The New York Times The New York Times Washington   
Search:  

Powered by: FindLaw

Cases citing this case: Supreme Court
Cases citing this case: Circuit Courts
FIRST NAT. BANK v. CHEHALIS COUNTY, 166 U.S. 440 (1897)

U.S. Supreme Court

FIRST NAT. BANK v. CHEHALIS COUNTY, 166 U.S. 440 (1897)

166 U.S. 440

FIRST NAT. BANK OF ABERDEEN
v.
COUNTY OF CHEHALIS et al.
No. 38.

April 12, 1897

The first National Bank of the city of Aberdeen, state of Washington, a banking corporation organized under the national banking laws of the United States, filed its complaint in the superior court of the said state for the county of Chehalis, May 16, 1892, against the county of Chehalis and J. M. Carter, as ex officio tax collector of the county, seeking to enjoin the defendants from levying upon the safes, time locks, and other personal property of the complainant for the purpose of collecting a tax upon the shares of its capital stock. The defendants demurred to the complaint, and, the demurrer having been sustained, and the complainant having refused to amend its complaint, judgment was entered in the said court, [166 U.S. 440, 441]   September 13, 1892, in favor of the defendants. The complainant took the case upon writ of error to the supreme court of the state, where the judgment was affirmed. 6 Wash. 64, 32 Pac. 1051. The complainant then sued out a writ of error bringing the case here.

The essential allegations of the complaint were that the capital stock of the bank consisted of 500 shares of $100 each; that all of the stock was paid up, and was owned in part by citizens of the state of Washington, resident therein, and in part by citizens of the United States residing outside of the state; that the assessor of the said county was charged, under the provisions of an act of the legislature of the said state approved March 9, 1894, entitled 'An act to provide for the assessment and collection of taxes in the state of Washington and declaring an emergency,' with the duty of preparing an assessment roll of all the property subject to taxation in the said county, as owned and there subject to taxation on April 1, 1891; that thereupon the assessor proceeded to make out an assessment roll, wherein he listed to the complainant, as owner thereof, all of its capital stock, and, though informed by the complainant of the residence of each of the stockholders, and of the amount of stock held by each of them on April 1, 1891, assessed the capital stock in solido to the complainant as owner thereof, at a total valuation of $50,000; that upon the said assessment the defendant Carter, as treasurer, was officially directed to collect from the complainant a tax in the amount of $686.25; that, the tax not having been paid, the said defendant, as treasurer, on March 1, 1892, declared the same delinquent, and added thereto a certain sum by way of penalty for nonpayment, and a certain sum as interest, and was about to proceed to collect the total amount, being $787.22, by levying upon the safes, time locks, and other property used by the bank, and that, if he were permitted so to do, the complainant would suffer irreparable injury; that on April 1, 1891, there existed in the said county moneyed capital, other than that invested in shares of stock of national banks and banking business, owned by citizens of the state resident in that [166 U.S. 440, 442]   county, and there invested in loans and securities owing by other citizens of the state residing in the county, exceeding the sum of $237,400; that there existed in the state moneyed capital owned by citizens of the state who were residents of other counties thereof (aside from the capital invested in banks and banking business), invested in loans and securities owing by citizens of the state residing in counties other than the county aforesaid, exceeding the sum of $14,000,000; that the total capitalization of national banks located in the state was the sum of $7,000,000, and the total capitalization of banks there located, incorporated under the laws of the state, the sum of $4,000,000; that large amounts of moneyed capital were invested in the state, by residents thereof, in the stocks and bonds of insurance, wharf, and gas companies, which amounts, together with all the moneyed capital above mentioned, made an aggregate of at least $26,000, 000; that these facts were well known to the several assessors and other taxing officers throughout the state, but that the moneyed capital referred to, other than the said capital of the national and state banks, was purposely omitted from assessment and taxation in pursuance of an agreement entered into before April 1, 1891, between the assessors of the several counties, based upon an opinion rendered by the attorney general of the state, advising such omission; that this omission necessarily operated as a discrimination in favor of the other moneyed capital in the hands of individual citizens of the state and against shares of stock of the national banking corporations located within the state, and necessarily resulted in the taxation of the shares of the national banks at a greater rate than other moneyed capital in the hands of the individual citizens of the state.

