Covington City Nat. Bank v. City of Covington

• Citation: 21 F. 484
• Parties: COVINGTON CITY NAT. BANK v. CITY OF COVINGTON and others. [1] FIRST NAT. BANK v. SAME. (FN1)
• Decision Date: 01 August 1884
• Court: D. Kentucky

21 F. 484

COVINGTON CITY NAT. BANK v. CITY OF COVINGTON and others. ^[1]

FIRST NAT. BANK v. SAME. (FN1)

United States Circuit Court, D. Kentucky.

August, 1884

Benton & Benton, for Covington City Nat. Bank.

John F & Chas. H. Fiske, for First Nat. Bank.

Wm Byrne, City Sol., Mr. Roberts, and H. C. Whittaker, for City of Covington.

MATTHEWS Justice.

The respective complainants in these two bills in equity are national banking associations organized under the laws of the United States, who seek to restrain by a perpetual injunction the collection of certain taxes sought to be assessed and collected by the city of Covington under the alleged authority of the laws of Kentucky. In the first case, the amount of taxes claimed by the defendant is $10,406.62. It is made up by an assessment for the year 1881 upon the surplus fund of the bank to the amount of $100,000; for the year 1882 on a surplus to the amount of $127,550; for 1883 on a surplus fund and undivided profits to the amount of $131,800; by an assessment, also, for the years 1880, 1881, 1882, and 1883 upon the real estate and improvement owned by complainant and used as a banking-house, valued at $23,000; and by an assessment for the years 1881, 1882, and 1883 upon a piece of real estate valued at $12,000; and upon another piece of real estate for the years 1880, 1881, and 1882, valued at $600. Both these pieces of real estate were acquired by the bank at judicial sales for the purpose of recovering and securing an indebtedness to it. In the case of the first piece, the sale was finally confirmed October 6, 1881, and the property was resold by the bank, January 28, 1882. In the latter possession was finally obtained by a writ of possession March 25, 1882, and the property was resold June 14, 1882. The rate of taxation upon property for city purposes during said years was $1.58 upon each $100 of valuation, and the amount now in controversy includes a penalty of 15 per cent. for non-payment. In the second case, the taxes claimed amount to $11,538.08, and are as follows: Upon surplus and undivided profits for the year 1882 to the amount of $160,000, for 1883 to the amount of $170,000, and for 1884 to $174,000; upon real estate owned and used as a banking-house for each of the said years, valued at $25,000; and for office furniture used by said bank in the transaction of its business, $3,000; together with a penalty of 15 per cent. The capital of each of the complainant banking associations is $500,000, divided into shares of $100 each; and the fund described as surplus and undivided profits is the accumulation in addition to the capital stock, of which $100,000 in each case is the surplus required by law to be reserved undivided among the stockholders; and the whole fund, it is alleged in the bills, has been invested at all times during the years mentioned, in United States bonds, treasury notes, and other obligations of the United States not taxable.

The state legislation which it is supposed authorizes the taxation complained of, is as follows: The charter of the city of Covington, by an amendment approved July 1, 1858, empowers the council to assess and collect taxes on real and personal estate, choses in action, and moneys within the city and belonging to its inhabitants, as they may designate, and such as may be taxable by the laws of the commonwealth. Annual ordinances of the council have been passed for each of the years mentioned, specifying the rate of the tax levied, and directing it to be assessed on all property belonging to the inhabitants of the city, or located therein. The General Statutes of the state, prescribing the subjects and mode of taxation for state purposes, in section 4, enumerate lands, horses, and gold watches, and other items of personal property, to be specifically listed for taxation by the assessor. The fifth section prescribes that the assessors, after having taken the lists required by the previous section, shall require each person on oath to fix the amount he is worth from all sources. After taking out indebtedness, the property described in the foregoing list, after deducting $100, is to be listed for taxation. But it is expressly prescribed that there is not to be included in this statement and list, bank or other stock, when the bank, or other institution or corporation in which it is held, is required to pay tax on the same. Article 1 of the same act, under the caption of 'Specific Taxation of Real and Personal Estate,' provides for a tax on 'bank stock, or stock in any moneyed corporation of loan or discount, of 50 cents on each share thereof equal to $100, or on each $100 of stock therein owned by individuals, corporations, or societies. ' It also appears that nearly all the banks of this state are specifically taxed upon their stock at 50 cents upon each share of $100; and that in the charters of most of them this tax is declared to be in lieu of all other taxes. And, in construing and applying a provision to this effect in the charter of the Farmers' Bank of Kentucky, the court of appeals of the state, in Farmers' Bank v. Com., etc., 6 Bush. 127, said: 'By a compliance with the section last quoted, the bank was to be discharged from the payment of all and every other tax. From the amplitude of the language no other rational construction can be given to it. ' It was accordingly decided in that case that the bank was not liable to be assessed for taxation for state or county purposes upon real estate taken by it or purchased by it in satisfaction of a debt, because 'it represents the assets of the bank to its value, and is no more subject to taxation than the notes or bills held by the bank, or the money in its vaults. ' This seems to be the established and accepted law of the state. Johnson v. Com. 7 Dana, 342; Trustees of Eminence v. Deposit Bank, 12 Bush, 540; Com. v. First Nat. Bank of Louisville, 4 Bush, 101; Louisville & N.R.R. v. Com. 1 Bush, 255.

The state law in force imposing a tax on shares of stock in national banks, passed April 9, 1878, provides 'that an annual tax of fifty cents is assessed and shall be collected on each share of stock equal to $100 in any bank located within the limits of the commonwealth, organized under the laws of the United States, usually denominated national banks, or on each $100 of stock therein owned by individuals, corporations, or societies;' and the cashier of each of said banks is made responsible for the due payment of the said tax into the treasury of the state. A provision precisely similar is made for the taxes imposed upon the stock of state banks and other corporations, which are required to be paid directly to the treasury without the intervention of assessor or collector. Other corporations, such as railroads, gas and water, toll-bridge, and telegraph companies, are assessed for taxation upon their corporate property. And in all such cases, when the companies are required to report and pay taxes upon their property, the individual stockholders are not required to list their shares in such companies for taxation. A comparison of the provisions of the statutes of Kentucky, in the light of the decisions of the court of appeals construing them, compels the conclusion that the corporate property of banks, organized under the laws of Kentucky, is not taxable beyond the tax of 50 cents on each share of stock of $100, and that the same rule applies to the taxation of national banks. This conclusion exempts in the present cases the furniture and real estate of the complainants, sought to be subjected to an assessment for municipal taxation in the city of Covington, as though it were similar property owned by natural persons. Were it otherwise as to the terms of the state statutes, the furniture of the bank would still be exempt, because the act of congress, without whose permission it cannot be taxed by state authority, has not permitted it; while, on the other hand, it is equally clear that the real estate of national banks might be subjected to a state tax, because the act of congress does expressly permit it.

It is claimed in argument that a distinction is to be made in respect to the surplus fund; or, at least, to that part of it denominated undivided profits, which, it is argued, represents a property interest belonging to the stockholder, subject, like other property of individuals, to taxation, and not included in the shares of stock separately taxed at 50 cents upon each share of $100. In respect to this interest,-- undivided profits,-- it is argued that they do not pertain to the bank as an accumulation required by law, and...