Court Opinion

ID: 5495747
Source: CourtListenerOpinion
Date Created: 2022-01-10 02:51:58.617698+00
Date Added: 2024-06-11T08:33:46.729302
License: Public Domain

Daniels, J.
The controversy submitted by the case presents the point of the liability of the American Bell Telephone Company, a corporation formed, under the laws of the state of Massachusetts, to carry on the business of manufacturing, owning, selling, using, and licensing others to use electric-speaking telephones, and other apparatus and appliances pertaining to the transmission of intelligence by electricity, to taxation under the laws of this state. This liability is asserted to have been created by chapter 542 of the Laws of 1880, as that was amended by chapter 361 of the Laws of 1881. In the argument of the case, which was very ably and searehingly conducted, the liability of the company for taxation under the laws of this state has been claimed, and as confidently denied, from the year 1882 to and including the year 1886. And by sections 3 and 6 of the act of 1881, this liability is made to depend upon the fact of the business of the corporation having been wholly or partially carried on within this state during these years. The taxes are not claimed by the state as taxes upon the corporate franchises of the defendant, but upon its business, as that has been mentioned, and made the basis of taxation in these sections of the act. They have been made expressly applicable-to corporations organized by or under the laws of any other state or country doing business in this state, subject to certain exceptions, not affecting the question of the defendant’s liability. And by section 6 of the act of 1881 the language employed evinces the intention to have been to include telephone companies within the meaning and effect of the law. It is the fact of business having been here carried on by the defendant, more than the construction to be placed upon the law itself, on which the dispute between the parties has centered and been made to turn; and it is accordingly necessary to consider the facts agreed upon in the case to ascertain whether this company, created and incorporated under the laws of the state of Massachusetts, has during these years been doing business within the state of New York. By the-*734case which has been agreed upon its transactions have been the same in character from 1881 to and including 1886. And if it was engaged in business within the meaning of the act in 1882 it follows that it has also been so engaged during the whole period included within the case. To render the company liable to taxation under the statute, no proportionate amount of its business has been required to be transacted within this state, but the fact that it has systematically done or carried on business in this state is what the law has placed the liability to taxation upon. By its own officers, or immediate agents, it has not engaged in or carried on business within this state, but what has been done by it has been through the agency and intervention of local corporations, formed under the laws of this state, and in a large degree pursuant to the authority of the defendant. These corporations have been authorized by it chiefly to carry on what is described and mentioned as an ■exchange business in a circumscribed locality not exceeding the radius of 15 miles in extent. And with the exception of the Metropolitan Company, whose contract embraces all the attributes of those made with other companies, three different forms of agreement have been prescribed by the defendant, and executed or accepted by the local companies, for the carrying on and transaction of the telephone business. One of these contracts, when separately made, as they usually have been, provides for a business known as the “Exchange System,” by which a central office is established, and communication is carried on through it between the subscribers or lessees of the company. In the ■course of the business of the New York company it is supplied at the city of Boston with telephones, including what is called a “transmitter and receiver;” the former being the means or apparatus for communicating, and the latter the apparatus for receiving, intelligence. These telephones, by the agreement for this purpose made, as well as by the other agreements, remain the property ■of the defendant; and they are authorized to be leased by the New York Company to its patrons, but for the use of which a rental, or royalty, is required to be reserved for the benefit of the defendant. This rental,-or royalty, is fixed by the agreement itself; and under the agreement relating to the exchange system, about four-fifths o.f the telephone business has been and is carried on. The poles, wires, switch-boards, and other apparatus used in the transmission of intelligence in this manner, are the property of the New York company, but the telephones themselves, it has been specifically agreed, not ■only in the form of contract relating to the exchange system, but to each of the other systems, remain the property of the defendant; and for their use by the customers or patrons of the local company a rent, or royalty, is reserved to be paid to the defendant. By the mode in which the business is carried on the New York or local companies make the leases to its customers, and collect the rentals, not only for the defendant, but for itself, for the use of its own apparatus, and the additional rental required to be paid for the use of the telephone. When contracts are made by the local company for the use of a telephone, it has been required by the contract with that company and the defendant that such contract shall express, “in such form as the lessor shall from time to time approve, that the telephone is the property of the licensor; that it is leased and licensed by it only as herein expressed; and that all use of it otherwise is an injury to, and invasion of, the rights of the licensor as owner thereof,” etc. And it has been further stipulated and provided in the contract between the defendant and the local company that the former may intervene, and “collect from any sublessee or subscriber all sums then or thereafter due to it, or due to the second party, for the use of any instrument, circuits, and appliances, or under any subscription contract. Or it may, so long as it shall see fit, leave in the enjoyment and use of the telephones any -subscriber or other person in actual possession, and collect from such sums as may then and thereafter be or become due for the use of the telephone and exchange lines, appliances, and services, and for that purpose shall be entitled *735to and may take possession of all the lines, fixtures, apparatus, appliances, and premises of the second party, used for carrying on its business, and occupy and operate the same in connection with said telephones and those of additional customers as exchange systems, or connect such lines with offices •of its own for that purpose.”
