A clause in the charter by a state of a banking corporation
requiring it to "pay to the state an annual tax of one half of one
per cent on each share of capital stock which shall be in lieu of
all other taxes," while it limits the amount of tax on each share
of stock in the hands of the shareholders, does not apply to or
cover the case of the capital stock of the corporation or its
surplus and accumulated profits, but such capital stock, surplus,
and accumulated profits are liable to be taxed as the state may
determine.
The previous cases examined, and shown (especially
Farrington v. Tennessee, 95 U. S. 679, and
Gordon v. Appeal Tax
Court, 3 How. 133) not to be inconsistent with the
above decision.
The case is stated in the opinion.
Page 161 U. S. 150
MR. JUSTICE PECKHAM delivered the opinion of the Court.
This is an appeal from the decree of the Circuit Court of the
United States for the Western District of Tennessee, granting an
injunction at the suit of the Union & Planters' Bank to
restrain the municipal authorities from collecting any tax laid
upon the surplus of the bank on the ground that such surplus is
exempt under a clause in the charter of the bank similar to the one
discussed in the cases of
Bank of Commerce, ante,
161 U. S. 134. The
circuit court granted the injunction and permanently enjoined the
municipal authorities from the collection of the tax. They have
appealed to this Court.
There are two grounds, either of which, if decided in favor of
appellants in this case, would result in upholding the validity of
the tax upon the surplus: first, if it should be held that by the
true interpretation of the charter the exemption, while applying to
the shares of stock in the hands of the shareholders, does not
extend to the corporation itself, the tax would be valid; second,
even if the tax on the capital stock were void, that upon the
surplus might still be upheld on the authority of the cases of
Bank of Commerce, ante, 161 U. S. 134. We
have already held in that case that a tax on the surplus was valid,
but the question whether a tax on the capital stock of the bank was
valid could not be raised there, because the case was before us on
a writ of error taken to a state court, and the question in the
state court was decided in favor of the exemption claimed by the
bank. This being an appeal from
Page 161 U. S. 151
a judgment of the United States circuit court, both questions
are open for our decision. We think it therefore proper to here
decide the question first above stated.
Various decisions of the courts of Tennessee have been cited by
counsel on both sides as to the meaning of the exemption clause --
whether or not it covered the capital stock and the shares also.
Generally the courts of that state held, before the decision by
this Court of the
Farrington case, that the charter tax
was laid upon the corporate capital stock, and the exemption was of
that stock from any further tax. Subsequently to the decision in
that case, the state courts have held that under the construction
given to the clause in the
Farrington case and in
Bank
v. Tennessee, 104 U. S. 493, the
tax was on the shares, and the exemption covered both the capital
stock and the shares thereof. The decision giving exemption to both
classes of property was adjudged alone upon the authority cited. In
such a case as this, where we are to construe the meaning of the
clause of the statute as to what contract is contained therein, and
whether the state has passed any law impairing its obligation, we
are not bound by the previous decisions of the state courts except
when they have been so long and so firmly established as to
constitute a rule of property (which is not the case here), and we
decide for ourselves, independently of the decisions of the state
courts, whether there is a contract and whether its obligation is
impaired.
Louisville & Nashville Railroad v. Palmes,
109 U. S. 244,
109 U. S. 256;
Vicksburg &c. Railroad v. Dennis, 116 U.
S. 665,
116 U. S. 667;
Mobile & Ohio Railroad v. Tennessee, 153 U.
S. 486,
153 U. S.
492.
While according to the decisions of the Supreme Court of
Tennessee the respect which is most justly due them on account of
the high character of that tribunal, nevertheless the
responsibility is upon us to determine the question independently,
and we cannot agree with that court in its construction of the
decisions of this Court in the two cases mentioned. Indeed, one of
the judges of the state court said in the course of an opinion,
Memphis v. Union & Planters' Bank, 7 Pickle 546, 553,
that since the
Farrington case, the court had
recognized
Page 161 U. S. 152
the decision and had at the same time adhered to its own former
decisions that no
ad valorem tax could be lawfully laid on
the capital stock, and thus the effect of the two decisions, the
one federal and the other state, was that both classes were
exempted. Other judges said they were exempted by reason of the
federal decisions.
