286 P. 673 | Kan. | 1930
Lead Opinion
The opinion of the court was-delivered by
The action is one of mandamus commenced in this court, which has original jurisdiction in such cases. The petition was filed on March 1, 1930. The cause was advanced, and was set for hearing on March 5, on application for a peremptory writ. On March 5 the cause was submitted on oral arguments and typewritten briefs. The court conferred immediately after the arguments were concluded, and decided the writ should be denied. The decision was announced at once, and the purpose of this opinion is to state the reasons for the court’s judgment.
The petition alleged, in substance, that plaintiff is the owner of real estate in the city of Lawrence, in Douglas county; that the first half of the taxes assessed against the real estate for the year 1929, at the general-property rate, was duly paid in December, 1929, and the second half of the taxes was payable on or before
Previous to 1923 sections 1 and 2 of article 11 of the state constitution, relating to finance and taxation, read as follows:
Ҥ 1. The legislature shall provide a uniform and equal rate of assessment and taxation; but [provision relating to exemption from taxation],
“§ 2. The legislature shall provide for taxing the notes and bills discounted or purchased, moneys loaned, and other property, effects, or dues of every description (without deduction) of all banks now existing, or hereafter to be created, and of all bankers; so that all property employed in banking shall always bear a burden of taxation equal to that imposed upon the property of individuals.”
The legislature of 1923 submitted to the qualified electors of the state an amendment of these sections, reading as follows:
“Section 1. . . . That sections 1 and 2, article 11, be amended and combined into one section, to read as follows: Section 1. The legislature shall provide for a uniform and equal rate of assessment and taxation, except that mineral products, money, mortgages, notes and other evidence of debt may be classified and taxed uniformly as to class as the legislature shall provide. [Provision relating to exemption from taxation.]” (Laws 1923, ch. 255.)
The amendment was adopted by a vote of 250,813 for to 196,852 against. Under authority of the amendment, the legislature enacted the mortgage-registration law, the intangible-tax law, and the secured-debts law, providing for low rate of taxation on classified property, which, for convenience, will be called the intangible rate. In the case of Voran v. Wright, 129 Kan. 601, 284 Pac. 807, the court decided, in substance, that shareholders in state banks were entitled to the benefit of the intangible rate, and plaintiff’s contention is based on his interpretation of the effect of that decision.
The problem for solution in Voran v. Wright involved application of the intangible rate in taxation of shares of state bank stock. The relation of the intangible rate to the general tax law of the state was not involved, and the question presented in this case was not decided. Students in accredited law schools, all of which use
The precise contention of plaintiff is this: A share of bank stock is not property falling within any of the classes mentioned in the amendment to the constitution. It is not a mineral product, nor money, nor mortgage, nor note, nor other evidence of debt. Therefore, a share of bank stock is simply a species of common unclassified property. Under the decision in the Voran case a share of state bank stock is to be taxed at the intangible rate. This being true, other common unclassified property, such as plaintiff’s land, must be taxed at the intangible rate. Unless so taxed, land'is discriminated against, and the discrimination is unlawful under the uniform and equal-rate clause of the constitution.
By way of approach to solution of the problem, it may be observed that deductive reasoning may land us in endless difficulty. Refractory facts cannot be reconciled with the conclusions, and it becomes necessary to reexamine premises. It will be recalled that Adam Smith created a science of political economy on the premise of an economic man. The economic man is dead, and economists jest among themselves as to who killed him. When legal theory finds itself confronted with contradictory theory in the field of taxation, it may be necessary to retreat to the low and humble ground of fact, and try- to make the law conform to fact. Otherwise we might have the result of the famous fight between the gingham dog and the calico cat. Quarreling theories might eat each other up, and there would be no money to run the government. In this state the difficulty arises in the adjustment of taxation, placed in constitutional strait-jacket when life was simple, to the complexities and heterogeneities of a highly developed, progressive, industrial society.
It will be observed that section 2 of article 11 of the constitution, before it was amended, prescribed in detail a method for taxing banks. A tax law was framed according to the constitution, and state banks were organized and employed property in the business of banking. Then came the national banking system, and congress
The power to tax is an attribute of the state’s own political sovereignty, and it has full power to tax its own people and property in its own way. In the case of Michigan Central Railroad v. Powers, 201 U. S. 245, the supreme court of the United States, speaking through Mr. Justice Brewer, said:
“We have had frequent occasion to consider questions of state taxation in the light of the federal constitution, and the scope and limits of national interference are well settled. There is no general supervision on the part of the nation over state taxation, and in respect to the latter the state has, speaking generally, the freedom of a sovereign both as to objects and methods. It was well said by Judge Wanty, delivering the opinion of the circuit court in this case:
“ ‘There can at this time be no question, after the frequent and uniform expressions of the federal supreme court, that it was not designed by the fourteenth amendment to the constitution to prevent a state from changing its system of taxation in all proper and reasonable ways, nor to compel the states to adopt an ironclad rule of equality, to prevent the classification of property for purposes of taxation, or the imposition of different rates upon different classes. It is enough that there is no discrimination in favor of one as against another of the same class, and the method for the assessment and collection of the tax is not inconsistent with natural justice.’ ” (p. 292.)
The. federal statute relating to state taxation as affecting national banking is a statute removing to a limited extent the bar to exercise of the state’s power to tax a federal agency. All the property and effects of national banks, except real estate, were withheld from taxation by the state, just as public buildings of the federal government, situated within the territory comprising the state, are withheld from the state’s jurisdiction to tax. That did not prevent the state from taxing its own banks according to its own constitution. The federal government had no interest in that subject. Its sole interest was, and is, to see that the limited jurisdiction conceded to the state with reference to taxation in connection with national banking is not transgressed. So far as power was concerned, the legislature of this state might have continued to tax state banks according to the explicit command of the constitution. Did the legislature do that? It did not. Why? The legislature encountered the tough economic fact that to do so would kill off state banks. They could not compete with national banks. The legislature was faced with' two necessities: necessity to observe federal law, and necessity to observe the state constitution. The situation did not admit of logical or philosophical solution; and by way of
In due time the state’s tax law was revised to equalize taxation pertaining to national banks and state banks, and in 1891 a statute intended further to accomplish that purpose was enacted. The first section began as follows:
“Stockholders in banks and banking associations and loan and investment companies organized under the laws of this state or the United States, shall be assessed and taxed on the true value of their shares of stock. . . .” (Laws 1891, ch. 84.)
