People ex rel. Bank of Commerce v. Commissioners of Taxes & Assessments

By the Court, Sutherland, P. J. By § 42 of the act of April 5th, 1813, (2 R. L. of 1813, p. 521, 522,) all stock in the funds of the United States, or in any other funds, and all bank stock, or stock in any other company, was, eo nomine, taxable as part of the individual’s or person’s personal estate. The act spoke only of persons, yet it seems that the supreme court of this state decided that corporations were liable, under the act, to be taxed for property owned by them. (The People v. Utica Ins. Co., 15 John. 358. Opinion of Thompson, Ch. J. p. 382.) By § 4 of the act of April 23,1823, (Laws of 1823, p. 391,) “bank stock and all other kinds of stock” were called personal estate, or personal property; and by that section, “bank stock, and all other kinds of stock,” eo nomine, were declared subject to taxation. By § 5 of the act, taxes were to be imposed according to a valuation by the assessors of real and personal property. By § 10 it was provided, in case any perspn, not satisfied with such valuation, should make oath before the assessors, that the value of the personal estate owned by such person, did not exceed, after deducting his or her debts, and money vested in such stocks as thereinafter provided, a certain sum to be specified in the oath, or that his or her real estate was not worth more than a certain sum, &c. then the assessors were to value such real'and personal estate at the sum so specified, &c. By § 14 of the act, the amount of capital stock of incorporated companies, paid in, or secured to be paid in, is called personal property; and by that section all incorporated companies receiving a regular income from — 345 — the employment of capital were taxable on the amount of capital stock paid in, or secured to be paid in, (excepting thereout the amount vested in real estate, the amount of such stock held by the state, or by any literary or charitable institution,) as personal property. It is plain from the whole act, particularly from the sections which have been referred to, and sections 15 and 16, not only that it was the intention of the legislature, by the act, to tax corporations liable to taxation under it, on their capital, or capital stock, or the amount of their capital stock actually paid in or secured to be paid in, excepting therefrom the amount vested in real estate, &c. as personal property, irrespective of the manner in which the capital or capital stock had been, or might be employed or invested, but also, that it was the policy and intention of the legislature, by the act, instead of taxing the stockholders individually, for or upon their respective shares of or interest in the capital stock of a corporation liable to taxation on its capital, under the act, as individual, personal property, to tax such corporation by its corjmrate name, for or upon the shares of all of its stockholders, in the aggregate. This, the act in effect did, by declaring such corporation liable to taxation by name, on its capital, or the amount of its capital stock paid in, or secured to be paid in. A stock corporation may be viewed in two aspects; in the abstract, or in the concrete. Viewed in the abstract, it is an immaterial, artificial being, created by law, and deriving all its powers from law; viewed in the concrete, it is composed of its individual shareholders or stockholders. It was the policy and intention of the act of 1813, to tax such corporations, viewed in the latter aspect; it was the policy and intention of the act of 1823, to tax them, viewed in the former aspect. Under either act, the tax was upon the capital stock, or the shares of the capital stock, as personal property, and as a thing or things distinct and different from whatever the capital stock had been, or might be invested in. The revised statutes, in providing for the taxation of mon — 346 — eyed or stock corporations, adopted the principle and policy of the act of 1823. They declared public stocks, and stocks in moneyed corporations, eo nomine, to be personal estate, or personal property ; and also such portion of the capital of corporations, liable to taxation on their capital, as should not be invested in real estate. (1 R. S. 388, § 3.) They also declared that the owner or holder of stock in any incorjmrated company, liable to taxation on its capital, should not be taxed as an individual, for such stock. (1 R. S. 388, § 7.) They declared that all moneyed or stock corporations, deriving an income or profit from their capital, or otherwise, should be liable to taxation, on their capital, in the manner thereinafter prescribed. (1 R. S.414, § 1.) The provisions of the subsequent sections, (§§ 2, 6, 7, &c.) were such that, by the revised statutes, such corporations (excepting manufacturing and turnpike corporations,) were taxable on the capital stock paid in, or secured to be paid in, excepting therefrom the sums paid for real estate, and the amount of such capital stock held by the state, and by any incorporated literary or charitable institutions, as personal property, irrespective of its actual value, and of how it was invested. (The Bank of Utica v. The City of Utica, 4 Paige, 399. The People v. The Supervisors of Niagara, 4 Hill, 20. Oswego Starch Factory v. Dolloway, 21 N. Y. Rep. Opinion of Denio, J. 456. The Utica Cotton