The Constitution of Ohio declares that:
"Laws shall be passed taxing by a uniform rule all moneys,
credits, investments in bonds, stocks, joint-stock companies, or
otherwise, and also all the real and personal property, according
to its true value in money."
And the legislature has passed laws providing separate state
boards of equalization for real estate, for railroad capital and
for bank shares, but there is no state board to equalize personal
property, including all other moneyed capital. The equalizing
process as to all other personal property and moneyed capital
ceases with the county boards. Throughout a large part of Ohio,
including Lucas County, in which A., a national bank, is located,
perhaps all over the state, the officers charged with the valuation
of property for purposes of taxation adopted a settled rule or
system by which real estate was estimated at one-third of its true
value, ordinary personal property about the same, and moneyed
capital at three-fifths of its true value. The state board of
equalization of bank shares increased the valuation of them to
their full value. A. brought its bill against the treasurer of that
county, praying that he be enjoined from collecting a tax
wrongfully assessed on those shares.
Held:
1. That the statute creating
Page 101 U. S. 154
the board for equalizing bank shares is not void as a violation
of the Constitution of Ohio, because if the local assessors would
discharge their duty by assessing all property at its actual cash
value, the operation of the equalizing board would work no
inequality of taxation, and a statute cannot be held to be
unconstitutional which in itself does not conflict with the
constitution, because of the injustice produced by its
maladministration.
2. That the rule or principle of unequal valuation of different
classes of property for taxation, adopted by local boards of
assessment, is in conflict with that constitution, and works
manifest injustice to the owners of bank shares.
3. That when a rule or system of valuation for purposes of
taxation is adopted by those whose duty it is to make the
assessment, which is intended to operate unequally, in violation of
the fundamental principles of the constitution, and when this
principle is applied not solely to one individual, but to a large
class of individuals or corporations, equity may properly interfere
to restrain the operation of the unconstitutional exercise of
power.
4. That the appropriate mode of relief in such cases is, upon
payment of the amount of the tax which is equal to that assessed on
other property, to enjoin the collection of the illegal excess.
The facts are stated in the opinion of the Court.
MR. JUSTICE MILLER delivered the opinion of the Court.
The Merchants' National Bank of Toledo, a banking association
organized under the national banking law of the United States,
brought its bill in equity to enjoin the Treasurer of Lucas County,
within the limits of which it is established, from collecting a tax
wrongfully assessed against the shares of its stockholders, payment
of which was demanded of the bank. The feature of the assessment to
which the complainant objects is that in the valuation of the
shares of the bank for the purpose of taxation, they were estimated
at a much larger sum in proportion to their real value than other
property, real and personal, in the same city, county, and state,
and that this was done under a statute of the state and by a rule
or system deliberately adopted by the assessors for the avowed
purpose of discriminating against the shares of all bank stock.
Though there is in the argument of counsel an attempt to invoke the
aid of the act of Congress relating to the taxation of the shares
of the national banks, we are unable to see, either in the
original
Page 101 U. S. 155
or supplemental bill, any sufficient allegation on that subject.
One clause of the bill asserts that the law of the state (which is
the principal subject of complaint) and the tax and assessments
under it are in violation of the Constitution of Ohio and the act
of Congress; but the vice charged against the assessment is that it
is
"three times the proportionate amount which is charged to real
property, moneys, and credits listed for taxation in said county of
Lucas and charged upon said duplicate."
The standard of comparison in the act of Congress is "other
moneyed capital in the hands of individual citizens of the state."
We do not think we are called on to decide whether a tax which is
assailed on the ground of violating that statute is void for that
reason until the case, by positive averment, or by necessary
implication of such averment, is shown to be within the prohibitory
clause.
But the bank has the same right under the laws and Constitution
of Ohio to be protected against unjust taxation that any citizen of
that state has, and by virtue of its organization under the act of
Congress, it can go into the courts of the United States to assert
that right. If, therefore, the assessment on its shares was a
violation of the constitutional provision of that state concerning
uniformity of taxation, the circuit court had jurisdiction of that
question concurrent with the state courts, and we must review its
decision.
