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People ex rel. Lincoln v. Assessors of Barton

44 Barb. 148 Court N.Y. Sup. Ct. Decision date 1865-08-15 English

Delivered by Parker, J.

Contents

Majority

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The People, ex rel. William S. Lincoln, vs. The Assessors of the Town of Barton.

Headnote

A mandamus will lie in behalf of a non-resident illegally assessed, to compel the assessors to strike the assessment from the assessment roll.
It must be regarded as settled by the decisions of the supreme court of the United States that the bonds and other securities issued by the United States are exempt from taxation by the state authorities, whether so exempted in express terms, by the act of congress under which they are issued, or not.
National banks are instruments employed by the government of the United States, in the prosecution of its fiscal operations; and their creation is within the constitutional power of congress.
Congress having the power to prohibit the taxation of the shares of stock in national hanks, altogether, it has the power to modify such taxation, and provide under what circumstances it shall be exercised.
The proviso of the act of congress, passed February 25, 1862, prohibiting the taxation, under state laws, of the shares in national banks at a higher rate than is imposed upon the shares of the state hanks, was within the constitutional power of congress to make, and is valid and controlling.
Assessors have no authority, under the act of the legislature, of March 9, 1865, enabling the hanks of this state to become hanking associations under the laws of the United States, to assess the shares of a stockholder in a national hank.
THE relator is a stockholder in the E-irst National Bank of Waverly, N. Y. The capital stock of the hank consists wholly of United States bonds,'issued under the act of congress, passed February 25,1862. The defendants assessed the relator for the shares owned by him of the capital stock of the hank. They declined to strike said assessment from the roll, claiming that the property is taxable under the laws of the state, passed in March, 1865. This motion is for a peremptory mandamus to the defendants, directing .them to cancel the assessment so made.
F. D. Wright, for the relator.
I. The shares of the capital stock of the hank are exempt from taxation.
1. They are so exempt on principles of constitutional law, aside from statute exemption, (a.) The government of the United States is in its sphere, supreme. “ This constitu
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tion and the laws of the United States, made in pursuance thereof] shall be the supreme law of the land; and the judges in every state shall be bound thereby; any thing in the constitution or laws of any state to the contrary, notwithstanding.” (Const. U. S. art. 6, § 8.) (b.) “Congress shall have power to borrow money on the credit of the United States.” (Id. art. 1, § 8.) The power to borrow money and issue the obligations of the government therefor, is thus expressly given to congress, and its acts in pursuance thereof, are made the “ supreme law.” Congress having this power, it follows that state legislatures can not interfere with or trench upon its exercise. But the taxation of its stock would interfere with such exercise. If the right can .be conceded to the states in any degree there can be no limit, as they could impose such taxes as would render it impossible for the government to raise monej or negotiate loans. That the taxation of its stock, is such an interference has been expressly adjudicated. (See 1 Kent’s Com. 9th ed. 474; McCulloch v. The State of Maryland, 4 Wheat. 319 ; The International L. A. C. v. The Com. of Taxes, 17 How. 210 ; Osborn v. U. S. Bank, 9 Wheat. 738 ; The People v. N. Y. Tax Com. 32 Barb. 50 , 59 ; Weston v. The City Council, Charleston, 2 Peters, 449; The People v. Tax Commissioners, 2 Black, [ U. S. Sup. Ct. 72.] 620.) In the case of McCulloch, above cited, Chief Justice Marshall, in delivering the opinion of the United States supreme court, says: “All subjects over which the sovereign power of a state extends are objects of taxation; but those over which it does not extend, are upon the soundest principles exempt from taxation. The sovereignty of a state extends to every thing which exists by its ‘own authority, or is introduced by its permission, but does it extend to those means which Eire employed by congress to carry into execution powers conferred on that body by the people of the United States ? We think it demonstrable that it does not.” (Id. p. 486.) “ That the power to tax involves the power to destroy; that the power to destroy may
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effect.'and render useless the power to create; that there is a plain repugnance in conferring on one government the power to control the constituted measures of another, which other with respect to those very measures is declared to be supreme over that which exerts the control, are propositions not to be denied.” (Id. p. 487.) The court came to the following conclusion: “The court has bestowed on. this subject its most deliberate consideration. . The result is a conviction that the states have no power by taxation or otherwise to retard, impede, burthen or in any manner control the operations of the constitutional law, enacted by congress, to carry into execution the powers vested in the general government. This, we think, the unavoidable consequence of the supremacy which the constitution declared.” (Id. p. 489.) The principle is reaffirmed in the case of Osborn v. The President of the Bank of the United States, above cited. The precise question in the case at bar, also arose, and was decided in the case of Weston v. The Council of Charleston, above cited. Chief Justice Marshall, in delivering the opinion of the court, asks: “ Is the stock issued by loans made to the government of the United States liable to be taxed by states and corporations?” and answers as follows: “The tax on government stock is thought by the court to be a tax on the contract—a tax on the power to borrow money—on the credit of the United States, and consequently to be repugnant to the constitution.” (Page 468.) In the case of the Banks of Commerce and Commonwealth v. The Commissioners of Taxes of New York, (2 Black’s Rep. 620,) the same doctrine was again reaffirmed, in the strongest language. The case arose in 1859. Part of the capital of this bank was invested in United States bonds. It was held by the state supreme court that those stocks were liable to taxation. The decision was affirmed by the court of appeals. ( 23 N. Y. Rep. 193 .) On appeal to the supreme court of the United States, the decisions of the state courts were reversed, and the court reaffirmed the doctrine that stocks of the United
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States, whether in the hands of individuals or hanks, were exempt from state taxation.
These cases all arose and were decided before the act of congress of February 25, 1862, exempting United States securities. The decision was put upon the high ground that these securities were exempt aside from and without express legislation, Upon principles of constitutional law.
