24 F. Cas. 615 | U.S. Circuit Court for the Northern District of Illnois | 1871
A preliminary objection is raised on behalf of the defendants. that as the banks are located in the Northern district of Illinois, and the defendants also reside there, the court has no jurisdiction to entertain these suits. It has, however, been decided by the supreme court of the United States in Kennedy v. Gibson, 8 Wall. [75 U. S.] 498, that under the 57th section of the national currency act, suits may be brought by, as well as against, associations organized under that act, in the United States courts of the district in which such associations are established. It is true that the word “by" is omitted from the text of this section, but the court hold that reading the section by the light of another of a prior act on the same general subject, the omission is to be regarded as an accidental one. This court can not therefore decline to take jurisdiction because these banks are established, and the defendants reside, in the same district.
It is further objected that these bills are improvidently filed in view of the rule laid down in Dows v. City of Chicago, 11 Wall. [78 U. S.] 108, that a suit in equity will not lie to restrain the collection of a tax on the sole ground that the tax is illegal, but there must exist, in addition, special circumstances, bringing the case under some recognized head of equity jurisdiction. Conceding this to be so, it is not decisive of these cases, as the question still remains whether any such ground of. equity interposition is shown to exist here. And it appears to me that such grounds do exist.
The banks occupy, as it were, the position of stakeholders. They are the custodians of the property, money and funds of the shareholders, when the latter become entitled thereto, as in case of the declaration of dividends The shareholders insist that their dividends shall be paid to them. The collector demands that they shall be paid - to him, or a sufficient amount thereof to defray the taxes. And the banks invoke tbe aid of a court of equity to determine to which of the parties the funds belong or should be paid. They assert, and the bills upon this motion are to be taken as true, that they are notified by their shareholders that if they pay these taxes suits will be commenced-at once against them. At the same time, if they do not, the state law not only, at least so far as non-resident shareholders are concerned, undertakes to make their officers personally responsible for the amount, which would be, perhaps, immaterial if the assessments be invalid, but the collector threatens to sell the shares to make the taxes therefrom.
It is obvious that the latter course, if taken, would operate to prejudice these corporations in the public mind, and lead to further and harassing litigation, working that kind of injury to the corporation which, because the law affords no such beneficial and complete remedy for it as the nature of the case requires, may be deemed irreparable.
Reference to the Case of Dows Lsupra] confirms this view. Mr. Justice Field, in delivering the opinion, says in regard to the cross-bill filed by the bank in that case, that it presents different features from those of the original bill; that the bank “insists that if it paid the tax levied upon the shares of all its numerous stockholders out of the dividends upon their shares in its hands, which it is required to do by the law of the state, or if the shares were sold, it would be subjected to a multiplicity of suits by the shareholders, and were it an original bill the jurisdiction of the court might be sustained on that ground.” This clearly intimates the judgment of the supreme court upon this
I find myself compelled then to pass upon the validity of the taxes in question. Courts interfere with the collection of taxes with reluctance, but when questions directly calling for judicial action are presented, there is no alternative but to decide them, although they may involve the legality of revenue proceedings. The provisos to the 41st section of the national currency act of 1864 are as follows (13 Stat. 112): “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 the 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 associations from either state, county, or municipal taxes to the same extent, according to its value, as other real estate is taxed.”"
And by the 1st section of the act of February 10, 1868 (15 Stat 34), the words “place where the bank is located, and not elsewhere,” are declared to mean “the state in which the bank is located,” thereby localizing the authority imposing the tax, but not the assessment of taxes at the place of the location of the bank. It is subject to these limitations, that taxes may lawfully be levied by or under state authority.
In three of the cases before the court, complainants insist that the assessment of taxes attempted to be made upon their shares is illegal and void, because the municipal authorities charged with the duty of assessing taxes have placed those shares in the valuation for taxation at a sum above the par or denominational value thereof, varying from ten to twenty per cent. And the question is, can national bank shares be valued for taxation at a higher valuation than the par value of the share?