It is, however, manifest from the form of the bill in this case
and the tenor of the argument in this Court that its object is to
have a decision that the state statute of 1876, which provides
specifically for taxation of bank shares, and for nothing else, is
void as a violation of the constitution of that state, as the case
of
Pelton v. National Bank, supra, p.
101 U. S. 143,
against the Treasurer of Cuyahoga County by the bank at Cleveland
is designed to test the subsequent statute of 1877, which is a
substitute for that of 1876.
The two cases were advanced on our docket out of their order,
and heard at the same time by this Court on the ground that they
both involved the revenue law of the state. We have expressed in
that case the reasons which induced us to avoid deciding that
question, if it can be done without prejudice to
Page 101 U. S. 156
the rights of the parties involved, and we shall see as we
progress in the examination of this case whether it can be
done.
But we must dispose of some preliminary questions, the first of
which is the supposed incapacity of the bank to sustain this or any
other action for the alleged grievance because, as the persons
taxed are the individual shareholders, the damage, if any, is
theirs, and they alone can sue to recover for it or to prevent the
collection of the tax.
The statutes of Ohio under which these taxes are assessed
require the officers of the bank to report to the county auditor
who makes the original assessment the names of all its
stockholders, their places of residence, and the amount held by
each of them, and all the other facts necessary to a fair
assessment.
It also authorizes the bank to pay the tax on the shares of its
stockholders and deduct the same from dividends or any funds of the
stockholders in its hands or coming afterwards to its possession,
and it forbids the bank to pay any dividends on such stock or to
transfer it or permit it to be transferred on their books so long
as the tax remains unpaid.
In
National Bank v.
Commonwealth, 9 Wall. 353, we held that a statute
of Kentucky very much like this, which enabled the state to deal
directly with the bank in regard to the tax on its shareholders,
was valid, and authorized a judgment against the bank which refused
to pay the tax. It is true, the statute of Kentucky went further
than the Ohio statute by declaring that the bank must pay the tax,
while the latter only says it may. But the Ohio statute, by the
remedies it provides, places the bank in a condition where it must
pay the tax or encounter other evils of a character which create a
right to avoid them by instituting legal proceedings to ascertain
the extent of its responsibility before it does the acts demanded
by the statute.
It is next suggested that since there is a plain, adequate, and
complete remedy by paying the money under protest and suing at law
to recover it back, there can be no equitable jurisdiction of the
case.
The reply to that is that the bank is not in a condition where
the remedy is adequate. In paying the money, it is acting in a
fiduciary capacity as the agent of the stockholders -- an agency
created by the statute of the state. If it pays an unlawful tax
Page 101 U. S. 157
assessed against its stockholders, they may resist the right of
the bank to collect it from them. The bank as a corporation is not
liable for the tax, and occupies the position of stakeholder, on
whom the cost and trouble of the litigation should not fall. If it
pays, it may be subjected to a separate suit by each shareholder.
If it refuses, it must either withhold dividends, and subject
itself to litigation by doing so, or refuse to obey the laws, and
subject itself to suit by the state. It holds a trust relation
which authorizes a court of equity to see that it is protected in
the exercise of the duties appertaining to it. To prevent
multiplicity of suits, equity may interfere.
But the statute of the state expressly declares that suits may
be brought to enjoin the illegal levy of taxes and assessments or
the collection of them. Sec. 5848 of the Revised Statutes of Ohio,
1880; vol. liii. Laws Ohio 178, secs. 1, 2. And though we have
repeatedly decided in this Court that the statute of a state cannot
control the mode of procedure in equity cases in federal courts nor
deprive them of their separate equity jurisdiction, we have also
held that where a statute of a state created a new right or
provided a new remedy, the federal courts will enforce that right
either on the common law or equity side of its docket, as the
nature of the new right or new remedy requires.
