[73 U.S. 611, 612] THIS case, which came here on writ of error to the Supreme Court of Massachusetts, ino lved as a general matter the same question as the case just preceding; to wit, the taxation by State legislatures of Federal securities held by savings banks created by them; the difference between the two cases being that the question in the former case arose under a statute of Connecticut having one form of language, and in this case arose under a statute of Massachusetts having another form, more or less different.
The present case was thus:
A statute of Massachusetts of 1862 (entitled 'An act to levy taxes on certain insurance companies and on depositors in savings banks') provides by its fourth section that every institution for savings incorporated under the laws of that commonwealth, should pay to the commonwealth 'a tax on account of its depositors of one-half of one per cent. per annum1 on the amount of its deposits, to be assessed, one-half of said annual tax on the average amount of its deposits for the six months preceding the first day of May, and the other, on the average amount of its deposits for the six months preceding the first day of November.'
The act by its twelfth section exempted 'all property taxed' under the above section from taxation for the current year in which the tax was paid; and relieved savings banks from making return of deposits in accordance with the provisions of previous statutes.
With this statute in existence, the Provident Institution for Savings, a corporation having no property except its deposits and the property in which they were invested, and authorized by the general statute of Massachusetts to receive money on deposit for the use and benefit of the depositors, [73 U.S. 611, 613] and to invest its deposits in securities of the United States, had as its average amount of the deposits for the six months preceding the first day of May, 1865, $8,047,652.19, of which $1,327,000 stood invested in public funds of the United States, exempt by law of the United States from taxation under State authority. It paid all taxes asked of it except on the portion which stood thus invested; upon that it declined to pay a tax. On suit brought by the commonwealth to recover the same, the Supreme Judicial Court of that State, regarding the taxing as one on franchise and not on property, and therefore lawful, gave judgment for the commonwealth.
On error here, the question was the correctness of this judgment; in other words, whether the State by force of the statutes could exact the tax on that portion of the society's deposits which was invested in the public funds of the United States?
Messrs. Bonney and Bartlett, for the plaintiff in error:
I. It may be stated as a fact, that up to the time of the statute of 1862, the taxes on deposits in savings banks were assessed directly to the depositors. But as the Supreme Court of the State has declared,2 a large portion of such deposits being under $500 in amount, and for that reason not included in the returns to assessors, required by general statute, usually escaped taxation.
The purpose, then, of the act of 1862 was to change the form of taxation of the property of depositors, so as to prevent its escaping complete taxation when assessed, as it previously had been, in the annual valuation of the property of individuals.
1. The title of the act declares it to be 'An act to levy taxes . . . on depositors in savings banks.'
2. The act itself, in one section, declares that every savings bank shall pay to the commonwealth an annual tax, 'on account of its depositors, of one and one-half per cent.,' &c. In [73 U.S. 611, 614] another, that 'all property' thus taxed 'shall be otherwise exempt from taxation for the current year.'
3. The Supreme Court of Massachusetts has settled, in a case which involved no question as to the taxation of United States securities, that by the true construction of this act it imposed the new tax o lely on the corporation and not upon the 'money in its hands belonging to depositors,' and this concludes that question. 3
Since the design was to make the tax of that property more complete, and more like the mode of taxing other like property, the inference is cogent that the substituted tax was also on property, and not a bonus for a franchise, if indeed that distinction is of any importance, which we assert that it is not.
But whatever may have been the purpose, the act shows that the assessment is direct upon the property of the corporation.
II. The laws of the United States provide that securities of the United States shall be exempt from taxation by or under State authority.
What avails it to the citizen who has lent his money to the government that the constitution or laws of the United States declare its public stocks exempt from State taxation, if a State may, under the pretence of shifting taxation from property to franchise, impose it as an excise or duty on the privilege he enjoys of pursuing his avocation, acquiring or holding property, or other 'franchise,'-to be 'estimated,' 'apportioned' or 'graduated' by the amount of all the property he possesses, however invested?
That State has virtually said: 'Savings banks hold all their deposits in strict trust for their depositors; they must invest them only in certain designated property; in the more hazardous, only in limited amounts. But there is one class-the public funds of the United States, an especially convenient and safe investment-by the laws and decisions of the United States exempt from State taxation in their hands, [73 U.S. 611, 615] and therefore especially inviting; in these they may invest without limit, all their assets, if they choose.' 4
The savings banks have no sooner availed themselves of this privilege, and invested largely in this property, than the State demands of them a tax of three-fourths of one per cent. per annum on all their deposits!
What matters it to either the savings banks or the United States what the theory of the tax is; whether it be on franchise or deposits? The one knows that if it had not the deposits it would not have the tax. The other that they can borrow money no better under one mode of taxation than under the other.
This new device of substantially taxing property, and declaring it to be a tax upon a franchise, requires to be carefully watched, or the government will be largely crippled in its means of borrowing money. Technically, a franchise is a special right conferred by government on designated individuals, but the same doctrine is applicable to all special pursuits of the citizens. Massachusetts, accordingly, taxes for what is called faculty (which is a franchise or right held under general laws), numerous classes of persons. If, under the guise of taxing the exercise of the various pursuits of life, all property used or acquired in those pursuits is declared the measure of its enjoyment, and the rate of taxation governed by it, it is clear that the exemption from taxation attached by law to United States securities is futile.
Mr. Allen, Attorney-General of Massachusetts, contra:
The general proposition to be maintained on the part of the commonwealth of Massachusetts is, that the present is in the nature of an excise laid upon the franchises of savings institutions, and not upon their property; and that, this being so, no abatement should be made by reason of government securities held by them.
1. In Massachusetts it is, and long has been, customary to [73 U.S. 611, 616] tax or lay an excise upon franchises, independently of property. The authority to do this is derived from that clause of the constitution which authorizes the legislature 'to impose and levy reasonable duties and excises upon any produce, goods, wares, merchandise and commodities whatsoever, brought into, produced, manufactured, or being within the same.'