# Motion to Dismiss or Affirm — Michigan National Bank v. Michigan > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386409_0066%3A06 ## Record - **Collection:** Supreme Court brief - **Document type:** Motion to Dismiss or Affirm - **Published:** January 1, 1961 - **Citation:** 365 U.S. 467 ## Text | COPY IN THE SUPREME COURT OF THE October Term, 1960 -~ -™ i ——————e MICHIGAN NATIONAL BANK, a banking association - , aaa under the laws of the United States, ; Appellant, NATIONAL BANK OF WYANDOTTE, THE FIRST NATIONAL BANK (THREE RIVERS, MICHIGAN), COMMERCIAL NATIONAL BANK OF IRON MOUN.- TAIN, THE NATIONAL BANK OF JACKSON, -and THE FIRST NATIONAL BANK AND TRUST COM. ¢ | PANY OF KALAMAZOO, banking associations organized under tip awe of the United States, ; . — Plaintifs, -_ STATE OF MICHIGAN, viene Or LEVENUVE OF THE STATE OF MICHIGAN, and LOUIS M. NIMS. STATE COMMISSIONER OF REVENUE, Appellees. _ ON APPEAL FROM THE SUPREME COURT OF THE |‘ STATE OF MICHIGAN MOTION TO DISMISS OR TO AFFIRM 7) s PAUL L. ADAMS . ATPTORNEY GENERAL _ Samyel J. Torina. Solicitor General William D. Dexter Assistant Attorney General For Appelleés ames, Business Address: oan The Capitol e Lansing, Michigan ° SPEAKERS-HINES & THOMAS, INC., LANSING, MICH., 1960 i TABLE OF CONTENTS 6. 1. A Substantial Federal Question i is not Presented A. The Michigan tax structure: docs not dis- criimigate against investors in shares of ° national bank stock within the meaning of BASRA tee ; Michigan is entitled to exempt 0 or + peeletes en- tially tax savings share accounts lof savings and loan associations without: violating §. . O219 - atten Ap = The ona of savings near" ait. associations * ** is not in “substantial competition” with the capital of national banks within the pur- view of § 5219. A ae Rte pee nae 2. Appellant has not P perly Raised a Federal Question / 3. The Decision of the State Court is Conclusive: RELIEF ADDENDU Me A The Taxation of Intangible’ Property in ‘ian . Page INDEX OF CASES AND AU THORITIES CITED iii OPINIONS BELOW PER AEE ne Nm JURISDICTION wa! 2 . STATUTES Ss itRSS, 3. QUESTIONS PRESENTED 7 STATEMENT OF THE CASE... ‘15 39 40 | Page © ‘tine taxes imposed i in gen on financial busi- ness in 1952 sini 42 | | "AUTHORITIES CITED Aberdeen Bank v, Chehalis County, (1897) 166 US 440 20, 21, 23 _ Adams v. Nashville, (1877) 95 US 19...... 21 _ Amoskeag Savings Bank v. Purdy; (1913) 231 US ‘373 17, 18 gank of induction. v. Boston, (1888) 125 US 60.17, 18, 21 Bank of Redemption v. Boston, Records and Briefs, ‘US Sup. Ct., Vol. 472, Oct. Term Ree ire “24 ~C«; Bell’s ; Gap Railroad Co. v. Pennsylvania, 134 US 232. 20, 21. Boyer v. Boyer, (1885), 113 US 689 ....21, 22 Commercial Nat. Bank, Columbus, Ohio,. et al., v. Treas. Franklin County, Ohio, 45 F 2d 213__ . 2 Consolidated National Bank v. Pima County, 5 th | . 142, 48 P 291 22 Davenport Bank v. Davenport, 123 US. 83... 17, 18, 21 First National Bank of Clendive v. Dawson County, (1923) 66 Mont 321; 213 P 1097 ios . 22 First National Bank of Guthrie Center.v. Anderson County Auditor, et al. (1926) 269 US 341_...__.15, 16 First National Bank \ v. Hartford, (1927) 273 US 548 paca .......9, 16, 17, 22, 24, 32, 38 First National Bank of Shreveport v. Louisiana Tax sss Com., (1933) 289 US 60 22, 34 tidtinrs v. School Directors, (1874) 23 Wall (90 US) 480 _. : eee Hoe nig v. Huntington National Bank; (1932) (CCA: - 6th reais 59 F 2d 479; Cert. denicd 287 US 648 — 21, 24, 25, 26, 27, 28, 29, 31 ina: v. Mereantile Bank, 186 US. 458 ne, iii. ; Page Mercantile National Bank v. Hubbard, (1899) 98 F Mercantile National Bank v. New York, (1887) 121 US 138 _...... pas _..21, 22, 23, 24 Merchants National Bank of Glendive * v. - Dawson County, (1933) 93 Mont 310; 19 P 2d 892... ae Michigan National Bank v. Dept. of ‘Revenue, 358 Mich 611 : 2 ‘National Bank of Wellington v. Chem, 173 U s RRR NG SMe mE Red Ne aed 21, 23 People v. The Commissioners, 4 Wall.(71 US) 244... 21 .People v. Goldfogle, (1924) 205 NYS 870; 123 Misc. 399, aff’d by App. Div, 211 NYS 85... PLACES 22, 32 People v. Weaver, (1879) 100 US 5390. 16, 17, 29 Tradesméns National Bank of Oklahoma City v. Okla- ‘oom Tax Com.,: ” (1940) 309 US ara dl oe 16 STATUTES AND MISCELLANEOUS CITED ‘Rule 16, Rev. Rules, United States Sup., Ct... 2 12 U.S.C. § 548 [§ 5219] Mar. 4, 1923, ch. 267, 42 Stat. 1499; Mar. 25, 1926, ch. 88, 44 Stat. 223 3-4-7-14- 15- vosiiceccbeciameits 16-17- -20-22-23-24-26-27-29-30-31-33-34-35-43 12: US.C.A..§ § 1461-1468; June 13, 1933, ch. 64, § §. a. Se question presented is too: nsubstantial to war- ral nent argument. : 2. The appellant has not property raised any federal question. 3h. The judgment of the Supreme Court of Michigan is = conclusive, - STATEMENT OF THE CASE _ Appellees cannot accept the appellant’s statement of the case, Appellant ‘would lead this Court to believe that : national banking associations have beer singled out for special tax treatmant, as distinguished from general cor- poratiéns. and others. tonducting financial businesses in. Michigan. An examination of the tax strueture of the state. of Michigan, \as it affects financial institutions, clear- - ly disproves this ¢ontention.