CHAPTER VI

MANNER OF ASSESSING CORPORATIONS; DEDUCTION OF DEBTS.

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In the Tax Law of 1896 there was no specific provision which permitted the deduction of the debts of a corporation in the assessment of its capital stock. Section 21 of the Tax Law of 1896 providing for the manner in making up the assessmentroll required that there should be placed "in the fourth column the full value of all the taxable personal property owned by person respectively, after deducting the just debts owing by him." In construing this section of the law, it was held that since under section 5 of the Statutory Construction Law the term "person" included a corporation and a joint stock association, a corporation may, therefore, deduct its debts from the value of the property. People ex rel. Cornell Steamboat Co. v. Dederick, 161 N. Y. 196 (1900); see also People ex rel. Second Ave. R. R. Co. v. Barker, 141 N. Y. 196 (1894).

Section 21 of the Tax Law as amended by Chapter 315 of the Laws of 1911 provides for the preparation of an assessmentroll, and the arrangement of columns therein, and as far as it relates to the method of assessing corporations it is as follows:

"1. In the first column, the names of all persons and corporations in the tax district, taxable on personal property.

"2. In the second column, the full value of all the taxable personal property owned by each person respectively after deducting the just debts owing by him.

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“4. In the fourth column, the full value of the capital stock of each corporation assessed pursuant to the provisions of section twelve of this chapter.

"5. In the fifth column, the full value of all the taxable personal property owned by each person respectively after deducting the just debts owing by him when such person resides in an incorporated village

and the name of the village, and the full value of the capital stock of each corporation, assessed pursuant to the provisions of section twelve of this chapter, when such corporation has its principal office in an incorporated village and the name of the village.

"6. In the sixth column, there shall be entered by the proper official the amount of the tax levied against such person or corporation named.

"7. In the seventh column, there shall be entered by the proper official the date of the payment of such tax."

Erroneous arrangement of columns and abbreviation of names not fatal.-Where the columns were not arranged in the roll just as directed by statute, but all the matters required to make a good assessment were inserted therein, with sufficient certainty, and where the relator's name was abbreviated as "Mohawk and Malone R. R. Co.," the assessment was held valid in form and sufficiently indicated relator as the person to be assessed. People ex rel. Mohawk R. R. Co. v. Garmon, 34 Misc. 350, aff'd 63 App. Div. 530; see, also, In re Hartshorne, 17 N. Y. Supp. 567, as to misnomer.

"Full value" or "actual value" comprehends allowance for just debts.-The deduction of debts is not an absolute right, but within the grant of the legislature. People ex rel. Bijur v. Barker, 155 N. Y. 330 (1898).

Section 12 of the Tax Law requiring capital stock to be assessed at its "actual value" comprehends an allowance for just debts, and the omission of the words from the present General Tax Law, "taxed in the same manner as other personal and real estate of the county" in no way changes the construction of that section. The courts have interpreted this section of the Tax Law and the original statute, Chapter 456, Laws of 1857, to which it conforms in substance, as permitting the deduction of the debts of a corporation in valuing the capital stock and surplus. People ex rel. Rochester Ry. Co. v. Pond, 37 App. Div. 330 (1899).

Debts must be clearly shown.-To be entitled to the privilege, the indebtedness must be clearly and distinctly shown. That some confusion exists in the decisions as to the deduction of indebtedness, is largely due to the assessors, in some cases, valuing the capital stock of the corporation apart from its property and not as in the case of individuals making the assessment upon the taxable property alone. Under this construction, while indebtedness was considered, if the assessors had already valued the capital stock and taken into account the question of debts in their valuation, no further deduction was permitted. People ex rel. Broadway R. R. v. Com'rs, 1 Thomp. & C., 635 (1873); People ex rel. Butchers Co. v. Asten, 100 N. Y. 597 (1885).

Indebtedness not deducted where statement shows insolvency and item of surplus unexpended.- Where by a statement to the commissioners of taxes, it appeared that a corporation was insolvent, but was paying out large sums as dividends, in the absence of any explanation of this discrepancy, and on the basis of statements filed with them for previous years, showing a surplus, the commissioners were justified in assuming that the corporation's capital was unimpaired. People ex rel. Equitable Gas Light Co. v. Barker, 144 N. Y. 94 (1894).

