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counter. The State banks were left in this condition by the Constitution, untouched by any other provision. As a consequence they were gradually established in most or all of the States, and had not been encroached upon or legislated against, or in any other way interfered with by acts of Congress, for more than three-quarters of a century—from 1787 to 1864. But, in addition to the above recognition of the State banks, the question of their constitutionality came directly before this court in the case of Briscoe vs. The Bank of the Commonwealth of Kentucky. (11 Pet, 257.) The case was most elaborately discussed both by the counsel and the court. The court, after the fullest consideration, held that the States possessed the power to grant charters to State banks; that the power was incident to sovereignty; and that there was no limitation in the federal Constitution on its exercise by the States. The court observed that the Bank of North America and of Massachusetts, and some others, were in operation at the time of the adoption of the Constitution, and that it could not be supposed the notes of these banks were intended to bo inhibited by that instrument, or that they were considered as bills of credit within its meaning. All the judges concurred in this judgment except Mr. Justice Story. The decision in this case was affirmed in WoodruffTM. Trapnall, (10 How., 205;) in Danington vs. the Bank of Alabama, (13 ib., 12;) and in Curran vs. State of Arkansas, (15 ib., 317.)
Chancellor Kent observes that Mr. Justice Story, in his Commentaries on the Constitution, (vol. 3, p. 19,) seems to be of opinion that, independent of the long-continued practice, from the time! of the adoption of the Constitution, the States would not, upon a sound construction of the Constitution, if the question was res integra, be authorized to incorporate banks with a power to circulate bank paper as currency, inasmuch as they are expressly prohibited from coining money. He cites the opinions of Mr. Webster, of the Senate of the United States, and of Mr. Dexter, formerly Secretary of War, on the same side. But, the chancellor observes, the equal if not the greater authority of Mr. Hamilton, the earliest Secretary of the Treasury, may be cited in support of a different opinion; and the contemporary sense and uniform practice of the nation are decisive of the question. He further observes, the prohibition (of bills of credit) does not extend to bills emitted by individuals, singly or collectively, whether associated under a private agreement for banking purposes, as was the case with the Bank of New York prior to its earliest charter, which was in the winter of 1791, or acting under a charter of incorporation, so long as the State lends not its credit, or obligation, or coercion to sustain the circulation.
In the case of Briscoe To. The Bank of the Commonwealth of Kentucky, he observes this question was put at rest by the opinion of the court, that there was no limitation in the Constitution on the power of the States to incorporate banks, and their notes were not intended nor were considered os bills of credit. (1 Kent's Com., p. 409, marg. note A, 10th ed.)
The constitutional power of the States being
thus established by incontrovertible authority to create State banking institutions, the next question is whether or not the tax in question can be upheld consistently with the enjoyment of this power.
The act of Congress of July 13,1866, (14 U. S. Stats., 146, § 9,) declares that the State banks shall pay ten per centum on the amount of their notes, or the notes of any person, or other State bank, used for circulation and paid out by them after the 1st of August, 1866. Ih addition to this tax there is also a tax of five per centum per annum upon all dividends to stockholders, (13 U. S. Stats., p. 283,1120,) besides a duty of one twenty-fourth of one per centum monthly upon all deposits, and the same monthly duty upon the cap'ital of the bank. (Ib., 277, § 110.) This makes an aggregate of some sixteen per cent, imposed annually upon these banks. It will be observed the tax of ten per centum upon the bills in circulation is not a tax on the property of the institutions. The bills in circulation are not the property, but the debts of the bank, and, in their account of debits and credits, are placed to the debit side. Certainly no government has yet made the discovery of taxing both sides of this account, debit and credit, as the property of a taxable person or corporation. If both these items could be made available for this purpose a heavy national debt need not create any very great alarm, neither as it respects its pressure on the industry of the country, for the time being, or of its possible duration. There is nothing in the debts of a bank to distinguish them in this respect from the debts of individuals or persons. The discounted paper received for the notes in circulation is the property of the bank, and is taxed as such, as is the property of individuals received for their notes that may be outstanding.
The imposition upon the banks cannot be upheld as a tax upon property; neither could it have been so intended. It is simply a mode by which the powers or faculties of the States to incorporate banks are subjected to taxation, and which, if maintainable, may annihilate those powers.
