[G. L. c. 63, § 39

FOREIGN CORPORATIONS

Excise on Foreign Corporations

SECTION 39. Every foreign corporation shall pay annually, with respect to the carrying on or doing of business by it within the commonwealth, an excise equal to the sum of the following, provided that every such corporation shall pay annually a total excise not less in amount than one twentieth of one per cent of such proportion of the fair cash value of all the shares constituting its capital stock as the assets, both real and personal, employed in any business within the commonwealth on April first following the close of the taxable year, bear to the total assets of the corporation employed in business on said date:

(1) An amount equal to five dollars per thousand upon the value of the corporate excess employed by it within the commonwealth.

(2) An amount equal to two and one half per cent of that part of its net income, as defined in section thirty and in this section, which is derived from business carried on within the commonwealth.

If two or more foreign corporations doing business in this commonwealth participated in the filing of a consolidated return of income to the federal government, the tax under paragraph (2) above may, at their option, be assessed upon their combined net income, in which case the tax shall be assessed to all said corporations and collected from any one or more of them. Foreign corporations thus affiliated and doing business in this commonwealth, which do not elect, under the foregoing provision, to be assessed upon their combined net income, and all other foreign corporations doing business in this commonwealth, which have filed with one or more corporations not subject to this section a consolidated return of net income to the federal government, shall each file with the commissioner, as a part of the return required by this chapter, a statement of net income in such form as he may prescribe, showing the gross income and deductions in accordance with the law and regulations governing the usual federal returns of corporations not thus affiliated; and the net income thus shown, after making deductions therefrom and additions thereto as provided in paragraph five of section thirty, shall be the "net income" under this chapter.

Until 1919 the taxation of foreign corporations proceeded along entirely different lines from the taxation of domestic cor

G. L. c. 63, § 39]

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porations.1 Real estate of a foreign corporation was always without controversy assessed in the city or town in which it lay, and a foreign corporation was not treated as an inhabitant of the city or town in which it had its principal place of business in this commonwealth. In these respects there was no difference in the taxation of foreign and of domestic corporations. It was held however that foreign corporations, unlike domestic corporations, were taxable for personal property which fell within any of the classes of property taxable where situated regardless of the owner's domicile, such as merchandise and stock-in-trade used in business or manufacture, machinery employed in manufactures, personal property leased for profit, horses and cattle, and conduits, wires, pipes and poles. In the Business Corporation Law of 1903 it was provided in terms that foreign corporations should be assessed for their real estate, machinery and merchandise in the city or town in which it was situated, and it was held that this provision was in addition to existing liabilities of foreign corporations under the previous statutes and was not subject to the conditions and qualifications contained in such statutes, so that machinery and merchandise of a foreign corporation was taxable where situated regardless of its manner of use. The only effect of the statute of 1909 providing for the taxation of merchandise, machinery and animals of non-residents and foreign corporations upon the taxation of foreign corporations was to add animals other than those enumerated in the existing statutes to the personal property upon which such corporations were taxable.

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1See Blackstone Mfg. Co. v. Blackstone, 13 Gray 488 (1859).

Hough v. North Adams, 196 Mass. 290 (1907).

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'Boston Investment Co. v. Boston, 158 Mass. 461 (1893); Coffin v. Artesian Water Co, 193 Mass. 274 (1906).

4 These exceptions were contained in St. 1909, c. 490, I, § 23, and were apparently not intended to declare what property should be taxed and what exempted, but to decide in what city or town property made taxable by other statutes should be assessed; nevertheless as to foreign corporations and nonresidents of the commonwealth they had the effect of imposing a tax upon property which would otherwise wholly have escaped taxation in this commonwealth. 'Blackstone Manufacturing Co. v. Blackstone, 13 Gray 488 (1859); Boston Loan Co. v. Boston, 137 Mass. 322 (1884); Singer Manufacturing Co. v. Essex County Commissioners, 139 Mass. 266 (1885); Lamson Consolidated Store Service Co. v. Boston, 170 Mass. 355 (1898).

St. 1903, c. 437, §71. It was held that the corporation can be constitutionally assessed as owner instead of the goods themselves in Scollard v. American Felt Co., 194 Mass. 127 (1907).

'Hilliard v. Fells Ice Co., 200 Mass. 331 (1909).

[G. L. c. 63, § 39 The taxation of tangible property imposed in 1903 as well as the excise on foreign corporations provided by another section of the same statute, referred to later, tended to check the practice of securing incorporation from other states for the purpose of doing business in Massachusetts; but intangible property, such as stocks, bonds and notes, and money and accounts receivable, was not subject to local taxation when owned by foreign corporations, and a foreign corporation the property of which was largely of this character was not taxed as heavily as a domestic corporation owning similar property. If however the shares of such a corporation were owned by residents of this state and did not escape the view of the local assessors, the foreign corporation directly and indirectly was more severely taxed than the domestic corporation. Shares in foreign corporations owned by residents of this state were taxed to the owner in the city or town in which he dwelts without any deduction for tangible property of the corporation subject to taxation in this commonwealth or elsewhere."