Manufacturing Company v. The Supervisors of Oneida, 1 Barb. Ch. 448.) Manufacturing and turnpike corporations, thus excepted from the general system or principle of taxing corporations, were to be taxed on the cash value of their stools, to be ascertained by the sales of the stock, or in any other manner. (1 R. S. 416, § 7.) . ‘ The act of 1853, (Laws of 1853, ch. 654,) retained the principle of taxing corporations on their capital, or the amount of their capital paid in, or secured to be paid in, after deducting the amount paid for real estate, then owned by them, &c., as personal property, irrespective of its actual value, or — 347 — of what it was invested in; but by this act they were also to be taxed for all surplus profits or reserved funds, exceeding ten per cent of their capital. The act of 1857, (Laws of 1857, ch. 456,) retained the principle of taxing corporations on their capital, or capital stock, and for surplus profits, exceeding ten per cent of their capital, but as to their capital stock, this act adopted as to all corporations liable to taxation, the principle of the revised statutes in taxing manufacturing and turnpike corporations, that is, of taxing their capital stock at its actual value. The act of 1857 declared that "the capital stock of every company liable to taxation, except such part as shall have been excepted in the assessment roll, or as shall have been exempted by law, together with its surplus profits or reserved funds exceeding ten per cent of its capital, after deducting the assessed value of its real estate, and all shares of stock in other corporations actually owned by such company, which are taxable upon their capital stock under the laws of this state, shall be assessed at its actual value, and taxed in the same manner, as the other personal and real property of the county,” The decision of the case of The People ex rel. The Bank of Commonwealth v. The Commissioners of Assessments &c. in New York, (32 Barb. 509,) depended upon the construction of this act of 1857. In that case the relator was taxed under the act, on a valuation of its capital stock, after making the deductions required by the act. A certain portion of the capital stock was invested in stocks of the United States. The question was whether the portion of the capital stock thus invested was exempt from taxation, and should also have been deducted from the total valuation of the capital stock ? It was held at a general term, in the first judicial district, that the assessment was not in form merely but in fact and principle, upon the capital stock, and not upon the property in which the capital was invested, and that the commissioners of assessments &c. were right in — 348 — refusing to deduct the portion of the capital stock vested in United States stock, from their valuation of the capital stock. On appeal to the court of appeals the judgment of the supreme court was affirmed. (See 23 N. Y. Rep. 192.) In deciding the case both at special term and at general term, the supreme court assumed that United States stocks could not be taxed by state authority. The court of appeals decided that United States stocks were taxable under the laws of this state, except when selected out for taxation with an unfriendly discrimination. In appears from the report of the case, that the judgment of the supreme court was affirmed, without passing upon the question as to the construction of the act of 1857, or, indeed, of any of the statutes referred to. It cannot be said that the court of appeals, in affirming the judgment of the supreme court on the ground on which it was affirmed, decided that taxation of capital stock, under the act of 1857, at its actual value, was to be deemed or considered as in substance and fact, taxation on the property such capital stock happened to be invested in at its actual value; in other "words, that the capital stock of a corporation, and the property it was or might be vested in was to be considered in construing the act "as one and the same thing. I think the court of appeals may be said to have decided this, and no more, to wit: that the proceedings of the commissioners were right, and that the judgment of the supreme court should be affirmed, assuming that taxation on the capital stock at its actual value under the act of 1857. was, or should be considered to be, taxation on the property such stock was or might be invested in. On writs of error to the supreme court of the United States, the decisions of the court of appeals in the case of the Bank of the Commomoealth, and in the case of the Bank of Commerce involving the same questions, and decided by the court of appeals, after the Banh of the Commonwealth case, were reviewed and reversed by the supreme court of the United" States, Judge Nelson delivering the opinion of the — 349 — court, in the case of the Bank of Commerce. (See opinion, 25 How. Pr. R. 9.) In reversing the decisions of the court of appeals, the supreme court of the United States did not pass upon the question as to the construction of the act of 1857. In my opinion, it is not necessary to inquire how far the supreme court of the United States will, from usage or otherwise, respect the decisions of the state courts on questions as to the construction of state statutes. It is sufficient to say that the supreme court of the United States in the cases