People v. Home Insurance

It is claimed by the appellant that the law under which the tax involved in ' this action was imposed is obnoxious to the provisions of section 20 of article 3 of the Constitution, in that it does not state distinctly the object to which the tax is apjdicable.

The statement is, that it is “ applicable to the payment of the ordinary and curr.ent expenses of the State.” (§ 9, chap. 542, Laws of 1880.) It was admitted upon the argument, by the learned counsel raising the objection, that it would be impracticable to state the object of a prospective tax in all cases without more or less indefiniteness, and that the question actually to be considered was the degree to which such indistinctness might constitutionally extend. It was further conceded that a provision which defined the object of a tax to be

We think these concessions are fatal to the contention of the appellant.

To sustain his position it would be necessary for the appellant to demonstrate that the specification of some, out of many, items legally chargeable upon a certain fund is a less distinct statement of the object of a tax than a statement that it is to be applied to replenish the undivided fund itself. It is obvious that this cannot be done. These concessions were of course involuntary, and such as counsel was, by force of controlling adjxidications in this court, constrained to make. Even in the absence of such admissions, the decisions refei’red to would lead to the same result.

The system by which the finances of the State are classified, and the purposes to which their moneys may be applied, is embodied in numerous acts of the legislature creating vaxious distinct and separate funds. Among them is a so-called genei’al fund, which is also recognized by the Constitution. (§ 2, art. 7 of Constitxxtion; 1 It. S. 493 eb seq.) Each of these sevei’al fxxnds aside from the genei’al fund is devoted to some special object, and payment therefrom for any other purpose than that to which it is specifically devoted is prohibited by law. The most, if not all of the ordinary and current expenses of the State, are specifically chargeable to the general fxxnd. (1 It. S. [7th ed.] 496 to 500.) In addition to these special pi’ovisions it is further enacted that any appropriation made by the legislature not specially charged to any other fund shall be paid from the general fxxnd. (1 It. S. 500, 501.) It is thus apparent not only that the payment of all the current and ordinary expenses of the State government is chargeable upon the general fund, but also that of various other necessary expenditures. It seems to follow that if the specification of the replenishment of this fund be held to be a sufficiently

The first time it was raised, was in the case of The Sun, Mutual Ins. Co. v. The City of New York (reported in 5 Sandf. 10 ). The statute under which that case arose empowered the board of supervisors of Hew York county to raise by tax upon the real and personal property subject to taxation in said county the sum of $1,606,525, and described the object of the tax; that it was “ to be applied toward defraying the various contingent expenses legally chargeable to the said city and county, and such expenses as the mayor, aldermen and commonalty of the city of Hew York may in any manner sustain or be put to by law.” It was held, Chief Justice Oakley delivering the opinion, that the statement of the object of the tax was a sufficient compliance with the constitutional provision. This case was affirmed upon appeal to this court, although the particular question referred to was not discussed in the opinion, and did not even appear to have been mooted. ( 8 N. Y. 241 .) The opinion upon this point, as reported in 5 Sandford, was, however, expressly approved by this court in The People, ex rel. Burrows, v. Supervisors of Orange County ( 17 N. Y. 235 ). The law authorizing that tax directed its proceeds to be paid into the State treasury “ to the credit of the general fund.” It was held that the description of the object of the tax was as distinct as was reasonably practicable and was a sufficient compliance with the requirement of the Constitution. Hr. Justice Habéis, delivering the opinion of the court, says : “ The sum of the whole argument is this: the general fund is a thing long and well known by every intelligent citizen of the State. Its existence is recognized by the Constitution itself. It is an object to which money has often been and may now lawfully be appropriated. The legislature thought fit to make, an appropriation to this fund. For this purpose it directed a

It is quite significant that the framers of the clause, as well as of the Constitution of 1846, designated the general fund as the object of a tax laid by that instrument, and thus gave a practical construction by its authors of the meaning of the language under consideration. The financial operations of the State have now been carried on for nearly thirty-seven years under this provision of the Constitution, and during each of those years questions involving its practical construction have been presented to each branch of the State government, and have been necessarily considered and decided by the various departments.

The almost uniform description of the object of the annual tax levies in the laws authorizing their imposition has been to require their application “ to the purposes of' the general fund, and for the payment of those claims and demands which constitute a lawful charge upon that fund.” Taxes have been levied by the legislature, collected by the State officers, and disbursed by its authorized agents during this long period without objection as to the sufficiency of such statements or the legality of the method by which these acts were performed, and it would now seem too late to raise a question of such importance and fraught with such dangerous consequences to those engaged in the enforcement of the laws.

