People ex rel. United States Aluminium Printing Plate Co. v. Knight

• Decision Date: 28 April 1903
• Citation: 174 N.Y. 475,67 N.E. 65
• Parties: PEOPLE ex rel. UNITED STATES ALUMINIUM PRINTING PLATE CO. v. KNIGHT, Comptroller.
• Court: New York Court of Appeals Court of Appeals

174 N.Y. 475

67 N.E. 65

PEOPLE ex rel. UNITED STATES ALUMINIUM PRINTING PLATE CO.

v.KNIGHT, Comptroller.

Court of Appeals of New York.

April 28, 1903.

Appeal from Supreme Court, Appellate Division, Third Department.

Action by the people, on the relation of the United States Aluminium Printing Plate Company, against Erastus C. Knight, comptroller of the city of New York. From an order of the Appellate Division (73 N. Y. Supp. 745) reversing an order of the defendant assessing a franchise tax against the relator, and remitting the matter for readjustment, defendant appeals. Reversed.John Cunneen, Atty. Gen. (W. H. Wood, of counsel), for appellant.

Newell Martin and Louis Dean Speir, for respondent.

VANN, J.

The relator is a domestic corporation, with a capital of $1,100,000, which is substantially all invested in letters patent issued by the United States. Its business is the granting of licenses to lithographers for the use of aluminum plates, for which it charges a royalty. During the years for which the tax in question was imposed it had no surplus and paid no dividend. It employed but about one-third of its capital stock in this state, and its indebtedness was about $30,000, which exceeded the value of all its property other than patent rights. The comptroller appraised its capital stock employed in this state for the year ending October 31, 1899, at the sum of $22,000, and assessed the tax at $33. For the following year such capital was appraised at $90,000, and the tax assessed at $135. The relator, feeling aggrieved because patent rights were included in the valuation, procured a writ of certiorari to review the action of the comptroller, and from the order of the Appellate Division reversing his determination this appeal was taken.

If the tax under review was assessed upon patent rights, it is void, because they are exempt from taxation by federal law. People ex rel. Edison El. Il. Co. v. Assessors, 156 N. Y. 417, 5§ N. E. 269, 42 L. R. A. 290. If, however, it was imposed upon a corporate franchise involving the right to use all kinds of property, including patent rights, it is not void, because franchises are not exempt by any law. The system of taxation in this state is so complicated as to invite mistakes on the part of those who are called upon to enforce the law. In some instances the tax is laid upon property, and in others upon rights and privileges connected with property. There is direct taxation of real estate and of some personal property, indirect taxation of other personal property, taxation of the capital stock of corporations and of their franchises, taxation upon the right of succession to the property left by decedents, and the like. The case now before us involves one form of taxation to which certain corporations, such as the relator, are subject, and, in order to appreciate the principle upon which it is based, we will consider for a moment the other forms of taxation to which corporations of this class are liable.

There is, first, an organization tax payable to the state, which is imposed but once, and is exacted for the privilege of becoming a corporation. Tax Law, Laws 1896, p. 855, c. 908, § 180. Next, there is a tax upon the real estate owned by the corporation in this state, which is assessed the same as if it were owned by an individual. Id. pp. 797, 802, c. 908, §§ 3, 11. The personal property of the corporation is not directly taxed, but its capital stock and surplus, after deducting the assessed value of its real estate, and making some other deductions, is assessed at its actual value. Id. p. 802, c. 908, § 12. Finally, there is a franchise tax on corporations which is payable annually to the state, ‘computed upon the basis of the amount of its capital stock employed within this state.’ Id. p. 856, c. 908, § 182. This is not a tax upon property, although it is measured by the value of property, but upon the right of a corporation to exist and exercise the powers granted by its charter. These forms of taxation do not all rest upon the same principle. The organization tax is in the nature of a license fee for the right to become a corporation. The tax upon real estate is a direct tax upon real property, and the tax upon capital stock is an indirect tax upon personal property, while the franchise tax is not laid upon property at all, but is imposed upon the corporation for the privilege of carrying on business in this state and exercising the corporate franchises granted by the state. The distinction between a tax upon the property of a corporationand a franchise tax, although well established and of great importance, is easily overlooked, as we find from our own experience. We will refer to some of the cases which make this distinction clear.

In Monroe County Sav. Bank v. City of Rochester, 37 N. Y. 365, the tax involved was imposed, pursuant to statute, upon the franchise and privileges granted to a domestic corporation, and it was claimed that the tax was void because the corporation, a savings bank, had invested part of its funds in United States bonds. The court said: ‘It now becomes important to inquire whether the assessment in the case now before us is affected by the fact that the banks have invested a portion of their moneys received from depositors, or of the profits arising on such moneys, in bonds or securities of the United States, which are exempt from taxation. In my opinion, if the whole of the plaintiff's funds were so invested it would not affect the validity of the act. The tax being levied upon the franchises and privileges of the corporation, the special use which it makes of its lawful power is quite unimportant. Because, I repeat, that neither the aggregate property employed nor the accumulated profits are taxed. They are regarded as important only as they may furnish a just and fair emasure of estimating the value of the property which produced them, in order that such value may form the basis of taxation. * * * It is true that, where a state tax is laid upon the property of an individual or a corporation, so much of their property as is invested in United States bonds is to be treated, for the purposes of assessment, as if it did not exist, but this rule can have no application to an assessment upon a franchise, where a reference to property is made only to ascertain the value of the thing assessed. * * * It must therefore be regarded as sound doctrine to hold that the state, in granting a franchise to a corporation, may limit the powers to be exercised under it, and annex conditions to its enjoyment, and make it contribute to the revenue of the state. If the grantee accepts the boon it must bear the burden.’

This case was cited with approval in People v. Home Insurance Co., 92 N. Y. 328, which also involved a tax upon the corporate franchise or business of a corporation. Laws 1880, p. 765, c. 542, § 3; Laws 1881, p. 481, c. 361. The defendant in that case claimed that the amount of its investment in United States bonds should be deducted from the total amount of its capital stock, upon the ground that such bonds were exempt from taxation. Dhief Judge Ruger, after reviewing the authorities, speaking for all the judges, said: ‘Applying the tests derived from these authorities, it seems conclusively established that the act under which this tax was levied must be held to have imposed a franchise, and not a property, tax, and that its enactment constituted a lawful exercise of legislative power. It is levied upon corporations alone, and one of the penalties provided for its nonpayment is the forfeiture of their charters. The amount of the tax is dependent upon their business prosperity, as evidenced by their capacity to declare dividends, instead of upon the value of the corporate property, and it is made payable by the corporation affected directly to the state authorities. * * * The contention is that we should hold that the Legislature has really imposed a tax upon property while professing only to tax a franchise. In other words, the rule of construction claimed is that we should impute to the Legislature an unlawful intent in a case where its action is plainly sustainable upon justifiable grounds. Well and long settled rules forbid us from placing such an interpretation upon statutory enactments, and require us to make every reasonable intendment to uphold, rather than to nullify, the exercise of legislative authority. The authorities cited would seem to require us to hold this law valid as...