Bank of the Commonwealth, the American Exchange Bank and others, appellants against the Tax Commissioners &c., of New York, respondents: Argument of Alexander W. Bradford, Albany, January 13, 1864

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STATE OF NEW YORK.
THE BANK OF THE COMMONWEALTH,
THE AMERICAN EXCHANGE BANK AND OTHEES,
APPELLANTS,
against
THE TAX COMMISSIONERS, kc, OF NEW YORK,
RESPONDENTS.
ARGUMENT OF
ALEXANDER W. BRADFORD.
Albany, JTaniiary 13, 1§64.
NEW YORK:
EGBERT CRAIGHEAD, CAXTON BUILDING,
81, 83, AND 85 Centre Street.
18 64.
AUBURN UNiVERSiTV
5
i^r^ument
ALEXANDER. W. BRADFORD.
Mat it Please the Couet : This is a proceeding for
the correction of the assessment roll for the year 1863, in
the hands of the Commissioners of Taxes and Assess-ments
for the City and County of New York, in relation
to the assessment of the Bank of the Commonwealth, a
banking association transacting business in the City of
New York. A similar proceeding was instituted by The
American Exchange Bank, and other banking associa-tions
in New York, whicli I represent on this argument.
These banks, indeed all tlie banks interested in this
question, except the Manhattan Company, were formed
under the general banking law of 1838.
The Commissioners of Taxes and Assessments derived
their official powers under chapter 302 of tke laws of
"1859. By the 10th and 11th sections of that act, they
are authorized, upon application by any person consi-
AUBURN UNIVERSITY
RALPH BROWN DRAUGHON LIBRAnV
AUBURN UNIVERSITY, ALABAMA 3^849
deling liimself aggrieved by tlie assessed valuation of his
real or personal estate, to correct the assessment roll;
and it is provided that "if, in their judgment, the
assessment is erroneous, they shall cause the same to be
corrected." Previous to the passage of\this act, the only
law governing this subject was the act of 1857, which
created the office of Tax Commissioners. Prior to 1857,
the whole sul^ject was regulated by the general provisions
of the Revised Statutes in relation to the assessment of
property liable to taxation by the ward assessors or
town assessors throuo'hout the State.
The law of 1857, as modified by the law of 1859,
destroyed that system of assessment so far as it related
to the city and county of New York, and substituted in
the place of ward assessors, twelve Deputy Tax Com-missioners,
under the direction and control of three Tax
Commissioners, who are directed, by the act, to assess all
the personal and ]'eal property in the city of New York.
So that, under the act of 1859, the Deputy Tax Commis-sioners
occupy the place of town assessors in the country,
and ward assessors in the several wards, of the cities.
The assessment directed by the act of 1859 is peculiar
in another respect : it directs the twelve Deputy Commis-sioners
to assess the whole taxable real and personal estate
in the city and county, commencing on the first Monday
of September in each year. On the 12th of January, the
various corporations of the city of New York lialjle to
taxation are directed to make their returns to the Tax
Commissioners. U2:)on these returns being made, the Tax
Commissioners pass upon all claims for exemption from
taxation ; and, after having rendered their decision, they
make up, from the assessments of the Deputy Commission-ers
as corrected, a book called—" The Book of Annual
Record of Taxable Personal and Real Estate in the City
and County of New York."
After the book is completed—I say " completed," for
if any assessment has been controverted or questioned as
erroneous, the Tax Commissioners can correct it,—and,
after the corrections are made, and the book is complet-ed,
it remains on file as a record of the office of the Com-missioners
; and it becomes the simple ministei'ial duty
of the Commissioners to copy therefrom the assessment
roll, and transmit it to the Board of Supervisors. The
assessment roll, therefore, is merely a copy of the Book
of Annual Record of the Taxable Real and Personal
Property in the City and County of New York.
In sections 10 and 11 of the law of 1859 are con-tained
provisions which authorize the Tax Commissioners
to reduce or coiTect any assessment. Section 20 of the
same act provides that a writ of "c<?r//c>?'<27/, to review
and correct, on tlie merits, any decision or action of the
said Commissioners under sections 10 and 11," shall be
alloAved by the Supreme Court.
Your Honors will perceive, when you come to examine
the act in question, that the sole duty of the Tax Com-missioners
is to assess the taxable property in the city of
'New York. There is no other scope of action under the
law except to look at t\iepro2^erty^ in the city and county
of ISTew York and give it an assessment or valuation.
The statement of the relators, the Bank of the Com-monwealth,
in this case, presented to the Tax Commission-ers,
shows the follot^nno^ state of facts : That the amount
of the capital stock of the bank is $750,000 ; amount of
projierty in real estate is $188,089, which, being deduct-ed
from the capital, leaves the sum of $561,165 ; and that
this amount of personal property the residue of the capi-tal
stock, has been loaned to the Government of the
United States. Your Honors will perceive, in this con-nection,
that there is a distinct allegation that the whole
capital^ after deducting the vahie of 'the real estate, is
invested in the securities of the United States Govern-ment.
Ujoon some of the returns, which are slightly
different in some respects, your Honors will find that
there may be some room for doubt wlietlier there is a
clear and distinct allegation that all the capital has been
invested in government securities. That criticism is made,
I believe, by Mr. Justice Sutherland, in the opinion
rendered by him, at General Term, in the case of
the Bank of Commerce. But here there can be no
question made ; the allegation is, and it has never been
denied, but remains an admitted fact,' that the whole
capital of this institution, w^ith the excej)tion of the
amount invested in real estate, has been loaned to the
Government of the United States, and for which the
bank has taken and holds the securities of the United
States in stocks, bonds, notes, evidences of debt, and
securities for money ; and they therefore claim that the
amount so loaned and invested in the securities of the
United States is exempt from taxation by and under the
Constitution and laws of the United States, and by and
under the decision and judgment of the- Supreme Court
of the United States; thereby referring, in the most obvi-ous
manner, to the recent decisions upon that subject in
the Supreme Court of the United States.
The Commissioners, upon these claims of exemjDtion
from taxation being made, refused to allow any exemp-tion
of the amount thus invested ; and this decision was
sustained by the Supreme Court at General Term. The
return of the Commissioners to the writ of certiorari^
to review their decision, in which their action is set forth
in detail, is, in some respects, worthy of particular obser-vation
and comment. It will be found on page fourteen
of the case
:
" We, the undersigned, Commissioners of Taxes and
Assessments for the City and County of New York, pur-suant
to a certain Avrit of certiorari^ delivered to us, and
hereto annexed, do certify and return ."
I call your Honors' close attention to what I am about
to read, to see what the Commissioners did, and under
what law the Commissioners appear to have acted
:
"That the Deputy Tax Commissioners did, under our
direction, as by law required, assess the actual value of
the capital stoch of the Bank of the Commonwealth,
after deducting the assessed value of its real estate, and
all shares of stochs in other corporations actually owned
by such company which are liable to taxation upon their
stock under the laws of this State, and amount of stock
held by charitable and literary institutions^ at the sum of
five hundred and sixty-one thousand nine hundred
dollars ($561,900) —."
That is the amount upon which we claim exemption.
" — and that such assessed valuation was duly entered
at detail in the boohs provided for that purpose, and
kept in the office of the said Commissioners, called ' The
Annual Record of the Assessed Valuation of Real and
Personal Estate,' as aj^pears by the extract hereunto
annexed, marked ' B.' That notice of such assessment
was given to said bank ; that thereupon the officers of
said bank did appear before us, and did complain of
said assessment, and did present to us certain state-ments
in writing, of which a true copy is hereunto
annexed, marked ' A.'
"That thereupon we, the said Commissioners, did
examine into the said complaint, and, in our judgment,
the said assessment was, and is correct, and we determin-ed
that the actual value of the said capital stock, after
making the aforesaid deductions^ was five hundred and
sixty-one thousand and nine hundred dollars, which we
believed and now believe to he just, and such assessment
stands in the said Annual Record of the Assessed Valua-tion
of Meal and Personal Estate as an assessment for
that amount against the said bank."
So far, your Honors will perceive that no allusion is
10
made to tlie law of 1863, wliicli, it is claimed, effected an
alteration in tlie risrlit of the Tax Commissioners to tax
moneyed corporations having their capital invested in
government securities. Having returned that they had
assessed the cajoital stock of this bank at its actual value,
they then proceed :
" That said assessment so made, and our action there-upon,
were under and in pursuance of the several laws of
the State of ISTew York, relating to the assessment and
collection of taxes in the city and county of New York.
"And we do further certify aud return that the said.
The Bank of the Commonwealth, is, and for several years
last past has been, a banking corporation, created under
and by the Laws of the State of Xew York, and not other-wise;
and under and in pursuance of such laws, enjoys and
has, during all said time, enjoyed certain privileges, and
is and has been subject to certain burdens; and among
other burdens is, and was at the time of such assessment,
subject to assessment and taxation upon ilie value of its
capital stoc\ without regard to the fact that such capital
stock, or any portion of it, might be invested in the pub-lic
stocks, debts, or bonds of the United States ; aud that
such assessment was not made upon the public stocks or
bonds of the United States, but was made pursuant to
11
tlie laws of said State of New York, upon the caintal
-stock of said haiik^ estimated at its just value^ after
making the exceptions and deductions required by the
statutes of said State."
Now, for aught that appears upon this return, every
fact there stated comports exactly with the state and
condition of the law, as existing after the 23assage of the
act of 1857, to which I shall call your Honors' attention,
and under which law the Supreme Court of the United
States declared and decided that the caj^ital stock of this
bank invested in United States stocks was exemjDt from
taxation.
In the year 1859, before the commencement of the
war, and before the discussion of any of those great con-stitutional
questions which have necessarily arisen in the
unsettled condition of our country—in a state of j^eace,
and under a statute of this State, passed in 1857, which
provides that corporations should be taxed uj^on the
actucd value of their capital, The Bank of the Common-wealth,
the present relators, instituted a similar proceed-
,ing on certiorari from the Suj^reme Court to the Tax
Commissioners, for the purpose of procuring exemption
from taxation u23on $103,000 of its capital invested in
United States Stor-l-s of the loan of 1858. The law au-
12
tliorized the clejDosit, by banking associations, of United
States securities for tlie redemjDtion of the bills of the bank.
The Tax Commissioners refused to allow the exemption
claimed, and their decision was affirmed by the Supreme
Court and by the Court of Appeals. The judgment of
this Court was reversed by the Supreme Court of the
United States in March, 1863. This decision was made
without reference to the act of Cons^ress of 1862, declar-ing
that all government stocks should be exempt from
taxation. It was made in reference to investments made
prior to 1859, by the Bank of the Commonwealtli in
government stock issued in 1858, and the right of
exemption from taxation on these investments was sus-tained
by the supreme national tribunal under tJie Con-stitution
of the United States, and not under the act of
Congress of 1862.
The Legislature of this State, shortly after this deter-mination
of the Supreme Court of the United States, on
the 29th of April, 1863, passed an act, which was signed
by the Governor, and took effect as a law on that day.
