Pennsylvania: (3) Pennsylvania law permits out-of-state banks to qualify to do business in the Commonwealth if there is a reciprocal agreement. Pennsylvania does not tax out-of-state banks for their limited activities in the Commonwealth. Washington: . . . The answer in general is "no". . . . Banks chartered in other States may not conduct a general banking business or accept deposits in this State. (With two exceptions which come under the Grandfather Clause...)... Summary to question 3 may be stated that there is no indication of particular significance for State or local taxation of out-of-State banks. West Virginia: (3) West Virginia Code 31A-2-5 (f) provides: "nothing contained in this code shall authorize any person to engage in the banking business in this State except corporations chartered to conduct a banking business under the laws of West Virginia and which hold a license or certificate to do so issued under this section, or associations authorized to conduct a banking business in West Virginia under the laws of the United States and having their principal place of business in this State." However, West Virginia Code 31-1-79 (a) provides that foreign corporations acquiring secured loans on real or personal property and some related activities in this State are not considered doing business. I do not believe that this would be an area of particular significance for State or local taxation of out-ofstate banks. Wyoming: (3) Wyoming does not authorize branch banking and has found little need to qualify banks chartered by other States to do business in this State. We interpose no restrictions on foreclosure actions by out-of-state banks desiring to redeem collateral and require only the employment of a Wyoming attorney by out-of-state banks acting in behalf of estates. To the best of my knowledge, no out-of-state bank has been inconvenienced by these limitations. Taxation of foreign banks is limited to property owned. In a similar vein, the restricted activities permitted out-of-State banks in Colorado, Illinois and North Dakota probably involve no taxing consequences, while the extent and tax consequences of permitted activity by out-of-state banks in Delaware and Utah are unclear from the replies received. Responses from these five states are as follows: Colorado: (3) the implications of the Colorado Corporation Code in conjunction with the Colorado Banking Code is such that qualification is not countenanced. . . This is not to say that foreign banks do not engage in certain types of transactions in Colorado in the same manner as occur in other States. We do not consider this a problem Delaware: (3) No "No bank or trust company shall transact any business in this State or open a place of business in this State without having first secured from the State Bank Commissioner a certificate Illinois: (3) The State of Illinois does not permit banks chartered by other States to qualify to do business within Illinois. A possible exception to this would be that we do have a reciprocal law in connection with corporate fiduciaries. North Dakota: (3) State law only provides that foreign banks or trust companies may serve in fiduciary capacity in State. Utah: (3) Utah law (Section 7-3-4, Utah Code Annotated 1953, as amended) forbids any foreign corporation from conducting a banking business in this State until it has first complied with the laws of this State relating to banks and with other laws of this State relating to foreign corporations. I do not believe this provision has any significance for State or local taxation of out-of-state banks. Such banks would be taxed as any other foreign corporation operating within the State. Among the nine jurisdictions remaining, the extent of taxation of out-of-State banks was unknown to the respondents from Alaska, Massachusetts, and New Jersey. No out-of-State State-chartered banks are presently doing business in North Carolina or Puerto Rico, although this is apparently permissible and might involve taxable status. Under certain conditions, out-of-State banks could be taxable in California, Michigan, New York (Edge Act subsidiaries), and Oregon. The responses from these States were lengthier and more specific than from most other States. Alaska: (3) Yes, banks chartered by other States are permitted to qualify to do business in Alaska under the provisions of our Model Foreign Bank Loan Act. This Act enables foreign or out-of-state banks to make and purchase loans in this State, and the question has arisen as to whether the income derived from these activities was taxable by the State. It appears that the permanent amendment would clarify this situation. California: (3) even when a foreign banking corporation has complied with the California Corporations Code and obtained consent of the Superintendent of Banks, it may conduct only such business as permitted under the California Financial Code, and a bank incorporated under the laws of another State would not be permitted to accept deposits in California. (California Financial Code Section 