No person questions the authority of Congress to tax the property of the banks, and of all other corporate bodies of a State, the same as that of individuals. They are artificial bodies, representing the associated pecuniary means of real persons, which constitute their business capital, and the property thus invested is open and subject to taxation with all the property, real and personal, of the State. A tax upon this property, and which, by the Constitution, is to be uniform, affords full scope to the taxing power of the federal Government, and is consistent with the power of the States to create the banks, and. in our judgment, is the only subject of taxation by this Government to which these institutions are liable.
As we have seen, in the forepart of this opinion, the power to incorporate banks was not surrendered to the federal Government, but reserved to the States; and it follows that the Constitution itself protects them, or should protect them, from any encroachment upon this right. As to the powers thus reserved, the States are as supreme as before they entered into the Union, and are entitled to the unrestrained exercise of them. The question as to the taxation of the powers and faculties belonging to governments is not new in this court. The bonds of the federal Government have been held to be exempt from State taxation. Why? Because they were issued under the power in the Constitution to borrow money, and the tax would be a tax upon this power; and, as there can be no limitation to the extent of the tax, the power to borrow might be destroyed. So, in the instance of the United States notes or legal tenders, as they are called, issued under a constructive power to issue bills of credit, as no express power is given in the Constitution, they are exempt from State taxation for a like reason as in the case of Government bonds; and we learn from the opinion of the court in this case that one step further is taken, and that is, that the notes of the national banks are to be regarded as bills of credit, issued indirectly by the Government; and it follows of course from this that the banks used as instruments to issue and put in circulation these notes are also exempt, we are not complaining of this. Our purpose is to show how important it is to the proper protection of the reserved rights of the States that these powers and prerogatives should be exempt from federal taxation, and how fatal to their existence if permitted. And also that, even if this tax could be regarded as one upon property, still, under the decisions above referred to, it would be a tax upon the powers and faculties of the States to create these banks, and therefore unconstitutional.
It is true that the present decision strikes only at the power to create banks, but no person can fail to see that the principle involved affects the power to create any other description of corporations, such as railroads, turnpikes, manufacturing companies, and others.
This taxation of the powers and faculties of the State governments, which are essential to their sovereignty and to the efficient and independent management and administration of their internal affairs, is for the first time advanced as an attribute of federal authority. It finds no support or countenance in the early history of the government or in the opinions of the illustrious statesmen who founded it. These statesmen scrupulously abstained from any encroachment upon the reserved rights of the States, and within these limits sustained and supported them as sovereign States.
We say nothing as to the purpose of this heavy tax of some sixteen per centum upon the banks, ten of which we cannot but regard as imposed upon the power of the States to create them; indeed the purpose is scarcely concealed in the opinion of the court, namely, to encourage the national banks. It is sufficient to add, that the burden of the tax, while it has encouraged these banks, has proved fatal to those of the States; and, if we are at liberty to judge of the purpose of an action from the consequences that nave followed it, it is not, perhaps, going too far to say that these consequences were intended.
[I am instructed to say that Mr. Justice Davis concurs in this opinion.]
On the Sight of the State Governments to Tax National Banks.
Decemrer Term, 1869. The First National Bank of Louis-1 In error to the ville, plaintiff in error, court of appeals
vs. of the State of
The Commonwealth of Kentucky. J Kentucky.
Mr. Justice Miller delivered the opinion of the court.
This is an action brought by the State of Kentucky in her own courts against the First National Bank of Louisville to recover the amount of a tax of fifty cents per share on the shares ot its stock. The case resulted in a judgment in favor of the commonwealth in the court of appeals, to which this writ of error is prosecuted.
The suit is brought, according to the practice of the courts of that State, by a petition, setting forth the amount of the tax, and claiming a judgment for the same. The answer, by the same mode of practice, sets up four distinct defenses to the action. These are:
1. That defendant is not organized under the law of the State, but under the bank act of the
: Jnited States, and is not, therefore, subject to State taxation.
2. That it has been selected and is acting as a depositary and financial agentof the Government of the United States, and, therefore, is not liable to any tax whatever, either on the bank, its capital, or its shares.