In Van Allen v. Assessors, 3 Wall. [70 U. S.] 573, it was insisted that in levying taxes upon the shares of national banks, regard should be had to the fact that a part or the whole of the capital of such associations was invested in national securities, declared by the statutes authorizing them to be "exempt from taxation by or under state authority.”
In the dissenting opinion of the chief justice (Wayne and Swayne, JJ., concurring), the position is ably argued that these shares can not be subjected to taxation by the state, irrespective of the mode of investment of the capital in securities exempted from taxation, and the chief justice, inter alia, says that what the assessor would have to do is “to ascertain the value of the whole property of the association, and deduct the amount of bonds. The remainder, divided by the number of shares, would give the value of each share to be taxed, and the assessor must value the whole property and divide it by the number of shares, in order to make a true valuation of shares. If he does not do this, he must assess the shares at an arbitrary or speculative valuation. This is not what is required. The law demands true valuation; and true valuation, with deduction of bonds, places the shareholder on exact equality with the holder of other moneyed capital, which the law also demands. No other mode of valuation secures that equality.” Page 601.
The majority of the court, however, held that the limited state taxation allowed' by the act was but a condition annexed to the enjoyment of the new use and application of the United States bonds, to which they were enabled to be put under the grant of the franchise, and imposed as a burden thereon, and in that aspect, that the interest of the shareholder could be taxed within the limit of the act without reference to the property and capital of the bank; and the learned judge, Nelson, who delivers the opinion, reviews the various sections of the law to sustain this proposition.
The conclusion reached and the reasoning upon which it rests, taken in connection with the language of the dissenting judges, leave no doubt in my mind that the court regarded the tax as in the nature of a royalty for the grant, annexed to the franchise. The ruling is distinctly that taxes by the state are permitted to be imposed wholly irrespective of the character or description of the property or capital of the bank; and this being so, it logically follows that the par value of the share is the fixed value for taxation, whether the shares may be said to have an actual value above or below the nominal amount. These bills allege that the shares in these instances have no market value, and that the assessing authorities have affixed a valuation higher than par, arbitrarily and without resort to any basis of values whatever. It is clear that this cannot be done, and, as we have seen, it is equally true, under the decision just referred to, that the values cannot be determined by reference to the capital, property and investments of the bank; for if this were so, then the deductions must be allowed, which the supreme court has held cannot be done for the reasons given. Reference to the different sections of the act confirm this view. They provide for a certificate of the numbers of the shares: the division of the capital stock into shares of one hundred dollars each; the personal liability
It could never have been intended that the assessing authorities should be permitted to exercise an arbitrary and unlimited discretion, and it seems to me that the whole tenor of the act, and of the decisions of our highest judicial tribunal upon questions arising under it, satisfactorily indicate that the state .authorities have no power whatever to tax these shares above the value thereof, as fixed by the act itself.
The error in these cases is a fundamental one. It is not a mere irregularity. It goes to the very foundation of the tax, and renders it wholly inoperative and void.
It is also claimed, in all these cases, that the tax attempted to be levied for the year 1867 is void because of the invalidity of the state law of June 13. 1867. Other objections to the legality of this tax are urged, but the view which I take of the main question renders their consideration unnecessary.
I may remark, however, in passing, that I do not, as at present advised, perceive how the present city collector can lawfully proceed upon the warrant issued in 1S67. These warrants stand upon the same principle as writs of fieri facias, and it would seem that the common law rule, that the officer receiving the process to execute should complete it, applies. But I need not dwell upon this point, as it becomes immaterial under the circumstances.
The validity of the law of 1867 is questioned upon the ground' that its provisions are in contravention of the state constitution. The law was passed, and the assessment of taxes complained of made, under the constitution of 1848.
Sections 2 and 5 of article 9 of that instrument are as follows:
“2. The general assembly shall provide for levying a tax by valuation, so that every person and corporation shall pay a tax in proportion to the value of his or her property. * * *”
“5. The corporate authorities of counties, •townships, school districts, cities, towns and villages, may be vested with power to assess and collect taxes for corporate purposes, such taxes to be uniform in respect to persons and property, within the jurisdiction of the body imposing the same. And the general assembly shall require that all the property within the limits of municipal corporations, belonging to individuals, shall be taxed for the payment of debts contracted under authority of law.”
