Farmers Mechanics Savings Bank of Minneapolis v. State of Minnesota

• Citation: 58 L.Ed. 706,34 S.Ct. 354,232 U.S. 516
• Decision Date: 24 February 1914
• Docket Number: No. 39,39
• Parties: FARMERS & MECHANICS SAVINGS BANK OF MINNEAPOLIS, Plff. in Err., v. STATE OF MINNESOTA
• Court: United States Supreme Court

232 U.S. 516

34 S.Ct. 354

58 L.Ed. 706

FARMERS & MECHANICS SAVINGS BANK OF MINNEAPOLIS, Plff. in Err.,

v STATE OF MINNESOTA.

No. 39.

Argued May 8, 1913.

Decided February 24, 1914.

[Argument of Counsel from pages 516-518 intentionally omitted] Messrs. William A. Lancaster, Claude B. Leonard, and Milton D. Purdy for plaintiff in error.

Mr. Lyndon A. Smith, Attorney General of Minnesota, and Mr. James Robertson for defendant in error.

[Argument of Counsel from page 519 intentionally omitted] Mr. Justice Pitney delivered the opinion of the court:

This writ of error brings under review a judgment of the supreme court of Minnesota (114 Minn. 95, 130 N. W. 445, 851), affirming the judgment of a lower court, in proceedings for the collection of taxes assessed against plaintiff in error for the year 1908. Plaintiff in error is a savings bank, having no capital stock, and was taxable under § 839, Rev. Laws 1905, which provides for ascertaining the surplus remaining after deducting from its assets (other than real estate, which is separately assessed) the amount of the deposits and of all other accounts payable; the surplus to be taxed as 'credits.' The supreme court of Minnesota held that this section imposes not a franchise but a property tax, and that the surplus of savings banks as thus determined is taxable property. This construction is not questioned here; perhaps is not open to question.

Two Federal questions are raised.

First, the savings bank insisted in the state courts, and here renews the insistence, that certain bonds issued by municipalities in Indian territory and in the territory of Oklahoma, held by the bank, amounting to about $700,000 in value, should have been omitted from the list of its personal assets, for the reason that bonds of this character are not taxable by the state.

This question, although novel, is to be solved by the application of principles long established.

It was laid down by Mr. Chief Justice Marshall, speaking for this court in M'Culloch v. Maryland, 4 Wheat. 316, 436, 4 L. ed. 579, 607, 608, that the state could not constitutionally impose taxation upon the operations of a local branch of the United States Bank, because the bank was an agency of the Federal government, and the states had no power, by taxation or otherwise, to hamper the execution by that government of the powers conferred upon it by the people. The supremacy of the Federal Constitution and the laws made in pursuance thereof, and the entire independence of the general government from any control by the respective states, were the fundamental grounds of the decision. The principle has never since been departed from, and has often been reasserted and applied. Osborn v. Bank of United States, 9 Wheat. 738, 859, 6 L. ed. 204, 233; Home Sav. Bank v. Des Moines, 205 U. S. 503, 513, 51 L. ed. 901, 907, 27 Sup. Ct. Rep. 571; Grether v. Wright, 23 C. C. A. 498, 43 U. S. App. 770, 75 Fed. 742, 753.

State taxation of national bank shares, as permitted by the act of Congress, without regard to the fact that a part or the whole of the capital of the bank is invested in national securities which are exempt from taxation (Van Allen v. Assessors [Churchill v. Utica], 3 Wall. 573, 583, 18 L. ed. 229, 234; Bradly v. Illinois, 4 Wall. 459, 18 L. ed. 433; First Nat. Bank v. Kentucky, 9 Wall. 353, 359, 19 L. ed. 701, 702), is an apparent, not a real, exception. The same is true of taxes upon the mere property of agencies of the Federal government (Thomson v. Union P. R. Co. 9 Wall. 579, 589, 19 L. ed. 792, 798; Union P. R. Co. v. Peniston, 18 Wall. 5, 32, 34, 21 L. ed. 787, 792, 793). Indeed, these exceptions rest upon distinctions that were recognized in the decision of M'Culloch v. Maryland. Chief Justice Marshall said, in closing the discussion: 'This opinion . . . does not extend to a tax paid by the real property of the bank, in common with the other real property within the state, nor to a tax imposed on the interest which the citizens of Maryland may hold in this institution, in common with other property of the same description throughout the state. But this is a tax on the operations of the bank, and is, consequently, a tax on the operation of an instrument employed by the government of the Union to carry its powers into execution. Such a tax must be unconstitutional.' For a fuller discussion of the Van Allen Case, see Home Sav. Bank v. Des Moines, 205 U. S. 503, 517, 51 L. ed. 901, 909, 27 Sup. Ct. Rep. 571.