The indebtedness must, however, be deducted, where the statement is uncontradicted.-Although the capital stock of a domestic corporation is unimpaired, and an item of "surplus" is stated, the indebtedness cannot be ignored, if there is nothing in the statement to show that there are undisclosed assets sufficient to pay the indebtedness. People ex rel. Seidenberg, S. & Co. v. Feitner, 41 App. Div. 571 (Equitable Gas Light Co. case, supra, distinguished). Where the statement of a corporation as to the value of its capital stock and surplus is uncontradicted, no other value can be substituted for it, notwithstand

ing the market price of its stock or a statement by one of its officers before the assessors that he considers the stock worth par. The good will, while part of the capital stock, is not taxable as personal property. People ex rel. Brokaw Bros. v. Feitner, 44 App. Div. 278; see, also, People ex rel. German Looking Glass Co. v. Barker, 75 Hun, 6 (1894). And even where it appears that a corporation paid a dividend out of earnings in bank but not "surplus earnings," it was erroneous on the part of the commissioners to disregard the indebtedness and assume that the company's capital was unimpaired. People ex rel. Sicilian Asphalt Co. v. Feitner, 30 Misc. 665 (1900); see also, Edison Gen. Elec. Co. v. Barker, 141 N. Y. 255 (1894); Edison Elec. Illum. Co. v. same, 139 N. Y. 61 (1893).

Indebtedness must be fixed and not contingent.-The only indebtedness which, under section 21, Tax Law, may be deducted, is a present fixed liability, in no way contingent. The amount due by a customer to a broker in speculative stock sales on margin is not to be measured by the value of stocks purchased but is merely contingent. People ex rel. Sands v. Feitner, N. Y. Law Journal, July 17, 1902; aff'd 76 App. Div. 620; aff'd 173 N. Y. 647.

Contingent liability.-The statute (ch. 618, L. 1901, amending sec. 4, subd. 14, Tax Law) now specifically exempts from taxation the "premium reserve" or fund required to be kept as a reserve by the Insurance Law, but prior to its passage, the rule had been laid down in a number of cases that the premium reserve, being a contingent liability, could not be deducted. People ex rel. American Fire Ins. Co. v. Commissioners, 28 Hun, 261 (1882); aff'd 91 N. Y. 670; People ex rel. Westchester Fire Ins. Co. v. Davenport, 91 N. Y. 574 (1883); People ex rel. National Surety Company v. Feitner, 166 N. Y. 130 (1901); aff❜g 54 App. Div. 633; per contra People ex rel.

Glens Falls Fire Ins. Co. v. Ferguson, 38 N. Y. 89 (1868). The amendment of 1901 has now removed this mooted point, but the cases are valuable on the question of deducting contingent liabilities.

On the authority of the cases above cited, it has been held that a contingent liability to repurchase paper patterns sold under a contract by a pattern company to its customers, by which it agreed to repurchase the unsold patterns at a certain price, was not a proper deduction under Section 12 of the Tax Law. People ex rel. Butterick Publishing Co. v. Purdy, 153 App. Div. 665, Ingraham and Scott, JJ., dissenting; modified on another point in 207 N. Y. 771.

Unearned rentals of telephone company not deductible.— Unearned rentals, i. e., advance payments for telephone service, which must be repaid by the company, on certain contingencies, are not to be deducted. People ex rel. N. Y. & N. J. Tel. Co. v. Neff, 15 App. Div. 8 (1897).

Unearned subscriptions of magazine company deductible.In the recent case of People ex rel. Butterick Publishing Co. v. Purdy, supra, the dissenting opinion of Justice Scott distinguishes the unearned rentals of a telephone company referred to in the Neff case, supra, from that of a publishing company, which was entitled to deduct unearned subscriptions for magazines not yet printed or published, the difference being that the debt in the former case was contingent and to be paid in money and in the latter case was absolute and to be paid in goods, viz., magazines. Upon the dissenting opinion in the Appellate Division, this case was modified in 207 N. Y. 771 (1913).

Dividends declared before, but payable after second Monday of January, deductible.- Dividends declared by a corporation before, but payable after the second Monday of January,