We stated in the
Bank of Commerce case,
ante,
161 U. S. 134,
that the tax provided in this charter is laid upon the shares of
stock in the hands of the shareholders, and they are exempt from
any further taxation on account of their ownership of such shares.
In that respect we followed the case of
Farrington v.
Tennessee, 95 U. S. 679, and
we refused in the
Bank of Commerce case to overrule or
distinguish it; but it is claimed on the part of the appellee
herein that the
Farrington case also decided that the
charter tax is in lieu of all other taxes not only upon the shares
in the hands of the shareholders, but that it exempts the
corporation and all its property from any further taxation. We
cannot give so broad an effect to the decision in the
Farrington case. The question of the exemption of the
corporation and its property from taxation did not arise in that
case, and there was no adjudication of that question by its
decision. Farrington was the owner of certain shares of stock in
the bank, and the state and the County of Shelby each claimed the
right, under the law, to assess taxes against him by reason of his
ownership of those shares at the same rate that taxes were assessed
and levied upon other taxable property. He resisted the payment of
the taxes upon the ground that, by virtue of the exemption clause
in the charter the bank, its franchise, its capital stock, and also
the shares of stock of the individual stockholders were subject to
no taxation other than at the rate specified in the charter.
Although in setting forth the grounds of his resistance to the
payment of the tax, Farrington stated that the bank, its franchise,
and its capital stock were not subject to taxation, still that was
not a material question. If the shares of stock owned by him were
not subject to taxation in his hands, that was sufficient for him,
and the question of the exemption of property of the corporation
would not be involved. The
Page 161 U. S. 153
corporation was not a party to the suit, and although in the
opinion written upon the decision of the question whether the
shares were liable to taxation in his hands it may have rather been
assumed that the stock was not subject to taxation as against the
corporation, or that the whole stock was exempt in whosesoever
hands it was, the matter actually decided was the exemption from
taxation of these shares in the hands of the shareholders. In the
suit that was instituted, it was agreed that if, in any event, the
decision was adverse to Farrington, judgment should be rendered
against him for a certain number of dollars, the amount of the tax
assessed against him, and if the decision should be in his favor,
then the judgment was to be that the taxes were illegally assessed,
and that said shares of stock were to be exempt from all other
taxation except the one-half of one percent to the state, as
provided for in the tenth section of the bank's charter, and the
collection of any further tax was to be enjoined. The trial court
rendered a decree enjoining the collection of the tax, which was
reversed by the supreme court of the state on the ground that the
shares of stock were not the property or thing exempted, and it was
therefore adjudged that Farrington should pay to the state the sums
of money assessed upon his shares. Farrington thereupon sued out a
writ of error, and, coming into this Court, the judgment of the
Supreme Court of Tennessee was reversed and it was held that the
charter tax was upon the shares of stock in the hands of its
shareholders, and that they were consequently exempt from the
payment of any further tax.
There are undoubtedly some expressions in the opinion of Mr.
Justice Swayne which lend color to the idea that, in his belief,
not only were the shares in the hands of the shareholders exempt
from any further taxation than that imposed by the charter, but
that the property of the corporation was itself exempt from any
taxation other than that provided for in that section. The latter
question, however, was not before the Court and was not decided by
it, and we are of opinion that, assuming that the charter tax was
laid upon the shares of stock in the hands of the shareholders, the
exemption from
Page 161 U. S. 154
further taxation applies to the subject which was taxed under
the charter, and is not of any greater scope, and that it would not
therefore include the exemption from taxation of either the capital
stock or the surplus, which is the property of the corporation
itself. We come to this conclusion because of the fact, well
established by the decisions of this as well as many state courts,
that there is a clear distinction between the capital stock of a
corporation and the shares of stock of such corporation in the
hands of its individual shareholders. So separate are these
properties, and so distinct in their nature, that the taxation of
the one property is not the taxation of the other. This is no new
doctrine, and the distinction between the two properties was
recognized by the Supreme Court of Tennessee as long ago as in the
case of
Union Bank v. State, 9 Yerg. 490, decided in 1836.
It was held that under the clause of the charter there under
consideration any further tax on the capital stock than that which
was provided for in the charter itself was void, but that the state
might tax the shares of stock in the hands of individuals,
notwithstanding the exemption from further taxation on the capital
stock.
