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CHAPTER VII.

ANNUAL Tax on TRANSPORTATION, TRANSMISSION, HEAT, LIGHT,

POWER AND WATER COMPANIES BASED ON GROSS EARNINGS.

The law imposing an additional franchise tax on transportation and other companies (Chapter 361, Laws of 1881) was amended in 1894 (Chapter 562) by excluding interstate earnings. Prior to this amendment there had been a decision on the state's right to tax gross earnings derived from the carriage of interstate passengers. People ex rel. Dunkirk, etc., Ry. Co. v. Campbell, 74 Hun, 210 (1893). This decision of the Supreme Court appears to be in line with Maine v. Grand Trunk Ry., 142 U. S. 217, in which the Supreme Court held that the tax was on the franchise and not on interstate commerce. The amendment of the law obviated this question. The present law, section 184 Tax Law, reads as follows:

Additional franchise tax on transportation and transmission corporations and associations.-Every corporation and joint-stock association formed for steam surface railroad, canal, steamboat, ferry, except a ferry company operating between any of the boroughs of the City of New York under a lease granted by the city, express, navigation, pipe line, transfer, baggage express, telegraph, telephone, palace car or sleeping car purposes, and every other transportation corporation not liable to taxation under section one hundred and eighty. five or one hundred and eighty-six of this chapter, shall pay for the privilege of exercising its corporate franchises or carrying on its business in such corporate or organized capacity in this state, an annual excise tax or license fee which shall be equal to five-tenths of one per centum upon its gross earnings within this state, which shall include its gross earnings from its transportation or transmission business originating and terminating within this state, but shall not include earnings derived from business of an interstate character. (Former sec. 184, Tax Law, as amended by ch. 734, L, 1907, ch. 334, L. 1914.)

Source: Ch. 361, L. 1881, secs. 6 and 11, as amended by ch. 562, L. 1894, without change of substance.

Recent Amendments. The amendment of 1914 exempted ferry companies operating between the boroughs of New York City from the additional franchise tax. Additional tax in nature of license fee. The additional franchise tax is to be considered in the nature of a license fee.

In People ex rel. Cornell Steamboat Co. v. Sohmer, 206 N. Y. 651 (1912), Cullen, C. J., said: "I doubt whether in the trųe sense of the term it is to be considered a tax, but should not rather be deemed a compensation exacted for the privilege which the state might refuse." This tax is imposed on transportation corporations as distinguished from general corporations.

Constitutionality of tax on gross receipts of transportation or transmission companies. It is to be observed that the above tax is a license tax on earnings within the state. In Osborne v. Mobile, 16 Wall. 479 (1872), the United States Supreme Court has upheld the right of a state or municipality to impose a license tax. It must, however, be for the transacting of business within the state. Such business is intra-state and not inter-state commerce. Pacific Express Co. v. Seibert, 142 U. S. 339 (1892); Postal Telegraph Co. v. Charleston, 153 U. S. 692 (1894). A state tax on gross freight receipts has been upheld, although partly derived from interstate business. State Tax on railway gross receipts (Reading R. R. v. Pa.), 15 Wall. 284 (1872).

On the other hand it has been held by the New York Court of Appeals that a corporation organized under the General Railroad Law of New York, engaged in the transportation of grain from ports outside of the state to ports in the state, and vice versa, owning a grain elevator, warehouse and short railroad track used in its business, cannot be taxed on its gross receipts derived from the storage and handling of interstate trade, because under section 184 of the Tax Law it is in no event to "include earnings derived from business of an interstate character.” People ex rel. C. T. R. Co. v. Miller, 178 N. Y. 194 (1904), reversing 84 App. Div. 174, Cullen, Vann and Martin, JJ., dissenting.

United States mail carriers not taxable if they carry interstate mail.-Gross earnings of a railroad company derived from carrying United States mail are not taxable where the mail carried includes not only domestic but also interstate and foreign letters and packages, and it is impossible to ascertain the proportion of mail which originates and terminates in the state. People ex rel. N. Y. Cent. & Hud. Riv. R. R. v. Morgan, 168 N. Y. 1 (1901).

Meaning of "gross earnings" in this section.—The term "gross earnings from its transportation or transmission business" covers all receipts of a corporation specified in section 184 growing out of employment of its capital, whether employed in the transportation or transmission business or otherwise. People ex rel. N. Y. Cent. & Hud. R. R. v. Roberts, 32 App. Div. 113 (1898).