Method of assessment was prescribed, and provision was made for deduction of real estate belonging in fee simple to the bank and taxation of such real estate under the general law. Provision was also made for payment of shareholders’ taxes by the bank, which was given a lien on the shares. This statute was interpreted in the case of Bank v. Geary County, 102 Kan. 334, 170 Pac. 33. Confusion of theory and ambiguity of terms used in the statute were noted, and impossibility of executing the statute according to its phraseology was pointed out. As interpreted by the court, the statute became a workable tax law. Paragraphs 1 and 2 of the syllabus of the decision read as follows:
“The tax contemplated by section 11236 of the General Statutes of 1915, relating to taxation of national banks, state banks, and loan or investment •companies, is a tax on shares of stock in the hands of stockholders, and not a tax on capital stock or assets, the property of the corporation.
“Shares of stock are to be assessed at their true value, which may or may not coincide with their bookkeeping value.” (p. 334.)
In the opinion emphasis was placed on the distinction between property of the bank, which was not taxed, and property of the shareholders, which was taxed, and the standard according to which stockholders were to be taxed on their property was stressed. That standard was “the true value.” Elements of true value were enumerated by the court.
The statute contained an implied exemption from taxation. On the theory of distinction between property of the bank and property of the shareholder, the value of property of the bank is one economic unit, unit A. The value of all the shares is a separate and distinct economic unit, unit B. The residue of unit A, after deduct
A private banker has all his wealth invested in the banking business. He incorporates, and gives a qualifying share to each of four persons, members of his family, or relatives, or friends, to comply with the law and form a board of directors. All the funds and property go to the corporation, part as capital stock and part as assets. No new taxable value has in fact been created, except value of the privilege to use the corporate form of organization in conducting the business. This would be true if the same persons, or other persons, took of their own wealth and started a bank. This is a fundamental fact-foundation beneath the doctrine of separate interests in things the subject of corporate ownership. Therefore, the court regards the implied exemption as a mere incident to operation of a tax law framed under the constraint of economic necessity, and in view of the results, not of sufficient moment to defeat the law. Likewise, if the increment of corporate privilege were not taxed, the omission would not invalidate the whole scheme of taxation, which cannot be made perfect.
The opinion in the Geary county case was filed in January, 1918. The next legislature, which convened in January, 1919, evidently regarded the decision as too severe on shareholders, and the law was amended in a manner which relegated portions of the opinion to innocuous desuetude. The statute of 1919 was amended in 1925, and as amended will be considered later.
As stated above, the constitution was amended, and the intangible-tax laws were enacted. The legislature did not intend that these laws should apply to taxation of bank shareholders, unless attempted exclusion of shareholders from benefit of the acts should
An early form of section 5219 of the Revised Statutes of the United States provided that shares of national bank stock might be included in the value of personal property of the shareholders, “subject only to the two restrictions. . . .” One of the restrictions is not material here. The other was that the taxation should not be at a greater rate than that assessed on other moneyed capital coming into competition with the business of national banks. The state of New York passed an act which permitted shares to be valued higher in proportion to their true value than competitive moneyed capital was valued. This was accomplished by permitting certain deductions by holders of competitive moneyed capital, not permitted in assessing shares of bank stock. An equal rate was then applied. The express and definite provision of the law was “shall not be at a greater rate,” which was the “only” restriction. The rate was precisely the same, and, starting with the philological premise, the conclusion arrived at by faultless logic was that the federal law was observed. What did the supreme court of the United States say about it? The court penetrated through form of expression to the substance of the state’s privilege to tax, and the syllabus of the opinion reads:
“The provision in sec. 5219 of the Revised Statutes of the United States, that state taxation on the shares of any national banking association shall not be at a greater rate than is assessed on other moneyed capital in the hands of individual citizens of the state, has reference to the entire process of assess*258 :ment, and includes the valuation of the shares as well as the rate of percentage charged thereon.
“The statute of a state, therefore, which establishes a mode of assessment by which such shares are valued higher in proportion to their real value than other moneyed capital, is in conflict with that section, although no greater percentage is levied on such valuation than on that of other moneyed capital.” (People v. Weaver, 100 U. S. 539.)
Applying the federal law to the facts, it is manifest that, when moneyed capital in competition with the business of a national bank is assessed at the intangible rate, the same kind of moneyed capital employed by the bank in its business and to be taken into account in fixing the tax burden cast on its shareholders must be assessed and taxed at the intangible rate.
In the Voran case the federal law was presented in such a manner that the court was obliged to discuss it. It was not regarded and could not be regarded by the court as law governing the decision. The federal statute was considered to discover what consequences resulted from it which might have a bearing on taxation of state banks under state law.
In the Voran case it appeared that more than 97 per cent of the personal property of the bank consisted of intangibles which, in the hands of others, would take the intangible rate. The shares were taxed at the general-property rate of $3.50 per $100. The shares of national banks, into the valuation of which the same kind of intangibles enter, and property of individual citizens consisting of the same kind of intangibles, pay 50 cents per $100. The combined capital, surplus and undivided profits of the state banks then in existence amounted to more than $41,000,000. The court refused to sanction a method of taxation producing such utterly indefensible discrimination, even though rejection of the method caused present financial loss to the state by reducing the amount of property taxed at the general rate. The court preferred to maintain the integrity of the constitution as amended.
Persons have interests in things, and those interests constitute the property of the possessors of the interests. The things are also called property, and, using the term in that way, the constitution permits classification of property, and not of owners of property. Property of a state bank which, if taxed to the bank as owner, would take the intangible rate is within the state’s jurisdiction to tax. The legislature could not constitutionally exempt from taxation such an immense quantity of property, and does not do so.