Van Norden v.
Morton, 99 U. S. 378. Here,
there can be no doubt that the remedy by injunction against an
illegal tax, expressly granted by the statute, is to be enforced,
and can only be appropriately enforced, on the equity side of the
court.
The statute also answers another objection made to the relief
sought in this suit -- namely that equity will not enjoin the
collection of a tax except under some of the well known heads of
equity jurisdiction, among which is not a mere overvaluation, or
the illegality of the tax, or in any case where there is an
adequate remedy at law. The statute of Ohio expressly provides for
an injunction against the collection of a tax illegally assessed,
as well as for an action to recover back such tax when paid,
showing clearly an intention to authorize both remedies in such
cases.
Independently of this statute, however, we are of opinion that
when a rule or system of valuation is adopted by those
Page 101 U. S. 158
whose duty it is to make the assessment, which is designed to
operate unequally and to violate a fundamental principle of the
constitution, and when this rule is applied not solely to one
individual, but to a large class of individuals or corporations,
that equity may properly interfere to restrain the operation of
this unconstitutional exercise of power. That is precisely the case
made by this bill, and if supported by the testimony, relief ought
to be given.
Art. 12, sec. 2, of the Constitution of the State of Ohio
declares that
"Laws shall be passed taxing by a uniform rule all moneys,
credits, investments in bonds, stocks, joint-stock companies, or
otherwise, and also all the real and personal property according to
its true value in money,"
and sec. 3 that
"The General Assembly shall provide by law for taxing the notes
and bills discounted or purchased, moneys loaned, and all other
property, effects, or dues of every description -- without
deduction -- of all banks now existing or hereafter created, and
all bankers, so that all property employed in banking shall bear a
burden of taxation equal to that imposed on the property of
individuals."
In construing this provision of the constitution, the Supreme
Court of Ohio has said that
"Taxing by a uniform rule requires uniformity not only in the
rate of taxation, but also uniformity in the mode of the assessment
upon the taxable valuation. Uniformity in taxing implies equality
in the burden of taxation, and this equality of burden cannot exist
without uniformity in the mode of the assessment, as well as in the
rate of taxation. But this is not all. The uniformity must be
coextensive with the territory to which it applies. If a state tax,
it must be uniform over all the state; if a county, town, or city
tax, it must be uniform throughout the extent of the territory to
which it is applicable. But the uniformity in the rule required by
the constitution does not stop here. It must be extended to all
property subject to taxation, so that all property must be taxed
alike, equally, which is taxing by a uniform rule."
Exchange Bank of Columbus v. Hines, 3 Ohio St. 15.
We are not aware that this decision has ever been overruled. It
will be seen also that the constitution requires all property to be
taxed "according to its true value in money." It is said
Page 101 U. S. 159
that the various statutes for assessing the taxes are all based
upon this principle of valuation, and a statute of May, 1868, is
cited in the brief as enacting that all property of every
description within the state shall be entered for taxation at its
true money value. If this principle, so clearly embodied in the
constitution as expounded by the supreme court, had been made the
rule of action by those who have charge of the administration of
the laws for assessing taxes, there could be no place for the
complaint of the bank.
The state, however, by her legislation has adopted a system of
valuation of property into which we must look for a moment to
enable us to appreciate the effect of the evidence as to the actual
valuation of which complaint is made in this case.
Instead of having all property subject to taxation valued by one
commission or authorized body, there are at least four different
bodies acting independently of each other in regard to as many
different classes of property in the process of final estimate of
values for taxation.
The first of these concerns real estate, which is valued once in
each decade, that valuation remaining unchanged during the whole
ten years, except that what is called the new constructions of each
year is added to the original sum. The assessments of real estate
by the district assessors in the county, and the ward assessors in
the large cities, is first submitted to a county or city board of
equalization, and this again to a state board of equalization, to
be elected once in ten years by the electors of each senatorial
district. Of this board the auditor of state is a member. The
functions of this final board seem to be to increase or decrease
the county valuations of real estate returned to them, according as
they are found to be above or below the true money value of the
property. But in doing this, they only act on a county or city
valuation as a whole, and not on the particular pieces of property
assessed, and they cannot reduce or increase the entire valuation
for the state more than twelve and a half percent of the
aggregate.
