Story Case

Mr. Brown was the owner of ten shares of stock in the Jackson Brick Company. Almost all of its property was real estate. Mr. Brown died, leaving among other property the stock in this corporation. Personal property descends to the administrator or a deceased person. Real estate descends directly to the heir or next of kin. As between Henry Brown, son of the deceased, and the administrator of the deceased, who is entitled to this interest in the corporation?

Ruling Court Case. Cook Vs. The City Of Burlington, Volume 59 Iowa Reports, Page 251; Same Case, Volume 44 American Reports, Page 679

James W. Grimes, now deceased, was the owner of stock in the Dunleith and Dubuque Bridge Company, a corporation organized under the laws of the state of Iowa. The corporation owned a bridge across the Mississippi River, from the city of Dubuque, Iowa, to a point in Illinois. This bridge is the sole tangible property which the corporation owned. The bridge was assessed for taxation at Dubuque, and the taxes were paid. The shares of stock in the bridge company, held by the estate of James W. Grimes, deceased, were also assessed for taxation for the same year at the city of Burlington. Cook, who is one of the executors of the estate of Grimes, claims that the city of Burlington has no right to tax this stock, because the capital of the corporation has already been taxed by the city of Dubuque; and to permit Burlington to tax the stock would amount to a double taxation on the same property.

Decision

The tax upon the capital of the corporation, or its property, and the tax upon the shares of stock held by the estate of Grimes, is not equivalent to double taxation. The capital stock of a corporation is one thing, and the shares of stock which the stockholders own are another. The capital stock is the fund by which the profits are made. The shares of stock represent the right of the owners to participate in the profits. The profits will be diminished to the extent that the capital of the corporation is taxed. To the extent that the profits are diminished, to that ex-ent the amount of taxes upon the stock will be decreased. Thus, a tax on the one is not necessarily a tax on the other.

Mr. Justice Rothrock, who delivered the opinion of the Court, said in part:

"It must be conceded that the taxation of the property of the corporation and also of the stock bears no resemblance to taxing the same tract of land twice to the same person, nor once to A, and again to B. That would be a double taxation, which we suppose would not be allowable in any state of the Union. It would be a direct discrimination and inequality in the exercise of the taxing power, which would impose a greater burden upon one citizen than upon another upon the same kind of property. But the case at bar is different. The corporation is a person distinct from the stockholders. It is true, it is what is denominated an artificial person, and may be said to be ideal and intangible. But that it is a person in the law is the first principle learned by the student in opening any book on corporations. Its stockholders are distinct and different persons. They are usually not liable for its debts, and have no right to the enjoyment or possession of its property during the period of its duration or until it be dissolved by some procedure known to the law. The stockholder is entitled to dividends upon his stock, if there be any dividends, and the value of his stock depends upon prospective dividends, and the dividends depend upon the net earn-ings of the corporation. If the bridge in this case be taxed, the tax must be paid from the income, and this reduces the value of the stock, so that there is no duplicate taxation, so far, at least, as the tax upon the bridge reduces the value of the stock."

Judgment was that the tax was not illegally assessed against the stock held by the estate of James W. Grimes.

Ruling Law. Story Case Answer

The capital stock of a corporation, as stated heretofore, is the property which it has received from the stockholders to be used in conducting the corporate business. A share of stock in a corporation is the right of a person to share in the profits of the corporation and the corporate property after dissolution, in proportion to the amount he has contributed to the capital stock. The right of the stockholder is personal property. It is a chose-in-action, it is the right to claim his share of the profits. The fact that the corporation owns nothing but real estate does not make his interest real estate. His interest is still personal property. In the Story Case, therefore, the stock left by Mr. Brown will descend to his administrator and not to his heir. For the same reason both the capital stock of the corporation, and the stock held by the stockholders may be taxed. This is not considered double taxation.