The government of the respective territories in question was that provided by the act of Congress of May 2, 1890 (26 Stat. at L. 81, 93, chap. 182), of which the first 28 sections created a temporary government for the territory of Oklahoma; while § 29 (p. 93) and subsequent sections established laws for the government of what was thereafter to be known as the Indian territory, but without conferring general powers of local self-government. To the territorial government of Oklahoma legislative power was granted (§ 6), extending to 'all rightful subjects of legislation not inconsistent with the Constitution and laws of the United States.' Municipal corporations were in contemplation. Sec. 7 provided that the legislative assembly should not authorize the issuing of any bond or evidence of debt by any county, city, town, or township for the construction of any railroad; thus recognizing that the borrowing power might be employed for other purposes. By § 11, certain provisions of the Compiled Laws of Nebraska, in force November 1, 1889, so far as locally applicable, were extended to and put in force in the territory until after the adjournment of the first session of its legislative assembly; among these being chapter 14, entitled, 'Cities of the Second Class and Villages,' which contains provisions for the organization of municipal corporations, with power to borrow money for public purposes. The Indian territory was not made an 'organized territory,' but by § 31 certain general laws of the state of Arkansas, as published in Mansfield's Digest (1884), were put in force there until Congress should otherwise provide; among these, the chapter relating to municipal corporations (§§ 722-959).

It is not disputed that the municipal bonds now in question were lawfully authorized and are in every respect valid obligations of the respective municipalities. Except as such obligations they would hardly be treated as taxable property in the hands of the holder.

The relation of the organized territories to the United States has been frequently adverted to. In First Nat. Bank v. Yankton County, 101 U. S. 129, 133, 25 L. ed. 1046, 1047, which had to do with the organic act of the territory of Dakota (12 Stat. at L. 239, chap. 86), the court, speaking by Mr. Chief Justice Waite, said:

'All territory within the jurisdiction of the United States, not included in any state, must necessarily be governed by or under the authority of Congress. The territories are but political subdivisions of the outlying dominion of the United States. Their relation to the general government is much the same as that which counties bear to the respective states, and Congress may legislate for them as a state does for its municipal organizations. . . . Congress may not only abrogate laws of the territorial legislatures, but it may itself legislate directly for the local government. It may make a void act of the territorial legislature valid, and a valid act void. In other words, it has full and complete legislative authority over the people of the territories and all the departments of the territorial governments. It may do for the territories what the people, under the Constitution of the United States, may do for the states.'

The territory of Oklahoma, therefore, was an instrumentality established by Congress for the government of the people within its borders, with authority to subdelegate the governmental power to the several municipal corporations therein. These corporations were established for public and governmental purposes only, and exercised their powers and performed their functions as agents of the central authority. With respect to Indian territory, the situation under the act of 1890 was somewhat different, and the municipal corporations derived their authority directly from the act of Congress.

No doubt, as is usual in such cases, the people of the respective municipalities had a more immediate and direct interest than others in the local government, and in the local improvements that presumably may have been constructed with the proceeds of the municipal bonds. But this interest was that of eitizens and taxpayers, not that of proprietors. And the policy of Congress, as manifested in its legislation upon the subject, had regard not merely, nor even chiefly, for the particular and immediate interests of the several municipalities. It looked to the promotion of the prosperity and welfare of the whole people of the United States, through the development of organized self-governing communities—afterwards to become states of the Union—throughout the whole of the public domain. With statehood as the ultimate aim and purpose, the organic acts were consciously framed. They were frequently, if not always, entitled: 'An Act to Provide a Temporary Government for the Territory,' etc.; and so reads the title of the act of May 2, 1890.

In our opinion, therefore, the municipalities of the territory of Oklahoma and of Indian territory were instrumentalities and agencies of the Federal government, with whose operations the states were not permitted to interfere by taxation or otherwise; and the issuing of municipal bonds was the performance of a governmental function, within the established doctrine. And we deem it immaterial that these bonds were not guaranteed by the United States, or even (in the case of the Oklahoma bonds) by the central government of the territory.

The supreme court of Minnesota, conceding that the municipalities...