paid in money, and is invested in the discount of notes and bills of exchange, and the income from the investment is applied to the payment of expenses, and the balan e distributed among the stockholders as profit. In the other the capital consists of money in the form of premiums, which is invested in bonds and mortgages and stocks, and the income from the investment is divided among the stockholders, or expended in payment of losses and expenses. The court held it had a capital. The capital stock of a corporation is the fund or capital consisting of money or goods employed in conducting the business of the company. In an insurance company it is the money paid in by stockholders, which forms the basis of the operations of the company in making insurances, retained in its character as money to meet demands for losses, or invested in securities for that purpose. When the money so paid in and used cannot be withdrawn and divided among the stockholders of the company, it is capital. It is immaterial whether this money paid in as capital, is paid in before or after the organization of the company, if it is paid in as a basis of the operations of the company, and not to be withdrawn. The point was again ruled that surplus earnings or net profits, over and above the amount retained as permanent capital are not included in capital.1 The charter of a mutual insurance company contained the provisions. that the premiums should amount to $500,000 before trustees were chosen, and the premiums paid in the first instance should constitute. the assured stockholders, and a certificate was to be issued to each member showing his interest in the fund, and this fund should be liable for losses during the existence of the charter, and should never be withdrawn. After organization according to their charter, the members, by resolution, determined that no division of profits should take place until the accumulated earnings should exceed one million of dollars. Two objections were raised to taxing the fund of the company up to one million dollars. The first was that the fund was not capital, because it was constituted not with reference to profit but as an indemnity against losses, whereas capital is money invested in business with a view to profit. But it was answered that the premiums were advanced both with a view to profit and to indemnity. By the payment of the premium the assured not only became entitled to indemnity, but he became a stockholder, and the money became capital of the company of which he was a member, to be used in paying expenses and losses, and to be invested, its profits to be distributed among the stockholders during the life of its charter, and

1 Mutual Ins. Co. of Buffalo v. Supervisors of Erie, 4 N. Y. 442, 445.

The other

the principal to be divided among them at its dissolution. objection was that this fund was profits, not capital. This was admitted to be true in the abstract, but the legislature had directed these profits to be made capital up to $500,000, just as partners may accumulate profits and use them as the basis of more extensive operations, and just as this corporation had reserved an additional $500,000 of profits to be used as capital in conducting the business of the company. The objection was deemed to be without force unless it could be shown that the legislature had not the power to direct that profits be made capital. Nor is it material in a mutual life insurance company, authorized to accumulate, from premiums and investments, a fund to continue liable for losses during its existence, that the representatives of one holding a certificate showing his interest in the corporation, are entitled to receive from such fund the amount for which his life was insured, and a proportionate share of all the profits of the company accumulated during the existence of the policy. The difference is a marked one, but results from the nature of a life insurance company, and its effect on the capital is the same as on that of all other mutual corporations. The amount which is used in conducting its business, and is considered as its capital, varies from time to time by the happening of casualties insured against. The certificates issued in these mutual corporations, designate the interest of the respective stockholders in the corporate funds. No property passes, and no debt against the company is created. The credits on the books of the company and certificates answer the purpose of stock certificates in other institutions of fixed capital. In 1853, the State of New York changed its policy as to the taxation of corporations, taxing them on the value of their real estate, the actual value of their capital, deducting real estate, and shares of stock in other corporations, which are taxable upon their capital stock under the laws of the State, and the surplus profits or reserved funds in excess of ten per cent. of their capital. Under this system, in determining the actual value of the capital, an insurance company claimed to deduct from the capital the contingent liability of the company upon outstanding policies. It was held to be a proper deduction. The amount required to reinsure the outstanding policies, is the proper measure of this liability, and should be deducted from the capital and surplus

3

The Sun Mutual Ins. Co. v. The Mayor, &c. of New York, 8 N. Y. 241, 249, 250.

The People v. The Board of Supervisors of New York, 16 N. Y. 424, 428.

Sun Mutual Ins. Co. v. The Mayor, &c. of New York, 8 N. Y. 241, 250.

4 Tax Laws N. Y. City, by Lawrence, pp. 26, 29; People v. Dolan, 36 N. Y. 62, 63; Nelson, J., Bank Tax Case, 2 Wall, 209,

profits, less ten per cent.1 A distinction is drawn between this and the statute taxing individuals on "the full value of all the taxable property owned by such person, after deducting the just debts owing by him." The debt referred to here must be a specific amount due to a certain person. The liability of the company on its outstanding policies is not such a debt as is contemplated in this statute. The language as to corporations is different. The stock is to be assessed at its actual value, and therefore whatever diminishes the actual value of the stock, although not a debt, is such a liability as it is proper to to deduct. And where a company has no surplus funds or reserved capital, but makes large dividends, its capital is to be assessed at its actual value, without reference to its par value. In the case under consideration, the stock was assessed at seventy-five per cent. above par. The policy as to mutual life insurance companies was changed about the same time, by which they were taxed as if they were incorporated with a capital of $100,000. This act was passed in March, 1853, and under it these companies were held liable to be taxed for their surplus and reserved fund in addition to the $100,000 of capital. In 1855, the legislature enacted that the companies mentioned in the act of 1853, should be subject to taxation on $100,000 and no more. The court held that this last statute introduced a new rule for the taxation of such companies, after the passage of the act, but it was ineffectual as to controversies arising prior thereto.3

In Connecticut, where a tax is imposed on the cash capital of mutual insurance companies, ascertained losses unpaid are fixed liabilities to be deducted from the capital, but dividends applied to the payment of premium notes, which were not returned in the return made by the company of its cash capital, are not to be deducted."

