People ex rel. Interborough Rapid Transit Co. v. Williams

Kellogg, J.: The statute in question imposes this tax only on elevated railroads, or surface railroads not operated by steam.. The mere fact that an underground railroad for á short distance may run upon the surface, and for another short distance upon an elevated structure, does not make it a surface or elevated railroad. Its distinctive character is an underground railroad. It is not, therefore, taxable under this statute. The relator is exempt from taxation in respect to anything it does pursuant to the contract with the city under which the subway was constructed . and is operated. (People ex rel. Interborough Rapid Transit Co. v. Tax Comrs., 126 App. Div. 610; affd., 195 N. Y. 618.) The statutory exemption should be given a fair construction in order to carry out the real purpose for which it was allowed, The exemption from taxation was an inducement which led to the construction and operation of the subway, and should be fairly observed. It follows, therefore, that aside from the fact that the relator is operating the Manhattan elevated railroad as lessee, it would not be subject to this tax. The statute provides that the tax against [614] the owning or operating company shall be one per centum upon its gross earnings from all sources within the State. The petition shows that the relator is operating the elevated railroads of the Manhattan Company, and the gross earnings of the relator are, therefore, made up of its earnings from its subway and from the Manhattan elevated roads. This tax is not upon earnings or property, but is for the privilegé of exercising a corporate franchise in carrying on the business. The fact that the relator, with reference to the subway, is exempt from taxation except as to the real estate owned or employed by it,, doesnot • permit us, in ascertaining the gross earnings of the' company from all sources, to eliminate the earnings of the subway. The earnings are used simply as a method of determining what the use of the franchise is worth; a measure merely to determine how much tax' should be paid upon the franchise; Earnings from patents, United States bonds or other property expressly • exempt from, taxation are not to be excluded in determining the amount of the earnings of a corporation which is to be used in fixing the value of its franchise. (People ex rel. United States A. P. P. Co. v. Knight, 174 N. Y. 475, 482.) The gross earnings of the relator from all sources within the. State must- be taken into account in computing this tax. The tax upon the surplus dividends is upon the actual amount of paid-up capital “ employed ” by xthe corporation. This means-employed by the corporation in the ownership or operation of the road. We assume from the record that "the elevated roads are operated under their own charter, and the relator, - as lessee, is only interested financially in the net earnings.of that corporation after paying the interest upon its bonds and the rental to be paid. A ta.x'is imposed by.this section upon the excess dividends.of such leased corporation. It is not probable that the Legislature intended by this provision that the lessor company must pay a tax upon its excess dividends for the privilege of operating its railroad, and that the lessee company must pay a tax upon its excess dividends for the privilege of operating the road as lessee, thus making á double taxation. The first part of the section expressly declares .that the gross earnings from all sources shall be- considered, showing that not only the earnings of the lessee should be computed, but all' [615] earnings of the operating, company. The latter part of the section omits the general words, and by the use of the word “employed” makes it clear that the excess of dividends is to be considered, so far as the lessee is concerned, only upon the amount of its capital stock, if any, employed in the business. It does not appear that any of the capital stock of the relator is employed in the operation of the elevated road ; on the contrary, we infer from the record that the relator receives from the operation of that road more than all it pays on account thereof, so that the lease is a profit to it. The Tax Law of 1896 first made a company operating an elevated or surface road not operated by steam subject to this tax, and eight years thereafter, in 1903, the relator voluntarily, and for its own profit, took the lease of the elevated railroads of the ■ Manhattan Elevated . Bail way Company, and has since continuously operated them. Immunity from taxation is given to the relator with reference to its subway and its operation thereof, and such immunity is a property right. But when it voluntarily, for its own profit, took the lease of the other railroads and operated them, it made itself subject to any liability for taxation which any other lessee would have incurred by reason of such lease and operation. By taking the lease and operating the leased roads it voluntarily subjected itself to a tax with reference thereto, in computing which tax its earnings “ from all sources ” may be considered. The terms of the lease do not appear, but the petition admits that the relator has continuously operated the elevated' railroads as lessee, and this admission brings it within the terms of the taxing statute. It follows from these views that the relator is liable to pay a tax of one per centum on its gross earnings from all sources within the State, including the earnings of the subway as well as its earnings from other sources, and that the excess dividends declared by the relator upon its own stock cannot,, upon the facts shown, be taken into consideration in stating the tax. The determination is, therefore, modified by striking therefrom the excess dividend tax on the Interborough stock, and as so modified confirmed, without costs. All concurred, except Smith, P. J., who wrote for annulment in an opinion in which Sewell, J., concurred.