[197 U.S. 70, 71] Messrs. William S. Wood, E. S. Pillsbury, Alfred Sutro, and Lloyd & Wood for appellant.
[197 U.S. 70, 73] Messrs. William Irwin Brobeck and Percy V. Long for appellee.
Mr. Justice White delivered the opinion of the court:
The appellant bank sued to restrain the enforcement of state, county, and city taxes, levied for the year 1900, upon shares of stock of the bank. Adequate averments were made to show equitable jurisdiction. Cummings v. Merchants' Nat. Bank, 101 U.S. 153, 157 , 25 S. L. ed. 903, 904; Hills v. National Albany Exch. Bank, 105 U.S. 319 , 26 L. ed. 1052; Lander v. Mercantile Nat. Bank, 186 U.S. 458 , 46 L. ed. 1247, 22 Sup. Ct. Rep. 908. The taxes were alleged to be in conflict with the law of the United States. Rev. Stat. 5219, U. S. Comp. Stat. 1901, p. 3502
The case was submitted upon the pleadings and an agreed statement of facts. A decree of dismissal was affirmed by the circuit court of appeals for the ninth circuit. That court deemed that the cause was controlled by the reasoning of an opinion delivered in deciding a previous case (Nevada Nat. Bank v. Dodge), the opinion in which case is reported in 50 C. C. A. 145, 119 Fed. 57.
Before considering the contentions relied on we quote the text of the Constitution of California directly relating to the subject in hand, and briefly advert to the legislation of that state which preceded the act under which the assailed tax was levied.
Section 1 of article 13 of the Constitution of California provides:
Carrying out the command to provide for the ascertainment of the value of property to be taxed, it was enacted (Pol. Code, 3627) that all taxable property shall be assessed 'at its full cash value,' and (Pol. Code, 3617) that 'the terms 'value' and 'full cash value' mean the amount at which the property would be taken in payment of a just debt due from a solvent debtor.'
Prior to 1881 shares of stock of all corporations were taxed, and 3640 of the Political Code commanded that the market value of the stock of a corporation should be taken as the value of the shares for assessment. Where the shares of stock were taxed no tax was levied upon the corporate property. This was because the supreme court of California had decided that to tax both the stock and the corporate property would be double taxation. Burke v. Badlam, 57 Cal. 594.
In the year 1881 the general system of taxing shares of stock was abandoned, and a rule was put in force taxing the corporate property. Section 3608 of the Political Code, which embodied this change, was as follows:
3608. Shares of stock in corporations possess no intrinsic value over and above the actual value of the corporation which they stand for and represent; and the assessment and taxation of such shares, and also all the corporate property, would be double taxation. Therefore, all property belonging to corporations (save and except the property of national banking associations, not assessable by Federal statute) shall be assessed and taxed. But no assessment shall be made of shares and stocks in any corporation (save and except in national banking associations, whose property, other than real estate, is exempt from assessment by Federal statute).
3609. The stockholders in every national banking association doing business in this state, and having its principal place of business located in this state, shall be assessed and taxed on the value of their shares of stock therein; and said shares shall be valued and assessed as is other property for taxation, and shall be included in the valuation of the personal property of such stockholders in the assessment of the taxes at the place, city, town, and county where such national banking association is located, and not elsewhere, whether the said stockholders reside in said place, city, town, or county, or not; but in the assessment of such shares each stockholder shall be allowed all the deductions permitted by law to the holders of moneyed capital in the form of solvent credits, in the same manner as such deductions are allowed by the provisions of paragraph 6 of 3629 of the Political Code of the state of Callfornia. In making such assessment to each stockholder there shall be deducted from the value of his shares of stock such sum as is in the same proportion to such value as the total value of its real estate and property exempt by law from taxation bears to the whole value of all the shares of capital stock in said national bank. And nothing herein shall be construed to exempt the real estate of such national bank from taxation. And the assessment and taxation of such shares of stock in said national banking associations shall not be at a greater rate than is made or assessed upon other moneyed capital in the hands of individual citizens of this state.
3610. The assessor charged by law with the assessment of said shares shall, within ten days after he has made such assessment, give written notice to each national banking association of such assessment of the shares of its respective shareholders; and no personal or other notice to such shareholder of such assessment shall be necessary for the purpose of this act. And, in case the tax on any such stock is unsecured by real estate owned by the holder of such stock, then the bank in which said stock is held shall become liable therefor; and the assessor shall collect the same from said bank, which may then charge the amount of the tax so collected to the account of the stockholder owning such stock, and shall have a lien, prior to all other liens, on his said stock, and the dividends and earnings thereof, for the reimbursement to it of such taxes so paid. [197 U.S. 70, 78] The first contention is that the law of 1899 is on its face in conflict with 5219 of the Revised Statutes, because it taxes shares of stock in national banks, and does not tax such shares in state banks and other state moneyed corporations. As it is patent that the state banks and corporations are taxed on their property, the proposition reduces itself to this: That the states may not pursue the method permitted by the act of Congress of taxing shares of stock in national banks, unless the same method is employed as to the stock of state banks and other state moneyed corporations.
In Davenport Nat. Bank v. Board of Equalization, 123 U.S. 83 , 31 L. ed. 94, 8 Sup. Ct. Rep. 73, it was decided that the provision of 5219 of the Revised Statutes [U. S. Comp. Stat. 1901, p. 3502], authorizing the taxation of shares of stock in national banks, but exacting that the tax when levied should be at no greater rate than that imposed on other moneyed capital, did not require the states, in taxing their own corporations, 'to conform to the system of taxing national banks upon the shares of their stock in the hands of their owners.'
