State ex rel. Farmers State Bank v. Wallace

187 N.W. 728, 48 N.D. 803, 1922 N.D. LEXIS 104

• Court: North Dakota Supreme Court
• Decided: February 21, 1922
• Status: Published

Opinions

BirdzEll, J.

This is an action instituted in this court for the purpose of obtaining relief against certain taxes for the years 1920 and 1921, assessed against the shares of stock of banks. Equitable grounds for such relief are set forth in the complaint, provided the plaintiffs’ contentions based upon the law applicable to the taxation of such property are well founded. The contention is that, since the passage of chap. 62 of the Laws of the Special Session of the Legislature for 1919, bank stock is not subject to taxation in the manner attempted, but that it comes under the exemption accorded to credits generally, being included in “bonds, and stocks” which are expressly declared to be exempt. It is conceded, however, that banking corporations are subject to the tax provided by chap. 222 of the Laws of 1919 (a capital stock tax), and to taxation upon their personal and real property, other than credits to the same extent as other individuals and corporations.’ The contentions center about the construction of chap. 62 of the Laws of the Special Session for 1919, in connection with other tax legislation — principally •chap. 230 of the Session Laws of 1917. For convenience in following the discussion of the main features of the legislation in question, the various acts will be referred to in terms descriptive of their subject-matter, with the necessary references in parentheses, and to facilitate a ready understanding of the matter in controversy it is deemed proper to make a brief general historical statement in the margin showing the methods employed at various times and the results achieved in the taxation of corporate stock and moneys and credits generally.

Under the Constitution as it stood prior to an amendment adopted in 1914 (article 20; see Laws 1915, p. 404), all property was required to be assessed and taxed uniformly according to its value (§ 176). This included property of every description, though of course it did not re•quire double taxation of credits, so creditors have been allowed, at times, to deduct their bona fide indebtedness from their credits (chap. 132, Session Laws of 1890), and moneys and credits belonging to banks have uniformly been exempted from taxation, though the stock has .always been taxable to the holders at the place where the bank is located (Session Laws of 1890, chap. 132, §§ 2, 16 and 24; §§ 2075, 2x03, ¶ 19 and 20, Compiled Laws of 1913). Individual owners of stocks in hanks or other corporations (domestic) required to report were not' •required to list such stock. § 2102, Compiled Laws of 1913. • As a •consequence bank stock was listed to the stockholder by the accounting •officer of the bank, other domestic corporations were taxed upon their property the same as individuals, and the stockholders were not taxed •on the shares. If it was found that an excess value attached to the •stock, above the value of the taxable property, it was taxed to the corporation, or, if not, at least theoretically it should have been, as “bonds •or stocks.” Section 2110, Compiled Laws of 1913. Such a valuation was listed under an item (¶ 23, § 2103) set apart for the value of the shares of capital stock. While the law was in this condition moneys and intangible property practically ceased to be an actual subject of taxation in the state (First Report, N. D. Tax Commission 1912, chap. 4), the •aggregate amount of money and credits listed for the entire state being •about three-fourths of a million dollars. When the Constitution was so •amended as to permit property to be classified for taxation, the Legislature immediately sought to subject moneys and credits to a tax that could be applied in practice. It adopted such a measure in 1915, but the act proved to be invalid. State ex rel. Linde v. Packard, 32 N. D. 301, 155 N. W. 666. It repeated the attempt in 1917, only to retrace its steps later, and specifically repeal this law in 1919 at the special session. As showing, however, the extent to which moneys and credits had .evaded taxation before the change in the law, it is significant that under the 1917 act over $100,000,000 of moneys and credits were rendered subject to taxation at the 3-mill rate (Report, N. D. Tax Commission 1919, chap. 8).

During the period prior to the attempted classification of moneys and credits for the purpose of levying the 3-mill tax, “bonds and stocks,” both of domestic and foreign corporations, other than bank stock, were practically not taxed at all; the valuation of these items for the entire-state being less than $75,000. See Report of the Tax Commission for 1912, p. 186.