1756(b)). There are two important exceptions to the rule that a foreign banking corporation must obtain a certificate of qualification from the Secretary of State and the consent of the Superintendent of Banks before engaging in the banking business in California. First, a foreign banking corporation may acquire loans secured by real or personal property located within this State, so long as it carries on such activities from outside California. (California Corporations Code Section 6450 et. seq.) Second, a foreign banking corporation may make loans in this State secured by real property located in California, so long as it does not maintain an office in this State. (California Financial Code Section 1757). The second exception is an exception only from the requirements of the California Financial Code. The first exception, however, applies not only to the California Financial Code but also to the California Corporations Code and the California Revenue and Taxation Code, which contains the tax laws of this State. Massachusetts: (3) Under section 45A of Chapter 167 of the General Laws, national banks and State-chartered commercial banks having their principal places of business in other States may, with the permission of the Board of Bank Incorporation, exercise fiduciary powers in Massachusetts. This section refers to the taxation of such banks. This office has not had occasion to deal with problems which might arise relative to the extent of such taxation. Michigan: (3) Banks from other States can establish "loan production offices" in Michigan. A foreign banking corporation can be admitted to do business in Michigan under the General Corporation Act under a restricted certificate of admission. Such certificate would permit only business of a non-banking type which a corporation formed under the Michigan General Corporation Act could conduct. New Jersey: In regard to interstate business, "foreign banks" must qualify to do certain fiduciary business in New Jersey. At the present time there are forty-four out-of-State banks who have requested and received this authority. The volume of business they are doing and the profit derived therefrom is unknown; consequently, the significance for State or local taxation is a matter for conjecture. These banks do, of course, pay qualifying and annual renewal fees to the Department of Banking for the right to do fiduciary business in New Jersey. New York: (3) New York State does permit banks chartered by other States to qualify to do business in New York. At present, the only foreign banking corporations qualified to conduct a banking business in New York are agencies and branches of foreign banks domiciled outside the United States. In addition, Edge Act subsidiaries of foreign banks domiciled in States other than New York operate in New York under the supervision of the Federal Reserve Board. There are numerous special limitations on the privilege of doing business in New York which are applicable to banks but not to other types of foreign business corporations. For example, a foreign bank must keep at least $100,000 of specified assets on deposit in the State at all times. Our reciprocity provision constitutes another special limitation North Carolina: 10 there are no out-of-state banks doing business in North Carolina at this time; therefore, the question of taxing them is not pertinent The out-of-State bank would probably be considered to be a lending agency subject to the income tax rather than a bank subject to the excise tax might also be subject to the corporation franchise tax. [and] 9 The law cited, which was included with the reply, states in part that "Any such banking association or corporation holding a certificate as aforesaid and appointed a fiduciary shall be subject to the provisions of general law with respect to the appointment of agents by foreign fiduciaries and to the same taxes, obliations and penalties, with respect to its activities as such fiduciary and the property held by it in its fiduciary capacity, as like associations or corporations having their principal office in this commonwealth . . .' 10 This quotation is from the letter written by the Department of Tax Research. Oregon: (3) Oregon's laws do not permit banks chartered by other States to qualify to do business in Oregon, with minor exceptions. Banks chartered in other States which have a trust department can qualify to do a limited trust business in Oregon under the terms set forth in ORS 713.010(2); ORS 713.010(4) also gives out-of-state banks some latitude as it allows such banks to loan money in Oregon on mortgage security. These banks may "not accept deposits or receive from citizens or residents of this State property or money in trust on deposit or for investment." 