It was the intention of Congress to embrace within the
corporation tax provisions of the Tariff Act of August 5, 1909, c.
6, 36 Stat. 11, 112, only such corporations and joint stock
associations as are organized under some statute, or derive from
that source some quality or benefit not existing at the common
law.
A trust formed in a state, where statutory joint stock companies
are unknown, for the purpose of purchasing, improving, holding and
selling land, and which does not have perpetual succession but ends
with lives in being and twenty years thereafter, is not within the
provisions of the Corporation Tax Law.
The facts, which involve the construction of the Corporation Tax
Law, are stated in the opinion.
Page 220 U. S. 183
MR. JUSTICE Day delivered the opinion of the Court.
These cases present facts differing from those involved
Page 220 U. S. 184
in the consideration of the corporation tax cases, just decided.
Flint v. Stone Tracy Co., ante, p.
220 U. S. 107.
In No. 448, the question is raised as to the right to lay a tax
under this statute upon a certain trust formed for the purpose of
purchasing, improving, holding, and selling lands and buildings in
Boston, known as the Cushing Real Estate Trust. By the terms of the
trust, the property was conveyed to certain trustees, who executed
a trust agreement whereby the management of the property was vested
in the trustees, who had absolute control and authority over the
same, with right to sell for cash or credit at public or private
sale, and with full power to manage the property as they deemed
best for the interest of the shareholders. The shareholders are to
be paid dividends from time to time from the net income or net
proceeds of the property, and twenty years after the termination of
lives in being, the property to be sold, and the proceeds of the
sale to be divided among the parties interested. The trustees were
to issue 4,800 shares to the owners of the property at $100 each,
the owners to receive a number of shares equal to the value of the
interest conveyed to the trustees. The shares were transferable on
the books of the trustees, and on surrender of the certificate, and
the transfer thereof in writing, a new certificate is to issue to
the transferee. No shareholder had any legal title or interest in
the property, and no right to call for the partition thereof during
the continuance of the trust. The legal representatives of a
shareholder are to succeed to the interest of a shareholder, the
interest passing by operation of law. Provision is made for the
termination of the trust by an instrument or instruments in
writing, signed by not less than three-fourths of the value of
stock held by shareholders. Meetings of the shareholders are held
at their discretion, or whenever requested in writing by five
shareholders, or by shareholders owning not less than one tenth of
the shares in value.
Page 220 U. S. 185
The trust has a building, leasing it to a single tenant. It also
maintains and operates an office building with elevator service,
janitor service, etc.
Case No. 496 involves what in known as a Department Store Trust.
It was created by deed, and formed for the purpose of purchasing
and holding certain parcels of land in the City of Boston, and
erecting a building thereon suitable for a department store. The
land and buildings are leased to one tenant for a period of thirty
years. The trust had transferable certificates issued to
shareholders at the par value of $100 each. The trustees conduct
the affairs of the trust, manage the property, and pay dividends
when declared. The shareholders meet annually, and a majority of
them have the power to elect and depose trustees, and to alter and
amend the terms of the trust agreement. This trust also continues
for certain lives in being and for twenty years thereafter. Each of
the trusts involved in these cases is in receipt of a net income
exceeding $5,000.
Under the terms of the corporation tax act, corporations and
joint stock associations must be such as are
"now or hereafter organized under the laws of the United States,
or of any state or territory of the United States, or under the
Acts of Congress applicable to Alaska or the District of
Columbia."
The pertinent question in this connection is are these trusts
organized under the laws of the state? As we have construed the
corporation tax act in the previous cases,
Flint v. Stone Tracy
Co., ante, the tax is imposed upon doing business in a
corporate or
quasi-corporate capacity -- that is, with the
facility or advantage of corporate organization.
It was the purpose of the act to treat corporations and joint
stock companies, similarly organized, in the same way, and assess
them upon the facility in doing business which is substantially the
same in both forms of organization.
Page 220 U. S. 186
Joint stock organizations are not infrequently organized under
the statute laws of a state, deriving therefrom, in a large
measure, the characteristics of a corporation.
The language of the act, " . . .. now or hereafter organized
under the laws of the United States," etc., imports an organization
deriving power from statutory enactment. The statute does not say
under the law of the United States, or a state, or lawful in the
United States or in any state, but is made applicable to such as
are organized under the laws of the United States, etc. The
description of the corporation or joint stock association as one
organized under the laws of a state at once suggests that they are
such as are the creation of statutory law, from which they derive
their powers and are qualified to carry on their operations.
A trust of the character of those here involved can hardly be
said to be organized, within the ordinary meaning of that term; it
certainly is not organized under statutory laws as corporations
are. The difference between joint stock associations at common law
and those organized under statutes is well recognized (2 Cook on
Corporations, ยง 505):
"There is an essential difference between a joint stock company
as it exists at common law and a joint stock company having
extensive statutory powers conferred upon it by the state within
which it is organized. The latter kind of joint stock companies is
found in England and in the State of New York. To such an extent
have these statutory powers been conferred on joint stock companies
that the only substantial difference between them and corporations
is that the members are not exempt from liability as partners for
the debts of the company."
The two cases now under consideration embrace trusts which do
not derive any benefit from, and are not organized
Page 220 U. S. 187
under, the statutory laws of Massachusetts. Joint stock
companies of the statutory character are not known to the laws of
that commonwealth.
Ricker v. American Loan & T. Co.,
140 Mass. 346. These trusts do not have perpetual succession, but
end with lives in being and twenty years thereafter.
Entertaining the view that it was the intention of Congress to
embrace within the corporation tax statute only such corporations
and joint stock associations as are organized under some statute or
derive from that source some quality, or benefit not existing at
the common law, we are of opinion that the real estate trusts
involved in these two cases are not within the terms of the act. In
that view, the decrees in both cases will be reversed, and the same
remanded to the Circuit Court of the United States for the District
of Massachusetts with directions to overrule the demurrers, and for
further proceedings consistent with this opinion.
Reversed.