We do not admit the claim made by the counsel for appellee that
the
Farrington case must have decided the exemption of the
stock of the corporation, because in the case of
Wickes v.
Tennessee (mentioned in a note to the
Farrington case
at page
95 U. S. 690),
as is claimed, the exemption was of the capital stock of the
corporation, which was held nevertheless to come within the
principle of the main case decided. There was no material
difference in the meaning of the exemption clause in the various
cases mentioned in the note to the
Farrington case. Those
clauses were of substantially the same import as that in the
Farrington case, and they are set forth in the dissenting
opinion of Mr. Justice Strong at page
95 U. S. 692 of
the report. The whole court was of one opinion upon the subject
that there was no substantial difference in the extent of the
exemptions contained in the several charters, although there was
some difference in their phraseology, but the question was, as
stated by Mr. Justice Strong, which of the parties was to
Page 161 U. S. 155
receive the benefit of the exemption, namely, was it to be the
corporation, or was it intended for the individual stockholder? It
was upon that question that the Court divided, those in the
minority believing that the exemption was intended in each case for
the corporation, while the case as actually decided holds that the
individual shareholder was entitled to the benefit from the
exemption, and there is no adjudication that that exemption
extended also to the corporation and its property.
Other cases in this Court are cited by counsel for the appellee,
which it is claimed are authority for their proposition of
exemption of the corporate property from further taxation. Among
them is
State Bank of Ohio v.
Knoop, 16 How. 369. The sixtieth section of the
General Banking Law of the State of Ohio, passed in 1845, required
the bank to set off six percent of each semiannual dividend made by
it for the use of the state, which sum or amount so set off was to
be in lieu of all taxes to which the company or stockholders
therein would otherwise be subject. Subsequently, the state passed
an act providing for other and different taxation. The bank refused
to pay, whereupon the treasurer of the county brought an action to
enforce payment of such tax, and it was claimed on the part of the
treasurer that the provision in the general banking law, above
mentioned, was not a contract fixing the amount of the tax, but was
a law prescribing a rule of taxation until changed by the
legislature. This Court held that it was a contract, and that, as
the operation of the law providing for a different tax increased
the tax upon the bank, it was protected by the terms of its
contract, and was not bound to pay that increase. The claim was
also argued in that case, on the part of the state, that it was not
within the power of any legislature to tie up the hands of
subsequent legislatures in the exercise of the powers of taxation,
and hence the provision in question, if construed as an attempt to
accomplish that end, must be held to be void. But it was held in
this Court that the legislature had the power the pass the act in
question, and that the bank was entitled to be protected from any
further or other taxation. The question which of the two
properties, the bank or the shares of stock in the hands
Page 161 U. S. 156
of the shareholders, was liable to taxation, was not in the
case, and was not decided, but the language of the statute is
totally different, and much more comprehensive than the language of
the charter now before the court. In the Ohio case, the payment was
to be in lieu of all taxes to which the company
or the
stockholders would otherwise be subject, embracing both
propositions. The case is certainly no authority for the claim made
on the part of this appellee.
The next case is that of
Dodge v.
Woolsey, 18 How. 331. This is substantially the
same case as that just above mentioned, with the sole difference
that the state, in 1851, adopted a new constitution, in which it
was declared that taxes should be imposed upon banks in the mode
which an act, subsequently passed in 1852, purported to carry out.
An assessment was made upon the bank which would result in a larger
tax than that provided for in the charter, and one of the
shareholders in the bank commenced a suit in equity against the
directors to prevent them from paying the tax, on the ground that
the bank was exempt from any such payment, and that it would be a
misapplication of the capital or profits of the bank if either were
taken to pay such tax. This Court again decided as to the validity
of the contract in favor of the bank, and that there was no
material distinction between the two cases arising from the fact
that the State of Ohio had adopted a new constitution in the
meantime, and under that had passed an act providing for a
different method of assessing the property of the bank. This was
held to be wholly immaterial, as having no effect upon the validity
and binding force of the original contract for exemption contained
in the charter of the bank.
The same question again came before this Court in
Jefferson Branch Bank v.
