274 F. 975 | S.D.N.Y. | 1921
(after stating the facts as above).
The second question is whether the statute is itself constitutional. It is now settled that a state, under the guise of granting to a foreign corporation the privilege of doing an intrastate business, may not as a condition impose upon it taxes which in fact though not in name are levied upon assets outside the state. That doctrine is generally assumed to take its origin from West. Un. Tel. Co. v. Kansas, 216 U. S. 1, 30 Sup. Ct. 190, 54 L. Ed. 355, which at one time was apparently thought to have been overruled in Baltic Mining Co. v. Mass., 231 U. S. 68, 34 Sup. Ct. 15, 58 L. Ed. 127, and Kansas City, etc., Co. v. Kansas, 240 U. S. 227, 36 Sup. Ct. 261, 60 L. Ed. 617. These cases were later distinguished in International Paper Co. v. Mass., 246 U. S. 135, 38 Sun. Ct. 292, 62 L. Ed. 624, Ann. Cas. 1918C, 617, and Cheney Bros. Co. v. Mass., 246 U. S. 147, 38 Sup. Ct. 295, 62 L. Ed. 632, because they imposed only license taxes with reasonable maxima; the calculation being merely a way of grading corporations within that limit. Kansas City, etc.., R. R. v. Stiles, 242 U. S. 111, 37 Sup. Ct. 58, 61 L. Ed. 176, involved a domestic corporation, and while some of the language may seem to assimilate the two classes, it is clear that that distinction was thought controlling.
In the case of railroads an allocation of cars and other property according to mileage was supported in State R. R. Tax Cases, 92 U. S. 575, 23 L. Ed. 663, and Pullman’s Car Co. v. Pa., 141 U. S. 18, 11 Sup. Ct. 876, 35 L. Ed. 613, and in the case of a telegraph company in Western Union Tel. Co. v. Attorney General, 125 U. S. 530, 8 Sup. Ct. 961, 31 L. Ed. 790, and in Western Union Tel. Co. v. Taggart, 163 U. S. 1, 16 Sup. Ct. 1054, 41 L. Ed. 49. I do not understand that Union Tank Riñe Co. v. Wright, supra, or Wallace v. Hines, supra, overrule those cases so far as the prima facie rule is concerned. They do hold that when the rule is shown in a given instance to result in the taxation of foreign assets, it is invalid. Prima facie it remains a sound rule, as i understand it. In the case of manufacturing companies I know of no similar statute which the Supreme Court has passed on except that in Underwood Typewriter Co. v. Chamberlain, supra. In that case the allocation was made merely upon the proportion of tangibles. While it was not in form an excise, that point was disregarded, and the decision there seems to me to support the defendants here. The income of such a company is created by the use of its economic capital in the bands of those who make and sell its goods. The statute at bar allocates that income upon the basis oí capital, real and personal, and of accounts receivable. These last are divided into sales and pay for “services.” Sales are some measure of the work of production and marketing. Of course, they are not a certain measure, but nothing is. If all the business of the corporation is done upon the same term of credit, accounts receivable on sales furnish a tolerable measure by which to apportion such work. Capital, the other element, is included directly. If either were omitted, an argument might be made against the propriety of the formula, for each is regarded as a factor in production.
This is indeed a rough rule and may in application work unevenly, but every rule must. Even if each transaction were analyzed, the result would he, as one of the plaintiff’s own witnesses put it, “a series of arbitrary decisions which would not be based on the facts at all.” The consequence is not, as the plaintiff’s argument would have it, to deprive the state of all power to tax, but to require no more, at least as a presumptive rule, than an honest allocation which shall avoid gross inequities. Perhaps the taxpayer must have the right to show that parts of the foreign assets are not functionally connected with the local business; perhaps he must have the further right to show that though functionally a part, as were the terminals in Wallace v. Hines, supra, the formula works with gross inequity. I think he has both these rights. Section 211, subd. 7, gives the Commission the power to call upon the taxpayer to return “such other facts” as it thinks relevant. If the formula were absolute they would he irrelevant. Section 218 gives the Commission on revision, if shown that there have been “included taxes or other charges which could not have been lawfully demanded,” power to reassess the tax “according to law and the facts.” These provisions in my judgment give the assessors a latitude outside
It is not clear that the whole statute was under attack in People ex rel. Alpha, etc., Co. v. Knapp, 230 N. Y. 48, 129 N. E. 202, but the effect of the decision was certainly to sustain the act after excising the two objectionable features. Perhaps the propriety of the general methods of allocation was thought to be too obvious for comment. In any event, the case stands for a latitudinarian interpretation of the statute as a whole, and I shall assume that it only lays down a formula which admits of adaptation in those cases in which its literal application would give a clear overvaluation to the local assets, and where the necessary conclusion must be that foreign income is taxed. A statute must be saved by friendly interpretation so long as it can.
The tax as actually assessed contained a duplication of the accounts receivable. The assessors followed an interpretation of the law condemned in People ex rel. Soc. An. v. Knapp, 191 App. Div. 701, 182 N. Y. Supp. 448, affirmed on opinion below, 230 N. Y. 557, 130 N. E. 892. This section had already been changed by chapter 417 of the Laws of 1918, but for some reason the Tax Commission followed the old statute, perhaps because that chapter, unlike chapter 276 of the Laws of 1918, did not operate retroactively. The difference is less than •$3C0, but of course that should not determine my decision. The blunder was, at most, only an error of the assessors in applying the law, and as in the case of the munitions business, the plaintiff was bound to ask for a revision. Moreover, in this case, whatever may be said about the other, there could be no possible ground I think for a bill in equity. By no construction could it be supposed that such an error in estimating the tax was an unconstitutional taking of property, as might be argued in the case of the munitions business. While, therefore, on the facts as stated, the tax both in respect of this and of the inclusion of the munitions business was erroneous, the plaintiff did not choose to avail itself of that process of law which was accorded to it, and therefore was not the victim of any unconstitutional action by the Commission.
The United States and the State of New York in such matters are independent powers, neither of which need yield to the other. Each taxes, and so seizes, a part of the same income; but there is no more reason why the state must recognize the deductions of the United Slates before calculating its percentages than that the United States must recognize those of the state, which it surely need not, if it choose to ignore
I.conclude, therefore, that the statute lays down a valid prima facie rule for ascertaining the local income of a foreign corporation, and that it may tax it; that in so far as the application of that rule in the case at bar may have been unequal, because some of the assets outside the state did not contribute any value to the local assets, and in so far as the assessors' misapplied the statute in laying the assessment, the plaintiff had its opportunity to complain and procure a reassessment, and that having failed to do so, no bill in equity lies to reassess the tax; and that the state need not deduct the United States taxes in estimating the taxable income of a foreign corporation.
It follows that the bill must be dismissed, with costs.
othe** cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes
<&=»For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes