1. Upon review of a judgment of a state court sustaining a
discriminatory state tax on national bank shares upon the ground
that the other moneyed capital, favored by the discrimination, was
not employed in competition with the business of the national bank,
this Court may review the evidence regarding such competition, and
is not concluded by the finding of the state court. P.
273 U. S.
552.
2. The validity, under Rev.Stats. § 5219, of a state tax on
national bank shares at a greater rate than that assessed on other
moneyed capital depends upon whether or not the moneyed capital
thus favored is employed in such a manner as to bring it into
substantial competition with the business of national banks. P.
273 U. S.
552.
3. The requirement of approximate equality in taxation (R.S. §
5219) is not limited to moneyed capital invested in state banks or
to competing capital employed in private banking; it applies
wherever capital, substantial in amount compared with the
capitalization of national banks, is employed in a business, or by
private investors, in the same sort of transactions as those in
which national banks engage and in the same locality in which they
do business. Pp.
273 U. S.
555-557.
Page 273 U. S. 549
4. The amendment of § 5219, by Act of March 4, 1923, merely
expressed what was previously implied, and, by its terms, excludes
from "moneyed capital" only those personal investments which are
not in competition with the business of national banks. P.
273 U. S.
557.
5. Proof of competition by untaxed capital involves showing that
it is employed in such investments as are open to national banks.
P.
273 U. S.
558.
6. In this case, the evidence shows substantial competition with
national banks by untaxed capital in the business of making loans
and selling credits and also by capital of private individuals who,
as investors of surplus funds, were engaged in lending money at
interest on real estate mortgages and other evidences of
indebtedness normal to banking. P.
273 U. S.
558.
7. To establish the fact of competition, it is not necessary to
show that national banks and the other investors solicit the same
customers for the. same loans or investments. It is enough if both
engage in seeking and securing in the same locality investments of
the class described which are substantial in amount. P.
273 U. S.
559.
8. The sale of real estate mortgages and other evidences of debt
acquired by way of loan or discount with a view to reinvestment is
within the incidental powers of national banks. P.
273 U. S.
559.
9. The fact that discrimination against national bank shares is
not unfriendly or hostile, but is induced by the state policy of
substituting income taxes for personal property taxes, does not
render Rev.Stats. § 5219 inapplicable. P.
273 U. S.
560.
187 Wis. 290 reversed.
Error to a judgment of the Supreme Court of Wisconsin in a suit
brought by the bank to recover from the City of Hartford the amount
of a tax assessed and collected upon shares of its stock. The court
below reversed a judgment for the plaintiff and directed the trial
court to enter a judgment dismissing the complaint.
Page 273 U. S. 550
MR. JUSTICE STONE delivered the opinion of the Court.
Plaintiff in error, a national banking association doing
business in Wisconsin, brought suit in the circuit court of
Washington County, Wisconsin, to recover from the defendant in
error, the City of Hartford, a tax assessed and paid for the year
1921 upon shares of stock in plaintiff bank on the ground that the
assessment and tax were prohibited by § 5219 of the Revised
Statutes of the United States (Act June 3, 1864, c. 106, 13 Stat.
99, 112; Act Feb. 10, 1868, c. 7, 15 Stat. 34). The tax having been
paid under protest, a suit for its recovery, raising the legality
of the assessment, is permitted by local statutes. Wis.Stat. 1923,
§ 74.43.
The trial court held the assessment illegal and gave judgment
for the plaintiff. On appeal, the Supreme Court of Wisconsin
reversed the judgment with a direction to the court below to enter
judgment in favor of the defendant, dismissing the complaint. 187
Wis. 290. The case comes here on writ of error under § 237 of the
Judicial Code.
Merchants' National Bank v. Richmond,
256 U. S. 635,
256 U. S. 637;
First National Bank v. Anderson, 269 U.
S. 341,
269 U. S.
347.
The contention here is that the state supreme court erred in
holding that these tax statutes are not repugnant to § 5219,
Revised Statutes.
"National banks are not merely private moneyed institutions, but
agencies of the United States, created under its laws to promote
its fiscal policies, and hence the banks, their property, and their
shares cannot be taxed under state authority except as Congress
consents, and then only in conformity with the restrictions
attached to its consent."
First National Bank v. Anderson, supra, 269 U. S. 347;
Des Moines Bank v. Fairweather, 263 U.
S. 103,
263 U. S. 106.
Congress,
Page 273 U. S. 551
by appropriate legislation, has permitted the taxation of shares
in national banks subject to certain restrictions. Section 5219
sanctions such taxation in the state where the bank is located,
subject to the restriction that "the taxation shall not be at a
greater rate than is assessed upon other moneyed capital in the
hands of individual citizens of such state." By decisions of this
Court construing this language, it is established that the phrase
"other moneyed capital" does not embrace all moneyed capital not
invested in bank shares, but "only that which is employed in such
way as to bring it into substantial competition with the business
of national banks."
First National Bank v. Anderson,
supra, 269 U. S. 348.
Hence, the question presented by this record is whether the tax
imposed upon the shares of stock of plaintiff under the Wisconsin
statutes is at a greater rate than that imposed upon other moneyed
capital in the hands of individual citizens of Wisconsin employed
in substantial competition with national banks.
By § 70.31 of the Wisconsin Statutes, an
ad valorem tax
is assessed upon all shares of banks, including national banking
associations, as personal property within the assessment district
in which the bank is located. Section 70.11 exempts from such
taxation
"all moneys or debts due or to become due to any person and all
stocks and bonds, including bonds issued by any county, town, city
village, school district, or other political subdivision of this
state, not otherwise specially provided for."
Acting under these statutes, the taxing authorities imposed the
tax now in question, but made no assessment and levied no tax upon
credits or intangible property other than the shares of stock in
banking corporations. The State of Wisconsin imposes a tax upon
incomes including incomes derived from credits. The court below
assumed, and it was not questioned upon the argument here, that
this tax is not to be taken as an equivalent or
Page 273 U. S. 552
substitute for the
ad valorem tax levied upon bank
shares, and no question of the possible equivalence of the two
schemes of taxation is presented. From the section cited, it
appears that the tax statutes of Wisconsin discriminate in favor of
moneyed capital and capital investments within the state,
represented by credits or intangibles, and against that invested in
shares in banking corporations.
But it is not sufficient to show this discrimination alone. The
validity of the tax complained of depends upon whether or not the
moneyed capital in the state thus favored is employed in such a
manner as to bring it into substantial competition with the
business of national banks.
The question thus raised involves considerations both of fact
and of law. To answer it, it is necessary to ascertain the nature
and extent of the moneyed capital in the hands of individual
citizens within the state and the relation of its employment, in
point of competition, to the business of plaintiff and other
national banks. It is necessary also to ascertain the precise
meaning to be given the statute as applied to the facts in hand in
order to determine whether the particular moneyed capital and the
particular competition with which we are here concerned are moneyed
capital and competition within the spirit and purpose of the
statute. The question is thus a mixed one of law and fact, and in
dealing with it we may review the facts in order correctly to apply
the law.
Truax v. Corrigan, 257 U.
S. 312,
257 U. S. 325;
Kansas City Southern Ry. v. Albers Commission Co.,
223 U. S. 573,
223 U. S. 591;
Northern P. Ry. v. North Dakota, 236 U.
S. 585,
236 U. S. 593;
Jones National Bank v. Yates, 240 U.
S. 541,
240 U. S.
552-553.
Cf. Merchants' National Bank v. Richmond,
supra, 256 U. S. 638.
The opposite view expressed in
Jenkins v. Neff,
186 U. S. 230,
186 U. S. 235,
must be considered discarded by the later cases. Also, as the case
is brought here from a state court for review on the ground that a
federal right there set up
Page 273 U. S. 553
was denied, this Court is not concluded by a finding of the
state court that the asserted right is without basis in fact.
Aetna Life Ins. Co. v. Dunken, 266 U.
S. 389,
266 U. S. 394;
Southern P. Co. v. Schuyler, 227 U.
S. 601,
227 U. S.
611.