True it is in the Davenport Case it was also decided that the prohibition in the act of Congress of a higher rate of taxation of shares of stock in national banks than on other moneyed capital operated to avoid any method of assessment or taxa- [197 U.S. 70, 79] tion, the usual or probable effect of which would be to discriminate in favor of state banks and against national banks. True, also, is it that in the same case it was held that, even where no such discrimination seemingly arose on the face of the statute, nevertheless, if from the record it appeared that the system created by the state in its practical execution produced an actual and material discrimination against national banks, it would be the duty of the court to hold the state statute to be in conflict with the act of Congress, and therefore void.
As, then, no conflict necessarily arises between the act of Congress and the state law, solely because the latter provides one method for taxation of state banks and other moneyed corporations and another method for national banks, it follows that the contention, that the state law, for that reason, is repurgnant to the act of Congress, is without merit. And this brings us to consider the contention of the appellant, which we think was embraced in the pleadings, which was expressly covered by the stipulated facts, the overruling of which was assigned as error in the circuit court of appeals and in this court, and was elaborately discussed by both parties in the argument at bar, viz., that, irrespective of the face of the state law, that law is void because of a discrimination against national banks, within the principles settled in the Davenport Case.
To determine this latter contention requires an analysis of the two systems which the law of California enforces, in order that the two may be accurately compared.
Under the law the shares of national banks must be valued at their 'full cash value,' which the statute defines to mean the amount at which they 'would be taken for a just debt due from a solvent debtor.' These words are but synonymous with the requirement that, in assessing shares of stock, their market value must be the criterion. This is the case, for, eliminating exceptional and extraordinary conditions, giving an abnormal value for the moment to stock, it is apparent that [197 U.S. 70, 80] the general market value of stock is its true cash and selling value. That such is the meaning of the words in the legislation of California is indisputable, in view of the provision of 3640 of the Political Code, which made market value the rule for assessing shares of stock during the period when the taxation of shares of stock generally prevailed, and that such requirement was mandatory was in effect held by the supreme court of California. Miller v. Heilbron, 58 Cal. 133, 138.
What, then, was embraced in the assessment of the shares of stock at their full cash or selling or market value? It embraced, not only the book value of all the assets of the corporations, but the good will, the dividend-earning power, the ability with which the corporate affairs were managed, the confidence reposed in the capacity and permanency of tenure of the officers, and all those other indirect and intangible increments of value which enter into the estimate of the worth of stock, and help to fix the market value or selling price of the shares. Considering this subject in Adams Exp. Co. v. Ohio State Auditor, 166 U.S. 211 , 41 L. ed. 974, 17 Sup. Ct. Rep. 604, the court said:
And in Pullman's Palace Car Co. v. Central Transp. Co. 171 U.S. 138 , 43 L. ed. 108, 18 Sup. Ct. Rep. 808, this was reiterated. The court, after observing that, while the franchise was one of the things entering into the computation of market value of shares of stock, said (p. 154, L. ed. p. 115, Sup. Ct. Rep. p. 815):
That this doctrine is the rule in California is clearly shown by Bank of California v. San Francisco, 142 Cal. 276, 64 L. R. A. 918, 100 Am. St. Rep. 130, 75 Pac. 832, for in that case the court, speaking of such elements of value as 'dividend or profit earning power, or good will,' said (p. 289, L. R. A. p. 924, Am. St. Rep. p. 141, Pac. p. 838):
The state banks and other corporations are assessed on their property. Conceding that every species of property is assessed which is specifically enumerated as taxable in the state Constitution, it does not follow that the assessment of property as such includes good will, dividend earning power, confidence in the ability of the management, and all those other intangible elements which necessarily enter into the cash or selling value of shares of stock. As said in the passage already quoted from the Pullman Case, 171 U.S. 138 , 43 L. ed. 108, 18 Sup. Ct. Rep. 808, such elements 'may enhance the value of the shares [of stock] in the market, yet [they] do not in fact increase the value of the actual property itself. They are matters of opinion upon which persons selling and buying the stock may have different views.' In the argument at bar no law of the state was referred to requiring that the assessing officers, in valuing the property of a corporation, should assess as property its good will, its dividend earning power, the confidence reposed in its officers, etc. From this analysis it results that in the one case, that of national banks, not only the value of all the tangible property, but also the value of all the intangible elements above referred to, is assessed and taxed, whilst in the other case, that of state banks and other moneyed corporations, their property is taxed, but the intangible elements of value which we have indicated are not assessed and taxed; the consequence being to give rise to the discrimination against national banks [197 U.S. 70, 82] and in favor of state banks and other moneyed corporations forbidden by the act of Congress.
In the argument at bar this conclusion, it is insisted, is avoided, because, whilst under the text of the state statutes it may be that all the elements of value which are included in the assessment of shares of stock are not eo nomine assessed against state banks and other moneyed corporations as property, they are, nevertheless, assessed against such corporations under the denomination of 'franchise,' the duty of the assessing officer to do so being imperative, as the result of the interpretation given to the taxing law by the supreme court of the state. The proposition is thus stated in the argument of counsel:
It may be conceded that, if the statutes have been interpreted by the supreme court of the state as thus asserted, and that, as so interpreted, they have been applied by the assessing officers, there would be an end to the discrimination which we have seen arises from the consideration of the result of the statutes when not so interpreted.
