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and its profit-earning power, which are part simply an interest in the very property held of its property under the constitutional defi- by the corporation, and the assessment of nition of property, there is nothing left to all the property of the corporation covered the separate partners. The whole thing has everything represented by the certificate. passed to the purchaser, and in the same See also Pol. Code, $ 3608.” way when a corporation makes a sale. And Again, referring to Burke v. Badlam, 57 to hold that the good will and profit-earning Cal. 594, the court said (p. 285, L. R. A. p. power must be specifically mentioned is to 922, Am. St. Rep. p. 138, Pac. p. 836): hold that the constitutional definition of “This case necessarily involved the ques. property is insufficient; that good will and tion as to the constitutionality of § 3608 of profit-earning power are not "capable of the Political Code, prohibiting the assessprivate ownership,” or do not belong to the ment of shares of stock to the holders therecorporation. Burke v. Badlam was reaf- of. Such shares being undoubtedly propfirmed in Bank of California v. San Fran- erty, unless they were otherwise assessed, cisco, 142 Cal. 276, 64 L. R. A. 918, 100 Am. the section was clearly unconstitutional, in St. Rep. 130, 75 Pac. 832, decided since the view of the provision of the Constitution redecision of this case by the court of appeals. quiring all property to be taxed. According This case is very instructive. It was an
It was an to the decision of the court they were under action brought by the plaintiff, a state bank, the law to be otherwise assessed-i. e., to have an assessment of its franchise de everything represented by the certificate was clared illegal and void, and to recover the to be assessed to the corporation.” amount paid by it under protest as taxes And again, on p. 289, L. R. A. p. 924, Am. thereon. The contention of the plaintiff was St. Rep. p. 141, Pac. p. 838: that it did not own or possess any franchise “Whether or not the whole difference bewhatever; that the only franchise in any tween the aggregate market value of the way connected with it was the corporate shares of stock and the value of the tangible franchise, the franchise of being a corpora- property-viz., $2,943,096.92—was the value tion, which was the property of the stock of the franchise, the assessor certainly had holders and not assessable or taxable to the the right to take the value of the shares into corporation. It appears from the opinion consideration in determining the value of that the assessor found that the aggregate the franchise; and, were we at liberty to revalue of the tangible property of the bank view the judgment of the assessor and the was $5,156,903.08, that the market value of board of equalization upon those matters, all the shares of the capital stock was $8,- we could not say that an assessment of 100,000, and the difference between the two $750,000 thereon is unjust, or that it inwas by him ascertained and determined to cludes such elements as dividend or profit- . be the value of the franchise of the bank. earning power, or good will, which, it is The state was not challenging the assess-claimed, should not be taken into considerament, and, of course, no inquiry was made tion in determining the value of the propas to the propriety of an increase in the erty of the corporation. In this connection, valuation.
it will be observed that these elements, so In reply to the contention of the plaintiff, far as they may enter into the value of the court uses this language:
shares of stock, would be included in an as"It was said by the Supreme Court of the sessment of such shares to the stockholders, United States, in Society for Savings v. a method of assessment which the state is Coite, 6 Wall. 594, 606, 18 L. ed. 897 : 'Cor- at liberty to adopt,-in fact, bound to adopt, porate franchises are legal entities vested -unless such shares are otherwise covered in the corporation itself as soon as it is in by the assessment of the property of the coresse. They are not mere naked powers poration. granted to the corporation, but powers "It is clear that, if the laws of this state coupled with an interest which vest in the properly express the intention that every. corporation, upon the possession of its fran- thing that gives value to the shares of a chises, and, whatever may be thought of the corporation shall be assessed as property corporators, it cannot be denied that the of the corporation, the true value of those corporation itself has a legal interest in shares is a most important element in desuch franchises.'
