Mercantile Bank v. New York

after stating-the case as above reported, delivered the opinion of the court.

Section 5219 of the Kevised Statutes of the United States is as follows.:

“ Nothing herein shall prevent all the shares in any association from being included in the valuation of the personal property of the owner or holder of such shares in assessing taxes • imposed by authority of the • State within which the association-is located; but the legislature of each state may determine and direct the manner and place of taxing all the shares of national banking associations located within the State, subject only to the two restrictions that the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands -of individual citizens of such state, and. that the shares of any national banking association owned by non-residents of any state shall be taxed in the city or town where the bank is located, and not elsewhere. Nothing heréin shall be construed to exempt the real property of associations from either state, county, or municipal taxes to the same extent, according to its value, as other real property is taxed.”

In the present case no question is raised by the appellant as. to the validity of § 312, c, 409, of the Laws of New York.of 1882, considered by itself, nor. in reference to the rule of valuation or assessment which it prescribes. No exception is taken to the form of the assessment, nor is the case based in any degree upon the dereliction of the Assessing officers in the discharge of their duties, there being no allegation and no proof that they have not performed their whole duty under the statutes of the State. •

The proposition which the appellant seeks to establish is, that the State of New; York, in seeking to tax national bank shares, has not complied with the condition contained in

The exemptions thus referred to are classified as follows:

1st. The shares of stock in the hands of the individual shareholders of all incorporated “moneyed or stock corporations deriving an income or profit from their capital or otherwise, inco.rporated by the laws of New York, not including trust companies and life insurance companies, and state or national banks.” The value, of such shares, it is admitted, amounts to $755,018,892.

2d. Trust companies and life insurance companies. The actual value of the shares of stock in trust companies amounts, to $32,018,900, and'the actual value of the shares in fife insurance companies amounts to $3,540,000, which life insurance companies, it is admitted, are the owners of personal property consisting of mortgages, loans, stocks, and bonds to the value of $195,257,305.

3d. Savings banks and the deposits therein. The deposits amount to $437,107,501, and an ^cumulated surplus to-$68,669,001.

4th. Certain municipal bonds issued by the city of New Yoi’k under an act passed in 1880, of the value of $13,467,000.

5th. Shares of stocks in corporations created by states other than New York) in the hands of individual holders, residents of said state, amounting to $250,000,000.

It is argued by the appellant that these exemptions bring

This enumeration of exempted property, the amounts of which were stated in the bill, and admitted by the demurrer, Avas held to include such a material, portion relatiATely of the moneyed capital in the hands of individual citizens as to make the tax upon the shares of national banks an unfair discrimination against that class of property, but no attempt Avas made in the opinion of the court to define the meaning of the Avords “ moneyed capital in the hands of individual citizens ” as used in the statute, or to enumerate all the various kinds of property or investments that came within its description, or to shoAv that shares of stock in the hands of stockholders of every institution, company, or corporation of a state, having a capital employed for the purpose of earning dividends or profits for its stockholders, were taxable as moneyed capital in the hands of individual citizens.

It is accordingly contended on behalf of the appellees in the present case, 1st, that the shares of stock in the various companies incorporated by the laws of Noav York as moneyed or-stock corporations, deriving an income or profit from their capital or otherwise, including trust companies, life insurance companies, and savings banks, are not moneyed capital in the hands of the individual citizen Aid thin the meaning of the actj of Congress; 2d, that if any of them are, then the corporations themselves are taxed under the laws of h)eAv York in such a

In view of the nature of the contention between the parties to this suit, and the extent and value of .the interests involved, it becomes necessary to review with care-the previous .decisions of this court upon the same subject, and to endeavor to state with precision the rule of relative taxation prescribed to the states by Congress on shares of national banks..

