Opinion
Action by Fifth Avenue-Fourteenth Street Corporation against the United States to recover capital stock taxes paid.
Petition dismissed.
This case having been heard by the Court of Claims, the court upon the evidence adduced, makes the following special findings of fact:
1. The plaintiff, Fifth Avenue-14th Street Corporation, at all times material hereto was a corporation organized and existing under the laws of the State of New York. The certificate of incorporation conferred broad powers upon the plaintiff but the only charter power that plaintiff ever exercised was the purchase, holding and rental of a building at 80 Fifth Avenue, and its sole activity during the fiscal years ending June 30, 1936, 1937, 1938, and 1939, has been confined entirely to the ownership of this building. It has never owned any other building or any other real estate.
2. The building at 80 Fifth Avenue was a sixteen story loft building 73' x 107'. It was usually leased to approximately twenty-eight (28) tenants. The usual term of lease for the lofts was one year and for the stores, five years.
During the taxable years 1935 to 1939 the building was managed by Adams s&sCo., as managing agents. The contract with Adamss&sCo., which is on a printed form usually employed for such a management and agency agreement, provided that the agent agreed with the owner
"(a) To furnish the services of its organization for the renting, operating, and managing of said property; to diligently follow up all inquires on Owner's behalf; and to show and exhibit vacant space to prospective tenants. "(b) To supervise and on behalf of Owner to employ all labor required for the operation and maintenance of said property. "(c) To collect rents and other charges from said property and to render monthly statements of all rents and other sums collected and disbursements made with vouchers therefor, and remit receipts less disbursements and Agent's commissions. "In case the disbursements shall be in excess of the rents collected by Agent, Owner agrees to pay such excess promptly upon demand. "(d) To supervise any repairs and/or alterations that may be necessary, and to make minor and/or emergency repairs necessary to operate the appurtenances of the building and/or for the protection thereof. " It also provided that the owner would refer to the agent all inquiries for leasing and also would furnish policies of insurance covering the property.
3. The managing agent negotiated and prepared the leases and then submitted them to plaintiff for its approval. The usual form of lease entered into with the tenant contained the following provision: "33. It is specifically understood and agreed that this lease is offered to the Tenant for signature by the managing agent of the building solely in its capacity as such agent and subject to the Landlord's acceptance and approval, and that the Tenant has hereunto affixed its signature with the understanding that the said lease shall not in any way bind the Landlord or its agent, until such time as the same has been approved and executed by the Landlord and delivered to the Tenant.
" 4. The managing agent collected the rents from the tenants and paid everything in connection with the operation of the building, remitting to the plaintiff once a month the net proceeds from the building. The checks received from the agent were deposited and out of this fund plaintiff paid the mortgage interest, taxes, insurance, and general or miscellaneous expenses not directly connected with the operation of the building. Dividends were declared out of any profits and were paid to the stockholders.
5. The source of plaintiff's income and how its expenses are paid are shown by the following statement of its income and expenses for the year 1939, which is typical of other years involved:
Items of income collected by
real-estate agents:
Rents .........................
$154,164.57
Electric current collections ......
6,168.46
Sprinkler collections ...............
243.46
Water collections ...................
835.30
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Total income from building...............
$161,411.79
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Items of expense paid by
real-estate agents:
Water taxes ....................
$980.19
Wages ............................
16,206.92
Repairs ...........................
8,147.74
Electric current ..................
3,087.07
Fuel ..............................
3,204.08
Collection fees ...................
3,487.08
Annual charges ......................
668.64
Supplies ..........................
1,027.13
Miscellaneous expenses ..............
858.09
Interest paid .......................
601.25
Commissions .......................
1,655.92
Utility tax .........................
647.70
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Total expenses paid by real-estate
agents..................................
40,580.81
Items of expense paid by
treasurer of company:
Interest on mortgages ..........
$26,716.71
Real-estate taxes ................
27,255.25
Insurance .........................
1,753.94
Miscellaneous expenses ............
2,547.06
Officers' salaries ................
3,600.00
Interest paid .......................
253.96
Proration of mortgage
expense ............................
885.78
Legal and accounting ..............
2,065.20
State franchise tax .................
917.58
Capital stock tax ...................
498.00
Unemployment insurance tax ..........
685.06
Social Security tax .................
176.46
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Total expenses paid by treasurer ofcompany.................................
67,355.00
Depreciation..................................
26,785.72
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Total expenses ............................
134,721.53
6. The plaintiff filed capital stock tax returns for the fiscal years ended June 30, 1936, June 30, 1937, June 30, 1938, and June 30, 1939. The tax liability shown on these returns was assessed by the commissioner of Internal Revenue and paid to the Collector of Internal Revenue for the Third District of New York on the dates and in the amounts following:
July 31, 1936, for the fiscal year 1936 .... $500.00
August 13, 1937, for the fiscal year 1937 ... 502.00
August 2, 1938, for the fiscal year 1938 .... 500.00
June 22, 1940, for the fiscal year 1939 ..... 500.00
a total of $2,002. Interest of $23.71 was paid for the fiscal year ended June 30, 1939, on June 22, 1940.
