Marion Nat. Bank v. Burton

• Decision Date: 31 January 1906
• Citation: 90 S.W. 944,121 Ky. 876
• Parties: MARION NAT. BANK OF LEBANON v. BURTON, Sheriff. CITIZENS' NAT. BANK OF LEBANON v. SAME.
• Court: Kentucky Court of Appeals

90 S.W. 944

121 Ky. 876

MARION NAT. BANK OF LEBANON v. BURTON, Sheriff.

CITIZENS' NAT. BANK OF LEBANON v. SAME.

Court of Appeals of Kentucky.

January 31, 1906

Appeal from Circuit Court, Marion County.

"To be officially reported."

Actions by the Marion National Bank of Lebanon and by the Citizens' National Bank of Lebanon against John A Burton, sheriff. Heard together. From judgments for defendant, plaintiffs appeal. Judgment in each case reversed.

Helm Bruce & Helm, T. L. Edelen, and John McChord, for appellants.

N. B Hays, Atty. Gen., McQuown & Brown, and W. W. Spalding, for appellee.

O'REAR J.

These two cases present a common question, and were heard together. Each of appellants is a national bank, located at Lebanon, Marion county, this state. Their shares were assessed for taxation by the assessor of Marion county. The valuation of each share for assessment was arrived at by ascertaining the market or actual value of the shares, deducting from that sum the value of the real estate owned by the banks, and dividing the remainder by the total number of shares. No deduction was made on account of United States bonds owned by the banks in which their capital had been invested. The whole of this tax, however, was collectible by the terms of the statute from the bank on account of its stockholders. While the tax was levied upon the shares of the capital stock, the bank was required to pay the tax on the behalf of its stockholders, charging same to each shareholder's stock account. It is conceded that this method of collecting the tax was not an imposition of any tax whatsoever against the bank. First National Bank v. Commonwealth, 9 Wall. 353, 19 L.Ed. 701; Citizens' National Bank v. Commonwealth, 80 S.W. 479, 25 Ky. Law Rep. 2254; Town of London v. Hope, 80 S.W. 817, 26 Ky. Law Rep. 112. The banks sued to enjoin the collection of so much of the tax as was represented by the proportion of the bank's capital invested in bonds of the United States. The question involved is whether shares of stock in national banks, when taxed under the statute of this state, are subject to have deducted the value of nontaxable government bonds held by the bank.

Certain features of this question are so well settled, and have been so long settled, that it is not necessary to repeat the reasonings supporting the adjudications. For instance, it is now accepted without question that the bonds of the government of the United States are not taxable by the states and their municipalities. Nor is it deemed within the sovereign power of a state to tax the exercise of a franchise granted by the United States without the permission of the latter. On the other hand, shares of stock of national bank institutions, whose franchises are granted by the United States, are taxable by the states by the express permission of the federal Congress. It is also as well settled by the authority of numerous decisions of the Supreme Court that this permission to the states is a qualified one, and, to be exercised, it must be done substantially in the manner authorized by the act of Congress; that the thing permitted to be taxed is not the bank, nor anything owned by the bank, except its real estate, but the shares of its capital stock owned by its stockholders. The legal difference between capital stock and shares is recognized and respected.

The authority to tax the national bank shares is found in the forty-first section of the act of Congress of 1864 (Act June 3, 1864, c. 106, 13 Stat. 111), commonly denominated the "National Banking or National Currency Act," now incorporated in section 5219, Rev. St. U.S. [U. S. Comp. St. 1901, p. 3502]. That section deals with the subject of taxation of national banks. After providing for the taxes to be paid to the United States government, it continues: "(1) Provided, that nothing in this act shall be construed to prevent all the shares in any of said associations, held by any person or body corporate, from being included in the valuation of the personal property of such person or corporation in the assessment of taxes imposed by or under state authority, at the place where such bank is located, and not elsewhere, but at not a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state. (2) Provided, further, that the tax so imposed by the laws of any state, upon the shares of any of the associations authorized by this act shall not exceed the rate imposed upon the shares in any of the banks organized under authority of the state where such association is located. (3) Provided, also, that nothing in this act shall exempt the real estate of associations from either state, county or municipal taxes to the same extent, according to its value, as other real estate is taxed."

