The plaintiff had a place of business, indicated by a sign over
the door, where his mail matter was received and where he could be
met by his clients, and where the latter could deliver to him
stocks to be sold by him or under his supervision, and he was
engaged there in the business of buying and selling stocks for his
customers, in which business he regularly employed capital, by the
use of which interest was earned upon moneys advanced by him for
his customers.
Held that he was a "banker" within the
meaning of that term as used in Rev.Stat. § 3407, and subject to
taxation as such under the provisions of § 3408.
The case is stated in the opinion.
MR. JUSTICE HARLAN delivered the opinion of the Court.
This action was brought to recover certain sums of money paid
under protest by the plaintiff in error to the United States in the
years 1881, 1882, and 1883, and which he alleged were exacted from
him under an illegal assessment made upon capital employed in his
business.
If within the meaning of the statutes under which the
assessment
Page 132 U. S. 593
was made the plaintiff was a banker, and if the capital assessed
was employed in the business of banking, the judgment must be
affirmed.
By section 3407 of the Revised Statutes of the United States, it
is provided that
"Every incorporated or other bank, and every person, firm, or
company having a place of business where credits are opened by the
deposit or collection of money or currency, subject to be paid or
remitted upon draft, check, or order, or where money is advanced or
loaned on stocks, bonds, bullion, bills of exchange, or promissory
notes, or where stocks, bonds, bullion, bills of exchange, or
promissory notes are received for discount or for sale, shall be
regarded as a bank or as a banker."
13 Stat. 251, c. 173, § 79; 14 Stat. 115, c. 184, § 9.
Section 3408 provides that there shall be levied, collected, and
paid a tax of one twenty-fourth of one percentum each month upon
the average amount of the deposits of money, subject to payment by
check or draft, or represented by certificates of deposit or
otherwise, whether payable on demand or at some future day, with
any person, bank, association, company, or corporation, engaged in
the business of banking; also
"a tax of one twenty-fourth of one percentum each month upon the
capital of any bank, association, company, corporation, and on the
capital employed by any person in the business of banking, beyond
the average amount invested in United States bonds,
provided that the words 'capital employed' shall not
include money borrowed or received from day to day in the usual
course of business from any person not a partner of or interested
in the said bank, association, or firm."
13 Stat. 277, c. 173, § 110; 14 Stat. 137, 146, c. 184, § 9; 17
Stat. 256, c. 315, § 37; 18 Stat. 311, c. 36, § 19.
That the plaintiff, during the period covered by the assessment
against him, employed a capital in his business is beyond dispute,
for he distinctly states that the capital used by him in his
business ranged from $30,000 to $50,000. Upon that basis he made
his returns for taxation. But did he, during that period, have a
place of business where stocks were received for sale? If he did,
then, by the very terms of the
Page 132 U. S. 594
statute, he was a banker under the definition given in section
3407.
It is contended by him that he was only a stockbroker, and,
within the true meaning of section 3407 did not have "a place of
business," nor "receive" stocks for sale. That he had a room or
place, indicated by a sign over the door, where his mail matter was
received, and where he was or could be met by his clients, and
where the latter could deliver stocks to be sold by him or under
his supervision, and that he bought and sold stocks for his
customers, is abundantly shown by his own testimony.
* Still he insists
that when stocks were delivered
Page 132 U. S. 595
to him at this place of business for sale they were not
"received" by him "for sale," within the meaning of the statute. We
cannot assent to this view.
Page 132 U. S. 596
In support of this position, the plaintiff cites
Warren v.
Shook, 91 U. S. 704, and
Selden v. Equitable Trust Co., 94 U. S.
419. In the first of those cases, the question was
whether a firm, holding a special license as bankers, was liable to
the tax imposed by section 99 of the Act of June 30, 1864, 13 Stat.
273. That statute imposed a tax of one-twentieth of one percent
upon the par value of stock and bonds sold by "brokers and bankers
doing business as brokers." It
Page 132 U. S. 597
was held that Congress intended to impose the duty prescribed by
section 99 upon bankers doing business as brokers, although a
person, firm, or company having a license as a banker might be
exempted by subdivision 9 of section 79 of the act of 1864, as
amended by the Act of March 3, 1865, 13 Stat. 472, from paying the
special tax imposed upon brokers. Nothing more is decided in that
case.