The evidence shows that plaintiff, in the course of its
business, receives deposits, loans money, has a savings department,
deals in exchange, buys and sells notes, government and other
bonds, discounts commercial paper, and acquires real estate
mortgages by loan and purchase. On the trial, plaintiff called
numerous witnesses who gave testimony, uncontradicted by defendant,
tending to show the nature and extent of various classes of moneyed
capital in the hands of individuals in the state and the nature of
its employment in competition with the business carried on by
national banks. There are real estate firms engaged in lending
money to individuals in the vicinity of plaintiff's banking house,
the amount thus loaned amounting annually from $250,000 to
$300,000. According to the testimony, the making of these loans
affords the same competition to plaintiff as loans made by banks.
And similar conditions obtain throughout the state. There are
various individuals, copartnerships, and corporations in the
vicinity engaged in the business of acquiring and selling notes,
bonds, mortgages, and securities. Substantial capital is employed
in their business. Others, having their place of business in
Milwaukee and in Chicago, are engaged within the state in the
business of buying and selling securities both in the vicinity of
plaintiff's banking house and elsewhere, and employ capital for
that purpose. Securities thus acquired and offered for sale include
public utility and other forms of bonds, notes, and farm mortgages.
In 1921, one company alone, having its place of business in
Milwaukee but doing business throughout the state, including the
vicinity of plaintiff's bank, sold approximately $25,000,000 of
bonds and other securities. This company is shown to be
affiliated
Page 273 U. S. 554
with and its stock held principally by stockholders of the First
Wisconsin National Bank of Milwaukee, and to have been organized
for the purpose of taking over the business of the bank in dealing
in securities. Neither the capital employed in these various
enterprises by individuals or corporations, so far as invested in
the credits, nor the shares held by investors in such corporations
are subjected to the
ad valorem tax.
Upon this evidence, the trial court found that, during 1921,
moneyed capital in the hands individual citizens in the vicinity of
plaintiff's banking house, amounting to many hundreds of thousands
of dollars, which was not assessed for taxation nor taxed, was
employed in a manner which brought it into competition with the
business conducted by national banks, including that of plaintiff.
It also found that moneyed capital to the extent of millions of
dollars held by individual citizens throughout the state, and
employed in a manner which brought it into competition with such
banks, was similarly exempt from this taxation.
The state supreme court held that it was not concluded by these
findings of mixed law and fact. Since the Wisconsin tax law is one
of statewide application, it took judicial notice of the general
conditions within the state to which the law applies, and reached
the conclusion that there was no capital in the hands of individual
citizens which was invested or used in substantial competition with
capital invested in shares of national banks.
In so doing, it pointed out that, under § 224.03 Wis.Stat. 1923,
all persons, firms, and corporations doing a banking business are
required to incorporate as banks, and their shares are taxed in the
same way and at the same rate as shares in national banks. As the
basic ground for its decision, the court stated that, in
consequence of these statutes,
"there are no concerns or individuals
Page 273 U. S. 555
within the State of Wisconsin engaged in enterprises in which
the capital employed in carrying on its business is money 'where
the object of the business is the making of profit by its use as
money' except banks. All such persons, firms, and corporations are
required under the laws of the state of Wisconsin to organize as
banks."
But the Wisconsin statutes requiring those engaged in the
banking business to incorporate as banks are expressly limited in
their application to those engaged in "soliciting, receiving, or
accepting of money or its equivalent on deposit as a regular
business." Wis.Stat. 1923, § 224.02. They have no application to
transactions already described which formed the basis of the trial
court's finding that competition existed. It is not denied, and
indeed it affirmatively appears from the evidence, that there are
individuals, firms, and corporations in Wisconsin, not required by
its laws to be incorporated as banks, engaged in the business of
loaning money on the security of notes, bonds, and mortgages, and
buying and selling securities, all involving investment and
reinvestment by them and their customers. Through the activities of
these business concerns, large investments are made and remade in
such securities. Large amounts of capital are thus employed in some
of the ordinary banking activities, although these individuals and
firms do not receive deposits.
The state court did not ignore this evidence. It conceded that
the local tax statutes were in fact discriminatory. But it
apparently construed the decisions of this Court as requiring
equality in taxation only of moneyed capital invested in businesses
substantially identical with the business carried on by national
banks. Consequently, since that class of business must, under the
Wisconsin statutes, be carried on in corporate form, and capital
invested in it is taxed at the same rate as national bank shares,
other moneyed capital, as defined in § 5219, within
Page 273 U. S. 556
the state, it thought, was not favored. Under this view, if
logically pursued, capital invested in businesses engaged in some,
but not all, of the activities of national banks, as well as that
employed by individuals in investment and reinvestment in
securities, such as we have described, could not be considered in
determining the question of competition.
