§ 86. Capital and Shares may both be Taxed.-The capital is owned by the corporation, the artificial person created by law, while the shares are owned by individuals, and although the tax upon the capital affects the value of the shares, it is not a tax on the shares. The one is a contribution demanded by the State from an artificial person, measured by its property; the other is a contribution demanded by the same authority from an individual, measured by the value of his shares in a corporation as his property. No cases illustrate these principles better than those arising under the national banking act and the act of Congress exempting United States bonds from taxation. This act provides that the shares owned in these banks may be taxed by State authority to the owners in the place where the bank is located, provided the rate does not exceed the rate imposed upon the shares in any of the banks organized under the authority of the State where such bank is located. The State of New York imposed a tax on shares in national banks in that State. It did not impose any tax on the shares of State banks eo nomine, but imposed a tax on the capital of such banks, and the question raised was whether this was a compliance with the condition attached to the act of Congress. If a tax on the capital of banks was the same in effect as a tax on the shares of the bank, then the New York act was a compliance with the condition. The court held the act void, because there was no tax on the shares of the State banks.1 Nelson, J.: "The tax on the shares is not a tax on the capital of the bank. The corporation is the legal owner of all property of the bank, real and personal; and within the powers conferred upon it by the charter, and for the purposes for which it was created, can deal with the corporate property as absolutely as a private individual cau deal with his own. The interest of the shareholder entitles him to participate in the net profits earned by the bank in the employment of its capital, during the existence of its charter, and upon its dissolution or termination, to his proportion of the property that may remain after the payment of its debts. This is a distinct, independent interest or property, held by the shareholder like any other property that may belong to him. Now it is this interest which the act of Congress has left subject to taxation by the States."". The capital of these national banks was invested in United States bonds, which were exempt from taxation, and

1 Van Allen v. Assessors, 3 Wall. 573; People v. Com'rs, 4 Wall. 244, 258; affi'g 3 Wall. 573; Bradley v. People, 4 Wall, 459.

2 Nelson, J., 3 Wall. 583, 584; s. P. 13 Wright (Penn. St.) 576; Whitesell v. Northampton Co. 49 Penn. St. 526, stock taxed to corporation and stockholders; People v. Kennedy, 35 N. Y. 423; 33 N. Y. 233.

the policy of Congress was to exempt such portion of the capital of these banks as was invested in United States bonds, but not such pôrtion as consisted of real estate, and to allow the States to tax the shares of the owners of the stock and the real estate of the bank. This policy was but the enforcement of the principles of the case of McCulloch v. State of Maryland, where the court held that the United States bank was an instrumentality of the federal government whose operations could not be taxed by the States, but whose real estate might be taxed, and that the shares of the citizens of Maryland in this bank might be taxed. The same view as to taxation of shares in national banks is taken in Maine.2 In New Jersey it is held that the State may tax the shares of bank stock in the hands of the stockholders, although the bank pays a tax on its capital. It is said that this is a second tax on the same property, and that double taxation is unequal, oppressive and unjust, but so long as it is not prohibited by any constitutional provision, the courts cannot declare such legislation void. And in Pennsylvania, where an insurance company was assessed for "money at interest," under the general tax law, on the amount of premiums invested and deposited, it was claimed that these amounts were represented by the shares of the stockholders, and that these shares were taxed to them individually, and could not be taxed again in the aggregate to the corporation, but the court held otherwise. So the dividends of a bridge company, and the surplus funds invested in mortgages and bank stock may each be taxed to their respective owners. The fact that the tax on the shares is collected from the bank, instead of directly from the stockholders, does not alter the character of the tax. This mode of requiring the officers of corporations to pay the tax on the dividends due the shareholders, or on the shares, is the one practiced in New England and some of the other States, and by Congress, and is one which experience shows to be convenient and proper.

In the work of Messrs. Angell and Ames, a contrary doctrine is asserted, and it is held that a tax upon the capital of a corporation, and a tax upon the shares of the stockholders, is double taxation and unconstitutional. The cases cited in this section do not agree with

14 Wheat. 436; Utica v. Churchill, 33 N. Y. 233, 234, 235, where the same view is expressed of McCulloch v. Maryland.

2 Stetson v. City of Bangor, 56 Maine, 274, a case well reasoned.

3 State v. Brannin, 3 Zabr. 484.

4 Fire Ins. Co. v. The County, 9 Penn. St. 413.

5 Easton Bridge v. The County, 9 Penn. St. 415. National Bank v. Commonwealth, 9 Wall. 353, 363.

'Angell and Ames on Corporations, 8th ed. §§ 460, 461.

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this doctrine, and it is submitted that the cases cited in Angell and Ames do not sustain the doctrine they assert. The Massachusetts cases do not touch the question of the power of the State to tax both capital and shares. It is the policy of that State, as indicated by its tax laws framed by its legislature, to tax manufacturing corporations for their real estate and machinery, at the place where they are situated, and the shares to the owners at their residence, at their value less that of the real estate and machinery, and the decisions of the courts are to be read in the light of this policy of the State. None of these decisions assert the proposition that the State did not have the power to tax both capital and shares. The question in Smith v. Burley was upon the construction of a statute. In the legislature there were two different policies advocated. One, called the Massachusetts policy, was to tax real estate and machinery where they were situated, and shares to the owner at his residence; the other was, to tax the whole property to the corporation in the place where the factory was situated. The effect of this decision was merely to construe the statute passed by the legislature, and to say that it was intended to carry out the latter policy, a taxation of all the property to the corporation at the place of the manufactory, and that a taxation of shares to the owners at their residence was invalid, not because the State did not have the power to tax both, but because it had adopted a different policy. It is true that the court enforce their views as to the proper construction of this statute, by the argument that taxing the shares, in addition to the capital, would be double taxation, and as an argument bearing upon the intention of the legislature, it is very forcible, for while double taxation is not void, it is unequal, and will never be presumed. The case from North Carolina was one where, in the charter of a bank, a tax of twenty-five cents was imposed on each share of stock in a bank owned by individuals, and it was stipulated that the said bank should not be liable to any further tax. The bank was assessed for its banking house in Raleigh for State and county taxes, under the general revenue laws of the State. It was held that the exemption, extended to all public dues, and that the charter was a contract by which it was agreed that the amount stipulated in the charter was in lieu of all other taxes. There was no question as to the power of the State to tax both capital and shares, but a question as to the extent of an exemption from taxation. Subsequent cases in the same State establish in express terms the opposite doctrine. A bank charter im