3. That its entire capital is invested in securities of the Government of the United States, and that its shares of stock represent but an interest in said securities, and therefore are not subject to State taxation.
4. That the shares of the stock are the property of the individual shareholders, and that the bank cannot bo made responsible for a tax levied on those shares, and cannot be compelled to collect and pay such tax to the State.
In the several recent decisions concerning the taxation of the shares of the national banks, as regulated by sections forty and forty-one of the act of Congress of June 3, 1864, (13 U. S. Stats., Ill,) it has been established as the law governing this court that the property or interest of a stockholder in an incorporated bank, commonly called a share, the shares in their aggregate totality being called sometimes t^e capital stock of the bank, is a different thing from the moneyed capital of the bank, held and owned by the corporation. This capital may consist of cash, or of hills and notes discounted, or of real estate combined with these. The whole of it may be invested in bonds of the Government, or in bonds of the States, or in bonds and mortgages. In whatever it may bo invested it is owned by the bank as a corporate entity, and not by the stockholders. A tax upon this capital is a tax upon the bank, and we have held that when that capital was invested in the securities of the Government it could not be taxed, nor could the corporation be taxed as the owner of such securities.
On the other hand, we have held that the shareholders or stockholders, by which is meant the same thing, may be taxed by the States on stock or shares so held by them, although all the capital of the bank be invested in federal securities, provided the taxation does not violate the rule prescribed by the act of 1864.
It is not intended here to enter again into the argument by which this distinction is maintained, but to give a clear statement of the propositions that we have decided, that we may apply them to the case before us.
If, then, the tax for which the State of Kentucky recovered judgment in this case is a .tax upon the shares of the stock of the bank, and is not a tax upon the capital of the bank owned by the corporation, the first, second, and third grounds of defence must fail.
There are, then, but two questions to be considered in the case before us:
1. Does the law of Kentucky, under which this tax is claimed, impose a tax upon the shares of the bank, or upon the capital of the bank, which is all invested in Government bonds?
2. If it is found to be a tax on the shares, can the bank be compelled to pay the tax thus levied on the shares by the State?
The revenue law of Kentucky imposes a tax "on bank stock, or stock in any moneyed corporation of loan and discount, of fifty cents on each share thereof, equal to one hundred dollars of stock therein, owned by individuals, corporations, or societies."
We entertain no doubt that this provision was intended to tax the shares of the stockholders, and that if no other provision had been made the amount of the tax would have been primarily collectible of the individual or corporation owning such shares, in the same manner that other taxes are collected from individuals. It is clear that it is the shares owned or held by individuals in the banking corporation which are to be taxed, and the measure of the tax is fifty cents per share of one hundred dollars. These shares may, in the market, be worth a great deal more or a great deal less than their par or nominal value, as its capital may have been increased or diminished by gains or losses, but the tax is the same in each case. This shows that it is the share which is intended to be taxed, and not the cash or other actual capital of the bank.
It is said that there may be, or that there really are, banks in Kentuckywhose stock is not divided into shares of $100 each, but into shares of $50 or other amounts, and that this shows that the legislature did not intend a tax of fifty cents on the share, but a tax on the capital.
But the argument is of little weight. What the legislature intended to say was, that we impose & tax on the shares held by individuals or other corporations in banks in this State. The tax shall be at the rate of fifty cents per share of stock equal to $100. If the shares are only equal to $50, it will he twenty-live cents on each cf such shares. If they arc equal to $500, it will be $2 50 per share. The rate is regulated so as to be equal to fifty cents on each share of $100.
But it is strongly urged that it is to be deemed a tax on the capital of the hank, because the law requires the officers of the bank to pay this tax on the shares of its stockholders.
Whether the State has the right to do this we will presently consider; but the fact that it has attempted to do it does not prove that the tax is
anything else than a tax on these shares.. It has been the practice of many of the States for a long time to require of its corporations thus to pay the tax levied on their shareholders. It is the common, if not the only, mode of doing this in all the New England States, and in several of them the portion of this tax which should properly go as the shareholders' contribution to local or municipal taxation is thus collected by the State of the bank and paid over to the local municipal authorities.
