President of the Veazie Bank v. Fenno

38 How. Pr. 147

• Court: Supreme Court of the United States
• Decided: July 1, 1869
• Status: Published

Opinions

Chief Justice Chase

delivered the following opinion :

The necessity of adequate provision for the financial exigencies created by the late rebellion suggested to the administrative and legislative departments of the government, important changes in the systems of currency and taxation which had hitherto prevailed. These changes, more or less distinctly shown in administrative recommendations, took form and substance in legislative acts. We have now to consider, within a limited range, those which relate to circulating notes and taxation of circulation. At the beginning of the rebellion, the circulating medium consisted almost entirely of bank notes issued by numerous independent corporations, variously organized under state legislation, of various degrees of credit, and very unequal resources, administered often with great—and not unfrequently with little—skill, prudence and integrity. The acts of congress then in force prohibiting the receipt or disbursement, in the transactions of the national government, of anything except gold and silver, and the laws of the state requiring the redemption of bank notes in coin on demand, prevented the disappearance of gold and silver from circulation. There was then no authorized national currency except coin, and no national taxation was imposed in any form on the state bank circulation.

The first act authorizing- the emission -of notes by the treasury department for circulation was that of July 17, 1861 (12, U. S. St., 259). The notes issued under this act were treasury notes, payable on demand in coin. The amount authorized by it was $50,000,000, and was increased by the act of February 12, 1862 (12, U. S. St., 338) to $60,000,000. On the 31st of Decémber, 1861, the state banks suspended specie payment. Until this time the expenses of the war had been paid in coin or in the demand notes just referred to, and for some time afterwards they continued to be paid in these notes, which, if not redeemed in coin, were received as coin in the payment of duties. Subsequently, on the 25th of February, 1862 (12, U. S. St., 341), a new policy became necessary, in consequence of the suspension and the condition of the country, and was adopted. The notes hitherto issued, as has just been stated, were called treasury notes, and were payable on demand in coin. The act now passed authorized the issue of bills for circulation, under the- name of United States notes, made payable to bearer, but not expressed to be payable on demand, to the amount of $150,000,000, and this amount was increased by subsequent acts to $450,000,000 of which $50,000,000 were to be held in reserve and only to be issued for a special purpose and under special directions as to withdrawal from circulation. (Act of July 11, 1862, 12 U. S. St., 532 ; act of March 3, 1863, 12 U. S. St., 710.) These notes, until after the close of the war, were always convertible into, or receivable at par for bonds payable in coin, and bearing coin interest at a rate not less than five per cent; and the acts by which they were authorized declared them to be lawful money and a legal tender. This currency, issued directly by the government for the disbursement of the war and other expenditures, could not obviously be a proper object of taxation; but on the 25th of February, 1863, was passed the act authorizing national banking associations (12 U. S. St., 670), in which, for the first time during many years, congress recognized the expediency and duty of imposing a tax upon currency. By this act a tax of ten per cent annually was imposed on the circulation of the associations authorized by it. Soon after, by the act of March 3, 1863 (12 U. S. St., 712), a similarly lighter tax of one per cent annually was imposed on the circulation of state banks in certain proportions to their capital and of two per cent on the excess, and the same act reduced the tax on the national associations to the same rate. Both acts also imposed taxes on capital and deposits, which need not be noticed here. At a later date, by the act of June 3, 1864 (13, U. S. St., 111), which was substituted for the act of February 25, 1863, authorizing national banking associations, the rate of tax on circulation was continued and applied to the whole amount of it, and the shares of their stockholders were also subject to taxation by the states ; and a. few days afterwards by the act of June 30, 1864 (13, U. S. St., 277), to provide ways and means for the support of the government, the tax on the circulation of the state banks was also continued at the same annual rate of one per cent, as before, but payment was required in monthly instalments of one-twelfth of one per cent, with monthly reports from each state bank of the amount in circulation. It can hardly be doubted that the object of this provision was to inform the proper authorities of the exact amount of paper money in circulation, with a view to its regulation by law. It was the first step taken by congress in that direction, and it was followed, some months later, by the act of March 3, 1865, amendatory of the prior internal revenue acts, the sixth section of which provides “ that every national banking association, state bank or state banking assoeiatioh shall pay a tax of ten per centum on the amount of the notes of any state bank or state banking association paid out by them after the 1st day of July, 1866.” (13, U. S. St., 484.) The same provision was re-enacted, with a more extended application, on the 13th of July, 1866, in these words:—