termining the value of such property.” "If this corporate franchise is assessable I have made these extensive quotations as property, then, that it must be assessed from the opinions of the supreme court of to the corporation instead of the members California, for in cases like this we follow or stockholders is clearly settled in this the construction placed by the highest court state by the decision in Burke v. Badlam, 57 of the state upon its statutes. Obviously, Cal. 594, where it was held that a stock- that court construes them as including withholder could not be assessed upon his cer- in the corporate property the aggregate tificate of stock, inasmuch as his shares were value of all the shares of stock, and that, while they forbid the assessment and taxa- | as implying a destruction of the plain letter tion of shares of stock in a state corpora- of the statutes. tion, they require that all the value repre- But great reliance is placed upon the adsented by those shares of stock be assessed mission, in the agreed statement of facts, and taxed against the corporation; so that, “that the manner in which franchises of when you ascertain the value of a single commercial banks and trust companies were share of stock, and multiply that by the assessed for said fiscal year ending June 30, number of shares in the corporation, you 1901, by the assessor of the city and county have the value of the corporate property of San Francisco, is illustrated by the case subject to taxation.
of the Bank of California, a banking corpoAfter declaring that the prohibition of the ration organized under the laws of the state assessment and taxation of shares was clear- of California.” In the assessment of that ly unconstitutional, unless they were other bank the assessor did not add to the value wise assessed, it added, referring to the case of the tangible property the difference beof Burke v. Badlam, "according to the deci- tween that value and the market value of sion of the court they were under the law the capital stock, but a sum very much less. to be otherwise assessed, -i. e., everything A tabular statement is also annexed, showrepresented by the certificates was to be as- ing the financial condition during the year sessed to the corporation.” Now, if, as of the 178 state banks of California. It claimed, the shares represent, not merely might be sufficient to say that the stipulathe tangible property, but the franchise, the tion is satisfied by a conclusion that the asdividend-earning power, then.
then. as stated, sessor, in assessing state banks, generally "everything represented by the certificates added to the value of the tangible property was to be assessed to the corporation.” And something on account of the franchise, -we this language is followed by the declaration, are not compelled to infer that the valuation referring to dividends, profit-earning power, of the tangible property of each bank he good will, etc.: "In this connection it will added $750,000, or even that he failed to add be observed that these elements, so far as the full difference between the value of that they may enter into the value of shares of property and that the stock. Indeed, it stock, would be included in an assessment does not appear from the tabular statement of such shares to the stockholders, a method that the market value of the shares in a of assessment which the state is at liberty single state bank in California exceeded the to adopt,-in fact bound to adopt,-unless value of its tangible property. So that, so such shares are otherwise covered by the as far as that evidence goes, the only case in sessment of the property of the corpora- which there was any franchise value to be tion." Reference is made to the use of the added was that of the Bank of California, word "if” in the last paragraph of the quo- But more significant is this: It appears tation, as though that implied a doubt as to from the agreed statement that the assessthe meaning of the state statutes. But ment complained of in this case was made surely that cannot be, in view of the prior in the following way: declaration in the same opinion, that "every- “The defendant, in making his assessment, thing represented by the certificates was to fixed the value of the shares for taxation be assessed to the corporation.” The para- at $104.35 each, and arrived at that valugraph is to be read as though it said that ation in the following manner: He added provided the laws of the state properly ex- to the capital stock of the bank, $500,000, its press the intention, as we have already held undivided profits amounting to $77,260, dethat they do, then the true value of the ducted the face value of United States bonds shares is an important element in deter- held by it, $50,000, and the value of its furmining the value of the corporate property. niture, $5,500, leaving $521,760 as the total The same word "if” is used at the com-assessable value, and dividing that by the mencement of the second paragraph of the number of shares made the assessable value quotation “if this corporate franchise is as- of each share the sum above stated.” sessable as property,” in like manner, for in other words, the only assessment the word “franchises” is found in the consti- against the plaintiff's shares was based upon tutional definition of property, the para- the value of the tangible property. Not a graph preceding "it" declares that “the cor- dollar was added to the valuation on acporation itself has a legal interest in such count of franchise, good will, or dividendfranchises," and the very paragraph says earning power, or anything of that kind. that “the assessment of all the property of Or, to put it in another form, the assessthe corporation covered everything repre-ment of the state bank added to the value sented by the certificate.” Certainly it of the tangible property something for the seems to me there is no justification in tor- value of the franchise, the assessment of the turing this word "if” as overthrowing all plaintiff stopped with the tangible property, the clear declarations of the court, as well and yet it is held that there was an actual unjust discrimination against the plaintiff. I and does not intend to assess, to the holders And how is this conclusion reached ? By as- of shares in corporations, organized under suming that the shares in the plaintiff bank the laws of the said state of California, the had no value above the value of the tangi-value of the same, or to collect from such ble property. But this is a mere assump- shareholders any taxes on said shares or the tion. A more rational guess would be that value thereof. the shares of stock in a bank whose undi- “And your orator further shows that the vided profits were over 15 per cent of its said pretended assessment and taxation so capital had a value much above the par as aforesaid threatened to be made and value of its stock or the value of its tangi- levied by the respondent upon the shares ble property. And can it be that the whole of the capital stock of your orator will be system of the legislation of a state in re- in violation of, and repugnant to, the provispect to the taxation of national banks can sions of said § 5219 of the Revised Statutes be stricken down upon an unfounded as- of the United States, in that the said taxasumption that the shares of a given nationaltion will be at a greater rate than will be bank were worth no more than its tangible assessed upon any other moneyed capital in property? If the complaint was of an actual the hands of individual citizens in the state discrimination it was a part of the plain- of California. And, in that behalf, your tiff's duty to prove it, and show that its orator further shows that, in assessing and shares had no value above that of the tangi-taxing the said shares of the capital stock ble property, and would not “be taken in of your orator, no deduction will, or can payment of a just debt due from a solvent legally, be made from the valuation of said debtor” at a larger sum. The most ele- shares, or any of them, of debts unsecured mentary rule of judicial proceedings is that by deed of trust, mortgage, or other lien on a party, to make out his cause of action, real or personal property due or owing by must prove, not assume, the existence of all the stockholders of your orator, or by any essential facts.
of them, to bona fide residents of the state But I need not rest upon the omission of of California; and that, in assessing and proof. There is no allegation of any dis- taxing other moneyed capital in the form of crimination based upon such difference of solvent credits unsecured by deed of trust, valuation. The eleventh and twelfth para- mortgage, or other lien on real or personal graphs of the complaint state the wrongs on property, due, or owing to, or in the hands account of which relief is sought. In order of, individual citizens in said state of Calithat there may be no misunderstanding of fornia, the respondent does and will make a the full scope of the causes of action al-deduction from said credits, under and by leged I quote these paragraphs entire: the Constitution and laws of the state of
"Eleventh.—That the said assessment and California, of the debts unsecured by trust taxation, so as aforesaid threatened to be deed, mortgage, or other lien on real or permade and levied by the respondent upon the sonal property as may be owing by such inshares of the capital stock of your orator, dividual citizens, or by any of them, to bona wlil be in violation of, and repugnant to, the fide residents of the state of California, and provisions of $8 5219 and 1977 of the Re- that said threatened assessment and taxavised Statutes of the United States (U. S. tion of the shares of your orator is, and will Comp. Stat. 1901, pp. 1259, 3502), in that be, unjust, unlawful, and illegal, and will the said assessment and taxation will be at discriminate against and upon such shares, a greater rate than is or will be assessed and against and upon the persons owning upon other moneyed capital in the hands of and holding the same, and will compel them individual citizens of the said state of Cali- to sustain and bear more than their just fornia. And in that behalf your orator share and burden of the taxes of the said shows that, under and by virtue of the laws state of California. And in this behalf your of the said state of California, all shares of orator further avers that it is informed and stock in corporations organized under the believes, and upon such information and belaws of the said state and amounting to lief states, the fact to be, that the amount more than the sum of two hundred million of moneyed capital in the city and county dollars ($200,000,000), and especially in of San Francisco in said state