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Arguments for Appellant.
in favor of the plaintiffs in each of the two others. (See opinion, per DENIO, Ch. J.)
In pursuance of section 372 of the Code of Procedure, the parties to this action agreed to a case presenting, in substance, these facts: First. The existence of the Second National Bank of Utica, properly organized under the act of congress of February 25, 1863, &c. Second. The due filing in the comptroller's office at Washington, in December, 1863, the proper certificate of incorporation. Third. The issuing by said comptroller, of his official certificate authorizing said bank to commence its business under said act of congress. Fourth. The amount of its capital and the number of its shares. Fifth. The defendants were severally stockholders in said bank, and the amount each possessed. Sixth. The location of said bank in said first ward, and the several places of residence of the several defendants. Seventh. That the defendants, except Churchill, had no goods, &c., in said ward. Eighth. The legal existence and exercise of the office of assessor in said ward. Ninth. The investment of the capital of the bank in “FIVE-TWENTY Bonds," &c., at the time of the assessment. Tenth. The proportionate amount of such investment. Eleventh. The proper making of the assessment roll by the assessors of Utica, and the names and residences of the stockholders of said bank. Twelfth and Thirteenth. The asssessment of their stocks in such bank. Fourteenth. The making and delivery of the proper warrant to the collector. Fifteenth. His return of the same that the defendants' tax was wholly unpaid, &c. Sixteenth. That these defendants were not elsewhere assessed, &c.
F. Kernan, for the City of Utica.
I. The shares of stock created and issued by the national banks are personal property; and the owners are liable to taxation on account of the same under the laws of the State, unless they are exempted by the Constitution and laws of the United States. (National Bank Act of Feb. 25, 1863, § 12, found in the U.S. Statutes for 1862, 1863, p. 668; Act of June 3, 1864, § 12, found in U. S. Statutes for 1863, 1864, p. 102;
Arguments for Appellant.
Hutchins v. State Bank, 12 Metc., 426, per Shaw; Slaymaker v. Bank of Gettysburgh, 10 Barr, 373; 23 N. Y., 219, 220, per COMSTOCK; 1 R. S., 1st ed., 387, 388, SS 1, 4; id., 5th ed., 905, 906, SS 1, 4.)
II. The defendants are not exempted by the Constitution of the United States from taxation under State authority for and on account of the shares of the stock of the bank owned by them respectively.
1. The most that can be justly claimed from the adjudications on the subject is, that the corporation, being an instrument or agency of the federal government, is not, unless subjected thereto by that government, liable to taxation by State authority; the State cannot tax the corporation for or on account of its business or property; nor for or on account of the bonds or other securities issued by the United States and owned by the corporation. (McCullough v. The State of Maryland, 4 Wheat., 316; Osborn v. U.S. Bank, 9 id., 738; Weston v. City Council of Charleston, 9 Pet., 449; Bank of Commerce v. Tax Commissioners, 2 Black., 620.)
2. The tax in question is not upon the corporation or its business. It is not upon the capital of the bank, or upon the United States bonds or other property owned by the corporation.
3. The tax is upon the defendants as individuals, for and on account of personal property owned by them severally.
(1.) This personal property is called stock, or shares of stock. It is created by the corporation; the individual purchases it from the corporation. The money which he pays to the corporation for it becomes the money of the corporation, and the shares of stock his individual property. It is personal estate owned by him absolutely, and of the character of a chose in action. (See authorities on point I.)
(2.) The property does not partake of the nature or character of the property in which the capital of the corporation is invested. Notwithstanding the entire capital and property of the corporation were invested in land, the stock owned by the shareholder would be personal estate. (2 Kent's Com., 4th ed., 341, note a; Hilliard's Abr., vol. 1, p. 18.)
Arguments for Appellant.
(3.) The defendants have no title to the capital of the barik, or to the United States bonds or other securities or property in which the corporation invests its capital or funds. (Regina V. Arnaud, 9 Adolph. & Ellis, N. S., 806.)
(4.) The shares of stock are property distinct from the capital or property of the corporation, which entitle the owner of them to a portion of the gains and profits which the corporation may make and from time to time divide, and, on its dissolution, to a proportion of the proceeds of its property, after the payment of its debts.
(5.) The owner of the shares of stock has no interest in the capital of or property owned by the corporation, different in character from that which the owner of the notes or bonds issued by the corporation has. His interest is subordinate to that of the note or bondholder.