Skelley, 1 Black 436, the only purpose of which
case seems to have been to ask of this Court a reexamination of the
questions already decided and a reversal of its judgments already
twice rendered. This was refused, and the opinion closed by citing
the language of the Chief Justice in
Knoop's case, as
follows:
"I think that by the sixtieth section of the act of 1845 the
State of Ohio bound itself by a contract
Page 161 U. S. 157
to levy no higher tax than the one there mentioned upon the
banks or stocks of banks organized under that law during the
continuance of their charters. In my judgment, the words used are
too plain to admit of any other construction."
Nothing in those cases, construing the charter of the Ohio bank,
affords any countenance to the claim made here.
One other case from this Court is cited -- that of
Gordon v. Appeal Tax
Court, 3 How. 133. The question in that case
depended upon the constitutionality of a tax imposed by the
Legislature of Maryland in 1841, it being alleged to be in
violation of a contract made by the legislature in 1821. The
Legislature of Maryland, in 1821, continued the charters of several
banks to the year 1845 upon condition that they would make a road
and pay a school tax, and it was provided that if any banks should
accept and comply with the terms and conditions of the act, the
faith of the state was pledged not to impose any further tax or
burden upon them during the continuance of their charters under the
act. Subsequently a tax was levied upon the stockholders as
individuals, according to the amount of their stock, and it was
held that by the legislation of 1821, continuing the charters of
the banks upon conditions which had been accepted and performed by
the banks, a contract was created relating to something beyond the
franchise, and that it exempted the stockholders from the tax which
the state endeavored to levy upon them thereafter.
This case lends some color to the claim made by the appellee,
and yet we do not think it is decisive in favor of that claim. It
was a peculiar case. The banks were all in existence, and the
question was in regard to their accepting a condition upon
compliance with which their charters were to be extended. The act
of acceptance, it was stated, would be that of the individual
shareholders. The tax was on the shares, and the question which was
made was whether the act of the Legislature of Maryland of 1841, in
imposing a tax upon those shares, impaired the obligation of the
contract theretofore entered into between the banks and the State
of Maryland. There were two classes of banks, designated as the
old and
new banks. The
old were those
which were chartered previous to
Page 161 U. S. 158
the year 1821, and the
new those which were chartered
after the year 1830, and taxes had always, since the incorporation
of the banks, been assessed upon their real and personal property
in all the cities and counties of the state in the same manner as
upon property of the same kind belonging to individuals, and they
had always been paid by the banks up to this time. Mr. Justice
Wayne, in the course of his opinion, puts the question:
"Does it [the act in question] exempt the respective capital
stocks of the banks as an aggregate, and the stockholders from
being taxed as persons on account of their stock? We think it does
both. The aggregate could not be taxed without its having the same
effect upon the parts that a tax upon the parts would have upon the
whole. Besides, the legislature, in proposing the terms and
conditions of the act, used the word 'banks' with reference to the
consent or acceptance of the act being given by the stockholders,
according to a fundamental article of their charters. The
acceptance of the act could only be made by the stockholders. They
did accept, and the state recognized it as the act of the
stockholders. It could not have been given or been recognized in
any other way. True it is that when accepted and recognized, it
became a contract with the banks. But its becoming a contract with
the banks determines of itself nothing. We must look in what
character or by whose assent it was to become a contract with the
state to ascertain the intention of the legislature in making the
pledge"
"that upon any of the aforesaid banks accepting of and complying
with the terms and conditions of this act, the faith of the state
is hereby pledged not to impose any further tax or burden upon them
during the continuance of their charters under this act."
The Justice then proceeded in the opinion to discuss the
question as to what was meant by the language of exemption, and it
was claimed that by reason of the peculiar nature of the act of
acceptance, which was that of the stockholders, as distinguished
from the corporate action of the bank by the board of directors,
the exemption was offered and directed to that authority which
could accept the condition and perform it -- namely, the
stockholders themselves -- and hence it was
Page 161 U. S. 159
worked out that the meaning of the legislature, under the
circumstances of that case, was to exempt from further taxation the
shares of stock in the hands of the shareholders. An examination of
this case shows that the question of the exemption of both the
corporation and the shareholders did not technically arise,
although in the course of his opinion Mr. Justice Wayne gives an
exemption to both, as above quoted. That case has been the subject
of criticism in several instances, notably in the case of
People v.
