50 N.E.2d 157
Nos. 29197, 29198 and 29199Supreme Court of Ohio.
Decided June 30, 1943.
Taxation — All shares of stockholders in bank to be listed at true value — Section 5408, General Code — Tax not imposed on bank by Section 5672, General Code — Section 548, Title 12, Code of Laws of United States, not violated — Tax on shares not lien on bank real estate, when — Apportionment of taxes among share owners not prerequisite to enforcing bank liability.
1. Under the provisions of Section 5408, General Code, as in effect prior to January 1, 1931, all the shares of the stockholders in an incorporated bank or banking association located in this state, incorporated or organized under the laws of this state or the United States, are required to be listed for taxation at their true value in money.
2. The provisions of Section 5672, General Code, as in effect prior to January 1, 1931, making the taxes assessed on shares of stock in a bank or banking association a lien on such shares until paid, and imposing upon such bank or banking association the duty to collect the taxes due upon its shares of stock from the owners thereof and pay the same to the treasurer of the county in which such bank or banking association is located, and imposing upon any bank or banking association failing to pay such taxes a liability by way of penalty for the gross amount of taxes due from all the owners of the shares of stock, do not impose a tax on the bank and are not violative of the provisions of Section 548 of Title 12 of the Code of Laws of the United States prescribing the manner in which taxes affecting national banks may be levied and assessed.
3. The placing of the levy of taxes on the tax duplicate against the bank instead of the respective owners of the shares of stock does not constitute the same a lien on the real estate of the bank.
4. The apportionment of the aggregate amount of taxes due on bank shares among the respective owners thereof is not a prerequisite to the enforcement of the liability of a bank to
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collect the taxes due upon its shares of stock and pay same to the treasurer of the county by the provisions of Section 5672, General Code.
CERTIFIED by the Court of Appeals of Belmont county.
These cases originated in the Court of Common Pleas of Belmont county. Each case involves taxes levied under the provisions of Sections 5672 and 5673, General Code, as those statutes existed and were in force during the years 1926 to 1930, inclusive.
In cause No. 29197, the plaintiff, appellee herein, is The Union Savings Bank of Bellaire, Ohio, a corporation organized under the laws of Ohio and doing a general banking business in the city of Bellaire. The defendants in each of these cases are the treasurer and the auditor of Belmont county.
The petition alleges that the bank delivered detailed reports of its resources and liabilities as required by law, together with the names and residences of its stockholders, the number of shares held by each, and the par value of the shares, to the auditor of Belmont county for each of the years 1928, 1929 and 1930; and that these reports showed the capital stock, surplus and undivided profits, after deducting the real estate owned by the plaintiff, to be as follows upon the dates stated:
May 11, 1928 $70,280.00 May 13, 1929 $88,050.00 June 2, 1930 $72,110.00
Plaintiff then alleges that the auditor of Belmont county attempted to impose taxes on the plaintiff for the years 1928, 1929 and 1930 on the amount of the capital stock, surplus and undivided profits, after deducting the value of all the real estate owned by it, in the following amounts:
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For the year 1928 $1,785.12 For the year 1929 $2,306.90 For the year 1930 $1,975.80
Plaintiff says that the auditor did not at any time list and assess against the owners of the shares of capital stock of plaintiff for said years, a tax or taxes upon their respective shares in any amount or amounts whatsoever, and did not at any time place upon said tax duplicates for said years the values of the shares of capital stock of plaintiff in the names of the respective owners of such shares of stock;” and that the filing of the assessment and levy in the office of the recorder of Belmont county, Ohio, for a lien against real property, constitutes a cloud on the title of all the real estate standing of record in the name of the plaintiff.
The petition further alleges that “the pretended assessment of said taxes * * * is * * * contrary to law and in violation of plaintiff’s legal and constitutional rights in that there is no statute in Ohio authorizing or permitting the auditor to make said assessments of taxes against plaintiff.”
The prayer of the petition is that the taxes assessed for these years be declared invalid; that defendants be enjoined from collecting them; and that the lien on the plaintiff’s property by reason thereof be decreed void and of no effect.
In case No. 29198, the plaintiff, appellee herein, is The Second National Bank of St. Clairsville, Ohio, a corporation organized under the national banking laws of the United States of America and doing a general banking business in the village of St. Clairsville.
