assets, and its franchises, between the Ist and 15th of November, 1895, was $7,500,000, and that defendant is taxable for the tax year 1895 at the rate of five mills on the dollar on said amount. CONCLUSIONS OF LAW. In accordance with the principles decided in Commonwealth ys. Coal Companies, 164 Pa., 284; Commonwealth vs. Delaware, Susque- hanna and Schuylkill R. R. Co., 165 Pa., 44; and the opinion in Com- monwealth vs. New York, Pennsylvania and Ohio Railroad Co., 691 Commonwealth Docket, 1896, recently filed in this court, we find: 1. A tax on the capital stock of a corporation is a tax on its prop- erty and assets, including its franchises. The question of the actual value in cash of the capital stock is a question of faet which must be determined by considering the value of defendant’s tangible prop- erty and assets of every kind, including its bonds, mortgages and money at interest, and its franchises and privileges, and the amount of incumbrances on its property and franchises is also a relevant fact Beech Creek R. R. (C. P.) 49 to be considered, but it is not to be specifically deducted from the valuation so ascertained and determined. 2. The Commonwealth is entitled to recover from defendant in this case a tax at the rate of five mills on the dollar on the actual value in cash of defendant’s capital stock, being $7,500,000, with interest at the rate of 12 per cent. per annum, from September 30, 1896, and 5 per cent. Attorney General’s commission, and judgment is directed to be entered in favor of the Commonwealth and against defendant for that amount when properly calculated, if exceptions be not filed within the time limited by law. (Signed.) J. W. SIMONTON, Riv: (Opinion Supreme Cour’ page 50.) Beech Creek R. R. (S. C.) 2 50 OPINION OF THE SUPREME COURT. Dean, J.: The treasurer and comptroller of the railroad company defendant, in their report for the tax year 1895, appraised the capital stock of the company, there having been no sales for that year, at $45 per share, amounting to $4,950,000. The Commonwealth’s officers increased this amount to $10,097,218.16; from this the company appealed to the court of common pleas, where after full hearing the amount was re- duced to $7,500,000. From that decision we have this appeal. Ap- pellant’s counsel contends that the court below erred in not adopting the methods of the company’s officers in ascertaining the actual value of the capital stock. The court gave the same construction to the act of 1891, as in the case of Commonwealth vs. New York, Pennsylvania and Ohio Rail- road Company, in which opinion is this day handed down. The learned judge says, in the case before us: “A tax on the capital stock of a corporation is a tax on its property and assets, including its fran- chises. The question of the actual value in cash of the capital stock is a question of fact which must be determined by considering the value of defendant’s property and assets of every kind, including its bonds, mortgages and moneys at interest and its franchises and priv- ileges, and the amount of incumbrances on its property and franchises is also a relevant fact to be considered, but it is not to be specifically deducted from the valuation so ascertained and determined.” As noticed, there were no sales of stock during the tax year. The nominal capital stock is 110,000 shares, of a par value of $50 per share; the road was constructed at a cost of $10,731,358.40. It has a first mortgage debt of $5,000,000 at 4 per cent., and a second mort- gage of $500,000 at 5 per cent. On the Ist of October, 1890, the com- pany leased its road to the New York Central for 999 years, the lessee to pay the interest on the mortgage debt, and the principal when due, also to pay to the stockholders 4 per cent. quarterly on their holdings. All the engagements of the lessee company have been kept, and there is no question as to its ability to continue to keep them; for it had accumulated a surplus in the five years, above all charges and expenses, of over $600,000. The defendant is therefore undoubtedly solvent. The court below in the rule adopted, which is in substance a construction of the act of 1891, committed no error. Whether any inference drawn from the facts was not warranted we Beech Creek R. R. (S. C.) 51 cannot tell, for no special finding of fact is set out in the opinion, and none was requested, except that the court should adopt the appraise- ment of the company’s officers. We must assume the court below correctly found the facts on which it expressly declares its judgment rests. That being the case, we have nothing further to say in refer- ence to the construction of the act of 1891, than we have already said in the case of Commonwealth vs. New York, Pennsylvania and Ohio Railroad Company, heretofore referred to. The assignments of error are therefore overruled and the judgment affirmed. Argued June 1 and 2, 1897. Re-argued February 23, 1898. Opinion filed October 17, 1898. Pine Creek R. R. (C. E) o3 ) Dauphin County Common Pleas. 668 Commonwealth Docket, 1896. Appeal from settlement for tax on capital stock. Commonwealth of Pennsylvania, . VS. Pine Creek Railway Company. J By the Court: This is an appeal from a settlement made by the Auditor General and State Treasurer June 30, 1896, against the corporation defendant, for tax on capital stock for the tax year 1895. It was tried by the court without a jury, as provided by the act of April 22, 1874, and on the testimony and documentary evidence we find the following: FACTS. 1. The Pine Creek Railway Company, defendant, is a corporation of the State of Pennsylvania, originally chartered as the Jersey Shore, Pine Creek and Buffalo Railway Company, by special act of February 17, 1870, P. L. 149. It has never constructed the entire line authorized by its charter, but has built and owns 74.8 miles of rail- road, extending from Stokesdale Junction, in Tioga county, to New- berry Junction, in Lycoming county, all in Pennsylvania. At Stokes- dale Junction it connects with the Fall Brook system, and at New- berry Junction, five miles from the city of Williamsport, with the Philadelphia and Reading Railroad system. With the exception of the borough of Jersey Shore, which has a population of nearly two thousand, there are no important towns along the line of its railroad. It runs through a rugged and sparsely settled country, furnishing very little local traffic, and is mainly dependent on the traffic coming upon it from connecting roads. The cost of the road was $4,678,- 580.47, of which amount $3,500,000 was the proceeds of the sale of bonds at par, $1,000,000 was derived from the sale of stock, and the balance was advanced by individuals. 