owned by another national bank. However, the taxable value of such national bank shares, so held, may be deducted from the

8

value of the bank's own shares. The theory underlying these . limitations on the state taxing power is that the federal government in its own sphere possesses sovereign powers and its agencies, in this instance national banks, are immune from the potentially destructive taxation of the states."

The positive taxing powers of the states with respect to national banks also are limited. Both by statutory enactment and by judicial interpretation the real estate owned by national banks is taxable to the bank in the same degree that other real estate is taxed.10 Whether or not "real property" in Section 5219 includes the furniture and fixtures of a bank has not as yet been adjudicated by the United States Supreme Court. Since the term "real property" was substituted for "real estate" in the revision of federal laws in 1878, it is reasonable to assume that no change in meaning was contemplated. Both the practice of assessing officers and the decisions of state courts vary on this issue.

In addition to the real property of national banks, national bank shares are taxable to the stockholder. In determining the basis for the taxation of such shares, the court, from the beginning, took the position anticipated by Senator Johnson and others in the debate on the bill;11 namely, that the interest of the stockholder and that of the corporation are separate and distinct properties. Therefore, a tax on the shares is not a tax on the capital of the bank.12 Consequently, the stockholder may be taxed on the full value, and not merely a fractional part, of his interest 'Bank of Redemption v. Boston, 125 U. S. 60 (1888); Bank of California v. Richardson, 248 U. S. 476 (1919).

• Bank of California v. Richardson, 248 U. S. 476 (1919).

'McCulloch v. State of Maryland, 4 Wheaton 316 (1819).

10

Owensboro National Bank v. Owensboro, 173 U. S. 664 (1899).

therein. The court has consistently followed1 its rulings in this respect with but one exception.14

The practical significance of this principle is far reaching. The occasion for the enunciation of the rule arose out of the efforts of banks to deduct from the value of the shares the amount of their holdings of tax exempt government securities, their argument being that to tax the full value of the shares was in effect the forbidden taxation15 of the securities themselves. The court denied the validity of this contention in the Van Allen case. In view of the large holdings of government securities by national banks the permission of such deductions would nullify all share taxes.16 For similar reasons, the Federal Reserve Bank stock owned by national banks may not be deducted from the shares of national banks.17 But, as previously indicated, the taxable value of shares of national bank stock held by another national bank is deductible.18

The principle of the taxation of the full value of the stockholder's interest early led the court to the conclusion that the

13 People v. Commissioners, 4 Wall 244 (1866); National Bank v. Commonwealth, 9 Wall 353 (1869); Evansville Bank v. Britton, 105 U. S. 322 (1881); Bank of Commerce v. Tennessee, 161 U. S. 134 (1896); New Orleans v. Citizens Bank, 167 U. S. 371 (1897); Owensboro National Bank v. Owensboro, 173 U. S. 664 (1899); Cleveland Trust Company v. Lander, 184 U. S. 111 (1902); Home Savings Bank v. Des Moines, 205 U. S. 503 (1907); Peoples National Bank of Kingfisher v. Board of Equalization, 260 U. S. 702 (1922); Des Moines National Bank v. Fairweather, 263 U. S. 103 (1923).

"Bank of California v. Richardson, 248 U. S. 476 (1919). Within five years the court reaffirmed and has since maintained its original position. See Des Moines National Bank v. Fairweather, 263 U. S. 103 (1923).

16

15 Weston v. City Council of Charleston, 2 Peters 449 (1829); The Banks v. The Mayor, 7 Wall 16 (1868); Banks v. Supervisors, 7 Wall 26 (1868).

10

The book value of national bank shares on June 30, 1931, was $3,625,131,000 and these banks held $4,253,488,000 of exempt government securities.

"Des Moines National Bank v. Fairweather, 263 U. S. 103 (1923).

18

Bank of California v. Richardson, 248 U. S. 476 (1919).

66-236 O 72 pt. 3 12

shares were taxable above par value.19 This principle further implies that the states are not required by the federal statute to allow a bank to deduct the value of its real property from the value of its shares, though such is the common practice.20 Irrespective of the property in which the share capital is invested, the full value of the shares is subject to taxation if the states so require.

