or obtaining at least 50 percent of their ordinary gross income from dividends, interest, or royalties. Also excluded was any corporation with an average annual income over $1 million." For banks and other financial businesses and other excluded corporations, jurisdiction to tax and allocation of the tax base would continue to be determined by State laws and court decisions.

The only standard rule applicable to all States appears to be Public Law 86-272, but this Federal statute concerns only the solicitation of orders and sales of tangible personal property delivered from a point outside the State on orders approved outside the State. The statute appears not to apply to any interstate activities of banks. 92

If this is true, does a State acquire jurisdiction over a nondomiciliary bank when that bank sends its nonresident representative into the State to solicit loans or deposits on which the nondomiciliary bank earns interest (or profits)? Suppose the representative makes regular visits into the State each year (or season), does that create a different situation? Or if the dealings are with correspondent banks with which nondomiciliary money-market banks have had regular profitable dealings over long periods of time? Or if, instead of having loan and deposit production representatives make regular calls, the nondomiciliary bank also buys or sells mortgages or other securities from or to its correspondent? The dealings may go both ways on a reciprocal basis. Perhaps the bank also owns equipment which it leases to customers or correspondents; does that make a difference? This involves some tangible property that is being used to generate income, presumably both for the resident corporation, bank, or interstate firm and the nondomiciliary bank. If all or several of these activities_take place, even if through the aegis of corporate subsidiaries, the State may be able to show that the nonresident bank is surely doing business within the State. Are the State laws broad enough to apply to banks? Generally, it would seem so.

93

Under present law, there can be little doubt of State jurisdiction to tax nondomiciliary banks after 1971 in situations where such banks establish loan production offices, "warehouses," bookkeeping centers, or branches within the taxing State. If a bank has employees living and working in the State, or uses local brokers or commission men, this may be sufficient for a claim of tax jurisdiction. If a bank leases tangible property to customers in the taxing State, it may be taxable. If the bank transacts business in a State only by mail, jurisdiction is doubtful. While interstate branches of State banks are few in number and national banks are not permitted to establish such branches, save in foreign countries, the time may come when they are permitted. And where branch banks are established, they will be subject to State taxation on allocable net income. The permanent section 5219 (in P.L. 91-156) has opened this door wider than it was.

These problems affect large banks, and particularly those in money market centers whose interstate business is of growing importance. Occasionally the problems may arise for banks situated close to or upon State lines. But most banks are still small local institutions unaffected by the complications of doing business across State lines.

91 Ibid., pp. H17315-19, reproducing the text of the bill.

92 Cf. supra, p. 240.

93 Cf. Scripto Inc. v. Carson, Sheriff, et al, 362 U.S. 207 (1960), where resident brokers and commission men sold goods in the State. Distinguished from Miller Bros. Co. v. Maryland, 347 U.S. 340 (1954); where a Delaware company had no property in Maryland, accepted no mail or telephone orders, and sold goods only in Delaware, the Maryland use tax on a delivery to Maryland was void.

Nevertheless, the State taxation of income from or of business transacted in interstate commerce may be expected to have an increasing impact on State and national banks in the years ahead. 94

5. A section 5219 for State banks: 1967.-On January 17, 1967, Mr. Ottinger (New York) introduced in the House a bill (H.R. 2517) to eliminate certain inequities between State-chartered and Federallychartered financial institutions in the conduct of interstate business.95 At the time practically all States taxed their own and national banks on the same basis. On August 30, 1967. Senator Sparkman introduced S. 2364 "to extend the same privileges, protection and immunities to insured State banks as are available to national banks doing business across State lines." 97 The bills were referred to the Committees on Banking and Currency.

96

Senator Sparkman indicated that he was introducing S. 2364 at the request of Mr. Frank Wille, Superintendent of Banks in the State of New York, who was then the newly-elected chairman of the legislative committee of the National Association of Supervisors of State Banks. The bill had been drafted by the New York State Banking Department. A letter and memorandum from Mr. Wille expalined its nature and purpose: "In doing business across state lines, State banks and savings and loan associations operate at a serious competitive disadvantage as compared to national banks and Federal savings and loan associations . . . In essence the bill would provide that a State bank or savings and loan association doing business across State lines shall enjoy the same privileges, protections and immunities as a national bank or Federal savings and loan association doing such business."

Disadvantages under which State-chartered financial institutions operated were said to relate primarily to:

1. The necessity for compliance with "doing business" laws in other States;

2. The imposition of taxes by other States; and

3. The possibility that they may be sued wherever they "do business," whereas Federal law (12 U.S.C. 94) permits national banks to be sued only in their headquarters State.

The statement attributed the special treatment of national banks and Federal savings and loan associations to their status as Federal instrumentalities. State banks have to comply with "doing business" laws and some States do not permit compliance by banks or savings and loan associations-[so that] they may find themselves unable to collect on defaulted loans and unable to enforce their security interest in loan collateral."

