People’s National Bank v. Marye, 191 U.S. 272 (1903)

People’s National Bank v. Marye

No. 24

Argued October 14, 16, 1903
Decided November 30, 1903
191 U.S. 272

APPEAL FROM THE CIRCUIT COURT OF THE UNITED

STATES FOR THE EASTERN DISTRICT OF VIRGINIA

Syllabus

This Court will follow the ruling of the highest court of a state when it has held that a state statute does not violate the constitution of that state.

While a state may only tax shares of a national bank in accordance with the federal statute, a state law which does not give the shareholders the benefit of all deductions to which they are entitled is not necessarily void altogether, but may be sustained as to the amount properly taxable.

The mere lack of a provision in a tax law for notice does not take away the jurisdiction of the taxing officer to make an assessment under any circumstances. If the tax could be imposed for a certain amount, it is not void, but, at most, voidable for the illegal amount, if any.

Where the amount of the tax which shareholders should pay if all the deductions they claimed were allowed is ascertainable, neither they nor the bank itself on their behalf can maintain an action in equity to restrain the collection of the entire tax. They should, under the rule that he who seeks the interposition of a court in equity must himself do equity, first offer to pay that part of the tax which under their contention is not illegal.

This is an appeal by the bank as complainant below from a decree of the United States Circuit Court for the Eastern District of Virginia dismissing its bill with costs. 107 F. 570.

The complainant and three other national banks in Lynchburg, Virginia, each commenced a suit in the above-named court against the auditor of public accounts of the state to restrain the collection of certain taxes assessed upon the share owners of stock in the several banks on the ground that such taxes were illegally laid. This particular complainant has brought the case here by appeal as a test case, the same questions arising in all the others.

It is insisted upon the part of complainant that the laws under which these taxes were levied are unconstitutional and void, and the prayer of the bill is that the stockholders may be relieved and discharged from all liability on account of such unpaid taxes.

The original bill, which was filed July 22, 1896, seeks to enjoin the collection of taxes upon the stock of the shareholders in the complainant bank for the years 189§ to 1895, both inclusive, and a preliminary injunction order to that effect was granted. After the filing of the original bill, and on February 10, 1900, a supplemental bill was filed by leave of the court, and it was therein sought to enjoin the collection of all taxes for the years 1891 to 1897, both inclusive.

Both bills were demurred to, and the circuit court sustained the demurrers and dismissed the bills.

It was averred in the bills that the acts of the Legislature of Virginia providing for the taxation of bank shares, both in national and state banks, were in violation of the federal Constitution, as well as that of Virginia, and were also in violation of the act of Congress, Rev.Stat. § 5219, providing for the taxation of shares of national bank stock under state authority.

The taxes referred to in the original bill were levied under the Act of Virginia passed March 6, 1890. Acts of Virginia Assembly 1890, p. 205. That act prohibited any assessment upon the capital stock of banks, either state or national, and provided for assessing the stockholders on their shares in those banks upon the market value thereof at the same rate as is assessed upon other moneyed capital in the hands of individuals residing in the state. It will be observed that this rate of assessment is the condition upon which Congress, in the section of the Revised Statutes above mentioned, permits the taxation of national banks by or under state authority.

Under this Virginia act, it was further made the duty of the banks to pay the amount of the tax, and if a bank failed to pay the same, its cashier and his sureties were made liable for the tax and twenty percentum in addition, to be recovered by the auditor of public accounts upon notice.

An assessment upon the real estate of the bank was also to be made against the bank itself for the same taxes as other real estate was assessed for. The ground of the alleged illegality of the taxes is stated to be the want of any provision for notice of time and place of valuation of the shares in arriving at market value, and the failure to provide for deducting the value of real estate from such market value, and also the failure to permit deductions for the debts of the shareholders.

The taxes spoken of in the original bill (1891-1895) were not paid, and no proceedings seem to have ever been taken to enforce their collection, under that act, against the cashier or his sureties. It might be surmised that they were not taken because of a doubt as to the constitutionality of that part of the act which provided for the liability of the cashier and his sureties, if the bank failed to pay the tax assessed upon its shareholders. However that may be, the authorities did not in fact take any proceedings to enforce the payment of the taxes until the passage of the Act of March 3, 1896. Acts of Assembly of Virginia 1898, p. 700. That act provided a procedure for the collection of the taxes theretofore assessed against the stockholders of banks and then remaining unpaid. By its provisions, the taxes were made a first lien upon the stock, no matter in whose hands found, and it was made the duty of the auditor of public accounts immediately to furnish the cashiers of banks with a list of their stockholders theretofore assessed with taxes upon their bank stock and who had not paid the same, and each bank so desiring and electing was authorized to pay to the auditor the taxes assessed upon the stock held by its stockholders, provided payment was made before the first day of July, 1896. If the bank did not choose to make such payment, it was made the duty of the auditor to give a copy of the lists to the attorney general, and it was made his duty to proceed by motion to collect the taxes from the individual stockholders. The motion was to be cognizable in the Circuit Court of Richmond city, after ten days’ notice to the stockholder, and might be served upon nonresident defendants in the mode provided by § 3208 of the Virginia Code.

By the supplemental bill the taxes for the years 1896-1897 were brought under review, and a perpetual injunction was asked to restrain the collection of all taxes from 1891 to and including 1897. The assessments for the years 1896-1897 were assessed under another act of the legislature of Virginia, which was also passed March 3, 1896. Acts General Assembly of Virginia 1895-1896, p. 726. The seventeenth section of that act provided for assessments upon the shares of state and national banks at the market value of the shares of stock held in the banks at the same rate that is assessed upon other moneyed capital in the hands of individuals residing in the state. The act provided also that the banks should make a report on the first day of February in each year in which should be given the names of the shareholders, the number of shares owned or held or controlled by each, the market value of the stock, and the shareholders’ residences, and it was then made the duty of the commissioner of revenue, on or after the first day of February in each year, to assess each stockholder upon the shares of stock held or owned by him at the market value, on the first day of February in each year, as therein stated. The section then provided for the retention of all the dividends by the bank, and for the application of the same to the payment of the tax assessed upon such stockholders, and that each bank might, if it so elected, pay the tax so assessed against the stockholders directly to the auditor of public accounts before the first day of June in each year.

Provision was then made that, if the bank failed to make such payment, the auditor of public accounts was to transmit a copy of the assessment list furnished him by the commissioner of revenue, and it was made the duty of the treasurer to collect the tax therein levied, and to that end to levy upon the stock of the taxpayer.

Other provisions were made in regard to the transferring of the stock to the purchaser at the sale upon the levy made by the treasurer, and penalties were denounced upon the bank for a refusal to comply with its provisions.

Soon after the passage of the Acts of March 3, 1896, the public authorities were about to take proceedings for the purpose of enforcing the collection and payment of the taxes for the years mentioned, and thereupon this suit was brought, and a preliminary injunction obtained restraining the collection of all taxes for those years upon the bank shares until the further order of the court.

The shareholders in these four banks in the City of Lynchburg have paid no taxes on their shares of stock in those banks since 1890.