Court Opinion

ID: 3554493
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:05:59.967337+00
Date Added: 2024-06-11T09:36:05.421767
License: Public Domain

I am also of opinion, that the statute under which this *Page 45 
tax was assessed is not in conflict with the constitution or any law of the United States. The property upon which it was laid consists of the earnings and income of shares in a national bank, which the bank voluntarily reserved in excess of the surplus required to be kept on hand by the act of congress. It was not capital of the bank, within the meaning of the laws of the United States, as interpreted and applied by the supreme court in repeated decisions since the passage of the act under which the bank was established, but simply a fund which the bank might legally have divided and paid over to the owners of its stock, in the way of dividends, but which it chose rather to retain for the purpose of enlarging and facilitating the transaction of its business. It was tangible property, situated within our territorial limits, entitled, as much as the property of any other citizen, to the full protection of our municipal laws; and it is not easy to imagine any just reason why it should not be charged with its due and equal proportion of the burden of maintaining and administering those laws.
It has not, indeed, been claimed by counsel for the bank that this surplus is not in some form a legal and proper object of state taxation. But the objection is, that the mode in which the legislature have undertaken to reach it is not warranted by the constitution, or authorized by the act of congress under which the bank was established; that it should have been levied by the name of a tax upon shares instead of a tax against the bank by name; that the true construction of the constitution and act of congress forbids a state tax of any kind, except upon real estate to be assessed against a bank created by act of congress as an agent in the administration of the national finances.
It seems to me, such a construction can only be sustained by sticking very closely to a somewhat narrow interpretation of the letter of the act, and disregarding altogether the spirit and purpose of both the act and the constitution of the United States. The broad reason, upon which it was held, in McCullock v. Maryland, 4 Wheat. 316, that state governments have no right to tax any of the constitutional means employed by the government of the Union to execute its constitutional powers any further than such right may be given by the act creating the agency, and so that a state, within which a branch of the bank of the United States had been established, could not, constitutionally tax that branch, was said by Chief Justice MARSHALL to rest upon three very plain abstract propositions: (1) That a power to create implies a power to preserve; (2) that a power to destroy, if wielded by a different hand, is hostile to and incompatible with these powers to create and preserve; (3) that where this repugnancy exists, that authority which is supreme must control, not yield to, that over which it is supreme. The power of congress to create and continue a bank having seen established in a preceding part of the opinion, he remarks that it is too obvious to be denied that the power of taxing it by the states may be exercised so as to destroy it: hence the conclusion that such power to tax does not exist in the states.
In the present case the legislature have left untouched the capital of *Page 46 
the association, nor has there been any attempt to tax that portion of the earnings of its shares which the bank was required to set aside as a surplus for the greater security both of the government and the people. It is perfectly obvious that the levying of this tax does not touch the institution at any point where it is shielded from state taxation by the reasons upon which McCullock v. Maryland, and the numerous cases following it are placed. It is not taxing an instrument or agent of the government for property which, by the act creating it, is in any way. made part of the plan of its existence, or the basis of its operations.
But it is argued that the case Van Allen v. The Assessors, 3 Wall. 573, establishes the doctrine, that although this property was legally subject to taxation by the state, still, inasmuch as the legislature have directed it to be assessed against the bank instead of the stockholders individually, our statute must be held void as being repugnant to the law of congress which allows the shares only to be taxed. I do not think the case goes that length. The main question there discussed was, whether the shares of a national bank could be taxed at all by state authority, except for what remained of their value after deducting the national securities in which part or the whole of the capital of such bank was invested; and it was held that they might be thus taxed. It was further held, that a statute of the state of New York laying a tax upon shares in such banks which contained no provision that such tax should not exceed the tax upon shares in state banks, could not be upheld. If there were any doubt, however, as to the doctrine of that case, it certainly seems to be quite removed by the later case of National Bank Commonwealth, 9 Wall. 353; and, as this case seems to me decisive of the present, it will be necessary to examine it somewhat at length.
It was error to the court of appeals of Kentucky. A statute of that state lay a taxes follows: "On bank stock, or stock in any moneyed corporation of loan or discount, fifty cents on each share thereof equal to one hundred dollars, or on each one hundred dollars of stock therein owned by individuals, corporations, or societies." And the same statute goes on to enact, — "The cashier of a bank whose stock is taxed shall, on the first day of July in each years pay into the treasury the amount of tax due. If such tax be not paid, the cashier and his sureties shall be liable for the same, and twenty per cent. upon the amount; and the said bank or corporation shall thereby forfeit the privileges of its charter."
Acting under this statute, the commonwealth demanded of the plaintiffs in error — the First National bank of Louisville — $4,000 with interest, the sum which a tax of fifty cents per share on the shares of the bank gave.
There was judgment against the bank in the state court, and that judgment was here affirmed.
In argument, it was strenuously urged by counsel for the bank that the state had no legal or constitutional power to coerce the bank itself to pay the tax in solido for its stockholders; that to prevent these *Page 47 
organizations from being made the servants and agents of the states in the collection of taxes, thus clothing the state with an authority not justified by the constitution, congress had particularly prescribed the mode of collection, as well as the extent of it.
