1. The Act of June 3, 1864, "To provide a national currency,"
&c., rightly construed, subjects the shares of the banking
associations authorized by it, and in the hands of shareholders, to
taxation by the states under certain limitations (set forth in its
41st section), without regard to the fact that a part or the whole
of the capital of such association is invested in national
securities declared by the statutes authorizing them to be "exempt
from taxation by or under state authority."
2. The act thus construed is constitutional.
3. The Act of 9th March, 1865, of the Legislature of New York,
sometimes called the Enabling Act, and which enacts that shares in
any of these national banking associations held by any person or
body corporate shall be
"included in the valuation of the personal property of such
person or body corporate, in the assessment of taxes in the town or
ward where such banking association is located and not
elsewhere,"
&c., but which did not provide that the tax imposed should
not exceed the rate imposed upon the shares of any of the banks
organized under the authority of the state, is not warranted by the
act of Congress and is void, there having been under the
legislation of the state no tax laid on shares in state banks at
all, though there was a tax on the capital of such banks.
This was a suit involving the question of right, on the part of
states, to tax shares in the national banking associations
Page 70 U. S. 574
created under the Act of Congress of June, 1864. The case was
thus:
By an Act passed February 25, 1863, Congress provided for the
organization of national banking associations, [
Footnote 1] and the act was amended and reenacted
on the 3d June, 1864. [
Footnote
2]
By these laws, the mode of organizing these associations was
prescribed, their powers defined, and their duties enjoined. The
Secretary of the Treasury was authorized to employ them as
depositories of the public moneys, and as financial agents of the
government, taking, however, sufficient security for the faithful
performance of those duties. The general supervision of their
action was committed to a comptroller of the currency, to be
appointed by the President on the nomination of the secretary. No
association could be organized with a less capital than fifty
thousand dollars or less than one hundred thousand dollars in any
place with more than six thousand inhabitants, or less than two
hundred thousand dollars in any place with more than fifty thousand
inhabitants. The whole capital was required to be paid in within
five months; fifty percentum at the commencement and ten percentum
every month thereafter. Of this capital, at least one-third was
required to be invested in interest bearing bonds of the United
States, which were to be deposited with the Treasurer of the United
States. Provision was also made for the preparation of circulating
notes of different denominations, of uniform general appearance,
and for the delivery to each association of an amount of these
notes equal to ninety percentum of the amount of bonds deposited
with the treasurer. These notes were made payable by the
associations to whom they were delivered, and they were required to
pay them on demand. To secure more certainly prompt redemption by
the several associations of these notes and of deposits, each
association was required to keep always on hand an amount of lawful
money equal, in certain cities named, to twenty-five percentum, and
in other places to fifteen percentum of its outstanding
Page 70 U. S. 575
circulation and its deposits, and to accumulate a surplus fund
equal to twenty percentum of its capital. In case of default in
payment by any association, the notes were to be paid by the United
States, and the bonds deposited were to be either cancelled or
sold, at the option of the government. The entire amount of note
circulation was limited to three hundred millions of dollars, to be
apportioned among the associations in the different states and
territories partly according to the rule of representative
population and partly according to their existing banking capital,
resources, and business. The notes were made receivable by all the
associations for all debts and liabilities whatever, receivable by
all associations employed as depositories, when deposited by the
United States, receivable also by the United States for all dues
except duties on imports, and by all persons for all dues from the
United States, except interest on public debt.
Such are the distinguishing features of the National Banking or
National Currency Act. The general objects of the act are apparent
from them.
These associations possess under the act all the powers
necessary for carrying on the business of banking by discounting
and negotiating promissory notes, drafts, bills of exchange, and
other evidences of debt, by receiving deposits, buying and selling
exchange, coin, and bullion, by lending money on personal security,
by obtaining, issuing, and circulating notes according to the
provisions of this act &c. The duration of the charter is
twenty years.
Certain provisions, particularly ascertaining the duties and
functions of these national banking associations, may thus be
stated:
The persons forming an association are required to make a
certificate, which shall specify, among other things, the amount of
its capital stock, and the number of shares into which the same
shall be divided, the names and places of residence of the
shareholders, and the number of shares held by each. [
Footnote 3] The capital stock is to be
divided into shares
Page 70 U. S. 576
of $100 each, and is to be deemed personal property. The
shareholders of the association are to be held individually
responsible, equally and ratably and not one for another, for all
contracts, debts, and engagements of such association to the extent
of the amount of their stock therein at the par value, in addition
to the amount invested in such shares. [
Footnote 4] In the election of directors and in deciding
all questions at meetings of shareholders, each shareholder shall
be entitled to one vote on each share of stock held by him.
[
Footnote 5] Fifty percent of
the capital stock of every association must be paid in before it
shall commence business, and the remainder in installments of at
least ten percent per month till the whole amount is paid, and if
any shareholder or his assignee shall fail to make the payment or
any installment on his stock, the directors may sell the stock at
public auction. [
Footnote 6] No
association can make any loan or discount on the security of the
shares of its own capital. [
Footnote 7]
By the 40th section of the act of 1864, it is enacted, the act
of 1863 containing no such provision:
"That the president and cashier of every such association shall
cause to be kept at all times a full and correct list of the names
and residences of all the shareholders in the association, and the
number of shares held by each, in the office where its business is
transacted, and such list shall be subject to the inspection of all
shareholders and creditors of the association,
and the officers
authorized to assess taxes under state authority, during
business hours of each day,"
&c.
The 41st section of the same act of 1864
provides by one
part of it for taxation by the United States. It imposes a tax
of one percent annually on circulation -- one-half of one percent
on deposits and then one-half of one percent on the capital
beyond the amount invested in United States bonds, and
after prescribing how the duty is to be collected, and the penalty
for default &c., the section proceeds:
"(1)
Provided that nothing in this act shall be
construed to
Page 70 U. S. 577
prevent all the shares in any of said associations held by any
person or body corporate from being
included in the valuation
of the personal property of such person or corporation in the
assessment of taxes imposed by or under state authority at the
place where such bank is located, and not elsewhere, but not
at a greater rate than is assessed upon other moneyed capital in
the hands of individual citizens of such state. (2)
Provided
further that the tax so imposed under the laws of any state
upon the shares of any of the associations authorized by this act
shall not exceed the rate imposed upon the shares in any of the
banks organized under authority of the state where such association
is located. (3)
Provided also that nothing in this
act shall exempt the real estate of associations from either state,
county, or municipal taxes to the same extent, according to its
value, as other real estate is taxed."
