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States should be exempt from state taxation. The effect of the decision in Van Brocklin v. Tennessee was, of course, to hold that these provisions were declaratory merely, and, therefore, superfluous. The fact that the lands concerned in this Tennessee case were acquired by the United States through sales for direct taxes levied by act of Congress and not expressly ceded by the States, was held immaterial.

In Wisconsin C. R. Co. v. Price County21 the doctrine of Van Brocklin v. Tennessee reappeared and was broadened so as to include taxation not only by the State but by any of its administrative subdivisions.22

$52. State Taxation of Federal Securities.

United States securities, it has been held, may not be taxed by the States for the reason that to admit this power would give to the State the authority to impair the borrowing power of the National Government. This was early decided in Weston v. Charleston.23 "The tax on government stock," said Marshall, who rendered the opinion in the case, "is thought by this court to be a tax on the contract, a tax on the power to borrow money on the credit of the United States, and consequently to be repugnant to the Constitution."

Distinguishing such a state tax from one on land after it has been sold by the Federal Government - a tax which it was conceded the States might lay-Marshall said: "The lands pur

21 133 U. S. 496; 10 Sup. Ct. Rep. 341: 33 L. ed. 687. 22"It is familiar law that a State has no power to tax property of the United States within its limits. This exemption of their property from state taxation- and by state taxation we mean any taxation by authority of the State, whether it be strictly for state purposes or for more local and special objects is founded upon that principle which inheres in every independent government, that it must be free from any such interference of another government as may tend to destroy its powers or impair their efficiency."

As to the inability of the States to tax lands allotted in severalty to the Indians under the act of 1881, the improvements on them and the cattle or other property furnished the allottees, see chapter XX of this work, and especially the case of U. S. v. Reckert (188 U. S. 432; 23 Sup. Ct. Rep. 478; 47 L. ed. 532).

23 2 Pet. 449; 7 L. ed. 481.

chased become a part of the mass of property in the country with no implied exemption from common burdens. All lands are derived from the general or particular government and all lands are subject to taxation. Lands sold are in the condition of money borrowed and repaid. Its liability to taxation in any form it may then assume is not questioned. The connection between the borrower and the lender is dissolved. It is no burden on loans, and it is no impediment to the power of borrowing that the money, when repaid, loses its exemption from taxation. But a tax upon debts due from the government, stands, we think, on very different principles from a tax on lands which the government has sold.”

In Banks v. The Mayor the attempt to make a distinction between the bonds of the government issued for loans of money and certificates of indebtedness given in payment for supplies purchased, and to hold the latter subject to taxation by the States, was defeated by the court. So also in Bank v. Supervisors United States notes issued under the acts of 1862 and 1863 were held exempt from state taxation.

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In Bank of Commerce v. Commissioners26 stock of the United States constituting a part or the whole of the capital stock of a state bank was held not subject to state taxation, the fact that the tax was on the aggregate of the taxpayer's property and not upon the stock by name being held immaterial. So also in the Bank Tax Case a state tax on a valuation equal to the amount of the capital stock paid in, and surplus, of a state bank was held to be a tax on the property of the institution and, therefore, invalid, in' so far as that property consisted of stocks of the United States.

In Home Savings Bank v. Des Moiness it was held that a state statute directing that shares of stock of state banks should be assessed to such banks, and not to individual shareholders, operated as a tax on the property of the bank and, therefore, in so far as

247 Wall. 16; 19 L. ed. 57.
25 7 Wall. 26; 19 L. ed. 60.
26 2 Black, 620; 17 L. ed. 451.

27 2 Wall. 200; 17 L. ed. 793.

28 205 U. S. 503; 27 Sup. Ct. Rep. 571; 51 L. ed. 901.

such property represented federal securities, violated the immunity of such securities from state taxation.2

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29 In its opinion the court say: "We must inquire whether the law really imposes a tax upon the shares of stock as the property of their owners, or merely adopts the value of those shares as the measure of valuation of the property of the corporation, and by that standard taxes that property itself. The result of this inquiry is of vital importance, because there may be a tax upon the shares of a corporation, which are property distinct from that owned by the corporation, and with a different owner, without an allowance of the exemption due to the property of the corporation itself, while, if the tax is upon the corporation's property, all exemptions due it must be allowed."

After reviewing Bank of Commerce v. Commissioners (2 Black. 620; 17 L. ed. 451) and Bank Tax Case (2 Wall. 200; 17 L. ed. 793) the opinion continues: "The case at bar cannot be distinguished in principle from these cases. In the first case the tax was on the capital stock at its actual value; in the second case on the amount of the capital stock and the surplus earnings; and, in the case at bar, on the shares of the stock, taking into account the capital, surplus, and undivided earnings. It would be difficult for the most ingenious mind and the most accomplished pen to state any distinction between these three laws, except by the manner by which they all sought the same end, the taxation of the property of the bank. The slight concealment afforded by the omission of the property co nomine is not sufficient to disguise the fact that, in effect, it is the property which is taxed. If, included in that property it is discovered that there is some which is entitled by federal right to an immunity, it is the duty of this court to see that the immunity is respected."