In Georgia, under a statute imposing a "tax on corporations at the same rate per cent. upon the whole amount of their capital stock paid in, as is levied on others' capital," it was held that the tax was imposed, not on the market or actual value, but on the nominal capital, at par value.5

In New Jersey, by an act passed in 1862, corporations are assessed

People v. Ferguson, 38 N. Y. 89, 91, 92.

2 Oswego Starch Factory v. Dolloway, 21 N. Y. 449. To ascertain the taxable value of capital stock, the assessors should estimate the value of the property, and from this deduct the indebtedness of the corporation, the value of real estate and of the stocks of corporations taxed on capital, and of United States bonds. Broadway & 7th Avenue R. R. Co. v. Com'rs of Taxes, 1 Thomp. & C. (N. Y.) 635.

3 The People v. The Board of Supervisors of New York, 16 N. Y. 424.

428, description of mutual companies.

1 Coite v. Connecticut Ins. Co. 36 Conn. 512.

5 Wilson v. Augusta Factory, 44 Ga. 338.

See Id. 427,

at the full amount of their capital stock paid in, and accumulated surplus, and such as have no capital stock, at the full amount of their property and valuable assets, without any deduction for debts or liabilities, and persons holding policies in mutual assurance companies, are not assessed for the value of such policies as a part of their personal estate. A mutual insurance company without capital stock, passed a by-law to create capital stock, and claimed to be assessed as a company with capital stock. It was held that this could not be done, the members could not change the character of the company.1

A tax on the property of a corporation, and also a tax on the capital stock is double taxation. The property of the corporation is the tangible form in which the capital is invested in order to conduct the operations of the company, and if the capital stock of a corporation is exempt, the exemption will extend to all the property owned by such corporation. It will not be presumed that the legislature intended to tax twice. But it is to be observed that this is an entirely different question from that of the power of the State to tax both.

We have seen that in ascertaining the actual value of capital stock, the premium reserve of an insurance company is to be deducted. The same rule applies under a statute taxing personal property, which allows "the indebtedness of the tax-payer to be deducted, and the excess only to be taxed." s

5

§ 88. Accumulated Surplus.—In many of the States a tax is imposed, not only on the capital as such, and on the profits when directed by the charter to be treated as capital, but often the tax is imposed upon the capital stock paid in and "accumulated surplus." This is defined, in reference to stock companies, to be the fund they have in excess of their capital stock and liabilities. So a tax on net earnings is a tax on the products of the business remaining after deducting the expenses of conducting it, and a tax imposed by the United States revenue law on corporations, for "all undistributed sums, or sums made or added during the year to their surplus or contingent funds," 7 includes the undistributed surplus earnings of savings banks, added during the year to their contingent fund, although such fund may be

1 State v. Utter, 34 N. J. Law (5 Vroom), 489; State v. Ammerman, 37 N. J. Law, 408.

2 The Rome R. R. Co. v. Mayor & Council of Rome, 14 Ga. 275.

3 Alabama Gold Life Insurance Co. v. Lott, 3 Cent. Law Journal, 643.

4 Sun Mutual Ins. Co. v. The Mayor, &c. of New York, 8 N. Y. 241.

5 State v. Utter, 34 N. J. Law (5 Vroom), 489.

Commonwealth v. Penn. Gas Coal Co. 3 Brews. (Penn.) 107.

72 Brightley's Dig. Laws U. S. p. 364, § 300.

held as security for deposits. It seems that the purpose to which the corporation may devote its surplus, whether to increase its capital and extend its business, or to be kept as a reserve against ascertained or contingent liabilities, does not affect the question of its liability to tax; the only question to be determined is what fund the legislature intended to be taxed. A very interesting question has arisen in New Jersey as to the meaning of accumulated surplus as applied to fire insurance companies with a capital stock, where corporations were to be assessed "at the full amount of their capital stock paid in and accumulated surplus." We have seen heretofore, that the liability of an insurance company upon its outstanding policies, which is estimated to be the amount required to reinsure the policy holders in other companies, while it is not a debt, yet it is such a liability as is to be deducted in ascertaining the actual value of the capital stock of such a company. The question now raised is whether in ascertaining the accumulated surplus, the premium fund as it is called, which is the amount necessary to reinsure all outstanding policies, is to be deducted as one of the liabilities of the company. It is admitted on all hands that the accumulated surplus is the profits piled up or accumulated in excess of the capital stock and the liabilities of the company, and it even seems to be conceded that these liabilities are fixed and not contingent liabilities. On the one hand, it is claimed that the liability in question, is fixed, determinate, one that can be ascertained with mathematical certainty by rules well understood; that the premium is not earned when received; that it is not earned until the risk expires; and the profits cannot be ascertained before that period without making allowance for the amount necessary to reinsure. It is said that it would be as reasonable among merchants to call one day's sales profits, as to call premiums received by insurance companies profits. But this view of Chancellor Zabriskie did not prevail. On the other hand, it was argued that surplus in an insurance company was very similar to surplus in a bank. There it was the earnings from discount, interest and investments, which was carried into the surplus account, and at certain periods, after deducting expenses and ascertained losses, was paid to stockholders as dividends, reserving such a sum as might be deemed proper by the directory, either to increase the capital of the company in conducting the business, or to provide against contingent losses. What is the difference between the discount and interest received by the bank and the premium received by the insurance company? One is a premium

'U. S. v. Dollar Savings Bank, 3 Pittsburgh (Penn.) 408.

People v. Ferguson, 38 N. Y. 89; ante, § 87.