Tappan Collector v. Merchants' National Bank
APPEAL from the Circuit Court for the Northern District of Illinois, in which court the Merchants' National Bank of Chicago-a bank incorporated under the 'Act to provide a National currency,' &c., approved June 3d, 1864,  and having its banking-house and carrying on its operations of discount and deposit in the town of South Chicago, Cook County, Illinois-filed a bill against one Tappan, collector of county and municipal taxes, in the said town of South Chicago, Cook County, to enjoin his collection of such taxes upon any of the shares of stock in the said bank, assessed under a statute of Illinois, passed June 13th, 1867.
Some shares of the bank were held by persons resident in the said town of South Chicago, Cook County, where, as already said, the bank itself was situated, and where Tappan, the collector of taxes for that town, resided; but many were held by persons who, though residing in Illinois, did not reside in the town of South Chicago or in the county of Cook at all, but resided out of both; and many were held by persons who did not reside in the State of Illinois at all, but resided in other States altogether.
The grounds upon which the bill was filed were apparently that, under the constitution of Illinois, the taxes were not validly laid on the residents of the State who resided out of the town of South Chicago and out of the county of Cook; that therefore, under that constitution, which required uniformity of taxation, in respect to persons and property within the jurisdiction of the body imposing the same, there were no taxes laid on the shares of any persons resident in the town of South Chicago or in the county of Cook; and of course therefore no taxes on any shareholders resident anywhere in Illinois; and as the act of Congress authorizing a taxation by the State of shares in the National banks, owned by persons who were not residents of such State, declared that there should be no tax imposed on them which was not imposed on residents of the State, there was no tax laid on any shareholders anywhere.
The whole matter, it is thus obvious, turned upon the validity of the tax laid under the State act of June 13th, 1867, upon the shares of residents of Illinois who resided out of Cook County and out of the town of South Chicago.
The case, as respected the constitution of Illinois, the State act of June 13th, 1867, laying the tax, and the provisions of the National Banking Act, or, to call it by its title, the 'Act to provide a National Currency,' &c., was thus:
The constitution of Illinois (adopted A.D. 1848) ordains—
'SECTION 2. The General Assembly shall provide for levying a tax by valuation, so that every person and corporation shall pay a tax in proportion to the value of his or her property, such value to be ascertained by some person or persons to be elected or appointed in such manner as the General Assembly shall direct and not otherwise.
'SECTION 5. The corporate authorities of counties, townships, school districts, cities, towns, and villages, may be vested with power to assess and collect taxes for corporate purposes, such taxes to be uniform in respect to persons and property, within the jurisdiction of the body imposing the same. And the General Assembly shall require that all the property within the limits of municipal corporations, belonging to individuals, shall be taxed for the payment of debts contracted under authority of law.'
This provision of fundamental law being in force in Illinois, Congress passed, June 3d, 1864, the 'Act to provide a National currency,'  already mentioned. This act, after providing for the formation of associations for the purpose of banking, declares:
'SECTION 12. The capital stock of any association formed under this act shall be divided into shares of $100 each, and be deemed personal property and transferable on the books of the association.'
'SECTION 40. The president and cashier of every association, shall cause to be kept at all times, a full and 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 subject to the inspection of all the officers authorized to assess taxes under State authority.
'SECTION 41. Nothing in this act shall be construed to prevent all the shares in any of the said associations held by any person or body corporate from being included in the valuation of the personal property of such person or corporation 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.'
Subsequently to the passage, by Congress, of this National Banking Act, the State of Illinois passed the act of June 13th, 1867, under which the tax now resisted was laid.
'No tax shall be assessed upon the capital of any bank or any banking association, organized under the authority of this State, or organized under the authority of the United States; and located within this State.
