A tax assessed under a statute of New Jersey against an
insurance company incorporated under the laws of that State, upon
the full amount of its capital stock paid in and accumulated
surplus, less certain deductions for liabilities and statutory
exemptions -- resisted
Page 307 U. S. 314
as violative of the due process clause of the Fourteenth
Amendment on the ground that the business situs of its intangibles
and the tax domicile of the corporation were in New York --
sustained.
By REED, J., with whom the CHIEF JUSTICE and BUTLER and ROBERTS,
JJ., concurred.
1. Insofar as the conclusion as to the existence of a business
situs for the purpose of taxation, distinct from the domiciliary
situs, is the basis for a claim of federal right, the duty of
inquiring into the evidence which establishes such business situs
rests upon this Court. P.
307 U. S.
319.
2. The facts presented by this record are insufficient to
establish that the corporation's intangibles had a business situs
in New York and to overcome the presumption of a taxable situs
solely in New Jersey. P.
307 U. S.
321.
By FRANKFURTER, J., with whom STONE, BLACK, and DOUGLAS, JJ.,
concurred.
The tax as applied is a clearly constitutional exertion of the
taxing power of a State over a corporation of its own creation, and
Cream of Wheat Co. v. Grand Forks, 253 U.
S. 325, and the cases which have followed it, afford a
wholly adequate basis for sustaining it. Questions affecting the
fictional "situs" of intangibles are irrelevant here. P.
307 U. S.
324.
120 N.J.L. 185;
id., 224; 198 A. 836, 837,
affirmed.
Appeals from affirmances of judgments sustaining the validity of
a state tax, 118 N.J.L. 525, 538, 193 A. 912.
Page 307 U. S. 315
MR. JUSTICE REED announced an opinion in which the CHIEF
JUSTICE, MR. JUSTICE BUTLER, and MR. JUSTICE ROBERTS concurred.
The controversy in No. 449 relates to the jurisdiction of New
Jersey to tax the appellant upon the full amount of its capital
stock paid in and accumulated surplus. The case is here by appeal
under Section 237(a) of the Judicial Code. [
Footnote 1]
Chapter 236 of the Laws of 1918 [
Footnote 2] is a general act for the assessment and
collection of taxes. Section 202 subjects all real and personal
property within the jurisdiction of New Jersey to taxation annually
at its true value. By § 301, the tax on other than tangible
personal property is assessed on each inhabitant in the taxing
district of his residence on the first day of October in each year.
Section 305 deals with domestic corporations as residents of the
district in which their chief office is located and renders their
personal property taxable in the same manner as that of
individuals, except as otherwise provided. Section 307, the most
vital in the case, provides:
"Every fire insurance company and every stock insurance company
other than life insurance shall be assessed, in the taxing district
where its office is situate, upon the full amount of its capital
stock paid in and accumulated surplus. . . . No franchise tax shall
be imposed upon any such fire insurance company or other stock
insurance company included in this section. "
Page 307 U. S. 316
The appellant is a stock fire insurance corporation organized
under the laws of New Jersey, which, at the time of this
assessment, required it to locate its principal office and to
conduct its general business in the state. [
Footnote 3] It is stipulated that a registered office
is maintained in Newark, New Jersey, together with such books as
the law requires to be kept within the state. The only business
carried on in this Newark office is a local or regional claim and
underwriting department for Essex and three other counties. No
executive officer is there, and reports are sent to the New York
office. The stipulation further shows that the company's
"executive officers and its executive office are located at 150
William Street, New York City. The general accounts of the company
are kept in the office in New York City. The general accounting,
underwriting, and executive offices of the company are all located
at the main office at 150 William Street, New York City. All cash
and securities of the company are located there or in banks in that
City or in other banks outside of the New Jersey, with the
exception of the sum of $6,425.32 on deposit in New Jersey banks.
All of the general affairs of the company are conducted at the main
office in New York City, and have been so conducted there since
appellant moved its main office from Newark six years ago."
No personal property tax is paid in New York. The company does
pay there a franchise tax based upon premiums.