The 1917 Money and Credits Law (chap. 230) provides (§ 1):

“ ‘Money’ and ‘credits’ as the same are defined in § 2074 of the-Compiled Laws of 1913, including bonds and stocks, are hereby exempted from taxation other than that imposed by this act, and shall hereafter be subject to an annual tax of three mills on each dollar of the fair cash .value thereof. But nothing in this- act shall apply to money or credits-belonging to incorporated banks or building and loan associations situated in this state, nor to any indebtedness on which the tax is paid under a mortgage registration act, or is exempted by statute.” (Italics are ours.) ,

The act of the Special Session of 1919 (chap. 62, Laws of the Special Session), which expressly repeals the chapter of which the foregoing is a part, reads in part as follows (§ 1):

“Money and credits, as the same are defined in § 2074 of the Compiled Laws of North Dakota for the year 1913, including bonds and stocks, are hereby exempted from taxation; provided, however, that the-income therefrom except as to income derived from loans on North Dakota real property shall be taxable under the provisions of chap. 224 of the laws of North Dakota for the year 1919 except as therein exempted; provided, further, that stocks and bonds shall be subject to taxation-in the manner provided by chap. 222 of the Laws of North Dakota for the year 1919. Provided that nothing in this act contained shall affect the validity of any tax upon transfers of property by will, gift, or in-testate law, under the provisions of chap.’ 225, Laws of- North Dakota, 1919.” (Italics are ours.)

The complaint alleges that notwithstanding the passage of the fore.going laws, the taxing officers have continued to tax hank stock according to the rate of levy prevailing in the district where the bank is situated. The contention in support of the practice complained of is that bank stock was not exempted from other taxation under the money and credits statute of 1917, and was not rendered subject to the tax therein imposed; that the term “bonds and stocks” used in the definition of moneys and credits for the purpose of applying that law does not mean bonds and stocks generally, but certain kinds of bonds and stocks, excluding bank stock from the category; in short that the term was used in a special sense not embracing bank stock at all, and that again in 1919, when the special session repealed the money- and credits tax, it used the terms “bonds and stocks” in the same sense, and therefore did not include bank stock within the exemption from taxation therein granted.

The term “bonds and stocks” is an ordinary term easily capable of ■comparatively accurate definition. To the mind of the layman and lawyer alike it clearly embraces bonds and stocks of every sort that represents a money investment. It is as applicable to corporate stocks of one kind as to any other. There is no indication of a legislative intention to limit the meaning so as to make it applicable to certain stocks -only, nor does the other legislation enacted concurrently with it point to its use in any limited sense. And, if it were used in a limited sense, there is no guide to i.ts true meaning by which it could be ascertained what stocks would be included and what would not. It is only by sheer speculation it can be said that bank stock was not exempted from taxation at the local rate of levy by the Money and Credits Act of 1917, .and the uncertainty of such construction is even greater with respect to the repeal act of the 1919 special session.

A few observations relative to the condition of the tax law applicable to stocks and bonds at the time of the passage of the Money and Credits Act in 1917 will demonstrate the truth of the foregoing statement. § 2102, C. L. 1913, says:

“No person shall be required to include in his statement any share -or portion of the capital stock or property of any company or corporation which such company or corporation is required to list or return as its ■capital or property for taxation in this state.”

Section 2094 requires the listing of the property of a corporation by the president, agent, or officer thereof. Section 2110 requires the listing of the paid-up capital, and also prescribes a method for arriving at any excess-value attaching to it above its taxable property, and for listing it as “bonds or stocks” under subdivision 23 of § 2103. Clearly this section-is only applicable to domestic corporations, since that is the extent of the taxing jurisdiction of the state with reference to this species of property. These statutory provisions clearly require the property of corporations generally to be listed and taxed the same as that of individuals, and, to avoid double taxation, they relieve individuals from returningtbeir shares in corporations so taxed. But in the case of banks the stock is listed in the name of the individual owner (§ 21x5) in harmony with the requirements of the National Banking Act (13 Stat. 99), as will be-noted more particularly later. These provisions are not applicable to stock in foreign corporations, which must, of course, be listed by the-owner. Section 2103 which specifies the items of the assessment list carries out the plan of the foregoing substantive requirements in the following paragraphs.

“19. The amount of moneys other than of banks, bankers, brokers, or stock jobbers.

