Coite v. Connecticut Mutual Life Insurance

36 Conn. 512

• Court: Supreme Court of Connecticut
• Decided: February 15, 1870
• Status: Published

Opinions

Loomis, J.

That part of the declaration which claims' a forfeiture, provided.by the statute, for the' neglect of the defendants to pay the tax in question, was ■ waived by ’the plaintiff’s.counsel during the argument, and-the only question presented for the decision oi the court -is, whether the de-fen'dants are liable to pay.the tax claimed to be due to the state, pursuant to the provisions of .the following statute,:

“ The secretaries, treasurers, or clerks of the several insurance companies chartered by. this state, and conducted in whole, or in part, upon the plan- of mutual insurance, shall, on or before the, tenth- day of October in each year, make re^ turns and statements under oath; to the comptroller of public accounts, of- .the total amount of cash capital, either invested or on deposit,.belonging to said companies-respectively on the first day of October in that year,.being the proceeds of insurance upon the plan of mutual insurance ; and it shall be the duty of each of °said insurance companies to pay to the treasurer-of. this state; for the use of the state, on or before the twentieth day-of October in'each year, a sum equal to one per cent, on its said capital; the same to be. in lieu of all other taxes upon such capital, except any'and all real estate-held by such company .over and- above what may be necessary and used by such company for- the transaction of its appropriate business.” Acts of 1-865, p.-118, § 5. '

The. defendants undertook, doubtless in good faith,'to comply with the requirements of the above .statute, and returned to the comptroller, .under oath, a statement as follows:

“ Office of Conn. Mutual Life Ins. Co., Hartford, Oct. 9th, 1865.

“ To the Comptroller of the State: Sir: The following is a true list or statement from this-company, on- the first day of October, 1865, as.required by law:

“ Total amount of cash-capital, invested, less $3,lB4,026'x8o<V United States- and state bonds, - - $1,994,799.38

“Total amount of cash capital on'deposit, 50,445.33

$2,045,244.71

“ Deduct ascertained unpaid losses, 239,600.00

$1,805,644.71 ■

“Dividends declared, unpaid, • .175,006.00

$1,630,638.71

Guy R. Phelps, Secretary.”

The above return, containing as it does a statement from. which “the entire cash capital, invested or on deposit,” maybe readily computed, must bo considered a substantial compliance with the law in that respect. The entire cash capital thus returned amounts to $5,179,271^g-; but the defendants, instead of paying the prescribed tax of one por cent, upon the above sum, first deducted $3,134,026/^,-, invested in United States and state bonds, and $239,600.00- for ascertained unpaid losses, and the further sum of $175,006.00 for dividends declared and unpaid, making in all the pum of-<§8,548,632x%°o; and paid to the treasurer of the state a tax equal' to one per cent, on fl,630,638^0- only. It will be observed that the - law allows no deduction on account of the character of the investments, or for any other cause; but requires in direct and positive language the payment of a tax equal to one' per cent, on the entire cash capital, either invested or on deposit, being the proceeds of insurance upon the plan of mutpal insurance. It .is manifest that • the payment above mentioned, as made by the defendants, is no ■ sufficient compliance with the obvious meaning- of the statute .referred'.to ; -for this law in its provisions is so independent and exceptional as regards our general system of taxation, that it cannot by any rational construction be considered subject by implication to the general provision in the statute exempting United States securities and state bonds from being included in personal property for purposes of taxation. There are certain corporations that are required 'by the. provisions of section 10 of General -Statutes, p.- 709, to put into the list their whole property, both real apd -personal, “in the .same manner and to the same extent as individuals resident in this state.” Such corporations would have the benefit of the exemption mentioned ; but insurance.companies,-savings ■ banks, and divers other corporations therein named, are expressly excepted .from the operation of the provisions of-this section, and reserved for another distinct, peculiar and exceptional mode of taxation.

If the law is valid, requiring the payment of a sum equal - to one per cent, on the entire cash capital, it follows that an additional sum is still due from the defendants.-

The main issue relates to the liability of the defendants to pay the required'percentage upon'that part of their cash capital invested in ' government stocks ; and the question’ is, whether the statute making such requirement is valid.

If the tax in question is to be regarded as a property tax, based upon the securities of the United States, it is in direct conflict with the paramount laws of Congress exempting such securities, and is, therefore, unconstitutional and void. But if it can be regarded as a franchise' tax, that is, a tax upon the corporation itself, as a creature of the state, then it is valid, irrespective of the fact that a portion of the cash capital lias been invested in federal securities; for “ nothing is more certain in legal decision than that the privileges aiid franchises of a private corporation and all trades and avocations by which the citizen acquires a livelihood, may be taxed by a state for the support of the government, and this authority resides in the state independently of the federal government.” Society for Savings v. Coite, 6 Wall., 594; Provident Institution v. Massachusetts, 6 Wall., 611; Hamilton Company v. Massachusetts, 6 Wall., 632.

