Pittsburg Life & Trust Co. v. Young

Walker, J., after stating the case: The right of a State to lay a tax' on a foreign corporation, or to impose other burdens as a condition of its entering its borders for the purpose of conducting its business or a part of it there is well established by the authorities. No State is bound, except as a matter of comity, to recognize corporations created by other States or to permit them to transact business within its limits; and therefore each State may impose such conditions and burdens, in respect to taxation, as it may choose, upon foreign corporations desiring to establish business within its borders, exploit its resources, enter its markets, and enjoy the benefits and protection of its laws, subject only to the restriction that its tax laws must not operate as an interference with foreign or interstate commerce, or unjustly discriminate between different foreign corporations of the same class after they have been admitted to do business within the State and complied with the conditions originally imposed. 36 Cyc., 857, 858. There are some limitations on the powers of a State with reference to imposing burdens upon a foreign corporation which have been recognized by the courts, but they need not be discussed here, as no such question arises in this case. It is within the power and discretion of each State to impose an annual or other license or privilege tax on all foreign corporations doing business within- its limits; and it is no valid objection that such tax is higher than that imposed on similar domestic corporations. Although a tax of this kind is often spoken of as a franchise tax, it is to be observed that the State cannot tax a foreign corporation in respect *475 to its franchise of corporate existence, tbe right to be a corporation,, but that the privilege of doing business in a given State, in its corporate character, may be considered as a franchise and taxed as such. A license or privilege tax on foreign corporations may be graduated according to the amount of their capital stock, and so- much of the capital of a corporation as is employed in a given State may be there taxed. 37 Cyc., 860 and 861. It is held that “a tax on the gross-earnings or receipts within the State of • a foreign corporation is a proper and legitimate exercise of the taxing power, as it is in reality a tax on the privilege of doing business within the State measured by the volume of business transacted; but the Legislature must provide-some method of ascertaining the amount of the gross receipts and prescribe the rate of taxation.” 37 Cyc., 863 and 864, and note containing many cases on the subject. It is well settled, then, that a tax for the privilege of carrying on-business in a State, or a franchise tax, may be imposed by the latter upon a foreign corporation, and the amount of it may be fixed on the basis of a percentage of its gross receipts from business or property, provided the business is transacted in the State from which receipts are derived or the property is located there. So. B. and L. Assn. v. Norman, 98 Ky., 294 (s. c., 31 L. R. A., 41; 56 Am. St. Rep., 367, and note at p. 374); Pacific Exp. Co. v. Seibert, 142 U. S., 339. The questions then recur as to whether the tax laid by the statute upon the “gross receipts in this State” of the plaintiff is a license or franchise tax, and whether the term employed restricts the tax to moneys actually received in this State or extends to such portions of plaintiff’s earnings on business in this State as are remitted directly to it in Pittsburg, Pa., by checks of its policy-holders given for premiums and mailed to it there. This is stating the latter question as broadly for the plaintiff as it could desire. That the tax is for the privilege of doing business in this State appears conclusively from a consideration of the history of this clause-as it appears ifi the various statutes on the same subject, and which constitute as a whole one scheme of taxation. The expression, “gross receipts in this State,” originated in the Eevenue Act many years ago, and is found in that act as brought forward in the Eevisal as chapter 110 (sec. 5175) and subsequent statutes. It was also placed in the insurance laws, which were brought forward and codified as chapter 100 (see. 4715), so that the entire body of insurance law might be-consolidated; but this did not change, and was not intended to change, the nature of the tax as one for the privilege of doing business in this-State. As found in the Eevenue Act, it is in Schedule B, which *476 embraces only license and privilege taxes, and it is so declared in tbe preamble or caption of tbe act, and tbe manner of laying tbe tax itself shows tbe intention that it should be nothing more than a privilege or business tax. Tbe mere fact that it was measured by tbe amount of gross receipts does not make it any tbe less a privilege tax, but that is only tbe adoption of a fair and just standard by which to gauge its amount, and it is not at all unusual to graduate such a tax by tbe extent or volume of tbe licensee’s business in tbe particular locality. Besides, tbe companion statutes 'above set forth clearly indicate tbe purpose of tbe Legislature that it should be an occupational tax for tbe privilege of doing business. It is competent to consider such statutes for tbe purpose of construction of tbe one in question. Board v. Comrs., 137 N. C., 67; Arendell v. Worth, 125 N. C., 111; Abernathy v. Comrs., 169 N. C., 631; Grocery Co. v. Bag Co., 142 N. C., 179. Having determined what kind of tax this is, we proceed to tbe next question, as to what, the term “gross receipts in this State” means. The plaintiff contends that it does not embrace premiums paid by policy-holders directly to tbe company at its home office in Pittsburg, Pa., by checks or drafts mailed by them to it, but that it only embraces money actually collected or received in this State. This, though, is a clear misconception of its true meaning. It is not taxation of the receipts, but a tax equal to 2% per cent