NATIONAL LEATHER CO. v. COMMONWEALTH OF MASSACHUSETTS.

The National Leather Co., a Maine corporation, applied by two petitions to the Supreme Judicial Court of Massachusetts for Suffolk County,1 for the abatement of portions of the taxes that had been exacted of it by the commissioner of corporations and taxation, under chapter 63 of the General Laws, for the privilege of carrying on business in Massachusetts in the years 1922 and 1923. The petitions alleged that the statute as applied was an attempt to tax property not within the jurisdiction of Massachusetts and repugnant to the Fourteenth Amendment. The cases were consolidated, and at the hearing, by order of the presiding justice, were reserved for determination by the full court upon the pleadings and an agreed statement of facts. The court in banc sustained the excise, 256 Mass. 419, 152 N. E. 916, and in accordance with its rescript the court for Suffolk County dismissed the petitions. The writ for error was properly directed to the latter court. See Davis v. Cohen Co., 268 U. S. 638, 639, 45 S. Ct. 633 (69 L. Ed. 1129).

The statute provides that every foreign corporation shall pay annually 'with respect to the carrying on or doing of business by it within the Commonwealth,' an excise consisting in part of an amount 'equal to five dollars per thousand upon the value of the corporate excess employed by it within the Commonwealth,' which is defined as 'such proportion of the fair cash value of all the shares constituting the capital stock * * * as the value of the assets, both real and personal, employed in any business within the Commonwealth * * * bears to the value of the total assets of the corporation,' with certain exceptions not here material. Section 30, cl. 4; section 39(1).

The business of the National Leather Co.-hereinafter called the petitioner-was the purchasing of hides and skins, having them tanned by other companies, and selling the leather through the tanners. It operated no tanneries itself. Its business was conducted wholly in Massachusetts; its business offices were located there; and it carried on no active business outside the state. Among other properties it owned the entire capital stock, except a few qualifying shares, of the A. C. Lawrence Co. and the National Calfskin Co., two other Maine corporations. Its upper leather was tanned chiefly by these two subsidiary corporations; and its sole leather by other corporations in which it had no interest.

The business of the Lawrence Company was the tanning of hides, principally for upper leather, which it sold on a commission basis. Most of its tanning was done for the petitioner. Its tanneries were in Massachusetts, where it was engaged in business, but it was qualified to do business and had selling branches in four or five other States. The business of the Calfskin Company was tanning hides of the petitioner. Its tannery was in Massachusetts, where it was engaged in business. It had no property or selling branches outside Massachusetts, and was not qualified to do business in any other State except Maine.

In determining the portions of the excises based upon 'corporate excess' the commissioner included all the capital stock of the Lawrence Company and the Calfskin Company owned by the petitioner, as part of the assets employed by it in business within Massachusetts; but did not include any stocks owned by it in other corporations which were not engaged in business within Massachusetts.

The petitions for abatement were directed solely to the portions of the excises assessed by reason of this inclusion of the capital stocks of the Lawrence and Calfskin Companies.

The petitioner contends that the inclusion of these stocks as part of the assets employed by it in business in Massachusetts for the purpose of measuring its taxable corporate excess is in effect the imposition of a tax upon the stocks themselves; that these stocks, as distinguished from the assets of the subsidiary corporations, had no situs in Massachusetts and were not within its jurisdiction; and that the statute, so applied, is therefore beyond the power of the State and violates the due process clause of the Fourteenth Amendment.

The Massachusetts court, in holding that the statute had been properly construed and applied by the commissioner and in sustaining the validity of the taxes, said:

