CHAPTER XXXV

NO TAXATION OF SHARES OF STOCK OF DOMESTIC CORPORATION, IF ALL ITS PROPERTY IS IN THIS STATE

Article 13, section 1, of the constitution, as amended March 16, 1909, is as follows:

§1. All property in the state except as otherwise in this constitution provided, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law, or as hereinafter provided.

The word "property," as used in this article and section, is hereby declared to include moneys, credits, bonds, stocks, dues, franchises, and all other matters and things, real, personal, and mixed, capable of private ownership;

Provided, that a mortgage, deed of trust, contract, or other obligation by which a debt is secured when land is pledged as security for the payment thereof, together with the money represented by such debt, shall not be considered property subject to taxation;

And further provided, that property used for free public libraries and free museums, growing crops, property used exclusively for public schools, and such as may belong to the United States, this state, or to any county or municipal corporation within this state, shall be exempt from taxation.

The legislature may provide, except in the case of credits secured by mortgage or trust deed, for a deduction from credits of debts due to bona fide residents of this state.

Since the repeal of section 4, article 13, of the constitution, and the adoption of the amendment of section 1, above, containing the declaration "provided that a

mortgage, deed of trust, contract, or other obligation by which a debt is secured when land is pledged as security for the payment thereof, together with the money represented by such debt, shall not be considered property subject to taxation," no such securities issued or held by a corporation are subject to taxation.

Section 3608 of the Political Code is as follows:

§ 3608. Shares of stock in corporations possess no intrinsic value over and above the actual value of the property of the corporation which they stand for and represent; and the assessment and taxation of such shares, and also all the corporate property, would be double taxation. Therefore, all property belonging to corporations, save and except the property of national banking associations, not assessable by federal statute, shall be assessed and taxed. But no assessment shall be made of shares of stock in any corporation, save and except in national banking associations, whose property, other than real estate, is exempt from assessment by federal statute. (Amended March 14, 1899; Stats. 1899, p. 96.)

This law, exemption, is a long step in recognition of the basic principles of nature. Much credit is due to this state for advanced intelligence in dealing with this subject. It falls short only in applying the corollary, while ignoring the main proposition by which the corollary was incidentally proved. If no new property is created by executing a promissory note or bond which is secured by a mortgage on land (which no discerning mind can dispute), it is first apparent that no new thing has been brought into existence by the execution of a promissory note not secured in this manner. No proposition in mathematics is more conclusively demonstrated, for it is a self-evident truth, which is the beginning of all knowledge and demonstration. The learning and sophistry brought forward in support of the claim that some new thing has thus been created

are as voluminous and profound as the ponderous volumes in support of thaumaturgy. Being without any supporting principles conforming to or expressing truth, they are equally absurd. That such ideas or theories can exist is due solely to popular prejudice against the creditor, which apparently will take as many years to remove as to overthrow the belief in magic.

As we have seen, Article 13, section 1, of the constitution provides that "all property in the state except as otherwise in this constitution provided, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law, or as hereinafter provided."

It will be noted that the value of property is to be ascertained "as provided by law or as hereinafter provided." The words "as hereinafter provided" were added by the amendment of 1908, but no method of ascertaining value is provided thereafter. It is further declared therein that the word "property" includes "stocks."

Section 3608 of the Political Code declares that "shares of stock in corporations possess no intrinsic value over and above the actual value of the property of the corporation which they stand for or represent" and that to assess and tax them and also the property would be double taxation, and the preceding section, 3607, declares "but nothing in this code shall be construed to require or permit double taxation.'

That shares of stock have no value separate from the property of the corporation is a self-evident truth. It is an axiom, what we are required to know beforehand; "a proposition to which every one who apprehends its meaning must assent"; and the sequence is that the contrary thereof can not be true. All knowledge is built upon self-evident truths; without them no

so-called knowledge can stand; without them there is no knowledge. This observation is made in passing, because the decisions declaring taxation of both to be valid attempt to support it by argument, and not by power or authority.

That property of a corporation, located in another state, is not "property in this state" is a self-evident truth. Neither does the stock certificate, nor the stock itself, remove the property from the state where it is situated to the state where the owner of the certificate or stock happens to reside; no more does it do this than a deed of real property, or a bill of sale of personal property, removes either from the state where they are situated. To tax a stock certificate is analogous to taxing a deed to property.

The attempt to justify the taxation by giving the stock certificate a "situs" in a state other than where the property is situated or where the corporation exists, violates self-evident principles, is applying a sophistry, as much as to give a deed to land situated in one state a situs in another state. Pages of sustaining argument only reveal the weakness of the contention; this declaration of situs rests alone upon power and authority. That power or authority was not exercised by the constitution, nor by the statutes, so far at least as this state is concerned.

Our constitution expressly commits the ascertaining of the value of property (stocks in this case) to the legislature, and that body has declared that stocks have no value separate from or above the property itself. Therefore to say that if this statute did not provide for taxing in this state the property outside of this state owned by either a domestic or foreign corporation, if the owner of the stock resides in this state, it would be unconstitutional, is a proposition unwarranted by the

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English language in either the constitution or the statute; is unsupported in mid air.

To say "inhibition of double taxation only applies to such taxation in the same state or government,"" no one will dispute. But the reasoning falls short. No one will claim that this state can prescribe rules for taxation in other states; the statute attempts no more than to prescribe a rule for taxation by this state. If it is within the power of the legislature to define and prohibit double taxation of property within this state, it is equally within its power to prohibit it where part of the property is without the state. Having defined stock as something without value when taken by itself alone if the property, which it no more than represents, is beyond the state and can not be united with the stock by this state, it is, by its own declaration, taxing a

vacuum.

There is no exception made in the statute, nor the smallest word in it which would cause the most critical and discerning to suspect that they were making any exception. This exercising of the power of double taxation is not peculiar to California, indeed this state is more free from it than most others. It rests solely upon the exercise of the will. And so far as the courts are responsible for it, the attempt to sustain it upon any other ground than the will leads them into a fallacious reasoning and a lively sophistry which, for the moment deceives themselves, and sometimes their readers.2

The latest declarations of the California cases on this subject establish the rules:

1 Chesebrough v. San Francisco, 153 Cal. 559, 96 Pac. 288.

2 See consideration of doctrines underlying transfers of certificates, and rights thereunder, following Civil Code, section 324.

8 Chesebrough v. San Francisco, 153 Cal. 559, 96 Pac. 288; Canfield v. Los Angeles, 157 Cal. 617, 108 Pac. 705.