State Tax Commission v. Baltimore National Bank

Bond, C. J., delivered the opinion of the Court. The Baltimore National Bank appealed to the court ⁶⁷ below from a ruling of the State Tax Commission denying immunity from taxation for the bank’s preferred stock owned by the Reconstruction Finance Corporation, and upholding an assessment of it for state and municipal taxation for the year 1934. The court below reversed the ruling, and the commission now appeals to this court. Code Supp. art. 81, sec. 186 (to).

In pursuance of a plan of reorganization by stockholders of the Baltimore Trust' Company, which was not able to resume business after the bank holidays of February 24th to March 4th, 1933, and is in course of liquidation, the Baltimore National Bank was incorporated on August 4th, 1933, to transact the banking business with the aid of the subscription by the Reconstruction Finance Corporation to an issue of preferred stock. Act of Congress January 22nd, 1932, 47 Stat. 5 . See U. S. Code Ann., tit. 15, secs. 601, etc. The issue was of 10,000 shares of five per cent, cumulative preferred stock, of a par value of $100 each, and all were taken by the Finance Corporation. They were assessed at their par value.

Fifty thousand shares of common stock of a par value of ten dollars each were issued, all except the directors’ qualifying shares being held in escrow subject to options of purchase offered in furtherance of the liquidation of the trust company. The shares of the common stock, too, were assessed at their par value. It is questioned, first, whether the denial of the exemption for the Finance Corporation’s stock can be contested for it by the bank, or by any one other than the Finance Corporation itself, which would in theory suffer the detriment. The tax on the shares under the Maryland statutes is assessed and laid on “the several owners thereof, * * * but may be collected in each case from the bank,” with a right of reimbursement from the respective stockholders.

Code (Supp. 1929), art. 81, sec. 15 (e). And if the bank in the first instance should be called upon to pay taxes on stock not subject to taxation, and therefore not collectible in turn from the stockholders, the bank would seem to have a grievance of its own, in a violation of the ⁶⁸ statutes, for which it might properly seek relief in its own name. But it is also the settled practice for a bank or other corporation to litigate a question of taxability on behalf of its stockholders. Des Moines Nat.

Bank v. Fairweather, 268 U. S. 103, 111 , 44 S. Ct. 23 , 68 L. Ed. 191 ; First Nat. Bank v. Anderson, 269 U. S. 341 , 46 S. Ct. 135 , 70 L. Ed. 295 ; First Nat. Bank v. Hartford, 273 U. S. 548 , 47 S. Ct. 462 , 71 L. Ed. 767 ; U. S. Code Ann., tit. 12, p. 414. There is no ground for objection to the parties; and, the proceedings being in due form, the question is properly before the court.

In argument of the case it was suggested, but not pressed, that there may be no constitutional power in the federal government through such an agency to participate with private stockholders in the ownership and conduct of a national bank. If for that reason the subscription and holding of the preferred stock should be invalid, the fact would require an affirmance of the decision appealed from, because the stock would not then be outstanding and taxable. The Finance Corporation would not 'be a stockholder to be taxed. As the point was not pressed, we proceed upon the assumption that the stock is validly held.

The exemption is not provided by the terms of statutes cited. The provision of the Maryland Code, exempting from state taxation any property exempted by the Constitution of the United States, or by any Act of Congress (Code [Supp. 1929], art. 81, sec. 7, subsec. 22) only refers the question to the federal law. The National Banking Act, R. S. sec. 5219, as last amended by an Act of Congress of March 25th, .1926, 44 Stat. 223 , R. S. sec. 5219, U. S. Code Ann. tit. 12, sec. 548, is the source of any power to tax the shares of the banks. People of New York ex rel.

Williams v. Weaver, 100 U. S. 539, 543 , 25 L. Ed. 705 ; Davis v. Elmira Sav. Bank, 161 U. S. 275, 283 , 16 S. Ct. 502 , 40 L. Ed. 700 . And it authorizes'the states to tax “all the shares of national banking associations” located within their jurisdictions, under specified limitations with which this case is not concerned, and makes ⁶⁹ no exceptions or distinctions among stockholders, governmental or otherwise. An exemption of the Finance Corporation’s shares would be by way of an exception to this general statutory permission to tax shares, either a statutory exception or one grounded on the constitutional principles of governmental immunity.

The only statutory provision in which it is sought is the provision in the Act of Congress creating the Finance Corporation (Act of January 22nd, 1932, sec. 10, 47 Stat. 5 , 9, U. S. Code Ann. tit. 15, sec. 610), that “the corporation, including its franchise, its capital, reserves, and surplus, and its income shall be exempt from all taxation * * * except that any real property of the corporation shall be subject” to taxation. But this seems to be no more than the exemption applicable to federal agencies generally under the decision in McCulloch v. Maryland, 4 Wheat. 316 , 4 L. Ed. 579 , and although a national bank enjoys the like exemption for its property, it has been held that this does not withdraw from state taxation under section 548 of the Banking Act stock which one national bank may hold in another. Nat. Bank of Redemption v. Boston, 125 U. S. 60 , 8 S. Ct. 772 , 31 L. Ed. 689 ; Bank of California v. Richardson, 248 U. S. 476, 483 , 39 S. Ct. 165 , 63 L. Ed. 372 ; Bank of California v. Roberts, 248 U. S. 497 , 39 S. Ct. 171 , 63 L. Ed. 381 .

