ing, and that the so-called excess profits taxes assessed for and as of the year 1917 should be deducted from the incomes of these corporations before the computation of the state franchise tax is made, and that the income taxes paid to the federal government during the year 1917 by the American Broom and Brush Company, should be deducted from its income before such computation by the state tax commission is made.

"But, why? This is not an income tax; it is a franchise tax. It is a tax for the privilege of doing business in a corporate form in the State of New York, and the only relation of the federal act to the statute of New York is the basis for the computation of the state tax. It provides for a 3 per cent. tax upon the basis of the 'entire net income' of the corporation as shown by its report to the United States government, unless such income is erroneously stated, when the actual 'entire net income' as determined by the Tax Commission becomes the foundation of the assessment."

Entire net income for 1918, in the light of the above decision, would seem to include the $2,000 exemption allowed each corporation under the 1918 Federal Act, but would permit a deduction for so much of the income derived from obligations of the United States as may be exempt under the Federal Act, and also for all income from state, municipal, farm loan bonds and dividends on stocks of corporations.

CHAPTER XIV.

FOREIGN CORPORATIONS.

1. Doing business in this State.

That capital be employed within the State in order to subject a foreign corporation to assessment of the income tax under the Act of 1917 and the amendatory legislation since enacted is of consequence only in regard to the apportionment of the earnings of a corporation doing business in this and in other States according to the ratio of its realty, stocks of merchandise, and accounts receivable located here to the totals of those items of assets wherever located. See Section 214.

"Business is a very comprehensive term, and embraces everything about which a person can be employed."

Flint v. Stone Tracy Co. 220 U. S. 107; People ex rel. Hoyt v. Tax Commissioners, 23 N. Y. 244. There is a difference between "engaged in business" sufficiently to confer by service of process jurisdiction on a court and "doing business" in the sense that confers jurisdiction on the Tax Commission to assess a tax.

In Tanza v. Susquehanna Coal Co., 220 N. Y. 259, it was held of a corporation having its principal office and its coal yards in Pennsylvania, and a sales office in New York, orders obtained by which were subject to the confirmation of the Philadelphia office to which all payments by the customers were made, that the company was doing business within this state in such a sense and to such a degree as to subject it to the jurisdiction of our courts. This was on the authority of International Harvester Co. v. Kentucky, 234 U. S. 579 and Green v. Railway Co., 205 U. S. 530.

But in International Text Book Co. v. Tone, 220 N. Y. 313, it was held that a correspondence school fulfilling its contracts by

transmitting information through the mails was doing nothing in New York except in furtherance of interstate commerce in maintaining division agencies here, and could not be subjected to a license tax by reason of maintaining those agencies.

2. Doing local business in connection with interstate com

merce.

Transporting freight, communication by telegraph or telephone, and sales, purchases and shipments of goods between states are operations of interstate commerce. As such they are beyond the reach of restrictions, exactions, license taxes, business taxes, and occupation taxes. No state can interfere with the enforcement by a foreign corporation of its sales contracts with citizens of the state for goods to be shipped from outside the state. A license tax may not be exacted for the operation of an interstate ferry. Savage v. Atlanta Home Ins. Co., 55 App. Div. 20. Keeping an office to show samples is not "doing business" in a state, since using samples like employing salesmen is a means of carrying on interstate commerce. Cheney Bros. v. Massachusetts, 246 U. S. 147; McCall v. California, 136 U. S. 104; Crenshaw v. Arkansas, 227 U. S. 389; International Text Book Co. v. Begg, 217 U. S. 92. Selling goods through a commission house is not doing business although the commission merchants are in effect a substitution for a selling agency given up to escape a tax on capital employed in this state. People ex rel. So. Cotton Oil Co. v. Roberts, 131 N. Y. 64, 25 App. Div. 13. On the other hand, keeping a sales office with a resident manager is local business falling within the taxing power of the state. Sending machines into a state, to sell, try, rent; buying, exchanging and selling machines of another make; keeping a mechanic to make repairs, and a stock of parts and supplies, is doing business. Datton Adding Machine Co. v. Virginia, 246 U. S. 498; 118 Va. 563. Various operations, such as hiring laborers to dig ditches, and build and paint foundations in installing an electric signal system, repairing and selling second hand motor cars, keeping a stock of type setting machine parts for repair orders,