Personal property (other than bank shares and railroad property)
and the new constructions in real estate are assessed annually by
district and ward assessors in the counties and cities, and their
assessment is returned to a county or city
Page 101 U. S. 160
board of equalization, and we are not aware that this valuation
is subject to any further equalization or submitted to any further
correction. This assessment, of course, includes all personal
property, money, credits, and investments of capital other than
those in banks and railroads. In regard to railroads, there is a
submission of all of them to a state board of equalization, which
finally passes upon the assessments of the counties. In reference
to banks, which are first assessed by the county auditor, there is
also a state board of equalization, whose function is limited to
equalizing throughout the state the valuation of the shares of
incorporated banks.
We thus see that one board of equalization has charge of the
valuation of the real estate of the whole state once in every ten
years, another has charge of the valuation of railroad property
every year, and a third has charge of the valuation of shares of
incorporated banks every year, and the amount fixed by these state
boards is in every instance the final basis of taxing that species
of property for state and county purposes.
We are asked to decide that, as to this final board of
equalization of bank shares, whose function is to equalize the
valuation of those shares as among themselves throughout the state,
with no power to consider the valuation of real estate which comes
before another board only once in ten years, or other personal
property and invested capital which never comes before any state
board, that its operations must necessarily produce inequality in
valuation as it regards other property, and is therefore void as in
conflict with the state constitutional rule of uniformity and with
the third section of the same article of the constitution,
declaring "that all property employed in banking shall bear a
burden of taxation equal to that imposed on the property of
individuals."
But there are two reasons why we cannot so hold. First, it might
be that in every instance the result would be the valuation of bank
shares at a lower ratio in proportion to its real value than that
of any other property, and therefore plaintiff would have no ground
of complaint. And secondly, what is more important, if these
original valuations and equalizations are based always, as the
constitution requires, on the actual money value of the property
assessed, the result, except as it
Page 101 U. S. 161
might be affected by honest mistakes of judgment, would
necessarily be equality and uniformity, so far as it is attainable.
So that while it may be true that this system of submitting the
different kinds of property subject to taxation to different boards
of assessors and equalizers, with no common superior to secure
uniformity of the whole, may give opportunity for maladministration
of the law and violation of the principle of uniformity of taxation
and equality of burden, that is not the necessary result of these
laws or of any one of them, and a law cannot be held
unconstitutional because, while its just interpretation is
consistent with the constitution, it is unfaithfully administered
by those who are charged with its execution. Their doings may be
unlawful, while the statute is valid.
The evidence, we are compelled to say, shows this to be true of
the case before us.
It may be summed up in the statement that the assessors of real
property, the assessors of personal property, and the Auditor of
Lucas County, in which is the City of Toledo, concurred in
establishing a rule of valuation by which real and personal
property, except money, was assessed at one-third of its actual
value and money or invested capital at six-tenths of its value, and
that the assessment of the shares of incorporated banks, as
returned by the state board of equalization for taxation to the
Auditor of Lucas County, was fully equal to the selling prices of
said shares and to their true value in money. This is shown by the
testimony of four or five district assessors, by the auditor of the
county for the year 1876, and for several previous years, who had
been long an employee in that office. It is also shown by this
witness that at one time the Auditor of Lucas County held a
conference with the Auditors of the Counties of Fulton, Williams,
Defiance, Henry, Paulding, Ottawa, Wood, Sandusky, Seneca, and Van
Wirt, and that the rule by which property was valued in Lucas was
the result of this conference, and was to be applied in all these
counties. The district assessors, whose duty it was to make this
primary valuation of all personal property (except bank stocks and
railroad property), also testify that for the year 1876 they had a
meeting, and adopted that rule of valuation as their guide, and so
applied it. All this is uncontradicted. Nor is there any
Page 101 U. S. 162
question that while the auditor probably returned the bank
shares of Toledo at six-tenths of their value or thereabouts, the
state board of equalization increased it so that, as the cashier of
this bank swears, its shares were assessed at their full cash
value.