of California corporations organized under the laws of the on the first Monday of March, 1900, to wit, said state for the purpose of banking, all on March 5th, 1900, at noon of said day, shares of stock thereof amounting to more invested by banks and bankers, having their than the sum of thirty-five million dollars principal place of business in said city and ($35,000,000), are expressly exempt from county, and residents therein, in unsecured assessment and taxation, and the same are solvent credits, and from which, under the not subject thereto, and that the respondent Constitution and laws of said state, unsehas not assessed, and will not assess, for cured debts can be deducted, was the sum the said fiscal year ending June 30th, 1901, 'of $14,074,561; and on the day and year last aforesaid the amount of moneyed capi- | 452, and will deduct therefrom the sum of tal in the state of California, other than $11.10 per share as the proportionate in the said city and county of San Fran- amount per share of the value of the United cisco, invested by banks and bankers in un- States bonds held by your orator to secure secured solvent credits, and from which, its circulation, and of its furniture, and under the Constitution and laws of said will, as hereinbefore set out, assess to the state, unsecured debts can be deducted, was stockholders the sum of $104.36 per share the sum of $7,589,302; that on the day and as the value of each share of said capital year last aforesaid said banks and bankers stock by the said respondent claimed to be at said city and county of San Francisco subject to assessment and taxation under had debts unsecured by trust deed, mort the provisions of said act of March 14th, gage, or other lien on real or personal prop-1899, and that the respondent will wholly erty owing by such banks and bankers in fail and refuse to make any other or further said city and county, amounting to the sum deductions from such ascertained value of of $36,710,062; and that on said day last said shares, in order to determine the asaforesaid the amount of debts unsecured by sessable value thereof; whereas, by the protrust deed, mortgage, or other lien on real visions of said § 3609 of the Political Code or personal property owing by said banks of the state of California, under and in purand bankers in the state of California, other suance whereof the respondent has threatthan in the said city and county of San ened and intends to make the said assessFrancisco, was the sum of $32,400,304; that ment, and will proceed to demand, and will the amount of moneyed capital invested in attempt to collect, the taxes aforesaid, he such solvent credits by such banks and bank- was and is required to deduct from the ers on the day and year last aforesaid, in value of each share of the capital stock of said city and county of San Francisco and your orator such sum as is in the same proin said state of California, as compared portion to such value as the total value of with the amount of moneyed capital in the real estate and property of your orator vested in the shares of the capital stock of exempt by law from taxation bears to the your orator, is so large and substantial that whole value of all the shares of the capital the assessment and taxation of the shares of stock of your orator. That on the first Monthe capital stock of your orator without de- day of March, 1900, to wit, on March 5th, ducting therefrom, and without being able 1900, at twelve o'clock M. of said day, your to deduct therefrom, debts unsecured by orator had not, and thence hitherto has not trust deed, mortgage, or other lien on real had, nor has it now, any real estate, and, or personal property, as may have been as in paragraph 'eighth' hereof averred, all owing by the respective holders of the shares of the property of your orator consisted on of the capital stock of your orator on the said day and at said time, and has thence day and year last aforesaid, will be an il- hitherto consisted, and does now consist, of legal and unjust discrimination against the its bonds, money on hand, credits, furniture, owners and holders of the shares of the and other personal property, and on said capital stock of your orator, and will make day and at said time the same constituted the taxation of said shares of stock at a and were, and thence hitherto have been, greater rate than is imposed upon other and now are, the assets of your orator, and moneyed capital in the hands of individual were and are used and employed by it in citizens in the state of California, and par- the conduct and carrying on its business as ticularly in the city and county of San a national banking association under and by Francisco in said state. And in this behalf virtue of the provisions of the act of the your orator further avers that the said Congress of the United States known as the solvent credits so held as aforesaid by banks national banking act, and were and are and bankers in the said city and county of exempt by law from assessment and taxaSan Francisco and in the said state of Cali- tion. That, if deduction of all the property fornia are moneyed capital in the hands of of your orator exempt from assessment and individual citizens of the state of California, taxation as last aforesaid were made to each which enter into competition for business stockholder in assessing said stock, there with your orator.
