Bank of Miles City v. Custer County

• Decision Date: 21 January 1933
• Docket Number: 7071.
• Parties: BANK OF MILES CITY v. CUSTER COUNTY.
• Court: Montana Supreme Court

19 P.2d 885

93 Mont. 291

BANK OF MILES CITY v. CUSTER COUNTY.

No. 7071.

Supreme Court of Montana

January 21, 1933

Rehearing Denied March 24, 1933.

Appeal from District Court, Custer County; Frank P. Leiper, Judge.

Action by the Bank of Miles City against Custer County. From an adverse judgment, plaintiff appeals.

Affirmed.

That mortgages and Liberty bonds owned by state bank were considered in computing valuation of bank's shares for taxation held not to establish that any tax was levied on mortgages as such (Laws 1929, c. 64; Const. art 12,§ 2).

Frank Woody, of Helena, and P. F. Leonard, of Miles City, for appellant.

L. A Foot, Atty. Gen., L. V. Ketter, Asst. Atty. Gen., and Rudolph Nelstead, of Miles City, for respondent.

ANDERSON Justice.

The appellant, a banking corporation organized under the laws of Montana, conducting a general banking business at Miles City Custer county, brought this action for the purpose of recovering a portion of its taxes assessed for the year 1929, paid under protest, and within the time allowed by law for the commencement of this class of action.

The assessor of Custer county had determined the value of the moneyed capital, the property of appellant bank, assessed it as such to the bank, and determined the value of the shares of stock in the bank by ascertaining the full cash value thereof and deducting therefrom the value of properly otherwise assessed to the bank, including moneyed capital, which residue was assessed as against the shares of stock. Taxes were then imposed as against the moneyed capital and the shares of stock on the basis of 30 per cent. of the full and true value of these properties.

The assessment and imposition of the tax were in accordance with the provisions of chapter 64 of the Laws of 1929. Under the provisions of this act, moneys and credits other than shares of stock and moneyed capital belonging to state and national banks and individuals coming into competition with the business of national banks or employed in conducting a banking or investment business are subject to the imposition of a tax on the basis of 7 per cent. of their full, true, and assessed valuation.

The appellant bank computed the taxes on the moneyed capital on the basis of 7 per cent. of the full, true, and assessed valuation, and on the basis of this computation paid to the county assessor of the respondent the sum of $114.92, without protest, and paid the sum of $377.53, the excess of the tax imposed by reason of the difference in the computation between computing the tax on 7 per cent. of the valuation and 30 per cent. of the valuation.

The appellant likewise paid, without protest, the sum of $352.88 on the value of the shares of stock computed on 7 per cent. of the valuation thereof, and the sum of $1,159.45, under protest, being the difference between the value of the stock taxed on the basis of 7 per cent. of its full and true valuation and 30 per cent. of the full and true valuation thereof.

The appellant by this action sought to recover the sum of $1,536.98, being the total amount of taxes paid under protest, on the theory that, for certain reasons hereafter discussed, chapter 64, supra, was invalid and void, being in violation of certain provisions of the State and Federal Constitutions. Judgment in the court below, after trial, was for the dismissal of the complaint of appellant.

By appropriate specifications of error, appellant presents to this court the questions as to the validity of chapter 64, Laws of 1929. Appellant contends that the chapter creates on the face of the law a discrimination in favor of moneys and credits owned by individuals and corporations other than national banks, state banks, and moneys and credits in the hands of corporations coming into competition with the business of national banks, or employed in conducting a banking or investment business, and thereby the act is rendered void by the provisions of section 11, article 12, of the State Constitution, and the provisions of the Federal Constitution (Amendment 14) prohibiting a state from making and enforcing any law which deprives a person of property without due process of law, or denies to any person the equal protection of the law.

The burden of the argument on behalf of appellant in support of this contention is that moneys and credits are not the subject of further classification for the purposes of taxation. This court has held, and appellant concedes, that it is within the power of the Legislature to classify property for the purposes of taxation. Hilger v. Moore, 56 Mont. 146, 182 P. 477.