The Board of Assessment of the City of Newark made an
assessment, as of October 1, 1934, upon the capital stock paid in
and accumulated surplus of the appellant, with deductions for debts
and exemptions allowed by law. The assessment was sustained, in
succession, by the
Page 307 U. S. 317
Essex County Board of Taxation, by the New Jersey State Board of
Tax Appeals, now an appellee, by the Supreme Court, [
Footnote 4] and by the Court of Errors and
Appeals, the highest court in the state. [
Footnote 5] Throughout the proceedings below, the
appellant resisted the jurisdiction of New Jersey to tax on the
ground that its intangibles had acquired a business situs and the
corporation a tax domicile in New York. Throughout, the state
tribunals treated the assessment as upon personal property with a
business situs in the sister state. The Supreme Court characterized
the exaction as a personal property tax, and discussed its
validity
"in the light of the proofs . . . upon the inescapable premise
that . . . the securities, the personalty involved, have become an
integral part of [appellant's] business situs in New York. . . .
[
Footnote 6]"
It held that the state of domicile may impose a personal
property tax upon intangibles which have acquired a business situs
in another state, and added that, in the absence of a New York
personal property tax, multiple taxation was impossible. The Court
of Errors and Appeals of New Jersey, per curiam, affirmed the
judgment for the reasons expressed in the opinion of the Supreme
Court. [
Footnote 7]
Appellant urges error in sustaining the assessment in the face
of the conclusion that the tax is a property tax upon intangibles
with a business situs in New York, the commercial domicile of the
corporation. Such approval, it is claimed, violates the due process
clause of the 14th Amendment.
The present tax, as administered, is levied upon an assessment
of the full amount of capital stock and surplus. It is a tax on the
net value of the corporation less allowable deductions, reached by
taking liabilities from gross value of assets and subtracting
exempt items from
Page 307 U. S. 318
the remainder. This is apparently because capital stock and
surplus are treated as invested in the exempt assets. [
Footnote 8] The value thus assessed is
not determined by specific items, but is the result of a
calculation in which all assets are involved except those
definitely exempted. Our conclusion makes it unnecessary to resolve
doubts as to whether this is a property tax.
When a state exercises its sovereign power to create a private
corporation, that corporation becomes a citizen, and domiciled in
the jurisdiction, of its creator. [
Footnote 9] There it must dwell. [
Footnote 10] The dominion of the state over its
creature is complete. [
Footnote
11] In accordance with the ordinary recognition of the rule of
mobilia sequuntur personam to determine the taxable situs
of intangible personalty, [
Footnote 12] the presumption is that such property is
taxable by the state of the corporation's origin. [
Footnote 13] This power of New Jersey to
tax is made effective by section 307 of the Act of 1918, heretofore
quoted. It is the only tax sought by the state from corporations of
this type, as the franchise tax at one time levied [
Footnote 14] was repealed by the Act of
April 8, 1903. [
Footnote
15]
Page 307 U. S. 319
There are occasions, however, when the use of intangible
personalty in other states becomes so inextricably a part of the
business there conducted that it becomes subject to taxation by
that state. [
Footnote 16]
The carrying on of the business of the corporation in New York, it
is urged, has withdrawn its intangibles completely from the tax
jurisdiction of New Jersey. With the assumption of a business situs
and commercial domicile in New York, that state, under the
authorities cited, would have the right to tax intangibles with
this relation to its sovereignty. Appellant contends that, if New
York may levy a property tax on these intangibles, it will violate
the due process clause of the 14th Amendment to permit New Jersey
to do the same thing; that property cannot be in two places; that,
if it is in New York for tax purposes, it cannot be in New Jersey.
We are asked to decide that both states have not the power to tax
the same property for the same incidents. This question has been
heretofore reserved. [
Footnote
17] We do not find it necessary to answer it in this case.
