People v. Equitable Trust Co. of New London, Connecticut, 96 N.Y. 387 (N.Y. 1884)

Earl, J.

This action was brought by the attorney-general against the defendant, a foreign corporation, to recover the

sum of $1,575, which, it is claimed, the defendant should have paid into the treasury of the State within fifteen days from January 1, 1882, under section 2 of the act chapter 542 of the Laws of 1880, as amended by chapter 361 of the Laws of 1881.

The defendant is a Connecticut corporation, and for many years did business through its officers in that State. Its business was the negotiating of loans on mortgages in the western States, or the purchase of obligations secured by mortgages in those States, and the selling of securities based on those loans and obligations. But during the year ending November 1, 1881, it did but little business-and made but few loans, being engaged in caring for its old business of previous years, and looking after its real estate. During that time its sales of securities were very light, and were mostly made in foreign ' countries. During eight years prior to the commencement of this action, it had an office for the transaction of business in the city of New York; but a very small portion of its property was within this State, and but little of its business was done here. On the 10th day of November, 1881, under protest, its treasurer made a report in writing to the comptroller of this State, showing that during the year ending November 1, it had not made or declared any dividends upon its capital stock, and its secretary and treasurer also sent to the comptroller an appraisal of its capital stock as required by the act above referred to, showing that the actual cash value thereof was $1,050,000. A tax upon this sum at the rate of one and one-half mills upon each dollar amounts to the sum which this action is brought to recover.

The main contention on the part of the defendant is that there is no constitutional authority for imposing the tax or enforcing its collection. It is, therefore, important first to determine the meaning of the act so far as it bears upon this case.

The act is entitled “An act to provide for raising taxes for the use of the State upon certain corporations, joint-stock companies and associations.” Section 1 provides for the report

as to dividends, and the appraisal of the capital stock of corporations in cases where no dividends have been declared or the dividends have been less than six per centum. Section 3, so far as it is now important, is as follows : “ Every corporation, joint-stock company or association whatever, now or hereafter incorporated or organized under any law of this State, or now or hereafter incorporated or organized by or under the laws of any other State or country, and doing business in this State, except savings banks and institutions for savings, life insurance companies, banks and foreign insurance companies, and manufacturing corporations carrying on manufactures within this State, which exceptions shall not be taken to include gas companies or trust companies, shall be subject to and pay a tax, as a tax upon its corporate franchise or business, into the treasury of the State annually, to be computed as follows: If the dividend or dividends made or declared by such corporation, joint-stock company or association, during any year ending with the first day of November, amount to six or more than six per centum upon the par value of its capital stock, then the tax to be at the rate of one-quarter mill upon the capital stock for each one per centum of dividends so made or decláred; or if no dividend be made or declared, or if the dividend or dividends made or declared do not amount to six per centum upon the par value of said capital stock, then the tax to be at the rate of one and one-half mills upon each dollar of valuation of the said capital stock made in accordance with the provisions of the first section of this act.” Section 8 provides that the corporations, joint-stock companies and associations mentioned in the act, as taxable, shall be exempt from assessment and taxation for. State purposes, except upon their real estate and as in the act provided, but that they shall in all other respects be liable to assessment and taxation as they had before been; and section 9 provides that the taxes imposed by the act, and the revenue derived therefrom shall be applicable to the payment of the ordinary and current expenses of. the State, and that the amount of the tax, if not paid, may be recovered in the name of the people by action.

• The power of taxation possessed by the State is a very broad and comprehensive one, and may, with some exceptions imposed by the Federal Constitution and laws passed in pursuance thereof, be exercised upon all objects within its jurisdiction. Persons and property within the State, and trades, avocations and other business carried on within the State, under the protection of its laws, whether by citizens or non-residents, may he taxed. But non-residents, property having no legal situs here, and business not carried on here, are beyond the jurisdiction of our State and are not the subjects of taxation here. (State Tax on Foreign Held Bonds, 15 Wall. 300.) So far the counsel on both sides agree. The defendant, being a foreign corporation, could not be taxed here in reference to its property situate out of this State, and its business not done here. Nor could it be taxed on account of its corporate franchise, as that was not given by our laws, was dependent upon the laws of the State of its creation, and had no existence separate therefrom. A corporation may, through its agents, extend its operations into other States, and thus, metaphorically speaking, go there; but it never really travels, and its franchises exist only at the place of its domicile and residence. (Plimpton v. Bigelow, 93 N. Y. 592.)

