199 A.D. 393 | N.Y. App. Div. | 1922
The record discloses that one Lena McMullen died on May-20, 1919, a resident of the State of Connecticut, leaving a will which was probated in that State; that at the time of her death she was the owner of 500 shares of the preferred stock of the Atlantic Gulf and Pacific Company, a corporation organized under the laws of West Virginia, which was engaged in the business of dredging; that the appraiser appointed by one of the surrogates of the county of"-New York reported that the 500 shares of stock above mentioned constituted an item of property which was taxable under the Tax Law of this State; that on' May 31, 1919, the assets of the company amounted to $3,289,037.95 and the liabilities to $676,445.96, leaving net assets amounting to $2,612,591.99, of which $1,712,100 represented the amount of its capital stock outstanding and $900,491.99 its surplus.
The appraisal of the taxable assets of the estate and their fair market value on May 20, 1919, was as follows: “ Real estate, New York — none. Taxable personalty in New York — 500 shares, Atlantic Gulf and Pacific Company pf.d., valued at $50,000, taxable in such proportion as the value of the real property of such corporation located in the State of New York bears to the value of the entire property of such corporation, viz., 2349 or $11,745.00.”
It was stipulated by the parties that the 500 shares were actually physically within the State* of New York when the decedent died. The right to impose the tax in question is asserted under section 220 of the Tax Law, as amended by. chapter 626 of the Laws of 1919, in effect May 14, 1919. The enactment of 1919 was an amendment to said section, as amended by chapter 664 of the Laws of 1915 and chapter 323 of the Laws of 1916. The statute of 1919, so far as relevant to this discussion, reads as follows:
“ § 220. Taxable transfers. A tax shall be and is
“ 2. When the transfer is by will or intestate law of real property within this State, * * *, and the decedent was a non-resident of the State at the time of his death; or of property evidenced by or consisting of shares of stock of a foreign corporation, * * * except the shares of stock of a foreign corporation, * * *, constituting, being or in the nature of a moneyed corporation, a railroad or transportation corporation, or a public service or manufacturing corporation as defined and classified by the laws of this State, and the property represented by such shares of stock, * * * consists of real property which is located wholly, or partly, wdthin the State of New York, * * * and if not wholly within the State of New York, then in such proportion as the value of the real property of such corporation, * * * located in the State of New York bears to the value of the entire property of such corporation, * * * and the decedent was a non-resident of the State at the time of his death; * *
In this connection it may be observed that the act of 1915 was the first enactment in this State which, with certain exceptions was designed to impose a tax upon the transfer of shares of stock of foreign corporations owned by nonresident decedents.
Among the assets of the Atlantic Gulf and Pacific Company there was certain real estate owned by it known as the Mill Island property, located in the State of New York, valued at $950,762.15, and incumbered by a mortgage of $155,000. Based upon the foreign corporation’s ownership of such real property, the shares of stock in question have been held subject to the transfer tax.
The appellant insists that the language of the statute under which the tax was imposed is inapplicable to the stock of the Atlantic Gulf and Pacific Company, for the reason that it is a foreign corporation engaged in the business of dredging, and that the circumstance that in connection with its business it
The appellant also contends that the stock in question is in no event liable to a transfer tax in this State, because the surrogate never acquired jurisdiction of the res or of the estate of Lena McMullen, and that such a tax would be contrary to the due process of law clauses of the Federal and State Constitutions. (U. S. Const. 14th Amendt. § 1; State Const, art. 1, § 6.)
At the outset it should be noted that section 220 of the Tax Law, as amended by chapter 626 of the Laws of 1919, under discussion does not contemplate the imposition of a tax upon the shares of stock of a foreign corporation owned by a nonresident decedent, which happen to be physically located in the State of New York at the time of the death of the owner thereof. The statute provides for the payment of a tax upon the transfer of shares of stock of certain foreign corporations owned by mon-resident decedents without regard to the physical location of the stock at the time of decedent’s death.
No point, therefore, has been made by counsel, nor could one successfully be made, that the 500 shares in question being in the State of New York at the time of the decedent’s death conferred jurisdiction upon the court to entertain the proceeding, not only because the statute is silent upon the point, but because it has repeatedly been held in this State and in other jurisdictions that the legal situs of the stock of a corporation is where the corporation exists or where the stockholder has his domicile. (Matter of Enston, 113 N. Y. 174; Matter of James, 144 id. 6; Matter of Bishop, 82 App. Div. 112, 117.)
A careful study of the statute leads us to conclude that it was only intended to reach the stock of corporations known as real, estate corporations. The language of the statute directly bearing upon this question is as follows (italics ours): “ When the transfer is by will or intestate law * * * of property evidenced by or consisting of shares of stock of a foreign corporation * * * and the property represented by such shares of stock * * * consists of real property which is located wholly, or partly, within the State of New York * * * and if not wholly within the State of New York, then in such proportion as the value of the real property of such corporation
What did the Legislature intend by the words “ the property represented by such shares ” which “ consists of real property * * * ? ” In Matter of Bronson (150 N. Y. 8) the majority opinion of the court states: “ As said in Jermain v. L. S. & M. S. R. Co. (91 N. Y. 492) it [meaning each share of stock] ‘ represents the interest which the shareholder has in the capital and net earnings of the corporation; ’ or as Parke, B., put it, in Bradley v. Holdsworth (3 M. & W. at p. 424) it is ‘a right to have a share of the net produce of all the property of the company.' Corporate shares must be regarded as property within the broad meaning of that term. Certificates of stock, in the hands of their holder, represent the number of shares which the corporation acknowledges that he is entitled to. In legal contemplation the property of the shareholder is either where the corporation exists, or at his domicile; accordingly as it is considered to consist in his contractual rights, or in his proprietary interest in the corporation.”