. The national banking act of 1864, 13 Stat. Ill, in addition to the restrictions now imposed upon the state taxation of national bank shares, declared “ 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 the authority of the State, where such association is located.” In the reenactment of this statute in 1868, 15 Stat. 34 , this prc7 viso, was omitted. ■ The case of Van Allen v. The Assessors, 3 Wall. 573 , was decided under the act of 1864 as originally enacted. In that case, the taxing law of New York, which was in question, was held to be invalid, because it levied no taxes upon shares in state banks at all, the tax being assessed upon the capital of the banks after deducting that portion which was invested in securities of the United States; and it was held that this tax on the capital was- not a tax on the shares of the stockholders equivalent to that on the- shares in national banks. It was also decided in that case that. it was competent for the states, under the permission of Congress, to tax the shares of national bank stock held by individuals, notwithstanding the capital of the bank was invested in bonds of the United States which were not subject to taxation.

It "appears, therefore, as the result of. the decision in that case, that a tax upon the capital 'of a state bank, levied upon the value thereof, after deducting such part as was invested in- non-táXable government bonds, was less than an equivalent

The other objection taken to the validity of the tax complained of was, that insurance companies created under- the laws of the.state were authorized to deduct-from the amount of their capital and surplus profits, for .purposes of. taxation, such part as was invested in United States securities. In reference to this the court said :■ “ The answer is, that this clause does not refer to the rate of assessments, upon insurance companies as a test by which to prevent discrimination against the shares; that is, confined to the rate of assessments upon moneyed- capital in the hands of individual citizens. These institutions are not within the words or the contemplation of Congress; but even if they were, the answer we have already given to the deduction, of these securities in the assessment of the, property of individual citizens is equally applicable to them” (p. 257). •

In Lionberger v. Rouse, 9 Wall. 468 , it was held that the proviso originally contained in the act ,of 1864, and omitted from the act of 1868, expressly referring to state banks, was limited to state banks of issue. The court said (p. 474): “ There was nothing to. fear from banks of discount and deposit merely, for in no event could they work any displacement of national bank circulation.” Qf course, so far as investments in such banks are moneyed capital in the hands of individuals, they are included in the clause as it now stands.

In the case of Hepburn v. School Directors, 23 Wall. 480 , it was decided to be competent for the state to value, for taxation, shares of stock in a national bank at their actual value, even if in excess of their par value, provided thereby they were not taxed at a greater rate than was assessed upon other moneyed capital in the hands of individual citizens of the State. It was a further question in that case whether the exemption from taxation by statute of “ all mortgages, judgments, recognizances, and moneys owing upon articles of agreement for the sale of real estate ” made the taxation of shares in national banks unequal and invalid. This was decided in the negative

e subject was further considered in the case of Adams v. Nashville, 95 U. S. 19 . One of the questions in that case had réf mce to an exemption from taxation by state authority of interest-paying bonds issued by the municipal corporation of the city of Nashville, in the hands of individuals. It was held that the exemption did not invalidate the assessment upon the shares of national banks. The court said (p. 22): “ The act of Congress was not intended to curtail the state power on the subject of taxation. It simply required that capital invested in national banks should not be taxed at a greater rate than like property similarly invested. It was not intended to cut oif the power to exempt particular kinds of property, if the legislature chose to do so: Homesteads to a specified value, a certain amount of household furniture, (the six plates, six knives and forks, six teacups and saucers of the old statutes,) the property of clergymen to some extent, school-houses, academies and libraries are generally exempt from taxation. The discretionary power of the legislatures of the states over all these subjects remains as.-it._was before the act of Congress of June, 1864. The plain intention of that statute was to protect the corporations forntdcT under its authority from unfriendly discrimination by thé states in the exercise of their taxing power.”

In People v. Weaver, 100 U. S. 539 , it was held that the prohibition against the taxation of national bank shares at a greater rate than that imposed upon other moneyed capital in the hands of individual citizens could not be evaded by the assessment of equal rates of taxation upon unequal valuations, and that censequently where the state statute authorized individuals to deduct the amount of debts owing by them from

