The sovereign that creates a corporation has the incidental
right to impose reasonable regulations concerning the ownership of
stock therein, and it is not an unreasonable regulation to
establish the situs of stock for purposes of taxation at the
principal office of the corporation, whether owned by residents or
nonresidents, and to compel the corporation to pay the tax for the
stockholders, giving it a right of recovery therefor against the
stockholders and a lien on the stock.
Where valid according to the laws of the state, such a
regulation does not deprive the stockholder of his property without
due process of law either because it is an exercise of the taxing
power of the state over persons and things not within its
jurisdiction or because notice of the assessment is not given to
each stockholder, provided notice is given to the corporation and
the statute, either in terms or as construed by the state court,
constitutes the corporation the agent of the stockholders to
receive notice and to represent them in proceedings for the
correction of the assessment.
While the liability of nonresident stockholders for taxes on his
stock may not be expressed in the charter of the company if it
existed in the general laws of the state at the time of the
creation of the corporation or the extension of its charter, and
the constitution of the state also contained at such times the
reserved right to alter, amend and repeal, those provisions of the
constitution and general laws of the state are as much a part of
the charter as if expressly embodied therein.
Page 196 U. S. 467
The New York & Baltimore Transportation Line was chartered
in 1847 by the General Assembly of Maryland, and it still exists by
virtue of an extension in 1876 of its charter. At all times, the
corporation has maintained its principal office in the City of
Baltimore.
James C. Corry, a resident and citizen of Pennsylvania, acquired
one hundred fifty shares of the stock of the transportation line,
having a face value of twenty dollars per share.
The one hundred fifty shares standing in Corry's name, as
stated, were assessed for the years 1899 and 1900 for state and the
municipal taxes of the City of Baltimore, the total taxes being
$43.27 for the year 1899 and $36.49 for the year 1900. Conformably
to the laws of Maryland, payment of said taxes was demanded of the
transportation company. To restrain compliance with this demand,
Corry commenced the present suit, making defendants to the bill of
complaint the mayor and council of Baltimore, the treasurer of the
city, the treasurer of the state, and the transportation company.
The relief prayed was based on averments that the laws of Maryland
under which the taxes were levied were repugnant to the state and
federal Constitutions upon grounds specified in the bill. A decree
was entered sustaining general demurrers interposed by the various
defendants and dismissing the bill. This was affirmed by the Court
of Appeals of Maryland. 96 Md. 310.
Page 196 U. S. 471
MR. JUSTICE WHITE, after making the foregoing statement,
delivered the opinion of the Court.
The subjects and methods of taxation of property within the
State of Maryland are regulated generally by article 81 of the Code
of Public General Laws of that state.
A tax for state purposes and one for local purposes is laid upon
all property. In each year, the officers of domestic corporations
are required to furnish information respecting the value of the
shares of stock in such corporations to the state tax commissioner,
who determines the aggregate value thereof, deducts therefrom the
assessed value of the real estate owned by the corporation, and the
quotient, obtained by dividing
Page 196 U. S. 472
the remainder by the total number of shares of stock, is treated
as the taxable value of each share, subject, however, to correction
on appeal to the state comptroller and state treasurer after notice
to the corporation of the valuation fixed by the tax commissioner.
The rate of the state tax is determined by the general assembly,
and that for municipal purposes in Baltimore is fixed by the mayor
and council of that city. The levy on property in Baltimore, both
for state and city purposes, is made by the municipal authorities.
In case of stock in Maryland corporations owned by nonresidents,
the statutes declare that the situs of such stock, for the purpose
of taxation, shall be at the principal office of the corporation in
Maryland, and such shares are there assessed at their value to the
owners. The statutes undoubtedly impose upon a Maryland corporation
the duty of paying for and on account of the owners the taxes
assessed in respect of the shares, and compel such payment without
reference to the dividends, giving to the corporation a lien upon
the shares of stock and entitling the corporation, when it pays the
taxes, to proceed by a personal action to recover the amount paid.
Dugan v. Baltimore, 1 G. & J. 499, 502;
Mayor
&c. v. Howard, 6 H. & J. 383, 394;
American Coal
Co. v. Allegany County, 59 Md.197;
Hull v. Southern
Development Co., 89 Md. 8, 11.
