I dissent. I agree with the conclusion reached by the prevailing opinion that plaintiff corporation is not exempt under Sec. 80-13-5, R.S.U. 1933. However, I cannot subscribe to the criterion laid down for determining whether a corporation is or is not exempt under that section. The statute provides that it is whether the "sole business" of the corporation is that of a holding company. I should not think in any case it would lie in the mouth of the corporation to say that its business was ultra vires and hence its tax would not be measured by income from the business it did but only by the income from the business it was authorized to do. Under such ruling if it was authorized to do business solely as a holding company and did business as an investment company it might go free of tax.
Nor can I agree with the opinion wherein it holds that the dividends from the subsidiary Idaho corporation and the proceeds from the sale of oil stocks were not allocable *Page 204 to business done in Utah and so not to be included in income on which plaintiff's franchise tax was computed. That there may be exposed for the reader's perusal a complete statement of the provisions of Sec. 80-13-21 which outlines the income to be allocated to this state for the purpose of this tax and that which is not so allocable, we set out the first five subsections thereof:
"The portion of net income assignable to business done within this state, and which shall be the basis and measure of the tax imposed by this chapter, may be determined by an allocation upon the basis of the following rules:
"(1) Rents, interest and dividends derived from business done outside this state less related expenses shall not be allocated to this state.
"(2) Gains from the sale or exchange of capital assets consisting of real or tangible personal property situated outside this state less losses from the sale or exchange of such assets situated outside this state shall not be allocated to this state.
"(3) Rents, interest and dividends derived from business done in this state less related expenses shall be allocated to this state.
"(4) Gains from the sale or exchange of capital assets consisting of real or tangible personal property situated within this state less losses from the sale or exchange of such assets situated in this state shall be allocated to this state.
"(5) If the bank or other corporation carries on no business outside this state, the whole of the remainder of net income may be allocated to this state."
Dealing first with the dividends from the Idaho corporation, the opinion states:
"The Idaho corporation did no business in Utah. * * * These dividends were received by virtue of stock held in the Idaho corporation from earnings by that company on business done in Idaho."
The opinion then holds such income to be clearly deductible in computing the franchise tax, under the above-quoted Subsection (1) of Sec. 80-13-21, as being from business done outside the state. Turning next to the proceeds from the sale of oil stocks opinion holds such income is attributable to business done without the state, since the sale *Page 205 took place on the New York Exchange and was handled by a member of that Exchange, in New York.
The palpable error of the prevailing opinion lies in its failure to recognize that the business of an investment company is different from that of other concerns (where investment is usually incidental involving surplus funds not needed to carry on the current business of manufacturing, trade or rendering services) and, therefore, the exercise of its franchise may differ greatly from that of other types of corporations. The opinion cites the cases of California Packing Corporation v.State Tax Commission, 97 Utah 367, 93 P.2d 463; United StatesGlue Co. v. Town of Oak Creek, 161 Wis. 211, 153 N.W. 241, Ann. Cas. 1918A, 421, affirmed 247 U.S. 321, 38 S. Ct. 499,62 L. Ed. 1135, Ann. Cas. 1918E, 748, and People ex rel. Stafford v. Travis, 231 N.Y. 339, 132 N.E. 109, 15 A.L.R. 1319. None of them involved investment businesses.
The case of United States Glue Co. v. Town of Oak Creek, supra, for instance, concerns a business having branch houses in other states, and a tax on income derived from goods produced and purchased outside the state and sold and delivered to customers outside the state. Significantly, it deals also with an incometax rather than a franchise tax. The case of People ex rel.Stafford v. Travis, supra, concerns income from deals done by foreign agents in foreign countries, but even so holds such income taxable in proportion to the amount of business done in purchasing and forwarding goods within the state, while excluding that from the business of selling.