The following is the entire law :
" An Act in relation to tlw Taxation of Moneyed Cor-poratians
and Associations.
" Section 1. All banks, banking associations, and
other moneyed corporations and associations, shall be lia-
IS
ble to taxation, on a valuation equal to the amount of their
capital stock, paid in, or secured to be paid in, and their
surplus earnings (less ten per cent, of such sur2:)lus), in
the manner now provided by law, deducting the value of
the real estate held by any such corporation or associa-tion,
and taxable as real estate,
" Section 2. This act shall take effect immediately."
(Laws of 1862, ch. 240.)
At this point of the argument, I desire to call the
attention of the Court to the condition of the laws of the
State in resj)ect to the taxation of moneyed corpora-tions.
The general laws in regard to the taxation of banking
corporations, as originally contained in the Revised Sta-tutes,
remained intact, except so far as related to the vo-luntary
banking system, until the year 1853. That sys-tem
was simply to assess the banking corporation on the
nominal amount of its capital stock. If it had lost any-thing
it could not escaj)e taxation ; if it had increased its
capital stock, that increase could not be taxed. The law
continued in this position until the year 1853, with
regard to general moneyed corporations. In the year
1853, the State first began to tax the surplus profits of
,M
the banks. I presume this change in the system of taxa-tion
was suggested by a curious case that arose in the city
of New York. The Chemical Bank, it is said, had adopt-ed
the policy for many years of reserving its surjDlus
funds or profits until they had reached an amount equal
to its original capital stock, and upon which there was
no taxation.
The Hon. James Emott, associate Counsel with Mr.
Bradfoed :—"Three times as much as its original
stock."
Mr. Beadford.—My associate says it was " three times
the amount of their original capital stock." So the
Legislature of this State, by the act of 1853, taxed the
surplus profits of the banks over ten per cent. In 1857,
a law was passed which provided that all moneyed cor-porations
should be taxable on the actual value of their
capital stock, subject to all legal exemptions ; and that
their froperty should be assessed in the same manner as
the other real and personal property in the county. As
this law obliterated the old rule of taxing moneyed corpo-rations
upon the nominal valuation of their capital stock,
and taxed them upon the actual valuation of their cajDi-tal,
the same as an individual, and provided that they
should have the same privilege of exemption as in the
15
case of an individual, it became obviously manifest tliat
if a banking association bad invested its capital, or a
portion thereof, in United States stock which was
exempt from taxation, it should be entitled to the
exemption the same as in case of an individual who had
made such an investment.
On coming with the case of the Bank of the Com-monwealth
to this Court, the ground seems to have been
admitted that if the stock of the bank was exempt
from taxation under the Constitution of the United
States, the bank was entitled to the benefit of the exemp-tion,
both under the Constitution and under the laws of
this State. But this Court held that loans to the general
Government, whether in the hands of individuals or cor^
])orations^ were not exempt from taxation unless they had
been taxed by way of discrimination, and with the evi-dent
intent to affect the loan. On taking that case to the
Supreme Court of the United States, that eminent tri-bunal
adopted the idea of this Court, that a banking
corporation was entitled, under the act of 1857, to all
tlie exemptions to which an individual was entitled ; and
they came, therefore, to the conclusion that, as an indi-vidual
was exempt from taxation upon loans to the gen-eral
Government, so a bank was exempt from taxation
upon loans to the general Government.
1(5
Immediately upon tlie lieel of that decision, tlie Legis-lature
of tliis State passed tlie act under wliicli it is
claimed that the banks are liable to taxation upon their
capital and surplus, notwithstanding the investment
thereof in loans to the United States.
The question now arises, whether the exemption from
taxation upon so much of their capital as the banks have
invested in United States stocks, which exemption was
declared by the judgment of the Supreme Court of the
United States, has been destroyed by this act of poste-rior
State legislation.
PRELDIINAEY QUESTIOjST.
There was a preliminary question raised in the Court
below, which, I sujDpose, will again be presented here, to
this effect : that the relators are not within the provi-sions
of the act giving the benefit of the writ of certiorari
to review the decision of the Tax Commissioners ; and
that, if the relators are correct in their claim of exemp-tion
from taxation, the j^roceeding should have been
instituted against the Board of SujDervisors. I am satis-fied
that from merely a cursory examination of the sta-tute,
your Honors will readily conclude that this position
is not tenable. I will, therefore, not dwell upon it
farther than to mention the answers to the objection.
17
To this proposition we reply, First : That the duty of
the Board of SujDervisors is simjDly ministerial, and in no
respect judicial. The only duty of the Board is to
apportion the tax, authorized to be raised, among the sev-eral
tax-payers, according to the valuations contained in
the assessment roll. They have nothing to do with the
assessment or valuation of the property. The error of
which we complain, lies in the assessment of property
not taxable, and not in the apportionment of the tax by
the Supervisors upon the property returned by the Com-missioners
as taxable.
Second. The duty of the Tax Commissioners is
qiiasi judicial ; and for that reason the writ of certiorari
was given to review, and, if necessary, correct their deci-sion.
It is true the issuing of the writ effects a stay of pro-ceedings
; but the stay applies only to the particular
assessment, and not to the entire assessment roll.
My learned opponent had, in the Court below, an argu-ment
of inconvenience as to the effect of a stay of proceed-ings
in respect to delay in collecting the tax, and expense
growing out of a multitude of suits ; but this would apply
equally to proceedings by way of mandamus against
18
tlie Board of Supervisors. We submit, however, tliat
even if the remedy were not given by the act, the deci-sion
of the Tax Commissioners being judicial, a common
lavr writ of certiorari would lie, and be an appropriate
remedy to correct their determination ; and upon this
point I refer the Court to the cases in Abbot's Digest,
title certiorari. It was urged, however, that the act of
1859 gave the remedy to correct an erroneous decision
of the Tax Commissioners only to persons aggrieved, and
not to corporations. To this I reply that corporations,
though artificial persons, are to be treated as persons
under the general j^rovisions of the tax laws, except
where the context indicates otherwise. That is no modern
rule ; it was applied as long ago as 1823, when this very
question was raised that corporations were not persons,
and therefore did not come within the operation of the
laws relative to taxation. The Supreme Court held that
the general provisions of the laws in respect to taxation
applied as well to corporations as to persons. (The People
vs. Utica Insurance Co., 11 John. R., 358, 382 ; Citing
Clinton Woolen Co. vs. Morse, Supreme Court, 1824.
Ontario Bank vs. Burwell, 10 Wendell, 186.) Moreover
it would seem to be a sound rule, upon general principles,
that as the statute provides the means of assessing cor-porations
as well as individuals, the right to the remedy
to correct an unjust or erroneous decision must be equal-
19
ly applicable to both. It cannot be in the nature of
things that, where a statute has provided means of levy-ing
taxes upon cori^orations and individuals, the writ
which is remedial shall be restricted to one, and not
allowed to the other. Your Honors will find upon
reference to the act, that " person" and " party" are con-vertible
terms ; and the law undoubtedly intended
that any " party" interested should be entitled to the
benefit of this writ by way of appeal. Leaving this
technical question, I invite your Honors' attention to the
merits of the main question, and the highly important
principles involved in this case.
First. My first proposition is, that since the decision
of the Supreme Court of the United States, the supreme
tribunal in all cases involving the supremacy of the Con-stitution
of the United States over State legislation,
there can no longer remain a doubt that the poioer of the
general Government to borrow money upon \\\& faith and
credit of the United States cannot in anyway he impaired
or affected hy State taxation. I say, cannot in any way
be impaired or afifected by State taxation, and that there
is no possible mode of reaching that result. This is the
position I intend to maintain. And further, I respect-fully
submit that, in view of our ol^ligations to the
JSTational Government, the decisions of the State Courts
20
slionld, in all cases, conform not only to the rnle laid
clown by the supreme tribunal, but also to the princi-ples
and grounds uj^on which that rule is based ; and the
same i^roj^osition is applicable to all State legislation,
that it should not only conform to the rule in its formal
and technical dimensions, but also to the grounds and
principles uj)on which the rule has been founded and
enunciated in all their most ample dimensions ; not mere-ly
to the letter, but to the spirit and intent ; and finally,
that it is incumbent upon this high tribunal, whenever the
State Legislature may seem in any respect to have pass-ed
beyond the line of Constitutional duty to the Govern-ment
of the United States in matters Avhich have been
considered and decided by the Supreme Court, to apply
the law as determined by that Court, not with any
narrow and technical views, but with a broad and gene-rous
regard to the spirit of the decision, and the jDrinci-ples
at issue. I resjDectfully submit that, if this is an
obligation incumbent upon the Courts of the States, it is
to be executed and carried out with unsparing certainty.
If, at any time, it appears to come in contact with any
apparent State interests, the latter should succumb and
be entirely disregarded. The National Constitution, and
its judicial interpretation by the Supreme Court, being
the supreme laAv of the land, wherever State legislation
falls short of Constitutional oblio'ations, it becomes the
21
bigli and solemn duty of tlie State Judiciary to inter-pose.
It gives me great j)leasure to state, that I believe
tlie Court of Appeals has conformed to this view in the
previous tax cases which have come before this Court
since the decision of the Supreme Court of the United
States, and have done so cheerfully and heartily, and not
grudgingly.
Second. The rule in respect to the question of State
taxation, as laid down by the Supreme Court of the
United States, imparts, to the power of the general
Government to borrow money, complete immunity. The
line of argument on that point, is briefly this : Congress
has power to levy armies, build navies, establish post-offices,
coin money, regulate trade and commerce, and
horrow money upon the credit of tlie United States. This
power to borrow money is one of the means essential to
the existence of the government theoretically, and, as it
has recently been very clearly evinced, practically. It is
a power, the exercise of which is just as much removed
from State control as is the post-office, or the mint, or
the navy, or the army of the United States. In other
words, it is not the subject of State sovereignty^ because it
is one of the means of carrying on the National Govern-ment,
which, within the line of its functions and powers,
is supreme over all State Governments, and is so declared
22
by the express letter of the National Constitution. In
the cases of The Bank of the Commonwealth and The
Bank of Commerce, to which I have referred, the Su-preme
Court of the United States held, in view of this
principle, that the question whether Government loans
were subject to State taxation or were free, was not
affected by the fact that no selection was made, and they
were taxed only in the aggregate with the tax-payers'
other property, nor upon the fact that there was no dis-crimination
burdensome to this class of property. But the
Court jilaced the exemption from State taxation on the
ground of NATioisrAL Sovereignty ; that the power to
borrow money was one of the means of government ; and
that the stock which represented the loan, when effected,
was not within the scope of State authority, and could
not in any way be touched ; that, being in existence by
virtue of a Constitutional exercise of the National Sove-reignty,
it was beyond the dominion of the State of 'New
York, and could not, in any respect, become tlie subject
of State Sovereignty.
[Recess to 4 o'clock, p.m.]
The Court reassembled at 4 p.m.