The question then is, Do the decisions of the supreme court of California, as contended, place the positive duty on the assessor of including in an assessment of the franchises of state corporations all the elements of value which form part of the market or selling value of shares of stock? [197 U.S. 70, 83] Three cases are cited to sustain the proposition, viz., San Jose Gas Co. v. January, 57 Cal. 614; Spring Valley Waterworks v. Schottler, 62 Cal. 69; and Bank of California v. San Francisco, 142 Cal. 276, 64 L. R. A. 918, 100 Am. St. Rep. 130, 75 Pac. 832.
Before coming to consider the last ease cited, which is the one principally relied upon, we dispose of the two others by saying that they do not support the proposition. The first simply decided that where a part of a tax was asserted to be illegal, and a part was admitted to be valid, the duty existed to pay the confessedly legal part to justify relief concerning the portion claimed to be illegal. The second case but decided that the franchises of corporations were taxable as property, and, where a corporation enjoyed other franchises than the right to exist as a corporation, and the board of equalization, in assessing such franchises, had treated them as equivalent in value to the selling value of the capital stock, the courts had no power to interfere with the discretion lodged in the assessing officers. In the last-cited and latest-decided case, Bank of California v. San Francisco, the controversy was this: The Bank of California was assessed on its property. The difference between the value of such property and the cash or selling or market value of the shares of stock of the corporation was $2,943,096.92. The franchise, instead of being assessed for this amount, was valued only at $750,000. This valuation was resisted by the bank, upon the ground that it was so large that it must have included good will, dividend-earning capacity, etc ., which, it was asserted, could not under the law be embraced in an assessment of franchises. The court elaborately reasoned (there being two dissenting judges) that, in view of the power of the assessors to value property, it 'could not say' that the assessing officers had transcended their authority in making the valuation complained of. Speaking of the duty of the assessing officers, it was said (p. 288, L. R. A. p. 923, Am. St. Rep. p. 141, Pac. p. 837):
After pointing out that these elements entered into the assessment of shares of stock at their market value, it was observed (p. 289, L. R. A. p. 924, Am. St. Rep. p. 741, Pac. p. 838):
In other words, the court simply declared that if the law of the state properly expressed the purpose to tax everything of value, the assessor had a discretion to consider what was the selling value of shares of stock in fixing the value of the franchise. Instead of supporting the contention that the law obliged the assessor to attribute to the franchise the value of those intangible elements which it was conceded were embraced in the assessment of shares of stock, the reasoning of the opinion is to the contrary. As the cash, selling, or market value of the stock in the case before the court was conceded to have been nearly $3,000,000 greater than the [197 U.S. 70, 85] tangible property assessed to the corporation, and the assessor had valued the franchise, not at that sum, but at only $750,000, it is patent that, if the law of California had been what it is now asserted the court held it to be, that the claim that there was an overvaluation of the franchise would have been so frivolous as to require only a statement of the law to decide against the claim of overvaluation.
But the court made no such statement. On the contrary, it stated its inability to judicially declare that an assessment was extravagant and grossly unjust which was more than $2,000,000 lower than it should have been if the law imposed the obligation on the assessor of valuing the franchise by the difference between the value of the tangible property assessed and the cash or selling value of the shares of stock. This inability to give relief was placed solely upon the discretion which the law lodged in the assessor. But this interpretation of the statute serves only to further demonstrate the discrimination which has been previously pointed out. This result is made clear by comparing the discretion lodged in the assessor in valuing the franchise of state banks or other moneyed corporations with the duty resting on him as to the valuation of shares of national banks. The wide difference between the discretion on the one hand and the duty on other will be additionally demonstrated by a consideration of the discrimination against national banks which has arisen in the practical execution of the statutes.
In the agreed statement of facts it was admitted that there are in the state of California 178 commercial (or state) banks, possessing a vast amount of capital, 18 of which were located in San Francisco. And, to quote from the statement, 'that the manner in which franchises of commercial banks and trust companies were assessed for said fiscal year ending June 30, 1901, by the assessor of the city and county of San Francisco, is illustrated by the case of the Bank of California, a banking corporation organized under the laws of the state of California.' The [197 U.S. 70, 86] assessment in question, which it is thus declared in the statement of facts is illustrative of the other assessments against state banks, was the one which was involved in the controversy decided in the Bank of California Case, supra. It is then recited in the agreed statement that the total property resources of the Bank of California, correcting a misprint in the record, were $5,156,903.08; and that the market or selling value of its capital stock was $8,100,000, a difference of $2,943,096.92; and that, deducting from the resources of the bank certain exemptions, the bank was assessed for property at $2,311,774. To this last-mentioned sum was added for franchise tax, not the difference between the value of the property and the selling value of the stock, which, as stated, was nearly $ 3,000,000, but only $750,000. It is insisted in argument that this statement shows but a single case of undervaluation of a state bank by the assessors, and therefore does not justify the conclusion that, in the exercise of their discretion, the assessors had generally, as to state banks and corporations, valued the franchises at less than the difference between the value of the property taxed and the market or selling value of the stock. But this contention disregards the fact that, by the agreed statement, it was expressly admitted that the assessment in question was illustrative of the assessments upon the other state banks and moneyed corporations. In view of the issues in the cause, as to which the facts were agreed, to say that the assessment in question only illustrated the case of the Bank of California would require us to disregard the agreed statement.
