Bank of Fairfield v. Spokane County

Decision Date17 May 1933
Docket Number24132.
Citation173 Wash. 145,22 P.2d 646
CourtWashington Supreme Court

Appeal from Superior Court, Spokane County; Fred H. Witt, Judge.

Action by the Bank of Fairfield, and 57 other actions, against Spokane County, which were consolidated for purposes of trial and appeal. From the various decrees rendered in the respective cases, defendant appeals.


C. W Greenough and A. O. Colburn, both of Spokane, and Harry A Rhodes, of Seattle, for appellant.

Post Russell, Davis & Paine, Alex M. Winston, Fred J. Cunningham, William Hatch Davis, E. D. Weller, Roy E. Lowe, B. H. Kizer, Graves, Kizer & Graves, Parker W. Kimball, McCarthy & Edge, and Danson, Lowe & Danson, all of Spokane, for respondents.


This case comprises fifty-eight separate actions consolidated for purposes of trial and appeal. In each of the actions the respective plaintiffs seek to invalidate certain taxes for the year 1928 levied under assessments, or rather reassessments, made on omitted property and on bank stocks in 1931; the original 1928 assessments having theretofore been canceled. Upon a trial Before the court, sitting without a jury, the assessments, or reassessments, and the taxes extended and levied thereon, were ordered canceled and set aside and the defendant perpetually enjoined from any further attempt to collect them. From the various decrees rendered in the respective cases, the defendant has appealed.

The procedure adopted by the county and its taxing officers in their attempt to make these assessments, or reassessments, and to levy the taxes thereon, has its background and preparatory basis in certain decisions formerly rendered by this court, namely, Spokane & Eastern Trust Co. v. Spokane County, 153 Wash. 332, 280 P. 3; National Bank of Commerce of Seattle et al. v. King County, 153 Wash. 351, 280 P. 16; Yakima National Bank et al. v. Yakima County, 153 Wash. 375, 280 P. 25, all decided August 9, 1929; to which some impetus was later added by the decision in the case of Aberdeen Savings & Loan Ass'n v. Chase, 157 Wash. 351, 289 P. 536, 290 P. 697, 71 A. L. R. 232, rendered June 12, 1930. All of these decisions were en banc. In order to get a proper perspective of the present actions, we will briefly review those former decisions.

In the Spokane & Eastern Trust Co. Case it was held that, in determining the value of bank stock for taxation purposes, the value of the banks' nontaxable securities could not be taken into consideration because otherwise the effect would be to impose a tax indirectly on property which the Legislature had specifically said should be exempt, under chapter 130, p. 228, Laws of 1925, Ex. Sess., § 5, Rem. Rev. Stat. § 11109, which provides that mortgages, notes, accounts, certificates of deposit, tax certificates, judgments, state, county, municipal, and taxing district bonds and warrants shall not be considered as property for the purpose of the taxation act.

In the National Bank of Commerce Case it appeared from the evidence that national banks were being taxed upon their shares of stock, the value of which, as determined by the assessor, included their capital, surplus, and undivided profits; whereas, in the case of certain of their competitors, such as savings and loan associations, mutual savings banks, trust companies, domestic and foreign finance corporations, industrial loan companies, bond dealers, investment bankers, note brokers, mortgage loan companies, and domestic insurance companies, no assessments were made upon any of their personal property or intangible assets, other than office furniture and fixtures. It was held in that case that 'moneyed capital' employed in such manner as to bring it into substantial competition with the business of national banks, as was done in the instances referred to, was within the restriction of U.S. Rev. Stat. § 5219, as amended (12 USCA § 548), which prohibits state taxation of shares of national bank stock at a greater rate than is assessed upon other 'moneyed capital' in the hands of individual citizens of such state coming into competition with the business of national banks. It was further held that the competitive nature of 'moneyed capital' did not depend upon an absolute competition in all phases of business conducted by national banks, but was established when it was shown that such capital was employed, either by an individual or by a corporation, in the same sort of transactions as that in which national banks were engaged in any of their capacities; the determining factor being, not the character of the competitive business, but the manner of employment of capital by the competitor.

