Owensboro National Bank v. Owensboro, 173 U.S. 664 (1899)
Owensboro National Bank v. Owensboro
No. 148
Argued February 27-28, 1899
Decided April 3, 1899
173 U.S. 664
ERROR TO THE COURT OF APPEALS
OF THE STATE OF KENTUCKY
Syllabus
A State is wholly without power to levy any tax, either direct or indirect, upon national banks, their property, assets, or franchises, except when permitted so to do by the legislation of Congress.
Section 5219 of the Revised Statutes is the measure of the power of states to tax national banks, their property, or their franchises, that power being confined to a taxation of the shares of stock in the names of the shareholders, and to an assessment of the real estate of the bank.
The taxing law of the State of Kentucky, under the provisions of which the tax in controversy in this case was imposed, is beyond the authority conferred by Congress on the states, and is void for repugnancy to that act.
The tax here complained of having been assessed on the franchise or intangible property of the corporation was not within the purview of the authority conferred by the act of Congress, and was therefore illegal.
This suit was originally instituted in a court of the State of Kentucky by the plaintiff in error, the Owensboro National Bank. The relief prayed was that the City of Owensboro and its tax collector, Simmons, be perpetually restrained from enforcing the collection of alleged "franchise" taxes for the years 1893 and 1894, claimed by the defendants to have been assessed under authority of a Revenue Act of the State of Kentucky enacted November 11, 1892, as amended. The taxes in question were laid upon the amount fixed by the state board of valuation and assessment provided for in the act, which valuation equaled the combined sum of the par of the capital stock of the bank, its surplus, and undivided profits. It is admitted on the record that the avails of the bank to the amount of the valuation were invested in nontaxable bonds of the United States. Various reasons why the taxes should be declared illegal were urged in the petition and the amendments thereto. Without going into detail, all the grounds are substantially included in the following summary:
1. That the levy of the taxes in question impaired the obligation of an alleged irrevocable contract entered into in 1886 between the bank and the state, and embodied in a legislative enactment referred to as the "Hewitt Act," which contract was protected from impairment by the Constitution of the United States.
2. That the taxes complained of were unlawful because they were not laid on the shares of stock in the names of the shareholders, but were actually imposed on the property of the bank, contrary to the act of Congress.
3. That, if the taxes were not on the property of the bank, then they were imposed on its franchise or right to do business, derived from the laws of the United States, which the state was, under the law of the United States, without power to tax, either directly or indirectly.
4. That even if the taxes were otherwise valid, they were unlawful because discriminatory, inasmuch as certain state banks which were incorporated prior to the year 1856 were entitled to a low rate of taxation, resulting from charter contracts, and it was illegal to tax national banks at a higher rate than that assessed against the most favored state bank.
5. That the law under which the taxes were levied, and the modes of procedure adopted in carrying the law into effect, operated to produce inequality in taxing the property of the bank, to its disadvantage, as compared with other property within the state, contrary to the state constitution.
6. That the rate of taxation imposed by the City of Owensboro for the year 1893 was in excess of that authorized by the state constitution or laws.
7. That if the taxes complained of were considered laid not upon the capital or franchise of the bank, but upon the shares of stock in the names of the shareholders, then they were discriminatory as against shareholders who were the heads of families, as such shareholders were not permitted to deduct from the assessment against their shares an exemption authorized by a statute of the state in favor of the class of individuals referred to.
8. That if the bank could be legally taxed upon its property of any kind, it was a foreign corporation as to the State of Kentucky, and could only be taxed to the extent that its property was invested and had been earned in the City of Owensboro.
The petitions and the amendments thereto were demurred to, and an answer filed reserving the demurrers. Motions were made to dissolve a preliminary injunction which had been allowed. On these motions testimony was heard. The court dissolved the injunction and sustained the demurrers, and, the plaintiff failing to plead further, the petition and amended petitions were dismissed. On appeal the Court of Appeals of the State of Kentucky affirmed the judgment of the lower court, and the cause was then brought here for review.