1. A substantial discrimination against national banks in favor
of incorporated state banks resulting from taxation of national
bank shares upon a valuation equal to that of the assets of the
bank, including bonds and like securities of the United States,
while the shares of the state banks are not taxed and the state
Page 276 U. S. 500
are taxed only on the value of their assets after excluding
United States bonds and securities, violates Rev.Stats. § 5219. P.
276 U. S.
2. Taxation of shares of state corporate banks must be like that
of shares of national banks so far as necessary to prevent
discrimination; in neither case does the exemption of federal
securities held by the bank apply in taxation of the shares.
Des Moines Bank v. Fairweather, 263 U.
, distinguished. P. 276 U. S.
3. Where the shares of a national bank were taxed and the tax
paid, under statutes then construed by the state supreme court as
not permitting shares of state corporate banks to be taxed, but
only the state banks themselves, thus creating a discrimination due
to the inclusion of United States securities owned by the national
bank in the valuation of its shares and to the necessary exclusion
of like securities owned by the state banks in assessing their
-- (1) that the right of the national bank,
suing for its shareholders, to challenge the validity of the
statutes as so construed and applied, and to recover the taxes
paid, was not affected by a decision of the state supreme court in
the suit repudiating the earlier construction and declaring the
state bank shares taxable; (2) that the fact that, under the later
decision, the taxing officials were empowered to tax the shares of
state banks and thus bring about equality, was not an obstacle to
the suit, no intention to exercise the power having been
manifested, and (3) that failure to apply to the county board of
equalization for administrative relief was no bar to maintenance of
the action, since the board had no power to grant it under the
statute as construed when the taxes were imposed and collected. P.
276 U. S.
78 Mont. 62 reversed.
Error to a judgment of the Supreme Court of Montana denying
relief in an action by the bank to recover taxes on its shares
collected by the county.
Page 276 U. S. 501
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
Plaintiff in error, a banking corporation organized under the
laws of the United States, is engaged in a general commercial
banking business in Yellowstone County, Montana. For the year 1925,
an assessment for taxes was made by the assessor of Yellowstone
County upon the shareholders, based upon the value of their shares
of stock in the bank. The bank owned no real estate. In pursuance
of the assessment, taxes were levied in the aggregate sum of
$3,897.84 and demand was made for the payment of 50 percent of that
amount, as provided by the Montana statutes. The bank paid the sum
demanded under protest, claiming that the assessment and levy and
the statutes of Montana under which they were made were invalid as
being in conflict with Rev.Stats. § 5219, with certain provisions
of the Constitution of Montana, and with the due process and equal
protection of law clauses of the Fourteenth Amendment to the
Constitution of the United States. This action was then brought by
the bank in behalf of its shareholders to recover the amount of the
payment. The court of first instance sustained a general demurrer
to the complaint and rendered final judgment against plaintiff in
error, which, upon appeal to the state supreme court, was affirmed.
78 Mont. 62.
Here, the argument is confined to the question whether there is
a violation of the restriction upon the state power of taxation
contained in Rev.Stats. § 5219, that the taxation of shares of
national banking associations "shall not be at a greater rate than
is assessed upon other moneyed capital in the hands of individual
citizens of such state."
Page 276 U. S. 502
The contention that the laws of Montana, under which the
assessment and levy were made, contravene this restriction rests
upon the fact that shares of national banks were valued for
assessment purposes at an amount equivalent to the value of the
corporate assets, including Liberty Loan bonds and similar
securities of the United States, and were taxed accordingly, while
shares of state banks were not assessed or taxed at all, and the
banks themselves were taxed upon the value of their assets, after
excluding such bonds and similar securities.
It is clear that the state statutes, as construed by the state
supreme court in the present case, do not produce the
discrimination asserted or any discrimination in favor of the
moneyed capital employed by state banks in competition with
national banks. That court now holds that the provisions of the
state constitution and statutes require the state to tax the
property of every state bank and also the shares to the extent that
they have a value beyond that of the taxable property of the bank.