The rule of decision in Van Allen v. Assessors, 3 Wall. 573 , is not inconsistent with that followed in' People v. The Commissioners 4 Wall. 244 . In the former of these cases the comparison was between taxes levied upon the shares of national, banks and taxes levied upon the capital of state banks. In the valuation of the capital of state banks for this taxation, nontaxable securities of the United States were necessarily excluded, while in the valuation of shares of national banks :no' deduction was permitted on account of the fact that the capital of the national banks was invested in whole or in part in government bonds. The effect of this was, of course, to discriminate to a very important extent in favor of investments in state banks, the shares in which eo nomine were not taxed at all, while their taxable capital was diminished by the subtraction of the government securities in which it was invested, and against national bank shares taxed without such deduction at a value necessarily and largely based on the value of the government securities in which by law. a large part of the .capital of the bank was required to be invested. In the case of People v. The Commissioners, the comparison was not .between' the taxation of shareholders in national banks and.of shareholders in state banking institutions, but between the taxation of national bank shares and that of personal property held by individuals and insurance companies, from the valuation of which the deduction was permitted of the amount of nontaxable government securities held by them respectively. The general ground of the decision was, that the exemption was not an unfriendly discrimination against investments in national banks in favor of other investments of a similar and competing character. It was held that the exemption under state authority, of United States securities, which it was not lawful for the

It follows, as a deduction from these decisions, that “moneyed capital in the hands of individual .citizens” does not necessarily-embrace shares of stock held by them in all corporations whose capital is employed, according to their respective corporate powers and privileges, in business carried on for the pecuniary profit of shareholders, although shares in some corporations, according to the nature of their business, may be such moneyed capital. The rule and test of This difference is not to be found in that quality attached to shares of stock in corporate bodies generally whereby the certificates of ownership have a certain appearance of negotiability, so as easily to be transferred by delivery under blank powers of attorney, and to be dealt in by sales at the stock exchange, or used as collaterals for loans, as though they were negotiable-security' for money. This quality, in a greater or less degree, pertains to all stocks in corporate bodies, the facility of their use in this way being in proportion to the estimated wealth and credit, present or prospective, of the corporation itself. Neither is the difference to be determined by the character of the investments in which, either by law or. in fact, the bulk of the capital and the accumulated surplus of the corporation is from time to time invested. It does not follow, because these are invested in such a way as properly to constitute moneyed capí

The key to the proper interpretation of the act of Congress is its policy and purpose. The object of the law was to establish a 'system of national banking institutions, in order to pro^ vide a uniform and secure currency for the people, and to facilitate the operations of the Treasury of the United States. The capital of each of the banks in. this system was to be furnished entirely by private individuals; but, for the protection of the government and the people, it was required that this capital, so far as it was the security for its circulating notes, should be invested in the bonds of the United States. These bonds were not subjects of taxation; and neither the banks themselves, nor their capital,- however invested, nor the shares of stock therein held by individuals, could be taxed by the States in which they were located without the consent of Congress, being exempted from the power of the States in this respect, because these banks were means and agencies established by Congress in execution of the powers of the government of the United States. It was deemed consistent, however, with these national uses, and otherwise expedient, to grant to the States the authorhy to tax . them within the limits of a rule prescribed by the law. In fixing those limits it became necessary to prohibit the States from imposing such a burden as would prevent the capital of individuals from freely seeking investment in institutions whibh it was the express object of the law to establish and promote. The business of banking, including all the operations which distinguish it, might be carried on under state laws, either by corporations or private persons, and capital in the form of money might be

Applying this rule of construction, we are led, in the first place, to consider the meaning of the words “ other moneyed capital,” as used in the statute. Of course it includes shares in national banks; the use of the word “ other ” requires that. If bank shares were not moneyed capital, the word “ other ” in this connection would be without significance. But “moneyed capital ” does not mean all capital the value of which is measured in terms of money. In this sense, all kinds of real and personal property would be embraced by it, for they' all have an estimated value as the subjects of sale. Neither does it necessarily include till forms of investment in which the interest of the owner is expressed in money. Shares of stock in railroad companies, mining companies, manufacturing companies, and other corporations, are represented by certificates showing that the owner is entitled to an interest, expressed in money value, in the entire capital and property of the corporation, but the property of the corporation which constitutes its invested capital may consist mainly of real and. personal "property, - which, in the hands of individuals, no one would think of calling moneyed capital, and its business may not consist in any kind of dealing in money, or commercial representatives of money.

