Montana National Bank v. Yellowstone County of Montana

Background

A national bank organized under United States law and doing business in Yellowstone County, Montana, was assessed taxes for 1925 based on the value of its shareholders’ stock. The bank owned no real estate. The county assessor taxed shares by including the value of federal securities the bank held, and demanded payment of fifty percent of the levy; the bank paid under protest and sued to recover the payment, arguing the assessment conflicted with federal law and Montana law.

Reasoning

The Court examined whether Rev. Stats. § 5219 — which forbids taxing shares of national banks at a greater rate than other moneyed capital held by individuals — was violated. Under Montana practice then followed by local officials, corporate ownership of federal securities was exempt from taxation, so state banks’ corporate assets were not taxed on those securities, and state courts had previously interpreted state law to avoid taxing state bank shares. That earlier construction led officials to leave state bank shares untaxed while taxing national bank shares for the same federal-security value. The Court held that this produced unlawful discrimination under § 5219, that the statutes as thus construed and applied were invalid, and that the bank had a right to recover the unlawfully exacted tax.

Real world impact

The decision reverses the state-court result and permits recovery of the taxes unlawfully collected from the national bank. A later change in state court construction does not excuse the earlier discriminatory collection. The Court also declined to require the bank to seek futile local administrative relief when the earlier state decision made such relief ineffective.