In the case of shareholders not residing in the State, it is the only mode in which the State can reach their shares for taxation.
We are therefore of opinion that the law of Kentucky is a tax upon the share of the stockholder.
If the State cannot require of the bank to pay the tax on the shares of its stock it must be because the Constitution of the United States or some act of Congress forbids it. There is certainly no express provision of the Constitution on the subject. But it is argued that the banks, being instrumentalities of the federal Government, by which some of its important operations are conducted, cannot be subjected to such State legislation.
It is certainly true that the bank of the United States and its capital were held to be exempt from State taxation on the ground here stated, and this principle, laid down in the case of McCulloch vs. The State of Maryland, has been repeatedly reaffirmed by the court. But the doctrine has its foundation in the proposition that the right of taxation may be so used in such cases as to destroy the instrumentalities by which the Government proposes to effect its lawful purposes in the States, and it certainly cannot be maintained that banks or other corporations or instrumentalities of the Government are to be wholly withdrawn from the operation of State legislation. The most important agents of the federal Government are its officers, but no one will contend that when a man becomes an officer of the Government he ceases to be subject to the laws of the State. The principle wo are discussing has its limitation, a limitation growing out of the necessity on which the principle itself is founded.
That limitation is, that the agencies of the federal Government are only exempted from State legislation so far as that legislation may interfere with or impair their efficiency in performing the functions by which they are designed to serve that Government.
Any other rule would convert a principle founded alone in the necessity of securing to the Government of the United States the means of exercising its legitimate powers into an unauthorized and unjustifiable invasion of the rights of the States. The salary of a federal officer may not be taxed; he may be exempted from any personal service which interferes with the discharge of his official duties, because those exemptions are essential to enable him to perfoim those duties. But he is subject to all tl e laws of the State which affect his family or social relations or his property, and he is liable to punishment for crime, though that punishment be imprisonment or death.
So of the banks. They are subject to the laws 1 of the State, and are governed in their daily course of business far more by the laws of the State than of the nation. All their contracts are governed and construed by State laws. Their acquisition and transfer of property, their right to collect their debts, and their liability to be sued for debts, are all based on State law. It is only when the State law incapacitates the banks from discharging their duties to the Government that it becomes unconstitutional.
We do not see the remotest probability of this in their being required to pay the tax which their stockholders owe to the State for the shares of their capital stock, when the law of the federal Government authorizes the tax.
If the State of Kentucky had a claim against a stockholder of the bank who was a non-resident of the State it could undoubtedly collect the claim by legal proceeding, in which the bank could be attached or garnished, and made to pay the debt out of the means of its shareholder under its control. This is, in effect, what the law of Kentucky does in regard to the tax of the State on the bank shares. It is no greater interference with the functions of the bank than any other legal proceeding to which its business operations may subject it, and it in no manner hinders it from performing all the duties of financial agent of the Government.
A very nice criticism of the proviso to the forty-first section of the national-bank act, which permits the States to tax the shares of such banks, is made to us, to show that the tax must be collected of the shareholder directly, and that the mode we have been considering is by implication forbidden. But we are of opinion that while Congress intended to limit State taxation to the shares of the bank as distinguished from its capital, and to provide against a dis
crimination in taxing such bank shares unfavorable to them, as compared with the shares of other corporations and with other moneyed capital, it did not intend to prescribe to the States the mode in which the tax should be collected.
The mode under consideration is the one which Congress itself has adopted in collecting its tax on dividends and on the income arising from bonds of corporations. It is the only mode which, certainly and without loss, secures the payment of the tax on all the shares, resident or non-resident, and, as we have already stated, it is the mode which experience has justified in the New England States as the most convenient and proper in regard to the numerous wealthy corporations of those States. It is not to be readily inferred, therefore, that Congress intended to prohibit this mode of collecting a tax which they expressly permitted the States to levy.
It is said here in argument that the tax is void, because it is greater than the tax laid by the [ State of Kentucky on other moneyed capital in that State.
This proposition is not raised among the very distinct and separate grounds of defence set up by the bank in the pleading. Nor is there any reason to suppose that it was ever called to the attention of the court of appeals, whose j udgment we are reviewing.