Realizing the gravity of the question involved in the Voran case, the court invited briefs from constitutional lawyers, lawyers expert in corporation and taxation law, and all others who could aid the court. Valuable assistance was received from amici curim, as well as from counsel in the case. The cause was argued, the court reached a conclusion, and an opinion was drafted. There was great pressure on the court for announcement of its conclusion, and because of exegencies in the court’s work, the draft of the opinion was filed, with full realization that it was not in final form. Filing the draft accomplished the end in view. It furnished a definite basis for further critical study of the problem by all who were interested, .and the court heard the case a second time, as it expected to do when the opinion was filed. The second argument was helpful, and among other suggestions attention was called to a statement made with only the provisos of a statute in mind, but which covered the entire act. The opinion was revised, reduced to final form, and filed. (Voran v. Wright, 129 Kan. 601, 284 Pac. 807.)
. The people themselves, by the solemn process of constitutional amendment, granted to the legislature power to provide for taxation of some classes of property of enormous value at a much lower .rate than other classes. The provision of the constitution requiring
The origin of this case and the question involved have been stated. The answer to the question has been indicated in the discussion of the Voran case.
There is an old philosophical premise about the essence of things. The essence of a thing is its true nature, which classifies it. Speculative reasoning from the premise led to some absurdities, but the premise may be accepted as sound. The name of a thing does not change its nature. If the taxable animal has long ears, and brays instead of neighs, its essence will not be changed by putting on it the label “a horse.” In one case the court was asked to perform a feat of verbal acrobatics and call an oil refinery a branch penitentiary. (The State v. Kelly, 71 Kan. 811, 81 Pac. 450.) In taxation we penetrate to essence; and if, in final analysis, that which is assessed and taxed consists intrinsically of intangibles, the burden of taxation may not be made greater by sticking in the bark of terminology.
As indicated, the standard for valuing shares of stock assessed to stockholders, established by the statute interpreted in the Geary county case, was true value:
“The value of all tangible assets of every kind, including the value of all real estate owned, should be considered. Intangible elements of value — rights, privileges, good will, capacity and opportunity to achieve financial success, results of past business and the outlook for the future — should be considered. In a word, the entire potentiality of the corporation to profit by the exercise of its corporate franchises should be taken into account.” (Bank v. Geary County, 102 Kan. 334, 343, 170 Pac. 33.)
The present statute reads as follows:
“Shares of stock issued by national banks and by state banks and savings banks, or other banking organizations, and by loan and trust companies, located in this state, shall be assessed to the individual shareholders at the-place where the particular bank or loan and trust company is located. The president, cashier or other managing officer of each and every institution of the kind named herein which has issued shares of stock shall furnish to the assessing officer, upon demand, during the month of March of each year, a list of all the shareholders and of the number of shares owned by each share*261 holder, and the assessing officer shall list to each shareholder for taxation purposes the assessable value of such shares as hereinafter provided. To aid the assessor in fixing the value of such shares, the returning officer shall furnish to the assessor, under oath, a statement correctly showing the amounts of capital stock, surplus and undivided profits as of March, first of the current tax year. By undivided profits is meant all earnings of the institution which have not been carried to surplus or paid out in dividends under whatever account carried, whether as undivided profits, exchange, interest, stockholders’ account, or other account representing interests Of the shareholders. The assessor from such statement shall base his valuation upon the capital, surplus, and undivided profits, the latter ascertained as provided herein, unless an investigation shall show incorrect returns, in which case he shall determine what returns should have been made to correspond with the facts disclosed by the investigation, and shall revise the returns and use such revised returns as the basis of the assessment; . . .” (Laws 1925, ch. 276, § 1.)
Analyzing this statute, it will be observed that provision for taxing shares of stock at their true value was stricken from the law. According to all rules for interpreting legislative action, this was done intentionally, and the assessor was required to base valuation on capital, surplus, and undivided profits. Aid to the assessor was provided for. This aid consisted in furnishing him with a list of names and a list of figures for doing a sum. Items to be included in undivided profits were specified, covering every account on the books representing “interests of shareholders.” Shareholders have no property interest in undivided profits. Exchange, interest and earnings hidden from taxation in stockholders’ accounts all belong to the bank. If the “return” should be incorrect, the assessor was given authority to correct it; that is, to make it show true capital, surplus, and undivided profits. The assessor was then directed to use the revised return as the basis for assessment; and he was given no authority to take into account anything but the sum of capital, surplus, and undivided profits. Perhaps experience had demonstrated it was unwise to give assessors freedom to value bank shares. If one bank does not belong to our financial group, or does not support our candidate, it may have its taxes raised. The practice in valuing bank shares corresponds to the statute, and the former method of valuing a share of stock, the individual property of the shareholder, comes near to being a Hamlet performance with Hamlet out of the cast.
The statute provides for deduction from gross valuation of capital stock, surplus and undivided profits of real estate up to a certain amount, and the real estate is taxed to the bank under the gen
After rate has been applied to assessed valuation, the bank pays the tax. The bank absorbs the tax, deducts the amount in making its federal income-tax return, and it may be difficult for the uninitiated to see how, under the statute, shareholders can be taxpayers. They do, however, pay the tax on shares of stock in a sense which fully satisfies the state and federal law. It is not necessary to demonstrate'the fact here. The important question is, What is the essence of the burden which they bear?
The books are full of cases which say that if by varying form substance may be changed, little would remain of constitutional limitations. Constitutional provisions cannot be evaded in that way. We are not to be deceived when the hand is the hairy hand of Esau, but the speaking voice is the voice of Jacob; and an intangible valuation set off to one person for payment of taxes may not be given a rate of $3.50 per $100, while persons owning intangibles pay'only 50 cents-per $100.
Since by going to the bottom of the. matter we find that the ultimate subject of taxation is intangibles, reached for taxation through shareholders, it is not material that a share of bank stock, regarded simply as a share of bank stock, is not mineral, nor money, nor mortgage, nor note, nor evidence of debt.
