First Nat. Bank v. Buder

• Decision Date: 02 October 1925
• Docket Number: No. 6949.,6949.
• Parties: FIRST NAT. BANK IN ST. LOUIS et al. v. BUDER, Assessor, et al.
• Court: U.S. District Court — Eastern District of Missouri

8 F.2d 883 (1925)

FIRST NAT. BANK IN ST. LOUIS et al. v. BUDER, Assessor, et al.

No. 6949.

District Court, E. D. Missouri, E. D.

October 2, 1925.

Bryan, Williams & Cave and Jones, Hocker, Sullivan & Angert, all of St. Louis, Mo., for plaintiffs.

James T. Blair and Oliver Senti, City Counselor, both of St. Louis, Mo., Robert W. Otto, Atty. Gen., of Missouri, James A. Potter, Sp. Asst. Atty. Gen., and Foristel, Mudd, Hezel & Habenicht, of St. Louis, Mo., for defendants.

FARIS, District Judge.

This is an action in equity to enjoin defendants from collecting from plaintiffs certain state, city, and school taxes for the year 1924, which were imposed or assessed upon the shares of stock owned by the individual stockholders of plaintiff bank, as of June 1, 1923, upon the ground that the amendment by Congress, on March 4, 1923, of section 5219, R. S. (Comp. St. Supp. 1925, § 9784), limited and restricted the right of the state of Missouri, as to the levy and collection of taxes on shares of stock in national banks, in such wise as to repeal all existing laws of Missouri providing for such levy and collection. This contention is, as counsel for plaintiffs admit in their briefs, bottomed on highly technical grounds and deals with a situation which is unfortunate, unique, and anomalous.

Section 5219, supra, has been in force since the year 1868, and section 12775, R. S. of Mo. of 1919, has been in force in Missouri since 1889. The former section provided that shares of stock in national banks might be taxed by the states as the property of the several shareholders. Section 12775, R. S. of Mo. of 1919, provided for such taxation, in all respects in accordance with the permissive provisions of section 5219, supra.

It must be and is conceded that, till the amendment by the Congress of section 5219, supra, on the 4th day of March, 1923, the express statutory method in Missouri of taxing shares in national banks, particularly the provision of section 12775, supra, was entirely valid and legal. But, as already said, on March 4, 1923, the Congress amended said section 5219, by providing, inter alia, that:

"The Legislature of each state may determine and direct, subject to the provisions of this section, the manner and place of taxing all the shares of national banking associations located within its limits. The several states may tax said shares, or include dividends derived therefrom in the taxable income of an owner or holder thereof, or tax the income of such associations: Provided, the following conditions are complied with: 1. (a) The imposition by said state of any one of the above three forms of taxation shall be in lieu of the others."

It will be borne in mind that the first of the enumerated permissible methods of taxation, as set out in the amendment of section 5219, supra, had, since 1889, been followed in Missouri, perforce the lawful provisions of section 12775, R. S. of Mo. of 1919. This latter section is, as already forecast, a special law providing for the manner, place, and method of taxing shares of stock in banks, including national banks. But in 1917 the Legislature of Missouri passed an act, known as the Income Tax Act (Laws 1917, p. 524), which, among other things, provided that:

"There shall be levied * * * upon the entire net income received * * * from all sources by every individual * * * resident of this state a tax of one-half of one per cent. upon such income."

This tax has since been increased by an amendment, made in 1919 (Laws 1919, p. 718), to 1½% but this cuts no figure in the merits of the controversy.

If so it be that the above sweeping provision of the local Income Tax Act included, in the light of other provisions of that act, income from dividends accruing from shares held in national banks, the situation existing on and after the 4th day of March, 1923, was that by the laws of Missouri two of the forms of taxation set out in the amendment to section 5219, supra, were in full force and effect in this state. Whether both of them were valid or not, when they were passed, is not important. I am of the opinion that, under the preclusive provisions of section 5219, as seemingly construed by the Supreme Court of the United States, in the case of Bank of Gulfport v. Adams, 258 U. S. 362, 42 S. Ct. 323, 66 L. Ed. 661, a state tax on income accruing from dividends from stock held in national banks was not valid, because such form of taxation was not mentioned in the federal statute, and because it has been said that mere silence on the part of Congress would absolutely forbid taxation of such banks, or of their shares. Bank v. Richmond (C. C.) 39 F. 309.

