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decided: September 27, 1966.


Appeal from judgment of Court of Common Pleas of Dauphin County, No. 646 Commonwealth Docket, 1964, in case of Commonwealth of Pennsylvania v. Leonard D. Passell, Robert E. Behrman and Benjamin I. Lederman.


Harry J. Rubin, with him Krekstein and Rubin, for appellants.

Eugene J. Anastasio, Deputy Attorney General, with him Walter E. Alessandroni, Attorney General, for Commonwealth, appellee.

Bell, C. J., Musmanno, Jones, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Jones. Dissenting Opinion by Mr. Justice Roberts.

Author: Jones

[ 422 Pa. Page 474]

This appeal presents a narrow issue: is the transfer of real estate from a corporation to its sole stockholders, pursuant to a plan envisioning a complete liquidation of the corporation, a transaction which is subject to tax under "The Realty Transfer Tax Act",*fn1 (the Act), of the Commonwealth? The Court of Common Pleas of Dauphin County held that it was. We disagree and reverse the judgment entered in the court below.

The factual background of this litigation has been stipulated. Craig Realty Corporation (Craig), a domestic

[ 422 Pa. Page 475]

    corporation, incorporated in 1953, maintained its business address in Pittsburgh. On or before July 19, 1962, Craig's total outstanding common stock consisted of ten shares which were owned by Leonard D. Passell, Robert E. Behrman and Benjamin I. Lederman (appellants). On July 19, 1962, by appropriate stockholder and director action, it was decided to terminate Craig's business and to distribute Craig's assets to its stockholders in August 1962. At that time appellants surrendered all their stock to the corporation secretary with instructions to mark the stock "cancelled" on the corporate books and this was done. In August 1962, Craig terminated its business and distributed all its assets. After August 22, 1962, Craig "conducted no business, owned no assets, had no liabilities, received no income and incurred no expenses" with the following exception:*fn2 since Craig had not been dissolved formally it continued to file a Pennsylvania Capital Stock tax report, showing a nominal $1,000 corporate stock value, upon which it paid a $5 tax and also a Corporate Net Income tax report, showing no income and one item of expense, to wit, the $5 capital stock tax.

Craig's sole remaining asset, prior to its distribution, was certain realty located in Pittsburgh and, on August 22, 1962, by deed, Craig distributed this realty to appellants. This deed was recorded August 22, 1962, and, at that time, appellants affixed to the deed Pennsylvania Realty Transfer tax stamps in the amount of $2500.

On January 6, 1964, the Realty Transfer Tax Division of the Commonwealth determined that there was a $4,000 realty transfer tax due in connection with Craig's distribution of said realty and that Craig owed a $1500 balance on said tax with interest from August 22, 1962. Appellants pursued the appropriate steps for

[ 422 Pa. Page 476]

    a re-determination of the tax and, finally, the Board of Finance and Revenue, on November 12, 1963, sustained the imposition of the tax. Appellants then appealed to the Court of Common Pleas of Dauphin County which affirmed the imposition of the tax and entered a judgment against Craig from which judgment this appeal has been taken.

Appellants' argument is predicated on the following premises: (a) the Act imposes a tax not on all but only on certain realty transfers; (b) a realty transfer by a corporation to its stockholders, pursuant to a plan of complete liquidation of the corporation, is not a taxable transfer because it is not a real transfer of a beneficial interest effectuated by means of a "document", i.e., the deed, and that, absent either or both of these elements, the transfer is not taxable.

The Commonwealth, taking the position that the transaction is taxable, contends that the deed of Craig to appellants falls within the statutory definition (§ 2) of a "document" since it conveyed the corporation's interest in this realty to appellants. The Commonwealth further contends that, upon voluntary liquidation of a corporate business, the Business Corporation Law (§ 1104, Act of May 5, 1933, P. L. 364, as amended, 15 P.S. 2852-1104) requires that the corporate assets be paid or distributed to the shareholders by the directors, i.e., by affirmative action, and, therefore, the transfer takes place not by operation of law but only by some affirmative director-action which, in the case of realty, must be by deed.

