STATE
TAXATION
OF
NATIONAL
BANKS
The
subject
is
a
large-sounding
one,
but
because
of
a
single
fact
its
scope
is
narrow.
That
fact
is
that
without
the
permission
of
Congress
there
could
be
no
such
taxation.
The
fact
is,
there-
fore,
an
act
giving
the
permission
conditionally,
so
that
the
treat-
ment
of
the
subject
resolves
itself
into
an
examination
only
of
the
condition
and
an
ascertainment,
as
far
as
may
be,
of
its
scope
and
dimensions.
As
far
as
may
be.
This
qualification
of
the
desired
ascertain-
ment
is
made
advisedly
so
as
not
to
arouse
the
hope
of
the
student
of
the
question
that
even
in
a
majority
of
instances
he
will
be
able
to
write
after
his
solution
the
quod
erat
dernonstrandurn
of
academic
days,
which
comfortable
conclusion
he
may
reasonably
append
to
his
opinions
upon
many
problems
of
law
propounded
by
his
clients.
The
reason
is
not
far
to
seek,
for
immediately
upon
the
submission
of
the
question
as
to
whether
or
not
a
given
State
tax
upon
national
bank
shares
is
a
discrimination,
we
enter
upon
a
fog-region
of
judicial
definition,
distinction,
counter-
definition
and
dissent
in
comparison
with
which
any
twilight-zone
of
constitutional
law
loses
any
distinctive
terrors
of
uncertainty
which
it
may
have
been
thought
to
possess.
That
this
statement
is
not
exaggerated
appears
from
the
fact
that
from
a
recent
decision
of
the
Supreme
Court
holding
invalid
a
State
tax
upon
national
banks,
four
of
the
nine
members
of
the
Court
dissented,
the
minority
opinion
commencing
with
the
somewhat
unusual
assertion
that
"a
grievous
wrong"
was
done
by
the
decision
to
the
State
which
had
sought
to
impose
the
tax.
In
a
word,
it
behooves
the
judge
or
lawyer
whose
opinion
is
invoked
upon
a
case
in
point
to
sound
the
fog-horn
and
proceed
at
the
most
on
half
speed.
Coming
now
from
the
general
to
the
concrete,
we
find
that
the
only
factors
of
any
degree
of
substance
whatever
are
two
in
number
and
that
after
leaving
the
last
we
are
upon
the
open
sea.
These
are,
first,
the
proposition
above
mentioned,
that
without
the
consent
of
the
Federal
government,
a
State
may
not
impose
any
tax
upon
a
national
bank.'
"Upon
what
principle
is
the
power
of
a
State
to
tax
the
power
of
a national
bank,
without
the
consent
of
Congress,
denied?
The
'Talbott
v.
Silver
Bow
County,
139
U.
S.
438.
YALE
LAW
JOURNAL
answer
to
this
question
was
fully
given
by
Chief
Justice
Marshall
in
the
case
of
McCulloch
v.
Maryland,
4
Wh.
316;
Weston
v.
Charleston,
2
Pet.
449.
Briefly
stated,
the
argument
was
this:
Two
distinct
sovereignties,
the
State
and
the
United
States,
exer-
cise
jurisdiction
within
the
same
territorial
limits.
Each
has
the
power
of
taxation.
This
power
is
in
its
nature
absolute
and
unlimited.
Power
to
tax
is
power
to
destroy.
Given
to
the
State
the
power
to
tax
any
of
the
instrumentalities
which
the
United
States
creates
for
the
exercise
of
its
jurisdiction,
and
the
former
may
impede,
if
not
wholly
stop,
the
latter
in
the
discharge
of
its
duties
as
sovereign.
Hence,
by
necessary
implication,
the
abso-
lute
exemption
from
state
taxation
of
any
of
the
instrumental-
ities-and
among
them
are
national
banks-which
the
United
States
creates
for
the
exercise
of
its
powers
and
the
discharge
of
its
duties."
The
second
factor
is
that
the
requisite
consent
of
Congress
is
given
by
R.
S.
U.
S.,
§5219,
which
is
as
follows:
"Nothing
herein
(national
banking
act)
shall
prevent
all
the
shares
in
any
association
from
being
included
in
the
valuation
of
the
personal
property
of
the
owner
or
holder
of
such
shares,
in
assessing
taxes
imposed
by
authority
of
the
State
within
which
the
association
is
located;
but
the
legislature
of
each
State
may
determine
and
direct
the
manner
and
place
of
taxing
all
the
shares
of
national
banking
associations
located
within
the
State,
subject
only
to
the
two
restrictions,
THAT
THE
TAXATION
SHALL
NOT
BE
AT
A
GREATER
RATE
THAN
IS
ASSESSED
UPON
OTHER
MONEYED
CAPITAL
IN
THE
HAND
OF
INDIVIDUAL
CITIZENS
OF
SUCH
STATE,
and
that
the
shares
of
any
national
bank-
ing
association
owned
by
non-residents
of
any
State
shall
be
taxed
in
the
city
or
town
where
the
bank
is
located,
and
not
elsewhere.
