Roberts & Schaefer Co. v. Emmerson
Headline: Court upholds Illinois law treating no-par shares as $100 each for franchise tax, allowing the State to tax corporations based on authorized shares rather than actual issue price, affecting tax bills for some companies.
Holding: The Court affirmed Illinois courts and held that the State may tax a domestic corporation’s franchise based on authorized capital, including treating each no-par share as having a $100 value for computing the fee.
- Allows states to count no-par shares at a fixed per-share value for franchise taxes.
- May increase franchise tax bills for corporations with many authorized no-par shares.
- Affirms that franchise taxes can be based on authorized capital rather than issued value.
Summary
Background
An Illinois corporation converted its stock to include ten thousand common shares with no par value after a 1921 law authorized no-par stock. The State’s franchise tax was based on a company’s authorized capital. Illinois officials assumed no-par shares should be valued at $100 each for the tax, but the company paid a lower amount based on the actual price at which its no-par shares had been issued and sued to prevent extra collection. The State amended the tax law in 1923 to specify that no-par shares count as $100 per share for the fee.
Reasoning
The Court asked whether it was unconstitutional to treat no-par shares as worth $100 each when computing a franchise tax or whether the amendment impaired contract rights. The Court said the tax is on the corporate franchise (the privilege to exist and to issue stock), not on the stock as property, and that there are real legal and practical differences between par-value and no-par stock. Because no-par shares can be issued at varying prices (between $5 and $100 under Illinois law) and might not have a fixed value until issued, the legislature reasonably fixed a maximum per-share value for tax purposes. The Court also held the company could not complain about unequal treatment since it had issued all its authorized stock, and the State had reserved power to change the law.
Real world impact
The ruling lets Illinois and other States fix a per-share value for no-par stock when computing franchise taxes, which can raise taxes for companies with many authorized no-par shares. The decision upholds the Illinois courts’ judgments and rejects the company’s equal protection and contract claims.
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