With this statute of the federal government authorizing banking
associations in force, the Legislature of New York, on the 9th
March, 1865, passed "an act enabling the banks of this state to
become associations for the purposes of banking under the laws of
the United States." [
Footnote
8] The act, frequently called "The Enabling Act," imposed a tax
upon all shares in national banks in the hands of their holders.
The section laying the tax ran thus:
"§ 10. All the
shares in any of the said banking
associations organized under . . . the act of Congress held by any
person or body corporate shall be included in the valuation of the
personal property of such person or body corporate or corporation
in the assessment of taxes in the town or ward where such banking
association is located, and not elsewhere, whether the holder
thereof reside in such town or ward or not, but not at a greater
rate than is assessed upon other moneyed capital in the hands of
individuals of this state, provided that the tax so imposed upon
such shares shall not exceed the par value thereof, and provided
further that the real estate of such associations shall be subject
to state, county, or municipal taxes to the same extent, according
to the value, as other real estate is taxed."
This act, it will be noted,
laid no rate or tax whatever
"upon
Page 70 U. S. 578
the shares in any of the banks organized under the
authority of
the state," as seems to have been
contemplated as necessary by the second proviso of the 41st section
of the National Banking Act of 1864, and indeed, under the
legislation of New York, as it appeared, no rate or tax whatever
was laid upon shares in state banks at all, though there was one
laid on their capital.
However, assuming the validity of this state law whether with or
without this proviso, the Board of Assessors at the City of Albany
assessed one Van Allen for fifty shares owned by him of the capital
stock of the First national Bank of that city, and assessed all the
other shareholders in like manner for theirs.
At the time of
the assessment, the whole capital of the bank was invested in
various obligations of the federal government, in regard to all of
which Congress had enacted that, "whether held by individuals,
corporations, or associations," they should be "exempt from
taxation by or under state authority."
Van Allen and the other stockholders insisted before the board
that the shares of the bank held by them as stockholders were not
subject to assessment and taxation under state authority; that the
enabling act of the New York Legislature of 9 March, 1865, was
repugnant to the Constitution of the United States and also to the
laws of the United States. These positions the board denied, and it
enforced the tax which had been assessed. On a case stated by the
stockholders on the one side and the Board of Assessors on the
other, the question was now taken to the supreme court of the
state, and thence to the Court of Appeals. This latter court -- the
highest court of law or equity of the state -- having affirmed the
authority of the Board of Assessors to lay the tax, the case came
here on error. [
Footnote 9]
Other cases like it, and represented by counsel, were also here
from different places in New York. The magnitude
Page 70 U. S. 579
of the interests concerned will be readily conceived from the
fact mentioned at the bar that, in December, 1865, the amount of
stock in these national Banks, at its par value -- and the amount,
therefore, either subject or not subject, according as this case
should be decided, to taxation by the states -- was:
In the State of New York . . . $115,217,941.00
In the Union . . . . . . . . . 404,159,493.00
That the reader may be possessed not only of the essential case,
but of some of its important incidents, it may be well to mention
that, prior to the enactment of either of the national banking
laws, and while its state bank system was in operation, the
Legislature of New York (A.D. 1857) had enacted that the capital
stock of the banks of the state should be "assessed at its actual
value, and taxed in the same manner as other personal and real
estate of the country." With the state system and the enactment
just mentioned in force, several of the banks of New York became,
soon after the rebellion broke out, owners of large amounts of the
bonds of the United States, and in regard to which, as already
said, Congress had, in the statute authorizing them, enacted
[
Footnote 10] that, "whether
held by individuals or corporations, they shall be exempt from
taxation by or under state authority." On a question between those
banks as formed under the general state system in New York and the
tax commissioners of the state, this Court decided, in March, 1863,
in the
Bank of Commerce v. New York City, [
Footnote 11] that the tax referred to was a
tax upon the stock, and that being so, it was by the settled law of
this Court -- as declared in
Weston v. City of Charleston,
[
Footnote 12]
McCulloch
v. state of Maryland, [
Footnote 13]
Osborne v. Bank of the United
States [
Footnote 14]
(well known decisions of this Court, and in which Marshall, C.J.,
had given its judgment), and other cases, illegally imposed.
In April, 1863, just after this decision, the Legislature of New
York passed another statute [
Footnote 15] which enacted that
"all
Page 70 U. S. 580
banks &c., should be liable to taxation on a
valuation
equal to the amount of their capital stock paid in, or secured to
be paid in &c., in the manner now provided by law,"
&c. On a tax laid under this act by the commissioners upon
the different banks of New York City, some of which had invested
their whole capital in the securities of the federal government,
and others of which had largely done so, the question was whether
this second act did or did not also impose a tax upon the
stock. This Court, on appeal from the highest court of the
state, decided in the beginning of 1865, in what is known as the
Bank Tax Case, [
Footnote 16] that it did. It was within a few days after
that decision that the enactment on which the present case arose --
a third enactment in the principal matter -- was made. Its language
was obviously directed to avoid some difficulties which had proved
insurmountable in the
Bank Tax Case and in cases before
it. Whether it did really avoid them, or whether the new
legislation of the state had the fault of exalting the forms and
phrases of legislation above its substance and effect, was in fact
one great question in the case, others being (i) whether Congress
had meant, by the first proviso to the 41st section of the act of
1864, to authorize states to lay a tax on shares in national banks
whose whole capital consisted of national securities, declared in
the laws authorizing them to be exempt from taxation by states, and
(ii) whether, if it did, such an act would or would not be open to
the objection of being an attempt by Congress to deliver over to
others, powers vested by the federal Constitution in it alone, and
be therefore an act unconstitutional.
A minor question -- treated preliminarily -- was whether,
admitting the power of the state under the provisos of the 41st
section of the act of Congress to tax the shares by an enactment
framed with the limitations prescribed by the three provisos in it,
this particular act of the State of New York, passed March 9, 1865,
which apparently omitted the second one, was an enactment of the
kind required.