Nothing
herein
shall
be
construed
to
exempt
the
real
property
of
associations
from
either
State,
county
or
municipal
taxes,
to
the
same
extent,
according
to
its
value,
as
other
real
property
is
taxed."
'
'The
national
banking
act
of
1864,
in
addition
to
the
restrictions
now
imposed
upon
State
taxation
of
national
bank
shares,
declared
that
"the
tax
so
imposed
tinder
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
the
authority
of
the
State
where
such
association
is
located."
In
the
reenactment
of
this
statute
in
1868
(R.
S.
U.
S.,
§5219),
the
standard
was
changed
from
State
bank
shares
to
"other
moneyed
capital,"
etc.
STATE
TAXATION
OF
NATIONAL
BANKS
151
For
the
purposes
of
this
inquiry,
only
the
first
of
these
"two
restrictions"
will
be
considered,
Congress
having
worded
its
meaning
as
to
the
second
and
as
to
the
real
estate
of
a national
bank
with
a
clearness
which
cannot
be
said
to
pervade
the
sec-
tion.
Had
its
draughtsman
been
given,
even
for
a
moment,
a
seer's
vision-could
he
have
foreseen
the
conflicting
constructions,
the
apparently
endless
succession
of
State
laws
to
be
submitted
to
his
standard,
the
reams
of
printed
matter
devoted
exclusively
to
the
discussion
of
what
he
probably
meant,
and,
most
serious
of
all,
could
he
have
foreseen
the
uncertainty
of
State
legislatures
and
taxing
officers
extending
sometimes
to
the
imperilling
and
some-
times
to
the
derangement
of
an
entire
scheme
of
State
taxation,
due
only
to
the
looseness
of
his
phraseology-it
goes
without
saying
that
he
would
surely
have
recast
the
section
and
would
have
prescribed
a
limit
of
State
taxation
which
would
have
been
a
limit
indeed
and
not
a
predicate
for
a
guessing
contest.
But
the
section
was
so
written
and
Congress
has
not
attempted
to
elucidate
its
meaning
by
amendment
since
its
passage
in
i868.
What,
then,
is
the
meaning
of
the
words,
"other
moneyed
capital
in
the
hands
of
individual
citizens"?,
On
these
few
words
hang
the
law
of
the
question
and
inci-
dentally
a
half
century
of
discussion.
It
is
not
practicable
to
present
within
the
limitations
of
a
single
article
in
a
Law
Journal
all
of
the
decisions
in
point.
We
must
content
ourselves
with
certain
of
the
leading
cases
and
endeavor
to
gather
from
them
the
law
of
the
subject
as
it
is
to-day.
In
First
National
Bank
v.
Kentucky,
9
Wall.
353,
the
basal
law
governing
the
relations
of
a
State
to
a
federal
agency
was
set
forth
with
characteristic
clearness
by
Mr.
Justice
Miller,
who,
after
mentioning
the
repeated
re-affirmations
by
the
court
of
McCulloch
v.
Maryland,
supra,
said:
"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
purpose
in
the
States,
and
it
certainly
cannot
be
maintained
that
banks
or
other
corpo-
rations
or
instrumentalities
of
the
government
are
to
be
wholly
withdrawn
from
the
operation
of
State
legislation.
*
*
*
*
They
(the
national
banks)
are
subject
to
the
laws
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,
YALE
LAW
JOURNAL
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
unconstitu-
tional.
We
do
not
see
the
remotest
probability
of
this,
in
their
being
required
to
pay
the
tax
which
their
stock-
holders
owe
to
the
State
for
the
shares
of
their
capital
stock,
when
the
law
of
the
Federal
Government
authorized
the
tax."
Accordingly
a
tax
by
the
State
of
Kentucky
upon
the
shares
of
stock
of
a
national
bank
was
pronounced
valid,
the
court
declining
to
consider
the
question
of
"other
moneyed
capital"
upon
the
ground
that
it
had
not
been
sufficiently
raised
in
the
lower
court.
The
court
held
further
that
while
a
State
cannot
tax
the
capital
of
a
national
bank,
a
tax
upon
shares
is
not
a
tax
upon
capital.
