Page images
PDF
EPUB

of stock was not made in the manner prescribed by sections 3609 and 3610, Pol. Code, the specific allegations in support of such general allegations show that the various provisions of those sections were fully complied with, and that if the assessment be invalid, it is so solely because those sections provide a method of assessment and taxation for national bank shares, the effect of which, in its practical execution, is to discriminate in favor of state banks and other state moneyed corporations, and against national banks.

With one exception, all contentions made by learned counsel for plaintiff against the legality of the method thus adopted by the state of California for the taxation of national bank shares, appear to have been already disposed of adversely to him by the Supreme Court of the United States in the opinion delivered in the case of San Francisco Nat. Bank v. Dodge, Assessor, supra, wherein the views expressed by the Circuit Court of Appeals for the Ninth Circuit as to similar contentions in another case (Nevada Nat. Bank v. Dodge, 119 Fed. 57, 56 C. C. A. 145) were approved. It should be noted in passing that this is the first case that has come to this court, involving any question as to the valid ity of sections 3609 and 3610 of the Political Code, the cases above referred to having been instituted in the federal courts. It was specially pointed out by the United States Supreme Court in the San Francisco National Bank Case above referred to, following Davenport Nat'l Bank v. Board of Equalization, 123 U. S. 83, 8 Sup. Ct. 73, 31 L. Ed. 94, that the mere fact that, under the laws of this state, shares of stock in state banks and other state moneyed corporations are not permitted to be assessed and taxed, was not sufficient to show in a statute requiring the assessment and taxation of national bank shares, any discrimination against national banks, provided a different method adopted by the state for the assessment and taxation of the property of such state corporations, accomplished the inclusion in the assessment of the property of such corporations of all those elements which are embraced in the assessment of shares of stock in national banks to the holders thereof. It was said by the Supreme Court of the United States in the Davenport Case cited above, upholding a statute of the state of Iowa providing for the taxation on national bank shares, where no such assessment was allowable in case of a savings bank, the property of which was assessed directly to the corporation: "It is strongly urged that in no other mode than by taxing the stockholders of each and of all the banks can a perfect equality of taxation be obtained. * * It has never been held by this court that the state should abandon systems of taxation of their own banks, or of money in the hands of their other corporations, which they may think the most

wise and efficient modes of taxing their own corporate organizations, in order to make that taxation conform to the system of taxing the national banks upon the shares of their stock in the hands of their owners. All that has ever been held to be necessary is that the system of state taxation of its own citizens, of its own banks, and of its own corporations shall not work a discrimination unfavorable to the holders of the shares of the national banks. Nor does the act of Congress require anything more than this; neither the language nor its purpose can be construed to go any further. Within these limits, the manner of assessing and collecting all taxes by the states is uncontrolled by the act of Congress." Citing this case, upon this point, the Supreme Court said in the Dodge Case: "As, then, no conflict necessarily arises between the act of Congress and the state law solely because the latter provides one method for taxation of state banks and other moneyed corporations and another method for national banks, it follows that the contention that the state law, for that reason, is repugnant to the act of Congress is without merit." In the Dodge Case, however, it was held by the United States Supreme Court (four of the justices dissenting) that the California law relative to the assessment of the property of corporations, as construed by the California Supreme Court, does not compel the assessing officers in the valuation of the property of such corporations, to include all those elements of value which are embraced in the assessment of shares of stock in national banks, and that, for this reason, and the additional reason, held to have been shown by the record in that case, that assessors generally in their assessment of state corporations had failed to include all such elements, the law requiring the assessment of national bank shares at their full cash value to the holders thereof is, both by its terms and in its practical execution, a discrimination in favor of other moneyed capital against national banks, forbidden by the act of Congress which authorizes the assessment and taxation of such shares.

