WERNER MACHINE CO., INC.
v.
DIRECTOR OF DIVISION OF TAXATION, DEPARTMENT OF THE TREASURY, OF NEW JERSEY

U.S. | 1956-03-26
No. 63
350 U.S. 492 Supreme Court of the United States (1956) Positive Treatment
Also reported at: 100 L. Ed. 2d 634 · 76 S. Ct. 534 · 1956 U.S. LEXIS 1203 · SCDB 1955-047
Cited by 10 cases

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Holding

A state franchise tax measured by net worth, which includes the value of federal bonds, is valid even if the bonds are immune from direct state taxation.

Facts & Procedural History

New Jersey imposed an annual franchise tax on appellant, a domestic corporation, measured by its net worth. The Tax Commissioner included the value of…

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Topics
Net Worth

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Per_curiam
Per Curiam.

Per Curiam.

The State of New Jersey imposes on each domestic corporation “an annual franchise tax ... for the privilege of having or exercising its corporate franchise” in the State.1 This tax, as applied to appellant, is measured by the corporation's “net worth,” which is defined as the sum of the corporation’s issued and outstanding capital stock, paid-in or capital surplus, earned surplus and undivided profits, other surplus accounts which will accrue to the shareholders (not including depreciation reserves), and debts owed to shareholders owning 10 percent or more of the corporation’s stock.2 Appellant is a corporation organized under the laws of New Jersey, and is therefore subject to the tax. In assessing appellant’s tax for 1952, the Tax Commissioner included in appellant’s net worth the value of certain federal bonds held by appellant, thereby increasing the amount due by $320.07. Appellant protested, claiming that under R. S. § 3701, 31 U. S. C. § 742, these bonds were immune from state taxation. The New Jersey courts upheld the Commissioner’s assessment, and this appeal contests the validity of the state statute as so applied.

Appellant contends that this tax is not in reality a franchise tax, but is rather in the nature of a direct property tax on the immune federal obligations. Corporate franchises granted by a State create a relationship which may legitimately be made the subject of taxation, Home Ins. Co. v. New York, 134 U. S. 594, 599-600; Flint v. Stone Tracy Co., 220 U. S. 107, 162; Educational Films Corp. v. Ward, 282 U. S. 379, 388; and the statute expressly declares this to be a franchise tax. Moreover, the Supreme Court of New Jersey has, on independent examination, found this to be “a bona fide franchise tax.” 3 While this is, of course, not conclusive here, Society for Savings v. Bowers, 349 U. S. 143, we find no basis in this instance for not accepting the state court’s conclusion that this tax is not imposed directly on the property held by the corporation. Cf. Pacific Co. v. Johnson, 285 U. S. 480, 495-496.

Appellant argues further that even if this is a franchise tax, it must fall because its effect is the same as if it had been imposed directly on the tax-exempt federal securities. Since the tax remains the same whatever the character of the corporate assets may be, no claim can be sustained that this taxing statute discriminates against the federal obligations. And since this is a tax on the corporate franchise, it is valid despite the inclusion of federal bonds in the determination of net worth. This Court has consistently upheld franchise taxes measured by a yardstick which includes tax-exempt income or property, even though a part of the economic impact of the tax may be said to bear indirectly upon such income or property. See, e. g., Society for Savings v. Coite, 6 Wall. 594; Provident Institution v. Massachusetts, 6 Wall. 611; Hamilton Co. v. Massachusetts, 6 Wall. 632; Home Ins. Co. v. New York, supra; Educational Films Corp. v. Ward, supra; Pacific Co. v. Johnson, supra. We have only recently adhered to this principle in another aspect of this field of taxation. See Society for Savings v. Bowers, supra, at 147-148. New Jersey Realty Title Ins. Co. v. Division of Tax Appeals, 338 U. S. 665, on which appellant relies, is distinguishable, in that it did not involve a franchise tax, but rather a tax whose legal incidence this Court found to be upon the intangible assets of the corporation.

Since as applied here this is a permissible tax on the corporate franchise, the decision below must be

Affirmed.

N. J. Laws 1945, c. 162, N. J. S. A. §§ 54:10A-1 et seq.

Id., §§ 54:10A-4 (d)(5).

Werner Machine Co. v. Director of Division of Taxation, 17 N. J. 121, 125, 110 A. 2d 89, 91.

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Citator

Cited By

  • Dep't OF Revenue v. First Union Nat'l Bank OF Fla., 513 So. 2d 114 (Fla. 1987)
    …xes imposed on discreet property interests such as corporate shares or business franchises, even though the value of that interest was measured by the underlying assets, which included federal obligations. Werner Machine Co. v. Director of Taxation, 350 U.S. 492, 76 S.Ct. 534,100 L.Ed. 634 (1956); Des Moines National Bank v. Fairweather, 263 U.S. 103, 44 S.Ct. 23, 68 L.Ed. 191 (1923). In Society for Savings v. Bowers, 349 U.S. 143, 75 S.Ct. 607, 99 L.Ed. 950 (1955), the Court acknowledged that this formal b…
  • First Union Nat'l Bank OF Fla. v. Fla. Dep't OF Revenue, 502 So. 2d 964 (Fla. 1st DCA 1987)
    …rt of the economic impact of such a tax may be said to bear indirectly upon income derived from instrumentalities of the federal government. Werner Machine Company, Inc. v. Director, Division of Taxation, Department of Treasury, State of New Jersey, 350 U.S. 492, 76 S.Ct. 534, 100 L.Ed. 634 (1956). However, if judicial inquiry discloses that the purpose of state legislation is to accomplish indirectly what cannot be accomplished directly, namely, the taxation of federal instrumentalities, then the tax must…
  • Memphis Bank & Tr. Co. v. Garner, 459 U.S. 392 (U.S. 1983)
    …federal property or those with whom the Federal Government deals. See, e. g., United States v. County of Fresno, supra, at 459-464; United States v. City of Detroit, 355 U. S. 466, 473 (1958); Werner Machine Co. v. Director of Division of Taxation, 350 U. S. 492 (1956); Tradesmens National Bank of Oklahoma v. Oklahoma Tax Comm’n, 309 U. S. 560, 564 (1940).7 A state tax that imposes a greater burden on holders of federal property than on holders of similar state property im-permissibly discriminates against…

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