
    Monroe County Savings Bank v. City of Rochester et al.
      
       Rochester Savings Bank v. The Same.
    
      Taxation.
    
    
      A tax upon the franchises of a corporation is not void, because it has the privilege of investing its capital in United States bonds.
    Appeal from the general term of the Supreme Court, in the seventh district, where a judgment had been rendered in favor of the defendants, in a case submitted under § 372 of the Code.
    In May 1866, the Monroe County Savings Bank was assessed, under the act of 23d April 1866 (Laws of 1866, vol. 2, p. 1674), upon a “ valuation of personal property” amounting to $83,000, and the Rochester Savings Bank upon $126,000, and the assessments were duly confirmed by the common council of the city of Rochester. The savings banks insisted that such assessments were illegal, on the ground, that it was, in fact, a taxation of United States securities, in which their surplus funds were invested ; and these suits were brought to restrain the collection thereof.
    The cases were submitted under § 372 of the Code. In the statement, in addition to the facts above stated, it appeared, 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, that amount was taken, as aforesaid, as the valuation of the personal property of the bank, for the purpose of the assessment. On the part of the Rochester Savings Bank, a similar state of facts existed, leaving its surplus over its liabilities the sum of $126,000. The submission of the former bank stated that $425,000 of its securities were in bonds and securities issued by the United States.
    The general term gave judgment in favor of the defendants, in each case; whereupon, the plaintiffs appealed to this court.
    
      Angle and Hills, for the appellants.
    
      Raymond, for the respondents.
    
      
       Also reported in 4 Trans. App. 473.
    
   Fullerton, J.

It is settled by the decisions of the supreme court of the United States, that the state legislature has no power to impose a tax upon the bonds or securities mentioned in the 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 the laws of congress.” It • is a necessary result, that such exemption cannot be evaded by any mere change of form or name in the law by which the tax is imposed. If, in fact, the tax is laid upon such bonds or securities, then, by whatever form of words the imposition is laid, it is illegal. Hence, it is not lawful, for the purpose of state legislation, to assess the 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 620.) *And a tax imposed py a state Up0n a bank, at a valuation equal to the amount of its capital stock paid in, is a tax upon the property of the stock constituting its capital; and if such capital is invested in such securities, the tax is illegal, and the law imposing it is void. (2 Wall. 200.) The principle decided in these and other cases decided in the same 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 in 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, vol. 2, p. 1674.)

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 the legislature see 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 thó 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 operation.

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 to be 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 us, is affected by the fact, that the banks have invested a portion of their moneys received from depositors, or the profits arising on such 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 make 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 does 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 the purposes of assessment, as if it did not exist, but this rule can have no application to an assessmen^ 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 trench on the power of the United States to borrow. This is stretching the argument too far. It cannot be pretended, that the state would violate any obligation resulting from the power of the United States to borrow money, if the law 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 the 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 1867, 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.

Judgment affirmed.  