First Nat. Bank of Utica v. Waters

• Decision Date: 10 May 1881
• Citation: 7 F. 152
• Parties: FIRST NAT. BANK OF UTICA v. WATERS and another.
• Court: U.S. District Court — Northern District of New York

7 F. 152

FIRST NAT. BANK OF UTICA v. WATERS and another.

United States Circuit Court, N.D. New York.

May 10, 1881

Miller & Finke and Ward Hunt, Jr., for complainant.

Alfred C. Coxe, for defendants.

WALLACE D.J.

The complainant moves for a preliminary injunction to restrain the defendants from the collection of taxes assessed against its several shareholders, on the ground-- First, that the laws of this state impose one rule of assessment and taxation upon shareholders in corporations other than banking associations, and another upon banks, whereby a higher taxation incidentally rests upon the latter, and as to the shareholders of national banking associations thereby violates the rule of uniformity prescribed by section 5219 Rev.

St and on the second ground that the particular tax in this case was illegal because of a departure in imposing it from the statutory requirements prescribed for the assessment and collection of taxes. The defendant Waters is tax collector for the ward in the city of Utica in which the complainant's bank is located. The defendant Kohler is treasurer of Oneida county, and has no control over the collector and no part in collecting the tax until the collector has returned his warrant unsatisfied. While he may be a proper party, he is not a necessary one to the controversy, and it is to be determined as though the collector were the sole defendant.

Upon the first ground on which the motion is predicated, some remarks in the opinion in Albany City Bank v. Maher ^[1] may suggest the inference that I was disposed to hold that if the laws of the state did make a discrimination for the purpose of taxation between shareholders in national banks and shareholders in corporations generally against the former, the taxation under such laws would be illegal as contravening the law of congress. But that case did not involve the point now made, and was argued and considered solely upon the provisions of the tax laws of 1880, and without regard to that section of the general laws which exempts shareholders from taxation when the corporation is taxed upon its capital stock or personal property. Assuming that bank shareholders are taxed by the laws of this state at a higher rate than is imposed upon shareholders in other than moneyed corporations, the question now is, are they taxed at a greater rate than is assessed 'upon moneyed capital in the hands of individual citizens of the state,' within the meaning of the law of congress? Does the taxation imposed by the laws of the state upon individuals, on account of that part of their personal property represented by shares of stock in corporations other than moneyed corporations, constitute the test and rule by which to determine what taxation is imposed upon moneyed capital in the hands of individual citizens; or is that test to be found in the laws which tax personal property generally? Or does the taxation of neither of these subjects of taxation furnish the test, and is it to be found in the taxation imposed by the laws of the state upon that part of the personal property of its citizens which consists of money or shares of stock in moneyed corporations? These questions have been answered adversely to the complainant's theory in several cases which have been considered by the supreme court of the United States.

It was the object of the act of congress to permit the state, which creates corporations, or allows them to exercise their franchises within its limits, to tax them as its own policy may dictate, and by its system to foster them by light taxation, or discourage them by onerous taxation, without thereby establishing a rule to control its taxation of the shares held by its citizens in national banks. The states have no power to tax the capital of national banking associations, but are granted the power to tax the moneyed capital of its citizens invested in such shares to the same extent as though it remained uninvested therein. The citizens of a state may invest their moneyed capital as they choose, and must accept the measure of taxation which is imposed by the state on the character of the investment they have selected. If they choose to invest it in corporations or joint-stock companies, they must submit to have it taxed upon the principles which the state has adopted or may adopt for the taxation of such corporations or joint-stock companies. As the policy of the state may dictate different modes and measures of taxation for different classes of corporations, it would be difficult, if not impossible, to ascertain the measure of taxation for national bank shares by that prescribed for capital invested in other corporations. Thus, while life insurance companies are taxed by a franchise tax, and taxation of the shares exempted, other corporations are taxed upon their capital stock; while in others still the shareholders are taxed upon their shares. Which class of corporations would furnish the rule for taxation of shareholders in national banks? The section should be so construed as to obviate this difficulty, and prescribe a rule capable of practical application.

Recognizing the force of such considerations, it has been held that the state, by exempting certain classes of taxable property partially or wholly from taxation, does not thereby adopt a rule of taxation which must be applied to national bank shares under the law of congress. As was said by the chief justice in Hepburn v. The School Directors, 23 Wall. 485: 'It could not have been the intention of congress to exempt bank shares from taxation because some moneyed capital was exempt.'

In People v. Commissioners, 4 Wall. 244, a deduction or allowance was made under the laws of the state in assessments against individuals and insurance companies on account of investments in the securities of the United States, while none was made in assessing the relator upon his shares in a national bank, and the tax was sustained. In Gorgas' Appeal, 79 Pa.St. 149, the state laws exempted all mortgages judgments, recognizances, or moneys owing upon articles of agreement for the sale of real estate, and it was held that such exemption did not preclude the state from...