First National Bank v. Peterborough.

dividends, and on the income arising from bonds of corporations. It is the only mode which, certainly and without loss, secures the payment of the tax on all the shares, resident or non-resident; and, as we have already stated it, it is the mode which experience has justified in New England States as the most convenient and proper, in regard to the numerous wealthy corporations of those States. It is not to be readily inferred, therefore, that Congress intended to prohibit this mode of collecting a tax which they expressly permitted the States to levy."

Now let us see how this reasoning applies to the case before us. By section 1, chapter 15, Laws of 1868, "all shares of the capital stock of the banks located in this State, whether private, State, or National, shall be taxed at their par value to the owners thereof, in the town in which they reside, if in this State," etc. By section 4, chapter 50, General Statutes, an act which had been in force for many years in this State when the National Bank Act was passed, "the surplus capital on hand in banking institutions shall be taxed in the towns wherein such banking institutions are located;" and to prevent the possibility of wrong from thus separating what might perhaps well enough be treated as a single interest, it is expressly provided that "no statute provisions shall be so construed as to subject any stock to double taxation." Gen. Stats., ch. 49, § 7.

It is not pretended that there is any double taxation here, nor is it claimed but that this surplus voluntarily reserved by the bank beyond what it is required by the act of Congress to retain, enhances the value of the shares just as directly as though it were actually divided and added to the shares by some act of the bank. That is, the shares represent the interest of their owners in this surplus, just as much as they do the interest of the shareholders in the capital stock and property of the bank, which is made exempt from State taxation by the Federal law. To continue, so far as might be consistent with the full operation of the new system, established by the National Legislature, a mode of taxation to which our people from long use had become accustomed, and thus provide that the great change made in the currency of the country by the National Bank Act should go into effect with as little friction as possible, our Legislature did not change the law of the State in this regard, but still continued to towns in which a bank may be situated the right to tax this surplus as property located within their corporate limits, instead of treating the surplus as an

North Ward National Bank of Newark v. City of Newark. increment to the shares, which it really is, and dividing the tax upon it among the various towns where the shares are owned. Most clearly it is a tax upon value, represented by the shares. In substance, it is a tax upon the shares and nothing else. The only difference is, that by our statute it is to be paid out of funds, the beneficial ownership of which is in the shareholders, by the hand of the bank, whereas, if it were assessed upon the shareholders individually, it would be paid by them directly without the intervention of the bank. The legal title to the money may be in the corpora tion until it is divided and handed over to the stockholders, but this legal ownership is of no higher character than that of a trustee for the owners of the shares; and, in reality, it is only by consent of the shareowners that the surplus is not distributed to them.

In National Bank v. Commonwealth it was held, as we have seen, that a tax upon shares might legally be levied directly against the bank. Is it to be held that a tax, which is in fact and to all practical intents upon shares, cannot be levied against the bank, merely because the Legislature call it by another name, and assess it upon a surplus always definite and easy to be ascertained? I think not. See Thomson v. Pacific Railroad, 9 Wall. 579; Railroad Company v. Penniston, 18 id. 5. My opinion, therefore, is, that the case is entirely within the doctrine of National Bank v. Commonwealth ; and as this is the opinion of all the members of the court, the Petition must be dismissed.

STATE, NORTH WARD NATIONAL BANK OF NEWARK, PROSECUTOR, V. CITY OF NEWARK.

(10 Vroom, 380.)

Taxation of surplus - National bank stock

How taxed in New Jersey.

The undivided surplus of a National bank if not invested in Federal securities - may be taxed against the bank, provided it is not included in assessing the value of the shares of stock in the hands of stockholders.*

A local statute providing a special method of taxing shares of stock in National banks was rendered void by a constitutional amendment providing that "property shall be assessed for taxes under general laws and by uniform rules."

* See, also, First National Bank v. Peterborough, ante, p. 658.

North Ward National Bank of Newark v. City of Newark.

By the present law of New Jersey the stock in National banks owned by nonresidents of the State is taxable in the township or ward where the bank is situated, and that owned by residents of the State is taxable in the township or ward where the owners respectively reside.

The restriction on the power of the States in the matter of taxation of National banks does not arise from the fact that they are created corporations under an act of Congress. The States may lawfully tax the property merely of a corporation created by act of Congress, in common with other property of the same description throughout the State. But to the extent that such property is invested in the securities of the Federal government, it is beyond the power of the States to tax it against the corporation, without permission of Congress, for the reason that taxation, in that respect, would be indirectly a tax upon the credit and securities of the Federal government.

N certiorari. The following state of the case was agreed upon by the counsel of the respective parties.

The North Ward National Bank of Newark, the prosecutor, is a banking association, organized under the act of Congress of the United States, having its banking-house in the city of Newark, in the county of Essex, in the State of New Jersey.

The capital of the said banking association is the sum of $250,000, and its surplus the sum of $11,000.

