FROM HILLSBOROUGH CIRCUIT COURT. By Gen. Stats., ch. 49, sec. 5, the surplus capital on hand of banking institutions is made liable to taxation, and, by ch. 50, sec. 4, it is made subject to taxation in the towns wherein such banking institutions are located. By ch. 15, sec. 1, Laws of 1868, all shares of the capital stock of banks located in this state, whether private, state, of national, are subject to be taxed at their par value to the owners thereof in the town in which they reside, if in this state; otherwise in the town where the bank is located. Under the statutes of this state, therefore, there is no question that the plaintiffs were properly taxed. The statute is explicit, that the surplus capital shall be taxed, — and it is admitted that the plaintiffs had a surplus in excess of the amount of net profits they were required by the act of congress to keep on hand, — of more than $10,000. The question, then, remains, whether the above cited statutes of this state are in conflict with the statutes of the United States.
The act of congress establishing national banks, approved June 3, 1864 — 13 Stats. at Large 111 — enacts:
"SEC. 33. That the directors of any association may, semi-annually, each year, declare a dividend of so much of the net profits of the association as they shall judge expedient; but each association shall, before the declaration of a dividend, carry one tenth of its net profits of the preceding half year to its surplus fund, until the same shall amount to twenty per centum of its capital stock."
"SEC. 40. That the president and cashier of every such association shall cause to be kept a correct list of the names and residences of all the shareholders in the association, and the number of shares held by each and such list shall be open to the inspection of the officers authorized to collect taxes under state authority.
"SEC. 41. Provided, that nothing in this act shall be construed to prevent all the shares in any of the said associations, held by any person, from being included in the valuation of the personality of such person, in the assessment of taxes imposed by or under state authority, at the place where such bank is located, and not elsewhere; but not at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state. Provided further, that the tax so imposed under 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 of any of the banks organized under authority of the state where such association is located." "Provided, also, that nothing in this act shall exempt the real estate of associations from either state, county, or municipal taxes to the same extent, according to its value, as other real estate is taxed."
The supplementary act of congress, approved February 10, 1868, defines the word "place," as used in the original act, to mean "state," *Page 40 and provides that "the legislature of each state may determine and direct the manner and place of taxing all the shares of national banks located within said state, subject to the restriction that the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state."
Provision is thus made by congress by which the shares of the stockholders in national banking associations may be taxed by authority of the states in which banks are located. No restriction is placed upon the amount of the tax that may be assessed, except that the rate shall not exceed that imposed upon similar institutions created by state authority, while the manner and place of taxing such shares is left to be determined exclusively by state legislation. Accordingly, in some states the tax is levied upon the bank itself at a certain rate per share of one hundred dollars, which has been held constitutional — National Bank v. Commonwealth, 9 Wall. 353 — the bank being regarded as the vehicle or conduit through which the taxes of the several stockholders are collected. In other states the tax is assessed to the stockholder upon the market value of his share, by which mode the owner is taxed, indirectly, for his proportionate share of the surplus of the bank, including that part of the surplus which the bank is required to set apart whenever it declares a dividend, until the amount shall equal twenty per cent. of its capital stock. The legislature of this state, however, has enacted that the owner shall be assessed only upon the par value of his stock, and the bank, as such, is made subject to taxation for the surplus capital. Can the legislature thus reach indirectly what it might do directly? There is nothing in the acts of congress that forbids it. The surplus is the exclusive property of the bank. The national government has no interest in it. It shares in none of the profits of the bank, and is responsible for none of its defaults; and it is difficult to see how the taxation of this surplus can interfere in any way with the operations of the bank as all instrument of the national government to carry its delegated powers into execution. If taxed at all, as the law of this state now stands it must be taxed as surplus. No reason is perceived why so large a sum should escape the tax which it is as able to bear, at least, as most other kinds of property. The power to tax the people and property of the several states has never been surrendered by the states to the general government. "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 United States the means of exercising its legitimate powers, into an unauthorized invasion of the rights of the states." National Bank v. Commonwealth, 9 Wall. 353.
"These banks are subject to the laws of the states, and are governed in their daily course of business far more by the laws of the state than of the Union. All their contracts are governed and construed by state *Page 41 laws. Their acquisition and transfer of property, their right to collect their debts, and their liability to be sued for debt, are all governed by state law. It is only when a state law incapacitates them from discharging their duties to the government that it becomes unconstitutional." Ib. 362.
In Bank v. Lamb, 50 N.Y. 98, it is said, — "In so far as their private business and contracts are concerned, the act does not assume to place them upon any different footing from natural persons selected by the government for the performance of some special public function, and at the same time carry on a private business on their own account. In so far as the right to carry on their private business is essential to enable them to perform any public function authorized by the constitution, such right is doubtless protected from state interference or state prohibition. But no public character, or privilege of immunity from state laws in respect of their private dealings, appears to have been conferred an them."
