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by the corporation, and the assessment of all the property of the corporation covered everything represented by the certificate. See also Pol. Code, § 3608."
Again, referring to Burke v. Badlam, 57 Cal. 594, the court said (p. 285, L. R. A. p. 922, Am. St. Rep. p. 138, Pac. p. 836):
"This case necessarily involved the question as to the constitutionality of § 3608 of the Political Code, prohibiting the assessment of shares of stock to the holders thereof. Such shares being undoubtedly property, unless they were otherwise assessed, the section was clearly unconstitutional, in view of the provision of the Constitution requiring all property to be taxed. According to the decision of the court they were under the law to be otherwise assessed-i. e., everything represented by the certificate was to be assessed to the corporation."
and its profit-earning power, which are part | simply an interest in the very property held of its property under the constitutional definition of property, there is nothing left to the separate partners. The whole thing has passed to the purchaser, and in the same way when a corporation makes a sale. And to hold that the good will and profit-earning | power must be specifically mentioned is to hold that the constitutional definition of property is insufficient; that good will and profit-earning power are not "capable of private ownership," or do not belong to the corporation. Burke v. Badlam was reaffirmed in Bank of California v. San Francisco, 142 Cal. 276, 64 L. R. A. 918, 100 Am. St. Rep. 130, 75 Pac. 832, decided since the decision of this case by the court of appeals. This case is very instructive. It was an It was an action brought by the plaintiff, a state bank, to have an assessment of its franchise declared illegal and void, and to recover the amount paid by it under protest as taxes thereon. The contention of the plaintiff was that it did not own or possess any franchise whatever; that the only franchise in any way connected with it was the corporate franchise, the franchise of being a corpora-property-viz., $2,943,096.92—was the value tion, which was the property of the stockholders and not assessable or taxable to the corporation. It appears from the opinion that the assessor found that the aggregate value of the tangible property of the bank was $5,156,903.08, that the market value of all the shares of the capital stock was $8,100,000, and the difference between the two was by him ascertained and determined to be the value of the franchise of the bank. The state was not challenging the assessment, and, of course, no inquiry was made as to the propriety of an increase in the valuation.
And again, on p. 289, L. R. A. p. 924, Am. St. Rep. p. 141, Pac. p. 838:
"Whether or not the whole difference between the aggregate market value of the shares of stock and the value of the tangible
of the franchise, the assessor certainly had the right to take the value of the shares into consideration in determining the value of the franchise; and, were we at liberty to review the judgment of the assessor and the board of equalization upon those matters, we could not say that an assessment of $750,000 thereon is unjust, or that it includes such elements as dividend or profitearning power, or good will, which, it is claimed, should not be taken into consideration in determining the value of the property of the corporation. In this connection, it will be observed that these elements, so
In reply to the contention of the plaintiff, far as they may enter into the value of the court uses this language:
shares of stock, would be included in an as"It was said by the Supreme Court of the sessment of such shares to the stockholders, United States, in Society for Savings v. a method of assessment which the state is Coite, 6 Wall. 594, 606, 18 L. ed. 897: 'Cor- at liberty to adopt,-in fact, bound to adopt, porate franchises are legal entities vested-unless such shares are otherwise covered in the corporation itself as soon as it is in by the assessment of the property of the coresse. They are not mere naked powers poration. granted to the corporation, but powers coupled with an interest which vest in the corporation, upon the possession of its franchises, and, whatever may be thought of the corporators, it cannot be denied that the corporation itself has a legal interest in such franchises.'
"If this corporate franchise is assessable as property, then, that it must be assessed to the corporation instead of the members or stockholders is clearly settled in this state by the decision in Burke v. Badlam, 57 Cal. 594, where it was held that a stockholder could not be assessed upon his certificate of stock, inasmuch as his shares were
"It is clear that, if the laws of this state properly express the intention that everything that gives value to the shares of a corporation shall be assessed as property of the corporation, the true value of those shares is a most important element in determining the value of such property."
