New York v. Commissioners of Taxes for the City and County of New York

by Samuel Nelson

United States Supreme Court

67 U.S. 620

New York  v.  Commissioners of Taxes for the City and County of New York

Error to the Court of Appeals for the State of New York.

The Bank of Commerce, a corporation in the City of New York, rendered its statement, according to law, to the Tax Commissioners, o which the latter were to fix the sum or valuation of property on which the taxation of the Bank was to be made. By this it appeared that their whole capital was nine millions one hundred and forty-eight thousand four hundred and eighty dollars, ($9,148,480.00). Of this sum three hundred and ninety-two thousand two hundred and fourteen dollars and eighty-three cents (392,214.83) was invested in real estate, and the balance, eight millions seven hundred and fifty-six thousand two hundred and sixty-five dollars and seventeen cents, was all invested in stocks, bonds and securities of the United States, which the Bank claimed to be exempt from taxation. The Tax Commissioners reported the Bank as subject to assessment and taxation for the value of its stock, (deducting the value of its real estate and $20,000 undisputed exemption), at $8,736,265.00, without regard to its being invested in the public debt of the United States, but adding that this was not an assessment upon such public debt, but upon the bank capital.

Thereupon a certiorari was issued to them, according to a statute of New York, and these facts appeared in the Supreme Court, and the questions being debated, the Court was of opinion:

1. As to the public debt held by the Bank, issued to them prior to the Act of Congress of February 25, 1862, or contracted for by the Bank with the Government prior to that date, although issued afterwards, the Bank was liable to taxation, and ordered the report of the Tax Commissioners to be confirmed to that extent.

2. As to the public debt issued after that date, (not contracted for before,) the Bank was not liable; and the Court ordered the report in this respect to be annulled and corrected.

The taxable amount of the capital was fixed at $7,341,265.00, according to these principles.

From the judgment the Bank appealed to the Court of Appeals, who, on hearing, affirmed the judgment of the Supreme Court, and a writ of error was thereupon brought to this Court.

Mr. Lord, of New York, for Plaintiff in Error.

The Commissioners of Taxation were bound to look into the components of the capital of the Bank, to ascertain its value and taxable condition.

And as the Bank was taxable not for its capital specifically, but for its property, real and personal, the character of that property could not be overlooked by the Tax Commissioners.

And if the United States debt be, in fact, free of State taxation, it would be mere evasion to tax it in fact, under the general notion that it was taxed as property merely, and not as United States debt.

And the plaintiffs in error respectfully insist that the questions in this case are completely covered by the decision of this Court in Wetson vs. The City of Charleston, (2 Peters' Reports, 449).

But, subject to this claim as to the extent and effect of this prior decision, and treating the questions as open to discussion, in deference to the Court of Appeals of New York, the defendants in error submit that, on principle, the public debt of the United States held by the relators was not subject to taxation, as was done.

The certificates, bonds, and public debt of the United States, issued under the power of Congress to borrow money, were means and instruments whereby Congress exercised that power under the Constitution. The money lent while yet held by the United States would clearly be free of State taxation in whatever form. This amount, therefore, is clearly out of the State power of taxation. The action of the Tax Commissioners is to bring this back under the State taxation by taxing the creditor's title to its repayment or return. And this title and right is distinctly a means whereby the United States procure the use of the money or property which they obtain.

Being a means adopted by Congress to carry out one of its sovereign powers, the State power of taxation does not extend to it. Brown vs. State of Maryland, (12 Wheat. R., 419); McCulloch vs. State of Maryland, (4 Wheat. R., 316, p. 425); Osborn vs. Bank of United States, (9 Wheat. R., 738, p. 859); Dobbins vs. Erie County, (16 Pet. R., 435).

If the State power extended to the means of carrying out the United States power, not only would a conflict of powers be possible; but, if the State power be admitted, that of the United States might be defeated.

It is not a case of concurrent powers, either of borrowing or of taxing. The power exercised by the United States is that of borrowing; there is no conflict with the State power of borrowing.

There is no conflict in the powers respectively of taxing; both the United States and the State may tax all articles of taxation to which their powers extend.

