Court Opinion

ID: 3629564
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:09:20.505944+00
Date Added: 2024-06-11T12:43:19.850222
License: Public Domain

In 1901, when the act of 1896 first came before us for construction, we held that the provision of section 182 directing that when a dividend of less than six per centum has been declared during the tax year, the tax should be at the rate of one and one-half mills upon the employed capital stock at par, should be read with section 190 providing for its assessment at its actual cash value and that in such case an assessment upon its par value would be erroneous. (L. 1896, ch. 908; People exrel. N.Y.  East River Ferry Co. v. Roberts, 168 N.Y. 14.) Our decision was expressly limited to the language of the statute as it then stood and our main argument was ab inconvenienti,
founded on the unreasonable *Page 256 
result of any other construction, as corporations paying a dividend of less than six per centum would be taxed the same as those paying six per centum even if the dividend was but one per centum and the market value not more than twenty-five. Other absurd and unequal results were pointed out by way of illustration and an amendment was suggested to remedy "inconsistencies and apparent unfairness."
In 1903 said act was again before us and this time through the action of a corporation which contended for taxation upon the par and not the actual value, as that was to its advantage because the par value was materially less than the actual value while the dividend was only five per centum, but of course we adhered to our previous decision. (People ex rel. N.Y.C.  H.R.R.R. Co. v.Knight, 173 N.Y. 255, 259.)
The radical change of 1906 in rate, method and principle was doubtless made to obviate the effect of our decisions in the two cases cited, and it seems to be conceded that if a further change had not been made in 1907, the relator would have been properly taxed on the par value of its capital stock. What did the act of 1906 provide? (L. 1906, ch. 474, §§ 182, 190.)
The corporations subject to taxation were separated into two divisions. The first included those paying dividends of six per centum or more, which were taxed at the rate of one-quarter of a mill for each per centum of dividends declared upon the par value of the capital stock. This division calls for no further attention.
The second division included corporations declaring dividends of less than six per centum and this was further separated into two classes, the first embracing corporations whose capital was impaired, and the second those whose capital was not impaired. The impairment of capital was measured by three tests; so that if (a) the assets did not exceed the liabilities, or (b) if the average price at which the stock sold during the year did not equal or exceed its par value, or (c) if no dividend was declared, the capital was regarded as impaired, otherwise as unimpaired.
The first class, or corporations with impaired capital, were *Page 257 
taxed at the rate of three-fourths of a mill on each dollar of the amount of capital employed in this State, "determined as hereinbefore provided," that is, by taking such a portion of "the issued capital stock" as is measured by comparing "the gross assets employed in this State with the gross assets wherever employed." As no valuation was necessary and none was required by the provision imposing the tax, the fair inference is that none was intended, precisely as it is conceded that none was intended when the dividend is six per centum or more. The direction to tax at the rate specified on the par value is reasonably clear, for the tax is imposed on the amount of issued capital stock
employed here and stock is issued at par. "Issued capital stock" was used in the act of 1906 for the first time as a general basis.
The second class, or corporations with capital unimpaired, were taxed at the rate of one and one-half mills on each dollar of the valuation of the capital stock employed in this State, but the valuation was carefully limited so that it could not be less than (a) the par value of such stock; (b) the difference between the assets and liabilities; (c) the average price at which the stock sold during the year. Valuation was required because no tax could be imposed without it, and it will be noticed not only that an implied direction to value was contained in the provision imposing the tax, but also that the word "valuation" is not used in the section except with reference to corporations of the second class.
Provision was also made for the taxation of corporations with more than one kind of stock, such as common and preferred for instance, upon the same principle.
The difference in the rate of taxation, varying from three-fourths of a mill on impaired stock to one and one-half mills on unimpaired stock, points to an unmistakable intention to tax the one at a low flat rate on the par value without valuation and the other at a high rate, or twice as much, on actual value, but of course with valuation. No adequate reason has been given to account for this distinction in rate, except on the theory that the legislature intended that a valuation *Page 258 
should be made in the one case and not in the other. I regard this as the key to the legislative intent. While construction is difficult, the meaning is not in doubt, for the difficulty is owing to profuseness and prolixity almost unparalleled.
Section 190, as it stood in the act of 1906, recognized the two general divisions above pointed out and provided that corporations of the second division, or those declaring dividends of less than six per centum, and (a) whose assets exceed their liabilities by an amount equal to or greater than the par value of the capital stock; or (b) whose stock sold during the year at an average price equal to or greater than the par value, to report an appraisal of their stock, subject to certain limitations, to the comptroller, who, if not satisfied therewith, was authorized to make his own valuation. This embraced only corporations with unimpaired stock and accorded strictly with the intention to tax that class at a higher rate upon the valuation reported to the comptroller or made by him. It contained no provision for a valuation of impaired stock.
