The ruling in this case, from which I respectfully dissent, is that, for the purpose of ascertaining the amount of the franchise tax imposed upon a corporation having outstanding capital stock of the *Page 600 par value of $276,000 and of the actual or book value of only $108,807.45, the capital stock shall be deemed to have its original or par value of $276,000. The Bisso Realty Improvement Company, having an impairment of its capital, has, of course, no surplus nor undivided profits, and the corporation has no borrowed capital. The only question, therefore, is whether the capital stock shall be deemed to have its original or par value, or, as the statute declares, "shall be deemed to have such value as is reflected on the books of the said corporation." The statute, subdivision 3 of section 1 of Act No. 25 of the First Extra Session of 1934, which is an amendment and re-enactment of subdivision 2 of section 1 of Act No. 8 of 1932, declares:
"For the purpose of ascertaining the tax hereby imposed, capital stock, whether having par value or not, shall be deemed to have such value as is reflected on the books of the said corporation, subject to examination and revision by the Secretary of State, from the information contained in the report filed by said corporation, as herein provided, and from any other information obtained by the Secretary of State, but in no event shall such value be less than is shown on the books of the corporation."
The reason why the statute declares that the capital stock shall be deemed to have — instead of saying that it shall have— such value as is reflected on the books of the corporation is that the value reflected on the books of the corporation is subject to revision by the secretary of state if he finds, on examination of the annual report filed by the corporation, or from any other *Page 601 source of information, that the actual value of the capital stock is greater than the value reflected on the books of the corporation. But the secretary of state or his auditor has no authority to reduce such value, either by decreasing the estimate of the value of the assets of the corporation or by increasing the estimate of its liabilities. That is explained by the expression in the statute, "but in no event shall such value [ascertained by the secretary of state] be less than is shown on the books of the corporation." In other words, the value of the capital stock "shown on the books of the corporation" is binding upon the corporation, but not upon the secretary of state. The term "shown on the books of the corporation" is used as a synonym for "reflected on the books of the said corporation." The report referred to in the statute, which report the secretary of state is to examine for the purpose of ascertaining whether the value of the stock, as reflected on the books of the corporation, is truthfully and correctly reflected on the books of the corporation, is the report filed by the corporation for the year for which the tax is imposed. That is obvious from the fact that the statute requires that the report shall be filed annually.
The purpose of amending this subsection of the statute was to have the same standard for the valuation of par value stock that was already adopted for the valuation of no par value stock. By the corresponding subdivision of the act of 1932 (which was amended by the act of 1934), it was declared that no par value stock should be deemed to have such value as was fixed *Page 602 or determined by the corporation, or by the secretary of state, from the information contained in the report filed by the corporation, or from any other available information. That meant, of course, that stock having no par or nominal value should be deemed to have the value reflected on the books of the corporation, subject to revision by the secretary of state, if he was not satisfied with the value shown on the report filed by the corporation. But there was no declaration in the statute as to what value par value stock should be deemed to have, for the purpose of ascertaining the amount of the tax. The interpretation of the statute, before it was amended, was that par value stock should be taken at its par value, for the purpose of ascertaining the amount of the tax. See State v. Xeter Realty, Ltd.,182 La. 414, 162 So. 29. The ruling in the Xeter Realty Case was controlled by the act of 1932, subdivision 2 of section 1 of which act was as follows:
"For the purpose of ascertaining the tax hereby imposed, capital stock having no nominal or par value shall be deemed to have such value as is fixed therefor by the said corporation or by the Secretary of State from the information contained in the report filed by said corporation, as herein provided for, and from any other information obtained by the Secretary of State; but in no event shall the value of such stock so fixed exceed the true value thereof."
The expression "but in no event shall the value of such stock so fixed exceed the true value thereof" had reference, of course, to the value fixed by the secretary of state if *Page 603 he was not satisfied with the value shown on the report filed by the corporation. There was no necessity for the statute to guard against — and hence no intention to guard against — the corporation's declaring the value of its no par value stock to "exceed the true value thereof." In amending the statute, in 1934, the Legislature substituted a more appropriate proviso, to the effect that, if the secretary of state undertakes to revise the value "reflected on the books of the said corporation," and shown on the report filed by the corporation, he or his auditor shall not have authority to reduce the value "reflected on the books of the said corporation," on the basis of which the corporation tenders, or is bound to pay, the amount of the tax.