This definition of moneyed capital in the hands of individuals seems to us to be. the idea of the law, and ample enough to embrace and secure its whole purpose and policy.

From this view, it follows that the mode of taxation adopted by the State of New York in reference to its, corporations, excluding for the present trust companies and savings banks, does not operate in such a way as to make the tax assessed upon shares of national banks at a greater rate than that imposed upon other moneyed capital in the hands of individual citizens.

The cases of trust companies and savings banks require-separate consideration. Section 312 of c. 409 of the act of 1882 is a reenactment of § 3 of c. 5'96 of the Laws of 18S0, except that in the latter, trust companies were included with banks and banking institutions, so as to subject the stockholders therein to the same rule of assessment and taxation on the value of their shai’es of stock. The present statute omits them from the corresponding section. The consequence is, that trust companies are taxable, as other corporations under the act of 1857, for local purposes, upon the actual value of their capital stock. By c. 361 of the Laws of 1881, as amended, they are subjected to a franchise tax, in the nature of an income tax, payable to the state for state purposes. It is argued, from this legislation, in reference to the taxation of trust companies, that it discloses an

It is evident, from this -enumeration of powers,- that trust companies are not banks in the commercial sense of that word, and do not perform the functions of banks in cárrying on the exchanges of commerce. They receive money on deposit, it is true, and invest it in loans, and so deal, therefore, in money and securities for money in such a way as properly to bring the shares of stock held by individuals therein within the definition of moneyed capital in the hands of individuals, as used in the act of- Congress. But we fail to f]nd in the record any sufficient ground to believe that the rate of taxation, which in -fact falls upon this form of investment of moneyed capital, is less than that imposed upon shares of stock in national banks.

It is evident, we think, that taxation in this mode is,- at least, equal to that upon the shares of individual stockholders, for if the same property was held for the same uses and taxed by the same rule, in the hands of' individuals, as moneyed capital, it would be subject to precisely the same deductions; in addition to which, the individual would be entitled to make a further deduction of any debts he might owe. Upon these grounds, therefore, we are of opinion that this mode of taxing .trust companies does not create the inequality which the appellant alleges.

■ In the case of .savings banks, we assume that neither the bank itself nor the individual depositor is taxed on account of the deposits. The language of the statute (§ 4, c. 456, Laws of 1857) is as follows: “Deposits in any banks for savings, which are due to the depositors, . . . shall not be liable to taxation, other than the real estate and stocks which may be owned by such bank or company, and which are now hable to taxation under the laws of this State.”

According to the. stipulation in this case, the deposits in such banks amount to $437,107,501, with an accumulated surplus of $68,669,001. It cannot be denied that these deposits constitute moneyed capital in the hands of individuals within

It is further objected, on similar grounds, to the validity of the assessment complained of in this case, that municipal bonds-of the city of New York, to the amount of $13,461,000, are

The same considerations apply to what is called an exemption from taxation of shares of stock of corporations created by other states and owned by citizens of New York, which it is agreed -amount to at least the sum of $250,000,000. It is not. pretended, however, that this exemption is based upon the mere will of the legislature of the State. The courts of New-York hold that they are not the proper subjects of taxation in the State of New York, because they have no siinis' within the territory for that purpose. Hoyt v. Commissioners of Taxes, 23 N. Y. 224 ; People ex rel. Trowbridge v. The Commissioners, 4 Hun, 595 . The objection would be equally good if made to the non-taxation of real estate owned by citizens of New York, but not within its limits. Clearly the property to be taxed under the rule prescribed for the' taxation of national bank shares must be property which, according to the law of the State, is the subject of taxation within its jurisdiction.

• Upon these ■ grounds, substantially the same as those, on which the Circuit Judge proceeded, 28 Fed. Bep. 776, we are of opinion that the appellant is not entitled to the relief prayed for.

The decree of the Circuit Court is, therefore, Affirmed.

Mr. Justice Blatcheord took no part in the decision of this case.