[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]
The important question, which arises upon this appeal, is whether a tax could legally be assessed upon the relator which included, in the items going to make up the
amount of capital employed within this state, the copyrights and the good will of the corporation. The statute provides that the tax upon a foreign corporation "is to be computed upon the basis of the capital employed by it within this state," (Sec. 182, chap. 908, Laws of 1896), and we have held that that means only such of the capital as was represented by the value of property, whether of money, goods or other tangible things. (People exrel. Seth Thomas Clock Company v. Wemple, 133 N.Y. 323.) It is the policy of the state, with respect to corporations which are created under the laws of another state or country and do business in this state, that a tax should be assessed upon that business. The jurisdiction to impose the tax is gained by reason of the business which they are privileged to do here under the protection of our laws. (People ex rel. A.C. D. Co. v.Wemple, 129 N.Y. 558.) So far as the franchises themselves of the foreign corporation are concerned, they are beyond the reach of our tax laws. They are derived from the governments to which they owe their creation and can only be subjected to taxation by the laws of those governments. When it is sought to exercise them within this state, the condition of the right to do so is the liability to taxation and control by the legislature, so far as the capital can be seen to be employed in business here. The domicile of this relator, in legal contemplation, is in the state of West Virginia, and it is difficult to conceive of any taxation of its properties within this state, unless it be confined to such as are corporeal and tangible. The only properties of that nature, which represented the capital of the relator in this state, consisted in cyclopædias which were printed and put upon the market and in its pecuniary assets, in bank account, or in accounts receivable. Its copyrights are Federal grants of privileges and no more power exists to include them in the valuation for assessment purposes, than would exist with respect to patent rights. It has been but recently held by us, in Peopleex rel. Edison El. Il. Co. v. Assessors, (156 N.Y. 417), that patent rights cannot be made the subject of taxation, and if they are not taxable, clearly, the same principle,
which exempts them from the taxing power of the state, should exempt copyrights. In the case just referred to, the assessment included a certain sum for United States patent rights and we held that the question of the right of the taxing power of the state to assess patent rights was no longer an open one, within the decisions of the United States Supreme Court, there referred to. The doctrine, as settled by authority, is that the incorporeal right of discovery is protected by national authority against all interference; but the use of the tangible property, which comes into existence by the application of the discovery, is not beyond the control of state legislation. (Patterson v.Kentucky, 97 U.S. 501; Webber v. Virginia, 103 id. 344.) The state has not the power to interfere with the privilege of using a person's property in inventions by taxing him upon the same and, if that be true, the same principle operates to deny to the state any power to tax the owner of a copyright for the privilege of using his right. The property in the plates, instruments, books, etc., and the copyright secured to the author are altogether different and independent of each other. The latter, as an exclusive right to the multiplication of the copies for the benefit of the author, or his assigns, is an incorporeal right, and has no physical existence. (Stephens v. Cady, 14 How. [U.S.] 528.) The state should be confined, in the exercise of its taxing power, as in the case of patent rights, to the tangible property which is produced under the protection of the exclusive right granted by the Federal government. It cannot prevent the relator from exercising its franchise here, as the owner of copyrights; for they are privileged and protected by the Federal Constitution. To concede a right to tax them would be to concede a power to impede, or burden, the operation of the laws enacted by Congress to carry into execution a power vested in the national government by the Constitution.
I think that the comptroller was in error, when he included, as a basis for assessment of the relator's capital employed within this state, its copyrights.
Nor does the power exist to assess a foreign corporation upon its good will. That is an intangible asset of the corporation, whose only conceivable situs is at its domicile. It is the reputation of the business. It may be defined as the right acquired to continue the publication and sale of the cyclopædia, under the protection of the copyrights, and that could not be regarded as capital employed within this state. Its good will may contribute a value to its business products, undoubtedly; but it is based on the Federal privilege and on that account, as for its incorporeal nature, is beyond legislative control here. It appertains to the corporation as such and can exist only where the corporation exists, viz.: within the territory of the government which created it.