We have so often of late decided that when a case is brought before us by writ of error to a State court that we can only consider such alleged errors as are involved in the record and actually received the consideration of the State court, that it is only necessary to state the proposition now. As the question thus sought to be raised here was not raised in the court of appeals of Kentucky, we cannot consider it. The judgment of that court is affirmed.
PRESlDENT GRANT'S FIRST ANNUAL AND SPECIAL MESSAGES AND PROCLAMATION.
President Grant's First Annual Message,
In coming before you for the iirsttirneas Chief Magistrate of this great nation, it is with gratitude to the Giver oi all good for the many Benefits we enjoy: we are blessed with peace at home, and are without entangling alliances abroad to forebode trouble; with a territory unsurpassed in fertility, of an area equal to the abundant support of five hundred millions of people, and abounding in every variety of useful mineral in quantity sufficient to supply the world for generations; with exuberant crops; with a variety of climate adapted to the production of every species of earth's riches, and suited to the habits, tastes, and requirements of every living thing; with a population of forty millions of free people, all speaking one language; with facilities for every mortal to acquire an education; with institutions closing to none the avenues to fame or any blessing of fortune that may be coveted; with freedom of the pulpit, the press, and the school; with a revenue flowing into the national treasury beyond the requirements of the Government. Happily, harmony is being rapidly restored within our own borders. Manufactures hitherto unknown in our country are springing up in all sections, producing a degree of national independence unequaled by that of any other power.
These blessings and countless others are intrusted to your care and mine for safe-keeping, for the brief period of our tenure of office. In a short time we must, each of us. return to the ranks of the people who have conferred upon us our honors, and account to them for our stewardship. I earnestly desire that neither you nor I may be condemned by a free and enlightened constituency, nor by our own consciences.
Emerging from a rebellion of gigantic magnitude, aided as it was by the sympathies and assistance of nations with which we were at peace, eleven States of the Union were four years ago left without legal State governments. A national debt had been contracted; American commerce was almost driven from the seas; the industry of one-half of the country had been taken from the control of the capitalist and placed where all labor rightfully belongs—in the keeping of the laborer. The work of restoring State governments loyal to the Union, of protecting and fostering free labor, and providing means for paying the interest on the public debt, has received ample attention from Congress. Although your efforts have not met with the success in all particulars that might have been desired, yet, on the
whole, they have been more successful than could have been reasonably anticipated.
Seven States which passed ordinances of secession have been fully restored to their places in the Union. The eighth, Georgia, held an election at which she ratified her constitution, republican in form, elected a governor, members of Congress, a State legislature, and all other officers required. The governor was duly installed and the legislature met and performed all the acta then required of them by the reconstruction acts of Congress. Subsequently, however, in violation of the constitution which they had just ratified, (as since decided by the supreme court of the State,) they unseated the colored members of the legislature and admitted to seats some members who are disqualified by the third clause of the XlVth amendment to the Constitution, an article which they themselves had contributed to ratify. Under these circumstances, I would submit to you whether it would not be wise, without delay, to enact a law authorizing the governor of Georgia to convene the members originally elected to the legislature, requiring each member to take the oath prescribed by the reconstruction acts, and none to be admitted who are ineligible under the third clause of the XlVth amendment.
The freedmen, under the protection which they have received, are making rapid progress in learning, and no complaints are heard of lack of industry on their part where they receive fair remuneration for their labor. The means provided for paying the interest on the public debt, with all other expenses of government, are more than ample. The loss of our commerce is the only result of the late rebellion which has not received sufficient attention from you. To this subject I call your earnest attention. I will not now suggest plans by which this object may be effected, but will, if necessary, make it the subject of a special message during the session of Congress.
At the March term, Congress by joint resolution authorized the Executive to order elections in the States of Virginia, Mississippi, and Texas, to submit to them the constitutions which each had previously, in convention, framed, and submit the constitutions, either entire or in separate parts, to be voted upon at the discretion of the Executive. Under this authority elections were called. In Virginia the election took place on the 6th of July, 1869. The governor and lieutenant governor elected have been installed. The legislature met and did all required by this resolution and by all the reconstruction acts of Congress, and abstained from all doubtful authority. I recommend that her senators and representatives be promptly admitted to their seats,