Page 70 U. S. 581
MR. JUSTICE NELSON delivered the opinion of the Court.
The decree of the Court of Appeals, from which this case comes
to us, must be reversed on the ground that the enabling act of the
State of New York, passed March 9, 1865, does not conform to the
limitations prescribed by the forty-first section of the Act of
Congress passed June 3, 1864, organizing the national banks and
providing for their taxation. The defect is this: one of the
limitations in the act of Congress is
"That the tax so imposed under the laws of any state upon the
shares of the associations authorized by this act shall not exceed
the rate imposed upon the shares of any of the banks organized
under the authority of the state where such association is
located."
The enabling act of the state contains no such limitation. The
banks of the state are taxed upon their capital, and although the
act provides that the tax on the shares of the national banks shall
not exceed the par value, yet inasmuch as the capital of the state
banks may consist of the bonds of the United States, which are
exempt from state taxation, it is easy to see that this tax on the
capital is not an equivalent for a tax on the shares of the
stockholders.
This is an unimportant question, however, as the defect may be
readily remedied by the state legislature.
The main and important question involved, and the one
Page 70 U. S. 582
which has been argued at great length and with eminent ability,
is whether the state possesses the power to authorize the taxation
of the shares of these national banks in the hands of stockholders
whose capital is wholly vested in stock and bonds of the United
States?
The Court are of opinion that this power is possessed by the
state, and that it is due to the several cases which have been so
fully and satisfactorily argued before us at this term, as well as
to the public interest involved, that the question should be
finally disposed of. I shall proceed, therefore, to state as
briefly as practicable the grounds and reasons that have led to
their judgment in the case.
The first act providing for the organization of these national
banks, passed 25th February, 1863, contained no provision
concerning state taxation of these shares, but Congress reserved
the right by the last section at any time "to amend, alter, or
repeal the act." The present act of 1864 is a reenactment of the
prior statute with some material amendments, of which the section
concerning state taxation is one.
It will be readily perceived on adverting to the act that the
powers and privileges conferred by it upon these associations are
very great powers and privileges -- founded upon a new use and
application of these government bonds, especially the privilege of
issuing notes to circulate in the community as money, to the amount
of ninety percentum of the bonds deposited with the treasurer,
thereby nearly doubling their amount for all the operations and
business purposes of the bank. This currency furnishes means and
facilities for conducting the operations of the associations,
which, if used wisely and skillfully, cannot but result in great
advantages and profits to all the members of the association -- the
shareholders of the bank.
In the granting of chartered rights and privileges by
government, especially if of great value to the corporators,
certain burdens are usually, if not generally, imposed as
conditions of the grant. Accordingly we find them in this charter.
They are very few, but distinctly stated.
Page 70 U. S. 583
They are first a duty of one-half of one percentum each half
year upon the average amount of its notes in circulation; second, a
duty of one-quarter of one percentum each half year upon the
average amount of its deposits; third, a duty of one-quarter of one
percentum each half year on the average amount of its capital stock
beyond the amount invested in United States bonds; and fourth, a
state tax upon the shares of the association held by the
stockholders, not greater than assessed on other moneyed capital in
the state, nor to exceed the rate on shares of stock of state
banks.
These are the only burdens annexed to the enjoyment of the great
chartered rights and privileges that we find in this act of
Congress, and no objection is made to either of them except the
last -- the limited state taxation.
Although it has been suggested, yet it can hardly be said to
have been argued, that the provision in the act of Congress
concerning the taxation of the shares by the state is
unconstitutional. The suggestion is that it is a tax by the state
upon the bonds of the government which constitute the capital of
the bank, and which this Court has heretofore decided to be
illegal. But this suggestion is scarcely well founded, for were we
to admit for the sake of the argument this to be a tax of the bonds
or capital stock of the bank, it is but a tax upon the new uses and
new privileges conferred by the charter of the association; it is
but a condition annexed to the enjoyment of this new use and new
application of the bonds, and if Congress possessed the power to
grant these new rights and new privileges, which none of the
learned counsel has denied and which the whole argument assumes,
then we do not see but the power to annex the conditions is equally
clear and indisputable. The question involved is altogether a
different one from that decided in the previous bank cases, and
stands upon different considerations. The state tax, under this act
of Congress, involves no question as to the pledged faith of the
government. The tax is the condition for the new rights and
privileges conferred upon these associations.
But in addition to this view, the tax on the shares is not
Page 70 U. S. 584
a tax on the capital of the bank. The corporation is the legal
owner of all the property of the bank, real and personal, and
within the powers conferred upon it by the charter and for the
purposes for which it was created, can deal with the corporate
property as absolutely as a private individual can deal with his
own. This is familiar law, and will be found in every work that may
be opened on the subject of corporations. A striking
exemplification may be seen in the case of the
Queen v.
Arnoud. [
Footnote 17]
The question related to the registry of a ship owned by a
corporation. Lord Denman observed:
"It appears to me that the British corporation is, as such, the
sole owner of the ship. The individual members of the corporation
are no doubt interested in one sense in the property of the
corporation, as they may derive individual benefits from its
increase, or loss from its decrease, but in no legal sense are the
individual members the owners."
The interest of the shareholder entitles him to participate in
the net profits earned by the bank in the employment of its
capital, during the existence of its charter, in proportion to the
number of his shares, and upon its dissolution or termination, to
his proportion of the property that may remain of the corporation
after the payment of its debts. This is a distinct independent
interest or property held by the shareholder like any other
property that may belong to him. Now it is this interest which the
act of Congress has left subject to taxation by the states, under
the limitations prescribed, as will be seen on referring to it.
That act provides as follows:
"That nothing in this act shall be construed to prevent all the
shares of any of the said associations, held by any person or body
corporate, from being included in the valuation of personal
property of such person or corporation in the assessment of taxes
imposed by and under state authority at the place where such bank
is located, and not elsewhere, but not
at a greater rate than
is assessed upon other moneyed capital in the hands
Page 70 U. S. 585
of individual citizens of such state, PROVIDED further that
the tax so imposed under the laws of any state upon the shares of
the associations authorized by this act shall not exceed the rate
imposed upon the shares of any of the banks organized under the
authority of the state where such association is located; PROVIDED
also that nothing in this act shall exempt the real estate of
associations from either state, county, or municipal taxes, to the
same extent, according to its value, as other real estate is taxed.
