Deering Milliken, Inc. v. South Carolina Tax Commission

184 S.E.2d 711, 257 S.C. 185, 1971 S.C. LEXIS 234

Opinions

Brailsford, Justice:

The sole issue on this appeal is whether the total of dollars “paid to the capital stock” of Deering Milliken, Inc., which, under Section 65-606, Code of 1962, constitutes the base for computation of the annual license tax on the corporation, amounts to $13,750,000.00, as reported by the taxpayer, or $102,176,600.00, as determined by the South Carolina Tax Commission.

* The controversy arose after merger of The Cotwool Manufacturing Corporation and Deering Miliken & Co., Inc., pursuant to which Cotwool, the surviving corporation, changed its name to Deering Milliken, Inc. The difference between the parties is that the smaller figure is the sum of the paid in capital of the merging corporations, whereas the larger includes retained earnings (and various other surplus accounts which need not be detailed) transferred to the capital account in order to balance new shares aggregating $102,176,600.00 in par value, issued to shareholders in accordance with a formula contained in the merger agreement.

The circuit court resolved the issue in favor of the taxpayer, refusing to hold that transfers of retained earnings from surplus accounts to the capital account of the corporation were equivalent to dollars “paid (in) to the capital stock” within the meaning of the statute. We are satisfied that this result is required by the settled rule that the language of a revenue statute must not be extended beyond its clear import, the taxpayer being entitled to favorable resolution of any substantial doubt arising therefrom. Southeastern Fire Ins. Co. v. South Carolina Tax Commission, 253 S. C. 407, 171 S. E. (2d) 355 (1969). The wisdom of thus restricting the base for computation of this tax is strictly for legislative determination. We have neither the authority nor inclination to interfere.

The rationale of the dissent appears to be that assets or funds equivalent to the increase in par value of the capital stock were transferred from retained earnings to the capital account, and that this transfer constituted funds “paid to the capital stock.” But no such transfer of assets took place. The increase in the par value of capital stock and corresponding decrease in retained earnings were reflected by mere changes in book entries. The assets of the corporation remained exactly the same. Nothing was paid in; no assets were transferred.

We reach this result without the necessity of overruling Pacolet Mfg. Co. v. Query, 174 S. C. 359, 177 S. E. 653 (1934), and refrain from so doing. It resulted in the inclusion in the license tax base of the corporation of the value of capital stock issued to shareholders as a stock dividend. We decline to extend this decision to the factual situation presented here, which involves the issuance of capital stock pursuant to a corporate merger.

Affirmed.

Bussey and Littlejohn, JJ., concur. Moss, C. J., and Lewis, J., dissent.

In the original statute, the phrase in quotation marks read “paid in to the capital stock.” (Italics added.) Sec. 4 of Act No. 269 of 1904. When the Section was amended in other respects a year later, the in was dropped by clerical error. Act No. 407 of 1905. It has never been replaced.