It is claimed that the decision of the Supreme Court in the Dodge Case effectually determines for all time the question as to the validity or invalidity of our existing statute relative to the assessment of national bank shares. But we do not so understand the majority opinion in that case, or the effect of the decision rendered. It, doubtless, effectually disposed of the assessments involved in that case. Its decision to the effect that our statute relative to the assessment of national bank shares cannot be enforced, so long as our laws relative to the assessment of state corporations are construed by this court not to require the assessment officers to include in the assessment of such corporations all of those elements of value which are embraced in

[ocr errors]

an assessment of national bank shares, so as to produce equality of taxation as respects national banks, is, also, undoubtedly a decision upon a federal question, binding upon us. It may also be conceded that upon a showing in any case of such facts as were held to be shown by the record in the Dodge Case, as to the practical application of the law relative to state corporations by assessors generally, we would be compelled to follow the decision in the Dodge Case, and hold the assessment complained of void. But throughout the opinion in that case, the Supreme Court recognized the rule repeatedly declared by it to the effect that in the interpretation of the Constitution and statutes of a state, the construction placed upon them by the court of last resort of such state is conclusive and binding upon the Supreme Court of the United States and all federal courts (see Smiley v. Kansas, 196 U. S. 447, 25 Sup. Ct. 289, 49 L. Ed. 546), and that opinion ended as follows: "Our conclusion, therefore, does not deny the power of the state of California to assess shares of stock in national banks, provided only the method adopted does not produce the discrimination prohibited by the act of Congress. From this, of course, it would follow that, if the statutes of California, either from their text or as strued by the highest court of that state, compelled the assessing officers in the valuation of the property of state banks and other state moneyed corporations to include all those elements of value which are embraced in the assessment of shares of stock in national banks, so that there would be an equality of taxation as respects national banks, the discrimination which we find to exist under the present state of the law in California would disappear." (The italics are ours.) Surely it cannot be contended that this court is precluded by anything decided by the United States Supreme Court in the Dodge Case from now holding that, under the constitutional and statutory provisions of this state, and the decisions of this court construing the same, the assessing officers are compelled, in their valuation of the property of state banks and other state moneyed corporations for purposes of assessment, to include all those elements of value which would be embraced in an assessment of the shares of stock therein. Whether or not this is the proper construction of our revenue laws is a question as to which this is the court of last resort. While the views expressed on that question in the majority opinion of the Supreme Court necessarily merit the respect and careful consideration due to every expression of that justly distinguished tribunal, this court is not compelled, or, indeed, at liberty, to follow it, if it is of the opinion that such views are erroneous. Addressing ourselves to this question:

v.

The portion of the majority opinion in the Dodge Case last quoted recognizes that a state is at liberty to adopt a method for the assessment of state corporations, under which all those elements of value which are embraced in an assessment of the shares of stock would be required to be included in an assessment of the property of the corporation to the corporation. Such was the method upheld by the Supreme Court of the United States in the Adams Express Co. Cases (Adams (Adams Express Co. V. Ohio State Auditor, 165 U. S. 194, 17 Sup. Ct. 305, 41 L. Ed. 683; Id., 166 U. S. 185, 17 Sup. Ct. 604, 41 L. Ed. 965; Weir v. Norman, 166 U. S. 171, 17 Sup. Ct. 527, 41 L. Ed. 960), and in the State R. R. Tax Cases, 92 U. S. 575, 23 L. Ed. 663. See, also, Michigan Central R. R. Co. v. Powers, (U. S.) 26 Sup. Ct. 459-462, 50 L. Ed. 744. Unless we are now prepared to repudiate the doctrine of the case of People ex rel. Burke v. Badlam, 57 Cal. 594, and hold that section 3608 of the Political Code, prohibiting any assessment of shares of stock of state corporations is unconstitutional, it must be held that such has been the method or system provided by our laws for the assessment of state corporations, for the last 25 years. That this must necessarily be so, will clearly appear from a consideration of the provision of our Constitution declaring what property shall be taxed, the legislation thereunder, and the decision above referred to. Section 1 of article 13 of the Constitution adopted in 1879 was, so far as is material in this connection, as follows: "All property in the state, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law. The word 'property,' as used in this article and section, is hereby declared to include moneys, credits, bonds, stocks, dues, franchises, and all other matters and things, real, personal and mixed, capable of private private ownership. * *" No amend

ment of this portion of the section has ever been made. The section, as originally adopted, contained a proviso exempting growing crops, property used exclusively for public schools, and such as may belong to the United States, this state, or to any county, or municipal corporation within this state. The section has been amended to include among the exemptions, property used for free public libraries and free museums. Other sections have been added exempting certain property such as buildings used solely for religious worship, state, county and municipal corporation bonds, personal property of a householder to the extent of $100.00, and fruit and nut bearing trees under the age of four years and grape vines under the age of three years, none of which changes is material to the question here under consideration, except in so far as such changes emphasize the fact that it has always been

