Source: https://supreme.justia.com/cases/federal/us/161/134/
Timestamp: 2019-04-19 10:31:38+00:00

Document:
"said institution shall have a lien on the stock for debts due it by the stockholders before and in preference to other creditors, except the state for taxes, and shall pay to the state an annual tax of one half of one per cent on each share of capital stock, which shall be in lien of all other taxes,"
limits the amount of tax on each share of stock in the hands of the shareholders, and any subsequent revenue law of the state which imposes an additional tax on such shares in the hands of shareholders impairs the obligation of the contract, and is void. Farrington v. Tennessee, 95 U. S. 679, affirmed to this point.
The decision by the Supreme Court of the state that this exemption applies to new stock in the bank, created and issued since the adoption of the Constitution of 1870, being in favor of the exemption claimed by the bank, cannot be reviewed by this Court.
When not otherwise exempted, the capital stock of a corporation and its shares in the hands of shareholders may both be taxed, and if so taxed, it is not double taxation.
The surplus accumulated by the plaintiff in error is not exempted from taxation by the said provision of exemption in its charter.
County of Shelby for various years, commencing in 1887. The suits are substantially alike, and involve the same questions, and the decision of the one will be the decision of the other. In the further discussion, it will only be necessary to refer to the first case.
"Said institution shall have a lien on the stock for debts due it by the stockholders before and in preference to other creditors, except the state for taxes, and shall pay to the state an annual tax of one-half of one percent on each share of capital stock, which shall be in lieu of all other taxes."
"Provided that the surplus and undivided profits in such bank, banking association, or other corporation shall be assessable to said bank or other corporation, and the same shall not be considered in the assessment of the stock therein."
absence of any exemption clause, it was within the power of the state, without subjecting such legislation to the objection of double taxation, to have taxed both the capital stock of the corporation and the shares of stock in the hands of the stockholders; that the charter tax, bonus, or whatever else it may be called, or one-half of one percent to be paid to the state is a tax upon the shares of stock, and that the language "in lieu of all other taxes" means in lieu of all other taxes on the shares of stock, and that it has no effect to exempt the capital stock of the corporation from taxation. The question of law whether the capital stock is subject to ad valorem taxes or the shares of stock in the hands of the shareholders was submitted to the court for determination. The bill also sets forth that after the adoption of the Constitution of Tennessee of 1870 (on the 4th day of May in that year), the capital of the bank had been increased from either $60,000, or from $200,000, to $1,000,000, and the plaintiffs allege that the new stock, whatever may be the amount thereof, aside from all other questions, is taxable.
"that for the purposes of this case, the shares of stock in the name of J. A. Omberg shall be taken as validly and legally assessed for the years aforesaid."
any liability for taxes that may be herein established against the shareholders."
The stipulation between the parties was that the defendant J. A. Omberg should, for the purpose of testing the liability of the shareholders for taxes, be considered and treated as a representative of all the shareholders, and that a liability decreed against him for taxes due as a shareholder should be considered as the liability of all the shareholders duly established, and that a decree in favor of complainants should be entered against the bank and against its unknown shareholders.
The case thereupon was heard upon the amended and supplemental bills, the stipulations above spoken of, which were filed, and the demurrer of the defendants, which raised the question that the tax laws under which these taxes were sought to be collected against it and its shareholders were void because in conflict with Section 10 of Article I of the Constitution of the United States. The chancellor before whom the case was tried was of opinion that the demurrer was well taken, and accordingly dismissed the bill of complaint. The Supreme Court of the State of Tennessee reversed this decree of dismissal, and held first that the owners of shares of stock in the Bank of Commerce were thus liable for ad valorem taxes to the City of Memphis, and second that the bank was liable for ad valorem taxes to the city for the years 1892 to 1894, inclusive, on its surplus and undivided profits. Judgment was entered accordingly, and the plaintiffs in error the Bank of Commerce and J. A. Omberg have sued out this writ of error to obtain a review of the judgment by this Court.
to be valid against them are repugnant to the Constitution of the United States.
(2) For the like ground, error is assigned to so much of the decree as denies to the plaintiff in error the Bank of Commerce an exemption from taxation on its surplus and undivided profits, notwithstanding its exemption therefrom under its charter provision.
"That the said company shall pay to the state an annual tax of one-half of one percent on each share of the capital stock subscribed, which shall be in lieu of all other taxes."
"that the exemption was a contract between the state and the bank limiting the amount of tax on each share of stock, and that a subsequent revenue law of the state which imposed additional taxes on the shares in the hands of the shareholders impaired the obligation of the contract, and was void,"
themselves to the Supreme Court of Tennessee, were sufficient in the judgment of that tribunal to show a difference in the meaning of the two clauses, and it therefore came to the conclusion it did notwithstanding the decision of this Court in the Farrington case, and the shareholders were held liable to pay the tax claimed by the state authorities.
