Fayette Common Pleas.

holding them in the non-taxable form during the days from which the yearly average is determined. They were equally non-taxable whether greenbacks or government bonds, and practically all the defendant did in preparation for tax-day was to count them and make on its books the deductions it was legally entitled to make. What has been said with reference to the greenbacks, applies of course to the situation prior to August 13, 1894.

Subsequent to that date, by act of congress, their privilege of exemption from state taxation was taken away, and it was provided “That circulating notes of national banking associations, 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 and gold, silver and other coin, shall be subject to taxation as money on hand or on deposit under the laws of any state or territory."

It is urged by counsel for defendant, that when congress authorized the issue of these notes, it was an exercise of its power to borrow money on the credit of the United States. That the promise to pay which they contain, was a contract, and that one of the conditions of the contract, embodied in the statute authorizing their issue was, that they should not be subject to taxation by the state. That the provision of the federal constitution prohibiting laws impairing the obligation of contracts, operates to deprive congress of power to withdraw this quality of immunity from taxation, so long as the notes remain outstanding.

Whatever may be the limitation on the power of congress, in this regard, as affecting interest bearing time obligations of the United States, I think there can be no doubt of its power, to do all that it attempted to do in this act of August 13, 1894.

The act only relates to such notes as are payable on demand and circulating or intended to circulate as currency.”

As long as the holder can "on demand" obtain the money promised in the note, I think the government has fully kept the terms of the contract. The holder who can a. any time enforce their redemption in money is not prejudiced by the legislation.

It follows that for the years 1895 and 1896 the cash returned by the defendant for taxation should be increased by the average amount of “U. S. Government Bonds" on hand during the preceding year, as shown by the return made.

The books of defendant show a discrepancy between the apparent cash on hand on the first Monday of each month, and the apparent cash on the preceding Saturday, not fully accounted for by the deduction of greenbacks already referred to.

This discrepancy is shown by the evidence to arise from the course of dealing adopted by the bank, with its customers.

It carried accounts with various public officers and treasurers of private institutions, having the custody of funds, and it was the habit to

Patton v. Bank.

pay orders drawn against such funds, and carry them in cash, until the end of the month, when they were taken up by the officer's check, which was charged to his account. This was usually done on the Saturday preceding the first Monday of each month, and had the effect to greatly reduce the apparent amount of cash, on the latter day, as compared with the former.

I think this transaction perfectly legitimate, and in no wise predju. dicial io the rights of the public. Such orders, so carried, were in no sense cash, nor probably cash items, and were not taxable as such.

What has been said as to the so-called " accounts receivable" and "greenbacks," relates to their taxability during the years here in question. But there are still other considerations affecting the right of the plaintiff to recover in this action.

First. Were the returns made by the defendant for these several years "false," within the meaning of sec. 2781, Rev. Stat., as construed in Ratterman v. Ingalls, 48 Ohio St., 468?

Second. If they were not "false returns as that term is construed by the Supreme Court, but were still incorrect, has the county auditor a right, under secs. 2781 or 2782, Rev. Stat., to correct the duplicate, adding simple taxes without penalty-back of the current year?

I have already indicated that in my opinion the defendant's returns were during all these years incorrect. That for the years 1892, 1893, and 1894, the amount of taxable cash returned by the defendant should have been increased by the amount returned as "accounts receivable" -and for the years 1895 and 1896 the taxable cash should have been increased by the amount returned as "accounts receivable" and the amount returned as "U. S. Government Bonds," but it does not follow that these returns were "false" because incorrect.

For many reasons I hesitate to find that the defendant's returns for 1892, 1893 and 1894, which are only incorrect in that they classify amounts due from banks and bankers subject to withdrawal on demand as "accounts receivable " instead of "money" or cash," were "false returns," within the meaning given the word "false" in Ratterman v. Ingalls, supra.

In the first place, I think these balances due from banks and bankers, are in fact" accounts receivable," as that term is understood among accountants generally. The balances which individuals may have on deposit with their bankers, are likewise "accounts receivable." It is well settled that a deposit in bank creates the relation of a debtor and creditor; the bank owes its depositor and owes him upon "account," and this I think is all that is necessary to create an "account receivable" in the hands of the creditor.

It is only by force of the definition of "money" contained in sec. 2730, Rev. Stat., that the individual is required to return such balances as "cash" for the purposes of taxation. And it is only by force of the

Fayette Common Pleas.

constitutional requirement that taxes shall be levied by uniform rule and that property employed in banking shall bear a burden of taxation equal to that imposed on the property of individuals, that banks are, in my opinion, required to return such balances as "cash," and that they are taxable as such.

Again it is shown by the testimony that banks in this locality generally, it not throughout the state have, for the purposes of taxation, habitually returned such balances as accounts receivable," and not as "cash." And since the decision of P. & D. Bank v. Patton, Tr., 52 Ohio St., 603, in October, 1894, there has been apparent authority for the assumption that such balances were not taxable without deduction as cash. It is true that, in my judgment, that case, because the facts found by the court, and which furnished the basis of the decision, did not show that the balances were subject to be withdrawn on demand, does not sustain the assumption, but a point so technical that it evidently escaped the attention of counsel for the treasurer in preparing the finding of facts ought not to subject the mere layman to penalties if it escaped his attention.

Under all these circumstances I am not prepared to find that the defendant's returns for the years 1892, 1893 and 1894 were "false returns," as that term is construed in Ratterman v. Ingalls, 48 Ohio St., 468; nor do I find that the returns for 1895 and 1896 were false returns" in so far as they were affected by the classification of these balances, as accounts receivable" instead of cash; they are simply incorrect.

.