• In order to determine to which class the tax in question belongs it will be necessary to give a construction to the statute, and in so doing it will be the duty of the court to presume, unless the language is clear and explicit to the contrary, that in • enacting- such a law, the . legislature was exercising its admitted rightful, authority, rather than usurping the functions of the general government.

- If the law in this case cannot bo considered as imposing a franchise tax it will overthrow a portion of the statute, for we have seen that the act does not contemplate that any deductions may be made from the entire cash capital.

In this case we need not rely on any mere presumption, for 'there is something more than, the mere absence of words clearly importing that a property tax was intended. The rules prescribed in sevoral'well-considered cases enable us to recognize in the statute in question the ordinary an.d most significant features of a franchise tax. Coite v. Society for Savings, 32 Conn., 173 ; Society for Savings v. Coite, 6 ; Provident Institution v. Massachusetts, 6 Wall., 611; Hamilton Company v. Massachusetts, 6 Wall., 632; Portland Bank v. Apthorp, 12 Mass., 252; Commonwealth v. People's Five Cent Savings Bank, 5 Allen, 428; Commomuealth v. Provident Institution, 12 Allen, 312; Commonwealth v. Hamilton Company, 12 Allen, 298 ; Manufacturers' Ins. Co. v. Loud, 99 Mass., 146 ; Attorney Ceneral v. Bay State Mining Co., 99 Mass., 148.

We discern no substantial distinction in principle between this case and that of Coite v. The Society for Savings, decided by the Supreme Court of this state, 32 Conn., 173, and by the Supreme Court-of the United States, 6 Wallace, 594,

The act which received a judicial construction in the latter case provided that the treasurers of all savings banks ■ and savings and building associations in the state; should, within a specified time, return under oath to the comptroller of .pub-lie accounts “ statements of the total amount of all deposits and stock in said institution” on the 1st of July in each year; and that said’ institution should “ pay to the treasurer of the-state, for the use of the state, a sum equal to ono-half of one per cent: .on the total amount of deposits and stock in such institutions,.on the first day of July in each year,” which tax. was “ to' be in lieu of all other taxes upon said institutions, and- the deposits-therein,” with a proviso that the act should not exempt from taxation any reál estate held by such institutions, “ over and above what might be-required for the transaction of its appropriate business.” Acts of 1862, chapter. 55, sec.. 1. By an act passed -in'May, 1863, the tax was made three-quarters-of one per -cent, instead of one-half of one per eent.

■ This act was decided by the highest courts, both of this state, and the United States, to be a’ tax upon the privileges and franchises of the corporation as' such, and not upon its property, and therefore the bank; was not allowed to. deduct from its. deposits the amount invested in the securities of the United -States.

It seems to us that the same construction must be. placed upon the. statute now under consideration. We find that savings banks and insurance companies are coupled together in section 10 of the General Statutes, p. 709, and there excepted from the obligation imposed on .other corporations, to list their whole property in the same manner and to the same extent as individuals; thus setting these institutions apart from the general system of property taxation. And we find that both institutions became subject to this exceptional mode of taxation at the same time, by virtue of'the same act, passed in 1851, which act' in its controlling phraseology was the same as now.

In the same year also we witness the discontinuance of the ancient policy of the' state, which taxed the private citizen for his “ faculty” or occupation, and observe the introduction of a system, since followed and extended, of duties' on corporate franchises.

These institutions also appear together -in several subsequent statutes which the legislature has from time to time passed as substitutes for the original act, when it was deemed desirable to change the required percentage, or subject other corporations to the same mode of taxation. See Acts of 1862, chapter 55, which is the act under which Coite v. Society for Savings arose and was.decided. Also acts of 1864, chapter 74, and General Statutes, p. 716, sec. 44, and p. 718, sec. 48.

