Court Opinion

ID: 9418861
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:41:32.634257+00
Date Added: 2024-06-11T17:15:01.144163
License: Public Domain

Mr. Justice Cardozo,
dissenting.
I think the judgment under review is right in so far as it permits the inclusion of government bonds as factors of value in the assessment of the tax, and wrong only in so far as it violates a provision of § 5219 of the United States Revised Statutes by the inclusion of shares in the Philadelphia National Bank.
*124The tax in controversy is not laid upon the capital of the trust company. It is laid upon the shares, payment being made in the first instance by the corporation as the agent of the shareholders with a remedy over for moneys so advanced. Home Savings Bank v. Des Moines, 205 U. S. 503, 518; Commonwealth v. Merchants & Manufacturers National Bank, 168 Pa. 309; 31 Atl. 1065; affirmed 167 U. S. 461; Commonwealth v. Mortgage Trust Co., 227 Pa. 163; 76 Atl. 5; Commonwealth v. Union Trust Co., 237 Pa. 353; 85 Atl. 461; Northern Trust Co. v. McCoach, 215 Fed. 991; cf. National Bank v. Commonwealth, 9 Wall. 353, 362; Aberdeen Bank v. Chehalis County, 166 U. S. 440, 444, 445. The tax being laid upon the shares, and not upon the capital, the Constitution does not make it necessary in the assessment of the tax to reduce the value of the shares to the extent that bonds of the national government are included in the capital. This is settled law. Van Allen v. Assessors, 3 Wall. 573; Cleveland Trust Co. v. Lander, 184 U. S. 111; Des Moines Bank v. Fairweather, 263 U. S. 103, 112; Educational Films Cory. v. Ward, 282 U. S. 379, 390.
The argument for the appellant is that the tax might have been lawful if the shares had been valued without any deductions growing out of the nature of the capital, but that the moment a deduction was allowed in respect of any class, there was an unlawful discrimination against government securities unless the deduction was enlarged and made applicable to them. The attack is thus confined to amendments of the act which were placed upon the statute books in three years (1923, 1927, 1929), for there was no deduction of any kind under the act as first adopted in 1907. These amendments provide that the assessment shall be reduced by deducting therefrom (1) such part of the assets of the trust company as is invested in shares of other corporations taxed by the Com*125monwealth of Pennsylvania upon capital or shares (1923, July 11, P. L. 1071, 1072, reenacted by 1927, May 7, P. L. 853, 855; 1929, April 25, P. L. 673, 675), and (2) such part as is invested in the shares of other corporations relieved by the Commonwealth from a capital tax or a tax on shares (1927, May 7, P. L. 853, 855; 1929, April 25, P. L. 673, 675). The purpose of the first deduction is to avoid double taxation or something akin thereto. Cf. Commonwealth v. Fall Brook Coal Co., 156 Pa. 488, 495; 26 Atl. 1071; Commonwealth v. Lehigh Coal & Navigation Co., 162 Pa. 603, 609; 29 Atl. 664. The purpose of the second is to promote the policy of the Commonwealth whereby particular kinds of business (i. e., the business of manufacturing corporations, laundering corporations and corporations for the processing and curing of meats) are relieved from the payment of taxes imposed on other corporations to the extent that the business so favored is carried on in Pennsylvania.* Dupuy v. Johns, 261 Pa. 40, 46; 104 Atl. 565.
*126At the time of the assessment the appellant was the owner of shares in corporations that paid a tax upon their capital to the Commonwealth of Pennsylvania. Purdon’s Pennsylvania Statutes, Title 72, § 1871. These shares will be described for convenience as investments in class number 1. Except for certain shares in the Philadelphia National Bank, which will be separately considered, the assets did not include an interest in corporations that paid a tax upon their shares as distinguished from one upon their capital. The appellant was also the owner, or so it will be assumed, of shares of stock in manufacturing corporations that were relieved from any tax. These shares will be described for convenience as investments in class number 2. The holding now is that the deduction of the shares of either of these classes is an act of discrimination forbidden by the national constitution unless investments in obligations issued by the national government are accorded the same favor.