The stock is largely held by persons who do not reside in the city of Newark, or county of Essex, and a true list of the said stockholders, and their respective places of residence at the time of the tax assessment complained of, are contained in the return made by the defendant to the writ of certiorari.

The said banking association is assessed by the municipal authorities of the city of Newark on the whole amount of its capital stock and surplus, under and by virtue of an act of the Legislature of New Jersey, entitled "A supplement to the act entitled An act relating to the assessment and revision of taxes in the city of Newark, approved March fifteenth, one thousand eight hundred and sixty-six,'" approved April 4th, 1872.

Argued at February Term, 1877, before Justices DEPUE, VAN SYCKEL and SCUDDER.

Joseph Coult, for plaintiff in certiorari.

Henry Young, for defendant.

DEPUE, J. The restrictions on the power of the States in the

North Ward National Bank of Newark v. City of Newark.

matter of taxation of National banks do not arise from the fact that they are created corporations under an act of Congress. The exemption of a corporation, created as one of the agencies of the Federal government, from taxation by the States, is dependent not upon the nature of the agent, nor upon the mode of its constitution, but upon the effect of the tax; whether the tax does, in truth, deprive it of the power to serve the government as it was intended to serev it, or hinder the efficient exercise of its powers. A tax upon the property merely of such a corporation, having no such necessary effect, may be rightfully laid by the States. Railroad Company v. Peniston, 18 Wall. 5.

The moneyed capital of a bank is an entirely different thing from its capital stock. The former is the property of the corporation. It may consist of cash or of bills discounted, or be in part invested in real estate, or in the securities of the Federal govern

In whatever form it is invested, it is owned by the bank as a corporate entity, and not by the stockholders. The stock or shares represent the interests of the shareholders, which entitle them to participate in the net profits of the bank in the employment of its capital, and is a distinct and independent interest or property in the shareholders, held by them like other property. To the extent that the capital is invested in the securities of the Federal government, it is beyond the power of the States to tax it as against the corporation, for the reason that taxation in that instance would be indirectly a tax upon the credit and securities of the government. This distinction between the capital of a bank and its stock is pointed out by Mr. Justice MILLER in National Bank v. Commonwealth, 9 Wall. 353 (ante, p. 34), and by Mr. Justice NELSON in Van Allen v. Assessors, 3 id. 573 (ante, p. 1), as one that has been adopted by the Supreme Court of the United States in adjudicating upon the power of the States in the taxation of National banks. In McCulloch v. Maryland, 4 Wheat. 316, it was held that the Bank of the United States, which was incorporated by act of Congress, was taxable by the State of Maryland on lands which were the property of the bank, in common with other real property in the State, and that citizens of the State might also be taxed on the interest which they held in the bank, in common with other property of the same description throughout the State. The distinction is between taxation of a corporation created by or employed by the Federal government, and taxation of the instrumentalities

North Ward National Bank of Newark v. City of Newark.

or means of the government in the possession of such corporation. The States may tax banking institutions, but they cannot tax the currency or government bonds belonging to such banks. Western Union Telegraph Co. v. City of Richmond, 3 Am. Law Times (N. S.) Rep. 149; 26 Gratt. The cases are cited and commented on by Mr. Justice STRONG, in Railroad Company v. Penniston, supra, and by the court in Western Union Telegraph Co. v. City of Richmond. They fully establish the doctrine that the property merely of a corporation, created by act of Congress, may be taxed by the States, provided such taxation be not indirectly a tax upon the credit and securities of the Federal government. That this principle will apply to the undivided surplus of a National bank and to other investments of its capital, if the same be not invested in the securities of the Federal government, is apparent from the cases above cited. The States possess an inherent power of taxation of such property independently of any grant of authority by Congress.

The power of the States to tax, in the hands of stockholders, the stock of National banks, which is invested in Federal securities, rests upon different grounds. The States have no inherent powers of taxation in that respect. Whatever powers they have of taxation in that form is derived exclusively from the authority conferred by Congress. By the act of Congress of June 3, 1864 (2 Bright. Dig. 60, § 41), as amended by the act of February 10, 1868 (U. S. Stat. p. 34), the States were empowered to tax the shares of stock of National banks by including them in the valuation of the personal property of the owners in the assessment of taxes. The only restriction on this power of taxation is, that taxation thereon shall not be at any greater rate than is assessed on other moneyed capital in the hands of individual citizens of the State, and that shares owned by nonresidents of the State shall be taxed in the city or town where the bank is located. In every other respect the power of the States to impose the tax is unrestrained. It may be laid on the stock, although the capital of the bank is invested in Federal securities (National Bank v. Commonwealth, 9 Wall. 573 [ante, p. 34]); and be assessed for purposes of taxation at an amount above its par value, if such valuation is made by the State law on other moneyed capital in the assessment of taxes (Hepburn v. School Directors, 23 Wall. 480 [ante, p. 109]); and be separated from the person of the owner, and given a situs of its own for the purposes of taxation. Tappen v. Merchants' National Bank, 19 Wall. 490 (ante, p. 100). The