James B. Howe, for plaintiff in error.

James A. Haight, for defendants in error. [166 U.S. 440, 443]  

Mr. Justice SHIRAS, after stating the facts in the foregoing language, delivered the opinion of the court.

It is contended on behalf of the plaintiff in error that an assessment and taxation of all the shares of the stock of a national bank in solido to the bank direct, as owner thereof, constitutes a tax upon the bank, forbidden by section 5219 of the Revised Statutes of the United States.

The tax in question was assessed under section 21 of an act of the legislature of the state of Washington approved March 9, 1891 (Laws Wash. 1891, pp. 280-289), in the following terms:

If this section stood alone, there might be ground for the contention that it contemplates taxation of the capital of the bank. But section 23 of the statute provides that 'each bank [166 U.S. 440, 444]   and banking association shall be liable to pay any taxes assessed against them as the agent of each of its shareholders, owners, or owner under the provisions of this act, and may pay the same out of their individual profit account or charge the same to their expense account, or to the accounts of such shareholders, owners or owner in proportion to their ownership.'

This supreme court of Washington held in this case that these two sections are to be read together, and that, so read, their provisions are not inconsistent with those of the federal statute.

That the two sections of the state law should be read together is obviously proper, and, at any rate, we are bound by the judgment of the supreme court of the state in the mere matter of the construction of that law.

In the holding that the state law, in the provisions under consideration, was not in contravention of the federal statute, the supreme court of Washington claimed to follow the case of National Bank v. Com., 9 Wall. 353; and we agree with that court in thinking that the case referred to is decisive of the contention now made. In that case it appeared that a statute of the state of Kentucky provided that a tax should be laid on 'the 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 further provided that 'the cashier of a bank whose stock is taxed shall, on the first day of July in each year, 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.'

It was claimed by the bank that the shares of the stock were the property of the individual stockholders, and that the bank could not be made responsible for tax levied on those shares, and could not be compelled to collect and pay such tax to the state. In delivering the opinion of the court, Mr. Justice Miller said:

This case was followed in Bell's Gap R. Co. v. Pennsylvania, 134 U.S. 239 , 10 Sup. Ct. 533, and Van Slyke v. Wisconsin, 154 U.S. 581 , 14 Sup. Ct. 1168, and its doctrine that the statutory appointment of the bank to pay the whole tax as agent of the stockholders is not inconsistent with the federal law pertaining to national banks was correctly interpreted and applied by the state court to the case in hand. It was not alleged in the bill, or claimed on argument, that the bank was not in possession of funds belonging to the stockholders severally sufficient to pay the tax proportioned to their ownership of the stock.

It is also contended that the supreme court of Washington erred in not holding that the bill of complaint showed that the taxation of the shares of capital stock of the plaintiff was at a greater rate than was assessed upon other moneyed capital in the hands of individual citizens of the state of Washington, and was, therefore, void under section 5219 of the Revised Statutes of the United States.

As the case was disposed of in the court below on a demurrer to the bill, it is proper to have before us the very language of the bill which presents this question, and which was as follows:

Before we consider the legal import of these statements in the complaint, we shall briefly review some of the previous decisions of this court in which similar questions have been dealt with.

