Commonwealth v. Farmers' Bank

• Decision Date: 01 June 1895
• Citation: 31 S.W. 1013,97 Ky. 590
• Parties: COMMONWEALTH, to Use of Franklin County, v. FARMERS' BANK OF KENTUCKY. FARMERS' BANK OF KENTUCKY v. BOARD OF COUNCILMEN OF CITY OF FRANKFORT. SAME v. FRANKLIN COUNTY. BANK OF KENTUCKY v. ARMSTRONG, Sheriff. SAME v. BOARD OF COUNCILMEN OF CITY OF FRANKFORT. COMMONWEALTH, to Use of Franklin County, v. BANK OF KENTUCKY. SAME v. DEPOSIT BANK OF FRANKFORT. DEPOSIT BANK OF FRANKFORT v. FRANKLIN COUNTY. COMMONWEALTH, to Use of Franklin County, v. FRANKFORT NAT. BANK. SAME v. STATE NAT. BANK. THIRD NAT. BANK v. CITY OF LOUISVILLE. LOUISVILLE BANKING CO. v. SAME. CITY OF LOUISVILLE v. BANK OF KENTUCKY. NORTHERN BANK OF KENTUCKY v. BOURBON COUNTY. CITY OF COVINGTON v. FIRST NAT. BANK OF COVINGTON. SAME v. GERMAN NAT. BANK OF COVINGTON. FARMERS' BANK OF KENTUCKY v. CITY OF HENDERSON.
• Court: Kentucky Court of Appeals

31 S.W. 1013

97 Ky. 590

COMMONWEALTH, to Use of Franklin County, v. FARMERS' BANK OF KENTUCKY.

FARMERS' BANK OF KENTUCKY v. BOARD OF COUNCILMEN OF CITY OF FRANKFORT.

SAME v. FRANKLIN COUNTY.

BANK OF KENTUCKY v. ARMSTRONG, Sheriff.

SAME v. BOARD OF COUNCILMEN OF CITY OF FRANKFORT.

COMMONWEALTH, to Use of Franklin County, v. BANK OF KENTUCKY.

SAME v. DEPOSIT BANK OF FRANKFORT.

DEPOSIT BANK OF FRANKFORT v. FRANKLIN COUNTY.

COMMONWEALTH, to Use of Franklin County, v. FRANKFORT NAT. BANK.

SAME v. STATE NAT. BANK.

THIRD NAT. BANK v. CITY OF LOUISVILLE.

LOUISVILLE BANKING CO. v. SAME.

CITY OF LOUISVILLE v. BANK OF KENTUCKY.

NORTHERN BANK OF KENTUCKY v. BOURBON COUNTY.

CITY OF COVINGTON v. FIRST NAT. BANK OF COVINGTON.

SAME v. GERMAN NAT. BANK OF COVINGTON.

FARMERS' BANK OF KENTUCKY v. CITY OF HENDERSON.

Court of Appeals of Kentucky.

June 1, 1895

Appeals from circuit courts of various counties.

"To be officially reported."

Actions were commenced by the commonwealth and various counties and cities against state and national banks to recover certain taxes assessed against them. From the judgments therein entered all the parties unite in this appeal. Modified.

W. H Julian, Ira Julian, H. S. Barker, Hugh Rodman, W. McD. Shaw Clifton Arnsparger, and Russell Mann, for the cities and counties. Wm. J. Hendrick, for the Commonwealth.

PRYOR C.J.

The Bank of Kentucky, the Northern Bank, the Farmers' Bank and other state banks, the National Bank of Covington and other national banks, are in this court by their presidents and directors, some of them appealing from judgments imposing upon them taxation for county and municipal purposes, and others standing as appellees in cases relieving them from such local burdens. The legislation imposing such burdens is found in the Kentucky statutes under the title of "Revenue and Taxation," and is based on sections 174 and 175 of the present constitution. Section 174 provides: "All property, whether owned by natural persons or by corporations, shall be taxed in proportion to its value, unless exempted by this constitution; and all corporate property shall pay the same rate of taxation paid by individual property. Nothing in this constitution shall be construed to prevent the general assembly from providing for taxation based on incomes, licenses or franchises." Section 175 provides: "The power to tax property shall not be surrendered or suspended by any contract or grant to which the commonwealth shall be a party." It is manifest, by reason of section 175, the right of the legislature no longer exists of surrendering the power to tax property, or by contract to bind the state to any other mode of taxation than that found in the constitution; and all property, whether belonging to corporations or individuals, must pay the same rate of taxation. The appellants in these cases (the banks) are claiming that prior to the adoption of the present constitution a contract had been entered into between them and the state by which, in consideration of the surrender by them of certain rights found in their respective charters, and by their consent and agreement to pay a larger state tax than individuals paid or their charters required, the state agreed not to impose upon them any local burden; and the important inquiry in these cases is, was such a contract, entered into between the banks and the state, based on a consideration binding the state on the one side and the banks on the other? The statute under which this contract is claimed to have been made is found in the General Statutes under the title of "Revenue and Taxation," sections 1 and 4 of article 2, and known as the "Hewitt Bill." Counsel for the banks, in the discussion of these cases, classified the banks as follows: (1) The banks chartered prior to the act of 1856, when the power to amend or repeal was not a part of the charter or reserved by any general law. (2) Banks chartered after that date, when by general law the right to amend or repeal the charters was expressly reserved. (3) The national banks. We shall treat all the cases as one in considering the application of the Hewitt act to the banks accepting its provisions.