I have made these extensive quotations from the opinions of the supreme court of California, for in cases like this we follow the construction placed by the highest court of the state upon its statutes. Obviously, that court construes them as including within the corporate property the aggregate value of all the shares of stock, and that,
while they forbid the assessment and taxa- | as implying a destruction of the plain letter tion of shares of stock in a state corpora- of the statutes. tion, they require that all the value represented by those shares of stock be assessed and taxed against the corporation; so that, when you ascertain the value of a single share of stock, and multiply that by the number of shares in the corporation, you have the value of the corporate property subject to taxation.
After declaring that the prohibition of the assessment and taxation of shares was clearly unconstitutional, unless they were otherwise assessed, it added, referring to the case of Burke v. Badlam, "according to the decision of the court they were under the law to be otherwise assessed,-i. e., everything represented by the certificates was to be assessed to the corporation." Now, if, as claimed, the shares represent, not merely the tangible property, but the franchise, the dividend-earning power, then. as stated, "everything represented by the certificates was to be assessed to the corporation." And this language is followed by the declaration, referring to dividends, profit-earning power, good will, etc.: "In this connection it will be observed that these elements, so far as they may enter into the value of shares of stock, would be included in an assessment of such shares to the stockholders, a method of assessment which the state is at liberty to adopt,-in fact bound to adopt,-unless such shares are otherwise covered by the assessment of the property of the corporation." Reference is made to the use of the word "if" in the last paragraph of the quotation, as though that implied a doubt as to the meaning of the state statutes. But surely that cannot be, in view of the prior declaration in the same opinion, that "everything represented by the certificates was to be assessed to the corporation." The paragraph is to be read as though it said that provided the laws of the state properly express the intention, as we have already held that they do, then the true value of the shares is an important element in determining the value of the corporate property. The same word "if" is used at the commencement of the second paragraph of the quotation "if this corporate franchise is assessable as property," in like manner, for the word "franchises" is found in the constitutional definition of property, the paragraph preceding "if" declares that "the corporation itself has a legal interest in such franchises," and the very paragraph says that "the assessment of all the property of the corporation covered everything represented by the certificate." Certainly it seems to me there is no justification in torturing this word "if" as overthrowing all the clear declarations of the court, as well
But great reliance is placed upon the admission, in the agreed statement of facts, "that the manner in which franchises of commercial banks and trust companies were assessed for said fiscal year ending June 30, 1901, by the assessor of the city and county of San Francisco, is illustrated by the case of the Bank of California, a banking corporation organized under the laws of the state of California." In the assessment of that bank the assessor did not add to the value of the tangible property the difference between that value and the market value of the capital stock, but a sum very much less. A tabular statement is also annexed, showing the financial condition during the year of the 178 state banks of California. It might be sufficient to say that the stipulation is satisfied by a conclusion that the assessor, in assessing state banks, generally added to the value of the tangible property something on account of the franchise, we are not compelled to infer that the valuation of the tangible property of each bank he added $750,000, or even that he failed to add the full difference between the value of that property and that of the stock. Indeed, it does not appear from the tabular statement that the market value of the shares in a single state bank in California exceeded the value of its tangible property. So that, so far as that evidence goes, the only case in which there was any franchise value to be added was that of the Bank of California. But more significant is this: It appears from the agreed statement that the assessment complained of in this case was made in the following way:
"The defendant, in making his assessment, fixed the value of the shares for taxation at $104.35 each, and arrived at that valuation in the following manner: He added to the capital stock of the bank, $500,000, its undivided profits amounting to $77,260, deducted the face value of United States bonds held by it, $50,000, and the value of its furniture, $5,500, leaving $521,760 as the total assessable value, and dividing that by the number of shares made the assessable value of each share the sum above stated."
