
    People ex rel. Pennsylvania R. Co. v. Wemple, Comptroller.
    
      (Supreme Court, General Term, Third Department.
    
    September 22, 1892.)
    Interstate Commerce—Taxing Railroad’s Business—Constitutional Law.
    A railroad company, whose only business within the state is discharging freight and passengers brought over its line from without the state, and receiving freight and passengers to be sent out of the state over its line, and incidentally maintaining terminal facilities, employing clerks, and keeping a bank account, cannot be taxed by the state on its business, this being interstate commerce.
    
      Certiorari by the Pennsylvania Railroad Company to review the decision of the comptroller of the state of Hew York settling an account against and assessing a tax upon the relator of $40,836.83 under the alleged authority of chapter 542 of the Laws of 1880, and the various acts amendatory thereof and supplementary thereto. Reversed.
    
      Argued before Mayham, P. J., and Putnam and Herrick, JJ.
    
      Robinson, Biddle & Ward, (Edmund Randolph Robinson and Charles M. Hough, of counsel,) for plaintiff. Simon W. Rosendale, Atty. Gen., (Charles F. Tabor, of counsel,) for defendant.
   Mayham, P. J.

The relator is a foreign corporation, incorporated undei the laws of the state of Pennsylvania as a railroad company with an authorized capital stock of $151;700, having terminal facilities in the state of New York, and owning and leasing real estate therein, where it receives goods and passengers for transportation in the transaction of its business as a carrier; and has been since January 1, 1880, engaged in business in the state oí New York, which business is not of the class or kind exempted from taxation under chapter 542 of the Laws of 1880. From 1880 to 1889 the relator declines to make any return to the comptroller of this state under the act Iasi referred to, except that it was engaged in interstate commerce, and that any tax imposed upon its business or franchise under this act was in violation of article 1, § 8, subd. 3, Const. TJ. S. In 1889 the comptroller appointed a special commissioner to examine into the.business and capital stock of the relator situate and employed in the state of New York. On the Sling of the report of such commissioner the comptroller imposed and settled a tax upon the corporation for each year from 1880 to 1889, both inclusive, based upon the value of the capital stock employed in the sfate of New York as per report filed, which amounted in the aggregate to the sum of $37,169.90, to which he added a penalty of 10 per cent., and gave written notice thereof to said corporation, annexed to which was a statement of the tax so settled. The corporation, after receiving the notice from the comptroller of the settlement of this tax, applied on petition and affidavit to that officer for a revision and readjustment of the several accounts for taxes settled against it, and the -comptroller, on the 29th day of September, 1891, made an order declining to make any revision or readjustment of the same, whereupon the relator sued out this writ of certiorari.

