
    The People of the State of New York ex rel. Hubert Apartment Association, Relator, v. Otto Kelsey, Comptroller of the State of New York, Respondent.
    Third Department,
    January 8, 1906.
    Tax Law — franchise tax on corporation operating apartment house — valuation of stock.
    A domestic corporation which owns and operates an apartment house situated in this State is employing its capital within the State and. is taxable on its franchise under section 182 of the Tax Law.
    When the stockholders in such company ,have leases of the apartments at rents much below the rental value, the benefit thus received is in lieu of dividends, and in determining the value'of the stock the real rental value may be considered.
    Though the allegations of the petition on certiorari to review a franchise tax on such corporation state that the leases can be sold and transferred without reference to the stock, and that the stock has no value without the leases, and that some of the leases have become disassociated from the stock, and such allegations are denied in the return, they will not be considered when no evidence of such facts has been given.
    'When the land cost §54,000 and the house §1^0,000, subject to a mortgage of §128,000, and there is a floating debt of §2,000 and §85,000 worth of stock is outstanding, and the assessed value of the realty is §275,000, a valuation of the stock of such corporation at §122,000 is not excessive.
    Certiorari issued out of the Supreme Court and attested on the 29th day of July, 1905, directed to Otto Kelsey, Comptroller of the State of -Hew 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 assessing a franchise'tax against the relator.
    This is a review by a writ of certiorari of the determination of the Comptroller fixing the amount of the franchise tax against the relator under section 182 of the Tax Law (Laws of 1896, chap. 908, as amd. by'Laws of, 1901, chap. 558), the relator contending that the capital stock is not taxable for the reason that it is not employed within the State, or if taxable, that the assessment and tax are excessive and should be modified.
    The relator was incorporated in 1881. Its certificate declares the object of the corporation to be “ the purchasing, acquiring and improving real estate for an apartment house to be leased and con- . ducted by the corporation so formed and occupied by the stockholders thereof and others, and apportioning and distributing the same among the stockholders and members of 'such corporation.” Its land -cost $54,000, the house • $130,000. The property is mort-. gaged.for $128,000, the stock outstanding is $85,835, and there is a-.'floating indebtedness.of $2,000. The Comptroller valued the stock - at- $122,000. . The house has eighteen apartments and two studios, all .of which, except. two apartments which are reserved for rental to outsiders, were apportioned among the sixteen original stockholders under fifty-year leases. There are how fifteen stockholders. About half of the apartments so apportioned are now actnallybccupied by stockholders, the others by the sub-tenants of stockholders, the association having no relations with the sub-tenants or -tó the . apartments so long as the rent is paid by the stockholder; the association collects its rents, pays taxes and running expenses, which include elevator service, heating, etc., and conducts and maintains the apartment house. , The rentals to. be paid by "the stockholders do' not represent the full rental value of the apartments, but aré fixed at- such a sum as (with the rentals "from the two- reserved apartments) will meet expenses of maintenance, taxes, heating, etc. The association has no other income or property. The property is in New York city and has greatly i'ncreased.in value since the formation of the association, and the-rentals paid by the stockholders are from twenty to twenty-five per cent less" than the present rental value. The assessed value-of the property on the New York.city assessment roll is $275,000. .
    
      Nelson S. Spencer, for the relator.
    x Julius. M. Mayer, Attorney-General, and .Horace McGuire, Deputy'Attorney-General, for the respondent.
   Kellogg, J.:

Within the -rule laid -down.in People ex rel. Wall & Hanover St. R. Co. v. Miller (181 N. Y. 328) a. corporation whose-only business is owning and- managing an apartment house is. employing its capital stock within the State and is taxable under section 182. of the Tax Law.- The Comptroller was, therefore,. right, in- determining that the- relator’s capital stock is taxable. ' •

The amount of the assessment and tax is not excessive if the value of the property of the corporation is considered with refer-' ence to its present rental value. But the relator contends that burdened as the association is with these, fifty year .leases at inadequate rentals, so' that at the'best it can only be self-sustaining, its stock cannot be assessed at more than its par value. The question then is whether the stockholders get these cheap rentals solely on account of the leases or by virtue of their being stockholders of the association. The petition alleges that the leases can be sold and transferred without reference to the stock, and that- the stock has no real market value except as it accompanies one of the leases, and that in one or two cases the actual lease has become disassociated from the stock. It is unnecessary to consider the- effect of those allegations, for the reason that the denial in the return puts them in issue,' and no evidence was offered before the Comptroller, although the facts were peculiarly within the knowledge of the relator. This determination must proceed'-upon the return, and allegations in the petition denied by the return cannot be considered. (People ex rel. Lester v. Eno, 176 N. Y. 513.) There is no evidence tending to show that any lease is now owned separate and apart from the stock, or that any stock has been sold or is owned separate and apart from the lease, or that they can be so separated. The terms ' of the lease, the ,terms of the stock certificates, if any, and the by-laws of the association are not before us, and there is no means of definitely determining whether a stockholder may sell his lease and retain his stock or sell his stock and retain his lease. -We may fairly infer from the certificate of incorporation that while others than stockholders may occupy the premises (either as tenants of' the two apartments reserved for outsiders, or as sub-tenants of stockholders), the intention is that the leases are apportioned and distributed among the stockholders and- members of the association, and it is not a broad inference that the ownership of the lease should remain with the stock, for the lease could not have been obtained without the stock. If such is the case then the benefits which a stockholder gets from his. lease he derives as a stockholder; such - benefits then did not all go to the original stockholders, but accrue each year to the then stockholder'; they may be called dividends or otherwise, but they come from, the association and go to the present stockholder. It is evident, that if the rents of the apartments leased to the stockholders are increased twenty or twenty-five per cept to their present value,' the association would pay a substantial dividend and its stock would be very valuable. The stockholders, therefore, are receiving by means of the leases the benefits which ordinarily accrue to a stockholder under the name-of dividends. In determining the value of the stock the present rental value of the property may be considered. The determination of the Comptroller is, therefore, Confirmed, with fifty dollars costs and disbursements^ to be paid by the. relator.

All concurred.

Determination of the Comptroller confirmed,, with fifty 'dollars costs and disbursements.  