[8] — -\ . . : Sinee the appellant has limited its case to’ alleged dis- criminatory treatment Of savings and loan associations, it may be.assumed that all financial businesses in Michi- van, exeept such associations, are subject to state taxes “equivalent to those imposed on appellant. Thus, appellant’s complaint is limited to alleged partial . preferentiai treatment of both federal and state chartered £8) : For a general discussion of Michigan’s taxation of financial busi- nesses, see Addendum A, pp 40-4, infra, ds ey Late et ere aes 9] : } savings and loan associations, whose share accounts and total assets represent a small but unknown portion of thie’ : total financial business ‘in Michigan in 1952. \~ J oe é ; . . ; ai Reference is made to the trial court's épinion ” ‘in Ap. | pendix A yof the Jurisdictional Statement for a proper ‘statement of the case (1b-6b). As there indicated, ' ap-. -pellant neous to bring: ‘its Gause within, the rule of s First National Bank Vv. meee {1927) 2 273 US 548, - . The eisai positions of the parties were stated” thusly by the trial court: 3 «Plaintiff eontends that. ‘the Michigan Intangible -Tax Act fails to meet the requirements of Section. 5219 in two particulars: (1) Michigan National Bank shares afe taxed at a greater rate than other moneyed ; ‘capital in the hands of individual ¢itizens coming into. competition with ‘the .business of the plaintiff bank,: (2) that the Michigan Statute: ‘levies a {ax upon ‘the privilege of ownership’ of shares in national banks; that this is not the legal equivalent of a tax upon the shares in such banks and is not one: of the alternate — _ methods of taxation permitted.”’ (2byt9] 8 es | as % ‘*Tnitially,. the moneyed capital alleged by plaintiff to be in competition with it and to be taxed at a lesser rate included building. or savings and loan associa. : tions, insurance corporations, credit union, finance -¢ompanies, and monies in the hands of individuals and . partnerships. : [9] Contention °(2) has been abandoned by the appellant, since it is not mentioned in the Jurisdictional Statement. \ °¢@ . ? i : ? . . + —40— ‘ 4 & ° - . ‘Shortly before the commencement of trial, plaintiff - abandoned iis claim insofar.as insurance corporations, credit, unions, finance companies and individuals and | partnerships were concerned, and its counsel stated : ‘that it would confine its case to the competition which” national banks face in. this. state with building and | savings and loan associations, ‘both state and federal. ‘‘Without attempting to state in detail the proofs * * %, it may. be said that plaintiff claims that the ‘proofs bring the case within the rule stated in First | National Bank v. be birt 273 U.S. 548: ee ey ? (3b) “Tn support of ‘such mama plaintiff offered a mass of statistical evidence as-to the capital, assets, sav- ings accounts, loans and investments of national banks, — nationally, state- wide and of the plaintiff national -bank. Liké evidence was offéred as.to the business of the savings/building and loan associations, nationally, state-wide and in the seven cities in which plaintiff id business. “Plaintiff further offered the tectiniony of officers of, the loan associations and of the plaintiff banks as ° - to the existence of competition, between the two types _ of institutions, - ‘And plaintiff forcefully urges that such evidence establishes that both plaintiff and defendant make » loans upon the security of mortgages on residential real property and that in- that field there exists, in fact, substantial competition between the plaintiff bank and the several savinge/bul ity aid loan associations. ; . / P a) ing: and loan associations. o. ¢ ‘ . . - “Plaintiff further contends that the rate. of tax ‘Jevied against the shares of national’ banks i is several times that: levied against the shares of savings, ‘build. ~ “Defendants take issue with plaintiff upon the ex- - istence of competition in fact, and upon the existence | of discrimination in the rate of tax against the two. types of institutions. : ‘With reference to competition, in fact, defendants contend that the savings and loan.dssociation operat- ing in the area-of plaintiff bank are small: institutions as compared to the plaintiff; that they function solely . in a very narrow-and restrigted field compared. to the varied activities of plaintiff and,other national banks; that the savings and loan associations’ basie organiza- tion ’and.financial structure are so different from na- tional banks that’ they cannot be compared with such - institutions; that the alleged competing. savings and loan associations concentrate tbeir loans in conyen-— _ tional loan activity prolibited to plaiutiff bank while plaintiff concentrated its loan activity in fields (F.H.A. and V.A.) not ‘utilized by’ the savings. and Igan associa- tions; that the proofs offered do not sustain a finding ‘ that the capital employed by savings and loan associa- tions in 1952 represented a substantial -portion of capital employed in any alleged competition by the -savings and loan associations with the business, of ‘the plaintiff and‘other national banks; that plaintiff had no difficulty in obtaining all the capital it needed in _ 1952 and could not trace any part of its capital to any investment’ and that in 1952 it loaned only its deposit money on security of real estate. . i ‘e-: = “And defendant summarizes its position on this : i . ‘ : i % competition? ?? = ke : J ~~ a, : « a fs = o © se factual issue as follows: ‘in the last’ analysis, savings and. loan associations cannot be in ‘‘substantial compe- tition with the business-of national banks’? hecause they. cannot and do not eng: age sufficiently in the activities characteristically carried on. by the national banks: ‘Stated anothey way, if they are riot comparable in- stitutions in substance, how can they va int substantial y , iz ° erent » at ‘pon the issue of discrimidation, it 4s defendants’ contention that the Michigan Intangible Tox from the stand point of the economic empact, impdres- an equiv~« --alent tar burden on national banks cnd savings and loan assoc iations. we t “Defendants further’ present .cettain serious con- tentions of law which if decided in favor of defend- ants, .make othe determination of ethe above issues of... fact. uinportant. These, to a certain extent, overlap: aud may be briefly: ‘summarized : first, that. the. states’ hav eothe ‘power. to give preferéntial tax treatment to. thrift. «and home. financing institutions such as mutual: _csavings banks and savings/building and loan associa- trons upon the ground of publie polity without violat- ing section 5219; and, secondly, that Congress by the enactment of the 1933 Home Owners’ Loan -Act “has made it clear that the provisions of section 5219 do not gpply to ashlee ‘building and Joan associations. “The banks of Michigan are not unanimous in this’ litigation. ras . | es ’ “The Michig: in- Bankers Association has heen —per- : mitted to file a brief as amicus curiae in which it states the poplin of its members in these words: * ° wad . —13— ‘*.