[
Footnote 18]"
It is said that Congress possesses no power to confer upon a
state authority to be exercised which has been exclusively
delegated to that body by the Constitution, and consequently that
it cannot confer upon a state the sovereign right of taxation; nor
is a state competent to receive a grant of any such power from
Congress. We agree to this. But as it respects a subject matter
over which Congress and the states may exercise a concurrent power,
but from the exercise of which Congress, by reason of its paramount
authority, may exclude the states, there is no doubt Congress may
withhold the exercise of that authority and leave the states free
to act. An example of this relation existing between the federal
and state governments is found in the pilot laws of the states, and
the health and quarantine laws. The power of taxation under the
Constitution as a general rule, and as has been repeatedly
recognized in adjudged cases in this Court, is a concurrent power.
The qualifications of the rule are the exclusion of the states from
the taxation of the means and instruments employed in the exercise
of the functions of the federal government.
The remaining question is has Congress legislated in respect to
these associations, so as to leave the shares of the stockholders
subject to state taxation?
We have already referred to the main provision of the act of
Congress on this subject, and it will be seen it declares
"That nothing in this act shall be construed to prevent
all
the shares in any of the said associations held by any person
or body corporate from being included in the valuation of
Page 70 U. S. 586
the personal property of such person or corporation in the
assessment of taxes imposed by or under state authority at the
place where such bank is located,"
and in another section of the act [
Footnote 19] it is declared
"That the president and cashier of every such association shall
cause to be kept, at all times, a full and correct list of the
names and residences of all the shareholders in the association,
and the number of shares held by each, in the office where its
business is transacted, and such list shall be subject to the
inspection of all shareholders and creditors of the association,
and the officers authorized to assess taxes under state
authority, during business hours of each day,"
&c.
These two provisions -- the one declaring that nothing in the
act shall be construed to prevent the shares from being included in
the valuation of the personal property &c., in the assessment
of taxes imposed by state authority and the other providing for the
keeping of the list of the names and residences of the
shareholders, among other things, for the inspection of the
officers authorized to assess the state taxes -- not only recognize
in express terms the sovereign right of the state to tax, but
prescribe regulations and duties to these associations with a view
to disembarrass the officers of the state engaged in the exercise
of this right. Nothing, it would seem, could be made plainer or
more direct and comprehensive on the subject. The language of the
several provisions is so explicit and positive as scarcely to call
for judicial construction.
Then, as to the shares, and what is intended by the use of the
term? The language of the act is equally explicit and decisive.
The persons forming an association are required to make a
certificate, which shall specify, among other things, the amount of
its capital stock and the number of shares into which the same
shall be divided, the names and places of residence of the
shareholders, and the number of shares held by each. [
Footnote 20] The capital stock shall
be divided into shares of
Page 70 U. S. 587
one hundred dollars each, and shall be deemed personal property.
The shareholders of the association shall be held individually
responsible, equally and ratably, and not one for another, for all
contracts, debts, and engagements of such association to the extent
of the amount of their stock therein at the par value, in addition
to the amount invested in such shares. [
Footnote 21] In the election of directors, and in
deciding all questions at meetings of shareholders, each
shareholder shall be entitled to one vote on each share of stock
held by him. [
Footnote 22]
Fifty percentum of the capital stock of every association shall be
paid in before it shall commence business, and the remainder in
installments of at least ten percentum per month till the whole
amount is paid, and if any shareholder or his assignee shall fail
to make the payment, or any installment on his stock, the directors
may sell the stock at public auction. [
Footnote 23] No association shall make any loan or
discount on the security of the shares of its own capital.
[
Footnote 24]
We have already referred to the list of the names and residences
of the shareholders and the number of shares to be kept for the
inspection of the state assessors.
Now in view of these several provisions in which the terms
"shares" and "shareholders" are mentioned, and the clear and
obvious meaning of the terms in the connection in which they are
found -- namely, the whole of the interest in the shares and of the
shareholders -- when the statute provides that nothing in this act
shall be construed to prevent
all the shares in any of the
said association &c. from being included in the valuation of
the personal property of any person or corporation in the
assessment of taxes imposed by state authority &c., can there
be a doubt but that the term "shares," as used in this connection,
means the same interest as when used in the other portions of the
act? Take for examples the use of the term in the certificate of
the numbers of shares in the articles of association, in the
division of the capital stock into shares of one hundred dollars
each; in the personal liability clause, which subjects the
shareholder to an
Page 70 U. S. 588
amount, and, in addition, to the amount invested in such shares;
in the election of directors, and in deciding all questions at
meetings of the stockholders, each share is entitled to one vote,
in regulations of the payments of the shares subscribed, and
finally in the list of shares kept for the inspection of the state
assessors. In all these instances it is manifest that the term as
used means the entire interest of the shareholder, and it would be
singular if in the use of the term in the connection of state
taxation, Congress intended a totally different meaning, without
any indication of such intent.
This is an answer to the argument that the term, as used here,
means only the interest of the shareholder as representing the
portion of the capital, if any, not invested in the bonds of the
government, and that the state assessors must institute an inquiry
into the investment of the capital of the bank, and ascertain what
portion is invested in these bonds, and make a discrimination in
the assessment of the shares. If Congress had intended any such
discrimination, it would have been an easy matter to have said so.
Certainly so grave and important a change in the use of this term,
if so intended, would not have been left to judicial
construction.
Upon the whole, after the maturest consideration which we have
been able to give to this case, we are satisfied that the states
possess the power to tax the whole of the interest of the
shareholder in the shares held by him in these associations, within
the limit prescribed by the act authorizing their organization. But
for the reasons stated in the forepart of the opinion, the judgment
must be reversed and the case remitted to the Court of Appeals of
the State of New York with directions to enter judgment for the
plaintiffs in error, with costs.
[
Footnote 1]
12 Stat. at Large 668.
[
Footnote 2]
13
id. 99.
[
Footnote 3]
§ 6.
[
Footnote 4]
§ 12.
[
Footnote 5]
§ 11.
[
Footnote 6]
§§ 14, 15.