“ Every national banking association, state bank or state banking association shall pay a tax of ten per centum on the amount of notes of any person, state bank or state banking institution used for circulation and paid out by them after the 1st day of August, 1866, and such tax shall be assessed and paid in such manner as shall he prescribed by the commissioner of internal revenue.” (14, U. S. St., 146.)

The constitutionality of the last provision is now drawn in question, and the brief statement of the recent legislation of congress has been made for the purpose of placing in a clear light its scope and bearing, especially as developed in the provisions just cited. It will be seen that when the policy of taxing bank circulation was first adopted in 1863, congress was inclined to discriminate for, rather than against the circulation of the state banks; but that when the country had been sufficiently furnished with a national currency by the issue of the United States and of national bank notes, the discrimination was turned, and very decidedly turned, in the opposite direction.

The general question now before us is whether or not the tax of ten per cent imposed on state banks or national banks, paying out the notes of individual or state banks used for circulation, is repugnant to the constitution of the United States. It is presented by a certificate of division of opinion between the judges of the circuit court of the United States for the district of Maine, in a suit brought by the president, directors and company of the Veazie Bank against Jeremiah Fenno, collector of internal revenue, for the recovery of the tax, penalty and costs, paid by the bank to the collector under protest, and to avoid distraint. The Veazie bank is a corporation chartered by the state of Maine, with authority to issue bank notes for circulation ; and the notes on which the tax imposed by the act was collected were issued under this authority. There is nothing in the case showing that the bank sustained any relation to the state as a financial agent, or that its authority to issue notes was conferred or exercised with any special reference to other than private interests. The case was presented to the circuit court upon an agreed statement of facts, and upon a prayer for instructions to the jury the judges found themselves opposed in opinion on three questions, the first of which was this—whether the second clause of the ninth, section of the act of congress of the 13th of July, 1866, under which the tax in this case was levied and collected, is a valid and constitutional law. The other two questions differ from this in form only, and need not be recited.

In support of the position that the act of congress, so far as it provides for the levy and collection of the tax, is repugnant to the constitution, two propositions have been argued with much force and earnestness. The first is, that the tax in question is a direct tax and has not been apportioned among the states agreeably to the constitution. The second is, that the act imposing the tax impairs a franchise granted by the state, and that congress has no power to pass any law with that intent or effect. The first of these propositions will be first examined. The difficulty of defining with accuracy the terms used in the clauses of the constitution which confer the power of taxation upon congress, was felt in the convention which framed that instrument, and has always been experienced by courts when called upon to determine their meaning. The general intent of the constitution, however, seems clear. The general government, administered by the congress of the confederation, had been reduced to the verge of impotency by the necessity of relying for revenue upon requisitions on the states ; and it has a leading object in the adoption of the constitution, to relieve the government to be organized under it from this necessity and confer upon it ample power to provide revenue by the taxation of persons and property. And nothing is clearer, from the discussions in the convention and the discussions which preceded final ratification by the necessary number of states, than the purpose to give the power to congress as to the taxation of everything except exports in its fullest extent. The purpose is apparent, also, from the terms in which the taxing power is granted. The power is “to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defence and general welfare of the United States.” More comprehensive words could not have been used. Exports only are, by another provision, excluded from its application. There are, indeed, certain virtual limitations arising from the principles of the constitution itself. It would undoubtedly be an abuse of the power if so exercised as to impair the separate existence and independent self-government (County of Lane vs. State of Oregon, 7 Wall., 73) of the state, er if exercised for ends inconsistent with the limited grants of power in the constitution.

