Hibernia Savings v. City and County of San Francisco, 200 U.S. 310

HIBERNIA SAVINGS & LOAN SOCIETY, Plff. in Err., v.

CITY AND COUNTY OF SAN FRAN¬ CISCO.

(See S. C. Reporter’s ed. 310-316.)

Taxes — state taxation of Federal obli¬ gation.— United States Treasury checks, or orders issued for interest accrued upon registered bonds of the United States, where intended for immediate payment, may be taxed by a state, in the hands of the owner, without violating U. S. Rev. Stat. § 3701, U. S. Comp. Stat. 1901, p. 2480, exempting obligations of the United States from state taxation.

[No. 154.]

Submitted December Ilf, 1905. Decided January 29. 1906.

IN ERROR to the Supreme Court of the State of California to review a judgment affirming a judgment of the Superior Court in and for the City and County of San Francisco, in that state, in favor of defend¬ ant in an action to recover certain taxes paid under protest upon United States Treasury checks or orders. Affirmed.

See same case below, 139 Cal. 205, 96 Am. St. Rep. 100, 72 Pac. 920.

Statement by Mr. Justice Browns This was an action by the plaintiff in error, begun in the state superior court, to recover certain taxes paid under protest upon two checks or orders for $120,000 and $1,875, respectively, signed by the Treasurer of the United States, and ad¬ dressed to the Treasurer or an Assistant Treasurer of the United States, for mtciest accrued upon certain registered bonds of the United States, owned by the plaintiff. These checks were issued in compliance with Rev. Stat. § 3098, U. S. Comp. Stat. 1901, p. 2479, which requires that “the

Note. _ On the limitations of taxing power

from the mutual independence of Federal and stale governments — cee note to Grether ▼. Wright, 23 C. C. A. 515.

200 TJ. S.

Secretary of the Treasury shall cause to be paid, out of any money in the Treasury not otherwise appropriated, any interest falling due or accruing on any portion of the public debt authorized by law.” These checks, *which were payable at the United

States Treasury at San Francisco at any time within four months from their date, were not presented immediately for pay¬ ment, but were withheld by the plaintiff until the first Monday in March, 1899, the day when the status of property, for the purpose of taxation, is determined. Plain¬ tiff did not list these two checks for assess¬ ment; but the assessor, in making up his roll for the ensuing year, included them, and, after a fruitless effort to be relieved from the assessment, plaintiff paid the amount of the tax, and brought this suit to recover it back. There were claims for other taxes included in the action, upon which plaintiff was successful; but, in re¬ spect to the tax upon the two orders above mentioned, judgment went for the defend¬ ant, which was affirmed by the supreme court. 139 Cal. 205, 96 Am. St. Rep. 100,

72 Pac. 920.

Mr. T. C. Van Ness submitted the cause for plaintiff in error. Messrs. Tobin & Tobin were on the brief :

An unbroken line of cases has established the inherent nontaxability by the states of property held by the United States, and of bonds and obligations issued by the United States.

M’Culloch v. Maryland, 4 Wheat. 316, 4 L. ed. 579; Eoicard Sav. Inst. v. Newark,

63 N. J. L. 547, 44 Atl. 654; Society for Sav¬ ings v. Coite, 6 Wall. 594, 18 L. ed. 897 ;

The Banks v. New York (New York ex rel.

Bank of N. Y. Nat. BJcg. Asso. v. Connelly )

7 Wall. 16, 19 L. ed. 57; Osborn v. Bank of United States, 9 Wheat. 738, 6 L. ed. 204;

New York ex rel. Bank of Commerce v.

Tax Comrs. 2 Black. 620, 17 L. ed. 451;

New Jersey v. Wilson, 7 Cranch, 164, 3 L. ed. 303; Bank of New York v. New York County ( New York ex rel. Bank of New York v. New York County) 7 Wall. 26, 19 L. ed. 60.

The obligations here in question being as clearly within the very terms of § 3701 of the Revised Statutes (U. S. Comp. Stat.

1901, p. 2480), as were the government bills and notes under discussion in The Banks v.

New York ( New York ex rel. Bank of N.

Y. Nat. Bkg. Asso. v. Connelly ) supra, within the terms of the then-existing stat¬ ute of exemption, are not the state courts in both instances equally powerless to determine the effect of municipal taxation upon the facility with which the object of their issue may be accomplished?