Me. Bradford resumed :—In making the remarks
that I have made, and that I am about to make, in re-
23
gard to the decision of tlie Supreme Court of tlie United
States, in tlie cases of The Bank of Commerce and The
Bank of the Commonwealth, I do not desire to be under-stood
as not treating those cases as decisive of the rule
of law upon the subject; but I feel the propriety, if not
necessity, of expounding the reasons and grounds of the
decision, to see how far they are applicable to the ques-tions
now presented to the Court, and how far they may
be avoided or affected by the act of the State Legisla-ture
under which it is claimed the Tax Commissioners
have proceeded.
I maintain the proposition that the rule, as judicially
declared, imparts a coirvplete iiiwiunity to the power of
the Government to borrow money : first, from any
direct interference by the States ; for example, any legis-lative
prohibition to the people of the State to lend to
the Government; second, from any direct or indirect
interference by the States, in respect to the money loaned,
or to be loaned, or the certificates or evidences of
indebtedness.
State taxation, whether directly or indirectly made, is
an interference with this immunity, and is, therefore, un-constitutional
and void. The sole and absolute ground
upon which the Supreme Court of the United States
24
placed tlie cases of McCullongli vs. The State of Mary-land,
and Weston vs. The City of Charleston, was this :
Taxation involves the power to destroy; it proceeds from
a sovereign power which, if it can be exercised in the
slightest degree, can be exercised in any degree. The
question between the Grovernment of the United States
and the State Governments, therefore, is not as to the
extent., or as to the mode., in which the State sovereignty
can be asserted over the power of the general Govern-ment
to borrow money ; but it is as to the very thing
itself, res ipsa. The power of the general Government,
as enunciated by the Constitution, is suiyreme^ and is
therefore exempt wholly, thoroughly, and entirely from
any, even the slightest interference of the State sove-reignty.
We are, therefore, delivered totally from the
inquiry as to the mode of taxation, or as to the extent of
taxation. The inquiry must be simply
—
Is this a tax ?
and if the reply be affirmative, then the immunity springs
up, flowing from the sovereign power of the United
States Government in all matters where, under the Con-stitution,
it has been clothed with authority by the peo-ple.
Your Honors will, therefore, perceive that this
immunity is a complete immunity, and not partial ; it is a
veal immunity, not nominal ; it is an immunity which is
effective for all the purposes for which it is declared. It
protects the money loaned to the Government ; it pro-
25
tects the evidences or securities of debt given by tlie
Government. It declares that the Government shall be a
borrower, without let or hindrance from State authority
;
and, in the same breath, it declares that the lender shall
be a lender without any interference from State author-ity.
In both, as a living energy, a vital power, it throws
the shield of the Constitution entirely around the whole
SGO'pe and extent of the exercise of all functions of the
general Government. It is a complete panoply to the
borrower, the lender, the money loaned, and the security
given. The whole subject, with all its branches and inci-dents
and accessories, is beyond State sovereignty, and
resides under the protection and dominion of the Consti-tution
of the United States.
It follows, therefore, that whether this tax be rea-sonable;
whether it be indiscriminative ; whether it
be on the whole, or on a part of the property; and
whether levied on persons or on corporations, are all
matters of indifference. Taxation upon the credit of the
National Government in any mode, upon any j)erson, or
upon any cojporation, is invalid. The modus is utterly
indifferent. In whatever way taxation may be accom-plished,
it conflicts with the power of the Government
to borrow money, and that power is supreme. The
effect of this rule, now judicially declared, is to withdraw,
4
26
or rather to exclude tlie stocks of tlie Uuited States
entirely from tlie bulk of taxable j)roperty in tlie States.
At the time of the decision of the case of Weston vs. The
City of Charleston, Mr. Justice Thompson, of the Su-preme
Court, dissented from the judgment, and in so
doing he gave what he understood to be the full scope,
measure, and extent of the principle adopted by the Court
on that occasion, and he gave it as the reason why he
dissented. He stated that he understood the Court to
hold that the stock was not the subject of taxation in
any form whatever ; that, as he interpreted the conclu-sion
of the Court, it was tantamount to saying:
" The stock is not taxable in any shape or manner
whatever ; it is not to be included in the estimate of
property subject to taxation."
(2 Peters'3 R., 4T5.)
Mr. Chief Justice Denio, in this Court, in the case
of The Bank of the Commonwealth, stated with great
exactness, and distinctness, and persj)icuity, what the
real question at issue involves :
" The cpiestion recurs, whether there is anything in the
Constitution of the United States which, by a fair
27
interpretation, forbids this State, under the tax laws, from
including in tlie aggregate valuation of tlie tax-payer's
property, in respect of wliicli lie is to be taxed, money
wMcb lie has lent to the Federal Government, for which
he holds its evidence of indebtedness."
A most clear statement of the real proposition
involved—,and which is answered by the Supreme Court
of the United States, in the opinion of Mr. Justice Nel-son,
in the same case, on appeal, where he says :
" We have a principle, which leaves the power of tax-ing
the people and property of a State unimpaired
;
which leaves to a State the command of all its resources
(that is, its own resources), and which places beyond its
reach all those powers which are conferred by the peo-ple
of the United States on the Government of the
Union, and all those means which are given for the jDur-pose
of carrying these powers into execution. We have
a principle which is safe for the States, and safe for the
Union."
Bank of Commerce vs. Tax Commissioners. 25 Howard, Pr, E. p. 9.
Now, the operation and effect of the rule are precisely
such as suggested in this opinion. We have a principle
which ^^places heyond the reacli^^ of State authority,
28
what ?
—
Tlie ^xncer of the general Government to horrow
money. " Beyond the reach !" beyond all State sovereign-ty,
all interference or control, and, inter alia., beyond all
the means and appliances of taxation. This power to bor-row
money on the credit and faith of the United States
is left with the highest attribute of sujDremacy—freedom.
Thus far there would seem to be no difficulty in
readily arriving at a just conclusion. But the idea was
advanced at an early period of the discussion in the case
of The Bank of the Commonwealth, and was presented
in each of the tribunals to which the controversy was
carried, that the State possesses a sovereign power over
corjDorations ; that corporations, being creations existing
simply by virtue of State legislation, they are obligated
by every act of the power which created them, Avhether
exercised by way of general taxation or taxation upon
their corporate powers or franchise. If this position be
sound, then it is urged that, although their j^roperty be
invested in securities of the United States, they have no
right to claim any exemj^tion from the burdens of State
taxation.
Now, within the whole sco2:)e of this controversy, there
is really no ground for serious dispute, except so far as
may be afforded by this position in respect to corpora-tions.
I maintain, in refutation of it, that pro2)erti/ is all
29
that is taxable by tlie laws of tlie State of New York.
Doubtless the Legislature may pass a law placing taxation
on corporate franchises, but it will be time enough to
consider its effect when such legislation is effected. As
the matter now stands, all that is taxable by the laws of
the State of New York is real andlyersonal estate.
Chief Justice Denio.—Is it your opinion that, if this
act had professed in words to tax the franchise, irre-spective
of the j)roperty owned by a corporation, that
would have been in violation of the decision of the Su-preme
Court of the United States ?
Mk. Bradford.—I think so ; that is, of the grounds
and principles of that decision.
Chief Justice Denio.—You hold that this statute is
not to that effect ?
Mr. Bradford.—I do not think it is. It will defy the
power and ingenuity of man to levy a tax upon the
franchise of a corporation except in two modes. It
must be a general tax like a poll-tax, ten dollars a head,
or $50,000 a year; or it must be a tax with graduation
in respect to property.
80
Chief Justice Deistio.—I mean a tax n2")on the fran-chise
measured by the capital paid in.
Mr. Beadfoed.—Then you tax the franchise according
to the amount of property which the party possesses, and
that is a tax on property. You must rate it either upon
the principle of an arbitrary tax upon the franchise, that
is you must rate it as a poll-tax ; or you must make it
variable, according to the amount of capital originally
paid in, or continuing to exist ; and then it becomes a tax
which varies according to tlie amount of^^I'opertif.
But I take the law as it is ; I do not believe that the
State Legislature ever will deliberately place a tax upon
the franchise of a corporation, which shall be rated not
according to its property, but generally in a gross
sum,—in order to accomplish the object of taxing United
States securities in avoidance of a decision of the Supreme
Court of the United States. I contend, moreover, there
are no corporate franchises in this State, in the ordinary
signification of the term, as implying a bounty or dona-tion,
a special grant or freedom ; but that corporations,
under the general corporation act, possess constitutional
rights which cannot be made the subject of special taxa-tion.
Thied. The act of April, 1863, directs that moneyed
81
corporations shall be taxed in tlie manner now provided
l>y law. We are referred, therefore, to all the existing
statutes of the State for the interpretation and applica-tion
of this act of 1863. Under the general statutes of
the State of New York, there is no subject of taxation
except " lands" and " personal estate." Nothing is taxed
except Property.
(1 Pw S. p. 388, § 1.)
The first title of the chapter '' of the Assessment and
Collection of Taxes," is entitled " of the property liable
to taxation ;" and the first section declares, that " all lands
and all personal estate within this State, whether owned
by individuals or by corporations^ shall be liable to taxa-tion,
subject to the exemptions hereinafter specified." In
other words, property is taxable, whether real or perso-nal,
and whether owned by individuals or corporations ;
no distinction is made as to the ownership ; whether pri-vate
or corporate, it is all taxable alike. :
By the third section, the terms " personal estate," or
" personal property," are defined to include " public
stocks and stocks in moneyed corporations," and also
" such portion of the capital of incorporated companies,
liable to taxation on their capital, as shall not be invest-ed
in real estate." Here we have an exact definition. It
32
is orAy 2^^W^^''^ll ^^^^ ^* taxed ; taxable irmperty consists
of two kinds—real and personal ^ and the words " perso-nal
property" are declared to include so much of the
capital of incorporated companies liable to taxation on
their capital as shall not be invested in real estate. Ad-hering
to this terminology", the consequence is, through-out
that statute, wherever we find the phrase " ccqntal of
a corporation," we must hold it to mean ''• propertij of a
corporation."
The exemptions from taxation show also that it is
oyAj projyertij which is taxed. By the fourth section it is
declared : " The following property shall be exempt from
taxation : all property^ real and personal, exempted from
taxation by the Constitution of this State, or under the
Constitution of the United StatesT After definino- that
"personal property" includes "the capital of incor23orat-ed
companies," the statute proceeds to say, that what-ever
is exempt from taxation under the Constitution of
the United States shall be exempt under the laws of this
State ; and not making any distinction as to such exemp-tion,
whether claimed in behalf of the property of corpo-rations
or individuals. I believe, and always have
believed, that the Legislature of New York, in enacting
this provision in regard to exemptions under the Consti-tution
of the United States, had express reference to the
33
case of Weston vs. The City of Charleston, in which the
Supreme Court of the United States decided that Go-vernment
stocks were not the subject of State taxation.