Finally, it is contended that, even if the state banks and other state moneyed corporations were assessed as illustrated by the valuation placed on the Bank of California, the complainant national bank has no reason to complain because the assessment put upon its shares of stock was relatively no higher than that put upon the Bank of California, and therefore no discrimination was occasioned. This is predicated upon the fact that the value per share affixed to the stock of [197 U.S. 70, 87] the complainant national bank was not higher, having sole reference to the value of the stock as shown by the book value of the assets, and, considering allowable deductions, than was the assessment put upon the Bank of California, considering, alone, the same elements. But there is no proof whatever that the stock of the complainant bank had a market or selling value higher than the value affixed to it by the assessor; and the items which were made the basis of the assessment against the stock are declared in the agreed statement to be the entire assets of the bank, and in the argument at bar on behalf of the assessor the value of the shares of stock of the bank in excess of their book value is assumed to have been only nominal. The proposition, therefore, comes to this,-although the complainant national bank was assessed at the full value of its stock, there was no discrimination in favor of the state bank, albeit there was a difference in excess of $2,000,000 between the value put upon the property and franchise of the state bank and the sum which should have been levied against it, if all the elements had been assessed which enter into the value of shares of stock. And, thus analyzed, the contention is again reducible to this proposition,-that, where property of one person worth a given amount is assessed for its full value, no discrimination in favor of another results when the latter is assessed for a sum greatly below the value of the property assessed.
What has just been said disposes, also, of the contention that, if the national bank had been assessed under the state law by the rule applied to state banks, it would have had affixed to its property a slightly higher valuation than was given as the value of the shares of its capital stock. Without stopping to point out the error in the calculation by which this result is supposed to be demonstrated, it suffices to say that the contention would have merit only in the event that the property and franchise of all state banks had no higher value than the book value of the shares of stock. The fallacy underlying the whole contention cannot better be made clear than by [197 U.S. 70, 88] the mere reiteration of the statement that, under the facts as agreed, it is obvious that the shares of stock of the national bank were assessed for all they were worth under the rule of market or selling value, whilst the state bank was only assessed for $750,000 above the book value of the stock, although the cash, selling, or market value would have required an assessment of nearly $3,000,000.
Many contentions were argued at bar involving the assertion that the state law was invalid because of deductions of debts or exempt property which, it was asserted, the law allows to state banks and other moneyed corporations on an assessment of their property, and does not allow holders of shares of stock in national banks. Most of these contentions are, in effect, disposed of by the consideration which we have given to the proposition that the state law was void simply because it established different methods of taxation as to the two classes of corporations. In so far as the contentions referred to are not, in effect, disposed of by our conclusions on that subject, we content ourselves with saying that we think all such propositions were rightly decided by the court below to be without merit, for the reasons expressed in the opinion delivered by that court in the Nevada Bank Case, to which the court referred, and upon which it placed its rulings. We decide this case solely upon the record before us. Our conclusion, therefore, does not deny the power of the state of California to assess shares of stock in national banks, provided only the method adopted does not produce the discrimination prohibited by the act of Congress. From this, of course, it would follow that, if the statutes of California, either from their text or as construed by the highest court of that state, compelled the assessing officers in the valuation of the property of state banks and other state moneyed corporations to include all those elements of value which are embraced in the assessment of shares of stock in national banks so that there would be an equality of taxation as respects national banks, [197 U.S. 70, 89] the discrimination which we find to exist under the present state of the law of California would disappear.
The decree of the Circuit Court of Appeals is reversed; the decree of the Circuit Court is also reversed, and the cause is remanded to the Circuit Court for further proceedings in conformity with this opinion.
Mr. Justice Brewer, with whom the CHIEF JUSTICE, Mr. Justice Brown, and Justice Peckham concur, dissenting:
I am unable to concur in the foregoing opinion, and, believing that a grievous wrong is done to the state of California, will state the reasons for my dissent. Section 5219, Rev. Stat. (U. S. Comp. Stat. 1901, p. 3502), prescribes the conditions and limitations of state taxation of national banks. In reference to it, we said in Owensboro Nat. Bank v. Owensboro, 173 U.S. 664, 669 , 43 S. L. ed. 850, 852, 19 Sup. Ct. Rep. 537, 539:
By the section two restrictions, and two only, are placed on the power of the state to tax the shares of stock: 'That the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state, and that the shares of any national banking association owned by nonresidents of any state shall be taxed in the city or town where the bank is located, and not elsewhere.'
No uniform rule is prescribed by Congress as to the mode of assessment or the manner in which the state shall impose its burden of taxation on the shares of stock in national banks. Each state is left to determine that according to its own judgment. All that is demanded is that in fact neither the rate of tax nor the assessment shall discriminate against national banks, and that the property subject to taxation shall not be [197 U.S. 70, 90] burdened in excess of the burdens cast upon other moneyed capital. Davenport Nat. Bank v. Board of Equalization, 123 U.S. 83 , 31 L. ed. 94, 8 Sup. Ct. Rep. 73.
