Boatmen's Bancshares, Inc. v. Director of Revenue

RENDLEN, Judge. Boatmen’s Bancshares, Inc. (Boatmen’s) appeals from an Administrative Hearing Commission decision upholding the Director of Revenue’s (Director’s) assessment of additional franchise taxes for 1984 [575] and 1985 and his denial of Boatmen’s claim for a refund of 1980 franchise taxes paid under protest. As the issues require “construction of the revenue laws,” the case falls within this Court’s exclusive appellate jurisdiction, Mo. Const, art. V, Sec. 3, and because the decision involves only questions of law, we exercise an independent review of the cause. Staley v. Missouri Director of Revenue, 623 S.W.2d 246, 248 (Mo. banc 1981); Oberjuerge Rubber Co. v. State Tax Commission of Missouri, 674 S.W.2d 186, 187 (Mo.App.1984). We affirm. Boatmen’s, a Missouri corporation, does business in Missouri as a registered bank holding company. During the years in question (1980,1984, and 1985), it owned 99 to 100 percent of the stock in a number of subsidiaries, all of which were banks or similar financial institutions, and during those years neither Boatmen nor its subsidiaries did business outside Missouri. On December 31, 1985, 92.89 percent of Boatmen’s assets consisted of either investments in or advances to subsidiaries, and the percentages were similar during the years 1980 and 1984. Boatmen’s financed acquisition of the subsidiaries by issuing its own stock with a stated par value of $10.00 per share, and by December 31, 1985, 97 percent of its stock had been issued for the purpose of acquiring the subsidiaries and fulfilling Boatmen’s requirements as to ownership, supervision, and control of those institutions. We turn now to the applicable corporation franchise tax statute, Sec. 147.010.1, RSMo 1978 (Supp.1984), which in pertinent part, provides: For ... each taxable year beginning on or after January 1, 1980, every corporation organized under or subject to chapter 351, RSMo, or under any other laws of this state shall, in addition to all other fees and taxes now required or paid, pay an annual franchise tax to the state of Missouri equal to one-twentieth of one percent of the par value of its outstanding shares and surplus. (Emphasis added.1) The statutory term “surplus” has long been defined as “the excess of assets employed in the business over the par value of outstanding capital stock,” State ex rel. Marquette Hotel Investment Co. v. State Tax Commission, 282 Mo. 213, 221 S.W. 721, 725 (Mo. banc 1920),2 and the parties do not question this definition of the term. The core dispute concerns the role of a parent corporation’s investments in and advances to subsidiaries when computing the parent corporation’s franchise tax base. It is agreed that such investments and advancements should in some manner be excluded from the tax base, but the parties differ as to the point at which the exclusion should be effectuated. Boatmen’s contends that those investments and advancements should be deducted from the sum of the par value of outstanding stock and the surplus, with the resulting figure constituting the tax base.3 This was the approach Boatmen’s employed in computing its franchise tax for the years in question. The Director, on the other hand, asserts that the investments in and advances to subsidiaries may be excluded from the assets of the corporation for the purpose of computing surplus, but should not, as Boatmen’s would have us do, be subtracted from the sum of the par value of outstanding stock and surplus. The distinction is critical, for Boatmen’s interpretation would allow the tax base to be less than the par value of the outstanding stock, whereas the Director interprets the [576] statute, which taxes a percentage of the “par value of outstanding stock and surplus,” to the effect that the tax base can never be less than the par value of the outstanding stock. Hence, as in this case, where investments in and advancements to subsidiaries are excluded from assets of the corporation for franchise tax purposes, and the corporation has no assets in excess of the par value of outstanding stock, the director argues the corporation has no surplus and the tax base is simply the par value of its outstanding shares. Consistent with his interpretation of the statute, the Director adopted the par value of Boatmen’s outstanding stock as the tax base, and assessed the following: Year Tax Interest Penalty Total 1980 $ 8,291.50 $ 270.18 $1,658.30 $10,219.98 1984 22,023.22 4,074.30 1,101.16 27,198.68 1985 22,996.00 1,494.74 -0- 24,490.74 Boatmen’s paid the 1980 tax and claimed a refund pursuant to Sec. 136.035.3, RSMo 1978, but protested payment of the additional 1984 and 1985 assessments pursuant to Sec. 147.040.2, RSMo 1978 (Supp.1984). Boatmen’s subsidiaries also paid franchise taxes during the years in question. We