tion thereon locally as granted by section two hundred and nineteen-j of this chapter, shall include [such] any movable machinery and equipment [affixed to the building as would not pass between grantor and grantee as a part of the premises if not specifically mentioned or referred to in the deed, or as would, if the building were vacated or sold, or the nature of the work carried on therein changed, be moved, except] used for trade or manufacture and not essential for the support of the building, structure or superstructure, and removable without material injury thereto. The term "personal property,” as used in such section, shall not include boilers, ventilating apparatus, elevators, [gas, electric and water] plumbing, heating, lighting and power generating apparatus, [and] shafting other than counter-shafting, equipment for the distribution of heat, light, power, gases and liquids, nor any equipment consisting of structures or erections to the operation of which machinery is not essential. An owner of a building is entitled to the same exemption under this section as a lessee [and every assessment of real property made subsequent to June fourth, nineteen hundred and seventeen, shall be subject to the provisions of this section as amended hereby].

Sec. 15. This act shall not affect any action or proceeding now pending.

ΙΟ.

Sec. 16. This act shall take effect immediately.

Administrative changes.-An amendment to Section 219-a changed the date from November 1st to December 1st in each year when the Tax Commission shall audit and state the account of each corporation liable to a tax under Article 9-a. There were slight verbal changes in Sections 209, 211, 214, 219-b and 219-d to carry out the purpose expressed in Section 208 that the tax was to be based on the entire income, and the second paragraph of Section 211 contained a statement that deductions for losses in prior years should be specified in the report. Section 219-j was amended by Chapter 138 of the Laws of 1919 providing for a refund by the Comptroller to corporations paying excess taxes.

CHAPTER XII.

SUBJECTS OF TAXATION.

Business corporations taxed.-Article 9-a added as a new article to the Tax Law by Chapter 726 of the Laws of 1917, amended by Chapter 276 of the Laws of 1918, imposed a tax on manufacturing and mercantile corporations based on net income, and Chapter 628 of the Laws of 1919 extended the scope of the law so that it applied practically to all business corporations and exempted only Realty Companies, Holding Companies, Public Service and Public Utility Corporations, Banks, and Insurance Companies (Section 210).

2. Personal service corporations now taxable under Article 9-a.-There had been some duplication of assessments by local assessors and the State Tax Commissioners under the 1917 and 1918 laws. This duplication occurred more often with Hotel corporations and Contracting companies who rendered personal service and at the same time supplied merchandise or material.

The case of People ex rel. McCord v. Cantor pending in the Supreme Court, New York County, raises such an issue as to the right to tax such corporations for local purposes prior to the 1919 amendments to Article 9-a. The present law places all of these personal service corporations, whether engaged in purely personal service or of a mixed character, under Article 9-a.

The state may now tax on the basis of net income varied forms of personal service corporations engaged in business including Accounting, Advertising, Assaying, Auto-Garage, Bonding, Chemical Laboratory, Collection, Custom House, Brokerage, Dredging, Engineering, Hotel, Insurance, Brokerage, Investment, Laundry, Pattern Publication, Restaurant, Safe Deposit, Salvage and Wrecking,

Shipping Agent, Steamship Agent, Storage Warehouse, Taxicab, Theatre Ticket, Trucking, etc., Corporations.

3. Exceptions from tax.-Section 210 of the Tax Law as amended in 1918, containing the classes of corporations exempt from the franchise tax on net income, reads as follows:

Sec. 210. Corporations exempted from article.-Corporations wholly engaged in the purchase, sale and holding of real estate for themselves, holding corporations whose principal income is derived from holding the stocks and bonds of other corporations and corporations liable to a tax under section one hundred and eighty-four to one hundred and eighty-nine inclusive of this chapter, banks, savings banks, institutions for savings, title guaranty, insurance or surety corporations shall be exempt from the payment of the taxes prescribed by this article.

Realty corporations are only exempted from Article 9-a if they purchase, sell or hold real estate for themselves. They are then taxable under Article 9. If they engage in construction work or act as agents for others, they will be taxable under Article 9-a.

Holding corporations are defined as those whose principal income is derived from holding the stocks and bonds of other corporations. If the income is partly derived from holding the securities of other corporations and in part from other sources, that from which the greater source of revenue is derived determines the basis of the tax. If there is no net income, in cases of mixed corporations of this character, then the basis of determining the tax will depend upon the source from which the larger amount of gross revenue is received.

The term "holding corporations" has been construed by the State Tax Commission to mean that class of corporations whose activities are confined to holding stocks and bonds for purposes of control in a permanent manner and not such as are engaged in selling various stocks and bonds and replenishing a stock of such securities from time to time. In other words, "holding corporations" are not defined to be merely such as derive their principal income from hold

ing stocks and bonds, but such as are actually holding companies. (N. Y. State Tax Bulletin, May, 1919.)

The exemption by specific mention, as well as by mention of section numbers, is a double expression of intention. The specific exemptions of banks, savings banks, institutions for savings, title guaranty, insurance or surety corporations also fall within the exemptions of insurance corporations, trust companies and savings banks, covered by Sections 187 to 189.

The following are the exceptions made by reference to section numbers of the Tax Law:

Section 184.-Corporations formed for steam surface railroad, canal, steamboat, ferry, express, navigation, pipe line, transfer baggage express, telegraph, telephone, palace or sleeping car purposes, and every other transportation corporation not included in Sections 185 and 186.

Section 185.-Railroads, elevated or surface, not operated by steam.

Section 186.-Waterworks, gas, heat, light and power, electric or steam companies.

Section 187.-Domestic insurance corporations and insurance corporations formed in other states of the United States, and doing business in this State, except fire and marine insurance companies; and those formed under the laws of foreign states and countries (except life, health, or casualty companies) and Lloyds underwriters; this section does not include fraternal benefit orders, domestic animal insurance companies, town and county co-operative insurance companies, and companies required to report to the superintendent of banks.

Section 188.-Domestic trust companies and any company authorized to do trust company business, solely or in connection with any other business under general or special law.

Section 189.-Savings banks formed under the laws of this State.

CHAPTER XIII.

WHAT IS NET INCOME.

The Present Law:

Sec. 209. Franchise tax on corporations based on net income. -For the privilege of exercising its franchise in this state in a corporate or organized capacity every domestic corporation, and for the privilege of doing business in this state, every foreign corporation, except corporations specified in the next section, shall annually pay in advance for the year beginning November first next preceding an annual franchise tax, to be computed by the tax commission upon the basis of its entire net income for its fiscal or the calendar year next preceding, as hereinafter provided, which entire net income is presumably the same as the entire net income upon which such corporation is required to pay a tax to the United States.

The amendments of 1918-Constitutionality. The amendments of 1918 struck out the clause in the Act of 1917, which made the income upon which foreign and domestic manufacturing and mercantile corporations are required to pay a federal income tax, the essential basis for the computation of this annual franchise tax. It was the purpose of those who drew the law, to make the income tax report of these corporations to the United States, the basis for the State franchise tax. The amendments of 1918 aimed to avoid the objection that the State had deputized its tax assessing powers to the federal internal revenue authorities.

The State Tax Commission in its 1918 annual report, recommended the addition of the word "presumably," which change would relieve the Commission from the absolute necessity of taking the figures of the United States Treasury Department as the amount of the net income.

The same idea was carried out by adding to the end of Subdivision 2, Section 211, calling for the report of the corporation to