An examination of the terms of the Act convinces us that it was not the legislative intent to tax all but only certain transfers of realty and that the type of realty transfer transaction intended to be taxable was such as involved a real transfer of an interest in realty in which such interest is actually conveyed through the

[ 422 Pa. Page 477]

    medium of a "document".*fn3 It naturally follows that, if the conveyance of such interest is by operation of law and not by a "document", even though a confirmatory document is thereafter recorded, such transaction does not fall within the category of transactions made taxable under the statute. See: Sablosky v. Messner, 372 Pa. 47, 55, 92 A.2d 411; Smith v. Messner, 372 Pa. 60, 92 A.2d 417; Commonwealth v. Willson Products, Inc., 412 Pa. 78, 84, 194 A.2d 162.

The parties to this litigation have devoted considerable effort to ascertain the nature and quantum of the interest in realty the transfer of which is made taxable under the Act, i.e., a "beneficial interest" or an "equitable interest" or "legal title" or the entire property interest. Appellants take the position that it makes no difference, in the case at bar, whether a "beneficial interest" means an "equitable interest" or the entire property interest and that the transfer of the realty here at issue involves a transfer of neither the equitable interest nor all the property interest*fn4 since the court below found that the Act applied even though only the bare legal title was transferred. The Commonwealth takes the position that the transfer of this

[ 422 Pa. Page 478]

    realty involved a transfer of legal title which is taxable as well as a "beneficial interest" -- equated with "equitable interest" -- which is taxable.

In Sablosky v. Messner, supra, we said: ". . . the Act's clear import, despite some lack of clarity in the language employed, is to impose a tax only upon transactions where there is a real transfer of beneficial interest; . . . ." (at p. 55). Both parties to this controversy have spent much time on an interpretation of what this Court meant in Sablosky v. Messner, supra, by "beneficial interest". However, the statutory language indicates clearly what the legislature intended. The title of the statute describes its purpose as "An Act to provide revenue by imposing a State tax relating to certain documents ; . . . ." (Emphasis added) and § 2 of the Act defines such "document", inter alia, as a deed "whereby any lands . . . or any interest therein " shall be conveyed. (Emphasis added). This description and definition of what constitutes a taxable "document" seems clear beyond question. "The word 'any' is generally used in the sense of 'all' or 'every' and its meaning is most comprehensive: [citing authorities].": Belefski Estate, 413 Pa. 365, 375, 196 A.2d 850. When this Court in Sablosky, supra, referred to a "transfer of beneficial interest" it was not changing or altering the statutory language: the Court simply used the phrase "beneficial interest" in the statutory sense of "any interest", assuming that the transfer of "any interest" in land carries with it a benefit.

In addition to the use of the phrase "any interest" in a comprehensive sense, the legislature by listing transfers which should not be taxable under the Act further exhibited its intent for an examination of the types of excepted transfers reveals transfers which involve in some instances a transfer of legal title only, in others a transfer of an equitable interest only and in others of all the title, equitable and legal. In view

[ 422 Pa. Page 479]

    of the explicit statutory language, we conclude the transfer of any interest in land is a taxable transfer if such transfer is effectuated by a "document" recorded or presented for recording.