In People v. Commissioners, 4 Wall. 244, the question presented was whether a tax imposed, under a law of the state of New York, on shares of a national bank, was invalid, as a discrimination against the shareholders, because no allowance or deduction was made on account of investments made by the bank in United States bonds, whereas such a deduction or allowance was made in assessments upon insurance companies and individuals. The answer given by this court was 'that, upon a true construction of that clause of the act which provided that taxation of such shares by state authority should not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such states, the meaning and intent of the lawmakers were that the rate of taxation of the shares should be the same, or not greater than upon the moneyed capital of the individual citizen which is subject or liable to taxation; that is, no greater proportion or percentage of tax in the valuation of the shares should be levied than upon other moneyed taxable capital in the hands of the citizens.' And it was said that 'it is known as sound policy that in every well-regulated and enlightened state or government certain descriptions of property, and also certain institutions,-such as churches, hospitals, academies, cemeteries, and the like,-are exempt from taxation; but these exemptions have never been regarded as disturbing the rates of taxation, even where the fundamental law had ordered that it should be uniform.'

In Lionberger v. Rouse, 9 Wall. 468, a shareholder in the Third National Bank of St. Louis resisted payment of a tax [166 U.S. 440, 450]   of nearly 2 per cent. on his stock, imposed under a law of the state of Missouri, because there were in that state two banks which, by a contract, the state had, prior to the passage of the national bank laws, disabled itself from taxing at a greater rate than 1 per cent.; and it was claimed that the tax complained of was assessed in disregard of that provision of the federal statute which enacted 'that the tax so imposed, under the laws of any state, upon the shares of any of the associations authorized by this act, shall not exceed the rate imposed upon the shares in any of the banks organized under the authority of the state where such association is located.' Speaking through Mr. Justice Davis, this court said:

By a statute of Pennsylvania of March 31, 1870, all mortgages, judgments, recognizances, and moneys owing upon articles of agreement for the sale of real estate were made exempt from taxation except for state purposes. The stock of one Hepburn in the First National Bank of Carlisle, the par value of which was $100 a share, was subjected, at its market value of $150 per share, to taxation for county, school, and borough purposes. The validity of such taxation was upheld by the supreme court of, Pennsylvania, and the case was brought to this court. It was contended on behalf of the shareholder that as, by the Pennsylvania statute, other moneyed capital in the hands of individuals in the county where the bank was located was not subject to taxation for local purposes, such taxes upon shares in a national bank were in the nature of a discrimination, and void. It was also contended that in valuing these shares at 50 per cent. above par the tax was made 50 per cent. greater than on 'other moneyed capital in the hands of individuals.'

Both these contentions were overruled by this court, and, in disposing of the argument that the taxes in question made [166 U.S. 440, 452]   an illegal discrimination against national bank shares, it was said:

To the same effect was the case of Adams v. Nashville, 95 U.S. 19 .

In People v. Weaver, 100 U.S. 539 , it was held that the statute of a state which establishes a mode of assessment by which shares in a national bank are valued higher in proportion to their real value than other moneyed capital is in conflict with section 5219 of the Revised Statutes, although no greater percentage is levied on such valuation than on that of other moneyed capital; and that the statutes of New York which permit a party to deduct his just debts from the valuation of all his personal propery, except so much thereof as consists of such shares, tax them at a greater rate than other moneyed capital, and were, therefore, void as to them.

In Boyer v. Boyer, 113 U.S. 690 , 5 Sup. Ct. 706, there was brought into question the validity of a county tax levied on national bank shares under a law of the state of Pennsylvania, where other [166 U.S. 440, 453]   moneyed capital in the hands of individual citizens within the same taxing district was exempted from such taxation. The previous decisions of the court respecting state taxation of shares in national banks were reviewed, and the conclusion reached was that those decisions did not sustain the proposition that national bank shares may be subjected, under the authority of the state, to local taxation, where a very material part, relatively, of other moneyed capital in the hands of individual citizens is exempt. It was observed that, 'as the act of congress does not fix a definite limit as to percentage of value beyond which the states may not tax national bank shares, cases will arise in which it will be difficult to determine whether the exemption of a particular part of moneyed capital in individual hands is so serious or material as to infringe the rule of substantial equality.' $That case, like the present one, was determined in the court below on bill and demurrer, and this court thought the better course was to remand the cause with a recommendation that the defendants should be put to answer, so that the facts of the case might be more fully disclosed.