The Yakima National Bank Case was a companion to the National Bank of Commerce Case, and expressed the same conclusion and result. Judge Holcomb concurred in the National Bank of Commerce Case and dissented in the Yakima Natinal Bank Case, on the ground that in the former case the competing capital was employed in the same locality and was substantial in amount when compared with the capitalization of the national banks, while in the latter case, he said, those elements were lacking.

In the Aberdeen Savings & Loan Ass'n Case it was held that a tax on banks and financial corporations, measured by their net income, as provided in chapter 151, Laws 1929, p. 380 et seq., was unconstitutional and void, in that it violated the 'equal protection clause' of the Federal Constitution (Amendment 14, § 1) and was in contravention of the laws of the United States which provide that no state shall have authority to tax the income from tax-exempt government securities. Although there were two dissenting opinions in that case, the court, by per curiam, opinion on petition for rehearing, adhered to its original holding. 157 Wash. 391, 289 P. 536, 290 P. 697, 71 A. L. R. 232. The same result was reached in Burr, Conrad & Broom v. Chase, 157 Wash. 393, 289 P. 551.

Thus it will be seen that the sum total and effect of those decisions is: (1) That credits of the nature above referred to cannot be taken into consideration in fixing the value of bank stock; (2) that shares of stock of a national bank cannot be taxed at a greater rate than is taxed against other 'moneyed capital' employed in substantial competition with that of national banks; and (3) that a tax upon banks and financial institutions measured by their net income is offensive to the Federal Constitution and therefore invalid.

At the time that the decisions in the original bank cases were rendered, namely, August 9, 1929, there were pending in Spokane county a number of cases involving the same questions as were involved in the adjudicated cases. Recognizing the controlling effect of those decisions, the prosecuting attorney of Spokane county consented to the entry of decrees in the pending cases, canceling the bank taxes therein sought to be collected. Despite the situation as it then stood, the prosecuting attorneys throughout the state, generally, felt convinced that a vast amount of taxable property of various banks and other financial institutions and associations in the state had been omitted from the tax rolls, or had not been properly assessed. They further felt that their conviction was confirmed by certain expressions of this court, particularly in the dissenting opinions in the very cases, supra, which had held that the taxes sought to be collected could not be levied in the manner followed by the taxing officers. The prosecuting attorneys also conceived it to be their duty, as legal advisers of the taxing authorities in their respective counties, to ascertain, if possible, the proper method of subjecting such property to assessment and taxation, for the guidance of those to whom was immediately committed that responsibility. As such advisers, they focused their attention upon a consideration of the questions thus significantly presented and suggested by the recent decisions. The initiative in this respect was taken by Mr. A. O. Colburn, deputy prosecuting attorney for Spokane county, aided by Mr. Harry W. Rhodes and Mr. D. D. Schneider, who held similar positions in King and Pierce counties, respectively. After a careful analysis of the immediate decisions, and an extensive study of tax cases generally in this state, Mr. Colburn with commendable zeal prepared and submitted a tentative brief for the consideration and guidance of the assessors of the state.

As deduced from the foregoing decisions, the problem, as it appeared to Mr. Colburn, required the valuation of bank stock for tax purposes upon some basis that would be upheld by the courts, and the placing upon the tax rolls as omitted property the capital stock, or equivalent taxable property of all or substantially all other and competing financial companies as catalogued in the National Bank of Commerce Case. In determining the value of capital stock, it was recognized that charges of inequality might be raised if certain stocks, for which there was a market value, were assessed upon that basis, and other stocks, for which there was no ready and available market, were assessed upon some other basis. He therefore concluded that the only fair, equitable, and workable method of measuring the value of capital stock was by first ascertaining all the taxable and nonexempt personal assets of the particular institution, leaving out of consideration its real estate, and then appraising the value of the ascertained items in the same way as items of similar personal property were customarily appraised. He next concluded that the taxable items of personal property would consist of the office furniture, fixtures, safe deposit vaults, supplies, automobiles, and similar...

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