People ex rel. A.J. Johnson Co. v. Roberts

• Decision Date: 25 April 1899
• Citation: 53 N.E. 685,159 N.Y. 70
• Parties: PEOPLE ex rel. A. J. JOHNSON CO. v. ROBERTS, Comptroller.
• Court: New York Court of Appeals Court of Appeals

159 N.Y. 70

53 N.E. 685

PEOPLE ex rel. A. J. JOHNSON CO.

v.ROBERTS, Comptroller.

Court of Appeals of New York.

April 25, 1899.

Appeal from supreme court, appellate division, Third department.

Certiorari, on the relation of the A. J. Johnson Company, to review the determination of James A. Roberts, as comptroller of the state of New York, in assessing on the relator for the privilege of carrying on business in the state of New York. From an order affirming such determination (54 N. Y. Supp. 1112), relator appeals. Reversed.

The relator was organized under the laws of the state of West Virginia, with a capital stock of $250,000, divided into 150 shares of preferred stock, and 100 shares of common stock, each share being of the par value of $100. It was incorporated to publish and sell Johnson's Universal Cyclopaedia, under copyrights, of which it became the assignee and owner. The comptroller imposed a tax upon it for the year ending October 31, 1897, of $782.50, calculated upon a dividend of 20 per cent. paid during the year on $135,500 of preferred stock issued, and upon a valuation of the $88,000 of common stock issued at $70,000. Subsequently, upon the relator's application, the tax was revised and settled by the comptroller at the sum of $612.98, which figure of assessment was reached by stating the amount of the preferred capital stock at $111,450, and the value of the common stock at $37,150. The relator has objected to the assessment upon various grounds, among which are these: That its property is nearly all invested in copyrights, and that the capital stock employed within this state constituted only the tangible assets, and did not embrace either those copyrights or the good will of the company; that the state has no jurisdiction to tax it for the privilege of publishing a copyrighted production; and that the decision of the comptroller is without any basis in fact or evidence. The tangible assets within the state, as testified to, were the average value of cyclopaedias printed within the state during the year, amounting to $55,000, an average bank account of $1,800, and accounts receivable of $17,000. From the aggregate of these items, namely, $73,800, debts for rent and salaries, amounting to $10,000, were deducted, leaving a sum of $63,800, which the relator claims represents the value of its tangible assets and the amount of capital employed here. The relator had no office in West Virginia, and, substantially, the whole business of the corporation was conducted at its office in the city of New York, and consisted in putting upon the market, and selling, a new edition of Johnson's Universal Cyclopaedia. The comptroller, in his return to the writ of certiorari, stated ‘that he determined from the evidence, and from the information from all sources which he was able to obtain, that the amount of capital stock employed by the relator in the state of New York, for the year ending October 31, 1897, was $148,600, and that among the items of property which went to make up that amount were the books, copyrights, and the good will of the corporation, and the good will acquired by it, which copyrights, good wills, and property were determined by me to have their situs and to be amenable to taxation under chapter 542, Laws 1880, and the acts amendatory thereof, in New York state.’ The appellate division, in the Third department, affirmed the comptroller's decision, and the relator now appeals to this court.

Gray, O'Brien, and Haight, JJ., dissenting.

J. Hampden Dougherty, for appellant.

G. D. B. Hasbrouck, Dep. Atty. Gen., for respondent.

GRAY, J.