If this question were at all doubtful upon authority this constant and uniform construction by every department of the State government for so long a period would have great if not controlling weight upon the interpretation of this provision. We are, therefore, of the opinion that this objection to the constitutionality of the act cannot be sustained.

The only remaining question in the case is whether the State authorities, i-n taxing corporations under the statutes of

This involves an inquiry into the real intention of the legislature in passing this statute. The appellant claims that we must go behind the object declared by that body, and, from the language and effect of the act as well as from other sources of information, hold its real object to be different from its declared intent. Waiving for the present a consideration of the question whether the court has the right by judicial construction to determine that the legislature has in fact exercised a prohibited power, instead of one which it legally might and which it expressly declared it did exercise, we will proceed to examine the question presented, upon the theory advanced by the appellant. In the determination of questions involving the construction of statutes and their validity as depending upon legislative intent, we may doubtless legitimately examine the history of the legislation as well as the act itself and acts in pari materia. By such examination we are enabled to see the general nature of the scheme inaugurated by the legislature and its relation to prior and existing laws concerning taxation. The statutes in question left the corporations still subject to the payment of local taxes (The People, ex rel. Westchester F. Ins. Co., v. Davenport et al., Trustees, 91 N. Y. 574 ), always constituting the great bulk of taxation in the State, and attempted by a new system to collect only so much of the burdens laid upon them as inured exclusively to the use of the State, bjr tax upon their franchise alone. They were expressly exempted from the customary tax laid for State purposes upon their property by the general law and thus secured some compensation for this franchise tax by a partial exemption from the usual property tax. Hot only the object but also the method contemplated by the legislature were new in many respects. Among other things the law enumerates certain distinct and specified classes of corporations to whom its various provisions shall respectively apply, and for the first time in the history of State taxation the State, as dis

We are unable to see why this precise proposition has not been determined adversely to the appellant both by this court and by the Supreme Court of the United States. The question was substantially involved in Monroe Savings Bank, v. City of Rochester ( 37 N. Y. 365 ), where it was held that a tax upon the entire surplus of a savings bank levied as a tax upon the franchises of the corporation was not void although it had a portion of its property invested in United States bonds, and although such bonds were estimated as property in computing the sum upon which the tax was levied. The franchises of a corporation were held to be proper subjects of taxation, the court saying : “ It follows that if such taxation falls within the scope of legislative power, that power may also prescribe a rule or test of value.” “ It can hardly be denied that a fair measure of the value of the franchises of corporations would be the profits resulting from their use, and in adopting such a rule of estimate no one could justly complain of its being unequal in its effects upon different corporations or unjust in its general operation.” In Society for Savings v. Coite ( 6 Wall, 59 ); Provident Institution v. Massachusetts (id. 611); Hamilton Company v. Massachusetts (id. 633), the point here involved was also decided. In the Coite case a law of the State of Connecticut had imposed a tax of three-fourths of one per cent on the total amount which savings banks had on deposit on a day certain in lien of all other taxes upon them. The bank had on the day specified upwards of half a million

Hr. Justice Clifford in his opinion says: “ It is the corporation that is to make the payment, and if it fail to do so it is liable not only to an action for the amount of the tax, but what is more significant, it may be enjoined from the future exercise of its franchises until all taxes shall be fully paid.” And further, discussing the differences existing between franchises and property taxes, he says, in language particularly applicable to this case : “ Franchise taxes are levied directly by an act of the legislature, and the corporations are required to pay the amount into the State treasury. They differ from property taxes, as levied for State and municipal purposes, in the basis prescribed for computing the amount, in the manner of assessment and in the mode of collection.” “ Comparative valuation in assessing property taxes is the basis of computation in ascertaining the amount to be contributed by an individual, but the amount of a franchise tax depends upon the business transacted

The legislature of Massachusetts had enacted a statute by which corporations in that State having a capital stock divided into shares were required to pay a tax of one-sixth of one per cent upon each dollar of the excess of the market value of all such stock over the value of its real estate and machinery. The Hamilton Company had invested $300,000 of its capital in the bonds of the United States. Some of the questions considered involved the construction of constitutional provisions and statutes not applicable here, but the broad doctrine was announced that a law which apportioned a tax upon the franchise of a corporation according to the value of its capital stock, although such capital stock was partially invested in securities exempt from taxation, was not for that reason invalid. The main question argued was, that inasmuch as no express authority existed under the State Constitution to tax the business or franchises of a corporation, unless comprehended in the word “ commodities,” whether that word conferred the necessary power, and it being held under the long-settled decisions of the State courts that the term did confer such power, the Supreme Court affirmed the validity of the tax as a tax upon franchises and not upon property.

