Des Moines Nat. Bank v. Fairweather

• Decision Date: 12 February 1921
• Docket Number: 33525
• Citation: 181 N.W. 459,191 Iowa 1240
• Parties: DES MOINES NATIONAL BANK, Appellee, v. THOMAS FAIRWEATHER et al., Appellants
• Court: Iowa Supreme Court

181 N.W. 459

191 Iowa 1240

DES MOINES NATIONAL BANK, Appellee, v. THOMAS FAIRWEATHER et al., Appellants

No. 33525

Supreme Court of Iowa, Des Moines

February 12, 1921

SUPPLEMENTAL OPINION ON REHEARING SEPTEMBER 28, 1921.

Appeal from Polk District Court.--THOMAS J. GUTHRIE, Judge.

IN THE district court, this was an appeal from the action of the city council of Des Moines, acting as the board of review, in the matter of an assessment of the shares of stock of the plaintiff bank. The appeal was presented to the district court in the form of a petition filed by the plaintiff, to which petition the defendants demurred. The district court overruled the demurrer. The defendants, electing to stand thereon, have appealed to this court.

Reversed.

H. W Byers, Reson S. Jones, C. A. Weaver, and Paul Hewitt, for appellants.

Sargent Gamble & Read, for appellee.

EVANS, C. J. WEAVER, PRESTON, STEVENS, ARTHUR, FAVILLE, and DE GRAFF, JJ., concur.

OPINION

EVANS, C. J.

Pursuant to Section 1322, Code Supplement, 1913, the bank furnished to the assessor the statement required by such section for the purpose of enabling the assessor to fix the assessed value of the bank shares of stock, and to assess the same against the respective stockholders. From this statement it appeared that the capital stock, the surplus, and the undivided earnings amounted to an aggregate of $ 905,849. This aggregate included real estate to the value of $ 156,000, and another item of $ 62,000, both of which items were deducted by the board of review from the larger aggregate, leaving a net valuation, for the purpose of assessment of the shares of stock, of $ 687,799.

It appeared also from such statement that the plaintiff held as an investment certain tax-exempt securities of the United States government, amounting to $ 1,442,486. The plaintiff demanded that the valuation of its shares for the purpose of assessment should be diminished by the amount of such tax-exempt securities. This contention was denied by the board of review and allowed by the ruling of the district court. The effect of such allowance was to absorb the entire value of the plaintiff's shares of stock for the purpose of taxation, and to leave no assessable value therein. Such result is sufficiently startling to challenge both judicial and legislative attention.

In its petition in the district court, the plaintiff set forth the following seven grounds of attack upon the assessment:

"1. Because said assessment subjected to taxation said securities of the United State government.

"2. Because said assessment subjected to taxation said securities of the United States government, contrary to the provisions of the Constitution of the United States and the statutes in such cases made and provided.

"3. Because said assessment subjected to taxation shares of stock in a national banking corporation, organized as aforesaid, at a greater rate than money capital in the hands of individual citizens of a state.

"4. Because said assessment was not made in accordance with the provisions of Sections 1321 and 1322 of the Supplement to the Code of Iowa, for the reason that by said Section 1322 the assessor is required to fix the value of the shares of stock of corporations based upon the capital, surplus, and undivided earnings disclosed by the statement therein required to be furnished by the corporation, and required to contain the same information set forth in Section 1321 of the Supplement to the Code of Iowa; whereas, by the fourth subdivision of Section 1321, the specific kinds and descriptions of bonds exempt from taxation is required to be stated, and that, in and by the proceedings leading to said assessment, such bonds have not been exempted from taxation, but have been considered in fixing the amount of said assessment.

"5. Because in truth and in fact, by the method pursued, the assessment is of the tangible assets of the appellee, and includes said securities issued by the United States government.

"6. Because said assessment is contrary to the provisions of Section 5219 of the Revised Statutes of the United States, for that the shares of stock in national banking associations are immune from taxation by state or local taxing authority, except upon the express consent of the congress of the United States, and such consent, if any, is evidence by the provisions of said Section 5219 of the Revised Statutes; whereas said section, for the purpose of preserving the state power of taxation, is construed by the Supreme Court of the United States to consider the subject from the point of view of ultimate beneficial interest,--that is, said section treats the stock interest, the stockholder, and the bank as one, and subject to one taxation, by the methods which it provides.

