Case ID: ny-st-rep_27/html/0624-01.html
Source: Caselaw Access Project
Author: {"author": "Learned, P. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The People, App’lts, v. The Delaware & Hudson Canal Co., Resp’t.
    
      (Supreme Court, General Term, Third Department,
    
    
      Filed December 11, 1889.)
    
    1. Taxes—Corporations.
    Under § 3, chap. 542, Laws of 1880, as amended by chap. 361, Laws of 1881, if a corporation makes dividends of six per cent or more on the par of its capital stock during the year it shall pay one-quarter mill u ion tus capital stock for each one per centum of dividend, but if no dividends or if dividends less than six per cent .were declared then it shall pay one and one-half mills on each dollar of the value of the stock. The defendant paid five and three-quarter per cent dividends. The value of its stock was $110.16 per share. It appeared that if taxed under the second clause it would actually pay more than if it had declared six per cent dividends. Held, that the law was not inequitable and that it was properly taxed under the second clause.
    :2. Same—Railroads.
    A railroad company may expend earnings on betterments and hence the real value of its stock may not be truly ascertained by a consideration simply of the dividends declared.
    Case submitted without controversy under § 1279, Code Civ. Pro.
    
      Hon. William A. Poste, deputy attorney-general, for app’lts.; David Wilcox, for resp’t.
   Learned, P. J.

This is a case agreed upon and submitted. The question to be determined is the proper construction of § 3, chap. 542, Laws of 1880, as amended by chap. 361, Laws of-1881. And the point in dispute is the rate of taxation to which, under the law, as so amended, the defendant is liable.

If a corporation during any year ending November 1, makes ■dividends amounting to six per cent or more on the par of its capital then it is to pay one-quarter mill upon the capital stock for each one per centum of dividends so made.

If there were no dividends or were dividends less than six per cent then the tax shall be at the rate of one and one-half mills on each dollar of the value of the stock.

The mode of ascertaining that value is provided for in the first section. It is not necessary to state it since no dispute arises as to value.

By chap. 501, Laws of 1885, the tax is to be only upon the amount of capital stock employed in this state. No dispute arises as to what that amount is in this case.

During the year ending November 1, 1888, the dividends of defendant in the aggregate were five and three-quarters per cent on the par value of the capital stock. It was therefore not to be taxed under the first of the aforesaid provisions; but was to be taxed under the second. The actual value of the stock however, as established under the provisions of this act, was 110.16 per cent.

Now it will be seen that a tax of one and one-half mills on each dollar of the actual value of the stock when that stocky is above par is greater than a tax of one-quarter -mill on the capital stock for each, one per centum of dividends when the dividends are six per cent in the aggregate.

That is to say if the defendant had made during the year in the aggregate six per cent dividend, it would have paid a certain sum. But as it has made only five and three-quarters per cent while each share of its stock is worth $110.16, it is required to pay a larger sum. This the defendant says is unjust and not according to the meaning of the legislature, however consonant it may be with the words. The defendant therefore claims that it should pay only the same tax which it would have paid had it made dividends amounting to six per cent.

The defendant claims then to ignore the second provision above stated of the act in all cases where the actual value of the stock shall be found to be above par; or to add to it a provision that if the actual value of the stock shall be found to be above par then the corporation shall pay such tax as it would have paid if it had made dividends amounting in the aggregate to six per cent during the year.

The very able argument for making this judicial amendment to the distinct and clear language of the statute is based upon the position that it must have been the intent of the legislature that corporations paying less than six per cent, dividends for the year should not be taxed at a greater rate than those which paid six per cent, and more.

Any one who knows how statutes are passed must be aware that the intention of the legislature would be. extremely difficult to ascertain; if, indeed, in the minds of many of the legislators any such thing existed at all. We have really nothing to guide us but the words of the statute, in connection with existing cir-stances. The defendant urges the fact that in 1880, when this system of taxation was established, the rate of interest had just been reduced from seven to six per cent.; and it claims that corporations paying six per cent, stood at par, and that those paying less stood below par. Hence it argues that the provision for taxing on the actual value could have been intended to apply only to cases where such actual value was below par.

But whatever force this might have had, assuming its truth, all is lost when we observe that this statute of 1880 has been amended in some particulars in 1881, 1882, and in 1885; and at the same time the provisions now under consideration have remained unchanged. During that time the actual rate of interest had so decreased that in 1885 a five per cent, security would sell for more than par, and a six per cent for still more. Yet the legislature made no change in the provisions for determining the tax; while it was a well known fact that a good six per cent, security was worth above par.

