as requiring that any tax imposed by State authority on shareholders in national banking associations be assessed specifically against the shareholders, and not against the capital of the bank. It held that the applicatory revenue statute of Missouri was in consonance with the act of Congress in this respect.1 So, a similar statute of Louisiana, providing for a similar mode of assessment and collection of taxes laid upon the shares of corporations, was held not to apply to corporations which were not organized for direct pecuniary gain, such as the New Orleans Cotton Exchange.2 So, it has been held in two cases by the Circuit Court of the United States for the Eastern District of Virginia (and this is possibly what was meant by the Missouri decision above quoted) that, under the limitations of the taxing power of the States imposed by the national banking act,3 a State is not authorized to tax the stock of a bank in solido, or to authorize it to be so taxed by the city within which it does business; but that only the shares of individual owners residing in the city are taxable, and that they must be taxed separately, in order that the shareholder may be enabled to secure the deduction from their value of the amount of his personal indebtedness, which deduction is allowed by the State revenue law in other cases. Under the revenue law of North Carolina in force in the year 1882, it was held that a tax laid upon shares in a railway company, after the expiration of an exemption elsewhere referred to was assessable against each shareholder, and was not to be assessed against the corporation and paid by it.o 1 Lionberger v. Rowse, 43 Mo. 67; s. c. affirmed on other grounds, 9 Wall. (U.S.) 468. 2 New Orleans Cotton Exchange v. Assessors, 35 La. An. 1154. 8 Rev. Stats. U. S., § 5219; ante, § 2856. 4 First Nat. Bank v. Richmond, 39 Fed. Rep. 309, opinion by Hughes, J.; National Bank v. Richmond, 42 Fed. Rep. 877 (under another statute), opinion by Bond, J. Some doubt would seem to attend the soundness of the second of these decisions, as the statute of Virginia set out in the opinion was evidently framed to meet 131 5 the difficulty of the first decision, and Raleigh &c. R. Co. v. Wake Co., 87 N. C. 414, 426. 2081 If a tax § 2916. Corporation may Contest Such a Tax.against the shareholders can be lawfully laid and enforced against the corporation, it must follow, on correlative lines of reasoning, that the corporation has a locus standi in court to contest the validity of the tax, in particular cases, upon any ground which would be available to the shareholder if the tax had been laid directly against him. It would be contrary to the plainest justice for the State to say to the corporation, "We will enforce against you this tax laid upon the shares of your members, but we will not allow you to be heard in court in their behalf for the purpose of making it appear that the tax is improperly laid." It is therefore believed that all the courts either expressly or impliedly recognize the right of the corporation to make any defense available to the shareholders against taxes thus laid and sought to be enforced. Thus, in a case in Pennsylvania, it was held that a corporation has a legal standing in court to contest the constitutionality of a law requiring it to deduct, from the interest due on its obligations, the amount of the tax on them, and pay it into the treasury, instead of paying it to the holders of the securities.1 § 2917. Taxation of Shares Held under Mortgage or Pledge. Under a statutory system under which the tangible property of corporations is assessed to the corporation at its place of residence, and its capital is assessed to its shareholders distributively, and each shareholder is allowed a deduction to the extent of his proportion of the value of the assessed property of the corporation,-it has been held that railroad shares, held by a bank in pledge, as collateral security for the payment of a debt, are not taxable to the bank, but are taxable to the mortgagor, he being their owner. But, under a similar system, where a railroad company issued directly to a bank a certificate for fifty shares of its capital stock, to secure its note for five thousand dollars, discounted by the bank, it was held that the bank was rightly assessed as the absolute owner of the shares, 1 Commonwealth v. Delaware Div. Canal Co., 123 Pa. St. 594; s. c. 16 Atl. Rep. 584; 2 L. R. A. 798; 46 Phila. Leg. Int. 191; 23 W. N. C. 216. Com pare Dodge v. Woolsey, 18 How. (U. S.) 331. 2 Waltham Bank v. Waltham, 10 Met. (Mass.) 334. and that parol evidence would not be heard to show that its title to them was conditional merely. The opinion of the court, so holding, is somewhat obscure; but the court seems to have been impressed with the conclusion that the note, which was secured by the pledge of the shares, had become a part of the capital of the bank, so that it would be reached for taxation through the taxation of the shares of the bank in the hands of its shareholders; and that, the shares of the railroad company, issued to the bank to secure the note, would escape taxation altogether, unless taxed as the property of the bank. The difficulty of this case, however, lay in the fact that the shares were issued by the corporation directly to the bank, which made the bank their legal owner in form, and probably as a matter of law; since there could be no other legal owner, as they had been issued to no other person, and as the corporation could not own its own. shares. An ordinary pledge of corporate shares, by the holder to whom the certificate has been issued or