Owensboro Nat Bank v. City of Owensboro, 148

• Decision Date: 03 April 1899
• Docket Number: No. 148,148
• Parties: OWENSBORO NAT. BANK v. CITY OF OWENSBORO et al
• Court: U.S. Supreme Court

173 U.S. 664

19 S.Ct. 537

43 L.Ed. 850

OWENSBORO NAT. BANK

v CITY OF OWENSBORO et al.

No. 148.

April 3, 1899.

This suit was originally instituted in a court of the state of Kentucky by the plaintiff in error, the Owensboro National Bank. The relief prayed was that the city of Owensboro and its tax collector, Simmons, be perpetually restrained from enforcing the collection of alleged 'franchise' taxes for the years 1893 and 1894, claimed by the defendants to have been assessed under authority of a revenue act of the state of Kentucky enacted November 11, 1892, as amended. The taxes in question were laid upon the amount fixed by the state board of valuation and assessment provided for in the act, which valuation equaled the combined sum of the par of the capital stock of the bank, its surplus, and undivided profits. It is admitted on the record that the avails of the bank to the amount of the valuation were invested in nontaxable bonds of the United States. Various reasons why the taxes should be declared illegal were urged in the petition and the amendments thereto. Without going into detail, all the grounds are substantially included in the following summary:

(1) That the levy of the taxes in question impaired the obligation of an alleged irrevocable contract entered into in 1886 between the bank and the state, and embodied in a legislative enactment referred to as the 'Hewitt Act,' which contract was protected from impairment by the constitution of the United States.

(2) That the taxes complained of were unlawful, because they were not laid on the shares of stock in the names of the shareholders, but were actually imposed on the property of the bank, contrary to the act of congress.

(3) That, if the taxes were not on the property of the bank, then they were imposed on its franchise or right to do business, derived from the laws of the United States, which the state was, under the law of the United States, without power to tax, either directly or indirectly.

(4) That, even if the taxes were otherwise valid, they were unlawful, because discriminatory, inasmuch as certain state banks which were incorporated prior to the year 1856 were entitled to a low rate of taxation, resulting from charter contracts, and it was illegal to tax national banks at a higher rate than that assessed against the most favored state bank.

(5) That the law under which the taxes were levied, and the modes of procedure adopted in carrying the law into effect, operated to produce inequality in taxing the property of the bank, to its disadvantage, as compared with other property within the state, contrary to the state constitution.

(6) That the rate of taxation imposed by the city of Owensboro for the year 1893 was in excess of that authorized by the state constitution or laws.

(7) That if the taxes complained of were considered laid not upon the capital or franchise of the bank, but upon the shares of stock in the names of the shareholders, then they were discriminatory as against shareholders who were the heads of families, as such shareholders were not permitted to deduct from the assessment against their shares an exemption authorized by a statute of the state in favor of the class of individuals referred to.

(8) That, if the bank could be legally taxed upon its property of any kind, it was a foreign corporation as to the state of Kentucky, and could only be taxed to the extent that its property was invested and had been earned in the city of Owensboro.

The petitions and the amendments thereto were demurred to, and an answer filed reserving the demurrers. Motions were made to dissolve a preliminary injunction which had been allowed. On these motions testimony was heard. The court dissolved the injunction and sustained the demurrers, and, the plaintiff failing to plead further, the petition and amended petitions were dismissed. On appeal the court of appeals of the state of Kentucky affirmed the judgment of the lower court (39 S. W. 1116), and the cause was then brought here for review.

Geo. W. Jolly, Wilfred Carico, and W. T. Ellis, for plaintiff in error.

J. D. Atchison and Chapeze Wathen, for defendants in error.

Mr. Justice WHITE, after making the foregoing statement, delivered the opinion of the court.

The claim of contract arising from the Hewitt act need not be considered, as it is disposed of adversely to the contentions of the plaintiff in error by the opinion expressed in Citizens' Sav. Bank of Owensboro v. City of Owensboro (just decided) 19 Sup. Ct. 530. We therefore dismiss that subject, and the questions arising from it, from further consideration.