Where consideration has been given to the existence of a
business situs of intangibles for taxation by a state other than
the state of domicile, there has been definite evidence that the
intangibles were integral parts of the business conducted. Insofar
as the conclusion as to the existence of a business situs for the
purpose of taxation, distinct from the domiciliary situs, is the
basis for a claim of a Federal right, the duty of inquiring into
the
Page 307 U. S. 320
evidence which establishes such business situs rests upon this
Court. [
Footnote 18]
In the
Stempel, Bristol, Comptoir National,
Metropolitan, and
Liverpool cases, cited in
note 16 supra, the
integration of the foreign-owned intangibles with local activities
was evident from the continued course of business. The presence or
absence of the evidences of the credits from the jurisdiction was
immaterial. [
Footnote 19]
The nonresident individuals and corporations carried on
continuously a course of lending money or granting credits within
the taxing states. The taxed intangibles grew out of these
transactions. They were, in fact, a part of them. In the
Wheeling Steel case, the same type of amalgamation
occurred. West Virginia sought to tax a Delaware corporation on
counts receivable and bank deposits. The opinion points out, pages
298 U. S. 212
and 213, that these choses in action were the indebtedness for or
the proceeds of sales confirmed in West Virginia, attributable "to
the place where they arise in the course of the business of making
contracts of sale." In
First Bank Stock Corp. v. Minnesota,
supra, another Delaware corporation was found to have
established a commercial domicile for itself and given a business
situs to certain of its intangibles. The intangibles in question
were stocks of Montana and North Dakota state banks, purchased and
held as part of the corporation's assets in its Minnesota business
of holding the shares and managing, through stock ownership, the
business of numerous banks, trust companies, and other financial
institutions of the Ninth Federal Reserve District. As this
business was localized in Minnesota, the stocks of these banks were
an essential factor of that business, and therefore had a taxable
situs in Minnesota.
Page 307 U. S. 321
The conception of a business situs for intangibles enables the
tax gathering entity to distribute the burden of its support
equitably among those receiving its protection. It makes the notion
of a tax situs for particular intangibles more definite. It is not
the substitution of a new fiction as to the mass of choses in
action for the established fiction of a tax situs at the place of
incorporation. To overcome the presumption of domiciliary location,
the proof of business situs must definitely connect the intangibles
as an integral part of the local activity. The facts presented by
this record fall far short of this requirement.
The tax is upon "the full amount of capital stock and surplus"
less certain allowed deductions of real estate and exempt
securities. The evidence gives no explanation of the amount or
source of the assets making up the amount $3,370,080.66 which
balances with the capital stock and surplus less these deductions.
The stipulation shows "agreed" figures, $8,107,901.83, presumably
of capital and surplus, as shown below. [
Footnote 20] Agreed deductions are
Page 307 U. S. 322
$4,737,821.17. But the assessment is $1,069,000. From the
stipulation, we learn the "general accounts" are kept in New York
City, and all cash except $6,425.32 and all securities are located
at the New York office or in banks outside of New Jersey. If we
assume that the "general accounts" mentioned are the company's
claims against agents, other insurance companies, and similar bills
receivable, no progress is made towards their identification with
New York business. Nothing is shown as to the volume of New York
business in comparison with New Jersey or the other states. We are
not told where business is accepted, moneys collected, or insurance
contracts made. The securities may represent local loans or
investments in New Jersey or elsewhere made from funds derived from
similar insurance contracts with a business situs at those points.
[
Footnote 21] They may be
the result of insurance activities of many kinds, taking place far
from New York. If we were to assume that the intangibles of a
corporation may have only one taxable situs, the mere fact that
general affairs of a foreign corporation are conducted by general
officers in New York without further evidence of the source and
character of the intangibles does not destroy the taxability of a
part of these intangibles by the state of the corporation's legal
domicile. The presumption of a taxable situs solely in New Jersey
is not overturned.
Universal Insurance Company and Universal Indemnity Insurance
Company have appeals involving the same questions. By stipulation
these cases were consolidated for review below and appeal here.
Page 307 U. S. 323
These appellants are New Jersey insurance corporations, assessed
by the City of Newark in the same way, under the same statute, and
with the same result in the state courts as the appellant in No.
449.
There are no significant distinctions between the cases. A
management corporation handles these companies at a New York
office, where accounts are payable. Seven percent of the business
of Universal Insurance Company originates in New Jersey. The
corresponding percentage for the other company is not shown. As in
No. 449, the record is silent as to the character, source, and use
of the securities and credits.
* Together with No. 456,
Universal Insurance Co. et al. v.
State Board of Tax Appeals et al., also on appeal from the
Court of Errors and Appeals of New Jersey.
[
Footnote 1]
28 U.S.C. § 344(a).
[
Footnote 2]
N.J.Laws 1918, p. 847; also in N.J.Rev.Stats.1937, § 54:4.
