
    THE MONROE COUNTY SAVINGS BANK, Appellant, v. THE CITY OF ROCHESTER and ANDREW WYMAN, Respondents. THE ROCHESTER SAVINGS BANK, Appellant, v. THE SAME, Respondents.
    
      State Taxation■ — ■ Savings Barths — Act of I860 — Surplus — TJ. S. Securities— Exemption.
    
    The seventh section of the act of 1866 (vol. 2, p. 1647) provides for the taxation of the franchises of savings banks, or institutions; and provides a means by which to determine the amount upon which they are to be taxed, to wit, not exceeding the surplus earned and owned by such institutions.
    The Plaintiffs and Appellants in these cases were assessed by the assessors of the city of Bochester, at the same time the general assessment of city taxes was made, in May, 1866 — in the case of the Monroe County Savings Bank, for a “ valuation of personal property,” $83,000; and in the case of the Bochester Savings Bank, for a “ valuation of personal property,” $126,000 ; which assessments were confirmed by the Common Council of said city at the time required by the charter thereof. On the 23d of April, 1866, the Legislature passed an act authorizing the taxation of stockholders in banks, etc., to take effect immediately (Laws of 1866, p. 1647, 2d vol.). The seventh section of this act is quoted in the opinion. It is claimed on the part of said banks that such assessment was illegal, upon the ground that it was in fact a taxation of United States securities, in which it is alleged that a portion of their surplus funds were invested.
    The case was submitted on a written statement of facts, under section 372 of the Code. In this statement, in addition to the matters above stated, it appears that the Monroe County Savings Bank, at the times of the assessment and confirmation aforesaid, was indebted to depositors in the sum of $1,611,000, and held and owned money and securities to the nominal amount of $1,694,000, the nominal assets thus exceeding the indebtedness by the said sum of $83,000, which was taken, as aforesaid, as the valúation of tbe personal property of tbe bank for tbe purpose of tbe assessment. On tbe part of tbe Rochester Savings Bank a similar state of facts existed, leaving as its surplus over its liabilities tbe sum of $126,000. Tbe submission of the former bank states that $425,000 of its securities were in bonds and securities issued by the United States.
    At a General Term of tbe Supreme Court for tbe Seventh Judicial District, in July, 1867, judgment was rendered in favor of tbe Defendants, with costs. From that judgment both cases come by appeal to this Court.
   FullebtoN, J.

It is settled by tbe decisions of tbe Supreme Court of tbe United States, that tbe State Legislature has no power to impose a tax upon tbe bonds or securities mentioned in tbe foregoing statement, issued as a means of borrowing money upon the credit of the United States, whether such bonds and securities are held by individuals or corporations; and it is agreed in such statement, that they are “ exempt from assessment by tbe laws of Congress.”

It is a necessary result that such exemption cannot - be evaded by any mere change of form or name in tlie law by which tbe tax is imposed. If, in fact, tbe tax is laid upon such bonds or securities, then, by whatever form of words tbe imposition is laid, it is illegal.

Hence it is not lawful, for tbe purpose of State legislation, to assess tbe whole capital of a bank at its value, or at its nominal amount, when such capital is invested, in whole or in part, in such securities (2 Black, U. S. R. 620).

And a tax imposed by a State upon a bank, at a valuation equal to tbe amount of its capital stock paid in, is a tax upon tbe property of tbe stock constituting its capital; and if such capital is invested in such securities, tbe tax is illegal, and the law imposing it is void (2 Wallace, U. S. R. 200).

Tbe principle decided in these and other cases decided in tbe game Court is, that whenever, by State law, a tax is laid upon property which consists of United States bonds exempt from taxation, then, in whatever form, or in whatever terms the law is expressed, it is void, and cannot be enforced..

I proceed to apply the rule thus stated to the case under- consideration.

The act in question provides as follows : The privileges and franchises granted by the Legislature of this State to savings banks or institutions for savings, are hereby declared to be personal property, and liable to taxation as such, in the town or ward where they are located, to an amount not exceeding the gross sum of their surplus earned, and hi the possession of said banks or institutions, and the officers of such institutions or banks may be examined on oath by assessors, as to the amount of such surplus; and the property of such banks and institutions shall be liable to seizure and sale for the payment of all taxes assessed upon them for said privileges and franchises” (Laws of 1866, p. 1647, 2d vol.).

