Opinion
January, 1905.
Charles A. Collin, for the relator.
John Cunneen, Attorney-General, and William H. Wood, Deputy Attorney-General, for the respondent.
The relator is a foreign corporation and manufactures and leases weighing scales and automatic vending or "slot" machines, and sells supplies therefor. The several parts of the machines are manufactured by another corporation in New Jersey and they are shipped to the relator at New York where they are assembled by it and the complete machines distributed throughout various States.
The capital stock is $1,000,000, upon which a six per cent dividend was paid for the year in question. Of the stock $784,637.86 was issued, at par, in payment for various patents relating to the machines manufactured and leased by the relator. It is claimed that many of these patents proved worthless, and that it is of no great benefit to the relator to manufacture under them, and that this fact should have been taken into consideration by the Comptroller in determining the amount of capital employed by the relator within the State.
Upon the rehearing before the Comptroller the president of the relator testified that $132,212.11 of its capital was employed within the State, and $132,084.97 outside. The Comptroller took this proportion of slightly more than half employed within the State, and determined that $500,240 was so employed, and assessed the license tax under section 181 of the Tax Law (Laws of 1896, chap. 908, as amd. by Laws of 1901, chap. 558) on that basis. In so doing he must have assumed that the large remainder of the capital was represented by rights under the patents.
We see no vice in this. The Comptroller was not bound to accept the relator's estimate of their value, or its statement that it could as well carry on its business without them. He had a right to take into consideration the price paid, especially in view of the fact that the corporation manufacturing under them was enabled to pay a six per cent dividend on the large amount of stock issued for their purchase.
Rights under a patent may be of uncertain value, difficult to ascertain. It is possible that a manufacturing corporation might make as great profit without them; but where it is manufacturing under patents, we know of no better practical method of ascertaining the value of the rights for the purposes of license and franchise tax, than to assume that they are worth what was paid for them. The situation is not unlike the ascertaining of the value of the good will of a business, which was recently under consideration by this court in People ex rel. Koechl Co. v. Morgan ( 96 App. Div. 110). In that case we held that it was not improper for the Comptroller to estimate the good will at the amount which was paid for it.
But it is said that two of the five patents for which upwards of six hundred thousand dollars in stock was issued, have proved worthless. It does not appear what amount was paid for each patent, and in the absence of such proof we cannot say how much, if anything, should be deducted. It may be that those which have proved available are worth the price paid for all.
About thirty-five per cent of all the machines leased throughout the United States are leased within the State of New York. If the relator did not have a place of business within the State and employ additional capital therein, possibly this proportion would represent its only capital employed within the State. Its entire business, however, is affected by, and in a measure dependent upon, its rights under its patents; and we are of the opinion that sufficient does not appear to authorize us in disturbing the finding of the Comptroller.
For some reason, not clear, the franchise tax was assessed upon a lower basis than was the license tax. This is to the advantage of the relator and not a cause of complaint on its part.
The determination of the Comptroller should be affirmed, with fifty dollars costs and disbursements.
Determination of the Comptroller unanimously confirmed, with fifty dollars costs and disbursements.