It also seeks a declaration of the invalidity of the taxes and cancellations of liens against its real estate because of taxes assessed for the years 1928, 1929 and 1930 under the provisions of Sections 5672 and 5673, General Code, as they existed from 1926 to 1930, inclusive,
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and further seeks a refund of like taxes paid under protest for the years 1926 and 1927.
The averments of the petition are similar to those in cause No. 29197, with additional allegations and claims of invalidity of the statutes as violative of the provisions of Section 548 of Title 12 of the United States Code, which section provides the manner in which a state may tax a national bank.
Plaintiff claims that it is in substantial competition with the building and loan associations in Belmont county, and the taxes levied on it are at a greater rate than on other capital coming into substantial competition with the business of the plaintiff, and are also violative of Section 1 of the Fourteenth Amendment to the Constitution of the United States and Section 2 of Article XII of the Constitution of Ohio, in effect prior to January 1, 1931, because the statutes taxed the shares of national banks at their true value in money without deductions of any kind except as to real estate, while allowing deductions of the debts of the shareholders from the values of the shares of building and loan companies and associations.
Cause No. 29199 is similar to cause No. 29198, but an additional claim is made. The plaintiff is the First National Bank of St. Clairsville, a corporation organized under the national banking laws of the United States of America. It seeks relief identical with the other two plaintiffs, and a refund of taxes paid under protest for the years 1926 and 1927.
The petition alleges, as additional matter, that, subsequent to the filing of the original petitions, on March 4, 1933, the bank was refused a license to continue business as a national bank because of impairment in value and loss of its assets and a total loss of its capital, surplus and undivided profits; and that on April 6, 1933, the bank was placed in charge and control of a conservator appointed by the comptroller of the currency of the United States.
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The petition alleges the transfer of certain of its banking assets to a newly organized bank, in consideration of the assumption by the new bank of 70 per cent of the liabilities of the plaintiff to its depositors and creditors, other than its liability to shareholders as such, and other than its liability, if any, for taxes to Belmont county, Ohio; that certain of the assets of plaintiff deemed unacceptable were transferred to trustees for liquidation; that the plaintiff is insolvent; that the assets transferred to the trustees were and are insufficient to pay any part of plaintiff’s liability to its shareholders; and that by reason thereof the plaintiff cannot reimburse itself from the equity of the shareholders.
The averments of the three petitions were put in issue by similar answers, each containing numerous defenses. Chief among these defenses, beside denials of the invalidity of the statutes in question, is the claim that, since the plaintiffs paid the taxes from 1912 to 1928 without protest, they are estopped to now claim the taxes are levied upon them rather thanupon the shareholders, as there has been an established practice during these years of so recording the assessments in the name of the bank rather than the individual owners.
Issue was made by reply in cause No. 29199, and all three causes proceeded to trial together.
Upon a hearing, the Court of Common Pleas held in cause No. 29197:
“That the taxes mentioned and described therein, as they appear on the records in the office of defendant auditor and of defendant treasurer for each of the years 1928, 1929 and 1930, were not and are not imposed upon The Union Savings Bank of Bellaire, Ohio; that said taxes were and are imposed in the aggregate solely upon the shares of stock in said banking association; that said taxes are a lien on said shares;
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that said lien on said shares continues until said taxes are paid; that neither said banking association nor its shareholders is personally liable for the payment of any portion of said taxes; that said shares of stock alone are liable for the payment of said taxes to the extent of the value of said shares and of any distribution on account thereof; and that said taxes are due and payable but are not collectible unless and until the same are apportioned to the several shares and are entered on the appropriate tax lists and tax duplicates in the names of the several holders of said shares.”
The court granted an injunction against collection of the tax until it was apportioned to the shareholders on the tax duplicate and ordered cancellation of the lien against the real estate of the bank.
The Court of Common Pleas, in causes Nos. 29198 and 29199, gave identical decrees, except for difference in names, as in cause No. 29197, above quoted, but with the additional finding, as follows:
“On consideration of said pleadings and the evidence, the court find that plaintiff failed to adduce evidence tending to prove the allegations of the third amended petition that the taxes imposed on said shares for each of said years, 1928, 1929 and 1930, as alleged therein, were at a greater rate than was assessed for either of said years upon other monied capital in the hands of individual citizens or others in Ohio coming into competition with the business of it or other national banks in Ohio, and that plaintiff has abandoned its claim that said taxes are discriminatory.”
