#### The People of the State of New York, Plaintiff, *v.*George W. Linch, as Receiver of Central Park, North and East River Railroad Company, and Others, Defendants.

First Department,

July 10, 1914.

Railroad — tax—liability of purchaser of property of street railroad for franchise tax—when franchise tax becomes a lien—liability of receiver of insolvent railroad for franchise tax.

The purchaser of the property of a street railroad company upon the foreclosure of a mortgage thereon under a decree providing that the premises should be sold subject to all taxes and assessments and liens prior to the lien of said mortgage, is not liable for a franchise tax on the gross receipts of the company imposed under section 185 of the Tax Law for a period prior to the date of the delivery of possession to him and becoming a lien thereon subsequent to a resale and delivery of possession by him. This, because the provisions for sale subject to taxes and assessments can only apply to such taxes as had been imposed and were a lien prior to the time of the sale.

Under the provisions of the Tax Law a franchise tax on the gross receipts of a street railroad company cannot become a hen on its property at a date earlier than July first or later than August first.

A receiver in the possession of the property of an insolvent railroad corporation is only liable for franchise taxes assessed against such company during his possession and operation thereof.

Submission of a controversy upon an agreed statement of facts, pursuant to section 1279 of the Code of Civil Procedure.

*James J. Barrett, Deputy Attorney-General,*for the plaintiff.

*Martin Taylor,*for the defendant Linch, as receiver.

*Julien T. Davies, Jr.,*for the defendants Cornell and Belt Line Railway Corporation.

Dowling, J.:

The controversy submitted for determination herein involves the Lability of the defendants, or any of them, for the franchise taxes aggregating $2,393.38, imposed -under sections 185 and 197 of the Tax Law (Consol. Laws, chap. 60; Laws of 1909, chap. 62), being one per centum upon the gross earnings of the Central Park, North and East River Railroad Company from June 30, 1912, to November 14, 1912.

*548The Central Park, North and East River Railroad Company was incorporated July 19, 1860, under the laws of the State of New York, for the purpose of constructing, maintaining and operating a street surface railroad in the city of New York, and thereafter constructed, maintained and operated said road, and said road was maintained and operated during all the periods hereinafter referred to. On July 3, 1908, the Farmers’ Loan and Trust Company, as trustee, commenced an action in the United States Circuit Court for the Southern District of New York for the foreclosure of a mortgage upon the said railroad, and such proceedings were thereafter had that on February 16,1911, a decree was duly entered in said action, foreclosing the mortgage and directing that the property specified in the decree be sold by a master commissioner, which decree was thereafter affirmed by the Circuit Court of Appeals of the United States, and a writ of review thereof denied June 10, 1912, by the Supreme Court of the United States. The part of the decree of sale material to the issues involved herein is as follows: “The said premises and property shall be sold subject to all taxes and assessments and liens prior to the lien of said mortgage to the complainant existing in favor of any person or persons, corporation or corporations, not a party to this cause; but the purchaser at such sale, his successors and assigns, shall have the right to contest any claim for which priority of lien over the lien of said mortgage upon said premises and property shall be asserted. * * * The purchaser, when the property is struck down to him, and his bid approved by the court, shall at once pay the Master Commissioner, on account of his purchase, a sufficient sum to make up with his deposit ten per centum of his accepted bid.” It was further ordered and decreed “ that within thirty days from the confirmation of said sale, or such further time as the court may allow on application of the purchaser for good cause shown, the purchaser, his successors and assigns, shall complete payment of the entire amount bid to the said Master Commissioner; and that on such payment the said purchaser, his successors and assigns shall be entitled to receive a deed of conveyance and bill of sale of the property purchased, from the Master Commissioner, and from the other parties to this *549cause as herein provided, and to receive possession of the property so purchased from, the parties holding possession of the same.”

