People ex rel. Union Trust Co. v. Coleman

The relator has been assessed upon an “ actual value ” of its capital stock derived entirely from the market - value of its shares. These are selling at the large premium of something over five hundred dollars for each share of one hundred dollars, and the assessors have coneededly taken that valuation, or the principal part thereof, as the “actual value” of the company’s stock liable to taxation, instead of its own proved and established value. The relator challenges the

How, it is certain that the two things are neither identical nor equivalents. The capital stock of a company is one thing; that of the shareholders is another and a different thing. That of the company is simply its capital, existing in money or property, or both; while that of the shareholders is representative, not merely of that existing and tangible capital, but also of surplus, of dividend earning power, of franchise and the good will of an established and prosperous business. The capital stock of the company is owned and held by the company in its corporate character; the capital stock of the shareholders they own and hold in different proportions as individuals. The one belongs to the corporation; the other to the corporators. The franchise of the company, which may be deemed its business opportunity and capacity, is the property of the corporation, but constitutes no part or element of its capital stock ; while the same franchise does enter into and form part, and a very essential part, of the shareholder’s capital stock. While the nominal or par value of the capital stock and of the share stock are the same, the actual value is often widely different. The capital stock of the company may be wholly in cash or in property, or both, which may be counted and valued. It may have in addition a surplus, consisting of some accumulated and reserved fund, or of undivided profits, or both, but that surplus is no part of the company’s capital stock, and, therefore, is not itself capital stock. The capital cannot be divided and distributed ; the surplus may be. But that surplus does enter into and form part of the share stock, for that represents and absorbs into its own value surplus as well

How some degree of confusion and trouble have come in because these two different tilings are denominated alike capital stock, making the expression sometimes ambiguous. It is the important and decisive phrase in the law of 1857, under which the assessment here resisted was made, and requires of us to determine at the outset in which sense it was used. The section reads thus: “ The capital stock of every company liable to taxation, except such part of it as shall have been excepted in the assessment-roll, or shall have been exempted by law, together with its surplus profits or reserved funds exceeding ten per cent of its capital, after deducting the assessed value of its real estate, and all shares of stock in other corporations actually owned by such company which are taxable upon their capital stock under the laws of this state, shall be assessed at

There are reasons in abundance for the conclusion that by the phrase “ capital stock ” the statute means not the share stock, but the capital owned by the corporation; the fund required to be paid in and kept intact as the basis of the business enterprise, and the chief factor in its safety. One ample reason is derived from the fact that the tax is assessed against the. corporation and upon its property, and not. against the shareholders, and so upon their property. In theory every tax is charged against some person, natural or artificial, resident or non-resident, known or unknown. It is assessed not upon property irrespective of ownership, but against persons in respect to their property ( 23 N. Y. 215 ), and effects not merely a lien, but also a personal liability. On the assessment-rolls in this case appeared the name of the relator as the person assessed, and the amount of the tax became a charge against it. Of conree, it could only be assessed and taxed in respect to its own property, that which in its corporate character it owned and possessed, and so it follows inevitably that the statute concerns the company’s capital stock, that is its real and actual capital, and not in any respect the share stock which it does not own and whose possessors have not been assessed.

Another reason is found in those terms of the statute which include and exclude respectively specific kinds or classes of property in the corporate ownership. Thus the assessment is to be laid not merely upon the capital stock of the corporation, but also upon its surplus. Mo such explicit direction was necessary, except upon the assumption that by the words “ capital stock ” was meant simply “ capital,” which would not include surplus, and so required that it be subjected by name to the valuation. If the share stock was meant its value would include surplus and make its specification not only needless but confusing. But while the statute includes surplus by specific mention, it excludes franchise by omitting it. The omission of franchise is emphasized by the careful inclusion of surplus. It is fully and definitely settled that the tax imposed

The same thing becomes apparent from a study of the whole line of legislation which culminated in the law of 1857. It was traced in detail upon the argument with great industry and wealth of illustration. We have verified it by traveling over the same track, and without taking pains to reproduce it, may assert the general result which it discloses and select out one or more illustrations. The investigation shows that the word “ capital ” and the phrase “ capital stock ” are used interchangeably and synonomously, and where the latter phrase occurs there is almost always ¿bmething in the statute which stamps and labels it as referring to the actual capital of the company. Thus the law of 1825 (Chap. 262), after providing for the taxation of all persons owning or possessing property, proceeds to declare that corporations shall be deemed persons for the purposes of the act, and requires them to furnish a statement of the amount of “ capital ” actually paid in ; and then, referring to turnpike and bridge companies, requires them to state “ the amount of capital stock actually paid in or secured to be paid in.” Both clauses refer to the same assets or fund, naming it indiscriminately “ capital ” and “ capital stock.” Again, in the law of 1825 (Chap. 254) the assessors, after putting the corporation by name on the assessment-roll, are required to add the amount “ of its capital stock paid in or secured to be paid in,” and to designate how much of it is in real and how much in personal property, and so no doubt is left that by “ capital stock ” was meant sinrply the “ capital ” possessed in cash or invested in securities or real estate.

