1. The right of the states to tax the shares of the national
banks reaffirmed.
2. The statute of Kentucky (set forth in the statement of the
case) taxing bank stock levies a tax on the shares of the
stockholders, as distinguished from the capital of the bank
invested in federal securities.
3. This is true although the tax is collected of the bank
instead of the individual stockholders.
4. The doctrine which exempts the instrumentalities of the
federal government from the influence of state legislation is not
founded on any express provision of the Constitution, but in the
implied necessity for the use of such instruments by the federal
government.
5. It is therefore limited by the principle that state
legislation which does not impair the usefulness or capability of
such instruments to serve that government is not within the rule of
prohibition.
6. A state law requiring the national banks to pay the tax which
is rightfully laid on the shares of its stock is valid under this
limitation of the doctrine.
7. On a writ of error to a state court no question will be
considered here which was not called to the attention of the state
court.
Page 76 U. S. 354
The act of Congress establishing the national banks, [
Footnote 1] enacts:
"
Section 40. That the president and cashier of every
such association shall cause to be kept a correct list of the names
and residences of all the shareholders in the association and the
number of shares held by each, and such list shall be open to the
inspection of the officers authorized to collect taxes under state
authority."
"
Section 41. Provided, that nothing in this act shall
be construed to prevent all the shares in any of the said
associations held by any person from being included in the
valuation of the personalty of such person 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.
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 of any of the banks organized under
authority of the state where such association is located."
Under the act of Congress which makes these provisions, the
First national Bank of Louisville was established.
A statute of Kentucky, [
Footnote
2] relating to revenue and taxation, lays a tax as follows:
"On bank stock, or stock in any moneyed corporation of loan or
discount, fifty cents on each share thereof equal to one hundred
dollars, or on each one hundred dollars of stock therein owned by
individuals, corporations, or societies."
And the same statute goes on to enact:
"The cashier of a bank whose stock is taxed shall, on the first
day in July of each year, pay into the Treasury the amount of tax
due. If such tax be not paid, the cashier and his sureties shall be
liable for the same and twenty percent upon the
Page 76 U. S. 355
amount, and the said bank or corporation shall thereby forfeit
the privileges of its charter."
Acting in professed pursuance of the state statute, the
Commonwealth of Kentucky demanded payment from the said bank of
$4,000, with interest, the sum which a tax of fifty cents per share
on the shares of the bank gave. Payment being declined, the state
sued.
The suit was brought in one of the state courts, and according
to the practice of the courts of Kentucky by a petition setting
forth the amount of the tax and claiming a judgment for the same.
The answer, by the same mode of practice, set up four distinct
defenses to the action. These were:
1. That the bank was not organized under the law of the state,
but under the bank act of the United States, and was therefore not
subject to state taxation.
2. That it had been selected and was acting as a depositary and
financial agent of the government of the United States, and
therefore was not liable to any tax whatever, either on the bank,
its capital, or its shares.
3. That its entire capital was invested in securities of the
government of the United States, and that its shares of stock
represented but an interest in the said securities, and were
therefore not subject to state taxation.
4. That the shares of the stock were the property of the
individual shareholders, and that the bank could not be made
responsible for a tax levied on those shares and could not be
compelled to collect and pay such tax to the state.
The commonwealth demurred, and the case resulting in a judgment
in its favor in the Court of Appeals, this writ of error was
prosecuted by the bank.
Page 76 U. S. 358
MR. JUSTICE MILLER delivered the opinion of the Court.
In the several recent decisions concerning the taxation of the
shares of the national banks, as regulated by sections forty and
forty-one of the Act of Congress of June 3, 1864,
Page 76 U. S. 359
it has been established as the law governing this Court that the
property or interest of a stockholder in an incorporated bank,
commonly called a share, the shares in their aggregate totality
being called sometimes the capital stock of the bank, is a
different thing from the moneyed capital of the bank held and owned
by the corporation. This capital may consist of cash, or of bills
and notes discounted, or of real estate combined with these. The
whole of it may be invested in bonds of the government, or in bonds
of the states, or in bonds and mortgages. In whatever it may be
invested, it is owned by the bank as a corporate entity, and not by
the stockholders. A tax upon this capital is a tax upon the bank,
and we have held that when that capital was invested in the
securities of the government, it could not be taxed, nor could the
corporation be taxed as the owner of such securities.