On the other hand, it is said that the difference in the language used in the two quotations is wholly immaterial in any event, and that whatever portion of the clause may have been omitted in the record in the Farrington case, the whole charter of the bank was before the Court for its examination, and it cannot be supposed that in a case of such importance, argued by such eminent counsel as those who appeared in that case, there was anything overlooked or omitted. The claim is therefore made that the Court must have regarded the portion of the clause omitted in the record as immaterial.
We do not think, under the circumstances, that we ought now to come to a different conclusion upon the question of exemption from that which was arrived at by this Court in the Farrington case. As the whole charter was then before the Court, we are not prepared to say that its force was misunderstood, or that there was an omission by the court to consider all the language of the exemption clause simply because a portion of it is omitted in the quotation from the record made in the opinion therein delivered. We are not inclined, therefore, to overrule or distinguish the Farrington case, and we must now hold that the charter clause of exemption limits the amount of tax on each share of stock in the hands of the shareholder, and that any subsequent revenue law of the state which imposes an additional tax on such shares in the hands of shareholders impairs the obligation of the contract and is void. This compels us to reverse the judgments herein against the shareholders.
that could be collected from either the corporation, the shareholders, or both, was the one-half of one percent mentioned in the charter.
"may receive on deposit any and all sums not less than one dollar per week offered as stock deposits, . . . and when such deposits shall amount to fifty dollars, they may at the option of the depositor, become stock in the institution."
The parties to this suit agreed by stipulation that on the 5th day of May, 1870 (the day the constitution was adopted), the capital stock of the bank was $200,000, and that on March 17, 1887, and on sundry days prior to June 1, 1887, it was regularly increased to $600,000, and that on the 17th day of March, 1890, and on sundry days prior to June 1, 1890, it was again regularly increased to $1,000,000. The supreme court allowed the claim of exemption, and held that the stock issued since the adoption of the new constitution stood in all respects as to taxation the same as the stock earlier issued, notwithstanding the provision of the constitution for the taxation of all property, and that therefore the bank was not liable to the tax claimed by the state authorities. The validity of the claim made by the bank for exemption of the new as well as of the old stock was therefore admitted by the state court as a right protected by the federal Constitution.
for the assessment of its property, on the ground that the authority exercised by the assessing officer under the Tennessee statutes impaired the obligation of the contract entered into between the state and the bank in its charter, and the decision of the Supreme Court of Tennessee was against the validity of the authority so exercised under those general revenue laws.
The state court decided in favor of the exemption claimed by the bank by virtue of its contract with the state. The protection of the constitutional provision was thus accorded it.
We are of the opinion that this Court cannot in this case review that decision.
Section 709, Revised Statutes of the United States, gives jurisdiction to this Court, among other things, upon writ of error to review the final judgment or decree in any suit in the highest court of the state in which a decision in the suit could be had where is drawn in question the validity of a statute of, or authority exercised under, any state on the ground of their being repugnant to the Constitution, treaties, or laws of the United States, and the decision of the state court is in favor of their validity. Here, the decision of the state court is against the validity of the acts of the assessing officer acting under the authority of the revenue laws as applied to the property of the bank, and it is in favor of the exemption claimed under the contract.
In Murdock v. City of Memphis, 20 Wall. 590, it was held that under the provisions of the Act of February 5, 1867, c. 28, 14 Stat. 385, of which section 709 of the Revised Statutes is substantially a transcript, it was essential to the jurisdiction of this Court to review a question decided in a state court that one of the questions mentioned in the federal statute must have been raised and presented to the state court, and that it must have been decided by the state court against the right claimed or asserted by plaintiff in error under the Constitution, treaties, laws, or authority of the United States. To the same effect are New Orleans Waterworks Co. v. Louisiana Sugar Refining Co., 125 U. S. 18; St. Paul, Minneapolis & Manitoba Railway v. Todd County, 142 U. S. 282.
We cannot, therefore, review the decision of the state court allowing the claim of exemption from taxation of the capital stock of the bank, although the consequence is that in these cases both the capital stock and the shares thereof in the hands of the shareholders escape any taxation other than the charter tax.
Accepting, as we do, the authority of the Farrington case for the point therein decided, which exempts the stock in the hands of the shareholders from any further tax than that which is provided for in the charter, and being concluded in this case by the decision of the Supreme Court of Tennessee in favor of the exemption of the capital stock of the corporation, we are not here called upon to examine the validity of the claim of the bank as to the decision of this Court in cases preceding that of Farrington, where counsel allege it has been determined that both the corporation and the shares of stock in the hands of the shareholders are exempt from further taxation under clauses which are said to be similar to those in the charter under consideration.
with reference to the general rule governing claims of that nature. It is well known, has long existed, and is undoubted. New Orleans City & Lake Railroad v. New Orleans, 143 U. S. 192, 143 U. S. 195; Vicksburg & Pacific v. Dennis, 116 U. S. 655, and many cases there cited; Farrington v. Tennessee, 95 U. S. 679, 95 U. S. 686; West Wisconsin Railway v. Supervisors, 93 U. S. 595; Tucker v. Ferguson, 22 Wall. 527.