This disposes of the case, and disposes of the case of Malinda Cratt's v. C. J. Houston, as county treasurer of Reno county, which is of the same nature as this one, but involves tangible personal property.
The writs have been denied.
Dissenting Opinion
[dissenting opinion filed April 10 (286 Pac. 673) ]: In expressing my views in this case I shall lay -to one side, as much as that can be done, such expressions in the opinion as “syllogistic
The legal principle determined, as stated in the syllabus, is:
“Shares of state bank stock assessed to shareholders take the intangible rate of taxation because, disregarding form and regarding substance only, the foundation for the tax burden which shareholders must bear consists essentially of intangibles which are classifiable under the amended constitution and which have been classified and given a low rate by the legislature.”
“It has been said that shares of stock are property. Their status as such has finally been fixed as personalty, irrespective of whether the property of the corporation is realty or personalty, tangible or intangible. This result has not been reached without some conflict of judicial opinion, and in several jurisdictions the present state of the law is the result of legislative interference in direct opposition to the courts. Some of the older authorities hold that shares are realty or personalty according to the nature of the corporate capacity and enterprise. . . . But these decisions are practically obsolete and possess chiefly an historical interest. It is now settled that stock is personal property.”
In 14 C. J. 387 it is said:
“Contrary to early opinion in the case of corporations owning real estate, it is now very generally agreed that shares of stock in corporations are personal property, whether they are declared to be such by statute, as is sometimes the case, or hot, and whether the property of the corporation itself is real, as in the case of mining companies, land companies, railroad companies, canal companies, and the like, or only personal.”
In 7 R. C. L. 166 it is said:
“The tangible property of a corporation and the shares of stock therein are separate and distinct kinds of property and belong to different owners — the first being the property of the artificial person — the corporation — the latter the property of the individual owner.”
In 5 Thompson on Corporations, 3d ed., § 3476, it is said:
“The earlier decisions inclined to the view that the shares of stock of a corporation partook of the nature of its property. . . . But this view is now discarded and it is the general, if not universal, rule that shares of stock are personal property . . . The reason of the rule is that the ownership of the shares gives no right, title or interest in the tangible property of the corporation. . . . Corporate stock contains the three elements essential to the right of property — the legal title, beneficiary interest in it and the right of control over it.”
This view of the nature of corporate stock is applied in the taxation of shares of stock in banks. In Van Allen v. The Assessors, 3 Wall (70 U. S.) 573, 18 L. Ed. 229, the stockholders of the First National Bank of Albany, N. Y., in an action against the board of .assessors of taxes, contended that because the capital of the bank was invested in stocks and bonds issued by the United States, the shares of the bank held by the plaintiffs as stockholders were not subject to assessment and taxation by state authority. The court held against that view. In the opinion, after stating many pro
“But in addition to this view, the tax on the shares is not a tax on the capital of the bank. The corporation is the legal owner of all the property of the bank, real and personal; and within the powers conferred upon it by the charter, and for the purposes for which it was created, can deal with the corporate property as absolutely as a private individual can deal with his own. This is familiar law, and will be found in every work that may be opened on the subject of corporations. . . . The interest of the shareholder entitles him to participate in the net profits earned by the bank in the employment of its capital, during the existence of its charter, in proportion to the number of his shares; and, upon its dissolution or termination, to his proportion of the property that may remain of the corporation after the payment of its debts. This is a distinct independent interest or property, held by the shareholder like any other property that may belong to him. Now, it is this interest which the act of congress has left subject to taxation by the states. . . .” (p. 583.)
The following cases, treating varied phases of the subject, are to the same effect (I have not attempted to make the list complete): Farrington v. Tennessee, 95 U. S. 679; Davidson v. New Orleans, 96 U. S. 97; Bank of Commerce v. Tennessee, 161 U. S. 134; Owensboro National Bank v. Owensboro, 173 U. S. 664; Cleveland Trust Co. v. Lander, 184 U. S. 111; Delaware L., &c., R. R. Co. v. Pennsylvania, 198 U. S. 341; Hawley v. Malden, 232 U. S. 1; St. Louis S. W. Ry. Co. v. Arkansas, 235 U. S. 350; Rogers v. Hennepin County, 240 U. S. 184; Hager v. American Nat. Bank, 159 Fed. 396; Charleston Nat. Bank v. Melton, 171 Fed. 743; Eliot Nat. Bank v. Gill, 210 Fed. 933; National Bank of Commerce v. Allen, 223 Fed. 472; First Nat. Bank v. Durr, 246 Fed. 163; Hannan v. First Nat. Bank; 269 Fed. 527; Hoglan v. Moore, 219 Ala. 497; Roberts v. Automobile Ins. Co., 89 Conn. 181; Georgia B. & L. Asso. v. Savannah, 109 Ga. 63; MacLeod v. Stelle, 43 Ida. 64; Illinois Nat. Bank v. Kinsella, 201 Ill. 31; The People v. Toluca State Bank, 327 Ill. 638; Head v. Board, 170 Ia. 300; Deposit Bank of Owensboro v. Daveiss Co., etc., 102 Ky. 174; Commonwealth v. Muir, 170 Ky. 435; Bellows Falls Power Co. v. Commonwealth, 222 Mass. 51; Hayes v. Union Trust Co., 317 Mo. 1028; Montana Nat. Bank v. Yellowstone County, 78 Mont. 62; Brown v. Jackson, 179 N. C. 363; Ward County v. Baird, 55 N. D. 670; Shields v. Williams, 159 Tenn. 349; Stone v. Wisconsin Tax Comm., 197 Wis. 71.
The result is that the principle of law stated in the syllabus of the court in this case is not supported by the authorities. Indeed, no authorities are cited in support of it. It stands, if at all, as the fiat of a court of last resort.
In the opinion it was said:
“The problem for solution in Voran v. Wright involves application of the intangible rate in taxation of shares of state bank stock. The relation of the intangible rate to the general tax law of the state was not involved, and the question presented in this case was not decided.” (p. 252.)
