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U.S. Supreme Court

National Bank v. Commonwealth, 76 U.S. 9 Wall. 353 353 (1869)

National Bank v. Commonwealth

76 U.S. (9 Wall.) 353


1. The right of the states to tax the shares of the national banks reaffirmed.

2. The statute of Kentucky (set forth in the statement of the case) taxing bank stock levies a tax on the shares of the stockholders, as distinguished from the capital of the bank invested in federal securities.

3. This is true although the tax is collected of the bank instead of the individual stockholders.

4. The doctrine which exempts the instrumentalities of the federal government from the influence of state legislation is not founded on any express provision of the Constitution, but in the implied necessity for the use of such instruments by the federal government.

5. It is therefore limited by the principle that state legislation which does not impair the usefulness or capability of such instruments to serve that government is not within the rule of prohibition.

6. A state law requiring the national banks to pay the tax which is rightfully laid on the shares of its stock is valid under this limitation of the doctrine.

7. On a writ of error to a state court no question will be considered here which was not called to the attention of the state court.

Page 76 U. S. 354

The act of Congress establishing the national banks, [Footnote 1] enacts:

"Section 40. That the president and cashier of every such association shall cause to be kept a correct list of the names and residences of all the shareholders in the association and the number of shares held by each, and such list shall be open to the inspection of the officers authorized to collect taxes under state authority."

"Section 41. Provided, that nothing in this act shall be construed to prevent all the shares in any of the said associations held by any person from being included in the valuation of the personalty of such person in the assessment of taxes imposed by or under state authority at the place where such bank is located, and not elsewhere, but not at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state. Provided further that the tax so imposed under the laws of any state upon the shares of any of the associations authorized by this act shall not exceed the rate imposed upon the shares of any of the banks organized under authority of the state where such association is located."

Under the act of Congress which makes these provisions, the First national Bank of Louisville was established.

A statute of Kentucky, [Footnote 2] relating to revenue and taxation, lays a tax as follows:

"On bank stock, or stock in any moneyed corporation of loan or discount, fifty cents on each share thereof equal to one hundred dollars, or on each one hundred dollars of stock therein owned by individuals, corporations, or societies."

And the same statute goes on to enact:

"The cashier of a bank whose stock is taxed shall, on the first day in July of each year, pay into the Treasury the amount of tax due. If such tax be not paid, the cashier and his sureties shall be liable for the same and twenty percent upon the

Page 76 U. S. 355

amount, and the said bank or corporation shall thereby forfeit the privileges of its charter."

Acting in professed pursuance of the state statute, the Commonwealth of Kentucky demanded payment from the said bank of $4,000, with interest, the sum which a tax of fifty cents per share on the shares of the bank gave. Payment being declined, the state sued.

The suit was brought in one of the state courts, and according to the practice of the courts of Kentucky by a petition setting forth the amount of the tax and claiming a judgment for the same. The answer, by the same mode of practice, set up four distinct defenses to the action. These were:

1. That the bank was not organized under the law of the state, but under the bank act of the United States, and was therefore not subject to state taxation.

2. That it had been selected and was acting as a depositary and financial agent of the government of the United States, and therefore was not liable to any tax whatever, either on the bank, its capital, or its shares.

3. That its entire capital was invested in securities of the government of the United States, and that its shares of stock represented but an interest in the said securities, and were therefore not subject to state taxation.

4. That the shares of the stock were the property of the individual shareholders, and that the bank could not be made responsible for a tax levied on those shares and could not be compelled to collect and pay such tax to the state.

The commonwealth demurred, and the case resulting in a judgment in its favor in the Court of Appeals, this writ of error was prosecuted by the bank.

Page 76 U. S. 358

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