Summary
In People ex rel. Union Ferry Co. v. Roberts (66 App. Div. 157) we held that capital invested in outside securities was not employed within the State within the meaning of the statute.
Summary of this case from People ex Rel. Com. Cable Co. v. MorganOpinion
November Term, 1901.
Vincent P. Lynott and William A. Jenner, for the relator.
John C. Davies, Attorney-General and Henry B. Coman, for the respondent.
The relator is a domestic corporation, organized for the purpose of conducting and managing ferries, and is engaged in conducting and managing five certain ferries between the boroughs of Manhattan and Brooklyn in the city of New York. It has a capital stock of $3,000,000, consisting of shares of the par value of $100 each. The evidence before the Comptroller shows that the tangible property of the corporation is of the value of $3,241,261. It has an indebtedness incurred in the purchase of property amounting to $2,200,000, leaving the net assets of said corporation $1,041,261. Included in the net assets of said corporation is a house of the value of $20,000, assessed for general and local purposes in the borough of Brooklyn, and also $200,000 of non-taxable bonds of the city of Brooklyn. The house referred to is not used by the relator in its business, and is in no way connected therewith. It is rented by it for $2,100 per year. The $200,000 of Brooklyn bonds came to the relator from its predecessor company. The rental of said house and the interest on said bonds are collected by the relator and go to make up the gross amount of its yearly income. The report of the relator for the year ending October 31, 1896, shows that dividends amounting to four per cent were declared by the relator during the year, and that the highest price for which the stock of the relator sold during the year was sixty-nine, and the lowest price, fifty-eight.
The Comptroller computed the tax for the year ending October 31, 1896, upon the full par value of the capital stock of the relator, and imposed a franchise tax of $4,500. Thereafter the relator applied to the Comptroller for a revision and readjustment of such account, which was granted, and the relator submitted to the Comptroller certain evidence relating to the value of its property, whereupon the Comptroller resettled such account by computing the tax on $2,250,000, making the amount $3,375. This certiorari is for the purpose of reviewing such determination of the Comptroller.
A recent decision of the Court of Appeals ( People ex rel. New York East River Ferry Company v. Roberts, 168 N.Y. 14) has settled the construction to be given to sections 182 and 190 of the Tax Law, (Laws of 1896, chap. 908) and the determination of the Comptroller herein cannot be justified upon the theory that the entire capital stock of the relator must be valued at par. The dividends declared by the relator during the year being less than six per cent on the par value of the capital stock, the tax against the relator must be paid "upon such portion of the capital stock at par as the amount of capital employed within this state bears to the entire capital of the corporation." The words "capital stock" in the phrase above quoted, refer to share stock, and the word "capital" to property of the corporation contributed by its shareholders or otherwise obtained by it to the extent required by its charter. For the purpose of obtaining a basis for a computation of the tax, it is necessary first to determine the amount of capital "employed within this state."
It is contended by the relator that the $20,000 invested in real estate, and upon which a tax for general and local purposes is paid, and the $200,000 invested in Brooklyn non-taxable bonds, is not capital "employed within this state" within the meaning of the Tax Law. Capital to be employed within this State must be actively employed, and a nominal employment or an investment of the same was not intended by the statute. It was held by this court in the case of People ex rel. Hydraulic Co. v. Roberts ( 30 App. Div. 180; affd. in the Court of Appeals, 157 N.Y. 676, on opinion in this court) that the tax contemplated by the statute is upon capital in active use in its corporate business, and not upon the passive holding of it in the form of an unproductive investment, and in the opinion it is said: "In People ex rel. Singer Mfg. Co. v. Wemple ( 150 N.Y. 46) it was held as to a foreign corporation that the money, whether capital or surplus, which it invested in real estate here, not for the transaction of its ordinary business, but for rental, was not `employed within this state' within the meaning of the statute."
In section 182 of the Tax Law the language in regard to the employment of capital in this State is substantially the same when it refers to a domestic corporation as it is when it refers to a foreign corporation.
In the case of People ex rel. Singer Manufacturing Co. v. Wemple ( supra) a foreign corporation had invested $900,000 in real estate in the State of New York then under lease and not occupied by it, but the intention was to erect a new building when the existing leases expired, and to use a small portion of it for the offices of the company and lease the remainder to tenants. This investment in real estate was from the surplus of the company, but the court in discussing the case say: "We are of opinion that the amount represented by the real estate was no portion of the capital stock employed within this state, even if the $900,000 was a part of the capital stock of the company; it was an independent investment, and was in no sense employed within this state in the transaction of the ordinary business of the relator. ( People ex rel. The Southern Cotton Oil Company v. Wemple, 131 N.Y. 64.) If at any time the whole or any portion of this real estate should be used by the relator in carrying on its business in this state a different question would be presented which need not now be considered. This real estate under the conditions existing in 1890 was taxable for general state and local purposes."
The Court of Appeals again in People ex rel. United Verde Copper Company v. Roberts ( 156 N.Y. 585), citing People ex rel. Singer Manufacturing Co. v. Wemple ( supra), and referring to an investment by the relator in that case, a domestic corporation, in the stock and also in the bonds of a railroad company in the Territory of Arizona, organized almost exclusively for the purpose of transporting the goods of the said relator, say: "This surplus of the relator even if placed in the stock and bonds of the railroad company as an independent investment cannot be regarded as a part of its capital stock employed within this state."
The decisions tending to the contrary conclusion are based upon the peculiar facts existing in the several cases in which such decisions were made. It seems to be clear from the decisions quoted that the investment of the $20,000 by the relator in real estate not used by it in the usual course of its business cannot be said to be capital employed in this State.
We see no distinction between an investment in real estate paying a general and local tax, and an investment in non-taxable municipal bonds. The Tax Law in no way refers to the kind of property in which the capital of the corporation is to be employed. If the capital is employed within this State it must be included in the basis of computation. If it is not employed within this State it must not be included in the basis of computation. Whether the investment is in real estate or personal property cannot affect the question except so far as it may aid in determining whether it is so employed or not. We conclude that the $20,000 invested in real estate and the $200,000 invested in Brooklyn bonds are not employed within this State and should not be included in making up the basis of computation for taxation.
Deducting said $220,000 from the total capital of $1,041,261 we have $821,261. Applying the rule laid down in People ex rel. New York East River Ferry Company v. Roberts ( supra), we find that the capital employed in this State is .7887+ per cent of the entire capital of the corporation, and .7887+ per cent of the capital stock at par is $2,366,150, being the same proportion of the capital stock at par as the amount of capital employed within this State bears to the entire capital of the corporation. The average price at which the stock of the corporation has sold during the year for which the tax is to be imposed is sixty-three and one-half per cent. Taking the portion of the capital stock at par employed within this State as above found at the average price at which it has been sold during the year, we have $1,502,505, being the amount on which the tax should be computed at one and one-half mills on the dollar. The tax so computed amounts to $2,253.75, to which amount the tax imposed by the Comptroller should be reduced.
The determination of the Comptroller modified by reducing the tax to $2,253.75, and as so reduced confirmed, with fifty dollars costs and disbursements to the relator.
All concurred.
Determination of the Comptroller modified by reducing the tax to $2,253.75, and as so modified affirmed, with fifty dollars costs and disbursements to the relator.