Year: 1876

A~FOAhASI REPORT OF THE CLEARING HOUSE,
COMMITTEE.


committee appointed by New York banks. consist.
ing Of Messrs John f. Williams Jacob B. vermilve r
d. Tappen BENJAMIN b. sherman and C. y Jordan
nave MADE report on he subject Of taxation the pro-
Jec'ed tax on surplus iunds in banks The following
are the principal points in the report


The committee chosen at a meeting Of hank officers
on the 18th OF October last to whom was Submitted
the entire subject Of bank taxation beg leave TO re-
port


The latest authority under which States exercise the
right TO tax national banks found the law of the
United states OF February 10, 1865, which provides
that the Legislature OF each State may determine apd
direct the manner and place OF taxing all the shares OF
national banks located within said state subject the
restriction that the taxation shall not be at greater
rate than assessed upon any other moneyed capital
in the hands Of individual citizens OF such State
The New York State law OF 1866 reads iollows:-
No tax shall hereafter be assessed upon the capital
any bank banking association organized under the
authority OF this State Of the United States but tho
stock holders in such banks and banking associations
shall be assessed and taxed on the value OF their shares
OF stock therein but not at greater rate
than is assessed upon other moneyed capital in the
hands Of individuals in this STATE"


II is interesting carefully 70 observe the phraseology
OF the law Of 1866 in order 10 If that is not
planned by the law OF the preceding year. reference
to what was intended by the Legislature when 1t used
the phrase, 'yalue OF their shares" The Law OF 1865
provides that 'all shares in any banking association
organized under this act the act OF Congress- shall
be iucuded in the assessment of taxes, but not at
greater rate than is assessed upon other moneyed cap
tal &c, provided that the tax so imposed upon such
shares shall not exceed the par value thereof"


This was the express provision in 1s65-"par value" !"
When value used IN 1866 is 1t reasonable to
infer that par value undersoodS Especially when
that definition was universally accepted as the true
one and has been acted by the authorities of the
state and city for ten years without question OF its
correctness Your committee presume that the
New York Legislature intended that its meaning,
important matter should be lett TO forced construc-
ton.


But now the Tax Commissioners claim the right to
tax the surplus alike of national and State banks and





sggregae amount OF surplus, discount interest and ex
change added together they appear on the books OF
the bank, making allowance Tor discount unearned
doubtful debts or contlhs"nt liabilities.


This premed'ated tax squarely conflicts with sound
be inferred from Its acts is in direct oppoeon to
the intent Of the general government For upon this
subject of surplus the National Bank act sets FORTH
section 20, as follows-"The directors may semi
annually declare dividend, &c, but each association
shall before the declaration OF dividend carry
tenth part OF its net profits Of the preceding half year
to its surplus fund.- until the same shall amount TO
twenty per cent Of its capital stock F"


But on that point the Tax Commissioners of New
York city practically say TO the directors If you com
ply with this law Will tax you every year three per
cent all additions made to your surplus fund "
Your committee ask, Is the United States TO be thus
crcumvened to have its conservative purpose frus-
trated by local or State authorityS In other words
Is the government willing lend itself to the creation
OF brood Of weak banks such as there certainly will
be, If banks forced to division of their surplus
funds--and several have already commenced such di
vsion-nstead of building up strong and safe banks
that will command the confidence of the publicY Ser
ousy is not any State law void that tends TO defeat
the intention OF Congress2


II is quite evident Also that in the effort which tho
country must make in order to return to specie cur
rency the commercial community Will need all the aid
that the banks possibly supply and your commit
would regard II national calamity If banking in
stitutions should find themselves at such an important
huncture with impaired surplus reserves, which every
bank should endeavor to possess to the extent
at least fifty per cent OF its capital


While, then, your committee emphatically dsclaim
for you and for themselves any desire to escape or
evade the payment of ul share of taxes both State
and United States they cannot resist the conviction
that banks required to do more, especially under
the recent construction of the New York State law


For, observe the United States not only do not tax
the surplus but they allow bank TO deduct from its
capital stock all United States bonds-ether on hand
or deposited in Washngton-and require pay
ment OF only the balance. While
the city authorities allow no such deduction,
but require tax to be paid on the
full value Of bank shares including the invested
in United States stocks This, too, when other per-
sona property reduced in valuation to sixty cents
the dollar anS the bank share is kept at 1oO DIS
elimination of iory per cent against the banks Now,
what difference, in result, does 1t make, whether the
banks assessed a greater rate of taxation (Which
the law expressly prohbits) whether they suffer an
increase the valuation bank property OF forty per
Sa Iver % Ibe 81 an pc
bonds and legal tenders are exempt from taxation
altogether.


taxation bears unequally upon banks both national
and State only remains to suggest the remedy-itis
threciold:-


Prst-An application should be made to the State
Legislature to enact that by the use of the word
'vauep in the law of 1866 par value is intended


iSecond-Appy TO Congress TO restrict ana define the
right granted to the several states to national
banks; and TO enact that taxation shall not exceed
certain percentage on the shares and that the surplus
fsnd shall be exempt from taxation


Tzird-The last source OF relief is the only one in
the hands OF bank managers-namely, to decline to
the city tho tax assessed on the sharehouer Oh
the several banks.


The Secretary Of the Treasury, however, does not in
his report recommend any relief on the contrary, ne
advises Congress authorize the issue OF bond bear
ing per cent interest," instead OF i've as basis Tor
bank circulation, without any abatement OF existing
This would leave, after the payment OF the an
nua per cent tax ON circulation, only three per
cent for all such Observation-Disclosures reduc-
ing by so much, the income from circulation


In conclusion your committee submit for your APP
proval the following resoluuons:-


whereas the city of New York for the mutual
and themselves for about past voluntarily
assumed the Of and bc mares have been a
orny assessed at their par value and whereas II Is now
the of such shares for taxation by adding
the nominal surplus of the banks TO the pa, value o ts5
directors have no power 70 settle ana no right 70
banks in addition the by the general govern
the capital circulation and deposits Gt
business which is already excessively taxed therefore
are naeed between the general and State governments
being liable indefinite taxation by both-a committee be
and to the stale LegsA
tue such in regard TO this subject as will lead
d ther that the banks agree together that they
will hcnceforh decline further voluntary payment OF taxes
assessed upon holders Of their sharesthe law not re
ourng such payment the bankand leave the taxes
to be col ected the operation Of existing laws


All OF which is most respectfully submitted.


JOHN +. WILLIAMS


j. D. VERMILYE,


f. d. TAPPEN


BENZ b. SHERMAN,


c. ~ JORDAN.


NEw YORK, Dec q, 1875.


p S-AL meeting Of bank officers held on the 2lsi
OF December the foregoing report was accepted ane
unanimously adopted
II was then voted that the same committee with the
addition OF Mr. Coe President Of the American Ex-
change National Bank be continued and requested "a
print and circulate said report and take all urthei
steps to secure the interests OF the bank
IN the vital questions involved.