People ex rel. Fifth Ave. Bldg. Co. v. Williams

Citation91 N.E. 638,198 N.Y. 238
PartiesPEOPLE ex rel. FIFTH AVE. BLDG. CO. v. WILLIAMS, Comptroller.
Decision Date05 April 1910
CourtNew York Court of Appeals

OPINION TEXT STARTS HERE

Appeal from Supreme Court, Appellate Division, Third Department.

Certiorari by the People, on the relation of the Fifth Avenue Building Company, against Clark Williams, Comptroller of the State of New York. From an order of the Appellate Division (120 N. Y. Supp. 131) annulling a determination of the State Comptroller in assessing a franchise tax, the Comptroller appeals. Reversed, and Comptroller's determination annulled, and proceedings remitted for reassessment.Edward R. O'Malley, Atty. Gen., for appellant.

Howard Mansfield, for respondent.

WERNER, J.

The relator was incorporated on the 14th day of February, 1908, under the laws of this state, and began to do business wholly within this state on February 20th of the same year. Its certificate of incorporation authorizes it ‘to acquire by purchase or lease, or otherwise, lands and interests in lands * * * and to erect, or cause to be erected, on any lands owned, held or occupied by the corporation, buildings or other structures, with their appurtenances * * * and to lease * * * any buildings or other structures, and any stores, shops, suites, rooms, or part of any buildings or other structures, at any time owned or held by the corporation.’

The corporation was in fact organized for the express purpose of acquiring the premises fronting on the Broadway side of Madison Square in the city of New York, familiarly known as the Fifth Avenue Hotel property, of demolishing the old building thereon, and erecting in its place a modern store and office building. During the year ending October 31, 1908, the corporation bought the premises, razed the old building, and began the erection of a new structure. Its capital stock consisted of 40,000 shares of the par value of $100 per share, or a total of $4,000,000, all of which had been issued for actual property or money, and no part of which represented good will, services, or other intangible assets. The Comptroller assessed upon the relator a tax of $3,000, or three-fourths of a mill upon each dollar of its capital stock at its par value. Upon an application for a revision of this tax the relator claimed (1) a total exemption therefrom on the ground that none of its capital had been employed within the state during the year ending October 31, 1907; and (2) that, if it were liable to any tax, it must be upon the basis of the actual value of its capital employed within the state during that year, and not upon its par value. In that connection the relator submitted to the Comptroller a report setting forth in minute detail the condition of the corporation. Some of the statements in that report will be referred to when we reach the question upon which they are material. The Comptroller declined to revise the tax, whereupon the relator sued out a writ of certiorari to review the determination of the Comptroller before the Appellate Division. In that court the determination of the Comptroller was reversed upon the sole ground that the relator was exempt from the tax, because no part of its capital had been employed within the state during the year ending October 31, 1907. As the case stands, therefore, it follows that, if the Appellate Division was right in holding that the relator is exempt from the tax, the result must be a simple affirmance of the order from which the appeal to this court was taken. If, on the other hand, we disagree with the conclusion of the Appellate Division and hold that the relator is liable to a tax, the question still remains whether the statute authorizes the tax upon the basis fixed by the Comptroller.

