Case Name: The People of the State of New York ex rel. The Singer Manufacturing Company, Relator, v. Edward Wemple, Comptroller of the State of New York, Respondent
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1894-05
Citations: 85 N.Y. Sup. Ct. 63
Docket Number: 
Parties: The People of the State of New York ex rel. The Singer Manufacturing Company, Relator, v. Edward Wemple, Comptroller of the State of New York, Respondent.
Judges: 
Reporter: Supreme Court Reports (Hun)
Volume: 85
Pages: 63–74

Head Matter:
The People of the State of New York ex rel. The Singer Manufacturing Company, Relator, v. Edward Wemple, Comptroller of the State of New York, Respondent.
Chapter 542 of the Laws of 1880 — tax authoi'ized thereby — basis thereof ■ — • “ capital stock” defined — manufacturing corporation —holding of real estate is no part of its ordinary business.
Under the provisions of chapter 542 of the Laws of 1880, and the acts amendatory thereof the Comptroller of the State of New York is not authorized to assess a tax against the surplus moneys of a foreign corporation invested by it in real estate in the State of New York. Such statute only authorizes the Comptroller to levy a tax upon the capital stock of a foreign corporation employed in its business within the State, and does not authorize his assessing such a corporation upon its surplus or undivided property within the State. (Mayham, H. J., dissenting.)
The term “ capital stock,” as used in chapter 542 of the Laws of 1880, and the acts amendatory thereof, refers to the capital stock authorized by the charter of a corporation and subscribed or raised by its stockholders, on which it pays dividends, and whicli'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 its stockholders.
When a foreign corporation, whose business is manufacturing and the selling of its manufactured products, uses a portion of its surplus in the purchase of real estate in the State of New York, and holds the same as an investment, not using it in its business, such purchase and holding is not an employment of its capital stock within the State, within the meaning of chapter 542 of the Laws of 1880, and the acts amendatory thereof; the basis of the tax authorized by such statutes is the amount or portion of the capital of such corporation in use within the State in the transaction of its ordinary business. (Per Herrick, J.) The holding of real estate and the receiving of rentals therefrom is no part of the ordinary business of a manufacturing corporation. (Per Herrick, J.)
Certiorari issued out of tlie Supreme Court and attested tbe 9th .day of February, 1892, directed to Edward Wemple, Comptroller of the State of New York, commanding him to certify and return his proceedings and decision in relation to the assessment of a tax on the property of The Singer Manufacturing Company.
Jitlien T. Davies and Wm. A. Poste, for the relator.
T. E. HanoooTc, Attorney-General, and John W. Hogan, for the defendant.

Opinion:
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 twelve and a half per cent was declared. Of that capital during said year $372,397.10 was employed in this 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, 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 of the Laws of 1880, as amended by chapter 361, Laws of 1881, chapter 151, Laws of 1882, chapter 359 and chapter 501, Laws of 1885, chapters 193 and 353, Laws of 1889, and chapter 522, Laws of 1890, 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 profits.
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 by chapter 361 of 1881, 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 15th day of November, stating specifically the amount of capital paid in, the date, 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 make a dividend, or make one less than six per cent on the par value of its capital stock, the officers of the corporation shall, between the first and fifteenth 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 (Cbap. 542 of 1880, as amended by chap. 522 of 1890) 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 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 one-quarter 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 one-half 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 of chapter 542 of 1880, as amended by chapter 501 of 1885, provides as follows, viz.: " The amount of capital stock which shall be the basis for the 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 the above provisions of the act of 1880 and the acts amendatory thereof, the action of the Comptroller in assum ing 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 six per cent or upwards is made by a corporation during any year ending November first, the tax shall be at the rate of one-fourth of a mill upon the capital stock of the corporation for each one' per centum of dividend so made. If no dividend is made, or one less than six per cent on the par value of the capital stock of the corporation, then the tax is to be at the rate of one and one-half mills upon every dollar of the valuation of the said capital stock made in accordance with the provisions of the 1st 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 six 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. The Western Union Tel. Co. (93 N. Y. 162-188) Judge Earl 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 •' capital 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 Association (3 Zabr. 195) Green, Ch. 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. Bushwick R. R. Co. (75 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. Merchants' Exchange Co. (1 Sandf. Ch. 280) Vice-Chancellor Sandford said: ' The capital stock of a corporation is like that of a co-partnership 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 surplus. »Such surplus belongs to the corporation, and is a portion of its property, and in a general sense maybe 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, uses 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.
1 cannot believe that it was the intention of those who framed the statutes in question to authorize an assessment by the Comptroller on the undivided profits or surplus of the corporations mentioned therein. If relator during the year in question had only paid a dividend of five per cent, the tax under section 3 of the act would have been one and one-half 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 con tained 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 $1,000,000, and a surplus of equal amount, and makes a dividend of five 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 $1,000,000, and a surplus of like amount, all employed in this-State, during the year expiring November first, has made a dividend of twelve and one-half 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 (swpra;) is increased, perhaps doubled. Therefore, whether a corporation pays a dividend of six per cent or upwards, 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 corpora- ^ tion, 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 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.
Herrick, J.:
When a foreign corporation, whose business is manufacturing and the selling of its manufactured products, uses a portion of its surplus in the purchase of real estate, and holds the same as an investment, not using it in its business, I do not think that such purchase and holding is an employment of its capital stock within this State within the meaning of the statute.
" The basis of the tax is the amount or portion of its capital in use here in the transaction of its ordinary business." (People ex rel. Southern C. O. Co. v. Wemple, 131 N. Y. 64.)
The holding of real estate and the receiving of rentals therefrom is no part of the ordinary business of the corporation.
If the money so invested is not employed within this State then it is not the subject of taxation here. (People v. American Bell Telephone Co., 117 N. Y. 241.)
The determination of the Comptroller was, therefore, erroneous, and should be reversed.