It can hardly be denied that from the petition, return, and evidence in the case the relator is shown to be a foreign corporation, doing business in this state, and as such is liable, under the provisions of section 3 of chapter 542 ■of the Laws of 1880, as amended by chapter 501 of the Laws of 1885, to the tax upon the amount of its capital stock used in its business in this slate, unless as such corporation it has immunity from such tax under the federal constitution relating to interstate commerce. The petition of the relator alleges that no part of its line or lines owned, leased, or operated by it is within the state of New York, but admits that it owns and leases lands in the state of New York, which it uses in its business. The answer of the defendant denies that the relator, during the years for which the tax is imposed, was wholly engaged in commerce in states other than the state of New York and between different states, and between the state of New York and different ■states, and that it is not in any way engaged in carrying freight and passengers within the state of New York, and alleges that it appears from the official certificate of the secretary of internal affairs of Pennsylvania that the eastern terminus of its vast system of transportation is in the city of New York, where it has extensive and valuable terminal facilities, and carries on a substantial and important part of its business. This allegation of the answer seems to be supported by the evidence of one of the officers of the relator’s company, taken before the commissioner appointed by the comptroller, and made a part of the record of this case. Within the letter of this act, we do not think the relator a foreign corporation doing business in this state. People v. Wemple, 61 Hun, 85, 15 N. Y. Supp. 711. The statute under which the comptroller assumes to act authorizes a tax upon the franchise or business of a corporation organized under the laws of any other state or country and doing business in this state, and the comptroller, in this case, in settling the account of this tax, expressly states that the same is “for tax on franchise or business, based on the value of the capital stock employed in New York state, per chapter 542, Laws 1880, as amended by chapter 361, Laws 1881, chapter 151, Laws 1882, chapters 359, 501, Laws 1885» and chapter 353, Laws 1889, for 10 years ending November 1,1889.” It will be seen that this assessment or tax is upon the franchise or business of the relator in this state based upon the value of the capital stock employed therein, and is at the rate per cent, per annum allowed by that act, depending upon the dividends declared upon the stock for these years, as the amount of stock and dividends appear from the report of the special commissioner appointed by the comptroller. Before the amendment of 1885, above referred to, the whole amount of capital stock of the corporation could be taken as the basis of estimating and making the account of this tax by the comptroller. By that amendment nine additional sections were added to the original act of 1880. By section 11, which is the first of the added sections, the comptroller is authorized and empowered to ascertain, fix, and determine the amount of capital stock employed within the state, and to settle an account of the taxes and penalties due thereon. In the case of People v. Wemple, (N. Y. App.) 29 N. E. Rep. 1002, O’Brien, J., says: “The basis of the tax is the amount or proportion of the capital used here in the transaction of its ordinary business. How much that may be in any particular case is generally a question of fact, to be determined by the comptroller under the procedure pointed out by the statute. ” If this corporation is within the taxing power of the state, and the statute under 'which it is sought to be taxed, when applied to it, is not in conflict with the provisions of ’the federal constitution, which confers upon congress the exclusive power to regulate commerce between the states, then we think that the determination of the comptroller upon the question of fact as to what proportion of the capital of the relator was used in this state in the transaction of its business should not be disturbed by this court. The rule has long been settled that, when a taxing officer is charged with the duty of determining the amount of an assessment for taxation, this determination will not be disturbed, unless clearly shown to have been erroneous. Bank v. St. John, 29 Barb. 585; Bank v. Lacombe, 84 N. Y. 367, 385; Kelly v. Crapo, 45 N. Y. 86; People v. Wemple, (Sup.) 41 N. Y. Supp. 859, affirmed, and the doctrine restated, 129 N. Y. 565, 29 N. E. Rep. 812; People v. Wemple, 129 N. Y. 558, 29 N. E. Rep. 812:

We are, then, left to consider the remaining question as to the power of the state to tax the relator on its franchise or business, based upon its capital and stock employed in this state. If we are right in the conclusion we have reached above, the only ground upon which this tax can be set aside in these proceedings is that of wrant of power in the state to impose a tax upon the relator on the ground that the relator’s only business in this state is that of conducting interstate commerce. It is clear that a tax on a foreign corporation doing business cannot be taxed in this state, on its franchise, as the franchise is not granted in this state, and would no more be the subject of taxation, here than would its property owned and used by it in another state. In People v. Trust Co., 96 N. Y. 393, it was held that nonresidents’ property, having no legal situs here, and business not carried on here, are beyond the jurisdiction of this state, and not subject to taxation here; and a defendant, being a foreign corporation, could not be taxed here in reference to its property situate out of the state, and its business not done here. Nor could it be taxed on account of its corporate franchise, as that was not given by our laws, was dependent upon the laws of the state of its creation, and bad no existence separate therefrom. This seems to be conceded by the-defendant’s counsel, and also conceded that the tax imposed by the comptroller is not imposed upon its property, but for the privilege which is extended to'.it .by the state of doing business here as a corporation, in its corporate name. People v. Wemple, supra. In this ease the court also holds that “the state has the power to exclude corporations of other states from doing business within its jurisdiction. If, however, it permits them to come here and transact business, it may impose a tax upon them for this privilege, and this is not a reg•ulation by the state of interstate commerce, but a lawful exercise of the power of taxation upon corporate bodies that for the time being are within its jurisdiction for that purpose.” The learned judge, in this opinion, in a brief but comprehensive manner defines the boundary line between state and federal jurisdiction as follows: “The only limit upon the power of the state to exclude foreign corporations from doing business within its limits, or to exact conditions for such privilege', arises where the corporation is in the employ of the federal government, or where its business is strictly commerce, interstate or foreign.” It is not pretended that the relator is in the employ of the federal government. Mor can it, we think, be successfully maintained that its business is not “strictly commerce, interstate or foreign.” The petition, return, and evidence disclose that a large per cent, of its business in the state of New York is delivering freight and passengers from other states into this state, and receiving passengers and freight from this state for transportation to other states; yet, as a corporation, it keeps a large number of workmen, clerks, and agents employed in this state, owns and uses in its business a large amount of real estate in this state, and leases and uses in its corporate business, and for the same use and purposes leases and occupies, valuable real estate in this state, keeps for the use of its corporate business large balances in banks in this state, and does other acts in the conduct of its corporate business; and it was suggested by the learned counsel for the defendant on the argument that as, between the states of New Jersey and New York, the jurisdiction of New York extended to the center of the Hudson river, the relator’s transportation line extended through the territorial jurisdiction of this state from that point to the docks and slips in Mew York city, and that, therefore, all the business done by the relator in New York was carried by it through Mew York territory; and that the allegation of the petition that, “no part of relator’s line or of the line leased or operated by it is within the state of New York, and that the compensation which it receives is entirely for transportation in states of the Union other than the state of New York, or transportation between the state of New York and -other states of the Union,” is notsustained by the facts.