The course of State legislation on this point is worthy
of attention. As early as 1813, taxes were laid on all
public stocks, including stocks of the United States ;
that was before the decision Avas made in the case of
McCullough vs. The State of Maryland, in which it was
held that the Bank of the United States was not taxa-ble.
Afterwards, by the laws of 1823, it was provided
that all real estate belonging to the United States, and
all personal property exempted from taxation by some
law of the United States, should be exempt from State
taxation. This new provision still, however, did not
reach the case of exemption under the Constitution., with-out
any law. But in 1829, the decision was announced
in the case of Weston vs. The City of Charleston, in
which the Suj^reme Court held that United States stocks
were exempt from State taxation, under the Constitution ;
and then the change was made from the exemption of
property exempted by some law of the United States,
to the exemption of such property as was free under the
Constitution of the United States. Your Honors well
know that this famous decision proceeded on the ground
that, although there was no laiv that exempted the
34
Government stock from State taxation, yet, hy tlie sole
vio-or of tlie Constitution itself the freedom from taxa-tion
existed. This would seem to leave no doubt that
the change made on the revision of the Statutes in 1830,
to which I have adverted, was made in reference to that
very decision, and with a view to conform to it by State
legislation.
But to return to the proposition I was discussing
—
that it is only propertij which is taxal)le in this State
I submit that the other exemptions provided by the
statute assist towards the same conclusion. Thus the
following is declared not to be taxable: 1. All laiuU-belonging
to this State or to the United States. 2,
Every building erected for the use of a college, incorpo-rated
academy, or other seminary of learning ; every
building for public worship ; every school-house, court-house,
and jail, and the several lots whereon such build-ings
are situated, and ih^ furniture belonging to each of
them. 3. Every poor-house, alms-house, house of in-dustry,
and every house belonging to a company incorpo-rated
for the reformation of offenders, and the real and
personal property belonging to or connected with the
same. 4. The real and ^evQomxi p)roperty of every pub-lic
library. 5. All stochs owned by the State, or by lite-rary
or charitable institutions. G. The personal estate
35
of every incorporated com'pany^ not made liable to taxa-tion
on its caiyiial. 7. The 'personal property of every
minister of the gospel or jDriest of any denomination, and
the real estate of snch minister oj* priest, when occupied
by him, provided snch real and personal estate do not
exceed the value of one thousand five hundred dollars.
8. A\\ p)rop)erty exempted by law from execution.
That it is only property which is taxable, further
appears by the seventh section of the statute, which
provides that the owner or holder of any stock in any
incorporated company liahle to taxation on its capital^
shall not be taxed as an individual for such stock.
Again, in the second title, as to " the place and man-ner
in which property is to be assessed." Section six
provides that the real estate of all incorporated compa-nies
liable to taxation shall be assessed in the town or
ward in which the same shall be, in the same manner as
the real estate of individucds ' and all the pei'sonal estate
of every incorporated company^ liable to taxation on its
capital, shall be assessed in the town or ward where
the principal office is ; language which continues to
include, under the tei'm of "personal estate," the pro-perty
or "capital" of incorporated companies.
36
That it is only proj)erty wliicli is taxable, furtlier ap-pears
by the provisions of the fourth title, declaring
that "all moneyed or stock corporations deriving an
income or profit from their capital, shall be liable to tax-ation
on their capital in the manner" thereinafter de-scribed.
By the sixth section of this title, the assessors
are required to enter upon their assessment rolls " the
pwpertif of all incorporated companies—namely, the
amount of " capital stock" paid in and secured to be
paid in. Here we have the exact relation of these terms.
The general term or major includes all the particulars.
Having required the proj)ert]j to be entered on the
assessment roll, the statute carefully enumerates the va-rious
kinds of property intended—namely, the amount
of the capital stock, the amount invested in real estate,
the amount belonging to the State, or to incorporated
literai-y, and charitaljle institutions. So it appears by
the very words of the statute, tliat, independently of pro-fits
and investments in real estate, the property of a
corporation and the capital stock of a corporation are
identically the same thing.
Fourth. There is a clear and well defined distinction
between a tax upon property and a tax upon persons,
natural or artificial. There may be a poll or capitation
tax ; also personal requisitions to perform public duties ;
m
and likewise taxes upon certain acts and trades, or fran-chises
by way of license or excise. These are all in their
nature essentially different from a tax on property. If
levied, tliey must, of necessity, be fixed at some arbitrary
sum ; if not, then tliey must be rated according to pro-perty,
and so would become substantially a tax on pro-perty.
Our State Las not provided any mode of assess-ing
or levying such duties in the provisions relating to
the taxation of pwpeHij. If they can be assessed and
levied, it must be by some system independent of the
method of taxing ])roperty^ contained in the Revised
Statutes. For the law, as it now stands, is utterly want-ing
in the means of levying and collecting a poll-tax or
a tax on corporate franchises ; its provisions relate solely
and simply to a tax on property, real and 23ersonal ; all
its machinery is adapted to that single purpose, and
none of it can be made effective towards levying or col-lecting
any other tax.
Fifth. It is of no material consequence whether a
tax be levied on a jDerson natural or artificial in respect
to property, or on the proiyerty itself. Of necessity, the
law can act primarily upon the person who is the owner
;
that is the most natural, the most easy, and the most
effective way of levying a tax, because it affords a
double security—the security of the person, and the
38
security of the property. But it is substantially the
same tbing, in a pecuniary sense, wlietlier tlie State
taxes the owner in respect of the property, or taxes the
property itself; as, in each event, the owner loses part
of the property. So it is clear that, under an}^ system
where property is the criterion of taxation and affords
the basis of a rate of assessment, the tax may be said to
be a tax upon the property, or a tax u2:)on the jDerson
or institution owning it in respect to such property. It
is only a different mode of announcing the same proj^o-sition.
" In this State," citing the opinion of Mr. Jus-tice
Comstock, in the case of The Bank of the Common-wealth,
which does not appear to have been disj^uted
on this point—" In this State, all taxation is upon pro-perty.
It is the same thing, in substance, to say that
it is upon the owner in respect to property."—23. N. 11
.
R. 192.
It is true, there may be a difference in the mode
of assessing and valuing the property of a person
and the propei'ty of a corporation. But let us sup-pose
that the mode is the same in each case, accord-ing
to the determination of Mr. Justice Denio in the
case of The Bank of the Commonwealth.
Assuming that the mode of taxing a person and
39
taxing a corporation is tlie same—that is, upon the
actual value of the property ; then, as to exemj)tions
from taxation under the Constitution of the United
States, the position of a corporation, to quote the lan-guage
of Chief Justice Denio, " is precisely the same
as that of an individual tax-payer. It is, as a general
rule, assessed and taxed for all its jDroj^erty of every
kind ; but there is an exception as to such part of its
property as the Constitution and laws of the Union and
of the States have, ujDon special reasons of policy,
declared shall be exempted. Whether such exempt
property is found in the hands of an individual, or in
the possession of a corporation taxed upon the actual
value of its capital, the rule is the same ; the exempt
property is to be deducted from the aggregate valua-tion,
and the tax is to be imposed on the residue."—23.
iV: Y. R. 192.
Chief Justice Denio.—I was speaking of the act of
1857 then, I think.
Me. Beadford.—Yes, sir. Supposing they were taxed
upon-the actual value, then your Honor said : " The rule
is the same ; the exempt property is to be deducted
from the aggregate valuation, and the tax is to be
imposed upon the residue." In other words, assuming
40
that the mode of taxing an individual and of taxing a
corporation is the same—that is, upon the actual value
of their jDroperty—then, in each case, the exempt pro-perty
must be deducted, and the corporation or indi-vidual
can only be taxed upon the residue. The single
question left, therefore, was for the learned judge to
determine whether this property was exempt under the
Constitution of the United States.
Sixth. My next proposition is, that the privilege of
exemption from taxation on so much property as may
have been loaned to the Government of the United
States, cannot be made to depend ujDon tlie mode of
valuation^ either of the property of an individual or
the property of a corporation.
One of the ways in which it is supposed that the
immunity of the stock of the Government from taxation
can be—I will not say evaded, but av^oided or escaped
—
is for the State to say—AVe do not tax moneyed cor-porations
upon the money which they have loaned to
the general Government, nor upon the stock which they
have received in lieu thereof, for that would require an
actual valuation ; but we tax them upon the property
which they had before they made that loan—upon its
nominal value at that time.
41
^ Now, if tlie power of the Government of tlie United
States to borrow money, can be made dependent upon
the manner in which the State LegisLature values the
property of a corporation or of an individual, then the
power is utterly at the mercy of State Legislation. If
the State can by its laws say to a corporation—" We
do not tax you upon the money you have loaned to the
United States Government, for youliave parted with tltai
money, and it belongs to the general government ; we
do not tax you upon the security you have taken in lien
thereof from the United States Government, for that is a
part of the process and machinery of borrowing money,
but we tax you upon the money you had the instant
before you made the loan to the United States'''—i^^m
the power of the general government is utter emptiness
;
its credit is completely worthless, lying exposed to the
ingenious methods by which the States may vary the
mode of assault, . '
It is obvious also that the same covered way in v/hich
the attack is made on a corporation, may be made on
an individual—the State can tax a person on what he
had^ and not on what he has ; can say, it is true you
have loaned your money to the United States, and it is
no logger yours, and we cannot tax it, because it belongs
to the government, and not to you ; we cannot tax the
42
security which the government has given you in lieu of
your money, but we will tax you upon the nominal value
of your property a day, or a -week, or a month, before
you made the loan. Surely, if such a course be right,
and legal, and constitutional, then the freedom of the
power of the United States from State taxation depends
merely upon modes and forms and names, and not
upon substantial ground of principle. But if on the
other hand, it be obvious that the effect of such a tax
will fall upon the government as an impediment to the
power of borrowing money, and if that power is supreme
and beyond the reach of State Legislation, then there
can be no possible constitutional way of effecting such a
result as to make the superior subject to the inferior.
We ask upon what jDrinciple is the exemption from
taxation maintained ?
Simply this : The government has the money of the
individual, or of the corporation, by way of loan, and has
given security for its return, and if the State tax assessor
looks upon the property which the party having made
such a loan now oivns^ he finds nothing which is taxa-ble
; the security being protected from taxation. If,
then, to escaj)e the immunity thus thrown over the secu-rit}^,
the assessor be directed not to look to the actual
mode of investment, but to its previous condition, and so
43
assess the owner of tlie United States Stocks upon the
retrospective position and value of his property, and not
upon its present condition and value, this is a plain and
palpable evasion of the National Sovereignty by mere
dexterity of State Legislation. With great respect for
those who urge such a view, this coarse cannot be admit-ted
; in the very nature of things, a great fundamental,
constitutional, national power cannot be impaired, eva-ded,
or paralysed by legislation of that kind, which is
entirely artificial in its character, and refuses to regard
things in their true, real, and natural position, and in
their actual and vital relations.