referred to, did not interfere with the decision of the supreme court of this state on the question, as to the construction of the act of 1857, any more or farther than the court of appeals did. At the commencement of his opinion Judge Nelson states the question as follows: “The question involved in the case is, whether or not the stock of the United States, constituting a part or whole of the capital stock of a bank organized under the banking laws of New York, is subject to state taxation.” By putting the question in these words, I think the distinguished judge assumed or indirectly affirmed, that the words capital stock as used or contained in the tax statutes of New York, meant the property in which the capital stock was invested. I remark further, with the greatest respect, that it appears to me that the sentence above quoted from the opinion of the learned judge involves, or implies, an unusual definition of the words capital stock, when applied to stock corporations, and one not applicable to those words as used in the tax statutes of New York, as I shall hereafter make some additional suggestions to show. Certainly, if one were asked, what is the capital stock of a bank or rail road corporation P he would probably answer, so many thousands or millions of dollars, or so many shares of a certain amount; and if he were asked what the capital stock consisted of, he would probably give the same answer. If he were asked what constituted the capital stock of tl^e bank or rail road corporation, I think he would still probably give the same answer. It appears to me that he would not — 350 — think of answering that the capital stock of the rail road corporation consisted of its road and rolling stock, &c. or that of the hank corporation, of its hanking house, public stocks, discounted paper, &c. Judge Nelson, after stating the question in the case, refers to the principle of taxing the capital of banks under existing laws of New York, on a valuation like the property of individuals, as different from the principle of taxation which formerly prevailed, of taxing the amount of the nominal capital stock irrespective of the character or description of the property which constituted the capital, or of loss, or depreciation. The opinion then contains this sentence : “ But since the change of this system, it is agreed, the tax is upon the property constituting the capital.” I suppose we must understand from this that it was agreed or conceded by the counsel-who argued the case, that under the New York act of 1857, taxing the capital stock of a bank at its actual value, and not as before that act, without regard to its actual value, the tax was upon the property in which the capital stock was, or might be invested. If the counsel so agreed, and the case was argued on that theory, I do not very well see how the court, in reversing the court of appeals, could avoid assuming that, under the act of 1857, taxing the capital stock at its, actual value, the tax was to be considered to be a tax on the property in which the stock was or might be invested. It is plain then, that the supreme court of the United States, in the cases referred to, merely decided, if'the tax was on the property of the bank in which its capital stock was invested, and a portion of such property consisted of United States stock, that such portion could not be taxed by state authority—in other words, the supreme court of the United States merely affirmed or decided, what was conceded by the supreme court of this state, in the decisions of the case of the Bank of the Commonwealth, both at special and general term. From this review of the decisions of the court of appeals, and of the supreme court of the United States, it is plain, — 351 — .that the decision, of the supreme court of this state, at general term, in the case of the Bank of the Commonwealth, upon the question of the construction of the act of 1857, under which the relators in that case were assessed, was unimpaired and unaffected by those decisions. I think I might safely leave the decision of the supreme court, supported only by the express words of the act of 1857, and of the previous tax statutes, and by the able and well considered opinion of Judge Bonney, who delivered the opinion at general term; but in view of the fact that Judge Denio, whe delivered the prevailing opinion in the Bank of the Commonwealth case, in the court of appeals, expressed different views as to the construction of that act, and of the great weight, which any thing that learned and experienced judge says judicially, is justly and naturally calculated to have, and in view of the immense importance of the question, as connected with the construction of the act of April 29, 1863, (Laws of 1863, ch. 240,) under which the relator in the principal case was taxed, I will add a few suggestions in support of that decision. Judge Denio, in speaking of the provisions of the revised statutes, respecting the taxation of moneyed corporations, makes this remark: “ In substance it was the institutions which were taxed under these provisions and not the property possessed by them at the time the assessment was made.” So also, J udge Nelson, in the case of the Bank of Commerce, in speaking of the former system of taxation, says: “ The tax was like one annexed to the franchise as a royalty for the grant.” In view