We seem not to be permitted then to include the stock held in another corporation within this general exemption of property—unless, indeed, there should be a distinction made of stock which represents ultimately the investment of public funds only. Could the exception to the Banking Act provision for state taxation of all shares be established by construing that provision to refer only to shares which represent investments ultimately of private funds? This is a question suggested by the fact that at the time of the original enactment of the provision the capital of national banks was expected to be derived only from private sources. “The capital of each of the banks in this system was to ⁷⁰ be furnished entirely by private individuals.” Mercantile Nat. Bank v. New York, 121 U. S. 138, 154 , 7 S. Ct. 826, 834 , 30 L. Ed. 895 .

The general immunity of the government, said the court in McCulloch v. Maryland, 4 Wheat, 316, 436, 4 L. Ed. 579 , “does not extend to a tax paid by the real property of the bank [of the United States], in common with the other real property” in a particular state, “nor to a tax imposed on the [proprietary] interest which the citizens * * * may hold in this institution, in common with other property * * * throughout the State.” As the statutory permission is not so restricted in terms, and it has long been regarded as retaining for the states the right to tax all such resources of commerce generally, within their jurisdictions, we do not feel authorized to read into it now a broad exclusion of all investments of ultimately public money. “The manifest intention of the law is to permit the state in which a national bank is located to tax, subject to the limitations prescribed, all the shares of its capital stock without regard to tfheir ownership.” Nat. Bank of Redemption v. Boston, 125 U. S. 60 , 8 S. Ct. 772, 777 , 31 L. Ed. 689 . “Two provisions in apparent conflict were adopted. First, the absolute exclusion of power in the states to tax the banks, the national agencies created, so as to prevent all interference with their operations, the integrity of their assets, or the administrative governmental control over their affairs. Second, preservation of the taxing power of the several states so as to prevent any impairment thereof from arising from the existence of the national agencies created, to the end that the financial resources engaged in their development might not be withdrawn from the reach of state taxation, but on the contrary that every resource possessed by the banks as national agencies might in substance and effect remain liable to state taxation.

The first aim was attained by the non-recognition of any power whatever in the states to tax the federal agencies, the banks, except as to real estate specially provided for, and, therefore, the exclusion of all such powers. The second was reached by a ⁷¹ recognition of the fact that, considered from the point of view of ultimate and beneficial interest, every available asset possessed or enjoyed by the banks would be owned by their stockholders and would be, therefore, reached by taxation of the stockholders as such.” Bank of California v. Richardson, 248 U. S. 476, 483 , 39 S. Ct. 165, 166 , 63 L. Ed. 372 . The question argued is whether the immunity of the national government from state taxation does not render immune the shares owned by this particular governmental agency, and so except them from the general taxation of shares permitted by the Banking Act. It is a question of immunity attaching to a particular stockholder as distinguished from the banking corporation itself.

The fact that the bank, too, is a governmental agency, and enjoys immunity for property owned by it, has now no bearing. The immunity to be considered is one which would likewise apply if the shares were those of a state bank or trust company. Exceptions to a general provision may be impressed upon a statute by force of unexpressed general principles. This court has found statutory exemptions extending beyond the letter of statutes, or subject to unexpressed limitations.

Anne Arundel County v. Annapolis, 126 Md. 445 , 95 A. 40 ; Havre de Grace v. Bridge Co., 145 Md. 491, 497 , 125 A. 704 . And see Van Brocklin v. Anderson, 117 U. S. 151, 173 , 6 S. Ct. 670 , 29 L. Ed. 845 . There is no precise test for the existence of an exemption by reason of intergovernmental immunity. It is an immunity of either state or national sovereignty from taxation by the other. “Just what instrumentalities of either a state or the federal government are exempt from taxation by the other cannot be stated in terms of universal application.” Metcalf & Eddy v. Mitchell, 269 U. S. 514, 522 , 46 S. Ct. 172, 174 , 70 L. Ed. 384 . “The exemption of the state’s property and its functions from federal taxation is implied from the dual character of our federal system and the necessity of preserving the state in all its efficiency.” South Carolina v. United States, 199 U. S. ⁷² 437, 456, 26 S. Ct. 110, 114 , 50 L. Ed. 261 .

The reason for it “is found in the necessary protection of the independence of the national and state governments within their respective spheres under our constitutional system.” Helvering v. Powers, 293 U. S. 214 , 55 S. Ct. 171, 173 , 79 L. Ed. 141 . See Fox Film Corp. v. Doyal, 286 U. S. 123, 128 , 52 S. Ct. 546 , 76 L. Ed. 1010 ; Susquehanna Power Co. v. State Tax Commission, 283 U. S. 291, 294 , 51 S. Ct. 434 , 75 L. Ed. 1042 ; Flint v. Stone, 220 U. S. 107, 157 , 31 S. Ct. 342 , 55 L. Ed. 389 ; McCulloch v. Maryland, 4 Wheat. 316 , 4 L. Ed. 579 ; Van Brocklin v. Anderson, 117 U. S. 151 , 6 S. Ct. 670 , 29 L. Ed. 845 . The consequent immunity, says the Supreme Court, has inherent limitations. Helvering v. Powers, supra.

And it has been decided many times that it does not necessarily attach to property because it is owned by a governmental agency, or even directly by the government, and used in furtherance of a purpose within the government’s powers. The immunity is a protection of the function of governing and not all the activities of the sovereignties, state and national, are confined to the performance of that function. The Finance Corporation, the owner of the stock in this instance, is an agency of governmental origin, one which has a close relationship to the national government as its . agency for carrying out the broad purpose of upholding the industries of the country during the depression. The United States owns all its stock.

The Secretary of the Treasury is a member of .the board of directors; the corporation has the mailing privileges possessed by executive and other departments, and commands the aid of departments and government employees generally. Negotiable obligations which it may issue are guaranteed by the United States. It may act as a depositary of public moneys or as a financial agent of the government. It is required to make periodical reports to Congress.

Its purpose and its existence are temporary; it is