People ex rel. Singer Manufacturing Co. v. Wemple

PUTNAM, J. There is no dispute between the parties as to the facts of this case. The relator is a foreign corporation, with a paid-up capital of $10,000,000, on which, for the year ending November 1, 1890, a dividend of 12¿ per cent, was declared. Of that capital, during said year, $372,397.10 was employed in the state in the business of the corporation. During the last six months of the same year,, relator invested $900,000 in real estate in the city of New York, and which was purchased with its undivided profits or surplus. The comptroller, claiming that he was authorized so to do, under the provisions of chapter 542, Daws 1880 (as amended by chapter 361, Laws 1881; chapter 151, Laws 1882; chapters 359, 501, Laws 1885; and ■chapters 193, 353, Laws 1889), assessed the tax authorized by said act upon the amount of capital stock employed by relator in this state as aforesaid, viz. $372,397.10, and also upon said surplus of $900,000, so invested in real estate. The only question submitted is whether the comptroller was authorized to include in the assessment against relator said real estate-so purchased by it with its surplus or undivided profit. If he could legally make such assessment, his authority must be found in the statutes above referred to. Section 1 of the act of 1880, as amended, provides as follows: “Hereafter it shall be the duty of the president or treasurer of every * * * •corporation * * * liable to be taxed on its corporate franchise or business, as provided in section 3 of this act, to make a report in writing to the comptroller, annually, on or before the fifteenth day of November, stating [93] specifically the amount of capital paid in, the date, the amount, and.rate per centum of each and every dividend declared by their respective corporations * * » during the year ending with the first day of said month.” The section further provides that in any year when any such corporation shall fail to malee a dividend, or make one less than 6 per cent, on the par value of its capital stock, the officers of the corporation shall, between the 1st and 15th of November, forward to the comptroller a certificate containing a statement of the cash value of the capital stock of said company, at a sum not less than the average price said stock sold for during said year. Section 3 of said act provides as follows: “Every corporation, * * * now or hereafter incorporated, organized or formed under, by, or pursuant to law in this state or in any other state, or country, and doing business in this state, except * * *, shall be liable to and shall pay a tax, as a tax upon its franchise or business, into the state treasury annually, to be computed as follows: If the dividend or dividends made or declared by such corporation, * * * during any year ending with the first day of November, amount to six or more than six per centum upon the par value of its capital stock, then the tax to be at the rate of % mill upon the capital stock for each one per centum of dividends so made or declared; or if no dividend be made or declared, or if the dividend or dividends made or declared do not amount to six per centum upon the par value of said capital stock, then the tax to be at the rate of one and 1-2 mills upon each dollar of the valuation of the said capital stock made in accordance with the provisions of the first section of this act.” Section 11 provides as follows, viz.: “The amount of capital stock which shall - be the basis for tax under the provisions of section 3 of this act, in the case of every corporation * * * liable to taxation thereunder, shall be the amount of capital stock employed within this state. In making to the comptroller the report in writing or certificate of estimate and appraisal of the capital stock of such corporation * * * provided for by the first section of this act, it shall be the duty of the president or treasurer thereof, as the case may be, to state specifically the amount of capital stock employed within this state, of such corporation. ■ * * * Whenever the comptroller is dissatisfied with such report * * * of any corporation * * * whose capital is only partially employed within this state, he is authorized and empowered to ascertain, fix and determine the amount of capital employed within this state, and to settle and account for the taxes and penalties due the state thereon.” In my view, under tbe above provisions of the act of 1880 and the acts amendatory thereof, the action of the comptroller in assuming to assess the $900,000, surplus moneys invested by relator in real estate, was unauthorized. The statute only authorizes the comptroller to levy a tax upon the capital stock of a corporation. It will be observed that by the provisions of section 11, above quoted, the basis of the tax against every corporation under the provisions of section 3 of the act shall be the amount of its capital stock employed within this state. Section 11, supra, leaves in force the provisions of section 3, except in limiting the franchise tax, authorized by the act, to capital stock employed within the state. Section 3, above quoted, provides that, if a dividend of 6 per cent, or upward is made by a corporation during any year ending November 1st, the tax shall be at the rate of one-fourth mill upon the capital stock of the corporation for each 1 per cent, of dividend so made. If no dividend is made, or one less than 6 per cent, on the par value of the [94] capital stock of the corporation, then the tax is to be at the rate of 1-J mills upon every dollar of the valuation of the said capital stock made in accordance with the provisions of the first section of the ¡act. Section 1, as we have seen, provides for an appraisal of the value of the capital stock of the corporation at its actual cash value where no dividends have been declared, or a dividend less than 6 per cent. The act in question, then, only provides for a tax against relator to be assessed upon its capital stock. It did not authorize the comptroller to assess the corporation on its surplus or undivided profits. In Williams v. Telegraph Co., 93 N. Y. 162-188, Judge Earle discusses the meaning of the words “capital stock” as follows, viz.; “The "‘capital stock,’ in this section, does not mean share stock, but it means "the property of the corporation contributed by its stockholders, or otherwise obtained, by it, to the extent required by its charter. While the term ‘cnp'tal (Stock’ is frequently used in a loose and indefinite sense in this section and in legal phrase generally, it means that, and no more. In State v. Morristown Fire Ass’n, 23 N. J. Law, 195, Green, C. J., said: ‘The phrase “capital stock” Is very generally, if not universally, used to designate the amount of capital to be contributed for the purposes of the corporation. The amount thus contributed constitutes the “capital stock” of the company.’ In Burrall v. Railroad Co., T5 N. Y. 211, Folger, J., defined ‘capital stock’ as ‘that money or property which is put in a single corporate fund by those who, by subscription therefor, become members of a corporate body.’ In Barry v. Exchange Co., 1 Sandf. Oh. 280, Vice Chancellor Sand ford said: ‘The capital stock of a corporation is, like that of a copartnership or joint-stock company, the amount which the partners or associates put in as their stake in the concern.’ By loss •or misfortune, or misconduct of the managing officers of a corporation, its capital stock may be reduced below the amount limited by its charter; but whatever property it has up to that limit must be regarded as its capital stock. When its property exceeds that limit, then the excess is surp'us. Such ■surplus belongs to the corporation, and is a portion of its property, and, in a general sense, may be regarded as a portion of its capital, but, in a strictly legal sense, it is not a portion of its capital, and is always regarded as surplus profits.” See, also, Barclay v. Culver, 30 Hun, 1-5; State Bank of Wisconsin v. City of Milwaukee, 18 Wis. 281. As suggested above, the only authority which the comptroller possessed to tax the relator was derived from the statutes above referred to and quoted, and those acts only authorize him to assess relator’s capital stock, and not its undivided surplus. It is true that section 11, supra, of the act, after providing that the basis of the tax against a corporation, under the provisions of section 3 of the act In question, shall be the amount of capital stock employed within the state, and that the corporation, in making its report to the comptroller, shall report the amount of capital stock so used in the state, rases the word “capital” twice in the section instead of “capital stock.” But it will be observed that it only authorizes the assessment upon the capital stock of the corporation, and in sections 1 and ■3 of the act the tax authorized is also to be assessed on “capital ¡stock” of the corporation. I cannot believe that it was the intent of those who framed the statutes in question to authorize an assessment by the comptroller on the undivided profits or surplus or the ■corporations mentioned therein. If relator, during the year in ques [95] tian, had only paid a dividend of 5 per cent., the tax under section 3 of the "act would have been 1-| mills upon each dollar of the valuation of its capital stock made in accordance with the provisions of section 1 of the act. It seems to me that the language contained in section 3 necessarily limited the tax to the capital stock, and precluded the idea of an assessment on the surplus. Under section 1 the valuation of the stock is to be its actual value in cash, and not less than the average price said stock sold for during the year. The surplus, which the comptroller taxed, increased the value of the capital stock, which under the act is assessed. If the position of the respondent can be sustained, a corporation can be taxed on its surplus and on its stock, which is increased in value by such surplus. To illustrate: A corporation has a capital stock of a million, and a surplus of equal amount, and makes a dividend of 5 per cent, per annum, all its capital stock and surplus being employed within this state. In consequence of the large surplus the capital stock of the corporation is worth $2,000,000. The corporation then, according to the position taken by the comptroller, must pay the franchise tax assessed on the surplus of $1,000,000, and also on the value of its capital stock, which is doubled in consequence of such surplus. The effect of such a procedure must necessarily be to compel the corporation to pay a double tax on its surplus. In the case supposed, the surplus or undivided profits, under the acts in question, are taxed by the assessment of the capital stock of the corporation at its market value. The surplus necessarily increases the value of the stock, and the comptroller, in assessing the increase in value, taxes the surplus. To continue our illustration: A corporation with a capital stock of one million, and a surplus of like amount, all employed in this state, during the year expiring November 1st, has made a dividend of 12J per cent, on the par value of its capital stock. Now, it is clear that the dividend is increased in amount, perhaps doubled, by the surplus; and hence the franchise tax assessed by the comptroller under the provisions of section 3, supra, is increased, perhaps doubled. Therefore, whether a corporation pays a dividend of 6 per cent, or upward, or not, the surplus is necessarily taxed by the comptroller in assessing the franchise tax in question, because the surplus necessarily increases the income of the corporation, and hence the annual dividend, and also increases the market value of its capital stock. I conclude that the capital stock referred to in the act of 1880 and acts amendatory thereto is capital stock authorized by the charter of the corporation, and subscribed or raised by its stockholders, on which it pays dividends, and which it is obliged to maintain intact; not the surplus or undivided profits owned by it, however invested, which it can at any time turn into money, and divide among the stockholders. This surplus or undivided profits, it is true, until divided, belongs to the corporation, increasing the value of the corporate stock; but it cannot be deemed capital stock, which can be assessed for the franchise tax authorized by the acts above mentioned. The views above stated render it unnecessary to consider the position taken by appellant that the surplus belonging to relator, so assessed by the comptroller, was not employed-in the state, within [96] the meaning of section 11 of the act of 1880 and acts amendatory thereto. I think the determination of the comptroller should be reversed, with the usual costs.