It is submitted that the question must be considered as adjudicated aside from any act of congress exempting these securities from taxation.
II. But congress has expressly exempted the bonds of the United States from state and local taxation. “All stocks, bonds and other securities of the United States held by individuals, corporations or associations within the United States, shall be exempt from taxation by or under state authority.” (Act of Feb. 25, 1865.) A national bank is defined to be an “association,” and “corporation.” (Act of Congress, June 3, 1864.) The bonds of the United States which constitute the capital of this bank are therefore also exempt from taxation by act of congress. bTo thing can be more explicit than this statute, yet the commissioners of taxes of the city of blew York, in 1862, assessed the banks in that city on their capital without deducting the amount invested in United States stocks. The supreme court decided that the exemption should be allowed on all stocks issued after the act of congress of 1862, but following the court of appeals, in the People v. The Commissioners of Taxes, 23 N. Y. Rep. 192 , (which was reversed by the United States supreme court) not on stocks issued before its passage. This case was taken to the United States supreme court and the decision was reversed, and their complete exemption wás pronounced. (See 2 Black, 620 .)
III. This exemption has not in any way been interfered with by the act of congress of June, 1864. Section 41 declares that nothing in that act “shall be construed to prevent the shares in national banks from being included in the
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assessing of the property of the stockholders under state laws.” Passing over the evident proposition that congress could not take away rights which it had already vested under the law of 1862; it is sufficient answer that the. law of 1864 does not pretend to interfere with this exemption. The exemption is not given hy the law of 1864, but by the law of 1862. It is not an exemption conferred upon a bank or upon its stockholders because they are organized under a national law. It is an exemption of the holders of government stock, whether held by individuals, state banks, national banks, or other associations. The above section of the act of 1864, subjects national banks to the same rules of taxation as state banks, but it does not take away from state banks or national banks, or the stockholders of either, the exemption from taxation on United States stocks, which exemption was declared hy a previous statute.
IV. The following propositions are evolved, from the above discussion:
1. The bonds of the United States are exempt from state taxation, on principles of constitutional law.
2. That they are also expressly exempted by statute.
It follows then, that any state law taxing such securities must be held void, as conflicting with the constitution and laws of the United States. The legislature of this state, after the decision of the United States supreme court, in 2 Blade, 620, and in April, 1863, attempted to lay a tax on the amount of capital of such hanks, and not on the property, as if there were a distinction between the amount of government stock and the stock itself. The distinction they made, was sustained in 40 Barb. 34 . The supreme court of the United States, in December, 1864, in the case of The People, ex rel. The Bank of the Commonwealth, v. The Com. of Taxes, reversed the decision, and held the act of the state void. The legislature has again devised a scheme to deprive stock of national hanks of the exemption, by the law passed March 9, 1865, known as the “Enabling Act,” namely by providing
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that the capital of such hanks he assessed to the stockholders by name, at the place where the bank is situated, and collected by seizing their dividends. The scheme must fail. The United States supreme court has settled,
1. That the capital stock of national banks is exempt from state taxation. ( 2 Black, 620 , above cited.)
2. That the taxation of an amount equal to the capital stock of such bank was a taxation of the capital, and was thus avoided. (People, ex rel. Bank of the Commonwealth, v. The Com. of Taxes, Dec. 1, 1864.) What the legislature can not do directly the law will not allow to be done indirectly, and it is submitted there is no legal distinction between the assessment of the gross capital of the bank, and its assessment in shares against the stockholder. The fact that it consists of United States bonds renders it exempt, whether taxed against the bank or against individuals. The exemption clings to the subject—to the bonds, in whosever hands they may be, and in whatever form the owner may exercise his ownership. Whether the bonds constituting the capital stock are owned by one or twenty can not possibly be material. This attempt at evading the well settled law of the land, and the solemn acts of congress, will meet the same fate of previous attempts in the same direction.
Y. The state law also violates the act of congress of June, 1864, which allows property of national banks, otherwise taxable, to be taxed under state laws. This act provides that such interests shall not be taxed under state laws, at a higher rate than the shares of state banks are taxed. The legislature, in framing the law of 1865, utterly ignored this provision, and the law while it taxes the shares of national-banks does not tax the shares of state banks at all, thus compelling national banks to pay a much higher tax than state banks. It in effect provides that every bank, while it shall be free from taxation on such investments, while a state bank, shall lose that exemption, the moment it is organized under a system which congress has ordained. The shares of state
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banks invested in United States securities, are not taxed under any state law. The law of 1865, discriminates against the shares of national hanks, and in favor of state banks. It thus, 1. Violates the national banking law of 1864, and 2. It violates well established, constitutional principles, that a state has no authority thus to discriminate. (See McCulloch v. The State of Maryland, and cases above cited. Western v. City Council of Charleston, 2 Peters, 449. See also opinion of Penio, J. 23 N. Y. Rep. 192 .)
VI. In this case, legal and moral rights go hand in hand. In the darkest hour of the republic, tlie nation plighted its solemn faith that these securities, given for money advanced to carry on the war, should be free from state taxation. The money was furnished — the government was saved, and it is asking none too much that the public faith, thus solemnly given should be redeemed. That no state should be suffered to impose taxes upon shares of national banks, invested in United States securities, which it fails to impose upon the shares of state banks invested in such securities. That this is due both to the government and to the people seems a proposition beyond, and too plain for argument.
Mr. Benn, for the defendant.

