Veazie Bank v. Fenno

• Citation: 8 Wall. 533,75 U.S. 533,19 L.Ed. 482
• Parties: VEAZIE BANK v. FENNO
• Decision Date: 01 December 1869
• Court: United States Supreme Court

75 U.S. 533

19 L.Ed. 482

8 Wall. 533

VEAZIE BANK v. FENNO.

December Term, 1869

ON certificate of division for the Circuit Court for Maine.

The Constitution ordains that:

'The Congress shall have power——

'To lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defence and general welfare of the United States; but all duties, imposts, and excises shall be uniform throughout the United States.

'To regulate commerce with foreign nations, and among the several States, and with the Indian tribes.

'To coin money, regulate the value thereof, and of foreign coin.'

It also ordains that:

'Direct taxes shall be apportioned among the several States . . . according to their respective numbers.'

'No capitation or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be made.'

'The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.'

With these provisions in force as fundamental law, Congress passed, July 13th, 1866,¹ an act, the second clause of the 9th section of which enacts:

'That every National banking association, State bank, or State banking association, shall pay a tax of ten per centum on the amount of notes of any person, State bank, or State banking association, used for circulation and paid out by them after the 1st day of August, 1866, and such tax shall be assessed and paid in such manner as shall be prescribed by the Commissioner of Internal Revenue.'

Under this act a tax of ten per cent. was assessed upon the Veazie Bank, for its bank notes issued for circulation, after the day named in the act.

The Veazie Bank was a corporation chartered by the State of Maine, with authority to issue bank notes for circulation, and the notes on which the tax imposed by the act was collected, were issued under this authority. There was nothing in the case showing that the bank sustained any relation to the State as a financial agent, or that its authority to issue notes was conferred or exercised with any special reference to other than private interests.

The bank declined to pay the tax, alleging it to be unconstitutional, and the collector of internal revenue, one Fenno, was proceeding to make a distraint in order to collect it, with penalty and costs, when, in order to prevent this, the bank paid it under protest. An unsuccessful claim having been made on the commissioner of internal revenue for reimbursement, suit was brought by the bank against the collector, in the court below.

The case was presented to that court upon an agreed statement of facts, and, upon a prayer for instructions to the jury, the judges found themselves opposed in opinion on three questions, the first of which—the two others differing from it in form only, and not needing to be recited—was this:

'Whether the second clause of the 9th section of the act of Congress of the 13th of July, 1866, under which the tax in his case was levied and collected, is a valid and constitutional law.'

The case coming here, Messrs. Reverdy Johnson and C. Cushing, for the Veazie Bank, contended:

1. That the tax in question was a direct tax, and that it had not been apportioned among the States agreeably to the Constitution.

In explanation of the nature of direct taxes they relied largely upon the writings of Adam Smith, and upon other treatises, English and American, of political economy.

2. That the act imposing the tax impaired a franchise granted by the State, and that Congress had no power to pass any law which could do that.

Mr. Hoar, Attorney-General of the United States, argued the case fully, contra; he relying upon the case of Hylton v. The United States,² as conclusive of the question independently of principle; and referring to the brief recently published³ of General Hamilton, by whom the case was argued, to explain and support his view of what was there decided; a case confirmed recently, the Attorney-General observed, in Pacific Insurance Company v. Soule.⁴

In reply, it was contended that Hylton v. The United States adjudged one point alone, which was that a tax on carriages was not a direct tax, and that from the dicta of the judges, in the case, it was obvious that the great question of what were direct taxes was but crudely considered.

The arguments at the bar, by which these views of the respective counsel were maintained, are not presented, the views of both sides of the case being fully presented from the bench, in the opinion of the court, and in the dissent from it.

The CHIEF JUSTICE delivered the opinion of the court.

