In re Century Silk Mills

• Decision Date: 15 May 1925
• Docket Number: No. 28046.,28046.
• Citation: 12 F.2d 292
• Parties: In re CENTURY SILK MILLS, Inc.
• Court: U.S. District Court — Southern District of New York

12 F.2d 292 (1925)

In re CENTURY SILK MILLS, Inc.

No. 28046.

District Court, S. D. New York.

May 15, 1925.

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Memhard & Trosk, of New York City, (Allen H. Memhard, of New York City, of counsel), for trustee.

Albert Ottinger, Atty. Gen. (William Matthews and Clayton T. A. French, Deputy Attys. Gen., of counsel), for claimant.

AUGUSTUS N. HAND, District Judge.

This is a petition of the state of New York for a review of the order of Referee Lyttle, granting the trustee's motion to dismiss and expunge the claim filed on behalf of the state of New York for a franchise tax assessed against the bankrupt corporation under the Tax Law. An involuntary petition was filed on July 29, 1920, and the adjudication of bankruptcy had on November 4, 1920. A receiver was appointed on the filing of the petition, who was subsequently elected trustee, and both officers conducted the business in liquidating merchandise on hand.

Section 209 of the New York Tax Law (Consol. Laws, c. 60) reads as follows:

"Sec. 209. Franchise Tax on Corporations Based on Net Income. For the privilege of exercising its franchise in this state in a corporate or organized capacity every domestic corporation * * * shall annually pay in advance for the year beginning November first next succeeding the first day of July in each and every year an annual franchise tax, to be computed by the tax commission upon the basis of its entire net income, as defined in subdivision three of section 209 of the Tax Law, for its fiscal or the calendar year next preceding, as hereinafter provided, which entire net income is presumably the same as the entire net income which such corporation is required to report to the United States. * * *"

The tax was to be "computed." In order that the tax commission could compute the tax, section 211 provided that every corporation taxable under article 9-a "shall annually on or before July first, or within thirty days after the making of its report of entire net income to the United States Treasury Department for any fiscal or calendar year, preceding said first day of July, transmit to the tax commission a report in the form prescribed by the tax commission, specifying," etc.

Section 214 provides elaborately for the method of computing the tax, and section 215 provides that: "The tax imposed by this article shall be at the rate of four and one-half per centum of the entire net income of the corporation, * * * determined as provided by this article."

Section 219-a provided that: "The tax commission shall audit and state the account of each corporation known to be liable to a tax under this article, as herein before provided, and shall compute the tax thereon and proceed to collect the same. * * *"

Section 219-b requires that "notice of all tax assessment" shall be sent by mail to the post office address given in the report. Section 219-c provides when the tax shall be paid.

"When Tax Payable. The tax hereby imposed shall be paid to the state tax commission on or before the first day of January of each year, or within thirty days after notice of the tax has been given as provided in section 219-b of this chapter if such notice is given subsequent to the first day of December of the year for which such tax is imposed. * * *"

The corporation filed its report before July 1, 1920, as required by law, upon which a tax was thereafter fixed in the sum of $2,884.82.

No question is made as to the correctness of this sum as a tax against the corporation for exercising its franchise, but the referee expunged it as a claim against the estate in bankruptcy upon the ground that the petition in bankruptcy was filed July 29, 1920, and that then the estate "actually or potentially passed into the control of the bankruptcy court," while the tax assessed was by statute for the year beginning November 1, 1920, and had therefore not become due or payable at the time when the bankruptcy court obtained jurisdiction of the assets. Judge Mack rendered a decision in the case of In re Warner & Pepper, Inc., Bankrupt, in July, 1925, without, however, filing any opinion, and reached the same result as the referee in the case at bar.

Referee Olney came to a different conclusion in the Case of Chinese Fur Importers, Inc., decided August 3, 1925. He relied upon the decisions of the Supreme Court in New Jersey v. Anderson, 203 U. S. 483, 27 S. Ct. 137, 51 L. Ed. 284, and New York v. Jersawit, 263 U. S. 493, 44 S. Ct. 167, 68 L. Ed. 405. In the former case, however, the tax in question was for a year which had already commenced at the time the petition in bankruptcy was filed, and in the latter case the petition was filed December 22, 1920, and the claim of the state for its franchise tax was for the year commencing November 1, 1920, and ending October 31, 1921. In each case the situation...