11 Puerto Rico: . . our banking law provides for the authorization of banks chartered in other states to do business in Puerto Rico. However, in practice, and as a matter of public policy, for many years no State bank from another State has been authorized to do business in the Commonwealth of Puerto Rico, and no additional national or foreign banks have been authorized to open branches within our bounds. It is interesting to compare the State banking supervisors' answers to question 3 with the replies to a similar question asked of State tax administrators. Item number 3.411 of the questionnaire sent to tax administrators asked whether out-of-State State-chartered commercial banks "that do business in your State" are "now subject (November 15, 1970) to taxation in your State". In 26 States 12 and Puerto Rico such banks reportedly are subject to State net or gross income taxes and in some cases to other taxes as well, while in another four States 13 they reportedly are subject to taxes based on the value of capital stock. In many of these States, however, no banks chartered by other States actually "do business"-in some instances because only banking activity that does not legally constitute "doing business" is allowed-so that the banking supervisors were correct in saying that banking activity by State banks from other States does not have any particular significance for State taxation. It appears from the banking supervisors' letters that the major banking States 14 differ considerably in the kinds of activity that are permitted for out-of-State banks without establishing taxability and in the kinds of activity that are permitted at all. In summary, there appears to be considerable variability among the fifty States in the extent to which banking activity is carried on from across State lines and in the tax treatment of out-of-State banks. For State-chartered banks, at least, interstate banking activity seems to be tailored to the States involved and the types of activities in such a way that little or no taxing liability is involved outside the domiciliary State. IV. QUESTION 4 (4) In the laws, regulations, or supervisory practice affecting commercial banking in your State, or in bank operations, have there been recent changes or developments of particular significance for State or local taxation? Do you foresee developments of this kind over the next few years? If so, please describe any of these changes that have particular significance for State or local taxation. In its final question to the banking supervisors, the Board sought information on both recent and foreseeable developments which 11 ORS 71 .010 also provides, in subsection (1), that "Except as provided in subsection (4) of this section, every foreign bank or trust company doing business in this State is subject to all the provisions of the Bank Act to the same extent as banks, bankers or trust companies organized or doing business under or by virtue of the laws of this State." 12 Alabama, Arizona, Arkansas, California, Connecticut, Hawaii, Idaho, Illinois, Indiana, Maine, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Mexico, New York, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Tennessee, Utah, Washington, and Wisconsin. 13 Montana, New Jersey, Ohio, and West Virginia. 14 The top 10, in terms of total 1969 operating income, are New York, California, Illinois, Pennsylvania, Texas, Ohio, Michigan, New Jersey, Florida, and Massachusetts. might influence the type, amount, or consequences of State and local taxes applicable to banks. The answers received by no means cover all the changes which have taken place, but they do give considerable insight into why certain changes occurred and why certain others are expected. Twenty-two States did not report any recent or foreseeable changes affecting bank taxation. Some of these States had in fact had some tax changes, but the respondents apparently did not consider them to be particularly significant or else they were limiting their answers to banking regulations and practices rather than to changes in the taxing laws or in the applicability of taxes to banks. The 22 States are as follows: Respondents from 20 States reported instances of recent changes in taxes affecting banks, or of recent developments affecting banking. The items reported are summarized in table 1. Some of these items are not especially new, but were mentioned because they have a bearing on recent or expected developments. Additional information from State tax administrators on recent changes in tax laws or regulations affecting banks is included in brackets. TABLE 1.