And there are directions as to the mode of exercising the power. If congress sees fit to impose a capitation or other direct tax, it must be laid in proportion to the census. If congress determines to impose duties, imposts and excises, they must be uniform throughout the United States. These are not properly limitations of power. They are simply rules prescribing the mode in which it shall be exercised by them. It still extends to every object of taxation except exports, and may be applied to every object of taxation to which it extends, in such measure as congress may determine. The comprehensiveness of the power thus given to congress may serve to explain, at least, the absence of any attempt by members of the convention to decline, even in the debate, the terms of the grant. The words used certainly described the whole power, and it was the intention of the convention, that the whole power should be conferred. The definition of particular words, therefore, became unimportant. It may be said, indeed, that this observation, however just in its application to the general grant of power, cannot be applied to the rules by which different descriptions of taxes are laid and collected. Direct taxes must be laid and collected by the rule of apportionment. Duties, imposts and excises must be laid and collected under the rule of uniformity. The meaning of the first rule is very clear, but there has always been a diversity of opinion as to the subjects to which it is to be applied. The sense of congress has been shown, as we think quite clearly, in every act imposing direct taxes. In each of these acts a gross sum has been levied upon the United States, and the total amount has been apportioned to the several states, according to their respective numbers of inhabitants as ascertained by the last preceding c,ensus. Having been apportioned, provision is made for the imposition of the tax upon the subjects specified in the acts fixing its total sum. In 1798, when the first direct tax was imposed, the total amount was fixed at $2,000,000 (authorities cited). In 1813 the amount of the second direct tax was fixed at $3,000,000. In 1815 the third at $6,000,000, and it was made an annual tax. In 1816 the-provision making the tax annual was repealed by the repeal of ihe first section of the act of 1815, and the total amount was fixed for that year at $3,000,000. No other direct tax was imposed until 1861, when a direct tax of $20,000,000 was laid and made annual; but the provision making it annual was suspended, and no tax except that first made was ever apportioned. In each instance, the total sum was apportioned among the states by the constitutional rule, and was assessed at prescribed rates on the subjects of the tax. The subjects in 1798, 1813, 1815 and 1816 were lands, improvements, dwelling houses and slaves, and in 1861, land, improvements and dwelling houses only. Under the act of 1798 slaves were assessed at fifty cents each; under the other acts, according to valuation by assessors. This review shows that' personal property, contracts, occupations and the like have never been regarded by congress as proper subjects of direct tax. It has been supposed that slaves must be regarded an exception to this observation. But the exception is rather apparent than real. As persons, slaves were proper subjects of a capitation tax, which is described in the constitution as a direct tax; as property they were, by the laws of some, if not most of the states, classed as real property, descendible to heirs. Under the first view they would be subject to the tax of 1798 or a capitation tax; under the latter they would be subject to the tax of the other years as a realty. That the latter view was taken by the framers of the acts after 1798, becomes highly probable, \yhen it is considered that in- the states where the slaves were held, much of the value which would otherwise attach to land passed into the slaves. If, indeed, the land only had been valued without the slaves, the land would have been subject to much heavier proportional imposition in those states than in the states where there were no slaves; for the proportion of tax imposed on each state was determined by population, without reference to the subjécts on which it was to be assessed The fact, then, that slaves were valued under the acts referred to, is far from showing, as some have supposed, that congress regarded personal property as a proper object of direct taxation under the constitution, shows only that congress, after 1798, regarded slaves for the purpose of taxation as realty.

