Source: https://supreme.justia.com/cases/federal/us/73/611/
Timestamp: 2019-04-19 04:44:52+00:00

Document:
1. The preceding case, Society for Savings v. Coite, affirmed and declared to be applicable to this case.
"on the amount of its deposits, to be assessed, one-half of said annual tax on the average amount of its deposits for the six months preceding the 1st of May, and the average amount of its deposits for the six months preceding the 1st of November,"
is to be regarded as a franchise tax, not as a tax on property, and is valid. Nor is there anything inconsistent with this view in the decisions of this Court.
3. Accordingly, a savings institution in Massachusetts having a portion of its deposits invested in federal securities declared by the act of Congress authorizing their issue to be exempt from taxation under state authority, is liable under the above statute to a tax on account of such deposits as on account of others.
This case, which came here on writ of error to the Supreme Court of Massachusetts, involved as a general matter the same question as the case just preceding, to-wit, the taxation by state legislatures of federal securities held by savings banks created by them; the difference between the two cases being that the question in the former case arose under a statute of Connecticut having one form of language, and in this case arose under a statute of Massachusetts having another form, more or less different.
"a tax on account of its depositors of one-half of one percent per annum [Footnote 1] on the amount of its deposits, to be assessed one-half of said annual tax on the average amount of its deposits for the six months preceding the first day of May and the other on the average amount of its deposits for the six months preceding the first day of November."
The act by its twelfth section exempted "all property taxed" under the above section from taxation for the current year in which the tax was paid, and relieved savings banks from making return of deposits in accordance with the provisions of previous statutes.
and to invest its deposits in securities of the United States, had as its average amount of the deposits for the six months preceding the first day of May, 1865, $8,047,652.19, of which $1,327,000 stood invested in public funds of the United States, exempt by law of the United States from taxation under state authority. It paid all taxes asked of it except on the portion which stood thus invested; upon that it declined to pay a tax. On suit brought by the commonwealth to recover the same, the Supreme Judicial Court of that state, regarding the taxing as one on franchise and not on property, and therefore lawful, gave judgment for the commonwealth.
On error here, the question was the correctness of this judgment -- in other words, whether the state by force of the statutes could exact the tax on that portion of the society's deposits which was invested in the public funds of the United States.
Average amount of deposits in the institution standing to the credit of depositors for the six months preceding the first day of May, 1865, was $8,047,652.19, of which $1,327,000 were invested in the public funds of the United States. Due returns were made by the corporation defendants, and they paid the percentage on the whole amount of the deposits not invested in the national public funds.
Corporations neglecting to pay such a tax are made liable, by the eleventh section of the act, for the amount withheld, with costs and interest, in an action of assumpsit in the name of the commonwealth. Proceedings were accordingly commenced, and the parties submitted the controversy to the state court upon an agreed statement of facts, which is exhibited in the record. Judgment was rendered for the plaintiff for the balance of the tax, with costs and interest, and the defendants sued out a writ of error under the twenty-fifth section of the Judiciary Act, and removed the cause into this Court.
I. Most of the questions involved in this record were very carefully considered in the case Society for Savings v. Coite, argued at the present term, [Footnote 5] and received the conclusive determination of the Court. Extended argument in support of that judgment is unnecessary, as we are entirely satisfied with our conclusions and with the reasons assigned therefor at the time the judgment was rendered.
(1) That the securities issued by the United States declared by act of Congress to be exempt from taxation cannot be taxed by the states for any purpose.
(2) That power to borrow money on the credit of the United States is conferred upon Congress, and that inasmuch as the Constitution and the laws of Congress passed in pursuance thereof are made the supreme law of the land, it follows that the action of Congress in the exercise of that power is shielded from every species of unfriendly state legislation.
(3) That the states cannot tax the instruments of the federal government nor the means employed by Congress to carry into effect the powers conferred in the federal Constitution, although their authority is undeniable to tax all subjects over which the sovereign power of the state extends.
to receive deposits, but without authority to issue bills and having no capital stock, to pay annually into the state treasury a sum equal to three-fourths of one percent on the total amount of their deposits on a given day, in lieu of all other taxes, are properly regarded as imposing a franchise tax, and not a tax on property.
(5) That the privileges and franchises of a private corporation, unless exempted in terms, which amount to a contract, are as much the legitimate subject of taxation as any other property of the citizen which enjoys the protection and is within the control of the sovereign power of the state.
(6) That corporate franchises are legal estates, and not mere naked powers, but powers coupled with an interest which vest in the corporation by virtue of their charter.
(7) That private corporations and all trades and avocations by which the citizens acquire a livelihood may be taxed by the state for the support of the state government.
(8) That such authority resides in the states independent of the federal government, and that it is wholly unaffected by the fact that the party, whether corporation or individual, has or has not made investments in federal securities.
(9) That the power rests in the discretion of the legislature to decide whether the sum to be levied shall be a fixed one, and, if not, to determine in what manner and by what means the amount shall be determined.
Those several propositions, except perhaps the fourth, are as applicable to the present case as to that in which they were announced, and it is clear that nothing is left in this record for decision save the question whether the tax imposed in this case is to be regarded as a tax on property or a tax on the privileges and franchises of the corporation.
upon any produce, goods, wares, merchandise, and commodities whatsoever, brought into, produced, manufactured, or being within the same."
Incorporated banks were required by the act of the legislature, passed June 23, 1812, to pay annually to the treasurer of the state, for the use of the same, a tax of one-half of one percent on the amount of the original stock issued to the stockholders. [Footnote 7] Due assessment of the tax was made, and the bank failing to pay the amount, it was collected by warrant of distress, and the bank instituted an action of trespass against the treasurer of the state, who issued the warrant.
