In re the Appeal of the First National Bank

Bartholomew, Oh. J. In 1896 a controversy arose in Traill county between the board of county commissioners, sitting to equalize and correct assessments, and the banks doing business in the county, relative to the proper equalization of the taxes upon bank stock. As a result of this controversy the said board on the 11th day of July, 1896, passed a resolution and entered the same upon its records, which reads: “On motion all shares of bank stock was equalized to average sixty (60) per cent on capital stock.” From the decision so entered the First National Bank of Hillsboro, plaintiff herein, appealed to the district court of said county. In the district court the plaintiff was successful, and the defendant brings the case here on appeal. When the case was reached for trial in the district court the defendant appeared specially, and moved to dismiss on the ground that the court had no jurisdiction, for the reason that it appeared by the notices of appeal that it was an attempt to appeal from the board of equalization, and that the statute allowed no appeal from such board. The denial of this motion is the first point for our consideration. We think the point cannot fairly be considered open in this jurisdiction since the decision in Pierre Waterworks Co. v. Hughes County, 5 Dak. 145, 37 N. W. 733. It was squarely raised in that case, discussed with great ability by Chief Justice Tripp, and the unanimous court held that the appeal would lie. That decision has never been reversed, modified, or questioned. Then as now appeals were allowed from all decisions of the board of county commissioners from matters properly before them. Political Code of 1877, § 46, chapter 21; Revised Codes 1895, § 1927. But much learning was expended in the waterworks case in determining that the board of equalization was in fact the board of county commissioners. The statute then in force (§ 28, chap. 28, Political Code of 1877) declared: “The board of county commissioners of each county shall constitute a board of equalization for the county, and said board or a majority of the members thereof shall hold a session of not less than two days,” etc. It was contended that there were — 637 — two separate boards composed of the same persons, and that authority to appeal from decisions of the board of county commissioners did not include authority to appeal from decisions of the board of equalization. The opinion fairly met and refuted the contention; but our legislature as if to remove all doubt upon the subject has enacted that “it shall be the duty of the board of county commissioners of each county, at its regular meeting’ in July of each year, to devote the first two days, or more if necessary, of such meeting to the proper equalizing and correcting of the assessment roll in its county.” Revised Codes 1895, § 1213. That section was in full force when the tax in question was assessed and when the decision appealed from was entered. No such thing as a county board of equalization is recognized. The board of county commissioners equalize the taxes, and this they do in the same capacity in which they perform any other functions imposed upon them by law. It follows that the only ground upon which the motion to dismiss was based had no foundation in the law as it then stood. But, notwithstanding the broad language of our statute which declares that appeals may be taken from “all decisions” of the board upon matters properly before it, we must not be understood to give judicial sanction to the proposition as stated. It must have its limitations. It would not be proper for us to enter into an extended discussion as to what matters may not be appealed. We need only say that the powers of a board of county commissioners are very comprehensive and extend to all ordinary matters in which the county, as such, is interested. They are in fact executive, administrative, political, and judicial or quasi judicial. Courts have no such extended powers. They are limited to the consideration of matters purely judicial in character. See §§ 85 and 96, State Constitution. But if a party be wrongfully and unjustly taxed in violation of law (and that is what plaintiff claims in this case), then a wrong exists for which there must be a remedy in law in some form. The courts can take cognizance of it, independent of any action of the county commissioners, because it is inherently judicial in character; and being a proper subject for judicial determination, the manner in which it may be brought before the court is entirely within legislative control. It is our duty to give force to the statute so far as it comes within the Constitution; and — 638 — the facts that its enforcement may result in practical inconvenience or in delay in collecting the revenue furnish us no warrant for declaring the statute void, or limiting its operation. We. have no such power. Those matters pertain to the legislature exclusively. One further remark to avoid misapprehension. The word “decision” in the statute is not synonymous with “determination.” The board may determine upon certain proceedings in any matter properly before it, and in a general way, and about which there is no special controversy. Such a determination would not, we think, be appealable whatever might be the nature of the matter concerning which the determination was made. A decision presupposes a controversy, and to be appeal-able a decision must be upon a point concerning which some specific claim was made by the party taking the appeal, and which claim was denied, in the whole or in part, by the decision of the board. In this case it sufficiently appears that there was a controversy between the banks in Traill county and each of them, on the one hand, and the county commissioners, on the other, concerning the taxation of bank stock, the banks claiming that they were being unjustly and unlawfully taxed. This claim the hoard, by its decision, denied. The question was a judicial question. We hold that an appeal lies in this case, and this brings us to a consideration of the merits. We are concerned only in ascertaining whether or not the holders of the