Hawley v. City of Malden

Background

A resident of Malden sued to recover taxes he paid under protest. The taxes were assessed on shares he owned in foreign corporations. Most of those companies did little or no business and had no property in Massachusetts. He argued that taxing those shares violated the due process and equal protection clauses of the Fourteenth Amendment. The state courts sustained a demurrer and entered judgment for the tax collector.

Reasoning

The Court addressed whether a State can tax the intangible interest a shareholder holds in a corporation when the owner lives in that State. The opinion explains that shares are personal, intangible property linked to the owner, not to the corporation’s physical property. The Court relied on long-standing state practice and prior federal decisions that assumed this authority. It rejected the idea that shares must be taxed only where the corporation sits and noted that the specific question of a state of incorporation fixing tax situs was not before the Court. The judgment for the taxing State was affirmed.

Real world impact

The decision means Massachusetts and similarly situated States may collect taxes on residents’ stock holdings in out-of-state companies. Individual shareholders cannot avoid state taxation simply because the corporation lacks local property or business. The ruling preserves long-standing state tax practice but does not decide narrow cases where a company’s charter or incorporation law might try to fix taxation rules.