First National Bank of Mendota v. Smith.

Salle county, by the First National Bank of Mendota, against the tax collector of the township of Mendota, in which the bank was situated, to restrain the collection of the taxes assessed for the year 1871, against the stockholders of the bank, upon their respective shares of stock. The defendant demurred to the bill. The court sustained the demurrer, and no amendment of the bill being proposed, it was dismissed. The complainant appealed to this

court.

The ground upon which the bill seeks to restrain the collection of these taxes is, that the taxes are levied in La Salle county against all the shareholders, while only a part of them reside in that county, and the others reside in Bureau county. The position taken is, that there is no power to levy the tax against the shareholders residing in Bureau county, because their shares must be considered as having their situs only in the county where the holders reside. Therefore the taxes, as respected all that class, were illegal and void, and being illegal and void as to them, they were likewise as to stockholders residing in the county where the bank is located, by operation of the rule of the Constitution requiring uniformity. For these reasons, and because the bank is trustee of all the stockholders, it is insisted that upon the ground of avoiding multiplicity of suits, the bill can be maintained by the bank.

The propositions upon which this bill is based, when specifically stated, are briefly these: (1) That in order to a valid tax the Legislature must have power or jurisdiction over the person or property in the county where the tax is authorized to be levied. (2) That, inasmuch as a portion of the owners resided out of the county, though in the State, and the situs of their shares was at their domicile, the Legislature was powerless to change that situs, so that there could be no jurisdiction of either the person or property in the county of the bank, and, therefore, as to all that class of owners, the tax was void. And, lastly, inasmuch as the tax was void in respect to owners of shares who did not reside in La Salle* county, the tax was likewise, under the constitutional rule of the State requiring uniformity and equality, void in respect to those who did reside in that county.

The 41st section of the act of Congress passed in 1864 expressly recognizes the right of the States to tax all shares in the stock of National banks. Notwithstanding this recognition, the right was

First National Bank of Mendota v. Smith.

soon denied by the banks; and the question first came before this court in the case of The People v. Bradley, 39 Ill. 130. It was there held that the stock was taxable, as had previously been held by the Court of Appeals in the cases of The City of Utica v. Churchill, and Van Allen v. Supervisors, 33 N. Y. 162.

In Bradley's case, as in the New York cases, the tax was levied upon the capital stock of the bank in the aggregate, and not upon the individual shareholders. These cases were taken to the Supreme Court of the United States, and reversed upon the sole ground that the tax must, under the act of Congress, be levied upon the individual shareholders. 3 Wall. 572; 4 id. 459. In this mode, it was held the shares could be taxed.

In obedience to this decision of that court, our Legislature, in 1867, passed an act requiring the taxes to be assessed upon the individual shareholders "in the county, town or district where such bank or banking association is located, and not elsewhere, whether such stockholders reside in such county, town or district or not.'

Having successfully resisted the attempt to tax the stock of the bank as a corporation, as appears by the cases referred to, it is now sought to prevent taxation of the stockholders upon their shares. This language is considerately employed, and it is believed to be not too broad; because, as will be presently seen, if the grounds now taken on behalf of the stockholders are maintainable, it will only be necessary that the stock of the various National banks in the State shall be held in the name of non-residents, in order to withdraw the shares altogether from the reach of State legislation for taxation.

Before proceeding further in this case, it should be observed, that the question involved depends entirely upon the laws of this State, and is in no manner embarrassed by any act of Congress.

The 41st section of the act of Congress above referred to, under which these banks are organized, required State taxes to be imposed "at the place where the bank is located, and not elsewhere." But by an act of February, 1868, Congress declared these words"place where such bank is located, etc.," to mean "the State in which the bank is located and not elsewhere."

This provision places the shares in such banks under the taxing power of the State wherein the bank is located, and prohibits their being subject to State taxation elsewhere. This limitation, with the further ones that the taxation imposed should not be at a greater

First National Bank of Mendota v. Smith.

rate than upon other moneyed capital in the hands of individual. citizens of the State where made; and that the tax so imposed, under the laws of any State, upon the shares of the association authorized by that act, should not exceed the rate imposed upon the shares of any of the banks organized under the authority of the State where such association is located, constitute the only limitations by Congress on the taxing power of the State where the bank is located, none of which have any application to this case. Our Legislature was therefore left at liberty to impose the same tax upon the value of shares in National banks located here, which it could upon any other moneyed capital of our citizens, and fix the situs of such shares in its discretion, unless restrained by our own Constitution. We have made this reference to the acts of Congress in order to show that the questions involved depend solely upon the laws of the State, and are in no respect embarrassed by any laws of Congress.

We will now consider the validity of the arguments urged in favor of the exemption of stockholders of such banks located within this State, from State taxation, under th act of 1867.