I read the cases otherwise. The statute was not passed as an act of “ unfriendly discrimination ” (Adams v. Nashville, 95 U. S. 19; Mercantile Bank v. New York, 121 U. S. 138, 161; Aberdeen Bank v. Chehalis County, supra, at p. 461) against the national securities, nor was it passed in aid of classes of investments with which the national securities are in substantial competition. In the absence of one or other of these motives or results the prejudice, if *127any, is too remote to be forbidden. There is no room in the solution of problems of this order for doctrinaire definitions, heedless of practical results. Metcalf & Eddy v. Mitchell, 269 U. S. 614, 623, 524. “ In a broad sense, the taxing power of either government, even when exercised in a manner admittedly necessary and proper, unavoidably has some effect upon the other.” Metcalf & Eddy v. Mitchell, supra, at p. 523. A sterile formalism would quickly lead to an impasse, the activities of the states checked because of an indirect effect upon the agencies of the federal government, and the federal activities checked for fear of a like effect upon the agencies of the states. One must view the subject in a large way, if government is to go on at all. Educational Films Corp. v. Ward, supra, at p. 390 and cases there cited; Pacific Co. v. Johnson, 285 U. S. 480, 489; Trinityfarm Co. v. Grosjean, 291 U. S. 466; Willcuts v. Bunn, 282 U. S. 216, 225, 226; Helvering v. Powers, 293 U. S. 214, 225.
“ Unfriendly discrimination ” might be inferred if securities of every kind were excluded from the reckoning with the single exception of the obligations of the national government. That would be an extreme case, the conclusion hardly doubtful. Even though hostility were not so pointed as in the case supposed, there might still be an invidious distinction if securities in substantial competition with evidences of indebtedness issued by the national government had been given a preferred position. Nothing of the kind appears. “ For reasons of public policy and not as an unfriendly discrimination ” (Aberdeen Bank v. Chehalis County, supra, at p. 461), the value of a share in a trust company is to be ascertained by excluding from the assets the shares in other corporations that are liable to the state for a tax upon their capital. Let it be assumed, for illustration, that a trust company is the owner of shares of stock in a department store doing business in Philadelphia. Under the statutes of Pennsylvania a bus*128iness of that kind pays a tax upon its capital. A trust company does not. If it did, a hardship akin to that of double taxation would result if its interest in the department store were made use of to magnify its burden. But the process of taxation does not end at that point. By the plan of the statute the assessor passes over the trust company and lays the tax upon the shareholders. The same considerations of fair dealing and equality are then applicable to them. So at least the legislature of Pennsylvania might not unreasonably believe. Never before has it been held that out of deference or favor toward the securities of government a state is disabled from framing its system of taxation along lines of equity and justice. Hepburn v. School Directors, 23 Wall. 480, 485.
What is true of investments in class number 1 is true also of investments in class number 2. “ For reasons of public policy and not as an unfriendly discrimination ” (Aberdeen Bank v. Chehalis County, supra), corporations organized for laundering, for the processing and curing of meats, and for manufacturing within the state have been relieved by Pennsylvania from liability for a tax upon their capital. The motive dictating that exemption is the desire to induce capital to come or stay within the state when employed in forms of enterprise believed to be important for the good of the community. Dupuy v. Johns, supra; Commonwealth v. Barnes Bros. Co., 5 Dauph. 75, 77; cf. New York State v. Roberts, 171 U. S. 658, 665, 666. In promotion of the same policy the shares of corporations thus relieved from liability for a tax are excluded from the reckoning when shareholders in trust-companies are taxed upon the value of their holdings. The reckoning does not exclude the bonds or notes or other evidence of indebtedness of corporations of any kind, foreign or domestic. It does not exclude the shares of any corporation not engaged in the enumerated forms of business, except in so far as such other corporations have al*129ready paid a tax upon their capital or shares. It does not exclude the shares of manufacturing corporations except to the extent of the capital employed in Pennsylvania. The deduction is limited in range and beneficent in aim.