495

313, 314

Supreme Coubt of the United States.

Oct. Term,

Messrs. Percy V. Long and William I. Brobeck submitted the cause for de¬ fendant in error :

Exemption from taxation enjoyed by Fed¬ eral agencies is not without its limitations. It is based upon the necessity present in the national government, as in all govern¬ ments, of exercising freely and without interference the powers conferred upon it by the states. When that necessity is served, the reason for the exemption ceases, and the inherent and reserve power of the state to tax everything within its bound¬ aries not so exempted is reasserted and may be re-employed.

First Nat. Bank v. Kentucky , 9 Wall. 353, 19 L. ed. 701; Union P. R. Co. v'. Peniston, 18 Wall. 29, 36, 21 L. ed. 791, 793.

Checks issued, payable in prcesenti and drawn against unappropriated revenues which were, at the time of issue, and must always be, sufficient to meet such drafts, constitute payment in and of themselves. They are equivalent to cash.

People v. Stockton £ Y. R. Co. 45 Cal. 306, 13 Am. Rep. 178; Re Staten Island Rapid Transit R. Co. 37 Hun, 422, Affirmed in 101 N. Y. 636; Re Staten Island Rapid Transit

R. Co. 38 Hun, 382; Metropolitan Nat. Bank v. Sirret, 97 N. Y. 320; Wells v. Brigham, 6 Cush. 6, 52 Am. Dec. 750; TYocrfs v. Schroeder, 4 Harr. & J. 276; Crugcr v. Armstrong, 3 Johns. Cas. 5, 2 Am. Dec. 126.

He who has the right to property, and is not excluded from its enjoyment, shall not be permitted to use the legal title of the government to avoid his just share of tax¬ ation.

Northern P. R. Co. v. Patterson, 154 U.

S. 130, 38 L. ed. 934, 14 Sup. Ct. Rep. 977; Mitchell v. Leavenworth County, 91 U. S. 206, 23 L. ed. 302; Shotwell v. Moore, 129 U. S. 590, 596, 32 L. ed. 827, 829, 9 Sup. Ct. Rep. 362.

Mr. Justice Brown delivered tho opin¬ ion of the court:

This case involves the question whether the two checks or orders upon which the tax was imposed are exempt from state taxation under Rev. Stat. § 3701, U. S. Comp. Stat. 1901, p. 2480, 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.” The basis of this exemption is the fact that a tax upon the obligations of the United States is virtually a tax upon the credit of the government, and upon its power to raise money for the purpose of carrying on its civil and military operations. The efficiency of the government service cannot 406

be impaired by a taxation of the agencies which it employs for such service, and, as one of the most valuable and best known of these agencies is the borrowing of money, a tax which diminishes in the slightest degree the value of the obligations issued by the government for that purpose impairs pro tanto their market value.

The inability of the states to tax the official agencies of the Federal government, whether in the form of banks chartered under its authority, or of obligations issued by it as a means of providing a revenue, or for the payment of its debts, was ap¬ plied in M’Culloch v. Maryland, 4 Wheat.

316, 4 L. ed. 579, to a stamp tax upon notes of the United States bank; in Weston v. Charleston, 2 Pet. 449, 7 L. ed. 481, and in New York ex rel. Bank of Commerce v.

Tax Comrs. 2 Black, 620, 17 L. ed. 451, to stock issued for loans made to the govern¬ ment of the United States; and in the Bank Tax Case (New York ex rel. Bank of Commonwealth v. Tax c£ A. Comrs.) 2 Wall.

200, 17 L. ed. 793, to a tax laid on banks on a valuation equal to the amount of their capital stock, when their property consisted of stocks of the Federal government; in The Banks v. New York (New York ex rel.