would remain nothing of value subject to “Twelfth.—That, in the making of the assessment and taxation; and that the presaid assessment of the said shares of the tended assessment and taxation of said capital stock of your orator, the respondent shares at said value of $104.36 per share will not proceed in the manner directed by would be based wholly upon supposed and the said act of March 14th, 1899, in this: fictitious propertyand upon property That the said respondent, as hereinbefore exempt by the Constitution and laws of the set out, will ascertain and determine the United States from assessment and taxavalue of each of the shares of the capital tion." stock of your orator to be the sum of $115,- The first of these paragraphs alleges a violation of the Federal statute in the Further, there is no reference in the opintaxation of plaintiff's shares of stock, be- ion of the court of appeals to any discrimicause under and by virtue of the laws of nation in fact. California all shares of stock in state corpo- Still further, counsel for plaintiff in error rations are exempt from assessment and evidently fail to perceive any actual distaxation, and the assessor does not intend crimination, as appears by this quotation to assess to the holders the value of those from their brief: shares. But, as repeatedly held, a mere dif- “The questions involved in the appeal are: ference in the methods of state and national “(1) That the act of 1899, providing for bank taxation is not repugnant to the act of the assessment and taxation of shares of the Congress. The balance of the paragraph is capital stock of national banks, is repug. substantially a charge of a discrimination nant to the provisions of g 5219 of the Reby reason of a failure to deduct debts. But vised Statutes of the United States: that, it is conceded in the opinion of the “(a) Because shares of stock in the comcourt, may be put one side,-a concession mercial banks of the state are not taxed, and undoubtedly compelled by the facts as agreed are exempt; ; upon, for an opportunity was given to each “(b) Because, by reason of the failure to stockholder in the plaintiff bank to have tax shares in the commercial banks of the any debts deducted, and no one of them state, the shares of national banks are subsought to avail of this privilege.
jected to an adverse discrimination, and The other paragraph charges a discrimi- taxed at a higher rate than such commernation and that the assessor ascertained the cial bank shares; value of the shares of the capital stock of “(c) Because the provisions § 3609, are the plaintiff at the sum of $115,452 and de- wholly void, in that it is thereby underducted therefrom the sum of $11.10 per taken to provide that a stockholder may deshare as the proportionate share of the duct from the value of his shares the amount value of United States bonds held by the of his debts due to bona fide residents of the bank; that he refused to make any further state. deductions, although the various items of “(2) That, under the express provision of property held by the bank, consisting of the Political Code, $$ 308 and 3609, the bonds, moneys, credits, etc., "were and are whole property of the appellant included in used and employed by it in the conduct and the assessment was exempt from taxation.” carrying on its business as a national bank- The only reference to discrimination is the ing association, under and by virtue of the alleged legal one, “by reason of the failure provisions of the act of Congress of the to tax shares in the commercial banks of the United States known as the national bank state." If the failure to tax shares in the act, and were and are'exempt by law from commercial banks of the state does not of taxation." The complaint here is that itself work a discrimination, as is practithe tangible property of the national bank cally conceded in the opinion of the court, is wholly exempt from taxation because used then the whole basis of plaintiff's complaint for the purpose of carrying on the banking fails. business, and, as the only assessment of Summing the matter up, the Constitution plaintiff's shares was based upon the value declares that "all property . shall of the tangible property, the entire assess- be taxed in proportion to its value," and dement was void. Now it is not pretended in fines "property" as including "franchises, the opinion of the court, nor can it be suc- and all other matters and things, real, percessfully claimed in view of prior decisions sonal, and mixed, capable of private ownerof this court, that shares of stock in a na- ship.” Franchises, dividend-earning, profittional bank are subject to taxation to only earning power, are capable of private ownerthe extent of the excess of their value above ship. Indeed, the opinion of the court is that of the tangible property of the corpo- based on the contention that they are asration, and yet that is the burden of plain sessed to the holder of shares in national tiff's complaint. I have made this exten- banks, and not assessed upon the state sive quotation because it is apparent there- banks. Section 3608 provides that “all propfrom that the matter which, in the judg-erty belonging to corporations (save and exment of the court, is sufficient to overthrowcept the property of national banking assothe law of California in respect to the tax- ciations, not assessable by Federal statute) ation of national banks, was not charged or shall be assessed and taxed.” Section 3609, complained of by the plaintiff. If the plain that the shares in national banking associatiff neither alleges nor proves any discrimi- tions "shall be valued and assessed as is nation in the matter of valuation I cannot other property for taxation.” The supreme understand why this court should assume court of the state holds that a stockholder that there was one, and thereupon upset the in a state bank "could not be assessed upon tax.
his certificate of stock, inasmuch as his