U.S. Supreme Court STATE OF MISSOURI EX REL. MISSOURI INS. CO. v. GEHNER, 281 U.S. 313 (1930)

[Page 281 U.S. 313, 318]

Every such company or association shall make returns, subject to the provisions of said laws: First, of all the real estate held or controlled by it; second, of the net value of all its other assets or values in excess of the legally required reserve necessary to reinsure its outstanding risks and of any unpaid policy claims, which net values shall be assessed and taxed as the property of individuals . ...'

The company made a return in pursuance of that section. The total value of its personal property was $448,265.33, including $94,000 in United States bonds. The legal reserve and unpaid policy claims amounted to $333,486.69. It deducted such bonds, reserve, and claims, leaving.$20, 778.64 as the net value to be taxed. [Footnote 1]

[Page 281 U.S. 313, 319]

The board assessed the company's taxable property at $50,000 without disclosing how it arrived at the amount.

On the company's application, the state Supreme Court issued its writ of certiorari to bring up for review the record and action of the board. The court held the section valid, found the company's liabilities were chargeable against all its assets-taxable and nontaxable alike-declared that such reserve and claims should be apportioned between the two classes of assets according to their respective amounts, and determined that approximately 79.03 per cent. of such liabilities should be deducted from the value of the taxable personal property, leaving $90,710.80 as the net value to be taxed. [Footnote 2] And as that exceeded the amount fixed by the board, the court refused to disturb the assessment, and entered judgment quashing the writ.

[Page 281 U.S. 313, 320]

net value. [Footnote 3] The court did not refer to the federal questions raised by the motion for rehearing.

[Page 281 U.S. 313, 331]

annexation of such benefits to the ownership of government bonds as will increase their currency and stimulate the market for them, even though those privileges are extended at the expense of the constitutional powers of the states, it is difficult to see what the limits of such a doctrine may be. I suppose that the sale and market value of government bonds would be materially increased if we were to say that the Constitution sub silentio had forbidden their seizure for debts, or rendered their possessor immune from the various forms of state taxation to which this Court has said he is subject. But however desirable such a consequence might be thought to be, that could hardly be taken as a sufficient ground for saying it.

I think the judgment should be affirmed.

Mr. Justice HOLMES and Mr. Justice BRANDEIS concur in this opinion. Footnotes

Footnote 1 The substance of the return follows:

Real Estate, Improvement, etc. $142,000 00 Bonds, Municipals 289,000 00 Bonds, Government 94,000 00 Bonds, Mortgages 60,000 00 Cash 5,265 33 Total Assets $590,265 33 Less Real Estate assessed as above and on which the Company pays taxes $142,000 00 Less reserve required by law 326,522 69 Less U. S. Government Bonds 94,000 00 Less Unpaid Policy Claims 6,964 00 $569,486 69 20,778 64

Footnote 2 The calculation in the first opinion was in substance as follows:

The court divided total taxable assets $354,265.33 ($349,000 bonds and $5,265.33 cash) by total personal assets $448,265.33 ($349,000 bonds, $ 5,265.33 cash and $94,000 United States bonds). The result was .7903. Total liabilities $333,480.69 ($326,522.69 reserve and $6,964.00, unpaid policy claims) was multiplied by .7903. The result was $263,554.53. This was subtracted from $354,265.33, and the difference was $90,710.80.

Footnote 3 The court divided total taxable assets $496,265.33 ($349,000 bonds, $ 5,265.33 cash, and $142,000 real estate) by total assets $590,265.33 ($349, 000 bonds, $5,265.33 cash, $94,000 United States bonds and $142,000 real estate). The result was .84. Total liabilities $333,486.69 was multiplied by .84. The result was $280,128.81. This was subtracted from $354,265.33, taxable personal assets, and the difference was $74,136.52.

[Footnote 1] The difference between the two methods may be illustrated by supposing a corporation with gross assets of $15,000,000 and obligations of $5,000,000. The fair cash value of all the shares would then be $10,000, 000. Assume that one-tenth of its property is in Massachusetts. The assessment would be $1,000,000 under the Leather Company Case. By the present method $5,000,000 would be deducted from one-tenth of the gross assets, $1,500,000, because a concern owning no exempt property might make that deduction. Under the present case the company would be free from tax.

In Shaffer v. Carter, Oklahoma levied a net income tax; in the case of residents, upon income derived from all sources; in the case of nonresidents, upon locally derived income. Residents were permitted to deduct all losses; nonresidents were permitted deductions only for local losses. The Court said (page 57 of 252 U. S., 40 S. Ct. 221, 227):'The difference, however, is only such as arises naturally from the extent of the jurisdiction of the state in the two classes of cases, and cannot be regarded as an unfriendly or unreasonable discrimination. As to residents it may, and does, exert its taxing power over their income from all sources, whether within or without the state, and it accords to them a corresponding privilege of deducting their losses, wherever these accrue. As to nonresidents, the jurisdiction extends only to their property owned within the state and their business, trade, or profession carried on therein, and the tax is only on such income as is derived from those sources. Hence there is no obligation to accord to them a deduction by reason of losses elsewhere incurred.'

There seems to be as colorable reason in that case as in this for asserting that the receipt of exempt income is made the basis for a reduction or elimination of an exemption granted to others.