But the conflict is, that the State attempts to apply its power of taxing in restraint and diminution of the United States power of borrowing. Unless it shall be claimed that the State power of taxing may reach all property within its geographical limits, whether owned by the United States or others, so that there can be no property whatever within State limits out of its reach, such power must be deemed a limited one, and excluded from all application to the property of the United States. The State power of taxation is a sovereign power within the scope to which it extends, and within this limit it admits of no supervision or control. See The People vs. City of Brooklyn, (4 Coms. R., 422, based on 4 Pet. R., 514, p. 553, and 4 Wheat. R., 430). If, therefore, it embrace within its limits the means of carrying out the powers of the United States, it could tax them in any mode it might choose, partially or otherwise, specifically or otherwise. But it must be conceded that a partial or specific taxation would be extra vires, and it would then rest with the Courts of the United States to try the matter of the due and proper execution of a sovereign power of a State. This could not be done; for if the State power be a sovereign power, the sovereign body decides for itself both as to the occasion and mode of its exercise. Accordingly, it is the clearly established law of the Federal Constitution, in order to avoid all such conflicts, that the powers of the States are not held to apply to the subjects embraced in the execution of the powers of the United States. The power of borrowing money by the United States being a sovereign power, Congress alone is to determine the occasions on which it is to be executed, and also the modes and means of so doing. The only limit is to be looked for in the Constitution itself; and no such limit is violated in the present case. Congress may make its securities under seal negotiable; no State law could prevent it. Congress could make its obligations valid without stamps; no State could impose a stamp act on them. Congress can make its obligations bear any rate of interest it might think fit; no State could render them invalid as usurious. In all these and numerous other illustrations, the State power of legislation itself is a sovereign power; and it is only restricted by reason of the subject being without its limits by its being the exercise of a power of the United States. As to the body having a sovereign power being the sole judge of the occasion of using it, see Martin vs. Mott, (12 Wheat. R., p. 29). The mode of exercising the power to borrow money by Congress or the occasion of its exercise, the necessity or propriety of the means, within the limits of the Constitution, are not open to inquiry in the Courts. Therefore, all the United States securities held or procured or contracted for either before or after the Act of February 25th, 1861, should have been left out of the valuation for assessment of taxes. By a sound exposition of the Tax Laws of New York, securities of the public debt of the United States were not subject to be included in the report of valuation for taxation. The Tax Statutes of New York, whereby real and personal property within the State are subjected to taxation, in terms embrace such property owned by indivi uals or corporations; now the United States were neither an individual nor a corporation within the terms of this law. So that the real and personal property of the United States itself were not within the express terms of the act nor taxable under it. The statutes, however, proceed to say, that the liability of property to taxation shall be subject to certain exemptions. In sec. 4, the stating of the exempted property commences with 'all property, real or personal, exempted from taxation under the Constitution of the United States,' and this is followed by an express exemption 'of all lands belonging to the United States.' Now there was no other property exempted from taxation under the Constitution of the United States, than the means of carrying out its powers, and there were none of these then in existence or in contemplation, except the certificates of its public debt. This statute with its present general phrase of exemption, was adopted in 1829. This was the year when the case of Weston vs. City of Charleston was decided, after the severe and able opposition of Mr. Justice Thompson, the Associate Justice for the circuit in which New York was embraced. Cotemporaneous history thus leaves no doubt, that the exemption of property under the Constitution of the United States had special reference to the United States public debt, the taxation of which by South Carolina had been so decisively annulled. The Act of Congress of February 25th, 1862, sec. 2, providing 'That all stocks, bonds, and other securities of the United States, held by individuals, corporations, or associations within the United States, shall be exempt from taxation by or under State authority, was effectual to exempt all existing as well as future issues of public debt.' See Acts of 1861, '62, p. 346. The act in its terms is clearly sufficient to embrace existing United States securities without any exception.

This clause was evidently produced by the decision of the Court of Appeals of New York in the case of the Bank of the Commonwealth, then just decided, and now under review in this Court. It is in exact affirmance of the decision in the case of Weston vs. City of Charleston. And Congress in it does not speak merely as contractors, but as legislators, in the assumption of its fullest powers as such.

It was a declaratory act in affirmance of a principle never denied since 1829, for more than thirty years. This act is not to be construed as the assertion of any general power to withdraw any kind whatever of property from State taxation at the election of Congress; but is to be construed according to the circumstances under which it was passed. Congress having reference to a means which had been employed in carrying out its power to borrow, and with the public knowledge that these securities had been held as not under State taxation, it was but protecting and asserting the supremacy of its power to pass this statute. If the issuing of this United States debt be within the scope of the power to borrow, and to determine the means of its exercise, it was a proper act of legislation. The subject being within one of the powers of Congress, they alone were judges of the fitness of its exercise and of its extent.

