Cream of Wheat Co. v. County of Grand Forks
Headline: Court upheld North Dakota’s tax on a domestic corporation’s stock value, allowing the State to assess taxes on corporate stock even though the company’s business and property were located elsewhere.
Holding: In short, the Court affirmed that North Dakota could tax a corporation domiciled there on an assessed amount representing outstanding stock value, despite the company's business and tangible property being located elsewhere.
- Allows states to tax domestic corporations on assessed stock value without in-state tangible property.
- Treats a corporation’s state of incorporation as a basis for taxation.
- Permits taxation of intangible property even if also taxed in another State.
Summary
Background
North Dakota law required a manufacturing corporation incorporated in the State to list its real and personal property and an additional amount equal to the market value of its outstanding stock minus certain deductions, reported as "bonds and stocks." A company incorporated in North Dakota maintained a public office there but conducted its manufacturing, commercial, and financial business entirely outside the State and had no tangible property in North Dakota from 1908 to 1914. State officials assessed taxes on $50,000 as escaped "bonds and stocks" value for several years; the state supreme court entered judgment for the county after reversing a trial-court ruling for the company.
Reasoning
The Court said it was unnecessary to decide whether the tax was technically a franchise tax or a property tax. The Court relied on the straightforward idea that the corporation’s domicile is the State of incorporation and that the Fourteenth Amendment bars taxing a resident only for property that has acquired a permanent situs outside the State. That limitation does not prevent a State from taxing intangible property or taxing a domestic corporation on an assessed stock value. The Court noted authorities holding that intangible property and property without a permanent situs can be taxed by the State of incorporation, and that double taxation is not prohibited by the Fourteenth Amendment. On that basis the Court affirmed the judgment for the county.
Real world impact
The decision means a State may assess and collect taxes measured by the value of stock or other intangible interests in corporations it created, even when those corporations’ actual business and tangible property are elsewhere. Corporations incorporated in a State cannot avoid such state taxation merely by locating operations in other States; the ruling allows state tax authorities to sustain assessments on corporate stock value.
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