Mo point is. made upon the defendant’s brief, and, as the Hudson-river is at rthe point where the relator’s line crosses a navigable stream, we will not ■ stop to discuss that point. But, independently of that suggestion, we think it sufficiently appears, as we have shown, that the sole business of the relator • in the state is. that of interstate commerce. As a great railroad corporation - doing business in and between many states in the Union, with terminal facilities, and property in the city of Mew York, it established offices, kept ■employes, made bank deposits, and in that manner facilitated its general , interstate business, and thus, took itself out of the taxing power of the state, ■ under chapter 542 of the.Laws of 1880 and its amendments. If this tax was • aimed at the business of the relator transacted in this state other than that.of ■ commerce between different states, it is not in violation of the federal- constitution; and the power of this state to tax it for the privilege of doing business has not only been sustained by the state courts, but by the United : States supreme court as well. In People v. Insurance Co., 92 N. Y. 340, 341, Ruger, J., says: “We have before seen that the state legislature had :an undoubted right, by virtue of its jurisdiction over corporations organized under its laws, to levy such tax on their business and privileges, aside from all property taxation, as, in its discretion, it might deem just and proper in order- to-provide revenue for the state.” In the same case, on appeal to the United States supreme court, (134 U. S. 594, 10 Sup. Ct. Rep. 593,) Field, J., says: “No constitutional objection lies in the way of the legislature prescribing any mode or measurement to determine the amount it will charge for the privilege it bestows.” It is true that this was said in reference to the granting of a franchise, and the right to do business, to a domestic corporation; the same case being in the federal court on the question of the right to tax stock represented in government bonds. It is insisted by the relator that the United States supreme court, in the case of Ferry Co. v. Pennsylvania, 114 U. S. 196, 5 Sup. Ct. Rep. 826, is analogous to the case at bar, and decisive of it. In that ease the sole business of the ferry company was to carry passengers and freight across the Delaware river from (Gloucester, N. J., to Philadelphia, Pa. Under the laws of Pennsylvania, the state sought to tax the ferry company. There was no evidence that the ferry company had any property, or did any business, in the state of Pennsylvania; and the court held that, as the sole and exclusive business of the ferry company was to carry passengers and freight from one state to the other, it was clearly interstate commerce, and Us control was in the federal jurisdiction. The business of the ferry company did not extend through several states, nor did it carry on a business in the city of Philadelphia, and the case was therefore in that respect like the one at bar. In the federal courts it has been held that a license cannot be charged in one state, upon a drummer or peddler from another state, on the ground that such license is a restriction upon interstate commerce which belongs solely to the federal government. But I have been referred to no case where that doctrine has been extended to corporations formed in one state and doing business in another, except where the business is confined exclusively to interstate commerce.