stock of the plaintiff bank have been unlawfully taxed. Under § 1184, Kevised Codes 1895, the bank stock is assessed against the shareholders, but the bank as agent for such shareholders is required to pay the tax. Hence the bank is the proper party plaintiff in this case. It is conceded that the capital stock of the plaintiff bank is $50,000, divided into shares of $100 each. Its surplus fund at the date of taxation was $10,000. The resolution from which the appeal was taken fixed the valuation of shares of bank stock at 60 per cent on capital stock, or for the plaintiff bank at $60 per share. The book value of the stock, as shown by capital and surplus, was $120 per share. Its actual market value is not disclosed. What evidence there is on the point tends to show that it was a larger figure. It was not therefore to the disadvantage of the stockholders to value the entire stock at' the amount of the capital stock. The evidence shows without contradiction that other moneyed capital in that taxing district was — 639 — assessed at 60 per cent of its face value. Thus far plaintiff has no just ground of complaint; nor do we understand that it woiild complain if that were all. But it is conceded that at that time the bank had invested in real estate over $43,000, and that this real estate was taxed to the bank as other real estate in the district; i. e., from 25 to 3.3 per cent of its value. Under these facts plaintiff claims that its stock is being taxed in violation of the constitutional provision requiring uniformity of taxation (see § 176, State Constitution), and also of that portion of the national banking act (§ 5219, U. S. Bev. Stat., U. S. Comp. Stat. 1901, p. 3502), which, while it permits the states to tax the stock of national banks in the hands of the shareholders, yet declares that such shares shall not be taxed higher than other moneyed capital. It is urged that the real estate owned by the bank represents so much of the capital of the bank, and, since it is taxed in its character of real estate, the amount invested therein must be deducted from the total capital of the bank, and the remainder only must he used in ascertaining the value of the stock for the purposes of taxation. To hold otherwise, it is claimed, necessarily results in taxing so much of the capital as is so invested twice, — once as real property, and once as bank stock. This argument is specious. It may be true that if the state should elect to exempt the real estate owned by a banking corporation when it required the shares of stock to be assessed at their full value, or if it should elect to deduct from the total capital the amount invested in real estate, and use the remainder as a basis for determining the value of the stock, that other taxpayers would have no legal ground of complaint on the score that either the bank or the shareholders were unduly favored. Our revenue law of 1890 expressly provided that in fixing the value of shares of bank stock the assessors should deduct from the total capital of the bank the amount legally invested in real property, and the remainder should represent the taxable value of the shares, — the real estate being taxed under the general law. There was nothing inequitable in that provision. There is nothing inequitable in a provision that permits any taxpayer to deduct from the total amount of his assets the amount of his indebtedness, and use the remainder as representing the value of his estate; and yet no taxpayer, in the absence of such a provision, has the legal right to demand such a reduction, and it does not aid him any to show that — 640 — the evidences of his indebtedness are taxed by the same authority that taxes his estate, even when it is certain that the estate must be depleted to pay the debts. Neither the debtor nor the creditor can be heard to say that it is double taxation. Yet it is perfectly apparent that if one taxpayer be indebted in an amount equal to his entire estate, and if the evidences of that indebtedness be held by his neighbor in the same taxing district, and if both the estate and the evidences of indebtedness be taxed at their full value, — and that is the theory of our law,— the aggregate amount on the assessor’s books will be double the actual, tangible wealth; and yet there is no double taxation. Why? The answer is ready in the mouth of anyone who has ever studied the rudiments of the law of taxation. Because the estate is property of one kind in the hands of one party; the evidences of indebtedness, while their value depends upon and is measured by the estate, yet they are property of another kind in the hands of another party. This argument of double taxation has frequently been made under these same circumstances in behalf of banks and the holders of shares of bank stock. It has not been allowed by the better-considered or modern cases. Its basis is untenable. It proceeds upon the theory that the bank and its shareholders are one. Counsel in this case have argued at great length, and presented an array of figures to demonstrate that the bank pays upon its shares upon a valuation largely in excess of their par value. This is all wrong. The bank does not pay a penny of taxes upon the shares except as agent for the stockholders, and for all money so paid it reimburses itself from the dividends or other property belonging to such shareholders. The shareholders pay no tax upon the real estate. That is the property of the bank. The shareholders and the bank are as distinct for purposes of taxation as separate individuals. In law the bank is an entity, — a person, — with its individual assets and its individual liabilities. Among these individual liabilities is its obligation to pay to its stockholders the face value of the shares of stock held by them. True this obligation may not mature until the bank ceases to do business; but it is no less a sacred obligation. If, then, the property of the bank be sufficient as between the creditors of the bank, the law, for reasons of public policy, makes the shareholder a deferred creditor, but he is none the less a creditor. His certificates of stock constitute the evidences of the bank’s — 641 — indebtedness