National Bank v. Commonwealth

by Samuel Freeman Miller

United States Supreme Court

76 U.S. 353

National Bank  v.  Commonwealth

ERROR to the Court of Appeals of Kentucky; the case being this:The act of Congress establishing the National banks, ^[1] enacts:

'Section 40. That the president and cashier of every such association shall cause to be kept a correct list of the names and residences of all the shareholders in the association, and the unmber of shares held by each, and such list shall be open to the inspection of the officers authorized to collect taxes under State authority.

'Section 41. Provided, that nothing in this act shall be construed to prevent all the shares in any of the said associations held by any person, from being included in the valuation of the personalty of such person, in the assessment of taxes imposed by or under State authority, at the place where such bank is located, and not elsewhere; but not at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State. Provided further, 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 of any of the banks organized under authority of the State where such association is located.'

Under the act of Congress which makes these provisions, the First National Bank of Louisville was established.

A statute of Kentucky, ^[2] relating to revenue and taxation, lays a tax as 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 in July of 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; and the said bank or corporation shall thereby forfeit the privileges of its charter.'

Acting in professed pursuance of the State statute, the Commonwealth of Kentucky demanded payment from the said bank of $4000, with interest, the sum which a tax of fifty cents per share on the shares of the bank gave. Payment being declined the State sued.

The suit was brought in one of the State courts, and according to the practice of the courts of Kentucky by a petition, setting forth the amount of the tax and claiming a judgment for the same. The answer by the same mode of practice, set up four distinct defences to the action. These were:

1. That the bank was not organized under the law of the State, but under the bank act of the United States, and was, therefore, not subject to State taxation.

2. That it had been selected and was acting as a depositary and financial agent of the government of the United States, and, therefore, was not liable to any tax whatever, either on the bank, its capital, or its shares.

3. That its entire capital was invested in securities of the government of the United States, and that its shares of stock represented but an interest in the said securities, and were therefore not subject to State taxation.

4. That the shares of the stock were the property of the individual shareholders, and that the bank could not be made responsible for a tax levied on those shares, and could not be compelled to collect and pay such tax to the State.

The commonwealth demurred; and the case resulting in a judgment in its favor in the Court of Appeals, this writ of error was prosecuted by the bank.

Mr. Wills, with a brief of Messrs. Pirtle and Caruth, for the plaintiff in error:

I. We admit that under recent decisions of this court shares in National banks may be taxed in the hands of the stockholders. ^[3] But this tax is laid, not on shares in the hands of stockholders, but on the capital of the bank itself.

Under the statute of Kentucky the amount of the tax is calculated by charging fifty cents on each one hundred dollars of stock, exacted in solido from the bank itself, under penalty of twenty per cent. damages in addition against the cashier and forfeiture of the charter. This is not a tax upon the shares but on the bank. The shareholder is neither named nor known in the transaction. It is a matter between the State and the bank. The shares of one hundred dollars are used simply as a means of computing the amount of tax on the capital stock. Without this, or some similar contrivance for estimating, a tax could not be levied on capital stock. There is not a word said about requiring the bank to pay for the shareholder as a convenience, but it directly, in terms, applies to stock of the banks. What stock does the bank own except the capital stock, which is identical with itself? The law requires the cashier of a bank whose stock is taxed, on the first day in July in each year, to pay the amount due. The amount due upon what? Clearly upon the capital stock. The capital of State banks in Kentucky is not always divided into shares of one hundred dollars each; on the contrary, some of the State banks now in operation, as ex. gr., The Merchants' Bank of Kentucky, are divided into shares of only twenty-five dollars each, and one, The Western Financial Corporation, into shares of five hundred dollars each.

Now, these two banks are taxed annually under the statute, because in Kentucky there are no other laws upon the subject. The language is 'fifty cents on each share thereof equal to one hundred dollars of stock.' If that means a tax upon the share, as the Court of Appeals holds, the shares in the said banks being respectively twenty-five and five hundred dollars, and the law providing only for a tax on shares equal to one hundred dollars, nothing can be clearer than that no tax at all is levied on their shares.

II. A tax on the capital stock of the bank cannot be collected.

1. Because of its investment in government bonds. ^[4]

2. Because of its character as an agency and instrument of the powers of the Federal government. ^[5] If there be any one principle of constitutional law now universally acquiesced in, it is that the powers, agents, and means employed by Congress to carry into effect the powers vested by the Constitution in the Federal government must be free from State taxation and control. Taxation would impede, burden, and perhaps destroy the constitutional laws of Congress, and hostile legislation revolutionize our National economy. Such protection is necessary to uphold the nation's credit and preserve the nation's life. The tax imposed in this case upon the plaintiff in error is, in substance and in fact, a tax upon the operations of the bank itself.

III. Can the law be enforced as a tax on shares?

The shares in the hands of the shareholders are, under the act of Congress, to be included in the assessment of their personal estate; and, in order that the State officers may have every facility to arrive at the exact number of shares held by each person, the bank is required to keep, at all times, a list of names of stockholders, number of shares held by each, &c. If the means of collecting the tax be nothing, why is Congress careful to insert the foregoing provision? If the States can coerce the bank itself to pay the tax in solido for its stockholders, whence the necessity of the list of stockholders to be open for the inspection of the taxing officers of the State? It was with a view to prevent proceedings such as this one that Congress particularly prescribed the mode of collection as well as the extent of it. It was to prevent these organizations from being made the servants and agents of the States in the collection of taxes; to do which would be to clothe the State with an authority not justified by the constitution, and denied by this court. Without remuneration, and without right, the commonwealth of Kentucky is undertaking to force the plaintiff in error, in its corporate capacity, to collect this tax from its shareholders, and pay the same into the State treasury. Not only so, but penalties of a grave and serious character are imposed upon the bank and its officers in the event of neglect or refusal. Can this burden be imposed? Is it in accordance with the provisions of the act of Congress and the decisions of this court? With great propriety the bank may say to the State: 'You have your assessing officers; send them to the bank; they will there find a list of all stockholders, let them assess for themselves the shares of stock for taxation; but you shall not transform our National agency into a State servant, and compel it to perform a burdensome duty, not enjoined by its charter.'

IV. A concession of the right as claimed carries with it means for its enforcement.

This right, if conceded, may, and actually does, involve the destruction of these National agencies.

'If such tax be not paid,' says the statute, 'the cashier and his securities 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.' Such is the law upon which this proceeding is based.

V. The rate of taxation is higher than allowed by Congress.

[The learned counsel then went into an exhibition of facts and figures to show this.]

Mr. Albert Pike, contra.

Mr. Justice MILLER delivered the opinion of the court.

Notes

1. 13 Stat. at Large, 111.
2. Revised Statutes of Kentucky, vol. ii, pp. 239, 266.
3. Van Allen v. The Assessors, 3 Wallace, 573; Bradley v. The People, 4 Id. 459.
4. Weston v. City of Charleston, 2 Peters, 449; Bank of Commerce v. Commissioners, 2 Black, 620; The People v. Commissioners, 4 Wallace, 244.
5. McCulloch v. State of Maryland, 4 Wheaton, 316; Osborn v. Bank of the United States, 9 Wheaton, 738; Bobbins v. Commissioners, 16 Peters 435.