People ex rel. National Broadway Bank v. Hoffman

Certain evidences of debt against the United States, are authorized by two several statutes, to which I will presently refer, which it is claimed are exempt from taxation *by state authority. The exemption is claimed on two grounds: First, of the express declarations of the United States statutes to that effect; secondly, that they are instrumentalities of the United States government, necessary to the administration of its affairs, and for that reason not liable to taxation by the authority of the state.

The statutes in question are those of 1st March 1862 (12 Stat. at Large 352), and 17th March 1862 (Id. 370). By the act of 1st March, the secretary of the treasury was authorized “to cause to be issued to any public creditor who may be desirous to receive the same, upon requisition of the head of the proper department, in satisfaction of audited and settled demands against the United States, certificates for the whole amount due, or part thereof, not less than $1000; * * * which certificates shall be -payable in one year from date, or earlier.

The act of 17th March (p. 370) provided, that the secretary of the treasury might issue “ certificates of indebtedness, such as are authorized by an act * * * (above referred to), to such creditors as may desire to receive the same, in discharge of checks drawn by disbursing officers upon sums placed to their credit upon the books of the treasurer, upon requisitions of the proper departments, as well as in discharge of audited an<^ se^e(^ acc°unts, as provided by said act.” *The latter act possesses the same elements, and no others, than the one before referred to, simply extending the authority to issue the certificates to a different class of creditors, viz., “those who hold checks drawn by disbursing officers.”

The secretary is authorized by these acts, in -the event that certain public creditors shall desire it, to issue to them certificates that the government is so indebted to them, which certificates, it is enacted, shall bear an interest of six per cent., and shall entitle the government to a credit of one year, or less, at the option of the government. '

I will now refer to those statutes which declare that the bonds and other securities of the United States shall

The first act in which this provision is found, is that of 25th February 1862 (12 Stat., p. 345, § 2), authorizing the issue of $150,000,000 of United States treasury notes, payable to bearer, at the treasury of the United States, of the denomination of five dollars, and providing that *$50,000,000 should be in lieu of the demand notes authorized by the act of 17th July 1861; providing further that the notes thus issued should be receivable in payment of all taxes, except duties on imports, and should be a legal tender in payment of all public and private debts, “ except duties on imports and interest as aforesaid.” The next section of the act, in order “ to enable the secretary of the treasury to fund

The next provision of this kind is in the .act of 3d March 1863 (12 Stat., p. 709), authorizing the secretary of the treasury to borrow $600,000,000 on bonds of the United States, and to issue $400,000,000 of “treasury notes” bearing six per cent, interest, and $150,000,000 of “ United States notes,” without interest, which shall be legal tenders; “ and all the bonds and treasury notes or United States notes issued under the provisions of this act, shall be exempt from taxation by or under state or municipal authority.”

The next declaration of exemption is found in the act of 3d March 1864 (13 Stat., p. 13), authorizing the issue of $200,000,000 of five-forty bonds, bearing' an interest of five per cent., where it is declared, that “ all bonds issued under this act shall be exempt from taxation by or under state or municipal authority.” And again, on the 30th of June 1864 (13 Stat., p. 218), the secretary was authorized to borrow $400,000,000 ; to issue therefor bonds bearing an interest of six per cent.; and it was declared, that “ all bonds, treasury notes and other obligations of the United States, shall be exempt from taxation by or under state or municipal authority.” *And again, by the act of 28th January 1865, the act last mentioned was amended, by authorizing, in lieu of the bonds authorized by the first section of that act, treasury notes of the description

The only remaining declaration is found in the act of 3d March 1865, by which the secretary was authorized to borrow $600,000,000, and to issue therefor bonds or treasury notes, in such form as he may prescribe, bearing an interest not exceeding six per cent. The second section prescribes the manner in which the “bonds or other obligations issued under this act” shall be disposed of, and concludes in these words: “And all bonds or other obligations issued under this' act shall be exempt from taxation by or under state or municipal authority.”

Before commenting upon these statutes, a reference to the principles upon which the bonds of the United States have been adjudged to be 'exempt from state taxation, will be advantageous. McCulloch v. State of Maryland ( 4 Wheat. 316 ) is among the earliest on the subject. The supreme court of the United States there decided, that congress had the power to incorporate an United States bank; that the bank had the constitutional right to establish its branches of discount and deposit within any state; that the taxing such branch office by a state was retarding and burdening the operations of law passed to carry into effect the powers of the government, and, therefore, unconstitutional. The bank and its branches are held to be “ an instrument employed by the government in' the execution of its powers,””and no more liable to taxation than the mail, the mint, the custom-house papers or judicial process of the United States; that the tax was “upon the operation of an instrument employed by the government of the Union to carry its powers into execution.” It was expressly stated (p. 436): “ This opinion does not deprive the states of any resources which they origin

In Weston v. City Council of Charleston ( 2 Peters 449 ), the city of Charleston had imposed a direct tax of twenty-five per cent, upon the hundred dollars, on the six and seven per cent, stock of the United States. An injunction was obtained against its collection, and the question of the legality of the tax was presented to the supreme court of the United States. The court held the tax to be unconstitutional, saying “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 the credit of the United States, and consequently to be repugnant to the constitution.”

