Bank of Texas v. Childs

ON APPELLANTS’ MOTION FOR REHEARING

GUITTARD, Chief Justice.

The principal point made in the motion for rehearing is that since the express con *824 sent to state taxation of bank shares formerly contained in section 5219 of the Revised Statutes, 12 U.S.C. § 548 (1964), was deleted by the sweeping revision of that section in 1969, there is no longer any congressional consent to taxation of bank shares which can be recognized as an exception to the exemption of federal securities in section 3701 of the Revised Statutes, 31 U.S.C. § 742 (1976). The 1969 revision deletes provisions specifically authorizing certain taxes on national banks and their shareholders and provides simply that a national bank shall be treated as a bank organized under the law of the state where its principal office is located. 12 U.S.C. § 548 (1976).

This argument may be plausible if only the current language of sections 5219 and 3701 is considered apart from the history of these two statutes. Nevertheless, since the revision of section 5219 does not expressly mention taxation of federal securities, the problem is one of construction, and we cannot properly determine the intent of these sections without reference to that history. Since we have concluded, for the reasons stated in our prior opinion, that the 1959 amendment to section 3701 was not intended to extend the tax exemption of federal securities to shares in banks holding federal securities, the question then becomes whether the 1969 revision of section 5219 was intended to have that effect. In considering this question, we are mindful of the rule that tax exemptions are strictly construed against the party asserting the exemption. Conference of Major Religious Superiors of Women, Inc. v. District of Columbia, 348 F.2d 783, 785 (D.C.Cir.1965); Lutkins v. United States, 312 F.2d 803, 805 , 160 Ct.Cl. 648 (1963).

Our study of the 1969 revision of section 5219 and its legislative history gives no support to the contention that it was intended to extend the exemption so as to restrict the taxation of bank shares. That revision was made by Public Law 91-156. Act of Dec. 24, 1969, Pub.L.No.91-156, §§ 1(a), 2(a), 83 Stat. 434 . We have examined the proceedings in Congress at the time Public Law 91-156 was under consideration. Cong.Rec. 35399 (November 21, 1969), 38634 (December 12,1969); 1969 U.S. Code Cong. & Ad.News 1597. Public Law 91-156 delayed final application of the revised section 5219 for two years and provided for that period a temporary amendment by the terms of which the states’ authority to tax national banks was broadened to include sales taxes and documentary-stamp taxes, but continued the authority to levy the taxes previously authorized, including bank-share taxes. Public Law 91-156 also directs the board of governors of the Federal Reserve System to make a study of the probable impact on the banking system and other economic effects of the permanent revision. Pursuant to these directions, the board prepared an extensive report to the Committee on Banking, Housing and Urban Affairs of the United States Senate, entitled STATE AND LOCAL TAXATION OF BANKS. Board of Governors of Federal Reserve System, 92d Cong., 2d Sess., REPORT ON STATE AND LOCAL TAXATION OF BANKS (Comm. Print 1972) (hereinafter cited as STATE AND LOCATION TAXATION OF BANKS). This report reviews the various amendments to section 5219 and confirms the impression stated in our prior opinion that the purpose of the 1969 amendment was to broaden rather than to restrict the authority of state and local governments to tax national banks. STATE AND LOCAL TAXATION OF BANKS, supra at 9, 24.

According to this report, the intent of Public Law 91-156 to broaden rather than restrict state authority is shown by the fact that its enactment was precipitated by two restrictive decisions of the Supreme Court, First Agricultural Nat’l Bank v. State Tax Commission, 392 U.S. 339 , 88 S.Ct. 2173 , 20 L.Ed.2d 1138 (1968), and Dickinson v. First Nat’l Bank, 393 U.S. 409 , 89 S.Ct. 685 , 21 L.Ed.2d 634 (1969), which invalidated state sales and use taxes and state documentary-stamp taxes with respect to national banks. STATE AND LOCAL TAXATION OF BANKS, supra at 336. Both the temporary amendment and the permanent revision of section 5219 authorized such taxes. The *825 purpose of the temporary amendment was not to permit the states to find additional sources of revenue in lieu of taxes that would no longer be available, as suggested in the motion for rehearing. Its purposes, rather, were (1) to require the states to enact affirmative legislation if they desired to extend their general taxing statutes to national banks that had previously been exempt from such taxation because of the restrictions in section 5219, (2) to give the states an opportunity to amend statutes that had previously been tied textually to specific authorizations in section 5219, and (3) to continue the prohibition of state and local taxes on intangible property of national banks until the probable impact of such taxes could be studied by the board of governors of the Federal Reserve System. Id. at 312-18.