-RECENT CHANGES OR DEVELOPMENTS REPORTED BY STATE BANKING SUPERVISORS Puerto Rico.. Regular corporate income tax replaced special bank income tax for State and national banks, 1970. Corporate income tax rate was raised and some exemption of interest was deleted. Income tax was enacted, 1969. Franchise tax was enacted, 1969, [replacing bank shares tax and] increasing taxes paid by banks by up to $2,000,000. Income tax was imposed, effective July 1, 1969. Franchise tax on financial institutions replaced capital stock tax, July 1, 1968. (See table 2.) Excise tax rate was raised, 1969. Rate was increased and other changes made in corporate income tax. [Also, income tax was extended to banks in New Hampshire (State banks only), New Mexico (replacing shares tax, 1969), Tennessee (national banks), and Washington (gross income tax), and modifications were made in Arizona, Kansas, and New York.] Taxes on value of shares or capital structure: Arkansas.. Louisiana_ New Jersey. * an Shares tax was held unconstitutional in 1961 ("in practical effect assessment of intangible properties and ** a gross discrimination against banks * *") but is being paid under 1969 voluntary formula. Rate is being gradually reduced starting 4 years ago. Rate was doubled, tax is now distributed half to State and half to counties. [Also, shares tax on shares held by individuals lapsed in Illinois (1971, constitutional change), franchise tax was extended to national banks in Tennessee after Dec. 24, 1969, and rate was raised in Pennsylvania (1971).] See footnotes at end of table, p. 141. 15 South Carolina did, however, mention existing bank taxes, and both Minnesota and South Carolina mentioned the pressures for additional revenue at the State and local levels. TABLE 1.-RECENT CHANGES OR DEVELOPMENTS REPORTED BY STATE BANKING SUPERVISORS WHICH AFFECT STATE OR LOCAL TAXATION OF BANKS-Continued Category of change, and State Comment Sales and use taxes: Arkansas... California.. Colorado... Maryland.... North Carolina 2... Texas 3 Wyoming... State and national banks paid sales and use taxes, starting in 1969, under voluntary agreement. Test case pending on sales tax on national bank purchases prior to Dec. 24, 1969. State and local sales and use taxes were extended to State and national banks, 1970. State banks were exempted from sales tax (like national banks), July 1, 1968; [banks became liable to the tax after Dec. 24, 1969]. Sales, use taxes were extended to purchases by national banks after Dec. 24, 1969. Banks became subject to sales tax, through comptroller's ruling. National banks became subject to sales tax on equipment purchases, after National banks are now paying sales tax and are collecting it on their sales. [Sales and use taxes were also extended to national banks since Dec. 24, 1969, in Arizona, Connecticut, Idaho, Illinois, Indiana, Iowa, Kentucky, Maine, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, Nevada, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Utah, and Wisconsin, and to both State and national banks in Alabama, Florida, Georgia, and Louisiana.] Other taxes: Arkansas. Colorado Florida... "In 1970 the Florida Legislature broadened the assessment base for State banks and authorized retention of the full amount for operation of the Division of Banking." [Tangible personal property taxes were also extended to banks since Dec. 24, 1969 in Arizona, Florida, Iowa, Kentucky, Louisiana, and Ohio, and to national banks in Connecticut, Idaho, Illinois, Kansas, Nebraska, Rhode Island, and Utah. Documentary taxes were entended to banks since Dec. 24, 1969, in Alabama, Florida, Georgia, and Kentucky, and to national banks in Illinois, Iowa, Nebraska, New York, Ohio, and Oklahoma.] Equalization of tax treatment of State and national banks: Arkansas.. Texas 4 Virginia.. 1967 statute gave State banks the same tax status as national banks. 1967, State banks were exempted from corporation license (net income) taxes, because national banks were exempt. 1963 law equalized tax treatment of State and national banks, resulted in State bank exemption from franchise tax. 1968 law placed State and national banks on equal footing for taxation. [Equalized treatment of State and national banks, as a policy or in practice, was also mentioned or implied by the banking superintendents of California, Colorado, Florida, Georgia, Louisiana, Maryland, Mississippi, New Mexico, Rhode Island, and, since February 1970, Tennessee.] Other developments: Idaho 5. Indiana. New Jersey.. New York. Law provides for no deposit of State moneys after Jan. 1, 1970, in any banks failing to pay all State and local taxes. State banks were recently authorized to lease personal property. Banking has expanded rapidly since the acceptance on July 17, 1969, of be- 1 Information in brackets covers other changes reported by State tax administrators which were not mentioned by the bank supervisors. 2 Information is from memorandum of North Carolina Bankers' Association, forwarded by banking superintendent, and from tax research department letter. 3 Information is from banking commissioner's letter. 4 Information is from department of banking counsel letter. 5 Includes corporate income or franchise taxes, sales and use taxes on purchases of tangible personal property, and real and personal property taxes on property owned or leased. Likely future developments were reported by 10 of the States which had reported recent changes and also by 9 States which reported no recent changes. In some instances, the future changes mentioned were very specific and were anticipated with confidence. In other cases, the developments foreseen were rather vague and were said to be desired or feared rather than expected. The reported future developments are summarized in table 2. |