are persuaded that the Director’s interpretation correctly reflects the legislative intent as embodied in previous decisions of this court. First, we agree with the Director’s argument that in computing a corporation’s surplus, its investments in and advancements to its subsidiaries should be excluded from its assets. See Household Finance Corporation v. Robertson, 364 S.W.2d 595, 607 (Mo. banc 1963); Union Electric Co. v. Morris, 359 Mo. 564, 222 S.W.2d 767, 772 (1949). Though Household Finance and Union Electric concerned other facts and different aspects of the franchise tax statute than those at bar, we find the reasoning there persuasive. Household Finance involved a foreign corporation owning stock of subsidiaries doing business in Missouri, and in deciding that case the Court construed what is now the second sentence of Sec. 147.010.1, RSMo 1978 (1984 Supp.). The statute provided that foreign corporations would “be deemed to have employed in this state that portion of its entire outstanding shares and surplus that its property and assets in this state bear to all its property and assets wherever located.” 364 S.W.2d at 597 (emphasis added). The Court determined that the foreign parent corporation’s investments in and advances to its Missouri subsidiaries were not the parent’s “property and assets in this state,” but were assets of the subsidiaries. Id. at 607. In a converse situation, the Court held that the stock of a foreign subsidiary owned by a Missouri parent corporation is not part of the parent corporation’s “property and assets in this state.” Union Electric, 222 S.W.2d at 772. Similarly, we hold that a Missouri corporation’s investments in and advances to its Missouri subsidiaries doing business solely in Missouri should be excluded from its assets in computing its surplus for purposes of the franchise tax. Each subsidiary pays its own franchise tax based upon the par value of its outstanding stock and surplus, and is thus taxed on investments in and advances to it by the parent; accordingly, the parent should not be taxed on those items as part of its assets. This mode of determining the tax base is far more favorable to the taxpayer than that in vogue in jurisdictions such as Texas, which provides that “[a] corporation’s surplus includes its investment in its subsidiary corporations.” Bullock v. Enserch Corporation, 583 S.W.2d 950, 951 (Tex.App.1979). We are also persuaded that the Director’s interpretation properly applies the concept of surplus as defined by this Court. As noted above, we have defined the term “surplus” as used in the franchise tax statute as “the excess of assets employed in the business over the par value of outstanding capital stock.” Marquette, 221 S.W. at 725 (emphasis added). The definition explicitly states that surplus is equivalent to the assets of the corporation in excess of the par value of its outstanding stock; therefore, if the corporation has no assets in excess of the par value of its stock, by definition it has no surplus. As we noted in Marquette, the word “surplus” denotes something in excess; “ ‘surplus’ ex vi termini implies an excess.” Id. at 722. When, as here, Boatmen’s investments and advances to its subsidiaries are excluded [577] from the computation of its gross assets, the value of its assets from that computation is less than the par value of its outstanding shares and Boatmen has no “surplus,” as that term is employed in the franchise statute and as it has been defined in Marquette. Because it has no surplus, its tax base is simply the par value of its outstanding shares. This result effectuates the legislative intent, for the statute requires that the corporation is to be taxed on the specified percentage of “the par value of its outstanding shares and surplus.” Sec. 147.-010.1, RSMo 1978 (Supp.1984). We are convinced it is intended that the tax base of a corporation doing business solely in Missouri should never be less than the par value4 of the corporation’s outstanding shares and that the franchise tax must be paid upon two separate items — -first, par value of outstanding stock and second, surplus. In Marquette, we stated that: the fundamental idea in the mind of the Legislature was that a corporation doing business wholly in this state should be taxed under the provisions of this act upon two things: First, upon the amount of its outstanding capital stock, regardless of the value of its assets, whether more or less than the amount of the outstanding capital stock; and, second, upon any surplus property employed in its business in this state. Marquette, 221 S.W. at 722 (emphasis added).5 The Court there correctly interpreted the legislative intent and that interpretation, employed here by the Director, in essence construes § 147.010.1 in a manner harmonious with the plain language of the