The Maryland decisions have also settled that the tax is on the
stockholder personally, because of his ownership of the stock, and
is not on the stock
in rem or on the corporation. The
Maryland doctrine on the subject is shown by the opinion of the
Court of Appeals of Maryland in
United States Electric Power
& Light. Co. v. State, 79 Md. 63, where the court said (p.
70):
"But the tax is not a tax upon the stock or upon the
corporation, but upon the owners of the shares of stock, though the
officers of the corporation are made the agents of the state for
the collection of the state tax. It is not material what assets of
other property make up the value of the shares.
Page 196 U. S. 473
Those shares are property, and, under existing laws, are taxable
property. They belong to the stockholders respectively and
individually, and when, for the sake of convenience in collecting
the tax thereon, the corporation pays the state tax upon these
shares into the state treasury, it pays the tax not upon the
company's own property, nor for the company, but upon the property
of each stockholder, and for each stockholder, respectively, by
whom the company is entitled to be reimbursed. Hence, when the
owner of the shares is taxed on account of his ownership, and the
tax is paid for him by the company, the tax is not levied upon or
collected from the corporation at all."
See also Hull v. Southern Development Co., 89 Md. 8,
11.
Substantially similar laws for the taxing of stock in Maryland
corporations were in force in Maryland at the time of the
incorporation of the transportation company, and have been in force
ever since.
All the claims of federal right here asserted are embraced in
and will be disposed of by passing on two propositions, which we
shall consider separately.
The first proposition is that, as the authority of the State of
Maryland to tax is limited by the effect of the Fourteenth
Amendment to the Constitution of the United States to persons and
property within the jurisdiction of the state, and as the tax in
question was not
in rem against the stock, but was
in
personam against the owner, the power attempted to be
exercised, as it imposed a personal liability, was wanting in due
process of law.
The Court of Appeals of Maryland disposed of this contention by
deciding that it was in the power of the State of Maryland to fix,
for the purposes of taxation, the situs of stock in domestic
corporations held by a nonresident. It also held that, as such
corporations were created by the state, and were subject to its
regulating authority, it was within its power to impose, as a
condition to the right to acquire stock in such corporations, the
duty of paying the taxes assessed on the
Page 196 U. S. 474
stock, and, moreover, that the state might compel the
corporation to pay such taxes on behalf of the stockholder, and
confer upon the corporation a right of action to obtain
reimbursement from a stockholder when the payment was made. The
court, in its opinion in this case, did not expressly elaborate the
foregoing considerations, but contented itself by referring to
previous decisions by it made. Among the cases so referred to was
the case of
American Coal Co. v. Allegany County, 59 Md.
185, 193, where it was said:
"The appellant is a Maryland corporation, deriving its existence
and all its powers and franchises from this state. And, such being
the case, it is settled that the sovereign power of taxation
extends to everything which exists by the authority of the state or
which is introduced by its permission, except where such power is
expressly or by necessary implication excluded. The separate shares
of the capital stock of the corporation are authorized to be issued
by the charter derived from the state, and are subject to its
control in respect to the right of taxation, and every person
taking such shares, whether resident or nonresident of the state,
must take them subject to such state power and jurisdiction over
them. Hence, the state may give the shares of stock held by
individual stockholders a special or particular situs for purposes
of taxation, and may provide special modes for the collection of
the tax levied thereon."
That it was rightly determined that it was within the power of
the state to fix, for the purposes of taxation, the situs of stock
in a domestic corporation, whether held by residents or
nonresidents, is so conclusively settled by the prior adjudications
of this Court that the subject is not open for discussion. Indeed,
it was conceded in the argument at bar that no question was made on
this subject. The whole contention is that, albeit the situs of the
stock was in the State of Maryland for the purposes of taxation, it
was nevertheless beyond the power of the state to personally tax
the nonresident owner for and on account of the ownership of the
stock, and to compel the
Page 196 U. S. 475
corporation to pay, and confer upon it the right to proceed by a
personal action against the stockholder in case the corporation did
pay. Reiterated in various forms of expression, the argument is
this: that, as the situs of the stock within the state was the sole
source of the jurisdiction of the state to tax, the taxation must
be confined to an assessment
in rem against the stock,
with a remedy for enforcement confined to the sale of the thing
taxed, and hence without the right to compel the corporation to
pay, or to give it, when it did pay, a personal action against the
owner.
