Appeal from the Appellate Court for the First District; heard
in that court on appeal from the Circuit Court of Cook County;
the Hon. Daniel A. Covelli, Judge, presiding.
MR. JUSTICE UNDERWOOD DELIVERED THE OPINION OF THE COURT:
Plaintiffs are six corporations owning shares of capital stock of Illinois banks. For themselves, and on behalf of all other corporations and entities similarly situated, they filed in 1973 a three-count complaint against defendants in the circuit court of Cook County concerning the imposition of personal property taxes on their shares of bank stock. In count I plaintiffs sought: (1) a preliminary injunction restraining defendant Bernard Korzen, Cook County collector and treasurer, from transferring any of their 1971 personal property tax payments, now being held in a protest fund; (2) a declaratory judgment that they are exempt from payment of personal property taxes on bank shares owned by them by virtue of section 76 of the Revenue Act of 1939 (Ill. Rev. Stat. 1971, ch. 120, par. 557), and that the collection of the 1971 taxes was unauthorized; and (3) a refund of the 1971 taxes paid, plus interest. Count II seeks the same relief with respect to the 1972 personal property tax payments, and count III seeks to restrain defendants from assessing plaintiffs' bank shares for 1973. The trial court temporarily enjoined defendants from transferring any tax monies held by them which were paid by plaintiffs and members of the class as 1971 personal property taxes on bank shares, and required defendants to segregate in a protest fund the amounts paid for 1972. Thereafter, on defendants' motion, the trial court vacated the temporary injunction and entered summary judgment for defendants. Plaintiffs appealed, and the Appellate Court for the First District reversed and remanded. (29 Ill. App.3d 526.) We allowed defendants' petition for leave to appeal.
Section 76, upon which plaintiffs rely, states:
"The stockholders of every kind of incorporated bank located within this State, whether such bank has been organized under the banking law of this State, or of the United States, shall be assessed and taxed upon the value of their shares of stock therein, in the taxing district where such bank or banking association is located and not elsewhere, whether such stockholders reside in such place or not. The value of such shares of stock for purposes of taxation shall be ascertained by deducting from the value of all the shares of the capital stock of such bank the fair cash value of the real estate owned by such bank or banking association situated in the county in which such bank or banking association is located, as determined by the assessor. Such shares shall be listed and assessed with regard to the ownership and value thereof as they existed on the first day of April annually, subject, however, to the restriction that taxation of such shares shall not be at a greater rate than is assessed upon any other moneyed capital in the hands of individual citizens of this State, in the taxing district where such bank is located. The shares held in this State of capital stock of National banks not located in this State shall not be required to be listed under the provisions of this Act." (Emphasis added.) (Ill. Rev. Stat. 1971, ch. 120, par. 557.)
Plaintiffs also rely upon article IX-A, a 1970 amendment to the 1870 Illinois Constitution (Ill. Const. 1870, art. IX-A (1971), sec. 1), which provided that "the taxation of personal property by valuation is prohibited as to individuals." This amendment was incorporated into the 1970 Constitution by article IX, section 5(b). (Ill. Const. 1970, art. IX, sec. 5(b).) The effect of that provision, as subsequently interpreted, was to exempt "moneyed capital," a form of personal property, from taxation in this State by valuation when that moneyed capital was owned by individuals. (See Lehnhausen v. Lake Shore Auto Parts Co. (1973), 410 U.S. 356, 35 L.Ed.2d 351, 93 S.Ct. 1001; Lake Shore Auto Parts Co. v. Korzen (1973), 54 Ill.2d 237 (supplemental opinion); Hanley v. Kusper (1975), 61 Ill.2d 452.) Plaintiffs argue, relying on the emphasized language in section 76, that any tax on their bank shares would necessarily be at a higher rate than is assessed on "moneyed capital in the hands of individual citizens" and is therefore unauthorized.
Resolution of this issue depends on the purpose of the statutory prohibition against taxing bank shares at a greater rate than other moneyed capital in the hands of individuals. An examination of the Federal statute authorizing State taxation of shares in national banks is helpful. These banks were established as agencies of the United States and could not be taxed by the States in any form without congressional consent. (First National Bank v. Anderson (1926), 269 U.S. 341, 347, 70 L.Ed. 295, 302, 46 S.Ct. 135, 138.) State taxation of national bank shares was authorized by Congress, which provided:
"The legislature of each State may determine and direct, subject to the provisions of this section, the manner and place of taxing all the shares of national banking associations located within its limits. The several States may (1) tax said shares, * * * provided the following conditions are complied with:
(b) In the case of a tax on said shares the tax imposed shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State coming into competition with the business of national banks: Provided, That bonds, notes, or other evidences of indebtedness in the hands of individual citizens not employed or engaged in the banking or investment business and representing merely personal investments not made in competition with such business, shall not be deemed moneyed capital within the meaning of this section." (Emphasis added.) 12 U.S.C. § 548 (1970).
In permitting State taxation of national bank shares, however, Congress was concerned with protecting this form of investment from an unequal tax burden. That concern appears in the emphasized rate equalization restriction, the purpose of which was explained in the leading and often quoted case of Mercantile National Bank v. Mayor of New York (1887), 121 U.S. 138, 155, 30 L.Ed. 895, 901, 7 S.Ct. 826:
"A tax upon the money of individuals, invested in the form of shares of stock in national banks, would diminish their value as an investment and drive the capital so invested from this employment, if at the same time similar investments and similar employments under the authority of state laws were exempt from an equal burden. The main purpose, therefore, of Congress, in fixing limits to state taxation on investments in the shares of national banks, was to render it impossible for the State, in levying such a tax, to create and foster an unequal and unfriendly competition, by favoring institutions or individuals carrying on a similar business and operations and investments of a like character. The language of the Act of Congress is to be read in the light of this policy."
More recently, the Supreme Court has stated the test under this section as follows: "We believe that * * * a State's tax system offends only if in practical operation it discriminates against national banks or their shareholders as a class. That is to say, we could not strike down [State legislation] unless it were manifest that an investment in national bank shares was placed at a disadvantage," in comparison with investments in competing moneyed capital. Michigan National Bank v. Michigan (1961), 365 U.S. 467, 476, 5 L.Ed.2d 710, 717, 81 S.Ct. 659, 664.
It is evident from a comparison of the State and Federal statutes that our legislature carefully adhered to the congressionally imposed limitations, and that the purpose of the Illinois statute parallels the purpose of the Federal statute. Illinois goes a step further, however, and prohibits discriminatory taxation of State banks as well, when compared with investments in competing moneyed capital. The purpose of the Federal and State statutes is not, as defendants urge, designed merely to insure equality of taxation between shares of State and national banks, a situation that presently exists in Illinois, but also to insure equal taxation of like investments ...