'But the stockholders in such banks or banking associations shall be assessed and taxed on the value of their shares of stock therein in the county, town, or district where such bank or banking association is located, and not elsewhere, whether such stockholder reside in such town, county, or district, or not, but not at any greater rate than is or may be assessed upon other moneyed capital in the hands of individuals in this State.'Before the passage of the act just above quoted, question had arisen as to the meaning in the forty-first section of the National Banking Act of the words 'at the place where the bank is located.' Some courts, like those of Maine, supposed that Congress meant that the shares should be assessed in and for the benefit of the taxing district.  Other courts, like those of Pennsylvania and Massachusetts,  were of a different opinion, holding that the expression meant the State and not the taxing district. Accordingly Congress, by an act of February 10th, 1868, enacted: 
'That the words place where the bank is located and not elsewhere,' in section 41 of the 'Act to provide a National currency,' approved June 3d, 1864, shall be construed to mean the State within which the bank is located.' And the legislature of each State may determine and direct the manner and place of taxing all the shares of National banks located within said State, subject to the restriction that the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State. And provided always, that the shares of any National bank owned by non-residents of any State shall be taxed in the city or town where said bank is located, and not elsewhere.'
The bill filed by the bank, after setting out the facts of non-residence, &c., already stated, and the violation of the Constitution in levying the tax complained of, and a threat of the collector to sell the stock of the bank, if the taxes claimed were not paid, alleged, by way of giving a jurisdiction in equity, that the shareholders refused to pay the taxes and forbade the payment of them by the bank, and threatened a multiplicity of suits against the bank in case it paid them, or in case it deducted the amount thereof from any dividends upon the stock; that if the collector sold the stock irreparable damage would be done to the stockholders; that the bank was the trustee of its stockholders, and as such entitled to protect their interests; and that a sale of their stock would prejudice the bank in the public mind, and work damage to it incapable of remedy at law.
The court below on demurrer to the bill for want of equity, disregarding the technical objection (for which Dows v. The City of Chicago  was cited as authority), that the bank had no power to interfere in the way in which it had done, in behalf of its stockholders,-and considering that the law of Illinois laying the tax was in violation of its constitution, decreed an injunction. From that decree this appeal was taken.
Mr. M. W. Fuller, in support of the decree:
1. It will be admitted by opposing counsel, that the authorities of Cook County had no jurisdiction for the purposes of taxation over the person of any one who lived not in Cook County, but who lived out of it, in a different county; and that any tax laid by such authorities on that person must be void. Now, the act of June 13th, 1867, enacts 'that no tax shall be assessed upon the capital of any bank,' but that the stockholders in such banks 'shall be assessed and taxed on the value of their shares of stock therein.' The act relieves the capital-the property-of the bank from all tax laid by the authorities of the place where that capital, property, or bank is, and lays it on the stockholder wherever he may be. It forbids a tax in rem and establishes a tax in personam. Now, so far as respects stockholders in Cook County, who are within the jurisdiction of the authorities of that county for the purposes of taxation, this is lawful. Is it so under the constitution of the State in regard to those who do not reside in Cook County, but reside out of it and in other counties of the State? We think that it is not.
Concede-as is probably true-that personal property having visible, tangible, and bodily form (as ex. gr., cattle), is taxable in the place where it permanently is, the concession does not help the validity of this tax. In the first place it often happens that the capital of a bank is not at the place where the banking-house is situated, and where the operations of the bank are carried on. Many banks have their money largely deposited in distant places. Especially is this true of banks in the West dealing much in exchange. Their funds are necessarily on deposit in Eastern cities. But independently of this, shares of stock in a corporation represent an interest quite different, and separated from the capital stock of the corporation; that is to say, the real and personal property owned by the corporation. What is a share of stock in a bank? Nothing but a right to a dividend of profits as they are declared, and to a share of the effects of the bank if it should ever be wound up. Now, such a right can have no situs save at the domicile of the shareholder. Since the great case of The State Tax on Foreignheld Bonds, so recently decided by this court,  where it was held that a tax by a State on bonds given by her citizens, could not be levied on and retained from the interest of the bonds when they were owned by persons out of the State, and so held for the exact reason that choses in action followed the persons of their owner, it is unnecessary to refer to those numerous decisions in State courts which have adjudged that it is not within the power of a State legislature to cause a non-resident shareholder to pay taxes upon the value of his shares. 
We assume, therefore, that shares of stock owned by residents in other counties of Illinois than Cook County, are not in any sense situated in Cook County.
Now, to apply these principles. Congress has no power to authorize a violation of the constitution of a State in the assessment and collection of taxes for State and local purposes. The National Banking Act of June 3d, 1864, cannot have meant to do this.
