The People of the State of New York ex rel. The Citizens' Electric Illuminating Company of Brooklyn, Appellant, v. Barzillai G. Neff and Others, Constituting the Board of Assessors of the City of Brooklyn, Respondents

The People of the State of New York ex rel. The Citizens’ Electric Illuminating Company of Brooklyn, Appellant, v. Barzillai G. Neff and Others, Constituting the Board of Assessors of the City of Brooklyn, Respondents. Taxation of a corporation —a deduction of ten per cent of its capital stock depends on its surplus equalling that sum—failure to prone the source of a surplus — an objection not taken before the assessors is not available at Special Term. Under the Tax Law (Laws of 1896, chap. 908, §§ 12, 81) a corporation is entitled to á deduction'of ten per cent of the amount of its capital stock only when its surplus profits or reserve fund, as returned for taxation, equal ten per cent of its capital stock. Assuming that a corporation is not concluded by a statement, made in its return to city assessors, that it -has no surplus profits or reserve fund, still it is not entitled to a deduction upon the ground that its surplus exceeds ten per cent of .its capital stock, where it appears that the alleged surplus may have resulted from an, enhancement of the value of its franchise, which is exempt from taxa- . tion. If such surplus proceeds from savings or accumulations from its business, that fact should be affirmatively shown by it. An objection that a corporation was assessed in the wrong ward, which was not taken before the assessors, is properly disregarded by the Special Term upon the hearing under a Writ of certiorari issued to review the assessment. Appeal by the relator, The Citizens’ Electric Illuminating Company of Brooklyn, from a final order of the Supreme Court, made at the Kings County Special Term, bearing date the 19th day of January, 1898, and entered in the office of the clerk of the county of Kings, reducing the assessment of the capital stock of relator, made on a return to a writ ©f certiorari issued to the. board of assessors of the city of Brooklyn. Frank Harvey Field [Edward M. Shepard with him on the brief], for the appellant. Almet F. Jenks, for the respondents. [MAJORITY — Cullen, J.:] Cullen, J.: The return of the relator to the assessors showed that it had physical, tangible assets amounting to $381,217.31; that the value ■of its franchise was $750,000, its indebtedness $183,178.91, and "that the assessed valuation of its real estate was $146,701. If we deduct from the amount of the tangible assets the amount of the relator’s indebtedness, and the assessed value of its realty, the balance is $51,337.40, to which sum the assessment was reduced by the court at Special Term. The first contention of the relator is that the Special Term should have reduced the assessment on its capital stock by the further sum of $50,000, that sum being ten per cent of the amount of that stock. I think it too clear for substantial controversy that in the assessment of corporations they are entitled to no general- deduction of ten per cent of their capital stock, but that that percentage is only to be deducted from the surplus profits or reserve fund when such surplus is returned for taxation. If any doubt on this question could arise under section 12 of the Tax Law (Laws of 1896, chap. 908) (which I deny), it is entirely removed by section 31. That section provides that in the first column there shall be entered in the assessment rolls under the name of the corporation, “ the amount of its capital stock paid in and secured to be paid in; the amount paid by it for real property then owned by it wherever situated; the amount of all surplus profits or reserve funds exceeding ten per centum.of their capital, after deducting therefrom,” etc. The proper entry in this column is, therefore, the excess of the amount of the surplus profits above ten per cent of the capital if such excess there is; if there is no such excess, then the entry should simply be “ none.” Where the surplus profits exceed ten per cent, no practical harm results from stating this sum in the ordinary manner; that is, add the items.of capital stock and surplus profits, and from such amount deduct the real estate and ten per cent of the capital. But this method is' misleading; and, when the surplus profits are less than ten per cent, erroneous. It is this method of computation which has led to the error to be found in the opinion in the case of The People ex rel. Manhattan Railway Co. v. Barker (146 N. Y. 304, 315), for in that computation the deduction of ten per cent of capital is greater than the amount of the surplus with which the company is charged. I use the term-terror ”-with the greatest respect to the Court of Appeals, for I do not understand the question before us to have been considered or passed upon by that court. It is easy to see how the error occurred. The assessors made the computation in one manner, the Court of Appeals followed in the same way. The relator further contends that the statement of its financial condition, returned to the board of assessors, shows that it has a surplus exceeding $50,000, and, therefore, it is entitled to a' deduction for that amount. In that return the relator further stated that it had no surplus profits or reserve fund. Assuming that it is not concluded by that declaration, we are still of opinion that it is not entitled to the deduction. With a capital stock of $500,000 it has, apart .from its franchise, assets amounting to only about $2.00,000. Not only, therefore, the question of surplus profits, but even that of impairment of capital, depends on the value to be given to the franchise. Assuming the relator’s estimate of its value is correct, the whole of the surplus is represented by the franchise, which is already exempt from taxation. It may be that, so far from any profit having accumulated from the. conduct of its business, the whole surplus has arisen from the enhancement of the value of the franchise. If it proceeded from savings or accumulations from the business, it was the duty of the relator to have affirmatively established that fact. The objection that the relator was assessed in the wrong Avard was not taken before the board of assessors. The Special Term was right in disregarding it. The order appealed from should be affirmed, Avith ten dollars costs and disbursements. All concurred. Order affirmed, with ten dollars costs.and disbursements*.