Clement National Bank v. State of Vermont

• Decision Date: 10 November 1913
• Docket Number: No. 29,29
• Citation: 231 U.S. 120,34 S.Ct. 31,58 L.Ed. 147
• Parties: CLEMENT NATIONAL BANK, Plff. in Err., v. STATE OF VERMONT
• Court: U.S. Supreme Court

231 U.S. 120

34 S.Ct. 31

58 L.Ed. 147

CLEMENT NATIONAL BANK, Plff. in Err.,

v STATE OF VERMONT.

No. 29.

Argued April 28, 29, 1913.

Decided November 10, 1913.

Messrs. Marvelle C. Webber and Maxwell Evarts for plaintiff in error.

[Argument of Counsel from pages 121-126 intentionally omitted] Messrs. Hale K. Darling and Clarke C. Fitts for defendant in error.

Mr. Justice Hughes delivered the opinion of the court:

The judgment under review awarded a recovery in favor of the state of Vermont against the plaintiff in error, the Clement National Bank, upon an agreement which the bank had made pursuant to § 815 of chapter 37 of the Public Statutes of Vermont, entitled, 'Taxation of National Bank Deposits,' originally enacted as No. 41 of the Acts of 1906. The chapter is set forth in the margin. The Federal questions relate to the validity of the bank's stipulation in view of the scheme of taxation which induced the making of it.

The plaintiff in error was organized under the Federal statutes, and does business at Rutland, Vermont. For several years it has maintained a 'savings department,' allowing depositors therein interest at a rate exceeding 2 per cent per annum, payable on the first days of January and July in each year on deposits remaining in bank on those days. Certain other depositors have received certificates of deposit with interest at the rate of 3 per cent per annum for each calendar month that the deposit continued. Prior to the year 1906, depositors in national banks in Vermont, whether or not their deposits bore interest, were taxable at the local tax rate, in the districts in which they resided, in common with other owners of credits (or debts due from solvent debtors) under the general plan of local taxation. Pub. Stat. (Vt.) 1894 ed. §§ 374, 398, 399. Depositors in savings banks and trust companies, organized under the laws of the state, had long been exempt from all taxation upon their deposits to a specified extent (at first $1,500, and later $2,000 in any one institution), these organizations being subject to a state tax of 7/10 of 1 per cent per annum, computed upon the average amount of deposits; in this computation, deposits in excess of the abovestated limit were deducted, and upon these the depositors were taxable locally. Pub. Stat. (Vt.) 1894 ed. §§ 582-584; Acts of 1902, No. 20, § 41; Acts of 1906, No. 28, § 1; Pub. Stat. 1906 ed. §§ 744-746.

This system being continued as to the state institutions and the depositors therein, the general assembly passed the statute in question which provides for a state tax on interest-bearing deposits in national banks (where the interest exceeds 2 per cent per annum) of 7/20 of 1 per cent semiannually. Persons having deposits of this sort, unless specially excepted (§ 819), are required to report them at specified periods (§§ 804-806), and to pay the tax without deduction on account of any exemption (§ 809). No other tax is to 'be assessed on such deposits in national banks, nor against the depositors on account thereof' (§ 810).

It is further provided that, if a national bank so elects, it may pay to the state all the prescribed taxes, and deduct them from the interest or deposits of the persons from whom they became due (§ 814). On such election, the bank is, semiannually, to file with the state commissioner a stipulation to that effect; no depositor is required to make returns for the period covered by the stipulation (§ 815); the state commissioner is to issue to the bank a certificate showing that it has been filed (§ 816); and the statute provides that upon such filing the bank shall 'become liable to the state for the amount of such tax of 7/20 of 1 per cent of the average amount of such deposits' held by the bank during the six months to which the stipulation refers (§ 817).

This suit was brought by the state upon the following stipulation, which was filed by the plaintiff in error, on October 1, 1908, the returns and payment therein specified not having been made:

State of Vermont:

The Clement National Bank, whose banking house is located at Rutland, in the state of Vermont, for the consideration hereinafter named, hereby stipulates and agrees with the state of Vermont that on or before the 30th day of April, 1909, it will make sworn returns to the state treasurer and commissioner of state taxes, showing the average amount of all deposits held by it during the six months beginning with the 1st day of October, 1908, whereon the rate of interest paid or allowed by said bank to the depositors thereof exceeds 2 per cent per annum; and that on or before the 30th day of April, 1909, it will pay to the state treasurer a tax of 7/20 of 1 per cent of the average amount of all such deposits so held by it.