In Bell's Gap R. Co. v. Pennsylvania, a question was raised, in behalf of citizens of other states, of the validity of a law of the state of Pennsylvania which imposed a tax upon the nominal or face value of corporation bonds, instead of a tax upon their actual value; and, while it was not a case of taxation of national bank stock, some observations were made by Mr. Justice Bradley, in expressing the views of the court, that are applicable to the question now before us:

Mercantile Bank v. City of New York, 121 U.S. 138 , 7 Sup. Ct. 826, was the case of a bill filed by a national bank in the city of New York, the object of which was to restrain the collection of taxes assessed upon its stockholders on the ground that the taxes assessed were illegal and void, under section 5219 of the Revised Statutes of the United States, as being at a greater rate than those assessed under the laws of New York upon other moneyed capital in the hands of the individual citizens of that state. From the decree of the circuit court of the United States dismissing the bill an appeal was prosecuted to this court.

The question presented was thus stated by Mr. Justice Matthews, who delivered the opinion of this court:

The exemptions referred to were classified as follows: Shares of stock in the hands of the individual shareholders of all incorporated moneyed or stock corporations deriving an income or profit from their capital or otherwise, incorporated by the laws of New York, not including trust companies and life insurance companies and state or national banks ( the value of such shares was admitted to be $755,018,892); trust companies and life insurance companies, the value of whose shares was admitted to be $ 35,558,900 (in addition the life insurance companies owned personal property composed of mortgages, loans, and bonds to the amount of $195,257, 305); saving banks, and the deposits therein, amounting to $437,107,501, and a surplus of $68,669,001; certain municipal bonds, issued by the city of New York under an act passed in 1880, of the value of $13,467,000; shares of stock in corporations created by states other than New York, in the hands of individual holders, resident of said state, amounting to $250, 000,000.

The contention on behalf of the national bank was that within the doctrine of the case of Boyer v. Boyer, 113 U.S. 689 , 5 Sup. Ct. 706, these exemptions constituted so material a part, relatively, of the moneyed capital in the hands of individual citizens as to make the tax upon the shares of national banks an unfair discrimination against that class of property. [166 U.S. 440, 456]   On the part of the state it was claimed that the shares of stock in the various companies incorporated by the laws of New York as moneyed or stock corporations, deriving an income or profit from their capital or otherwise, including trust companies, life insurance companies, and savings banks, were not moneyed capital in the hands of the individual citizen within the meaning of the act of congress; that, if any of them are, then the corporations themselves were taxed under the laws of New York in such a manner and to such an extent that the shares of stock therein are, in fact, subject to a tax equal to that which was assessed upon shares of national banks; and that, if there are any exceptions, they were immaterial in amount, and based upon considerations which excluded them from the operation of the rule of relative taxation intended by the act of congress. Upon a careful review of the cases, the following conclusions were reached by the court:

In respect to trust companies, the court held that it was evident, from the powers granted them in the legislation of New York, that they were not banks, in the commercial sense of that word, and did not perform the function of banks in carrying on the exchanges of commerce, and that, taxed as they were, on their franchises based on income, it could not be said that there existed any discrimination against national banks. As to savings banks, it was held that, though it could not be denied that their deposits consitituted moneyed capital in the hands of individuals, yet it was clear that they were not within the meaning of the act of congress in such a sense as to require that, if they are exempted from taxation, shares of stock in national banks must also be exempted; that it was part of the policy of the state to encourage the accumulation of small savings belonging to the industrious and thrifty, and were within the reasonable exercise of the power of the state to exempt particular kinds of property; and the conclusion of the court in respect to savings banks was thus expressed: 'The only limitation, upon deliberate reflection, we now think it necessary to add, is that these exceptions should be founded on just reason, and not operate as an unfriendly discrimination against investments in national bank shares. However large, therefore, may be the amount of moneyed capital in the hands of individuals, in the shape of deposits in savings banks as now organized, which the policy of the state exempts from taxation for its own purposes, that exemption cannot affect the rule for the taxation of shares in national banks, provided they are taxed at a rate not greater than other moneyed capital in the hands of individual citizens otherwise subject to taxation.'