keeping a garage and service station, keeping an office from which solicitors from retailers of orders to be filled by jobbers are sent, keeping an office under a provision in the corporate charter for distributing in dividends the proceeds of a foreign mining and smelting business, have been held to be "doing business" locally and subject to state taxation,-General Railway Signal Co. v. Virginia, 246 U. S. 500, 118 Va. 301; Locomobile Co. v. Massachusetts, 246 U. S. 146, 38 S. C. R. 298, 228 Mass. 117; Lanston Monotype Case, 246 U. S. 147; Northwestern Consolidated Milling Case, 245 U. S. 644, 38 S. C. 297; Champion Copper Co. v. Mass., 246 U. S. 147, 38 S. C. R. 297; White Co. v. Mass., Idem., but state taxation for the privilege of doing a local business based on the total capitalization of the foreign corporation and with no provision for a maximum tax to prevent an arbitrary and unreasonable result, disproportionate to the local business done and capital employed or invested locally is invalid because it is a direct burden upon interstate commerce and an interference with it. Statutes of Massachusetts, Oklahoma and Texas have been condemned in the Federal Supreme Court on this ground. In Looney v. Crane, 245 U. S. 178, a foreign corporation had a capital and surplus account all told of $25,000,000, and had only $300,000 employed in Texas in a warehouse and the goods therein. It was taxed $17,000 for the privilege of doing business in Texas in lieu of $200 under the previous statute. In International Paper Co. v. Massachusetts, 246 U. S. 135, a tax of $5,500 on a foreign corporation which had only 2% of its assets and did only 14% of its business in the State was pronounced unconstitutional, because the law under which it was imposed did not contain, as did a former act held valid, a restriction to a maximum tax of $2,500. A tax on gross earnings even has been upheld, when expression of the intention to avoid burdening interstate commerce as such is embodied in a statutory provision that it should be in lieu of all other taxes whether on property or otherwise. Cudahy Packing Co. v. Minn., 246 U. S. 450; Myer v. Wells Fargo & Co., 223 U. S. 298.

3. Local business taxed in proportion to goods and accounts here located.

On the face of it, the New York Income Tax Law of 1917 does not, even in any extreme instance, present any unconstitutional interference with interstate commerce. No constitutional obstacle will be encountered in levying a tax, the apportionment of which as to local business done here is based upon stocks of goods, either manufactured here or sold here, and bills receivable for such stock of goods, with the item added of services rendered under the heading of bills receivable. This last factor in the apportionment, will cover the cases of corporations engaged, for instance, in construction work, or engineering contracting, organized in another State but deriving income within this State. The credits and accounts receivable, carried on the books of such a corporation, would not proceed from stocks of material or goods manufactured in New York or sold in New York, or carried in New York warehouses. Such corporations do not make or sell their materials, they put them together and leave them in a permanent location. Their profits could not be credited to the manufacture or sale of tangible personal property, but would fall logically and accurately within the description of "services performed" under an engineering or construction contract. The item of bills receivable for services performed would also apply to a commission business for which an office is maintained within the State.

4. The Wisconsin income tax case.

The Wisconsin Income Tax Law of 1911 (Section 1087 M. 1) undertook to tax non-residents "upon income derived from sources within the State," with a proviso that any person engaged in business within and without the State shall be taxed only upon the proportion of the income derived from business transacted and property located within the State.

In U. S. Glue Co. v. Oak Creek, 161 Wis. 211, it was held that income of a domestic corporation from goods owned by it purchased outside the State and shipped either from the seller, or from a factory in Wisconsin, to its branch houses in other states, and thence