The local companies incorporated and carrying on the exchange system of business are not permitted, without special authority, to connect wires and telephones, and carry on business between different exchange systems in the state. That authority has been provided for in another form of contract made by the defendant with the local companies, and it has been placed more espe•cially under its supervision and control than the exchange system itself. These have been denominated “Extraterritorial Connecting Lines.” And it has been declared in the agreement providing for the business of these lines, in the same manner as in the agreement for the exchange system, that the telephones used remain the property of the defendant, and that the licensee shall pay to the defendant a rental, or royalty, as before mentioned, for the use of the instruments; and that rental, or royalty, is in like manner provided for • and declared in the agreement. As to these lines, the defendant has reserved the right to itself to use the telephones upon them “ for the purpose of establishing personal communication, or transmitting m essages between such places, .and between such places and said exchanges; and, to establish lines for that purpose, may enjoy any rights of the lessee to erect and maintain lines, and may ¡string its wires on the poles of the lessee, ” etc. “The lessee will also allow the lessor to connect the wires of any such lines with its said lines, in order to con.stitute thereby a through line, of which the lessee’s lines, or any or either of them, or any part of either of them, can form a portion or link, in order to forward through messages, will make or permit to be made convenient switchboards or other connections for that purpose.” It then provides for a division ■of the toll for the service performed, after deducting expenses, between the parties to the agreement, amounting, to the defendant, to one-fourth of the gross receipts of subscriptions and tolls. As to these telephones, it has also in like manner been provided that the subleases and licenses shall, in such form as the lessor shall from time to time approve, express the title of the lessor to the telephone and the patents, the extent of the license thereby granted, the purpose for which the telephone may be used, and that any other use of any telephone by any person, or non-payment of the rental and royalty of the licensor, is an injury to and invasion of its rights as owner thereof, and of the patent rights used therein and thereby. It is further agreed that the defendant “may also enforce against such sublicensee all rights, and pursue all remedies, given by and under such sublicense, and may use the name of the lessee for such purpose, or may require the lessee at its own expense to enforce the terms of such contracts.” And “ the lessor may also use the name of the lessee to protect its interests and enforce its rights hereunder, and the lessee shall execute assignments in accordance herewith.” The third form of contract made and entered into by the defendant is for supplying private lines and other purposes. These consist of one single circuit, neither permanently nor temporarily connected with any other circuit, and the telephones on which are to be used only for the individual and private business of the lessees and their employes, and the lines are not to extend more than 25 miles beyond the municipal limits of the city or town in which one end of the line is situated, and not to be used for more than four individuals, firms, or corporations. Within this contract club lines also are included, consisting each of only a single circuit, connecting not less than five individuals, firms, or corporations, to be used and carried on substantially the same as a private line. A social line has also been in like manner provided for, to be used in a similar manner. And if telephones are desired for uses and upon lines other than those mentioned in the agreement, they are to be obtained by special application *736from the defendant. Each of the telephones used in this manner also remain/ the property of the defendant, and the customers to be selected by the local company are to take a lease and license from the defendant, only to be countersigned by the local company; and the leases taken are to be transmitted to. the defendant, and the rents and royalties reserved in the leases are to be collected by the local company and transmitted to the defendant, the latter having the right, as in other cases, to intervene and collect the rents for itself. Another species of business has also been provided for in the way of connecting the exchange systems with the offices of the Western Union Telegraph. Company. This is no part of the business of the local companies, but is that-of the defendant itself. It has been authorized, by the contract providing-for the exchange system, to connect wires with the wires of the exchange system, and the offices of the telegraph company, and to receive as its compensation for the business transmitted in this manner a certain proportion of the-income or earnings of that business. And as a matter of fact it is agreed in the case that from this source it received in 1882, $782.43; in 1883, $968.57;. in 1884, $817.69; in 1885, $975.25; and in 1886, $1,009.47. The wires used in this business are very short, and of little value, costing for the whole state,, so far, only the sum of $136.26.