It appears to me that the discussion of the difference between the terms "capital stock" and "shares of stock," in the prevailing opinion in this case, is entirely beside the question, as to the meaning of the expression in the statute: "For the purpose of ascertaining the tax hereby imposed, capital stock, whether having par value or not, shall be deemed to have such value as is reflected on the books of the said corporation." The value of capital stock as reflected on the books of the corporation is the definition of the term "book value," in ordinary or commercial parlance. In Webster's New International Dictionary (2d Ed.), "book value" of capital stock is defined thus: "Specif., of stock, the value indicated by the excess of assets over liabilities." In an earlier edition of the same dictionary, the definition of "book value" *Page 604 is given thus: "Finance. * * * specif., of stock, the value as determined by the net profits or deficit of a corporation as shown by its books." In legal parlance, as well as in ordinary or commercial parlance, "the value reflected on the books of the corporation" merely defines the term "book value." Steeg v. Leopold Weil Building Improvement Co., 126 La. 101, 52 So. 232; Fleming v. Fleming, 211 Iowa, 1251 (syl. 5), 230 N.W. 359, 369; Davis v. Coshnear, 129 Me. 334, 151 A. 725, 727; Corbett v. McClintic-Marshall Corporation, 17 Del. Ch. 165, 151 A. 218, 222 (syl. 5); Elhard v. Rott, 36 N.D. 221, 162 N.W. 302; Gurley v. Woodbury, 177 N.C. 70, 97 S.E. 754, 756; 1 Words and Phrases, First Series, 171, actual value; 8 Words and Phrases, First Series, 7276; 1 Words and Phrases, Second Series, 479, book value; 4 Words and Phrases, Second Series, 1141, value of capital stock; 1 Words and Phrases, Third Series, 900, book value; 7 Words and Phrases, Third Series, 824, value of stock; 1 Words and Phrases, Fourth Series, 312, book value.
I am not confusing the term "capital stock" with "shares of capital stock," or the "value of a corporation's capital stock" with "the value of its shares of capital stock." There was no such confusion of terms in the argument of the attorneys for the defendant in this case; and there is no such confusion of terms in their briefs. The book value of a corporation's capital stock is nothing more nor less that the book value of all of its outstanding shares of stock. The only purpose for which a distinction has ever been made — or is ever *Page 605 made — between a corporation's capital stock and its shares of stock is to distinguish between a tax imposed upon the corporation and a tax imposed upon a shareholder. But that has nothing to do with this case, where the tax is imposed upon the corporation itself, as a franchise tax upon its existence as a corporation.
The reason given, in the prevailing opinion in this case, for maintaining that the expression "such value as is reflected on the books of the said corporation," or the expression "value * * * shown on the books of the corporation," does not mean "the book value," is that the "book value" of a corporation's capital stock includes, essentially, the surplus and undivided profits of the corporation. That is true only of a corporation that has a surplus or undivided profits. But, even then, the surplus and undivided profits are not carried on the books of the corporation as "capital stock." The "surplus" of a corporation is reserved for the payment of dividends, and therefore is never transferred to the "capital stock" account, except "the surplus to be transferred to capital as payment for shares to be allotted as stock dividends," as provided in Act No. 250 of 1928, § 17 (b), p. 420. Such a transaction, of course, increases the "capital stock" account to the same extent that it reduces the "surplus" account; all of which, of course, is shown or reflected on the books of the corporation. No one, I dare say, would make the mistake of including the surplus and undivided profits twice in his calculation of the total amount of the capital stock, surplus, and undivided profits *Page 606 of a corporation, as shown or reflected on the books of the corporation. If there is an accumulation of surplus or undivided profits, the accumulation must be added to the amount appearing under the entry "capital stock," in order to ascertain the value of the capital stock as reflected on the books of the corporation; but if, on the contrary, the books show a loss, or deficit, instead of a surplus or undivided profits, the loss or deficit should be deducted from the amount appearing under the entry "capital stock," in order to ascertain the value of the capital stock as reflected on the books of the corporation. That is what the statute means by the declaration that, for the purpose of ascertaining the tax hereby imposed, capital stock, whether having par value or not, shall be deemed to have such value as is reflected on the books of the corporation. If the Legislature had intended to say that capital stock having a nominal or par value shall be deemed to have the value which was paid to the corporation for the stock, regardless of any subsequent loss or impairment, the Legislature would not have used the significant expression "shall be deemed to have such value as is reflected on the books of the said corporation."
The quotation from the opinion rendered in the Xeter Realty Case, in the prevailing opinion in this case, is not at all appropriate, for two reasons: First, because the decision in the Xeter Realty Case was controlled by the provisions of Act No. 8 of 1932, before it was amended, and, second, because, in that case, the capital used or invested in the business of the *Page 607 corporation included borrowed capital exceeding in amount the sum of the capital stock, surplus, and undivided profits, and hence, according to the state's interpretation of the statute, the tax was computed only upon the amount of the borrowed capital. The outstanding capital stock, in that case, had a par value of only $3,200; the total assets of the corporation were said to be worth only $37,000; and the borrowed capital used or invested in the business amounted to $110,000. The state claimed that the tax should be computed upon the $110,000; and it was so decided. The corporation contended that its capital stock had no actual value whatever, and that the franchise tax should not have been computed upon a sum exceeding the total value of the assets of the corporation. It was a matter of no concern, therefore, what the value of the capital stock of the corporation was, so long as the total amount of the capital stock, surplus, and undivided profits did not exceed in amount the $110,000 of borrowed capital. It was in those circumstances that the court said that the law allowed no deduction for a deficit.
The effect of the ruling in the present case will be merely to require a corporation having par value stock to amend its charter, and thereby to reduce its capital stock, whenever a deficit or an impairment is shown or reflected on the books of the corporation, in any fiscal year, in order for the corporation to have the benefit of the amendment of the statute, abolishing the supposed discrimination between corporations *Page 608 having par value stock and those having no par value stock. The amending of the charter of a corporation is an expensive procedure, and would be of no benefit whatever to the state, in a case like this. I do not find anything in the statute suggestive of an intention on the part of the Legislature to impose any such needless expense upon corporations having capital stock of a nominal or par value, and having a deficit.