But these contentions are also in effect long since foreclosed
by decisions of this Court.
National Bank v.
Commonwealth, 9 Wall. 353;
Tappan v.
Merchants' National Bank, 19 Wall. 490. In
National Bank v. Commonwealth, (pp.
76 U. S.
361-362) it was said:
"If the state cannot require of the bank to pay the tax on the
shares of its stock, it must be because the Constitution of the
United States, or some act of Congress, forbids it."
"
* * * *"
"If the State of Kentucky had a claim against a stockholder of
the bank who was a nonresident of the state, it could undoubtedly
collect the claim by legal proceeding, in which the bank could be
attached or garnisheed, and made to pay the debt out of the means
of its shareholders under its control. This is, in effect, what the
law of Kentucky does in regard to the tax of the state on the bank
shares."
And it was further observed (p.
76 U. S.
363):
"The mode under consideration is the one which Congress itself
has adopted in collecting its tax on dividends, and on the income
arising from bonds of corporations. It is the only mode which,
certainly and without loss, secures the payment of the tax on all
the shares, resident or nonresident; and, as we have already
stated, it is the mode which experience has justified in the New
England states as the most convenient and proper in regard to the
numerous wealthy corporations of those states. "
Page 196 U. S. 476
But it is insisted that these rulings concerned taxation by the
states of the shares of stock in national banks under the
provisions of the National Banking Act, and are therefore not
applicable. The contention is thus expressed:
"This act forms a part of the charter of the national banks, and
provides for this liability. Charters can and frequently do
undoubtedly provide for a personal liability of stockholders in
various forms; the liability to creditors of the corporation is one
of the common illustrations, and the liability may be thus imposed
for a tax as well as for any other debt or obligation. The Court
therefore held [in the
Tappan case, page
86 U. S.
500] that, under the National Banking Act, the
shareholders were liable because that act 'made it the law of the
property.' The liability arose not out of the taxing power of the
sovereign, but from the subscription or charter contract of the
subject."
In substance, the contention is that the conceded principle has
no application to taxation by a state of shares of stock in a
corporation created by it, because, by the Constitution of the
United States, the states are limited as to taxation to persons and
things within their jurisdiction, and may not, therefore, impose
upon a nonresident, by reason of his property within the state, a
personal obligation to pay a tax. By the operation, therefore, of
the Constitution of the United States, it is argued the states are
restrained from affixing, as a condition to the ownership of stock
in their domestic corporations by nonresidents, a personal
liability for taxes upon such stock, since the right of the
nonresident to own property in the respective states is protected
by the Constitution of the United States, and may not be impaired
by subjecting such ownership to a personal liability for taxation.
But the contention takes for granted the very issue involved. The
principle upheld by the rulings of this Court to which we have
referred, concerning the taxation by the states of stock in
national banks, is that the sovereignty which creates a corporation
has the incidental right to impose reasonable regulations
Page 196 U. S. 477
concerning the ownership of stock therein, and that a regulation
establishing the situs of stock for the purpose of taxation, and
compelling the corporation to pay the tax on behalf of the
shareholder, is not unreasonable regulation. Applying this
principle, it follows that a regulation of that character,
prescribed by a state, in creating a corporation, is not an
exercise of the taxing power of the state over persons and things
not subject to its jurisdiction. And we think, moreover, that the
authority so possessed by the state carries with it the power to
endow the corporation with a right of recovery against the
stockholder for the tax which it may have paid on his behalf.
Certainly the exercise of such a power is no broader than the well
recognized right of a state to affix to the holding of stock in a
domestic corporation a liability on a nonresident as well as a
resident stockholder
in personam in favor of the ordinary
creditors of the corporation.
Flash v. Conn, 109 U.
S. 371;
Whitman v. Oxford National Bank,
176 U. S. 559;
Nashua Savings Bank v. Anglo-American L.M.. & A. Co.,
189 U. S. 221,
189 U. S. 230,
and cases cited;
Platt v. Wilmot, 193 U.
S. 602,
193 U. S.
612.