"7. That said assessment is not made in accordance with the provisions of Chapter 257, Acts of the 38th General Assembly, known as Senate File 479."

Defendants' demurrer was based upon two general grounds:

(1) That it appeared upon the face of the petition that the plaintiff was not entitled to any relief.

(2) That Chapter 257 of the Acts of the Thirty-eighth General Assembly is unconstitutional and void.

These stated grounds of the petition and demurrer concisely present the scope of the whole controversy.

The demurrer was overruled generally, so that the plaintiff stands here upon all the grounds of its petition, any one of which, if valid, is sufficient to sustain the ruling below. As to the first six grounds of plaintiff's petition, they go to the power of taxation conferred upon the state by Section 5219 of the Revised Statutes of the United States. The seventh ground goes to the construction and validity of the statutes of this state, Chapter 257, Acts of the Thirty-eighth General Assembly.

I. As to the first six grounds of complaint made by plaintiff against the assessment, these all involve the question of the power of the state, under the permission of Section 5219 of the Revised Statutes of the United States, to assess against the shareholders of a national bank the value of the shares of stock therein in accord with the provisions of our Section 1322, and regardless of the tax-exempt character of the assets of the bank. We have ourselves held in the affirmative on this question. Head v. Board of Review, 170 Iowa 300; First Nat. Bank v. City of Council Bluffs, 182 Iowa 107, 161 N.W. 706. Such also is the holding of the Federal courts, whose precedents are obligatory upon us upon this question. See Hannan v. First Nat. Bank, 269 F. 527. The cited case was decided very recently by the Federal circuit court of appeals for this circuit. It reviews the previous cases with great care, and holds squarely that there is no conflict between Section 5219 of the Revised Statutes of the United States and Section 1322 of the Code of Iowa.

In view of this pronouncement, it is quite needless that we enter into argument on this feature of the case. Following the Federal holding in the Hannan case, we must hold that the first six grounds of complaint set forth in plaintiff's petition must each and all be overruled.

II. It remains to consider the seventh ground of the petition and the demurrer thereto. Chapter 257 of the Acts of the Thirty-eighth General Assembly is a purported amendment to Section 1304 of the Supplemental Supplement of 1915. Such act, with the title thereto, is in full as follows:

" An Act to amend Section one thousand three hundred four (1304) Supplemental Supplement to the Code, 1915, relating to property exempt from taxation.

"Be it Enacted by the General Assembly of the State of Iowa:

"Section 1. That Section one thousand three hundred four (1304), Supplemental Supplement to the Code, 1915, be and the same is hereby amended by adding after the semicolon in line sixteen thereof, the following: 'provided, however, that in determining the assessed value of bank stock, the amount of obligations issued by the United States government since the declaration of war against Germany, actually owned by a bank or trust company shall be deducted, and any bank or trust company which since January first, nineteen nineteen, has been assessed on its shares of stock without so deducting such United States government securities shall be entitled to have its assessment on its shares reduced by the board of supervisors of the county in which such bank is located, so as to deduct from its total valuation such government securities. Provided, however, that no deduction shall be made unless the bank or trust company claiming the same shall have been the owner in good faith and not for the sole purpose of securing such deduction, of said securities for a period of more than sixty (60) days prior to December thirty-first of the year preceding that for which the assessment is made.'

"Sec. 2. This act being of immediate importance shall become effective upon the publication thereof in the Des Moines Register and the Des Moines Capital, newspapers published in Des Moines, Iowa.

"Approved April 18, A. D. 1919."

We find great difficulty in applying this statute to its purported subject-matter. It purports to be a proviso amendment to the first sixteen lines of Section 1304, Supplemental Supplement, 1915. The first sixteen lines of such section constitute Subsection 1 thereof, which is as follows:

" The following classes of property are not to be taxed:

"1. The property of the United States and this state, including university, agricultural college and school lands; the property of a county, township, city, town or school district or militia company, when devoted entirely to public use and not held for pecuniary profit; municipal, school, and drainage bonds or certificates hereafter issued by any...