An act assessing stockholders of national banks, although
illegal as to a class of stockholders not similarly taxed on shares
in other moneyed institutions, may be legal as to the class which
is similarly taxed, and so
held that § 3 of the Act of
March 21, 1900, of Kentucky, providing for back assessments on
shares of national banks, although not legal as to nonresident
stockholders, there having been no statute prior to 1900, providing
for the assessing of stock of nonresident stockholders of other
moneyed corporations, is not illegal as to resident
Page 217 U. S. 444
stockholders, as there were statutory provisions for assessing
them for stocks in other moneyed corporations of the state prior to
1900.
Covington v. First National Bank, 198 U.
S. 100, distinguished.
A statute is not lacking in due process of law within the
Fourteenth Amendment if it simply provides a new remedy for
collecting a tax liability already legally existing under prior
law.
A state statute may make a bank the agent for its own
shareholders in compelling returns, and make it liable for taxes
assessed against the shareholders.
The constitutionality of a statute cannot be attacked because it
relates to a certain class by one not of that class.
Shares of stock of a national bank pass from one holder to
another subject to the burden of taxes, and if not properly
returned for taxation as required by law, the liability remains
until barred by limitation, and may be enforced although the stock
has been transferred.
Liability for a tax is not subject to rules applicable to the
vendor's equity of one buying without notice.
Seattle v.
Kelleher, 195 U. S. 351.
The fact that the par value of shares of a national bank has
been reduced does not affect the right of taxation or to
back-assess unlisted shares. The shares are the same although
reduced.
Citizens' Savings Bank v. Owensboro, 173 U.
S. 636;
Covington v. First National Bank,
198 U. S. 100,
followed to effect that the Act of March 21, 1900, of Kentucky,
does not impair the obligation of the supposed contract under the
Hewitt Bank Act of that state.
The facts, which involve the validity of the statute of Kentucky
of March 21, 1900, in regard to taxation of shares of stock of
national banks, are stated in the opinion.
Page 217 U. S. 447
MR. JUSTICE LURTON delivered the opinion of the Court.
This was a proceeding under the law of Kentucky to back-assess
the shares of stock in the Citizens National Bank as property
omitted from the tax list. After much petitioning, pleading, and
demurring, and two appeals to the Court of Appeals of the State of
Kentucky, 1,473 shares were assessed for the taxes of 1896, 1897,
and 1898, and 990 shares for the taxes of 1899, with a penalty of
twenty percent added to the tax each year. The proceeding under
which this result has been reached was started in the County Court
of Boyle County, Kentucky, in March, 1901, by a petition filed by
the sheriff of the county for the purpose of causing the shares of
the bank to be assessed as property omitted by the assessor. The
authority under which the petition was filed is found in § 4241,
Kentucky Statutes, and the Kentucky Act of March 21, 1900. As the
validity of this later act is challenged, we set it out in the
margin.
*
Page 217 U. S. 448
In the case of the
Owensboro National Bank v.
Owensboro, 173 U. S. 664,
this Court held invalid certain legislation of the State of
Kentucky, providing for the taxation of national banks, as laying a
tax not upon shares, which was permissible, but upon the property
and franchises of such banks, which was
Page 217 U. S. 449
inadmissible under the restrictions of § 5219, Rev.Stat. In
consequence of this decision, this Act of March 21, 1900, was
passed, as shown both by its subject matter and the recital in the
preamble. The act is both prospective and retrospective. Of its
prospective features we need say nothing. The third section is
retrospective, in that provides for the return of shares in
national banks which, during the years of the operation of the
legislation held invalid by this Court, had not been returned for
taxation, by making it the duty of certain officers of such banks
to list for taxation for the years between 1892 and 1899, all
shares in such banks which had not been returned, and by requiring
all such banks to pay the tax and penalty upon all such omitted
shares, subject, however, to certain deductions and credits on
account of taxes paid by such banks under the act held invalid, as
well as under the prior Hewitt Act.
In
Covington v. First National Bank, 198 U.