The necessity of adequate provision for the financial exigencies created by the late rebellion, suggested to the administrative and legislative departments of the government important changes in the systems of currency and taxation which had hitherto prevailed. These changes, more or less distinctly shown in administrative recommendations, took form and substance in legislative acts. We have now to consider, within a limited range, those which relate to circulating notes and the taxation of circulation.

At the beginning of the rebellion the circulating medium consisted almost entirely of bank notes issued by numerous independent corporations variously organized under State legislation, of various degrees of credit, and very unequal resources, administered often with great, and not unfrequently, with little skill, prudence, and integrity. The acts of Congress, then in force, prohibiting the receipt or disbursement in the transactions of the National government, of anything except gold and silver, and the laws of the States requiring the redemption of bank notes in coin on demand, prevented the disappearance of gold and silver from circulation. There was, then, no National currency except coin; there was no general⁵ regulation of any other by National legislation; and no National taxation was imposed in any form on the State bank circulation.

The first act authorizing the emission of notes by the Treasury Department for circulation was that of July 17th, 1861.⁶ The notes issued under this act were treasury notes, payable on demand in coin. The amount authorized by it was $50,000,000, and was increased by the act of February 12th, 1862,⁷ to $60,000,000.

On the 31st of December, 1861, the State banks suspended specie payment. Until this time the expenses of the war had been paid in coin, or in the demand notes just referred to; and, for some time afterwards, they continued to be paid in these notes, which, if not redeemed in coin, were received as coin in the payment of duties.

Subsequently, on the 25th of February, 1862,⁸ a new policy became necessary in consequence of the suspension and of the condition of the country, and was adopted. The notes hitherto issued, as has just been stated, were called treasury notes, and were payable on demand in coin. The act now passed authorized the issue of bills for circulation under the name of United States notes, made payable to bearer, but not expressed to be payable on demand, to the amount of $150,000,000; and this amount was increased by subsequent acts to $450,000,000, of which $50,000,000 were to be held in reserve, and only to be issued for a special purpose, and under special directions as to their withdrawal from circulation.⁹ These notes, until after the close of the war, were always convertible into, or receivable at par for bonds payable in coin, and bearing coin interest, at a rate not less than five per cent., and the acts by which they were authorized, declared them to be lawful money and a legal tender.

This currency, issued directly by the government for the disbursement of the war and other expenditures, could not, obviously, be a proper object of taxation.

But on the 25th of February, 1863, the act authorizing National banking associations¹⁰ was passed, in which, for the first time during many years, Congress recognized the expediency and duty of imposing a tax upon currency. By this act a tax of two per cent. annually was imposed on the circulation of the associations authorized by it. Soon after, by the act of March 3d, 1863,¹¹ a similar but lighter tax of one per cent. annually was imposed on the circulation of State banks in certain proportions to their capital, and of two per cent. on the excess; and the tax on the National associations was reduced to the same rates.

Both acts also imposed taxes on capital and deposits, which need not be noticed here.

At a later date, by the act of June 3d, 1864,¹² which was substituted for the act of February 25th, 1863, authorizing National banking associations, the rate of tax on circulation was continued and applied to the whole amount of it, and the shares of their stockholders were also subjected to taxation by the States; and a few days afterwards, by the act of June 30, 1864,¹³ to provide ways and means for the support of the government, the tax on the circulation of the State banks was also continued at the same annual rate of one per cent., as before, but payment was required in monthly instalments of one-twelfth of one per cent., with monthly reports from each State bank of the amount in circulation.

It can hardly be doubted that the object of this provision was to inform the proper authorities of the exact amount of paper money in circulation, with a view to its regulation by law.

The first step taken by Congress in that direction was by the act of July 17, 1862,¹⁴ prohibiting the issue and circulation of notes under one dollar by any person or corporation. The act just referred to was the next, and it was followed some months later by the act of March 3d, 1865, amendatory of the prior internal revenue acts, the sixth section of which provides, 'that every National banking association, State bank, or State banking association, shall pay a tax of ten per centum on the amount of the notes...