Summary
In International Text Book Co. v. Tone (220 N.Y. 313) the court said: "Section 181 Tax of the Tax Law prohibits an action of any kind by a foreign corporation unless within a stated period after beginning business within the State, the prescribed license tax is paid."
Summary of this case from Matter of ScheftelOpinion
Argued February 9, 1917
Decided March 6, 1917
George A. Lewis for appellant. Ernest F. Kruse for respondent.
The plaintiff, a foreign corporation, has its principal place of business in Scranton, Pennsylvania. From there it gives instruction by correspondence. It has agencies in New York in charge of division superintendents and assistants. Their sole duty is to solicit pupils, whose applications for membership must be sent to the home office for acceptance. No contracts are closed here. No instruction is given here. No books are sold here. The subscribers receive their instruction through text books and papers mailed from Scranton, Pennsylvania. They send their reports for examination or correction to the same place. The school is kept alive by lessons on the one side and reports on the other, transmitted through the mails.
In this school the defendant became a pupil under a written contract. He signed in New York his application for membership, and the plaintiff accepted it in Scranton. He promised monthly payments, which he has failed to make. His defense is that the plaintiff has not complied with section 15 of the General Corporation Law (Cons. Laws, ch. 23) or with section 181 of the Tax Law (Cons. Laws, ch. 60) and is, therefore, unable to maintain this action. Section 15 of the General Corporation Law prohibits an action by a foreign corporation upon any contract made by it in this state unless before the making of the contract it has procured from the secretary of state the certificate prescribed by law. Section 181 of the Tax Law prohibits an action of any kind by a foreign corporation unless within a stated period after beginning business within the state, the prescribed license tax is paid. Moneyed corporations and some others are excepted from both statutes, but the exceptions are not important here. The trial judge sustained the defense, and the Appellate Division has affirmed his ruling.
In that judgment we are unable to concur. The plaintiff was engaged in interstate commerce ( International Text Book Co. v. Pigg, 217 U.S. 91, reversing 76 Kans. 328; International Text Book Co. v. Lynch, 218 U.S. 664, reversing 81 Vt. 101). It did nothing in New York except in furtherance of that commerce. It solicited orders, which did not ripen into contracts until accepted in Pennsylvania. It fulfilled its contracts by the transmission of information through the medium of the mails. Section 15 of the General Corporation Law and section 181 of the Tax Law are not aimed at such activities. That is now the settled rule ( Hovey v. De Long Hook Eye Co., 211 N.Y. 420; Cummer Lumber Co. v. Associated Mfrs. M.F. Ins. Corp., 67 App. Div. 151; 173 N.Y. 633; People ex rel. Tower Co. v. Wells, 98 App. Div. 82; 182 N.Y. 553; Penn. Collieries Co. v. McKeever, 183 N.Y. 98; Harvard Co. v. Wicht, 99 App. Div. 507; Page Co. v. Sherwood, 146 App. Div. 618; People ex rel. Sherwin-Williams Co. v. Barker, 5 App. Div. 246; 149 N.Y. 623). Business may be sufficient to subject the foreign corporation that does it to the service of process, and yet insufficient to require it to take out a license. In Tauza v. Susquehanna Coal Co. ( 220 N.Y. 259), decided herewith, this distinction is emphasized. The question before us here is not one of the jurisdiction of courts under the rules of private international law. It is one of statutory construction. We have steadily upheld the right of foreign corporations, without the aid of any license, to engage in activities incidental to commerce between the states.
To read the statutes otherwise would be to condemn them as unconstitutional. They would then be unlawful obstructions of interstate commerce. The Supreme Court has so held in two cases where the plaintiff's contracts were involved ( International Text Book Co. v. Pigg; International Text Book Co. v. Lynch, supra). There is no substantial distinction between those cases and the one at hand. The power of a state to exclude a foreign corporation is subject to the limitation that freedom of interstate commerce is not to be impaired ( W.U. Tel. Co. v. Kansas, 216 U.S. 1, 27; State of So. Car. ex rel. Phœnix Mut. Life Ins. Co. v. McMaster, 237 U.S. 63; Sioux Remedy Co. v. Cope, 235 U.S. 197, 203; Crenshaw v. Arkansas, 227 U.S. 389; Interstate Amusement Co. v. Albert, 239 U.S. 560; Marconi W.T. Co. v. Comm., 218 Mass. 558, 569; German-Amer. Coffee Co. v. Diehl, 216 N.Y. 57, 64). The corporation may come here without a license when the purposes of interstate business require its presence ( W.U. Tel. Co. v. Kansas, supra). Statutes calling for a license will be construed in subordination to that rule ( Marconi W.T. Co. v. Comm., supra, at p. 563; Baltic Mining Co. v. Comm., 207 Mass. 381, 390; 231 U.S. 68, 84; Hovey v. De Long Hook Eye Co., supra, at p. 429). If section 181 of the Tax Law were a tax upon property, and not a license tax, or if the plaintiff's activities were not those of interstate commerce exclusively, a different situation would be before us ( Pullman's Palace Car Co. v. Pa., 141 U.S. 18, 25; People ex rel. Penna. R.R. Co. v. Wemple, 138 N.Y. 1; People ex rel. Connecting Ter. R.R. Co. v. Miller, 178 N.Y. 194). The distinction between license taxes and taxes upon property is sometimes a close one. This tax, however, though measured by the amount of capital employed within the state, is by its very terms a license tax. In this it differs from the franchise tax imposed by section 182. It supplements the license scheme of the General Corporation Law, and is limited to corporations authorized to do business under that law. "Its enforcement" is not "left to the ordinary means devised for the collection of taxes" ( Postal Tel. Cable Co. v. Adams, 155 U.S. 688, 695; St. Louis S.W. Ry. Co. v. Arkansas, 235 U.S. 350, 365), but the forfeiture of the right to sue is the penalty of non-payment ( Sioux Remedy Co. v. Cope, supra). The transactions of interstate commerce are not subject to such restrictions.
The unanimous affirmance at the Appellate Division does not impair our power of review. The nature of the plaintiff's business is established by a stipulation which, by appropriate words of reference, is embodied in the findings.
The judgment should be reversed and a new trial granted, with costs to abide the event.
HISCOCK, Ch. J., CHASE, COLLIN, POUND, McLAUGHLIN and ANDREWS, JJ., concur.
Judgment reversed, etc.