S. 100, this Court was required to consider the effect
of the third section of the act in imposing upon national banks a
liability for the taxes and penalties upon such omitted shares,
which, during the years covered by this section, had been held by
persons not domiciled within the State of Kentucky. The question
arose under a bill filed in a circuit court of the United
States
Page 217 U. S. 450
to enjoin the imposition of liability upon a national bank for
taxes and penalties upon shares held between 1892 and 1900 by
persons who were not domiciled in Kentucky, it being alleged that
the purpose of the proceeding against the bank was to charge the
bank, without discrimination between domestic and foreign-held
shares. Prior to this Act of March 21, 1900, there was no law
requiring a return for taxation of bank shares held by owners not
domiciled within the state, either by such holder or by the bank in
which such shares were held. For this reason, we held in the case
referred to that this act imposed, for the years prior to its
passage, a liability upon national banks for taxes upon
shareholders domiciled outside of the state, which was not borne by
other incorporated moneyed institutions. Upon this subject, the
Court, speaking by MR. JUSTICE DAY, said:
"Without considering the question of constitutional power to tax
nonresident shareholders by means of this retroactive law, it seems
to us that, in imposing upon the bank the liability for the past
years, for taxes and penalty, upon stock held without the state,
and which, before the taking effect of the act under consideration,
it was not required to return, there has been imposed upon national
banks in this retroactive feature of the law a burden not borne by
other moneyed capital in the state. This law makes a bank liable
for taxes upon property beyond the jurisdiction of the state, not
required to be returned by the bank as agent for the shareholders,
by a statute passed in pursuance of the authority delegated in §
5219, thus imposing a burden not borne by other moneyed capital
within the state. (
Covington v. First National Bank,
198 U.
S. 114)."
In the case now before us for consideration, a liability has
been imposed upon the Citizens Bank, the plaintiff in error, not
for taxes and penalties upon shares of the bank held by
shareholders domiciled beyond the state -- as was attempted in
Covington v. First National Bank, 198 U.
S. 100 -- but exclusively upon shareholders domiciled
within the state. The liability is limited to the tax and penalty
upon shares owned
Page 217 U. S. 451
by shareholders domiciled within the state, the name, residence,
and amount due from each such shareholders being distinctly set
down in the decree.
Neither is the act lacking in due process if, as we shall assume
for the moment is the case, the procedure under the third section
is but a new remedy for a tax liability imposed by prior law of the
state upon resident holders of shares of the bank.
Section 5210, Rev.Stat., requires every such bank to keep a
correct list of its shareholders accessible to taxing officers, and
by § 5219, Rev.Stat., the legislature of each state may, for
itself, determine the manner and method for taxing shares in such
banks, subject only to the restrictions named therein. In making
the bank the agent for its own shareholders in proceedings brought
to compel a return and secure an assessment, and in imposing upon
the bank a liability for the tax so assessed against the
shareholders, the act only follows the well settled procedure
sanctioned in
National Bank v.
Commonwealth, 9 Wall. 353;
Van Slyke v.
Wisconsin, 154 U. S. 581, and
Aberdeen Bank v. Chehalis County, 166 U.
S. 440.
That the third section does not impose a liability upon either
the domestic shareholders or the bank which did not exist before,
under the prior law of the state, was settled by the case of
Scobee v. Bean, 109 Ky. 526. In that case, the shares of
certain resident shareholders had been assessed for taxes laid for
years prior to this Act of 1900, and it was urged that, since the
special legislation for the taxation of such shares had been held
void by this Court in
Owensboro National Bank v. Owensboro
that there was no law of the state under which these shares could
be assessed. But the Kentucky court, after an elaborate review of
the general taxing law of the state, held that there was full prior
statutory authority for the taxation of such shares, and that,
under that law, if the bank failed to return and pay the tax upon
such shares, it was the duty of the shareholders to do so. That
case has been followed in a number of other cases by the same
court, and it is the basis upon
Page 217 U. S. 452
which the third section of this Act of March 21, 1900, was
upheld in the present case as not imposing a new liability, but as
simply providing another method for the assessment of shares which
had escaped assessment under the prior law, because neither the
shareholders nor the bank had returned them for taxation. In
Covington v. First National Bank, 198 U.
