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Origin of special franchise tax.—By Chapter 712 of the Laws of 1899, a class of property which had hitherto escaped taxation became the subject of assessment. This law provided for the taxation of the right to use the public streets by the public service corporations, and included the taxation of the tangible property in, over or under the streets in connection with the special franchise. The special franchise tax applicable to quasi-public corporations using the public streets should be distinguished from the tax imposed by the state on the organization of every corporation for the right to become a corporation, and also from the annual franchise tax imposed by the state for the right to do business in the state. The special franchise tax by a legal fiction is in the nature of a property tax and taxes the incorporeal right together with the tangible property. The organization tax and annual franchise tax apply to corporations generally and tax the right to become a corporation or to do business, to be computed on the basis of the value of the capital stock.

A brief résumé of the conditions leading up to the adoption of this law will be helpful in obtaining a clearer conception of its scope

and purposes. The property of every corporation has been defined as its capital stock, surplus and franchises. People ex rel. Union Trust Co. v. Coleman, 126 N. Y. 438. It has also been held that the general franchise of a corporation is its right to exist and exercise its corporate powers; that the general franchise of a street railway company is the special privilege to construct and operate a street railway. People ex rel. Metropolitan St. Ry. Co. v. State Board of Tax Commissioners, 174 N. Y. 417.

Before the passage of the Special Franchise Tax Law, attempts had been made by local assessors to tax the franchises of public service corporations, which showed bonded and other indebtedness in excess of assets and at the same time sufficient earnings to pay not only running expenses, interest on bonded indebtedness and capital stock, but also a surplus. Where the discrepancies were unexplained, the courts assumed that there were assets over and above to pay outstanding indebtedness. People ex rel. Equitable Gas Light Co. v. Barker, 144 N. Y. 94.

While, therefore, in a case where the value of assets was in dispute such a method might in fact, if not in name, lead to the assessment of the franchise, there was no warrant under the law as it then stood for the assessment of franchises as part of the capital stock and they could not be so included by the assessors. People ex rel. Manhattan Ry. Co. v. Barker, 146 N. Y. 304 (1895); People ex rel. Manhattan Ry. Co. v. Barker, 152 N. Y. 417 (1897); People ex rel. Subway Co. v. Barker, 7 App. Div. 28, aff’d 151 N. Y. 639 (1896); Edison Elec. Illum. Co. v. Neff, 19 App. Div. 599 (1897); People ex rel. Consolidated Gas Co. v. Feitner, 78 App. Div. 313 (1903).

It was quite clear that while the franchise as an asset was of great value the law did not require its return for the purpose of taxation. People ex rel. Brooklyn R. R. Co. v. Neff, 19 App. Div. 595 (1897).

The inadequacy of the existing law to reach this class of property through the general property tax led to the passage of the Ford Special Franchise Bill, as it was then known, during the administration of Governor Roosevelt in 1899.

The act as originally passed provided for the assessment of the franchises by the local assessors, and made no provision for the deduction of moneys paid to the various municipalities by the owners of the franchises. This was remedied by the extraordinary session of the legislature, which convened immediately upon the passage of the original bill and enacted Chapter 712 of the Laws of 1899, amending the bill, then in the hands of the governor, by requiring the assessments to be made by the state board of tax commissioners and making allowances for moneys paid to the various municipalities on account of the franchises.


The Tax Law, Art. I, Sec. 2, Subd. 3.—The terms “land," "real estate," and "real property,” as used in this chapter, include the land itself above and under water, all buildings and other articles and structures, substructures and superstructures erected upon, under or above, or affixed to the same; all wharves and piers, including the value of the right to collect wharfage, cranage or dockage thereon; all bridges, all telegraph lines, wires, poles and appurtenances; all supports and inclosures for electrical conductors and other appurtenances upon, above and under ground; all surface, underground or elevated railroads, including the value of all franchises, rights or permission to construct, maintain or operate the same in, under, above, on or through streets, highways or public places, all railroad structures, substructures and superstructures, tracks and the iron thereon; branches, switches and other fixtures permitted or authorized to be made, laid or placed in, upon, above or under any public or private road, street or ground; all mains, pipes and tanks laid or placed in, upon, above or under any public or private street or place for conducting steam, heat, water, oil, electricity or any property, substance or product capable of transportation or conveyance therein or that is protected thereby, including the value of all franchises, rights, authority or permission to construct, maintain, or operate in, under, above, upon or through any streets, highways, or public places, any mains, pipes, tunks, conduits or wires, with their appurtenances, for conducting water, steam, heat, light, power, gas, oil or other substance, or electricity for telegraphic, telephonic or other purposes; all trees and underwood growing upon land, and all mines, minerals, quarries and fossils in and under the same, except mines belonging to the state. A franchise, right, authority or permission specified in this subdivision, shall, for the purpose of taxation, be known as a special franchise.” A special franchise shall be deemed to include the value of the tangible property of a person, co-partnership, association or corporation situated in, upon, under or above any street, highway, public place or public waters in connection with the special franchise. The tangible property so included shall be taxed as a part of the special franchise. No property of a municipal corporation shall be subject to a special franchise tax.