“20. The amount of credits other than of banks, bankers, brokers- and stock jobbers.

“21. The amount and value of bonds and stocks, other than bank stock.

“22. The number of shares of bank stock and the value thereof.

“23. The amount and value of shares of capital stock of companies- and associations not incorporated by the laws of the state.”

By way of emphasis we repeat that under § 2110, corporate excess of domestic corporations is required to be listed under item 23, quoted above, which item would otherwise normally contain only the shares of stock owned by individuals in foreign corporations. This' was the condition of the law at the time of the adoption of the Money and Credits-Act of 1917 (Laws 1917, chap. 230), and it is only in the light of thepre-existing laws that it can be properly construed. Now1 this act, consistent with ¶ 19 and 20 quoted above (see, also, § 2075), excepts the moneys and credits of banks from the imposition Of the mill tax but it exempts money and credits generally, “including bonds and stocks,” from all other taxes than the mill tax thereby imposed, and repeals all jther legislation in so far as in conflict with the provisions (§ 14). dearly a share of stock in a foreign corporation, owned by a resident, and the corporate excess of a domestic corporation were thus rendered subject to the mill tax, and exempted from other taxes. Thus a resident of this state owning shares of stock in a state bank in Minnesota or in any other foreign corporation, was taxable on such stock at the •.rate of three mills on the dollar of its valuation, whereas formerly he was taxable on account of such stock according to the rate of levy in the taxing district of his domicile. So, beyond the peradventure of a doubt, through the definition employed in the Money and Credits Act, considered in its relation to the existing legislation, money and credits included “bonds and stocks” owned by individuals; also the corporate excess of domestic corporations; and after its passage it is certain that no resident of the state could have been lawfully taxed on stock owned in foreign corporations, including banks, at any greater rate than three mills on the dollar, whereas formerly he was taxable according to the local levy.

The sections of the statute (§§ 2110 and 2115), one of which provides a method for arriving at the corporate excess of. corporations generally, and the other for computing the value of bank stock, do not, in our opinion, have any bearing upon the question of the taxability or exemption of the stocks referred to in either section under a general description of stocks. These sections never existed for the purpose of differentiating between the kinds of stocks, and subjecting each to a different share of the tax burden; They merely subserved official convenience in valuing and equalizing properties of the same general species to the end that each might in the end be subjected to its full, uniform legal burden as required by the Constitution before its amendment. They were aids to a complete and full assessment; not vehicles for discrimination. Hence, since the term “bonds and stocks” as used in the Money and Credits Act refers just as appropriately to the valuation reached by applying one section as it does to that reached by applying the other, we can see no basis for saying that it included one and excluded the other.

An examination of the legislation passed concurrently with this 1917 act does not disclose an intention to exclude bank stock from its operation. Chap. 61 of the Laws of 1917, approved on the same day as the Money and Credits Act, amended the statute governing the assessment of bank stock, but only in respect to the method of arriving at its value for tax purposes. Obviously the moneys and credits tax is an ad valorem tax, and it is as important to arrive at the value for purposes of levying' the 3-mill tax as for subjecting the property to a tax levied according to the local rate. So there is no inconsistency between chap. 61 and the Money and Credits Act.

Chap. 59 of the laws of the same session, which was also approved on the same day, provides a classification scheme by virtue of which bank stock falls in the class subjected to the highest valuation. Class I reads in part:

“All land, town and city lots, railroads, bank stock, express and telegraph property, shall constitute class one,” etc.

And in providing for class 3 we find this language:

“All household goods, and house equipment and wearing apparel, structures and improvements upon farm land, stocks other than banks, bpnds, money and credits, provided that such stocks, bonds, money and credits are not otherwise assessed under a mill or flat rate law, shall constitute class three,” etc.

