State v. First Nat. Bank, 24553.

• Decision Date: 17 July 1925
• Docket Number: No. 24553.,24553.
• Citation: 164 Minn. 235,204 N.W. 874
• Parties: STATE v. FIRST NAT. BANK OF ST. PAUL.
• Court: Minnesota Supreme Court

204 N.W. 874

164 Minn. 235

STATE v. FIRST NAT. BANK OF ST. PAUL.

No. 24553.

Supreme Court of Minnesota.

July 17, 1925.

Appeal from District Court, Ramsey County; Charles Bechhoefer, Judge.

Action by the State against the First National Bank of St. Paul. Judgment for plaintiff, and defendant appeals from an order denying a new trial. Reversed.

O'Brien, Horn & Stringer, of St. Paul, for appellant.

C. L. Hilton, Atty. Gen., Rollin L. Smith, Asst. Atty. Gen., and H. H. Peterson, Co. Atty., and Patrick J. Ryan, both of St. Paul, for the State.

TAYLOR, C.

The state brought these proceedings to obtain judgment against defendant, a national bank located in the city of St. Paul in the county of Ramsey, for the personal property taxes assessed against its shareholders for the years 1921 and 1922. The proceedings were separate for each year, but involve the same questions, and were tried together by consent. Defendant interposed answers asserting that the taxes were illegal and void, for the reason that its shares were taxed at a rate largely exceeding the rate at which moneyed capital in the hands of individual citizens employed in competition with national banks was taxed. The trial court made extended findings, and directed judgment for the state. Defendant appealed from an order denying a new trial. The facts are undisputed, and the controversy is in respect to the conclusions to be drawn therefrom.

National banks being organized under the laws of the United States as instrumentalities of the national government, the state cannot tax them or their shares except as authorized by Congress. Des Moines Nat. Bank v. Fairweather, 263 U. S. 103, 44 S. Ct. 23, 68 L. Ed. 191, and cases cited. The state cannot tax such banks directly for Congress has never given authority to do so, and in the years 1921 and 1922 it could tax the shares of such banks only as authorized by sections 5219, U. S. Revised Statutes (U. S. Comp. St. § 9784), which 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 said state, and that the shares of any national banking association owned by non-residents of any state shall be taxed in a 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 was amended by the Act of March 4, 1923 (42 Stat. 1499), also found in Fed. Stat. Ann. 1923 Supp. at page 84, and the amendment applies to taxes for the years subsequent to 1922.

Section 5219 grants power to the state to tax the shares of national banks to the holders thereof subject to the two restrictions named. Defendant contends that the tax upon such shares, as assessed under chapter 416, Laws of 1921 of the state of Minnesota, violates the requirement 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." Chapter 416, Laws of 1921, appears as sections 2023, 2024, 2025, and 2026 of the General Statutes of 1923. Section 2023 provides:

"The shares of stock of every bank in this state organized under the laws of the United States, and the moneyed capital of every bank or mortgage loan company organized under the laws of this state shall be assessed and taxed at forty (40) per cent. of the true and full value thereof."

Section 2024 provides that the shares of stock of national banks shall be taxed against the holders thereof but in the name of the bank and that such taxes shall be paid by the bank as agent of the stockholders. It also provides that "the moneyed capital" of state banks and mortgage loan companies shall be taxed against the bank or loan company, and that the tax shall be paid by the bank or loan company. Section 2025 provides that the basis for determining the taxable value of the shares of stock of banks organized under the laws of the United States and the moneyed capital of banks and mortgage loan companies organized under the laws of this state shall be determined by deducting the amount of authorized investments in real estate from the aggregate amount of the capital, surplus, undivided profits and other funds of such bank or loan company.

The statute (G. S. 1913, § 2316) provides that money and credits shall be taxed at the rate of 3 mills on the dollar of the fair cash value thereof and shall be exempt from all other taxation; but further provides that this provision shall not apply to money and credits belonging to incorporated banks, nor to indebtedness on which a tax is paid under sections 2301 to 2309 of the General Statutes of 1913. These sections impose a tax of 15 cents on each $100 of debts secured by real estate mortgages where the debt matures not later than five years from the date of the mortgage, and a tax of 25 cents on each $100 where the debt matures more than five years after the date of the mortgage. The mortgage cannot be recorded nor used as evidence until this tax is paid, and payment of it exempts the debt from all other taxes, except inheritance taxes. The term "mortgage," as used here, includes executory contracts for the sale of land where the vendee takes possession thereof and every instrument evidencing a lien of any kind on real estate as security for a debt. The statute (G. S. 1923, § 1980) defines money as including gold and silver coin and all forms of currency in common use and all deposits subject to withdrawal in money on demand; and defines credits as including every claim and demand for money or other valuable thing.

As the states have no power to tax national banks or the shares therein except as granted to them by Congress, the construction given by the Supreme Court of the United States to the act granting such power and defining its limits is binding and conclusive upon the state courts. It is settled by the decisions of that court that the term, "moneyed capital in the hands of individual citizens," as used in section 5219, intends only the moneyed capital in the hands of individuals which is employed in competition with national banks. The various uses of moneyed capital which bring it within the statute have been plainly indicated in the numerous cases which have considered that question. In Mercantile Nat. Bank v. Mayor, etc., of New York, 121 U. S. 138, 7 S. Ct. 826, 30 L. Ed. 895, the court reviewed the prior decisions and pointed out the uses of capital which would be deemed to be in competition with the banks. In the later case of Merchants' Nat. Bank v. Richmond, 256 U. S. 635, 41 S. Ct. 619, 65 L. Ed. 1135, this question was again considered, and the court said:

"By repeated decisions of this court, dealing with the restriction here imposed, it has become established that while the words `moneyed capital in the hands of individual citizens' do not include shares of stock in corporations that do not enter into competition with the national banks, they do include something besides shares in banking corporations and others that enter into direct competition with those banks. They include not only moneys invested in private banking, properly so called, but investments of individuals in securities that represent money at interest and other evidences of indebtedness such as normally enter into the business of banking. In Evansville Nat. Bank v. Britton, 105 U. S. 322, 324, 26 L. Ed. 1053, 1054, the court said: `The act of Congress does not make the tax on personal property the measure of the tax on bank shares in the state, but the tax on moneyed capital in the hands of the individual citizens. Credits, money loaned at interest, and demands against persons or corporations, are more purely representative of moneyed capital than personal property, so far as they can be said to differ. Undoubtedly there may be much personal property exempt from taxation without giving bank shares a right to similar exemption, because personal property is not necessarily moneyed capital. But the rights, credits, demands, and money at interest mentioned in the Indiana statute, from which bona fide debts may be deducted, all mean moneyed capital invested in that way. * * * We are of opinion that the taxation of bank shares by the Indiana statute, without permitting the shareholder to deduct from their assessed value the amount of his bona fide indebtedness, as in the case of other investments of moneyed capital, is a discrimination forbidden by the act of Congress.'

"And in Mercantile Nat. Bank v. New York, 121 U. S. 138, 30 L. Ed. 895, 7 S. Ct. 826, the court, speaking by Mr. Justice Matthews, after reviewing previous decisions and pointing out (p. 154) the policy and purpose of the act as the key to its proper interpretation, proceeded to declare (page 157 ): `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. It includes money in the hands of individuals employed in a similar way, invested in loans, or in...