The court thereupon also granted injunctions against collection of the tax until it is apportioned to the shareholders on the duplicate and cancelled the liens against the real estate of the bank.
Appeals to the Court of Appeals were perfected and that court, one judge dissenting, on May 4, 1942, found for the plaintiff in each case and granted injunctions
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and cancellation of the liens. Finding the judgment pronounced in these cases in conflict with the judgment pronounced upon the same question in the case o Geller v. McCort, Treas., 60 Ohio App. 485, 22 N.E.2d 137, the court certified the record in all three cases to this court for final determination.
Mr. Edmund L. Matz, for appellee, The Union Savings Bank of Bellaire.
Messrs. Thornburg Lewis, for appellees, The Second National Bank of St. Clairsville and The First National Bank of St. Clairsville.
Mr. Ross Michener, prosecuting attorney, Mr. A.G. Lancione
and Mr. C.C. Sedgwick, for appellants.
MATTHIAS, J.
The question of law presented in these cases may be concisely stated as follows:
Were the taxes in question assessed on the shares of stock of the several banks or upon the property of the banks?
The record discloses that any question of discrimination against the banks and in favor of building and loan companies was abandoned and need not now be considered.
Under the provisions of Section 5408, General Code, as in effect January 1, 1931, taxes were levied on the shares of stockholders of a bank in like manner as the taxes on other personal property. Section 5408 provided as follows:
“All the shares of the stockholders in an incorporated bank or banking association, located in this state, incorporated or organized under the laws of the state or of the United States, and all the shares of the stockholders in an unincorporated bank, located in this state, the capital stock of which is divided into shares held by the owners of such bank, and the capital employed, or the property representing it, in an unincorporated
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bank the capital stock of which is not divided into shares, located in this state, shall be listed at the true value in money, and taxed only in the city, ward, or village where such bank is located.”
Section 5409, General Code, provided:
“The real estate of a bank or banking association shall be taxed in the place where it is located, in like manner as the real estate of persons is taxed.”
The further statutory provisions involved are Sections 5672 and 5673, General Code, as in force and effect at the time these taxes were levied. They were as follows:
Section 5672. “Taxes assessed on shares of stock, or the value thereof, of a bank or banking association, shall be a lien on such shares from the first Monday of May in each year until they are paid.
“It shall be the duty of every bank or banking association to collect the taxes due upon its shares of stock from the several owners of such shares, and to pay the same to the treasurer of the county, in which such bank or banking association is located, as other taxes are paid, and any bank or banking association failing to pay the said taxes as herein provided, shall be liable by way of penalty for the gross amount of the taxes due from all the owners of the shares of stock, and for an additional amount of one hundred dollars for every day of delay in the payment of said taxes.”
Section 5673. “Such bank or banking association paying to the treasurer of the county in which it is located, the taxes assessed upon its shares, in the hands of its shareholders respectively, as provided in the next preceding section, may deduct the amount thereof from dividends that are due or thereafter become due on such shares, and shall have a lien upon the shares of stock and on all funds in its possession belonging to such shareholders, or which may at any time come into its possession, for reimbursement of the
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taxes so paid on account of the several shareholders, with legal interest; and such lien may be enforced in any appropriate manner.”
The taxes involved in these cases were placed on the tax duplicate by the county auditor in the name of the various banks, and not in the name of the individual owners of the shares as shown by the statements filed by the banks.
The Court of Appeals based its decision entirely upon the case of Miller, Treas., v. First National Bank, 46 Ohio St. 424, 21 N.E. 860. While the issues in that case were similar to those of the instant case, the statute then in effect was essentially different. The statutory provisions applicable in that case were embodied in Sections 2839 and 2840, Revised Statutes, which read as follows:
Section 2839. “Any taxes assessed on any shares of stock or the value thereof, of any bank or banking association, shall be and remain a lien on such shares from the first Monday of May in each year until such taxes are paid; and in case of the non-payment of such taxes at the time required by law by any shareholder, and after notice received of the county treasurer of the non-payment of such taxes, it shall be unlawful for the cashier or other officer of such bank or banking association to transfer or permit to be transferred the whole or any portion of said stock, until the delinquent taxes thereon, together with costs and penalties, shall be paid in full; and no dividend shall be paid on any stock so delinquent, so long as such taxes, penalties, and costs, or any part thereof, remain due and unpaid.”