[ocr errors]

recognized that nothing capable of private ownership can be exempted from taxation, unless it be specifically declared to be exempt by constitutional provision. There has never been any question as to the effect of this mandatory provision of our Constitution. The definition of property required to be taxed in proportion to its value was so sweeping and comprehensive that it has uniformly been held that it included everything capable of private ownership, and that the provision placed it beyond the power of the Legislature to exempt from taxation either totally or partially anything capable of private ownership, not exempted by the Constitution itself. This, of course, is so clear as to property specifically mentioned in the provision, such as bonds, stocks, franchises, etc., as to require no argument. As said in Mackey v. San Francisco, 113 Cal. 392, 397, 45 Pac. 696: "The Constitution not only provides that all 'property' shall be taxed, but defines the word 'property' and expressly includes 'bonds' in that definition, thus placing it beyond the power of the Legislature or the courts to say that bonds are not property within the meaning and intent of the Constitution." The same is, of course, true as to shares of stock, which are also expressly included. See Bank of California v. San Francisco, 142 Cal. 276, 285, 75 Pac. 832, 64 L. R. A. 918, 100 Am. St. Rep. 130.

The taxation of all property not specifically exempted, including shares of stock, was thus required by constitutional provision. The only thing left for the legislative department to do was to provide a method for the ascertainment of the value of the property to be taxed. To this extent, the constitutional provision was not self-executing. McHenry v. Downer, 116 Cal. 20, 24, 47 Pac. 779, 45 L. R. A. 737. At its first session after the adoption of this Constitution, the Legislature, by act approved March 22, 1880, amending certain sections of the Political Code, performed its duty in this behalf. Amendments to Political Code 1880, p. 5, c. 31. Substantially re-enacting provisions of the Code in force at the time of the adoption of the Constitution, by section 3627 it was provided that "all taxable property must be assessed at its full cash value," and by section 3617 it was declared that "the terms 'value' and 'full cash value' mean the amount at which the property would be taken in payment of a just debt due from a solvent debtor." In these respects there has never been an amendment of either of these sections. Section 3627, as then enacted, contained a provision to the effect that the proportionate value of the stock of domestic corporations, for purposes of assessment and taxation, should be its "market value," deducting the value of such property assessed to the corporation "in this state, or elsewhere, of which such capital

stock is the representative," but this portion was eliminated by the amendment of 1881, of which we shall presently speak. The act also included section 3640, providing for the assessment of shares of stock, "the assessable value of each share of its stock" to be ascertained "by taking from the market value of its entire capital stock the value of all property assessed to it, and dividing the remainder by the entire number of shares into which it is divided." As was said in the majority opinion of the United States Supreme Court in the Dodge Case, the words "market value" are, and as here used were, but synonymous with the terms "value" and "full cash value," defined in section 3617, "for, eliminating exceptional and extraordinary conditions, giving an abnormal value for the moment to stock, it is apparent that the general market value of stock is its true cash value." We thus had in 1880, as we have ever since had, a mandatory constitutional provision, specifically requiring the asessment and taxation of shares of stock, and the assessment, under the statutory rule applicable to all property, then adopted and ever since in force, was to be at the "full cash value," or, "market value," as those terms have already been defined. It has several times been said, although it is so self-evident as not to require statement, that an assessment of the shares of stock as required by the Constitution would necessarily include an assessment of every element entering into and giving value to the shares. For the purposes of taxation, all such elements, tangible and intangible, were, by the Constitution, in effect declared to be property subject to taxation. As we have seen, the legislation of 1880 was entirely consistent with this constitutional provision. By the act of March 7, 1881 (see amendments to Codes 1881, p. 56, c. 53), certain changes were made by the Legislature. Section 3607, providing that all property not exempt must be taxed, was amended by the addition of a proviso to the effect that nothing in the Code should be construed to require or permit double taxation, the provisions of sections 3627 and 3640 as to the assessment of shares of stock directly were eliminated, and section 3608 was added. The last-named section was as follows: "Shares of stock in corporations possess no intrinsic value over and above the actual value of the property of the corporation which they stand for and represent, and the assessment and taxation of such shares, and also of the corporate property would be double taxation. Therefore all property belonging to corporations shall be assessed and taxed, but no assessment shall be made of shares of stock, nor shall any holder thereof be taxed therefor." This section has been amended only once, viz., in 1899, and then simply by excepting from its operation national banking associations.