I must confess that to me the two opinions of the court in the Voran case, supra, are unduly prolix, and I have had difficulty in determining jus.t what was decided by them, and why. But as I do understand them, the statement just quoted from the opinion in this case is correct in part only. It is true that the specific question in the Voran case pertained to the rate of tax on shares of stock in state banks; but preliminary to the determination of that question the court considered the rate of tax on shares of stock of national banks, quoted our amended constitutional provision (art. 11, §1), the federal statute (R. S. 5219), referred to and considered chapter 276 of the Laws of 1925, for the assessment of shares of bank stock, chapter 273 of the Laws of 1925, providing a registration fee tax upon real-estate mortgages; also chapters 277 and 278 of the Laws of 1925, and chapter 326 of the Laws of 1927, classifying and taxing money and credits, and in effect approved the holding of the federal courts in Central Nat. Bank v. McFarland, supra, that the shares of stock of national banks could not be taxed at a greater rate than that provided by those statutes (Laws of 1925, ch. 273, 277 and 278; Laws of 1927, ch. 326). The opinion states that the decision of the federal court which “relieves the stockholders of national banks from the obligation of paying the ad valorem [general] rate of tax
“The stockholders of the national banks are [now] relieved from the payment- of the ad valorem, [general] rate of taxation because of discrimination in violation of section 5219 [of the] federal statutes. They would [will doubtless] continue to adhere to that favorable ruling, and, whether right or wrong, their failure to pay would make a discrimination between them and the stockholders of state banks.” (129 Kan. 9, 610, 281 Pac. 942, 284 Pac. 811.)
The same thought was expressed in different language in the separate opinion which dissented in part only from that of the court (p. 623). Hence, in addition to determining the rate of tax on shares of stock of state banks, the court did in fact determine the rate of tax on shares of stock of national banks, and on this point all of the members of the court were in accord. Further, in determining the specific question before the court in Voran v. Wright, supra, the court considered and determined the place of shares of bank stock in the scheme of taxation provided by the constitution and laws of this state. The opinion (p. 607) .quotes our amended constitutional provision (§1, art. 11) and says:
“. . . The only classification authorized or tolerated by this constitutional provision is that of property, . . . and every classification is now limited to property, . . . and only four kinds of property, viz., mineral products, money, mortgages, notes and other evidence of debt.”
And on page 612:
“It is not seriously contended by anyone that shares of stock are within the definition given in the statute of money or credits [Laws 1927, ch. 326], neither do they come under the heading of notes or other evidence of debt. They simply represent the proportionate interest of the holder in the earnings and the final disposition of the assets of the company, . . . (7 R. C. L. 304.)”
The same thought, in different language, is expressed in the separate opinion (p. 621). It was therefore determined by the opinion that shares of stock in banks constitute property of a kind which the legislature was not authorized to classify by the amended provision of our constitution, and on this point all of the members of' the court were in accord. The opinion also (p. 613) deals with the term “uniform and equal” as used in our constitutional provision with respect to property which the legislature is not authorized to classify, and cites opinions written by Judge Brewer and other
In the opinion of the court it is said:
“In this state the difficulty arises 'in the adjustment of taxation, placed in constitutional strait-jacket when life was simple, to the complexities and heterogeneities of a highly developed, progressive, industrial society.” (p. 253.)
I pass the question whether at the time our constitution was framed life was more simple than it is now; a question which is debatable at least, for if I have correctly read the early history of our state there were a good many “complexities and heterogeneities” in those days. One thing is sure — questions relating to taxation were neither new nor simple. They had received the careful study of students of government for many years. Some earlier state constitutions had provisions similar to the one placed in ours, others did not. No doubt the relative merits of these provisions were considered. In our constitutional convention were a number of able men, well informed as to the constitutional history of the
In the opinion of the court much is made of the fact that the law (Laws 1891, ch. 84) pertaining to the valuation of shares of bank stock for the purpose of taxation, was changed after the decision of Bank v. Geary County, supra, by taking out the requirement that they be assessed at their “true value” (Laws of 1919, ch. 306), as indicating a legislative intent to tax the property of the bank, rather than to value the shares of stock for the purpose of taxation. In my judgment it evidences no such legislative intent. Our first statute for the general incorporation of state banks (Laws 1891, ch, 43) created the office of bank commissioner, and among other things provided that he make biennial reports to the governor. In his fourth biennial report (1897-’98) the bank commissioner, in his legislative recommendations, said (p. 12):
“Our system of assessing banks is defective. Our law is indefinite and conflicting, and is construed differently by many assessors, thus resulting in unequal taxation, in many instances banks being required to pay excessive taxes, out of all proportion to other property, while in other cases they avoid paying their just portion. Our assessment' law should be amended so as to provide a uniform and just basis for the assessment of banks, requiring them to bear only their just shares of the burden of taxation.”
The opinion argues that § 2 of art. 11 of our original constitution was ignored by the legislature for years prior to its repeal in 1924, for the reason that to enforce it would make such a burden on incorporated state banks as to put them out of business. I question the soundness of this argument, although other similar references, by way of illustration or argument, have been made in previous decisions. (Dutton v. National Bank, 53 Kan. 440, 454, 36 Pac. 719; Bank v. Lyon County, 83 Kan. 376, 379, 111 Pac. 496; Wheeler v. Weightman, 96 Kan. 50, 69, 149 Pac. 977; Bank v. Geary County, 102 Kan. 334, 339, 170 Pac. 33.) The only case in which the decision is based on this section is Knox v. Comm’rs of Shawnee County, 20 Kan. 596, involving the tax on the property of private bankers, under section 23 of chapter 34 of the Laws of 1876, where this section of our constitution is quoted, and it is said:
“In this legislation the legislature has but followed the express mandate of the constitution.” (p. 598.)
But since the section of the statute for taxing private bankers, then under consideration, was drawn on the same plan as section 17 of the same act applying to the property of merchants and manufacturers, authorized by section 1, article 11, of our constitution, no reason suggests itself why the statute then under consideration would not have been held valid under section 1, article 11, if that point had been urged. It is my view that section 2, article 11, never
“At the time of the passage of the act* of 1891 there was no banking law on the statute book, except the savings-bank act under which plaintiff had organized and a penal statute . . .” (p. 535.)