". . . national banks and Federal savings and loan associations can be taxed by the States only as Congress has specifically permitted (e.g., in 12 U.S.C. 1464h for Federal savings and loan associations). Under this line of reasoning, [Federal and State courts]. . . have held invalid license taxes, personal property taxes, and sales and use taxes

[For detailed examination of questions raised here, see infra, appendix 11 by Jerome R. Hellerstein, Federal constitutional limitations on State taxation of multistate banks, and appendix 12 by J. Nelson Young, Multiple State taxation of national banks: Division of tax base for income taxes and "doing business" taxes.-Ed.] 95 113 C.R., p. H714 (January 17, 1967).

96 In the Committee's last report [1965] . we were able to point out that today practically all of the States tax national banks and State-chartered banks on the same basis. Full credit for this equality of taxation must be given to section 5219." Report of the Committee on Bank Taxation, Proceedings of the National Tax Association, 1966, p. 270.

97 113 C.R. p. S24544 (August 30, 1967).

1 Ibid., p. S24546 (August 30, 1967).

66-236-72-pt. 3- -17

levied on national banks. State-chartered banks and savings and loan associations have no such immunity from taxation in nondomiciliary States."

The bill did not propose to limit the power of Congress over national banks nor to confer powers on State banks not given by States. It would not amend section 5219 but would add a new section 1831 to Title 12 of the U.S. Code under the sub-title "Federal Deposit Insurance." No hearings were held, nor was the bill reported out of committee.

This proposal was the inverse of section 5219. It was designed to protect State rather than national banks. If section 5219 had efficiently protected national banks from effective State taxation, why not invoke similar protection for State banks doing interstate business? One wonders why it took so many years for someone to make the attempt.

6. The latest change: 1968-1969.-In the 90th Congress, 2nd Session, on July 29, 1968, Representative Podell (New York) introduced H.R. 19031, which read as follows:

"Section 1. A national bank has no immunity from any sales tax or use tax which it would be required to pay if it were a bank chartered under the laws of the State or other jurisdiction within which its principal office is located."

3

The bill was referred to the House Committee on Banking and Currency. This was the beginning of P.L. 91-156-the 1969 amendment of section 5219.

When he introduced the bill, Mr. Podell referred to the Supreme Court decision a few weeks earlier in First Agricultural National Bank of Berkshire County v. State Tax Commission. He declared that the Court had opened an "escape hatch" for national banks. He could see no sound reason why a national bank "should be permitted to escape tax responsibility for the support of State and local government. They receive a myriad of State and local services." 5

Early in the 91st Congress, numerous bills were introduced to clarify the rights of States to impose taxes on national banks. Mr. Podell introduced another bill to clarify liability for sales and use taxes H.R. 2116. Mr. Hosmer offered a similar bill, H.R. 2182. Mr. Patman introduced H.R. 7491 which eventually became P.L. 91-156. Mr. Ashley introduced H.R. 8642, and Mr. Sikes, for himself and eleven others, introduced H.R. 9794. On May 5, 1969, Senator Holland introduced a bill (S. 2065) of similar import, and on Sep

6

2 Ibid.; and committee report by M. A. Zizzamia, in Proceedings of the National Tax Association, 1967, p. 240. 3 114 C.R., p. H23979 (July 29, 1968). Cf. Report of Committee on Bank Taxation in Proceedings of the National Tax Association, 1968, p. 291 (Harry Schroeder of New York, chairman). 4 392 U.S. 339; argued April 22, 1968; decided June 17, 1968.

5 Mr. Podell in 114 C.R., p H23960 (July 29, 1968). Mr. Podell also inserted in the Record additional materials in support of H. R. 19031 on September 11 and 30, 1968. These statements include copies of letters he wrote to the Honorable Wright Patman, Chairman of the House Committee on Banking and Currency, reporting that the Court decision entailed serious losses of revenue for New York City and State and for other States. Mr. Podell referred to a survey he was making of losses expected by other States. 114 C.R., pp. H26535-36 and H28825-26 (Sept. 11 and 30, 1968). Further data collected by Mr. Podell appear at 115 C.R., pp. H3361-62, and in House Committee on Banking and Currency "Testimony received in consideration of H.R. 7491 and related bills," Hearing.. ... on H.R. 7491 and related bills, May 26, 1969 (91st Congress, 1st sess.), pp. 3-19.

For the House bills, cf. 115 C.R., pp. 192, 194 (Jan. 6, 1969), p. H4210 (Feb. 24), p. H 5982 (Mar. 11), and p. H8203 (April 1). Mr. Ashley inserted into the Record remarks indicating the need for legislation in the wake of the First Agricultural National Bank decision; ibid., pp. H5991-92 (Mar. 11).

tember 16, 1969, S. 2906.7 All these bills were referred to the respective Committees on Banking and Currency. Only H.R. 7491 will be considered further.

