Albany City Nat. Bank v. Maher

• Decision Date: 27 March 1881
• Citation: 6 F. 417
• Parties: ALBANY CITY NAT. BANK v. MAHER, Receiver, etc.
• Court: U.S. District Court — Northern District of New York

6 F. 417

ALBANY CITY NAT. BANK v. MAHER, Receiver, etc.

United States Circuit Court, N.D. New York.

March 27, 1881

A. J Parker, for plaintiff.

R. W Peckham, for defendant.

WALLACE D.J.

The complainant moves for an injunction to restrain the defendant from all proceedings to collect a tax assessed against various stockholders of the complainant by the board of assessors of the city of Albany. The statute under which the assessment was made requires every banking association to retain so much of any dividend or dividends, belonging to stockholders, as shall be necessary to pay any taxes assessed in pursuance of the act. The complainant's bill alleges that its stockholders have been assessed, that none of them have paid the tax, and that several of them, owning together about half of the entire capital stock of the bank, have demanded their dividends and directed the complainant not to pay therefrom the taxes assessed, and refuse to allow the complainant to retain their dividends for that purpose.

The first ground upon which the right to an injunction is placed by the complainant is that the assessment contravenes section 5219, Revised Statutes of the United States, which prohibits the taxation of shares in national banks at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of the state. The assessment was made under the provisions of chapter 596 of the Laws of New York of 1880, prescribing a system for the taxation of banks and moneyed capital invested in the business of banking. By another act of the same year (chapter 542, Laws 1880) all corporations except banks, life insurance companies, and manufacturing companies are taxable upon their dividends when the dividends declared during the year amount to 6 per centum, then the tax is to be assessed upon a valuation of their capital stock, made by the comptroller of the state in a mode prescribed by the act. Section 8 of this act exempts the capital stock and personal property of these corporations from other assessment or taxation.

It is claimed for the complainant that this latter act, respecting the taxation of corporations, subjects them to a moderate taxation, and exempts their stockholders from any other taxation upon their stock and personal property in such corporations, while the act for the taxation of banks provides for a tax upon the shareholders, and an assessment on the value of the shares, and its operation is to impose a much heavier tax; and the bill alleges that the stockholders of the complainant are now taxed under that act at the rate of $3.60 on the par value of their shares, making the tax of all the stockholders of the bank the sum of $9,191, while under the general act the tax of all the stockholders would be but $450.

The national banking act permits the shares in any national bank to be included in the valuation of the personal property of the owner of such shares for the purposes of taxation under the laws of the state where the bank is located, but grants this right of taxation subject to the restriction 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 the true construction of this restriction is that it prohibits an assessment based upon a valuation which discriminates unfairly against bank shares, and is not merely intended to secure equality in the rate of the tax after the assessment has been made. People v. Weaver, 100 U.S. 539. If, therefore, the laws of this state prescribe one mode of assessment for the moneyed capital of individuals invested in ordinary corporations and joint-stock companies, and another for that invested in national banks, the practical result of which is to impose a higher assessment and heavier tax upon the latter, these laws are encountered by the restriction upon the taxing power of the state which the laws of the United States have prescribed. But I am of opinion that the complainant cannot prevail upon this theory, and that shareholders in national banks are not subjected to a discrimination or rule of assessment which does not obtain as to stockholders in other corporations, because the act for the taxation of corporations generally does not exempt individuals from assessment or taxation upon their personal property or moneyed capital invested in the shares of such corporations. This act exempts only the capital stock and personal property of such corporations and joint-stock companies from assessment or taxation.

There is a wide difference, for the purposes of taxation, between the capital stock and personal property of a corporation, and the shares held by the several stockholders. Capital stock and shares therein are distinct species of property-- as distinct as real estate and the mortgage by which it may be encumbered. The corporation and its capital and property are one thing; the stockholders and their property in its shares quite another. The corporation has the legal title and right of disposition of all the corporate property, subject to the conditions of its charter. The stockholders' right is to enjoy a proportionate part of the profits, or upon dissolution of the corporation a proportionate part of the assets after payment of debts. This is a distinct, independent interest or property held by the shareholder, like any other property that may belong to him. It is this interest which the national banking act has left subject to taxation by the states, while the states are denied the power to tax the capital stock of the banking association. It probably would not have been within the constitutional power of congress to permit the states to tax the capital stock of the banks. But no one doubts the authority of congress to permit the states to tax the shares of the stockholder. And because property of shareholders in shares, and the property of the corporation in its capital, are distinct property interests, both may be taxed. Van Allen v. The Assessors, 3 Wall. 573; The Delaware R.R. Tax, 18 Wall. 206; Farrington v. Tennessee, 95 U.S. 679. As both may be taxed, both may be exempted from taxation by legislative authority; but one is not exempted by the exemption of the other.

This construction of the exempting clause is consistent not only with the language used, but is consonant with the general scheme of the act as evinced by its several provisions. The first section, which prescribes the method by which the basis of the assessment shall be furnished by officers of corporations, enjoins the duty upon the officers of corporations liable to be taxed upon their 'capital stock.' In the third section of the act, prescribing the rate of the tax, the tax is assessed upon the capital stock of the corporation. There is nothing in the act to indicate that any other subject of taxation than capital stock of corporations was within the contemplation of the legislature. The exemption must not be construed to extend to a different subject and to a distinct species of property. The complainant must, therefore, fail upon this branch of its case. It relies, however, on the additional ground that the assessment in question is void because the assessors have failed to comply with the requirements of the local statute regulating their proceedings. Act of March...