If my views on this are correct, there is no merit to the argument in the opinion of the court that the legislature for years ignored section 2, article 11 of the constitution because “The legislature encountered the tough economic fact that to do so would kill off state banks,” for the reason that there never were any incorporated state banks of the kind provided for by our constitution and in the contemplation of its framers. Neither is there any foundation for the statement in the opinion “. . . that section 2 of article 11 of the constitution . . . prescribed in detail a method for taxing banks. A tax law was framed according to the constitution, and state banks were organized and employed property in the business •of banking. Then came the national banking system. . . .” There were no state banks organized under the law of this state prior to the coming of the national banking system, and hence no tax laws were framed that could apply to them. I realize that what was said in the opinion on this subject was by way of argument. I think the argument unsound. But whether one prefers the argument of the opinion of the court on this point, or the views here expressed, is not vital to the decision of this case. This case must be ■determined under our present constitution, which does not include .section 2, article 11, of our original constitution.
In the early history of our state, banking business was done entirely by private banks, except such as was done by the one or two banks of issue incorporated by private territorial acts, which per
Let us now examine our tax laws in so far as they pertain to the-taxation of banks. Our state (Comp. Laws 1862, ch. 197) appears; to have carried over the latest general territorial statute (Laws 1860, ch. 114) providing for the assessment and collection of taxes. It defines (§ 3) personal property to include all goods and chattels of every tangible thing being the subject of ownership; moneys and effects; all debts due, or to become due, from solvent debtors,, whether on account, contract, note, mortgage, or otherwise; all public stock and stock or shares in all banks or incorporated companies,, and such portion of the capital of incorporated companies liable-to taxation on their capital as shall not be invested in real estate. A comprehensive act relating to assessment and taxation (Laws-1866, ch. 118) contained a similar provision, apparently not taking; into consideration the provisions of the federal statute of June 3, 1864 (R. S. 5219), respecting the taxation of national banking associations. Section 18 related to banks incorporated by the laws-of the state “having the right to issue bills for circulation as, money,” and provided for the taxation of the average amount of;
“Stockholders in banks and banking associations organized under the laws of this state or of the United States, shall be assessed and taxed on the value of their shares of stock therein in the city or township where such bank or banking association is located, and not elsewhere, whether such stockholders reside in such city or township or not, but not at any greater rate than other moneyed capital in the hands of individuals in this state.’’ (Italics ours.)
This italicized wording obviously was taken from the federal statute (R. S. 5219).
Provision was made for valuing such shares. There is nothing in this section to indicate that the state banks referred to were banks of issue only, and the same legislature provided for the incorporation of state savings banks (G. S. 1868, ch. 23, art. 16). Section 27, chapter 107, provided that banks- incorporated under the laws of this state (note that national banks were omitted), and every person or firm engaged in the business of banking, should be taxed on the average amount of notes and bills discounted, and the average amount of moneys, effects or dues of every description belonging to the bank; but the average amount of specie fund, unemployed except for “redeeming its circulation” (which could apply to banks of issue only) and meeting its accruing liabilities to depositors, and amounts due from other banks, shall be excluded in estimating the taxable property of the bank. It would seem that this section could apply only to persons and firms engaged in banking, for there was then no statute for the incorporation of state banks of any character, and neither at that session nor since has any statute been enacted for the incorporation of state banks of issue. In 1876 the legislature made a general revision of the statute to provide for the assessment and collection of taxes (Laws 1876, ch. 34), in which it was provided (§ 22):
“Stockholders in banks and banking associations, organized under the*278 laws of this state, or of the United States, shall be assessed and taxed on the true value of their shares of stock, . . . And provided further, That banking stock or capital shall not be assessed at any higher rate than other property.”
This section was amended by chapter 84 of the Laws of 1891, which was amended by chapter 306 of the Laws of 1919 (R. S. 79-1101), which was amended by chapter 276 of the Laws of 1925. All of these amendments, so far as here pertinent, relate to the manner of valuing the shares of stock for the purpose of taxation. All of the statutes, beginning with that of 1868, provided for the assessment of shares of stock of state banks for the purpose of taxation upon the same basis as shares of stock in national banks.
Section 23 (Laws 1876, ch. 34) reads:
“Every private bank, banker, broker, building, loan and trust association shall list and return the average amount of capital invested in such business during the year. . . .”
