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As I have already suggested, there was a propriety as well as necessity for the establishment of a fixed and arbitrary measure of valuation of corporate stock, arising from the difficulty in the case of moneyed corporations of arriving at actual cash value. Such arbitary rule of valuation might, in many cases, work injustice by assessing property as existing that had been wholly or principally lost. But if profits were made, if the market value of the stock exceeded the par value, the moneyed corporation escaped taxation on such excess, while the manufacturing and turnpike corporation would be assessed upon the cash value of the stock when the same was above as well as when below par.
The act of 1863 is more severe upon moneyed corporations than were the provisions of the Revised Statutes. Under the latter the surplus profits or reserved funds were not subject to assessment, but under the act of 1863 they are liable to be assessed.
If the act of 1863 does not assess the property of the corporation, why are these surplus profits subjected to assessment? They are no part of the capital stock paid in or secured to be paid in, as these words are understood by those who insist that the capital stock and the property of the corporation are not one and the same thing. If these surplus profits are invested in stocks of the United States they are surely exempt from taxation, and what good reason can be assigned why they should not also be exempt when they are purchased with capital ?
The words capital and capital stock are used in several different senses as well in the statutes as in common parlance. The sum specified in the charter of a corporation as the amount of money which it must have subscribed in order to authorize it to exercise its franchises, is called capital stock. Again, this amount when paid in by the corporators is called the capital stock. But the more accurate definition of the words is given by this court, in the case of the Buffalo Mutual Insurance Company vs. Supervisors of Erie, 4 Comst. 412, in which it was held that the stock, or capital stock, of a corporation is the fund or capital, consisting of money or goods employed in conducting the business of the company. In other words, the property which the company employed in its business.
Within this definition, the word valuation, in the act of 1863, becomes very significant, and manifests an intention on the part of the legislature to treat the capital as property, and to subject it to taxation as such.
It seems to me, therefore, that from these several provisions of the statutes, and from the decisions of the courts, it is obvious that the capital stock of a corporation is the property which it owns, and which it uses in the transaction of its business; and that when the law requires the capital of a corporation to be taxed, it means the property thus owned by it, and which represents the capital; and when it directs the valuation of the stock, the valuation must be regulated by the value of the property so owned, unless another and arbitrary valuation is required to be made.
If I am right in this, then United States stocks owned by the bank at the time an assessment is made are taxed, if the whole capital is taxed without exempting such stocks, in direct violation of the authority of the federal government.
There is nothing in any of the provisions of the tax laws that gives support to the position that the tax upon the capital stock, required by the act of 1863, is in effect a tax on the franchise, or, as Judge Nelson expresses it, a royalty for the grant of the franchise. A franchise is undoubtedly property, and it may be taxed, and it is quite probable that such a tax would not conflict with the constitution or laws of the United States. But I cannot find that any such tax has ever been assessed in this state, and so radical a change in the system of corporate taxation would not be introduced without clearly manifesting such intention. None has been manifested.
Again, it would be somewhat absurd to assess a bank a gross sum on its franchise and then deduct from it money paid out for real estate and stock held in such corporation by the state, and literary and charitable associations. If the legislature had, in the act of 1863, expressly provided that the franchise might be assessed, and then authorized the foregoing deduction, no person could wink so hard as not to see that it was designed as an evasion of the decision of the Supreme Court of the United States.
I entertain no doubt, that the tax assessed on the relator was a tax on the stocks of the United States held by it, and which are exempt from taxation by the constitution and laws of the United States, nor that such tax is unconstitutional and void.
WRIGHT, J., concurred with MULLEN, J.
The question raised in this case is a Yet we cannot avoid the conclufresh illustration of the inherent diffi- sion, that the present tax is in subculty in our complex form of govern- stance a tax upon the securities of the ment, of drawing the line between the United States. Some reliance has been rights of the General Government and placed by those who sustain the tax on the powers of the respective states. On an expression by Nelson, J., in the the one hand, the instruments of the Supreme Court of the United States General Government, such as securities, (People vs. Com'rs. of Taxes, 2 Am. Law are exempt from state control or taxa- Reg. N. S. 614) that a tax of this kind is tion; on the other, the states may, by a a tax on the corporate franchise. This device derived from some conceded remark was, however, merely a dictum. power, attempt to substantially exer- Such evidently was not the intention cise the control which has been ex- of the legislature, and no stress was plicitly denied to them. In the present laid upon this view by any members of case it is notorious that the Legislature the court in deciding the principal case. of New York disguised, under a thin For the sake of the utmost brevity conveil, its intention to thwart in part the sistent with clearness, and without redecision of the federal judiciary, that viewing or repeating the arguments United States securities are not subject found in the judges' opinions, our views to state taxation. It is well known that are submitted in the form of proposi. the banks of New York are very large tions. holders of these securities, and that in I. It seems to us that there is a the exigencies of the times, it may be marked distinction between the law necessary to call on them to subscribe under which this case was decided and for more.