But this Court has recently had occasion, in reviewing the
earlier decisions dealing with this subject, to point out that the
requirement of approximate equality in taxation is not limited to
investment of moneyed capital in shares of state banks or to
competing capital employed in private banking. The restriction
applies as well where the competition exists only with respect to
particular features of the business of national banks or where
moneyed capital
"is employed, substantially as in the loan and investment
features of banking, in making investments, by way of loan,
discount or otherwise, in notes, bonds or other securities with a
view to sale or repayment and reinvestment."
First National Bank v. Anderson, supra, 269 U. S. 348.
In so doing, it followed the holding in
Mercantile Bank v. New
York, 121 U. S. 138,
121 U. S. 157,
that:
"The terms of the act of Congress therefore include shares of
stock or other interests owned by individuals in all enterprises in
which the capital employed in carrying on its business is money,
where the object of the business is the making of profit by its use
as money. The moneyed capital thus employed is invested for that
purpose in securities by way of loan, discount, or otherwise, which
are from time to time, according to the rules of the business,
reduced again to money and reinvested. It includes money in the
hands of individuals employed in a similar way, invested in loans,
or in securities for the payment of money, either as an investment
of a permanent character or temporarily with a view to sale or
repayment and reinvestment. In this way, the moneyed
Page 273 U. S. 557
capital in the hands of individuals is distinguished from what
is known generally as personal property. . . ."
The amendment to § 5219 (Act March 4, 1923, c. 267, 42 Stat.
1499), passed after the present tax was levied, provides that:
"bonds, notes, or other evidences of indebtedness in the hands
of individual citizens not employed or engaged in the banking or
investment business and representing merely personal investments
not made in competition with such business, shall not be
deemed moneyed capital within the meaning of this section."
(Italics ours.) It is said that this enactment is a legislative
interpretation of § 5219 as it stood prior to the amendment, that
consequently a narrower interpretation must be given to this
section than in earlier cases, and that, under the section before
and as amended, personal investments of individuals should under no
circumstances be deemed included in the term competing capital.
But, as was pointed out in
First National Bank v. Anderson,
supra, 269 U. S. 350,
the amendment did no more than put into express words that "which,
according to repeated decisions of this Court, was implied before."
By its terms, the amendment excludes from moneyed capital only
those personal investments which are not in competition with the
business of national banks.
Competition may exist between other moneyed capital and capital
invested in national banks, serious in character and therefore well
within the purpose of § 5219, even though the competition be with
some but not all phases of the business of national banks. Section
5219 is not directed merely at discriminatory taxation which favors
a competing banking business. Competition in the sense intended
arises not from the character of the business of those who compete,
but from the manner of the employment of the capital at their
command. No decision of this Court appears to have so qualified §
5219 as to permit discrimination in taxation in favor of moneyed
capital such
Page 273 U. S. 558
as is here contended for. To so restrict the meaning and
application of § 5219 would defeat its purpose. It was intended to
prevent the fostering of unequal competition with the business of
national banks by the aid of discriminatory taxation in favor of
capital invested by institutions or individuals engaged either in
similar businesses or in particular operations or investments like
those of national banks.
Mercantile Bank v. New York,
supra, 121 U. S. 155.
With the great increase in investments by individuals and the
growth of concerns engaged in particular phases of banking shown by
the evidence in this case and in
Minnesota v. First National
Bank of St. Paul, post, p.
273 U. S. 561,
discrimination with respect to capital thus used could readily be
carried to a point where the business of national banks would be
seriously curtailed. Our conclusion is that § 5219 is violated
wherever capital, substantial in amount when compared with the
capitalization of national banks, is employed either in a business
or by private investors in the same sort of transactions as those
in which national banks engage and in the same locality in which
they do business.
Some of the cases dealing with the technical significance of the
term competition in this field were decided before national banks
were permitted to invest in mortgages, as they now are. Act Dec.