[
Footnote 7]
§ 35.
[
Footnote 8]
Session Acts of 1865; chap. 97.
[
Footnote 9]
Of course, under the 25th section of the Judiciary Act, with
whose provisions the reader is familiar.
See supra, p.
70 U. S. 57,
The Binghamton Bridge.
[
Footnote 10]
Act of February 25, 1862.
[
Footnote 11]
67 U. S. 2 Black
620.
[
Footnote 12]
27 U. S. 2 Pet.
449.
[
Footnote 13]
17 U. S. 4 Wheat.
316.
[
Footnote 14]
22 U. S. 9 Wheat.
738.
[
Footnote 15]
Act of 29 April, 1863.
[
Footnote 16]
69 U. S. 2 Wall.
200.
[
Footnote 17]
9 Adolphus & Ellis New Series, 806.
[
Footnote 18]
§ 41.
[
Footnote 19]
§ 40
[
Footnote 20]
§ 6.
[
Footnote 21]
§ 12.
[
Footnote 22]
§ 11.
[
Footnote 23]
§§ 14, 15.
[
Footnote 24]
§ 35.
THE CHIEF JUSTICE delivered the following opinion in his own
behalf and in behalf of ASSOCIATE JUSTICES WAYNE and SWAYNE:
The Court is unanimous in the opinion that the judgment of the
Court of Appeals of New York must be reversed, because
Page 70 U. S. 589
the shares of the national banking associations are not taxed by
the law of New York according to one branch of the rule prescribed
by the act of Congress -- that is to say, as the shares of the
banks of the state are taxed.
A minority of the members of the Court, however, is unable to
concur upon one very important point, with the opinion just
read.
That opinion maintains the proposition that under the national
currency acts, the shares of the capital of national banking
associations are subject to state taxation without any reference to
the amount of such capital invested in bonds of the United
States.
We think that such taxation is actual, though indirect, taxation
of the bonds; that it is matter of doubt whether, under the
Constitution, Congress has power, without express reservation in
the loan acts, to authorize such taxation; and that taxation by the
states of the shares of national banking associations, without
reference to the amount of the capital invested in national
securities, is not authorized, nor was intended to be authorized by
Congress.
We will proceed to state the grounds of this opinion.
By an Act passed February 25, 1863, Congress provided for the
organization of national banking associations for the purpose of
enabling the national government to execute more effectually its
constitutional powers and functions, and the act was amended and
reenacted on the 3d June, 1864.
It is unnecessary to examine minutely the various provisions by
which the powers and duties and functions of these national banking
associations are particularly ascertained and regulated. The
general purpose of the act of Congress cannot be misconceived. It
is to authorize the organization of associations to be employed,
not only in the service of the government as depositories and
financial agents, but especially in facilitating the collection of
internal duties and the transfer and disbursement of public moneys,
and in furnishing to the people a safe and uniform note
circulation, convertible immediately into notes of the United
States, and to be made convertible into coin as soon as the
Page 70 U. S. 590
government shall provide for the payment of its own notes in
that medium.
The qualities, powers, and duties as national agencies of these
associations resemble in almost all essential particulars those of
the Bank of the United States authorized by the Act of April 10,
1816. Like that bank, they are organized under national
legislation. Their capital, like four-fifths of the capital of that
bank, is supplied by individual subscriptions. They are employed,
like that bank, as agents and depositories of the national
government.
While that bank, however, was organized as one great moneyed
corporation, with power to establish branches in the several states
subject to its central power, these associations, under the
limitations prescribed by Congress, are formed whenever and
wherever citizens possessing the necessary means see fit to
organize under the law, and they are subject to no control except
that of the government executing the law. It is also to be
remembered that while the notes of that bank represented nothing
but securities held by the bank itself, and were expected to form
but a small part of the note circulation of the country, the notes
of these associations, besides being secured as to immediate
redemption by the several associations which pay them out, through
the deposit of United States bonds, are in substance and to all
practical intents the obligations of the government itself, and are
intended, in connection with the notes issued directly by the
government, to supply the entire note circulation of all the states
and all the territories of the Union.
These observations show that the national banking associations
are much more intimately connected in their functions and
operations with the national government than was the Bank of the
United States. They are therefore entitled to all the protection
and all the immunities to which that bank was entitled.
The relations of that bank to the government, and its right to
protection from state interference and control, were fully
considered in the case of
McCulloch v. State of
Maryland,
Page 70 U. S. 591
decided in 1819, and again in the case of
Osborne v. Bank of
the United States, decided in 1824.
That Congress may constitutionally organize or constitute
agencies for carrying into effect the national powers granted by
the Constitution, that these agencies may be organized by the
voluntary association of individuals, sanctioned by Congress, that
Congress may give to such agencies, so organized, corporate unity,
permanence, and efficiency, and that such agencies in their being,
capital, franchises, and operations are not subject to the taxing
power of the states have ever been regarded since those decisions
as settled doctrines of this Court.
Those decisions were the judgments of great men and great
judges. They were pronounced by the most illustrious of their
number, and are distinguished by his peculiar clearness and cogency
of reasoning. For nearly half a century the principles vindicated
by them have borne the keen scrutiny of an enlightened profession
and the sharp criticism of able statesmen, and they remain
unshaken. All the judges who concurred in them have descended, long
since, into honored graves, but their judgments endure, and,
gathering vigor from time and general consent, have acquired almost
the force of constitutional sanctions.
We assume, then, that the national banking associations, as such
and in their powers, functions, and operations are not subject to
taxation by the states, on the ground that state laws imposing such
taxation are repugnant to the law of Congress by which they are
established and sanctioned.
The same principle of exemption was applied in 1829 by a
judgment of this Court in the case of
Weston v. City of
Charleston [
Footnote 2/1] to
the bonds and other securities of the United States in the hands of
individuals. The opinion was delivered by the same great judge who
pronounced the two former judgments, and the doctrine was summed up
thus:
"The tax on government stock is thought by this Court to be a
tax on the contract, a tax on the power to borrow money on
Page 70 U. S. 592
the credit of the United States, and consequently to be
repugnant to the Constitution, and this doctrine has ever since
been maintained as settled law."
More recently, the same principle has been applied generally to
the taxation of the capital of associations and corporations so far
as invested in national securities.
