ANNUAL STATE FRANCHISE TAX.

LAWS OF 1884, CHAPTER 159.

Being "An Act to provide for the imposition of state taxes upon certain corporations and for the collection thereof," approved April 18, 1884, including the amendments and supplements to the end of the legislative session of 1902.

150.* State taxation of business corporations; report to state board of assessors.

All corporations incorporated under the laws of this state, other than those which are subject to the payment of a state franchise tax assessed upon the basis of gross receipts, shall make annual return to the state board of assessors on or before the first Tuesday of May in each year, and shall state therein the amount of the capital stock of such corporation issued and outstanding on the first day of January preceding the making of said return, together with such other information as may be required by said board to carry out the provisions of this act, and shall pay an annual license fee or franchise tax of one-tenth of one per centum on all amounts of capital stock issued and outstanding up to and including the sum of three million dollars; on all sums of capital stock issued and outstanding in excess of three million dollars and not exceeding five million dollars, an annual license fee or franchise tax of one-twentieth of one per centum, and the further sum of fifty dollars per annum per one million dollars, or any part thereof, on all amounts of capital stock issued and outstanding in excess of five million dollars; provided, that this act shall not apply to railway, canal or banking corporations, or to savings banks, cemeteries or religious corporations, or purely charitable or purely educational associations not conducted for profit, or *Arbitrary section number; see footnote, p. 143.

§ 150

§ 150 manufacturing or mining corporations at least fifty per centum of whose capital stock issued and outstanding is invested in mining or manufacturing carried on within this state, and which mining or manufacturing corporations shall have stated in the annual return to the state board of assessors where the mine or manufacturing establishment of such corporation or corporations is or are located, the character of the ores mined or the goods manufactured, the total amount of its capital stock embarked in the business of mining or manufacturing and the amount of capital stock actually employed in New Jersey in carrying on such mining or manufacturing business; if any manufacturing or mining company carrying on business in this state shall have less than fifty per centum of its capital stock, issued and outstanding, invested in business carried on within this state, such company shall pay the annual license fee or franchise tax herein provided for companies not carrying on business in this state, but shall be entitled, in the computation of such tax, to a deduction from the amount of its capital stock issued and outstanding of the assessed value of its real and personal estate so used in manufacturing or mining.

(Supplement of Feb. 19, 1901; P. L. 1901, p. 31.)

The purpose of this act is to correct a practical defect in the Corporation Tax Act of 1884. That act requires business corporations to report annually to the State Board of Assessors, but does not definitely fix the time for making the report, or the time as of which the report shall be made. It was the practice of the State Board of Assessors to require such corporations to make their reports on or before the first Tuesday of May, stating the amount of capital stock issued and outstanding on the first day of January preceding. In December, 1900, the Supreme Court, in the case of Brewing Improvement Company v. Assessors, (65 N. J. Law, 466), decided that the 18th day of April in each year was the date on which the capital stock was to form the basis for computing the annual tax, the Tax Act having taken effect on the 18th day of April, 1884. The State Board of Assessors then secured the passage of this act, which gives companies more time for making their reports, viz., from the first day of January to the first Tuesday of May.

This act also requires all manufacturing corporations to make annual reports, showing that they are entitled to exemption. The Supreme Court, in Newark Brass Works v. Assessors (63 N. J. Law, 500), had held that such companies were not required to make such reports..

This act is in effect an amendment of Section 4 of "An Act to provide § 150 for the imposition of state taxes upon certain corporations and for the collection thereof," approved April 18, 1884.

Application of the act.-"The scheme of this particular taxing act [Act of April 18, 1884] seems to be to impose taxes on three classes of corporations-certain specified corporations doing business in the State wherever chartered, those not doing business in this State, but holding their charters under State authority, and a class of unspecified corporations, which must be few in number, holding charters under and performing their functions in the State.

"In the former class different provisions for taxation as amongst themselves are adopted, and in the second and third classes named a franchise tax is imposed based upon the amount of their capital stock." (Standard Underground Cable Co. v. Attorney-General, 46 N. J. Eq., 270.)

As to the first class, both domestic and foreign corporations are included. (Pipe Line Co. v. Berry, 52 N. J. Law, 308; s. c., 53 N. J. Law, 212.)

Nature of the tax. The tax imposed by this act is a license or franchise tax. It is not a tax on property and this section is not a violation of the clause of the State constitution which provides that "property shall be assessed for taxes under general rules, and by uniform rules, according to its true value." (Standard Underground Cable Co. v. AttorneyGeneral, 46 N. J. Eq., 270; Pipe Line Co. v. Berry, 52 N. J. Law, 308; s. c., 53 N. J. Law, 212; Const. Art. IV., § 7, Par. 12.) The Act of 1866 taxing property has not been superseded by this act. Taxation under this act was designed to provide revenue for the State. Taxation under the Act of 1866 is a local tax. (Pipe Line Co. v. Berry, 52 N. J. Law, 308; s. C., 53 N. J. Law, 212.)

The tax imposed by the Act of 1884 is not a property tax, and is not subject to diminution because some of the corporation's capital is invested in letters patent of the United States. (Marsden Co. v. Assessors, 61 N. J. Law, 461.)