19 N. II. 423.

Bank of Cape Fear v. Edward, 5 Ired. 516; s. P. Bank of Cape Fear v. Deming, 7 Ired. 55.

posed a tax of twenty-five cents on each share of capital stock paid in, and a subsequent act imposed a tax of three cents on every dollar more than six dollars of net dividend, where money was invested "in stocks of any kind, or in shares of any incorporated or trading company." It was claimed that the tax upon the capital in the charter was a contract between the State and the bank, as to the amount of tax to be paid by the bank, and the subsequent tax on the dividends was an additional tax on the bank, and impaired the obligation of the contract. The court held the second tax valid, Nash, J., saying: "Bank stock, or stock owned by individuals in a bank, is a different thing from the capital stock of the bank. A tax on the first is very different from one on the latter, and the property is listed and the tax paid in a very different manner. The tax on dividends of bank stock varies of course with the amount declared by the bank and received by the stockholders. The dividends are listed for taxation, and the tax is paid by the owners of the stock to the sheriff in the county of their residence. The tax on capital stock is paid irrespective of profits, by the officers of the bank, directly into the public treasury. How a provision in a bank charter for a tax upon one only of two such different subjects of taxation, can be construed into an exemption from the other, it is difficult to conceive."1 And where the charter of a bank imposed a tax of one-fourth of one per cent. on each share of the capital paid in, and a subsequent act amending the charter imposed a tax of three-fourths of one per cent. on each share of capital paid in, and four cents on every dollar more than six dollars of dividends on a share of one hundred dollars, it was held that the tax on the capital was a price paid for the franchise, and could not be increased, but that the tax on the dividends was valid. In the language of Battle, J.: "But though the legislature cannot tax the franchise of the bank, they may tax ad libitum the dividends or profits of the individual shareholders, and the corporate property of the bank, because these are separable from the franchise, and nothing can exempt them from taxation, unless there be a special agreement to the contrary between the bank and the State." The Maryland case was that of an exemption, in these words: "The shares of the capital stock shall be deemed personal estate, and shall be exempt from the imposition of any tax or burden," and the court held that the stock in the hands of stockholders was exempt, and that it would not be presumed that the legislature intended to exempt the shares from taxa

'State v. Petway, 2 Jones' Eq. (N. C.) 396.

8 Attorney General v. Bank of Charlotte, 4 Jones' Eq. (N. C.) 287.

tion, and at the same time reserve the right to tax everything that constituted its stock. When the question is one as to the intention of the legislature, the argument that tax on capital and shares is double taxation, is one of great weight, and the intention will not be imputed unless the language is clear and explicit. This is entirely a different question from the question of the power in the legislature where the intention is clear to impose the tax on both. The case of Gordon v. Appeal Tax Court, which sustains the distinction between capital and shares, was one in which it was held that an exemption extended not only to the capital stock as an aggregate, but to the stockholders on account of their stock, because such an intention was expressed in § 11 of the charter.

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87. Capital how Taxed.-Corporations are sometimes taxed on their nominal capital, and sometimes upon its actual value. When taxed on the nominal capital, the tax is upon the whole amount paid in or secured to be paid, without reference to losses. The capital is referred to as a measure of the price to be paid for the franchise.3 And upon the same principle, accumulations from the business in excess of capital, or surplus funds on hand and undivided are not. taxed as capital.*

In New York, "All moneyed or stock corporations, deriving an income or profit from their capital, or otherwise, are liable to taxation on their capital." A mutual insurance company whose capital consisted of premiums paid in by the stockholders or members of the company, who were entitled to certificates of profit, was assessed for its capital. By the charter, no premium could be withdrawn during the continuance of the charter, and the premiums were authorized to be invested in bonds and mortgages, &c. Until the net profits of the company exceeded $100,000, no part was to be applied towards the redemption of the certificates of profit issued to the members of the company, and then only the excess above that sum. It was claimed that this was not a moneyed corporation, and that it had no capital upon which to be assessed. It was held to be a moneyed corporation, as both bank and insurance companies deal in money, and in the business of lending money. In one case the capital is

1 Mayor, &c. of Baltimore v. Baltimore & Ohio R. R. Co. 6 Gill, 289.

2 3 How. 343, 344 (Cond. U. S. 148, 149). See People v. Commissioners, 4 Wall. 259, in which this view of this case is sustained by the court.

3 Farmer's Loan & Trust Co. v. Mayor, &c. of New York, 7 Hill, 261; Gordon v. New Brunswick, 1 Halsted (N. J.) 100, but if the legislature reduces the value of the share two-fifths, the corporation will only pay on the remaining three-fifths.

People v. Supervisors of Niagara, 4 Hill, 20; Bank of Utica v. City of Utica, 4 Paige, 399; People v. Supervisors of New York, 18 Wend. 605.