On the other hand, we have held that the shareholders, or
stockholders, by which is meant the same thing, may be taxed by the
states on stock or shares so held by them, although all the capital
of the bank be invested in federal securities, provided the
taxation does not violate the rule prescribed by the act of
1864.
It is not intended here to enter again into the argument by
which this distinction is maintained, but to give a clear statement
of the propositions that we have decided, that we may apply them to
the case before us.
If, then, the tax for which the State of Kentucky recovered
judgment in this case is a tax upon the shares of the stock of the
bank and is not a tax upon the capital of the bank owned by the
corporation, the first, second, and third grounds of defense must
fail.
There are, then, but two questions to be considered in the case
before us:
1. Does the law of Kentucky under which this tax is claimed
impose a tax upon the shares of the bank or upon the capital of the
bank, which is all invested in government bonds?
2. If it is found to be a tax on the shares, can the bank
Page 76 U. S. 360
be compelled to pay the tax thus levied on the shares by the
state?
The revenue law of Kentucky imposes a tax
"on bank stock or stock in any moneyed corporation of loan and
discount of fifty cents on each share thereof, equal to one hundred
dollars of stock therein, owned by individuals, corporations, or
societies."
We entertain no doubt that this provision was intended to tax
the shares of the stockholders, and that if no other provision had
been made, the amount of the tax would have been primarily
collectible of the individual or corporation owning such shares in
the same manner as other taxes are collected from individuals. It
is clear that it is the shares owned or held by individuals in the
banking corporation which are to be taxed, and the measure of the
tax is fifty cents per share of one hundred dollars. These shares
may, in the market, be worth a great deal more or a great deal less
than their par or nominal value, as its capital may have been
increased or diminished by gains or losses, but the tax is the same
in each case. This shows that it is the share which is intended to
be taxed, and not the cash or other actual capital of the bank.
It is said that there may be, or that there really are, banks in
Kentucky whose stock is not divided into shares of one hundred
dollars each, but into shares of fifty dollars or other amounts,
and that this shows that the legislature did not intend a tax of
fifty cents on the share, but a tax on the capital. But the
argument is of little weight. What the legislature intended to say
was that we impose a tax on the shares held by individuals or other
corporations in banks in this state. The tax shall be at the rate
of fifty cents per share of stock equal to one hundred dollars. If
the shares are only equal to fifty dollars, it will be twenty-five
cents on each of such shares. If they are equal to five hundred
dollars, it will be two dollars and fifty cents per share. The rate
is regulated so as to be equal to fifty cents on each share of one
hundred dollars.
But it is strongly urged that it is to be deemed a tax on
Page 76 U. S. 361
the capital of the bank, because the law requires the officers
of the bank to pay this tax on the shares of its stockholders.
Whether the state has the right to do this we will presently
consider, but the fact that it has attempted to do it does not
prove that the tax is anything else than a tax on these shares. It
has been the practice of many of the states for a long time to
require of its corporations thus to pay the tax levied on their
shareholders. It is the common, if not the only, mode of doing this
in all the New England states, and in several of them the portion
of this tax which should properly go as the shareholder's
contribution to local or municipal taxation is thus collected by
the state of the bank and paid over to the local municipal
authorities. In the case of shareholders not residing in the state,
it is the only mode in which the state can reach their shares for
taxation. We are therefore of opinion that the law of Kentucky is a
tax upon the shares of the stockholder. If the state cannot require
of the bank to pay the tax on the shares of its stock, it must be
because the Constitution of the United States or some act of
Congress forbids it. There is certainly no express provision of the
Constitution on the subject.