Of the line of cases affirming the doctrine of Van Allen v. Assessors (3 Wall. 573; 18 L. ed. 229), the opinion declares: "There is nothing in them which justifies the tax under consideration here, levied, as has been shown, on the corporate property. Without further review of the authorities it is safe to say that the distinction established in the Van Allen case has always been observed by this court, and that, although taxes by States have been permitted which might indirectly affect United States securities, they have never been permitted in any case except where the taxation has been levied upon property which is entirely distinct and independent from these securities. On the other hand, whenever, as in these cases, the tax has been upon the property of the corporation so far as that property has consisted of such securities, it has been held void. . . . It is said that where a tax is levied upon a corporation, measured by the value of the shares in it, it is equivalent in its effect to a tax (clearly valid) upon the shareholders in respect of their shares, because, being paid by the bank, the burden falls eventually upon the shareholders in proportion to their holdings. It was upon this view that the lower court rested its opinion. But the two kinds of taxes are not equivalent in law, because the State has the power to levy one, and has not the power to levy the other. The question here is one of power, and not of economics. If the State has not the power to levy this tax, we will not inquire whether another tax, which it

Where, however, the state tax may properly be held to be a franchise tax upon the state institution, it has been held valid notwithstanding the fact that United States stocks constitute a part of the assets of the institution. "Nothing is more certain in legal discussion," the court say in Society for Savings v. Coite,3 30 "that the privileges and franchises of a private corporation, all trades and avocations by which the citizens acquire a livelihood, may be taxed by a State for the support of the state government. Authority to that effect resides in the State wholly independent of the Federal Government, and is wholly unaffected by the fact that the corporation or individual has or has not made investment in federal securities." 31 So also in Home Insurance Co. v. New York 32 it was held that a state statute imposing a tax upon the "corporate franchise or business " of a company, and making reference to its capital stock and dividends only for the purpose of determining the amount of the tax, was not invalid as levying a tax on the capital stock or property of the company, but upon its corporate franchise, and, therefore, not subject to the objection that it imposed a tax on United States securities constituting a portion of the investments of the company. A tax levied upon shares of stock in the hands of their holders it has been uniformly held is not equivalent to a tax upon of the company, but upon its corporate franchise, and, therefore, it has been consistently held that the States may tax the shares of a national bank in the hands of the shareholders, or, similarly, the stock of corporations whose investments consist wholly or in part of federal securities.33

might lawfully impose, would have the same ultimate incidence. Precisely the same argument was made and rejected in Owensboro Nat. Bank v. Owensboro."

30 6 Wall, 611; 18 L. ed. 907.

31 Citing Osborn v. Bank of U. S. (9 Wh. 738; 6 L. ed. 204).

32 134 U. S. 594; 10 Sup. Ct. Rep. 593; 33 L. ed. 1025.

33 Van Allen v. Assessors (3 Wall. 573; 18 L. ed. 229); Provident Institution v. Massachusetts (6 Wall. 611; 18 L. ed. 907); Palmer v. McMahon (133 U. S. 660; 10 Sup. Ct. Rep. 324; 33 L. ed. 772.)

§ 53. Income from Federal Securities Exempt from State Taxa

tion.

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Incomes derived from interest on federal securities, are exempt from state taxation. This was held with reference to the exemption from federal taxation of incomes derived from state securities, and the same reasoning would of course exclude from state taxation incomes derived from federal securities.35

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§ 54. State Taxation of Circulating Notes of National Banks. Congress, by an act approved August 13, 1894, has provided that "circulating notes of national banking associations and United States legal tender notes, and other notes and certificates of the United States, payable on demand, and circulating or intended. to circulate, as currency shall be subject to [state] taxation as money on hand or on deposit." In Hibernia Savings and Loan Society v. San Francisco the Supreme Court held that notwithstanding the act of Congress of 1862 37 declaring that "all stocks, bonds, treasury notes, and other obligations of the United States shall be exempt from taxation by or under state or municipal or local authority," certain United States treasury checks for interest accrued upon registered bonds of the United States, where intended for immediate payment of interest, might be taxed by a State in the hands of the owner. "Had the government [of the United States]," said the court, "in the absence of money for the immediate payment of interest upon its bonds, issued new obligations for the payment of this interest at a future day, it might well be claimed that these were not taxable, as the taxation of such notes would, to the extent of the tax, impair their value and negotiability in the hands of the holder. But where the checks are issued payable immediately, they merely stand in the place of coin, which may be immediately drawn

34 Bank of Kentucky v. Com. (4 Bush, 48).

35 Pollock v. Farmers' Loan and Trust Co. (157 U. S. 429; 15 Sup. Ct. Rep. 673; 39 L. ed. 759).

36 200 U. S. 310; 26 Sup. Ct. Rep. 265; 50 L. ed. 495.

37 Rev. Stat., § 3701.

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