7. The plaintiff filed claims for refund for the years ended June 30, 1936, June 30, 1937, and June 30, 1938, on June 29, 1940; and a claim for refund for the year ended June 30, 1939, on September 11, 1940. These claims were all based upon the ground that the plaintiff was not carrying on or doing business within the fiscal years ended June 30, 1936, to June 30, 1939, both inclusive. These claims were rejected by the Commissioner of Internal Revenue on December 4, 1940. Harry Friedman, of Washington, D.C., for plaintiff.
Elizabeth B. Davis, of Washington, D.C., and Samuel O. Clark, Jr., Asst.Atty.Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for defendant.
Before GREEN, LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
GREEN, Judge.
This is an action to recover capital stock taxes paid and alleged to have been wrongfully assessed against the plaintiff.
Plaintiff is a corporation with broad charter powers, but its only activities were as stated below:
During the period involved, it owned and operated a sixteen-story loft building usually leased to about twenty-eight tenants for a term of one year for lofts and five years for stores. The building was managed by an agent who collected the rents from the tenants and paid and attended to everything in connection with the operation of the building, remitting to plaintiff the net proceeds once a month. The leases were made by the agent subject to the approval of the plaintiff. The checks received from the agent were deposited and out of this fund the plaintiff paid the mortgage interest, taxes, insurance, and general or miscellaneous expense not directly connected with the operation of the building. Dividends were declared out of any profits and paid to the stockholders. The only question presented by the case is whether plaintiff was, during the taxable years involved, "carrying on or doing business" within the meaning of tax statute applicable, and the decision of this question must depend on the facts appearing in evidence.
The plaintiff relies on McCoach v. Minehill Railway Co., 228 U.S. 295, 33 S.ct. 419, 57 L.Ed. 842, but a careful reading of the opinion in that case shows that instead of sustaining the plaintiff's contention that it was not doing business, it holds to the contrary. On page 302 of the opinion in 228 U.S., page 422 of 33 S.Ct., (quoting from another case), the court said: "We think it clear that corporations organized for the purpose of doing business, and actually engaged in such activities as leasing property, collecting rents, managing office buildings, * * * are engaged in business within the meaning of this statute, * * *."
The opinion also refers to the case of Zonne v. Minneapolis Syndicate, 220 U.S. 187, 31 S.Ct. 361, 55 L.Ed. 428, in which it appeared that a corporation originally "organized for and engaged in the business of letting stores and offices in a building owned by it, and collecting and receiving rents therefor, * * * had afterwards made a lease of all lands, belonging to it to certain trustees for a term of 130 years" and amended its articles of incorporation so as to confine the purpose thereof to the ownership of the lands, subject to the lease. With reference to these operations, the court quoted with apparent approval from the decision in the case last cited as follows, at page 303 of the opinion, in 228 U.S., page 422 of 33 S.ct., 57 L.Ed. 842: "The corporation involved in the present case, as originally organized, and owning and renting an office building, was doing business within the meaning of the statute as we have construed it. * * * [Italics supplied.]"
In the McCoach case, supra, the question was whether a corporation which had been operating a railway but which leased its railroad for nine hundred ninety-nine years and ceased to carry on any business in connection with it was subject to the excess profits tax on its income and the Supreme court held in effect that it was not doing business within the meaning of the statute and not subject to the tax. It is plain that this case does not sustain the plaintiff's contention.
No precise and definite rule can be laid down in the determination of cases of the nature of the one before us.
As was said in Von Baumbach v. Sargent Land Co., 242 U.S. 503, 516, 37 S.Ct. 201, 204, 61 L.Ed. 460, "* * * the decision in each instance must depend upon the particular facts before the court." We are not here considering the rental of a single tract of land, a single house or a single room. The case involves a very large sixteen story building usually having about twenty-eight tenants for lofts and stores. Presumably it had corridors, stairways, elevators, a heating apparatus and the usual features of such a building. Employees were necessary, and the management of the building required a large amount of care and attention. All leases were made subject to the approval of the plaintiff and in every way the building was under its control. All these operations were conducted for a profit and the fact that they were carried on largely through an agent does not lessen plaintiff's responsibility. We are clear that the plaintiff was "doing business" within the meaning of the applicable statute. The plaintiff cites the case of the Estate of Isaac G. Johnson v. United States, 37 F.Supp. 617, 92 Ct.Cl. 483, but in this case it appeared that the operations of the corporation were solely for the purpose of liquidating its property and distributing the proceeds among its stockholders. While profit sometimes resulted, this was not the purpose of its activities.
The case last cited followed the rule laid down in the case of Union Land & Timber Co. v. United States, 65 Ct.Cl. 129, which cited Von Baumbach v. Sargent Land Co., supra, and others, and held in effect that a corporation which is solely engaged in liquidating its property and distributing its proceeds among the stockholders is not subject to the capital stock tax. These cases consequently give no support to plaintiff's contention that its numerous activities all conducted for the purpose on profit did not constitute doing business.
The petition of plaintiff must be dismissed, and it is so ordered.