[
Footnote 3]
N.J.Laws 1902, c. 134, § 3, second, 408; N.J.Laws 1929, c. 6, §
3, second, p. 18, and c. 47, § 1, p. 82. By c. 164 of N.J.Laws
1937, this was amended to read that the certificate of
incorporation must set forth "the place where the principal office
of the said company in this State is to be located."
[
Footnote 4]
118 N.J.L. 525, 193 A. 912.
[
Footnote 5]
120 N.J.L. 185, 198 A. 836.
[
Footnote 6]
118 N.J.L. at 526, 193 A. 912.
[
Footnote 7]
120 N.J.L. 185, 198 A. 836.
[
Footnote 8]
Fidelity Trust Co. v. Board of Equalization, 77 N.J.L.
128, 130, 71 A. 61.
[
Footnote 9]
Lafayette Insurance Co. v.
French, 18 How. 404;
St. Louis
v. Wiggins Ferry Co., 11 Wall. 423,
78 U. S. 429;
Seaboard Rice Milling Co. v. Chicago, R.I. & P. R.
Co., 270 U. S. 363,
270 U. S. 366;
Fairbanks Steam Shovel Co. v. Wills, 240 U.
S. 642.
Cf. International Milling Co. v. Columbia
Transp. Co., 292 U. S. 511,
292 U. S.
519.
[
Footnote 10]
Bank of Augusta v.
Earle, 13 Pet. 519,
38 U. S.
588.
[
Footnote 11]
Oklahoma Natural Gas Co. v. Oklahoma, 273 U.
S. 257,
273 U. S. 259;
Canada Southern Ry. v. Gebhard, 109 U.
S. 527,
109 U. S.
537-538.
[
Footnote 12]
Safe Deposit & Trust Co. v. Virginia, 280 U. S.
83,
280 U. S. 92;
Blodgett v. Silberman, 277 U. S. 1,
277 U. S. 9.
[
Footnote 13]
Cream of Wheat Co. v. Grand Forks, 253 U.
S. 325,
253 U. S. 329;
Virginia v. Imperial Coal Sales Co., 293 U. S.
15,
293 U. S. 19;
First Bank Stock Corp. v. Minnesota, 301 U.
S. 234,
301 U. S. 237.
Cf. Johnson Oil Refining Co. Oklahoma, 290 U.
S. 158,
290 U. S.
161.
[
Footnote 14]
Act of April 18, 1884, N.J.Laws 1884, c. 159, p. 232.
[
Footnote 15]
N.J.Laws 1903, c. 208, p. 394.
[
Footnote 16]
New Orleans v. Stempel, 175 U.
S. 309;
Bristol v. Washington County,
177 U. S. 133;
State Board of Assessors v. Comptoir National D'Escompte,
191 U. S. 388;
Metropolitan Life Ins. Co. v. New Orleans, 205 U.
S. 395;
Liverpool & L. & G. Co. v. Board of
Assessors, 221 U. S. 346;
Wheeling Steel Corp. v. Fox, 298 U.
S. 193;
First Bank Stock Corp. v. Minnesota,
301 U. S. 234.
[
Footnote 17]
First Bank Stock Corp. v. Minnesota, 301 U.
S. 234,
301 U. S. 237,
301 U. S. 241.
Cf. Farmers' Loan & Trust Co. v. Minnesota,
280 U. S. 204,
280 U. S. 213;
First Nat. Bank v. Maine, 284 U.
S. 312,
284 U. S.
331.
[
Footnote 18]
Beidler v. South Carolina Tax Commission, 282 U. S.
1,
282 U. S. 8.
[
Footnote 19]
Metropolitan Life Ins. Co. v. New Orleans, 205 U.
S. 395,
205 U. S.
402.
[
Footnote 20]
"(a) The following figures have been agreed upon. In the first
column appears the designation of what the fund represents;
opposite each designation appearing the amount of the fund in
question:"
1. Capital stock . . . . . . . . . . . . . . . .
$2,000,000.00
2. Surplus (as set forth in the books
of the company) . . . . . . . . . . . . . . 2,982,940.29
3. Reserve for unearned premiums . . . . . . . .
3,001,623.46
4. Reserve for taxes . . . . . . . . . . . . . . 71,765.65
5. Reserve for contingencies . . . . . . . . . . 68,915.35
6. Reserve for reinsurance . . . . . . . . . . . 4,228.36
7. Agency balances over 90 days old. . . . . . . 119,109.72
8. Furniture and fixtures (in Newark office) . . 1,500.00
-------------
Total . . . . . . . . . . . . . . . . . . . $8,250,082.83
Reserves for unearned premiums and for reinsurance are a taxable
asset in New Jersey.