Mr. Justice MILLER delivered the unanimous judgment of the court, in the course of which he says:
"It is strongly urged that it is to be deemed a tag on the capital of the bank, because the law requires the officers of the bank to pay this tax on the shares of its stockholders. Whether the state has the right to do this we will presently consider, but the fact that it has attempted to do it does not prove that the tax is anything else than a tax on these shares. It has been the practice on many on the states, for a long time, to require of its corporations thus to pay the tax: levied on their shareholders. It is the common if not the only mode of doing this in all the New England states; and in several of them the portion of this tax, which should properly go as the shareholders' contribution to local or municipal taxation, is thus collected by the state, of the bank, and paid over to the local municipal authorities. *  *  * But it is argued that the banks, being instrumentalities of the federal government, by which some of its important operations are conducted. cannot be subjected to such state legislation. * *  * The most important agents of the federal government are its officer; but no one will contend that when a man becomes an officer of the government he ceases to be subject to the laws of the state. The principle we are discussing has its limitation, a limitation growing out of the necessity on which the principle itself is founded. That limitation is, that the agencies of the federal government are only exempted from state legislation so far as that legislation may interfere with, or impair their efficiency in performing, the functions by which they are designed to serve that government. Any other rule would convert a principle, founded alone in securing to the government of the United States the means of exercising its legitimate powers, into an unauthorized and unjustifiable invasion of the rights of the states. The salary of a federal officer may not be taxed; he may be exempted from any personal service which interferes with the discharge of his official duties, because those exemptions are essential to enable him to perform those duties. But he is subject to all the laws of the state which affect his family or social relations, or his property, and he is liable to punishment for crime, though that punishment be imprisonment or death. So of the banks. they are subject to the laws of the state, and are governed in their daily course of business far more by the laws of the state that of the nation. All their contracts are governed and construed by state laws. Their acquisition and transfer of property, their right to collect their debts, and their liability to be sued for debts, are all based on state law. It is only when the state law incapacitates the banks from discharging their duties to the government that it becomes unconstitutional. *  *
"A very nice criticism of the proviso to the 41st section of the national bank act, which permits the states to tax the shares of such *Page 48 
bank, is made to us to show that the tax must be collected of the shareholder directly, and that the mode we have been considering is by implication forbidden. But we are of opinion, that while congress intended to limit state taxation to the shares of the bank, as distinguished from its capital, and to provide against a discrimination in taxing such bank shares unfavorable to them, as compared with the shares of other corporations and with other moneyed capital, it did not intend to prescribe to the states the mode in which the tax should be collected. The mode under consideration is the one which congress itself has adopted in collecting its tax on dividends, and on the income arising from bonds of corporations. It is the only mode which, certainly and without loss, secures the payment of the tax on all the shares, resident or non-resident; and, as we have already stated it, it is the mode which experience has justified in the New England states as the most convenient and proper, in regard to the numerous wealthy corporations of those states. It is not to be readily inferred, therefore, that congress intended to prohibit this mode of collecting a tax which they expressly permitted the states to levy."
Now let us see how this reasoning applies to the case before us. By sec. 1, ch. 15, Laws of 1868, "all shares of the capital stock of the banks located in this state, whether private, state, or national, shall be taxed at their par value to the owners thereof, in the town in which they reside, if in this state," c. By sec. 4, ch. 50, Gen. Stats., an act which had been in force for many years in this state when the national bank act was passed, "the surplus capital on hand in banking institutions shall be taxed in the towns wherein such banking institutions are located;" and to prevent the possibility of wrong from thus separating what might perhaps well enough be treated as a single interest, it is expressly provided that "no statute provision shall be so construed as to subject any stock to double taxation." Gen. Stats., chap. 49, sec. 7.
It is not pretended that there is any double taxation here, nor is it claimed but that this surplus voluntarily reserved by the bank, beyond what it is required by the act of congress to retain, enhances the value of the shares just as directly as though it were actually divided and added to the shares by some act of the bank. That is, the shares represent the interest of their owners in this surplus, just as much as they do the interest of the shareholders in the capital stock and property of the bank, which is made exempt from state taxation by the federal law. To continue: so far as might be consistent with the full operation of the new system, established by the national legislature, a mode of taxation to which our people from long use had become accustomed, and thus provide that the great change made in the currency of the country by the national bank act should go into effect with as little friction as possible, our legislature did not change the law of the state in this regard, but still continued to towns in which a bank may be situated the right to tax this surplus as property located within their corporate limits, instead of treating the surplus as an increment to the *Page 49 
shares, which it really is, and dividing the tax upon it among the various towns where the shares are owned. Most clearly it is a tax upon value, represented by the shares. In substance, it is a tax upon the shares and nothing else. The only difference is that by our statute it is to be paid out of funds, the beneficial ownership of which is in the shareholders, by the hand of the bank, whereas, if it were assessed upon the shareholders individually, it would be paid by them directly without the intervention of the bank. The legal title to the money may be in the corporation until it is divided and handed over to the stockholders, but this legal ownership is of no higher character than that of a trustee for the owners of the shares; and, in reality, it is only by consent of the share-owners that the surplus is not distributed to them.
In National Bank v. Commonwealth it was held, as we have seen, that a tax upon shares might legally be levied directly against the bank. Is it to be held that a tax, which is in fact and to all practical intents upon shares, cannot be levied against the bank, merely because the legislature call it by another name, and assess it upon a surplus always definite and easy to be ascertained? I think not. See Thomson v. Pacific Railroad, 9 Wall. 579; Railroad Company v. Peniston, 18 Wall. 5. My opinion therefore is, that the case is entirely within the doctrine of National Bank v. Commonwealth; and, as this is the opinion of all the members of the court, the
Petition must be dismissed.