But it is argued that the banks, being instrumentalities of the
federal government by which some of its important operations are
conducted, cannot be subjected to such state legislation. It is
certainly true that the Bank of the United States and its capital
were held to be exempt from state taxation on the ground here
stated, and this principle, laid down in the case of
McCulloch
v. State of Maryland, has been repeatedly affirmed by the
Court. But the doctrine has its foundation in the proposition that
the right of taxation may be so used in such cases as to destroy
the instrumentalities by which the government proposes to effect
its lawful purposes in the states, and it certainly cannot be
maintained that banks or other corporations or instrumentalities of
the government are to be wholly withdrawn from the operation of
state legislation. The most important agents of the federal
government are its officers, but no one will contend that when a
man becomes an officer of the government, he
Page 76 U. S. 362
ceases to be subject to the laws of the state. The principle we
are discussing has its limitation, a limitation growing out of the
necessity on which the principle itself is founded. That limitation
is that the agencies of the federal government are only exempted
from state legislation so far as that legislation may interfere
with or impair their efficiency in performing the functions by
which they are designed to serve that government. Any other rule
would convert a principle founded alone in the necessity of
securing to the government of the United States the means of
exercising its legitimate powers into an unauthorized and
unjustifiable invasion of the rights of the states. The salary of a
federal officer may not be taxed; he may be exempted from any
personal service which interferes with the discharge of his
official duties, because those exemptions are essential to enable
him to perform those duties. But he is subject to all the laws of
the state which affect his family or social relations or his
property, and he is liable to punishment for crime, though that
punishment be imprisonment or death. So of the banks. They are
subject to the laws of the state, and are governed in their daily
course of business far more by the laws of the state than of the
nation. All their contracts are governed and construed by state
laws. Their acquisition and transfer of property, their right to
collect their debts, and their liability to be sued for debts are
all based on state law. It is only when the state law incapacitates
the banks from discharging their duties to the government that it
becomes unconstitutional. We do not see the remotest probability of
this in their being required to pay the tax which their
stockholders owe to the state for the shares of their capital stock
when the law of the federal government authorizes the tax.
If the State of Kentucky had a claim against a stockholder of
the bank who was a nonresident of the state, it could undoubtedly
collect the claim by legal proceeding in which the bank could be
attached or garnisheed and made to pay the debt out of the means of
its shareholder under its control. This is in effect what the law
of Kentucky does in regard to the tax of the state on the bank
shares. It is no
Page 76 U. S. 363
greater interference with the functions of the bank than any
other legal proceeding to which its business operations may subject
it, and it in no manner hinders it from performing all the duties
of financial agent of the government.
A very nice criticism of the proviso to the 41st section of the
National Bank Act, which permits the states to tax the shares of
such bank, is made to us to show that the tax must be collected of
the shareholder directly, and that the mode we have been
considering is by implication forbidden. But we are of opinion that
while Congress intended to limit state taxation to the shares of
the bank, as distinguished from its capital, and to provide against
a discrimination in taxing such bank shares unfavorable to them as
compared with the shares of other corporations and with other
moneyed capital, it did not intend to prescribe to the states the
mode in which the tax should be collected. The mode under
consideration is the one which Congress itself has adopted in
collecting its tax on dividends and on the income arising from
bonds of corporations. It is the only mode which, certainly and
without loss, secures the payment of the tax on all the shares,
resident or nonresident, and as we have already stated, it is the
mode which experience has justified in the New England states as
the most convenient and proper in regard to the numerous wealthy
corporations of those states. It is not to be readily inferred,
therefore, that Congress intended to prohibit this mode of
collecting a tax which they expressly permitted the states to
levy.
It is said here in argument that the tax is void because it is
greater than the tax laid by the State of Kentucky on other moneyed
capital in that state. This proposition is not raised among the
very distinct and separate grounds of defense set up by the bank in
the pleading. Nor is there any reason to suppose that it was ever
called to the attention of the court of appeals, whose judgment we
are reviewing. We have so often of late decided that when a case is
brought before us by writ of error to a state court, we can only
consider such alleged errors as are involved in the record and
actually received the consideration of the state court that
Page 76 U. S. 364
it is only necessary to state the proposition now. As the
question thus sought to be raised here was not raised in the Court
of Appeals of Kentucky, we cannot consider it.
Judgment affirmed.
[
Footnote 1]
13 Stat. at Large 111.
[
Footnote 2]
Revised Statutes of Kentucky, vol. ii, pp. 239, 266.