Again, upon comparing the acts relative to savings banks and insurance companies, we find that both must make return to the comptroller and payment to the state treasurer in precisely the same manner, which is quite unlike the mode of property taxation. In both the tax paid is to be in lieu of all other taxes, with the same exception as to real estate over and above what is necessary for the appropriate business of each. There is, however, a difference in phraseology in this —that in the case of savings banks the tax paid is “ to be in lieu of all other taxes upon said institutions and the deposits therein,” while in the case of insurance companies it is in lieu of all.other taxes upon said capital.” Both refer to the subject matter upon which the percentage is computed, and the addition of the word institutions in the case of savings banks surely is not sufficient to .control or change the construetion of the act. In both cases' the samé significant phraseology is employed to indicate the amount of the tax. • It is ' not á percentage on the capital in one case, or deposits in the other, but “ a sum equal to” such a percentage, showing that capital and deposits are employed as a standard of reference' by which the tax on the franchise may be measured by the products of the franchise. In the case of savings banks the amount of the tax is a sum equal to the specified percentage on the total amount of deposits ; in the case of the defendants it is equal to the percentage on the total amount of cash capital, being proceeds of. insurance. In both cases the tax bears a more just proportion to the value of' the franchise than would have been possible if an arbitrary sum had been prescribéd. . '

There is as much similarity in the basis upon which the tax is computed, and in the language of the two acts, .as corrld be expected in levying the same kind .of tax upon dissimilar institutions. “ The cash capital, being proceeds of insurance,” bears a similar relation to the insurance company,

for the purposes of taxation, that deposits-do to the savings hank. In both the cash paid in is held by the. corporation for the benefit of those who paid it. ■ The savings bank, by receiving money on deposit, incurs the obligation to account for the net earnings, and return the principal when demanded,subject to. the prescribed regulations. The insurance company also must account for the earnings to those who pay the .premiums, and must return the amount of money named in the policy, upon the happening of the contingency therein mentioned. In both, cases the cash paid in constitutes the principal fund from which investments are made, and is to be considered “ capital” only in a limited sense.- In the case of the insurance company the word “ capital,” as used in the statute, adds nothing to the meaning. • If this word had been omitted, the phrase “ total amount of cash proceeds of insurance” would have • signified precisely the same thing.- In neither case is there any valuation of property as such, to form the basis of taxation, but a mere counting of the money-deposited in one case, and the amount paid in for insurance in the other, and for the same purpose in both cases, of furnishing an' equitable standard by which to determine the amount of the tax. The state asks merely for the prescribed percentage, and that too in a manner as irrespective of actual investments as if it was a duty on the gross.cash receipts or income. In the case of both these institutions nearly all the funds will be found invested in some tangible property, the real value- of which may not be correctly represented by the -amount originally invested, and yet the law takes no notice whatever of the character and value of the investments. This would be an anomaly in any system of property taxation.

It is also to .be observed that only a part-of the property of either of these institutions is subject to taxation under the laws we are considering. This' is especially true of the insurance company, and if the act in question is to be construed as imposing a tax upon property as such-, it is passing strange that it should overlook, and indeed exclude from taxation, the.sum of $3,010,128]%% in premium notes, good and collectible, held by the company, and which in other cases would be subject to' property taxation, and at the same time include for taxation $2,534,0261%)s- invested in United States -bonds which are expressly exempt from property taxation, not only by the laws of the United States but by our own statute also'.

For these reasons we regard the above mentioned case of Coite v. The Society for Savings as entirely decisive of the. question now under consideration, so far as it relates, to the exemption of United States securities and the 'nature of the tax. We therefore hold that’ the amount invested by the. defendants in United States- bonds cannot be deducted from the entire amount of their cash capital, in order to reduce the amount of their tax, because the tax in question is not a property tax. ,

The subject of state bonds was not involved in the case of Coite v. The Society for Savings, but the same reasoning which there prevailed leads inevitably to thó conclusion that no exemption can be claimed by the defendants on account of their ownership of the bonds of the state. The statute which exempts state bonds from taxation is no more explicit and positive than that which exempts the securities of the United States. It does not, by its terms, or by implication,- impair in any way the right of franchise taxation. -

The tax making the exemption (being a property tax), and the tax imposing the duty to pay the required percentage on the capital (being a franchise tax), are not inconsistent with each other, and both may stand together.

If the statutes imposing these two kinds of taxes were inconsistent, then the argument as applicable to state bonds would be different from that relative to United States bonds in this, that the later state law imposing the tax would repeal the former law of the state making the exemption, but the state law imposing .the tax, if in conflict with the United States law exempting the securities of the United States, would be null and void..

The remaining question relates to the claim of exemption on account of ascertained and unpaid losses, and dividends declared but unpaid. But here the principles we have hitherto discussed as applicable to government securities do not apply. The simple inquiry is, whether these two items are within the terms of the statute.

■ The losses evidently constitute no part of the cash capital, ■but on the other hand, being fixed liabilities, owing by the corporation, they do and should abate by so much the amount of cash capital belonging to the company. ' The term “ proceeds of insurance,” which qualifies and limits the meaning of the term “ cash capital,” as used in the statute, it seems to me should be construed as importing the same as “ net proceeds,” or balance. The defendants, therefore, were right in deducting these losses.

