A state may make the ownership of property subject to taxation
relate to any day or days or period of the year which it may think
proper, and the selection of a particular day on which returns of
their property for the purpose of assessment are to be made by
taxpayers does not preclude the making of assessments as of other
periods of the year.
Section 2737 of the Revised Statutes of Ohio, which requires the
taxpayer to return to the assessor, as of the day preceding the
second Monday in April in each year, among other things, a
statement of
"the monthly average, amount or value, for the time he held or
controlled the same, within the preceding year, of all moneys,
credits, or other effects, within that time invested in or
converted into, bonds or other securities of the United States or
of this state, not taxed, to the extent he may hold or control such
bonds or securities on said day preceding the second Monday of
April, and any indebtedness created in the purchase of such bonds
or securities shall not be deducted from the credits under the
fourteenth item of this section"
does not tax the citizen for the greenbacks or other United
States securities which he may have held at any time during the
year, but taxes him upon the money, credits, or other capital which
he has had and used, according to the average monthly amount so
held, and is not in conflict with § 3701 of the Revised Statutes of
the United States exempting the obligations of the United States
from taxation under state, municipal or local authority.
This was an action brought by the defendant in error as
Treasurer of Harrison County, Ohio, against the plaintiff in error
in the Court of Common Pleas for that county to recover the amount
of a tax assessed against him. Judgment in the common pleas for the
defendant, which was reversed by the circuit court, and the
judgment of reversal was affirmed by the supreme court of the
state. This writ of error was sued out to the latter judgment. The
case is stated in the opinion.
Page 129 U. S. 591
MR. JUSTICE MILLER delivered the opinion of the Court.
This writ of error to the Supreme Court of the State of Ohio
brings up for review a judgment of that court concerning the
taxation by the state authorities imposed upon the plaintiff in
error, Stewart B. Shotwell, as the owner of a certain amount of
United States legal tender Treasury notes, commonly called
"greenbacks." The case was tried in the Court of Common Pleas of
Harrison County, Ohio, by the court, without a jury, by consent of
parties, and that court found the following conclusions of fact and
law, under the provision of the state statute, upon which all the
subsequent proceedings have been based:
Page 129 U. S. 592
"The parties to this cause having waived a jury, the same came
on for trial to the court, and the parties, with a view of
excepting to the decision of the court upon the questions of the
law involved in the trial, having requested the court to state in
writing the conclusions of fact found separately from the
conclusions of law, and the testimony having been heard, the court
finds as conclusions of fact as follows:"
"That the defendant is, and for many years has been, a resident
of Harrison County, Ohio. That on the Saturday preceding the second
Monday of April, in the years 1881, '82, '83, '84, and '85, the
defendant had on deposit in bank at the Town of Cadiz, in said
county, to his credit as a general depositor, the following sums:
in 1881, $30,900; in '82, $26,900; in '83, $29,550; in '84,
$18,560; in '85, $4,700. That on said Saturday in each of said
years, he checked out the said balance so standing to his credit,
and at his request the same was paid to him in United States
securities, commonly called 'greenbacks.' That on each occasion,
after counting the money so paid to him, he enclosed the same in a
package, wrote his name thereon, and returned the same to the
officer of the bank, requesting him to place the same in the bank's
safe for him, which was done. On no occasion did the defendant
carry the money out of the bank building, and in the early part of
the next week in each of said years he returned to the bank, and
demanded his package, which was given him, and he opened the same,
and delivered it to an officer of the bank, asking that the amount
should be placed to his credit as a general depositor, which was
done. That on each occasion, the defendant drew out the balance due
him with intent to obtain nontaxable securities, and thereby evade
taxation on such balance, but that on each occasion during the time
which intervened between the withdrawal and the subsequent deposit
as a general depositor he was
bona fide the absolute owner
of the money so withdrawn, and the same was subject to his
disposal. That he did not in either of said years list for taxation
any part of the money so paid to him, nor did he list the monthly
average amount of value, for the time he held or controlled the
same within the preceding year, of any moneys, credits, or
other
Page 129 U. S. 593
effects within that time invested in or converted into the said
securities so by him drawn out of bank, and that said monthly
average amount so invested by the defendant in such securities
within the years, respectively, preceding the drawing out of said
moneys was the amount so drawn out at the end of the year. That the
auditor of said county placed said several sums upon the duplicate
of said county for the year 1885, except for the year '85 he
erroneously placed $4,949, with fifty percent added thereto, making
$7,420, whereas the data before him, and by which he should have
been controlled, authorized only $4,700, which, with fifty percent
added, would make $7,050, and the court further finds that the
amount of taxes chargeable upon the aggregate of said several sums,
if the same are subject to taxation, is $2,317.05, and that said
duplicate was delivered to the treasurer of said county for
collection."