The relator is the owner of thirty shares in a banking association, organized under the laws of the United States, and known as The First National Bank of Waverly, located at the village of Waverly in the town of Barton, in the county of Tioga; the whole of whose capital is invested in the bonds of the United States, issued under the act of congress, passed February 25, 1862.

The assessors of the town of Barton, pursuant to the 10th section of the act of the legislature of this state, entitled “An act enabling the banks of this state to become associations for the purpose of banking under the laws of the United States,” passed March 9, 1865, have included those

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thirty shares, at their par value of §100, per share (which is their actual value,) in the valuation of the personal property of the relator, in the assessment of taxes in their town; thereby assessing the relator, who is not a resident of said town, in the sum §3000, for said thirty shares in said bank.

The relator, insisting that the assessors have no right or authority to assess him for said shares, moves for a mandamus to compel them to strike such assessment from their assessment roll.

It is urged by the defendants that even if they have no right to make the assessment, a mandamus is not the proper-remedy for the relator, inasmuch as, if-the assessment is made without authority of law, he may maintain his action against them for the damages ; citing Mygatt v. Washburn, ( 15 N. Y. Rep. 316 .) I know the rule is, that in general a mandamus will not lie when the party aggrieved has an ample remedy by an action at law. Still I am inclined to think, if the relator is entitled to any relief, that a mandamus is a proper remedy in this case. Judge Woodruff, in Wilson v. The Mayor of New York, (1 Abbott, 18-21,) has clearly shown by an examination of authorities, that in similar cases, this remedy has been held to be a proper one; and in the present condition of the case, I see no other adequate one.

One of the grounds on which the relator insists that the assessment is unauthorized is, that an assessment of the shares of the bank in the hands of the stockholders is virtually an assessment of the bonds of the United States in which the capital stock of the bank is invested; which bonds are, by the act of congress under which they were Issued, made “ exempt from taxation by or under state authority.”

It must be regarded as settled by the decisions of the supreme court of the United States, that the bonds and other securities issued by the United States, are exempt from taxation by the state authorities, whether so exempted in express terms by the act of congress under which they are issued, or not. (McCulloch v. State of Maryland, 4 Wheat.