The immunity of the General Government in the exer-cise
of its constitutional power to borrow money, from
State taxation, is communicable or transmissible. It
passes from the government, the borrower, to the indi-vidual
or corjDorate lender. Its source and fountain
consist in the supremacy of the Constitution and the
National Government, whence flow as with a stream all
original qualities characterizing the jDrimary source. It
is a quality inherent in the exercise of the functions of
government, and which secures to that exercise the full-est
measure of freedom, in its remotest results and con-sequences.
As the constitution is ^the supreme law of
the land, and every power confided to the general gov-
44
ernment is beyond all restraint and limit, it has no
boundaries, and no master, tlirongli the length and
breadth of the land ; and in the single majesty of its
power, it extends its protection to all who trust in its
sovereignty.
In the transaction of loaning to the United States, the
lender in full faith has placed his money in the govern-ment
coffers, and has received in return from the bor-rower
as security, a pledge to pay. His property is
gone ; he has no property in lieu of it except the public
faith thus assured to him; and his immunity from taxa-tion
arises from the fact that he has made that loan and
accepted that security on the credit of the United
States, and the guaranties of the Constitution. This
immunity attaches to the security wherever it goes.
It passes from hand to hand, from bank to bank,
from coffer to coffer ; wherever that little piece of paper
appears, it carries with it the immunity of the general
government and its creditors from any and every kind
of State imposition, interference, or taxation.
Now, the act in question under which this tax was
levied, if it has any effect whatever, has undertaken to
declare that a bank, which may have its whole capital
and surplus profits invested in government securities,
45
shall be taxed the same as before ; as of a valuation at
the time its capital was paid in, or secured to be paid in,
including its surplus except ten per cent., and under this
direction, the assessors have included in the taxable pro-perty
of the bank its entire original capital, and its sur-plus,
notwithstanding the bank has loaned the whole
capital and surplus to the government of the United
States. The State refuses to res^ard the fact that the
capital no longer exists in its original form, and has all
been loaned to the United States, but goes back to the
remote period when its cajjital was paid in, or secured to
be paid, and taxes what the bank owned then, and no
longer owns now ; taxes it as of that date, and not of
this date. We insist that this cannot be done, without a
violation of the Constitution.
Seventh. Nor can the privilege of exemption from
taxation be independent of the mode of investment. To
say that the State does not tax the power to borrow
money, nor the credit of the government, nor the evi-dence
of debt in the hands of the lender, but only taxes
the lender upon a fixed valuation, without regard to the
manner in which his money has been invested, is mani-festly
equivalent to saying that the mode of investment
is indifferent. The answer to this suggestion is, that the
tax necessarily falls on the government in whatever way
46
it is levied. The tax affects the value of the stock, aud the
power to borrow. The government which borrows
money subject to taxation, will receive as much per cen-tum
from the lender as would nearly equal a capital
sufficient to raise an interest equivalent to the rate of
taxation (Smith's Wealth of Nations, 2, p. 278), and stock
which at par would pay six per cent, interest without
taxation, would be worth sixty-six cents on the dollar, if
the lender should be obliged to pay a tax of two j^er
cent., supposing the debt perpetually funded. The tax is
evidently a direct and immediate impediment to the
power of borrowing money. If it reached six per cent,
it would exclude the United States from the market.
It is the unfortunate condition of all borrowers, that
they pay all the expenses of borrowing. The lender will
never lend his money, except upon receiving an adequate
return for the employment of his caj^ital, equal to, if
not greater than what he would receive if the capital were
employed in other modes of investment. This view is
elaborated by Mr. Smith, in the place I have noted.
Any depreciation always necessarily ftxlls upon the bor-rower.
This is a universal rule, running through the
whole range of political economy. The practical effect
of this principle may be examined by reference to invest-ments
in United States Stock in the city of New York.
47
The loans redeemable in five or twenty years, known aa
the five-twenties, pay interest at the rate of six per cent,
in gold. The individual lender, who, since the decision of
the Sujireme Court of the United States, in the cases of
The Bank of the Commonwealth and The Bank of Com-merce,
is certainly free from all taxation, finds liere a
stock offered to his hand, whicli produces six per cent,
per annum, free from all taxation. The taxes in the city
of New York are at present two and a lialf per cent.,
with a fair prospect of advancement in the future ; and
he argues very reasonably : " If I loan upon bond and
mortgage, at six per cent, interest, I will have to deduct
two and a half or three per cent, for taxes ; but if I loan
to the government, I will be free from taxation, and will
receive six per cent, from my adventure ; I will, there-fore,
loan to the government."" Now suj^pose the govern-ment
applies for a loan, subject to State taxation, what
would be the result ? On a six per cent, loan at par, or
one hundred, it takes at least thirty-three j)er cent, to
pay a two j^er cent, tax, and if it w^ere a perpetual loan,
instead of being sold at one hundred, the stock would be
reduced to sixty-six. Who bears this loss ? The loss
falls on the government. Just as the tax is laid or not
laid, so the stock rises and falls. The lender is not com-pelled
to loan. The tax makes no difierence to him, for
in loaning he will give a rate reduced enough to make
48
up for the tax. When he can get a loan free from taxa-tion
at six per cent., he will give one hundred dollars in
money for one hundred dollars in stock ; but if he loans
subject to a tax of two and a half per cent., the stock is
not worth more than sixty, and that is all that he will
give, and the difference between sixty and one hundred
is to be borne by the government.
So I say that a tax ujDon United States Stocks in all
cases is a tax uj)on the Government of the United States,
and upon its means of borrowing money. There is no pos-sible
way by which we can escajDe that conclusion,
because it is the inevitable consequence of the laws of
trade and of political economy, which cannot be affected
or controlled by legislation. It cannot be arranged, or
contrived, that a tax upon securities issued by the gov-ernment
shall fall anywhere but on that government.
The rule is just as certain as the law of gravitation ; it is
governed by universal principles, beyond the reach of
mortal man in any of his efforts, individual or legislative.
This conceded, Ave must note another important con-sideration
: If the loss falls upon the general govern-ment,
it is to be paid by the people. This is not a con-flict
between state sovereigntj^ and the general govern-ment,
in respect to pecuniary interests. The people have
49
to bear the loss arising from the tax, and so your
Honors will perceive, that in the end it will amount to
the same thing, regarding the question as a mere matter
of naoney. Looking at it simj^ly in its pecuniary rela-tions,
if the State gain more by taxation of the general
government, and the general government lose, the j^eo-ple
have still to pay in some form or another.
It seems to have been forgotten that the people have
two governments to support, the one national^ and the
other domestic. And they must sustain and uphold
these two governments by their property and their
money. And if one of these governments impedes in
any way the operations of the other government, it is
our own agents on the one hand impeding the operations
of our own agents on the other hand ; and both gov-ernments
have in the end to come back to the projDerty
of their people for support and maintenance. If this
year the government of the United States loses a mil-lion
of dollars by reason of State taxation, and the con-sequent
reduction in the value of the securities of the
United States, we shall have to make it up in the end.
It is an utter fallacy to suppose that this is a matter of
pecuniary interest—it is nothing of the kind, but it is a
question of organic power, in respect to a function of the
National Government actually necessary to its existence.
7
50
There are two methods supplied by the Coustitution
for obtaining the means of supporting the National Gov-ernment:
One that afforded by taxation, and the
other by the power to borrow money on the faith and
credit of the United States ; the former is ordinarily
sufficient in time of peace, the latter is essential in time
of war.
The National Constitution was not made for peace only,
but also for war. It was planned and adopted by a race
of men who had, with a slight intermission, been plunged
for man}^ many years into the evils and horrors of two
dreadful wars, and who were deeply impressed with all
the necessities growing out of a state of continued
hostilities, and with the propriety of clothing the govern-ment
with every possible muniment of power fitted for
that condition. It is a Constitution, which upon its face
by express terms looks to the possibility of invasion and
insurrection, and which, for those purposes, confides the
whole power of National Government into the hands of
its own chosen officers. It gives that government power
to make war and treaties of peace ; to coin money, to
raise armies and build navies. It contemj^lated with
prophetic vision the probability, if not necessity, of this
nation going through the same fiery trials and struggles
of war, that have marked the history of other nations so
61
continuously, that it almost seems to be true, that war is
the natural condition of man.
Now, the power to tax is in its movements cumbersome
and tardy. There are great exigencies in the history of
every people, in which it is impossible by the means of
taxation alone, to supply the pecuniary resources neces-sary
to meet the emergency. Therefore the power to
borrow money was given in addition to the power to tax.
It was a separate and independent power, and bestowed
for the reason that it affords in a sudden crisis the means
of speedily raising sums of money, for which the nation
could not wait until the tax-gatherer performed his slow
journey.
Where would this government have been at the com-mencement
of the present rebellion, if it had only had
power to tax, or only power to borrow money from indi-viduals
? When the Secretary of the Treasury came to
the city of New York in the spring of 1861, for the pur-pose
of effecting a loan, our country was apparently
trembling on the verge of destruction—if he had been
limited in efforts to borrow, to the individual capitalists
of New York, is it supposable that the requisite amount
could have been supplied with promptness ? And in
Sej)tember, 1861, when he obtained from the banks of
52
New York, $150,000,000, what would have been the
consequence if the government had been prohibited from
borrowing from corporations ?
Take all the private capitalists of New York together,
and granting the existence of every motive of generosity
and patriotism, could they possibly have advanced the
money with the requisite speed ? But is it certain he
would not have been met with cold calculations as to
security, and the difficulties of raising money ? Put all
the capitalists of New York together, outside of the
banks, and could they have raised $50,000,000 ? These
questions cannot be answered without admitting that the
power to borrow money, and especially to borrow of
corporations possessing a great aggregation of capital, is
vital to the existence of the government. I suppose that
nothing in our recent history is more obvious than that,
if at that time the banks of New York had acted grudg-ingly
; if they had not come forward freely, boldly, with-out
consultation with their stockholders, and placed this
money at the disposal of the government, the Union
would have crumbled into ruins.
If, then, it be a matter of entire lyecimiary indifference^
as between the state and general government, whether
this power to borrow be free from State taxation,
53
for the reason that in the end we have to support b€>tb
governments, and pay both taxes, then I ask why not
leave this power to borrow money to the general gov-ernment,
which it is necessary to draw upon as soon as
you draw the sword, unimpeded and unimpaired ? Why
not leave it intact, and declare it, as the Supreme Tribunal
has declared it to be, sovereign over all powers, and;
beyond the reach of State taxation I
Eighth. It has been urged, however, in justificatioD
of this tax, that " corporations are the mere creatures of
the Legislature, which may impose upon them such
restrictions and limitations as it pleases for the privileges
and advantages which it confers.
"
If this proposition be sound in all its length and breadth,
then it is within State authority to compel a corporation
to pay taxes on government securities—a power which it
has just been decided b}^ the Supreme Court of the
United States, the State does not possess.