"And, the court being of opinion that, upon the facts so found,
the law of this case is with the defendant, it is thereupon
considered that the defendant recover of the plaintiff his costs
herein expended, taxed at $20.60, to which ruling of the court as
to the law of the case and to the judgment so rendered the
plaintiff excepts."
The case was taken by appeal to the circuit court of the state,
where the decision of the court of common pleas was reversed and
judgment rendered for the amount of the tax sued for against
Shotwell. This was carried to the supreme court of the state, in
which the decision of the circuit court was affirmed. To review
that judgment this writ of error is prosecuted.
The error assigned is that the tax levied and enforced by this
judgment was upon notes of the United States, which is forbidden by
the Revised Statutes of the United States in the following
language:
"SEC. 3701. All stocks, bonds, Treasury notes, and other
obligations of the United States shall be exempt from taxation by
or under state or municipal or local authority."
And that the Supreme Court of Ohio erred in holding that § 2737
of the Revised Statutes of the state, passed June 20,
Page 129 U. S. 594
1879, to take effect January 1, 1880, is not in violation of,
nor repugnant to, the section above quoted.
*
It is not controverted by counsel for defendant in error that
under the United States law, the greenbacks were not subject to
taxation, or that if the Ohio statute, when properly construed,
authorizes such taxation, it is to that extent invalid. But
Page 129 U. S. 595
the question presented to us for consideration is whether the
tax levied in this case by the authorities of the state was a tax
upon the legal tender notes issued by the government in the hands
of Shotwell.
It is conclusively shown by the finding of facts that prior to
the day to which the assessment of property for taxation relates by
the laws of Ohio, Shotwell had in his bank on general deposit,
subject to his order at the Town of Cadiz, in the County of
Harrison, in the previous years of 1881, 1882, 1883, 1884, and
1885, the sums of money on which the taxes here in controversy were
assessed, but it is claimed by him that, a day or two previous to
that fixed by statute, he had in each of those years drawn out the
balance of his general deposit account on a check, and, in each
case receiving the amount of it in legal tender notes, had put them
into a package, which he enclosed in an envelope, and placed with
the bank as a special deposit, writing his name thereon, and
requesting the bank to put it in its safe for him, which was
done.
Arguing from the proposition that the assessment for an entire
year, under the laws of Ohio, must be made on the particular day
mentioned in the statute, and that these greenbacks were his
property on that day, it is insisted, with great earnestness by
counsel, that the amount of the package thus on special deposit on
that day could not be taxed by the state authorities. To this
general proposition there does not appear to be any valid objection
if the thing done had been in the ordinary course of business, and
the conversion of his general deposit in the bank into a private
package of greenbacks, exempt from taxation, were free from illegal
purpose or fraudulent motive. But since it is found as a matter of
fact that the whole transaction was made for the purpose of evading
taxation on the amount of his general deposit on the day it was
exchanged for greenbacks, and that there was no purpose of
permanently changing the amount of the deposit in the bank subject
to his order, and, as such, liable to taxation, it is argued by
counsel that it was a fraud upon the revenue laws of the State of
Ohio. For all of the years mentioned, the same process was gone
Page 129 U. S. 596
through with, and in every instance, within a week after the
assessment, the plaintiff in error took the same greenbacks which
he had placed on special deposit, and immediately restored them to
the bank as a general deposit, subject to his order; in other
words, he remanded the amount to the condition in which it would
have been liable to taxation if the period of assessment were not
limited to the particular day mentioned in the statute.
