Opinion
May 31, 1967
Proceedings under section 198 Tax of the Tax Law and article 78 of the CPLR to review a determination of the State Tax Commission which sustained additional corporation franchise tax assessments imposed under section 186 Tax of the Tax Law. Section 186 imposes upon "Every corporation * * * formed for or principally engaged in the business of supplying * * * gas * * * or electricity * * * a tax * * * [of] * * * three per centum upon the 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". The sole question is the propriety of the tax commission imposition of this tax on stock dividends or their equivalent. Petitioners contend that a stock dividend should not come within the purview of section 186 because it is not a true dividend. In Matter of Garvey Carting Stor. v. State Tax Comm. ( 27 A.D.2d 337); see, also, Matter of Boss-Linco Lines v. State Tax Comm. ( 27 A.D.2d 960), this court held in construing section 183 Tax of the Tax Law that however logical the basis for the distinction urged as between cash and stock dividends might otherwise appear, the cases have clearly held that for the purposes of measuring a franchise tax the term "dividends paid" includes stock dividends as well as cash dividends, and we see no basis for a different construction of that term as utilized in section 186. Nor can we find any merit in petitioners' contention that the taxes sought here to be imposed are prohibited by section 3 of article XVI of the New York State Constitution which provides simply that "Undistributed profits shall not be taxed." The cases prior to the adoption of this provision clearly held that a stock dividend constituted a distribution of profits for franchise tax purposes (e.g., People ex rel. Adams Elec. Light Co. v. Graves, 272 N.Y. 77, mot. for rearg. den. 273 N.Y. 494; People ex rel. Wedgewood Realty Co. v. Lynch, 262 N.Y. 202, mot. for rearg. den. 263 N.Y. 669; People ex rel. Eastern Bldg. Corp. v. Lynch, 245 App. Div. 787) and there is nothing in the record of the 1938 Constitutional Convention which would indicate that a change was intended in this rule. Rather it is clear that the constitutional prohibition was intended solely to prohibit this State from adopting legislation comparable to section 102 of the 1938 Internal Revenue Code which penalized corporations for improperly accumulating surplus (see 1938 New York State Constitutional Convention, Revised Record, vol. II, pp. 1115-1117, vol. III, pp. 2449-2451, 2458, 2462). Determinations confirmed, with $20 costs against each petitioner. Gibson, P.J., Reynolds, Aulisi and Staley, Jr., JJ., concur in memorandum by Reynolds, J.