If it be repugnant to the Constitution, to tax individuals
and corporations cm Government securities directly^ how
can it be less so to tax corporations on the ground they
are " mere creatures of the Legislature ?" To sustain
this argument, the sovereignty over a corporation,,
54
because it is a corporation, must be unlimited, and yet it
has beea decided by 'the Supreme Court of the United
States, that it is limited in respect to this very subject,
the power of taxation.
It is not the different guise of the act of legislation, nor
whether it be exercised under one form of sovereignty or
another, which constitutes the rule of exemption or uou-exemption—
but the exemption flows from the immunity
of the thing itself—the credit of the United States. " If
it has been shown that stocks of the United States Gov-ernment
cannot be subjected to taxation when owned by
an individual, the rule is necessarily the same when they
are held by a corporation, ^flie rule is the exemption of
the thing or subject^ and it has no respect to the owner-ship.
There is not one interpretation of the Federal
Constitution when an individual claims exemption under
it, and another one when a corporation makes the same
claim." Comstock J., 23, N. Y. R. p. 192.
In this connection, it is to be observed that the bank-ing
associations incorporated under the act of 1838, have
power to lend money to the General Government. This
power is given by State Legislation. They have made
the investment thus authorized, and acquired proj3erty
exempt from taxation.
55
" The suggestion lias been made," says Mr. Justice
Comstock, "that the Legislature may tax corporations in
any mode and to any extent as the price of the privi-leges
and franchises conferred in their charters. This is
true as to all subjects to which the taxing power of the.
State extends. But when a corporation acquires pro-perty
which is absolutely exempt from all burdens
imposed by the States, under the higher authority of the
Constitution of the United States, by inevitable logic,
such property is acquired and held free from taxation."
" The exemption, if it exists at all, is the result of a con-stitutional
principle, which operates in all circumstances,
and follows the property wherever it goes." 23, N. Y.
R. p. 193.
We deny, however, that the authority of the State
ov^r corporations can be exercised so as to become the
indirect medium of taxing the credit of the General Gov-ernment.
This is claimed under the power to alter charters.
That power was reserved for good and beneficent pur-poses,
and for the furtherance of the public welfare. So
far as its exercise is made the medium by which uncon-stitutional
objects are sought to be gained, the object of
5&
the reservation is transcended. The reservation extends
to a full repeal—the same power which conld modify the
law so as to levy the tax indirectly, could denounce the
extinction of the banks if they failed to pay a tax on
United States stocks.
If this power be supreme it can levy the tax directly.
It cannot be needful to travel through hyivays to exer-cise
its sovereignty.
But that, in respect to the Constitutional powers of
the general government, the State has no greater power
over corporations than it has over individuals, is mani-fest
from the late decision of this Court in the case of
the Metropolitan Bank vs. Van Dyck. There the power
of the Bank Superintendent to compel payment of bank
notes, was held subordinate to the power of the Govern-ment
to make treasury notes a legal tender. The
analogy was recognised, to the immunity of the Govern-ment
securities from State taxation, declared in the case
of the Bank of the Commonwealth, in the United States
Supreme Court.
But in the sense of sjoecial grants, privileges and fran-chises,
there are no longer any charters, under the Gene-ral
Incorporation Acts of this State.
67
By the Constitution of 1846, it was provided that:
—
" Corporations may be formed under general laws, hut
shall not be created by special act, excej^t for municipal
purposes, and in cases where, in the judgment of the
Legislature, the object of the corporation cannot be
attained under general laws. All general laws and
special acts, passed pursuant to this section, may be
altered from time to time or repealed." Art. 8, Sec. 1
.
Upon this change in the organic law, it became obvi-ous
that the idea of special franchises, excej)t in particu-lar
cases, had been abandoned. Corporations were no
longer esteemed as the recipients of special grants, or
royalties, but simply as bodies, coming into existence by
their own volition under general laws for the benefit ot
the State. They were subjects of favor and approbation,
and justly regarded as objects of encouragement. Their
creation was invited, not conceded. They were recog-nised
as the great engines of modern civilization, pre-senting
a combination of capital, skill, and labor for the
benefit of all the industrial, commercial, and benevolent
interests of society.
The Legislature of 1847, acting in harmony with the
spirit of this section of the Constitution, provided as fol-lows
: " All individual bankers, and all bankiusf associa-
58
tioiis, which are now, or sliall be hereafter^ engaged in the
business of banking, under the provisions of the act enti-tled
' An Act to authorise the business of banking,' shall
be subject to taxation on the full amount of actual capi-tal
paid in, or secured to be paid in, as such capital,
severally, at the ctctual marliet value of such securities, to
be estimated by the Comptroller, without any deduction
for the debts of such individual banker or banking asso-ciation.""
Laws 1 847.
3. At an early period in the legislation of this State,
a discrimination was made between manufacturing cor-porations
and other corporations. This discrimination
originated as early as the year 1817, when the "Ameri-can
System" was in vogue, and when it was thought wise
and patriotic to encourage domestic manufactures.
The preference in favor of this class of companies was
indicated—1. By allowing them to be formed undei-general
acts of incorporation. 2. By taxing them only
upon the actual value of their stock. (The People vs.
The Utica Ins. Co., 15 J. R., 382 ; The Columbian Manu-facturing
Co. vs. Vanderpoel, 4 Cowen, 557 ; The Bank
of Utica vs. The City of Utica, 4 Paige, 402 ; The Union
Cotton Manufacturing Co. vs. The Supervisors of Oneida,
1 Barl>. Ch. Pv., 448.)
.59
When, by the mandate of the Constitution, the Legis-lature
was called upon to pass general acts of incorpora-tion,
and was forbidden to grant special charters, except
for ruunicipal purposes, etc., it seemed proper to place
the banks, then existing, under the act of 1838, on the
same footing as manufacturing companies ; and this no
doubt led to the provision of the act of 1847, taxing the
banks upon the market value of their capital.
In 1853, another change took place approximating the
mode of taxing corporations to that of individuals. All
corporations were made taxable on surplus profits
exceeding ten per cent. (Laws of 1853, Ch. 654, p.
1240.)
Finally by the act of 1857, all distinctions in respect
to corporations, however, or for whatsoever purpose
created, were swept away. The provisions of the revised
statutes relating to the taxation of manufacturing, turn-pike
and marine Insurance companies were repealed, and
all corporations were made taxable on the ^'actual
value''' of capital, except so much as might be " exempted
by law^'' and the capital was directed to be " taxed in the
same manner as the other personal and real estate of the
county. (Laws, 1857, Ch. 456.") (Sections 7, 11, 12,
13, of title 4, 1 K. S. 414, were repealed by Ch. 634,
60
Laws, 1853. Sections, 9, 10 14 were repealed by Ch.
456, Laws, 1857.)
We may justly conclude then from the wliole tenor of
the State Leofislation, and from the Constitution of 1846,
that there is no countenance to be given to the idea of
any special favor, or act of royalty in the creation of cor-porations.
They receive nothing from Legislative
bounty for which they are bound to pay. They come
into existence by general statutes, and by the will of the
people expressed in the organic law.
They are subjects of the taxing power, the same as
individuals, upon the general ground of State sovereignty,
and not by reason of being recipients of Legislative favor.
The act of the Legislature now under consideration, if
held to operate as an effective tax on the banks, is liable
to another grave objection.
From the passage of the act of 1857 to April 1863, a
period of six years, the banks were exempt from taxa-tion
on funds loaned to the United States, whatever may
have been the just construction of the statutes previous
to 1857. {Dolloway vs. The Oswego Starch Factory^ 21
N. Y. R. 449.)
61
The baiiks liad previously to 1863, under State author-ity
(Laws, 1840, Ch. 313 ; Laws of 1849, Ch. 313,) been
invited to purchase Government securities. They had
in full view of the immunity from taxation, under the
Constitution of the United States, and under the Consti-tution
and laws of this State, loaned large amounts to
the General Government, sustaining its finances during a
period of great pressure.
Confessedly these securities now held were acquired
during a period from 1857, when, by the method of tax-ation,
they were exempt. This exemption was a vested
right, and cannot be impaired by any State law subse-quently
enacted. Dodge vs. Woolseij^ 18 Howard, 330.
Ninth. Whatever may have been the intention or
design of the Act of 1863, it is so framed that in its
force and effect, and practical operation, it has not
changed the system of State taxation, but has left it as
it previously existed—a tax on property.
The Act of April, 1863, applies only to " Banks, Bank-ing
Associations, and other Moneyed Corporations, and
Associations." It leaves other corporations to be taxed
under the Law of 1857. It relates simply to moneyed
institutions—the only class of corporations likely to
62
invest in Government securities. Taking this in \"iew,
as well as tlie time and occasion of its passage, there
would seem to be no doubt of its object. At the
moment of its passage the Supreme Court had recently
declared these institutions exempt from taxation on the
securities of the United States to whom money had been
loaned to the amount of many hundred millions of
dollars.
But the effect of the law must be deduced from its
language and its relations to the system of which it is
an integral part.
It will not be denied that it is a cardinal rule in the
interpretation of statutes, that they are to be construed,
so far as possible, in harmony with existing statutes, in
ixiri materia., not expressly repealed ; that they are to
be construed, so far as possible, in harmony with the
constitutional duty of the Legislature—in respect both
to the organic law of the State, and of the United States
;
and that effect is to be given to their provisions only
so far as they are not in conflict with the provisions of the
organic law, as interpreted by the aj^propriate • tribunal.
While I insist there can be no doubt of the hostile
intent of this Act, still I submit that the object has
m
wholly failed, far tlie reason that the act is a mere graft
upon the general Legislation of the State in respect to
taxes, which still remains in all its features a system
'of taxation on pro])erty
.
In the application of the rules which I have just stated
we find that the act in question deals only with " taxa-tionr
It is entitled " An Act in Relation to the Taxa-tion
of Moneyed Corporations and Associations," and
declares they " shall be liable to taxation^ on a valuation^
equal to the amount of their oapital stocky paid in or
secm^ed to be paid in, and their surplus earnings (less
ten per cent, of such surplus)."
It will be observed, also, that no special mode is pro-vided
for raising the tax, but the tax is directed to be
levied " in tJie manner now prfroided hy lawr So that
the entire body of tlie existing law on the subject of tax-ation
is to be taken as intact and operative, except so far
as disturbed by the new act ; and so that in order to
levy the tax, and ascertain its subject, we are referred
to the Revised Statutes, by the tenor of which it is only
property that is taxable ; by the express language of
which all property exempt under the Constitution of the
United States is declared exempt : And to the law of
1857, which provides that : " The capital stock of every
64
company liable to taxation., except such part of it as has
been excepted in the assessment roll, or as shall have
been exempted by lait^ together with its reserved profits
or reserved funds exceeding ten per cent, of its capital,
after deducting the assessed value of its real estate, and
all shares of other corporations actually owned by such
company, which are taxable on their capital stock under
the law of this State, shall be assessed at its actual value,
and taxed in the same manner as the other real and per-sonal
estate of the county."