« The Michigan Bankers: Asséciation has follourd the trial of this case and requested per mission. to file this: brief becausé of its conviction that the present y: system of the State of Mic higan-for the taxation of banks is reasonable froin ilic vieacpoint of the public, equitable from.the view point of the competitors, and practical from the viewpoint of the banks themselvas. . Actual experience with the taxation system shows ’ that it hay produced a reasonable amoint of revenivc : "3 to the State; that it has not created any competitive disadvantage among the various types of institutions; ‘and that it. has proven to ‘be simple-to administer. 8 ‘Such « system is obviously desirable, and this Asso- ciation, believing the system to be entirely legal with- in the limitations of the Federal Constitution. and Statutes, does not want to’ see it de ‘stroyed.’ ‘And their counsel ‘takes substantially _the same ) position: upon the several questions presented’ as sate -}_ the~Attorney General on behalf of the defendants.’ " (4b-7b) (Emphasis muppiaet) Wee ee ° ‘ The trial court stan that Michigan had authoyity to grant preferential tax treatment to thrift and heme fi- nan¢ing institutions, stich as mutual savings banks angl Intl. ing and loan tissociations, so long as it was founde d upon just reason, and did not operate as an unfriendly diserimina- | tion against investments in national bank shares. The court concluded that the partial exemption, rulel 151 was dispositi ive, —, _@ j10) - 4 ; “s _ Reference will ‘be made throughout this brief to this, rule, w hich. can be generally stated, as follows: A state may exe mpt or pref- erentially tax some moneyed capital employed in competition with some phases of the business of national banks pong. invalidat-, ing a tax on national bank shares, ‘so long, as the ¢xémption or preferential treatment is for just reason and not as a hostile, or wnfriongily discrimination. | & ee of the issues since Michigan’s tax treatment of savings and loan ‘associations as compared to national ‘banks ‘is based upon just reason and is not made with the hostile purpose: of diseriniinating against national banks. The Michigan Supreme Court based its judgment on.the _ same rationale as that of the trial court. a ° ERe ying A A A SUBSTANTIAL FEDERAL QUESTION Is BOF a _, It is believed that appellant has not presented a* sub- stantial federal question to this Court of alleged violation of § 5219 ‘Because: ¥ A. The Michigan tax structure does not discriminate’ against investors in shares of national bank stock within the meaning of § 5219. B. Michigan 4 entitled to exempt or preferentially tax savings share accounts of savings and’ loan associations without violating-§ ¢ 5219. rw ere ¢ C. The capital of savings and loan associations, rep- resenting savings: share accounts, invested in the narrow and restricted field’of first mortgage home financing is not - . in “substantial compétition” with the capital of national, banks within the purview of ‘S$ 5219. a 6, min, A. The Michigan tax structure does not discriminate against investors in shares of national bank stock with: in the meaning of § 5219,111) ‘There i is no substantial federal question presented because the state of Michigan has followed previous decisions of. this Court under § 5219. Despite appellant’s msistence that only the rate of the tax must be considered, the cases here- inafter cited clearly establish that in applying the statute the concern is with comparing the total tax burden on “national bank shares and on the alleged competing moneyed capital.. Further, exact mathematical equality of burden. is not required. Appellees offered expert testimony -before the trial judge td show the substantial tax equivalencehe- tween the two. It is the only such evidence in the record. It was relied upon” by fhe courts below (41h, 68h). Its verity is substantiated by the fact that the -Michigan Bankers Association, in its brief amicus curiae, states that this tax _is:-“* * *equitable from the viewpoint of the competitors o 9.099 Bae 46b) = * As stated i in First National Bank of Guthrie Palle v. Anderson, County Auditor, et al., (1926) 269 US 341, at p 348: eg, ‘The restriction is, not intended ‘4 exact mitthe- maticak equality in the taxing of national bank shares and such other moneyed capital,-nor to do more than |) ° . m ‘Since: savings and loan associations | may be exempted or pre- ferred tax- wise under the partial exemption - rule based on public policy or on congressional ‘manifestation of intent ‘in pari materia legislation, there cannot be, substantial competition within the - purview of, § 5219, nor can there be —discrimination within the: meaning of § 5219. —16— require such practical equality as is reasonably attain- | able in view of the differing situations of such prop- erties. But every clear discrimination 2gainst national | - bank sires and j in favor ofa relatively mate rial mart of otlter moneucd capital employed in substantial com- © petition with national banks is a violation of both the letter and:spirit of the restriction. People v. Weaver, 2 100 U.S. 539; Boyer v. Boyer, 113 U.S. 689, 701; Na- = tional Bank of Wellington v. Chapman, 173 U. S. 205, 216.’’ ( Emphasis supplied, except. cases) Appellant's ‘mechanical comparison—measurement by. rate alone—is not an application of 6.5219. A long and con- "sistent line of decisions under § 5219 developed the prop-~ osition that it is the effect of the tax, not merely its rate, “which is controlling. . .~% This was recognized in ° People v. Weaver, (1879) 100 US 539, where if was held that the actual ietidnees a practical ~ burden of the tax upon the taxpayer was controlling. To the same effect are .- First Vational Bank v. Hartford, iia (1927) 973 US 548, 060, 561; First National Bank of Guthrie Cue Vv. Aniovec,. supra, (1926) 269 US 341; 347, 348; ee. : Frade smen’s, National Bank of ee oe City v. ‘Oklahoma Tax Commission, (1940) 309 US S 560, y 567 ; ‘ ‘31 Harvard Law Review, 321, 367, ‘‘Indirect En- croachment on -FederAl Authority by the | ee Powers of the Statep’’; and 7a ‘ ee a Woosley, State Taxation of Banks [Chapel Hill, The University of North Carolina Press (1935) ], p 24. It is to be noted that the Court in the Hartf ord case, supra, in deciding that discrimination did exist, stated, at pp 991- > 592: | «@ °° The court below assumed, and it was not F questioned upon the argument here, that this tax is not * to be taken as an equivalent or ‘substitute for the ad ~ valorem tax levied upon bank sharegand no question of - . the possible equivale nce of the two schemes of ta ration is presented.* * * ” (Emphasis supplied) , . A .. ; Davenport Bank v. Davenport, 123 US 83; Amoskeag Savings Bank v. Purdy, 231 U S 373; and, Bank of Redemption v. Boston, 125 US 60, - indicate that the silebvtonit tax burden: ‘required by § 5219 is met by an asset comparison or a capital account com- parison between savings banks and national banks. The “combined effect of these three cases and that of People v. Weaver, supra, (1879) 100 US 539, justifies either of two comparatives in determining the question of4iscrimination : vast se e . sips } (1) The measure of total assets to total assets (as in- ferred in the Bank of Redemption and Weaver cases); or — \ (2) The reserves and undivided profits. of the savings and loan associations with the actual value of national bank stock (the Amoskeag, Weaver and Davenport cases). Appellees’ testimony established that there are several -. . : _ possible methods of comparing the effect of a state tax structure on the two types of unlike institutions involved ’ —— oo _in this case. One method, as stated above, is the comparison 6¥ the tax effect on the total assets by each institution, which seems te be.a significant comparison when the al-. leged competition relates to the employment’ of assets: in “ the real estate mortgage field. This comparative is -in ac- cord with Bank of Redemption, supra. Under this compara- . tive, there was approximate tax equality in 1952 between ~ the two, institutions under consideration (68b) (121 A second method [ ( oF above ] specifically approved‘as to mutual savings banks (Bank of Davenport and Amoskeag Savings Bank cases, supra), involves a comparison of the’ tax impact on the eapital, surplus and undivided profits of a national bank with the tax impact on all the reserves and undivided profits of the savings and loan associations’ in question. Taking into consideration the total taxes imposed upon each type of institution (except the unemployment and real property taxes which are imposed equally.on these in- stitutions), the resulting percentages are 5.2 for savings and loan associations and 5.6 for the appellant bank:{13] — Iiftreference to the comparison that the appellant insists upon, Professor Woodworthl!41 stated that in light of the facts developed in his preceding testimony, such comparison . ““* * * is completely absurd. It ignyrrathe economic realities of the businesses of the-two}| institutions and [12} ** Exhibits 213 (1279a) and 226 (1292a). F13} 3 (981a-985a); 208 (1270a); and 209 (1278a-12 arta). On this method ‘of comparison, see Professor Woodworth’s testimony (862a). [14] George Walter Woodworth, Profedser of Finance at the School of Business Administration, University of Michigan, and — ing in money ‘and banking. Computations were » mods from information contained in Exhibits ‘ we ro. rests on the superficiality that [a] savings and loan. — share-account is le gully an equity rather than a deposit _ debt and being an equity share is comparable to shares. . of national bank stock.® *"*” (861a) (Emphasis Sup)- - ey Appellant does not deny, and both of the courts ilow _ specifically found, that thé tax. structure of the state of : . Michigan subjected economic equivalents to comparable tax - treatment. The Supreme Court stated : i e ° “The record establishes that there was practical | equality of the total tax imposed upon building and loan associations and. upen national banks, and any _ . difference would be justified as_ partial exemptions ~ @& ve * ‘We reiterate ane approve the finding of the trial court : 4-¢'T hat Michigan ’s tax treatment of savings build- ‘ing and loan associations is based upon just cause © - and does not evidence an intent to create or foster a _ hostile or unfriendly discrimination agama national ’ banks.’ ”’ (68b- 69b) 115) {15) This finding of o lower courts was based upon evidence offered by the appellees pertaining to the question of discrimination. In the testimony of Mr. Carlson, (747a, et seq.) and Professor Wood. worth (S808a, et seq. }, and in Exhibits 208 (1270a), 208A (127ia), 208B (1272a), 210 (12 275a), 212 (1278a), 13 (1279a), and 226 (1202a), the appellees carefully’ presented the impact. of the Michigan tax structure on the institutions in question: This testimony and these exhibits are uncontroverted. It is therefore clear that the appellant has not presented « to this Court a substantial question of discrimination he- _ tween taxes imposed on its investors and upon savings and loun assoe iations’ s savings share account holders. 8 'B. Michigan is entitled to exempt or preferentially tax savings share accounts of savings and loan associations . without — § 5219.9 Even if signific ‘ant tax diserimination could he said to ; ‘exist, Michigan 's thegtiment of savings and loan associations . does not violate § 5219. o “This Court early relied upon, the ‘“partial exemption”’ rule. whick was dev eloped to leave intact the-states’ right, for public policy reasons, to e3 xempt or preferentially tax. sole moneyed capital without violating § 5219. In origin and purgpse, it is not, unlike the power of thé states to - exempt certain property from ad valorem taxation without | | | Violating due process, “equal protect ion, and uniformity pro-- ‘visions Of conetitniean: - Thus, this‘Court in ayn te Ader deen Bank vy. Chehalis County, 166 US 440, at » 454, ’ ; * quoted the following from. Bell's Gap Railroad Co. v. Pennsylvania, 134 US 232, 237, in regard’ to the partial exemption rule of : ¢ =919: : ; ; ‘ — y Sas a = ———— : ; “e* * * All such regulations, and those of like — . character, so long as they proceed within reasonable + = Bhs : : ‘ limits and general usage, are within the diseretion | of the state legislature, or the peapke of the State in ’ framing their constitution. But clear and hostile dis- - criminations against, particular persons and Classes, “ espee ially such as are of av unusual character, un- known to the practice’ of our governments, might be obnoxious to the constitutional prohibition. The following decisions clearly establish the partial ex- emption rule—prescribe: its limitations—and bring savings and | loan associations within its scope : People vi Commissioners, + Wail :°H4, 256 | Hepburn r. School Directors, 23° Wail 480, 485 Adams v. Nashville, (1877) 95 US 19, 2200 ~ Boyer v. Boyer; W353 US 689, 693 Mercantile Bank v. New York, (A887) [21.08 1%, 145, 161 pas ae, National Bank of Weilington rv. Chapman, 173 US 205, 214 ae Aberdeen’ Bank v. Chehalis Count yg supra, 166 US 440,460 - ae ¢ | 7 - + Bell's Gap Railroad Co, v. Pennsiylrania, supra, U4 US 239,237 . | Dave mport ‘Bank vr. Dave nport, supre. T23US R23, RH Bank ‘of Re dle mption rv. Boston, supra. 125 US 60, 67-68 ° Mere antile National Bank . Hubbard, (1899) 98 F 465, 471; aff'd sub nominee Lander v., Mercantile _ Natiowal Bank, 186 U S 458 Hoénig v. Huntington Walioutd honk, (1982) (COA (6th C ‘ireuit) 59 F 2d 474; Cert, denied 287° US 648 ©» o- a ne J a ee o, @ 89 oF: Mien. First National Bank a Saints v. Louisiana Tax Commission, (1083) 289 US 60.. Péople v. Gold fogle, (1924) 205 NYS 870, 123 Mise 399, aff'd by App Div, 211 NYS 85 First National Bank of Glendive v. Dawson County, oo Mont 321 213 P 1097 © te Me vohanie’” National Bank of Gle ndive v. Dawson County, (1933) 93 Mont 310; 19 P 2d 892 i Consolidated National Bank v. Pima County, 5 Ariz, 142, 48 P 291 To prevail, appellant must cireumveré the clear import. Of these decisions, which is simply, that a state’s tax on hank shares is not invalidated by § 5219 if the state exempts or preferentially taxes for. public policy reasons some moneyed capital. The leading § 5219 case of Me re antulle Bank *, New York, supra, 121 U S 138, quoted and relied. upon Attn in Hartford, supra, applied the partial exemp- tion rulé to mutual savings }anks and, determined that the exemption and preferential treatment’ accorded | some. " money ed capital in New York did not violate § 5219. Coun- sel for the. Mercantile Bank, relying upon Boyer v. Boyer, -. supra, 133 US 689, argued that the partial exemption ruie “was not applicable because ‘the exémption of moneyed cap- ital in New York was -, . ~ . / s > =— = = = ee = = - = “Total Real ‘Estate Total Real FKstate > Ratig of 4% Total Real Salas - "Total Real Estate Ratio of 81.25 Loans of Banks at Loans of Ass’ns at* ~ to >.14% Loans of Nat’l Banks ~ — Loans ef Ass‘ns in (80.4) Lo Beginning of Year ‘Beginning of Year - in the U.S. in Percent the U.S. in Percent 76% and Pere ent of Assets and Perc ent of Assets of ‘Total Assets: of Total Assets $48,712,000 $811,078.17 1.35 oe r ‘ee 81.20 10.7 7 - om (87, 65) =5.19% (38, 81j=91% W240 [Exh. 230, 224A] « (AIS & LE 7 ae > : ; . ° ; : © ‘Michigan = 80.4%) (10.6) oo ¢ 3 9 : 2 (Exh, 209, 224A] — —— ——————— 2. SSS — —— —— ——— —~o— —- on — . a-:-— —— AV erage. Inv estinent** “ 7” “Ohio assoc ciations hind bot h deposits and savings share account hicldets. Avera ‘Shareholding ._-“-e—“«—— » “ Some persons undoubtedly had both types of accounts. ° The record 9 ——-—----—_-—_-——— Brae $197 —s does not disclose tlie averagé per capita holding in both. accounts. ¢ $1419 (8-15-52) i Average Outstanding Loan The average investment of $497 includes reserves and undivided Average Outstanding Loan ° — profits of $22 per share.