Shotwell v. Moore
129 U.S. 590, 9 S. Ct. 362, 1889 U.S. LEXIS 1713 (1889)
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Rule of Law:
A state may assess property taxes based on the average monthly value of a taxpayer's assets over the preceding year, including amounts temporarily converted into non-taxable federal securities for the purpose of evading taxation, without violating the federal law that exempts such securities from taxation.
Facts:
- Stewart B. Shotwell was a resident of Harrison County, Ohio, who held significant funds in a general deposit bank account.
- For five consecutive years (1881-1885), Shotwell engaged in a recurring transaction.
- On the Saturday immediately preceding the annual state tax assessment day, he withdrew his entire bank balance in the form of U.S. Treasury notes, commonly called 'greenbacks'.
- Shotwell then placed the greenbacks in a sealed package and immediately returned them to the bank for safekeeping as a special deposit, never removing the money from the bank building.
- Within a week after the assessment day passed, he retrieved the package and redeposited the exact same notes back into his general account.
- The trial court found as a matter of fact that Shotwell's intent for these transactions was to hold non-taxable assets on the assessment day and thereby evade state property taxes.
Procedural Posture:
- The Auditor of Harrison County, Ohio placed the disputed amounts on the county tax duplicate for collection.
- The county treasurer (plaintiff) initiated a tax collection action against Stewart B. Shotwell (defendant) in the Court of Common Pleas of Harrison County, Ohio (a state trial court).
- The Court of Common Pleas found in favor of Shotwell, ruling the funds were not subject to taxation.
- The plaintiff appealed to the Circuit Court of the State (an intermediate appellate court), which reversed the trial court and entered judgment against Shotwell for the amount of the tax.
- Shotwell, as appellant, appealed to the Supreme Court of Ohio (the state's highest court), which affirmed the judgment of the Circuit Court.
- Shotwell then petitioned the Supreme Court of the United States for a writ of error to review the judgment of the Ohio Supreme Court.
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Issue:
Does a state statute that assesses taxes on the monthly average value of capital that was temporarily converted into non-taxable U.S. securities violate the federal law exempting such securities from state taxation?
Opinions:
Majority - Mr. Justice Miller
No. A state statute that assesses taxes based on the monthly average value of capital converted into non-taxable U.S. securities does not violate the federal law exempting such securities from state taxation. The court found Shotwell's actions to be a 'discreditable evasion' of his duty to pay taxes. The Ohio statute does not unlawfully tax the federal securities themselves; rather, it uses a monthly averaging method to ascertain the true amount of a taxpayer's taxable property, such as money and credits, over the course of the entire year. This is a wise and equitable method to prevent taxpayers from using a 'trick' to avoid their tax burden by temporarily converting taxable assets into non-taxable forms on the single assessment day. The law's purpose is to tax the underlying capital that was merely disguised, not the exempt securities.
Dissenting - Mr. Justice Bradley
Yes. The Ohio statute violates federal law by effectively taxing U.S. securities. Federal law provides a clear and absolute exemption for U.S. securities from state taxation. A taxpayer has a legal right to own exempt securities on the assessment day, regardless of their motive. The Ohio law circumvents this federal protection by granting a tax exemption that is only proportional to the length of time the taxpayer held the securities. This results in a limited, partial tax on the securities themselves, which is repugnant to the act of Congress.
Analysis:
This decision validates the use of 'average value' assessment methods by states to combat tax avoidance schemes. It establishes that courts may look to the substance of a transaction, not just its form, especially when there is clear intent to evade taxation. The ruling significantly strengthens state taxing power by allowing legislatures to design statutes that prevent taxpayers from manipulating their holdings around a single assessment date. This precedent makes it much more difficult for individuals to use temporary conversions of assets into tax-exempt forms as a loophole to escape their share of the tax burden.