And by a series of adjudications of the supreme court of Illinois, it has become settled law that these provisions are restrictions upon. the power of taxation by the legislature, or any authority under it. All taxes, therefore, assessed by municipal corporate authorities, must be proportionate and uniform within the jurisdiction of the body imposing them. Where there is jurisdiction neither of persons nor property, the imposition of a tax would be ultra vires and void. Jurisdiction is as necessary to valid legislative as valid judicial action.
Shares of stock are incorporeal personal property, and as such are held incapable of having any situs, save at the domicil of the owner. In the eye of the law they have in themselves no locality. They accompany the person of the owner where he goes, and he may deal with them and dispose of them according to the law of his domicil, which, if he die intestate, governs their disposal.
The peculiar character of this class of' property is adverted to by Mr. Justice Nelson in the case of Van Allen, already cited. He says: “A striking exemplification may be seen in the case ot Reg. v. Arnaud, 9 Adol. & E. (N. S.) 806. The question related to the registry of a ship owned by a corporation. Lord Denman observed: ‘It appears to me that the British corporation is, as such, the sole owner of the ship. The individual members of the corporation are no doubt interested, in one sense, in the property of the corporation, as they may derive individual benefits from its increase, or loss from its decrease, but in no legal sense are the individual members the owners.’ ”
The shareholders are not the owners of the bonds, investments, surplus and property of the bank. They possess only the intangible right to the dividends, if any, upon their shares, and to the residuum upon the winding up of the corporation. The distinction between such a right and personal property capable of an actual situs is obvious. And it is a distinction which seems to have been borne in mind in the enactment of the city charter which provides for the taxation only of such personal property as has its actual situs within the city, and further, that state laws then in existence, or which might afterwards be adopted, shall govern in municipal assessments, unless in conflict with the provisions of the charter.
The act of June 13, 1867, directs taxes .to
It ought to be observed that, when the act of June, 1867, was passed, controversy had arisen as to the meaning of the words in the provisos to the 41st section of the law of congress, that the shares should be assessed “at the place where the bank is located.” The language of the proviso is not perspicuous, and I am inclined to think that the framers of this law supposed congress to have required the shares to be assessed in and for the benefit of the taxing district of the bank’s location. It is not unnatural that this view should have been entertained. Courts of the highest respectability arrived at this conclusion, as in Maine and New Hampshire, while others, as in Massachusetts and Pennsylvania, were of a different opinion. In Massachusetts, the law for the assessment of national and other bank shaves, provided that this should be done at the residence of the respective sliarehold-ers, and the question was raised, that this was contrary to the proviso of the 41st section; but the supreme court of the state held otherwise, and their judgment was affirmed by the United States supreme court, though upon another ground. The subsequent action of congress by the passage of the law of February, 1868, confirmed the correctness of the views of the Massachusetts court, and resolved the doubt in favor of the position that the intention was to localize the authority imposing the tax, and not the assessment of taxes at the place of the location of the bank!
The anomalous provision in the Illinois act of 1807, which gives the collector of the particular taxing locality a kind of “roving commission” to execute his warrant anywhere within the limits of the state, is .a sufficient indication of the ' embarrassment that was felt by the general assembly in framing this enactment.
The defects, however, may be readily remedied by the state legislature. Upon the argument of these applications, it appearing that the questions involved were of sufficient importance to demand, and both parties being desirous of obtaining, the decision by the tribunal of last resort, and there being apparently no substantial dispute as to the facts, I suggested to counsel the propriety of making an agreed case, that a final result might be obtained as speedily as possible; but, as the suggestion was not acted on, I have, in the discharge of my judicial duty, passed upon the questions myself, so far as necessary to determine these preliminary motions.
The injunctions, as prayed, will be granted.