The illustrations might be multiplied and fortified by reference to numerous acts relating to the formation or manage

Indeed, I should feel bound to apologize for arguing what seems to me so simple and plain a proposition, were it not for the fact that it has been largely ignored by assessors and not always clearly kept in mind by the courts, and but for the further fact that the right to adopt as the taxable valuation the value of the shares, totally disregarding the value of .the company’s capital, has been asserted in this case, maintained by the courts below, and claimed to be fully justified by very much which we ourselves have decided or said.

Before examining the cases in detail to see whether they hamper our freedom of judgment upon the question presented, I think it safe and also prudent to assert three things as applicable generally and to all the cases alike. - First, this court has never decided, either by a direct determination or by necessary implication, that the law of 1851 authorizes the imposition of .a tax upon anything else than the actual capital of the corporations, together with their surplus; second, that the precise question whether the capital of the companies or the share :stock of the shareholders forms the basis of valuation and the thing to be assessed, has not been heretofore formally and distinctly presented; and third, that all seemingly erroneous expressions of opinion are corrected at once when they are referred to the permissible conditions under which the value of the share stock in the market may be referred to, not as the thing to be valued and assessed, but as an aid or help in discovering the value of the other and different thing which is to be valued and assessed. Keeping these general propositions in mind we now recur to the cases.

The most important, because it opened the door and led the way to some doubtful modes of expression, is that of Oswego Starch Factory v. Dolloway ( 21 N. Y. 449 ). That was an

That was the case of People v. Commissioners of Taxes ( 23 N. Y. 192 ). The question there involved was the right of the corporation to have deducted from the assessment that portion of its capital invested in United States bonds which had been issued without an express enactment exempting them from taxation. Judge Denio, on this occasion again referred to the statute of 1857, and modified his views so far as to say that the assessors “ may look ” at the value of the share stock, which he adds “ would ordinarily furnish a practical test,” and he cites his own previous decision. Four of the judges, concurring in the result, disagreed as to his construction of the statutes, and one, Judge Comstock, dissented entirely and wrote out his views at length. That opinion shows that “ capital ” and “ capital stock ” are used indiscriminately to designate the estate of the corporation, and that such estate, and not the share-stock, is the subject of the valuation. The report of the case-

It is to be noted that in neither of these cases was the precise question now discussed formally or definitely presented, or necessarily involved, and that in neither opinion is it asserted that the share stock instead of the capital is the subject of taxation. That doctrine has arisen, if at all, as an inference from what was said, and not from what was decided. It is further to be observed that in these two cases Judge Denio betrays a consciousness that liis test of share value is both unsound and applicable only in instances which compel it as a necessity; for first he says “ there is, doubtless, an incongruity in including the accumulated profits above ten per cent in the assessment where the capital is assessed at its market value;” and assigns as a reason, what I have already said, that to assess the share stock assesses the surplus and makes its specific mention wholly superfluous ; and, second, he explicity admits that “ either the assessor or the taxpayer would have a right to examine and 'have an estimate made of the securities.” That admission is fatal to any theory that the share stock is the subject of valuation, for if it is, the value of the securities representing the capital is totally immaterial, and the right to have it valued depends upon its being the very subject of taxation.

Three other cases followed the two upon which I have commented, in which the statute was referred to. (People v. Dolan, 36 N. Y. 59 ; People ex rel. Insurance Co. v. Ferg uson, 38 id. 89 ; People ex rel. Gas Company v. Bd. of Assessors, 39 id. 81 .) They related to the permitted deductions and exemptions, and can scarcely be’ said to bear upon our present inquiry except inferentially, and the inferences which they suggest are certainly not in the direction of a right to value the share stock instead of the capital.

