
    The People of the State of New York ex rel. Waclark Realty Company, Appellant, v. Charles H. Gaus, as Comptroller of the State of New York, Respondent.
    Third Department,
    September 15, 1909.
    Tax — franchise tax — corporation organized solely to hold title to lands — construction of Tax Law.
    Where the-owner of lands organized a business corporation solely for the purpose of holding title to the lands, on which he is constructing, a private residence and a factory for the purpose of finishing material therefor, and the corporation owns no "personal property except a check for §10,000 paid in but never used, and has no income or receipts of any kind and has never made any expenditures or sold any of its real estate, it is not subject to a franchise tax under section 183 of the Tax Law.
    In construing said section the courts sharply distinguish between capital employed and capital invested, and it is only the former which is to be considered in laying a franchise tax. The word “ employed ” as used in the Tax Law means something more than a mere investment or the passive use of capital and contemplates the active use of such capital in business.
    Any serious doubt in the construction of the Tax Law must be resolved in favor of the taxpayer.
    Certiorari issued out of the Supreme Court and attested on the 17th day of February, 1909, directed to Charles FI. Gaus, as Comptroller of the State of New 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 stating an account against the relator for a franchise tax for the year 1905, under section 182 of the Tax Law. (See Laws of 1896, chap. 908, § 182, as amd. by Laws of 1901, chap. 558.)
    
      Atwater & Cruikshank [Edward L. Blackman of counsel], for the relator.
    
      Edward R. O'Malley, Attorney-General [Edward H. Letchworth, Deputy, of counsel], for the respondent.
   Smith, P. J.:

The section of the Tax Law involved in this proceeding provides for an annual corporation tax to he computed upon the basis of the amount of its capital stock employed within this State.” The only question here is as to whéther the capital stock of relator was so “ employed ” within the meaning of the statute. It appears that relator was incorporated in 1904 as a business corporation under the Business Corporations Law. The powers conferred upon it by its certificate of incorporation are very broad, including among others the right to acquire, purchase and hold real estate, but the record 'shows that the controlling if not the sole-purpose of incorporating this relator was, generally, the personal convenience of ¡Senator W. A. Clark, and, specifically, to hold title to certain real property owned by him. All of the stock of relator is owned or directly controlled by said Clark and represents properties transferred to it by him. The company owns no personal property except a check for $10,000 paid in and never used, and the value of its capital stock is the value of the real estate owned by it, together with this $10,000 in cash. Upon a part of its real estate Senator Clark is erecting a residence at his own expense and for his personal use, and upon another tract is a factory for the purpose of finishing materials for such residence. Ro rents are paid to relator and it has never had any income nor receipts of any kind nor are any contemplated, nor has it ever made any expenditures. All taxes are paid by said Clark and the company has had neither bank account, employees nor debts. It has never sold any of its real estate and none of it is for sale.

In construing section 182 the cases sharply distinguish between capital employed and capital invested, and we think that under the principles laid down the capital of relator must be held to be of the latter class. In People ex rel. Niagara River Hydraulic Co. v. Roberts (30 App. Div. 180; affd. unanimously without opinion in 157 N. Y. 676), where certain unimproved real estate was held for a number of years but no active business was done by the company, it was held that there was no liability for the franchise tax inasmuch as there was no capital employed within the State. The court said : If capital can be invested without being employed, the case before us seems to be a fair instance of it.” In the case of People ex rel. Fort George Realty Co. v. Miller (179 N. Y. 49) a corporation whose sole business was to acquire, hold and sell real estate was held exempt from payment of the franchise tax on the ground that its capital was not employed because it appeared that the object of the corporation was “to raise the money to pay the taxes and assessments, and prevent the property from being sacrificed.” The incorporators there were the former owners of the property as heirs at law, and the real estate was heavily mortgaged and practically unproductive. In the case of People ex rel. Wall & Hanover Street Realty Co. v. Miller, before this department (98 App. Div. 584; affd., 181 N. Y. 328), we distinguished the Miagara River and Fort George cases upon the ground that the realty company was conducting a “ live business.” The same two cases were also discussed at length by the Court of Appeals, and were distinguished by the majority upon substantially the same grounds, Judge Vann, in the concurring opinion, referring to the “ active management ” necessary in the business of the realty company, and distinguishing between the “ passive holding ” of capital in the form of an unproductive investment, and the “ active use of capital ” in business, in that instance the management of a large office building. The doctrine of the Wall & Hanover Street case was recently applied unanimously in People ex rel. Vandervoort Realty Co. v. Glynn (194 N. Y. 387), where a real estate company was doing an active business as landlord, the Fort George case being again distinguished. It may bé argued that if the incorporation would secure the benefits of incorporation under our laws they must pay the tax. But they have paid the tax for incorporating, and the tax now assessed is for the employment of capital. While the Fort George Case (supra) was decided by a divided court, that court has never overruled the decision, and the decision there made would seem to control our determination here.

The record shows that this relator has engaged in no business whatever in the ordinary usage of the term. It is acting simply as the legal depository of the titles of certain pieces of real estate, and its corporate powers as determined by its charter have, in all other respects, remained inactive and unexercised. The use of the word “ employed ” in the Tax Law seems to indicate something ' more than mere investment or the passive use of capital; we think it contemplates the active use of capital such as ordinarily results in connection with a live business. The powers of a corporation as shown by its certificate of incorporation may be varied and numerous, as in the ease at bar, but until some power be exercised which involves active employment of capital the corporation does not become liable to taxation. Moreover, any serious doubt in a case of taxation should be resolved in favor of the taxpayer. (People ex rel. Mutual Trust Co. v. Miller, 177 N. Y. 51, 57.)

The determination of Comptroller should be reversed, with costs to relator.

All concurred.

Determination of the Comptroller reversed on law and facts, with fifty dollars costs and disbursements to relator.  