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equal to the amount of their capital stock,” &c., mean nothing more than if it had been said the corporation shall be taxed on an amount equal to their capital stock paid in, &c.
I ought to mention that besides what I have called the nominal capital of the corporations, their surplus earnings are, by this act of 1863, to be added to the taxable valuation where they exceed 10
per cent. of their capital. This was a departure from the provisions of the Revised Statutes, and was first made in an act passed in 1853. (Ch. 655). I do not perceive that this affects the question to be decided. The principal subject to be taxed is, after all, the nominal capital, and this is the precise taxable valuation in all cases where, as in this case, there is no surplus. To ascertain the existence of a surplus, a judgment must, no doubt, be exercised upon the amount of the capital on hand, but the only change which is to be made, in case a surplus beyond the amount mentioned is ascertained, is to add that surplus to the nominal capital.
Having thus established that the act of 1863 was simply a revival, with a single change, not material to this question, of the system of valuation of the personal property established by the Revised Statutes, we are to determine what the effect of that system was upon the taxability of federal stocks held by the banks at the time the assessors make their annual inquiries preparatory to the making up of their assessment lists. It would seem plain enough that it is entirely immaterial what the assets of the bank then are.
If the amount of the original nominal capital is alone to be taken into account, it would be officious and improper, or at least useless for the assessors (or the tax commissioners in the city of New York), to make any examination or inquiry into the actual assets. The Revised Statues required the bank officers to make and deliver a statement of the amount of the nominal capital, under the name of their capital stock, paid in or secured to be paid in (1 R. S., 414, § 2); but they gave no such direction respecting the capital or assets then possessed. The distinction between these two items was, at that time, well understood, as has been shown by the references to the statements required for other purposes, and to the limitations upon discounts and issues. It has been settled, by repeated adjudications, that the loss of any part of the original capital of a bank, such loss existing and known at the time of making the assessment, would not influence in any respect the amount of the taxable valuation; and, prior to the change made by the act of 1853, that any increase of the assets of a bank, by means of reserved profits, would not increase in any way such taxable valuation. (The Bank of Utica vs. The City of Utica, 4 Paige 399, Anno 1834; The People vs. The Board of Supervisors of Niagara County, 4 Hill 203; The Farmers' Loan and Trust Company vs. The Mayor, fc. 7 Hill 261. The Oswego Starch Factory vs. Dolloway, 21 N. Y. 449.) These cases, except the last, were adjudged many years since, and the one in the seventh volume of Mr. Hill's reports was determined in the Court for the Correction of Errors. In the first of them the bank had accumulated a large surplus, beyond its original capital, which the local officers had assumed to assess; and in the one against the Farmers' Loan Company, that corporation had lost more than half of its large capital, yet it was held, in both instances, that these considerations did not at all affect the taxable valuation, which was, notwithstanding, to be set down as the capital originally paid in and secured to be paid in. The basis of these adjudications was, that the statute had determined what the taxable valuation should be, by a reference to the nominal capital, and had thus precluded any inquiry as to the property actually possessed at the time of making the assessment. The tax is not assessed upon the property or capital possessed at the time the annual inquiries are made by the proper officers, but upon an amount originally contributed to the corporate enterprise. This was fixed upon, somewhat arbitrarily, it may be said, as representing, with sufficient practical accuracy, the sum upon which the public burdens ought to be assessed against the corporation. We have seen that if the sum of this original contribution should be diminished to any extent by losses, or depreciation of securities, no corresponding diminution was to be made in the assessed valuation. The reason for this was, that the existing assets formed no part of the subject by which, according to the statute, that valuation was to be determined. Another criterion, namely, the original capital, was to be taken as representing the taxable value. This reason equally excludes any inquiry into the existing assets, with a view to ascertain whether any part of them are, in their own nature, not subject to taxation. The existing property and securities have, in truth, nothing to do with the question. Hence, if it could be shown that the discounted paper held by a bank, or the currency notes in its drawers, were forgeries, and consequently worthless, the assessors could not regard that circumstance, because the existing assets do not enter into the question, and are no part of the data by which the taxable valuation is to be ascertained. And, for the same precise reason, when it was shown, on behalf of the bank which is concerned in this appeal, that its securities were not in their nature taxable property, the circumstance becomes utterly immaterial, since neither the character, nor amount of such securities, has anything to do with the questions which the taxing officers were to determine.