Commissioners, 4 Wall. 244, and in
New Orleans
City &c. Co. v. New Orleans, 143
U. S. 195, and cases therein cited. Giving to the
Gordon case the full weight of authority for the point
actually decided, it does not hold that language such as we have in
the case under consideration operates to exempt both the capital
stock of the corporation and the shares of stock in the hands of
its shareholders from all taxation beyond that mentioned in the
charter, and we are entirely unwilling to unnecessarily extend the
authority of that case so as to cover the question here. Long after
that case was decided, this Court in many cases, notably that of
Van Allen v.
Assessors, 3 Wall. 573, and
People v.
Commissioners, 4 Wall. 244, recognized the separate
and distinct character of the two properties, the capital stock and
the shares thereof in the hands of individual shareholders, and
such separate property, in our opinion, is strong proof of the
limitation of the exemption to the property which is taxed.
Another case decided in this Court is that of
Bank v.
Tennessee, 104 U. S. 493.
That was a case where the questions arose under this same general
statute of exemption. The taxing authorities had taxed the bank on
all its real estate, consisting of its banking house, a portion of
which only it used for the transaction of its own business, and it
rented the balance, and it was taxed also for three other pieces of
real estate bid in by it upon sales under trust deeds to secure
indebtedness. The charter provided that the bank might
"purchase and hold a lot of ground for the use of the
institution as a place of business, and at pleasure sell and
exchange the same, and may hold such real or personal property or
estate as may be conveyed to it to secure debts due the
institution, and may
Page 161 U. S. 160
sell and convey the same."
The supreme court of the state held that while the bank was not
liable to be taxed on that portion of its building used by it for
the transaction of its business, it was liable for the taxes on the
remainder, and also on the other real estate purchased by it. The
bank appealed from the decree of the state court, claiming an
exemption of the entire property from taxation under its charter.
The state did not appeal, although the decree of the court held a
portion of the property nontaxable. It will thus be seen that the
only question open for review here was whether the portion actually
taxed was exempt, and this Court was of the same opinion as the
Supreme Court of Tennessee, and held that as to the portion of the
property not used for banking purposes, and as to the other real
estate of the bank, it was not exempt from the payment of a tax
thereon. The fact of the exemption from taxation of that portion of
the property used by the bank in its business seems to have been
assumed without argument or decision by this Court. There is
nothing in that case which affords support to the contention
here.
Nor is there anything in the case of
Tennessee v.
Whitworth, 117 U. S. 129,
tending to show that the Court in the case of
Farrington v.
Tennessee, 95 U. S. 679, held
that the exemption covered both properties, the corporation and the
shares. Mr. Chief Justice Waite, in the
Whitworth case, on
page
117 U. S. 136,
said, in speaking of the
Farrington case, that the
question was whether the clause in the charter there quoted
exempted the shares in the hands of the stockholders from any
further taxation by the state. He said:
"The Court [three Justices dissenting] held that it did,
because, as the charter tax was laid on each share subscribed, the
further exemption must necessarily have been of the shares in the
hands of the holders, although the tax as imposed was payable by
the corporation. In all cases of this kind, the question is as to
the intent of the legislature, the presumption always being against
any surrender of the taxing power."
No comfort can be extracted from the remarks of the Chief
Justice as even tending to show that the exemption clause covered
both the property of the corporation and the shares of stock in the
hands of individual shareholders.
Page 161 U. S. 161
We have found no case in this Court which is authority for the
proposition that language such as is under consideration in this
case exempts from further taxation both the capital stock of the
corporation and the shares of stock in the hands of individual
shareholders. As the
Farrington case decides that this
language does import that the charter tax is laid upon the shares
in the hands of individual shareholders, and that those shares are
exempt from further taxation, that question is set at rest, and,
there being nothing in any case which extends that language to both
properties, we hold that when it is made applicable to the separate
shares in the hands of individual shareholders, it does not apply
to or cover the case of the capital stock of the corporation, and
that such stock is liable to be taxed as the state may
determine.
This determines the liability of the capital stock of the Union
and Planters' Bank to taxation, and, of course, it overrules any
claim on the part of that bank for exemption from taxation of its
surplus or accumulated profits. The question whether such surplus
could be taxed if the capital stock itself were to be regarded as
exempt has also been decided in the preceding case of the
Bank
of Commerce. The decree of the circuit court must therefore
be
Reversed, and the cause remanded to that court, with
directions to dismiss the bill, with costs.
MR. JUSTICE WHITE dissented.