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No general excise on foreign corporations was provided by law until 1903, but in that year a tax was imposed of one one-hundredth of one per cent of the par value of the capital stock, deducting local taxes, the amount of the excise not to exceed two thousand dollars. In 1907 this tax was increased to one-fiftieth of one per cent and the deduction omitted, the limit of two thousand dollars however remaining unchanged. These statutes were held inapplicable to a foreign corporation having its place of business in this state only for use in interstate commerce,1 or to a foreign corporation for the taxation of which there was no special provision in our statutes, if it should be engaged in the work of conducting some kind of interstate commerce for hire as its principal function and at the same time should be engaged in intrastate business so closely connected with the interstate commerce that it could not be given up without serious detriment to the interstate commerce.11 They were however held applicable to corporations engaged in ordinary mercantile business which was partly interstate and partly local, when

"Great Barrington v. Berkshire County Commissioners, 16 Pick. 572 (1835); Dwight v. Springfield Centre Fire District, 11 Met. 374 (1846).

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Dwight v. Mayor & Aldermen of Boston, 12 Allen 316 (1866).

10 Attorney-General v. Electric Storage Battery Co., 188 Mass. 239 (1905). "Baltic Mining Co. v. Commonwealth, 207 Mass. 381 (1911).

G. L. c. 63, § 39] there was no insuperable difficulty in separating the two divisions of the business.12

So construed they were sustained by the supreme court of the United States; 13 but in 1914 a statute was enacted imposing an additional tax of one one-hundredth of one per cent upon. the capital stock of a foreign corporation in excess of ten million dollars, and it was held that this enactment indicated an attempt to tax the entire capital stock of the corporation, and thus to reach property outside of Massachusetts, and consequently rendered the entire system of excises unconstitutional.15 The repeal of the 1914 act revived the constitutionality of the earlier statute, 16 but left the system of taxing foreign corporations in an unsatisfactory condition.

The enactment of the income tax law in 19161 removed the shares of foreign corporations from the sphere of local taxation, and subjected the dividends of such corporations to a moderate tax which in many cases left foreign corporations in a more favorable position than domestic. In 1915 a statute was enacted requiring foreign corporations to file with the commissioner a list of their property subject to local taxation.18 This was deemed a great hardship, as domestic corporations were not taxable their personal property at all and individuals were not required to file a list of such property, and the time for the statute to go into effect was extended from year to year so that it never actually went into effect;19 but its enactment tended to induce foreign corporations to withdraw their opposition to a reasonable system of excise taxes.

By 1919 it was realized that the place of incorporation was often a mere legal fiction, and that common sense required the taxation of corporations doing business in this commonwealth upon substantially the same principles, regardless of the state

12 S. S. White Dental Manufacturing Co. v. Commonwealth, 212 Mass. 35 (1912); Keystone Watch Case Co. v. Commonwealth, 212 Mass. 50 (1912); Marconi Wireless Tel. Co. v. Commonwealth, 218 Mass. 558 (1914).

13 Baltic Mining Co. v. Massachusetts, 231 U. S. 68 (1913); Cheney Bros. v. Massachusetts, 246 U. S. 146 (1918).

14 St. 1914, c. 724.

15 International Paper Co. v. Massachusetts, 246 U. S. 135 (1918); Locomobile Co. v. Massachusetts, 246 U. S. 146 (1918).

[G. L. c. 63, § 39 by which the charter was issued. Accordingly foreign corporations were included in the corporation tax act of 1919 and were made taxable in the same manner as domestic corporations, except that a foreign corporation was taxed on only so much of its corporate excess as was employed in business in this commonwealth, and the allocation of income from interest and dividends and from the gain from the sale of capital assets was somewhat different. But in other respects the taxation of domestic and of foreign corporations was made identical.

It is believed that the method of taxing foreign corporations established by section thirty-nine not only meets the objections which proved fatal in the case of the excise on foreign corporations imposed by the legislature in 1914,20 since the statute has been drawn with great care so as to exclude the possibility of taxing directly or indirectly property of such corporations situated outside the commonwealth, but that it may also be constitutionally applied to foreign business corporations having a place of business in this state solely for the purpose of engaging in interstate commerce, since payment of the tax is not a condition precedent to the doing of business in this commonwealth, and the tax, though in form an excise, is in effect a tax upon income earned and property located within the commonwealth at no greater rate than other income and other property are taxed.21 Accordingly the narrow distinctions between interstate and intrastate commerce which were drawn under the earlier acts are of no significance under the present law.

The tax however is by its terms an excise imposed with respect to the carrying on or doing of business within the commonwealth, and it would seem that a corporation which does no business within the commonwealth is not subject to the tax. Undoubtedly, if a corporation does business anywhere, and has its financial office in this commonwealth, it is subject to the tax; 22 but if it has definitely and permanently ceased to do business in the state of its origin, or elsewhere, it would seem that it is not taxable in this commonwealth under the terms of the statute merely because it maintains an office here.

20See supra, Part I, §23, note 8.

"See Supra, Part I, §§20-25 inc.

"Old Dominion Co. v. Commonwealth, 237 Mass. 269 (1921).