It does not need the finding of the court below as a fact to
show that this was an evasion, and a discreditable one, of the
taxing laws of the state if it could be made successful. It is
therefore urged that on this ground alone -- the illegal purpose
for which the transactions were made in the bank -- the Court
should hold the plaintiff in error liable to taxation for the
amount thus converted. Several decisions on this subject by state
courts holding this view are cited in the brief of counsel. They
are directly in point, and relate to attempts of precisely the same
character to effect a similar evasion of taxation on property
otherwise liable thereto. Among these are
Holly Springs Savings
& Ins. Co. v. Marshall County, 52 Miss. 281;
Jones v.
Seward County, 10 Neb. 154, and
Poppleton v. Yamhill
County, 8 Or. 337. From the latter case we quote the following
language:
"If a taxpayer having a large amount of notes and mortgages, in
order to escape the payment of taxes on the same, borrows a sum of
money of a person residing out of the county and deposits with his
creditor such notes and mortgages for the purpose of avoiding the
payment of taxes on the same, such notes are taxable in the county
where such taxpayer resides, and such deposit or transfer is a
fraud on the revenues of the county."
And this Court, in
Mitchell v. Commissioners of Leavenworth
County, 91 U. S. 206,
denounces conduct precisely similar to that of the plaintiff in
error in this case, in the following language:
"United States notes are exempt from taxation by or under state
or municipal authority; but a court of equity will not knowingly
use its extraordinary powers to promote any such
Page 129 U. S. 597
scheme as this plaintiff devised to escape his proportionate
share of the burdens of taxation. His remedy, if he has any, is in
a court of law."
The circumstances of that case are precisely like those in the
case before us. The taxpayer converted, in the same manner as
Shotwell did, about $19,000 in current funds on general deposit in
his bank into the same value in greenbacks, and placed them in a
package which he put in a vault of the bank for safekeeping. This
was on February 28th. On March 3d following, he withdrew this
package and deposited the notes to his general credit. This was
done for the sole purpose of escaping taxation upon his money on
deposit in the bank. That case only differs from the one at bar in
the fact that the revenue officer proceeded to collect the tax
assessed by distress, which compelled the defendant to resort to a
court of equity to enjoin the proceedings; but this Court held that
the transaction was so inequitable that it would not be sustained
in a court of chancery. Instead of pursuing that method of
collecting the tax in the present case, as the treasurer of the
county had a right to do under the laws of Ohio, he brought an
action at law against the taxpayer. It is now asserted that
although the opinion of this Court in
Mitchell v. Commissioners
of Leavenworth County holds that the party assessed can have
no relief in a court of equity, still he might have when sued at
law or in any manner where the issue could be heard in a court of
law as distinguished from a court of equity.
All these decisions show that the courts look upon this
transaction as indefensible, and consider it an improper evasion of
the duty of the citizen to pay his share of the taxes necessary to
support the government which is justly due on his property.
Waiving the question whether these equitable considerations
would constitute a defense in an action at law to collect the tax
in suit, we proceed to inquire whether the statute of Ohio made all
assessment for taxes relate by an iron rule to the day preceding
the second Monday in April, and to property possessed on that
particular day, and that only. Is such a construction of the law of
the State of Ohio a proper one?
Page 129 U. S. 598
It is to be conceded that a state may make the ownership of
property subject to taxation relate to any day, or days, or period
of the year, it may think proper, and that the selection of a
particular day on which returns are to be made by taxpayers of
their property for the purposes of assessment does not necessarily
preclude the making of assessments as of other periods of the year.
