McFarland, Sheriff v. Georgetown National Bank

• Decision Date: 24 February 1925
• Citation: 208 Ky. 7
• Parties: McFarland, Sheriff v. Georgetown National Bank.
• Court: United States State Supreme Court — District of Kentucky

208 Ky. 7

McFarland, Sheriff v. Georgetown National Bank.

Court of Appeals of Kentucky.

Decided February 24, 1925.

1. Taxation — Evidence Held Insufficient to Show Moneyed Capital of Individuals in Competition with National Banks. — Evidence held insufficient to show moneyed capital in hands of individuals, invested in bonds, notes, and other evidences of indebtedness, comes in competition with national banks, within Rev. Stats., U. S., section 5219 (U.S. Comp. Stats., section 9784) as to taxation of national bank shares.

2. Taxation — Tax on National Banks Payable to Local Authorities Held Valid. — Tax on national banks, state banks, and trust companies payable to local authorities in addition to state tax, imposed by Ky. Stats., section 4019a-10, under authority of Const., section 171, as amended in 1915, held valid under Rev. Stats., U. S., section 5219 (U.S. Comp. Stats., section 9784), though money in hand, notes, bonds, and other credits held by others were by same act exempt from all but state taxes.

3. Taxation — Congress May Authorize State's Collection of Taxes Against National Banks, though Such Taxes, when Levied, were Invalid. — It is within congressional power to authorize state's collection of taxes previously levied against national banks, though levy, when made, may have been invalid.

4. Taxation — County Clerk's Failure to Include County Taxes in Tax Bills Against National Banks Does Not Invalidate Corrected Bills Including Such Taxes. — That county clerk in making out tax bills against national banks, as required by Ky. Stats., section 4239a, by mistake failed to include in them county taxes does not invalidate corrected bills including such taxes.

5. Taxation — Tax on National Bank, Based on Assessment Increased Without Notice, is Invalid to Extent of Such Increase. — Under Ky. Stats., section 4019a-10, and section 4053, tax against national bank on its stock, based on assessment increased by board without notice to taxpayer, is invalid to extent of such increase.

Appeal from Scott Circuit Court.

H.C. FORD, JAS. B. FINNELL, JR., and FORD & FORD for appellant.

BRADLEY & BRADLEY and JAMES BRADLEY for appellee.

OPINION OF THE COURT BY COMMISSIONER HOBSON.

Reversing.

In 1915 the following amendment was made to section 171 of the Constitution:

"The General Assembly shall have power to divide property into classes and to determine what class or classes of property shall be subject to local taxation."

Under this provision it was enacted in 1917 as follows:

"Money in hand, notes, bonds, accounts and other credits, whether secured by mortgage, pledge or otherwise, or unsecured . . . shall be subject to taxation for state purposes only." Section 4019a, subsection 10, Kentucky Statutes.

By the same act it was provided that the shares of stock of national banks, state banks and trust companies are put in a class by themselves and are subject to a state tax on each $100.00, with this further provision:

"In addition thereto the said banks and trust companies shall pay to the local authorities in said counties, cities, towns and districts, taxes at the same rate imposed upon other personalty therein."

The result of the act is that the shares of stock in national banks, state banks and trust companies are subject to a state tax of 40c on each $100.00, while money in hand, notes, bonds, and other credits held by others are subject to taxation for state purposes only. Section 5219 of the U.S. Revised Statutes grants to the states the right to tax shares in the national banks, subject to this restriction:

"That the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state."

The Georgetown National Bank brought this action to enjoin the sheriff from collecting the county taxes from the bank for the years 1919, 1920, 1921 and 1922 on the ground that the state statute was in conflict with the federal statute and void. The circuit court adjudged the bank the relief sought. The defendants appeal.

In Hepburn v. School District, 23 Wallace 480, it was held that municipal and school taxes may be assessed upon the shares of a national bank, although mortgages, judgments, recognizances and moneys owing upon articles of agreement for the sale of real estate are exempt from taxation except for state purposes. In holding this the court said:

"It could not have been the intention of Congress to exempt bank shares from taxation because some moneyed capital was exempt."

Again in Mercantile National Bank v. New York, 121 U.S. 138, it was held that the exemption from state taxation of saving banks deposits did not invalidate a statute taxing national banks. The court said:

"The main purpose, therefore, of Congress in fixing limits to state taxation on investments in the shares of national banks, was to render it impossible for the state, in levying such a tax, to create and foster an unequal and unfriendly competition, by favoring institutions or individuals carrying on a similar business and operations and investments of a like character. The language of the act of Congress is to be read in the light of this policy."

This rule was adhered to in National Bank v. City of Boston, 125 U.S. 60, although it was shown there "that saving banks were permitted to transact a banking business in the way of loans upon personal securities, upon the ground that saving banks are substantially institutions organized for the purpose of investing the savings of small depositors and not a banking institution in the commercial sense of the word." These opinions were followed in Jenkins v. Neff, 186 U.S. 230, under a statute exempting from taxation against trust companies United States securities held by them. In Merchants' National Bank v. City of Richmond, 256 U.S. 635, the court had before it the statute of Virginia, under which a tax for state purposes was imposed upon bank stock, state and national, at the rate of 35c and a tax for city purposes at the rate of $1.40, while upon intangible personal property in general, including bonds, notes and other evidences of indebtedness the state rate was 65c and the city rate 40c, or an aggregate of 95c upon each $100.00 of valuation as against a total of $1.75 on bank stocks. In that case the court said this:

"It also was shown by evidence, without dispute, that moneyed capital in the hands of individuals invested in bonds, notes and other evidences of indebtedness comes into competition with the national banks in the loan market."

Basing its judgment on this undisputed fact the court held the Virginia act invalid. After that decision was rendered the Congress of the United States passed the following act amending section 5219 of the Revised Statutes:

"Sec. 5219. 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.

"(b) In the case of a tax on said shares the tax imposed shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state coming into competition with the business of national banks: Provided, that bonds, notes, or other evidences of indebtedness in the hands of individual citizens not employed or engaged in the banking or investment business and representing merely personal investments not made in competition with such business, shall not be deemed moneyed capital within the meaning of this section.

"(c) In case of a tax on the net income of an association, the rate shall not be higher than the rate assessed upon other financial corporations nor higher than the highest of the rates assessed by the taxing state upon the net income of mercantile, manufacturing, and business corporations doing business within its limits.

"(d) In case the dividends derived from the said shares are taxed, the tax shall not be at a greater rate than is assessed upon the net income from other moneyed capital.

"2. The shares or the net income as above provided of any national banking association owned by nonresidents of any state, or the dividends on such shares owned by such nonresidents, shall be taxed in the taxing...