'The commissioner * * * in determining under G. L. c. 63, § 44, the 'corporate excess employed within the commonwealth by, every foreign corporation' doing domestic business here, is required to give those words the definition and to follow the legislative mandate in G. L. c. 63, § 30, cl. 4. * * * The petitioner held the stock in its two subsidiary corporations for the lawful prosecution of its business. All the facts recited lead to the conclusion that there was no error of law in including the shares of stock for computation of the excise of the petitioner. The entire business of the petitioner was conducted in this Commonwealth, the certificates of stock of the subsidiary corporations actually were kept here, all the business of one and a large part of the business of the other was carried on here, and the petitioner made use of the activities of these subsidiary corporations as essential parts of its business. Without discussing whether any one or more of these factors standing alone would justify the method employed in ascertaining the excise, their collective force is sufficient to that end. The interpretation of the words of the statute requires this result. * * * The language of the statute * * * is explicit and its meaning is not clouded or obscure. It cannot render subject to direct taxation property not within the jurisdiction; but where other essential elements are present the excise is justified. * * * Apart from the domicile of the several corporations and looking for the moment only at tangible property and its physical location, there is jurisdiction to sustain taxation in this Commonwealth. All the business of the petitioner and of one of its subsidiaries and a principal part of the business of the other subsidiary is conducted in Massachusetts. * * * (There) is no direct tax on property, but an excise on a foreign corporation levied solely for the privilege of doing domestic business within this Commonwealth measured in part on the value of stock employed in business in this Commonwealth. * * * The question whether the value of the stock of the Lawrence Company attributable to that part of its business and property in other States ought to have been deducted is not presented on this record. That relates to overvaluation, as to which a different remedy is provided. * * * G. L. c. 63, § 71.'

For present purpose it may be assumed that the capital stocks of the two subsidiary companies had no situs in Massachusetts which brought them within the jurisdiction of that State for the purpose of imposing a direct property tax. See Rhode Island Trust Co. v. Doughton, 270 U. S. 69, 80, 46 S. Ct. 256 (70 L. Ed. 475, 43 A. L. R. 1374). But. here the statute does not impose any direct tax upon these stocks, and, as construed by the Massachusetts court, merely treats them as assets employed by the petitioner in its business within the State, and therefore requires that they be included when the total assets so employed by it are computed for the purpose of arriving at the proportionate part of the value of its own capital shares-determined by comparing the assets employed in business within the State with the total assets wheresoever employed or located-on which the excise for the privilege of carrying on its business within the State is imposed.

It is settled law that a State may law-fully impose upon a foreign corporation a tax for the privilege of doing business within its borders which is measured by the proportionate part of its total gross receipts that are received within the State, Maine v. Grand Trunk Ry. Co., 142 U. S. 217, 228, 12 S. Ct. 121, 163 (35 L. Ed. 994); or by the proportionate part of its total capital stock which is represented by the property located and business transacted within the State, Hump Hairpin Co. v. Emmerson, 258 U S. 290, 293, 42 S. Ct. 305 (66 L. Ed. 622); American Mfg. Co. v. St. Louis (C. C. A.) 8 F.(2d) 447, 450; or by the proportionate part of its total net income which is attributable to the business carried on within the State, Underwood Typewriter Co. v. Chamberlain, 254 U. S. 113, 120, 41 S. Ct. 45 (65 L. Ed. 165); Bass, etc., Ltd., v. Tax Comm., 266 U. S. 271, 282, 45 S. Ct. 82 (69 L. Ed. 282).

Here both the commissioner, the administrative officer charged with the enforcement of the statute, and the Massachusetts court, have found that the capital stocks of the two subsidiary companies were employed by the petitioner in carrying on its business within Massachusetts. We find no adequate reason for disturbing this conclusion. On the contrary, looking to the substance of the transactions and not merely to form, we think that the petitioner, through its ownership of the capital stock of the two subsidiary corporations and the control which it thereby exercised over them, did, in a very real and practical sense, employ these stocks as an instrumentality in carrying on its business within Massachusetts-to the extent, at least, that the controlled activities and property of the subsidiary corporations were within the State. Cf. Edwards v. Chile Copper Co., 270 U. S. 452, 456, 46 S. Ct. 345 (70 L. Ed. 678). And since the Massachusetts court did not determine whether the value of the stock in the Lawrence Company attributable to that part of its business and property in other States should have been deducted, for the reason that, as to such overvaluation, if any, a different statutory remedy was provided, we have no occasion to consider that question.

It is said that under the Massachusetts statute the subsidiary corporations were subject to similar excises on their own account, and therefore there will be what is akin to double taxation. But we are not here concerned with an excise tax on the subsidiary corporations and need not consider its constitutional propriety either independently or in connection with the excise against the petitioner.

Judgment affirmed.

Mr. Justice McREYNOLDS is of opinion that the effect of the challenged judgment is to tax property beyond the jurisdiction of Massachusetts, and that therefore it should be reversed.