In Dobbins v. Commissioners of Erie County ( 16 Peters 435 ), the plaintiff was assessed by the.state authorities upon his office of captain of a revenue cutter of the United States, and the question was submitted to the court upon the legality of such taxation. The statute of Pennsylvania authorized an assessment “upon all offices and posts of profit.” The court held the taxation to be illegal, upon the ground, that the officer,

In the Bank of Commerce v. New York City ( 2 Black 620 ), the doctrine of Weston v. City of Charleston was ^reiterated and affirmed, and it was held, that “ a state tax on the loans of the federal government is a restriction upon the constitutional power of the United States to borrow money,” and thus unconstitutional.

It is evident, from these cases, that a stock or bond of the United States, issued upon a loan of money to the government, is none the more exempt from taxation, on account of a declaration to that effect in the act of congress authorizing the issue. The exemption is constitutional and not legislative; whatever the constitution exempts is exempt, although the act of congress is silent upon that point. Whatever the constitution does not make exempt, it is beyond the power of congress to exempt, however numerous or explicit may be its declarations. Thus, the stocks declared to be- exempt in Weston v. City of Charleston contained no express clause of exemption. The same is true of the stocks which are the subject of inquiry in what are called the tax cases. (People v. Commissioners of Taxes, 23 N. Y. 197 ; 2 Black 620 .) So, of the United States Bank and its branches, and so, of the salary of the revenue officer. In each case, the exemption is placed upon the express ground, that the subject taxed was a means or power of the United States, necessary or useful in carrying on the operations of the government. Such means or instruments cannot be taxed, not because congress declares that they shall not be taxed, but because they are parts of the operations of the government, which the constitution declares must not bo burdened or impeded. The large loans authorized by congress, by three several laws, during the year 1861, are none of them in terms

In the language of Judge Wayne, in Dobbins v. Commissioners of Erie County (supra), in reference to the powers of the state, “Taxation is a sacred right, essential to the existence of government, an incident of sovereignty. The right of legislation is co-extensive with the incident, to attach it upon all persons and property within the jurisdiction of a state. But in our system there are limitations upon that right. There is a concurrent right of legislation in the states and in the United States, except as both are restrained by the constitution of the United States. Both are restrained by the «express prohibitions on the subject, and the states, by such as are necessarily implied, when the exercise of a right by a state conflicts with the execution of another sovereign power delegated to the United States. * * * Taxation is a sovereign power in a state, but the' collection of revenue upon imported goods, and the regulation of commerce, are also sovereign powers in the United States.” “It is so ample, that it may be exercised on the objects to which it is applicable, to the utmost extent to which the government may choose to carry it.” “There is no limit in the exercise of the right, no guard against the abuse of power, but in the structure of the government, and the discretion of the representatives of the people.” “It is not con

Nor do I consider it by any means certain, that the declaration of exemption was intended to apply to the certificates in ^question. The very frequency of its repetition, and the generality of its terms, afford evidence to the contrary. • Thus, in the act of 25th February 1862, authorizing the issue of $150,000,000 of treasury notes, and of $500,000,000 of bonds to' fund the treasury notes, it is declared, that “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.” This is claimed to cover the certificates now under consideration, although they were issued afterwards. Upon the same argument, however, it would protect all the bonds and security of every kind afterwards provided for by congress. Why, then, should the six separate declarations of exemption which I have quoted, have been made in the acts of congress? Upon this construction, they are simply absurd; while, upon the legal principle that, although general terms are used in a contract or a statute, they are to be restricted in their application to the subject-matter in hand, the repetition is sensible and intelligible.

It will be observed, that the act authorizing the issue of the certificates now under consideration, contains no declaration of exemption, and unless they are to be exempt, upon the ground that they are the means and instruments of the general government, necessary to its operations, they must come within the general scope of state taxation. I do not think they are such.

*The money or materials, or whatever may have been the original consideration of the indebtedness in question, had been previously received by the government; The certificates were not issued to obtain either money or materials, but were to be issued as a means of payment at a subsequent day, for what had already been received and spent by the government. They cannot come under the head of “ borrowing money,” which was the theory upon which the constitutional .exemption was declared by the supreme court of the United States, nor can they be deemed a means necessary to the operations of the government, like ships, a bank, the mail, the customhouse, and the like. They are simply claims of a creditor against a debtor, and against a debtor who is not liable to prosecution, and who could not, like an

This court should acquiesce fully in the decisions of the supreme court of the United States upon questions arising under the laws and constitution of the United States. While I do this .cheerfully, I am of the opinion, that exemptions like those under consideration should not be extended, but should be limited to the cases decided, or to those falling necessarily within their principles. That court has decided that to tax a loan, of the United States is an interference with the constitutionál power of the federal government to borrow money, and therefore illegal. In this we acquiesce. It has also decided, that the means and instruments of the government necessary for carrying on its operations cannot be impeded or burdened by state taxation. Upon this principle, the United States Bank, the custom-house, its vessels, munitions of war, post-offices and the immediate property or functions of that government, cannot be taxed by the states. It has never been decided, however, that a certificate or statement of a past indebtedness, which is property in the hands of a *citizen, and in relation to which there is no evidence of the original consideration, and which has never been declared by congress to be such, is to be deemed, as a matter of law, a necessary instrumentality of the government, and.thus exempt from taxation. There is no particular virtue in the written statement or certificate. It simply affords ready proof of the debt, but does not alter its character. And yet it would hardly be contended, that if the government had, years before, purchased property of an individual,