Again, on page 104: "These banks are created on the theory that they are agents of the government for the accomplishment of certain purpose authorized by the constitution; that, to enable them to perform their functions, it is necessary that they should have the power of transacting within the states a general banking business on their own account. It is only upon the theory that to power of transacting banking business is essential to enable them to perform their functions for the government that the granting of such a power by congress can be sustained. The power to create a corporation as an appropriate instrument for the execution of a constitutional power does not carry with it authority to confer upon that corporation unlimited privileges or immunities from state law, but only such as are necessary to enable it to effect the legitimate national objects for which it is created."
Congress, in the title to the act of 1864, expressed the leading object of the establishment of these banks to be, "to provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof." An important particular in which they differ from banks created by authority of this state is, that they are required to deposit with the treasurer of the United States a certain amount of United States bonds, upon which they receive bills or notes to an amount not exceeding 90 per cent. of the par value of the bonds deposited, which they may circulate as currency for their own benefit. "Their principal office seems to be to act as vehicles for the issue of a currency based upon the credit of the government. But the government has no concern with their business operations. The currency they issue is protected wholly independently of the result of these." Bank v. Lamb, supra, 97, 98. The accumulation of a surplus in excess of the amount required by statute is a voluntary matter on the part of the bank. It is neither forbidden nor required by the statute. Its net earnings in excess of the amount required to be set aside as a surplus fund, may be divided among the stockholders. If so *Page 42 divided, it of course becomes the absolute property of the stockholders, but until so divided their interest in the same is only contingent, but the fund, while undivided, tends to increase the market value of their sales. The neglect to divide the net earnings to the extent allowed by law can in no way defeat or obstruct or effect the object which the government had in view in the establishment of these banks. The only effect of the neglect to divide such earnings is to increase the strength and efficiency of the bank, and thereby more certainly accomplish the object of its establishment. The surplus, to the extent above named, being then a matter wholly outside the requirements of the statute, and in no why impairing or defeating the object of establishing such agencies of the national government, but having, on the contrary, rather the opposite effect, and the surplus being the exclusive property of the bank, subject to its unrestricted control, I see no reason why the state, in the exercise of a power which it never surrendered to the national government, to wit, that of taxing the polls and estates within its limits, cannot provide for the taxation of the surplus earnings of the national banks located within its borders to the extent above named. It is only doing directly what it has undoubtedly the right to do indirectly, as has before been remarked, if it should see fit to enact that the shares of such banks should be taxed at their market instead of at their par value.
In National Bank v. Commonwealth, 9 Wall. 353, it was held that the doctrine which exempts the instrumentalities of the federal government from the influence of state legislation is not founded on any express provision of the constitution, but in the implied necessity for the use of such instruments by the federal government; and that such doctrine is therefore limited by the principle that state legislation, which does not impair the usefulness or capability of such instruments to serve that government, is not within the rule of prohibition.
In Thomson v. Pacific Railroad, 9 Wall. 591, Mr. Chief Justice CHASE remarks as follows: "We fully recognize the soundness of the doctrine that no state has a `right to tax the means employed by the government of the Union for the execution of its powers.' But we think there is a clear distinction between the means employed by the government, and the property of agents employed by the government. Taxation of the agency is taxation of the means; taxation of the property of the agent is not always or generally taxation of the means.
"No one questions that the power to tax all property, business, and persons, within their respective limits, is original in the states, and has never been surrendered. It cannot be so used, indeed, as to defeat or hinder the operations of the national government; but it will be safe to conclude, in general, in reference to persons and state corporations employed in government service, that when congress has not interposed to protect their property from state taxation, such taxation is not obnoxious to that objection." Lane County v. Oregon, 7 Wall. 77.
In Railroad Company v. Peniston, 18 Wall. 33, it is said, — "It may, therefore, be considered as settled, that no constitutional implications *Page 43 prohibit a state tax upon the property of an agent of the government, merely because it is the property of such an agent. A contrary doctrine would greatly embarrass the states in the collection of their necessary revenue, without any corresponding advantage to the United States. A very large proportion of the property within the states is employed in execution of the powers of the government. It belongs to governmental agents, and it is not only used, but it is necessary for their agencies. United States mails, troops, and munitions of war are carried upon almost every railroad. Telegraph lines are employed in the national service. So are steamboats, barges, stage-coaches, foundries, shipyards, and multitudes of manufacturing establishments. They are the property of natural persons, or of corporations, who are instruments or agents of the general government, and they are the hands by which the objects of the government are attained. Were they exempt from liability to contribute to the revenue of the states, it is manifest the state governments would be paralyzed. While it is of the utmost importance that all the powers vested by the constitution of the United States in the general government should be preserved in full efficiency, and while recent events have called for the most unembarrassed exercise of many of those powers, it has never been decided that state taxation of such property is impliedly prohibited."
It seems to me to be abundantly settled, both upon authority and principle, that the states, under the existing legislation by congress, have the unquestionable right to tax the surplus earnings of national banks within their limits, to the extent attempted in the case now before us. The services which these banks render to the government are only an incident to their general business. Their operations are only accidentally, not incidentally, connected with those of the government. Their efficiency to discharge their duties is not impaired by the taxation complained of; their property only, and not their operations, is subjected to taxation; and it is eminently just and reasonable that these institutions should bear their proportion of a common burden in order that the state may throw around these institutions, as well as all others, and around all its subjects, protection to life and property.
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