Court Opinion

ID: 5247067
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:02:34.034966+00
Date Added: 2024-06-11T08:27:52.949746
License: Public Domain

Woodward, J. (dissenting):
The relator claims to be exempt, from the tax imposed by the State Tax Commission under the provisions of section 182 of the Tax Law (Consol. ‘‘Laws, chap. 60; Laws of 1909, chap. 62), by reason of the exemptions provided in section 183 of that act. The relator is a domestic corporation, created for the purpose of “ Refining petroleum and manufacturing and dealing in petroleum and the various products thereof, and the packages for same; also acquiring, holding, etc., of the stocks, etc., of any corporation engaged in a similar business,” as provided in its charter. In other words, it is a manufacturing corporation, with the incidental power of purchasing and holding the stocks of other corporations engaged in similar business. It concededly paid dividends of eight per centum during the year preceding the tax here under review, and it would be subject to the general language of section 182 of the Tax Law. This section provides that “ For the privilege of doing business or exercising its corporate franchises in this State every corporation * * *, doing business in this State, shall pay to the State Treasurer annually, in advance, an annual tax to be computed upon the basis of the amount of its capital stock, employed during the preceding year within this State, and upon each dollar of such amount. The measure of the amount of capital stock employed in this State shall be such a portion of the issued capital stock as the gross assets employed in any business within this State bear to the gross assets wherever employed in business. For purposes of taxation, the capital of a corporation invested in the stock of another corporation shall be deemed to be assets located where the physical property represented by such stock is located. If the dividends upon the capital stock amount to six, or more than six per centum upon the par value of the capital stock, during any year ending with the thirty-first day of October, the tax shall be at the rate of one-quarter of a mill for each one per centum of dividends made or declared upon the par value of the capital stock during said year.” The question is, does section 183 of the Tax Law give the relator an exemption ?
Before entering upon this discussion, let us look a little further into the provisions of section 182. There can be no *728question that the provisions of this section deal with the capital stock in the sense of the contribution in money or property to the common fund, as explained in Williams v. Western TJnion Telegraph Co. (93 N. Y. 162) and subsequent cases, for it distinctly provides that “the measure of the amount of capital stock employed in this State shall be such a portion of the issued capital stock as the gross assets employed in any business within this State bear to the gross assets wherever employed in business,” and where the dividends upon the capital stock reach or exceed six per centum upon the “ par value of the capital stock,” the tax shall be “at the rate of one-quarter of a mill for each one per centum of dividends made or declared upon the par value of the capital stock.” The tax is levied, not against property, but for the privilege of exercising the franchise, and it is based upon the capital stock of the corporation and its earning capacity. It is the amount of the dividends “ upon the par value of the capital stock,” which affords the basis of taxation for the use of the franchise, and the relator paid dividends aggregating eight per centum, so that if it is subject to the tax, there is no dispute that the amount involved is $60,000, as assessed. This tax is to be computed “upon the basis of the amount of its capital stock, employed during the preceding year within this State,” and “the measure of the ' amount of capital stock employed in this State shall be such a portion of the issued capital stock as the gross assets employed in any business within this State bear to the gross assets wherever employed in business.” This is, of course, a purely arbitrary rule for determining the amount of the capital stock employed in this State; it treats all of the assets of the corporation used in its business as capital, and makes the amount of the issued capital stock employed in the State to depend upon the proportion of the gross assets in their relation to such assets used within this State. That is, if a corporation of $75,000 capitalization made use of assets- to the extent of $150,000, and $75,000 of this was employed within the State of New York, and the balance in some foreign jurisdiction, then the amount of the “ issued capital stock ” employed within this State would be one-half of the entire issued capital stock. This rule, made to govern the assessment of *729taxes under the provisions of section 182 of the Tax Law, would not naturally and logically have anything to do with the scheme of exemption provided in section 183; it is merely designed to determine the amount of the issued capital stock of any given corporation which is employed within this State within the contemplation of this act, and, having served this purpose, it will not be judicially read into any other provisions of the act, where it is not clear that the Legislature intended such a result. It is merely an arbitrary and special rule for fixing the basis of taxation for the use of the corporate franchise, and cannot be understood as fixing a rule for any other condition, in the absence of clear legislative intent.