A study of § 3 of the Act -- the section which imposes the tax -- reveals that the realty transfer tax is imposed only upon a transaction in which a "document" is involved and, when § 3 is read in conjunction with the statutory definition of a "document" in § 2, it is crystal clear that the tax is imposed only upon transactions in which the "document" conveys the interest in land. Our case law fully supports this interpretation. In Smith v. Messner, supra, we held that an agreement for the sale of an interest in land, although it constitutes an undertaking to execute and deliver an instrument of conveyance, is not taxable; such an agreement, through operation of law, creates but does not convey an interest in the land. In Com. v. Willson Products, Inc., supra, stating (at p. 84) "that the document referred to in the Act clearly meant any deed or similar instrument which conveyed to the grantee or purchaser lands, tenements or hereditaments", we held that a transfer of realty arising as the result of the merger of two corporations, even though articles of merger were filed with the Secretary of the Commonwealth, was not taxable for two reasons (a) the transfer was by operation of law and (b) the articles of merger as filed were not within the contemplation of § 2 as a "document".

Did the deed from Craig to its shareholders -- the "document" in the case at bar -- act as the medium for the conveyance of Craig's interest in this land or was such conveyance effectuated by operation of law? Appellants urge the latter and the Commonwealth urges the former.

The Commonwealth distinguishes the merger situation in Willson from the liquidation situation in the

[ 422 Pa. Page 480]

    case at bar on the basis of the difference in the statutory language which provides for a merger of corporations and that which provides for a liquidation of corporations. The merger statute (The Business Corporation Law, Act of May 5, 1933, P. L. 364, § 907, as amended, 15 P.S. § 2852-907) provides, inter alia: ". . . All the property, real, . . . of each of the corporations parties to the plan of merger . . . shall be taken and deemed to be transferred to and vested in the surviving or new corporation . . . without further act or deed." (Emphasis supplied).*fn5 The liquidation statute (Business Corporation Law, supra, § 1104, as amended, 15 P.S. § 2852-1104) provides, inter alia: "C. . . . Any surplus of cash or property remaining after paying off all debts and liabilities of the corporation shall be paid to or distributed among the shareholders by the board of directors, according to their respective rights and preferences." (Emphasis added). From the language of the liquidation statute, the Commonwealth argues that the directors must take affirmative action to effectuate the transfer of its interest in the remaining realty, i.e., by a "document" in the form of a deed. We disagree.

"On dissolution, the legal title to land passes to the stockholders, and title to the corporate property vests in the stockholders as tenants in common . . . ." Fletcher, Cyclopedia Corporations (Perm. Ed.) (1962 Rev. Vol.), § 8134, p. 300 and authorities therein cited. See also: Mt. Carmel R. Co. v. M. A. Hanna Co., 371 Pa. 232, 89 A.2d 508.*fn6 When the appellants surrendered

[ 422 Pa. Page 481]

    for cancellation their stock certificates then, in the absence of any obligations owed by Craig, Craig's interest in this realty became vested in and passed to its stockholders by operation of law. The provisions of the liquidation statute that the "property remaining" in a debt-free corporation "shall be paid or distributed" merely provide the mechanical operation required of the directors for record purposes: by operation of law the transfer of the remaining corporate assets to the stockholders has already taken place and the statutory requirement simply supplements that which has already occurred. We agree with appellants' statement: "The only purpose of the deed in a liquidation and dissolution is simply to place on the record information regarding the transfer much in the same way that articles of merger provide such information in the case of a corporate merger".*fn7 (Cf. Com. v. Willson Products, Inc., supra).

The deed executed and recorded subsequent to the complete liquidation and dissolution of Craig, was simply confirmatory of that which had been effectuated

[ 422 Pa. Page 482]

    by operation of law; as a confirmatory deed it did not fall within the category of a "document" subject to the tax.

Summarized, while this transaction did effect a transfer of an interest in this realty, yet such transfer, having been effectuated by operation of law rather than by a "document", is not taxable.*fn8

Judgment reversed and judgment entered for appellants.*fn9


Judgment reversed.

Dissenting Opinion by Mr. Justice Roberts:

I find nothing in the Realty Transfer Act nor any other authority which would exempt this transaction from taxation. I must therefore dissent and would affirm the judgment below on the able opinion of the Commonwealth Court. See Commonwealth v. Passell, 84 Dauph. 104 (1965).

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