Now, what did the constitution of Illinois, Article 9, declare? It declared that all taxes for corporate purposes shall be 'uniform in respect to persons and property within the jurisdiction of the body imposing the same.'
'To render taxation uniform,' says a text-writer of the first class,  'two things are essential. The first is, that each taxing district confine itself to things within its limits.' . . . 'Within these districts the rule of absolute uniformity must be applicable.'
But when a resident of La Salle County, Illinois, owning the whole stock perhaps of half a dozen banks in Cook County, and owning nothing besides, is not taxed in La Salle County at all, how is the rule of uniformity prescribed by the constitution of Illinois observed? Yet under the statute of June 13th, 1867, this is the sort of taxation which does occur. For that statute provides no mode of assessing the shares of residents in the State at the place where they reside. In Trustees v. McConnell,  the Supreme Court of Illinois said that under the provision of the constitution which we have referred to, the legislature 'would have no power to exempt from taxation one species of personal property while it collected a tax from another within the same jurisdiction.' But when you give to the county of Cook the proceeds of taxation of shares owned by a resident of La Salle, do you not exempt the latter in the county where he lives, and tax his co-residents in that county to make up the deficiency? Is this taxation uniform in respect to persons within the limits of such county? We submit that it is not.
There being then no valid law in force in this State, by which the shares of stock in National banks, belonging to residents of the State, can be taxed, the shares owned by non-residents cannot be taxed, because the proviso to section forty-one of the act 'to provide a National currency,' of June 3d, 1864, expressly declares that there shall be no tax imposed upon non-residents that is not imposed upon residents of the State. 
It ought, perhaps, to be observed, that when the act of June, 1867, was passed, controversy had arisen as to the meaning of the words (whose meaning certainly is not perspicuous) in the provisos to the forty-first section of the law of Congress, that the shares should be assessed 'at the place where the bank is located.' The framers of the State law doubtless supposed Congress to have required the shares to be assessed in and for the benefit of the taxing district of the bank's location; as courts of high respectability had supposed before them.
2. The technical objection that the bank cannot interfere in equity, in behalf of its shareholders, is without foundation. The bank occupies the position of a stakeholder. It is the custodian of the dividends of the shareholders. The shareholders insist that all the dividends be paid to them. The collector demands that a part be paid to him. The bank asserts and the demurrer admits that the shareholders have given notice to the bank that if it pay these taxes suits will be commenced at once against it. At the same time if it does not pay them the collector threatens to sell the shares, and so to get the taxes. It is obvious that the latter course, if taken would lead to further and harassing litigation, working that kind of injury to the corporation which, because the law affords no such beneficial and complete remedy for it as the nature of the case requires, may be deemed irreparable. Dows v. The City of Chicago is not applicable to such a case.
Mr. J. K. Edsall, Attorney-General of Illinois, contra, argued the case fully on principle and authority; citing among other cases, one decided in February, 1873, First National Bank of Mendota v. Smith, Collector,  in which the law here in question was held by the Supreme Court of Illinois to be valid under the constitution of the State.
The CHIEF JUSTICE delivered the opinion of the court.
^1 13 Stat. at Large, 99.
^2 13 Stat. at Large, 102.
^3 Opinions of the Justices of the Supreme Court, 53 Maine, 594.
^4 Markoe v. Hartranft, 6 American Law Register, N. S. 490; Austin v. The Aldermen, 14 Allen, 364.
^5 15 Stat. at Large, 34.
^6 11 Wallace, 108.
^7 15 Wallace, 319.
^8 Union Bank v. State, 9 Yerger, 490; Conwell v. Connersville, 15 Indi ana, 150; Savings Bank v. Nashua, 46 New Hampshire, 398; Dwight v. Mayor, 12 Allen, 322; Austin v. Aldermen, 14 Allen, 364; McKeen v. Northampton, 49 Pennsylvania State, 519.
^9 Cooley, Constitutional Limitations, 496.
^10 12 Illinois, 140.
^11 Van Allen v. Assessors, 3 Wallace, 573.
^12 5 Chicago Legal News, 253.