From these facts, as they have been extracted from the case, it appears to-follow that the local companies in the state are not taxable for the rentals, payable to the defendant by its customers for the telephones. Those rentals-are the earnings and' property of the defendant, entering, to the extent of the--advantages reserved to the defendant, in no manner into the corporate capital or earnings of the local companies, as they are taxable under the statutes-only upon their own capital and earnings. While they receive, as the business has been carried on, these rentals .reserved to the defendant, they ini judgment of law receive them under the agreement as the property of the defendant, for which they are to account and pay over the amounts to it; and. these amounts are paid or'transmitted to the defendant at its office in the city of Boston. But in letting and leasing the telephones, so far as the rental is. reserved for the benefit of the defendant, they are rented by the local companies as its agent, the telephones remaining its property, and subject to its-control, direction, and disposition at all times. This is more especially the case in the extraterritorial lines connecting different exchange systems, and in private and club lines. They form no part of the exchange systems, but-are substantially the lines, and under the management, direction, and control, of the defendant; and they are no less in this condition because that management, control, and direction has been and may be exercised through the local companies. In what they do in this respect they do it under the authority and for the defendant; and where one party acts in this manner for another, it acts for that other as his or its agent; and the business in which it acts is, to the extent that it is under the management, control, and direction of the other, the business of the party exercising or having the right to-exercise this authority over it; and its rights are neither reduced nor qualified in this respect because it has committed the management, control, and direction to a great extent to the judgment and discretion of the local company. That is a power frequently delegated to agents, and in its exercise the party having the delegated authority is acting for the party from whom the authority is acquired. Still more emphatically is this the case as to the private lines, club lines, social lines, and speaking-tubes, for as to these the leases-are made directly between the defendant and the person.or persons having the authority to use the telephones and establish such lines; and the rentals, so far as they are reserved by such leases, are the property of the defendant;, and what the local companies have been authorized to do is to countersign the leases, and receive such rentals, as long as the defendant does not elect to intervene and collect them for itself; and its duty is to account for them. *737and transmit such rentals to the defendant. In this class of cases the business seems to be exclusively that of the defendant, performed through the intervention of the local companies, for its own use, advantage, and benefit; and in an equal degree is that true of the messages transmitted over the connecting wires extending from the exchange systems to the offices of the Western Union Telegraph Company. As to this business, and that of the private lines, club lines, social lines, and speaking-tube telephones, there seems to be no reasonable ground upon which it can be held that it is the business of the local companies, and not the business of the defendant; and upon the same principle the rentals reserved to the defendant for the use of its telephones in the exchange systems themselves seem to be equally its business within the line of its management and control, although transacted for it by the local companies. That it permits the local companies to receive the rentals, and afterwards account for and transmit them to the defendant, and to receive the telephones themselves from the defendant in the state of Massachusetts, does not materially change the relations existing between these different companies, for so far as the rights, emoluments, and rentals are reserved to the defendant through the intervention of the local companies it is its business, transacted by means of what is no more than an agency, as that is defined and understood by the legal authorities; and that is sufficient to bring it within the liability to taxation created by the act of 1880, as that has been amended by the Laws of 1881, and on that account to distinguish it from U. S. v. Telephone Co., 29 Fed. Rep. 17.