So far as section 3 imposes a tax upon corporate franchises its operation must, therefore, be confined to corporations created under our laws; and as to foreign corporations the tax is imposed solely upon business. The counsel for the appellant, however, claims that the tax is imposed upon all the business of such corporations, whether done in this State or elsewhere, and hence that this tax upon the business of this corporation mostly done without the State, was wholly unauthorized. If the proper construction of this act requires us to hold that this tax was imposed upon all the business of this corporation it is, as I understand, conceded by the attorney-general that the tax cannot be enforced. We are of opinion that this was a tax imposed upon the business of this corporation done within this State. Unless the plain reading of a statute requires it, we should not so construe it as to bring it into conflict with the

State or Federal Constitution, or to hold that the legislature meant in any way to transcend its power. We should not lightly attribute to the legislature an intention which will nullify its act rather than one which will sustain it. Verba ita sunt intelligenda, ut res magis vqleat guam pereat is a maxim quite applicable'here. In judging of the acts of men it is said to be a natural presumption that the actors intended to do that which they had the right and power to do rather than that which was beyond their right and' power; and the same presumption should be indulged in reference to legislative acts. In People v. Home Insurance Company (92 N. Y. 328), Huger, Ch. J., said in reference to a portion of this same act then under consideration, that “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 as from placing such an interpretation upon statutory enactments, and require us to make every reasonable intendment to uphold rather than nullify the exercise of legislative authority.”

The legislature was dealing with the subject of taxing foreign corporations doing business in this State, and taxing them only because they did business in this State, and having the right to tax them only upon business done in this State. Under such circumstances, applying the rules above stated, if there was nothing else in the statute to throw light upon the legislative intent, we would be obliged to hold that the word “ business ” had reference to business done within this State. But other parts of the statute make this plain. In the earlier part of the section the words “doing business in this State” are used,.and when the word “ business ” is used later it has reference to the same business which was then in the legislative mind. Then the whole framework of the act shows that the legislature was conscious of the limitations upon its powers. Foreign insurance companies, and railroad and other transportation companies, were made liable to pay a tax, in plain terms, only upon business done in this State. It cannot be supposed that

the legislature meant to tax some foreign corporations doing business in this State upon all their business done anywhere, and tax others only upon their business done in this State. There can be no reason for such discrimination, and it clearly was not intended.

Holding, then, that this was a tax only upon the business done in this State, what objection can there be to it ?

The courts are quite reluctant to place limits to the power of taxation possessed by a sovereign State. The legislature may exercise it upon all objects within its jurisdiction which it concludes should bear a portion of the public burdens. The imposition may be a general property tax to be apportioned upon all the property within the State according to appraised values; it may be a poll tax imposed upon all the citizens of the State, or taxes may be specific imposed upon specified articles of personal property, or upon avocations, trades and business. In McCulloch v. Maryland (4 Wheat. 428, 430), Chief Justice Marshall said : “ The power of taxing the people and their property is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable, to the utmost extent to which the government may choose to carry it. The only security against the abuse of this power is found in the structure of the government itself,” and that it is “ unfit for the judicial department to inquire what degree of taxation is the legitimate one and what degree may amount to the abuse of the power.” In another case (Providence Bank v. Billings, 4 Peters, 561) the same learned judge said : “ This vital power may be abused, but the interest, wisdom and justice of the representative body, and its relations with its constituents, furnish the only security against unjust and excessive taxation, as well as against unwise taxation.”