Prior to the adoption of the present constitution it seems to have been the settled policy of the state to exempt banking institutions from local taxation, and requiring them to pay a larger tax to the state upon their property than that paid by the individual taxpayer, and this additional tax went into the state treasury, instead of being applied to municipalities in the discharge of local burdens. The framers of the constitution, not approving of this policy, established a fixed rule of taxation, and made all taxation alike upon property, whether for state or municipal purposes, applying the rule for municipal purposes to the territory in which the tax is imposed. It is argued, and no doubt true, that a discrimination must exist between banks located where heavy local burdens are imposed, and like institutions in more favored localities, where lighter or no local burden exists; and, while the banks in the commercial centers of the state are taxed $2.25 on the $100 under the present system (local and state), and those in an adjoining town or county only 1 per cent., may work a hardship, and prevent competition, or drive the bank thus heavily taxed to locate elsewhere, yet this, under the old system, was a question of policy only, and the framers of the present constitution, in adopting the ad valorem system, left no room for classifying property so as to make any discrimination in the subjects of taxation, and the suggestion of counsel can only be considered in determining the intent of the legislature in passing the Hewitt act and that of the banks in accepting it. It may be well, however, to ascertain the condition of the banks (and particularly those chartered before the year 1856) with reference to taxation, and the circumstances attending the legislation resulting in the passage of the Hewitt bill, in order to ascertain whether or not it was the purpose of the state to surrender in part its power of taxation, and that of the banks to relinquish any right they could have asserted against the state by reason of their charters. The banks in existence prior to the act of 1856 were claiming their charter contract by which a tax of 50 cents on each share of $100 of stock could only be imposed. The national banks claimed they were entitled to be taxed like the state banks, and were not liable for local burdens; and, besides, that their surplus, if in greenbacks or other nontaxable securities, could not be taxed, under their charter from the federal government. The state claimed that the old banks were taxed for too small an amount, and the banks chartered since the year 1856 were resisting any discrimination between such institutions and the old banks.

Under these circumstances the legislature devised a mode of taxation that prevented a discrimination that would otherwise exist, and by the provisions of the Hewitt bill said to all the banks, state and national, "We will impose a tax of 75 cents on each share of your capital stock equal to $100 and, in addition, a tax on your surplus; and this shall be in full of all tax, state, county, and municipal, provided you will accept the act imposing the tax, with the conditions annexed." This act reads: "Shares of stock in state and national banks and other institutions of loan and discount, and in all corporations required by law to be taxed on their capital stock, shall be taxed seventy-five cents on each share thereof, equal to $100 of stock therein, owned by individuals, corporations or societies, and such banks, institutions and corporations shall, in addition, pay on each $100 of so much of their surplus, undivided surplus, undivided profits or undivided accumulations, as exceeds an amount equal to ten per cent. of their capital stock, the same rate of taxation that is assessed upon real estate, which shall be in full of all tax, state, county and municipal;" the seventh section of the act further providing that "nothing herein contained shall be construed as exempting from taxation for county or municipal purposes any real estate or building owned and used by said banks or corporations for conducting their business; but the same may be taxed for county and municipal purposes as other real estate is taxed." Section 4 of this act provided: "That each of said banks, institutions and corporations, by its proper corporate authority, with the consent of a majority in interest of a quorum of its stockholders, at a regular meeting thereof, may give its consent to the levying of said tax, and agree to pay the same as herein provided, and to waive and release all right under the act of congress, or under the charters of the state banks, to a different mode or smaller rate of taxation, which consent or agreement with the state of Kentucky shall be evidenced by writing, under the seal of such bank, and delivered to the governor of this commonwealth; and upon such agreement and consent being delivered, and in consideration thereof, such bank and its shares of stock shall be exempt from all other taxation whatsoever, so long as said tax shall be paid during the corporate existence of such bank." Section 5 of the act provided: "The said banks may take the proceeding authorized by section 4 of this act at any time until the meeting of the next general assembly, provided they pay the tax provided for in section 1 from the passage of the act." Section 6 provides: "This act shall be subject to the provisions of section 8, chapter 68, General Statutes." The banks involved in this litigation accepted in writing the provisions of the act, and filed their written...