There is no authority in the statute for imposing a tax upon a foreign corporation; unless it is imposed upon the amount of "the capital stock employed by it within this state." (Sec. 181, ch. 908, Laws of 1896.) We have had occasion to see in the SethThomas Clock Company's Case (133 N.Y. 323), upon what property of a foreign corporation, which is doing business within this state, a tax can be assessed. It was said in the opinion in that case that, "only such part of it, (the capital stock), was employed within this state as was represented by the actual value of property, whether in money, goods or other tangible things. It kept goods for sale here. It had money on deposit, and it may be other property. This, whatever its value, was the basis of taxation. That property represented all the capital employed in this state." The theory of that decision was that there is no basis for taxation, if the foreign corporation does not employ any of its capital stock here, and the exclusion from assessment of any property not of a tangible nature was in accord with what we have considered, in the Union Trust Company Case, (126 N.Y. 433), to constitute the capital stock of the company. In that case, although the subject for decision was the liability of the relator under the General Tax Laws of the state, the opinion discussed elaborately the relative significance of "the capital stock of a company and the capital stock which is held in shares by the
corporators." It was said: "The two things are neither identical nor equivalents. The capital stock of a company is one thing; that of the shareholders is another and a different thing.
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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]
The important question, which arises upon this appeal, is whether a tax could legally be assessed upon the relator which included, in the items going to make up the
amount of capital employed within this state, the copyrights and the good will of the corporation. The statute provides that the tax upon a foreign corporation "is to be computed upon the basis of the capital employed by it within this state," (Sec. 182, chap. 908, Laws of 1896), and we have held that that means only such of the capital as was represented by the value of property, whether of money, goods or other tangible things. (People exrel. Seth Thomas Clock Company v. Wemple, 133 N.Y. 323.) It is the policy of the state, with respect to corporations which are created under the laws of another state or country and do business in this state, that a tax should be assessed upon that business. The jurisdiction to impose the tax is gained by reason of the business which they are privileged to do here under the protection of our laws. (People ex rel. A.C. D. Co. v.Wemple, 129 N.Y. 558.) So far as the franchises themselves of the foreign corporation are concerned, they are beyond the reach of our tax laws. They are derived from the governments to which they owe their creation and can only be subjected to taxation by the laws of those governments. When it is sought to exercise them within this state, the condition of the right to do so is the liability to taxation and control by the legislature, so far as the capital can be seen to be employed in business here. The domicile of this relator, in legal contemplation, is in the state of West Virginia, and it is difficult to conceive of any taxation of its properties within this state, unless it be confined to such as are corporeal and tangible. The only properties of that nature, which represented the capital of the relator in this state, consisted in cyclopædias which were printed and put upon the market and in its pecuniary assets, in bank account, or in accounts receivable. Its copyrights are Federal grants of privileges and no more power exists to include them in the valuation for assessment purposes, than would exist with respect to patent rights. It has been but recently held by us, in Peopleex rel. Edison El. Il. Co. v. Assessors, (156 N.Y. 417), that patent rights cannot be made the subject of taxation, and if they are not taxable, clearly, the same principle,
which exempts them from the taxing power of the state, should exempt copyrights. In the case just referred to, the assessment included a certain sum for United States patent rights and we held that the question of the right of the taxing power of the state to assess patent rights was no longer an open one, within the decisions of the United States Supreme Court, there referred to. The doctrine, as settled by authority, is that the incorporeal right of discovery is protected by national authority against all interference; but the use of the tangible property, which comes into existence by the application of the discovery, is not beyond the control of state legislation. (Patterson v.Kentucky, 97 U.S. 501; Webber v. Virginia, 103 id. 344.) The state has not the power to interfere with the privilege of using a person's property in inventions by taxing him upon the same and, if that be true, the same principle operates to deny to the state any power to tax the owner of a copyright for the privilege of using his right. The property in the plates, instruments, books, etc., and the copyright secured to the author are altogether different and independent of each other. The latter, as an exclusive right to the multiplication of the copies for the benefit of the author, or his assigns, is an incorporeal right, and has no physical existence. (Stephens v. Cady, 14 How. [U.S.] 528.) The state should be confined, in the exercise of its taxing power, as in the case of patent rights, to the tangible property which is produced under the protection of the exclusive right granted by the Federal government. It cannot prevent the relator from exercising its franchise here, as the owner of copyrights; for they are privileged and protected by the Federal Constitution. To concede a right to tax them would be to concede a power to impede, or burden, the operation of the laws enacted by Congress to carry into execution a power vested in the national government by the Constitution.
I think that the comptroller was in error, when he included, as a basis for assessment of the relator's capital employed within this state, its copyrights.
Nor does the power exist to assess a foreign corporation upon its good will. That is an intangible asset of the corporation, whose only conceivable situs is at its domicile. It is the reputation of the business. It may be defined as the right acquired to continue the publication and sale of the cyclopædia, under the protection of the copyrights, and that could not be regarded as capital employed within this state. Its good will may contribute a value to its business products, undoubtedly; but it is based on the Federal privilege and on that account, as for its incorporeal nature, is beyond legislative control here. It appertains to the corporation as such and can exist only where the corporation exists, viz.: within the territory of the government which created it.