While the taxing power is thus supreme, yet it may be so exercised as to transcend constitutional restraints, and to invade rights protected by constitutional guarantees. If, under the guise of taxation, the legislature should attempt to make exactions purely arbitrary, without any apportionment or appraisal, founded upon no rule of equity or justice, its act might be eon

demned as depriving the owner of his property without due process of law and without just compensation. (Gordon v. Cornes, 47 N. Y. 608; Stuart v. Palmer, 74 id. 183 ; People, ex rel. D. & H. R. R. Co., v. Salem, 20 Mich. 452.) Judge Cooley, in his work on Constitutional Limitations, at page 607, says: “ Every thing that may he done under the name of taxation is not necessarily a tax, and it may happen that an oppressive burden imposed by the government, when it comes to be carefully scrutinized, will prove, instead of a tax, to be an unlawful confiscation of property, unwarranted by any principle of constitutional government.”

This tax upon the business of foreign corporations done in this State is a specific tax, and hence no apportionment or appraisal was required. Such a mode of taxation has been resorted to by all governments. It was extensively used by the Federal Government during the late war and at other periods of its history. A poll tax is specific, and the legislature can constitutionally impose the same poll tax upon every citizen without reference to his ability to pay. So it can impose a tax upon all watches, carriages, pianos, dogs, spirituous liquors and other chattels without reference to their value. On the same principle it can impose an arbitrary tax upon any avocation or business without estimating its volume or value. It may impose a specific tax upon any saloon keeper or hotel keeper or banker or broker or trader. And for these views, sustained by the history of all governments, if any authority is needed, it is found in the case of People, ex rel. Griffin, v. Mayor, etc., of Brooklyn (4 N. Y. 419). Such taxes are generally arbitrary, unjust and unequal, and have been usually resorted to for revenue by governments in great financial straits. While they are free from constitutional objections, unless imposed pro bono publico, to restrain, suppress or regulate some obnoxious trade or business, they must generally receive the condemnation of a wise and enlightened statesmanship.

The legislature, therefore, had the power to impose an arbitrary sum as a tax upon the business of all corporations done within the State; and no harm is done because this act appor

tions the tax, at least, according to the ability of the corporations to pay.

The principle upon which this tax can be imposed, as a tax upon business, was really involved in the case of People v. Home Insurance Company (92 N. Y. 328). In that case the tax was upon a domestic corporation under this same act, and it was upheld as a tax upon a franchise. The law imposes the tax upon the franchise or business of the corporation. It might have been imposed solely upon business, and then the tax in that case would have been upon the business of a domestic corporation done in this State. If it had been, then the same arguments could have been made against that tax which have been made against this. And yet it is clear that they would not have availed. Whether the tax upon a domestic corporation be called a tax upon a franchise or upon business is wholly unimportant, as the tax is still the same in amount and is imposed by a standard which measures the ability of a corporation to pay, but not necessarily or generally the value of its franchise or the volume or value of its business done in this State.

We find no authority in this act for apportioning the tax upon such a corporation as tins according to the amount of dividends earned in this State, or according to the amount of capital stock employed in this State, and hence this defendant, if liable for any of this tax, cannot legally complain of the amount thereof.

It has not been denied that this corporation did business in this State within the meaning of the act, and hence we have been relieved from the necessity of inquiring what is meant by the language “doing business” and “corporate business” in this act. Does it mean occasional or incidental corporate business, or continuous business substantially through the year? Does a corporation that keeps an office in this State merely for the record and transfer of its stock while it does the business for which it was chartered elsewhere, do its corporate business within this State within the meaning' of the statute? Does a corporation which has an office in this State from which its officers give some directions for the manage

ment of its corporate business, all of which is done elsewhere, carry on its corporate business in this State any more than an individual* carries on his business in this State who is engaged in the business of building a railroad in another State over which he exercises some control by correspondence from his home here? Does not the statute, when it provides as the measure of the tax the amount of dividends earned by the entire business of the corporation, or the entire cash value of its capital stock, mean by “ its corporate business ” substantially the whole or the main corporate business which it was chartered to transact? These questions we leave unanswered. Their solution, when properly presented, may relieve this act of some of its features which would seem to be arbitrary, oppressive and unjust.

We have, therefore, reached the conclusion that this judgment should be affirmed.

All concur, except Andrews, J., not voting.

Judgment affirmed.