Coming, then, to section 183, this provides that certain banks, savings banks and other institutions, including “ manufacturing corporations to the extent only of the capital actually employed in this State in manufacturing, and in the sale of the product of such manufacturing * * * shall be exempt from the payment of the taxes prescribed by section one hundred and eighty-two of this chapter.” Here we find a radical change of language. While section 182 prescribes an arbitrary rule for determining the amount of capital stock employed within this State, section 183 exempts from this tax “manufacturing corporations to the extent only of the capital actually employed in this State in manufacturing, and in the sale of the product of such manufacturing.” The “ capital actually employed ” is a very different thing from the “ issued capital stock;” a corporation may, in the discretion of its board of directors, use all earnings as capital. It may “ actually ” employ not only the issued capital stock but all the earnings of such capital stock, and all the money it may be able to borrow upon its assets, and to the extent that it actually employs- such capital within the State of New York it is, subject to the further condition of the statute, entitled to exemption from the franchise tax. This is in harmony with “ a wise public policy,” which “ should encourage manufacturers and so adjust taxation as to promote the investment of foreign capital within the State in manufacturing enterprises.” (People ex rel. Western Electric Co. v. Campbell, 145 N. Y. 587, 591.) Capital actually employed in manufacturing within the State of New York is exempt from this franchise *730tax, subject to the condition that ~` at least forty per centum of the capital stock of such corporation is invested in property in this State and used by it in its laundering, manufacturing or mining business in this State" (Tax Law, § 183), and no provision is made for determining arbitrarily what proportion of the capital stock is "invested in property in this State and used by it in its * * * manufacturing or mining business in this State." That cannot be determined by any set rule, such as is provided in section 182 for determining the amount of capital stock employed within this State, for while it might be said that the rule might apply as to the proportion of capital stock employed, it is hardly conceivable that the Legislature would enact such rule for determining whether it was "invested in property in this State and used by it in its laundering, manufacturing or mining business in this State." Clearly, there is no way of inducting the rule of determining the proportion of capital stock, as prescribed in section 182 of the Tax Law, into the provisions of section 183; one of these is a taxing act, the other deals with exemptions from that act, and it exempts manufacturing corporations only to the extent of the capital actually employed in this State, and limits such exemption to corporations which have invested "at least forty per centum of the capital stock" in property within this State, which is used by such corporation in its manufacturing business within this State. There must be a conjunction of the two conditions; there must be an investment of at least forty per centum of the capital stock - and the capital stock is the original corporate fund and this forty per centuni must be used by the corporation in its manufacturing business in this State. In the case now before us, the relator has a capital stock of $75,000,000, and forty per centum of that amount is $30,000,000; it is necessary, if it is to be relieved of the taxation imposed by the assessment here under review, that it should show that it has $30,OQO,000 invested in property in this State and that it uses this investment in conducting its manufacturing business within this State, and if it has done this, it is entitled, under the established policy of this State, to exemption from the tax imposed.
Has the relator established the necessary facts? The *731presumption is, of course, in favor of the legality of the tax; it has been assessed in the regular course of business and has been paid, though under protest, and it is for the relator to establish that it is a manufacturing corporation, and that it has brought itself within the conditions of exemption. The record shows that it is a domestic corporation, organized and empowered to refine petroleum and to manufacture and deal in petroleum and the various products thereof, and the packages for the same, and to acquire, hold, etc., stocks of other corporations doing a similar business. It has a capitalization of $75,000,000, and if it has $30,000,000, or forty per cent of that amount, invested in property in the State of New York which it is using for the purposes of carrying on its manufacturing, it has established its right to relief. We have nothing to do with the question of its gross assets; the only question is in relation to its capital stock, as that is established by its charter, and the amount of that capital stock invested in property in this State and its use in the carrying on of the manufacturing business within this State. That is the only standard of exemption fixed by the statute and is the only one which should be considered. While the return before us, evidently made upon blanks furnished by the State, does not clearly bring out the exact amount of the capital stock invested within the State of New York and employed in manufacturing, we think it may be fairly inferred that more than forty per cent of the same is thus invested and used. Mr. Stein, treasurer of the relator, testified that the total amount employed in manufacturing within the State of New York, for the year in question, was $38,860,658.18, and of this amount it appears that $17,638,153.80 was invested in real estate, and $7,436,044.04 in personal property, while the average value of the stock in trade was $8,410,146.97. These three items aggregate more than forty per centum of the capital stock of the corporation, without taking into consideration the average amount carried in banks, bills and accounts receivable, and bonds and other obligations held, and there does not appear to be any doubt that the corporation is within the exemption provided by section 183 of the Tax Law. The defects in the returns are obviously due to the fact that the blanks furnished by the State demand facts and *732figures having no relation to the questions involved in connection with the right to exemptions, and there is no reason why the relator should be held to the payment of this tax simply because the State officers have proceeded upon a wrong theory and have demanded the returns in such a form that they do not clearly disclose the actual amounts invested and used in manufacturing within this State. The testimony of the treasurer is absolutely undisputed that the corporation had invested in its manufacturing within the State of New York the sum of $38,860,658.18, and if this be true then more than forty per cent of the capital stock of the .corporation was invested in property in the State of New York and used in its manufacturing business within the State, and under the established policy of the State the tax should be refunded.
The decision of the State Tax Commission should be reversed, and the claim of the relator to an exemption should be granted, with costs.
Cochrane, J., concurred.
Determination confirmed and writ dismissed, with fifty dollars costs and disbursements.