But the situation now presented renders any ruling on this point unnecessary; for, whether the state of Missouri could lawfully impose a tax on income from such dividends or not, before the amendment to section 5219, supra, this amendment permitted the state to do so, as one of the electively permissible methods of taxation. Therefore, the moment the amendment to section 5219, supra, became effective, the taxation of incomes from dividends on stock in national banks, ceteris paribus, became valid. Lionbeger v. Rowse, 43 Mo. 67; In re Rahrer, 140 U. S. 545, 11 S. Ct. 865, 35 L. Ed. 572. So the contention of initial lack of validity of the tax on such income need not further be considered. Therefore, as plaintiffs contend, since two of the electively permissible modes of taxation were by statutes in force in Missouri, and since by the amendment of March 4, 1923, but one of these was lawful after the passage of the above amendment, the sum of the situation is that from March 4, 1923, till 90 days after the adjournment of the legislative session of 1925, there has been no valid law in this state whereby national banks, or their stocks, or income from dividends on such stocks, can be taxed. One of these statutes canceled the other till an election was made as to which one should be in force, because both were in force equally, but one only, because of the effect of the paramount law, could be valid, and this one could not be valid till an election was made by the Legislature. Thus the contentions of the plaintiffs.

The Legislature of Missouri took no affirmative part, subsequent to the amendment of March 4, 1923, to bring about this anomalous situation. It was in session for 22 days after Congress passed the act amending section 5219, supra. Its sessions are biennial, and it meets only in the odd-numbered years. These four matters I notice judicially.

On the 18th day of April, 1925 (Laws 1925, p. 372), it passed an act affirmatively electing to tax national banks, in that one of the permissibly elective ways provided already by section 12775, supra. This act of 1925 also purported to validate the action of the state tax commission of Missouri in making a similar election, but erroneously recited that such action of the tax commission was had in 1923, when in fact it was not had till 1924, as is shown by the stipulation of facts herein, upon which, together with the allegations of the bill and the answer, this case is submitted on the merits.

Many reasons are urged by the defendants why the contentions of the plaintiffs should not be sustained. Among these are: (a) That the Act of April 18, 1925, made an election at the first opportunity afforded the Legislature, and that this act validated the assessments of taxes against the plaintiffs for the year 1923, here in dispute; (b) that the Income Tax Act of Missouri is not a tax on property; (c) that section 5219, supra, is since it was amended, and has always been, unconstitutional, for that it is an unwarranted invasion by Congress of the sovereign power of the states of the Union to levy and collect taxes on property within such states; (d) that the officers, who are authorized by the laws of the state of Missouri to assess and collect taxes, made an election as of June 1, 1923, to tax the shares of stock in national banks pursuant to the provisions of section 12775, supra, and that subsequent acts of such officers, through which taxes were assessed and collected upon income derived from dividends accruing from shares in national banks, were and are illegal and void; and (e) that the Income Tax Act of Missouri now exempts, and it has from the beginning exempted, from taxation all income accruing from dividends on national bank stock.

Other reasons may be found in the answer and in the many briefs filed; but, since none of these presents defenses which are in my opinion at all debatable, no reference to them need be made. The controlling facts in the case are simple and conceded. The ultimate situation, to wit, that there were on the statute books of the state of Missouri on the 4th day of March, 1923 (when the alleged paramount provisions of section 5219, supra, as amended took effect), two statutes of Missouri ostensibly taxing, or purporting to tax, national banks, in two of the electively permissible ways allowed by said section 5219, last supra, must be conceded. The ordinary legal effect of such a situation (that is to say, that when there are two equally valid statutes of the state of Missouri in operation concurrently, and only one of these is permitted to be operative under the alleged paramount provisions of section 5219, supra, as amended, neither statute is operative) is scarcely controverted by the defendants.

The defendants rely upon the matters of defense already set out, in order to obviate the effect contended for by plaintiffs. So, if section 5219, supra, as amended, is valid and is the paramount law, and if there were two valid taxing statutes of Missouri in operation, subsequent to March 4, 1923, one of which statutes the paramount law forbade, and if there has been no cure wrought in this situation by any subsequent election by the officers of the state, or by the action of the Legislature thereof, the legal effect of this situation, as urged by plaintiffs, is,...