23, 1913, c. 6, § 24, 38 Stat. 251, 273; Act Sept. 7, 1916, c. 461,
39 Stat. 752, 754; Act Feb. 25, 1927, c.191, § 16 (amending § 24).
And others go no further than to hold that, in the absence of
allegation and proof of competition with national banking capital,
it cannot be said that an offending discrimination exists. And it
is not sufficient to show that untaxed capital is invested in loans
and securities, without showing also that the class of investments
favored is open to national banks.
Here, large amounts of capital are shown to be invested in
businesses carried on throughout the state which are of the same
character as some, though not all, of the business
Page 273 U. S. 559
carried on by national banks. In two fields, at least, loans and
sales of credits, capital thus employed is shown to be in
substantial competition with that of national banks.
The evidence might have been directed more in detail to the
precise character of the competition; but that offered was
uncontradicted, and when it was shown that national banks in the
State of Wisconsin having a capital and surplus in excess of
$50,000,000 are engaged in the business of making loans, and that
there is an extensive loan business in the state not subjected to
the tax burdens of national banks, and it was testified directly
that this business came into competition with the business of
plaintiff and other national banks, we think that the finding of
the trial court was supported by the evidence, and should not have
been disturbed.
There was also, we think, sufficient evidence that private
individuals as investors of surplus funds are engaged in loaning
money at interest on real estate mortgages and other evidences of
indebtedness such as normally enter into the business of banking
and that these investments are of substantial amount. We do not
conceive that, in order to establish the fact of competition, it is
necessary to show that national banks and competing investors
solicit the same customers for the same loans or investments. It is
enough, as stated, if both engage in seeking and securing in the
same locality capital investments of the class now under
consideration which are substantial in amount.
It is argued that national banks are not authorized to deal in
bonds or other evidences of indebtedness, and that § 5219 was not
intended to protect them from discriminatory taxation in favor of
moneyed capital employed in a business in which they may not
engage. But it is not necessary, for the purposes of this case, to
determine the precise limits of their powers. They are given
authority, in addition to loaning money, to exercise all such
"incidental powers" as shall be necessary to carry on the
business
Page 273 U. S. 560
of banking "by discounting and negotiating promissory notes,
drafts, bills of exchange, and other evidences of debt." Section
5136, Revised Statutes. They are authorized, with certain
limitations, to loan money on real estate mortgages. Act Dec. 23,
1913,
supra; Act Sept. 7, 1916,
supra; Act Feb.
25, 1927, § 24. Here, plaintiff is shown to have investments in
real estate mortgages and to be engaged in selling them. The sale
of mortgages and "other evidence of debt" acquired by way of loan
or discount with a view to reinvestment is, we think, within the
recognized limits of the incidental powers of national banks.
Compare First National Bank v. Anderson, supra,
269 U. S. 348;
Mercantile National Bank v. New York, supra, 121 U. S. 156.
To that extent, the business of acquiring and selling such
mortgages and evidences of debt, carried on by numerous
individuals, firms, and corporations in Wisconsin, comes into
competition with this incidental business of national banks. That
the exercise of this incidental power has become of great
importance in the business of national banks appears from the
Report of the Comptroller of the Currency for 1924, 44
et
seq., showing that approximately one-third of the investment
of national banks consist of government, railroad, public service
corporation, and other bonds, and "collateral trust and other
corporation notes."
Finally it is said that § 5219 is directed to an unfriendly
discrimination or hostile attitude on the part of a state, and that
here the Wisconsin legislation was not dictated by such
considerations, since the challenged exemptions were merely
incidental to the adoption of a state policy of substituting, so
far as possible, an income for a personal property tax. But a
consideration of the entire course of judicial decision on this
subject can leave no doubt that state legislation and taxing
measures which, by their necessary operation and effect,
discriminate against capital invested in national bank shares in
the manner described are
Page 273 U. S. 561
intended to be forbidden. The questions here considered arising
from the application of an
ad valorem tax are not affected
by the amendment of § 5219 by the Act of March 4, 1923, c. 267, 42
Stat. 1499, which permits, in lieu of the
ad valorem tax
on shares of national banks, either a nondiscriminatory tax on the
income of national banks or on the income derived from their
shares.
Judgment reversed.