Reviewing the history of bank share taxes, the report recognizes the Van Allen rule that such taxes are levied on shareholders rather than on the banks, id. at 44, 231-234, 382-395, and also recognizes that in view of large holdings of federal securities by national banks, allowance of deductions for federal securities held by the banks would have the effect of nullifying all share taxes. Id. at 233. The report mentions the 1959 amendment to section 3701, 31 U.S.C. § 742 (1976), and proposes modification of the exemption of interest on federal securities. The discussion assumes that the existing exemption of such securities from property taxation would continue. Id. at 66, 67 . The report gives no indication that either the 1959 amendment to section 3701 or the 1969 revision of section 5219 had any effect, separately or together, on the taxation of bank shares as previously recognized under the Van Allen rule.

In Public Law 91-156, Congress recognized the legality of bank shares taxes by continuing the authority of the states to impose these taxes in the temporary amendment, which retains the existing provisions authorizing states to impose certain taxes on national banks, including bank share taxes, and adds authority to impose certain specified additional taxes before the permanent revision takes effect. This continuation would have been pointless if the effectiveness of bank share taxes had been nullified by the 1959 amendment to section 3701. 31 U.S.C. § 742 (1976). That it was not pointless is demonstrated by statistical tables in the report, which show that in 1969-70 bank share taxes were in force in twenty-seven states and formed a substantial portion of the taxes paid by national and state banks at that time. Id. at 17, 386-88 . Thus, it appears that abrogation of the Van Allen rule in 1969 would have had a substantial impact, which is not mentioned in the report.

It is most unlikely that this impact would have been overlooked if the 1969 revision had had the effect of withdrawing previous congressional consent to state taxation of the full shareholder interest in national bank shares as previously provided in section 5219, because Congress in 1969, as well as in earlier years, was sensitive to both the interests of the banking industry and the revenue needs of the state and local governments, as both the text of Public Law 91— 156 and the report of the board of governors demonstrate. There is no evidence, however, in any legislative history that Congress considered either in 1959 or 1969 the economic impact of abrogation of the Van Allen rule, which the supreme court had previously recognized as one that could not be disregarded without bringing state and local taxing systems into confusion little short of chaos. Home Savings Bank v. Des Moines, 205 U.S. 503, 518 , 27 S.Ct. 571, 575 , 51 L.Ed. 901 (1907).

In the present case, the banks and their shareholders recognize in their motion for rehearing that the Van Allen rule originally rested on two grounds, (1) the distinction between taxation of shares and taxation of bank assets, and (2) congressional consent to state taxation of bank shares, as expressed in section 5219. Each of these grounds was sufficient in itself to uphold the validity of bank share taxes without any deduction for federal securities held by the banks. Neither the 1959 amendment to section 3701 nor the 1969 revision to section 5219 expressly abolishes this rule. The 1959 *826 amendment does not affect the consent ground. Neither does the 1969 revision of section 5219 abrogate the Van Allen rule because its sweeping language clearly broadens rather than restricts the states’ authority to levy taxes by giving them authority to treat national banks the same as state banks. If national banks must be treated the same as state banks, then shareholders in national banks must be treated the same as shareholders in state banks. Since the power of the states to tax the shares of state banks does not depend on congressional consent, except to the extent that federal securities may be involved, the Van Allen rule, previously applicable to state banks and their shareholders under the Lander decision, was continued by the 1969 revision with respect to national banks and their shareholders, whatever its original basis may have been. To hold that Congress intended by the 1969 revision to withdraw its consent to state taxation of bank shares to the extent of federal securities held by the banks is neither required by the language of Public Law 91-156, nor by any reasonable interpretation of that law in the light of its legislative history. Such a holding would be contrary to the principle above stated that tax exemptions are strictly construed against the party asserting the exemption. Consequently, we adhere to our opinion that the county properly assessed the tax on the shares of stock in question without any allowance or deduction for federal securities held by the bank.

Appellants’ motion for rehearing is overruled.