In the case of People v. Mining Co., 105 N. Y. 76, 11 N. E. Rep. 155, where a foreign corporation organized under the laws of the territory of Utah for the mining and refining of silver did all the-business in Utah and Chicago, but its products were sent to New York for further refining and sale, it was held that it did not do a manufacturing business in New York, so as to exempt it from taxation, but that, as it was refining and selling here, it was doing business in the state, so as to subject it to taxation under the Laws of 1880. On appeal to the supreme court of the United States that court, in affirming the judgment of the court of appeals, uses this language: “The objection that it [this, tax] operated ag a direct interference with interstate commerce we do not think tenable. The tax is not levied upon articles imported, nor is there any impediment to their importation. * * * The tax is only levied upon the franchise or business of the company,”—thus holding that the tax may be imposed upon the business, and at the same time holding that such a taxis not an undue interference by a state with interstate commerce. 143 U. S. 305, 12. Sup. Ct. Rep. 403. In Western Union Tel. Co. v. Attorney General, 125 U. S. 530, 8 Sup. Ct. Rep. 961; Massachusetts v. Western Union Tel. Co., 141 U. S. 40, 11 Sup. Ct. Rep. 889; Pullman Palace Car Co. Case, 141 U. S. 18,11 Sup. Ct. Rep. 876; Maine v. Railroad Co., 142 U. S. 217, 12 Sup. Ct. Rep. 121, 163,—the United States- supreme court have upheld the right to tax companies doing business by the state authorities. It is true that the courts have in some instances been divided, and in. some cases the decisions have been put upon the ground that a large párt of the corporate property was in the state where the tax was imposed. In the.case at bar it seems that the only actual business done by relator in this state was to receive and discharge freight and passengers carried between the states. From the above references it is clear that if the business of the relator transacted in this state is only an incident to its interstate carrying trade between this and other states, then it cannot be said that it is carrying on such a business within this state as to subject it to the taxing power of the state; and, while, it is; difficult to determine the exact point at which the authority of the state ends and the exemption under the federal authority commences, we are inclined to the opinion that the business transacted by the relator in this state was not such a business carried on in this state as to bring it within the taxing power of the comptroller, and that the writ of certiorari should therefore be sustained. The assessment and order of the comptroller must be reversed, and the tax remitted to the relator, with costs.

Herrick, J.,

(concurring.) Concededly the tax imposed by the comptroller upon the relator is not a franchise tax, nor a tax upon its property located in this state. It is a tax upon its business. What is that business? The relator is engaged in transporting freight and passengers through the states of New Jersey and Pennsylvania. It has terminal facilities in the city of New. York, where it discharges freight and passengers brought over its lines from without the state, and receives freight and passengers to be transported over its lines to places beyond the state, but none to be transported to points within the state. The only business that is done within the state by the relator is to receive freight and passengers to be sent out of the state, and to receive freight and passengers shipped from without the state to this state. The business described is commerce between the states, and a tax upon it is illegal. Ferry Co. v. Pennsylvania, 114 U. S. 196, 5 Sup. Ct. Rep. 826; Robbins v. Shelby Co., 120 U. S. 489, 7 Sup. Ct. Rep. 592; Leloup v. Mobile, 127 U. S. 640, 8 Sup. Ct. Rep. 1380. The leasing of property in which to carry on its business, employing workmen, clerks, and agents within the state, and paying them here, the keeping of money in New York banks, depositing and drawing-out the same from time to time, do not constitute a business within the state. All of these things are but incidents of the business carried on by the relator, the machinery by which it is .transacted; it is not the business itself. There is a clear distinction between this case and that of People v. Wemple, 61 Hun, 83, 15 N. Y. Supp. 446. There the court said the company “maintained a sales agency in the city of New York; sold the products of its mills in this state, refined crude oil in this state, maintained a deposit or storage of its products, and kept on deposit in the banks of New York large sums of money for the use of the relator and for carrying on its business.” That describes a business, not the incidents to or the means by which it is carried on, but the business itself, all of which was done within this state. This is not the case of a copartnership or corporation having.its principal place of business in New Jersey, or some other state, establishing a branch house in this state, and carrying on business here, bringing its property here, and mixing it with the general mass of property and commercial capital of the state. . All corporations. engaged in transporting freight and passengers between and through the states must have the means to effect such transportation, and must have terminal facilities; and, while the property owned by them in.the several states, and used, to carry on such business, may be subject to a property tax by the respective states, yet the business itself cannot- be. -And the caring for and maintaining the means or instruments of transportation,, the procuring, leasing, or management of depots, warehouses,- or docks, the employing of men necessary to carry on such transportation, is not, a separate and distinct business which can be taxed. Of course, some part of the relator’s business is carried on in this state; necessarily so. It would not be interstate commerce if part of it was not carried on in different states. But, on the other hand, it appears that none of the relator’s business is carried on wholly within this state,—that is, none of its transporting-business. That which is done wholly within this state is not business, but mefely the necessary incidents of business. Commerce between the .states being the only business in which the relator is engaged, and the tax in question being levied, not .as a property or franchise tax,, but as a tax upon its- business. I think the determination of the comptroller was erroneous, and should be reversed. Let an order be entered accordingly, with $10 costs and printing and other disbursements.

Putnam, J., concurs. _ .  