Case Name: The People ex rel. The American Surety Co. v. Frank Campbell, Comptroller
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1893-12-06
Citations: 55 N.Y. St. Rep. 881
Docket Number: 
Parties: The People ex rel. The American Surety Co. v. Frank Campbell, Comptroller.
Judges: 
Reporter: New York State Reporter
Volume: 55
Pages: 881–888

Head Matter:
The People ex rel. The American Surety Co. v. Frank Campbell, Comptroller.
(Supreme Court, General Term, Third Department,
Filed December 6, 1893.)
Corporations—Taxes—Capital employed without the state.
About a third of relator’s capital was invested in real estate in Illinois and in United States bonds which were deposited with a trust company in Pennsylvania and with the minister of finance in Canada, to enable the relator to do business in those states and Canada. Held, that such portion of the capital could not be deemed to be employed in this state for _ the purposes of taxation, although the income arising therefrom was received by relator at its office in New York.
Certiorari to review the determination of the comptroller of the state of New York declining to revise and resettle an account stated against the relator for taxes on the capital stock for the year ending November 1, 1891. The total amount of the company's stock for that year was $1,000,000, and the tax was assessed upon that sum.
John J. Crawford, for relator; S. W. Rosendale, Att’y-Gen’l. for resp’t.

Opinion:
Putnam, J.
The question to be determined is, what part of relator's capital was used or employed within the state during the time in question. The total amount of the capital stock of relator was $1,000,000, and the comptroller assumed that it was all employed within the state. During the years for which the tax was so assessed it was shown that relator had $200,000 of its capital invested in real estate in Chicago, $121,187,50 of its capital invested in United States bonds, deposited under a deed of -trust in Pennsylvania, $60,500 of such bonds deposited with the minister of finance in Canada.
These bonds it was shown were so deposited and the real estate investment made to enable relator to carry on its business in Pennsylvania, Illinois and Canada. Were the bonds so deposited in Pennsylvania and Canada, and the $200,000 invested in real estate in Chicago, being a part of the capital of relator, employed within this state ? I think not. The $200,000 invested in real estate in Chicago is located out of this state, is taxable in Illinois, and a .part of the capital of relator placed in that state to enable it to there carry on business. It seems to me that such real estate may properly be deemed employed in Illinois. The way relator employs its capital is to keep it invested as a security for the benefit of those doing business with it. This $200,000 is invested in real estate in Illinois where those having claims against the corporation in that state can reach it. I think relator employed this portion of its capital in Illinois, and certainly did not employ it in New York.
So in regard to the bonds deposited in Pennsylvania and Canada. In the deed of trust to the Fidelity Insurance aud Safe Deposit Company, is the following provision, viz: "And whereas, •it is deemed expedient, and the said Surety Company is desirous of establishing and creating a trust fund in said commonwealth of Pennsylvania, by the conveyance in trust of certain securities hereinafter named, for the protection and benefit of all of its bond or policyholders wherever situated, subject, however, to the reservation named hereafter and to the trust and powers hereinafter provided."
These United States bonds, a part of the capital stock of relator, were deposited in Pennsylvania and Canada-for the protection and benefit of its bond and policy holders in Pennsylvania, Canada or elsewhere. The capital of relator to the extent of said deposit was represented by United States bonds, and these bonds are placed as above. A creditor of relator in Pennsylvania or Canada can reach them in those places. The capital of relator to the extent of the bonds was located out of the state. The bonds in Pennsylvania were actually conveyed to the trustees and those in Canada were delivered to the minister of finance.
I think the papers show that the bonds in Pennsylvania and Canada were employed in those places. They were there to enable the corporation to do business, to give the corporation credit, and secure its policy holders, and those employed, and hence cannot be deemed to have been employed in this state.
I think these views are sustained by the case of People ex rel Edison Electric Light Co. v. Campbell, 138 N. Y., 543; 53 St. Rep., 184. In that case the relator's capital originally was invested in patent rights. It sold patent rights to various local corporations outside of the state taking the stock of such corporations in payment, and the principal question in the case was whether the stock of such local corporations held by the relator was capital of the relator, employed within the state. This general term held that such stock was a mere investment. That presumably the certificates were held by the' corporation at its office in this state. That such stock was not 'employed by the corporation out of the state, and hence should be deemed employed within the state.
This doctrine, however, was overruled by the court of appeals. The court held, page.546, "The stocks which relator took of companies organized outside of the state stood for so much of relator's capital invested outside of the state. It took a portion of its capital, to wit; a portion of its patent rights and employed it outside of the state to purchase those stocks. Its property in those corporations, represented by its shares of stock was outside of this state, and was in no sense employed here. Those stocks had no situs here and were not taxable here under any system of taxation, which has ever existed in this state. As_ to a domestic corporation it is sufficient to subject it to taxation under the act that its capital was employed within the state, and it is employed where it is kept and used for the purposes of the corporation."
It seems quite clear that the real estate in Illinois and the bonds transferred in trust in Pennsylvania as well as those deposited with the minister of finance in Canada cannot be said to be kept or used within this state. Such property is required and used out of the state. In the case last cited the company held bonds of foreign corporations received in payment of patent rights and such bonds were held to be taxable. The court used the following language in reference to them, page 547: " Those bonds were presumably held at its office in this state, and such bonds, as well as all choses in action, unless kept, employed, or used outside of the state, have their situs at the domicil of the owner." In the case under consideration the bonds are shown to be kept outside of the state and are there used to enable relator to carry on its business.
In the case referred to it was held that to entitle the corporation to exemption on account of that part of its capital stock invested in the stocks of foreign corporations, it was not necessary that such portion of its capital stock should be employed in business outside of the state. All that was necessary to entitle the corporation to exemption was that such portion was not employed within the state.
It is suggested by the learned attorney-general that the bonds of relator in question and the real estate in Illinois were subject to the claims of all creditors of the corporation, and that the income arising therefrom was received by the relator at its office in New York; The same, however, could be said in reference to the stocks of the foreign corporation referred to in People ex rel. Edison Electric Light Co. v. Campbell, supra. The stock referred to in that case was subject to all claims against the company, and presumably the income thereon was received by the corporation at its office in New York. It was also presumably received at that office and there used in the business of the corporation. It is to be inferred that all the business of the corporation was conducted at the New York office, and in doing the same the corporation used the income received from said stocks. .
I think the determination of the comptroller should be reversed, with costs to the relator.
Herrick, J., concurs.