The important question which arises upon this appeal is whether a tax could legally be assessed upon the relator which included, in the items going to make up the amount of capital employed within this state, the copyrights and the good will of the corporation. The statute provides that the tax upon a foreign corporation ‘is to be computed upon the basis of the capital employed within this state’ (section 182, c. 908, Laws 1896), and we have held that that means only such of the capital as was represented by the value of propety, whether of money, goods, or other tangible things. People ex rel. Seth Thomas Clock Co. v. Wemple, 133 N. Y. 323, 31 N. E. 238. It is the policy of the state, with respect to corporations which are created under the laws of another state or country and do business in this state, that a tax should be assessed upon that business. He jurisdiction to impose the tax is gained by reason of the business which they are privileged to do here under the protection of our laws. People v. Wemple, 129 N. Y. 558, 29 N. E. 812. So far as the franchises themselves of the foreign corporation are concerned, they are beyond the reach of our tax laws. They are derived from the governments to which they owe their creation, and can only be subjected to taxation by the laws of those governments. When it is sought to exercise them within this state, the condition of the right to do so is the liability to taxation and control by the legislature, so far as the capital can be seen to be dmployed in business here. The domicile of this relator, in legal contemplation, is in the state of West Virginia, and it is difficult to conceive of any taxation of its properties within this state, unless it be confined to such as are corporeal and tangible. The only properties of that nature, which represented the capital of the relator in this state, consisted in cyclopaedias which were printed and put upon the market, and in its pecuniary assets, in bank account or in accounts receivable. Its copyrights are federal grants of privileges, and no more power exists to include them in the valuation for assessment purposes than would exist with respect to patent rights. It has been but recently held by us, in People v. Board of Assessors of City of Brooklyn, 156 N. Y. 417, 51 N. E. 269, that patent rights cannot be made the subject of taxation, and, if they are not taxable, clearly the same principlewhich exempts them from the taxing power of the state should exempt copyrights. In the case just referred to, the assessment included a certain sum for United States patent rights, and we held that the question of the right of the taxing power of the state to assess patent rights was no longer an open one, within the decisions of the United States supreme court, there referred to. The doctrine, as settled by authority, is that the incorporeal right of discovery is protected by national authority against all interference; but the use of the tangible property, which comes into existence by the application of the discovery, is not beyond the control of state legislation. Patterson v. Kentucky, 97 U. S. 501;Webber v. Virginia, 103 U. S. 344. The state has not the power to interfere with the privilege of using a person's property in inventions by taking him upon the same, and, if that be true, the same principle operates to deny to the state any power to tax the owner of a copyright for the privilege of using his right. The property in the plates, instruments, books, etc., and the copyright secured to the author, are altogether different and independent of each other. The latter, as an exclusive right to the multiplication of the copies for the benefit of the author or his assigns, is an incorporeal right, and has no physical existence. Stephens v. Cady, 14 How. 528. The state should be confined, in the exercise of its taxing power, as in the case of patent rights, to the tangible property which is produced under the protection of the exclusive right granted by the federal government. It cannot prevent the relator from exercising its franchise here, as the owner of copyrights; for they are privileged and protected by the federal constitution. To concede a right to tax them would be to concede a power to impede or burden the operation of the laws enacted by congress to carry into execution a power vested in the national government by the constitution. I think that the comptroller was in error when he included, as a basis for assessment of the relator's capital employed within this state, its copyrights.

Nor does the power exist to assess a foreign corporation upon its good will. That is an intangible asset of the corporation, whose only conceivable situs is at its domicile. It is the reputation of the business. It may be defined as the right acquired to continue the publication and sale of the cyclopaedia, under the protection of the copyrights, and that could not be regarded as capital employed within this state. Its good will may contribute a value to its business products, undoubtedly; but it is based on the federal privilege, and on the account, as for its incorporeal nature, is beyond legislative control here. It appertains to the corporation as such, and can exist only where the corporation exists, viz. within the territory of the government with created it.

There is no authority in the statute for imposing a tax upon a foreign corporation, unless it is imposed upon the amount of ‘the capital stock employed by it within this state.’ Section 181, c. 908, Laws 1896. We have had occasion to see in Seth Thomas Clock Co.'s Case, 133 N. Y. 323, 31 N. E. 238, upon what property of a foreign corporation, which is doing business within this state, a tax can be assessed. It was said in the opinion in that case that ‘only such part of it [the capital stock] was employed within this state as was represented by the actual value of property, whether in money, goods, or other tangible things. It kept goods for sale here. It had money on deposit, and it may be other property. This, whatever its value, was the basis of taxation. That property represented all the capital employed in this state.’ The theory of that decision was that there is no basis for taxation, if the foreign corporation does not employ any of its capital stock here, and the exclusion from assessment of any property...