It may be rightly affirmed, therefore, that in the practical construction of the constitution by congress direct taxes have been limited to taxes on land and taxes on polls or capitation taxes. And this construction is entitled to great consideration, especially in the absence of anything adverse to it in the discussions of the convention which framed, and of the convention which ratified the constitution. What does appear in those discussions, on the contrary, supports the construction. Mr. Madison says Mr. King asked what was the precise meaning of direct taxation, and no one answered. On another day, when the question of proportioning representation to taxation, and both to the white and three-fifths of the slave inhabitants, was under consideration, Mr. Ellsworth said:—“In case of a poll tax there would be no difficulty,” and speaking, doubtless, of direct taxation, he went on to observe, “ The sum allotted to a state may be levied without difficulty, according to the plan used in the state for raising its own supplies.” All this, doubtless, shows uncertainty as to the true meaning of the term direct tax ; but it indicates, also, an understanding that direct taxes were such as may be levied by capitation and on lands and appurtenances, or perhaps by valuation and assessment of personal property upon general lists, for these were subjects from which the states at that time usually received their supplies. This view received the sanction of this court two years before the enactment of the first law imposing direct taxes eo nomine.

During the February term of 1796, the constitutionality of the acts of 1794, imposing duty on carriages, came under consideration in the case of Hutton agt. The United States. Suit' was brought by the United States against David Hutton, to recover the penalty imposed by the act, for not returning and paying duty on a number of carriages for the conveyance of persons, kept by the defendant for his own use. The law did not provide for the apportionment of the taxes, and if it was a direct tax, the law was confessedly unwarranted by the constitution. The only question in the case, therefore, was whether or not the tax was a direct tax. The case was one of great expectation, and a general interest was felt in its determination. It was argued in support of the law by Lee, attorney general, and Hamilton, recently secretary of the treasury; in opposition to the tax,-by Campbell, attorney for the Virginia district, and Ingersoll, attorney general of Pennsylvania. Of the justices who filled this bench, Ellsworth, Patterson and Wilson had been members, and conspicuous members of the constitutional convention, and each of the three had taken part in the discussions relating to direct taxation. Ellsworth, the chief justice, sworn into office that morning, not having heard the whole argument, declined taking part in the decision. Cushing, senior associate justice, having been prevented by indisposition from attending to the argument, also refrained from expressing an opinion. The other judges delivered their opinions in 'succession, the youngest in commission delivering the first and the oldest the last. They all held that the' tax on carriages, was not a direct tax within the meaning of the constitution. Justice Chase was inclined to think that the direct taxes contemplated by the constitution are only two—a capitation, or poll-tax, and a tax on land. He doubted whether a tax by a general assessment of personal property can be included within the term direct táx. Patterson, who had taken a leading part in the constitutional convention, went more fully into the sense in which the words giving the power of taxation were used by that body. In the course of this examination he said :—“ Whether direct taxes, in the sense of the constitution, comprehend any other tax than a capitation tax and a tax on land is a questionable point. If congress, for instance, should tax in the aggregate, or mass, things that generally pervade all the states in the Union, then, perhaps, the rule of apportionment would be the most proper, especially if an assessment was to intervene. This appears from the practice of some of the states to have been considered a direct tax. Whether it be so under the constitution of the United States is a matter of some difficulty, but as it is not before this court it would be improper to give any decisive opinion upon it. I nevei entertained a doubt that the principle, I will not say the only object that the framers of the constitution contemplated as falling within the rule of apportionment, ‘‘ was a capitation tax and a tax on land.” Iredell, delivering his opinion at length, concurred generally in the views of justices Chase and Patterson. Wilson had expressed his opinions to the same general effect when giving the decision upon the circuit, and did not now repeat them. Neither chief justice Ellsworth nor justice Cushing expressed any dissent, and it cannot be supposed, if in a case so important, their judgments.had differed from those announced that an opportunity would not have been given them, by an order for reargument, to participate in the decision.

It may be safely assumed, therefore, as the unanimous judgment of the court, that a tax on carriages is not a direct tax; and it may further betaken as established, upon the testimony of Patterson, that the words direct taxes, as used in the constitution, comprehends only capitation taxes and taxes on land, and perhaps taxes on personal property by general valuation and assessments of the various descriptions possessed within the several states. It follows, necessarily, that the power to tax without apportionment, extends to all other objects. Taxes on other objects are included under the heads of taxes not direct, duties, imports and excises, and must be laid and collected by the rule of uniformity.

