State v. First National Bank

• Decision Date: 27 March 1919
• Docket Number: 20893
• Citation: 171 N.W. 912,103 Neb. 280
• Parties: STATE OF NEBRASKA ET AL., APPELLANTS, v. FIRST NATIONAL BANK ET AL., APPELLEES
• Court: Nebraska Supreme Court

171 N.W. 912

103 Neb. 280

STATE OF NEBRASKA ET AL., APPELLANTS, v. FIRST NATIONAL BANK ET AL., APPELLEES

No. 20893

Supreme Court of Nebraska

March 27, 1919

APPEAL from the district court for Hamilton county: EDWARD E. GOOD JUDGE. Reversed.

REVERSED.

J. L Cleary and Charles L. Whitney, for appellants.

Hainer Craft & Edgerton and T. S. Allen, contra.

L. M. Pemberton, amicus curiae.

LETTON, J. CORNISH, J., not sitting. SEDGWICK, J., dissenting.

OPINION

LETTON, J.

In its statement to the assessor of Hamilton county made for the year 1918, the First National Bank of Aurora showed that its capital stock was $ 50,000, surplus $ 50,000, and undivided profits of $ 2,887.51, making a total book value of its shares of $ 102,887.51. The bank claimed that it was entitled to deduct from this aggregate amount certificates of indebtedness, war stamps and liberty bonds of the United States held by it to the amount of $ 75,473.77, and real estate belonging to the bank of the value of $ 6,000.

It alleged that the obligations of the United States were acquired before April 1, 1918, and were exempt from taxation either by state, county or municipal authorities. A list of the stockholders, with the number of shares held by each, the value of each share, and the residence of each shareholder was also included, as required by the statute.

The assessor refused to allow any deduction from the statement on account of the tax exempt obligations of the United States mentioned. On appeal being taken, the county board of equalization also refused to do so. An appeal was taken from this decision to the district court for Hamilton county. The facts were set forth in the petition. The state of Nebraska was allowed to intervene, claiming that the securities involved were subject to taxation for state purposes. A demurrer was filed to the petition on behalf of the state and the county. The United States appearing also intervened by Honorable Thomas S. Allen, district attorney for the district of Nebraska, claiming that the federal securities mentioned are not either directly or indirectly subject to state or local taxation. The district court overruled the several demurrers. The demurrants electing to stand on the demurrer, the court found upon the allegations of the petition that the federal securities involved are wholly exempt from taxation by either state, county or municipal authorities, and ordered that the amount of the same be deducted from the gross amount of the statement made by the bank. From this judgment the state and the county of Hamilton have appealed.

The issues involved in the case are narrow. The first essential inquiry is: What is the res, or thing, which is the subject of taxation under the provisions of the statute. If it is the property of the bank which is taxed, it is admitted by the state and county under the decisions in McCulloch v. State of Maryland, 17 U.S. 316, 4 Wheat. 316, 4 L.Ed. 579, and Weston v. City Council of Charleston, 2 Peters (U.S.) 449, that the value of the securities must be deducted from the total assets, because otherwise there would be a direct tax imposed upon obligations which the congress of the United States has declared to be exempt from such impositions.

Prior to the enactment of the present revenue law in 1903, the stockholders of every bank within the state, whether state or national, were assessed and taxed on the value of their shares of stock in the county, town, precinct, village or city where the bank was located, whether the stockholders resided in such places or not. It was required that the bank keep on file a correct list of the names and residences of stockholders, and the number of shares held by each, and it was the duty of the assessor to report to the county clerk a correct list of the names and residences of such stockholders with the number and assessed value of the shares. The county clerk was required to enter the valuation of the shares in the tax lists in the name of the owner, and to extend the tax in the same manner as against other property. It was the duty of the bank and its officers to retain so much of any dividend or dividends belonging to the stockholders as necessary to pay taxes levied on the shares of stock, and, if the tax was not paid, the collector of taxes had the right to sell the shares to pay the same "like other personal property." Comp. St. 1899, ch. 77, art. I, secs. 33-37.