(1) That the tax was illegal because it was not equal and proportional, as required by the constitution.
(2) That the bank could not be made liable to the tax, because their charter was granted long before the statute imposing the tax was passed.
(3) That the legislature could not select any specific property as the subject of taxation and assess the owner for it separately and distinctly from his equal and proportional share of such taxes as were required of all other inhabitants.
Views of the Court were, however, that the law was perfectly consistent with the constitution, with the rights of the complaining corporation, and with the practice of the state under the constitution from the time of its adoption.
proportional "upon all the inhabitants of, persons resident, and estates lying within the commonwealth;" that the due exercise of that power requires an estimate, or valuation, of all the property in the state, and that the assessment upon each individual shall be according to his proportion of that property.
Express determination of the Court was that the legislature could not select any company or individual of any specific article of property and assess them by themselves, as that would be a violation of that provision of the constitution which requires that the taxes shall be proportional. They also held that the object of the charter was to enable the corporation to conduct their business as an individual, to make contracts, and enforce them as such, avoiding the inconvenience of a co-partnership; that inasmuch as there was no express waiver in the charter of the power to impose a duty or excise, it could not be held that the legislature had relinquished that right, and that a tax upon all the banks in the state was justifiable under the second branch of that clause.
a right to sell at a reasonable price, and by parity of reason it may impose the same conditions upon every other employment or handicraft."
Regarded merely as a question of power, it is undoubtedly true, as stated by the Court in that case, that the legislature might as well exact a fee or tribute from brokers, factors, or commission merchants for the privilege of transacting their business as from auctioneers, inn-holders, retailers, or attorneys, as every citizen has as much right to exercise either of those employments free of tribute as the cultivator of the soil or the mechanic has to pursue their particular callings.
Taken in any point of view, the decision in that case is decisive of the question under consideration unless it be assumed that the whole tax was illegal and void as directly contrary to the state constitution. Such a conclusion can hardly be admitted in view of the fact that the rule of construction adopted in that case has prevailed under the highest judicial sanction of the state for more than fifty years. Assessors and people, as well as the bench and the bar, are familiar with that construction of the constitution which had prevailed in practice for more than thirty years when the rule was announced by the courts. Indeed, usage was one of the strong arguments employed by the supreme court of the state in support of their conclusion at the time the prevailing rule of construction first received judicial sanction.
Usage of successive legislatures, said the Court, from the time the government began, when its powers as well as the rights of the citizen were well understood and when there was a general disposition to keep all the departments within their prescribed sphere, down to the present time furnishes strong grounds for explanation of parts of the constitution which are obscure or not perfectly explicit.
Forcible as those suggestions were fifty years ago when they were made, the unbroken usage in the same direction since that time adds much to their cogency and justifies the conclusion of the present supreme court of the state that the rule ought not to be disturbed.
authorizing the tax in this case lays a direct assessment upon the property of the corporation, and fixes a special standard by which the value of that property shall be measured, and that in so doing, it includes the portion of the corporate property invested in the securities exempted from taxation. But the assessment of the tax is to be made semiannually on the average amount of their deposits for the six months preceding the respective days named, and not on the value of the property, as supposed. Reference to the average amount of the deposits is made not as descriptive of the subject to be assessed, but as furnishing the basis of computing the amount of the tax to be paid by the corporation. The subject matter to be taxed is the corporation, and the average amount of the deposits within the period named furnishes the basis of computing the amount.
Apart from the intrinsic merit of those two decisions, the Attorney General contends that inasmuch as they are decisions of the highest court of the state in respect to the construction of the constitution and tax laws of the state, they ought to be regarded as authorities in this Court. state decisions involving questions reexaminable here under the twenty-fifth section of the Judiciary Act, and especially the decision in the case removed here for review, can have no authoritative influence in this Court, because the state courts, in deciding those few questions, act in a subordinate relation to the paramount jurisdiction of this Court as conferred under the federal Constitution.
since that time are to the same effect, and there is nothing in the decisions of this Court in any respect inconsistent with that rule.
Considered as a tax on property no part of the tax could be supported under the constitution of the state, and there never was a moment when such a tax, if viewed as a property tax, could be upheld since the state was organized under a written constitution. The amount of the tax does not depend on the amount of the property held by the institution, but it depends upon the capacity of the institution to exercise the privileges conferred by the charter.
as levied for state and municipal purposes, in the basis prescribed for computing the amount, in the manner of assessment, and in the mode of collection, and they are in lieu of all other taxation, state or municipal. Comparative valuation in assessing property taxes is the basis of computation in ascertaining the amount to be contributed by an individual, but the amount of a franchise tax depends upon the business transacted by the corporation and the extent to which they have exercised the privileges granted in their charter. Unlike as the two systems are in every particular, it seems to be a work of supererogation to point out the differences, which are radical and substantial.
THE CHIEF JUSTICE, GRIER, J., and MILLER, J., in this as in the last preceding case dissented on the ground that the tax was one on the property, and not on the franchises, of the Provident Institution.
By Act of 1863, increased to three-fourths of one percent per annum.
Sessions Laws, 1862, pp. 198-9; ibid., 1863, p. 479.
Portland Bank v. Apthorp, 12 Mass. 252.
Bank of Savings v. Collector, 3 Wall. 514.
Commonwealth v. Savings Bank, 5 Allen 431.
Queen v. Arnaud, 9 Adolphus & Ellis New Series 806.
McCutcheon v. Marshall, 8 Pet. 240; Bank of Hamilton v. Dudley, 2 Pet. 492; Leffingwell v. Warren, 2 Black 599.
Sessions Laws 1862, p. 200.

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