Whilst it is true that the liability of the nonresident
stockholder in the case before us, as enforced by the laws of
Maryland, was not directly expressed in the charter of the
corporation, it nevertheless existed in the general laws of the
state at the time the corporation was created, and, be this as it
may, certainly existed at the time of the extension of the charter.
This is particularly the case since the Constitution of Maryland,
for many years prior to the extension of the charter of the
transportation company, contained the reserved right to alter,
amend, and repeal. From all the foregoing, it resulted that the
provisions of the general laws and of the Constitution of Maryland
were as much a part of the charter as if expressly embodied
therein. Nor can this conclusion be escaped by the contention that,
as the provisions of the statute imposing on nonresident
stockholders in domestic corporations a liability for taxes on
their stock violated the Constitution of the United
Page 196 U. S. 478
States, therefore such unconstitutional requirements cannot be
treated as having been incorporated in the charter, for this
argument amounts only to reasserting the erroneous proposition
which we have already passed upon.
Having disposed of the first proposition, we come to consider
the second, which is that the legislation of the State of Maryland
is repugnant to the Constitution of the United States because of
the commission to directly require the giving of notice to the
nonresident stockholder of assessments on his stock, and
opportunity for contest by him as to the correctness of the
valuation fixed by the taxing officers. The highest court of the
State of Maryland has construed the statutory provisions in
question as, in legal effect, constituting the corporation the
agent of the stockholders to receive notice and to represent them
in proceedings for the correction of an assessment. Thus, in
Clark Distilling Co. v. Cumberland, 95 Md. 468, the court
said (p. 475):
"A notice to each shareholder is unnecessary, because the
corporation represents the shareholders. The officers of the
corporation are required by the Code to make an annual return to
the state tax commissioner, and upon the information disclosed by
that return, the valuation of the capital stock is placed each
year. If the valuation is not satisfactory, an appeal may be taken
by the corporation for the shareholders. An opportunity is thus
afforded for the shareholders to be heard through the corporation,
and that gratifies all the requirements of law. If each and every
shareholder in the great number of companies throughout the state
had a right to insist upon a notice before an assessment of his
shares could be made, and if each were given a separate right of
appeal, it would be simply impossible to fix annually a valuation
on shares of capital. The policy of the law is to treat the
corporation not merely as tax collector after the tax has been
levied, but to deal with it as the representative of the
shareholders in respect to the assessment of the shares, and when
notice has been given to the corporation, and it has the right to
be heard
Page 196 U. S. 479
on appeal, notice is thereby given to the shareholders, and they
are accorded a hearing. This is so in every instance where the
assessment is made by the state tax commissioner, because the
revenue laws throughout treat the corporation as the representative
of the shareholders, and as no official other than the tax
commissioner has power to assess capital stock, no notice other
than the one given by him is necessary; and, as no notice other
than the one given by him is necessary, a notice by the
municipality to each shareholder is not requisite."
If a tax was expressly imposed upon the corporation, the
stockholders, though interested in the preservation of the assets
of the corporation, could not be heard to object that the statute
did not provide for notice to them of the making of the assessment.
The condition attached by the Maryland law to the acquisition of
stock in its domestic corporations, that the stockholders, for the
purpose of notice of the assessment of the stock and proceedings
for the correction of the valuation thereof, shall be represented
by the corporation, is not, in our opinion, an arbitrary and
unreasonable one when it is borne in mind that the corporation,
through its officers, is, by the voluntary act of the stockholders,
constituted their agent and vested with the control and management
of all the corporate property -- that which gives value to the
shares of stock, and in respect to which the taxes are but mere
incidents in the conduct of the business of the corporation. The
possibility that the state taxing officials may abuse their power,
and fix an arbitrary and unjust valuation of the shares, and that
the officers of the corporation may be recreant in the performance
of the duty to contest such assessments, does not militate against
the existence of the power to require the numerous stockholders of
a corporation chartered by the state, particularly those resident
without the state, to be represented in proceedings before the
taxing officials through the agency of the corporation.
As we conclude that the legislation of the State of Maryland
Page 196 U. S. 480
in question does not contravene the due process clause of the
Fourteenth Amendment to the Constitution of the United States, the
judgment of the Court of Appeals of Maryland is
Affirmed.