The other issues which the cause presents group themselves under two distinct headings: First, a contention that the taxes levied were illegal, because imposed in violation of the act of congress regulating the method of taxation which the respective states may exert against national banks or their stockholders as such; second, because the taxes imposed are discriminatory.

This latter question has a twofold aspect, since some of the charged discriminations are asserted to be in violation of the act of congress and others are claimed to arise because of an asserted contravention of the state law and constitution. Of course, we are concerned only with the discrimination claimed to constitute a violation of the law of the United States. We need not, however, dissect the discriminations relied upon so as to separate the federal from the state questions in this regard, at least until we have disposed of the contention that the taxes were levied upon the bank and its property in violation of the laws of the United States; since, if error in this regard is found, the taxes will be illegal, and it will become unnecessary to determine whether they were discriminatory even from a federal aspect.

Were the taxes complained of levied upon the bank, its property, or franchise, and, if so, were they legal? is the question which, then, arises on the threshold of the case.

Two elements are involved in the determination of this question; that is, the extent of the power of the respective states to tax national banks, and the ascertainment of the scope and purport of the law by which the taxes complained of were levied.

Early in the history of this government, in cases affecting the Bank of the United States, it was held that an agency, such as that bank was adjudged to be, created for carrying into effect national powers granted by the constitution, was not, in its capital, franchises, and operations, subject to the taxing powers of a state. McCulloch v. Mcryland, 4 Wheat. 316; Osborn v. Bank, 9 Wheat. 738.

The principles settled by the cases just referred to and subsequent decisions were thus stated by this court in Davis v. Bank, 161 U. S. 283, 16 Sup. Ct. 503:

'National banks are instrumentalities of the federal gov- ernment, created for a public purpose, and as such necessarily subject to the paramount authority of the United States. It follows that an attempt by a state to define their duties, or control the conduct of their affairs, is absolutely void, wherever such attempted exercise of authority expressly conflicts with the laws of the Unitee States, and either frustrates the purpose of the national legislation or impairs the efficiency of these agencies of the federal government to discharge the duties for the performance of which they were created. These principles are axiomatic, and are sanctioned by the repeated adjudications of this court.'

It follows, then, necessarily, from these conclusions, that the respective states would be wholly without power to levy any tax, either direct or indirect, upon the national banks, their property, assets, or franchises, were it not for the permissive legislation of congress.

The first act providing for the organization of national banks, passed February 25, 1863 (12 Stat. 665), contained no grant of power to the states to tax national banks in any form whatever. Doubtless the far-reaching consequence to arise from depriving the states of the source of revenue which would spring from the taxation of such banks, and the error of not conferring the power to tax, early impressed itself upon congress; for the following year (13 Stat. 99) power was granted to the states, not to tax the banks, their franchises, or property, but to tax the shares of stock in the names of the shareholders. This provision subsequently was amended ans supplemented in various particulars (15 Stat. 34), and the result of this legislation is embodied in section 5219 of the Revised Statutes, which is as follows:

'Sec. 5219. Nothing herein shall prevent all the shares in any association from being included in the valuation of the personal property of the owner or holder of such shares, in assessing taxes imposed by authority of the state within which the association is located; but the legislature of each state may determine and direct the manner and place of taxing all the shares of national banking associations located within the state, subject only to the two restrictions, 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, and that the shares of any national banking association owned by non-residents of any state shall be taxed in the city or town where the bank is located, and not elsewhere. Nothing herein shall be construed to exempt the real property of associations from either state, county or municipal taxes, to the same extent, according to its value, as other real property is taxed.'

This section, then, of the Revised Statutes is the measure of the power of a state to tax national banks, their property, or their franchises. By its unambiguous provisions the power is confined to a taxation of the shares of stock in the names of the shareholders and to an assessment of the real estate of the bank. Any state tax, therefore, which is in excess of,...