Section 2840. “It shall be lawful for any such bank or banking association to pay to the treasurer of the county in which such bank or banking association may be located, the taxes that may be assessed upon its shares, as aforesaid, in the hands of its shareholders, respectively, and deduct the same from any dividends
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that may be due or may thereafter become due on any such shares, or deduct the same from any funds in its possession belonging to any shareholder, as aforesaid.”
It is to be observed that under these statutory provisions the bank was authorized but not required to pay the taxes upon its shares and deduct the sums so paid not only from dividends due or thereafter to become due on such shares, but also from any funds in its possession belonging to any shareholder.
The question, and the only question, decided in th Miller case is clearly and concisely stated in the first paragraph of the syllabus, which reads:
“There is no authority in the statutes of the state, nor of the United States, for listing and valuing the shares in a national bank in the aggregate, and placing such aggregate on the tax-list in the name of the bank. Such shares, when listed and valued for taxation, are required to be placed on the proper tax-list in the names of the respective owners.”
The statutory provisions then in effect not only conferred no authority to charge the tax on the duplicate in the name of the bank, but imposed no duty whatever on the bank to collect the tax.
The provisions of Sections 5672 and 5673, General Code, are of somewhat different import and effect and are controlling in the disposition of these cases. These statutes were amended as they now read subsequent to the decision in the case of Aberdeen Bank v. Chehalis County, 166 U.S. 440, 41 L.Ed., 1069, 17 S.Ct., 629. The Aberdeen bank had likewise made the complaint that the statute of the state of Washington which it challenged levied the tax on the bank instead of the owners of the shares, and violation of the provisions of Section 5219, U.S. Revised Statutes (February 10, 1868); 15 Stats. at L., 34, Chapter 7, was charged. The Washington statute provided that “each bank and banking association shall be liable to pay any taxes
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assessed against them as the agent of each of its shareholders, owners or owner under the provisions of this act, and may pay the same out of their individual profit account or charge the same to their expense account, or to the accounts of such shareholders, owners or owner in proportion to their ownership.”
The court held that, by reason of this provision of the Washington statute, there was no ground for the contention that the taxation of “the capital of the bank” was contemplated by the statute under consideration. The opinion of the court in the Aberdeen case approves and applies the decision of the same court in the case of First National Bank of Louisville v. Commonwealth, 76 U.S. (9 Wall.), 353, 19 L.Ed., 701, which involved the construction of a statute of the state of Kentucky providing in substance that a tax should be levied on the “bank stock, or stock in any moneyed corporation of loan or discount, fifty cents on each share thereof equal to $100, or on each $100 of stock therein owned by individuals, corporations, or societies.”
Such statute contained the further provision that “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 per cent upon the amount.”
The contention there made was that the bank could not be made responsible for a tax levied on the shares of stock which were the property of the individual stockholders and could not be compelled to collect and pay such tax.
In the course of the opinion in that case it was stated as follows:
“It is strongly urged that it is to be deemed a tax on the capital of the bank, because the law requires the officers of the bank to pay this tax on the shares of
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its stockholders. Whether the state has the right to do this we will presently consider, but the fact that it has attempted to do it does not prove that the tax is anything else than a tax on these shares. It has been the practice of many of the states for a long time to require of its corporations thus to pay the tax levied on their shareholders. It is the common, if not the only, mode of doing this in all the New England states, and in several of them the portion of this tax which should properly go as the shareholders’ contribution to local or municipal taxation is thus collected by the state of the bank and paid over to the local municipal authorities. In the case of shareholders not residing in the state, it is the only mode in which the state can reach their shares for taxation. We are, therefore, of opinion that the law of Kentucky is a tax upon the shares of the stockholder. * * *
“A very nice criticism of the proviso to the 41st section of the National Bank Act (now Section 5219 of the Revised Statutes), which permits the states to tax the shares of such bank, is made to us to show that the tax must be collected of the shareholder directly, and that the mode we have been considering is by implication forbidden. But we are of opinion that while Congress intended to limit state taxation to the shares of the bank, as distinguished from its capital, and to provide against a discrimination in taxing such bank shares unfavorable to them, as compared with the shares of other corporations, and with other moneyed capital, it did not intend to prescribe to the states the mode in which the tax should be collected. The mode under consideration is the one which Congress itself has adopted in collecting its tax on dividends, and on the income arising from bonds of corporations. It is the only mode which, certainly and without loss, secures the payment of the tax on all the shares, resident or non-resident; and, as we have already stated,
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it is the mode which experience has justified in the New England states as the most convenient and proper, in regard to the numerous wealthy corporations in those states. It is not to be readily inferred, therefore, that Congress intended to prohibit this mode of collecting a tax which they expressly permitted the states to levy.”