The tax under consideration is a tax on bank circulation^ and may well be classed under the head of duties; certainly it is not, in the sense of the constitution, a direct "tax. It may be'said to come within the same category of taxes as the tax on incomes of insurance companies, which this court, in the case of Toule agt. The Insurance Company, held not to be a direct tax. Is it then, a tax on a franchise granted by a state, which congress upon any principle exempting the reserved powers of the states from impairment by taxation, must be held to have no authority to lay and collect. We do not say that there may not be such a tax. It may be admitted that the reserved rights of the states, such as the right to pass laws, to give effect to laws through executive action, to administer justice through the courts and to employ all necessary agencies for legitimate objects, are not proper subjects of the. taxing power of congress. But it cannot be admitted that franchises granted by a state are necessarily exempt from taxation, for franchises are property, often very valuable and productive" property, and when not conferred for the purpose of giving effect to some reserved powers of a state, seem to be as properly objects of taxation as any other property. But in the case before us the object of taxation is not the franchise of the bank, but property created, or contents made and issued, under the franchise or power to issue bank bills. A railroad company, in the exercise of its corporate franchises, issues freight receipts, bills of lading and passenger tickets, and it cannot be doubted that the organization of railroads is quite as important to the state as the organization of banks; but it will hardly be questioned that these contracts of the company are objects of taxation within the powers of, and not exempted by any relation to, the state which granted the charter of the railroad, and it seems difficult to distinguish the taxation of notes issued for circulation from the taxation of these railroad contracts. Both descriptions of contracts are means of profit to the corporation which issues them, and both, as we think, may properly be made contributory to the public revenue.

It is insisted, however, that the tax in the case before us is excessive, and so excessive as to indicate a purpose on the part of congress to destroy the franchise of the bank, and is therefore beyond the constitutional powers of congress. The first answer to this is that the judicial, cannot prescribe to the legislative department of the government limitations on the exercise of acknowledged powers. The power to tax may be exercised oppressively upon persons, but the responsibility of the legislature is not to the courts, but to the people, by whom its members are elected; so that if a particular tax bears heavily upon a corporation or a class of corporations, it cannot therefore be pronounced contrary to the constitution. But there is another answer which vindicates equally the wisdom and the power of congress. It cannot be doubted, that under the constitution the power to provide circulation of coin is given to congress, and it is settled by the uniform practice of the government, and by repeated decisions, that congress may constitutionally authorize the emission of bills of credit. It is not important here to decide whether the quality of legal tender in payment of debts can be constitutionally important to these bills, but it is enough to say that there can be no question of the power of the government to emit them, to make them receivable in payment of debts to itself, to fit them for use by those who see fit to use them in all the transactions of commerce, to provide for their redemption in coin or otherwise, and thus to make them a currency uniform in value and description, and convenient and useful for circulation. These powers, until recently, were only partially and occasionally exercised. Lately, however, they have been called into full activity, and congress has undertaken to supply a currency for the entire country. The methods adopted for the supply of this currency were briefly explained in the first part of this opinion. It now consists of coin, of United States notes, and of the notes of the national banks. Both descriptions of notes are properly-described as bills of credit, for both are furnished by the government, both are issued on the credit of the government, and the government is responsible for the redemption of both, primarily as to the first description and alternately as to the second. When these bills shall be made convertible into coin at the will of the holder, this currency will perhaps satisfy as fully the wants of the community as any mixed currency that can be devised.

Having thus, in the exercise of undoubted constitutional power, undertaken to provide a currency for the whole country, it cannot be questioned that congress may constitutionally secure the benefit of it to the public by appropriate legislation. To this end congress has denied the quality of legal tender to foreign coins, and has provided by law against the imposition .of counterfeit and base coin on the community. To the same end congress may discourage by suitable enactments the circulation as money of any notes not issued under its own authority.

Without this power, indeed, its attempt to secure a sound and uniform currency for the country, must be futile. Viewed in this light, as well as in the other light of a duty on contracts or property, we cannot doubt the constitutionality of the tax under consideration. The three questions certified from the circuit court of the district of Maine must, therefore, be answered affirmatively.