People ex rel. Pratt v. Goldfogle

• Decision Date: 30 March 1926
• Citation: 151 N.E. 452,242 N.Y. 277
• Parties: PEOPLE ex rel. PRATT v. Henry M. GOLDFOGLE et al., Commissioners of Taxes and Assessments of City of New York.
• Court: New York Court of Appeals Court of Appeals

242 N.Y. 277

151 N.E. 452

PEOPLE ex rel. PRATT

v.Henry M. GOLDFOGLE et al., Commissioners of Taxes and Assessments of City of New York.

Court of Appeals of New York.

March 30, 1926.

Certiorari by the People of the State of New York, on the relation B. Pratt, against Henry M. Goldfogle and others, as Commissioners of Taxes and Assessments of the City of New York. From an order of the Appellate Division (211 N. Y. S. 110, 213 App. Div. 706), affirming an order which reduced an assessment levied on relator's intangible property, both parties, by permission, appeal.

Affirmed.

Andrews and Lehman, JJ., dissenting.Appeal from Supreme Court, Appellate Division, First Department.

John W. Davis, M'Cready Sykes and George L. Shearer, all of New York City, for relator, appellant, and respondent.

George P. Nicholson, Corporation Counsel, of New York City (William H. King and Eugene Fay, both of New York City, of counsel), for defendants, respondents, and appellants.

HISCOCK, C. J.

The relator for the year 1923 was assessed under the provisions of chapter 897, Laws of 1923, for an interest owned by him in a firm conducting a banking and other kinds of business, on the ground that it was ‘moneyed capital * * * coming into competition with the business of national banks' and not exempt under certain provisions of the statute. Both sides have appealed from the order of the Appellate Division upholding this assessment in a modified amount. The appeal of the taxing authorities involves a question of only minor importance because their complaint is directed to the fact that a single item of property was improperly excluded in fixing the amount of the assessment. The appeal of the relator, on the other hand, challenges, not only the application of the statute for the year in question and the method of computing the assessment, but, much farther than this, attacks the validity of the statute for alleged unconstitutionality manifested in various ways. He complains that the statute is unconstitutional because it is so indefinite in its description of the property to be assessed that it cannot be intelligently enforced by assessors; that it indulges in arbitrary and unreasonable classification and discrimination; that the property subject to tax is fixed, not by the state Legislature, but by action of Congress in a matter unconnected with the tax sought to be imposed; that there is failure of a refunding provision of the statute which is so essential to the act as an entirety that it must be assumed that the Legislature would not have enacted the statute, except for the belief that this particularprovision could be carried out. Thus we have many questions to consider.

The facts found by the trial court defining the status of relator as an alleged taxpayer under this statute and giving rise to these questions have been unanimously affirmed by the Appellate Division, and they are therefore binding upon us and do not present some of the minor questions which the relator attempts to argue. Of the facts thus found the ones to which especial reference is necessary are as follows: On and before May 1, 1923, the relator was a member and the owner of an interest of 32 per cent. in a firm which ‘was engaged in a general banking, commission, and investment business; the activities of the firm including the purchase and sale of bills of exchange, accepting deposits from customers who drew thereon by check and bill of exchange, the occasional discounting of commercial paper, the purchase and sale of investment securities consisting of bonds and stocks of corporations, the making of subscriptions for original issues of bonds and stocks in syndicate transactions, acting as a depositary for its customers of stocks and bonds belonging to such customers, the firm retaining such stocks and bonds as collateral and charging the customers interest on such advances, the lending of money in the open market on collateral loans and on time loans and accepting and buying drafts of customers for whom it was acting as selling agent of securities or commodities, the activities of the firm including the purchase and sale of commodities such as hides, coffee, etc., for customers on commission.’ ‘The moneyed capital of such firm (amounting to $511,673.02) was available on May 1, 1923, for any business activities, but the amount and form of such moneyed capital employed in any one of such activities was constantly changing.’ Amongst the assets was a small item of $448.83 described as a ‘coffee account’ and the nature of which does not definitely appear; a Stock Exchange seat valued at $93,000; and bonds and stocks aggregating in value somewhat more than $2,250,000. ‘The tax exempt securities, as well as the bonds and stocks of the firm, were available, to be used from time to time as collateral security for indebtedness of the firm and in the business and transactions of the firm and the amount and kind of such tax exempt securities and of other bonds and stocks changed from time to time.’ ‘The firm conducted business which competed with the business of national banks' and ‘the relator owned moneyed capital in competition with the business of national banks.’

The statute, which we are brought to consider, in its practical aspects represents an attempt on the part of the state to secure the right to tax shares of national bank stocks by complying with the requirements imposed by Congress as a condition of permitting state taxation of shares in these institutions which, of course, are an agency of the federal government, and a brief history of legislation as an introduction to the present situation is appropriate.

Section 5219 of the Revised Statutes of the United States as framed in 1868 provided that nothing in the National Bank Act should be construed as prohibiting the assessment and taxation by the state of shares in any national bank subject only to the two restrictions that the taxation should 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 assessment should be made in the locations as therein specified. These provisions were interpreted by the Supreme Court of the United States as prescribing, if the states desired to tax the stock of national banks, the rate of taxation to be imposed upon other moneyed capital competing with the business of national banks and not as relating to personal investments not engaged in such competition. Mercantile Bank v. New York, 7 S. Ct. 826, 121 U. S. 138, 30 L. Ed. 895. As the result of unsuccessful attempts upon the part of states to effect a taxation of national bank shares and as the result of insistent agitation on their part, Congress, in [242 N.Y. 287]1923, undertook the task of amending section 5219 (Comp. St. Supp. 1925, § 9784) referred to in such a manner as should make it conform to the interpretation placed upon it by the Supreme Court and as should afford definite and reasonable requirements to be complied with by the states as a condition of taxing national bank shares. As thus amended and as controlling in the disposition of this case, it permitted states to tax shares of national banks at the locations therein specified in any one of three methods. The first of these methods and which is the one here under consideration, was covered by a provision reading as follows:

‘(b) In the case of a tax on said shares [national banking 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.’

Prior to the adoption in this amended form of section 5219, the state of New York had made an attempt to tax national bank shares. It had subjected such shares to a tax of 1 per cent. on their book valuation. Tax Law; Consol. Laws, c. 60. Then by the Personal Income Tax Law (Laws of 1919, c. 627) it had provided that the income consisting of dividends paid upon such banking shares should also be taxed and at the same time it had exempted large amounts of intangible personal property from the valuation taxation which was imposed upon the banking shares. Under these circumstances it was held that this legislation discriminated against national bank shares, was in violation of the federal statute, and invalid. People ex rel. Hanover National Bank v. Goldfogle, 137 N. E. 611, 234 N. Y. 345. After this decision and after the amendment of section 5219 in 1923, the Legislature again attempted to effect the right to tax national bank shares by complying with the requirements of section 5219 as amended and in this attempt adopted chapter 897 of Laws 1923, now before us for consideration.

[2] The purpose of this statute was to subject moneyed capital in the hands of private banks and bankers and individuals and being used in competition with the business of national banks to the same taxation which was imposed upon shares of the latter institutions. It sought to accomplish this purpose through amendment of the General Tax Law, amending various sections thereof and adding new ones. It is unnecessary for us to consider at this point all of these amending and new provisions. They provide for making assessments in legal manner, giving the taxpayer the necessary opportunity to be heard, and section 14, as amended (Laws 1923, c. 897, § 2), is a vital provision in the new plan of taxation which presents the basis for the more important constitutional objections which are urged by the relator. This section is entitled ‘Owners or holders of moneyed capital other than shares of...