In other words, the only assessment against the plaintiff's shares was based upon the value of the tangible property. Not a dollar was added to the valuation on account of franchise, good will, or dividendearning power, or anything of that kind. Or, to put it in another form, the assessment of the state bank added to the value of the tangible property something for the value of the franchise, the assessment of the plaintiff stopped with the tangible property, and yet it is held that there was an actual
unjust discrimination against the plaintiff. | And how is this conclusion reached? By assuming that the shares in the plaintiff bank had no value above the value of the tangible property. But this is a mere assumption. A more rational guess would be that the shares of stock in a bank whose undivided profits were over 15 per cent of its capital had a value much above the par value of its stock or the value of its tangible property. And can it be that the whole system of the legislation of a state in respect to the taxation of national banks can be stricken down upon an unfounded assumption that the shares of a given national bank were worth no more than its tangible property? If the complaint was of an actual discrimination it was a part of the plaintiff's duty to prove it, and show that its shares had no value above that of the tangible property, and would not "be taken in payment of a just debt due from a solvent debtor" at a larger sum. The most elementary rule of judicial proceedings is that a party, to make out his cause of action, must prove, not assume, the existence of all essential facts.
and does not intend to assess, to the holders of shares in corporations, organized under the laws of the said state of California, the value of the same, or to collect from such shareholders any taxes on said shares or the value thereof.
"And your orator further shows that the said pretended assessment and taxation so as aforesaid threatened to be made and levied by the respondent upon the shares of the capital stock of your orator will be in violation of, and repugnant to, the provisions of said § 5219 of the Revised Statutes of the United States, in that the said taxation will be at a greater rate than will be assessed upon any other moneyed capital in the hands of individual citizens in the state of California. And, in that behalf, your orator further shows that, in assessing and taxing the said shares of the capital stock of your orator, no deduction will, or can legally, be made from the valuation of said shares, or any of them, of debts unsecured by deed of trust, mortgage, or other lien on real or personal property due or owing by the stockholders of your orator, or by any of them, to bona fide residents of the state of California; and that, in assessing and taxing other moneyed capital in the form of solvent credits unsecured by deed of trust,
But I need not rest upon the omission of proof. There is no allegation of any discrimination based upon such difference of valuation. The eleventh and twelfth para-mortgage, or other lien on real or personal graphs of the complaint state the wrongs on account of which relief is sought. In order that there may be no misunderstanding of the full scope of the causes of action alleged I quote these paragraphs entire:
"Eleventh.-That the said assessment and taxation, so as aforesaid threatened to be made and levied by the respondent upon the shares of the capital stock of your orator, wlil be in violation of, and repugnant to, the provisions of §§ 5219 and 1977 of the Revised Statutes of the United States (U. S. Comp. Stat. 1901, pp. 1259, 3502), in that the said assessment and taxation will be at a greater rate than is or will be assessed upon other moneyed capital in the hands of individual citizens of the said state of California. And in that behalf your orator shows that, under and by virtue of the laws of the said state of California, all shares of stock in corporations organized under the laws of the said state and amounting to more than the sum of two hundred million dollars ($200,000,000), and especially in corporations organized under the laws of the said state for the purpose of banking, all shares of stock thereof amounting to more than the sum of thirty-five million dollars ($35,000,000), are expressly exempt from assessment and taxation, and the same are not subject thereto, and that the respondent has not assessed, and will not assess, for the said fiscal year ending June 30th, 1901,
property, due, or owing to, or in the hands of, individual citizens in said state of California, the respondent does and will make a deduction from said credits, under and by the Constitution and laws of the state of California, of the debts unsecured by trust deed, mortgage, or other lien on real or personal property as may be owing by such individual citizens, or by any of them, to bona fide residents of the state of California, and that said threatened assessment and taxation of the shares of your orator is, and will be, unjust, unlawful, and illegal, and will discriminate against and upon such shares, and against and upon the persons owning and holding the same, and will compel them to sustain and bear more than their just share and burden of the taxes of the said state of California. And in this behalf your orator further avers that it is informed and believes, and upon such information and belief states, the fact to be, that the amount of moneyed capital in the city and county of San Francisco in said state of California on the first Monday of March, 1900, to wit, on March 5th, 1900, at noon of said day, invested by banks and bankers, having their principal place of business in said city and county, and residents therein, in unsecured solvent credits, and from which, under the Constitution and laws of said state, unsecured debts can be deducted, was the sum of $14,074,561; and on the day and year
