Bank Tax Case

• Decision Date: 01 December 1864
• Citation: 69 U.S. 200,17 L.Ed. 793,2 Wall. 200
• Parties: BANK TAX CASE
• Court: U.S. Supreme Court

69 U.S. 200

17 L.Ed. 793

2 Wall. 200

BANK TAX CASE.

December Term, 1864

A STATUTE of the State of New York, passed in 1857, making some modifications of previous acts of 1823, 1825, and 1830, enacted that the capital stock of the banks of the State should be 'assessed at its actual value, and taxed in the same manner as other personal and real estate of the country.' After the passage of this act, several of the banks became owners of large amounts of the bonds of the United States, in regard to which Congress enacts¹ that 'whether held by individuals or corporations, they shall be exempt from taxation by or under State authority.' On a question between several banks of New York, formed under the general banking law of 1838 in that State, and the tax commissioners of New York, this court decided, in March, 1863 (Bank of Commerce v. New York City, reported in 2 Black, 620), that the tax referred to was a tax upon the stock; and that being so, it was by the settled law of this court illegally imposed. In April, 1863, just after this decision, the legislature of New York passed another statute,² which enacted that 'all banks, banking associations, &c., shall be liable to taxation on a valuation equal to the amount of their capital stock paid in or secured to be paid in, and their surplus earnings, &c., in the manner now provided by law,' &c. On a tax laid, under this act, by the commissioners, upon the different banks of New York City, some of which had invested their whole capital in the securities of the Federal Government, and others of which had largely done so, the question was whether this second act did or did not also impose a tax upon these stocks. The Court of Appeals of New York decided that it did not; and from this decision the case came here. It is proper to say that by the general banking law of New York, under which all these banks were created, it is enacted that the legislature may at any time alter or repeal the act. Between twenty and thirty banks being now here as plaintiffs in error, and the question being one of magnitude both in amount and in principle,³ as many of the corporations as wished to be heard were heard, though the principle involved was much the same in the case of each.

Messrs. Devlin, Brady, and Kernan, for the tax commissioners: These corporations are created by the State, and endowed by it with valuable franchises. That the corporations should pay the State for these is obvious. To make them pay is the purpose of the act. The tax is imposed upon corporations directly and specifically. It is not imposed upon their property. The thing is the same in substance as though the State required the corporation to pay annually into the State treasury a specified sum for the privileges and franchises granted. It is to be paid irrespective of the character of the securities held by the bank. Instead, for example, of requiring a specified sum to be paid annually, the law requires the corporation to pay to the State annually an amount equal to the tax which would be levied, for State purposes, 'on a valuation equal to the amount' of the nominal capital stock of the bank. This is more just than to exact a fixed sum annually. The reference in the statute to 'a valuation equal to the amount of their capital stock, paid in or secured to be paid in, and their surplus earnings,' is only for the purpose of fixing the amount which the corporations are annually to pay for their franchises. It has no regard to the actual capital owned by the bank, or to the securities, or the value of the securities held by it.

Concede, for the sake of argument, that the burden imposed by the act of 1863 upon the banks indirectly affects the United States securities by diminishing the inducements to the banks to invest in them, how does this render the act invalid? The State was under no obligation to create these corporations to aid directly or indirectly the Federal Government in exercising its powers. Without violating the Constitution of the United States, the State might, by the original act creating them, have required these banks to make State stocks or mortgages the basis of and security for the redemption of the notes they were authorized to issue, and to invest all their capital and funds in these securities, to the exclusion of United States stocks. The State is not bound to continue the existence of the banks because they aid the Federal Government. They are created by power of the State, and by the express provisions of their charter exist only during its pleasure. They were created for the benefit of the people of the State, and whenever, in the judgment of the legislature, the good of the State requires it, they may be abolished, notwithstanding they were beneficial to the Federal Government in the exercise of its power to borrow money. Hence, while the State cannot tax the bonds issued by the United States held be these institutions, it can compel them to contribute to State burdens, as the price of their existence, the same amount as though they did not hold such bonds. The fact, if it be so, that this action of the State will tend to prevent these institutions from investing in United States bonds, does not render the same unconstitutional any more than their non-creation would be a failure by the State to perform its constitutional duty, or the repeal of their charters would be a violation of the constitution. Being the creatures of State power, the State may legitimately so create and burden them that they shall subserve the interest of the State, rather than the interest of the Federal Government. It is to be observed that in this action the State does not, in any just sense, obstruct the exercise of its legitimate power by the Federal Government. It simply fails to give it incidental aid. It so legislates that the State, rather than the Federal Government, derives advantages from an institution created and continued by legitimate State authority. What is there unpatriotic or unconstitutional in this? The sovereignty of a State extends to everything which exists by its own authority, or is intro duced by its permission.

Messrs. Daniel Lord, A. W. Bradford, B. D. Silliman, Marshall Spring Bidwell, Benedict, Bonney, Van Winkle, and others, contra, for different Banks: It is of no consequence whether a tax be levied on a person natural or artificial in respect to property, or on the property itself. Under any system where property is the criterion of taxation, and affords the basis of a rate or assessment, the tax may be said to be a tax upon the property, or a tax upon the person or institution, owning it, in respect to such property. It is only a different mode of announcing the same proposition. 'In New York, all taxation is upon property. It is the same thing in substance, to say that it is upon the owner in respect to property.'⁴ There may be a difference in the mode of assessing and valuing the property of a person and the property of a corporation; but supposing the mode the same in each case, viz., that of actual valuation, then as to exemptions under the Constitution of the United States, the position of a bank 'is the same as that of an individual tax-payer. It is, as a general rule, assessed and taxed for all its property of every kind; but there is an exception as to such part of its property, as the Constitution and laws of the Union, and of the States, have upon special reasons of policy, declared shall be exempted. Whether such exempt property is found in the hands of an individual, or in the possession of a corporation taxed upon the actual value of its capital, the rule is the same, the exempt property is to be deducted from the aggregate valuation, and the tax is to be imposed on the residue.'⁵ The privilege of exemption from taxation on so much property as may have been lent to the Government of the United States, cannot be made to depend on the mode of valuation, either of the property of an individual, or of a corporation. If so dependent, it is obvious that the immunity of the Government from taxation upon its means of borrowing money amounts to nothing. Such a method of taxing is equivalent to saying, property shall be taxed without reference to its mode of investment. Thus, exemption would be avoided by simply refusing to consider what constitutes the basis of exemption. And this can be done as well with reference to individuals as corporations. Individuals may be taxed on 'a valuation' equal to the cost-price of their property, 'paid, or secured to be paid.' This would be just as definite and invariable as the assessment of corporations on a 'valuation' equivalent to the amount of capital stock paid in, or secured to be paid in, and so exemption from taxing Government stock be avoided altogether.

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