Phelps v. Union Bank & Trust Co. , 225 Ala. 238 ( 1932 )

The inherent power of the state to collect taxes to raise revenue on property within its jurisdiction and on domestic concerns is an attribute of sovereignty residing in the Legislature, and, so long as it does not impinge the limitations fixed by the Constitution, or trench upon the prerogatives of the national government, or violate the guaranties of the Fourteenth Amendment of the Constitution of the United States, its powers are unlimited and unrestrained. This power is not a delegated power, but a power inherent in the state, essential to its life and continued existence. Phœnix Carpet Co. v. State, 118 Ala. 143, 22 So. 627, 72 Am. St. Rep. 143; Ohio Oil Co. v. Conway, 281 U.S. 146, 159,50 S.Ct. 310, 74 L.Ed. 775.

The power to tax the stock in banks of the United States, agencies of the national government, in the accomplishment of its constitutional purposes, is not an inherent power residing in the state, but a power delegated by Congress. Such agencies cannot be taxed except by the consent of Congress. Cooley's Const. Law (8th Ed.) p. 991.

In the exercise of this delegated power, the Legislature must conform to the restrictions in the acts of Congress delegating this power; otherwise the effort of the Legislature to exercise this power is abortive and void. Ward, Tax Collector, v. First National Bank of Hartford, ante, p. 10, 142 So. 93; Mercantile Nat. Bank v. New York, 121 U.S. 138, 7 S.Ct. 826, 30 L.Ed. 895.

The limitation on the power of the Legislature to levy a direct tax on property, found in sections 211 and 217 of our Constitution, is a limitation on the inherent power of the state, and not on the power to tax delegated by the federal statute. The limitation on this power is found in section 5219 of the United States Revised Statutes (12 USCA § 548). Maguire v. Board of Revenue Road Commissioners of Mobile County,71 Ala. 401; Pollard v. State ex rel. Zuber, 65 Ala. 628.

Therefore, when the Legislature, in the exercise of the power delegated by the federal statute, efficaciously levies a tax on the stock of United States banks, in conformity with the statute, such levy reflects the limitation embodied in the Constitution in respect to the levy on subjects of taxation within the inherent power of the state, and requires substantial uniformity. Such was the case dealt with in State Bank v. Board of Revenue, 91 Ala. 217, 8 So. 852.

But where, as in the case at bar, the attempted exercise of the delegated power of taxation under the federal statute is abortive, there is no basis for applying the limitation embodied in section 217 of the Constitution to taxes levied in the exercise of the state's inherent power on domestic bank stock; therefore the plaintiff was not entitled to recover.

We are in full accord with the minority view that there is "no semblance of justice in taxing the shares of State banks and excluding those of National banks." But we entertain the view the remedy for such injustice lies with the lawmaking power of the state and federal government, by amendment of the federal statute, as now proposed by the pending bill in Congress, so as to permit the taxation of national banks in like manner and to like extent as state banks; and, if this is not done, the Legislature should conform to the requirements of the federal law. The result of such injustice in this particular instance does not justify a surrender of the inherent power of the sovereign state to tax its own subjects and exercise its own prerogatives.

Upon the question of taxation, the Legislature of this state had the power to make exemptions and classifications free from interference by the courts unless there results inequality, not only oppressive in its operation, but so glaring as that it can be judicially declared to be founded on arbitrary and capricious principles, without the just semblance of reason. Subject to this limitation, the legislative power to select proper subjects of taxation and to classify them upon principles which to them seem just cannot be circumscribed by the courts. There must be, of necessity, left a liberal scope for the free exercise of this presumably wise discretion. Moog v. Randolph, 77 Ala. 597.

Upon this well-recognized principle the system of classification and exemption by the Legislature as to moneyed capital is a matter resting with the lawmaking power, and is not such as to justify the interference by the court.

Like reasoning as outlined in this opinion leads to the conclusion that the state system of taxation here questioned violates no provision of the Fourteenth Amendment to the Constitution of the United States. Ohio Oil Co. v. Conway,281 U.S. 146, 50 S.Ct. 310, 74 L.Ed. 775.

The judgment of the circuit court is reversed, and one here rendered for the defendant.

Reversed and rendered.

GARDNER, THOMAS, BROWN, and KNIGHT, JJ., concur.