Case Name: The People ex rel. Singer Manufacturing Company, App'lt, v. Edward Wemple, as Comptroller, etc., Resp't
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1894-05-08
Citations: 60 N.Y. St. Rep. 662
Docket Number: 
Parties: The People ex rel. Singer Manufacturing Company, App’lt, v. Edward Wemple, as Comptroller, etc., Resp’t.
Judges: 
Reporter: New York State Reporter
Volume: 60
Pages: 662–669

Head Matter:
The People ex rel. Singer Manufacturing Company, App’lt, v. Edward Wemple, as Comptroller, etc., Resp’t.
(Supreme Court, General Term, Third Department,
Filed May 8, 1894.)
Taxes—Foreign corporation.
A foreign corporation is not taxable on investments of undivided profits in real estate. '
Certiorari to review an assessment of taxes made by the comptroller of the city of New York. •
Lowrey, 'Stone & Auerbach (Julien T, Davies and Wm. A. Poste, of counsel), for relator; T. H. Hancock, Atty. Gen. (John W. Hogan, of counsel), for resp’t.

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 T2j- 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 ypar,, 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, Laws 1880 (as amended by chapter 361, Law's 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. ' 1
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 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 make 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 loth 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 in 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 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 1J 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 1 * 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 émpowered to ascertain, fix and determine the amount of capí tal employed within this state, and to settle and account for the taxes and penalties duet 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 assuming to assess the $900,000, surplus moneys invested b_y 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 § 11, above quoted, the basis of thetax against every corporation under the provisions of § 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 § 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 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 one per cent, 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 I-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 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. W. U. Tel. Co., 93 N.Y. 162-188, Judge Eabl discusses the meaning of the words " capital stock " as follows, viz.: " The 1 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 ard 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. Bushwick Railroad 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, Yice Chancellor Sandford 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 surplus. 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 § 11, supra, of the act, 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. 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 of the corporations mentioned therein. If relator, during the year in question had only paid a divident of 5 per cent., the tax under § 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 § 1 of the act. It seems to me that the language contained in § 3 necessarily limited the tax to the capital stock, and precluded the idea of an assessment on the surplus. Under § 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 réspondent 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 12% per cent, on the par value of its 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 § 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 or 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 § 11 of the act of 1880 and acts amendatory thereto. I think the determination of the comptroller should be reversed with the usual costs.