S. 100,
198 U. S. 111,
this Court, speaking by MR. JUSTICE DAY, accepted this as the
interpretation of the statutory law of Kentucky by the highest
court of the state, saying:
"Following the state court in the interpretation of its own
statutes, it may be said that, as to shareholders residing in
Kentucky and over whom the state has jurisdiction, the supreme
court of that state has construed its statutes as requiring
shareholders in national banks for the years 1893 to 1900,
inclusive, to return their shares for taxation, and if they did not
make the return, the duty was required of the corporation. In this
view of the law, it may be that, as to local shareholders, the Act
of March 21, 1900, as held by the Supreme Court of Kentucky,
created no new right of taxation, but gave simply a new remedy,
which, by the law, is operative to enforce preexisting obligations.
It may be admitted that § 5219 permits the state to require the
bank to pay the tax for the shareholders.
First National Bank
v. Kentucky; Van Slyke v. Wisconsin, and
First National
Bank v. Chehalis County, supra."
This construction of the prior law and of the Act of 1900 was
reaffirmed upon the first appeal of the present case, where the
court said:
"The Act of March 21, 1900, did not therefore make that taxable
which was not taxable before, but simply provided another mode for
the assessment of the shares of stock and the payment of the taxes.
It was the duty of the assessor to make the assessment. It was also
the duty of the president and cashier of the bank to list the
shares of stock with the assessor; but when the assessment was not
made, the property was simply omitted from the tax list, and the
sheriff is authorized
Page 217 U. S. 453
by § 4241, Ky.Stat. 1903, to institute the proceeding to have
any omitted property assessed. A penalty may be properly imposed in
the proceeding because the property was not listed with the
assessor, as required by law, and stood as any other property for
the assessment of which a proceeding under § 4241 may be
instituted. While neither the bank nor its president nor its
cashier is the owner of the shares of stock, the bank is made by
the act the agent of the shareholders, and the notice to it is
notice to his agent, within the meaning of § 4241. The president
and cashier were properly made defendants because it is made their
duty by the statute to list the stock. The bank is required to keep
a list of its shareholders, and therefore knows who they are.
Notice to the agent in an assessment of property is sufficient
notice to his principal."
Commonwealth v. Citizens' National Bank, 117 Ky. 946,
957.
But it is said that, in
Covington v. First National
Bank, this Court held the third section broad enough to
include liability for omitted returns of shares held by nonresident
shareholders, and for that reason discriminated against national
banks. But in that case, the proceeding enjoined was one for the
purpose of fixing liability upon the bank without discriminating
between resident and nonresident shareholders. But in the present
case, the state court has not imposed liability upon the bank for
taxes or penalties upon shareholders who were nonresidents, but has
applied it as affording a valid remedy for the collection of taxes
and penalties upon residents who had not made return, as required
under the prior law. As thus applied, the bank has neither been
deprived of any rights nor compelled to bear any burden in conflict
with § 5219, Rev.Stat., upon which it relies for protection. But if
it be assumed -- an assumption not sustained by any decision of the
Kentucky Court of Appeals -- that the third section is broad enough
to include liability for delinquent taxes claimed from both
resident and nonresident stockholders, none of the latter class are
here complaining, and such an objection cannot be
Page 217 U. S. 454
made by one unaffected by the alleged invalid feature.
Austin v. The
Aldermen, 7 Wall. 694;
Supervisors v.
Stanley, 105 U. S. 305;
The Winnebago, 205 U. S. 354.
That the body of shareholders in 1901, when the proceeding was
started, was not composed of the same individuals as the body
during the years for which the taxes were due is doubtless true.
But the shares pass from one holder to another, subject to the
burden of taxes, and if not returned by either the shareholder or
the bank, as required by the prior law, the liability remains to be
enforced until barred by limitation of time. The liability of the
bank is that of the shareholder, and its reimbursement must come
from those who hold the shares when the bank liability is enforced.
In
Seattle v. Kelleher, 195 U. S. 351, it
is said that liability for a tax is not subject to the rules
applicable to the vendor's equity. "A man cannot get rid of his
liability to a tax by buying without notice." The liability of the
purchaser of shares for taxes not paid, and of the bank, as agent
for its shareholders, is one of the notorious and necessary
consequences of the long sanctioned right of the states to compel
such banks to return their shares for taxation, and to pay the
assessment thereon if the shareholder does not. The legality of
this method was reasoned out in
First National Bank v.