The State of Ohio, like many and perhaps most of the other states,
collects, from the business and property subject to taxation for
the year preceding the specified date, the elements of an
assessment of a tax to be paid by the taxpayer for the year
succeeding that date, and it has in several instances recognized
the fact that an assessment which assumed that all property should
only be assessed to those who were the owners of it on the precise
date named was not a just apportionment. Assessments of land are
made once in ten years, with such additions every year as the value
of improvements justifies. So, in the case of merchants engaged in
buying and selling goods, the stock on hand on that day might be
either the largest or the smallest of any period during the year
preceding. If it were either, a tax intended to be governed by the
amount of property owned or held by them during such year would be
evidently unjust either to them or to the state.
To avoid this evil, the statute of Ohio provides for the
ascertainment of the monthly average amount or value of the
property or goods in which such parties were dealing, and for the
assessment for taxation on that basis. Many kinds of business must
be of this character.
The legislature, perceiving the facility with which negotiable
securities and other rights and credits which were liable to
taxation might be exchanged for greenbacks at the time the
assessment for taxation was made, and after the assessment was over
replaced in the form in which they had been, applied this
principle, by special provision of the statute, to that form of
property. In this they showed a wise forecast. So far as we can
see, the statute which does this does not tax the citizen for the
greenbacks which he may have held at any time during the year, but
taxes him upon the moneys, credits, or other
Page 129 U. S. 599
capital which he has had and used, according to the average
monthly amount he has so held.
Such we understand to be the purpose and effect of the section
complained of by counsel, to-wit, subdivision 16 of § 2737 of the
Revised Statutes of Ohio. We do not see any objection to that
state's endeavoring to arrive at the average monthly amount or
value of the moneys, credits, or other effects of the citizen
subject to taxation within the preceding year, and ascertaining in
a similar manner the average amount of his securities, either state
or national, for the same period, not subject to taxation, in order
to fix a basis for assessment. It is certainly a much more
equitable mode of determining how much of his property for the year
preceding the assessment is liable to taxation, and how much is
exempt, and more nearly effects the purpose of the federal statute,
as well as that of the State of Ohio, to exempt the one and to tax
the other, than a rule which assumes that the condition of the
means and property of the taxpayer at a certain hour of a
particular day in the year shall constitute the basis of his
taxation for the entire year.
It needs no other evidence that the rule adopted by the State of
Ohio is the better one than the case before us, by which a
possessor of large means, subject to taxation during every day in
the year but one, may escape the payment of any tax on all of his
property if the trick resorted to in the present case be
successful, and the cases which we have cited from the other state
courts, as well as the opinion referred to of this Court, clearly
show the wisdom of the legislature of Ohio in protecting itself
against the effects of the rule here contended for.
Section 2737 of the Ohio Statutes, which prescribes the
character of the statement to be made by persons holding moneys,
credits, or investments such as are described, and which are
subject to taxation, declares that such statement shall truly and
distinctly set forth, among other things, "moneys on hand or on
deposit subject to order," and "the amount of credits as
hereinbefore defined." Subdivision 16 requires a statement of
"the monthly average amount or value,
Page 129 U. S. 600
for the time he held or controlled the same, within the
preceding year, of all moneys, credits, or other effects within
that time invested in, or converted into, bonds or other securities
of the United States or of this state, not taxed, to the extent he
may hold or control such bonds or securities, on said day preceding
the second Monday of April, and any indebtedness created in the
purchase of such bonds or securities shall not be deducted from the
credits under the fourteenth item of this section."
Of the right of the State of Ohio to make this provision we have
no doubt. Its purpose is not to enable that state to tax the
securities of the United States, but to permit it to tax other
investments, moneys on hand and on deposit subject to order, while
it combines in the same exemption the securities of the general
government, and those of the state. We know of no principle which
forbids that state from taking the whole period of a business year
already past as the best means of ascertaining how much the
taxpayers shall be required to pay on property which is admitted to
be taxable, and how much he shall deduct for the non taxable
securities of the state and of the United States.