of the express words of the act of 1823, and of the revised statutes, taxing bank stock and all other kinds of stock, and the capital stock of all moneyed or stock corporations deriving an income or profit from their capital, with certain deductions, as personal property or personal estate, it appears to me that these remarks or suggestions of the learned judges were not authorized. The reasoning of Judge Denio appears to be this : the measure of assessment under the revised statutes, was the nominal capital originally con — 352 — tributed, without any valuation by the assessors; therefore the capital stock was not personal property, and was not taxed as such, although the statute expressly declared to the contrary; but under the act of 1857, it was the property in which the capital stock was invested that was taxable, and not the capital stock itself at its actual value, as personal property, because the act of 1857 called for a valuation. The learned judge appears to me to have assumed, that the capital stock itself was not taxable as personal property irrespective of what it was invested in, and to have thought that under the act of 1857, it was the property in which the capital stock was invested that was taxable, because the act required a valuation, although, by the express words of the act, it was the capital stock which was to be taxed at its actual value. It is plain to me, that it was the capital stock that was taxable as personal property, both under the revised statutes and the act of 1857. By the revised statutes the legislature fixed the valuation of the capital stock for the purpose of taxation, at the amount paid in and secured to be paid in; by the act of 1857, the valuation was to be made by the assessors. Does it follow, because, under the act of 1857, the assessors would have the right, or might feel it their duty, to ascertain the value of the property in which the capital stock was invested, for the purpose of making a valuation of the stock itself, that therefore the tax was not on the stock, but on the property it was invested in ? Clearly not. By the revised statutes, debts due from solvent debtors, whether on account, contract, note, bond, or mortgage, are taxable as personal property. (1 R. S. 388, § 3.) Practically, under the revised statutes and under previous tax-acts, the note, bond, or mortgage itself, was and is taxable, as a specific thing, at its value. In valuing it the responsibility of the maker of the note or bond, and the value of the real estate mortgaged, might probably be looked to; but does it follow, that the tax was or is on the property of the maker of the note or bond, or on the real estate mortgaged ? Is it extra — 353 — ordinary that the revised statutes should have adopted the principle of taxing corporations by name, for all the shares of its stockholders or members, as personal property; that is, for or upon its capital or capital stock P What is stock, or a share of stock ? The interest in a public stock or funds has been defined to be nothing but the right to receive a perpetual annuity, subject to redemption. (Wildman v. Wildman, 9 Ves. 177.) A share or interest in the capital stock of a stock bank, or other stock corporation, may be defined, as the right to a pro rata periodical dividend of all profits, and if the corporation is not immortal, a right to a pro rata distribution of all its effects, after payment of its debts, on its death. Shares of stock are generally considered to be personal property. (Bouvier’s Law Dict.; “Bank Stock;” “Stock;” Walker’s Intro. to Amer. Law, 231.) Evidenced by certificates, they are sold and transferred and speculated in as personal property. They are universally considered and treated as personal property, irrespective of what the capital or capital stock is invested in, as promissory notes, bills of exchange, and bonds and mortgages, are considered and treated as personal property, irrespective of the responsibility or property of the makers or indorsers, or of the property mortgaged. Is it extraordinary that, from commercial usage, or the usages and conveniences of society, shares of stock should come to be considered as a distinct species of personal property, representing the money they will sell for ? Is not an annuity, personal property, worth, well secured, a principal which will produce it, at 4, 5, or 6 per cent P Is not a perpetual rent property ? Have not the legislature of this state taxed rents reserved in leases in fee, or for one or more lives, or for a‘term exceeding 21 years, as personal property, at a principal sum, the interest of which, at the legal rate per annum, will produce a sum equal to such annual rents, although the land or real estate out of which the rents issue, was and continued to be, taxable ? (Laws of 1846, ch. 327.) Is it not plain that the act of 1823, and the revised statutes, in adopting the principle of taxing — 354 — corporations by name on their capital or capital stock, in substance and effect taxed their shareholders ? The taxes paid by the corporations were, and are, deducted from the dividends. Are not the shares of the stockholders personal property, distinct from the property, the capital, or capital stock is invested in ? Why, then, should not the statutes referred to, and the act of 1857, have taxed corporations by name for their capital, or