Kentucky, supra -- a case arising under the Kentucky law
imposing liability upon banks for the tax upon shareholders. This
answers the objection that, in 1898, a reduction in the number of
shares had occurred. That only means that each share of $1,000 was
reduced to a share of $666.66; the shareholders remained the same,
the proportion held by each in the capital being the same as before
the reduction. The tax upon the share before it was reduced rested
upon the same share after it had been reduced. None of the shares
taxed had in fact gone out of existence before the proceeding to
compel returns for purposes of taxation. The original 1,500 shares
were represented by the outstanding 1,000 shares, and were in the
hands of the same general body of shareholders.
Page 217 U. S. 455
The objection made that the act violates the supposed contract
under the Hewitt Act is answered by
Citizens' Savings Bank of
Owensboro v. Owensboro, 173 U. S. 636, and
Covington v. First National Bank, 198 U.
S. 100.
The other assignments present no question which need be more
particularly answered.
Judgment affirmed.
*
"Whereas the Supreme Court of the United States has lately
decided that article three (3), chapter 103, of the Acts of
1891-1892-1893, is void and of no effect insofar as the same
provides for taxation of the franchise of national banks, in
consequence of which decision there is not now and has not been,
since the adoption of said article in 1892, any adequate mode of
taxing national banks, while state banks are now, and have been,
ever since 1892, taxable for all purposes, state and local,
therefore"
"Be it enacted by the General Assembly of the Commonwealth of
Kentucky:"
"SEC. 1. That the shares of stock in each national bank of this
state shall be subject to taxation for all state purposes, and
shall be subject to taxation for the purposes of each county, city,
town, and taxing district in which the bank is located."
"SEC. 2. For the purposes of the taxation provided for by the
next preceding section, it shall be the duty of the president and
the cashier of the bank to list the said shares of stock with the
assessing officers authorized to assess real estate for taxation,
and the bank shall be and remain liable to the state, county, city,
town, and district for the taxes upon said shares of stock."
"SEC. 3. When any of said shares of stock have not been listed
for taxation for any of said purposes, under levy or levies of any
year since the adoption of the revenue law of eighteen hundred and
ninety-two, it shall be the duty of the president and the cashier
to list the same for taxation under said levy or levies: Provided,
That where any national bank has heretofore, for any year or years,
paid taxes upon its franchise, as provided in article three (3) of
the revenue law of 1892, said bank shall be excepted from the
operation of this section as to said year or years: And provided
further, That where any national bank has heretofore, for any year
or years, paid state taxes under the Hewitt Bill in excess of the
state taxes required by this act for the same year or years, said
bank shall be entitled to credit by said excess upon its state
taxes required by this act."
"SEC. 4. All assessments of shares of stock contemplated by this
act shall be entered upon the assessor's books, verified and
reported by the officers as assessments of real estate are entered,
certified, and reported, and the same shall be certified to the
proper collecting officer for collection as assessments of real
estate are certified for collection of taxes thereon."
"SEC. 5. The assessments of said shares of stock and collection
of taxes thereon, as contemplated by this act, may be enforced as
assessments of real estate and collection of taxes thereon may be
enforced."
"SEC. 6. The purpose of this act is to place national banks of
this state, with respect to taxation, upon the same footing as
state banks, as nearly as may be, consistently with said article
three (3) of the revenue law and said decision of the Supreme
Court."
"SEC. 7. Whereas, it is important that state banks and national
banks should be taxed equally for all purposes, an emergency
exists, and this act shall take effect and be in force from and
after its passage."
"Approved March 21, 1900."
MR. JUSTICE WHITE, dissenting:
I am constrained to dissent because I think, in substance and
effect, the retroactive tax now upheld is a tax on the bank and its
assets, and is therefore void. The power to tax is controlled by §
5219, Rev.Stat., and as, in may judgment, the tax which is now
sustained is in conflict with that section, in my opinion, there
should be a judgment of reversal.