This was first done in the case of the
Bank of Commerce v.
New York. [
Footnote 2/2] The
Legislature of New York imposed taxes on banking capital as upon
other real and personal property of individuals according to
valuation. This Court held that the bonds and other securities of
the United States included in such valuation were not liable to be
taxed by state authority.
The Legislature of New York subsequently provided for the
taxation of the capital of banks by an arbitrary valuation; that is
to say, by requiring the valuation for taxation to be equal to the
sum of the capital paid in and secured to be paid in, without
reference to its actual value at the time of valuation, and it was
then insisted in behalf of the state commissioners of taxes that
this was a tax on the franchise and not on the property, and that
no inquiry could be made, therefore, as to the component elements
of the capital with a view to ascertain whether any of them were
exempt from taxation. But this Court held that the tax was really
on the property of the bank, and could not be constitutionally
assessed upon that part of it which consisted of national bonds and
securities. [
Footnote 2/3]
And it may now be regarded as settled law that the national
securities forming part of the property of individual citizens or
associations or of the capital of banks or banking associations are
not subject to taxation by or under state authority.
But it was urged in argument that though the capital of a bank,
so far as it consists of national securities, is exempt from state
taxation, the shares of that capital may be taxed
Page 70 U. S. 593
without reference to the legislation of Congress and without
regard to the national securities which they represent.
If this were admitted, it would follow that the Legislature of
New York, by merely shifting its taxation from the capital to the
shares, might have avoided the whole effect of the exemptions
sanctioned by the decisions just cited. The same tax on the same
identical property, without any exemption of national securities,
might have been assessed and collected by adopting the simple
expedient of assessment on the shares of capital, instead of the
aggregate of capital -- on the parts instead of the whole. The
whole tax, too, might have been collected from the very same
officers who were authorized by those decisions to refuse payment
of so much of it as was derived from national securities, by
adopting the equally simple expedient of requiring those officers
to deduct the tax on the shares from the accruing dividends and pay
it over to the state collector.
We do not understand the majority of the Court as asserting that
shares of capital invested in national securities could be taxed
without authority from Congress. We certainly cannot yield our
assent to any such proposition. To do so would, in our judgment,
deprive the decisions just cited of all practical value and effect
and make the exemption from state taxation of national securities
held by banks as investments of capital wholly unreal and
illusory.
We will consider the question, therefore, as one of
construction.
The majority of the Court holds that the act of Congress,
rightly construed, subjects the shares of the national associations
to taxation by the states, without regard to investment of a part
or the whole of their capital in national securities, and that the
act thus construed is warranted by the Constitution. We
dissent.
It may be well questioned, in our judgment, whether Congress has
power under the Constitution to authorize state taxation of
national securities, either directly or indirectly. Taxation of
national securities is taxation upon the contracts of the United
States, and may be regarded, not unreasonably,
Page 70 U. S. 594
as impairing their obligation unless provision is made for such
taxation in the laws authorizing the loans for which they are
issued. It is not alleged that any such provision is contained in
the acts under which the government issued the bonds held by the
national banking associations. On the contrary, these acts contain
express stipulations with the national creditors that the bonds
issued under them shall be exempt from taxation by or under state
or municipal authority. This is in effect a stipulation on the part
of Congress that the takers of the government loan shall have the
right to use the bonds issued to them for any lawful purpose, free
from state or municipal taxation.
Can Congress, notwithstanding this stipulation, authorize states
to tax these bonds indirectly by taxing the capital or the shares
of capital invested in them?
There is sufficient reason, we think, for a negative answer to
make it our duty not to presume without the clearest evidence that
Congress has actually authorized such taxation. And were the power
to authorize such taxation clear, a superior question would remain
-- the question of good faith, of public virtue, of national
honor.
We come, then, to the construction of the act.
In enacting the National Bank Law, Congress must have had in
view the great principles already established by the decisions of
this Court: (1) that states cannot tax the agencies of the national
government; (2) that states cannot tax the national securities in
the hands of individual citizens; (3) that states cannot tax the
national securities in which may be invested the whole or a part of
the capital of any association or corporation.
They also had in view, doubtless, the exception to exemption
suggested by Chief Justice Marshall in
McCulloch v.
Maryland when he said that the opinion of the Court did
"not extend to a tax paid by the real property of the bank in
common with the real property within the state, nor to a tax
imposed on the interest which the citizens of Maryland might hold
in the institution in common with the property of the same
description throughout the state. "
Page 70 U. S. 595
With these principles and this exception in view, Congress, in
order that nothing might be left to inference, expressly authorized
state taxation of the real estate held by the national banking
associations and of the interest of private citizens in them. This
was done by three provisos to the forty-first section, which
prescribed the measure and rule of national taxation. These
provisos are as follows:
"[1]
Provided that nothing in this act shall be
construed to prevent all the shares in any of said associations
held by any person or body corporate from being included in the
valuation of the personal property of such person or corporation in
the assessment of taxes imposed by or under state authority, at the
place where such bank is located, and not elsewhere, but not at a
greater rate than is assessed upon other moneyed capital in the
hands of individual citizens of such state. [2]
Provided
further that the tax so imposed under the laws of any state
shall not exceed the rate imposed upon the shares in any of the
banks organized under authority of the state where such association
is located. [3]
Provided also that nothing in this act
shall exempt the real estate of associations from either state,
county, or municipal taxes to the same extent, according to its
value, as other real estate is taxed."
We do not doubt the power of Congress to enact these provisos.
The only ground upon which exemption from state taxes of the
capital, franchises, operations, or property of corporations or
associations has been adjudged by this Court is that of the
repugnancy of such taxation to the acts of Congress organizing such
corporations or associations and making them the agencies or
instruments of the national government.
The doctrine is that Congress may create corporations or
authorize associations as means, instruments, or agents for the
execution of national powers, and that such corporations or
associations, being such means, instruments, or agents, are
exempted from state taxation. But such corporations and
associations must be organized in such manner, under such
limitations, and with such liabilities as Congress may see fit to
prescribe. If in the judgment of Congress, therefore,
Page 70 U. S. 596
the purposes of their organization will be better or more safely
fulfilled if subjected in some respects to state taxation, the acts
authorizing their establishment may be so framed as to allow such
taxation, excepting, probably, national securities, as already
suggested.
