People ex rel. Astoria Light, Heat & Power Co. v. Cantor

• Decision Date: 02 October 1923
• Citation: 141 N.E. 901,236 N.Y. 417
• Court: New York Court of Appeals Court of Appeals
• Parties: PEOPLE ex rel. ASTORIA LIGHT, HEAT & POWER CO. v. CANTOR et al.

236 N.Y. 417

141 N.E. 901

PEOPLE ex rel. ASTORIA LIGHT, HEAT & POWER CO.

v.CANTOR et al.

Court of Appeals of New York.

Oct. 2, 1923.

Certiorari by the People on the relation of the Astoria Light, Heat & Power Company, against Jacob Cantor and others, to review an assessment on relator's capital stock for 1920. From a unanimous order of the Appellate Division (203 App. Div. 893,196 N. Y. Supp. 944), affirming an order of the Special Term (114 Misc. Rep. 419,187 N. Y. Supp. 467), which on motion dismissed the certiorari proceedings, and confirmed the assessment, relator appeals.

Affirmed, as modified.

Appeal from Supreme Court, Appellate Division, First Department.

Curtis A. Peters and John A. Garver, both of New York City, for appellant.

George P. Nicholson, Corporation Counsel, of New York City (William H. King and Barrett Carmody, both of New York City, of counsel), for respondents.

HISCOCK, C. J.

[1][2] During the recent war the federal government made a contract with the relator under which it was to furnish buildings, labor, and materials necessary for the construction of gas masks, and in payment therefor was to receive an amount equivalent to the actual cost of such buildings, labor, and materials, plus a reasonable amount for certain overhead charges. The relator performed its contract, being compelled to purchase a large amount of material in the market, and as a result there was due to it from the government October 1, 1919, the sum of $609,226.05, which rested in open account, not being evidenced by any instrument for the payment of money. The defendants, in making their assessment in 1919 against the relator, for purposes of taxation under the provisions of the Greater New York Charter (Laws 1901, c. 466) and of section 12 of the Tax Law (Consol. Laws, c. 60), hereafter to be quoted, included amongst its items of taxable assets the sum due from the federal government as aforesaid and this action has thus far been upheld by the courts. The relator insists that they were prohibited to do this by provisions of the federal Constitution, under the interpretation given to them by controlling decisions. The respondents not only deny this proposition but further insist that in making the said assessment against relator it was erroneously allowed a deduction of $1,000,000 on account of surplus profits, and that therefore, even though the inclusion of the item in question was illegal, the assessment was not any too much, and the relator was not aggrieved by the result, even though it was reached by circuitous and mistaken paths.

The question argued by appellant involves a construction and interpretation of provisions of the federal Constitution, and therefore the appeal lies, although no permission was obtained.

We think that the appellant is correct, and that it was error to include in the assessment against the relator, for purposes of taxation, the amount due from the government.

Amongst the powers conferred by the federal Constitution upon the United States government are the familiar ones ‘to borrow money on the credit of the United States,’ ‘to declare war,’ and ‘to raise and support armies.’ These provisions have been interpreted by controlling decisions to give the power, not only to do the naked things therein specified, but also to do those incidental things which may be necessary to the efficient performance and execution of the powers therein specifically conferred. In fact no question is here raised that the government had full power to make the contract which it did for the manufacture of gas masks as a necessary equipment in carrying on the war which had been declared, and providing for our armies therein engaged. The proposition urged by respondents is that taxation of the indebtedness due to relator from the government did not in any manner impede or interfere with the execution of these powers, and that therefore the assessment did not come within the lines of those decisions which have settled in controlling manner that a state may not do anything thus to interfere with the execution of the powers conferred upon the federal government. It is said that the amount due from the government is simply an indebtedness due from a solvent debtor and ordinary personal property, assessable and taxable by the state. We do not agree with this view. We think that the power of a state to tax the amounts becoming due under a contract with the federal government like the one in question would hinder and embarrass the government in carrying out the powers conferred by the constitutional provisions above quoted. If we should assume that a state, carried away by some species of popular passion or some fatuous theory of federal and state relations, should enact a law providing that the amount coming due to one of its citizens from the federal government under such a contract as this should be taxed at 50 per cent. of its amount, we think no one could doubt that the federal government would be hindered and embarrassed by such action in making contracts to enable it to carry on war. It either would not be able to get persons to take such contracts, or it would be compelled to add to the amount of compensation to be paid to them the extra amount which the state proposed to take by way of taxation. Either result would be a handicap and a source of hinderance, and in our judgment would clearly come within the abiding principles laid down in McCulloch v. Maryland, 4 Wheat. 316, 4 L. Ed. 579, and The Banks v. New York, 7 Wall. 16, 19 L. Ed. 57. The fact that the tax might be 2 per cent. instead of 50 per cent. would alter the amount of embarrassment but not the principle involved.

There is called to our attention by respondents the case of Hibernia Savings & Loan Society v. San Francisco, 200 U. S. 310, 26 Sup. Ct. 265, 50 L. Ed. 495, 4 Ann. Cas. 934, which holds that the rule that states cannot tax official agencies of the federal government does not apply to obligations such as checks and warrants available for immediate use. That case...