[G. L. c. 63, § 30 in which they dwelt, to subject the property of the corporation to taxation in the town in which it was situated would result in double taxation, a thing to be avoided unless clearly required by the statute. As to personal property there was no such requirement; in fact, strictly speaking, there was no authority to assess it at all. The corporation was not a resident of the town in which its principal place of business was situated; the location of personal property in a town gave the town no right under the statutes to tax it except in certain carefully designated instances, and moreover, if the personal property of a corporation might be taxed in one town, it might be taxed in every town in which the corporation did business. As to real estate however the statutes provided that it should be taxed in the town in which it lay, and as all real estate whether owned by corporations or individuals was included in the valuation of a town upon the basis of which the state tax was apportioned, it would be unjust to exempt any of it from contributing to the payment of such taxes. Accordingly it was held that a corporation was liable to be taxed upon its real estate but not upon its personal property." No material change in the statutes relating to the taxation of corporations was made until 1832 when it was provided that all machinery employed in any branch of manufacture and belonging to any corporation or person should be assessed where situated and that in assessing the shares of a manufacturing corporation there should be deducted the value of the machinery and real estate of the corporation specifically taxed.' These provisions were re-enacted in the Revised Statutes and in the General Statutes and continued to be the law until 1864. It is to be noted that during that period the personal property of corporations remained exempt from taxation by judicial construction of statutes general in terms, and that this exemption was not so much based upon any supposed difficulty in fixing the domicile of a corporation as upon the injustice of taxing the Salem Iron Factory v. Danvers, 10 Mass. 514 (1813). See also to same effect Boston & Sandwich Glass Co. v. Boston, 4 Met. 181 (1842); Dunnell Manufacturing Co. v. Pawtucket 7 Gray 277 (1856). In Tremont Bank v. Boston, 1 Cush. 142 (1848), it was held that a banking corporation was taxable for its real estate in the town where the land lay, although the shareholders were taxed on their shares without deduction for real estate and the bank paid a tax to the commonwealth on its capital stock. 6 St. 1832, c. 158. R. S., c. 7, §10, cl. 2. G. L. c. 63, § 30] same property twice-once to the shareholders and once to the corporation.10 Accordingly it was held that all the special provisions of statute for the taxation of personal property otherwise than at the domicile of its owner which were in force prior to 1918, though general in terms, had no application to the property of domestic corporations.12 11 The Development of the Franchise Tax While the method of taxation of corporate shares and property in force prior to the civil war may have been a satisfactory one in the more or less primitive conditions which existed when it was established and when the shareholders in Massachusetts corporations were almost exclusively inhabitants of the commonwealth, as soon as shares in such corporations began to be held by non-residents, the personal property and franchises of the corporations to the extent that the shares were held outside the state escaped all taxation in Massachusetts, and probably, as a practical matter, were rarely reached by the assessors in the states where the holders resided. This condition was obviously undesirable, and tended to encourage the real or colorable transfer of shares in domestic corporations to non-residents. In 1863 a statute was enacted requiring domestic corporations to pay into the treasury of the commonwealth one-fifteenth of all dividends declared by them on the shares of non-resident 10Thus in Trustees of the Greene Foundation v. Boston, 12 Cush. 54 (1853), it was held that a corporation which had no capital stock was taxable for its personal property generally in the town with which it was most closely identified and in Collector of Boston v. Mount Auburn Cemetery, 217 Mass. 286 (1914), it was held that a cemetery corporation had its domicile for the purposes of taxation in the town in which the cemetery was located. 11 G. L. c. 59, §18, supra, page 237. 12 Thus under what are now the provisions of G. L. c. 59, domestic corporations were not taxable for bank stock which they owned, Worcester County Institution for Savings v. Worcester, 10 Cush. 128 (1852); Murray v. Berkshire Life Insurance Co., 104 Mass. 586 (1870); or for their income, Boston Water Power Co. v. Boston, 9 Met. 199 (1845); or for the polls of minors in their employ, Boston & Sandwich Glass Co. v. Boston, 4 Met. 181 (1842); or for stock-in-trade, Amesbury Woolen & Cotton Manufacturing Co. v. Amesbury, 17 Mass. 461 (1821); Boston & Sandwich Glass Co. v. Boston, 4 Met. 181 (1842); or for horses, Middlesex Railroad Co. v. Charlestown, 8 Allen 330 (1864); or for property held by another in trust, Worcester v. Board of Appeal, 184 Mass. 460 (1904); or for property pledged, Waltham Bank v. Waltham, 10 Met. 334 (1845). A corporation is taxable for property held by it in trust for another because such property adds no value to its shares and is consequently not reached by the franchise tax. Ricker v. American Loan & Trust Co., 140 Mass. 346 (1885). [G. L. c. 63, § 30 1 owners. This statute was held unconstitutional. If the charge was a tax, it was not proportional; if an excise it was unequal, and cast greater burdens upon citizens of other states than of Massachusetts in violation of the federal constitution. In 1864, before the statute of the previous year had been passed upon by the supreme court of the state, a new and valid method of reaching indirectly the interests of non-resident shareholders was adopted by the legislature in the form of an excise upon the franchise of domestic corporations based upon the excess of the market value of all the capital stock of a corporation over the value of the real estate and machinery belonging to it situated in Massachusetts and locally taxed. The shares owned by residents of the commonwealth were no longer to be taxed locally, and the personal property of the corporation other than machinery continued to be exempt.