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316 . Osborn v. Bank of U. S. 9 id. 738. Western v. The City of Charleston, 2 Peters, 449. The People, ex rel. Bank of Commerce, v. Commissioners of Taxes, &c. 2 Black, 620 . The People, ex rel. Bank of the Commonwealth, v. Commissioners of Taxes, 4 Am. Law Beg. 277.) And this exemption is so broad as to relievo the holders of such bonds or securities from taxation upon them, whether it is sought to be imposed upon them eo nomine, or, as included in the aggregate of the personal property of the holder: so that a bank which has invested its capital, in whole or in part, in such bonds or securities, is exempt from taxation on its capital, to the extent of such investment. (See last two cases above cited.)

The question then arises, whether the assessment of the shares of the bank, in the hands of the shareholders, is an assessment of the bonds held by the bank as its capital.

It seems to me that there is a very clear distinction between these bank shares, and the securities constituting the capital of the bank; and that it can not be said that the holder of such shares is a holder of the United States securities. These belong to the corporation, and not to the shareholders jointly. If a portion of the capital were invested in real estate, it would scarcely be contended that each shareholder would therefore be a freeholder. The shares are not the capital, divided into aliquot parts,, and distributed into the hands of the shareholders. That remains the undivided property of the corporation, while a share is a right to participate in the net profits of the association, and in the final distribution of its assets, upon the winding up of its affairs; or, as defined by Angelí & Ames, in their Avork on Corporations, (§ 557,) “A right to partake, according to the amount of the party’s subscription, of the surplus profits obtained from the use and disposal of the capital stock of the company to those purposes for Avhich the company is constituted.” In the case of Rex v. Hull Dock Co. (1 Term R. 219,) it Avas decided that lands purchased by the company, and con

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verted into dock, were ratable to the poor, notwithstanding a clause in the act of parliament that the shares of the proprietors should be personal estate; but the rate was upon the property in the hands of the company, and not on the share of any individual proprietor. So, on the other hand, it may with equal truth be said that when the assessment is upon the shares of an individual shareholder, it is hot upon the property of the corporation. And the assessment of the shares of the relator, in this case, is not an assessment of the United States securities held by the bank, which are not liable to taxation, but of the personal property of the relator, so declared by the act of congress under which the bank is organized; his dioses in action representing his right to participate in the dividends of the bank, and to a pro rata distribution of its effects on hand at the expiration of the charter.

This distinction is clearly recognized by the act of congress under which this bank is organized ; which, in its 41st section, authorizes the shares in any of the associations organized under the act, held by any person, to be taxed under state authority.

In connection with the provision of the act just alluded to, is one which raises another question, which it is now necessary to consider. The two clauses of the act above referred to, are as follows :

“Provided, that nothing in this act shall be construed to jjrevent all 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. 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 shares

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in any of the hanks organized under the authority of the state where such association is located.”

The first of the above provisos very plainly makes the shares in such associations liable to be taxed under state authority, while the second prohibits such taxation at a higher rate than is imposed upon the shares of the state banks.

The enabling act of the state, above referred to, which provides for the taxation of the shareholders of the national banks upon their shares therein, makes no provision for a similar taxation of the shareholders of the state banks.-

This is another ground on - which the relator insists that the assessment of his shares by the defendants, is unathorized, as being in direct violation of the second proviso above quoted from the act of congress. The defendants’ counsel replies to this, that, by the statutes of the state, previously enacted, the shareholders of state banks are taxable for then-shares, in all cases when the capital is not liable to taxation, (citing 1 R. 8 . 387, § 1, and 388, §§ 3, 7, lsi ed.) and therefore that it was not necessary for the enabling act to make such provision. I do not think, however, that overcomes the difficulty. The 1st section above referred to by-the counsel, provides that all personal property within the state shall be liable to taxation. By section 3, stocks in moneyed corporations are, for the purposes of taxation, to be deemed personal property. But section 7 is as follows: “ The owner or holder of stock in any incorporated company liable to taxation on its capital, shall not be taxed as an individual, for such stock.” How, § 1, title 4, of the same chapter, entitled “Of the assessment and collection of taxes,” (1R. R. 414, 1st ed.) has this provision : “All moneyed'or stock corporations deriving an income or profit from their capital or otherwise, shall be liable to taxation on their capital, in the manner hereafter prescribed,” and by the act of 1863 it is provided that “ all banks, and other moneyed corporations shall be liable to taxation on a valuation - equal to the amount of their capital;

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stock paid in or secured to be paid in,” &c; (Hess. Laws 1863, eh. 240.) This, as was held in The People, ex rel. Bank of the Commonwealth, v. Com. of Taxes, &c. supra, is taxing the capital, and although, to the extent that the capital is invested in United States securities, it is not taxable, but only on the residue, still I think the language “liable to taxation on its capital,” in section 7, means liable according to the system of taxation adojoted by the state; that is, where the laws of the state provide for taxing the capital the stockholder is not to be taxed as an individual upon his stock, and therefore the existing laws of the state come short of making provision, in any case, for taxing the shareholders in state banks, for their shares.