Clearly the Legislature was impressed with the desirability of distinguishing between bank stock and other stocks for purposes of classifying property for taxation, and, to make the distinction effective, it spoke of bank stock alone in one place and of “stocks other than banks” in another. Similarly the distinction has always been made in the listing law, previously quoted in this opinion, showing that, where bonds and stocks generally were listed, bank stock would be included were it not for the expression “bonds and stocks, other than bank stock*” ¶ 21, § 2103, C. L. 1913. Not only throughout the history of tax legislation have appropriate words been used to exclude bank stock from bonds and stocks generally where that term has been employed, but indeed in the very session of the legislature which passed the Money and Credits Act the same distinction was made for classification purposes — only to be ignored, however, in levying the mill tax. While it may be true that this section discloses an intention to tax bank stock according to a higher rate of valuation than other stocks, it affords conclusive proof that the legislature was familiar with the terminology employed in the Money and Credits Act, and we cannot with propriety speculate as to why it failed to malee the exception as it had always done before. From the fact that the exception was not made it must be inferred that it was thought desirable to treat bank stock at parity with all other stock for purposes of this tax.

It is not the duty of this court to legislate nor to search for a hidden meaning of plain and hithero unambiguous words employed by the legislature. We are not free to enter into the realm of speculation. Clearly the expression “bonds and stocks” employed in the Money and Credits Act included stocks, and was intended to include stocks, of the very character of those in question here. Had it been desired to limit its application so that it would not embrace a distinct class of stocks of the same character as those unquestionably included, such intention could readily have been expressed as it formerly had been. The duty of the ■court ends when it determines the legal meaning of the words employed. If the words are not ambiguous there is no room for construction.

“This is so, even though the statute so understood ‘leads to absurd and mischievous results * * * ; for courts are not to inquire as to the motive of the legislature, nor to depart from a meaning clearly conveyed in unambiguous words, because the statute, as literally understood, appears to lead to unwise consequences or to contravene public policy.’ 26 Am. Eng. Ency. of Law 599.” State ex rel. Linde v. Taylor, 33 N. D. 76, 98, 156 N. W. 561, 569 (L. R. A. 1918B, 156, Am. Cas. 1918A, 583).

Though the court may find a particular statute offensive to its sense ■of justice in public affairs, it is powerless to relieve against the consequences if the act were enacted in pursuance of constitutional authority. We are aware of no rule of statutory construction that would justify an effort to except bank stock from the operation of the money and credits statute of 1917.

If construction might be legitimately resorted to in this case, however, we are of the opinion that it would point to the use of the term “bonds and stocks” in its general signification rather than to any possible limited meaning, such as is contended for by the defendants here. There is, perhaps, no -rule of construction that equals in potency that which requires an act to be construed, where possible, so as to make it constitutional in its operation. The actual meaning of the legislature is perhaps more often sacrificed to a presumed constitutional meaning at variance with it through the application of this rule of construction than in any other way. Thus this court has held that a statute purporting to extend the period of redemption from mortgage foreclosure was not applicable to existing mortgages and contracts where to have construed it as applicable would have rendered it unconstitutional as impairing the obligation of contracts (Lander v. Deemy, N. D. 176 N. W. 922). This principle or rule of construction is necessarily involved here, since the taxes on national bank stock are affected. The power of the state to tax’ the stock in national banks is derivative. A national bank, being created by the federal government, may not be taxed on its franchise nor the stockholder taxed on his stock by the states, except as permitted by Congress. McCulloch v. Maryland, 4 Wheat. 316, 4 L. ed. 579; Osborn v Bank, 9 Wheat. 738, 6 L. ed. 204; Weston v. Charleston, 2 Pet. 449, 7 L. ed. 481; People of the State of New York v. Weaver, 100 U. S. 539, 25 L. ed. 705; Owensboro National Bank v. Owensboro, 173 U. S. 666, 19 Sup. Ct. 537, 43 L. ed. 850. Congress has given such consent by providing that the stock may be taxed to the stockholders subject to two restrictions, viz.:

“That the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state, and that the shares of any national banking association owned by nonresidents of any state shall be taxed in the city or town where the bank is located, and not elsewhere.” R. S. § 5219; U. S. Comp. St. § 9784.