When a business involves the selling of goods or services over or among several states, the situation may call for assignment of the net income derived from business done in this state as contrasted to income derived from business done in other states. But income from an investment business where that investment business is located in this state may be wholly assignable to this state even though the income is in the form of interest dividends and rents receivable *Page 206 in this state and earned in another state. The investment business is done in this state when the company's sole place of business is here, when its meetings are held here and it has no outside offices, and when the income from all its investments including rents from outside property (at least where there is no outside resident agent attending to the supervision, rental or collection of the rents of such rented property is received here.) The Investment Company may own stocks and bonds in outside companies which by manufacturing, trading, investing or rendering services, themselves create income from which the dividends and interest are paid to the local investment company. But the businesses of such outside companies earning such income are their businesses whilst the business of the local investment company is that of investing in those stocks and bonds and receiving in this state the dividends and interest from them. The two are entirely different businesses and must not be confused. The dividends earned and disbursed by the Idaho Company were derived from its business; but the receipt of such dividends by the American Investment Company here was part of its investment business here and was income assignable to its business here.
The statute we here construe concerns, I repeat, the franchise of an "investment" company. Its business consists of transactions in the making of investments in other corporations and enterprises. Its profits or losses result from doing such business. It does no other business. If any income is derived from doing such business in this state, it becomes the measure of the tax.
I must emphasize, therefore, that this tax is not based onthe income or activities of the subsidiary Idaho corporation noron the sale of the oil stocks in New York, which the prevailing opinion inferentially holds. It is based on the income which plaintiff corporation received and disbursed in this state from those sources, which was in pursuance of its investment business, which receiving and disbursing in addition to its transactions in making investments *Page 207 constitutes its entire business, and which it could not do in this state without its franchise.
From the record we find that plaintiff's income in 1937 was $11,176.70. The record is clear that all of its business was done in Utah. Its only office was here. All of its rents, interest, and dividends could only be attributable to business done in this state since it did no business elsewhere. Nevertheless, the prevailing opinion tells us that if a large corporation, maintaining a large staff in this state to handle its receipts and disbursements, receives all of its income from dividends from stocks in foreign corporations none of that income can be computed in the tax. But because its neighboring corporation invests in stocks of Utah corporations, it may be taxed on such dividends. Further, by the prevailing opinion if a local broker with New York connection sells stock for plaintiff, in N.Y., the income is not taxable, but if such broker consummated the deal in Utah, the income would be taxable. It is clear that the opinion fails to understand that the business of the Idaho corporation or the oil companies in earning a surplus and declaring dividends is an entirely different business from plaintiff's business of owning stock and receiving dividends, and that in this case the franchise covers the latter type of business. Equally clear is it that the opinion fails to distinguish the business done by the broker in New York and that done by plaintiff here in placing the stock with the broker for sale, and receiving the returns therefrom.
By way of summary it may be pointed out that all of the business of plaintiff corporation took place in Utah and not a finger was turned as to its business outside of this state. Its directors held meetings in this state. Its officers functioned in their various capacities here. By virtue of such meetings and functions, it made investments by which income in the nature of dividends and "capital gains" was received and disbursed. Such constituted its entire business and such is clearly "doing business" for the purpose of computing *Page 208 income on which to base a franchise tax, as decided in many cases. People ex rel. Tobacco Allied Stocks, Inc., v.Graves, 250 A.D. 149, 294 N.Y.S. 995; Cheney Bros. Co. v. Commonwealth of Massachusetts (Speaking of Copper Range Co.)246 U.S. 147, 38 S. Ct. 295, 62 L. Ed. 632; 75 A.L.R. 1242, at pp. 1248-1250; Montag Bros. v. State Revenue Comm.,50 Ga. App. 660, 179 S.E. 563, affirmed 182 Ga. 568, 186 S.E. 558; PacoletMfg. Co. v. Query, 174 S.C. 359, 177 S.E. 653, 98 A.L.R. 1444.
All of plaintiff's activities come within the scope of "doing business," and all of plaintiff's business was done in this state. All of its income is, therefore, allocable to business done in Utah, and should be computed in levying the franchise tax, both under the provisions of Subsection (3) and Subsection (5) of Sec. 80-13-21, R.S.U. 1933, set out hereinabove, Subsection (5) specifying particularly that if a corporation"carries on no business outside this state, the whole of theremainder of net income" is allocable to business done in this state. The order of the Tax Commission redetermining the tax to be paid by plaintiff should be affirmed.