This section was amended by chapter 39 of the Laws of 1879. In Knox v. Comm’rs of Shawnee Co., 20 Kan. 596, it was held applicable to private banks. So far as my research has disclosed it never was adjudged applicable to incorporated banks. No doubt it was the statute, or one of them, which caused local assessors to entertain different views as to the method of assessing banks complained of by the bank commissioner and attempted to be corrected by the tax commission, as previously discussed. Beginning with our territorial statutes (Laws 1855, ch. 137), and all through statehood, our tax laws have provided for the taxation of money, notes, mortgages, and other evidence of debi&wkey;except that by chapter 140 of the Laws of 1873 real-estate mortgages were exempt from taxation; but that act was repealed by chapter 130 of the Laws of 1874. The tax laws of 1866 (ch. 118) defined the word “credit” (§ 3) and provided (§ 4) that bona fide debts owing by any taxpayer may be deducted from the gross amount of credits belonging to him, and that his personal-property statement need only set forth the credits less such deductions, and since then a similar provision has been in our statutes for the assessment and taxation of personal property. (See R. S. 79-303.) In carrying out our constitutional mandate, “The legislature shall provide for a uniform and equal rate of assessment and taxation” (art. 11, § 1), the legislature has enacted statutes a,s to what property is subject to taxation (R. S. 79-101), for the listing of personal property generally (R. S. 79-301 et seq.), and
When our constitution was amended in 1924 it retained the provision as to uniformity of rate of assessment and taxation as to all property which it did not authorize the legislature to classify and tax separately as to class. Before the amendment the provision read: “The legislature shall provide for a uniform and equal rate of assessment and taxation” (art. 11, § 1). The amendment added these words: “except that mineral products, money, mortgages, notes and other evidence of debt may be classified and taxed uniformly as to class as the legislature shall provide.” (See Laws 1923, ch. 255.) Shares of stock issued by banks or other corporations are not “mineral products,” nor are they “money,” or “mortgages,” or “notes or other evidence of debt.” This was determined in Voran v. Wright, supra, in harmony with the authorities; and
It was argued in briefs for defendants m this case, and was argued in some of the briefs in support of post-opinion motions in the case of Voran v. Wright, supra, that if the shares of stock of national banks cannot be taxed at a rate greater than that provided by our intangible tax law, and shares of stock of state banks are taxed at the much higher general-property rate, and there is a discrimination between them for that reason, as was held in Voran v. Wright, supra, it does not follow that such discrimination is an unlawful one. It is argued, first, that the fact that the state does not and cannot tax the real property owned by the federal government, such as the military reservations at Fort Riley and Fort Leavenworth and the post-office buildings owned by the federal government in various cities throughout the state, and personal property owned by the federal government, such as military and postal equipment and supplies, does not prevent the state from taxing other real estate or personal property situated in the state and owned by individual citizens, firms or corporations; second, that national banks are incorporated under federal statutes and are federal agencies to accomplish necessary federal governmental purposes; that the federal government could prohibit the taxation of national banks, if it desired to do so, and the fact that the federal government permits the state to tax the real property of national banks as other real property in the state is taxed, and permits it to tax the shares of stock in national banks, is a permission granted by the
“That nothing in this act shall be construed as an assent by congress to all or any of the propositions or claims contained in the ordinance of said constitution of the people of Kansas, or in the resolutions thereto attached; but the following propositions are hereby offered to the said people of Kansas for their free acceptance or rejection, which, if accepted, shall be. obligatory on the United States and upon the said state of Kansas, to wit: . : .
"Sixth. And that the said state shall never tax the lands or the property of the United States in said state: . . .”
The propositions contained in this act of congress were “accepted, ratified and confirmed” by a joint resolution of the legislature of the state (Comp. Laws 1862, ch. 6). In this manner the right of the state of Kansas to tax property owned by the federal government and situated in this state was settled, and any question concerning it is quite foreign to the questions before us.
The second point argued misconceives the fundamental rights as between a state and the federal government with respect to taxation. Before the adoption of the federal constitution each state, generally speaking, possessed power to tax, either directly or indirectly, all persons and property within its jurisdiction. In Lane County v. Oregon, 7 Wall. 77, 19 L. Ed. 101, it was said:
“In respect, however, to property, business, and persons, within their' respective limits, their power of taxation remained and remains entire.”
“The power of taxation under the constitution as a general rule, and as has been repeatedly recognized in adjudged cases in this court, is a concurrent power. The qualifications of the rule are the exclusion of the states from the taxation of the means and instruments employed in the exercise of the functions of the federal government.”
In Union Pacific R. R. Co. v. Peniston, 18 Wall. 5, 21 L. Ed. 787, it was said (p. 29);
“That the taxing power of a state is one of its attributes of sovereignty; that it exists independently of the constitution of the United States, and underived from that instrument; and that it may be exercised to an unlimited extent upon all property, trades, business, and avocations existing or carried on within the territorial boundaries of the state, except so far as it has been surrendered to the federal government, either expressly or by necessary implication, are propositions that have often been asserted by this court. . . . It is, indeed, a concurrent power (concurrent with that of the general government), and in the case of a tax upon the same subject by both governments, the claim of the United States as the supreme authority must be preferred; but with this qualification it is absolute. The extent to which it shall be exercised, the subjects upon which it shall be exercised, and the mode in*284 which it shall be exercised, are all equally within the discretion of the legislatures to which the states commit the exercise of the power. That discretion is restrained only by the will of the people expressed in the state constitutions, or through elections, and by the condition .that it must not be so used as to burden or embarrass the operations of the national government.”
The case last cited involved the validity of a statute of the state of Nebraska which levied a tax upon the property of the Union Pacific Railroad Company, a corporation created by an act of congress as an agent of the general government to carry out certain governmental purposes. It was argued that the property being used for governmental purposes was not subject to taxation by the state. On this point the court said:
“It may ... be considered as settled that no constitutional implications prohibit a state tax upon the property of an agent of the government merely because it is the property of such an agent. A contrary doctrine would greatly embarrass the states in the collection of their necessary revenue without any corresponding advantage to the United States. A very large proportion of the property within the states is employed in execution of the powers of the government. It belongs to governmental agents, and it is not only used, but it is necessary for their agencies. United States mails, troops, and munitions of war are carried upon almost every railroad. Telegraph lines are employed in the national service. So are steamboats, horses, stagecoaches, foundries, shipyards, and multitudes of manufacturing establishments. They are the property of natural persons, or of corporations, who are instruments or agents of the general government, and they are the hands by which the objects of the government are attained. Were they exempt from liability to contribute to the revenue of the states it is manifest the state governments would be paralyzed. While it is of the utmost importance that all the powers vested by the constitution of the United States in the general government should be preserved in full efficiency, and while recent events have called for the most unembarrassed exercise of many of those powers, it has never been decided that state taxation of such property is impliedly prohibited. . . .
“It is, therefore, manifest that exemption of federal agencies from state taxation is dependent, not upon the nature of the agents, or upon the mode of their constitution, or upon the fact that they are agents, but upon the effect of the tax; that is, upon the question whether the tax does in truth deprive them of power to serve the government as they were intended to serve it, or does hinder the efficient exercise of their power. A tax upon their property has no such necessary effect. It leaves them free to discharge the duties they have undertaken to perform. A tax upon their operations is a direct obstruction to the exercise of federal powers.” (pp. 33, 36.)
See, also, Farmers Bank v. Minnesota, 232 U. S. 516, 58 L. Ed. 707; Choctaw, O. & G. R. R. Co. v. Mackey, 256 U. S. 531, 65 L. Ed. 1076, and the many other cases cited in Rose’s Notes.