At first blush it would seem that dividends declared should also follow the same rule. If they were declared and payable in such manner as to reduce the cash capital, they should of course be deducted. The general rule is that a dividend once declared becomes a debt due to the person entitled to it and an obligation from the corporation declaring it. Such would always be the case where there was no contract between the parties modifying their respective rights and .liabilities. In this case the facts are such that it is difficult to see how it is possible that the dividends in question could reduce, or in any way affect, the amount of cash capital.

It is found that the dividend in question was intended to cancel,' and did in fact caneel, the premium notes, and that .the practice of the company, both for their own convenience and that of their policy holders, is, to pay the dividends in this way, at the maturity of the premium notes. The dividends then are not to be paid as the losses are paid; they do not come out of the cash capital at all, but out'of the notes. The parties so understand it, and contract with reference to it. The premium notes constitute no part of the cash capital. It is found that in this case these notes amount to ®3,010,12318o°cr, and that they are not included in the return made by the defendants. If they were included, then the dividends should .have been deducted. Had the dividends declared canceled the entire amount of premium notes, the cash capital to be returned would have been the same, though it is obvious that the non-taxable assets of the company would have been by so much diminished. '

How is it then that dividends which do not come out of the cash capital in fact, can be deducted for the purpose of reducing taxation ? If the dividends declared, canceling the premium notes, should be considered equivalent to a collection of those notes, then, if the amount so collected should be returned as a part of the cash capital, the dividends would be properly applied to reduce it. This would be merely adding the amount of the dividend and then subtracting it again; but in the case before us the amount collected by dividends upon the premium notes was never added to the capital as returned, and to deduct the amount would be simply to withhold so much, from taxation.

The foregoing discussion leads to the conclusion that the defendants are required, by the terms of the statjite, to pay the prescribed tax upon all the items mentioned in the return, except the unpaid losses, unless certain technical objections urged by the defendants against a recovery in this case should prevail,, which objections we will now proceed to consider.

1. The first objection, “ that the Superior Court has no jurisdiction of- the question' as to amounts or values upon which the tax was to be computed,” is avoided by the construction we have given to the return made by the defendants. We hold that the return discloses the entire cash capital, and is therefore such a return substantially as'the law required;' that the deductions made by the defendants may be, and should be, disregarded as wholly unauthorized; and that the return reports a larger capital than that upon which the taxes were- in fact paid. The Superior Court has not therefore attempted to exercise any such jurisdiction as the objection assumes.

2. . The second objection is, that the treasurer and comptroller of the state, who constitute the board of equalization, have failed to comply with those requirements of the act which are essential to a recovery. This objection is based upon the requirements of section 7 of the acts of 1865, chapter 116, which provides that it shall be the duty of this board to examine' and amend" or correct all lists and statements returned to the comptroller, in such manner as they may deem just and equitable; and in case any person shall fail to make the required return, or shall, in the opinion of the board, make ' erroneous returns, it shall then. be the duty of the board to make out a list or statement, which shall be final and conclusive, and a -true copy of each list and statement as amended, corrected, approved or made out by the board, is'to be returned to the officer whose duty it was to have made such return in the first instance. '

' In this case the record fails to show whether or not there was any action on the part of the board of -equalization relative to the list or statement in question, and the pleadings and notice of the defendants do .not indicate that such a defence was to be made. It appears that the defendants paid a part of the tax based upon this list, and it is obvious that they declined to pay the balance from an honest belief -that the law making, the requirement was not valid. If, however, the defendants are correct, that it is necessary for the plaintiff to show affirmatively, as a condition precedent to the plaintiff’s right to sustain the suit, that there was such action on the part of the board, it will be fatal to the case; or, if there has been a decision of the board relative to this return^ it is by the statute conclusive as to value and amount..

■ But, as we construe the statute, the board is not required to take any action relative to amending the list returned, or making a new one, except in two specified contingencies; 1st, when the corporation fails to make any return within the time and in the manner prescribed; and 2d, when, in the opinion of the board, the return as made, is erroneous. These two conditions are essential to give the board jurisdiction to make a different return from that made by the defendants. There is no presumption that the board ever exercised such a jurisdiction, and therefore, if the defendants' rely upon any action of the board, as concluding the parties relative to the' list, it is for them to prove it as matter of defence, and it is not a condition precedent to the' plaintiff’s right of action.