statute, which with a single interpretive parenthetical phrase would require that a corporation shall pay a franchise tax upon: One twentieth of one percent of the par value of its outstanding shares and [one twentieth of one percent of its] surplus. The dissent herein, arguing for Boat- men’s position, maintains that the statute should be construed in a quite different manner and that construction, with certain interpretative parenthetical phrases which personify the essence of Boatmen’s version, would require that a corporation shall pay a franchise tax upon: One twentieth of one percent of [the total of] the par value of its outstanding shares [plus its] and6 surplus [even though there may be a negative surplus]. This proposition runs contrary to the plain meaning of the statute and in effect would sub silentio reverse or discard the definition of terms announced in Marquette. Boatmen’s also argues that a corporation which has issued stock in order to acquire subsidiaries is doubly taxed because the par value of this stock is included in its tax base calculation, and the subsidiary too is taxed on the par value of its own stock and surplus. Boatmen’s acknowledges that in some circumstances this may give disparate tax treatment between those parent corporations who fund acquisition of subsidiaries through issuance of their own stock, which raises their tax base by increasing the par value of its outstanding shares, and those who borrow to achieve the same end. In the case of the borrowing corporation, there is no increase in the tax base because the amount borrowed is treated by the parent corporation as an investment or advance to the subsidiary and thus is not included in its assets for purposes of the franchise tax base. However, the legislature has determined that each corporation is to be taxed on the par value of its outstanding shares and surplus, and Boatmen’s admits that its own incidence of the taxation results from the mode of financing it chose for the acquisition of its subsidiaries. The franchise [578] tax is designed to tax the privilege of doing business in this state, Marquette, 221 S.W. at 722, and “is exacted for each corporate existence.” McNamara v. Arkansas-Louisiana Gas Co., 441 So.2d 446, 450 (La.App.1983). Boatmen’s is a holding company which performs no other activities, and is taxed on the privilege of doing business in this fashion, just as each subsidiary is taxed on the privilege of doing business as a separate corporate entity. Short of some constitutional infirmity, which has neither been suggested nor referenced here, Boatmen’s complaint as to this alleged double taxation must be directed to the legislature. Affirmed. DONNELLY, ROBERTSON, HIGGINS, JJ„ and COVINGTON, Special Judge, concur. HOUSER, Senior Judge, dissents in separate opinion filed. WELLIVER, J., dissents in separate opinion filed and concurs in separate dissenting opinion of NORWIN D. HOUSER, Senior Judge. BILLINGS, C.J., and BLACKMAR, J., not sitting. Footnotes [1] The statute also provides for assigning a value to no-par stock. The wording of the emphasized portion of the statute remained the same during each year relevant here. [2] In Marquette, we noted that this definition differs from the definition normally used in corporate law in that liabilities are not deducted from assets in determining surplus. 221 S.W. at 723. [3] Boatmen’s relies on an earlier interpretation by the State Tax Commission, which administered the franchise tax until the Department of Revenue assumed this responsibility in 1975, and on the Director’s tax forms for the years 1981 through 1983, which are not in question in this case. These prior administrative interpretations of the statute support Boatmen’s position; however, "an interpretation placed upon a statute by those charged with its administration" is not binding on this court. State ex rel. Danforth v. European Health Spa, Inc., 611 S.W.2d 259, 264-65 (Mo.App.1980), and the Director no longer follows those interpretations. [4] The statute as noted in footnote 1, supra, provides for assigning a value to no par stock. [5] We note that, contrary to Boatmen’s contentions, the Director’s tax forms effectuate the intent of the statute whether the corporation has surplus or not. The tax forms provide that the tax base shall be the greater of the par value of outstanding stock or assets of the corporation. If the corporation has no surplus, as in this case, the tax base will be the par value of outstanding stock. However, if the corporation has surplus (assets in excess of the par value of outstanding stock), the tax base is equal to such excess plus the par value of outstanding stock. The result is thus a tax base which is equivalent to assets. [6] Boatmen’s in effect deletes the term "and” and substitutes in its place the phrase "plus its.”