It must now be regarded as definitely settled by authority that corporations of the class to which the relator belongs are taxable under the provisions of section 182 of the tax law. Laws 1896, c. 908. The cases upon which the relator relies (People ex rel. Niagara River Hydraulic Co. v. Roberts, 30 App. Div. 180,51 N. Y. Supp. 771, affirmed 157 N. Y. 676, 51 N. E. 1093;People ex rel. Ft. George Realty Co. v. Miller, 179 N. Y. 49, 71 N. E. 463;People ex rel. Singer Mfg. Co. v. Wemple, 150 N. Y. 46, 44 N. E. 787) are not in point, as has been shown in the more recent decisions of this court (People ex rel. Wall & Hanover Street Realty Co. v. Miller, 181 N. Y. 328, 73 N. E. 1102;People ex rel. Vandervoort Realty Co. v. Glynn, 194 N. Y. 387, 87 N. E. 434). It would serve no useful purpose to reiterate the discussions of these last cited cases in which the distinctions between them and the earlier cases referred to were fully considered. For present purposes, it is enough to say that this court is now committed to the doctrine that corporations organized for the purposes of buying, selling, leasing, renting, and owning real estate, and of erecting buildings or other structures thereon are taxable under the tax law as it now stands. That general proposition is not controverted by counsel for the relator, and is in terms admitted in the opinion of the court below, but it is argued that it has no application to the case at bar because during the year 1907 none of the relator's capital was employed within this state. That argument is based upon the premise that during the year mentioned the relator had simply invested its capital in unproductive real estate from which it had removed old buildings for the purpose of erecting modern structures; that when the latter was finished and rented so as to yield an income on the money invested, and not until then, could the relator be said to have fairly entered upon the business for which it was organized; that not until that stage of its operations had been reached could the relator be held to have its capital employed in this state within the meaning of the statute. We can find in the statute no authority for this reasoning, and we think there is nothing in the character of the relator's business to warrant it. From the moment when the relator began to use its money to purchase real estate for the purposes of its incorporation it employed its capital in this state within the purview of the statute. That is the rule which has been applied to corporations engaged in other kinds of business, and we find nothing in the statute which indicates a contrary legislative intention as to corporations organized for the purpose of purchasing, owning and improving real estate. The learned Appellate Division based its decision upon the consideration that the relator during the year ending October 31, 1907, ‘had earned no dividends and had as yet derived no benefit or advantage from its capital.’ This suggestion, it seems to us, ignores the very question which underlies this controversy. The statute clearly provides for the taxation of corporations which neither earn nor declare dividends, and the real question is: Upon which basis shall such corporations be taxed? Every business corporation has to go through an initial and formative period in which there is a constant outlay of capital with no prospect of immediate return, and many embark upon ventures which never prove successful; but that has never been regarded as a sufficient reason for exempting from this tax such corporations as may be engaged in the various fields of commercial enterprise outside of operations in real estate. We find nothing in the statute to indicate that corporations engaged in buying and selling real estate are an exception to the general rule. As we have said, however, this question has been definitely disposed of in the two most recent expressions upon the subject in this court.

In People ex rel. Wall & Hanover Street Realty Co. v. Miller, supra, Judge Vann expressed the views of a majority of the court as follows: ‘The claim is made that the large amount thus paid for a building * * * is not capital employed within this state, but is an inactive investment and that the relator is not carrying on any business in this state. It does business in no other state, and it has no surplus. While a foreign corporation may invest its surplus earnings in real property situate in this state and lease the same to third parties, so long as it does not occupy it or use it in transacting its ordinary business, the amount thus invested is apparently not subject to taxation as capital employed in doing business. When, however, it has no surplus and all its capital is placed in a single venture which requires active management and constitutes its sole business, such capital is employed in business within the fair meaning of the statute now in force, which is more comprehensive than any of its predecessors.’ Page 335 of 181 N. Y.,page 1105 of 73 N. E. Again, in People ex rel. Vandervoort Realty Co. v. Glynn, supra, Judge Willard Bartlett wrote for a unanimous court, and said: ‘The capital stock of the relator is employed rather than invested. It is being used for the precise purpose specified in the certificate of incorporation. * * * The capital stock has been applied to the very use contemplated by the incorporators as the object of the organization. If this is not the employment of the capital stock, then it is impossible to conceive how the capital stock of such a corporation can ever be regarded as being employed at all.’ Page 390 of 194 N. Y.,page 434 of 87 N. E. There is nothing to distinguish these cases from the case at bar, except that there the corporations purchased properties which were immediately productive of rentals, while here there was no prospect of income until the new structure would be rented. That is a mere detail, however, which cannot affect the principle that the latter, no less than the former, was employing its capital within this state in the conduct of the only business for which it was organized. Upon this branch of the case, which was the only one considered by the Appellate Division, we must reverse the order of that court and affirm...

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    ...under the circumstances disclosed this corporation is taxable under section 182 of the Tax Law. In People ex rel. Fifth Ave. Bldg. Co. v. Williams, 198 N. Y. 238, 242,91 N. E. 638, 640, it was held that a corporation within this section was taxable, although it had earned no dividends and h......
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