transferred, to his creditor to secure his debt, stands on a very different footing. Such a pledge, as we have already seen, does not, in the absence of an express agreement to that effect, pass the legal title to the pledgee, but that title, together with the right to vote, remains in the pledgor. It is therefore a sound conclusion that corporate shares pledged as collateral, with power to the pledgee to transfer them to his own name and to sell them if the loan is not paid, but which remains on the books in the name of the pledgor, are taxable in the name of the latter. So, it has been held that a person who subscribes for shares in a banking corporation, and pays a part of the amount of his subscription, and then conveys the shares to the bank to secure the residue, is liable to be taxed on the amount thus paid in, as the owner of the stock.5 255. 3 1 Augusta Bank v. Augusta, 36 Me. S. F. Belknap's note." The case turned chiefly on the language of statutes. 2 Ante, § 2964, et seq. In Waltham Bank. Waltham, 10 Met. (Mass) 334, the pledgor of the shares seems to have procured the corporation to issue a new certificate directly to the pledgee "as collateral security for 3 Ante, § 2619. Ratterman v. Ingalls, 48 Oh. St. 468; s. c. 28 N. E. Rep. 168; aff'g s. c. 24 Oh. L. J. 433. 5 Tucker v. Aiken, 7 N. H. 113. 2918. Lien of Taxes upon Shares. -The lien of taxes laid upon corporate shares depends upon particular statutory systems, and perhaps no general principle can be stated which runs through the subject. Until the Missouri act of March 10, 1871, providing a uniform system of assessing and collecting taxes on railroads, railroad property was not, by the general law, subject to taxation in specie. The only form of taxation provided for was a tax against the shareholders upon their shares; and for this there was no lien on the property of the company.1 An actual levy or seizure will have substantially the effect of a lien; but this will not be in a strict sense a possessory lien, since shares of stock, being incorporeal, cannot be taken into custody, though there may be a symbolical seizure and custody, where the certificate itself is seized. In a case in Louisiana, the statute provided for the assessment of the shares against the corporation in the usual way, elsewhere described in this article,2 by the officers of the corporation furnishing a list of the shareholders to the assessor, by the assessor notifying the bank of the assessment, after which the taxes thus assessed against the bank were payable by the bank. Under this statute the following question was supposed to be raised on the record in one case: If the corporation has sufficient possession of the shares, notwithstanding the certificates evidencing the ownership of the respective shareholders were not in its keeping or actual custody, to enable the assessor to make a valid assessment of them at the situs of the corporation, is not that possession sufficient to enable the tax collector to effect a valid seizure of them in the same manner? Though it seems to the author that the question was merely a speculative one, yet the court dealt with it by reasoning, in substance, and on the authority of a previous decision of the same court discussing the mode of levying a fieri facias upon bank shares,3 that shares of stock in a corporation, evidenced by a certificate in the hands of the shareholder, are incorporeal rights in the funds and assets of the corporation, which can be seized, either by taking possession of the certificates themselves, or by seizing the interest of the shareholder in 1 State v. St. Louis &c. R. Co., 77 Mo. 202. 2 Ante, § 2914. 3 Harris v. Bank of Mobile, 5 La. An. 538. the assets and property of the corporation, by giving notice to the proper officers thereof. officers thereof. And further, that the inability of a tax collector to seize the corporeal evidence of the right, that is to say, to get possession of the certificate, does not prevent the collector from seizing the right itself, by notifying the keeper of the subject-matter of the right, that is by notifying the corporation. The court further reasoned that certificates of shares, not being negotiable, cannot be sold to the prejudice of the lien created by such a seizure.1 § 2919. Some Questions of Procedure. It is not designed, in treating of the subject of the taxation of corporate shares, to enter into questions of procedure, arising under the statutory systems of the different States; but the following, which have come under the eye of the author, seem worth preserving: Where the sole defense made to an information under the Kentucky "Auditor's Agent Act❞ 2 to compel defendant to list shares of corporate stock owned by him, for taxation, is that the stock is not liable to taxation, an objection that the information proceeds for an assessment of the shares of stock, as such, for taxation, while, if taxable at all, they are by law taxable as surplus only, is waived.3 In Pennsylvania, a manufacturing corporation, claiming as exempt from taxation shares of stock in other corporations owned by it, on the ground that they were taken in exchange for its own manufactured products, has the burden of establishing that fact.4 1 Parker v. Sun Ins. Co., 42 La. An. 1172; s. c. 8 South. Rep. 618; 32 Am. & Eng. Corp. Cas. 334. 2 Ky. Act of April 29, 1880. 3 Whitaker v. Brooks, 90 Ky. 68; s. c. 13 S. W. Rep. 355. 4 Commonwealth v. Westinghouse Air Brake Co., 151 Pa. St. 276; s. c. 24 Atl. Rep. 1111; Id. 1113. How far courts will correct erroneous valuations: Raleigh &c. R. Co. v. Wake Co., 87 N. C. 414, 422. 2085 |