The court, in the Aberdeen case, after calling attention to the portion of the opinion in the case of National Bank v Commonwealth, supra, above quoted, cited as supporting the doctrine therein announced, the cases of Bell’s Gap Rd. v Pennsylvania, 134 U.S. 232, 33 L.Ed. 892, 10 S. Ct., 533, an Van Slyke v. Wisconsin, 154 U.S. 581, 20 L.Ed., 240, 14 S.Ct., 1168.
The tax in the instant cases, just as the tax under consideration in the Aberdeen case, is a tax on shares of stock properly assessed for the payment of which each bank was made liable by the specific provisions of statute. The Aberdeen case
is unreversed, and the doctrine there announced, which in our opinion is clearly applicable here, has not been modified by the subsequent decisions relied upon by counsel for the banks, which are Owensboro National Bank v. City of Owensboro, 173 U.S. 664, 43 L.Ed., 850, 19 S.Ct., 537, an First National Bank of Gulfport v. Adams, Rev. Agt., 258 U.S. 362, 66 L.Ed., 661, 42 S.Ct., 323.
In the comparatively recent case of Colorado National Bank of Denver v. Bedford, 310 U.S. 41, 84 L.Ed., 1067, 60 S.Ct., 800, the Supreme Court of the United States had for consideration the validity of the Colorado statute laying a percentage tax on the users of the safety deposit services of banks measured by the banks’ charges for the services and requiring the banks to collect the taxes, account for them to the state and include them in their bills for the services. The court held that the statute “requiring a national bank to collect and remit the tax does not impose an unconstitutional
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burden on a federal instrumentality.” In support of that proposition, the court cites the case of National Bank v Commonwealth, supra.
The court, however, reiterated previous holdings in various other cases there cited, in substance that a “tax is invalid if laid upon the bank as an instrumentality of government * * *; that its banking operations are free from state taxation except as Congress may permit; that Congress permits the taxation only of shares and real estate; and that Congress may intervene to protect its instrumentalities from any other tax which threatens their usefulness.”
As heretofore stated, the liability of a bank to pay taxes lawfully assessed on the shares of its stockholders is created by Sections 5672 and 5673, General Code. The former section provides that taxes assessed on the shares of the stockholders of the bank are “a lien on such shares from the first Monday of May in each year until they are paid.”
The latter section provides that the bank, upon payment of the taxes assessed, has “a lien upon the shares of stock and on all funds in its possession belonging to such shareholders, or which may at any time come into its possession for reimbursement of the taxes so paid on account of the several shareholders, with legal interest.”
We find no other statutory provisions which specificcally create a lien on behalf of a county for the payment of the taxes in question. In the absence of statutory authority, such taxes do not become a lien upon the real estate of the bank. The liability of the bank is limited by the specific provisions of the statute previously referred to. It follows that there is no valid lien now on the real estate of the bank for the taxes in question, but they may be collected by an appropriate action on the part of the county treasurer.
However, the apportionment of the tax on the duplicate to the various shareholders is not a prerequisite
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to the proceeding of the treasurer to enforce the liability imposed on the bank by statute. For the reasons heretofore stated, the court is in accord with the contention of counsel for the banks that the taxes due and unpaid are not a valid lien on the real estate owned by the bank and to that extent they are entitled to the relief sought. This leads to an affirmance of the judgments in that respect only. In all other respects the judgment in each case is reversed.
Judgments accordingly.
WEYGANDT, C.J., HART, ZIMMERMAN and TURNER, JJ., concur.
BELL and WILLIAMS, JJ., not participating.