The opinion of the court was delivered by: GALSTON
The plaintiff is a corporation which was organized in 1925 under and pursuant to the Insurance Law of the state of New York, Consol.Laws, c. 28. It seeks to recover in the first cause of action set forth the sum of $1,770.37, with interest, which amount was paid to the Collector of Internal Revenue of the United States in Brooklyn as a capital stock tax assessed against the plaintiff for the year ending June 30, 1933; in the second cause of action the plaintiff seeks to recover $1,798.51, also paid to the Collector of Internal Revenue as a capital stock tax for the year ending June 30, 1934.
The question presented in this case is the same as that which was considered in Bowers, Executor, v. Lawyers' Mortgage Co., 285 U.S. 182, 52 S. Ct. 350, 353, 76 L. Ed. 690, and in United States v. Home Title Co., 285 U.S. 191, 52 S. Ct. 319, 321, 76 L. Ed. 695; i.e., was the plaintiff an insurance company subject to the capital stock tax imposed by section 204 of the Revenue Acts of 1932 and 1934? Title 26 U.S.Code, § 204, 26 U.S.C.A. § 204 and note, provides in part:
"Insurance companies other than life or mutual
"(a) Imposition of tax. In lieu of the tax imposed by section 13 of this title, there shall be levied, collected, and paid for each taxable year upon the net income of every insurance company (other than a life or mutual insurance company) a tax as follows:" etc.
The provision in the 1932 act is the same.
In the National Industrial Recovery Act, c. 90, § 215(a), 48 Stat. 195, 207, a tax is imposed upon every domestic corporation of $1 for each thousand dollars of the adjusted declared value of its capital stock, but any insurance company subject to the tax imposed by section 204 of the Revenue Act of 1932 is exempt.
Similarly under the capital stock tax, Revenue Act 1934, § 701, U.S. Code title 26, § 1358, 26 U.S.C.A. § 1358, the tax imposed by the section does not apply to any insurance company subject to the tax imposed by section 204.
The two cases cited above, Bowers v. Lawyers' Mortgage Company and United States v. Home Title Co., set forth the test or tests to be applied for the purpose of determining whether the taxpayer is exempt as an insurance company such as is defined in section 204 of the Revenue Acts of 1932 or 1934. In the former case it was said: "While name, charter powers, and subjection to state insurance laws have significance as to the business which a corporation is authorized and intends to carry on, the character of the business actually done in the tax years determines whether it was taxable as an insurance company. U.S. v. Phellis, 257 U.S. 156, 42 S. Ct. 63, 66 L. Ed. 180; Weiss v. Stearn, 265 U.S. 242, 44 S. Ct. 490, 68 L. Ed. 1001, 33 A.L.R. 520."
In applying that test the Supreme Court found that the business of the Lawyers Mortgage Company then under consideration did not entitle it to exemption as an insurance company from the imposition of a capital stock tax. In the Home Title Company Case, on the contrary, it was found that insurance was the principal business of the company, and also that it did not appear that "any substantial part of its transactions was not connected with or the outgrowth of insurance."
The plaintiff is in the business of insuring titles to real estate, makes mortgage loans for the purpose of selling such mortgages with a guarantee of the payment of principal and interest of mortgages, and insures to the assignee of the mortgage the soundness of the title. The plaintiff also made building loans, and, in connection therewith, caused inspection and appraisal of the real property to be made.
In the sale of the mortgages they were assigned at their face value and one-half of 1 per cent. of the interest was retained as a premium for the guarantees.
In the statement of income prepared by the plaintiff for the years 1932, 1933, and 1934, the following figures appear:
Premiums 1932 1933 1934
For Mortgage Guarantees $35,733.40 $32,394.85 $30,800.80
For Title Insurance 1,505.12 861.03 715.05
Total $37,238.52 $33,255.88 $31,515.85
Total Income, All Sources $175,768.47 $128,001.87 $127,170.81
Premiums then for the three taxable years recorded show a range of 21 to 26 per cent. of the total gross income from all sources. If to the premiums there be added the income from business incidental to insurance income, as for example that emanating from the examination of titles where title policies are applied for, fees for conveyancing, recording fees, certificates, guaranteed mortgage renewals, the figures show:
1932 1933 1934
Income $12,717.76 $6,642.36 $11,406.37
or in percentage, respectively, 7.37, 5.23, 9.04, of gross income from all sources.
An item in dispute of considerable moment in determining classification of income is that designated as "interest on mortgages." In 1932, this amounted to $98,049.96; in 1933, to $49,761.54; and in 1934, to $12,693.48. The defendant seeks to have ...