The conclusions to be deduced from these decisions are that money invested in corporations or in individual enterprises that carry on the business of railroads, of manufacturing enterprises, mining investments, and investments in mortgages, [166 U.S. 440, 461]   does not come into competition with the business of national banks, and is not, therefore, within the meaning of the act of congress; that such stocks as those in insurance companies may be legitimately taxed on income instead of on value, because such companies are not competitors for business with national banks; and that exemptions, however large, of deposits in savings banks, or of moneys belonging to charitable institutions, if exempted for reasons of public policy, and not as an unfriendly discrimination against investments in national bank shares, should not be regarded as forbidden by section 5219 of the Revised Statutes of the United States.

We shall now, in the light of the previous decisions, advert to the allegations contained in the bill of complaint.

The substance of those allegations is: First, that there was taxable moneyed capital in Chehalis county which escaped taxation, amounting to $ 237,400; second, that there was also unassessed moneyed capital in other portions of the state exceeding $14,000,000; third, that the moneyed capital invested in the banks, national and state, was $11,000,000; fourth, that there was invested in the stocks and bonds of insurance, wharf, and gas companies and other moneyed institutions, moneyed capital amounting to at least $26,000,000.

Even if it be conceded that the stocks and bonds of insurance, wharf, and gas companies were, in point of fact, exempted from taxation, such companies are not, as we have seen, competitors for business with the national banks, and therefore might be legally exempted. As to the sum of $ 237,400, alleged to be invested by individual citizens of Chehalis county in loans and securities to them payable and owing by other citizens of that county, we are not informed by the bill of the nature of such loans and securities, and, as against the pleader, we may well assume that they belong to a class of investments which does not compete with the business of national banks. The same is ture of the sum of $14,000,000 alleged to be invested in loans and securities by citizens of the state of Washington, and to them payable and owing by other citizens of said state.

It is, indeed, alleged in the bill that these investments were 'taxable capital,' but that is an averment in the nature of a [166 U.S. 440, 462]   legal conclusion. If those loans and securities had been identified in the bill, or their character described, the court might have reached a different conclusion as to their taxable character.

There is an allegation in the bill that the omission by the taxing officers of these classes of capital from assessment and taxation was in pursuance of an opinion rendered by the attorney general of the state of Washington; and it is alleged that the said attorney general was required by the laws of the state to render opinions upon request of the assessors. But the bill does not set forth that opinion, or the reasons upon which the attorney general proceeded. The supreme court of the state of Washington, adverting to this allegation of the bill, suggests that it is probable that the opinion referred to was one dated February 5, 1891, addressed to the state auditor, and in which the attorney general advised that accounts, promissory notes, and mortgages were to be exempted, in order, perhaps, to avoid double taxation. And the supreme court well observes that if the action of the assessors was based upon this decision of the law officer of the state, and went no further, the allegations of the bill would certainly turn out to be unsupported. 6 Wash. 64, 32 Pac. 1051.

We agree with the supreme court of Washington in thinking that the allegations of this complaint nowhere show that any moneyed capital of the character defined by the federal supreme court was omitted, or intended to be omitted, by the assessors; or if the intention of the complaint be to cover any such existing cases, the allegations are so general and indefinite that they cannot be made the basis of action.

The judgment of the supreme court of Washington is affirmed.

Mr. Justice HARLAN, Mr. Justice BROWN, and Mr. Justice WHITE are of opinion that the bill makes a prima facie case of illegal discrimination against capital invested in national bank stock, and therefore that the demurrer should have been overruled.

Copyright © 2003 FindLaw