The testimony before us in the case argued with this shows that
the same rule of valuation was adopted in Cuyahoga County with the
same effect on the shares of the incorporated banks of Cleveland.
It probably pervades the system of assessment for the entire state
of Ohio, and may have caused the necessity of boards of
equalization quite as much as mistakes of judgment or other sources
of inequality which these boards are designed to remedy. But while
these separate boards, acting upon returns of different classes of
property, and limited in each case to equalizing the value as
between the same class in different counties, have no common or
united action among themselves and no common power to equalize the
valuation of the different classes of property in relation to each
other, it is obvious that their capacity to produce the uniformity
which the constitution was intended to effect is very small indeed.
They have no power at all to affect the valuation of real estate
except once in ten years. They have no power over the valuation of
personal property, including all money capital, except bank shares,
as it is fixed by the county and city boards, and these being
beyond their control, the effort of the state board to raise the
assessment of the shares of banks to their value in money only
increases the glaring inequality arising from the valuation of the
county boards.
It is proper to say, in extenuation of the rule of primary
valuation of different species of property developed in this
record, that it is not limited to the State of Ohio or to part of
it. The constitutions and the statutes of nearly all the states
have enactments designed to compel uniformity of taxation and
assessments at the actual value of all property liable to be taxed.
The phrases "salable value," "actual value," "cash value," and
others used in the directions to assessing officers all mean the
same thing, and are designed to effect the same purpose. Burroughs,
Taxation, p. 227, sec. 99. But it is a matter of common observation
that in the valuation of real estate, this rule is habitually
disregarded.
Page 101 U. S. 163
And while it may be true that there has not been in other states
such concerted action over a large district of country by the
primary assessors in fixing the precise rates of departure from
actual value as is shown in this case, it is believed that the
valuation of real estate for purposes of taxation rarely exceeds
half of its current salable value. If we look for the reason for
this common consent to substitute a custom for the positive rule of
the statute, it will probably be found in the difficulty of
subjecting personal property, and especially invested capital, to
the inspection of the assessor and the grasp of the collector. The
effort of the landowner, whose property lies open to view, which
can be subjected to the lien of a tax not to be escaped by removal,
or hiding, to produce something like actual equality of burden by
an undervaluation of his land has led to this result. But whatever
may be its cause, when it is recognized as the source of manifest
injustice to a large class of property around which the
constitution of the state has thrown the protection of uniformity
of taxation and equality of burden, the rule must be held void, and
the injustice produced under it must be remedied so far as the
judicial power can give remedy. The complainant having paid to
defendant, or into the circuit court for his use, the tax which was
its true share of the public burden, the decree of the circuit
court enjoining the collection of the remainder is
Affirmed.
MR. CHIEF JUSTICE WAITE dissenting.
I feel compelled to withhold my assent to this judgment. There
can be no doubt that the shares of this bank were overvalued as
compared with other property in the city, but if a state provides
by a valid law for the valuation of property for taxation, and
furnishes appropriate tribunals for the correction of errors before
a tax is assessed if complaint is made, I think it is not within
the power of a court of equity to enjoin the collection of the tax
simply because of an inequality in valuation -- and this as well
when the error arises from the adoption by the valuing officers of
a wrong rule applicable to many cases as from a mistake in judgment
as to a single case. The valuation as finally fixed by the proper
officers, or equalizing
Page 101 U. S. 164
board, under the law is, in my opinion, conclusive when there
had been no fraud. As it seems to me, this case comes within the
operation of this principle.