If it is said that when the capital of these banks is taxed, the Shareholders are indirectly taxed upon their shares, and the proviso is substantially complied with, still, in all cases where a portion of the capital of the state banks is invested in United States securities, it is manifest that the state law discriminates against the shareholder in the national bank. If two banks, one national and one state, have each a capital of $100,000, the whole capital of the national, invested in United States securities, and half of the capital of the state bank in the same securities, the shareholders of the national bank, under the provisions of the enabling act, manifestly pay taxes at a higher rate than those of the state bank, even considering the tax upon the capital, paid by the shareholders, and this is in violation of the law of congress.

We are brought, then, to the inquiry, whether this proviso in the law of congress, is within the constitutional authority of congress, or whether the power of a state to tax the property of its citizens is beyond the reach of congressional interference.

Does the taxation by the state qf the shares of the national banks, interfere with “ means which are employed by congress to carry into execution powers conferred on that body” by the constitution of the United States ? • This is the criterion.

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(McCulloch v. State of Maryland ; Osborn v. Bank of the United States ; Weston v. City of Charleston.)

I think I may assume that these national banks are instruments employed by the government of the United States in the prosecution of its fiscal operations, and that their creation is within the constitutional power of congress. The act under which they are organized is entitled “An act to provide a national currency,” &c., and it is apparent that it was intended to create a currency which would be useful to the government in its financial operations. They occupy, to some extent, the same relation to the government which the Bank of the United States did, and for the same reason are authorized by the constitution.

The mode of their establishment provided by the act, requires the action of individuals, uniting to form the associations constituting the banks, and investing in them the means which make up their capital. The government invites individuals thus to associate and organize banks, which it may use as instruments to carry into execution some of its legitimate powers. It provides that these associations may carry on the business of banking, and consequently that the shareholders may derive therefrom the profits legitimately arising from such business. These profits constitute the' inducement to individuals to accept the invitation of the government to invest their capital in these banks. How, it is manifest, that the power of the states to tax these bank shares, would be an objection, in the minds of those who are thus invited, to invest in them, and might defeat their establishment. Hence congress, thus having the right to establish them, might provide against such an obstacle, and jrrohibit such taxation. “ It is of the very essence of supremacy to remove all obstacles to its action within its own sphere, and so to modify every power vested in subordinate governments, as to except its own operations from their influence.” (McCulloch v. State of Maryland.) As the right of a state to tax the securities of the United States, would be a burden upon the

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exercise of the power of the United States to borrow money, because of its lessening the inducement to lend on such securities, and is therefore precluded. So the right of a state to tax the shares of the national banks, would be a burden upon the exercise of the right to establish such banks, on the same principle. And for that reason such shares would not be subject to state taxation, unless by the permission of congress. The act of congress, however, does permit their taxation by the states, provided no discrimination is made against them, in such taxation. Having the power to prohibit the taxation altogether, it has the power to modify it,” and provide under what circumstances it shall be exercised. The restriction contained in the proviso under consideration, therefore, is within the constitutional power of congress to make, and is valid and must control.

[Tioga Special Term,

August 15, 1865.

It follows, if I am correct in the views above taken, (which I put .forth with diffidence, as they are the result of a necessarily hasty examination,) that the defendants have no authority to assess the shares of the relator, and such assessment should be stricken from their roll.

The affidavit of the relator brings forward all the facts necessary to raise the question of the defendants’ right to make the assessment, and none of these facts are denied by the defendants. Both parties have been heard, upon an order to show cause why a peremptory mandamus should not issue. _ There is no occasion for an alternative writ, but the case is one for a peremptory writ to issue at once. ( 4 Hill, 20 .)

An order must be entered, directing the issuing of a peremptory mandamus, commanding the defendants, as indicated in the order tó show cause. As the question is a néw one, no costs of this motion are allowed to either party.

Parker, Justice,]

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