1. Discrimination in state
ad valorem taxation between
corporation receiving deposits and doing a commercial banking
business and their corporate and individual competitors in the
business of lending money, by taxing the shares of the former and
taxing the latter on a more favorable basis, or exempting them,
held consistent with the equal protection clause of the
Fourteenth Amendment. P.
288 U. S.
185.
Page 288 U. S. 182
2. Within the intendment of the Fourteenth Amendment, shares of
national banks and shares of state banks are not essentially the
same when considered from the standpoint of taxation; nor do they
become so merely because the state has attempted to subject them to
like treatment. P.
288 U. S.
186.
3. Where a state's scheme of taxation includes taxes on shares
of state and national banks and less onerous burdens on other
competing moneyed capital, so that the tax as to national banks is
invalid and not enforced, the resulting discrimination against the
state bank does not violate the equal protection clause of the
Fourteenth Amendment. P.
288 U. S.
187.
4. The implied exemption from state taxation of federal
instrumentalities, such as national bank, is not a source of
congressional power to control state action in other matters. P.
288 U. S. 188.
25 Ala. 238, 142 So. 552, affirmed.
Certiorari, 287 U.S. 588, to review the reversal of a judgment
allowing recovery of money from a state tax collector.
Page 288 U. S. 184
MR. JUSTICE McREYNOLDS, delivered the opinion of the Court.
Union Bank & Trust Company, the petitioner, organized under
the laws of Alabama and located in Montgomery County, receives
deposits and carries on a general commercial and savings bank
business. It sued respondent in a state court to recover $2,521.69,
alleged to have been illegally exacted as taxes assessed for the
year ending September 30, 1931. The assessment followed § 6,
Revenue Act of Alabama, 1923 (General Acts, 1923, p. 152), which
directs:
"Every share of any incorporated bank or banking association
incorporated under the laws of this state, or any other state, or
of the United States, shall be assessed for taxation in the county
and in the city or town where such bank is located at sixty percent
of its fair and reasonable market value."
During 1930, 1931, and 1932, there were building and loan
associations, industrial loan companies and corporations, and
industrial banks in Montgomery County which loaned money in
substantial competition with petitioner to the extent of hundreds
of thousands of dollars, the shares and the capital of which were
exempted from
ad valorem taxes. Also, there were mortgage
companies and corporations, and individuals, persons, firms, and
associations engaged in like business and employing moneyed capital
to the extent of many thousands of dollars in substantial
competition with petitioner which were either untaxed or definitely
exempted.
The federal court had ruled that shares of national banks in
Alabama could not be subjected to taxation under § 6, Act of 1923,
since the tax was not laid in conformity with § 5219,
U.S.Rev.Stats., as amended by the Acts of March 4, 1923, c. 267, 42
Stat. 1499, and March 25, 1926, c. 88, 44 Stat. 223, which only
permits taxation of shares of national banking associations at a
rate no
Page 288 U. S. 185
greater than the one required of other moneyed capital in the
hands of individual citizens coming into competition with the
business of such associations. The state officers had accepted
these decisions as correct declarations of the law.
Petitioner based its claim to recover upon the theory that the
tax assessed against its shares had been exacted in violation of
the equal protection clause of the Fourteenth Amendment; also in
violation of §§ 211 and 217, Constitution of Alabama, which provide
that all taxes shall be assessed in exact proportion to value, and
the property of private corporations, associations, and individuals
shall be taxed at the same rate.
The trial court gave judgment for petitioner. The supreme court
reversed this action and denied any recovery, holding that the
legislature had not exceeded its powers in making classifications
and exemptions, and specifically that there was no violation of the
Federal Constitution.
Only the federal question is before us. Was the petitioner
denied equal protection of the laws?
Because of existence within the state of untaxed moneyed capital
and shares of corporations in actual competition with national
banks, the shares of the latter during the years in question were
not subject to
ad valorem taxation under § 6, Revenue Act
of Alabama of 1923, or otherwise. And the state supreme court so
held.
We cannot say that the state legislature exceeded its power to
make reasonable classification when it directed that moneyed
capital or the property and shares of building and loan
associations, industrial loan corporations, industrial banks,
mortgage companies, etc., should be exempt from
ad valorem
taxation or taxed on a different basis from the one prescribed for
banks accepting deposits and doing a general commercial business,
notwithstanding actual competition between them.