The first bank of the United States (1 Stat. 191) established
“This opinion does not deprive the states of any resources which they originally possessed. It does not extend to a tax paid by the real property of the bank, in common with the other real property within the state, nor to a tax imposed on the interest which the citizens of Maryland may hold in this institution, in common with other property of the same description throughout the state. But this is a tax on the operations of the bank, and is, consequently, a tax on the operation of an instrument employed by the government of the union to carry its powers into execution. Such a tax must be unconstitutional.” (p. 436.)
The legislature of Ohio passed an act (Feb. 8, 1819) to levy and collect a tax on banks transacting business without being authorized to do so by a state law. This act levied an annual tax of $50,000 on the branch bank of the United States doing business in that state. The act was held void. (Osborn v. Bank of the United States, 9 Wheat. 738, 6 L. Ed. 204.) Much is said in the opinion about the tax being on the business and activities of the bank necessary to carry out governmental functions. In the opinion it was said:
“If the trade of the bank be essential to its character as a machine for the fiscal operations of the government, that trade must be as exempt from state •control as the actual conveyance of the public money. Indeed, a tax bears*286 upon the whole machine; as well upon the faculty of collecting and transmitting the money of the nation, as on that of discounting the notes of individuals. No distinction is taken between them. Considering the capacity of carrying on the trade of banking, as an important feature in the character of this corporation, whioh was necessary to make it a fit instrument for the objects for which it was created, the court adheres to its decision in the case of McCulloch v. The State of Maryland, and is of opinion that the act of the state of Ohio, which is certainly much more objectionable than that of the state of Maryland, is repugnant to a law of the United States, made in pursuance of the constitution, and therefore void.” (p. 867.)
The court distinguished between the activities of the bank and its property situated in the state by comparing it with a contractor. In the opinion it was said:
“Can a contractor, for supplying a military post with provisions, be restrained from making purchases within any state, or from transporting the provisions to the place at which the troops were stationed? or could he be fined or taxed for doing so? We have not yet heard these questions answered in the affirmative. It is true, that the property of the contractor may be taxed, as the property of other citizens; and so may the local property of the bank. But we do not admit that the act of purchasing, or of conveying the articles purchased, can be under state control.” (p. 867.)
See the discussion of these cases in Union Pacific R. R. Co. v. Peniston, supra.
There are other decisions to the same effect. Doubtless congress was familiar with them when it passed the acts to provide a national currency and for its circulation and redemption through banking associations organized under the provisions of the acts ’(12 Stat. 665; 13 Stat. 99). In section 41 of the later act it was provided that certain expenses be paid from taxes or duties assessed on the circulation and collected from the banking associations, “and in lieu of all existing taxes every association shall pay to the treasurer of the United States,” certain specified taxes or duties;
“Provided,, That nothing in this act shall be construed to prevent all the shares in any of the said associations, held by any person or body corporate, from being included in the valuation of personal property of such person or corporation in the assessment of taxes imposed by or under state authority at the place where such bank is located, and not elsewhere, but not at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state: Provided further, That the tax so imposed under the laws of any state upon the shares of any of the associations authorized by this act shall not exceed the rate imposed upon the shares in any of the banks organized under authority of the state where such association is located: Provided, also, That nothing in this act shall exempt the real estate of associa*287 tions from either state, county, or municipal taxes to the same extent, according to its value, as other real estate is taxed.”
This, as amended by the act of February 10, 1868 (15 Stat: 34), became section 5219 of the Revised Statutes of the United States of 1878, and has since been amended. In Voran v. Wright, supra, it is set out in the form pertinent to that case and to this one. It would be interesting to analyze many of the cases construing or applying this statute, but it is not essential to do so, and this opinion is too long now. The cases are collected in U. S. C. A., title 12, section 548, and some of the later pertinent cases are discussed in Voran v. Wright, supra. Counsel for defendant argue that congress could, if it cared to do so, prohibit any tax by the state on the business activity or on the real estate, or on the property of a national bank, or on the shares of stock of national banks. This presents a purely academic question. It is sufficient to say that congress has not done so. On the other hand, congress has recognized the right of. the states to tax not only the real estate of national banks on the same basis as other real estate is taxed, but also as 'the personal property of the shareholders, their interest in such banks as represented by the value of the shares of stock owned by them. This is in harmony with the principles laid down in the cases just cited (McCulloch v. Maryland, Osborn v. The Bank of the United States, Union Pacific R. R. Co. v. Peniston) and allied cases. Congress did not authorize the states to tax the functions or activities of national banks as federal agents for the issuing, circulation and redemption of a national currency, and this is in harmony with those cases. In my view there is nothing wrong about that. The need of a national currency is as great, or greater, now as when the national bank act was first passed, for both the population and the volume of business of the nation have greatly increased, and though the public debt incurred during the civil war was much reduced thereafter, it is again greatly augmented by expenses made necessary by the world war. The federal statute does provide that the tax imposed upon the shares of stock of national banks by a state '“shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of the state coming into •competition with the business of national banks.” This' provision was inserted to prevent unjust discrimination against national banks in favor of state banks and other corporations, firms and individuals doing business in competition with national banks. Perhaps it was
“The difficulty here arises chiefly upon the requirements of the state constitution. ' It requires the taxation of all property not exempt, and that the tax must be uniform upon the same class of subjects. The congressional requirement we are considering is not inconsistent with our constitutional provision requiring uniformity. It is thus our own fundamental law, acting co*290 ordinately with the law of congress, which compels the state to tax state as well as national bank shares upon the same basis.” (p. 426.)
The same reasoning applies here.
The views expressed in my separate opinion in Voran v. Wright, 129 Kan. 601, 284 Pac. 807, beginning at p. 620 to the close, are applicable to this case, and need not be repeated. I simply wish to add that in my judgment the decision of the court in this case has denied to plaintiff the equal and uniform rate of taxation guaranteed to him by the constitution of our state.