How may the state reach such shares? Intangibles have a way of disappearing on the day of assessment.21 Protection against such evasion by national bank stockholders is assured through assessment and collection at the source. Section forty of the National Bank Act provided that every bank shall keep a stockholders' list which shall be open to the assessing officers during business hours. Assessment at the source being made possible by statutory provision, judicial interpretation sanctioned collection at the source.22 Accordingly, the bank may be used as an agent of the stockholder to collect the tax and may reimburse itself from the dividends or other income to be distributed to the shareholder, and may bring suit in behalf of the stockholder.28 These superior administrative features insured the effective taxation of national bank shares in practically all the states in marked contrast to the evasion of a large proportion of other intangibles when subjected to the general property levy.24

19

Hepburn v. The School Directors, 23 Wall 480 (1874); People v. The Commissioners, 94 U. S. 415 (1876).

Commercial Bank v. Chambers, 182 U. S. 556 (1901); Amoskeag Savings Bank v. Purdy, 231 U. S. 373 (1913).

"Leland, op. cit., pp. 27-30, 131.

"National Bank v. Commonwealth, 9 Wall 353 (1869); Lionberger v. Rouse, 9 Wall 468 (1869); Tappan v. Merchants' National Bank, 19 Wall 490 (1873); Waite v. Dowley, 94 U. S. 527 (1876); Citizens National Bank v. Commonwealth of Kentucky, 217 U. S. 443 (1910).

"Cummings v. National Bank, 101 U. S. 153 (1879); Hills v. Exchange Bank, 105 U. S. 319 (1881); Citizens National Bank v. Commonwealth, 217 U. S. 443 (1910).

"Leland, op. cit., pp. 411 ff.

The purpose of Congress in providing these limits on the state taxation of national banks was, in the opinion of the court, to prevent the states from favoring competitors of national banks and thus discriminating against them.30 With respect to the "rate of taxation" the court has held that the phrase refers to the rate on taxable moneyed capital;31 hence the exemption of certain properties,82 such as that of schools, churches, and charitable institutions and municipal bonds,33 does not affect the rate on national bank shares.

The rate of taxation, moreover, includes the entire process of valuation and assessment.34 Discriminations may arise as a result of different rules of valuation quite as effectively as by using different percentages in computing the taxes on fixed valuations. Since the restriction in Section 5219 does not require that the state shall apply the same mode of taxation to national bank shares that it applies to other property provided no injustice, inequality, or unfriendly discrimination arises therefrom,35 the rate of taxation must refer to “the actual incidence and practical burden of the tax upon the tax payer."36 Little effort has been made to inquire into the incidence of taxation either on banks or competing moneyed capital in the cases presented to the court. For

Lionberger v. Rouse, 9 Wall 468 (1869); Adams v. Nashville, 95 U. S. 19 (1877); Boyer v. Boyer, 113 U. S. 689 (1885); Mercantile Bank v. New York, 121 U. S. 138 (1887); First National Bank of Garnett v. Ayers, 160 U. S. 660 (1896); First National Bank of Wellington v. Chapman, 173 U. S. 205 (1899); Amoskeag Bank v. Purdy, 231 U. S. 373 (1913); Bank of California v. Richardson, 248 U. S. 476 (1919); Des Moines v. Fairweather, 263 U. S. 103 (1923); First National Bank of Guthrie Center v. Anderson, 269 U. S. 341 (1926).

"People v. The Commissioner, 4 Wall 244 (1866).

82 Adams v. Nashville, 95 U. S. 19 (1877).

83

Boyer v. Boyer, 113 U. S. 689 (1885); Des Moines National Bank v. Fairweather, 263 U. S. 103 (1923).

"People v. Weaver, 100 U. S. 539 (1879).

85

Covington v. First National Bank of Covington, 198 U. S. 100 (1905); Amoskeag Savings Bank v. Purdy, 231 U. S. 373 (1913). "Amoskeag Savings Bank y. Purdy, 231 U. S. 373, 386 (1913).