Page 288 U. S. 186
Mere competition between them is not enough to show two concerns
must be burdened alike. The state legislature reasonably might have
determined that there was fair ground for distinction, and, upon
the record, we may not hold that its action was arbitrary,
capricious, or wholly unreasonable.
There was sharp disagreement in the court below, but none of the
judges suggested disapproval of the view just stated. The minority
did not discuss the federal question, but found violation of the
uniformity clause of the state Constitution.
The doctrine applicable here was recently expounded in
Ohio
Oil Co. v. Conway, 281 U. S. 146,
281 U. S. 159,
and need not be restated.
Counsel for petitioner stoutly maintain shares of state and
national banks belong to the same species of property. Not only are
they essentially similar, but, for many years, the revenue statutes
of Alabama have put them in the same category. Under the scheme of
taxation presently existing in the state, national bank shares
escape assessment, while shares of state banks are subject thereto.
Consequently, the latter are deprived of the equal protection of
the laws guaranteed by the Fourteenth Amendment.
A sufficient answer is that, within the intendment of the
Fourteenth Amendment, shares of national and state banks are not
essentially the same when considered in connection with taxation.
Nor do they become so merely because the state has attempted to
subject them to like treatment.
The several states lack power to tax national bank shares,
except as expressly permitted by Congress.
Owensboro National
Bank v. Owensboro, 173 U. S. 664,
173 U. S. 668;
Des Moines National Bank v. Fairweather, 263 U.
S. 103,
263 U. S. 106;
First National Bank v. Anderson, 269 U.
S. 341,
269 U. S. 347.
This is enough to negative the idea that shares of
Page 288 U. S. 187
national and state banks are essentially the same for purposes
of taxation. And the Alabama Supreme Court has held that, under her
Constitution, although the legislature may have included them in
the same class of taxable objects, there is permissible distinction
between them.
To accept the doctrine that, as the states can only tax a
federal instrumentality when permitted by Congress, therefore they
cannot tax competitors of such instrumentalities within their
general jurisdiction in some other fashion without violating the
Fourteenth Amendment, would be both illogical and destructive of
their proper independence.
Such instrumentalities are exempted from state taxation without
the express consent of Congress, by the Federal Constitution. They
are of a class wholly distinct from the property of ordinary
corporations or individuals, and this fact cannot be disregarded by
the state. If the state sees fit to tax unrestricted property
within her jurisdiction, and to omit national bank shares, the
classification cannot be said to be arbitrary and wholly
unreasonable; the basis of it is plain enough. It may be vastly
more important for the state to omit national bank shares and tax
ordinary moneyed capital according to a plan not permissible in
respect of national bank shares, rather than conform to the
standard prescribed by Congress. There is nothing to indicate that
Congress ever supposed that mere establishment of a national bank
within a state could upset the scheme for taxation, theretofore
entirely proper, by producing conflict with the Fourteenth
Amendment. This view would subject the taxing power of the state to
the will of Congress far beyond what is necessary for the
protection of federal agencies. The constitutional inhibition
against taxing these agencies does not abridge the taxing power of
the several states in respect of other property. The implied
exemption is a shield for federal
Page 288 U. S. 188
agencies -- not the source of congressional power to control
state action in respect of other matters.
Iowa-Des Moines National Bank v. Bennett, 284 U.
S. 239, much relied upon by petitioner, is not
controlling; the circumstances and issues there involved were
wholly different from those here presented. The Iowa Supreme Court
found, or assumed, and this was accepted here, that, through the
wrongful action of state taxing officials, the complaining banks
had been subjected to intentional, arbitrary, and systematic
discrimination through assessments greatly in excess of those
imposed upon competing moneyed capital, and the unequal exactions
complained of were in violation of the Iowa laws. The points for
decision in this Court concerned the effect of unauthorized action
by state officers (could such action be attributed to the state?),
and the proper remedy. Unlawful inequality of treatment as between
the banks and competing capital was not controverted. There was no
occasion to consider whether failure by a state to tax national
banks while subjecting her own banks to taxation would occasion
discrimination against the latter forbidden by the Fourteenth
Amendment.
The judgment of the court below is
Affirmed.