As this was the method under which the plaintiff in error in
this case was taxed, and as he was charged with no more than he was
liable to pay under a wise and equitable law, we do not see any
error in the judgment of the Supreme Court of Ohio, and it is
accordingly
Affirmed.
* Sections 2736 and 2737 are as follows:
"SEC. 2736. Each person required to list property shall
annually, upon receiving a blank for that purpose from the assessor
or within ten days thereafter, make out and deliver to the assessor
a statement, verified by his oath, of all the personal property,
moneys, credits, investments in bonds, stocks, joint stock
companies, annuities, or otherwise in his possession or under his
control on the day preceding the second Monday of April of that
year which he is required to list for taxation either as owner or
holder thereof or as parent, husband, guardian, trustee, executor,
administrator, receiver, accounting officer, partner, agent,
factor, or otherwise."
"SEC. 2737. Such statement shall truly and distinctly set forth
first the number of horses and the value thereof; second, the
number of neat cattle and the value thereof; third, the number of
mules and asses and the value thereof; fourth, the number of sheep
and the value thereof; fifth, the number of hogs and the value
thereof; sixth, the number of pleasure carriages (of whatever kind)
and the value thereof; seventh, the total value of all articles of
personal property not included in the proceeding or succeeding
classes; eighth, the number of watches and the value thereof; ninth
the number of piano-fortes and organs and the value thereof; tenth,
the average value of the goods and merchandise which such person is
required to list as a merchant; eleventh, the value of the property
which such person is required to list as a banker, broker, or stock
jobber; twelfth, the average value of the materials and
manufactured articles which such person is required to list as a
manufacturer; thirteenth, moneys on hand or on deposit subject to
order; fourteenth, the amount of credits as hereinbefore defines;
fifteenth, the amount of all moneys invested in bonds, stocks,
joint stock companies, annuities, or otherwise; sixteenth, the
monthly average amount or value for the time he held or controlled
the same within the preceding year of all moneys, credits, or other
effects, within the preceding year, of all moneys, credits, or
other effects within that time invested in or converted into bonds
or other securities of the United States or of this state, not
taxed, to the extent he may hold or control such bonds or
securities on said day preceding the second Monday of April, and
any indebtedness created in the purchase of such bonds or
securities shall not be deducted from the credits under the
fourteenth item of this section, but the person making such
statement may exhibit to the assessor the property covered by the
first nine items of this section, and allow the assessor to affix
the value thereof, and in such case the oath of the person making
the statement shall be in that regard only that he has fully
exhibited the property covered by said nine items."
MR. JUSTICE BRADLEY:
I dissent from the judgment. I do not defend Mr. Shotwell, but
it is a question of law, and the law of Ohio seems to me repugnant
to the act of Congress which exempts the securities of the United
States from taxation. The law is this: the property that a man has
on the second Monday in April is the amount of property which he is
to return for taxation that year. Now if a man chooses to buy
United States securities one month or one day before that time, he
has a perfect right to do it, and, as the act of Congress
Page 129 U. S. 601
declares that United States securities shall not be taxed, the
state has no right to tax him for them. But the Legislature of the
State of Ohio undertook to get around that law in this way: they
say that a man shall not be exempted from taxation for United
States securities owned by him on the second Monday in April, only
in proportion to the time that he has held them, so that if he has
held them only one day, he would be exempted only one 365th part of
the amount, while if the man of whom the taxpayer bought them held
them 364 days, he would get no exemption at all. He would be
taxable for the consideration which he received for the securities,
and which he held on the second Monday in April. Therefore, in
Ohio, United States securities are only exempted from taxation in a
limited manner -- that is, in proportion to the time they have been
held. All other property is treated differently. If anything is
unconstitutional, it seems to me that this is.