These cases show the principle upon which is founded the rule that a claim for exemption from taxation must be clearly made out. Taxes being the sole means by which sovereignties can maintain their existence, any claim on the part of anyone to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded upon plain language. There must be no doubt or ambiguity in the language used upon which the claim to the exemption is founded. It has been said that a well founded doubt is fatal to the claim; no implication will be indulged in for the purpose of construing the language used as giving the claim for exemption where such claim is not founded upon the plain and clearly expressed intention of the taxing power.
The capital stock of a corporation, and the shares into which such stock may be divided and held by individual shareholders, are two distinct pieces of property. The capital stock and the shares of stock in the hands of the shareholders may both be taxed, and it is not double taxation. Van Allen v. Assessors, 3 Wall. 573; People v. Commissioners, 4 Wall. 244, cited in Farrington v. Tennessee, 95 U. S. 687.
and comprehensive taxation to which such institutions are subjected where there is no protection by previous compact."
"That in corporations, four elements of taxable value are sometimes found: first, the franchise; second, the capital stock in the hands of the corporation; third, the corporate property; and fourth, the shares of capital stock in the hands of the individual stockholders."
The surplus belonging to this bank is "corporate property," and is distinct from the capital stock in the hands of the corporation. The exemption, in terms, is upon the payment of an annual tax of one-half of one percent upon each share of the capital stock, which shall be in lieu of all other taxes. The exemption is not, in our judgment, greater in its scope than the subject of the tax. Recognizing, as we do, that there is a different property in that which is described as capital stock from that which is described as corporate property other than capital stock, and remembering the necessity there is for a clear expression of the intention to exempt before the exemption will be granted, we must hold that the surplus has not been granted exemption by the clause contained in the charter under discussion. The very name of "surplus" implies a difference. There is capital stock, and there is a surplus over, above and beyond the capital stock, which surplus is the property of the bank until it is divided among stockholders.
The case of Bank v. Tennessee, 104 U. S. 493, does not hold to the contrary of this doctrine. This question was not therein discussed or decided. The question which was decided related only to the taxation of real property not used by the bank in its business, and it was held liable to taxation.
The case is no authority for the proposition contended for here, namely that the whole surplus of this bank is exempt from taxation. No individual shareholder has any legal right to claim any portion of this surplus. Until divided by the board of directors, it remains the property of the corporation itself, and in the sense in which the words "capital stock"
are used in the exemption clause, the surplus does not form any part thereof. It is said that the purpose of incorporating a bank is to enable the institution to accumulate profits, and to make dividends out of them, and that the dividends cannot be made until the profits have been accumulated, and that, under this ruling, profits would come under the description of surplus to be taxed before distribution in a dividend. It is true that dividends cannot rightfully be made until profits have accumulated; but it is one thing to accumulate profits each six months, or annually, and then divide them among the stockholders by way of dividends, and quite another thing to accumulate profits year after year, and, while still declaring dividends, accumulate a surplus which is not so divided. The sums accumulated by way of profit between the regularly recurring dividend days might not be regarded as surplus, provided those profits were regularly distributed in dividends. The surplus in this case is clearly not of that kind which has been saved for the purpose of being distributed by dividends. It may be true that the general effect of a tax on this surplus might indirectly operate upon the shareholder by possibly lessening the value of his shares to some extent, but that is not the same as if a tax had been laid upon those shares. In levying the charter tax, it was conceded that the tax has always been measured by the par value of the shares of stock, while the actual value of such shares, because of the large surplus owned by the bank, may have been very much greater, and the statute under which the surplus is taxed provides that such surplus must not be considered in the assessment upon the stock, so that provision is made whereby a tax upon the surplus and the charter tax upon the shares of stock will neither be double nor unjust taxation. Although a surplus may be required by the National Banking Act and also by the laws of good and safe banking, yet we do not perceive that this fact has any material effect upon the question.
We are therefore of opinion that the surplus was properly taxed, and that the bank's claim of exemption as to such surplus is without foundation in law.
These views lead to a reversal of so much of the judgment as is against the shareholders, and the cases are therefore remanded to the state court for further proceedings in conformity with this opinion.
MR. JUSTICE WHITE concurs insofar as the decree recognizes the exemption of the shares of stock from all taxation except that enumerated in the contract, but dissents from the conclusion as to the power to tax the surplus and undivided profits.

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