We proceed to consider the effect of these provisos, pausing
only to observe that there is nothing in the suggestion of Chief
Justice Marshall, in conformity with which they were probably
framed, which warrants any inference that it ever entered into his
mind that the national stock or bonds could be taxed indirectly by
taxing the interest of citizens in the Bank of the United States.
The question of state taxes upon national securities was not at all
considered in that case. If it had been, we cannot doubt that the
clear intelligence under the inspection of which all propositions
seemed to resolve themselves into their elements would have
detected taxation of bonds under the disguise of taxation of the
capital or shares of capital in which they were invested and would
have pronounced against the indirect as decisively as it did
afterwards in
Weston v. Charleston against the direct
taxation.
What, then, was the intent of Congress? We think it not very
difficult to collect it from the provisos.
In most of the states, if not in all, the personal property of
all individuals and corporations is listed, valued, and assessed by
public officers under legislative authority. The first proviso
simply requires that the shares of individuals in national banking
associations shall be included in this valuation and assessment,
and inasmuch as personal property of different descriptions is
often valued and assessed by different rules, it further requires
that it shall not be so included at a greater rate than is assessed
upon other moneyed capital in the hands of citizens. The second
proviso merely introduces another standard by comparison with which
the taxation of these shares is to be regulated, and requires that
the tax imposed on them shall not exceed the rate imposed by the
state on the shares of banks organized under its authority.
Page 70 U. S. 597
We think this the plain sense of these provisos. They adopt the
exception admitted by Chief Justice Marshall to the rule of
exemption in
McCulloch v. Maryland. They subject the
interests held by citizens in the national banking associations to
a tax in common with other property of the same description, and
they give to the exception a practical application by determining
what property is of the same description with the interest to be
taxed in common with it.
Now by taxation in common we understand taxation by a common
rule and in equal degrees. To tax the shares of citizens in these
associations by other rules or in greater degrees than other like
property would as effectually retard, impede, burden, and control
the operation of the national currency act as to tax the
associations themselves or their lawful operations, and would be
clearly unwarranted by the Constitution.
What then is the rule, and what the degree in which taxes can be
imposed by the states on moneyed capital in the hands of individual
citizens?
So far as that capital consists of ordinary funds or securities
acquired or held under the laws of the states, the measure of
taxation must necessarily be determined by the discretion of the
state legislature. The responsibility of their members to the
people, their own interests in common with those of their
constituents, their knowledge, their justice, and their wisdom must
be relied on for security against injustice. But so far as that
capital consists of bonds or other securities of the United States,
it cannot be taxed at all by state authority in the hands of
individual citizens. That portion is exempted by the Constitution
as interpreted by this Court in the cases already cited.
Here, then, we have the common rule and common degree of
taxation applicable alike to shares in national banking
associations and to moneyed capital in the hands of individuals.
That proportion of each which is liable to taxation must be taxed
alike; that proportion of each which is exempt under the
Constitution must not be taxed at all by state authority. Taxation
of the former by no greater rate
Page 70 U. S. 598
than the latter means equal taxation for both. Any construction
of the proviso which denies the same exemptions to the proportion
of the shares invested in national securities, which it concedes to
the like proportion of other moneyed capital invested in like
manner, seems to us manifestly at variance with the declared
intention of Congress.
But it is insisted that the shares of capital may be taxed by
another rule than that which governs the taxation of other moneyed
capital because of something peculiar in the nature of shares. It
is said that the association owns the capital, and that the
shareholders have no control over this property except through the
choice of officers, directors, or agents, and no right to the
property except the right to receive a due proportion of the
earnings of the association while it exists, and a similar
proportion of the property after its dissolution.
It is true that the shareholder has no right to the possession
of any part of the corporate property while the corporation exists
and its affairs are honestly managed. He has committed his
interest, for a time, to the possession and control of the
corporation of which he is a member, and he has only a member's
voice in the management of it.
So a man who has leased a farm has no right to possession or
control during the lease -- but who denies his property in the
farm? And if a dozen owners join in the lease, has not each one an
interest in the property to the extent of one-twelfth?
So if for the time the property of the shareholder is placed
beyond his direct control and converted into property of the
association, how can that circumstance affect the intrinsic
character of his shares as shares of the whole corporate property?
How can a man's shares of any property be the subject of valuation
at all if not with reference to the amount and productiveness of
the property of which they are a part? What value can they have
except that given them by that amount and that productiveness? A
certificate of title to a share is not a share. It is evidence of
the shareholder's interest. His interest may be transferred by the
transfer of
Page 70 U. S. 599
the certificate, but it is not the certificate that is valued
when the worth of the share is estimated either by the speculator
in the market or by the tax assessor. It is the property which it
represents that is valued, by the speculator often with reference
to speculation only, but by the public officer always, if he does
his duty, by the real worth of the property, all things
considered.
It is said also that the taxation of the shares by the states
was intended as part of the price of the privileges granted to the
associations by Congress, and especially for the new use allowed to
be made of the bonds by depositing them as security for the
redemption of the circulating notes issued to the associations by
the government.
But while we see privileges granted in the act to these
associations in order that they may fulfill the public purposes of
their organization, and while we see that these privileges may
enhance the value of the capital invested and consequently the
value of the shares, we see no new use allowed to be made of the
bonds. It has been common in many states of late years to require
banks of circulation to secure prompt redemption by securities
deposited with the state officers, and among such securities
preference is usually given to bonds of the United States. But this
is for the benefit and security of the note holders, not of the
banks. The requirement restricts, rather than increases, the amount
of their circulation.
These privileges, moreover, and the new use, if there be one,
are granted directly to the associations and only indirectly to the
shareholders, and if the right to tax is to be inferred from
consent manifested by organization under the act, the tax should be
imposed on the capital of the associations, rather than upon the
shares. And we may remark also that the imagined new use is
restricted to the limited amount of bonds required as security for
circulation, while the greater part of the bonds, held by the
associations, are not so pledged at all, and no such reason as new
use or special privileges can be alleged for denying exemption to
them.