The statute of this state (Ky. St. 1903) under which the tax assessment was made in these cases, is as follows:

"Sec. 4092. All banks and trust companies shall file the report herein required by section 4077, subdivision 1, of this article, on or before the first day of March, one thousand nine hundred and three, and annually on or before March 1st, thereafter. Said reports shall be made up to and including the thirty-first day of the preceding December. The taxes herein provided for shall be due and payable on or before the first day of July next succeeding such report. Upon failure to make said report or to pay said taxes as herein required, said banks and trust companies shall be subject to the same fines and penalties as prescribed in section 4091, subdivision 1, of this article.

"Sec. 4092a. That the shares of stock in each national bank of this state shall be subject to taxation for all state purposes, and shall be subject to taxation for the purposes of each county, city, town and taxing district in which the bank is located.

"Sec. 4092b. For the purposes of the taxation provided for by the next preceding section, it shall be the duty of the president and cashier of the bank to list the said shares of stock with the assessing officers authorized to assess real estate for taxation, and the bank shall be and remain liable to the state, county, city, town and district for the taxes upon said shares of stock. When any of said shares of stock have not been listed for taxation for any of said purposes under levy or levies of any year or years since the adoption of the revenue law of eighteen hundred and ninety-two, it shall be the duty of the president and cashier to list the same for taxation under said levy or levies: Provided, that where any national bank has heretofore for any year or years, paid taxes upon its franchise as provided in article 3 of the revenue law of eighteen hundred and ninety-two, said bank shall be excepted from the operation of this section as to said year or years; and provided, further, that where any national bank has heretofore, for any year or years, paid state taxes under the Hewitt bill in excess of the state taxes required by this act for the same year or years, said bank shall be entitled to credit by said excess upon its state taxes required by this act."

The latter part of section 4092b, supra, is not applicable to this case, for no question of omitted assessments, nor of commutation, is presented. The stockholders' interest in both state and national banks is made liable to taxation, directly or indirectly, by the sections named. Is there a discrimination made in favor of shareholders of state banks over those of national bank stock? Appellants claim there is, in this: They assert that state banks are assessed upon their capital; that, being so assessed, so much of their capital as may be invested in the bonds of the United States is not subject to taxation, while, where the assessment is made upon the shares of the capital stock, as is the case with the national banks, the bonds of the United States in which the capital of such national banks may be invested are not deducted. It is true that, if the capital of a bank is invested in the nontaxable bonds of the federal government, to that extent it is not liable to taxation by the state. Bank of Commerce v. New York City, 2 Black, 620, 17 L.Ed. 451; Bank Tax Cases, 2 Wall, 200, 17 L.Ed. 793; Bradley v. People, 4 Wall. 462, 18 L.Ed. 433; Banks v. Mayor, 7 Wall. 22, 19 L.Ed. 57.

On the other hand it is equally well settled that where the state taxes, not the capital stock of the bank, but imposes a franchise tax upon the institution, whether the capital or other assets are invested in government securities is immaterial. Society for Savings v. Coite, 73 U.S. 594, 18 L.Ed. 897; Hamilton Mfg. Co. v. Massachusetts, 73 U.S. 632, 18 L.Ed. 904. We think it was also implied by what was said by the court in People ex rel. Bank of Commerce v. Commissioners, 2 Black, 628, 17 L.Ed. 451. A tax levied upon the shares of a bank is not a tax upon the property of the bank, and such a system of taxation does not tax bonds of the United States, though the capital stock of the bank may be invested in such bonds. Van Allen v. Assessors, 3 Wall. 573, 18 L.Ed. 229; First Nat. Bank v. Commonwealth, 76 U.S. 353, 19 L.Ed. 701; Lionberger v. Rowse, 76 U.S. 468, 19 L.Ed. 721; First National Bank v. Chehallis, 166 U.S. 440, 17 S.Ct. 629, 41 L.Ed. 1069; Cleveland Trust Co. v. Lander, 184 U.S. 111, 22 S.Ct. 394, 46 L.Ed. 456. Section 4092b, supra, follows the provision of section 5219, Rev. St. U.S., in that it lays the tax upon the shares of national banks, and not upon the capital. It taxes the property of the shareholder, and not the property of the corporation. So far it is a literal compliance with the terms of the federal permission.

It is not claimed that the rate of taxation or the assessment is higher than the rate or different...