And we must also have recourse to the Act of 1859,
the very law by which these Commissioners were consti-tuted,
under which they made their assessment, and
which requires their deputies " to assess all the taxable
property'''' in their several districts, from which the Com-missioners
are to make np " the annual record of the
assessed valuation of real and personal estate^'' from
which the assessment rolls are copied.
Supposing there was no intention to conflict with the
ruling of the Supreme Court of the United States in the
tax cases decided immediately before the passage of this
law, and its legitimate consequences, we might construe
the act as in harmony with the existing law thus
wise
—
65
Monied corporations sliall be taxable on their property,
real and personal, as follows : ,
On real estate, at its actual value.
On capital paid in or secured to be paid in, at a valu-ation
equal to its original amount, deducting
—
(1.) The assessed value of their real estate.
(2.) All property exempt by law, or under the Con-stitution
of the United States.
(3.) Shares of other corporations taxable on their
capital stock.
(4.) Amount of stock held by the State, or by chari-table
or literary institutions.
The exemption contained under the second subdivision
is reached by reference to the decision of the Supreme
Court of the United States, and also the exemption
declared under first title of Ch. XIII. of the Revised
Statutes.
Now, it is remarkable that the tax commissioners liave
allowed these exemptions^ so far as they relate to shares
9
6Q
in other corporations, and stock owned by cliaritable
and literary institutions, but liave rejected the exemption
in favor of the United States. The former stood alone
under the protection of the State law ; the latter, under
the protection of the State law : and of the Constitution
of the United States, a law of Congress, and a decision
of the Su2:»reme Court, which are the supreme law of the
land.
Again, the Commissioners return that they have
assessed " tJie actual vcdue^'' of the stock. This is in obe-dience
to the law of 185Y. They determined, they say,
" the actual value of the said capital stock," and they
maintain that the bank, being a corporation, is liable to
State burdens, and, " among other burdens, it is, and was
at the time of such assessment, subject to assessment
and taxation upon the value of its capital stock, without
regard to the fact that such cajDital stock, or any portion
of it, might be invested in the public stocks, debts or
bonds of the United States, and that such assessment was
not made upon the public stocks or bonds of the United
States, but was made pursuant to the laws of said State
of New York, upon the capital stock of said bank,
estwiated at its just value^ making the exceptions
and deductions required ly the statutes of said
State:'
67
These exceptions and deductions required by the sta-tutes
of said State are those contained in the First Title
of Ch. XIIL, 1st part of the Revised Statutes.
The same statute exempted property from taxation
which is exempt under the Constitution of the Uni-ted
States.
On what ground, then, and under what color of author-ity,
could the Commissioners have allowed the former, and
rejected the latter. Is one class of exceptions preferable
over another ? Is one more sacred than the other ?
The law of 1857 required an assessment of the actual
value of the stock, the same as other personal estate in
the county.
The law of 1863 calls for a valuation equal to the
amount of the original stock.
Between these two, the Commissioners seem to have
been in a state of perplexity.
They return that they assessed the actual value. This
actual value could only have been ascertained by looking
into the investments of the capital and the surplus ; and
68
yet tliey repudiate any regard to the mode of invest-ment,
and adopt a valuation equivalent to the original
capital, and the amount of surplus.
To escape all these difficulties and inconsistencies, and
in order to construe the law of 1863 in harmony with
pre-existing statutes, and with Constitutional require-ments,
it should be read as making liable to taxation, at
a valuation equal to its original amount, only so much of
the capital as is not exempt by other provisions of law,
or under the Constitution of the United States. Thus,
if in the case of a bank having a capital of $500,000, a
part, say $100,000, is invested in United States stocks,
$50,000 is owned by literary and charitable institutions,
and $50,000 is in the stock of other corporations liable to
taxation, the remaining $300,000, after making these
deductions, can be rated at its original amount.
In this there would be no transgression of the Consti-tution
of the United States.
Tenth. But, if it be true that the Act of 1863 was
intended to effect a taxation of the entire amount of the
capital of a bank, whether invested in loans to the gene-ral
government or not, then we claim that the act was
framed and passed with the intention to avoid the force
69
and effect of the decision of the Supreme Court of the
United States.
Such an evasion could only be attempted by indirec-tion.
If the act had declared expressly that stocks of
the United States should be taxed, or that banks were
taxable on so much of their capital as was invested in
securities of the United States, the act would most
clearly have been void upon its face. At the time of the
passage of the act, and when the tax was levied, the capi-tal
acd surplus, or most of it, was invested in these secu-rities.
As property they existed in no other shape.
It is manifest, therefore, that the banks could not be
assessed upon the property which they ackmlly Jiad.
And yet it is only upon the property which one Tias^
that a tax can be levied under the general law.
To alter the basis of taxation, therefore, it was requi-site
to change it from present property to past property.
And then we would have this result, that the immu-nity
of the power of the Government to borrow money,
from State taxation, can be avoided, by taxing the lender
for what he had before he made the loan.
70
And we meet the further difficulty, that, under sta-tutes
professing to tax property existing at the time of
taxation, a tax can be levied upon property passed and
gone, DO longer in the possession of the tax-payer, but in
the possession of the Government—the only property
the tax-payer has, being the securities of the Govern-ment.
The act in question seems, on the supposition the con-struction
sought to be given it is correct, to have been
framed under a sense of this difficulty.
It provides that monied corporations shall be taxable
on—what ?—not property—but on " a valuation"—
a
valuation of what ? Nothing—" on a valuation equal to
the amount of their caj^ital stock, paid in, or secured to
be paid in," etc.
If the act had provided they should be taxable on a
" valuation of their property," it would have been repug-nant
to the decision of the Supreme Court of the United
States—and so these corporations are made taxable sim-ply
on " a valuation" of nothing.
We cannot deal with Constitutional rights in this
light way. This act is an old foe with a new face. We
71
are to regard substance, not forms. The moment before
this act was passed, tbe stocks of the United States held
by the banks were free from taxation, as decided by the
Supreme Court—the moment after, these securities were
no longer exempt, as decided by the Tax Commissioners
;
and this change has been effected by State Legislation.
As with a dexterous fencer, a slight turn of the wrist
may change an innocuous blow to a vital wound, so this
Legislation assumes, that by levying a tax on a nominal
amount, the effect of a Constitutional immunity can be
avoided. Present property cannot be taxed, because
invested in Government securities. Original property
cannot be taxed, because no longer held in possession
:
but you shall be taxed on a valuation. Can anything
be more vague, indefinite, and meaning-less ? Like those
misty figures which arise out of caverns, in the Arabian
Nights, it presents a form with the appearance of sub-stance,
without its reality. Now, what do we under-stand
by valuation ? In valuing a thing, we determine
what it is worth in exchange ; exchange for sheep, horses,
gold, silver, or currency. But it is a real thing, not a
fictitious, shadowy nonentity ; and the valuation is not
arbitrary, but depends upon the fact, whether some other
thing that is valuable can be had in exchange for the
thing valued.
But the act in question omits to say what it is that is
valued. The tax is laid on a valuation " equal to," not
" of"
—
equal to the amount of the capital stock, and sur-plus,
etc. Now, if grave Constitutional privileges and
rights can be escaped by that kind of verbal machinery,
by substituting words for things, then the powers of the
general government are necessarily at the mercy of the
State Legislators.
Chief Justice Denio.—Is not the word " valuation"
equivalent to the word " sum" or " amount ?"
Mr. Beadfoed.—" Sum " or " amount," if so intended,
would not mean anything that is present, but would be
referable to the past, to the amount which was once
there, but which is now gone. Your Honors will recol-lect
that it is property which we are speaking of, and it
is present property. There is nothing in the tax law
by which an individual is taxed upon the property which
he Tia-s had—that would be monstrous. The State taxes
the individual upon the property which he tww has, and .
the only property which these banks have is their capi-tal,
and that capital has been paid over to the general
government, and the substitutes for it are the securities
given by the general government. So that the only pro-perty
which these banks tiow have are the securities of
73
tlie general government. And to escape the privilege
of the banks to be free from a tax upon the pro23erty
which they now have, the Legislature resorts to the
scheme of taxing the property which they now liave not^
but which they had years ago, and have loaned to the
United States.
Eleventh, The idea of a tax upon " Capital Stock," as
a thing distinct from the property actually owned by
the banks, is not well founded. It was upon this posi-tion
the case was placed by the learned judge, Mr. Justice
Sutherland, who gave the opinion at the General Term,
and not upon the construction of the word valuation,
holding that the taxing of the capital of a bank looks
to some other thing than the property in which that
capital is invested ; that the property in which the capi-tal
of the bank is invested is one thing, and the capital
stock is another thing, and you may tax the capital of
the bank, although it is invested in property not taxable.
The learned judge, also, maintained that this, which was
the original ground he took at the Special Term, in the
case of The Bank of the Commonwealth in 1859, and
which was adhered to by Mr. Justice Bonney, in the
General Term, but which was not admitted in this court,
is still the right ground, and he rests the case upon that
proposition. I admit, in its fullest extent, the sovereign
10
74
power of the Legislature of the State over corporations,
whether formed under special or general laws ; except so
far as irapairiug the obligation of contracts. But although
the State may lay a tax upon franchises, yet, whenever
such tax upon franchises in any way infringes upon this
right of immunity from taxation of the stock of the gene-ral
government, so far it is a conflict of State Sovereignty
with the Sovereignty of the General Government. And
I deny the general proposition, that because corporations
are the creatures of the Legislature, the State can exer-cise
any sovereign power over their property, which in
resfard to individuals it could not exercise, whenever
such act comes in conflict with the power of the United
States to borrow money. In other words, I admit that
the State can tax the franchise to any imaginable extent
;
but in doing so this property of the corporation invested
in Government securities must continue to be exempt
;
whenever the tax comes in conflict with this right of
exemption, the latter must prevail over all State Sove-reignty,
in whatever channel or by whatever mode exer-cised.
Moreover I maintain that the capital of a bank differs in
no sense from that of an individual, or copartnership. It
is necessarily fixed at some sura, and the interests of the
several corporators are represented by shares. But the
75'
capital itself is the property of the corporation. And we
find, accordingly, the Avords " capital," " capital stock,"
and "property," used indiscriminately, in the statutes
relating to the taxation of corporations.
If, however, the capital stock of a bank is something
else other than its property, it becomes a matter of no
moment how it is valued—whether at actual or nominal
values. Its being the subject of taxation, arises from its
existence as a difterent thing from the property owned
by the bank.
So, if it is not a different thing, but the same thing,
then it is not the subject of State taxation, if the pro-perty
in which it consists is not such subject.
But the conclusive reply to this proposition is afforded
by the decisions of this Court in the tax cases, and the
Supreme Court of the United States on apj^eal, where no
countenance is given to the idea.
It follows from the previous considerations, therefore,
that treating the tax as really a tax upon the present
property of the banks, there must of necessity be
deducted from the aggregate, all securities of the United
States, and this plain duty cannot be avoided either by
76
treating tlie term " capital " as meaning something differ-ent
from the property in which it is invested, or by
assessing the capital at a nominal amount independently
of its mode of investment. In either of the latter alter-natives
the public securities are taxed.