The situation, then, is this. Vast classes of securities— bonds and notes of every kind, as well as shares of stock in many and varied enterprises — are in the same position for the purpose of the tax in suit as government bonds and notes. The few investments that occupy a different position are not comparable in kind or in attractiveness to the obligations of the government and do not substantially compete with them. To hold that there was discrimination here in any forbidden sense is to hold that bonds and notes of the United States must be deducted from the value of the shares if there is a deduction of any form of investment, no matter how minute in amount or alien in quality. Assume, for illustration, an exemption of the shares of corporations engaged in the manufacture of books or in the sale of works of art, an exemption accorded in furtherance of a policy to foster art and letters. If the prevailing opinion stands, the policy in such a case must be abandoned or the federal bonds included. Assume again that laundering corporations only had been relieved by Pennsylvania from liability for a tax upon their capital. Laundering corporations, as we have seen, were actually relieved, but manufacturing corporations also. The prevailing opinion, if it stands, would bring us to a holding that laundering corporations could not be favored without hostility and peril to the treasury at Washington. This is to lose sight of the essence of discriminatory statutes and to stick in the bark of a hard and narrow verbalism.
Erom such incongruities and excesses the avenue of escape is clear. It is to be found in the acceptance of the test put forward in this opinion. The discrimination, as *130has been said, must be so marked as to justify the inference that it was unfriendly in design or at the very least it must favor forms of investment that are in substantial competition with government securities. A helpful analogy is found in the taxation of national banks. By R. S. § 5219; 12 U. S. C. § 548, the several states may tax the shares of national banks, but “ the tax imposed shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State coming into competition with the business of national banks.” There are many cases in this court expounding that enactment. Hepburn v. School Directors, supra, was a case where a statute of a state had given exemption from taxation to “ all mortgages, judgments, recognizances and moneys owing upon articles of agreement for the sale of real estate.” The court assumed that the exempt investments might be ranked as moneyed capital. The tax upon the bank shares was none the less upheld. The exemption was partial only. “ It was evidently intended to prevent a double burden by the taxation both of property and debts secured upon it.” Id. at p. 485. There was no token of a hostile purpose. “ It could not have been the intention of Congress to exempt bank shares from taxation because some moneyed capital was exempt.” Ibid. Adams v. Nashville, 95 U. S. 19, was a case where a municipal ordinance gave exemption from taxation to the municipal bonds. Again the ruling was that this exemption of particular property did not affect the validity of the tax upon the shares. “ The plain intention of that statute [R. S. § 5219] was to protect the corporations formed under its authority from unfriendly discrimination by the States in the exercise of their taxing power.” Id. at p. 22. “ It was not intended to cut off the power to exempt particular kinds of property if the legislature chose to do so.” Ibid. Mercantile Bank v. New York, 121 U. S. 138, was a case where exemption had been given *131to bonds of municipal corporations and also to deposits in savings banks. Again the protest of discrimination was unavailing to defeat the tax. After quoting from Hepburn v. School Directors and Adams v. Nashville, the court went on to say (p. 161): “ The only limitation, upon deliberate reflection, we now think it necessary to add, is that these exemptions should be founded upon just reason, and not operate as an unfriendly discrimination against investments in national banks.” The same note is sounded in Aberdeen Bank v. Chehalis County, supra. Even though the investments subjected to a lighter tax are to be classed as moneyed capital, this is unavailing without more to condemn the classification as unlawful. Unless the favored moneyed capital is in substantial competition with the business of national banks, the preference is innocent in aim and harmless in result. At least, the harm, if any, is too remote and dubious to vitiate the tax. First National Bank v. Hartford, 273 U. S. 548, 552; Minnesota v. First National Bank, 273 U. S. 561, 568; Georgetown National Bank v. Anderson, 269 U. S. 341, 348; First National Bank v. Tax Commission, 289 U. S. 60, 65, 66; cf. Hibernia Savings Society v. San Francisco, 200 U. S. 310, 314, 315. The conclusion is even clearer where the investment may not properly be classified as moneyed capital at all.*
Two cases, National Life Insurance Co. v. United States, 277 U. S. 508, and Missouri ex rel. Missouri Insurance Co. v. Gehner, 281 U. S. 313, much relied upon by the appellant, are far beside the mark.
