The jurisdiction to tax foreign corporations under chap. 542 of the Laws of 1880, as amended by chap. 501 of the Laws of 1885, and the subsequent amendments, depends upon the existence of two concurring conditions, *Page 3 namely, that the corporation sought to be taxed shall be "doing business" in this state, and, second, that its capital or some portion thereof shall have been "employed within this state." (Chap. 501, Laws of 1885, sec. 11.) This point was sharply presented and expressly decided in People ex rel. Harlan andHollingsworth Co. v. Campbell, Comptroller (139 N.Y. 68). The relator in that case was a manufacturing corporation created under the laws of the state of Delaware, where it conducted its manufacturing operations, but having a rented office in the city of New York, in which it placed office furniture and which was in charge of a salaried agent. The office was maintained for the convenience of the corporation and its patrons. Meetings and conferences were held therein between the agent and persons contemplating entering into contracts with the corporation, but the contracts themselves when made were signed and executed at the home office in Wilmington. The relator was taxed upon the basis of $25,000 of capital stock "employed in this state." It was claimed on behalf of the relator that it was neither "doing business" in this state nor employed any of its capital therein within the meaning of the statute. This court reversed the decision of the comptroller, Judge EARL writing the opinion. The court declined to pass upon the question whether the relator was "doing business" in this state within the meaning of the statute, but rested its judgment on the ground that no part of its capital was employed therein. Judge EARL said: "We leave this question (as to the relator's doing business in this state) unanswered, as we are satisfied that it did not employ any of its capital within this state, and that, therefore, there was no basis for the imposition of the taxes. As before stated, except the small amount of furniture in its office, it did not have or keep any property of any kind within this state, and it did not disburse any money in this state. The only obligations it incurred in this state were for the rent of the office and the salary of its agent, and they were discharged by checks drawn in the state of Delaware, on a Delaware bank, and paid in that state. Those checks were obligations *Page 4 of the relator, and not property in any sense belonging to it, and they were no portion of its capital. They operated as payments made in the state of Delaware, and there was no ground whatever for saying that it employed $25,000 of its capital, or any other sum, within this state. We do not think that the office furniture could fairly be considered as capital employed within this state." (See, also, opinion of O'BRIEN, J., People ex rel.S.T.C. Co. v. Wemple, 133 N.Y. 323.)
While, in most cases, a foreign corporation doing business within this state will employ some portion of its capital in the prosecution of such business, it is quite possible that the business which it prosecutes here may not require the use of any part of its capital, and, when this is the case, there can be no taxation for the reason that there is no basis for taxation, since the basis for the tax is the "amount of capital stock employed within this state." Having in view the necessity of the coexistence of both of the conditions mentioned to warrant the imposition of a tax under the act of 1885, it is important to refer to the facts disclosed by the record. The relator is a corporation organized under the laws of New Jersey as an investment company with a capital of $13,000,000, and is managed by a board of ten directors, two of whom only are residents of the state of New York. It has an office in Jersey City where meetings for the election of directors are annually held, and an office in the city of New York for which it pays an annual rental of $1,500, containing office furniture of the value of $1,000, and it pays salaries to a treasurer, secretary, clerk and stenographer employed in the city of New York, amounting to $10,000 a year. The company seems to have been organized for the purpose of investing its capital in the purchase of the stock and bonds of the Union Stock Yard and Transit Company, an Illinois corporation, and its whole capital has been invested in the stock and bonds of that corporation. It has issued shares to its own stockholders to the full amount of its capital stock. Upon the purchase of the stock of the Illinois corporation, the relator deposited it with the Central Trust Company of New *Page 5 York, as collateral security for the payment of certain bonds issued by the relator. The organization and management of the Chicago corporation is independent of the relator. The relator's whole income is derived from its investment in the Chicago company. The entire business of that company is done at Chicago, and its dividends are declared and paid in that city. The dividends and income of the relator, arising from the investment in the Illinois corporation, are applied by it to the payment of the interest and principal of its obligations, the disbursements of the New York office and in paying dividends to its own stockholders declared, from time to time, by the directors at meetings in New York. These dividend checks are drawn upon banks in the city of New York and are there mailed to its stockholders, 1,500 in number. The relator keeps its bank account in that city, composed of a portion of its dividends and income, and has an average balance of $25,000 or $30,000 to its credit, and it has constituted the Bank of Commerce its transfer agent there.
There is no controversy as to the fact that in the transaction of its business in this state, the relator has and employs no money for any purpose, except that derived in the form of dividends or interest from its investment in the stock and bonds of the Illinois corporation. Its whole capital remains invested out of this state and it applies the income therefrom in the manner hereinbefore stated. It may be conceded that the relator in keeping an office in the city of New York, where it received and disbursed its income derived from its investment in the Illinois corporation, depositing it in bank and drawing upon the deposit for the payment of its obligations, dividends to its shareholders and disbursements in maintaining its office, was doing a part of its appropriate function as an investment company, and that this was "doing business within this state" which satisfied that condition of the statute. But the uncontroverted evidence establishes that it employed no part of its capital here, and the second condition to the exercise of the taxing power under the act of 1885 did not exist. The profits and earnings of a corporation are not *Page 6 capital, though they may be converted into capital. If no such conversion has taken place, they furnish no basis for taxation under the act of 1885, except incidentally as the dividends may be increased, upon which the tax in many cases is computed. The point that the profits or surplus earnings of a foreign corporation are not capital and not taxable under the statute, was distinctly decided (following prior decisions) in the recent case in this court of People ex rel. Singer Mfg. Co. v.Wemple (150 N.Y. 46), and the peculiar facts render the case very significant in respect of the application of the principle stated. There can be no claim in this case that the income of the relator received from the Illinois corporation and disbursed in New York city, was converted into capital. It is doubtless true that the income from its investment in the Illinois corporation, when received, was the property of the relator within this state. But it was not capital, but the profits from capital. If the disbursement of the income by the relator for the purposes and in the manner stated, can in any proper sense be considered an employment of the money within this state, it is, nevertheless, true that it was not an employment of capital and hence was not a fulfillment of the second condition precedent to the jurisdiction to tax the relator, namely, that it should have employed its capital or some part thereof within this state. We perceive no ground upon which the tax imposed upon the relator can be maintained. The small amount invested in office furniture and the fact that it rented an office in the city of New York and held it under lease, did not alone justify the imposition of the tax, in view of two decisions of this court. (People ex rel. H. H.Co. v. Campbell, supra; People ex rel. Washington Mills Co. v.Roberts, 8 App. Div. 201; affd., 151 N.Y. 619.)
We think the decision of the comptroller and the order from which this appeal is taken should be reversed.