capital stock, as personal property, without regard to its employment or investment ? The great and real practical question is this: if from commercial usage, or the conveniences of society, the capital or capital stock of a bank corporation has come to be treated and considered as personal property, distinct from, and independent of, the property such capital or capital stock is or may be invested in, and the legislature so caff it, and tax it,. can or ought any court to undertake to nullify this usage and sense of society and legislative declaration, by declaring that it is not, or cannot be considered to be personal property distinct from, and independent of, the property such capital or capital stock is, or may be, invested in ? If an extraordinarily prudent purchaser of stock might, or would be likely, before purchasing, to examine into the affairs of the corporation, and the character and value of its investments, or stock in trade, does that tend to show that the stock is not personal property P By the revised statutes an individual is liable to be taxed for his shares of stock in a stock corporation not liable to be taxed on its capital stock, as personal property, as for instance, in a foreign stock corporation. Will any one suggest, if A. B. is taxed for a certain number of shares in a Boston or Philadelphia ■ bank, the whole capital stock of which is invested in United States stock, that he could claim an exemption from taxation on his shares on that ground ? Suppose the deduction from the amount of the capital stock liable to taxation under the tax statutes, for the cost or value of the real estate of the corporation, had been limited to the cost or value of its real estate in this state, would a corpora — 355 — tion of this state, created for the purpose of dealing or speculating in wild lands, he exempt from taxation on its capital stock, because its whole capital was, or might be, invested in lands in the new states or territories ? In the case of The People, ex rel. Hoyt, v. The Commissioners of Taxes, (23 N. Y. Rep. 224,) the court of appeals decided that a resident of this state was not taxable for personal property actually situated in another state or country. The principle decided, would apply in all its force to domestic corporations, if the tax on their capital stock should be held to be a tax on the property it was invested in. Who can foresee the consequences of such a decision ? It is difficult for me to see how any one can or could define the words capital stock, as used in the tax laws of this state, as synonymous with the words stock in trade. A commercial or trading stock corporation, may certainly have both a capital or capital stock, and stock in trade. The court of appeals affirmed the judgment of the supreme court, in the case of the Bank of the Commonwealth, in June, 1861. On the 25th of February, 1862, congress passed an act, one section of which declared, that “all stocks, bonds and other securities of the United States,, held by individuals, corporations, or associations, shall be exempt from taxation by or under state authority.” On the 3d of March, 1863, congress passed an act providing for the issuing of certain bonds and treasury notes. By one section of this act, it was declared, that “ all the bonds and treasury notes or United States notes, issued under the provisions of this act, shall be exempt from taxation by, or under, state or municipal authority.” The supreme court of the United States reversed the decisions of the court of appeals, in the two cases of the Bank of the Commonwealth, and of the Bank of Commerce, in April, 1863. Soon after, and on the 29th day of April, 1863, the legislature of this state passed an act, the first section of which is as follows: “All banks, banking associations, and other — 356 — moneyed corporations, shall he liable, to taxation on a valuation equal to the amount of their capital stock paid in", or secured to be paid in, and their surplus (less ten per cent of such surplus) in the manner now provided by law, deducting the value of the real estate held by any such corporation or association, and taxable as real estate.” The decision of the principal case involves the construction of this act. The capital stock of the Bank of Commerce in the city of New York, the relator in the case, is $9,234,820. It was assessed under the act of 1863, on the whole amount of its capital stock, after deducting therefrom a certain amount for the cost of its real estate, and stock held by literary and charita- ■ ble institutions, although the affidavit of the cashier of the bank was presented to the commissioners, stating, that the bank then held and owned, and held and owned on the 12th day of January, 1863, stocks, bonds, and other securities of the United States, to an amount exceeding its entire capital; and that the total value of all other personal estate of the said bank did not, on the 12th day of January, 1863, and did not then, exceed the amount of debts due from said bank. The proceedings of the commissioners in the case are brought here for review, by certiorari, allowed under § 20 of the act of April 14th, 1859. (Laws of 1859, p. 678.) The act of 1863 must be presumed to have been passed with knowledge of the previous tax statutes of this state, particularly of the act of 1857, and of the decisions of the courts, as