In
Selden v. Equitable Trust Co., the question was
whether corporations whose business was to invest their own
capital, not that of others, in bonds secured by mortgage upon real
estate and to negotiate, sell, and guaranty such bonds were banks
or bankers within the meaning of section 3407 of the Revised
Statutes. It was held that they were not; that Congress did not
intend that a person or corporation selling its own property, nor
that received from its own property, nor that received from a
banker or bank for the purposes of taxation. The Court in that case
referred to section 3407 as describing three distinct classes of
artificial and natural persons distinguished by the nature of their
business: first, those who have a place of business where credits
are opened by the deposit or collection of money or currency
subject to be paid or remitted upon draft, check, or order; second,
those having a place of business where money is advanced or loaned
on stocks, bonds, bullion, bills of exchange, or promissory notes;
third, those having a place of business where stocks, bonds,
bullion, bills of exchange, or promissory notes are received for
discount or for sale. In respect to the third class, it was
said:
"The language of the statute is, 'where' such property is
'received' 'for discount or for sale.' The use of the word
'received' is significant. In no proper sense can it be understood
that one receives his own stocks and bonds or bills or notes for
discount or for sale. He receives the bonds, bills, or notes
belonging to him as evidences of debt, though he may sell them
afterwards. Nobody would understand that to be banking business.
But when a corporation or natural person receives from another
person, for discount, bills of exchange or promissory notes
belonging to that other, he is acting as a banker, and when a
customer brings bonds, bullion, or stocks
Page 132 U. S. 598
for sale, and they are received for the purpose for which they
are brought -- that is, to be sold, the case is presented which we
think was contemplated by the statute. In common understanding, he
who receives goods for sale is one who receives them as agent for a
principal, who is the owner. He is not one who buys and sells on
his own account."
This language embraces the present case. The plaintiff was not a
broker who, without employing capital of his own, simply negotiated
purchases and sales of stocks for others, receiving only the usual
commissions for services of that character. In his business of
buying and selling stocks for others, he regularly employed
capital, by the use of which interest was earned upon moneys
advanced by him for his customers substantially as it would be
earned by a bank upon money loaned to its customers. In the
parlance of the stock exchange, he might be called a "stockbroker;"
yet here were all the conditions which under the statute made the
case of a banker whose capital employed in his business was liable
to a tax of one twenty-fourth of one percentum each month. It is
not a sufficient answer to this view to say that the business of a
stockbroker is ordinarily distinct from the business of a banker,
or that according to the common understanding, a stockbroker is not
a banker. A stockbroker may do some of the kinds of business that
are usually done by bankers, and many banks and bankers do business
which, as a general rule, is only done by stockbrokers. Congress
did not intend that the question of taxation upon capital employed
in the business of banking should depend upon the mere name given
to such business, either by those engaged in it or by others. When
the plaintiff admits, as he does, that his business was that of
buying and selling stocks for his customers and that in such
business he employed capital, he proves that he was a banker within
the statutory definition, and that, within the meaning of section
3408, his capital was employed in the business of banking. He
brings himself within the rule that Congress prescribed for
determining who,
for the purposes of the taxation in
question -- though not necessarily in the commercial sense --
were bankers, and what was banking business.
Page 132 U. S. 599
rule is expressed in words that leave no doubt as to what was
the intention of Congress. The judgment below gives effect to that
intention, and it is
Affirmed.
MR. JUSTICE FIELD, with whom concurred MR. JUSTICE FULLER,
dissented.
* His testimony occupies many pages of the record. The substance
of what he said is shown in the following extracts. On his
examination in chief, he stated:
"My place of business is 33 New Street; during the years 1851
and 1882 and 1883, my business was that of a stockbroker; according
to my understanding, that is a well defined avocation; it consisted
in buying and selling stocks for customers and carrying them by
borrowing money for customers to carry those stocks on; that
occupation was carried on by a great many members of the New York
Stock Exchange; there are some bankers in the Stock Exchange, but
the business carried on there, as a rule, is that of
stockbrokers."
Upon cross-examination, he stated
"I have a sign on the door which has been there four or five
years. It reads 'David Richmond, Stockbroker.' If a customer came
into my office to buy stock, he would give me an order and hand me
a margin to protect me against loss for the purchase; then the next
day, when the stock was delivered to me, I would borrow money to
pay for it. This is a regular purchase; sometimes customers pay in
full for stock. We seldom book orders; we buy stock on the stock
board,"
sometimes receiving the margin and sometimes not. We receive
certificates purchased on the stock board, as a rule, next day. It
is sent to my office by the seller, and he receives a check in
payment, drawn on the Leather Manufacturers' Bank against a deposit
I keep there; that deposit is, as a rule, my own money.
"Q. Your capital?"
"A. A portion of it; not always."
"Q. How much capital did you have in your business at that
time?"
"A. I have forgotten; it was nothing like $300,000: it ranged
from $30,000 to $50,000. It was on that capital that I made the
return for taxation. I had in business that amount. It was on that
return that I was taxed one twenty-fourth of one per cent per
month, and it is to recover back that tax that this suit is
brought. . . ."
"Q. Do you keep an open account with your customers?"
"A. I do."
"Q. On your ledger?"
"A. Yes."
"Q. Do you credit him with the amount of the margin which you
receive?"