The mandate of 1 of the Constitution of California is:
Thus, the Constitution requires the taxation of all property and a taxation in proportion to its value, and defines property as including everything capable of private ownership. Certainly, if the mandate of the Constitution is expressed in the statutes the shares of stock in national banks will be subjected to the same rate of taxation as all other property in the state, including therein moneyed capital. It must, therefore, be held that the legislation respecting the taxation of national bank shares is in defiance of the state Constitution before it can be adjudged in conflict with the equality provision of 5219, Rev. Stat. Or, in other words, that the legislature of California disregarded the requirements of their own Constitution in order to subject to taxation property protected by Federal laws.
The legislation of California in this regard is found in 3608 of the Political Code, as amended in 1899, and two additional sections enacted in that year, numbered 3609 and 3610:
The rule of valuation is prescribed by the 5th subdivision of 3617 of the Political Code, which provides that 'the terms 'value' and 'full cash value' mean the amount at which the property would be taken in payment of a just debt due from a solvent debtor.' It is true that prior to 1881 market value was made the rule of valuation, but the section prescribing that rule was, so far as it applied to national bank shares, adjudged void by the supreme court of the state (Miller v. Heilbron, 58 Cal. 133), and wholly repealed by the legislature (Stat. 1881, p. 59), and in lieu of that the present rule of valuation established. But the rule of valuation is not so material, and, doubtless, an established market value would be the amount at which property would be taken in payment of a just debt due from a solvent debtor. The main thing is that the same rule of valuation shall be applied to the assessment and taxation of national bank shares as of other moneyed capital. And the express declaration of 3609 is that the shares in national banks 'shall be valued and assessed as in other property for taxation.'
From the sections quoted it appears that the method of reaching the property of state corporations for purposes of taxation is by treating the corporation as owner of all, and casting the burden of taxation directly upon it, while, on the other hand, in obedience to the requirements of the Federal statute, taxation in respect to national banks is limited to an assessment and taxation of the shares of stock. But there is no discrimination if the same property is reached by each [197 U.S. 70, 93] method, and by each subjected to the same rule of valuation. By 3608 all the property of state corporations must be assessed and taxed, and the word 'property' is defined by the Constitution to include, not merely tangible assets, but also 'franchises, and all other matters and things, real, personal, and mixed, capable of private ownership.' Everything, therefore, which is a part of the property of a state corporation is subject to assessment and taxation. No other or larger burden is cast upon shares of national banks, and surely there can be no discrimination when the entire property in the one instance is taxed as a whole to the corporation and in the other instance subdivided and taxed to the stockholder. The whole is neither less nor more than all its parts. But it is said there is no specific command to include in the property of a state corporation the good will, dividendearning power, and the like, and that they are necessarily included in the selling value of the stock of any corporation. It is true, these items are not in terms mentioned, but neither are desks and furniture. The language is general, so general that it includes everything, not excepting good will, dividend-earning power, and the like, for they are 'capable of private ownership.' They belong to the corporation. There is no good will in a share of stock over and above the good will which belongs to the corporation, and, if the corporation sells and conveys all that it possesses 'capable of private ownership,' it sells and conveys its good will, and there is nothing left of good will or anything else belonging to the stockholders. This is so plain that he who runs may read. It is hardly necessary in a matter so clear to refer to the decisions of the supreme court of California, and yet they are direct upon the proposition. Thus in Burke v. Badlam, 57 Cal. 594, the court said (pp. 601, 602):
It will be seen from this quotation that the court places partnerships on the same basis as corporations. If the partnership sells out its property, including its good will and its profit-earning power, which are part of its property under the constitutional definition of property, there is nothing left to the separate partners. The whole thing has passed to the purchaser, and in the same way when a corporation makes a sale. And to hold that the good will and profit-earning power must be specifically mentioned is to hold that the constitutional definition of property is insufficient; that good will and profit-earning power are not 'capable of private ownership,' or do not belong to the corporation. Burke v. Badlam was reaffirmed in Bank of California v. San Francisco, 142 Cal. 276, 64 L. R. A. 918, 100 Am. St. Rep. 130, 75 Pac. 832, decided since the decision of this case by the court of appeals. This case is very instructive. It was an action brought by the plaintiff, a state bank, to have an assessment of its franchise declared illegal and void, and to recover the amount paid by it under protest as taxes thereon. The contention of the [197 U.S. 70, 96] plaintiff was that it did not own or possess any franchise whatever; that the only franchise in any way connected with it was the corporate franchise, the franchise of being a corporation, which was the property of the stockholders and not assessable or taxable to the corporation. It appears from the opinion that the assessor found that the aggregate value of the tangible property of the bank was $5,156,903.08, that the market value of all the shares of the capital stock was $8,100,000, and the difference between the two was by him ascertained and determined to be the value of the franchise of the bank. The state was not challenging the assessment, and, of course, no inquiry was made as to the propriety of an increase in the valuation.
In reply to the contention of the plaintiff, the court uses this language:
Again, referring to Burke v. Badlam, 57 Cal. 594, the court said (p. 285, L. R. A. p. 922, Am. St. Rep. p. 138, Pac. p. 836):
And again, on p. 289, L. R. A. p. 924, Am. St. Rep. p. 141, Pac. p. 838:
I have made these extensive quotations from the opinions of the supreme court of California, for in cases like this we follow the construction placed by the highest court of the state upon its statutes. Obviously, that court construes them as including within the corporate property the aggregate value [197 U.S. 70, 98] of all the shares of stock, and that, while they forbid the assessment and taxation of shares of stock in a state corporation, they require that all the value represented by those shares of stock be assessed and taxed against the corporation; so that, when you ascertain the value of a single share of stock, and multiply that by the number of shares in the corporation, you have the value of the corporate property subject to taxation.
