Phelps v. Union Bank & Trust Co.

Decision Date19 May 1932
Docket Number3 Div. 12.
Citation225 Ala. 238,142 So. 552
CourtAlabama Supreme Court

Rehearing Denied June 16, 1932.

Appeal from Circuit Court, Montgomery County; Walter B. Jones Judge.

Action by the Union Bank & Trust Company against R. C. Phelps individually and as Tax Collector of Montgomery County, to recover taxes paid under protest. From a judgment for plaintiff, defendant appeals.

Reversed and rendered.

The facts are stated in the dissenting opinion.

BOULDIN J., ANDERSON, C.J., and FOSTER, J., dissenting.

Thos E. Knight, Jr., Atty. Gen., and Frontis H. Moore, Asst. Atty Gen., for appellant.

Wm. B. White, John S. Coleman, and Bradley, Baldwin, All & White, all of Birmingham, for appellee.


The inherent power of the state to collect taxes to raise revenue on property within its jurisdiction and on domestic concerns is an attribute of sovereignty residing in the Legislature, and, so long as it does not impinge the limitations fixed by the Constitution, or trench upon the prerogatives of the national government, or violate the guaranties of the Fourteenth Amendment of the Constitution of the United States, its powers are unlimited and unrestrained. This power is not a delegated power, but a power inherent in the state, essential to its life and continued existence. Ph nix Carpet Co. v. State, 118 Ala. 143, 22 So. 627, 72 Am. St. Rep. 143; Ohio Oil Co. v. Conway, 281 U.S. 146, 159, 50 S.Ct. 310, 74 L.Ed. 775.

The power to tax the stock in banks of the United States, agencies of the national government, in the accomplishment of its constitutional purposes, is not an inherent power residing in the state, but a power delegated by Congress. Such agencies cannot be taxed except by the consent of Congress. Cooley's Const. Law (8th Ed.) p. 991.

In the exercise of this delegated power, the Legislature must conform to the restrictions in the acts of Congress delegating this power; otherwise the effort of the Legislature to exercise this power is abortive and void. Ward, Tax Collector, v. First National Bank of Hartford (Ala. Sup.) 142 So. 93; Mercantile Nat. Bank v. New York, 121 U.S. 138, 7 S.Ct. 826, 30 L.Ed. 895.

The limitation on the power of the Legislature to levy a direct tax on property, found in sections 211 and 217 of our Constitution, is a limitation on the inherent power of the state, and not on the power to tax delegated by the federal statute. The limitation on this power is found in section 5219 of the United States Revised Statutes (12 USCA § 548). Maguire v. Board of Revenue & Road Commissioners of Mobile County, 71 Ala. 401; Pollard v. State ex rel. Zuber, 65 Ala. 628.

Therefore, when the Legislature, in the exercise of the power delegated by the federal statute, efficaciously levies a tax on the stock of United States banks, in conformity with the statute, such levy reflects the limitation embodied in the Constitution in respect to the levy on subjects of taxation within the inherent power of the state, and requires substantial uniformity. Such was the case dealt with in State Bank v. Board of Revenue, 91 Ala. 217, 8 So. 852.

But where, as in the case at bar, the attempted exercise of the delegated power of taxation under the federal statute is abortive, there is no basis for applying the limitation embodied in section 217 of the Constitution to taxes levied in the exercise of the state's inherent power on domestic bank stock; therefore the plaintiff was not entitled to recover.

We are in full accord with the minority view that there is "no semblance of justice in taxing the shares of State banks and excluding those of National banks." But we entertain the view the remedy for such injustice lies with the lawmaking power of the state and federal government, by amendment of the federal statute, as now proposed by the pending bill in Congress, so as to permit the taxation of national banks in like manner and to like extent as state banks; and, if this is not done, the Legislature should conform to the requirements of the federal law. The result of such injustice in this particular instance does not justify a surrender of the inherent power of the sovereign state to tax its own subjects and exercise its own prerogatives.

Upon the question of taxation, the Legislature of this state had the power to make exemptions and classifications free from interference by the courts unless there results inequality, not only oppressive in its operation, but so glaring as that it can be judicially declared to be founded on arbitrary and capricious principles, without the just semblance of reason. Subject to this limitation, the legislative power to select proper subjects of taxation and to classify them upon principles which to them seem just cannot be circumscribed by the courts. There must be, of necessity, left a liberal scope for the free exercise of this presumably wise discretion. Moog v. Randolph, 77 Ala. 597.

Upon this well-recognized principle the system of classification and exemption by the Legislature as to moneyed capital is a matter resting with the lawmaking power, and is not such as to justify the interference by the court.

Like reasoning as outlined in this opinion leads to the conclusion that the state system of taxation here questioned violates no provision of the Fourteenth Amendment to the Constitution of the United States. Ohio Oil Co. v. Conway, 281 U.S. 146, 50 S.Ct. 310, 74 L.Ed. 775.

The judgment of the circuit court is reversed, and one here rendered for the defendant.

Reversed and rendered.


BOULDIN J. (dissenting).

Union Bank & Trust Company, a state banking corporation, paid under protest the ad valorem taxes assessed against its shareholders upon their shares of stock for the tax year ending September 30, 1931, and brought the present action against the tax collector to enforce a refund.

Broadly stated, the theory of the suit is that, by a course of legislation, exempting or omitting as subjects of taxation, other moneyed capital, the tax structure of the state is such as to work a repeal of the statute subjecting shares of stock in state banks to ad valorem taxation-this by force of the uniformity provisions of our State Constitution. The federal law dealing with the taxation of shares in national banks is brought under consideration as affecting the status upon which our Constitution operates.

We take note, first, of the statutes and constitutional provisions involved.

Section 5219, United States Revised Statutes, reads:

"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."

National banks being agencies or instrumentalities of the federal government in relation to its currency and fiscal affairs, the power of Congress to impose restrictions preventing discrimination by state tax laws against the holders of stock in such banks in favor of competing moneyed capital has been long settled and is unchallenged.

"The terms of the act of congress, therefore, include shares of stock or other interests owned by individuals in all enterprises in which the capital employed in carrying on its business is money, where the object of the business is the making of profit by its use as money. The moneyed capital thus employed is invested for that purpose in securities by way of loan, discount, or otherwise, which are, from time to time, according to the rules of the business, reduced again to money, and reinvested." Mercantile Nat. Bank v. New York, 121 U.S. 157, 7 S.Ct. 826, 836, 30 L.Ed. 895.

"All taxes levied on property in this state shall be assessed in exact proportion to the value of such property." Constitution of Alabama, § 211.

"The property of private corporations, associations, and individuals of this state shall forever be taxed at the same rate." Constitution of Alabama, § 217.

In Mayor, etc., of Mobile v. Stonewall Insurance Co., 53 Ala. 570, this court considered a provision of the Constitution of 1863 to like effect as section 217 of our present Constitution above quoted. That case dealt with a statute prescribing a different and lower rate of municipal taxation upon certain moneyed capital employed by corporations from that similarly employed by individual citizens. In an extended opinion by Chief Justice Brickell, among other things, the court declared:

"Invidious exemptions or discriminations, by which the property of an individual, or of a corporation, is relieved from bearing a just proportion of the common burden taxation is intended to discharge, are violative of the equality of right of the citizen, which is a fundamental principle of our institutions. To prevent any exemption or discrimination in favor of corporations, to subject their property to the same rate of taxation to which the property of individuals of the same kind is subject,

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