Home Savings Bank v. City of Des Moines No 82 People Savings Bank v. City of Des Moines No 83 Des Moines Savings Bank v. City of Des Moines No 92 1906

• Citation: 51 L.Ed. 901,27 S.Ct. 571,205 U.S. 503
• Decision Date: 03 December 1906
• Docket Number: 92,83,Nos. 82,s. 82
• Parties: HOME SAVINGS BANK, Plff. in Err., v. CITY OF DES MOINES and the City Council of Said City as a Board of Review. NO 82. PEOPLE'S SAVINGS BANK, Plff. in Err., v. CITY OF DES MOINES and the City Council of Said City as a Board of Review. NO 83. DES MOINES SAVINGS BANK, Plff. in Err., v. CITY OF DES MOINES and the City Council of Said City as a Board of Review. NO 92. Argued November 2, 5, 1906. Ordered for reargument
• Court: United States Supreme Court

205 U.S. 503

27 S.Ct. 571

51 L.Ed. 901

HOME SAVINGS BANK, Plff. in Err.,

v CITY OF DES MOINES and the City Council of Said City

as a Board of Review.

NO 82.

PEOPLE'S SAVINGS BANK, Plff. in Err.,

v. CITY OF DES MOINES and the City Council of Said City

as a Board of Review.

NO 83.

DES MOINES SAVINGS BANK, Plff. in Err.,

v. CITY OF DES MOINES and the City Council of Said City

as a Board of Review.

NO 92.

Nos. 82, 83, 92.

Argued November 2, 5, 1906.

Ordered for reargument December 3, 1906.

Reargued March 5, 1907.

Decided April 22, 1907.

Messrs. William G. Harvison and Horatio F. Dale for plaintiff in error in No. 82.

Messrs. Nathaniel T. Guernsey and George F. Henry for plaintiffs in error in Nos. 83 and 92.

[Argument of Counsel from pages 504-506 intentionally omitted] Messrs. William H. Bremner and M. H. Cohen for defendants in error.

[Argument of Counsel from pages 506-508 intentionally omitted] Mr. Justice Moody delivered the opinion of the court:

These cases raise the same Federal question. The plaintiffs in error were banking institutions incorporated under the laws of the state of Iowa. Upon each of them a tax was levied under a law of that state, which provided that 'shares of stock of state and savings banks and loan and trust companies shall be assessed to such banks and loan and trust companies, and not to the individual stockholders.' The material sections of the Code are printed in the margin.¹

Each bank owned at the time to which the assessment related United States bonds, the value of which they insisted should be deducted from the valuation of the property assessed to them. The taxing authorities refused to make that deduction, and their action was sustained by the supreme court of the state, whose judgment has been brought here by writs of error for review.

