Des Moines National Bank v. Fairweather

Background

A national bank in Iowa asked for a reduction of a 1919 assessment on its capital stock. The state board of equalization assessed shares to individual stockholders based on the bank’s capital, surplus, and undivided earnings, subtracting only real estate. The bank owned U.S. government securities and some federal reserve bank stock and asked that their value be excluded when valuing shares. The state board declined, the State Supreme Court upheld the assessment, and the bank brought the case to this Court.

Reasoning

The Court looked at three everyday questions: does the Iowa law really tax the bank’s property instead of shareholders’ shares; must U.S. government securities held by the bank be deducted when valuing shares; and do shareholders face a higher tax rate than other competing moneyed capital? Relying on the language of the federal law (Rev. Stat. §5219) and earlier decisions, the Court said the statute directs taxation of the shareholders’ shares, not the corporation’s assets. The Court explained that shares are the stockholders’ property and may be taxed without deducting corporate holdings of government securities. The parity rule in federal law means shares cannot be taxed at a higher rate than other moneyed capital, but that parity does not require deducting exempt government bonds from share valuations.

Real world impact

The decision lets states value and tax national bank shares based on capital and earnings without subtracting federal securities, while the tax burden remains on stockholders even if the bank initially pays. This affirms prior rulings and resolves the bank’s challenges in favor of the State.