Source: The special franchise tax amendment, italicized in the text, was made by L. 1899, chap. 712, Sec. 1; the original of Sub. 3, Sec. II is found in the old taw Taw Laro (L. 1896, ch, 908) and was taken from the Revised Statutes, Pt. I, chap. 13, tit. 1, Sec. 2 as amended by L. 1881, chap. 293.

Special franchise defined.— Under this subdivision, a special franchise of a street-railroad has been defined as a right of way granted over a public street by the state or some municipal officer or body acting under its authority, with leave to construct and operate thereon a street railroad. People ex rel. Metropolitan St. Ry. Co. v. Tax Comm’rs, 174 N. Y. 435. But if the right to use the street has not been granted by some political body having authority, but by abutting owners who own the fee in the land, it cannot be taxed as a special franchise under the above subdivision. People ex rel. Retsof Co. v. Priest, 75 App. Div. 132; aff’d 175 N. Y. 511. Property situated upon a public highway and used in connection with a special franchise is not assessable as real estate but only as part of the special franchise. People ex rel. Glen Telephone Co. v. Hall, 57 Misc. 308; aff’d 130 App. Div. 360; People ex rel. Glen Telephone Co. v. Failing, 57 Misc. 308; aff'd 130 App. Div. 888. Tangible property used in connection with the operation of a tunnel under public waters is included in the term special franchise and is assessable as such. People ex rel. Edison Illuminating Co. v. Comm’rs. of Taxes and Assessments, 58 Misc. 249; People ex rel. Hudson & Manhattan R. R. Co. v. State Board, 142 App. Div. 220, 143 App. Div. 26; reversed on another point, 203 N. Y. 119. To constitute a special franchise, it would seem that the right to use a street or highway

should result solely from the permission of the proper municipal authorities. People ex rel. L. I. R. R. Co. v. State Board of Tax Commissioners, 148 App. Div. 751. Where a railroad company receives permission from the legislature to occupy a certain street, upon obtaining the consent of the local authorities, it cannot, after securing such consent, question the validity of its organic act and is estopped from denying its right to maintain its railroad in the street; its right to occupy the street is taxable as a special franchise. People ex rel. N. Y. C. & H. R. R. Co. v. Priest, 150 App. Div. 19; affirmed 206 N. Y. 274. Where a public service corporation is using the public streets under color of right, including a contract with the city, it may not claim it is a wrongful trespasser to escape the special franchise tax. People ex rel. East River Terminal Railway v. Tax Com’rs, 79 Misc. 134. Where a corporation has laid pipes under a public highway without the express consent of the officials it is estopped from denying its liability to be assessed for a special franchise tax. People ex rel. United Natural Gas Co. v. Priest, 152 App. Div. 249; aff'g 70 Misc. 69.

A foreign pipe line company that maintains its pipes under country highways upon grants from abutting owners and obtains authority to do business within the state continuing to operate its lines for seventeen years thereafter, will be deemed to have done so by the consent of the town commissioners of highways and thus to have acquired a right taxable as a special franchise. People ex rel. United Natural Gas Co. v. State Board, 70 Misc. 69. The crossing of a highway by a railroad constitutes a special franchise and is taxable as such. Lackawanna Railroad Co. v. Roll, 32 Misc. 321; but see Sec. 2, subd. 4, Tax Law. The term "surface" embraces steam railroads and such railroads are taxable under the Special Franchise Tax Act. People ex rel. Erie R. R. v. Woodbury, 70 Misc. 261; People ex rel. N. Y. C. & H. R. R. v. Woodbury, 203 N. Y. 167; People ex rel. N. Y. C.

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