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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.

The tax is a preferred debt against the assets in the hands of a receiver of an insolvent corporation. Conklin v. U. S. Shipbuilding Co., 148 Fed. Rep., 129.

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. may, it seems, contract with manufacturing agencies to 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.

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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.

The right to exemption being a matter of grace which the statute confers, it is essential that the provisions of the statute be strictly followed, otherwise the exemption is lost. Hardin v. Morgan, 70 N. J. Law, 484; aff'd 71 Id., 342.

The statute does not mean that companies should be exempt which have no plant and do not employ capital in manufacturing in this state. Alton Mach. Co. v. Assessors, 69 Atl. Rep., 451.

When the only asset of a corporation is a contract with a second corporation, and the second corporation entirely controls the business and assumes the risk of manufacture, the exemption from the franchise tax is not allowed. Buffalo Refrig. Mach. Co. v. Assessors, 72 N. J. Law, 127; distinguishing Phonograph Co. v. Assessors, 54 N. J. Law, 430.

Exemption from the tax is a favor, and to be secured must be applied for in the manner designated in the statute. Union Paper Co. v. Assessors, 73 N. J. Law, 374.

See also King v. American Electric Vehicle Co., 70 N. J. Eq., 568, where no report was filed and exemption was not allowed.

The proceeds of the capital stock sold under the statute for cash or for property are the invested capital of the company, within the meaning of Section 150, and this includes patent rights. American Mutoscope Co. v. Assessors, 70 N. J. Law, 172.

What is manufacturing within the meaning of the act.

In construing the statute the court will give the word "manufac turing" its popular sense. Therefore, it was held that printing and publishing a newspaper is not manufacturing, but that where a comany is incorporated "to conduct and prosecute the business of book

binding and job printing, engraving, electrotyping and lithographing," and its capital is invested in the prosecution of that business, and it manufactures on orders only, it is a manufacturing company within the meaning of the statute.

Evening Journal Association v. Assessors, 47 N. J. Law, 36; Printing Co. v. Assessors, 51 N. J. Law, 75.

To entitle a corporation to the exemption from the franchise tax it must appear that at least 50 per cent. of its capital is actually invested in manufacturing or mining carried on in this state, and simply having a place leased for the purpose of carrying on a manufacturing business, but at which no business is carried on, is not a fulfillment of the statute. Halsey Electric Generator Co. v. Assessors, 74 N. J. Law, 321.

A company which merely maintains an office here for preserving records of transactions and operates plants elsewhere is not within the meaning of the statute. American Glucose Company v. State, 43 N. J. Eq., 280.

The Society for the Establishing of Useful Manufactures is a manufacturing corporation. State v. Society, etc., 43 N. J. Eq., 410.

So far as the capital stock is used to acquire the right to manufacture elsewhere, it is not invested in manufacturing in this state. Storage Battery Co. v. Assessors, 60 N. J. Law, 66; aff'd 61 Id., 289.

151. Penalties for false statement, or failure to make statement.

If any officer of any company required by this act to make a return, shall in such return make a false statement, he shall be deemed guilty of perjury; if any such company shall neglect or refuse to make such return within the time limited as aforesaid, the state board of assessors shall ascertain and fix the amount of the annual license fee or franchise tax and the basis upon which the same is determined, in such manner as may be deemed by them most practicable, and the amount fixed by them shall stand as such basis of taxation under this act.

(Section 3 of the Act of April 18, 1884; P. L. 1884, p. 233; as amended by P. L. 1892, p. 137.)

In People's Investment Co. v. Assessors, 66 N. J. Law, 175, the Supreme Court held that no penalty is provided for failure to make

the return required by the act, and, in the absence of such return, the franchise tax cannot be ascertained by using capital stock authorized as a basis for calculation.

In Trenton Heat & Power Co. v. Assessors, 73 N. J. Law, 370, the Supreme Court, following the case of People's Investment Co. v. Assessors, supra, said: "The jurisdiction of the state board to assess franchise taxes upon companies not making a return is limited to the ascertainment of, and the making of an assessment upon, the capital stock of such companies issued and outstanding. They must ascertain as best they can what amount that is, and, if they assess excessively, the company must pay the tax or be at the expense of correcting it through the certiorari power of this court."'

152. Duties and powers of state board of assessors.

The state board of assessors shall certify and report to the comptroller of the state, on or before the first Monday of June in each year, a statement of the basis of the annual license fee or franchise tax as returned by each company to, or ascertained by, the said board, and the amount of tax due thereon respectively, at the rates fixed by this act; such tax shall thereupon become due and payable, and it shall be the duty of the state treasurer to receive the same; if the tax of any company remains unpaid on the first day of July, after the same becomes due, the same shall thenceforth bear interest at the rate of one per centum for each month until paid; the state board of assessors shall have power to require of any corporation subject to tax under this act, such information or reports touching the affairs of such company as may be necessary to carry out the provisions of this act; and may require the production of the books of such company, and may swear and examine witnesses in relation thereto; the comptroller shall receive as compensation for his services under this act, and under the act entitled "An act for the taxation of railroad and canal property," approved April tenth, one thousand eight hundred

and eighty-four, the sum of five hundred dollars an

nually.

(Section 5 of the Act of April 18, 1884; P. L. 1884, p. 235; as amended by P. L. 1892, p. 140.)

The finding of the State Board of Assessors is reviewable in the bankruptcy court on questions of amount or legality of taxes entitled to priority of payment. State v. Anderson, 203 U. S. 483.

In cases of dissolution Section 56 provides for the appointment of a receiver who shall have power to prosecute and defend in the name of the corporation; and Section 54 provides that the directors shall be trustees with authority to sue in the name of the corporation. It is clear, therefore, that the corporate entity is deemed to continue after dissolution for purposes of suing and being sued. Section 153 provides that the franchise tax when determined shall be a debt due to the state. Therefore, franchise taxes due from a corporation bear interest at twelve per cent. until paid, even after dissolution of the corporation by executive proclamation. In re Senora & Sinaloa Irr. Co., 76 Atl. Rep., 307.

153. Tax is a debt; how collected; preferred in case of insolvency.

Such tax, when determined, shall be a debt due from such company to the state, for which an action at law may be maintained after the same shall have been in arrears for the period of one month; such tax shall also be a preferred debt in case of insolvency.

(Section 6 of the Act of April 18, 1884; P. L. 1884, p. 236.)

The franchise tax is a preferred debt which must be paid in advance of dividends to creditors under section 64a of the Bankruptcy Act. (U. S. Comp. Stat., 1901, 3447), and is "legally due and owing" under the act though not collectible until after the corporation is declared a bankrupt. State v. Anderson, 203 U. S., 483.

The franchise tax is entitled to priority over liabilities incurred by the receiver in carrying on the business of the insolvent corporation, but not to priority over the receiver's allowances and his expenses in winding up the company. Chesapeake & Ohio R. R. Co. v. Atlantic Transportation Co., 62 N. J. Eq., 751.

Until a corporation shall be dissolved the franchise tax remains a valid preferred debt. Conklin v. U. S. Shipbuilding Co., 148 Fed. Rep.,

129.

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