There is no authority in the statute for imposing a tax upon a foreign corporation; unless it is imposed upon the amount of "the capital stock employed by it within this state." (Sec. 181, ch. 908, Laws of 1896.) We have had occasion to see in the SethThomas Clock Company's Case (133 N.Y. 323), upon what property of a foreign corporation, which is doing business within this state, a tax can be assessed. It was said in the opinion in that case that, "only such part of it, (the capital stock), was employed within this state as was represented by the actual value of property, whether in money, goods or other tangible things. It kept goods for sale here. It had money on deposit, and it may be other property. This, whatever its value, was the basis of taxation. That property represented all the capital employed in this state." The theory of that decision was that there is no basis for taxation, if the foreign corporation does not employ any of its capital stock here, and the exclusion from assessment of any property not of a tangible nature was in accord with what we have considered, in the Union Trust Company Case, (126 N.Y. 433), to constitute the capital stock of the company. In that case, although the subject for decision was the liability of the relator under the General Tax Laws of the state, the opinion discussed elaborately the relative significance of "the capital stock of a company and the capital stock which is held in shares by the
corporators." It was said: "The two things are neither identical nor equivalents. The capital stock of a company is one thing; that of the shareholders is another and a different thing. That of the company is simply its capital, existing in money or property, or both; while that of the shareholders is representative, not merely of that existing and tangible capital, but also of surplus, of dividend earning power, of franchise and the good will of an established and prosperous business." And it was observed that, "there are reasons in abundance for the conclusion that by the phrase `capital stock' the statute means not the share stock, but the capital owned by the corporation; the fund required to be paid in and kept intact as the basis of the business enterprise, and the chief factor in its safety." It is to be noticed that the good will of a corporate business is regarded as something which attaches to the interests of the shareholders and which is not part of the capital stock of the company, and that it gives an added value to the interests of the former. The doctrine of that case influenced us in the SethThomas Clock Company's case and induced the conclusion that, with respect to foreign corporations, their capital stock employed in this state could not exceed the property which they kept here in the transaction of their business. In the case of a domestic corporation, however, the field of assessment is wider and comprehends both the corporate franchise and the business. Nothing is beyond the reach of the taxing power of the state in such a case, which is not rendered exempt by Federal law. Therefore it was that in People ex rel. Wiebusch H. Co. v.Roberts, (154 N.Y. 101), we held that in appraising the capital stock of a domestic corporation at its actual value, the element of the good will of the business, "including its right to conduct it under its franchise," might be included in the appraisal; but, that the distinction between that which represented the capital stock of the company and that which represented the capital as to the shareholders was recognized, is clear from the quotation in Judge MARTIN's opinion from the language in the Coleman case, which I have given above.
In the Wiebusch case the question was as to what elements the comptroller of the state might include in reaching a determination as to the actual value of the capital stock of a domestic corporation. To apply the reasoning of that opinion in the present case, so as to make of it an authority for including good will as an element of value, would be, in my judgment, not only to misapprehend the opinion itself, but would be to lose sight of the fact that the state in the taxation of foreign corporations neither intended, nor is deemed to have power, to reach other properties of the foreign corporation than what are represented in its moneys, goods, or other tangible things, as we said in the Seth Thomas Clock Company case.
The legislative expression of "capital stock employed within this state" negatives the idea that its franchises, or incorporeal rights, or privileges, are intended and seems to rigidly limit the subject of assessment to tangible things, within the doctrine of the Coleman case. To hold the view that the element of good will may be included as a subject of taxation is to extend the jurisdiction of authorities without authority in reason, or in precedent. As well may the state claim to increase the tax upon a foreign corporation according to the greater credit it may enjoy in the community, or to the character of its reputation for fair and honest dealing.
I think we should hesitate before adding this new feature of illiberality to the tax legislation of our state.
The errors committed by the comptroller, in the respects mentioned, are such as necessitate a readjustment on his part.
It is not possible to effect any separation in this case, in the comptroller's assessment of the amount of capital employed by the relator in this state, between its tangible property and its copyrights and good will.
I think that the order appealed from and the determination of the comptroller should be reversed, with costs; so far as it included for the purposes of taxation the copyrights and good will of the relator, and that the matter should be remitted to the comptroller for a readjustment of the tax.