217 U.S. 443
SCOTUS
1910

Lead Opinion

Mr.- Justice Lurton

delivered the opinion of the co.urt.

This wаs a proceeding under the law of Kentucky to back assess the shares of . stock in the Citizens. National Bank as property omitted from the tax list. ’ After much petitioning, pleading and demurring, and two appedls to-the Court of'Appeals of the State оf Kentucky, 1,473 shares were assessed fpr the taxes of 1896, 1897. and 1898, and 990 shares.for the taxes of 1899, with a penalty of twenty per cent addecl to the tax each year. The proceeding under which- this result has been reached was started, in the County Court of Boyle County,' Kentucky, in March, 190Í, by a petition filed by the sheriff of-.the county for the purpose of causing the shares of the bank to be assessed as property omitted by the assessor. The authority under which -the petition was filed is found in § 4241, Kentucky Statutes, and the Kentucky act of March 21, 1900.' As the validity of. this later act is challenged, we- set it out in the margin.1

*448* In the case of the Owensboro National Bank v. Owensboro, 173 U. S. 664, this court held invalid certain legislation of the State of Kentucky providing for the taxation of national banks. as. laying a tax,.not upon.shares, which was permissible, but upon the property and franchises of such banks which yvas *449inadmissible under the restrictions of § 5219; Rev. Stat. In consequence of this decision this act of March 21, 1900, was passed, as shown both by its subject-matter and the recital in .the preamble. The act is both protective, аnd retrospective. Of its prospective features, we need say nothing. The third section is retrospective, in that it provides for-the return .of shares in.national banks which,, düring the years of the operation of the legislation held invalid by this court, had not been returned for taxation, by'making it the duty of certain officers of such banks to list for taxation for the years between 1892 and'1899 all shares in such banks which had not -been returned, and by requiring all such banks to. pay the tax and penalty upon all such omitted shares, subject, hоwever, to' certain deductions and credits on account of taxes paid by such banks, .under the act held invalid, as well as under the prior'. Hewitt act;.

In Covington v. First National. Bank, 198 U. S. 100, this court was required to consider the effect of the third section of the act in imposing upon natiоnal banks' a liability for the taxes and penalties upon such omitted shares, which, during the years covered by.this section, had been held by persons •not domiciled within the State of Kentucky. The question arose under a bill filed in a Circuit Court of the United States *450to enjoin the imposition of liability, upon a national bank for taxes and penalties upon shares held between 1892 and 1900 . by persons who were not domiciled in Kentucky, it being alleged that the purpose of the proceeding against the bank was ’ to 'chargе the bank without discrimination between domestic and foreign-held shares. Prior to this act of March 21, 1900, there was no law requiring a return for taxation of bank shares held by ‍‌‌​​​‌​‌‌​‌​‌‌​‌​‌​​‌‌​‌‌​‌​‌‌​​‌​‌‌​‌‌​​‌‌​​‌‌‌‍owners not domiciled within the State, either by'such holder or by the bank in which such shares were held. For this reason we held in the case referred to that this act imposed, for the years prior to' its passage; a liability upon national banks for taxes upon shareholders, domiciled outside of the . State, which was not borne by other incorporatеd moneyed institutions. Upon this subject the court, speaking by Mr. Justice Day, ■ said:

“Without considering the question of constitutional power' to tax nonresident shareholders by méans of this retroactive law.,.it seems to us that in imposing upon the bank thé liability for the past years, fоr taxes and penalty, upon stock held with-. out the State, and.which before'the taking effect of. the act Under considei’ation it was not required to return, there has been imposed upon national .banks in this retroactive feature of the law a burden not'borne, by other moneyed capital in the. State. ' This' lav7 makes a bank liable for taxes upon property .beyond the jurisdiction of the State,' not required to. be returned by the.bank as agent for the shareholders, by a statute passed in pursuancе.of the authority delegated in § 5219, thus imposing a burden not borne by other moneyed capital within . the State/-’ ■' (Covington v. First National Bank, 198 U. S. 114).

. ; Iri the case now before us for consideration a liability has been imposed .upon the Citizens Bank, the plaintiff in error, n.ot for taxes cánd penalties upon- shares of the bank held by shareholders domiciled beyond the State-^-as-was attempted' in Covington v. First National Bank, 198 U. S. 100 — but exclusively upon shareholders domiciled within the State. The liability is limited to the tax and penalty upon shares owned *451by shareholders domiciled within the State, thе name/residence and amount due from each such shareholders being distinctly set down in the decree.