These banks were corporations created by the state of Iowa. In imposing burdens upon them, their property, or their shares, the state does not, as in the case of national banks, require any authority from the United States. Its own governmental power is sufficient for the imposition of such taxes, assessed by such methods, and under such standards of valuation, as it may choose, unless something is done which violates some provision of the Federal Constitution, or of a Federal law which, by that Constitution, is made supreme. The only claim of violation of Federal right which need be considered here is that bonds of the United States have been taxed. It is conceded, and cannot be disputed, that these securities are beyond the taxing power of the state, and the only question, therefore, is whether, in point of fact, the state has taxed them. The first step useful in the solution of this question is to ascertain with precision the nature of the tax in controversy, and upon what property it was levied, and that step must be taken by an examination of the taxing law as interpreted by the supreme court of the state. A superficial reading of the law would lead to the conclusion that the tax authorized by it is a tax upon the shares of stock. The assessment is expressed to be upon 'shares of stock of state and savings banks and loan and trust companies.' But the true interpretation of the law cannot rest upon a single phrase in it. All its parts must be considered in the manner pursued by this court in New Orleans v. Houston, 119 U. S. 265, 278, 30 L. ed. 411, 415, 7 Sup. Ct. Rep. 198, and Home Ins. Co. v. New York, 134 U. S. 594, 33 L. ed. 1025, 10 Sup. Ct. Rep. 593, with the view of determining the end accomplished by the taxation, and its actual and substantial purpose and effect. We must inquire whether the law really imposes a tax upon the shares of stock as the property of their owners, or merely adopts the value of those shares as the measure of valuation of the property of the corporation, and by that standard taxes that property itself. The result of this inquiry is of vital importance, because there may be a tax upon the shares of a corporation, which are property distinct from that owned by the corporation, and with a different owner, without an allowance of the exemption due to the property of the corporation itself, while, if the tax is upon the corporation's property, all exemptions due it must be allowed. Looking, then, further into the law, it appears that the shares are to be 'assessed to such banks . . . and not to the individual stockholders.' When this is read the doubt instantly arises whether the law intended to tax the corporation for property which it does not own, but which, on the contrary, is owned by the stockholders. Certainly such a purpose, against common justice and of doubtful constitutionality, ought not to be attributed to the law if any other fair construction is possible. With respect to taxation, usually, if not necessarily, property and its owners are inseparable. Taxes are assessed against persons upon the property which they own, not upon property which others own. We should be reluctant to suppose that there has been any departure from this principle in this law. It, however, is not an uncommon, and is an entirely legitimate, method of collecting taxes, to require a corporation, as the agent of its shareholders, to pay in the first instance the taxes upon shares, as the property of their owners, and look to the shareholders for reimbursement. In this very law we have an example of this method. By § 1322, national bank shares are assessed to the stockholders, and by § 1325 the corporations are made liable to pay the tax and are secured by a lien on the stock and dividends, which may be enforced by sale. The state banking corporations are excluded ex industria from this statutory right of reimbursement by confining it to the cases of 'taxes assessed to the stockholders of such corporation.' This cannot include the case of state bank shares, which are not so assessed. Nor can the corporations in the case at bar have, by any possibility, a common-law right to recover the tax paid from the shareholders. The law imposes no obligation on the shareholder. In paying the tax the corporation has paid its own debt, and not that of others, and there is nothing in such a payment from which the law can imply a promise of reimbursement. These taxes, therefore, are not to be paid by the banks as agents of their stockholders, but as their own debt, and, unless it is supposed that the law requires them to pay taxes upon property which they do not own, the taxes must be regarded as taxes upon the property of the banks. The fair interpretation of the law is that the taxes are upon the property of the banks. In the valuation for taxation the assessor is required to 'take into account the capital, surplus, and undivided earnings,' must be furnished with 'a verified statement of all matters provided by the preceding section,' which, by reference, is seen to be a detailed statement showing the assets of the bank (§ 1321).² It is true that the assessor may resort to 'other information he can obtain,' but, although capital, surplus, and undivided earnings are expressly named, nothing is said of the franchise and good will, essential factors of the value of the shares, though not of the value of the assets of the bank. See People ex rel. Union Trust Co. v. Coleman, 126 N. Y. 433, 12 L.R.A. 762, 27 N. E. 818. Moreover, the section closes with the words, 'and the property of such corporation shall not be otherwise assessed,' which plainly implies that the assessment already provided for is, in substance, an assessment upon the property of the corporation. That the law was administered upon the theory that the tax was upon the property of the corporation is signally illustrated by the proceedings in these cases. The valuation was first made on the exact figures of the capital, surplus, and undivided earnings, deducting the holdings of United States securities. Then, upon being advised that the deductions was erroneous, the assessor corrected the val- uation by adding the value of the securities deducted. We therefore conclude that the substantial effect of the law is to require taxation upon the property, not including the franchise, of the banks, and that the value of the shares, ascertained in a manner appropriate to determine the value of the assets, is only the standard or measure by which the taxable valuation of that property is determined. This we think is consistent with the interpretation of the law by the supreme court of Iowa, which sustained the taxation upon grounds which will be presently considered.

The next question is whether such taxation violates any provision of the Federal Constitution or of any paramount Federal law. The state cannot, by any form of taxation, impose any burden upon any part of the national public debt. The Constitution has conferred upon the government power to borrow money on the credit of the United States, and that power cannot be burdened or impeded or in any way affected by the action of any state. This principle was announced in Weston v. Charleston, 2 Pet. 449, 7 L. ed. 481, where it was held that taxes upon the stock of the United States, levied by one of the municipal corporations of South Carolina, were invalid. From that time no one has questioned the immunity of national securities from state taxation. It may well be doubted whether Congress has the power to confer upon the state the right to tax obligations of the United States. However this may be, Congress has never yet attempted to confer such a right. Until the time of the Civil War it was not thought to be necessary to express the constitutional prohibition in an act of Congress. But, on the occasion of authorizing the issue of Treasury notes, it was enacted 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.' Act of February 25, 1862 (12 Stat. at L. 346, chap. 33, U....