last aforesaid the amount of moneyed capi- | 452, and will deduct therefrom the sum of tal in the state of California, other than $11.10 per share as the proportionate in the said city and county of San Fran- amount per share of the value of the United cisco, invested by banks and bankers in un-States bonds held by your orator to secure secured solvent credits, and from which, its circulation, and of its furniture, and under the Constitution and laws of said will, as hereinbefore set out, assess to the state, unsecured debts can be deducted, was stockholders the sum of $104.36 per share the sum of $7,589,302; that on the day and as the value of each share of said capital year last aforesaid said banks and bankers stock by the said respondent claimed to be at said city and county of San Francisco subject to assessment and taxation under had debts unsecured by trust deed, mort- the provisions of said act of March 14th, gage, or other lien on real or personal prop- 1899, and that the respondent will wholly erty owing by such banks and bankers in fail and refuse to make any other or further said city and county, amounting to the sum deductions from such ascertained value of of $36,710,062; and that on said day last said shares, in order to determine the asaforesaid the amount of debts unsecured by sessable value thereof; whereas, by the protrust deed, mortgage, or other lien on real visions of said § 3609 of the Political Code or personal property owing by said banks of the state of California, under and in purand bankers in the state of California, other suance whereof the respondent has threatthan in the said city and county of San ened and intends to make the said assessFrancisco, was the sum of $32,400,304; that ment, and will proceed to demand, and will the amount of moneyed capital invested in attempt to collect, the taxes aforesaid, he such solvent credits by such banks and bank- was and is required to deduct from the ers on the day and year last aforesaid, in value of each share of the capital stock of said city and county of San Francisco and your orator such sum as is in the same proin said state of California, as compared portion to such value as the total value of with the amount of moneyed capital in the real estate and property of your orator vested in the shares of the capital stock of exempt by law from taxation bears to the your orator, is so large and substantial that whole value of all the shares of the capital the assessment and taxation of the shares of stock of your orator. That on the first Monthe capital stock of your orator without de- day of March, 1900, to wit, on March 5th, ducting therefrom, and without being able | 1900, at twelve o'clock M. of said day, your to deduct therefrom, debts unsecured by orator had not, and thence hitherto has not trust deed, mortgage, or other lien on real had, nor has it now, any real estate, and, or personal property, as may have been as in paragraph 'eighth' hereof averred, all owing by the respective holders of the shares of the property of your orator consisted on of the capital stock of your orator on the said day and at said time, and has thence day and year last aforesaid, will be an il- hitherto consisted, and does now consist, of legal and unjust discrimination against the its bonds, money on hand, credits, furniture, owners and holders of the shares of the and other personal property, and on said capital stock of your orator, and will make day and at said time the same constituted the taxation of said shares of stock at a and were, and thence hitherto have been, greater rate than is imposed upon other and now are, the assets of your orator, and moneyed capital in the hands of individual were and are used and employed by it in citizens in the state of California, and par- the conduct and carrying on its business as ticularly in the city and county of San a national banking association under and by Francisco in said state. And in this behalf virtue of the provisions of the act of the your orator further avers that the said Congress of the United States known as the solvent credits so held as aforesaid by banks national banking act, and were and are and bankers in the said city and county of exempt by law from assessment and taxaSan Francisco and in the said state of Cali- tion. That, if deduction of all the property fornia are moneyed capital in the hands of of your orator exempt from assessment and individual citizens of the state of California, taxation as last aforesaid were made to each which enter into competition for business stockholder in assessing said stock, there with your orator. would remain nothing of value subject to assessment and taxation; and that the pretended assessment and taxation of said shares at said value of $104.36 per share would be based wholly upon supposed and fictitious property, and upon upon property exempt by the Constitution and laws of the United States from assessment and taxation."