* 3 This statute was sustained by the supreme courts of Massachusetts and of the United States as a valid excise on the franchise of the corporation and not as a property tax, and with many elaborations and improvements which time and experience have shown to be just and advisable it stands today as the basis of the tax on domestic corporations now in force in Massachusetts. Under the original statute, as amended in the following year, it was held that as the tax was not a property tax its validity did not depend on the nature of the property held by the corporation taxed and on which the market value of its shares depended and that the corporation was not entitled to deductions which. were not granted specifically by the statute. Consequently taxes were sustained which gave the corporation no credit for real estate outside the commonwealth,' for shares of another corporation on which it paid taxes in Massachusetts, or even for bonds of the United States." 'St. 1863, c. 236. 'Oliver v. Washington Mills, 11 Allen 268 (1865). 8 St. 1864, c. 208. Fall River v. Bristol County Commissioners, 125 Mass. 567 (1878). v. Hamilton Manufacturing Co., 12 Allen 298 (1866). Hamilton Company v. Massachusetts, 6 Wall. 632 (1867). 'Commonwealth v. New England Slate & Tile Co., 13 Allen 391 (1866). Commonwealth v. New England Slate & Tile Co., 13 Allen 391 (1866). ⚫ Commonwealth v. Hamilton Manufacturing Co., 12 Allen 298 (1866); Manufacturers' Insurance Co. v. Loud, 99 Mass. 146 (1868); Hamilton Co. v. Massachusetts, 6 Wall. 632 (1867). G. L. c. 63, § 30] The tax was based wholly upon the market value of the shares and not upon the value of the property owned by the corporation, and was not unreasonable and invalid if it was founded upon a price that was merely speculative and greatly in excess of the value of the tangible property of the corporation;10 for the franchise of even a land company may have great value. The value of the tangible property of the corporation was material only when the market value of the shares could not be otherwise ascertained. The Establishment of the Present System In 1902, complaint having arisen that the ordinary business corporation was overtaxed, a commission was appointed to investigate the subject, and recommended that in valuing the franchise of the corporation for taxation there should be deducted, in addition to real estate and machinery, the value of securities which if owned by an individual would not be taxable and the value of property other than real estate and machinery situated in another state or country and there taxed. The legislature of 1903 not only adopted these recommendations, but provided that the tax should in no event, after making the statutory deductions, exceed a tax levied at the statutory rate upon a valuation twenty per cent in excess of the value of the tangible property and taxable securities of the corporation.1 The first and most obvious effect of the maximum limitation was to reduce the tax on the more prosperous corporations whose demonstrated earning capacity had increased the market value of their aggregate capital stock far above the book value of their assets; but a secondary effect, the recognition of which was not long delayed, was to bring about a marked inequality in the taxes levied on corporations of similar size and financial strength, and eventually to present opportunities for evasion which were so commonly availed of as to deprive the state of a large portion of the revenue which it should properly have received. In 1917 10 Commonwealth v. Lowell Gas Light Co., 12 Allen 75 (1866); Commonwealth v. Cary Improvement Co., 98 Mass. 19 (1867). 1St. 1903, c. 437, §74. This statute also established as a minimum limitation the rule that the local taxes and the corporate franchise tax of any corporation should not together be less than one-tenth of one per cent of the aggregate market value of its capital stock. 'See Reports of Tax Commissioner for 1905, 1911 and 1916; Report of Special Commission on Taxation appointed under Chapter 134 of the Resolves 3 [G. L. c. 63, § 30, cl. 1, 2 a joint special committee was appointed to consider the revision of the whole system of taxing corporations. This committee reported in favor of discarding the tax on franchise value altogether and substituting a tax on income. The recommendation of the committee was not acceptable to the legislature of the following year; but finally, in 1919, the present statute was adopted, retaining the tax on the "corporate excess," as the aggregate value of the capital stock in excess of the statutory deductions had come to be known, but at a much reduced rate, and with the maximum limitation discarded and the more obvious inequalities of the earlier law evened out; and at the same time a tax on income at a moderate rate was added to meet the loss of revenue arising from the reduction of the rate of the tax on the corporate excess. To the complications incidental to this system of taxation, even when applied to a corporation doing business wholly in Massachusetts, were added elaborate provisions for allocating to Massachusetts an equitable portion of the tax in the case of a corporation doing business in Massachusetts and in other states as well, so that to one unfamiliar with the growth and development of the statute, and the objects sought to be attained, the statute is extremely difficult of comprehension. This lack of simplicity is of course a serious fault; but it must be remembered that the complexities of the statute have gradually grown up as a means of preventing particular inequalities which have been foreseen or have actually occurred, and that the statute, whatever its faults may be, represents the result of years of study of many trained minds engaged in a sincere effort to bring about an equitable system of taxing corporations in this commonwealth. To What Corporations Applicable SECTION 30. When used in this section and sections thirty-one to fifty-two, inclusive, the following terms shall have the following meanings: 1. "Domestic business corporation," every corporation organized under or subject to chapter one hundred and fifty-six. of 1915, pp. 24-31; Report of Joint Special Committee on Corporation Tax, 1918, Senate Document No. 28. 3 1918, Senate Document No. 28. |