The counsel for appellant cite as authority the case of The Union National Bank v. The City of Chicago,* decided in 1871 in the Circuit Court of the United States fo the Northern District of Illinois. We have been furnished with a copy of the opinion delivered in that case, and have given it a very careful examination. The same question now under consideration was presented there, and was decided adversely to the right of taxation upon the same grounds which are urged by counsel for appellant in the case before us. While we have great respect for the opinion of the learned district judge who decided that case, we find ourselves unable to concur either in his reasoning upon the question or the conclusion at which he arrives.

In order that the position of the court in that case, and that of the counsel for the appellant in the case before us, may be fairly stated and understood, we quote the language of the court, whose reasoning the counsel for appellant adopt as the principal foundation for their argument.

After giving the clauses of our Stato Constitution of 1848, requiring uniformity in taxation, the opinion proceeds as follows:

*The doctrine of this case having been overruled by Tappan v. Merchants' National Bank, ante, p. 100, the case is not included in this volume.-REP.

First National Bank of Mendota v. Smith.

"And by a series of adjudications of the Supreme Court of Illinois, it has become settled law that these provisions are restrictions upon the power of taxation by the Legislature, or any authority under it. All taxes therefore assessed by municipal corporate authorities must be proportionate and uniform within the jurisdiction of the body imposing them. Where there is jurisdiction neither of the persons nor property, the imposition of a tax would be ultra vires and void. Jurisdiction is as necessary to valid legislative as to valid judicial action.

owner.

"Shares of stock are incorporeal personal property, and as such, are held incapable of having any situs save at the domicile of the In the eye of the law they have in themselves no locality. They accompany the person of the owner where he goes, and he may deal with them and dispose of them according to the law of his domicile, which, if he die intestate, governs their disposal. The act of June 13, 1867, directs taxes to be assessed by the authorities of counties, towns, cities and districts upon the shares of these banks in the county or town where the bank is located, without regard to the residence of the owner of the situs of the shares, and in that respect I regard it as a violation of the Constitution of the State.

"The complainants show, and it is not denied, that their shareholders are scattered over the State, and such taxation upon them appears to me a clear infringement of the constitutional requisition that all assessments by the corporate authorities of cities, etc., shall be uniform in respect to persons and property within their limits. This compels the taxation of the stock owned by residents of the State in the county, city, town, or district where they reside, for the purpose of collecting county, city, town, or district taxes, and a failure to do so destroys the rule of uniformity with respect to property within the limits of the body imposing the taxes, while neither the persons nor property are within the jurisdiction of the taxing power at the place of the bank's location.

"If then this statute is void as to those who do not reside in the district where the bank is located, it must be as to those who do; because it would then be undeniable that every person would not be obliged to pay a tax in proportion to the value of his or her property, and the tax for State purposes would not be levied with uniformity. And if the law be not valid as to shares of stock belonging to residents, the shares of non-residents cannot be taxed,

First National Bank of Mendota v. Smith.

because the provisions of section 41 of the act of 1864 inhibit any tax upon non-residents that is not imposed upon residents of the State, and such a regulation would be in conflict with the Federal Constitution, which says: the citizens of each State shall be entitled to all the privileges and immunities of the citizens of the several States.' I cannot avoid the conclusion that this law violates the imperative rule of the Constitution."

There are two vital points involved in the foregoing reasoning and conclusion which challenge serious attention. One is, in effect, that all shares in the stock of National banks in this State, though claiming and receiving the protection of our laws and of our State and municipal governments, will wholly escape State, county, town or district taxation if owned by non-residents of the State, and will be beyond the reach of any statute the Legislature can pass. Neither can they be taxed where the owner resides.

They will thus escape taxation anywhere, although by the act of Congress under which these banks are created, there is a clear and manifest intention that stockholders should be subject to taxation in the State where the bank is located. The reasoning is, that they cannot be taxed in this State because, by a mysterious and indissoluble tie, the situs of the shares is with the non-resident owners. They cannot be taxed where the owners live, because, by the act of Congress, they can be taxed only in the State where the bank is located.

The other point of this decision is, that if an assessor includes in his assessment certain property not legally subject to taxation, not only may the owner of such property enjoin the collection of the tax illegally imposed upon that property, but all other tax payers, though their taxes are thereby lessened in amount, may avail themselves of his grievances and enjoin the collection of taxes assessed upon their property; and this upon the theory that the addition to the assessment roll of property not subject to taxation violates the constitutional requirement of equality and uniformity. We are unable to understand how this conclusion is reached. When property subject to taxation is wholly left out of the assessment, it might be contended with much plausibility that uniformity was not attained. But even in that case this court has held that the collection of the tax cannot be restrained by equity. Merritt v. Farris, 22 Ill. 511; Schofield et al. v. Watkins et al., id. 66. City of Chicago, 55 Ill. 357,

And again, in Dunham et al. v.