Neither is the act lacking in due process if, as we shall as-' sume for the moment is the case, the procedure under the third section ‍‌‌​​​‌​‌‌​‌​‌‌​‌​‌​​‌‌​‌‌​‌​‌‌​​‌​‌‌​‌‌​​‌‌​​‌‌‌‍is but a new remedy for a tax liability imposed by prior la'w of the State upon resident holders of shares' of the bank. -

. Section 5210, Rev. Stat., requires every such bank to keep a correct list of its shareholders accessible.to taxing.officers, and by § 5219, Rev. Stat., the legislature of .each State may, for itself, determine the manner and method for taxing shares in such banks, 'subject only to the restrictions named therein.-' In making the bank the agent for its own shareholders in proceedings brought to compel a return and secure an assеssment, and in imposing upon the bank a liability for,the tax so assessed against the shareholders, the act only follows .the well-settled procedure sanctioned in National Bank v. Commonwealth, 9 Wall. 353; Van Slyke v. Wisconsin, 154 U. S. 581, and Aberdeen Bank v. Chehalis County, 166 U. S. 440.

That the third section does not impose a liability upon’ either the domestic shareholdеrs or the bank which did not exist before under the prior law'of the' State, was settled by the cáse of Scobee v: Bean, 109 Kentucky, 526. ' In that case the ' shares of certain resident shareholders had been assessed for taxes laid for years prior to this'act of-1900, and-it was urged that since the'special'legislation'for the taxation of such shares hacl been held void by this court in Owensboro National Bank v. Owensboro-, that there was'no law pf the State under which these shares could be assessed. But the Kentucky court, after an elaborate review of the generаl taxing law of the State, held that there was full prior statutory authority for the taxation of áueh shares, and that under that law, if the bank .failed to return and pay the tax upon such shares, it was the duty of the shareholders to do so. ' That case has been followеd in a. number of other .cases by the same court, and it is the basis upon *452which the third section of this act of March 21, . 1900, was upheld in the present case as not imposing a new liability,, but as simply providing another method for ‍‌‌​​​‌​‌‌​‌​‌‌​‌​‌​​‌‌​‌‌​‌​‌‌​​‌​‌‌​‌‌​​‌‌​​‌‌‌‍the assessment of shares which had escaped assessment under, the prior law, because neither the shareholders nor the bank had returned them for taxation. In Covington v. First National Bank, 198 U. S. 100, 111, this court, spéaking by Mr. Justice Day, accepted this as the interpretation of the statutory law of Kentucky by the highest court of the Statе, saying:

“Following the State court in the interpretation of its own statutes, it may be-said that, as to shareholders residing in Kentucky and over whom the State has jurisdiction, the Supreme Court of that State has .construed its statutes as requiring shareholders in national banks for the years 1893 to 1900, inclusive, to return their shares for taxation; and if they did not make the return the duty was required of the corporation. In this view of the law it may be that, as to local shareholders, the act of March 21, 1900, as held by the Supreme Court of Kentucky, creаted no new right of taxation, but gave simply a new remedy, which by the law is operative to enforce preexisting- obligations. It . may be admitted that section -5219 permits the State to require the bank to pay the tax for the shareholders. National Bank v. Commonwealth, 9 Wall. 353; Van Slyke v. Wisconsin, 154 U. S. 581; Aberdeen Bank v. Chehalis County, 166 U. S. 440.”

This construction of thе prior law and of the act of 1900 was reaffirmed upon the first'appeal of the present case, where the court said:

. “The act of March 21, 1900, did not, therefore, make that taxable which was not taxable before, but simply provided another mode for the assessment of the shares of stock and the .payment pf the taxes. It was the duty of the assessor to make the assessment. It was also the duty of- the president and cashier of.'the bank to list the shares of stock with the assessor; but when' the assessment was not made - the property was simply omitted from the tax list, and the sheriff is authorized *453by section 4241, Ky. Stat. 1903, to institute the proceedings to have any omitted property assessed. A penalty may be properly imposed in the proceeding beсause the property was not listed with the assessor as required by law, and stood as any other property for the assessment of which a proceeding under section 4241 may be instituted. While neither the bank, nor its president, nor its cashier is the owner of the shares of stock, the ‍‌‌​​​‌​‌‌​‌​‌‌​‌​‌​​‌‌​‌‌​‌​‌‌​​‌​‌‌​‌‌​​‌‌​​‌‌‌‍bank is made by the act the agent of the shareholders, and the notice to it is notice to his agent, within the meaning' of section 4241. The president and cashier were properly made defendants because it is made their duty by the statutе to list the stock. The bank is required to keep a list of-its shareholders, and therefore knows who they are. Notice to the agent in an assessment of property is sufficient notice to his principal.” Commonwealth v. Citizens National Bank, 117 Kentucky, 946, 957.

But it is said that in Covington v. First National Bank this court held the third section broad enough to includе liability for omitted returns of shares- held by. non-resident shareholders, and for that reason discriminated against national banks. But in that case the proceeding enjoined was one for the purpose of fixing liability upon the bank without discriminating between resident and non-resident shareholders: But in the present case the state court has not imposed liability upon the bank for taxes or penalties upon .shareholders who were non-residents, but has applied it as affording a valid remedy for the collectiоn of taxes and penalties upon residents who had not made return as required under the prior law. As thus applied, the bank has neither been deprived of any rights nor compelled to bear any burden in conflict with § 5219, Rev. Stat., upon which it relies for proteсtion. But if it be assumed — an assumption not sustained by any decision of the Kentucky Court of Appeals — that the third section is broad enough to include liability for delinquent taxes claimed from' both resident and non-resident stockholders, none of the latter class are here complaining, and such an objection cannot be *454made by one unaffected by the alleged invalid, feature. Austin v. The Aldermen, 7 Wall. 694; Supervisors v. Stanley, 105 U. S. 305; The Winnebago, 205 U. S. 354.

That the body of shareholders in 1901, when the'proceeding was started, was not composed of the same individuals as the body during the years for which the taxes were due, is doubtless true; Rut the shares pass from one holder to another s.ub.ject- to the burden of taxes, and if not returned by either the' shareholder or the bank, as required by the prior law, the liability remains to be enforced until barred by limitation of time. The liability of the bank is that of the shareholder, аnd its reimbursement must come from those who hold the shares when the bank liability is enforced;' In Seattle v. Kelleher, 195 U. S. 351, it is said that liability for a tax is not subject to the rules applicable to the vendor’s equity. “A man cannot get rid of his liability to a tax by buying without notice.” The liability of the purchaser, оf shares for taxes not' paid, and of the bank, as agent for its shareholders, is one of the notorious and necessary consequencés of the long sanctioned right of the States to compel such banks to return its shares for. taxation and to pay the assessment thereon if the shareholder does not;' The legality of this method was reasoned out in National Bank v. Commonwealth, 9 Wall. 353, a case arising under the Kentucky law imposing liability upon banks for the tax upon shareholders. This answers the .objection, that in 1898 a reduction in the number of shares had occurred. That only means that each share of $1,000 was reduced to a share of $666.66; the shareholders remained the same, the proportion held by each in the capital being the same as before the reduction. The tax upon thе share before it was reduced rested upon the same share after it had .been reduced. None of the shares taxed had in fact gone out of. existence before the proceeding to compel returns for purposes' of' taxаtion.' The original 1,500 shares were represented by the outstanding . 1,000 shares, and were in the hands of the same géüerál body of shareholders.

*455The objection made that the act violates the supposed ‍‌‌​​​‌​‌‌​‌​‌‌​‌​‌​​‌‌​‌‌​‌​‌‌​​‌​‌‌​‌‌​​‌‌​​‌‌‌‍contract under the Hewitt act is answered by Citizens Savings Bank of Owensboro v. Owensboro, 173 U. S. 636, and City of Covington v. First National Bank, 198 U. S. 100.

The othеr assignments present no question which need be more particularly answered'.

Judgment affirmed.





Dissenting Opinion

Mr. Justice White,

dissenting.

I am constrained to dissent because I think, in substance, and effect the retroactive tax now upheld is a tax on the bank and its assets, and-is therefore void. The power to tax is controlled by § 5219, Rev. Stat., ánd, as in my judgment, the tax which is now sustained is in conflict, with that section, in. my opinion there should be á judgment of reversal.