Bank of N. Y. Nat. Blcg. Asso. v. Connelly)

7 Wall. 16, 19 L. ed. 57, to certificates of indebtedness of the United States, issued to *the creditors of the government for sup-

plies furnished in carrying on the Civil War; in Bank of New York v. New York County (New York ex rel. Bank of New York v. New York County) 7 Wall. 26, 19 L. ed. 60, to notes of the United States in¬ tended to circulate as money; and in Van Brocklin v. Tennessee (Van Brocklin v. Anderson) 117 U. S. 151, 29 L. ed. 845,

6 Sup. Ct. Rep. 670, to land purchased by the United States, for the amount of a direct tax laid thereon.

The principle, however, upon which this exemption is claimed, does .not apply to obligations such as checks and warrants, intended for immediate use, and designed merely to stand in the place of money until presented at the Treasury, and the money actually drawn thereon. In such case the tax is virtually a tax upon the money which may be drawn immediately upon pre¬ sentation of the checks. As was said by Mr. Justice Miller in First Nat. Bank v. Kentucky, 9 Wall. 353, 362, 19 L. ed. 701,

703: “That limitation [upon the power to tax] is, that the agencies of the Federal government are only exempted from state legislation, so far as that legislation may interfere with, or impair, their efficiency in performing the functions by which they are desipied to serve that government.”

In Union P. R. Co. v. Peniston, 18 Wall.

200 U. S.

1S05.

Martin v. Texas.

314-316

5, 21 L. .ed. 787, it was insisted by the plaintiff in error that the property of the Union Pacific Railroad Company was ex¬ empt from state taxation by virtue of the incorporation of the company by the United States, as a means for the performance of certain public duties of the government, enjoined and authorized by the Constitu¬ tion. It was said, however, by Mr. Justice Strong, in delivering the opinion of the court, that no constitutional implications prohibited a state tax upon the property of an agent of the government merely be¬ cause it is the property of such agent, but “that the agencies of the Federal govern¬ ment are uncontrollable by state legislation, so far as it may interfere with, or impair, their efficiency in performing the functions by which they are designed to serve that government. It is, therefore, manifest that exemption of Federal agencies from state taxation is dependent, not upon the nature of the asrents, or upon the mode of their [3 15] constitution, or upon ‘the fact that they are agents, but upon the effect of the tax; that is, upon the question whether the tax does, in truth, deprive them of power to serve the government as they were intended to serve it, or does hinder the efficient exercise of their power. A tax upon their property has no such necessary effect. It leaves them free to discharge the duties they have undertaken to perform. A tax upon their operations is a direct obstruc¬ tion to the exercise of Federal powers.”

Had the government, in the absence of money for the immediate payment of in¬ terest upon its bonds, issued new obliga¬ tions 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. This was practically the case in The Banks v. New York (New York ex rel. Bank of N. Y. Nat. Bkg. Asso. v. Connelly ) 7 Wall. 16, 19 L. ed. 57, where certificates were issued at a time when the government had no money to pay its obli¬ gations, and made use of its credit to ob¬ tain further time. But where checks are issued payable immediately, they merely stand in the place of coin, which may be immediately drawn thereon. As observed by the court below, the checks were, for all practical purposes, the money itself. People v. Stockton & V. R. Co. 45 Cal. 306, 313; Metropolitan Nat. Bank v. Sirret, 97 N. Y. 320, 325; Re Staten Island Rapid Transit R. Co. 38 Hun, 382, 101 N. Y. 636. A check may be given in evidence under the money counts. Wells v. Brigham, 6 Cush. 6, 52 Am. Dec. 750; Cruger v. Arm¬ strong, 3 Johns. Cas. 5, 2 Am. Dec. 126. 200 U. S.

While Congress has not amended Rev.

Stat. 5 3701, U. S. Comp. Stat. 1901, p.

2480, upon which plaintiff relies in this case, it did, by act approved August 13,

1894 (28 Stat. at L. 278, chap. 281, U. S.

Comp. Stat. 1901, p. 2398), declare “that circulating notes of national banking asso¬ ciations 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.”

Although the checks in question were not intended to circulate ‘as money, and

therefore do not fall within the letter of the statute, the reasons that apply to that class of obligations we think applj with equal force to checks intended for immediate pay¬ ment, though not intended to circulate as money. While the checks are obligations of the United States, and within the letter of § 3701, they are not within its spirit, and are proper subjects of taxation.

Had the plaintiff drawn the money im¬ mediately upon these checks, it would have become at once a part of the general prop¬ erty of the bank; and the fact that the money had been derived from the United States, and paid to the bank as interest on its obligations, would not have prevented its becoming part of the general property of the bank, and subject to state taxation. Affirmed.