If, as in this case, the record does not indicate that any aetion has been taken by the board, it should be presumed, for the purposes of the case, that the list, so. far as it discloses the amount of cash capital invested or on deposit belonging to the corporation, stands approved. ' But this list is not to be taken as approved in respect to statements and deductions which the ■ law does not make essential, or appropriate parts • of such return. The law requires certain specific facts to be reported, and the return, so far as it is pertinent to the requirement, stands approved unless amended by the board, ■but not the claims for exemption which the party making the return may insert therein, nor the subtractions from the cash capital that may appear thereon as made by such party..

Again, it is said that it docs not appear that the board sent any copy of the statement or list in this case- to the defendants, and that this omission is fatal. The statute, after prescribing the duty .of the board in the two specified instances, to amend the fist, or make a new one, makes the following direction:—“and a true - copy of each list and statement as amended, corrected, approved or made out by said board, shall be returned” to the officer who is required to make such statement. It will be seen that the phraseology here employed to describe the copy to be sent, is broader than, the duty previously mentioned, upon which the sending of the copy is predicated, and if we give to the word “ approved” its most appropriate meaning, it would seem to require the board, where they materno amendment of the list, to send back a copy of the return as' made by the defendants, with their approval indorsed thereon. If such should be deemed the .true construction of this clause, then we- hold that it is merely directory, and not essential to the validity of the proceedings.. It is obvious that this entire' section of the statute was intended for the benefit of the state alone; the power to examine and amend the .return, or make a neAV one,'was reserved by the state exclusively for its own protection, not to reduce the list, but to insure the return of the entire cash capital.

There is no good reason for sending a copy of the list to the defendants where no change is made, for the defendants are presumed to be prepared to pay according to their own return and statement.

The object doubtless was, to give notice to the defendants where the return was altered as to amounts or values. The duty to send the notice is dependent on, and pursuant.to, the action required on the part of the board, which, as we have seen,- is confined to, the two hypothetical. cases mentioned ; and it is no part of the duty of the board, unless such duty is to be implied from the clause we are considering, to approve of the' list as made -by the defendants. The words used in this statute referring- to the copy to be sent, are not all needed to convey the meaning; they are loosely used, and it seems reasonable to restrain the meaning of the word “ approved,” so as to import merely that the board- officially sanction such a statement or list, as the copy returned by them may indicate, rather than construe it so as to require the board to give notice to-the defendants that they have attended to a matter not required of them, and that they approve of the defendants’ own statement. It is not however necessary for the purposes of this case to give the above as the true construction of the statute; but we employ the reasons above stated as fully justifying our conclusion, that if the statute can be so construed as to require the copy of the list to be sent in a case like the present one, it must be construed as directory merely, and that the omission to send the copy does not excuse the non-payment of the tax.

3. The remaining objection to be considered is, that the act passed in 1865, under which this claim accrued, has been repealed, either by the revision of 1866, (General Statutes, p. 742, sec. 1,) or by the act of 1867, (Acts of 1867, chap. 118, sec. 3,) or by that of 1869, (Acts of 1869, chap. 79, sec. 3.)

We do not consider this objection well founded. It is true that the law of 1865, upon which this suit is founded, has been repealed, but the rights of all parties under it have been most carefully reserved and protected,, so that for the purposes of this case the law of 1865 continues in full force.

■The committee to revise the statutes reported to the legislature, at its May session in 1865; but that report did not include the laws passed at that session ; and the legislature passed an act providing that the revised acts -then reported, together with the acts of that session, to be revised by the committee and incorporated therewith, should constitute the General Statutes of the State of Connecticut, on and after •the 1st day of January, 1866, and that all other public acts, with certain specified exceptions, should. be repealed'. The revising committee,.pursuanttotliis authority, did incorporate the laws of 1865 with the other acts reported, and the particular act we are considering became section 48th of the General Statutes, p. 718. ■

The act of 1865 operated by its own force till the revision took.effect on the 1st of January, 1866, and after that the same act continued in force as section 48 until the act was passed', contained in the laws of 1867, chap. 118, sec. 3, which expressly repeals section 48, but at the same time provides that “ such repeal shall not in any way affect any suit now pending, or the validity of any claim of the state under said act now existing.” The act, too, of 1869, as found in the laws of that year, chap. 79, sec. 3, repeals the first and second sections of the act of 1867, but contains a saving clause, identical with that contained in the -repealing clause of the act of 1867.

The right of the plaintiff, therefore, to recover the tax in question, has not been in the least impaired..by any of the repealing acts referred to, and we advise the Superior Court to render judgment in favor of the plaintiff, to recover of the defendants the amount of the tax due from them upon the principles we have endeavored to explain.

In this opinion Butler and Carpenter, Js., concurred.