After declaring that the prohibition of the assessment and taxation of shares was clearly unconstitutional, unless they were otherwise assessed, it added, referring to the case of Burke v. Badlam, 'according to the decision of the court they were under the law to be otherwise assessed,-i. e., everything represented by the certificates was to be assessed to the corporation.' Now, if, as claimed, the shares represent, not merely the tangible property, but the franchise, the dividend-earning power, then, as stated, 'everything represented by the certificates was to be assessed to the corporation.' And this language is followed by the declaration, referring to dividends, profit-earning power, good will, etc.: 'In this connection it will be observed that these elements, so far as they may enter into the value of shares of stock, would be included in an assessment of such shares to the stockholders, a method of assessment which the state is at liberty to adopt,-in fact bound to adopt,-unless such shares are otherwise covered by the assessment of the property of the corporation.' Reference is made to the use of the word 'if' in the last paragraph of the quotation, as though that implied a doubt as to the meaning of the state statutes. But surely that cannot be, in view of the prior declaration in the same opinion, that 'everything represented by the certificates was to be assessed to the corporation.' The paragraph is to be read as though it said that provided the laws of the state properly express the intention, as we have already held that they do, then the true value of the shares is an important element in determining the value of the corporate property. The same word 'if' is used at the commencement of the second paragraph of the quota- [197 U.S. 70, 99] tion 'if this corporate franchise is assessable as property,' in like manner, for the word 'franchises' is found in the constitutional definition of property, the paragraph preceding 'if' declares that 'the corporation itself has a lagal interest in such franchises,' and the very paragraph says that 'the assessment of all the property of the corporation covered everything represented by the certificate.' Certainly it seems to me there is no justification in torturing this word 'if' as overthrowing all the clear declarations of the court, as well as implying a destruction of the plain letter of the statutes.
But reat reliance is placed upon the admission in the agreed statement of facts, 'that the manner in which franchises of commer al banks and trust companies were assessed or said fiscal year ending June 30, 1901, by the assessor of the city and county of San Francisco, is illustrated by the case of the Bank of California, a banking corporation organized under the laws of the state of California.' In the assessment of that bank the assessor did not add to the value of the tangible property the difference between that value and the market value of the capital stock, but a sum very much less. A tabular statement is also annexed, showing the financial condition during the year of the 178 state banks of California. It might be sufficient to say that the stipulation is satisfied by a conclusion that the assessor, in assessing state banks, generally added to the value of the tangible property something on account of the franchise,-we are not compelled to infer that the valuation of the tangible property of each bank he added $750,000, or even that he failed to add the full difference between the value of that property and that of the stock. Indeed, it does not appear from the tabular statement that the market value of the shares in a single state bank in California exceeded the value of its tangible property. So that, so far as that evidence goes, the only case in which there was any franchise value to be added was that of the Bank of California. But more significant is this: It appears from the [197 U.S. 70, 100] agreed statement that the assessment complained of in this case was made in the following way:
In other words, the only assessment against the plaintiff's shares was based upon the value of the tangible property. Not a dollar was added to the valuation on account of franchise, good will, or dividendearning power, or anything of that kind. Or, to put it in another form, the assessment of the state bank added to the value of the tangible property something for the value of the franchise, the assessment of the plaintiff stopped with the tangible property, and yet it is held that there was an actual unjust discrimination against the plaintiff. And how is this conclusion reached? By assuming that the shares in the plaintiff bank had no value above the value of the tangible property. But this is a mere assumption. A more rational guess would be that the shares of stock in a bank whose undivided profits were over 15 per cent of its capital had a value much above the par value of its stock or the value of its tangible property. And can it be that the whole system of the legislation of a state in respect to the taxation of national banks can be stricken down upon an unfounded assumption that the shares of a given national bank were worth no more than its tangible property? If the complaint was of an actual discrimination it was a part of the plaintiff's duty to prove it, and show that its shares had no value above that of the tangible property, and would not 'be taken in payment of a just debt due from a solvent debtor' at a larger sum. The most elementary rule of judicial pro- [197 U.S. 70, 101] ceedings is that a party, to make out his cause of action, must prove, not assume, the existence of all essential facts.
But I need not rest upon the omission of proof. There is no allegation of any discrimination based upon such difference of valuation. The eleventh and twelfth paragraphs of the complaint state the wrongs on account of which relief is sought. In order that there may be no misunderstanding of the full scope of the causes of action alleged I quote these paragraphs entire:
The first of these paragraphs alleges a violation of the Federal statute in the taxation of plaintiff's shares of stock, because under and by virtue of the laws of California all shares of stock in state corporations are exempt from assessment and taxation, and the assessor does not intend to assess to the holders the value of those shares. But, as repeatedly held, a mere difference in the methods of state and national bank taxation is not repugnant to the act of Congress. The balance of the paragraph is substantially a charge of a discrimination by reason of a failure to deduct debts. But that, it is conceded in the opinion of the court, may be put one side,-a concession undoubtedly compelled by the facts as agreed upon, for an opportunity was given to each stockholder in the plaintiff bank to have any debts deducted, and no one of them sought to avail of this privilege.
