Citizens & Southern Nat. Bank v. City of Atlanta, Ga.

• Decision Date: 03 January 1931
• Docket Number: No. 602.,602.
• Citation: 46 F.2d 88
• Parties: CITIZENS' & SOUTHERN NAT. BANK v. CITY OF ATLANTA, GA.
• Court: U.S. District Court — Northern District of Georgia

46 F.2d 88 (1931)

CITIZENS' & SOUTHERN NAT. BANK v. CITY OF ATLANTA, GA.

No. 602.

District Court, N. D. Georgia.

January 3, 1931.

Alston, Alston, Foster & Moise, of Atlanta, Ga., and E. W. Moise, of Atlanta, Ga., for plaintiff.

Janes L. Mayson, City Atty., of Atlanta, Ga., for defendant.

SIBLEY, District Judge.

The Citizens' & Southern National Bank, whose home office is in Chatham county, Ga., has a branch bank in the city of Atlanta, Fulton county, Ga., with a definite portion of the general capital and surplus allocated to the branch bank. The real estate of the bank in the city of Atlanta was assessed in 1930 by the city against the bank. The shares of stock in the bank, in proportion to the allocated capital, were at first assessed at their market value, which was higher than the book value; but on proper contest the book value was adopted, being the amount of tangible assets less liabilities. As a credit against this value the bank claimed, under the laws and practices relating to taxation of banks in Georgia, a deduction of the entire value of the branch bank's real estate assessed for taxation. The city claimed, as to a large office building bought by the bank, subject to an outstanding loan deed, that the deduction ought to be only of the amount the bank had invested in the equity, rather than the whole value of the property. This disputed credit is really the entire contention between the parties, though the argument has covered a wide field. The relief prayed is an injunction against and cancellation of a tax fi. fa. which represents the difference in taxes on the shares arising from the difference in the contested credit, the taxes in respect of the shares having been otherwise paid. In order to set at rest some general points of controversy and perhaps avoid future misunderstanding, a more comprehensive opinion will be expressed.

Since McCulloch v. Maryland, 4 Wheat. 316, 4 L. Ed. 579, the banks of the United States have been considered instrumentalities of the federal government, whose capital, franchises, and operations are therefore not taxable by the states by virtue of state powers of taxation, but only by virtue of such consent as the federal government may give. Owensboro National Bank v. City of Owensboro, 173 U. S. 664, 19 S. Ct. 537, 43 L. Ed. 850. This immunity from state taxation is extended to the ownership of the shares of stock in the banks, although the federal courts and Congress have drawn the broadest distinction between the ownership by the bank of its property and the ownership by the stockholder of his shares. The taxation of the one is not the taxation of the other even when the tax to be collected is of the same amount, and even though the final incidence of the tax is in all cases on the shareholder's profits. Owensboro National Bank v. City of Owensboro, supra. So also where the bank's capital is invested in non-taxable property, as for instance United States securities, the shareholder when taxed in respect of his shares cannot have the value attributable to such securities deducted, although in taxing the bank itself there must be a deduction. Home Savings Bank v. Des Moines, 205 U. S. 503, 27 S. Ct. 571, 51 L. Ed. 901. The permission to tax national banks and their shareholders in force at present is found in 12 U. S. Code, § 548 (12 US CA § 548), as amended by the Act of March 25, 1926, and carefully observes this distinction. It permits no direct taxation of the bank on its property except its real estate, but allows a tax on its net income, or permits taxation of the shares, or of dividends on them to the owner, but any one form of the permitted taxation is in lieu of all the others. The act expressly provides that realty may be taxed according to value as other realty is taxed. According to the foregoing reasoning and the numerous cases following it, the present assessment appears to be on the property of the bank other than realty, and against the bank and is, on its face, void. But the laws of Georgia themselves seek to tax only the shares of banks, including national banks, and expressly exclude all property of the banks from taxation except their realty (General Tax Act of 1927, § 11; Acts of 1927, p. 99); the shareholders being reached through the banks as their agents, which may properly be done. Home Savings Bank v. Des Moines, supra, at page 511 of 205 U. S., 27 S. Ct. 571. This appears to have been the real purpose in the rather informal return and assessment here involved, and the complainant in the petition expressly waives any claim of invalidity because in form the assessment is apparently against the bank on its property rather than against the shareholders on their shares. We accordingly treat the assessment as made against the shareholders represented by the bank.

The contentions next encountered are that: (1) The shareholders are taxed by the state on their dividends through the income tax statute approved August 22, 1929, and cannot be further taxed on their shares according to the act of Congress above referred to; (2) these shareholders are unequally treated, in that their shares are not credited with the full taxable value of their bank's realty as are those whose bank has fully paid for its realty.

As to the first contention stated, the city replies that it is an independent taxing district under its charter; that it lays no income tax and is not affected by the state income tax. This reply is not sound. The city of Atlanta exists only by the authority of the state of Georgia, and the city's taxing power is only a delegation of part of the state's taxing power. If the state does anything that alters or destroys its power to tax, the defect reaches to the city's power. If the state destroys its power to tax...