This stipulation is made and is to be filed with said commissioner in consideration and for the purpose of carrying out the provisions of the statutes of Vermont which provide that upon the making and filing hereof, as aforesaid, no depositor having an interest-bearing deposit or deposits in said bank, whereon the rate of interest paid or allowed by said bank exceeds 2 per cent per annum, shall be required, on or before the 20th day of October, 1908, to make returns to the state treasurer and commissioner of state taxes, showing the amount of such deposit or deposits in said bank on the 1st day of October, 1908; and that no such depositor shall be required to pay to the state treasurer on or before the 30th day of November, 1908, a tax of 7/20 of 1 per cent of the amount of such interest-bearing deposit or deposits so held by said bank on the 1st day of October, 1908.

This stipulation is also made and is to be filed as aforesaid for the purpose of obtaining from said commissioner, as the law provides, a certificate in duplicate, setting forth that the same has been filed, and of showing that said bank has elected to pay and will pay to the state treasurer on or before the 30th day of April, 1909, a tax of 7/20 of 1 per cent of the average amount of all such deposits held by said bank during the six months beginning with the 1st day of October, 1908, on account of which the depositors thereof shall be by said bank paid or allowed interest exceeding the rate of 2 per cent per annum.

In witness whereof said bank has, on this 30th day of September, 1908, at Rutland, in the state of Vermont, caused its corporate name to be hereunto affixed by its cashier, duly empowered so to do by vote of said bank.

Clement National Bank,

Rutland, Vermont,

by C. H. Harrison, Cashier.

Indorsed: Received October 1, 1908, J. E. Cushman, Commissioner of State Taxes.

The case was tried upon an agreed statement of facts. It appeared that the state commissioner issued to the bank his certificate, which was conspicuously posted in its banking room, that the stipulation had been filed, and that therefore depositors having deposits upon which the rate of interest exceeded 2 per cent per annum would not be required to make returns. In consequence, none of the depositors' reports was made, and there was no valuation of the individual deposits by any official during the period covered by the stipulation.

It was also set forth that, under the bank's method of allowing interest on deposits, it was impossible for it to determine, at the time it was required to make its semiannual returns under the stipulation, upon what deposits interest exceeding 2 per cent per annum would actually be allowed. Thus, deposits might be withdrawn prior to January 1st or July 1st, the dates on which interest was credited on amounts then in bank. In practice, in former periods for which the plaintiff in error had made payments under similar stipulations, it had included all deposits belonging to the class upon which interest was allowable in excess of 2 per cent per annum, in arriving at the average amount of deposits, whether or not interest was in fact paid. The monthly averages were ascertained by averaging the aggregate deposits held at the close of each day, and the average for the six months was taken by averaging the monthly averages. Thus computed, the average amount of deposits of the class above described (including those of nonresidents) for the six months beginning October 1, 1908, was $594,357.74. The average deposits exempted for the period in question, under § 819, were $15,688.15, and the net average for the six months was $578,669.19, upon which the state sought to recover $2,025.33.

The state also declared upon a similar stipulation filed by the bank on April 1, 1909, covering the ensuing six months. The court of first instance rendered judgment in favor of the state for the full amount demanded. This was reversed by the supreme court of the state, which held that the statute did not apply to nonresidents, and that the amount of recovery should be determined by a computation based on the credits of resident depositors. Final judgment was then entered against the bank, covering the two periods, in the sum of $3,989.85. 84 Vt. 167, 78 Atl. 944, Ann. Cas. 1912 D, 22.

1. It is contended that the statute imposed a tax upon the franchises of national banks, and hence exceeded the state power. Owensboro Nat. Bank v. Owensboro, 173 U. S. 664, 667, 668, 43 L. ed. 850, 852, 19 Sup. Ct. Rep. 537, and cases there cited.

But it is apparent that, whatever other objections may lie, the tax complained of is not laid upon the national bank itself, its property or franchises. It is imposed upon the depositors; they alone are required to pay it. If they fail to make returns, as provided by the statute, they are subject to penalty; and both tax and penalty are recoverable by suit against them in the name of the state. If they escape the tax, it is because of the bank's stipulation. If the bank becomes liable, it is by virtue of its agreement, and not otherwise. The statute was so interpreted by the supreme court of the state, which said: 'The transaction which makes the money...