In his dissenting opinion, Judge Vann, in substantial agreement with the majority opinion as to what a share of stock represents, says (at pp. 20, 21): “ What are shares of stock, and what rights does the owner thereof enjoy? Judge Andrews answered this question when he wrote in Plimpton v. Bigelow [93 N. Y. 599] that ‘ the right which a shareholder in a corporation has by reason of his ownership of shares, is a right to participate according to the amount of his stock in the surplus profits of a corporation on a division, and ultimately on its dissolution, in the assets remaining after payment of its debts.’ Chief Justice Shaw answered it when he said that ‘ the right is, strictly speaking, a right to participate, in a certain proportion, in the immunities and benefits of the corporation; to vote in the choice of their officers and the management of their concerns; to share in the dividends and profits, and to receive an aliquot part of the proceeds of the capital on winding up and terminating the active existence and operations of the corporation.’ (Fisher v. Essex Bank, 5 Gray [Mass.], 378.) Judge Earl, referring to the same
It is thus the law that no specific property of the corporation is specifically represented by its shares of stock so that one. may say that a stockholder has a determinable interest, let us say, in certain real estate which the corporation may own.
The act under review reads as though the Legislature assumed that a stockholder’s interest in specific assets of a corporation is directly ascertainable and measured by the ratio which the amount of stock owned by a given stockholder bears to the entire amount of stock issued.
Where one unqualifiedly states that the property of a given corporation “ consists of real property,” it would ordinarily convey the meaning that it is a real estate or realty corporation, as it is popularly called. If the Legislature had not intended to limit the operation of the statute to real estate corporations, one would expect that it would not have stated “ the property represented by such shares of stock * * * consists of real property,” but would have said “ the property represented by such shares of stock * * * consists in part or wholly of real property or wholly or partly of real estate.” As bearing upon the probable legislative intent to reach non-resident stockholders of realty corporations owning property in this State, it is not amiss to refer to the position taken by the State through its Comptroller in Matter of Richards (182 App. Div. 572), in which the Comptroller was appellant and which
It must also be borne in mind in this connection that it is the rule of statutory construction that where there is “a doubt upon the question it should be resolved in favor of the taxpayer as represented by the executors and against the taxing power.” (Matter of Fayerweather, 143 N. Y. 114, 119, citing United States v. Wigglesworth, 2 Story, 369; United States v. Watts, 1 Bond, 580; Partington v. Atty.-Genl., L. R. 4 H. L. 100, 122, and referring also to “ many other cases cited in the brief of counsel for the respondent.”)
It is our opinion that the act under review was not intended to apply to the ownership of stock in a foreign corporation which had among its assets some real estate located in this State as an incident to a business which in no sense could be construed as a real estate business. But assuming that our construction of the statute is erroneous, we are also of opinion that the tax in question cannot be upheld for the reason that the surrogate was wholly without jurisdiction to entertain this proceeding.
It has already been pointed out that the State cannot enforce a tax upon the transfer of shares of stock of a foreign corporation owned by a non-resident decedent, where neither the corporation nor the owner is within its jurisdiction. Of course, a foreign corporation owning real property located in
In Matter of Whiting (150 N. Y. 27) a resident of Rhode Island who died in that State left a will by which he gave his entire estate in trust to be held for the benefit of an.infant daughter. At the time of his death he had money in a bank in this State and certain bonds and certificates of stock of both domestic and foreign corporations in a box rented by him in a safe deposit vault in this State. The court held that the stocks of domestic corporations were subject to a succession tax. The appraisement in that case did not include stocks of foreign corporations (see page 29 of opinion) indicating that it was evidently recognized by all concerned in that case that they were not taxable.
In United States Radiator Corp. v. State of New York (208 N. Y. 144, 152) Collin, J., writing for the majority said: “ While conditions may exist under which equity will consider the shareholders as the proprietors and the .ultimate beneficiaries of the corporate interests, the fact is that a corporation is an individual being capacitated through statutory powers to acquire the title to, own and dispose of real and personal property, enter into contracts, engage in business, sue and be sued and taxed. It is the owner of all the corporate property, real and personal, and within the powers conferred upon it by the charter can deal with it as absolutely as a private individual can with his own. The whole title to it is in the corporation and the shareholders are neither tenants in common nor in any legal sense the owners of it. (Hyatt v. Allen, 56 N.Y. 553; Gibbons v. Mahon, 136 U. S. 549; Lowry v. Farmers’ Loan & Trust Co., 172 N. Y. 137; Humphreys v. McKissock, 140 U. S. 304; Buffalo L., T. & S. D. Co. v. Medina Gas & El. L. Co., 162 N. Y. 67.)” Neither the Surrogates’ Court nor any court of the State could acquire jurisdiction over the shares of stock of a foreign corporation owned by a nonresident, excepting where the stock is found within the State
We may conclude with the observation that we know of no provision of the Tax Law or of any other law which would enable the courts to enforce the payment of a transfer tax imposed upon a non-resident decedent, owner of stock of a foreign corporation, when neither the estate of such a decedent, nor the res owned by the estate is within the State. An unenf orcible tax is no tax.
The order of the surrogate affirming the tax made and entered on June 16, 1920, upon the report of the appraiser is hereby reversed, with ten dollars costs and disbursements to appellant, and the appeal to the surrogate from said appraisal is sustained and the appraisal is set aside and the proceeding remitted to the surrogate for further action in accordance with this opinion.
Clarke, P. J., Dowling, Smith and Page, JJ., concur.
Order reversed, with ten dollars costs and disbursements, and proceedings remitted to surrogate for further action in accordance with opinion.