"Twelfth. That, in the making of the said assessment of the said shares of the capital stock of your orator, the respondent will not proceed in the manner directed by the said act of March 14th, 1899, in this: That the said respondent, as hereinbefore set out, will ascertain and determine the value of each of the shares of the capital stock of your orator to be the sum of $115,
The first of these paragraphs alleges a
violation of the Federal statute in the taxation of plaintiff's shares of stock, because under and by virtue of the laws of California all shares of stock in state corporations are exempt from assessment and taxation, and the assessor does not intend to assess to the holders the value of those shares. But, as repeatedly held, a mere difference in the methods of state and national bank taxation is not repugnant to the act of Congress. The balance of the paragraph is substantially a charge of a discrimination by reason of a failure to deduct debts. But that, it is conceded in the opinion of the court, may be put one side,-a concession undoubtedly compelled by the facts as agreed upon, for an opportunity was given to each stockholder in the plaintiff bank to have any debts deducted, and no one of them sought to avail of this privilege.
Further, there is no reference in the opinion of the court of appeals to any discrimination in fact.
Still further, counsel for plaintiff in error evidently fail to perceive any actual discrimination, as appears by this quotation from their brief:
"The questions involved in the appeal are: "(1) That the act of 1899, providing for the assessment and taxation of shares of the capital stock of national banks, is repugnant to the provisions of § 5219 of the Revised Statutes of the United States:
"(a) Because shares of stock in the commercial banks of the state are not taxed, and are exempt;
"(b) Because, by reason of the failure to tax shares in the commercial banks of the state, the shares of national banks are subjected to an adverse discrimination, and taxed at a higher rate than such commercial bank shares;
"(c) Because the provisions § 3609, are wholly void, in that it is thereby undertaken to provide that a stockholder may deduct from the value of his shares the amount of his debts due to bona fide residents of the state.
"(2) That, under the express provision of the Political Code, §§ 3608 and 3609, the whole property of the appellant included in the assessment was exempt from taxation."
The only reference to discrimination is the alleged legal one, "by reason of the failure to tax shares in the commercial banks of the state." If the failure to tax shares in the commercial banks of the state does not of itself work a discrimination, as is practically conceded in the opinion of the court, then the whole basis of plaintiff's complaint fails.
The other paragraph charges a discrimination and that the assessor ascertained the value of the shares of the capital stock of the plaintiff at the sum of $115,452 and deducted therefrom the sum of $11.10 per share as the proportionate share of the value of United States bonds held by the bank; that he refused to make any further deductions, although the various items of property held by the bank, consisting of bonds, moneys, credits, etc., "were and are used and employed by it in the conduct and carrying on its business as a national banking association, under and by virtue of the provisions of the act of Congress of the United States known as the national bank act, and were and are' exempt by law from taxation." The complaint here is that the tangible property of the national bank is wholly exempt from taxation because used for the purpose of carrying on the banking business, and, as the only assessment of Summing the matter up, the Constitution plaintiff's shares was based upon the value declares that "all property . . shall of the tangible property, the entire assess- be taxed in proportion to its value," and dement was void. Now it is not pretended in fines "property" as including "franchises, the opinion of the court, nor can it be suc- and all other matters and things, real, percessfully claimed in view of prior decisions sonal, and mixed, capable of private ownerof this court, that shares of stock in a na- ship." Franchises, dividend-earning, profittional bank are subject to taxation to only earning power, are capable of private ownerthe extent of the excess of their value above ship. Indeed, the opinion of the court is that of the tangible property of the corpo- based on the contention that they are asration, and yet that is the burden of plain- sessed to the holder of shares in national tiff's complaint. I have made this exten- banks, and not assessed upon the state sive quotation because it is apparent there- banks. Section 3608 provides that "all propfrom that the matter which, in the judg-erty belonging to corporations (save and exment of the court, is sufficient to overthrow cept the property of national banking assothe law of California in respect to the tax-ciations, not assessable by Federal statute) ation of national banks, was not charged or complained of by the plaintiff. If the plaintiff neither alleges nor proves any discrimination in the matter of valuation I cannot understand why this court should assume that there was one, and thereupon upset the
shall be assessed and taxed." Section 3609, that the shares in national banking associations "shall be valued and assessed as is other property for taxation." The supreme court of the state holds that a stockholder in a state bank "could not be assessed upon his certificate of stock, inasmuch as his