to him. He cannot object that such evidence of indebtedness is taxed because the law says it shall be taxed. He cannot object that the real estate of his debtor, the bank, is taxed because the law says it shall be taxed. Taxation is the rule, exemption from taxation is the exception. He who claims exemption must be able to put his finger upon the law creating the exemption. True it is that the contract of the shareholder with the bank is such that he is entitled to share in the net profits made by the bank. It is this feature that brings his stock above par; and the value of his stock is dependent, in a measure, upon the earning capacity of the bank, or, in other words, upon the amount of net profits to be divided. Of course every item of necessary expenses paid by the bank reduces this amount, but the stockholder has no more legal right to say that the bank shall not pay its indebtedness to the state than it has to say that it shall not pay its hired clerk. In the case of Van Allen v. Assessors (Churchill v. Utica) 3 Wall. 573, 18 L. ed. 229, it is said: “The corporation is the legal owner of all the property of the bank, real and personal; and within the powers conferred upon it by the charter, and for the purposes for which it was created, can deal with the corporate property as absolutely as a private individual can deal with his own.” And again: “The interest of the shareholder entitles him to participate in the net profits earned by the bank in the employment of its capital, during the existence of its charter, in proportion to the number of his shares; and, upon its dissolution or termination, to his proportion of the property that may remain of the corporation after tlie payment of its debts. This is a distinct, independent interest or property, held by the shareholder like any other property that may belong to him. Now, it is this interest which the act of Congress has left subject to taxation by the •states, under the limitations prescribed.” In that case it was held | that while the capital stock of the bank was invested in United States Í bonds that were exempt from taxation, nevertheless the shares of stock' in the hands of shareholders were subject to taxation. To same effect' is New York v. Tax & A. Comrs. 4 Wall. 244, 18 L. ed. 344 ; Palmer v. McMahon, 133 U. S. 660, 33 L. ed. 772, 10 Sup. Ct. Rep. 324. In Farrington v. Tennessee, 95 U. S. 687, 24 L. ed. 560, it is said: “The capital stock and the shares may both be taxed, and it is not — 642 — double taxation;” and many authorities are cited to support the proposition. Further, Mr. Justice Swayne enumerates in that case as taxable property in addition to the capital stock':' (1) The franchise to be a corporation, etc., citing Hamilton Mfg. Co. v. Massachusetts, 6 Wall. 632, 18 L. ed. 904 ; Wilmington & W. R. Co. v. Reid, 13 Wall. 264, 20 L. ed. 568 ; (2) accumulated earnings, State ex rel. Mutual Ben. L. Ins. Co., Prosecutors, v. Utter, 34 N. J. L. 493 ; St. Louis Mut. L. Ins. Co. v. Charles, 47 Mo. 462 ; (3) profits and dividends, Atty. Gen. v. Bank of Charlotte, 57 N. C. (4 Jones, Eq.) 287; (4) real estate belonging to the corporation and necessary for its business, Wilmington & W. R. Co. v. Reid, 13 Wall. 264, 20 L. ed. 568 ; Bank of Cape Fear v. Edwards, 27 N. C. (5 Ired. L.) 516. In Tennessee v. Whitworth, 117 U. S. 129, 29 L. ed. 830, 6 Sup. Ct. Rep. 645, Mr. Chief Justice Waite,'after referring to the national bank cases already cited, says: “In corporations four elements of taxable value are sometimes found: (1) Franchise; (2) capital stock in the hands of the corporation; (3) corporate property; and (4) shares of the capital stock in the hands of the individual stockholders.” Again, in Bank of Commerce v. Tennessee, 161 U. S. 134, 40 L. ed. 645, 16 Sup. Ct. Rep. 456, Mr. Justice Peckham says: “The capital stock of a corporation and the shares into which such stock may be divided and held by individual shareholders are two distinct pieces of property. The capital stock and the shares of stock in the hands of the shareholders ¡ may both be taxed, and it is not double taxation.” The Second Ward Sav. Bank v. Milwaukee, 94 Wis. 587, 69 N. W. 359, is identical in principle with the case at bar. The plaintiff in that case was a state bank, but it does not affect the principle. In that case the court said: “It is contended that to tax the bank upon the value of this real estate is, under the circumstances, double taxation, — first, in taxing the shares of its stockholders; and, second, in taxing the real estate of the bank, the legal owner of it. Now, the tax on the shares of stock which are owned by the stockholders is not a tax on the capital or capital stock of the bank, nor is it a tax on the real estate of the bank.” And, ¡after fully citing the authorities, the court concludes: “The objection j that the taxation complained of is double taxation, and therefore illegal, J cannot be sustained. Double taxation is defined as the ‘requirement |that one person or known subject of taxation shall directly 'contribute — 643 — twice to the same burden, while other subjects of taxation, belonging to the same class, are required to contribute but once,’ Cooley, Taxn. 2d ed. 225. Here there is diversity of person, as well as of subject ofj taxation. The shares of stock are the legal property of the stockholders, and, although the value of the stock is founded upon and dependent! upon the value of the property of the corporation, they are, neverthe-j less, a species of property altogether separate and distinct in character and ownership from the capital or property of the bank. The shareholders, as such, are not the owners of the capital or property of the bank, the title to which is vested in the bank itself. It cannot therefore be said that the case presented is one of double taxation either as to person or subject.” These authorities we regard as overwhelming, and their reasoning is very satisfactory. It follows that neither the plaintiff bank nor its shareholders were doubly or unjustly taxed. ’ The District Court is ordered to set aside its judgment and decree herein, and reinstate the resolution appealed from. Reversed.