on their gross amount, -and it is not confined to cash or other collections in this State to tbe exclusion of the premiums paid directly by check to tbe home office, as tbe tax is one on tbe income or earnings from the business done in this State, however received by or paid to tbe company. Tbe standard is tbe volume of tbe earnings and not tbe method of payment. Any other interpretation would render tbe legislation nugatory and disappoint the clear intention of the Legislature. Tbe statute could easily be evaded and nullified; and while this reason should not be considered, if tbe meaning is perfectly clear, so that there is no room for construction, it is a legitimate circumstance to be considered'in ascertaining tbe meaning where construction is necessary. But tbe Revenue Law shows, without any doubt, that tbe “receipts” intended were those derived from its business in this State. This question, regardless of tbe light to be obtained from cognate statutes, was considered, and a contention similar to that of plaintiff in this case was fully answered in Phila. and R. R. R. Co. v. Commonwealth, 104 Pa. St., 80, 82, where tbe Court said: “It is argued by tbe able and ingenious counsel of tbe defendant that tbe taxability or otherwise of tbe gross receipts depends upon tbe relation of tbe taxing act *477 to those into whose hands they come; in other words, that the expression ‘gross receipts of said company’ means the gross amount received by said company, and that, as the company, as such, received nothing, it .had no gross receipts. "We do not so understand the act. As we construe it, ‘gross receipts’ is equivalent to ‘gross increase’ or ‘gross earnings,’ and. we think that their origin and ownership, rather than the hands into which they come, must be considered in determining the question whether they are taxable or not.” But the case of Com. v. Eq. L. A. Soc. of U. S., 249 Pa. St., is, perhaps, a full authority for our view of the case. There it is said: “The annual tax upon premiums of insurance companies of other states or foreign governments shall be at the rate of 2 per centum upon the gross premiums of every character and description received from business done within this Commonwealth. ... It seems, however, that the premiums for insurance written and maintained upon the lives of residents of Pennsylvania are not all paid to these agencies in Pennsylvania. Some of them are sent to the home office in New York, or are paid to the society through agencies outside the State of Pennsylvania. In making up its returns for taxation for the years 1906 to 1910, inclusive, the society did not include these premiums paid by residents of Pennsylvania for insurance upon their lives which were sent to points outside the State. ... In order to determine the question in controversy we must ascertain the source of the premiums which were paid r.o agencies outside the State. If they were received by the society from business done within the Commonwealth, then they were subject to the tax. If they did not come from such business, they were not subject to the tax. . . . When it (the insurance company) comes within our borders to do business, it renders a service; it furnishes protection and indemnity to its beneficiaries, residents of the State of Pennsylvania. That is the business which it does in Pennsylvania, and that is the purpose for which it seeks and is granted permission to enter. Furnishing that service, that insurance against loss, it makes a proper charge to cover the cost of the service which it renders, and that charge is the premium. If is simply payment for the valuable service it renders. Whether that service be paid for on the spot where the service is rendered or whether the amount be remitted to the home office does not change the character of the business done and for which recompense or payment is made. If it happens to be made to an agency in Pennsylvania, the defendant society, admits without question that it is received from business done within this Commonwealth, and is subject to the tax. How can the fact, or the character, of the business done-for the benefit of residents of Pennsylvania be altered or affected in *478 any way by tbe manner in which or the place where the payment for the business done and the service rendered is made? Clearly, it cannot be so affected.” That case was taken by writ of error to the Federal Supreme Court, and, the construction of its own statute by the State court being accepted as final, it was held that the Legislature acted well within its power when it laid the tax as one for the privilege of doing business in the State, and that there was no infraction of the Federal Constitution or any of its amendments. Eq. L. Ass. Soc. of U. S. v. Com. of Pa., 238 U. S., 143. Justice Holmes, writing for this Court, said: “These policies of life insurance, according to the statement of the plaintiff in error, are kept alive and renewed to residents of Pennsylvania by payments from year 'to year. The fact that- the State could not prevent the contracts, so far as that may be true, has little bearing upon its right to consider the benefit thus annually extended into Pennsylvania in measuring the value of the privileges that it does grant.' "We may add that the State profits the company equally by protecting the lives insured, wherever the premiums are paid. The tax is a tax upon a privilege actually used. The only question concerns the mode of measuring the tax. As to that, a certain latitude must be allowed. It is obvious that many incidents of the contract are likely to be attended to in Pennsylvania, such as payment of dividends when received in cash, sending an adjuster into the State in case of dispute, or making proof of death. It is not unnatural to take the policy-holders residing in the State as a measure without going into nicer if not impracticable details. Taxation has to be determined by general principles, and it seems to us impossible to say that the rule adopted in Pennsylvania goes beyond what the Constitution allows,” citing