Prudence would seem to the Revised Statutes. The Revised dictate that they should be placed in no Statutes substantially provided for % inferior condition to other holders of tax on the capital stock of moneyed corthese securities. Yet the legislature porations paid in, and secured to be paid has taxed them, while most other cor- in, excepting the sums paid for real porations as well as individuals are ex- estate. The assessors were in no case empt. As the law stands at present, to estimate the value of the real estate, the legislative design has been success- unless it happened to be situated within ful. The decision is, however, subject their own town or ward. This valuation to review by the Supreme Court of the was made for the purpose of local taxaUnited States.
tion. Under this system, every element Our own views upon this subject may necessary for an assessment of taxes on be extreme; and it is with unfeigned capital stock was furnished in advance diffidence that we venture to differ from to the assessors. They had a mere the majority of the court in the present clerical duty to perform, which was to deduct the sums paid for real estate from arbitrary standard of the statute. Every the capital stock paid in. Under the interest is thus the subject of valuation; law of 1863, three interests are men- one is measured by a fixed standard ; tioned-capital stock, earnings, and the other two by the best judgment of real estate. There is a plain departure the assessors. Their minds act in each from the language of the Revised case; in one, the evidence of value is Statutes concerning real estate. The furnished by the statute; in the other assessors are not required to deduct the two, the evidence is unrestricted. Under “sums paid for real estate,” but “the this view the United States securities talue of the real estate.” This may be should have been deducted from the much more or much less than the subject valued, and a tax including amount paid for it. The worth of the them is void. real estate can only be ascertained by a II. But assuming that the intention raluation, or act of the mind on the part of the legislature was to restore the of the assessors. The same remark system established under the Revised may be made of the surplus earnings. Statutes, we are still of opinion that the The only method of ascertaining the tax is upon property, and that the obearnings, is by an estimate of their ject of that legislation was to establish value, or by a valuation. They do not an arbitrary standard of valuation of always appear in the form of money, capital stock as property. but rather in the guise of commercial If we look at a bank at the moment paper, and it might be necessary to of its organization, it cannot be denied determine whether it was available or that a tax on its capital stock is a tax worthless. The third interest would on its property. The language of the logically require an estimate also, but Revised Statutes leads to the same conthe law arbitrarily provides that the clusion. The capital stock actually paid assessors need not exercise any actual in, or secured to be paid in, is the subjudgment, but must accept an arbitrary ject of assessment; the sums paid for valuation, depending on the capital real estate are to be deducted. These stock paid in. The system, under the words are unmeaning unless they apply two laws, is so different that we think to property. Nothing can show the no safe conclusions can be drawn from intention more clearly than the 10th the decisions under the Revised Stat- section (1 Rev. Stat. 416, & 10): “The utes, which will apply to the law of capital stock of every company liable to 1863. In other words, when the law taxation, except such part of it as shall of 1863 provides for taxation on a valua- have been excepted in the assessment tion equal to the amount of capital roll, and by the previous sections of stock paid in and surplus earnings, this title, shall be assessed and taxed in deducting the value of real estate, the the same manner as the other real and word “valuation" is employed in its or personal estate of the courty," &c. All dinary sense of "estimation" as to capital stock is here used as synonygurplus earnings; the word value is mous in meaning with real and peremployed as to real estate in the signi- sonal estate, although two modes of fication of the result of an act of valua- assessing it are provided. The phrase tion, and reason is perceived why "capital stock," is not used in a technithe word “valuation” should not have cal sense; if it were, it would not have the same sense in its application to been distributed into “real and percapital stock, except that the judgment sonal estate." If then a bank, since of the assessors is controlled by the its organization, has susiained no depreciation of its property, and has viduals possess. Beyond doubt, it can employed its capital in the ordinary when only state action is concerned. business of banking, dividing its earn- There are no general restrictions in the ings among its stockholders, a tax on state constitution upon the legislatiie an amount equal to its capital stock, is exercise of the power of taxation. But a tax on its whole property. In the it is a very different question, whether exceptional case, where its stock has this can be done when its effect would been depreciated, the tax is still on its be to interfere with a power of the property, though all inquiry into its General Government. Suppose that the actual amount is precluded by the New York Legislature had frankly stated statutory rule. It does not seem that its intention-suppose it had enacted in the case is different from a law which the body of the law that the corporation should provide that taxes should be laid should be taxed upon an amount equal on individuals upon an amount equal to to the capital stock paid in, deducting the property which they possessed at the value of its real estate, but without the last state census. If their property any deduction for its United States secontinued unchanged in amount, an curities. Would such a law have been assessment would be made upon their constitutional? We think not. Yet the actual estates. If it had appreciated or legislature has substantially done this. depreciated, an unchanging tax would It has directed the value of real estate still be levied. In other words, such 8. to be deducted from capital stock, thus law would cause a uniform instead of a tacitly including United States securifluctuating charge upon the tax-payers, ties, and required the value of surplus in reference to their property. Such a earnings to be added, even though insystem may have its advantages. The vested in the bonds of the General land-tax in England is of this kind. Government. The United States secu“In the year 1692, a general valuation rities, as we have previously said (2 was made of the income of all the land Am. Law Reg. N. S. 39), are the instruin the country, and upon that valuation ments or machinery by which the power the land-tax continues to be levied to of Congress to borrow money is exerthis day, so that the tax of four shillings cised. No state can by any law interfere in the pound upon the rents of land, is with the free and unrestricted use of a fifth of its rent in 1692, and not of the these instruments. It would seem that actual rent at the present day” (Sar's so transparent a device to impede their Pol. Economy 440, Philadelphia trang- action as this recent one of the New lation, 1832). If the land should be- York Legislature, should not be suscome valueless, there could be no doubt tained. that the owner would still be taxed on The argument ab inconvenienti is here his property at an arbitrary valuation. very strong. If the state legislature If the New York Revised Statutes had can in this circuitous manner thwart provided that lands belonging to mo- the action of the General Government, neyed corporations should be taxed at the power of Congress to borrow money a valuation equal to the amount paid is greatly restricted, if not practically for them, the provision would have been nullified. From the nature of the case, quite analogous to the English land-tax. this power must be exercised in connec
III. The question recurs, whether the tion with the moneyed corporations at state legislature can constitutionally our great commercial centres. An unpreclude all inquiry into the amount of friendly or indifferent legislature might · property which corporations or indi- have the General Government completely