In assessing and imposing taxes upon the corporations, the value of
the United States securities owned by the corporations is excluded
because such securities are exempted from state taxation by the
laws of the United States. But in the taxation of shares of state
as well as of national banks, the value of these securities, so far
as it contributes to the value of the shares is included, because
the shares are the property of the shareholders distinct from the
corporate assets, which are the property of the banks. See Home
Savings Bank v. Des Moines, 205 U. S. 503
205 U. S.
If this were all, there would be no discrimination within the
meaning of the federal law. But it is not all. The assessment, as
actually made, clearly violated the restriction in § 5219 here
relied upon, and it was made in conformity with the state statutes
as construed by the state supreme court in the earlier case of
East Helena State
Page 276 U. S. 503
Bank v. Rogers,
73 Mont. 210. In that case, the
requirement of the statutes, so far as it applied to state banks,
was stated by the court as follows (p. 217):
"This state had the option to tax the shares of stock in state
banks to the individual shareholders or to tax the property of such
banks to the banks themselves. It could not tax both at the same
time. (Sec. 17, Art. 12, Constitution of Montana.) If it had chosen
the first alternative, it might then have assessed the shares at
their full cash value without reference to the character of the
securities in which the bank's funds were invested
Allen v. Assessors,
3 Wall. 573; [see also
Rose's U.S. Notes]); but it chose to tax the property of the banks,
and must abide the consequences."
The taxing officials, conforming to this construction of the
state law, as they were bound to do, while they assessed, levied,
and collected the tax now under review, laid no tax whatever upon
shares of state banking corporations, although, as the record
shows, these shares had a very large taxable value over and above
the value of the taxable property of the banks, due to the
ownership by the banks of tax exempt federal securities. That this
resulted in a substantial discrimination against plaintiff in error
within the meaning of the restriction contained in § 5219 does not
admit of doubt. Van Allen v.
3 Wall. 573, 70 U. S. 581
Mercantile Bank v. New York, 121 U.
, 121 U. S. 148
121 U. S. 152
Owensboro National Bank v. Owensboro, 173 U.
, 173 U. S.
Nevertheless, it is contended for the defendants in error that,
since the exemption from taxation of the federal securities in the
hands of the state banks is created by federal statute, the
discrimination is one which the state could not avoid. It is said
that it was so decided in Des Moines Bank v. Fairweather,
263 U. S. 103
this view of that decision is entirely erroneous. The statutes of
Iowa there under review expressly provide that shares
Page 276 U. S. 504
of stock in national banks and state and savings banks and loan
and trust companies located in the state shall be assessed to the
individual stockholders, and shares of national banks and those of
competing state corporations are put, for purposes of taxation,
upon terms of exact equality. The provision of the Iowa statute
which was assailed related to the assessment of capital employed by
individual bankers (p. 105), and this Court held that the
restriction of § 5219 was not violated because the state, perforce,
allowed a deduction of federal securities in assessing the capital
of such individual bankers; that the federal law made such
securities exempt and the state merely respected the exemption. P.
117. The decision in no way affects the rule (Van Allen v.
and other cases, supra
) that, in respect of
the taxation of state corporate banks, the shares must be taxed as
they are in the case of national banks, so far as necessary to
prevent discrimination, and that in neither case does the exemption
of federal securities apply in the taxation of such shares.
It is true that the state supreme court in the present case
expressly repudiated the construction theretofore put by it upon
the state statutes in the Rogers
and, as already stated, adopted one to the exact contrary. But that
does not cure the mischief which had been done under the earlier
construction. That construction had already been acted upon by the
taxing officials, and the application thus made of the statutes had
given rise to the present cause of action and an undoubted right to
recover thereon. The statutes, as thus construed and applied to the
concrete facts of the case, were invalid, and this is enough to
justify the challenge here under consideration. Cudahy Co. v.
Parramore, 263 U. S. 418
263 U. S. 422
Ward & Gow v. Krinsky, 259 U.
, 259 U. S. 510
Plaintiff in error cannot be deprived of its legal right to recover
the amount of the tax unlawfully exacted of it
Page 276 U. S. 505
by the later decision which, while repudiating the construction
under which the unlawful exaction was made, leaves the monies thus
exacted in the public treasury.
But it is said that the taxing officers of the county, in view
of the later decision, now have the power to tax the shares of
state banks, and thus bring about an equality. As to this it is
unnecessary to say more than that it nowhere appears that these
officers, if they possess the power, have undertaken to exercise
it, or that they have any intention of ever doing so. It will be
soon enough to invite consideration of this purely speculative
suggestion when, if ever, the taxing officials shall have put it
into practical effect.
Finally, it is urged that plaintiff in error may not maintain
this action because of its failure to apply to the county board of
equalization for an administrative remedy. We do not stop to
inquire whether under any circumstances such remedy was open to the
taxpayer, for the short answer is that the decision of the Supreme
Court of Montana in the Rogers
case would have rendered
any such application utterly futile, since the county board of
equalization was powerless to grant any appropriate relief in the
face of that conclusive decision. See Hills v. Exchange
Bank, 105 U. S. 319
105 U. S. 321
Whitbeck v. Mercantile Bank, 127 U.
, 127 U. S. 199
Compare First Natl. Bank. v. Weld County, 264 U.
, 264 U. S.