The
following
propositions
touching
"other
moneyed
capital"
appear
to
be
established
by
decisions
of
the
same
court:
First,
the
purpose
of
the
statute
was
to
protect
national
banks
from
unfriendly
discrimination
by
the
States
in
the
exercise
of
their
taxing
power-that
is,
discrimination
quoad
other
moneyed
capital.
This,
however,
applies
only
to
moneyed
capital
in
the
hands
of
individuals
and
excludes
it
in
the
hands
of
corporations."
Second,
Section
5219
does
not
forbid
discrimination
between
national
banks,
but
only
as
between
such
banks
and
State
banks
or
other
moneyed
capital
in
the
hands
of
private
individuals.'
Third,
If
State
and
national
banks
are
treated
equally
from
the
standpoint
of
assessment,
there
is
no
illegal
discrimination.
6
There
seems
to
have
been
no
attempt
at
judicial
definition
of
the
phrase
until
1886,
when
the
Supreme
Court
in
Mercantile
National
Bank
v.
New
York,
supra,--the
leading
case
in
point
to-day-
after
instancing
several
cases
of
noncompeting
moneyed
capital,
said:
"The
terms
of
the
Act
of
Congress,
therefore,
include
shares
of
stock
or
other
interests
owned
by
individuals
in
all
enterprises
in
which
the
capital
employed
in
carrying
on
its
business
is
money,
when
the
object
of
the
business
is
the
making
of
profit
by
its
use
as
money.
The
moneyed
capital
thus
employed
is
invested
for
that
purpose
in
securities
by
way
of
loan,
discount
or
otherwise,
which
are
'Adams
v.
Nashville,
95
U.
S.
19.
'Mercantile
National
Bank
v.
New
York,
121
U.
S.
138.
'Merchants
National
Bank
v.
Pennsylvania,
167
U.
S.
461.
6First
National
Bank
v.
Chapman,
173
U.
S.
205.
STATE
TAXATION
OF
NATIONAL
BANKS
153
from
time
to
time,
according
to
the
rules
of
the
business,
reduced
again
to
money
and
re-invested.
It
includes
money
in
the
hands of
individuals
employed
in
a
similar
way,
invested
in
loans
or
in securities
for
the
payment
of
money,
either
as
an
investment
of
a
permanent
character,
or
temporarily
with
a
view
to
sale
or
re-payment
and
re-investment.
In
this
way
the
moneyed capital
of
indi-
viduals
is
distinguished
from
what
is
known
generally
as
personal
property."
This
read
well,
but
as a
definition
seems
to
have proved
inade-
quate,
for
its
enunciation
was
contemporaneous
with
a
beginning
of
a
succession
of
cases
asking
a
definition
by
the
same
court
of
the
word
"similar"-"money
in
the
hands
of
individuals
employed
in
a
similar
way."
That
inquiry
has
continued
to
the
present
time,
and
the
prediction
may
safely
be
made
that it
will
and
in
the
nature
of
things
must
continue
as
long
as
our
forty-eight
States
enact
statutes
not
heretofore
substantially
passed
upon
or
until
Congress
amends
section
5219
in
such
a
manner
as
to
place
its
meaning
beyond
doubt.
"Similar."
Is
the
business
of
a
trust
company
similar
to-
note,
not
the
same
as-that
of
a
bank?
The
court
in
the
Mercan-
tile
Bank
case
holds
that
it
is
not.
It
was
claimed
for
the
bank
that
the
New
York
statute
expressly
exempted
from
taxation
in
the
hands
of
individual
citizens
numerous
kinds
of
moneyed
capital,
aggregating
more
than
one
and
a
half
billion
dollars,
while
national
and
State
bank shares
were subjected
to
taxation
upon
their
full actual
value,
less
the
real
estate
owned
by
the
bank.
The
exemptions
were
as follows:
i.
Shares
of
stock
in
the
hands of individuals
deriving
income
or
profit
from
their
capital,
or
otherwise,
not
including
trust
companies
and
State
and
National
Banks.
2.
Trust
companies
and
life
insurance
companies.
3.
Savings
banks
and
the
deposits
therein.
4.
Certain
municipal
bonds
of
the
City
of New
York.
5.
Shares
of
stock
in
corporations
created
by
States
other
than
New
York
in
the
hands
of
individual
shareholders,
residents
of New
York.
It
was
argued
that
these
exemptions
brought
the
case
within
the
first
of
the
two
restrictions
of
section
5219
and
within
the
ruling
in
Boyer
v.
Boyer,
113
U.
S.
689,
as
making the
tax
upon
shares
of
national
bank
shares
an
unfair
discrimination
against
that
class
of
property.
In
the
Boyer
case
the
court
had
held
that