- . $2805 . ee, $1872 (8-I5-52). ; ° , — U — ~ a A Z ‘ > _° hy : y is o) ae This table aptly demonstrates (as do many other refer- gnees to the Hoenig record found in the appellees’ brief before the Michigan Supreme Court {pp 113-114, 161-171 }) - that savings and loan associations in Ohio at the time of the - Hoenig decision were more formidable financial institutions ‘and were as much in competition with the business of na- tional banks as were the 16 savings and loan associations in Michigan, in 1952. oe us clear that appellant is asking this Court to set loan associations and to overrule the clearly established precedent of this Court that kept intact the partial exemp- tion rule from the early case of People y. Weaver, supra, (1879) 100 US 539, to date—some 81 years—based only on the reediike argument that ah Fumaterial issue [factual competition] was not decidedyin. the fartial exemption cases, 17] [17] Appellant attempts this also by ignoring the limitations con- ‘ tained in the partial exemption rule, ie., that the exemption (1) miust be partial only, (2) must not operate as an‘ unfriendly or. hostile discrimination against owners of national bank stock, and (3) must be based on just reason and sound public policy, While not contending that the Michigan’ tax structure operates.us an unfriendly or hostile discrimination -or that the exemption is ‘not partial only, appellant is asking this Court to overritle the established public ‘policy concerning savings and loan associations and other mutual thrift institutions as‘far as § 5219 is concerned. The contention of the appellant that the established public poliey concerning sayings and loan associations should be ignored is an- swered by the lower court as follows (3S8b-39b): ) “Plaintiff further alleges that there has been ouch a sub- stantial change in the purp ose and character of building’ and loan associations since the savings bank ceases and the Hubbard case that those authorities are, no longer applicable. s — previous recognition of established publie policy - ting mutual thrift instittitions such as savings and. ‘ Stes The capital of savings and loan associations, represent- ing savings-share accounts, invested in the narrow and restricted field of first mortgage home financing is not » in “substantial ects with the capital of national banks within the purvitw of § 5219. Because of the absence of pieatandial competition”? under § 5219, there is: still no substantial federal question. In consistently ruling out savings and loan associations | and mutual savings banks from-consideration under § 5219, the courts wer@well aware of two things: (1) That mutual savings banks ay! savings and loan associations’ were re- 3 “This same contention was answered by the Circuit Court. of Appeals in the Hoenig case. It is'answered by the testi- -mony of Professor Woodworth in this. case and Congress by its definition of the purpse of the 1933 act effectively settles the question of the character and purpose-of these -institutions. “The Michigan Act has not been substantially changed since — ‘its adoption in 1887. It continues to provide that building and’ ‘loa associations shall not do a banking business and- shall not accept or advertise -fot deposits. It has been amended to. make it compatiblé with the Fetleral 1933 Statute. Its purposes are to continue to be?those stated in-the Ke@eral Act, namely: **Po provide local mutual thrift institutions in which peo- - ple may invest their funds’ and (which) ‘provide for ‘the financing of -homes.’ - “The proofs do not support a finding that there has been any material difference between the Michigan institutions of _the present day and those organized Under the Federal Statute. ** “Both the reasoning.of the courts in the savings bank cases, ‘the Hubbard case and the Hoenig case, and the provisions of the 1983 Act relating to Federal Saving and Loan institutions, - and those of the Revenue Code giving preferred, treatment to’ such associations in their income taxes (26 U.8.C.A. 116C, 591) furnish convincing proof that Congress had determined and the others recognized just reason for the éxemption of [or] pre- ferred tax’ treatment of these associations.” / - 2 . , stricted by legislation to ve rv limited activity and were not permitted to engage in the banking business; and (2) that - they were organizations whose business was the direct and active use of the pooled~ ~funds of their members as con- trasted to national banks, which, as ordinary profit stock _ corporations, utilized moneys from sourées Other than their 7 investors to carry on their general banking business. ¢ The question thus posed is: How can fundamentally dif- ferent institutions, which cannot be compared, be said to be in ‘substantial competition” within the meaning of § 52197 | iene ae power does not attempt to answer this question but assumes that savings and loan associations are in sub- ‘stantial competition with national banks because both in- stitutions operate in the home’ financing field. To substan- tiate this, appellant. showed ‘that it employs a part of ‘its assets ‘in the traditional home financing field of the savings and loan associations.[18) | ot.) . | ; Appellant, in its statement as to jurisdiction, poses a question’ _ Of competition between savings and loan associations and national banks for deposit money. It is submitted that the competition with which § 5219.js concerned is other moneyed, capital in eompetition with the money that would be invested in national bank stock and not money that would be deposited in tiational banks. The express’ holding of Hoenig v. Huntington "National Bank, supra (1932) (CCA 6th Circuit) 59 F 2d 479 “(cemt.. degied 287 US G18) fore- «auch argument. As there stated at pp 482-483: s to the alleged ‘competition for. deposits,’ it is evident fr n the. universal expressions of ‘opinion by the Supreme urt that ‘competition, in the sense intended, is limited to the employment of moneyed capital ‘substantially us in the loan and investment features of banking.’ Deposits constitute moneyed capital, but national banks are not ‘taxed upon their deposits any more than are savings banks and building as- - 6 ° ed ; t . \ e Appellant gives no recognition in its-argument to the established rufdythar the issue of ‘substantial competition + With the business of national banks presents a mixed ques- tion of fact and of law. As stated-bscthis Court in the case of First National Bank vy. Hartford, supra, (1927) 273 US M48, at p 352: Or, “*e *-* The validity ofthe tax complained of de- pends upon’ whether or not the moneyed fapital in the stateathus favored is employed:i in such a manner as to ‘bring it into substantial competition ? with the business | 4 of national banks. “The question thus raised involves considerations hoth of fact ard of law..To answer it, it ix necessary-to ascertain the nature and extent of the moneyed capital. in the hands of individual citize ns within the state and the relation-of its employment, in poirt of competition, to the business of plaintiff and other national banks [QUESTION OF FACT]. It is necessary also to as-. certain the preeise meaning to beqgiven the statute as “applied ty the facts in hand in order to determine’ whether the particular, moneyed: capital awd the var- ticular competition with which we are here concerned soviations: cand We. are hove seleiavile concerned . walks with what is done with such “moneyed capital after it is secured, not with competition to’ obtain it. There is clearly no dis. tinction in law between the competition for deposits as be- * tween national banks aml savings banks: and the sdine_ com. petition as betwee n onAtional banks and building assoc iations. Thus Mereantilé Nat. Bank v. New York, supra, seems directly in point on this issue.” : as otherwixe stated in | People y ¥. Gioldfogle, supra, (1924) 205 NYS. S70, at p S79, 123 Mise, 399 (aff'd by App. Div. 211 NYS 8&5): — oe Far were depositor in the national bank itself j is” lend. | ing money to the bank, often at interest, but such persons do hot aciually compete for business with a | national bank.” ° - bank shares. = a ; gre meaeved capital “ind competition within the spirit and purpose of the statute [QUESTION OF LAW) The question is thus a “mixed one of Riw ant Tet, ain —in dealing with it we may review the facets in order correetiy to apply the aie (Bracketed inaterial and emphasis added) The fact of “‘competition”’ is the “nature and extent of. the moneyed capital’? and the ‘relation of its emplovment, in point of competition, te the business of * ie nations: _ bangs. " The law of “competition is ‘tte ascertain ths precise meaning to be given the statute as apolied to the facts in hand in order te determine whether the partiontar moneyed capita! and the particular competition : ° 7 are moneyed capital and competition within the spirit and pur pose of the statute’? Ultimate dééision i (41b-42b) a ee . . These conclustyns were favorably reiterated by the Mich- igan_ Supreme Court (50b-51b). “In addition, the Sapreme C ‘ourt of Michigai\specitic: lly found: fe + Saat ie ti ; (7) “ The-recoyd in this appeal discloses that Mich- -igan buitding and-loan associations operated in a par- row, restricted field, are markedly different in -char-: acter, purpose and organization from national banks, and are not in ‘substantial competition’ with national | banks.”’ (68b) (Italies added) . (8) “The: record. established that there was prac- es, \ x. oe. tical equality of the total tax imposed upon building und loan associations and upon national banks, and any difference would he justified as partial exemptions under: the deeisions of the supreme court of the U nited States quoted above. The réstriction contained in RS § 5219 has to do with the actual incidents and practical ‘. band of the tax imposed. * * *’’ (68b) Findings “4,7 “6” and “8” above _ are factual in na- ture and conclusively indicate that the partial exemption gases are dispositive of the federal question sought to be raised yee the appellant. Even assuming that the. wnsiial exemption rule is no long- er applicable because findings of fact ‘4,’’ ‘*6”’-and ‘‘8”’ were in error and the argument of appellant in this cause were otherwise valid, the finding of the Michigan Supreme’ Court.that there was no ‘‘substantial competition’’ (Find- ing ‘‘7"? above, a mixed question of fact and law under the Hart ford case) between the 16 savings and. loan associ- ations in’ question and the appellant national bank is still conclusive, .- _— = RELIEF. It is respectfully’ submitted, for the. reasons herein - stated, that this honorable Court should either dismiss the appeal of the appellant or affirm the judgment of the lower court. | ; - | Respectfully submitted, PAUL L.-ADAMS ATTORNEY GENERAL Samuel J. Torina Solicitor General William .D. Dexter «\ssistant Attorney General For Appellees . Business Address: The Capitol Lansing, Michigan _ ADDEN DUM A /THE TAXATION OF INTANGIBLE PROPERTY .. °°, IN MICHIGAN e The State of Michiga: in has always’ taxed the shares of national banks. Prior to 1939, certain shares were ‘taxed a pursuant: te the statutory formula under the ad valorenr a tax law, whicle govered ‘all real and pérsonal property in Mic higan./21 to was very difficult; if not impossible, ‘to, stub jet, to ad valorem faxation’ intangible personal prop- erty at theerdinary ad valorem rates.’ ‘It is a matter of common historic: il knowledge that such intangibles were not disclosed for ad.valorem taxation purposes and that.: it was impossible for local assessors to ferret out intangible property and place it orf the local ad valorem property tax rolls. In an effort to meet this problem, ‘many. states pro- vided for the taxation of intangible personal propérty at a mueh lower rate than the ad valorem rate. By lowering a the rate on intangible property, these states hoped to get - fuller disclosures of such properties for tax purposes. In niany States, even though the new intangibles tax rate was only a fraction of the old ad valorem tax rate, the amount | aie ace property increased. : e ‘intangible tax act in 1939, bank shar es were taxed ina manner similar to the shayes of other financial institutions and corporations’ — aut a rate of 6% of the divided income -but not less than 1/10th, of one per ‘cent or more than 3/10ths of one per cent per par, face or contributed value of the Share.l22] . Jl 211 . ; : “Net 206, Mich. Pub. Acts 18933 [Mich. Comp. Laws § eS) 5 Mich, Stat. Ann. (Henderson) §: 7.8(8)]. [22 es Vet 1, Mich. Pub. Acts 1939 [Mic¢h. Comp. Laws § 205.131, et . Seq.; Mich. Stat. Ann. (Henderson) § 7.556(1), et seq.] —. > a Subsequent -to the. original enactment, amendments changed the rates and’ ‘ds to bank shares, provided for the’ collection of the tax at the source.[23] : _ In 1952 the legislature amended ‘the intangibles tax ac ; and provided that.in the case of income-producing bank shares,. the tax should be measured by 314% of ineome or ~1/10th of one per cent of par value, whichever is greater. A tax’ at the same rate was imposed upon all other intangi- bles with: the exception of bank: deposits and savings and loan shares, which were taxed at the-rate of 1/25th of one .- “per cent to the savings shareholder or the bank depositor. However, these taxes were required to he returned by the institutions. They could elect to absorb ‘them. In 1952 the legislature further amended the act to pro- vide for an additional instangibles tax on shares of hanks and trust companies equal to 4 mills per, dollar .of the hook value. Before this 4- “mill. tax became-due and payable, ‘the legislature in 1953 adopted Act.9, effective March 25 - of that year, which is the statute in question here, It pro- vided phat for the calendar ‘year ™ 92 and thereafter, tie exclusive tax oni all shares of banks and trust companies shoiffd be 514 mills per dollar, measured by the capital, f surplus and undivided profits represented by each shareof. the common stock for such year. Preferred stock: of any such institution was taxed st the same rate [ay ) ns eo aa a Act 301, Mich. Pub. Acts 1939, as amended by Act 25, Mich. Pub. . Acts 1941; Act 16%, Mich. Pub. Acts 1945; Act 175, Mich. Pub. Acts * > _ 1947; Act 308, Mich. Pub. Acts 5049; and. Acts 76 and 246, Mich. Pub. Acts 1951. [24] | Act 9, Mich. Pub. Adts 1953 [Mich, Comp, ‘Laws 205..%2a; Mich. Stat. Ann. (Henderson) Be7 556 (2) ] , a ee OTHER TAXES IMPOSED IN MICHIGAN ON ‘FINANCIAL BUSINESS IN 1952 In 1952, federal avd state savings and loan associations were taxed at the raté of 1/10th of a mill on authorized capital stock.[23] Foreign co orations doing business in : p ep g Michigan were subject to the same tax, the amount of their taxable property being determined in accordance with a statutory formula. (26) All financial businesses (individuals, partnerships, corpo- rations) alate personal property ‘and _ prop- [25] ° Aet 183, Mich. Fub. Acts 19524[Mich. Comp. Laws § 450.308, et seq.; Mich. Stat. Ann. (Hepderson) § 21.203, et seq.] By Act 144, Mich. Pub. Acts 1954 [Mich: Comp. Laws & 450.363, et seq.; Mich. Stat.,Ann. (Henderson) § 21.203, et seq.], the legis- lature repealed the franchise and privilege taxes imposed on for- eign and domestic building and loan associations. By Act 157, Mich. Pub. Acts 1954 [Mich. Comp. Laws § 489.29, et seq.; Mich. Stat. Ann, (Henderson) § 23. 572, et sey.], the legis: lature imposed a privilege tax on domestic buijding and loan _ associations equal to 1/4th, mill on the amount of capital and re- serves; and a franchise tax equal to 1/10th mill on authotized. ¢ capital. By Act 158, Mich. Pub. Acts 1954 [Mich. Comp. Laws § 489.201, et seq.: Mich. Sjat. Ann: (Henderson) § 2%, 591, et seq! * reign _and state building ‘and loan associations were subject to a’ priv- ilege tax equal to 1/4th mill on capital and reserves and a. frane hise tax equal to 1/10th mill on ‘paid-in capital. ; By Act -180, Mich. Pub. Acts 1954 [Mich. Comp. Laws ‘§ 489.371, et seq.; Mich. Stat. Ann. (Henderson ) § 2HORI(1), et seq.], federal savings and loan associations were subject to a privilege tax equal ‘to 1/4th mill on capital and reserves. [26] ; ; Act 85, Mich. Pub. Acts 1921, as amended py Act 183, Mich. Pub. Acts 1952 [Mich. Comp. Laws § 450.303; Mich. Stat. Annz (Hender- son) § 21.203] . & Pcie & e ; » —43— erty in Michigan pay uniform ad valorem taxes,271 (except in the case of banks and trust companies as to person- _ alty)(28] the amount ef which is determined by the local rate. y Domestic insurance companies are subject to-an annual . tax of 5 mills, measured hy capital, surplus and unassigned funds. The maximum tax is $50,000.[291 Foreign insurance companies pay premium taxes ranging from 2% to 3% of their gross premiums recdived from Michigan sources.[30] i ears : ty Federal and domestic credit unions are exempt from fil taxation except real and tangible personal property taxes. All other financial businesses other than ‘eelioaal banks, i including state banks and trust companies, were subject to miscellaneous state tax measures, which included use tax on their purchases and sales tax on their sales, being of the nature that could not be imposed upon national , banking associations under the provisions of ¢ 5219. [27] Act 206, Migh. Pub, Acts 1893 (Mien, Comp. Laws § 211.1, et seq.; Mich. Stat. Ann. a) § 7.1, et seq.] {28] Act 261, Mich. Pub. Acts 1949 [Mich. Comp. Lats | § 211.9; Mich. Stat. Ann. (Henderson ) § 7.9] [29]. Aet 180, Mich. Bub. Acts'1952 [Mich. 4 ‘ompe).aws § 505.1; Mich. Stat. Ann. (Herderson) § 24.64(1)] 130] * Act 91, Mich. Pub. Acts 1923 , [Sien. Comp. Laws & | 61: sual. Mich. Stat. Ann. (Henderson) § 24.105] : Je --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386409_0066%3A06. Public record. Not legal advice.