The right to tax property and business within the limits of the state beyond controversy appertains to the powers confided and vested in the state government. Bank v. Billings, 4 Pet. 514; Charles River Bridge v. Warren Bridge, 11 Pet. 420; Case of State Tax, 15 Wall. 300. And this power of taxation, essential as it is for the support and maintenance of the government, is not to be impaired or reduced in its authority, because of artificial and refined distinctions, having no real foundation for their support. Taxation is imposed as an equivalent, or by way of compensation, for the security and protection afforded to property and persons by the state. And the facts of this case bring it within this legal principle, upon which the enactment of these, statutes has proceeded; for not only the telephones themselves remain at all times the property of the defendant, but these contracts through which its. rentals are reserved, and, in the ease of the private lines, and others made directly with itself, and the business carried on between the exchange systems, and the Western Union Telegraph Company, are protected and secured in all. the advantages issuing therefrom to the defendant, by the laws of this state;, and for that protection and security it should bear its share of the public burdens; and that it may be so held liable results from what was decided in the-case of People v. Trust Co., 96 N. Y. 387. In that case it was found as a. fact at the trial “that at the time of the commencement of this action, andi for eight years or more prior thereto, it had an office in the city of New York,, and was doing business in this state; that the executive committee of the boardi of trustees of said defendant held their meetings in the city of New York; that the greater part of the instructions for the management of said company are given from the said New York office, and nearly all the guarantied obligations of said company are payable in said city.” This was not considered by the court to be any great or extended portion of the business of the company, but was yet deemed to be sufficient to bring it within the statutes under which the taxes are claimed from this defendant; and accordingly it was held by the court in that case that, notwithstanding the fact that the amount of its business done in this state was small or inconsiderable, it was still within the statute, and bound to pay the tax imposed upon it under the authority of these laws. The facts in the present case are more decidedly against the defendant than in the case which was then decided, for a large portion of its *738business has been carried on in this state, and from that business it has derived very large rentals, commissions, and profits. Its rentals have increased from 1882, when they amounted to the sum of $164,356.94, to the sum of $296,239.67 in the year 1886; and from its extraterritorial and branch lines, ¿rom the sum of $1,470.45 in 1882, to the sum of $6,522.77 in the year 1886. These earnings, as well as the commissions on the business with the Western Union Telegraph Company, have been derived and received under the force and effect of these contracts, and from this property protected by the laws of the state, and managed, used, and controlled by the defendant, through the intervention of the local companies. And plainly the defendant should contribute to the governmental expenses of the state the same sum at least that a local corporation formed and existing under its own laws would be obliged to contribute for the enjoyment of the same privileges under the provisions of these and other statutes. Even more than that -was sanctioned in the case .which has just been mentioned, for the amount of the tax which the defendant there was required to pay was the statutory percentage upon the entire amount of its capital stock, while in this case the people have claimed to recover only such an amount under the percentage authorized by the statute as will include the capital of the defendant employed in the business carried on by it in this manner in the state of New York. The claim made by the case has been limited in this manner, together with the percentage, or penalty of 10 per cent., allowed to be added by section 7 of the act of 1881, for default in payment.
It appears further by the case that the defendant has secured a dividend upon its capital employed in this state of 10 per cent, for the year 1882, increasing to 16 per cent, in 1885 and 1886; and it is accordingly liable on this capital to pay the percentage imposed for the privilege of doing its business in this state, prescribed and designated bisection 3 of the act of 1881. In addition to that, it has also, by section 6 of the same act, been rendered liable to pay a tax of five-tenths of 1 per cent, upon its gross earnings in this state for the business here carried on by it; and that amount, in addition to the percentage fixed by the sixth section of the act, the people.are entitled to recover, together with this penalty of 10 per cent. It might very well be under the case of the Equitable Trust Company that the tax upon its capital might be calculated upon the entire capital of the company, but that has not been claimed by the people. They have gone no further than to insist upon the payment of the same percentage now in terms sanctioned and prescribed by chapter 501 of the Laws of 1885, and, having limited by the case the claim in this manner, it cannot now exceed what it has been insisted the defendant should pay by way of taxation, because of its dividends. The amounts stated in the case under each section of the statute appear to be just, and the plaintiff is entitled to a judgment against the defendant for the aggregate sum of $34,478.90.
Brady, J., concurs.