to the construction of those statutes; hence my rather elaborate review of such statutes and decisions, particularly of the act of 1857, and of the decisions relating to assessments under it. The act of 1863 must also be presumed to have been passed with knowledge of the acts of congress before referred to„ I would not be justifiable in saying that the act of 1863 was passed with the intention of evading the acts of congress and the decisions of the supreme court of the United States; but it is not to be presumed that the legislature, by the act of 1863, intended to abandon the principle of taxing. — 357 — the capital stock of corporations,' as personal property, irrespective of what it was invested in, which had prevailed in this state since the act of 1823, and which the supreme court of the state had decided to be the principle of the act of 1857, although by that act the capital stock was to be assessed at its actual value. The act of 1863 must be presumed to have been passed with some intention or for some purpose; it is not to be supposed that the legislature would pass an idle statute, without any motive or meaning. The words of the act are, “ All banks, &c. shall be liable to taxation on a valuation equal to the amount of their capital stock paid in, or secured to be paid in,” &c. The principal argument for the relator is, that the term valuation is only applicable to, or predicable of, property, and that therefore the act should be construed as if it read, “All banks, &c. shall be liable to taxation on a valuation of their property, equal,” &c. But this argument loses all its force, when you consider, what I think has been shown, that by all the tax statutes, from 1823 to the act of 1863, the capital stock of corporations liable to taxation under them, was taxable as personal property, without regard to what it was invested in. I think the act of 1863 should be construed as though it read, All banks, &c. shall be liable to taxation on a valuation of their capital stock, equal to the amount of their capital stock paid in, or secured to be paid in, &c. that is, (rejecting expletives,) on the amount of their capital stock paid in, or secured to be paid in. I think the legislature, by the act of 1863, intended to return to the principle of the revised statutes as to taxing corporations, which was, in fact, of taxing them on an amount, or for a sum equal to the amount of their Capital stock paid in and secured to be paid in, without regard, to its actual value or investment. This is the proper construction of the act, or the tax was intended to be a sort of capitation tax, on the corporation or institution itself, for the privilege of being or continuing to be a corporation. Upon either construction — 358 — of the act, the proceedings of the commissioners of taxes &c, in this case were right. It cannot be supposed, in view of the decisions of the courts, and of prior legislation which has been referred to, that the legislature intended by the act to free from taxation, not only the immense amount of corporation capital stock, that was or might be invested in United States stocks or securities, but also the unknown amount of such capital stock, which was or might be invested in goods or chattels out of the state, (see Hoyt v. The Commissioners of Taxes, supra,) when this capital stock itself had been and was being universally and constantly treated and used and looked upon as personal property, without regard to its investment. The word valuation was put in the act and the act worded as it is, probably in consequence of the principle of the valuation of the capital stock being introduced into the act of 1857, and without any very distinct idea of the effect or purport of the decisions of the courts under that act. The words “in the manner now provided by law” probably refer to the details of the assessment, mode of making out the assessment roll, of inserting the amount, &c. but if they refer to the principle of taxation, as then provided by law, they strongly confirm the construction which has been given to the act. If this construction of the act is correct, then the duty of the assessors or commissioners was probably a mere ministerial, arithmetical duty, involving no judgment or discretion, and then possibly a certiorari ought not to have been allowed under the act of 1859, before referred to. Perhaps, too, the affidavit of the cashier was not as specific and complete as it ought to have been, to show, that the whole capital stock was in fact invested in United States stocks or .securities. It maybe that the affidavit did not sufficiently rebut an inference or idea, that the bank may have used its deposits to purchase the United States stocks, &c. for the very purpose of avoiding taxation. I have not examined any of the tax statutes with reference to the point, but. I think it might be safely said that a corporation taxable — 359 — on its capital as personal property, is not entitled to a reduction of its tax on account of its debts. [New York General Term, September 21, 1863. But assuming the affidavit to have been sufficiently full, and specific, and complete, I think it safer to put my conclusion, that the proceedings of the commissioners should be affirmed, on the ground oí the construction of the act of 1863, which I have above given. Sutherland, Leonard and Allen, Justices.]