2. Defendant’s road was completed about July 1, 1883. It owns no equipment, and its road is operated by the Fall Brook Railway Company under an agreement by which the defendant receives thirty per cent. of the gross receipts from the operation of the road. De- fendant’s income in 1895 was $257,000, and the interest on its funded debt of $3,500,000 was $210,000; in some years the income has not Pine Creek R. R. (C. P.) 54 been sufficient to pay the interest, and the result of its operation from the opening of the road to June 30, 1895, left a net deficit of $165,- 28().40, after paying the interest, which amount was made up by other parties who, in order to encourage the construction of the road, had agreed to advance the amount necessary to pay said. interest. These advances have never been repaid and the floating debt of the defendant at the end of the tax year 1895 was $431,000.34; no dividend has ever been paid to the stockholders. 3. Defendant’s capital stock consists of 20,000 shares of the par value of $50 each, amounting to $1,000,000. In November, 1895, the president and secretary of the company, having been first duly sworn as prescribed by the act of 1891, appraised defendant’s capital stock at $5 per share, amounting in the whole to $100,000, and duly returned their report and aprpaisement to the Auditor General, as required by law. Defendant has no surplus or sinking fund, and there were no known sales of the shares of its capital stock during the tax year 1895. 4. On June 80, 1896, the Auditor General and State Treasurer, not being satisfied with the appraisement and valuation made and re- turned by defendant’s secretary and treasurer as above stated, esti- mated and appraised defendant’s capital stock at the sum of $5,878,- 456, and settled an account against defendant, charging it with a tax of five mills upon said valuation, amounting to $29,392.28, from which account defendant has duly appealed to this court. On the trial the report and appraisement made by defendant’s officers, the appraisement and settlement made by the Auditor General and State Treasurer, defendant’s specifications of objections to the settlement, and other evidence, ora] and documentary, was offered and heard. 5. After a full consideration of all the relevant evidence in the case, we find that the appraisement made by the defendant’s officers is not correct, and that the appraisement made by the Auditor Gen- eral and State Treasurer is excessive, and we further find that the actual value in cash of defendant’s capital stock, representing its tan- gible property and assets, and its franchises, between the 1st and 15th of November, 1895, was $2,500,000, and that defendant is taxable for the tax year 1895 at the rate of five mills on the dollar on said amount. CONCLUSIONS OF LAW. In accordance with the principles decided in Commonwealth vs. Coal Companies, 164 Pa. 284; Commonwealth vs. Delaware, Susque- hanna and Schuylkill Railroad Co., 165 Pa. 44; and the opinion in Com- monwealth vs. New York, Pennsylvania and Ohio Railroad Co., 691 Commonwealth Docket, 1896, recently filed in this court, we find: 1. A taxon the capital stock of a corporation is a tax on its property and assets, including its franchises. The question of the actual value Pine Creek R. R. (C. P.) 55 of the capital stock is a question of fact which must be determined by considering the value of the defendant’s tangible property and assets of every kind, including its bonds, mortgages and money at interest, and its franchises and privileges, and the amount of incumbrances on its property and franchises is also a relevant fact to be considered, but it is not to be specifically deducted from the valuation so ascertained and determined. 2. The Commonwealth is entitled to recover from the defendant in this case a tax at the rate of five mills on the dollar on the actual value in cash of defendant’s capital stock, being $2,500,000, with in- terest at the rate of 12 per cent. per annum from September 30, 1896, and 5 per cent. Attorney General’s commission, and judgment is directed to be entered in favor of the Commonwealth and against defendant for that amount when properly calculated, if exceptions be not filed within the time limited by law. (Signed.) J. W. SIMONTON, Pade Opinion filed April 12, 1897. Pine Creek R. R. (S. C.) 56 OPINION OF THE SUPREME COURT. Dean, J.: | Appellant’s capital stock consists of 20,000 shares of the par value of $50 per share, aggregating $1,000,000. Its road is operated under a lease by the Fall Brook Railway Company, by which the lessees pay annually to the lessor thirty per cent. of the gross receipts; this, in the tax year returned, was $257,000. The lessor company’s funded debt is $3,500,000, bearing an annual interest of $210,000. There have been frequent deficits, so that the floating debt at the date of the return in 1895 was $431,000. The corporate officers, in their return, ap- praised the capital stock at $5 per share, making an aggregate valua- tion of $100,000. The Commonwealth’s officers raised this to $5,878,- 456. The principal reasons for this change, as given in the settlement, are, that by the report, the net earnings for the year were $352,717.36, or an average of $4,700 per mile; that the gross earnings were $906,- 261.70, an average of about $12,000 per mile. Showing, that without regard to the indebtedness the earning capacity demonstrates the value of the franchise, assets and privileges which represent the actual value of the capital stock to be much greater than that fixed by the company’s officers. 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