
    The People of the State of New York ex rel. The Lorena Company, Appellant, v. William J. Morgan, as Comptroller of the State of New York, Respondent.
    
      Tax—assessment by the Comptroller of the capital stock of a corporation — the value of its assets less its liabilities is the basis thereof— competency of proof of its assessment for local taxation.
    
    The basis of an assessment by the Comptroller, for the purpose of taxation, of the capital stock of a corporation, should be the actual value of such stock, namely, the value of the assets of the corporation after deducting therefrom its liabilities.
    Where the entire capital stock of a corporation has been issued in payment for an equity in mortgaged premises, the value of such equity less the indebtedness of the corporation is the value of the capital stock, and the Comptroller is not justified in arbitrarily assessing the corporation an amount equal to the par value of the stock (assuming without evidence that to be its real value), less the amount paid for interest on mortgages and taxes.
    
      Qzuere, as to the admissibility, on the question as to the value of real property, of its valuation for the purpose of local taxation.
    Certiorari issued out of the Supreme Court and attested on the 24th day of April, 1900, directed to William J. Morgan, as Comptroller of the State of Rew York, commanding him to certify and return to the office of the clerk of the county of Albany all and singular his proceedings had in the settlement of the account for taxes assessed against the relator for the years 1896,1897 and 1898.
    The relator is a domestic corporation, incorporated June 27, 1896, for the purpose of owning, renting and dealing in real estate.
    
      The relator’s capital stock is $500,000 and its entire property consists of real estate of over 300 acres, situated, in the town of Greenburgh, in Westchester county, N. Y. Five hundred dollars of its capital stock was paid for in cash and the remaining $499,500 was issued to Mr. Barber in payment of real estate conveyed by him to the company. Barber had' purchased the property for $665,000, subject to mortgages thereon amounting to $531,000, and conveyed it to the relator subject to the said mortgages which remain. as a lien on the property. Fo dividends have ever been declared -and there have not been any sales of stock. Lots have been for sale by the relator since 1895 and but'two have been sold. The only property of the relator is its equity in the real estate and no net income has been derived therefrom since its purchase in June, 1896.
    On October 31, 1896, the relator had incurred an indebtedness to Mr. Barber on account-of moneys advanced by him for taxes, interest on mortgages, repairs and improvements on the property of $43,113.90 ; on October 31, 1897, of over $170,000, and on October 31,1898, of over $210,000.
    There was a rehearing before the Comptroller, on which evidence was given by the relator of the value of its property, the amount of its indebtedness and other matters, and thereafter the Comptroller settled an account against the relator for taxes on its capital stock for the years ending October 31, 1896, October 31, 1897, and October 31, 1898, appraising its capital stock for the year 1896 at $484,700; for the year 1897 at $457,845; for' the year 1898 at $426,500, which sums, as appears by the return, were arrived at by fixing the value of the capital stock at $500,000, its par value, and deducting a depreciation up to October 31, 1896, of $15,300 ; up to October 31, 1897, of $42,155 up to October 31, 1898, of $73,500. ■The writ of certiorari has been issued to review this determination.
    
      William W. Niles, Jr., for the relator.
    
      John G. Davies, Attorney-General, and Robert E. Steele, Deputy Attorney-General, for the respondent.
   Edwards, J.:

The basis on which a tax against the relator should be assessed is its capital stock appraised at its actual value in cash. Its actual value is the value of its assets after deducting its liabilities. (People ex rel. Wiebsch & H. Co. v. Roberts, 154 N. Y. 101; People ex rel. Journeay & B. Co. v. Roberts, 37 App. Div. 1.)

The return does not disclose the process by which the Comptroller arrived at the value of the capital stock, but it is evident that he assumed that its par value, $500,000, was its real value. He says in his return “ that he based his determination on said revision upon the following facts, viz., that for the year ending October 31, 1896, the value of the capital stock of the relator was $500,000 less a depreciation up to that time of $15,300, leaving $484,700.” He proceeds in the same way for the years 1897 and 1898, taking each year the par value of the stock as its actual value and making deductions for what.he calls “ depreciation” in each year. The manner by which he arrives at this “ depreciation ” is not disclosed by his return, but becomes evident on examination of the evidence given by the relator. It appears that the indebtedness incurred for moneys advanced the first year to pay taxes and interest on the mortgages was $15,226.97, and unquestionably those constitute the ■“ depreciation ” found by him of $15,300. The indebtedness incurred for moneys advanced for the same purpose to October 31, 1897, was $42,157.20, and his deduction from the $500,000 for “depreciation” up to that time was $42,155, substantially the same figures. The indebtedness incurred for moneys advanced for the ■same purpose to October 31, 1898, was $73,501.68, and his deduction for “ depreciation ” up to that time was $73,500, a difference of only $1.68.