The argument is put in another form, by saying it is
the institutions which are taxed, and not the property.
In addition to what has been urged, I maintain that the
institutions cannot be taxed in the mode proposed when
such mode leads to an actual thous^h indirect taxation of
United States Stocks.
The institutions acquired their securities' under a
state of the law which exempted the securities from
taxation, and if no longer exempt, it is obvious that the
change has been effected by some act of State Sove-reignty.
The right to control corporations cannot be wielded
successfully for such a purpose, any more than the right
to control individuals.
If these institutions exist at the will of the Legislature,
while they do exist, they cannot be made the medium of
taxing the general government. All the functions of
77
State Sovereignty, whether the power to tax, to license,
to create and alter the powers and duties of corpora-tions—
all are subordinate to the supremacy of the Con-stitution
of the United States-
Suppose a preamble to the act in question reciting the
history of this controversy, as follows: "Whereas, by an
act of the Legislature of the State of New York, passed
in the year 1857, banking corporations were taxed only
upon the actual value of their capital stock.
" And whereas, in the year 1859, the Bank of the
Commonwealth claimed exemption from taxation on so
much of its capital as was invested in loans of the United
States, and such claim was adjudged invalid in the Courts
of the State of New York, but on appeal to the Supreme
Court of the United States, was declared lawful and
valid ; and it was further adjudged by said Supreme
Court that stocks of the United States are not the sub-ject
of State taxation, but are to be deducted from the
aggregate of the tax-payer's property before taxation.
"Therefore, be it enacted that all banks, banking
associations, etc., 'shall be liable to taxation on a valua-tion
equal to the amount of the capital stock, etc'
"
78
Thus we slioulcl find, if the change from actual to
nominal values be allowed as affecting the subjects of
taxation, substituting institutions for j^roperty, by a sin-gle
stroke, the credit of the United States declared by
the highest tribunal not to he taxable^ successfully taxed
under a State law, passed within a few weeks after the
decision was pronounced.
What is a nominal valuation. ? Simply one that is not
real^ but artificial—verbal—a nomen.
Can a great Constitutional right be dependent upon
names. " Is the proposition to be maintained that the
Constitution meant to prohibit names and not things," is
the inquiry of Marshall.—4 Peters' R., 433.
If, then, by a nominal or arbitrary valuation, a result
is produced which is real^ and which could not have been
effected on an actual valuation, we reach the conclusion
that while the powers of the Government cannot be
assailed directly, they may be indirectly, and as fully
and lawfully as if assailed directly. This cannot be.
Twelfth. There is no conflict in principle or interest
between the United States and the State Governments
upon this subject.
79
First—As to the principle involved, it must be conceded
that all the Constitutional means which the Government
of the United States is authorized to employ for Na-tional
purposes are in derogation of State authority, and
these means are necessarily reserved from the interfer-ence,
legislation, and dominion of the States. Otherwise
they might be defeated or impeded. The principle of
the exemption of the credit of the Government from
State taxation, is based upon the national sovereignty
and the supremacy of the Constitution, by a direct grant
of power from the people, and from the States. In this
grant the people of New York and the State of New
York in its corporate capacity, were grantors, and parted
with or conceded a portion of their power. In this
respect we have two Constitutions, one for domestic and
the other for National purposes. The former is supreme
over its subjects, the latter is subordinate in respect to
all the subjects of the former. As the preservation of
the general government is of paramount consideration,
and its Constitutional acts have been made supreme, the
first duty is to sustain the National Constitution within
the scope of its functions and powers.
Second—As to the interest of the State, it cannot be
denied that the power of borrowing money is essential
to the continuance of the Government. It is a vital ele-
80
ment of the national existence. It should not only be
left untouched and untrammelled, but should be aided
and promoted. People and States are all interested
alike in the sujDport of the general government, as well
as in the support of the state governments, and all are
bound to contribute to the maintenance of both.
The idea seems to have prevailed, that by loaning
money to the general government clothed with immu-nity
from taxation, a vast amount will be withdrawn
from the taxable projDerty of the State, and the financial
resources of the State thus be impaired.
A loan of money to the Government, ordinarily
abstracts nothing from the capital of the community.
The money is not hoarded, but is returned within a brief
period to the active industry of the country. It is not
in fact taken from the taxable property, for although the
lendey cannot be taxed on the money which is no longer
his, the money itself has passed into other hands and
still remains the subject of taxation. If one hundred
millions of money owned by the banks of New York, be
loaned to the Government, and be disbursed by the
Government to its creditors in New York, the property
has only changed hands, and remains taxable the same
as before it was loaned. If it were carried abroad, or if
81
hoarded by the Government, then it would be abstracted
from the workmg capital of the country. Within a few
days, if not hours, after a loan is effected, and the money
received, it hnds its way from the National Treasury
through a thousand different rills, as the blood sent to
the heart through the veins is again diffused through the
system by the arteries.
The $1,200,000,000 borrowed by the Government
have been paid to the soldiers in the field, to artificers,
ship-buildei-s, etc., for supplies of food, clothing, munitions
of war, and have been restored through numerous chan-nels,
into the mass of the taxable property of the States.
The State tax is an illustration of the law of return.
As much property and money remain in the State after
the tax is levied and disbursed, as there was before
—
Smith's Wealth of Nations, 2, p. 272.
In this law we see the reason why the country has
been able to borrow, and capitalists able to loan, the
enormous sums expended in the present war.
How could banks having a capital of only $95,000,000,
have loaned many times their capital to the United
States, had it not been that the very money which was
11
82
paid by the banks to the Government to-day, was returned
to the banks the next day by its own depositors who
had received it from the Government ? The hands of
the cashier or the teller, who pays the money out to the
United States, are hardly through the process of count-ing
before it comes back again from the depositors who
have received it from the Government. Now, if the
money is returned, if besides taxing the 1,200,000,000 of
money borrowed by the Government, and restored to
the taxable property of the State, a tax is laid, also, upon
the $1,200,000,000 of Government securities, then we
shall have a tax twice levied ; we shall tax capitalists
double, taxing first the money loaned and returned, and
then again the securities. It is, therefore, clearly a fal-lacy,
to suppose that hj the process of loaning on securi-ties
exempt from taxation, anything is permanently with-drawn
from the taxable property of the State.
I have had the curiosity, in view of these great finan-cial
operations of the Government, and the manner in
which they have been aided and supported in the city of
New York, to examine the returns of the Tax Commis-sioners
during the period of the present war, and though
the material thus ajfforded can never be entirely satisfac-tory,
by reason of several considerations, yet it shows a
startling fact entirely in consonance with the view I have
83
advanced ; tliat by loaning to the Government, capital is
not abstracted from tlie community. Your Honors are
aware of tlie general extent of these loans : tliey have
amounted in New York to the extent of three or four
millions a day, and latterly, principally from individuals'
because the capital of the banks was long since all
absorbed in the loans to the Government. The very
first effort to support the Government, in its death
agony as it were, withdrew their capital fi-om all the
banks. The consequence is, that although the subsequent
loans were effected throus-h the medium of the banks,
the banks had instantly to spread the amount among
their customers and the community at large. It is safe to
say, the Southern States being excluded, that the cities
of Philadelphia, New York, and Boston, have mainly
contributed to negotiating the loans of the Government,
and that the greater part of the loans have been taken
in New York. Now, where the individual loans, he is
exempt from taxation, and this has always been admit-ted
by the Tax Commissioners, or assessors, in every
State. Then on a fair calculation, several hundred mil-lions
of dollars, to say the least, must have been loaned
to the Government by the capitalists of New York, out-side
of the banks. Now, if the argument were true, that
that money was abstracted from the taxable capital of
the State of New York, it would be demonstrable there.
84
If it be true that the money loaned by our citizens to the
Government has been taken away from the taxable
capital of the city, and has not been returned again, we
should find evidence of the fact ujDon the tax lists.
But on examining these lists it appears that the total
value of the taxable property of the city of New York,
for the years 1860, 1861, 1862, and 1863, is rated as fol-lows:
For 1860, the taxable property was rated at $5*76,-
621,000; in 1861, at $581,000,000; in 1862, at $571,-
000,000, and in 1863, it rose to $594,000,000. Real
estate during the whole 2:)eriod has remained nearly the
same. In 1860, real estate was valued at $397,000,000 ;
in 1861, at $406,000,000; in 1862, at $399,000,000, and
in 1863, at $402,000,000.
But personal property, which, under the idea that
taxable capital has been abstracted from the community,
by reason of immunity from taxation, should have
decreased, is shown to be as follows: In 1861, $174,000,-
000; in 1862, $172,000,000. Now we come to the
period in which the exemption from taxation has been
made active and eflfective by the operation of the laws ot
the United States, and the decision of the SujDreme
Court of the United States. In 1863, the personal
f
85
estate amounted to $192,000,000, being an increase of
$20,000,000 in one year. So that I say that it is clearly
demonstrated that the effect of the loans to the Govern-ment
is in no way to be considered as producing an
abstraction from the taxable property of the State ; but
on the contrary the public debt rather contributes to the
expansion of the trade and commerce of the country,
and the increase of its taxable capital.
Finally, and in a measure to recapitulate, we urge that
while there is ultimately no conflict of sovereignty, or of
interest, on this subject, between the State and its people,
and the United States, it cannot be overlooked that the
power to borrow money was given by the Constitution,
to meet all the exigencies of Government, and although
the people have eventually to bear all burdens by the
process of taxation, that process is necessarily tardy.
When revolutions are impending, the arbitrament of the
sword is invoked, fleets are to be built and equipped,
and great armies are to be raised and armed, there is no
time to wait for the tax-gatherer.
The Constitution was designed as the perpetual basis
of a great Government, and the powers vested in its min-isters
were intended for all the emergencies, trials and
perils which might occur through all time. It contem-
86
plated insurrection, invasion, and war ; and its provisions
were so framed, in tlie masterly wisdom of statesman-ship
and profound political philosophy, as to impart
every function necessary to the efficiency and vigor of a
National Government.
The power to borrow money on the faith and credit of
the United States, has no superior. Without its posses-sion
this Government would perish. It should therefore
be cherished. It was granted de]iberately by all the
people, and should be sustained rather than impeded by
State authority. Neither mode nor form, nor scheme,
nor plan can be countenanced, which in any measure or
degree, directly or indirectly, immediately or remotely,
interferes with the full and uncontrolled exercise of this
power, or with the pledges of faith given by the Uni-ted
States in pursuance of it, or with the persons,
bodies or corporations who have accepted those
pledges, and contributed their property to the Govern-ment.
If the broad and firm ground of principle upon which
is based entire immunity from State control of all the
means of Government within the scope of the Constitu
tion, be impaired or taken away in this State, under one
mode, in other States in other modes ; the National
87
Government will be in clanger of constant conflicts with
the States.
There is no middle ground of safety, or of sound con-struction.
There must be entire exemption, or subjec-tion
to taxation.
K
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