Under this act of Congress national bank stock may not be taxed according to the local rate of levy while other moneyed capital invested in forms of securities generally denominated as credits is taxed in the same locality at a flat rate much less than the rate applicable to such national bank stock. Boyer v. Boyer, 113 U. S. 689, 5 Sup. Ct. 706, 28 L. ed. 1089; Evansville National Bank v. Britton, 105 U. S. 322, 26 L. ed. 1053; Merchants’ National Bank v. City of Richmond, 256 U. S. 635, 41 Sup. Ct. 619, 65 L. ed. 1135. Therefore, if it be assumed that the legislature intended to exclude stock of national banks, along with state banks, from the operation of the Money and Credits Act of 1917, and to continue taxing such stock at the local rate of levy, the statute would be unconstitutional as taxing the stock of national banks beyond the authority granted. Of course it cannot be contended that the legislature contemplated taxing national bank stock as a credit at 3 mills on the dollar and state bank stock at the local rate. The decisions of the United States Supreme Court are controlling upon the federal question presented by such tax legislation (Des Moines National Bank et al. v. City of Des Moines, 153 Iowa, 336, 133 N. W. 767), and it is the duty of state courts to so construe acts of the legislature, if possible, as to make them harmonize with the act of Congress dealing with the same subject as construed by the federal courts. First National Bank of St. Joseph v. St. Joseph, 46 Mich. 526, 9 N. W. 838. It follows that, in the light of the decisions of the United States Supreme Court construing the act of Congress with reference to the taxation of national bank stock, the Money and Credits Act of 1917 must be held to have embraced the stock of national banks as a credit; otherwise such stock would have been entirely exempted from taxation.'

Even if it be assumed that the Money and Credits Act of 1917 might properly be construed, in connection with the concurrent legislation, as excluding bank- stock from its operation, still' it is manifest beyond a doubt that the repeal act of the special session of 1919, which contains affirmative language of exemption, cannot possibly be so construed as to render bank stock liable to taxation at the local rate, while credits and stocks generally are not so liable. The repeal act says affirmatively that moneys and credits, “including bonds and stocks,” are “hereby exempted” from taxation; but it is provided that the income therefrom shall be taxable, and that “stocks and bonds” shall be subject to taxation in the manner provided by chap. 222 of the Laws of 1919 (the capital stock tax). The term “bonds and stocks” as used in this act clearly embraces, by its express language, stocks from which income may be derived, and such as may be subject to the capital stock tax under chap. 222 of the Laws of 1919. This gives it a broader meaning than mere “corporate excess”listed as “bonds or stocks” under subdivision 23 of § 2103, for such property is neither “capital stock” nor income producing. The Income Tax Law (chap. 224, Laws of 1919) apparently taxes the individual upon income derived from bank stock, and state banks are liable for the capital stock tax to the same extent as other corporations. Hence bank stocks are within the class to which the taxes that were saved out of the exemption are applicable. There was no occasion to save these enumerated taxes unless it was conceived that the exemption of “bonds and stocks” in the fore part of the act would have rendered bonds and stocks generally immune from all taxes. Clearly the term “bonds and stocks” was used in this act in its ordinary sense, and there is.not the slightest ground for implying an exception of bank stock. Where the legislature has spoken thus clearly it would be nothing short of judicial legislation for us to write the exception into the statute. Prior to the passage of this act (chap. 62 of the Laws of the Special Session of 1919) the legislature had authority to exempt personal property from taxation if it so desired (article 29, Amendments to the Constitution; see Laws 1919, p. 507).

Here again we might observe that the legislature could not, by reason of the federal constitution and the Act of Congress relative to the taxing of national bank stocks, exempt moneys and credits generally from taxation, and continue to subject national bank stock to taxation at the local rate of levy or at any rate differing from that applicable to other moneyed capital. It is not probable that the legislature would relinquish altogether the tax on national bank stock while continuing to tax that of state banks at the local rate. On the contrary, whatever reasons were potent enough to cause it to exempt “moneys and credits, including bonds and stocks,” which of necessity embraced the stock of national banks, would naturally operate likewise favorably upon that of competing state banks. This impels us to the conclusion that the legislature has in fact exempted all stock, including bank stock, from all taxation, except that expressly retained by chap. 62 of the Laws of the Special Session of 1919. It follows that the complaint states a cause of action, and that the'writ should issue as prayed for.

Robinson, J., and Nuessle and Berry, District Judges, concur. Christianson and Bronson, JJ., disqualified.