The other paragraph charges a discrimination and that the assessor ascertained the value of the shares of the capital stock of the plaintiff at the sum of $115,452 and deducted therefrom [197 U.S. 70, 106] the sum of $11.10 per share as the proportionate share of the value of United States bonds held by the bank; that he refused to make any further deductions, although the various items of property held by the bank, consisting of bonds, moneys, credits, etc., 'were and are used and employed by it in the conduct and carrying on its business as a national banking association, under and by virtue of the provisions of the act of Congress of the United States known as the national bank act, and were and are exempt by law from taxation.' The complaint here is that the tangible property of the national bank is wholly exempt from taxation because used for the purpose of carrying on the banking business, and, as the only assessment of plaintiff's shares was based upon the value of the tangible property, the entire assessment was void. Now it is not pretended in the opinion of the court, nor can it be successfully claimed in view of prior decisions of this court, that shares of stock in a national bank are subject to taxation to only the extent of the excess of their value above that of the tangible property of the corporation, and yet that is the burden of plaintiff's complaint. I have made this extensive quotation because it is apparent therefrom that the matter which, in the judgment of the court, is sufficient to overthrow the law of California in respect to the taxation of national banks, was not charged or complained of by the plaintiff. If the plaintiff neither alleges nor proves any discrimination in the matter of valuation I cannot understand why this court should assume that there was one, and thereupon upset the tax.
Further, there is no reference in the opinion of the court of appeals to any discrimination in fact.
Still further, counsel for plaintiff in error evidently fail to perceive any actual discrimination, as appears by this quotation from their brief:
The only reference to discrimination is the alleged legal one, 'by reason of the failure to tax shares in the commercial banks of the state.' If the failure to tax shares in the commercial banks of the state does not of itself work a discrimination, as is practically conceded in the opinion of the court, then the whole basis of plaintiff's complaint fails.
Summing the matter up, the Constitution declares that 'all property . . . shall be taxed in proportion to its value,' and defines 'property' as including 'franchises, and all other matters and things, real, personal, and mixed, capable of private ownership.' Franchises, dividend-earning, profitearning power, are capable of private ownership. Indeed, the opinion of the court is based on the contention that they are assessed to the holder of shares in national banks, and not assessed upon the state banks. Section 3608 provides that 'all property belonging to corporations (save and except the property of national banking associations, not assessable by Federal statute) shall be assessed and taxed.' Section 3609, that the shares in national banking associations 'shall be valued and assessed as is other property for taxation.' The [197 U.S. 70, 108] supreme court of the state holds that a stockholder in a state bank 'could not be assessed upon his certificate of stock, inasmuch as his shares were simply an interest in the very property held by the corporation, and the assessment of all the property of the corporation covered everything represented by the certificate.' [142 Cal. 282, 64 L. R. A. 920, 100 Am. St. Rep. 135, 75 Pac. 835.] There is neither allegation nor evidence that there was any overvaluation of the plaintiff's shares of stock. The complaint is that there was a discrimination by reason of the failure to deduct from the value of the shares the entire value of the bank's tangible property, because 'used and employed by it in the conduct and carrving on its business as a national banking association.' And yet, in the face of the plain words of the Constitution and statutes, the clear language of the supreme court of California, and the absence of allegation or proof of actual discrimination, this court, by its opinion, strikes down the whole system of California for the taxation of shares of national banks.
But beyond and aside from the matters which I have considered, and conceding, for the purposes of the following suggestion, that the law of California providing for the taxation of shares of stock in national banks is invalid, still I insist that the decree of the court of appeals ought to be affirmed. This is an equitable suit brought in the United States court, where the distinction between law and equity is constantly enforced. Upon the theory of the opinion, the tax upon the shares of stock in the plaintiff bank was illegal. The statute of California imposing that tax was void. Now, there are two propositions which have entered into the jurisprudence of this court so thoroughly that they may be regarded as settled law: First, that equity will not interfere where there is a plain, adequate, and complete remedy at law; and, second, that injunction will not issue to restrain the collection of a tax simply on the ground of its illegality. The first is not only the rule of the court of chancery in England, but it is the command of the Federal statute. Section 723, Rev. Stat. [U. S. Comp. Stat. 1901, p. 583], reads: 'Suits in equity shall not be sustained in either of the courts of the [197 U.S. 70, 109] United States in any case where a plain, adequate, and complete remedy may be had at law.'
This defense was pleaded by the defendant in his answer, the sixteenth paragraph of which reads as follows:
Even if it had not been formally pleaded, the matter is one which this court of its own motion would consider and determine. As said in Wright v. Ellison, Wall. 16, 22, 17 L. ed. 555, 557:
It is unnecessary to cite the many cases in this court in which this rule has been recognized, the latest being Scottish Union & Nat. Ins. Co. v. Bowland, the opinion in which has just been filed though reference may be made to the discussion by Mr. Justice Field in Whitehead v. Shattuck, 138 U.S. 146 , 34 L. ed. 873, 11 Sup. Ct. Rep. 276, and in Scott v. Neely, 140 U.S. 106 , 35 L. ed. 358, 11 Sup. Ct. Rep. 712, and by Mr. Justice Brown in Wehrman v. Conklin, 155 U.S. 314 , 39 L. ed. 167, 15 Sup. Ct. Rep. 120. Now, in California there is a perfectly adequate legal remedy for cases of this nature. Section 3819 of the Political Code provides that 'the owner of any property, . . . who may claim that the assessment is void in whole or in part, may pay the same to the tax collector under protest, which protest shall be in writing, and shall specify whether the whole [197 U.S. 70, 110] assessment is claimed to be void, or, if a part only, what portion, and in either case the grounds upon which such claim is founded; and when so paid under protest the payment shall in no case be regarded as voluntary payment, and such owner may at any time within six months after such payment bring an action against the county in the superior court, to recover back the tax so paid under protest.' Such a remedy has, in a case of the taxation of national bank shares, been held by this court adequate and complete, and sufficient to exclude the interposition of a court of equity. In Dows v. Chicago, 11 Wall. 108, 20 L. ed. 65, which was a bill filed by the owner of shares of the capital stock of the Union National Bank of Chicago, to restrain the collection of a tax levied by that city upon his shares, we said (p. 112, L. ed. p. 67):
And this case was reaffirmed by the unanimous opinion of this court in the late case of Pittsburgh, C. C. & St. L. R. Co. v. Board of Public Works, 172 U.S. 32 , 43 L. ed. 354, 19 Sup. Ct. Rep. 90, in which the quotation I have just made is also quoted.
