the Bank of Commerce claimed that so much of its capital as was invested in stock of the United States was exempt under the Act of 1862. The Court of Appeals of New York held these stocks were not exempt: People v. Com'rs of Taxes, 26 N. Y. 165-6.1 The principle involved in the cases allowing the exemption was, that to tax such stock was to tax the borrowing power of the United States, that such exemption could only affect the borrowing power where it existed at the time of the loan, so as to influence the terms and conditions of the loan, to be an inducement to capitalists to part with their funds. But here the borrowing power has been executed, and the exemption confers gratuitously upon the lenders an advantage, not at the expense of the United States, but at the expense of the states. This case was reversed by the Supreme Court of the United States at its December Term 1862, the court regarding the tax as one upon the borrowing power of the United States, and equally unconstitutional whether imposed on the stock eo nomine, or on the value of the stock as included in the aggregate of the tax payer's property: Bank of Commerce v. New York City, 2 Black 620. The principle which formed the basis of the opinion of the New York court, does not seem to be noticed, except in reference to the distinction claimed between the case and that of Weston v. Charleston, as to what the court say, that the question is one of power and not as to the limits of the exercise of the power; the former is a judicial question, the latter is not. If it is admitted that the power may be exercised by the states at all, it can not be controlled; and is such an interference with the power of the Federal government to borrow money, as is inconsistent with the supreme power vested in that government by the Constitution: Id. 631-2, 634.

In April 1863, soon after the decision just noticed, the legislature of New York changed the law as to the taxation of banks, by which it was in future to be imposed "on a valuation equal to the amount of their capital stock paid in or secured to be paid in," The same question was raised under this statute as to funds of the banks invested in United States securities, and the court. held that a tax under this law was tax on the property of the

etc.

This court had previously held in People v. Com'rs of Tax s, 23 N. Y. 192, before the passage of the Act of 1862, that such stocks might be taxed by the state where there was no unfriendly discrimination to the United States as bor

rowers.

bank, and that the case could not be distinguished from the former case. The tax on the capital of a bank is a tax on all the property of which it is composed: Bank Tax Case, 2 Wall. 200-209, December Term 1864. And where several persons associated together and doing business as private bankers, with all their capital invested in bonds and negotiable securities of the United States, for the sole purpose of re-selling them at a profit, and repurchasing like securities to be sold in the same manner, the capital being constantly absorbed in some such securities, is not liable to state or municipal taxation: Chicago v. Lamb, 52 Ill. 414.

Certificates of indebtedness issued for supplies furnished the government or certificates given by the treasurer of the United States to secure a loan of money, stand on the same footing as bonds or other obligations of the government: The Banks v. The Mayor, 7 Wall. 16; State v Haight, 34 N. J. L. (4 Vroom) 128; so do notes of the United States under the Loan and Currency Acts of 1862 and 1863, usually known as greenbacks: Bank v. Supervisors, 7 Wall. 28; Montgomery County v. Elston, 32 Ind. 27; they are issued by the government in the exercise of unquestioned powers, which cannot be controlled to any extent by the states, and are within the enumerated class of securities exempt by Act of February 25th 1862 from taxation by state authority. So too it has been held United Revenue Stamps are not taxable by state authority (Palfrey v. City of Boston, 101 Mass. 329), on the principle of McCulloch v. Maryland. While the courts hold that any tax on the securities of the United States imposed by the states is void, and corporations whose funds are so invested are exempt whenever the tax rests upon the property of the cor poration, yet where the tax is imposed on the franchise of the corporation, is in the form of a bonus paid the state for the privilege of doing business as a corporation, the fact that the funds of such a corporation are invested in securities of the United States does not impair the validity of the tax to any extent. The laws of Connecticut require savings banks to make annual returns to the comptroller of accounts, "of the total amount of deposits" in them respectively on the 1st day of July of each year, and to pay

In People v. Supervisors of Otsego, 51 N. Y., the history of New York legisla tion as to banks, and all the cases on the subject, are given.

annually to the treasurer of the state "a sum equal to threefourths of one per cent. on the total deposits" in the bank on that day. One of these banks had, on 1st July 1863, $500,161 of its deposits invested in securities of the United States, exempt under Act of 1862, and it claimed that as to that portion of its deposits the tax was void. But the court held that the tax was not a tax on property, but a tax on the franchise of the bank and valid: Society for Savings v. Coite, 6 Wall. 594; Monroe Savings Bank v. City of Rochester, 37 N. Y. 365. Shareholder cannot deduct from value of share his just debts; People v. Dolan, 36 N. Y. 59.

A statute of Massachusetts requires savings banks to pay to the commonwealth, on account of its depositors, a tax of one-half of one per cent. on the amount of its deposits; to be assessed onehalf on the average amount of its deposits for six months preceding the 1st of May, and the other half on the average amount of its deposits for six months preceding 1st of November; this was held to be a tax on the franchise of the bank, and not a tax on property, and therefore valid: Provident Ins. v. Massachusetts, 6 Wall. 611. So too a statute requiring corporations having a capital stock divided into shares, to pay a tax of one-sixth of one per cent. upon the excess of the market value of all such stock, over the value of its real estate and machinery, is a tax on the franchise of the corporation and not a tax on property, and the funds of such corporation invested in United States securities are not exempt from state taxation: Hamilton Co. v. Massachusetts, 6 Wall. 632. But where depositors in savings banks are taxable for their deposits, the banks are not liable to be taxed on the investment of the deposits in national bank stock: Augusta Savings Bank v. Augusta, 56 Maine 176.

(a) National Banks.-Most of the cases in reference to the taxation of national banks by the states, arise under the Act of June 1864, which contains this proviso: "That nothing in this act shall be construed to prevent all the shares in any of said associations, held by any person or body corporate, from being included in the valuation of the personal property of such person or corporation, in the assessment of taxes imposed by or under state authority, at the place where such bank is located and not elsewhere, but not at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state,

provided that the tax so imposed under the laws of any state upon the shares of any of the associations authorized by this act, shall not exceed the rate imposed upon the shares in any of the banks organized under authority of the state where such association is located. Provided also, that nothing in this aet shall exempt the real estate of associations from either state, county or municipal taxes, to the same extent according to its value, as other real estate is taxed:" Brightly's Digest 66, 67, § 42. The Act of 1863 contained no such provision. In a case arising under it, it was said that the states have no power to tax the means and instruments employed by the national government in the exercise of its constitutional functions, and though the state and Congress may exercise a concurrent power of taxation over the same subjectmatter, yet it may bear such a relation to the national government that Congress, by reason of its paramount authority, may exclude the states from the free exercise of their concurrent right. But where Congress in the latter case does not exercise its exclusive right of taxation, the states are left free to exercise their concurrent powers. The shares of national banks were thought to come in the latter class and to be subject to state taxation: Stetson v. City of Bangor, 56 Maine 274. Some of the state courts, while recog nising the Act of 1864 as valid and enforcing its provisions, question the authority of Congress to establish the national bank system: Smith, County Treasurer, v. Webb, 11 Minnesota 500, 512.

In December 1865, the first case requiring a construction of this Act of 1864, arose out of the statute of New York, in which it was enacted "that shares in the national banks should be included in the valuation of personal property of any person or body corporate, in the assessment of taxes in the town or ward where the bank is located and not elsewhere," but contained no provision that the tax imposed should not exceed the rate imposed upon the shares of banks organized under state authority. The act was held void because there was no tax laid on the shares of state banks at all, although there was a tax on the capital of such banks: Van Allen v. Assessors, 3 Wall. 573. For an able discussion of this subject see City of Utica v. Churchill, 33 N. Y. 161. It was claimed by the counsel of the national banks, and the position sustained by a minority of the court, that so much of the capital of the national banks as was invested in United States

bonds was not liable to taxation, on the principle of the case of The Bank of Commerce v. New York. It was an actual, though indirect, taxation of the bonds, and it was doubted whether Congress had power, without express reservation in the loan acts, to authorize such taxation. And it was attempted to be shown that Congress did not intend to authorize the taxation of the shares of these banks without reference to the amount of capital invested in national securities Ibid. CHASE, J., 589. But this view was repudiated by the majority, upon plain and well-known principles of law. Large and important privileges were granted to the corporators of these banks, and the tax imposed by the government of the United States, and allowed to be imposed by the states, were burdens imposed as conditions of the grant of the charters; the tax was on the franchise, not upon the bonds. And should the view be deemed even plausible, that it was a tax on the bonds, then it was a tax on the new use and new privilege conferred upon the holders of these bonds, a tax annexed as a condition to the enjoyment of this new use and new application of the bonds. Further, the bonds are owned by the corporation, a distinct person from the shareholders; the latter are interested in the property of the bank, but they are not the owners of it, they are entitled to participate in the profits of the bank earned in the employment of its capital during its existence, in proportion to the number of shares held; and upon its dissolution, to their proportion of its property that may remain after payment of its debts; it is this interest which the states may tax and not the capital of the bank: Ibid. NELSON, J., 582-84. It is to be observed, in connection with this opinion of the minority of the court, that in the leading case on this subject (McCulloch v. Maryland), where the Bank of the United States was a public corporation, created for public and national purposes, it was conceded that the shares of the stockholders were subject to taxation by the state; that they were properly subject to the jurisdiction of the state. Soon after this decision, in April 1866, New York passed another act, taxing shares of the national banks as other personal property, in the place where located, with this proviso: "But not at a greater rate than is assessed upon other moneyed capital in the hands of individuals. in this state." At the December Term 1866 of the Supreme Court of the United States, this act was held to be in conformity to the Act of Congress, and valid. Three of the judges dissented upon the