Such tax may be exacted by the State from which the right is derived, without reference to the nature of the business the corporation may be authorized to carry on, and is constitutional even as against a domestic corporation created for the purpose of engaging in commerce with an adjoining State. The right of corporate existence is in itself indivisible, and the fee therefor must necessarily be an entirety, no matter where the property of the company is situated or how its capital is invested or employed. (State v. Assessors, 16 N. J. L. J., 210. See also Honduras Commercial Co. v. Assessors, 54 N. J. Law, 278.)

§ 150

Basis of the tax.-The tax is computed upon the basis of the capital stock issued and outstanding, and it is held that stock is issued when the company has received and accepted subscriptions for the same, whether paid for or not. (American Pig Iron, &c., Co. v. Assessors, 56 N. J. Law, 389.)

Continuance of tax. As long as the corporation exists it is liable for this franchise tax. It continues after a receiver is appointed and until the dissolution of the company. (Kirkpatrick v. Assessors, 57 N. J. Law, 53.)

The question whether an insolvent corporation whose affairs have been placed in the hands of a receiver, is subject to the payment of the franchise tax, has been settled by the decision of the Court of Errors and Appeals In re United States Car Co. (60 N. J. Eq., 514) decided July 7, 1899.) The Court said: "The sole test in determining its liability to comply with those conditions [the provisions of the statute imposing the license fee] so long as they remain unrevoked, is the existence or non-existence of the corporation"; and it was accordingly held that the license fee assessed against the corporation was entitled to priority in payment out of the assets in the hands of the receiver, notwithstanding the fact that such license fee was imposed upon the corporation subsequent to the appointment of the receiver, and that the latter had not since his appointment exercised any of the corporate franchises.

The fact that the company has ceased to do business and to use its franchise, even though compelled to do so by the decree of a court enjoining the company from using certain patents which form the basis of the company's business, does not relieve it from the duty to pay the franchise tax. If it wishes to withdraw from active business, it must, to escape taxation, take proceedings to dissolve in the manner prescribed by law. In case of failure to pay such tax, the act provides that proceedings may be instituted by the Attorney-General to enjoin the company from exercising its franchises until the tax is paid. (Edison Phonograph Co. v. Assessors, 55 N. J. Law, 55; Electro-Pneumatic Transit Co.'s Case, 51 N. J. Eq., 71.)

Exemptions from payment of franchise taxes.-A manufacturing corporation cannot claim the exemption until it has actually located its factory within the State and begun work under its charter, and it can claim exemption only while it is actually engaged in the business of manufacturing within the State. (Norton Construction Co. v. Assessors, 53 N. J. Law, 564.) To determine whether the company is within the exception reference must be had to its actual business, for the business in which the capital of a company is invested, and not the objects for which the company was formed, as expressed in the certificate of incorporation, must be regarded. (Edison Phonograph Co. v. Assessors, 55 N. J. Law, 55.) It is not necessary that the manufacturing should be carried on directly by the

company. It may, it seems, contract with manufacturing agencies to § 150 manufacture for it, and if the manufacturing is actually carried on within the State, the conditions of the statute are met. (Phonograph Co. v. Assessors, 54 N. J. Law, 430.)

Where the capital stock of a manufacturing company is invested in patents under which it manufactures, it is entitled to exemption for its capital invested in such patents as are necessary to carry on its manufacturing within the State of New Jersey. It must, however, actually manufacture within the State under the patents. (Phonograph Co. v. Assessors above cited.) In the case of Edison United Phonograph Co. v. Assessors, 57 N. J. Law, 520, the total capital was $1,000,000, of which $999,000 was issued for patent rights. The proof was that those rights included the right to manufacture speaking machines in New Jersey, Great Britain, France and some other foreign countries, and to sell and use such machines only in foreign lands beyond the limits of the United States and Canada. The company had no factory of its own in New Jersey, although it did manufacture through another company located in New Jersey. But there was no proof as to the amount of capital which was invested in the right to manufacture within New Jersey, and the court said that so far as the capital was used in acquiring the right to manufacture elsewhere, it was not invested in manufacturing within this State. On the facts presented the court refused to infer that fifty per cent. was invested in the right to manufacture in New Jersey, and as no deduction was asked for on account of the capital actually invested in manufacturing within the State, the taxes were affirmed with costs.

An electric company is not entitled to exemption as a manufacturing corporation under Section 4 of the Act of 1892, on a showing that it has a plant in the state and one outside, to which the products of the former are sent for finishing, and that such product costs more than 50 per cent. of the finished product, and a claim that the cost of patents owned by it and covering the processes conducted at the home branch represents the greater part of the capital, where it also appears that the New Jersey plant cost less than the foreign plant, and where it is not shown how much of the stock represented by patents is represented by foreign and domestic patents, respectively. (Storage Battery Co. v. Assessors, 60 N. J. Law, 66; aff'd 61 N. J. Law, 289.)

What is manufacturing within the meaning of the act?-As pointed out above, it is what the company actually does, and not what it is authorized by its charter to do, that determines whether a company is engaged in manufacturing carried on in this State. In construing the statute the court will give the word "manufacturing" its popular sense. Therefore, it was held that printing and publishing a newspaper is not manufacturing, but that where a company is incorporated "to conduct and prosecute the business of book printing and job printing, engraving, electrotyping