(6.) The tax, therefore, upon the citizen on account of these shares of stock — on account of the money which he paid for them, and which he at will may sell them for, is in no just or legal sense a tax upon the corporation, or its business or property. As justly, in a legal sense, might the owner of the circulating notes issued by one of these banks insist that they were not a part of his personal estate to be taxed.
4. It is believed that it was never seriously claimed that the owners of stock in the former Bank of the United States were exempt from taxation on account of the same. That was more exclusively an instrument or agency of the government than the present institutions. There is no decision or dictum favoring such a claim. The cases holding that the corporation, its business and property, were exempt from taxation by the States — that the States had no power to destroy it or impede its operations by taxation or otherwise – hold expressly or assume that the owners of stock were liable to taxation on account of the same under State authority. (McCullough v. Maryland, 4 Wheat., 316; Osborn v. U. S. Bank, 9 id., 738; License Cases, 5 How., 576, per Taney, Ch. J.; Bulow v. The Council of Charleston, 1 Nott and McCord, 527; State v. Collector, 2 Bailey, 754.)
5. If the defendants are exempt, it is not perceived why an individual would not be exempt from taxation by the State
Arguments for Appellant.
on account of the personal property invested in a line of stages employed in carrying the United States mails, or why the owners of stock in the Pacific Railroad Company, or other similar corporations created by congress, are not exempt from taxation by State authority on account of the same. These suggestions prove that the rule laid down by Ch. J. MARSHALL in the McCullough case, as to the liability of shareholders in corporations of the kind, is the proper rule.
III. The act of congress authorizing and creating these corporations, subjects the owners of shares of the stock to be issued by them to taxation on account of the same under State authority. The language of the act is: “Provided that nothing in this act shall be construed to prevent all the shares in any of 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 the bank is located, and not elsewhere.” (Act of June 3, 1864, SS 41, 62, found in Laws of 1863-4, p. 111.)
1. It is the obvious intent of the act of congress to subject the shares of stock to taxation by State authority. (See SS 40 and 41 of the Act of Congress.)
2. This was the intention of congress in inserting this provision, as manifested by both houses in acting upon it and the bill. (Cong. Globe of 1863-4, part 2, pp. 1871, 1872, remarks of Messrs. Fessenden, Chandler, Pomeroy; id., p. 1890, remarks of Mr. Collamer; id., part 3, p. 2639, remarks of Messrs. Noble, Hooper and Ganson.)
3. Substantive affirmative provisions are frequently in the laws enacted by congress inserted in the form of provisos. The act in question contains several. (See SS 7 and 16.)
4. The banking act authorizes the creation of these corporations, and authorizes them to receive from individuals money for shares of stock, and authorizes the latter to invest their money in these shares of stock. This money was subject to taxation before it was thus invested; but for this act of congress it would remain subject to taxation. If exempt now, it is by virtue of the act of congress; because
Arguments for Appellant.
the act has created institutions in the stock of which it is invested. When, therefore, the act declares that it shall not be construed to exempt the shares of stock from taxation, it is equivalent to an affirmative enactment that the money which was taxable shall remain taxable when converted into the stock — a species of property created by the act of congress.
IV: Congress has power to subject these shares of stock to taxation by the States, like other personal property.
1. The exemption is by virtue of an implied prohibition by the Constitution in favor of the federal government prohibition for the benefit of the federal government. If congress deem it for the interest of the federal government, that these shares of stock should be subject to State taxation, it has power to waive the exemption.
2. When, in the act authorizing the creation of this kind of property — authorizing the investment of a large amount of the property, which previously was subject to taxation for State purposes, in these shares —it is declared that they shall be subject to taxation, the owners of them cannot successfully object that the State is violating an implied prohibition in favor of the federal government in taxing them.
3. That it is important to the successful working of the system of banking, inaugurated by this law, that the large amount of money invested by individuals in the shares of stock, should not be withdrawn from paying its share of State burdens, is believed to be obvious. Congress so believed. The law would be most likely soon repealed, if the persons owning the shares were exempt.
V. There is no breach of faith by congress in subjecting the shares of stock to taxation, although the whole amount of the capital of the bank was required to be, and in fact was, invested in the United States securities, which, when purchased by the bank, were exempt from State taxation.
1. This is so for the reasons stated in the second and subsequent subdivisions of point II, above.
2. The bonds were not, before they were authorized to be made the basis of banking, exempt from such burdens as