It requires no argument to show that this section was in absolute defiance of the constitutional provision expressly requiring shares of stock to be taxed in proportion to their value, if its legal effect was to relieve from taxation a single element that entered into and gave value to the shares of stock. As we have seen, the effect of the constitutional provision was to render all of such elements for the purposes of taxation, property required to be taxed in proportion to their value. This legislation could be sustained as a valid exercise of legislative power only upon the theory that, under our laws, all of these elements constituted, for the purposes of taxation, property "belonging to the corporation," which must be included in the assessment of the property of the corporation. Upon this theory, section 3608 was upheld by this court in the case of People ex rel. Burke v. Badlam, 57 Cal. 594, generally known as "Burke v. Badlam." The court there had under consideration an application for a writ of mandate to compel the assessor of the city and county of San Francisco to assess shares of stock in various corporations, to the holders thereof, and to assess to depositors in savings banks the sums deposited by them. So far as the first proposition was concerned, the proceeding was brought to determine the validity of section 3608, which was claimed by the applicant to be in conflict with the constitutional provision requiring stocks to be taxed. The case was most elaborately argued by eminent counsel, and the decision is clear and direct upon the question here under discussion. The opinion was written by Mr. Justice Ross, and signed by Justices Sharpstein, McKee, and Thornton, and Justices McKinstry and Myrick specially concurred in the views of the majority upon the point we are considering. It was held therein that the language of the Constitution neither required nor permitted double taxation-that the Legislature had the right thereunder to say, and had said by section 3608, that all of the property of the corporation should be assessed to the corporation and should not again be assessed for the same tax-that the property of the corporation included its franchise and everything else evidenced by the certificates of stock; that while the share of each stockholder was undoubtedly property, it was an interest in the very property held by the corporation, "his right to a proportionate share of the dividends and other property of the corporation, nothing more" -and that when all the property of the corporation, including its franchise, was assessed, which it was to be presumed would be done by the assessor in obedience to the requirements of the law, any further assessment of the shares to the individual stockholders would be double taxation. It was said therein, among other things: "Now,

what is the stock of a corporation but its property, consisting of its franchise and such other property as the corporation may own? Of what else does its stock consist? If all this is taken away, what remains? Obviously nothing. When, therefore, all of the property of the corporation is assessed, its franchise and all of its other property of every character-then all of the stock of the corporation is assessed, and the mandate of the Constitution is complied with. ** To assess all of the corporate property of the corporation, and also to assess to each of the stockholders the number of shares held by him, would, it is manifest. be assessing the same property twice, once in the aggregate to the corporation, the trustee of all of the stockholders, and again separately to the individual stockholders. * * * In the case of the corporation, take away all of its property, which, it must be remembered, includes its franchise, and the shareholder no longer has any property. * * * In the case of the corporations to which we have referred, the Legislature has declared that all the property held by such corporations shall be assessed to them. It has not attempted to exempt any property from taxation not exempted by the Constitution itself, and, of course, could not do it if it had. It has only said that the property shall be assessed to the corporation, and shall not be again assessed for the same tax. This it had the right to say."

As we have seen, section 3608 could be upheld as a constitutional enactment only on the theory that under it and other existing statutory provisions, everything entering into and giving value to the shares of stock was "property belonging to the corporation" to be included in the assessment of the property of the corporation. What we have said as to Burke v. Badlam shows that section 3608 was therein held to be valid upon this ground. That case has always been recognized as involving the question as to the constitutionality of that section and as decisive thereon. See Spring Valley W. W. v. Schottler, 62 Cal. 69, 115; McHenry v. Downer, 116 Cal. 20, 28, 47 Pac. 779, 782, 45 L. R. A. 737; Bank of Cal. v. San Francisco, 142 Cal. 276, 285, 75 Pac. 832, 836, 64 L. R. A. 918, 100 Am. St. Rep. 130. Of it we said in the case last cited: "This case necessarily involved the question as to the constitutionality of section 3608 of the Political Code, prohibiting the assessment of shares of stock to the holders thereof. Such shares being undoubtedly property, unless they were otherwise assessed, the section was clearly unconstitutional, in view of the provision of the Constitution requiring all property to be taxed. According to the decision of the court they were under the law to be otherwise assessed-i. e., everything to be represented by the certificates was to be assessed to the corporation." Burke v.