The counsel for the relator has derived an argument from the declaration of the Revised Statutes, made at the outset of the regulations respecting taxation, that all lands and all personal estate within this state, whether owned by individuals or by corporations, shall be liable to taxation. (1 R. S. 387, $ 1.) The general principle thus announced, if there were nothing to qualify it, would undoubtedly indicate that the existing personal estate and securities of a banking corporation would be the subjects of taxation. Yet, it being a part ef the system at the same time established, that the personal estate of these corporations should be the same as the original capital, it was found necessary to qualify this elementary principle by a definition to the effect that the term personal property, in its application to this class of corporations, should be construed to include such portion of the capital as should not be invested in the real estate. (Id. 388, § 3.) That the term capital, as here used, is to be interpreted as original or nominal capital, is evident from the detailed provisions contained in a subsequent part of the regulations, where that term is, for the purpose of taxation, more distinctly defined. I refer, of course, to the direction contained in the title devoted to the assessment of taxes on incorporated companies, where it is provided that their capital stock paid in, and secured to be paid in, with the deduction for real estate purchased, is that which is to be reckoned as the valuation of the personal estate. (Id. 415, $ 6, &c.)
Now, it has been said, on the argument, with entire truth and accuracy, that the principle of our laws for the assessment and collection of taxes, looks to the taxation of all property of the taxpayers, whether corporate or individual (with the exception, originally made, of certain favorite business enterprises) upon an ad valorem rule. The introductory declaration just referred to is evidence of this. The manner of assessing corporations was not intended practically to form an exception to this rule, and in many cases it would not. It was, no doubt, supposed that the original contributions of the stock holders would represent with sufficient practical accuracy the existing personal estate of the corporations. If they retained their original capital, and periodically divided the profits realized, there would, in the prescribed method of taxation, be no departure from the principle; and the occasional fluctuations by which the capital could be temporarily diminished, or the assets increased, it was probably supposed would balance each other. If a permanent loss of capital to a considerable amount should be encountered, the remedy was by an application to the legislature to reduce the capital, so as to make it correspond with the actual assets. The examples of this have been frequent. Where this was not done, the prescribed rule of valuation, though to a certain limited extent fictitious, would not practically violate the ad valorem principle. As a system, it was made somewhat more unequal by the provisions of the act of 1853, continued in the act we are considering, which added the surplus profits, when to a certain amount, to the taxable valuation. The consideration that ten per cent. of an accumulated surplus of earnings was allowed to escape taxation, shows that the rule of taxing all property at its real value, was not intended to be an inexorable one. While it was the general principle, it was made to sometimes yield to considerations of convenience; but such departure was not, it may be supposed, considered as a material modification of the principle.
I find, in the opinion of the Supreme Court, in this case, an elaborate and very able argument to show that even under the act of 1857, which professed to tax the capital of banks at its actual value, these institutions could not claim an exemption from taxation on account of their possession of federal securities, even conceding that such securities were generally exempt from taxation, under the Constitution of the United States. It is not necessary, in the view I have taken, to consider that question. If the learned judge who prepared that opinion was right, a fortiori, the act of 1863, which provides for a return to the system of the Revised Statutes, excludes any pretence for an exemption, on account of the possession of these securities. It seemed to me, when the question was before us, in 1861, that the system of assessing the capital, at its actual value, would authorize an inquiry whether any of the property of which that value consisted was legally exempt from taxation, and that, if found to be so exempt, that it ought to be deducted from the aggregate taxable valuation. The judges of this court were not unanimous upon that point; there being a sufficient number to give a judgment who were of opinion that the federal constitution did not contain any inhibition against the taxation of the national securities in the hands either of individuals or corporations, the judgment was placed wholly upon that ground. The Supreme Court of the United States must, I think, have concurred in the view that I entertained, for otherwise the constitutional question would not have been reached. The judges had first to decide that the assessment was upon the United States stock, before they could reverse our judgment which subjected the stock to the state tax. A state court could not preclude the jurisdiction of the federal court by an incorrect holding, that the constitutional question sought to be made did not arise.
The foregoing observations are designed to show, that the law of this state, under which the assessment in controversy was made,