In the solution of the question as to whether or not it is possible to further classify moneys and credits into two or more classes for the purposes of taxation, a statement of the fundamental principles of law underlying the classification of property is necessary:

The use to which the property is devoted and its productivity is the measuring stick in determining its proper classification. Chicago, Milwaukee & St. Paul Ry. Co. v. Powell County, 76 Mont. 596, 247 P. 1096; Hilger v. Moore, supra; 1 Cooley on Taxation (4th Ed.) § 335, p. 717; McHenry v. Alford, 168 U.S. 651, 666, 18 S.Ct. 242, 42 L.Ed. 614; State v. Leonardson, 51 Idaho, 646, 9 P.2d 1028.

The basis for classification of the thing classified need not be deducible from its nature. Watson v. State Comptroller of New York, 254 U.S. 122, 125, 41 S.Ct. 43, 65 L.Ed. 170; Stebbins v. Riley, 268 U.S. 137, 144, 45 S.Ct. 424, 69 L.Ed. 884, 44 A. L. R. 1454.

Discrimination merely is not inhibited, for it is recognized that there are discriminations which the best interests of society require. Heisler v. Thomas Colliery Co., 260 U.S. 245, 255, 43 S.Ct. 83, 67 L.Ed. 237.

A classification is not open to objection unless it precludes the assumption that the classification was made in the exercise of legislative judgment and discretion. Stebbins v. Riley, supra.

Any classification is permissible which has a reasonable relation to some permitted end of government action. Heisler v. Thomas Colliery Co., supra; Watson v. State Comptroller of New York, supra.

When there is a difference between various properties, it need not be great or conspicuous in order to warrant classification. Citizens' Telephone Co. v. Fuller, 229 U.S. 322, 331, 33 S.Ct. 833, 57 L.Ed. 1206; Keeney v. New York, 222 U.S. 525, 536, 32 S.Ct. 105, 56 L.Ed. 299, 38 L. R. A. (N. S.) 1139.

For the purposes of classification of property, there is a difference in the doing of business and its results. Citizens' Telephone Co. v. Fuller, supra.

It makes no difference that the facts on which the classification is based may be disputed or their effect opposed by argument and opinions of serious strength. It is not within the province of the courts to arbitrate any such contrariety. Rast v. Van Deman & Lewis Co., 240 U.S. 342, 357, 36 S.Ct. 370, 60 L.Ed. 679, L. R. A. 1917A, 421, Ann. Cas. 1917B, 455; Heisler v. Thomas Colliery Co., supra.

Moneys and credits, when employed in the banking business or in a business in competition therewith, have a greatly increased productivity as compared to moneys and credits in the hands of the ordinary individual or corporation using them for casual investment only. The bank uses its money as a stock in trade, and through its use buys and sells securities and commercial paper for profit, purchases notes at a discount, makes short-time loans, whereby it is enabled to secure interest or profit and reinvest it many times during a given year. By reason of these banking practices, careful investment in a banking business during the course of a year's time yields a much larger income on a percentage basis than the same money yields in the hands of the casual investor. The use of the money by a bank, as compared to the occasional investor, is essentially different and results in greater productivity; because thereof a substantial reason exists as a proper foundation for the division of moneys and credits into two classes for the purposes of taxation.

Counsel for appellant have invited the attention of this court to numerous authorities wherein it is held that the division of the same kind of property into separate classes is arbitrary and discriminatory, and therefore void. But an examination of all the authorities cited reveals the fact that the classification condemned was not supported by any substantial reason for its creation or existence, with the possible exception of the case from the Supreme Court of Kansas. Voran v. Wright, 129 Kan. 1, 281 P. 938. But that court fails to give consideration to the difference in the use of property as a basis for classification.

This court, however, has taken a contrary view on that subject, as well as has the Supreme Court of the United States, and no sufficient reason is given why this court should depart from established precedents. Nevertheless, the Kansas court has in a subsequent decision recognized a further classification of moneys and credits, if a fair basis in support thereof is established. Citizens' Bank of Galena v. Tax Commissioner, 132 Kan. 5, 294 P. 940. Also see Davis-Wellcome Mortgage Co. v. Haynes, 119 Kan. 1, 237 P. 918.

We therefore conclude, and so hold, that moneys and credits may be classified for purposes of taxation in different classes, where, as here, by reason of the difference in the use and productivity of the same, a substantial reason exists as a foundation for such classification.

Appellant further contends that the provisions of chapter 64, Laws of 1929, in providing that credits not employed in a banking or investment business, or in competition with banking business shall not include evidences of indebtedness secured by mortgages of record upon real...