Section 185 of the present Tax Law, imposing a franchise tax on elevated railroads or surface roads not operated by steam, reads as follows:

Franchise tax on elevated railroads or surface railroads not operated by steam-Every corporation, joint-stock company or 2880ciation owning or operating any elevated railroad or surface railroad not operated by steam shall pay to the state for the privilege of exercising its corporate franchise or carrying on its business in such corporate or organized capacity within this state, an annual tax which shall be one per centum upon its gross earnings from all sources within this state and three per centum upon the amount of dividends declared or paid in excess of four per centum upon the actual amount of paid-up capital employed by such corporation, joint-stock company or association. Any such railroad corporation whose property is leased to another railroad corporation shall only be required under this section to pay a tax of three per centum upon the dividends declared and paid in excess of four per centum upon the amount of its capital stock, except that where the property leased is operated by a receiver and the gross earnings are not included in the gross earnings of the lessee for the purpose of taxation under this section, then such receiver shall be required to pay the tax upon gross earnings as hereinbefore provided. (Former sec. 185, Tax Law, as amended by ch. 474, L, 1906, ch. 710, L. 1917.)

Recent Amendments.—The amendment of 1917 added the exception as to property leased and operated by a receiver. Corporations operating elevated railroads or surface railroads not operated by steam, which formerly paid a tax on capital stock as well as on gross earnings are exempted from the payment of the former tax by section 183, Tax Law.

Under section 35 of the Rapid Transit Act (Chapter 616, Laws of 1900), a corporation operating a subway is exempt from taxation on its rolling stock and equipment but not on its real estate used in connection with the road. It was held in People ex rel. Interborough Rapid Transit Company v. Williams, 200 N. Y. 93 (1910), that while this exemption relieved the company from taxation on the interest acquired and the property used in carrying out the contracts for the equipment and operation of the subway road, it did not exempt the subway from the payment of any franchise tax whatever. The wording of section 185 whereby any "elevated or surface railroad” was made subject to a tax upon its

gross

“income from all sources, was held not broad enough to cover the earnings from the subway operated by the elevated road, although the subway was one of the sources of income of the elevated road. It was intimated by the court that the subway might be taxable under sections 182 and 184, and in the case of People v. Sohmer, 207 N. Y. 272, decided in 1913, it was held that the exemption under 183, of corporations operating elevated railroads or surface railroads not operated by steam, and taxable under 185, did not apply to subways, but that the latter are taxable under sections 182 and 184.

Sec. 186. Franchise tax on water works companies, gas companies, electric or steam heating, lighting and power companies.Every corporation, joint-stock company or association formed for supplying water or gas, or for electric or steam heating, lighting or power purposes, shall pay to the state for the privilege of exercising its corporate franchises or carrying on its business in such corporate or organized capacity in this state, an annual tax which shall be five-tenths of one per centum upon its gross earnings from all sources within this state, and three per centum upon the amount of dividends declared or paid in excess of four per centum upon the actual amount of paid-up capital employed add: in this state by such corporation, joint-stock company or association add: which amount of capital employed in this state shall be found by dividing the gross receipts from all sales made in this state, by the gross sales wherever made and multiplying the aggregate paid in capital stock by the percentage so found. The term "gross earnings” as used in this section means all receipts from the employment of capital without any deduction. (Present and former sec. 186, Tax Law, as amended by ch. 734, L, 1907, and ch. 548 L. 1919.)

Recent Amendments.—The amendment of 1919 provides for the method of finding the amount of capital employed in the state.

These companies which formerly paid a tax on capital stock under Chapter 542, Laws of 1880, are exempted from paying a tax on capital stock under section 183, Tax Law.

The amendment of 1907 to section 186 defined the term “gross earnings” and provided for taxing "gross earnings from all sources," adding the words that it meant "all receipts from the employment of capital without any deduction.” In People ex rel. Westchester L. Co. v. Gaus, 199 N. Y. 147, the court refused to place an interpretation on this amendment that would permit any deduction for the cost of raw material converted into gas and electric current for the replacement of capital, which the relator in that case held was not an employment of capital. This case was followed in People ex rel. Genesee Light & Power Co. v. Sohmer, 162 App. Div. 207, affd 212 N. Y. 598, where no deduction was allowed in the case of an electric company which bought some of its current, later resold by it, from another company. The relator then sought to have the section declared unconstitutional but the court held in People ex rel. Genesee Light & Power Co. v. Saxe (1917), 179 App. Div. 487, affd 223 N. Y. 690, that there was no unfair discrimination, as the law applied equally to all corporations of the same class.

The amendment of 1907 to section 186 probably grew out of the decision in People ex rel. Brooklyn Union Gas Co. v. Morgan, 114 App. Div. 266 (1906), which held that the value of certain investments in raw materials, such as coal and oil used in making

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