It is worthy of notice that the banks of New York, whose
Page 70 U. S. 600
claim to the exemption of the bonds held by them from state
taxation was held valid by the two decisions we have cited, were
organized upon the same principles with the national banking
associations which now claim a similar exemption. The same
privileges, substantially, were conferred on those institutions by
the laws of New York as are conferred on these by act of Congress.
The former were allowed to issue an amount of currency proportioned
to the bonds deposited by them with the bank superintendent, just
as the latter are allowed to issue an amount proportioned to the
bonds deposited by them with the treasurer of the United States. If
the tax is the price of privilege in the case of the latter, so it
must have been in the case of the former. If it is a duty on the
new use of bonds by national banking associations, it was a duty on
the same new use by the New York banks. If consent of the former to
taxation could be inferred from organization, so could the consent
of the latter. And yet it was held in the New York bank cases that
the tax could not reach the bonds which made a part of the capital,
while it is now held that it may be imposed on the shares of the
capital invested partly or wholly in these bonds. Surely no
argument drawn from new use or price of privilege can be valid for
the latter tax which was not valid for the former.
The truth is, we think that Congress, when providing for state
taxation of shares, had no reference whatever to any new use of
bonds or any price of privilege. The national legislature was
engaged in providing a uniform currency for the whole country, and
for its circulation and redemption. For this and other great
national purposes, the organization of the national banking
associations was authorized, and it was expected that these
associations would take the place of the state banks, from taxes on
which the states derived considerable revenues. It was to remove
the objections to the new system, founded on the loss of this
revenue through the conversion of state banks into national
associations, that Congress authorized the taxation of shares by
the states. This taxation should be allowed to the extent of
Page 70 U. S. 601
the concession of Congress. That concession limits it to the
same taxation as the states impose on moneyed capital in the hands
of individuals, in whose hands the proportion invested in national
bonds is exempt. There is no reason for extending taxation on
shares beyond that concession.
But it is urged that other provisions in the act of Congress
require that construction of the proviso which allows taxation on
shares without deduction of investments in national securities. We
think otherwise.
One of these provisions is that which requires the capital to be
divided into shares of one hundred dollars each. This provision
only shows that, at the outset, each share of paid up capital
represented a property interest in the association, bearing the
same proportion to the whole that one hundred dollars bore to the
entire capital.
The only other provision much relied on as favoring the
construction of the majority, is that clause of the fortieth
section which requires the officers of the several associations to
keep correct lists of the names and residences of the shareholders,
subject to the inspection of shareholders and creditors, and of the
officers authorized to assess taxes under state authority. But is
it not obvious that this list would be as useful to the state
officers in valuing the shares with exemption of bonds, as in
valuing them without exemption?
It is said that exemption would embarrass valuation. How? All
the assessor would have to do, would be to ascertain the value of
the whole property of the association and deduct the amount of
bonds. The remainder, divided by the number of shares, would give
the value of each share to be taxed. And the assessor must value
the whole property and divide it by the number of shares, in order
to make a true valuation of shares. If he does not do this, he must
assess the shares at an arbitrary or speculative valuation. This is
not what is required. The law demands true valuation; and true
valuation, with deduction of bonds, places the shareholder on exact
equality with the holder of other moneyed capital, which the law
also demands. No other mode of valuation secures that equality.
Page 70 U. S. 602
There is another provision of the act which appears to us
conclusive of the correctness of our view. It is that clause of the
41st section which provides for taxation by the United States. It
imposes a tax of one percentum annually on circulation; one-half of
one percentum on deposits, and then, one-half of one percentum on
the capital, beyond the amount invested in United States bonds. Is
it possible that Congress observed so scrupulously the obligations
of good faith as to refuse to tax capital invested in bonds for
national purposes, and this in the midst of war, and was yet so
negligent of those obligations as to allow the same capital
invested in bonds to be taxed in shares, for state purposes? Can it
be supposed that Congress, having undoubted power to tax national
securities, refrained from exercising it because its exercise would
be inconsistent with good faith, and yet intended, by ambiguous
phrases, and in the exercise of questionable constitutional
authority, to authorize such taxation by the states who, without
such authority, could not impose it at all? Suppose that, by this
clause, Congress had imposed double the amount of tax actually
assessed, and had provided for the payment of half of it to the
states. That would have provided an indemnity to the states for the
loss of taxes on the state banks, and would have subjected the
national bonds to no tax. Is it reasonable to believe that Congress
intended to adopt another mode of indemnity, which, by indirection,
would subject those bonds to heavy taxation, and that by the
states?
To us these questions seem to answer themselves. We are entirely
satisfied that the construction of the proviso and the rule for
valuation of shares, which we have endeavored to vindicate, is the
true one, and the only one consistent with sound principle and
perfect faith. We dissent, on this point, from the majority of the
Court with reluctance, but we are constrained to dissent.
We concur with the majority of the court as to the effect of the
second proviso.
The laws of New York, brought under review in the case before
us, provide for the taxation of the shares of the national
Page 70 U. S. 603
banking associations, and for the taxation of the capital of
state banks, but not of the shares, while the second proviso of the
act of Congress requires that the tax on the shares of the former
shall not exceed the tax on the shares of the latter. It is clear
that this taxation by the state is not in accordance with the
authority given by Congress. The variance might not be a matter of
much practical importance, if we agreed in opinion that taxation on
capital and shares must be by the same rule; but the application of
the rule of exemption, heretofore sanctioned, to the capital of the
state banks, while the rule denying exemption, which is now
announced, is applied to the national associations, would work
great and manifest injustice. We think, moreover, that the second
proviso is a substantive part of the act which cannot be
disregarded, and that it withholds from states, whose policy does
not allow the organization of banks and provide for the taxation of
shares, the authority to tax the shares of the national banking
associations.
It is hardly necessary to add that we agree that the judgments
of the Court of Appeals, in the three cases before us, must be
reversed. But we think they should be reversed on the ground that
the taxation of New York is repugnant to the first proviso as well
as to the second.
Judgment reversed and the case remitted to the Court of
Appeals of the State of New York with directions to enter judgment
for the plaintiffs in error, with costs.
[
Footnote 2/1]
27 U. S. 2 Pet.
449.
[
Footnote 2/2]
67 U. S. 2
Black 628.
[
Footnote 2/3]
Bank Tax Case,
2 Wall. 200.