"A. We credit him with the amount; if it is money, he receives
credit for it; if it is securities, he receives credit, of course,
for that."
"Q. Do you charge him with the cost price of the stock purchased
pursuant to his order?"
"A. I do."
"Q. And do yon charge him with the interest on the difference
between the cost price of the stocks and the amount of his
margin?"
"A. I do."
"Q. How is your difference settled?"
"A. He receives interest on the amount placed to his credit, and
is charged interest on the amount placed to his debit, which is
practically the same. You asked me the way in which it is done, I
understand?"
"Q. Then, instead of deducting the lesser number from the larger
number, and then calculating the interest charge to be made to the
customer, you make two calculations, debiting one and crediting the
other?"
"A. Exactly so."
"Q. And that interest is charged against him up to what
time?"
"A. No stated time; it depends upon whether the stock is sold or
not, or whether it is paid for afterwards by him -- taken up."
"Q. It is charged to him up to the time that he either closes
out his account or --"
"A. Settled in full."
"Q. That may be done either by selling out the stock which you
hold or by paying the amount charged against him on your books as
the purchase money?"
"A. Yes."
"Q. Now, you have described the manner of doing business on
orders to purchase; won't you please tell the jury about the manner
of doing business when you receive orders to sell?"
"A. Sometimes a customer may write us from the country to sell
stock, and then he says he will forward it by mail when sold;
another time, he may enclose it with the order; another time, a
customer will come into the office with a certificate and say 'sell
this;' another time he may come in and say, 'sell this and I will
deliver the certificate tomorrow,' and so on. I sell the stock, and
when the time to deliver it to the broker or buyer arrives I
deliver it and receive his check for it. If the seller wants the
money, I give it to him. If he does not want it, he may leave the
money there overnight, or two or three days, but that would be only
incidental to the business. It isn't my line of business to receive
money in that way; it is an incident of the business. When it is
left with me, the customer in the country does not make a draft on
me; I almost invariably send him my own check."
"Q. How as to the sale of the stock?"
"A customer comes in with a certificate and asks you to sell it;
describe the entire transaction."
"A. I go up to the board and sell it; I pay him sometimes that
day, sometimes the next, but very rarely indeed when he delivers
the certificate of stock. I keep the certificate in the office
until I go to the board to sell stock; sometimes until the next
day; sometimes I borrow money on it overnight. I keep it in the
drawer, or in the safe, or in the desk; it is paid for with money
in the bank to my credit by my personal check. In the case of the
country customer who sends an order to sell, stating that he will
forward the certificate of stock by mail, or as soon as required, I
sell the stock and notify him of the sale; then probably he sends
me the certificate. I don't send him the money for that certificate
before I receive it. This order to sell would probably be sent to
my place of business. In the case of a 'short sale,' it was just
the reverse of the purchase business; I sell it, and when the time
comes for delivery, I borrow the stock of another broker."
"Q. You tell your broker friend or business acquaintance that
you want to get one hundred shares of Lake Shore, for
instance?"
"A. I would tell a friend that I wanted to borrow one hundred
shares of Lake Shore, and he says, 'All right, you can have it.' He
sends it down to my office in a short time, and I pay him for it; I
pay him the market price with money to my credit in the bank; the
customer who has ordered the short sale may have sent me money or
may not have; he may have given me stock as margin or other
security."
"Q. He is credited on that amount of margin, is he?"
"A. He is when we get it."
"Q. On your books is he debited with anything?"
"A. He is not. Then he gets a credit for the amount of stock
that is sold, the amount of money received for it, and we charge
him for whatever is paid for the use of the stock; the general
custom is to charge for the use of the stock. Stocks might be
running flat; he is credited with the interest on his margin; the
transaction might be closed at any time by the purchase of the
stock for and on account of the customer. On our books, he would be
charged with the cost of the stock as bought on the board, with
commission. Our letting the account stand would depend altogether
on the price the stock was bought at and the price it was sold
at."
"Q. Assuming that there had been an advance in the stock market
pending the borrowing and the sale pursuant to the original order,
and the purchase made for the purpose of closing the transaction,
how would the books stand?"
"A. The customer might have bought stock at another office, and
bring it in. You cannot figure on those things, except on the
actual facts at the time. Suppose, for instance, the stocks were
sold for ninety and bought back at ninety-five, that would show a
loss of about $525, on the supposition that nothing was paid for
the use of the stock. His margin would then be encroached upon by
just the amount of the difference between the original price sold
for and the price paid by us on closing it and the commissions and
whatever we had to pay for the use of the stock. If, on the
contrary, there had been a profit to the customer, we would be in
his debt then the amount of the margin deposited and the amount of
his profit; we would have that to his credit; almost invariably, he
would be given a check for it; if he saw fit to make his draft upon
us, that could be done, of course, but they did not do it; if he
did make his draft, I should honor it."