On November 14, 1912, the property and franchises of the said railroad company were sold under said decree at public auction to Edward Cornell. On November 30, 1912, in an action brought in the Supreme Court of New York, George W. Linch was appointed temporary receiver of said railroad in a judgment creditor’s action, and such receiver took possession and operated the property and franchises of the railroad company from November 30 to December 16, 1912. On the latter date he was appointed permanent receiver and operated the said road as such from December 16 to December 23, 1912, on midnight of which latter date he delivered possession to the purchaser at the auction sale, Edward Cornell, who had received the deeds to said property on December twenty-first. Thereafter, and on March 21, 1913, Cornell sold the property and franchises so bought by him to the Belt Line Railway Corporation, which entered into possession thereof on the same date, and has since remained therein. In July, 1913, pursuant to the provisions of subdivision 3 of section 192 of the Tax Law, the Central Park, North and East River Railroad Company made its written report to the State Comptroller, stating the amount of its gross earnings from business done for the year ending June 30, 1913, covering the period from July 1, 1912, to November 29, 1912. Linch, as receiver thereof, had made at about the same time his report of the gross earnings of the road during the period of his possession as receiver, from November 30 to December 23, 1912. Based upon such reports the State Comptroller imposed, -settled and assessed, on August 8, 1913, the amount of the franchise tax, which was $2,188 for the first of said periods, and $460.22 for the second of said periods. Thereafter Linch, as receiver, paid the taxes for the period from November 14 to December 23, 1912, covering the length of time from the date of the- sale to Cornell under foreclosure to the date that Cornell took possession. The taxes due for the period from July 1 to November 14, 1912, remain unpaid, and it is the liability for these taxes which is sought to be settled herein. It is sought to hold the defendant Cornell, the *550purchaser at the sale, for the taxes for the period long prior to the sale to him, on the ground that under the terms of the foreclosure sale he was bound to pay the taxes. This is because of the construction placed upon the provision of the decree of sale that the property was sold subject to all taxes and assessments and liens prior to the lien of said mortgage. It would seem that under any reasonable construction of this clause it could apply only to such taxes as had been imposed and were a lien prior to the time of the sale. Under section 185 of the Tax Law provision is made for an annual tax on any corporation owning or operating any surface railroad not operated by steam for the privilege of exercising its corporate franchise or carrying on its business. Section 192, subdivision 3, requires that any such corporation make a written report to the Comptroller of its condition at the close of its business on June thirtieth preceding, stating the amount of its gross earnings, which report must be made on or before August first. Under section 197 the tax shall be due and payable into the State treasury on or before the first day of August of each year. It is furthermore provided that such tax shall be a lien upon and bind all the real and personal property of the corporation liable to pay the same from the time when it is payable until the same is paid in full. On reading these sections together it would seem plain that under no condition can the tax be imposed earlier than July first, for this is the first day on which the requirement can be complied with that the report shall state the condition of the company at the close of business on June thirtieth, and under no theory could this tax become a lien at an earlier date than July first, or at a later date than August first. Under no condition, therefore, could the tax be imposed legally, or become a lien, until after Cornell had sold and delivered possession of the railroad to the Belt Line Corporation. In *New York Terminal Co.*v. *Gaus*(204 N. Y. 512) the franchise taxes had been duly levied for the preceding years 1906 and 1907, and were valid liens upon the property at the time it was conveyed to the Terminal Company. It was for that reason that the purchaser was held bound to pay prior accrued taxes in that case. In *Pennsylvania Steel Co.*v. *New York City R. Co.*(198 Fed. Rep. 768) it was held that *551although under a similar Federal law, taxes and assessments which were liens were not payable by the receivers, the Court of Appeals having held a similar tax under section 182 of the Yew York Tax Law to be payable by the receivers, they would be liable for the same in the case then before the court. This decision was based on the decision in *New York Terminal Co.*v. *Gaus (supra),*but we think that the attention of the court was not called to the real purport of that case in which, as has been pointed out, the liability for prior taxes was established as to such taxes as had been duly assessed and were valid liens upon the property at the time of its conveyance. We do not believe that the *Pennsylvania Steel Co.*case is applicable to the situation now before us, or changes the rule laid down in the *New York Terminal Co.*case.

The reasons for holding that Cornell is not liable for the payment of these taxes are equally applicable as to the Belt Line Railway Corporation, which did not acquire title nor take possession until March 21, 1913, long after the period now in question. The defendant Linch, as receiver, was not in possession of the railroad during the time covered by the taxes in question. He has paid so much of the taxes as were assessed for the period of time during which he was in control and operating the road. He has also paid the taxes for the period between the sale under the decree of the Federal court and his taking possession. *Central Trust Co.*v. *N. Y. City & N. R. R. Co.*(110 N. Y. 250) goes only to the extent of holding that where a railroad corporation is insolvent, and its property in the hands of a receiver, who is operating the road, he is liable for franchise taxes assessed against the road during his operation thereof. We áre referred to no case that extends his liability to pay taxes beydnd such period. The order appointing Linch as receiver is not set forth in the submission of this controversy, nor is it claimed that any special provision thereof obligates him to pay these taxes. Under these conditions it would seem that none of these defendants is liable for the taxes for the period in question when the Central Park railroad was itself in control of and operating its road. There is nothing before us to show the present status of that road, nor is it a party to the submission.

*552We can go no further than to determine upon the record now before us, and with regard to such parties as join in this submission, that none of these defendants is liable for the taxes for the period in question, and judgment is, therefore, directed for the defendants, with costs.

Laughlin, Clarke and Hotchkiss, JJ., concurred.

Ingraham, P. J. (concurring):

Section 197 of the Tax Law (Consol. Laws, chap. 60; Laws of 1909, chap. 62) expressly provides that the franchise tax shall be a lien upon and bind all the real and personal property of the corporation liable to pay the same from the time when it is payable until the same is paid in full. Under this provision a tax became a lien upon the corporation assets paramount to all prior undertakings. *(New York Terminal Co.*v. *Gaus,*204 N. Y. 512.) Therefore, I think, when the property was acquired by Cornell it was subject to this tax when imposed and which became a lien upon the property of the railroad whether it remained in its possession or whether its title had been divested. The statute does not make the existence of the lien depend upon the continued ownership of the corporation taxed. The tax is based upon the gross earnings of the corporation during the period in which it exercised its franchise. The tax when imposed becomes a lien upon the property of the corporation until it is paid and which can be enforced against such property. But I can find no provision that makes either a purchaser or a receiver in possession of the property of the corporation exercising the franchise personally liable for the tax. Therefore, I agree with my brother Dowling that there is no obligation upon either of the defendants to pay the tax, and that judgment should be directed for the defendants.

Judgment directed for defendants, with costs. Order to be settled on notice.