The first of these cases brought up a controversy as to a tax laid by Congress on the income of a life insurance company. The company was to be allowed (1) a deduc*132tion for tax exempt securities, and (2) an amount equal to 4% of its mean reserve fund, diminished, however, by the amount of the first allowance, the interest on government securities exempt under the federal law. The court held that the effect of the second allowance was to cancel the exemption conceded by the first.
The second of the two cases was one where in the view of a majority of the court a tax had been laid directly on the capital assets of the taxpayer and so on the government bonds included in the assets. It was not a case like this where the shares and not the capital were subjected to the burden.
I am unable for these reasons to discover an unlawful discrimination though the tax be assessed in accordance with the statute.
Assuming such a discrimination, I do not understand that any mandate is laid by this court upon the Supreme Court of Pennsylvania as to the choice between two methods of avoiding or correcting it.
The Acts of 1923, 1927 and 1929 prescribing the deductions, were amendatory statutes, separable, even though invalid, from the acts thereby amended. Eberle v. Michigan, 232 U. S. 700, 705; Davis v. Wallace, 257 U. S. 478, 484, 485; Truax v. Corrigan, 257 U. S. 312, 342.
If the state maintains the deductions prescribed by the amendments, it must remove the discrimination now held to be unlawful, even at the price of enlarging the deductions. Iowa-Des Moines Bank v. Bennett, 284 U. S. 239, 247. On the other hand, it may cancel the deductions altogether, annulling the amendatory acts in so far as they prescribe a new method of valuation and going back in that respect to the law previously in force. In that event the tax to be paid by the appellant will be increased instead of lessened. The choice between these curative measures must be made by the state court.
*133For reasons stated in Bank of California v. Richardson, 248 U. S. 476, the assessment is excessive to the extent that it includes shares of stock of the Philadelphia National Bank belonging to the Trust Company. These shares having been taxed to the Trust Company as owner could not properly be taxed again to a shareholder of the owner. Bank of California v. Richardson, supra; R. S. § 5219.
Other questions are in the case, but they are not decided in the prevailing opinion, and will not be considered here.
The judgment should be modified by directing the deduction from the assessment of the value of the appellant’s shares in the Philadelphia National Bank, and as modified affirmed.
Me. Justice Brandéis and Mr. Justice Stone join in this opinion.

 The following is the text of the statute which defines the corporations entitled to such relief:
“And provided further, That the provisions of this section shall not apply to the taxation of the capital stock of corporations, limited partnerships, and joint-stock associations, organized for laundering, for the processing and curing of meats, their products and byproducts, or for manufacturing purposes, which is invested in and actually and exclusively employed in, carrying on laundering, the processing and curing of meats, their products and by-products, or manufacturing within the State, excepting companies engaged in the brewing or distilling of spirits or malt liquors, and such as enjoy and exercise the right of eminent domain; but every corporation, limited partnership, or joint-stock association organized for the purpose of laundering, or processing and curing meats, their products and byproducts, or manufacturing, shall pay the State tax of five mills herein provided, upon such proportion of its capital stock, if any, as may be invested in any property or business not strictly incident or appurtenant to the laundering or manufacturing business, or the business of processing and curing meats, their products and by*126products, in addition to the local taxes assessed upon its property in the district where located; it being the object of this proviso to relieve from State taxation only so much of the capital stock as is invested purely in the laundering or manufacturing plant and business, or the plant and business used in the processing and curing of meats, their products and by-products: Provided further, In case of fire and marine insurance companies, the tax imposed by this section shall be at the rate of three mills upon each dollar of the actual value of the whole capital stock: Provided, That nothing in this act shall be so construed as to apply to building and loan associations chartered by the State of Pennsylvania.” Purdon’s Penn. Statutes, Title 72, § 1892.

 For other and less direct analogies see: Cumberland Coal Co. v. Board of Revision, 284 U. S. 23, 28; Iowa-Des Moines Bank v. Bennett, 284 U. S. 239, 245; Rowley v. Chicago & N. W. Ry. Co., 293 U. S. 102, 111.