We come now to the decision in People ex rel. v. Commissioners of Taxes of the City of New York ( 95 N. Y. 554 ). It would be quite sufficient to say of that case that it involved in no degree the question here at issue. The sole conflict between itlie contending parties assumed that capital and surplus aggre

The next case relied upon by the respondents is People v. Asten ( 100 N. Y. 597 ). That again was a question, and a question only, of the mode of deducting the real estate. Ho dispute existed over the valuation of the- company’s capital stock. It was deemed worth exactly the par of its nominal capital, and bo.tli sides assented to that as its actual value. It was of no consequence to the decision how the assessors arrived at that value, since no question arose over- it, and what was said in the opinion as to the right of the assessors to consider the market value of the shares, and the dividend earning power of the corporation was obiter and needless to the sole questions at issue which were whether the real estate should be deducted at the price paid for it, or at its assessed value on the rolls,.

The next authority relied on by the respondents is People ex rel. Panama Railroad Co. v. Commissioners of Taxes ( 104 N. Y. 240 ). There again the point involved respected solely the deduction of real estate and the manner of ascertaining the value to be deducted. Not one word was said in the opinion as to what was meant by the actual value of capital stock and surplus, or what was the thing to be valued, for no question whatever -was raised over that. The real estate of the company was a railroad situated in a foreign country. Not being assessed upon the rolls in this state or elsewhere, its assessed value could not be deducted, and resort'was necessarily had to its actual value. The relator sought to estimate the value of the real estate by fixing first the aggregate value of the whole railroad and then deducting the value of the equipment. This court combated that method on the ground that it imported into the value of the real estate the additional value of the franchise. When the opinion declared that “ the value o£ the franchise of the corporation is an important element in determining the value of a railroad as a whole, or the value of its capital stock,” it meant exactly what it said, using the last phrase in the sense which is entirely apparent, viz., that of the share stock which represents the railroad as a whole, or the entire property of the company as a railroad company.

The final case to be examined is People ex rel. Knickerbocker Fire Ins. Co. v. Coleman ( 101 N. Y. 541 ). It appeared that the relator’s stock at par amounted to $210,000 while its share stock was selling below par and for ninety cents on. the dollar. But the assessors did not assess the share stock, nor take its value as the test of capital, and so showing no surplus but a deficiency. On the contrary, tliey went to the company’s

But the opinion contained a statement which has been cited as conclusive by the General Term and also on the argument at our bar,, and to which I now refer because it opens the way to the final point of the discussion and to a fact which accounts for and explains most of the references to the value of share stocks which are seemingly of a doubtful character. The language was this : “ The law does not prescribe how the actual value of the capital stock of a corporation shall be ascertained. That is left to the judgment-of the assessors, and in appraising the actual value they have a right to resort to all the tests and measures of value which men ordinarily adopt for business purposes in estimating and measuring values of property. They may take into account the business of the corporation, its property, the value of its actual assets, the amount and nature of its present and contingent liabilities, the amount of its dividends and the market value of its shares of stock in the hands of individuals.” How I do not desire

If these conclusions are correct it will follow that the assessment complained of should be canceled. The corporation presented to the assessors a sworn statement of its assets and liabilities. If it be true, there was nothing subject to assessment. But its truth is not questioned, and there is not the least reason to doubt it.' The assessors did not doubt it: they merely deemed it immaterial,, and so testified when examined. In other words, knowing with certantity' the value of one thing, they claimed the right to affix to it the larger value of a different thing. Authorized only to tax against the company its capital and surplus, they assumed the right practically to tax it for the share stock held by individuals. They have not in terms claimed that the share stock is the subject of taxation, nor has the counsel who represented them on. the argument, but both have maintained and defended what is the exact and complete equivalent. The right asserted is a discretion in the assessors at their free will to assess corporations upon and at the value of their capital and surplus, or upon and at the value of the share stock independently of established facts and whenever they please. The law gives them no such discretion! How it has been exercised and how destructively to the rights of taxpayers may be seen by comparing the action in this case with that in one of the cases which we have reviewed. Where the share stock was selling at ninety, and so below par, the assessors refused to take that value and went to the company’s books in search of a larger one, which they found and adopted. Here, where the actual value of capital and surplus is established so that they frankly admit the fact, they calmly disregard it and fly to the larger value of the share stock. The statute has given them no such right. They are not lawless rovers, wandering among corporations at will, but regular officers bound by discipline and controlled by the law, and whose discretion exists within fixed and definite limits.

It is said, and it is true, that large masses of personal prop

It follows that the judgment and order of the General and of the Special Term should be reversed and the assessment against the relator vacated and canceled, without costs.

- All concur, except Pecki-iam, J., not voting.

Judgment reversed.