City of Trenton v. Standard Fire Ins.
Co., 77 N.J.L. 757, 764, 765, 73 A. 606. The Board of Tax
Appeals held the agency balances an asset, and the reserve for
taxes a liability which is deductible. Nothing was said about the
reserve for contingencies. Addition of the items known to
constitute assets -- capital stock, surplus, reserve for unearned
premiums, reserve for reinsurance, agency balances --
equals.$8,107,901.83.
[
Footnote 21]
Metropolitan Life Ins. Co. v. New Orleans, 205 U.
S. 395.
MR. JUSTICE FRANKFURTER announced the following opinion,
concurred in by MR. JUSTICE STONE, MR. JUSTICE BLACK, and MR.
JUSTICE DOUGLAS.
Wise tax policy is one thing; constitutional prohibition quite
another. The task of devising means for distributing the burdens of
taxation equitably has always challenged the wisdom of the wisest
financial statesmen. Never has this been more true than today when
wealth has so largely become the capitalization of expectancies
derived from a complicated network of human relations. The
adjustment of such relationships, with due regard to the promotion
of enterprise and to the fiscal needs of different governments with
which these relations are entwined, is peculiarly a phase of
empirical legislation. It belongs to that range of the experimental
activities of government [
Footnote
2/1] which should not be constrained by rigid
Page 307 U. S. 324
and artificial legal concepts. Especially important is it to
abstain from intervention within the autonomous area of the
legislative taxing power where there is no claim of encroachment by
the states upon powers granted to the national government. It is
not for us to sit in judgment on attempts by the states to evolve
fair tax policies. When a tax appropriately challenged before us is
not found to be in plain violation of the Constitution, our task is
ended.
Chapter 236 of the New Jersey Laws of 1918, as applied to the
circumstances of these two cases, clearly does not offend the
Constitution. In substance, such legislation has heretofore been
found free from constitutional infirmity.
Cream of Wheat Co. v.
Grand Forks, 253 U. S. 325,
aff'g 41 N.D. 330, 170 N.W. 863. During all the
vicissitudes which the so-called "jurisdiction to tax" doctrine has
encountered since that case was decided, the extent of a state's
taxing power over a corporation of its own creation, recognized in
the
Cream of Wheat case, has neither been restricted nor
impaired. That case has not been cited otherwise than with
approval. [
Footnote 2/2] Questions
affecting the fictional "situs" of intangibles, which received full
consideration in
Curry v. McCanless, post, p.
307 U. S. 357, do
not concern the present controversies.
Cream of Wheat Co. v.
Grand Forks, supra, and the cases that have followed it,
afford a wholly adequate basis for affirming the judgments
below.
[
Footnote 2/1]
Compare 19 U. S. Dunn,
6 Wheat. 204,
19 U. S.
226:
"The science of government is the most abstruse of all sciences,
if, indeed, that can be called a science which has but few fixed
principles, and practically consists in little more than the
exercise of a sound discretion, applied to the exigencies of the
state as they arise. It is the science of experiment."
[
Footnote 2/2]
See Citizens' National Bank of Cincinnati v. Durr,
257 U. S. 99,
257 U. S. 109;
Schwab v. Richardson, 263 U. S. 88,
263 U. S. 92;
Baker v. Druesedow, 263 U. S. 137,
263 U. S. 141;
Swiss Oil Corp. v. Shanks, 273 U.
S. 407,
273 U. S. 413;
Hellmich v. Hellman, 276 U. S. 233,
276 U. S. 238;
Montgomery Ward & Co. v. Emmerson, 277 U.S. 573;
Educational Films Corp. v. Ward,
282 U. S. 379,
282 U. S. 391;
Nebraska ex rel. Beatrice Creamery Co. v. Marsh, 282 U.S.
799, 800;
First Bank Stock Corp. v. Minnesota,
301 U. S. 234,
301 U. S.
237.