Flint v. Stone Tracy Co., 220 U. S., 107, 162, 163; Conn. Mut. L. Ins. Co. v. Spratley, 172 U. S., 602, 611; Penn. L. Mut. F. Ins. Co. v. Meyer, 197 U. S., 407, 415. As our Revenue Act expressly classifies this as a license tax imposed for the privilege of doing business in the State, it would seem that upon all questions presented by this record the cases just cited are ample to sustain the ruling below. The reliance of the plaintiff upon the fourteenth amendment to the Federal Constitution is futile in view of those decisions and So. B. and L. Assn. v. Norman, supra, where the cases are collated; and equally untenable is the position that the tax is a burden upon interstate commerce. It is restricted to an intrastate transaction and does not extend beyond the boundary of the State, for it is distinctly a tax for the privilege of doing business within and not without the State. It was said in the Norman case, supra (at p. 43)‘, where there is an elaborate *479 discussion of the question, backed by tbe highest authority: “It is argued that the freedom of commerce between the States is interfered with, and the equal protection of the laws denied the corporation. The statute, whatever may be said of the nature of the tax it imposes, in express terms affects only business done within the State. The business — traffic or commerce^ if you please so to term it — of the corporation is purely internal or domestic. Having under consideration the validity of a tax imposed on a Nebraska express company by a Missouri statute '(act 16 May, 1889) similar to the one now in question, the Supreme Court, by Justice Lamar, after quoting the statute, said: ‘It is manifest that these provisions of the statute, so far from imposing a tax upon the receipts derived from the transportation of goods between other States and the State of Missouri, expressly limit the tax to receipts for the sums earned and charged for the business done within the State. This positive and oft-repeated limitation to business done within the State, that is, business begun and ended within the State, evidently intended to exclude, and the language employed certainly does exclude, the idea that the tax is to be imposed upon the interstate business of the company. Business done within the State cannot be made to mean business done between the State and other States.’ ” It will be observed that our statutes above mentioned are in pari materia, and when considered together, as they should be (Black on Inter, of Laws, p. 331, and note 44 et seq.), levies the tax upon “the amount of the gross receipts derived from the insurance business under this chapter obtained from residents of this State,” a purely domestic or intrastate subject, having no direct or even indirect connection with any interstate business of the company; and the case, therefore, falls naturally and easily within the principles so clearly set forth by Justice Holmes in the case above cited and by the State court in the Norman case, supra. The plaintiff further contends that if the law is against it on all other features of the ease, the State cannot lay even a privilege tax upon the gross receipts of any business done by the State under the policies of foreign companies, held by residents of the State, which it had reinsured. But this manifestly is a fallacy. The privilege which it enjoys under those policies by its reinsurance is to continue that insurance in the State by receiving the renewal premiums from time to time as they mature or become due, as that is “doing business” in this State. L. Ins. Co. v. Meyer, 197 U. S.; 407; M. L. Ins. Co. v. Spratley, 172 U. S., 602. Its license, therefore, covered those transactions, as well as any other insurance it then had, which had been *480 originally granted by it in tbis State to residents thereof, and also all new insurance. It can make no difference bow it acquired tbe right to control tbe policies, whether by reinsurance or by issuing them in the beginning as its own policies. It is the gross earnings from business carried on, under all of its policies, after it obtained license, which is taken into account by the law as the standard for fixing the tax. It is as much a privilege to do business under the old policies as it is under the new ones, for business does not end with the issuing of policies, but the collection of premiums afterwards is as much within that designation as is the issuing of the policies themselves. If the companies whose policies plaintiff reinsured had continued to carry them without any reinsurance, they would have been liable for the tax; and why, therefore, should plaintiff be exempt therefrom? The last contention is that if this is a property tax, it violates the fourteenth amendment of the Federal Constitution, being an attempt to take property without due process of law, and a denial of the equal protection of the law, as it taxes property not within this State. This position is equally without any merit and wholly untenable. What we have already said is a full answer to it. There has been no effort to tax property beyond the limits of the State. The tax, by positive words of the statute, is restricted, for its measure, to transactions and property in the State, that is, to insurance and collections of premiums, or gross earnings from the said business “in the State.” This objection to the tax is- completely answered by the Pennsylvania cases and the Norman case, supra, and no further discussion could possibly add any force to what is so well said there. As said in Flint v. Stone Tracy Co., 220 U. S., at p. 162, “This argument confuses the measure of the tax upon the privilege with direct taxation of the estate or thing taxed.” If the position of the appellant were sustained by us it would not only practically nullify the statute, but greatly hamper the State in the proper exercise of her sovereign power of taxation upon subjects wholly within her borders, and seriously curtail her legitimate revenues. The court rightly sustained the demurrer and dismissed the action. Affirmed.