In declaring the privileges and franchises of a bank to be personal property, the Legislature has adopted no novel principle of taxation. The powers and privileges which constitute the franchises of a corporation are in a just sense property, and quite distinct and separate from the property which, by the use of such franchises, the corporation may acquire. They are so regarded by the law, and so regarded by common acceptation, and although it has not heretofore been customary, in this State at least, to subject them to taxation, yet it must be conceded that it may be done if tjie Legislature sees fit so to enact.

It follows, that if such taxation falls within the scope of legislative power, that power may also prescribe a rule or test of value. In the case stated, the Legislature, leaving the estimate to the assessors, would make the valuation depend upon all the circumstances which, irrespective of the amount of property which the corporation actually holds, give value to the privileges enjoyed. All franchises are not of equal value. One corporation may enjoy a monopoly, and another be subject to competition with rivals, thus being less valuable. In some instances the value of the franchise would depend upon the nature of the business authorized, and the extent to which permission was given to multiply capital for its prosecution. Under such circumstances it would be expected that the Legislature would prescribe some equitable test or rule of valuation which should guide or control the estimate of the assessors in fixing the amount of the tax. It can hardly be denied that a fair measure of the value of the franchises of corporations would be the profits resulting from their use, and in adopting such a rule of estimate, no one could justly complain of its being unequal in its effects upon different corporations, or unjust in its general operations.

In the case before us, the test of value of the franchises is not the amount of annual profits, but the rule is the judgment of the assessors limited to the amount of profits over and above the dividends of profits which the corporation has seen fit to declare and pay to its depositors.

These observations are made, not because the question whether the operation of this statute is just and right is open to judicial examination, but because they tend to prove that the act in question is what it professes to be — a tax laid upon the franchises named in it — and not an indirect tax upon the securities held by the bank, and in that way attempting to avoid the principle of the decisions already quoted. Bad faith, or a design to evade the inhibitions implied in the Constitution of the United States, or expressed in the acts of Congress, are not to be presumed or imputed to the Legislature, unless necessary construction compels it.

In this case the tax is declared, in terms, to be upon the franchises and privileges granted. If there are no surplus earnings, then there can be no tax. If there are such earnings, then it is reasonable to say that the privilege which produced them is valuable, and may justly be regarded as property subject to the taxing-power. This mode of limiting the taxing power indicates strongly that the intention of the Legislature was, that it should not exceed a just and equitable assessment of the franchises and privileges granted, considered in reference to the pecuniary benefits and advantages resulting from their use.

It now becomes important to inquire whether the assessment in the case now before ns is affected by the fact that the banks have invested a portion of their moneys received from depositors, or the profits arising on snch moneys, in bonds or securities of the United States which are exempt from taxation.

In my opinion, if the whole of the Plaintiffs’ funds were so invested, it would not affect the validity of the act. The tax being levied upon the franchises and privileges of the corporation, the special use which it makes of its lawful powers is quite unimportant. Because, I repeat, that neither the aggregate property employed, nor the accumulated profits, are taxed. They are.regarded as important only as they may furnish a just and fair measure of estimating the value of the property which produced them, in order that such value may form the basis of taxation. I find no warrant for the assumption that, in the cases now before us, the surplus earned and in the possession of the Plaintiffs is invested in bonds or securities of the United States. The classification of their assets, which lays the foundation for it, do.es not result from the application of any rule of law, and we cannot judicially declare that the funds so invested are not the identical funds received from depositors. If it would affect the legal question, it should be shown, as matter of fact, that the surplus is specifically so invested.

It is true that where a State tax is laid upon the property of an individual, or a corporation, so much of their property as is invested in United States bonds is to be treated, for purposes of assessment, as if it did not exist; but this rule can have no application to an assessment upon a franchise, where a reference to property is made only to ascertain the value of the thing assessed.

