Houston & T. C. R. v. McDonald (148 S.W. 287, 1912)

BROWN, C. J.

We cannot better state the allegations of relator than to copy from the petition as follows:

“This suit involves the proper construction of section 1 of the act of May 16, 1907, prescribing franchise taxes to be paid by corporations, being chapter 23 of the General Laws of the First Called Session of the Thirtieth Legislature, found on page 502 of the Session Acts. That section is as follows:

“ ‘Section 1. Except as herein provided, each and every private domestic corporation heretofore chartered, or that may hereafter be chartered under the laws of this state, shall, on or before the first day of each year, pay in advance to the Secretary of State a franchise tax for the year following, which shall be computed as follows, viz.: Fifty cents on each one thousand dollars, or fractional part thereof, of the authorized capital stock of such corporation, unless the total amount of capital stock of such corporation issued and outstanding, plus its surplus and undivided profits, shall exceed its authorized capital stock, and in that event the franchise tax of such corporation for the year following shall be fifty cents on each one thousand dollars of capital stock of such corporation issued and outstanding, plus its surplus and undivided profits: Provided, that such franchise tax shall not in any case be less than ten dollars. Provided, that where the authorized capital exceeds one million dollars, such franchise tax shall be fifty cents for each one thousand dollars up to and including one million dollars, and for each additional one thousand dollars, in excess of one million dollars, it shall be twenty-five cents/

“The contention of petitioner, Houston & Texas Central Railroad Company, is that the section creates two classes of private domestic corporations, to wit: First, where the authorized capital stock is $1,000,000 and less; and, second, where the authorized capital stock exceeds $1,000,000; and that upon the first class the franchise tax is payable upon the basis of 50 cents on each $1,000 or fractional part thereof, of the authorized capital stock of such corporation, unless the total amount of capital stock of such corporation issued and outstanding, plus its surplus and undivided profits, shall exceed its authorized capital stock, and in that event the franchise tax of the corporation shall be 50 cents on each $1,000 of capital stock issued and outstanding, plus its surplus- and undivided profits. On the second class, the franchise tax is 50 cents for each $1,000 up to and including $1,000,000, and for each additional $1,000 in excess of $1,000,000 it shall be 25 cents; that is to say, on the first class, where the authorized capital stock is $1,000,000 or less, the surplus and undivided profits, if any, is added to the authorized capital stock, and in the second class the surplus and undivided profits is not included, but the computation is made solely upon the basis of the authorized capital stock, and is 50 cents per $1,000 up to $1,000,000, and for each additional $1,000 in excess of $1,000,000, 25 cents.

“The authorized capital stock of the Houston & Texas Central Railroad Company is $10,000,000, and, under the construction herein contended for, its franchise tax would be 50 cents per $1,000 for the first $1,000,000 and 25 cents per $1,000 for the remaining $9,000,000, or $2,750. In addition to its authorized capital stock of $10,000,000, petitioner, Houston & Texas Central Railroad Company, has a surplus, that is to say, an excess of assets over liabilities, of $7,276,-245.65, and respondent, the Secretary of State, contends that this sum must be added to the $10,000,000 of authorized capital stock, and the franchise tax based upon this estimate, and that the tax should be 50 cents per $1,000 for the first $1,000,000 and 25 cents per $1,000 for the remaining $16,270,-245.65, or, as computed by him, $4,569.25.

“Prior to the 1st day of May, 1912, on which date the tax became due and payable, to wit, on the 23d day o£ April, 1912, petitioner tendered to the Secretary of State the said sum of $2,750, in full payment of its franchise tax under the act; but the Secretary of State declined to accept said tender, and refuses to accept any sum less than the sum of $4,569.25.”

The question for our determination is: Was the surplus and undivided profits (being $7,276,245.65, as shown by the railroad company’s report) subject to taxation for the year 1912? There is no dispute as to the amount of authorized capital stock outstanding, being $10,000,000. The method of computing the tax and the rates to be charged is ¡prescribed by this language of section 1 of the act: “Fifty cents on each one thousand dollars, or fractional part thereof, of the authorized capital stock of such corporation, unless the total amount of capital stock of such corporation issued and outstanding, plus its surplus and undivided profits, shall exceed its authorized capital stock, and in that event the franchise tax of such corporation for the year following shall be fifty cents on each one thousand dollars of capital stock of such corporation issued and outstanding.”

Independently of the second proviso of the law, that clause would fix a tax on the capital stock, plus its surplus and undivided profits, at the rate of 50 cents on each $1,000 of the combined sums, and, without the proviso, would embrace the entire capital stock and surplus and undivided profits. This result would be produced by applying the rule laid down in the body of the act; but, the authorized capital stock being more than $1,000,000, the proviso becomes applicable, and so modifies the preceding provision that the amount of capital tha,t shall be subject to 50 cents on the $1,000 is limited to $1,000,000, and for each additional $1,000 in excess of $1,000,000 the franchise tax shall be 25 cents. That proviso reads: “Provided, that where the authorized capital exceeds one million dollars, such franchise tax shall be fifty cents for each one, thousand dollars up to and including one million dollars, and for each additional one thousand dollars in excess of one million dollars, it shall be twenty-five cents.” It is plain that “the excess” mentioned in the proviso embraced the amount of stock outstanding in excess of $1,000,000; that is, $9,000,000 of the stock are by the proviso made subject to the 25 cents tax, instead of 50 cents on each $1,000.

Are the surplus and undivided profits included in the term “excess”? The language of the Jaw makes the surplus and undivided profits taxable with the stock in every instance when the outstanding stock and surplus and undivided profits exceed the authorized capital. We believe that a correct interpretation of the language is that, when the authorized capital exceeds $1,000,000, the excess of the stock 'over $1,000,000, plus its surplus and undivided profits, shall be subject to the tax of 25 cents on the $1,000. There is nothing in the language which, will relieve the surplus and undivided profits from the effect of the general language which made that fund subject to 50 cents on the $1,000; but we are of the opinion that the association in the body of the act of the authorized capital and the surplus and undivided profits uniformly at the same rate justifies the conclusion that they were so associated in the legislative mind in framing the proviso, therefore the “excess” was intended to embrace capital, surplus, and undivided profits on the same terms.

A careful reading of the law leads us to the conclusion that it was the purpose to tax the active capital, and all of the active capital, of such corporation at the same rates and under the same limitation. That purpose, being so apparent, furnishes a safe guide for the construction of the act. The Secretary of State correctly construed the law.

It is therefore ordered that the mandamus be refused, at relator’s cost. >