The returns for 1895 and 1896, however, are also affected by the classification of "greenbacks," as " U. S. Government Bonds," and I think the course of the defendant in making such a classification wholly inexcusable. In the case of balances in the hands of other banks, the defendant may be excused for adopting the classification usual among accountants and calling them "accounts receivable;" but in the case of the "greenbacks" it took precisely the opposite course, and designated them in terms not usually employed for that purpose, and well calculated to deceive the auditor as to their true character. This evidence of an active intent to deceive may very well be said to be rebutted by the fact that the same classification had been adopted by the defendant long before, and during years when such securities were not taxable, and when consequently no fraud on the revenues of the state could possibly result from it.

But culpable negligence is sufficient, though there may be no design to mislead and deceive, to make a return "false."

In Ratterman v. Ingalls, supra, the Supreme Court said: "It is the duty of the resident property owner to return his taxable property for taxation. In the performance of this duty he must use diligence and care in acquiring knowledge from sources where information is obtainable. If he uses such care and acts honestly, making his return

Patton v. Bank.

in accordance with his best knowledge and belief, after using all reasonable means to obtain an intelligent belief, his return will not be false within the meaning of sec. 2781. But this belief must result from a careful effort to perform the duty. Blind reliance upon an indolent belief that one's property is not taxable, without investigation, inquiry or disclosure, to the taxing officer, would show culpable negligence, as fatal to the claim of good faith and innocent purpose as would a direct intent to deceive."

The president of the defendant bank admits that some rumor of the repeal of the law granting immunity from state taxation to "greenbacks" reached his ears, and he says he wrote to our member of the general assembly to know if such a law had been passed. That the member from Fayette informed him that such a measure had been introduced in the general assembly of Ohio, but so far as he knew had never been passed.

I am not prepared to say that an inquiry of a member of the legislature as to whether the general assembly of Ohio had repealed a law of congress, is due diligence in acquiring knowledge from sources where information is obtainable, which ought to relieve the defendant from imputation of culpable negligence, and I therefore hold the defendant's returns for 1895 and 1896 to be false returns in so far as relates to the return of "greenbacks" as U. S. Government Bonds."

The next question that arises is, what authority had the auditor in 1897 to correct the duplicates for the years 1892, 1893 and 1891, as to which years I have found that defendant's returns are incorrect but not "false?"

After a careful examination of the decisions of the Supreme Court upon the question I have been forced to a conclusion, contrary to what seems to me to be the spirit and purpose of secs. 2781 and 2782, Rev. Stat.

An examination of those sections will show that sec. 2781. Rev. Stat.. gives authority to the auditor to go back five years beyond the current year to correct the duplicates by bringing upon them the omitted returns taxes, together with penalties. But this section seems to relate alone to which are "false," not simply incorrect.

Section 2782, Rev. Stat., relates to returns which are incorrect as well as such as are "false," but this section only authorizes the auditor to correct the duplicate for the current year.

The letter of these sections, then, apparently limits the authority of the auditor to the making of corrections for the current year, except in cases where the return made is "false" as well as incorrect.

But it has been held that these sections do not create obligations against the taxpayer; they are only a remedy for the collection of what he already owes, to-wit, the taxes on all his property, for every year, whether the same was returned for taxation or not. Sturges v. Carter,

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114 U. S., 511; Lee v. Sturges, 46 Ohio St., 153; State ex rel. v. Raine, 47 Ohio St., 447; Gager v. Prout, 48 Ohio St., 89.

Assuming, then, that the defendant owes to the treasurer the simple taxes on the property which it did not return for the years 1892, 1893 and 1894, just as it owed the taxes on what it did return; and that secs. 2781 and 2782, Rev. Stat., were intended to give a remedy for the collection of this debt, it seems to me that a fair and reasonable construction of these sections would not limit their application to the current year in case of merely incorrect returns, and extend it to a period of five years back of the current year in case of "false" return.

Such a construction, it seems to me, makes the primary purpose of the statute penal instead of remedial; it gives a scope of six years to the auditor's authority where somebody is to be punished by the imposition of a penalty, but limits his authority to one year, where the only result is to subserve the interest of the public treasury.

The Supreme Court seems to have expressly rejected such an interpretation of these sections, in Gager v. Prout, 48 Ohio St., 89; Minshall, J., there says:

It cannot be claimed with any show of reason, that the legislature would not have provided for making the addition of the amount omitted, without the addition of a penalty also. To so hold would be to disregard all known motives of human conduct, and to say, that an entire body of intelligent men would be governed by mere carprice instead of the interest of their constituents; or rather by a desire to make the delinquent property holder smart, than to subserve the interests of the public treasury."

While this language was not so applied by Judge Minshall, it seems to me to be justly applicable to a construction of these sections which limits the authority of the auditor to make additions, back of the current year to cases where a penalty might be added, and forbids him to bring upon the duplicates simple taxes justly due the state, merely because there was no element of deceit or culpablity in their omission.

So that in the absence of a contrary holding by the Supreme Court I would be inclined to the opinion that for the years 1892, 1893 and 1894, the auditor might place upon the duplicate the simple taxes without penalty, and that the treasurer might recover for the same in this action.

But I think the Supreme Court has in a number of cases held the contrary.

This holding is not so apparent from what is said in opinions rendered, as from the judgments awarded.

In Ratterman v. Ingalls, 48 Ohio St., 468, the action was brought by the treasurer to recover taxes charged by the auditor against Ingalls for the years 1881 to 1886 inclusive with a penalty of fifty per cent. for the year 1886. These additions were made for stock of the C. I. St. L. & C. Railroad Company, omitted in defendant's return. Upon trial in the