Mr. Justice Clifford, who also wrote in this case, says: “All trades and avocations by which the citizens acquire a livelihood may also be taxed by the State for the support of the State government. Power to that effect resides in the State independent of the Federal government, and is wholly unaffected by the fact that the corporation or individual has or has not made investments in Federal securities.”

In neither of the three cases cited was it claimed or suggested upon the argument that if the State legislature had in terms laid the tax upon the business or franchise of the corporation any question as to the validity of the tax could have been successfully raised, but on the contrary it was clearly held

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 non-payment is the forfeiture of their charter. 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 corporations affected, directly to the State authorities. The income of these corporations is referred to. only as a means of arriving at the measure of their liability. As was said in the Provident Institution Case: “ The subject-matter to be taxed is the corporation, and the average amount of the deposits within the period named furnishes the basis of computing the amount.” It was conceded on the argument that neither by statutory nor judicial authority had any fixed basis for computing the taxable value of a corporate franchise been established either by the State or Federal government. It necessarily follows that this question must be decided according to the judgment and discretion of the bodies having authority to tax such privileges, as the occasion for such a decision may from time to time arise. Having this power and having professed to exercise it in a given case, it is not easy to see upon what principle a court can judicially ascribe the legislative action to another power which the legislature is prohibited from exercising. 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

The case of the Hamilton Company goes much farther than we need go to sustain the judgment appealed from. There although the value of exempted bonds held by a corporation entered directly into the computation of the amount of a proposed tax,, no portion of the tax was deemed. to have been invalidated thereby. If the principal of such bonds can be considered as a basis for computing the amount of a franchise tax, the partial consideration of the income of such bonds for a similar purpose must be equally unobjectionable.

We have examined the Pennsylvania cases cited by the appellant in support of the proposition that a tax like the one in question had there been judicially decided to be a tax upon capital stock. They do not appear to us to support that proposition. The cases arose under local statutes and were controlled by special provisions therein contained. It is true some of them hold that in a case where the State officers were authorized to tax capital stock alone, the imposition of a tax by them, in which the amount of the tax was determined by the amount of corporate dividends declared, was a tax upon capital stock. This conclusion was reached by force of the rule contained in the maxim “ ut res magis valeat, quam pereatthe court holding that the dividends which were there made the basis of the tax were merely referred to as a means of arriving at the value of the capital stock, which was in fact the subject of taxation. If these cases can be assumed to hold beyond this, they conflict with Hamilton Company v. Massachusetts and Monroe County Bank (supra).

It is further strenuously contended by the appellant that because the amount of the tax authorized to be levied upon corporations dividing less than six per cent annually shall be

The title to the stock involves the ownership of the property of a corporation, including its franchise, and variations in the value of such stock, as affected by its prosperity, indicate by necessary relation the comparative .variations in the value of its franchise.

We are unable to see any force in the objection raised to this law that various corporations subjected to its provisions are thereby subjected to unequal or double' taxation. Corporations are of course alone sub ject to the payment of franchise taxes, and they may be divided into as many classes as the different pursuits followed by them may require. (State Railroad Tax Cases, 92 U. S. 575 .) The rate of taxation provided by the act seems to be justly and equitably apportioned and to bear equally upon each of the classes named therein who stand in similar relations

The tax is governed by actual results, and is measured exclusively by the prosperity of the corporation taxed, as shown by the profits voluntarily distributed among its shareholders. The mode of assessment seems to be governed by just principles and to adapt itself to the variable character of the property. The amount is so graded that it rises and falls with the fluctuations in the prosperity of the corporation. The various processes which are so essential in securing equality and fairness in distributing the burdens of property taxes are

It would seem that these corporations could not fairly claim exemption for more than the proportionate amount of income which is derived from investment in exempted securities, but we feel constrained to hold, in accordance with the principles laid down in the cases cited, that the tax in question was a tax upon franchises alone, and was, therefore, within the exercise of legitimate legislative power.

The judgment should be affirmed.

All concur.

Judgment affirmed.