In 1903 the legislature revised the law in regard to assessment and collection of taxes, condensed it, and changed it in several minor respects. As relating to the taxation of banks, the essential element that the assessment should be on the shares of stock was left untouched. Section 6343, Rev. St. 1913, as amended in 1915 (Laws 1915, ch. 108), is the law which specifies the manner in which the shares of stock in such institutions shall be taxed. This section is as follows: "The president, cashier or other accounting officer, of every bank or banking association, loan and trust or investment company, shall, on the first day of April of each year, make out a statement under oath, showing the number of shares comprising the actual capital stock of such association, bank or company, the name and residence of each stockholder, the number of shares owned by each and the value of the shares on the first day of April, and shall deliver such statement to the proper county assessor. Such capital stock shall thereupon be listed as assessed by him, and return made in all respects the same as similar property belonging to other corporations and individuals. Whenever any such bank, association or company shall have acquired real estate which is assessed separately the assessed value of such real estate, shall be deducted from the valuation of the capital stock of the association or company. Provided mortgages, trust deeds and all other liens or interests in real estate less than a fee title and held as security for loans, shall not be considered or assessed as part of the capital stock for purposes of taxation, and shall not be deducted from the capital, surplus or undivided profits. The county assessor shall determine and settle the true value of each share of stock after an examination of such statement, and in case of a national bank, an examination of the last report called for by the comptroller of the currency; if a state bank, the last report called for by the state banking board; and if the county assessor deem it necessary, he may make an examination of the officers of such bank, association or company, under oath, in determining and fixing the true value of such stock, and shall take into consideration the market value of such stock, if any, and the surplus and undivided profits. Such association, bank or company shall pay the taxes assessed upon its stock and shall have a lien thereon for the same."

This section first came up for consideration in the case of the State v. Fleming, 70 Neb. 523, 536, 97 N.W. 1063. In this case an attack was made upon the constitutionality of the entire act, and objections were also made to the validity of certain specific provisions. It is said in the opinion: "There are numerous banks in this state of the class known as national banks. These banks are authorized and chartered by the national government. By the law of their creation, their capital stock cannot be taxed, but the individual shareholders may be taxed upon the value of the shares held." The section is then set forth in the opinion, and the court continues: "The last clause of the section is as follows: 'Such association, bank or company shall pay the taxes assessed upon its stock and shall have a lien thereon for the same.' This clearly contemplates an assessment, not upon the capital stock of the bank itself, but upon the value of the shares held by the stockholders and against the stockholders. This is the only method in which a revenue may be derived from national banks. It is the only procedure authorized by the laws of the national government. It surely cannot be made an objection to this act that other banks and banking associations are taxed in the same manner and method provided for the taxation of national banks. Neither is it an objection that the bank is required to pay the tax due from its shareholders." The court then quoted from National Bank v. Commonwealth of Kentucky, 76 U.S. 353, 9 Wall. 353, 19 L.Ed. 701, and said: "This, we think, is a full answer to the objection made."

The court was evidently of the opinion that the slight changes in the former act did not affect the design of the statute to lay the tax upon the shares of stock of the individual stockholders, and not upon the property of the bank.

In First Nat. Bank v. Webster County, 77 Neb. 815, 113 N.W. 190, it is said: "Shares of stock in a national bank are assessed to the individual stockholder at the place where the bank is located, but the bank is liable in the first instance for the payment of the tax, and is given a lien on the stock to secure repayment from the shareholder. The bank is made the agent of the shareholder, not only for the payment of the tax, but for the purpose of listing the stock for taxation."

State v. Fleming, supra, was followed in Nemaha County Bank v. County Board of Equalization ante, p. 53. In the opinion in this case it is said: "Shares of stock and capital stock represent different property rights and may be separately assessed. Shares of stock represent a liability of the bank. The words 'capital stock,' in the statute, mean shares of stock which are the unit of taxation. * * * The two interests represent separate property rights, and therefore each is taxable. * * * The corporation's right to resist taxation upon its mortgage securities, contrary to the...