The second proposition to which I have referred has also been often decided. Out of the many decisions I refer to only [197 U.S. 70, 111] two or three. Dows v. Chicago, 11 Wall. 108, 20 L. ed. 65, in which is this language (p. 109, L. ed. p. 66):
State Railroad Tax Cases (Taylor v. Secor), 92 U.S. 575 , 23 L. ed. 663, in which is this (p. 614, L. ed. 673):
And in Pittsburgh, C. C. & St. L. R. Co. v. Board of Public Works, 172 U.S. 32 , 43 L. ed. 354, 19 Sup. Ct. Rep. 90, in which the rule is thus stated (p. 37, L. ed. p. 356, Sup. Ct. Rep. p. 92):
But it may be said that in the following cases this court has laid down an apparently different rule in respect to the taxation of national bank shares. New York v. Weaver, 100 U. S. [197 U.S. 70, 112] 539, 25 L. ed. 705; Pelton v. Commercial Nat. Bank, 101 U.S. 143 , 25 L. ed. 901; Cummings v. Merchants' Nat. Bank, 101 U.S. 153 , 25 L. ed. 903; Hill v. National Albany Exch. Bank, 105 U.S. 319 , 26 L. ed. 1052; Evansville Nat. Bank v. Britton, 105 U.S. 322 , 26 L. ed. 1053; Lander v. Mercantile Nat. Bank, 186 U.S. 458 , 46 L. ed. 1247, 22 Sup. Ct. Rep. 908. The first was a writ of error to the court of appeals of the state of New York, and, the mode of attack upon the law having been recognized by that court as proper, the question was not discussed here. In Cummings v. Merchants' Nat. Bank, Pelton v. Commercial Nat. Bank being decided on its authority, the right to an injunction was asserted. The case came from the circuit court of the United States for the northern district of Ohio, in which district the bank was located. In delivering the opinion of the court Mr. Justice Miller said on page 157:
Two reasons are here stated to justify the exception to the ordinary rule in respect to injunctive relief. First, a state statute, and, second, a design on the part of the state authorities to discriminate. There is no statute of California making such special provision in reference to injunctions, and that reason for a departure from the general rule may be put one side. The other implies an intent on the part of the legislature or assessing officials to discriminate. It does not mean simply that there has resulted a discrimination, but that one was intended. It is well known that in the early days of the national banking law there was a strong prejudice against it in different portions of the Union, and adverse legislation in the way of burdensome taxation was not uncommon, and it was because of that fact that the court permitted the exercise of the strong powers of equity. That I am right in this, and that there has never been an intent to apply a different rule to a national bank from that which has been in force in respect to other property, is made clear by the language of Mr. Justice Miller in a subsequent case, German Nat. Bank v. Kimball, 103 U.S. 732, 735 , 26 S. L. ed. 469, 470. Delivering the opinion of the court, he says:
This ruling was somewhat like the action of the court in Stanley v. Schwalby, 162 U.S. 255 , 40 L. ed. 960, 16 Sup. Ct. Rep. 754. That was a case coming from a state court. Ordinarily when the judgment is reversed the order is to remand the case for further proceedings not inconsistent with our opinion, but, in view of action theretofore taken by the state court in the case, we felt constrained to direct the very judgment which should be entered.
In Lander v. Mercantile Nat. Bank, 46 L. ed. 1247, 22 Sup. Ct. Rep. 908, a decree dismissing the bill filed by the bank was affirmed. It is true in the opinion the merits of the bill were discussed, and nothing said about the right to maintain a suit in equity. Evidently the matter passed without consideration, and not unnaturally so, as the bill on its merits was dismissed.
In the case before us, whatever may be the effect of the statute in creating or opening the door to discrimination, no one can read it and say that there was an intent on the part of the legislature of California to discriminate injuriously against national banks. The statute is positive in its language that national bank shares shall be taxed and assessed as is other property, and there was beyond doubt an attempt on the part of the California legislature to cast only an equal burden of taxation on such shares. Of course, there ought not to be imputed to this court an intention to favor national [197 U.S. 70, 115] bank property in the matter of taxation, and to lay down a rule for its benefit which is denied to all other property. So, were I wrong in my construction of the state staute, beyond any peradventure the decree of the circuit court of appeals ought to be affirmed and the bank remitted to its legal remedy.
I am authorized to say that the CHIEF JUSTICE, Mr. Justice Brown, and Mr. Justice Peckham concur in this dissent.