It was within the principle of the numerous Acts of Congress, withdrawing from State jurisdiction questions arising under the Laws of the United States, and titles taken and acts done under such laws. The act violates no provision of the Constitution of the United States; it does not interfere with any vested right. It is in affirmance of a right universally recognized prior to the decision of the Court of Appeals of New York, then just made.

The judgment of the Court of Appeals in the matter complained of should be reversed, and the proceedings remitted to that Court, there to be proceeded on according to the law as it shall be declared by this Court.

Mr. Develin and Mr. Brady, of New York, for Defendants in Error.

The surplus of stock which was taxed in the case now before the Court is supposed to be protected by an Act of Congress of February 25th, 1862, which provides that 'all stocks, bonds and other securities of the United States, held by individuals, corporations or associations within the United States, shall be exempt from taxation by or under State authority.'

The Act of 1862 introduces no new rule. It is a mere affirmation of what was decided in the cases of the Bank of McCullough against the State of Maryland and others of a similar nature. It exempts from specific taxation all stocks, & c., of the United States, but does not provide that no taxation shall be imposed by a State upon the surplus or capital of a bank, to the extent to which such surplus is represented by United States Stocks, &c., composing such capital. If this act could bear the latter construction, it would be unconstitutional and void as a direct attempt by the general government to interfere with the exclusive power of taxation by a State over corporations created by it, and property of individuals residing within the State, sharing the benefits and liability to the burdens of government. If such an exemption could be extended to the United States Stock by an absolute Act of Congress, there is no reason why it might not also apply to any other property of the United States, though sold by the general government in the ordinary course of trade to a purchaser; and for such exercise of power there is no warrant or pretext under the Federal Constitution. The Federal Government has no powers except such as are delegated to it by the Constitution or necessarily implied in powers granted; in all other respects the States are sovereign. Federalist, Nos. 30 and 33; The Passenger Cases; The Ohio Life Ins. and Trust Co. vs. De Bolt, (16 How., 428.) The Constitution itself provides in its tenth amendment, that 'Powers not delegated by the United States in the Constitution nor prohibited by it to the States are reserved to the States respectively or to the people.' The general and State governments have respectively the power to levy taxes for their own appropriate uses without in any way interfering or having the right to interfere with the just powers of each other. (1 Story on the Constitution, Sec. 1034.)

There is nothing in the State Laws repugnant to the power of Congress to borrow money.

The exercise of this power involves three elements, a borrower, a lender, and an agreement as to the terms of the loan. The loan is a matter of contract and Congress may acquire the means of payment by the exercise of its power 'to levy and collect taxes, duties, imposts, and excises,'-a power given for the express purpose of paying the debts and other charges of the Federal Government. The power of Congress to borrow money in terms is limited to borrowng 'on the credit of the United States,' and does not include the right to use the credit of, nor create a charge upon, nor restrict the means of self support of any State. The authority of Congress 'to make all laws which shall be necessary and proper for carrying into execution the foregoing powers and all other powers vested by this Constitution' to the Federal Government cannot effect this question. This is not an independent power to do something not otherwise provided for, but a delegation which includes all the necessary and proper means of carrying it into execution. (Story on the Constitution, Sec. 1237 and 1243.) It cannot be maintained that in exercising the power to borrow money on the credit of the United States it is necessary to take away from a State a vital power to levy taxes for maintaining its authority and for the support of its government.

The general clause of the Constitution just referred to is in fact a restriction prohibiting extreme means, and limiting the government to those which are necessary and proper. The Act of 1862 is enacted uno flatu. It is incapable of division and must upon its terms and just construction stand or fall in all its provisions. It extend to all stocks, &c., though they might have been issued and acquired by individuals years before the passage of the law, and is equally retro-active and prospective in its operation. The State banks cannot claim an exemption under the law of 1862. The condition of their existence is that they shall bear a share of the public burdens. They were formerly taxed on the nominal amount of their capital stock, however it might be invested, or whatever might become of it, and now are taxable on the value of that stock. The Legislature might have required the banks to pay a specified sum annually for their privileges, though five times as much as their share of the public burdens, and clearly Congress would have no power to interfere. Providence Bank vs. _____, (4 Peters, pp. 561 and 562); State Bank of Ohio vs. Knoop, (16 Peters, p. 387.)

The judgment of the Supreme Court should be affirmed except as to the point that stocks issued after the passage of the Act of 1862 are exempt from taxation.

Mr. Justice NELSON.

Notes