
    The People of the State of New York ex rel. This Fifth Avenue Building Company, Relator, v. Charles H. Gaus, as Comptroller of the State of New York, Respondent.
    Third Department,
    December 30, 1909.
    Tax — franchise tax — when capital not employed.
    A corporation organized for the purpose of acquiring title to lands and erecting a new building thereon for rental purposes, which has spent all its capital in the purchase of the land,' has issued bonds for the construction of the new building, owns no other lands and is conducting no enterprise earning profit, is not subject to a franchise tax. While the business of the corporation is in such condition its capital is not “employed” within the meaning of the statute.
    A tax should not be imposed upon such corporation by reason of the fact that it received rents under existing leases on the property purchased, if the whole amount thereof was expended in buying up unexpired leases so that the building could be demolished. - ...
    
      Ceetiobabi issued out of the-Supreme Court and attested on the ,24th day of August, 1909, directed to Charles II.. Gaus, as Comptroller of the State of Hew York, commanding him to certify and return to the office of the clei'k of the county of Albany all and singular his proceedings had in refusing to resettle a franchise' tax imposed upon the relator.
    
      Lord, Day ds Lord [Howard Mansfield of counsel], for the relator.
    
      Edvjard D. O'Malley, Attorney-General, and Edward H. Letch worth, Deputy Attorney-General, for the respondent.
   Cochrane, J.:

The relator is a domestic corporation organized in February, 1908. Its capital stock is $4,000,000. On this amount the respondent has imposed a franchise tax under section 182 of the Tax Law (Laws of 1896, chap. 908, as amd. by Laws of 1901, chap; 558 ; Laws of 1906, chap. 474, as amd. by Laws of 1907, chap. 734) at the rate of three-fourths of One mill, amounting to $3,000. The question is'whether the capital stock of the relator was employed ” within the meaning ■ of that section. ■ .

The power of the relator as disclosed by its certificate of incorporation is. quité broad including the right to acquire, hold, improve, develop and manage any real estate and to erect thereon buildings or other structures and to mortgage, lease or sell the same and to lease any stores, rooms or part of any building or other structures at any time so owned. The immediate and principal object of the corporation, however, seems to have been to acquire title to the old Fifth Avenue Hotel property in the city of Hew York and to demolish the same and erect on the site thereof a new store and office building for rental purposes. . Title to said hotel property was acquired by the relator immediately after its incorporation in February, 1908. The old hotel was demolished and the construction of the new building in place thereof was in process but had not yet been completed on the 31st of October, 1908. All of the capital of the relator was used in the purchase of the property and for the construction of the new building bonds were issued. It has acquired no other real estate and its operations have been limited to the erection of this one building in place of the one demolished. Ho dividends, have been earned or paid and no income has been received except that the relator received about $30,000 as rents from leases existing when it acquired the property but this amount was expended in terminating unexpired leases so that the building might be demolished.

Considering the broad provisions of its certificate of incorporation it may b.e that the relator was exercising its corporate franchises and carrying out the declared purpose of its existence. But considering the nature of its operations and the actual purpose of its existence, we think, under the circumstances here disclosed, it would be a harsh and unreasonable construction of the statute to hold that the capital stock of the relator was “ employed ” within the fair meaning and purpose of the statute. The term “ employed ” as Here used means such a utilization of the capital as to render it in some way beneficial or advantageous, having in view the purpose of the corporate existence. The relator in the present instance was merely getting ready to reap the benefits of such utilization. It had earned no dividends and it had as yet derived no benefit' or advantage from its capital. It was performing preliminary operations and passing through a formative process, and had not yet engaged in the business which it was in fact designed to conduct, or reached the stage where it could fairly be said to have its capital employed in the sense that it was actually producing any benefit within the purpose or contemplation of the corporate life of the relator.

The receipt by the relator of the inconsiderable rents under the circumstances here disclosed we deem unimportant. That feature . of the case was a mere incident of the situation. When the relator bought the property it did so subject to the leases, and it took almost immediate steps to terminate them, and in doing so expended all that it received therefrom. What it received in this way was clearly not within the purpose for which it acquired the property, and it derived no actual benefit from these rentals. The leases were in fact detrimental rather than beneficial to the corporate purposes. The relator was not responsible for the-leases, and simply made the best of the situation in endeavoring to terminate them, without having any discretion or exercising any control in respect to their creation. The case, therefore, is clearly distinguishable from People ex rel. Vandervoort Realty Co. v. Glynn (194 N. Y. 387); People ex rel. Wall & Hanover Street Realty Co. v. Miller (181 id. 328), and People ex rel. Fourteenth Street Realty Co. v. Kelsey (110 App. Div. 797), relied on by the respondent.

The determination should be.annulled, with fifty dollars costs and disbursements.

. All concurred.

Determination annulled, with fifty dollars costs and disbursements-.  