This analysis shows the construction which, as I think, should be given to the sections in questions as they were prior to the amendment of 1907. It sweeps away the entire foundation upon which our decision in the East River Ferry case rests; avoids the evils of the act of 1896 which led to that decision; assigns a reasonable function to every provision of the statute, and shows an intention to tax impaired stock at a low rate on the par value and to tax unimpaired stock at a high rate on the actual value. Corporations, even if financially weak, are taxed for the privilege of doing business in this state, but at a lower rate and on a different basis from those which are financially strong. There is a minimum tax on all stock at its par value, but taxation is increased with prosperity, which is not unreasonable. Moreover, where the assets are less than the liabilities, "exclusive of capital stock," the stock is worth nothing, except as the power of control may give it a fictitious value. If the stock of such a corporation were valued with no limitation, it would escape taxation *Page 259 
altogether, and yet would enjoy to the full extent "the privilege of doing business and exercising its corporate franchises," for which the tax is imposed. Even with the limitations of average sale and price and the declaration of no dividend, the result might be the same, for there may have been neither sale nor dividend. Indeed, if the stock of the relator is to be valued as the basis of assessment, it will escape taxation altogether for the privilege of doing business, and at the same time, under section 202, escape all taxation for state purposes on its personal property. A construction permitting this result would defeat the fundamental purpose of the act and lead to as great injustice as was pointed out in the East River Ferry case.
What change was made by the act of 1907? (L. 1907, ch. 734, §§ 182, 190).
Section 182 was left undisturbed as far as it went, but an addition was made thereto. The manifest object of the addition was to cover omitted cases, for in terms it provides for the taxation of corporations "not taxable under the preceding paragraphs" of the section. The past history of the statute had shown that certain cases were not provided for and its subsequent history might show other cases still unprovided for, so from an abundance of caution an omnium gatherum clause was added in order that no corporation should escape taxation. The difficulty of providing for unknown cases which might arise was obvious. Neither the low rate applied to impaired stock, nor the high rate applied to unimpaired stock could be used with safety, so the legislature provided for taxation in such cases on a sliding scale, or "in an amount not less (note the precaution) than would be produced by an assessment of one and one half mills on each dollar of actual value," or (note the further precaution) at that rate on each dollar of stock at its average selling price during the year. The addition involved no change in the principle of taxation, but simply provided a flexible and carefully-guarded method for cases which time might show had not been covered, but which the comprehensive scheme of legislation was intended *Page 260 
to embrace. Several cases, which otherwise would not have been provided for, are said to have arisen since the amendment was passed.
Was the principle of taxation changed by the amendment of section 190 as made in 1907? That section contains no taxing provision. The taxing section is 182, where the principle is established and the details amplified, almost ad nauseam. This was not changed in any respect, but a significant addition was made thereto. One would not look for a change of principle in a section devoted not to taxation but to valuation, especially when valuation is required by a portion of section 182, although the method is not there prescribed. Whenever the legislature deemed valuation necessary, it required valuation in the taxing section, leaving it plainly to be inferred that no valuation was required in the two other grades. The inclusion of a part excluded the rest.
Section 190, as it was left in 1906, was verbose and confused. It repeated the provisions of section 182 in several respects, especially those relating to minimum valuations. Revision in the interest of simplicity and clearness was called for. The addition to section 182 made valuation necessary when there were two kinds of stock, even where no dividends had been declared, and hence the phrase "or no dividend is declared" was inserted. I think the purpose of the change was to thus harmonize the section with theomnium gatherum clause added to section 182 and to shorten and simplify by omitting the repetition of provisions already appearing elsewhere. The theory of the relator, as is well said by the learned attorney-general, would permit corporations of its class to receive the benefit of half the present rate of taxation for other corporations and half the rate previously applied to all corporations and yet to take advantage of a valuation lower than the par value.
In closing, I repeat what was said by the Appellate Division upon the subject, as follows: "The appraisal mentioned by section 190 of the amended law is necessary in many cases, *Page 261 
and it is very proper in every case where the dividend is not six per cent. or greater, that the comptroller have before him, as a part of the report, all the facts which may bring the case within any paragraph of the section, so that he may better determine under which paragraph it properly falls. Sections 190 and 182 are not therefore antagonistic, but may be harmonized and read together. Section 190 does not destroy the plain provisions of section 182 where the par value of the stock is made the basis for computation."
As the relator belongs to the first class of corporations, or those with impaired capital, I think it is taxable on the par value and not the actual value of its stock. This leads to affirmance, and I vote accordingly.
CULLEN, Ch. J., HAIGHT and WILLARD BARTLETT, JJ., concur with WERNER, J.; HISCOCK and CHASE, JJ., concur with VANN, J.
Order reversed, etc.