The amount of the dividends made by a corporation in any year is not the sole evidence of the productiveness of the business. Sometimes a corporation expends a part of its profits in making new and additional improvements, which increase the value of its property, and thus its price in tho market. Hence the statute may have been .wisely contrived so that if a corporation reduced its-dividends below six per cent, and used its profits to increase the: value of its property, it should still pay a tax on its productiveness, measured, not solely by its dividends, but sometimes by its increased value.

Sometimes too a corporation may make no dividends in order to increase its surplus funds. This has notably been done by banks, but might be done by corporations subject to the tax under consideration. Doing this, a corporation would increase-the value of its capital stock. For instance, a certain corporation-in existence for fourteen years has never made any dividends;. and its stock is worth over 1,000 per cent.

The assumption then by the defendant that the rate of dividend is the sole evidence of the productiveness of a corporation is-not tenable.

The question here involved was not in any way under consideration in People v. Home Ins. Co., 92 N. Y., 328. The passage-cited by the defendant from the opinion at page 347 was quite-true in regard to the case then before the court. In that case the prosperity was shown by the profits voluntarily distributed. But the court had previously said: “ There was no valid reason why the value of the capital stock may not be used as an element for determining the amount of tax;” and further that the plan adopted by this law is fair and equitable. In speaking also of the provision for determining the tax by value and that for determining it by dividends the court said: “ There is no inconsistency in these modes of estimating.” And it was further remarked: “Absolute equality in laying the burdens of taxation, as shown by experience, is impossible of attainment.”

The defense cites People ex rel. v. Davenport, 91 N. Y., 574, to-illustrate and establish the power of courts to limit the operation of statutes when the literal sense would lead to absurdity or injustice. Now in that case the language of the act of 1880, in its literal reading, exempted the capital stock and personal property of the corporation from amount of taxation except as provided in-that act It was held that this did not exempt such capital and property from taxation for municipal purposes. The court considered that the title and whole sprat of the act referred to taxation for state purposes and that such must be the application of this exemption.

' The court was somewhat influenced by the principle that exemptions from taxation were not favored and must be clearly shown. But neither that decision, nor the rule which was there applied, affords any support to the defendant’s claim. Nothing-in the title, or in the spirit of the act, is in conflict with- the plain language of the provisions under discussion.

There is no unequal or unjust taxation imposed when effect is-given to the literal meaning of these provisions, as has been already shown.

Indeed, the argument of the defendant, intended to show the injustice of the claim of the people, might be reversed. For instance, the defendant, since the year in question, has paid a seven per cent, dividend. Its stock has gone up to 154. How, it might be urged by the people that it was unjust that a corporation, of which the stock was worth 154, should pay a tax on the basis of a seven per cent dividend only. The people might say that, therefore, the clause of the act should be disregarded which provides that corporations paying six per cent, or more dividends should be taxed at a certain rate calculated on their dividends; and that the other clause should be applied, and the defendant should be taxed upon the actual value of its capital; that is, that the defendant should be taxed 23.1 cents on every share of its capital, instead of 17.5 cents, which would be the tax based on a seven per cent, dividend. For the defendant proportionately pays a less rate of tax on the value of its property than does some corporation that pays no dividend, and the stock of which is below par.

We see no reason why the court might not seek to rectify the alleged injustice, on which defendant relies, by disregarding one provision of the section as well as by disregarding another.

The defendant urges that all the court need do is to say that the second provision in the section is impliedly limited by a conditition that the actual value shall never be considered to exceed par. We might as well say that the first provision is impliedly limited by a condition that if the dividend is less than six per cent, on the actual value, the tax shall be computed on actual value. We might as properly assume to amend the law in one way as in another.

It must be seen that there are no words in the rest of the statute with which the construction claimed by the people is inconsistent. The defendant’s argument is simply that when its property is worth more than par it ought not to be taxed on such value, if it does not make six per cent dividends. We think the argument is not sound. We think that the amount of dividends is not the sole evidence of the productiveness of the road; and that the actual value of the stock is some evidence on that point. And if the legislature in some cases determine the rate of tax by the dividend and in.others by the actual value of the stock we see no-such injustice as requires us to modify by construction the clear language of the statute. We have not thought it necessary to argue that the literal meaning is in favor of the people’s claim. That can hardly be disputed. As it has rested with the' defendant to show grounds for changing that literal meaning by what is called construction, it has seemed to us enough to answer those grounds.

That a court is justified in making sense out of inconsistent language and even of implying a meaning not apparent in the letter is undoubted. But after all, when the language is plain, and not inconsistent with other parts of the statute, and when it violates no principles of natural justice, its literal meaning should stand. And this is especially true of a statute which in several years has been under the consideration of the legislature, over which has been much litigation, the requirements of which have been contested by many corporations and yet which has, as to the provisions in question, never been modified.

The people should have judgment for the amount claimed, with costs.

Landón and Putnam, JJ., concur.