In re Cushing's Estate

The property sought to be subjected to the transfer tax consists of 100 shares of stock of the National Bank of Commerce of the City of New York. The appellants claim that the

In legal contemplation the property of the shareholder is where the corporation exists. It consists of his right to share in the net produce, and eventually in the net residuum of the corporate assets resulting from liquidation. Matter of Bronson’s Estate, 150 N. Y. 1 , 44 N. E. 707 , 34 L. R. A. 238 , 55 Am. St. Rep. 632 ; Matter of James, 144 N. Y. 6 , 38 N. E. 961 ; Matter of Enston’s Will, 113 N. Y. 174 , 21 N. E. 87 , 3 L. R. A. 464 . In Jermain v. Lake Shore & M. S. R. Co., 91 N. Y. 492 , Judge Earl says:

“A share of stock represents the interest which the shareholder has in the capital and net earnings of the corporation. * * * Shares of stock should be distinguished from certificates of stock, which are merely evidences as to the number of shares to which the holder of the certificate is entitled.”

The theory upon which the courts have proceeded in taxing nonresidents upon their interests in domestic corporations is that it is an investment of capital in this state, and that to hold otherwise would result in an unfair discrimination against inhabitants of this state. Judge Vann, in the Matter of Bronson’s Estate, supra, who concurred with the majority of the judges as to the taxability of the stock of domestic corporations, in his opinion says :

“The decedent placed his property in this state, and thereby impliedly committed it to the jurisdiction of our laws, then in force and such as might be enacted thereafter; and property subject in any respect to the laws of a state, even if only as regards the transfer thereof, must, if required, pay its share toward the enforcement of those laws. Look for a moment at the consequences of holding otherwise. Business corporations might be organized in this state wholly upon foreign capital, a few shares being held in the name of resident directors to make the organization regular, and yet none of the stock, however valuable, be subject to a succession tax. This would tend to drive business corporations into foreign ownership. If the stock of a corporation belonged one-half to residents and one-half to nonresidents, the former would be taxable, but the latter not, and thus an unfair discrimination would be made against inhabitants of this state.”

The appellants urge that the transfer of stock belonging to a nonresident decedent can be taxed only where the shares are those of a domestic corporation; that the National Bank of Commerce of New York is a foreign corporation, and consequently the present transfer is exempt. A corporation created and organized under federal law is a domestic corporation in each state in which it transacts business. Its residence is the place in which it is authorized to conduct its corporate affairs. A national bank exists solely in the locality where it is empowered to do business, and the federal statutes provide expressly for the taxation of their shares by the state within whose boundaries the association is located, subject to the prohibition of the taxation of such an investment at a greater rate than is assessed upon other moneyed capital in' the hands of individual citizens of such state. Sections 5181, 5190, 5219, Rev. St. U. S. [U. S. Comp. St. 1901, pp. 3481, 3486, 3502]; People, etc., v. Coleman, 135 N. Y. 231 , 31 N. E. 1022 ; Am. & Eng. Cycl. of Law, vol. 7, p. 694.

Our own Code of Civil Procedure (section 3343, subd. 18) declares that:

“A ‘domestic corporation’ is a corporation * * * located in the state and created by or under the laws of the United States.”

And Congress has enacted that:

“Ail national banking associations established under the law of the United States shall, for the purpose of all actions by or against them, real, personal or mixed, and all suits in equity, be deemed citizens of the state in which they are respectively located; and in such cases the Circuit and District Courts shall not have jurisdiction other than such as they would have in cases between individual citizens of the same state.” 1 Rev. St. U. S. Supp. (2d Ed.) p. 614.

In Cooke v. State N. B. of B., 52 N. Y. 96 -111, 11 Am. Rep. 667 , Chief Justice Church quotes with approval the opinion of Wayne, J., in the Letson Case (L., C. & C. R. v. Letson, 2 How. 497 , 11 L. Ed. 353 ) that:

“A corporation created by and doing business in a particular state is to be deemed to all intents and purposes as a person, although an artificial person, an inhabitant of the same state for the purposes of its incorporation, capable of being treated as a citizen of that state as much as a natural person.”

And at page 112, 52 N. Y., 11 Am. Rep. 667:

“Their location [i. e., national banking associations] and place of business are fixed by the law of their creation. They are made inhabitants of the state for the purposes of taxation, and a majority of their managing officers are required by law to reside in the states of their respective location. * * * These banks should be deemed citizens of the states where by law they are located.”

Order affirmed.