It is, however, argued with great ingenuity and skill, that inasmuch as the Plaintiffs, among other powers given them, have the right to invest their money in United States bonds, their franchises and privileges cannot be taxed by the State. The power thus to invest their moneys, it is contended, is a franchise for lending to the United States, and therefore cannot, be taxed, because such taxation would french on the power of the United States to borrow. This is stretching the argument too far. It cannot be contended that the State would violate any obligation resulting from the power of the United States to borrow money, if the laws, conferring the power upon the .Plaintiffs to invest their moneys in United States stocks and bonds were repealed. The State is under no obligation, express or implied, to legislate to enhance the credit of the general government, and should it adopt a system of legislation which indirectly produces such a result, its power of repeal cannot be doubted. The position that a franchise granted by the bounty of a State is not taxable because coupled with that franchise is the privilege of loaning money to the general government, is not more untenable than to argue that -because such a franchise enhances the credit of the United States, therefore the Legislature could not repeal the law granting the franchise without violating its constitutional obligations. Suppose the Legislature had limited the amount in which the Plaintiffs could invest its moneys in the securities of the United States, it will not be contended that such limitation would be void because it impaired the power of the United States to borrow money.

It must, therefore, be regarded as sound doctrine to hold that the State, in granting a franchise to a corporation, may limit the powers to be exercised under it, and annex conditions to its enjoyment, and make it contribute to the revenues of the State. If the grantee accepts the boon, it must bear the burden.

In my opinion, the statute in question here is not obnoxious to the objection that it is in conflict with the power of the United 'States, nor is it to be regarded in any sense as indicating an unfriendly or hostile spirit.

As to the effect of the change made in the statute in 1861, it is sufficient to say that the assessment, imposition, and confirmation of the tax in 1866, made such tax a debt due to the city of Rochester, and the subsequent amendment of the act had no retroactive effect to change the rights of the parties.

The judgment should be affirmed, with costs.

G-rover, J.

The seventh section of the act authorizing the taxation of the stockholders in banks, etc. (Laws 1866, vol. 2, p. 1647), provides tliat the franchises granted by the Legislature to savings banks or institutions for savings, “ are hereby declared to be personal property, and liable to taxation as such in the town or ward 'where they are located, to an amount not exceeding the gross sum of their surplus earned, and in the possession of said banks or institutions, and the officers of such institutions may be. exainined on oath by assessors,” etc. There can be no ddubt entertained as to the design of the Legislature in enacting the above section. Language could scarcely make it plainer. It was to tax the franchises of the institutions to which it was applied, as personal property, to an amount not exceeding the surplus earned and owned by such institutions, at the same rate, and in common with the other personal property of the State. The institutions so to be taxed are corporations created by the laws of the State, vested with valuable franchises conferred by the same laws. It is not disputed by the counsel for the Appellant that the Legislature lias full power to tax these franchises for State and municipal purposes, in its discretion. It is claimed by the counsel, however, that this is not a tax upon the franchises, but upon the property of the bank, viz.: the surplus owned by the corporation; and that as this property consists of bonds of the United States government, which are exempt from State and municipal taxation, the Appellant is entitled to the benefit of such exemption. If the. counsel is correct in the premises, his conclusion is sustained by the adjudication of the Supreme Court of the United States, which this Court is bound to follow in this class of cases. But the only basis of the position of the counsel is, that the surplus owned by the corporation is adopted as the value at which the franchise shall be assessed. It was competent for the Legislature to fix any valuation thereon which it deemed proper, or to adopt any standard deemed suitable. It having taken the surplus as a standard of valuation, it is wholly immaterial whether this surplus was taxable as property, or exempt therefrom. This in no way affects the right of the Legislature to refer to this as the measure of value at which the franchises shall be assessed. But it is argued that this was a contrivance by the Legislature to tax the United States bonds indirectly, when they could not do so directly. Iiow was it known to the Legislature that any part of the surplus of these institutions was invested in government bonds ? Or how does it now appear but that the bonds owned by the Plaintiffs, at the time of the assessment, were not purchased after the passage of the act, for the purpose of evading the taxation thereby imposed ? Government bonds are dealt in by these institutions, bought and sold, as the managers deem most likely to promote their interest. I am wholly unable to see how this dealing can affect the right of the State to impose taxes upon the franchises granted by it. The exercise of this power by the State can in no way affect the power of the federal government to borrow money, any more than taxing property employed in lucrative business. If such property were not taxed by the State, its owners would have larger sums of money that they might possibly lend to the government. The necessary public burdens should be borne equally by all the property of the State, and those seeking to exempt themselves from their share, and impose such share upon others, in addition to their own, should make a clear case. The Plaintiffs’, so far from being such, is, I think, a clear case of liability to taxation. The evidence of the instructions given by the Comptroller was wholly immaterial.

The judgment appealed from should be affirmed.

All concur.

Affirmed.

JOEL TIFFANY, State Reporter.  