It is evident, therefore, that the Comptroller in fixing the value of the capital stock of the relator has assumed without evidence that the par value of its capital stock, $500,000, was its real value, and has deducted therefrom each year the indebtedness incurred for taxes and interest. It is quite obvious that he has in his determination proceeded upon a false basis. In estimating the actual value of the capital stock he should have taken the value, of the property and deducted therefrom the indebtedness of the corporation. Of course there is nothing to be added in this case for the good will, for it had, as clearly appears, absolutely no value. The only evidence as to the value of the property of the relator was that which was produced upon the hearing. There is no question that its only property is its equity in its real estate. The real estate was purchased by Barber, who is really the company, for §665,000,. subject to the mortgages, then and now existing thereon, of §531,000, making the equity therein §134,000.; and for this equity of §134,000 all of the capital stock of the company, except §500, was given.

It is true that the treasurer testified that the company, at the time of its purchase of the property, believed the equity to be worth the amount of the capital stock. The company, as I have said, was, in fact, Mr. Barber, who may have honestly believed in June, 1S96, that the property had a large" prospective value, but results have shown that he was under the fatal delusion which lias come upon many other purchasers of real estate for speculation. The value then placed on the equity, as the result has shown, was somewhat imaginary or fanciful. The only evidence, on the hearing, of the value of the property is the purchase price and the judgment of the Supreme Court fixing its value for the year 1897 in proceedings instituted by the relator against the assessors of the town of Green-burgh at §646,500. That judgment was received in evidence by the Comptroller under objections, and the respondent now claims that it should be disregarded as any evidence of value. While it was not binding on the Comptroller, I am not clear but it was competent for him to receive it as some evidence of value; and having done so, he should not be permitted thereafter to disregard it without notice to the relator and without- any opportunity to the relator to produce further evidence. But the same thing was given in evidence without objection. A witness-for the relator was permitted-to testify that the amount of the assessment for 1897 was §646,500. This, together with .the evidence received of what the property cost, is the only evidence in the 'case of its value, and the Comptroller was not at liberty to reject it and arbitrarily fix the value of the capital stock at its par value. 1 think upon this appeal we must accept one of these sums, and the difference between them is not very material, as the value of the real estate. If we assume it to be the sum paid, $665,000, and deduct the mortgage incumbrance, §531,000, we have an equity of §134,000. It is undisputed that on October 31, 1896, the indebtedness of the company was §43,113.90, which deducted from the value of the equity would leave the value of the capital stock for 1896, $90,886.10. This calculation has been made without regard to what in the evidence is called the Lindley property, which appears to have been purchased by the relator at some time between June, 1896, and July 18, 1899, the time of the hearing before the Comptroller, but it does not appear in the record when the purchase was made. This was purchased by the company for the sum of $62,457.06, subject to a mortgage thereon of $40,000. The balance of the purchase price was borrowed by the company of Mr. Barber and now constitutes a part of the indebtedness of the relator to him. This Lindley property does not seem to be included in that upon which the estimate has been made, although the record seems to leave it somewhat in doubt. I am not entirely clear, from the evidence, whether the equity in that property should be added to the value heretofore ascertained of the capital stock, but, as the relator has left it somewhat in doubt, I think it should suffer the consequence, and the $22,457.06 should be added to the $90,886.10, making the actual value of the capital stock for the year 1896 $113,343.16. '

It appears in the evidence that the value of the relator’s property for 1897 and 1898 was no greater than the sum' which I have fixed for 1896, and it also nncontradictedly appears that in the year 1897 the relator’s indebtedness was over $170,000 and in 1898 over $210,000, being in each of those years largely in excess of its property; consequently the capital stock for the years 1897 and 1898 had no value.

I am, therefore, of opinion that the value of the capital stock of the relator employed within the State for the year 1896 was $113,343.16, on which it should pay a tax of one and one-half mills on each dollar, and that its capital stock for the years ending October 31, 1897, and October 31, 1898, had no value.

The determination' of the Comptroller should be modified accordingly.

All concurred.

Determination of the Comptroller modified as specified in opinion, and as modified affirmed, with fifty dollars costs to relator.  