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MATTER P. J. GARVEY CARTING & STORAGE v. STATE TAX COMMISSION (07/01/69)

COURT OF APPEALS OF NEW YORK 1969.NY.42318 <http://www.versuslaw.com>; 250 N.E.2d 868; 25 N.Y.2d 857 decided: July 1, 1969. IN THE MATTER OF P. J. GARVEY CARTING & STORAGE, INC., APPELLANT,v.STATE TAX COMMISSION, RESPONDENT; IN THE MATTER OF BOSS-LINCO LINES, INC., APPELLANT, V. STATE TAX COMMISSION, RESPONDENT; IN THE MATTER OF ROCHESTER GAS & ELECTRIC CORPORATION, APPELLANT, V. STATE TAX COMMISSION, RESPONDENT; IN THE MATTER OF THE BROOKLYN UNION GAS COMPANY, APPELLANT, V. STATE TAX COMMISSION, RESPONDENT Matter of Garvey Carting & Stor. v. State Tax Comm., 27 A.D.2d 337, affirmed. Ralph J. Gregg for P. J. Garvey Carting & Storage, Inc. and Boss-Linco Lines, Inc., appellants. Jerome R. Hellerstein and Jerome J. Cohen for Rochester Gas & Electric Corporation, appellant. Robert B. Lisle and Barbara M. Suchow for Brooklyn Union Gas Company, appellant. Louis J. Lefkowitz, Attorney-General (Robert W. Bush and Ruth Kessler Toch of counsel), for respondent. Concur: Chief Judge Fuld and Judges Burke, Bergan and Breitel. Judge Scileppi dissents and votes to reverse in the opinion in which Judge Jasen concurs.


Matter of Garvey Carting & Stor. v. State Tax Comm., Concur: Chief Judge Fuld and Judges Burke, Bergan and Breitel. Judge Scileppi dissents and votes to reverse in the opinion in which Judge Jasen concurs.

 In each case: Order affirmed, with costs, on the opinion at the Appellate Division.

Disposition

Orders affirmed, etc.

Scileppi, J. (dissenting). Section 183 of the Tax Law (applicable to appellants P. J. Garvey and Boss-Linco) imposed upon each transportation and transmission corporation an annual franchise tax upon the net value of the corporation's issued capital stock. It provides further, however, that "if the dividends paid on the par value of any kind of capital stock during any year * * * amount to six or more than six per centum, the tax upon such kind of capital stock shall be at the rate of one-quarter of a mill for each one per centum of dividends paid and shall be computed upon the par value of such capital stock" (emphasis added).

Section 186 of the Tax Law (applicable to appellants Brooklyn Union and Rochester Gas) provided that: "Every corporation * * * principally engaged in the business of supplying water, steam or gas * * * shall pay for the privilege of exercising its corporate franchise * * * a 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 actual amount of dividends paid during each year ending on the thirty-first day of October in excess of four per centum upon the actual amount of paid in capital employed in this state by such corporation" (emphasis added).

The facts, briefly stated, are as follows:

I. P. J. GARVEY CASE

The appellant, a small Buffalo-based moving and storage company, declared a four for one stock dividend upon its 187 shares of outstanding stock. The aggregate par value of the newly issued shares ($74,800) was transferred on appellant's books from its earned surplus to stated capital account. The Tax Commissioner imposed a franchise tax of $1,870 based upon the amount transferred from earned surplus to stated capital, having determined that such a transfer is a "dividend paid" within the contemplation of section 183. II. BROOKLYN UNION CASE

In November, 1961 the appellant paid pursuant to section 186 its franchise tax amounting to $175,204.11. This amount represented $96,710.34 based on gross earnings and $78,493.77 based on the amount of dividends paid in excess of 4% of paid-in capital. Thereafter the Commissioner imposed an additional tax of $426,477.79 based on appellant's declaration of a stock dividend of 10% on its outstanding common stock. Here again the amount taxed (in this case pursuant to § 186) was based on the amount transferred from earned surplus to stated capital.

III. ROCHESTER GAS CASE

During the years 1960-1962 the appellant paid out a total of approximately $21,000,000 in cash dividends and paid a franchise tax of approximately $250,000 pursuant to the excess dividends requirement of section 186. During this same three-year period, however, the appellant had also declared stock dividends on which the Commissioner imposed an additional tax of $300,000 based upon the amount transferred from earned surplus to stated capital.

IV. BOSS-LINCO CASE

In 1962 the appellant, a closely held corporation by members of one family, decided to offer new stock to members of the public. It was deemed advisable, however, that, in order to make the new offering more attractive to the public, the appellant had to recapitalize. Thereafter the stock structure of the appellant was changed by substituting 1,000,000 shares of class A and 300,000 shares of class B stock (each at $1 par value) for the 1,829 previously authorized shares of 5% non-cumulative preferred stock ($100 par value) and 2,500 previously authorized shares of common stock ($100 par value). After reclassification, however, the par value of the newly issued shares exceeded that of the previously issued shares by $97,100 and thus it became necessary to make the book transfer of that amount from earned surplus to stated capital. Here, again, the Commissioner imposed a franchise tax (pursuant to § 186) upon the amount transferred finding that such was a "dividend paid" under the applicable statute. While there are factual distinctions amongst the cases and the applicable taxing statutes are not the same in each case, the question presented is nevertheless uniform: Whether the issuance of stock certificates as evidence of a book transfer from earned surplus to stated capital constitutes a "dividend paid" within the meaning of the applicable taxing statutes?

In 1910 our court affirmed People ex rel. Pullman Co. v. Glynn (198 N. Y. 605) on the opinion at the Appellate Division (130 App. Div. 332). It was on the basis of that affirmance that the Appellate Division confirmed the ...


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