Badlam, supra, is the only case prior to this appeal in which the precise question here under consideration was necessarily involved. In the discussion of this question, that case nevertheless appears to have been entirely overlooked in the majority opinion of the United States Supreme Court in the Dodge Case. The views expressed in the opinion in that case have never been questioned by any later expressions of this court, and for more than 25 years the decision has stood as a construction of our statutes, to the effect that those statutes require that everything entering into and giving value to the shares of stock of a corporation shall be assessed to the corporation as property of the corporation. This construction of the statutes of California has, during all this time, been the only warrant for the enforcement of the statute prohibiting the assessment of shares of stock. In the later case of Spring Valley W. W. v. Schottler, 62 Cal. 69, 118, this court said: "But, by declaring, as was done in section 3608, that shares of stock were not to be taxed because they possessed no intrinsic value over and above the value of the property of the corporation which they stand for and represent, and as taxing of the shares and property both would be double taxation, and therefore the shares should not be assessed, but the property should, no doubt it was their intention to tax everything in the shape of property owned by the corporation; that everything entering into and giving value to the shares should be taxed. It cannot be doubted that the Legislature in acting on the subject of revenue and taxation during the session of 1881, did not intend to leave the system in relation to so important a matter in such a shape, that so large an amount of property as indicated by the difference between the market value of the shares of corporations and the value of the tangible property of such corporations, should escape taxation. To come to any other conclusion would be to impute to that body a most culpable dereliction of duty."

There is certainly nothing in the opinion in Bank of California v. San Francisco, 142 Cal. 276, 75 Pac. 832, 64 L. R. A. 918, 100 Am. St. Rep. 130, which can reasonably be construed as throwing any doubt upon the doctrine of Burke v. Badlam, supra. That was an action brought to recover taxes paid under protest, and involved simply a question as to the validity of an assessment of $750,000 upon the mere corporate franchise of a banking corporation, the plaintiff bank challenging the validity of the assessment upon the ground that it had no assessable franchise whatever. It appeared that the assessor had found that the difference between the value of the tangible property of the bank and the market value of its shares was over $2,000,000, and had determined this to be the value of the corporate franchise,

It

and had valued the franchise for purposes of assessment at the sum of $750,000. As suggested by Mr. Justice Brewer in the dissenting opinion in the Dodge Case, the state was not challenging the assessment, and the question as to whether the assessment should have been higher was not considered. Proceeding expressly upon the authority of Burke v. Badlam, supra, and Spring Valley Water Works v. Schottler, supra, it was held that such a corporate franchise was, under our laws, assessable as a part of the property of the corporation, and the assessment was sustained. It was not necessary in that case to determine whether or not all of those elements, exclusive of the tangible property of such a corporation, that give value to the shares of sock, should be assessed as "franchise," which was the assessment under consideration in that case. was enough for all the purposes of that case that the corporation had such an assessable franchise, and that the value thereof was at least a portion, if not all, of the difference between the tangible property and the aggregate market value of the shares. But upon the question as to whether the assessing officers are, under our laws, required to assess in some form, as property of the corporation, everything that gives value to the shares, no doubt whatever as to the correctness in any respect of any prior decision was expressed in the opinion, or can reasonably be implied therefrom. It was said by the dissenting justices in the Dodge Case, speaking of the construction placed by this court upon our statutes in this regard: "Obviously, that court construes them as including within the corporate property the aggregate value of all the shares of stock, and that, while they forbid the assessment and taxation of shares of stock in a state corporation, they require that all the value represented by those shares of stock be assessed and taxed against the corporation; so that, when you ascertain the value of a single share of stock, and multiply that by the number of shares in the corporation, you have the value of the corporate property subject to taxation." This appears to us to be the necessary result of our decisions upon this question. Such a construction does not, of course, require the assessment as intangible property of the value of such tangible property as is exempt from taxation under the

laws of the United States and this state.

It is urged that many elements entering into and helping to fix the market value of stock, which would be included in an assessment of the shares themselves, such as good will, dividend, or profit earning power, etc., could not be assessed by the assessing officers as property of the corporation, and if they could be so assessed, there is nothing in our law requiring the assessor to so value those things that the entire valuation of the property of the state corporation will equal the

« PreviousContinue »