8

The House Committee on Banking and Currency held a hearing on H.R. 7491 on May 26, 1969. The hearing started with the presentation of letters generally endorsing the amendment of section 5219, from the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Treasury Department. Representative Podell presented the results of his survey, indicating that 21 states which responded to his inquiry estimated their annual revenue losses from inability to apply sales and use taxes to national banks at $25,303,000 per annum. The largest amounts were for New York and Pennsylvania, $5,000,000 each, including $3,500,000 for New York City. Tennessee and Virginia estimated revenue losses at $1,500,000 each; Massachusetts and Michigan, $1,000,000 each. Supporting letters to Chairman Wright Patman, some 31 from Governors and tax officials, also were presented, as were a number of statements, and resolutions.10 Except for the statement of Mr. Podell no other witnesses appeared.

9

11

On June 9, 1969, Mr. Patman, Chairman of the Committee on Banking and Currency reported favorably H.R. 7491 with amendments, submitting House report 91-290. As initially offered, H.R. 7491 was identical with H. R. 19031 of the preceding Congress, quoted above. As amended by the Committee, the bill read as follows:

"(a) Section 5219 of the Revised Statutes (12 U.S.C. 548) is amended to read:

"Sec. 5219. For the purposes of any tax law enacted under authority of the United States or any State, a national bank shall be deemed to be a bank organized and existing under the laws of the State or other jurisdiction within which its principal office is located.'

"(b) The amendment made by subsection (a) becomes effective on the first day of the first calendar year which begins after the date of enactment.'

The report said: "The bill says that national banks shall be subject to the same taxation as State banks, and it means exactly what it says."

7 Ibid., p. S11387 (May 5, 1969) and p. S25539 (Sept. 16, 1969). S. 2065 provided: "A national bank has no immunity from any sales tax, use tax, personal property taxes, intangible personal property taxes, and documentary stamp taxes which it would be required to pay if it were a bank chartered under the laws of the State or other jurisdiction within which its principal office is located."

On July 11, 1969, Senator Holland asked to have Senator Gurney's (Fla.) name added to the bill, ibid., p. S19271.

S. 2906 was as follows: "In addition to any other tax which a national bank is authorized to pay under any other law, a State or any political subdivision thereof is authorized to impose on a national bank any sales taxes or use taxes complementary thereto, any taxes on tangible personal property (not including cash or currency), any taxes (including documentary stamp taxes) on the execution, delivery, or recordation of documents, or any license, registration, transfer, excise, or other fees or taxes imposed on the ownership, use or transfer of motor vehicles, which such national bank would be required to pay if it were a bank chartered under the laws of the State or other jurisdiction within which its principal office is located."

91st Congress, 1st sess., House Committee on Banking and Currency, "Testimony Received in Consideration of H.R. 7491 and Related Bills," Hearing. . on H.R. 7491, May 26, 1969. Washington, U.S. Government Printing Office. 1969, 47 pp.

Ibid., p. 5, with supporting letters at pp. 6-19.

10 Ibid., pp. 19-28. An additional letter to Representative Margaret M. Heckler from Governor Francis W. Sargent of Massachusetts also was included. Statements favoring change in section 5219 were presented from the Independent Bankers Association of America, signed by B. Myers Harris, President, and Bradford Brett, Chairman, Federal Legislative Committee; National Association of Tax Administrators, signed by Charles F. Conlon, Executive Secretary; Resolution of the Midwestern States Association of Tax Administrators, adopted at Osage Beach, Missouri, August 25-28, 1968; Orval Hansen, member of Congress; Pennsylvania Bankers Association, letter supporting equal taxation among banks, signed by Frank S. Smith, President, with a resolution signed by B. L. Daniels, Executive Vice President; prepared statement of the National Association of Supervisors of State Banks, signed by Frank Wille, Superintendent of Banks of New York and Chairman of Federal Legislative Committee of the Association. 11 115 C.R., p. H15070 (June 9, 1969).

The report stated that in California national banks paid no state taxes on motor vehicles, that in Florida their recently discovered exemption from documentary and intangible property taxes would "cause an alarming loss of revenue," and that "all over the country they enjoy exemption from sales and use taxes." It explained the historical basis for section 5219 and the purpose of the amendment, adding that the proposed bill did not change any Federal tax law or attempt to solve problems of multistate taxation of interstate commerce nor deal with questions of venue. The effective date of the change in law would be January 1, 1970, so that the uncertainties of litigation "can be reduced to a minimum and very low level by making the changeover effective with the beginning of the next calendar year." The report also saw no reason for an extended delay in the effectiveness of the bill.

In July, the Rules Committee reported a resolution for consideration of H.R. 7491. This was approved July 17 and the House resolved itself into the Committee of the Whole to consider the bill. The main argument was whether the broad approach to the problem of State taxation of national banks, as provided in the Committee bill, or a restricted approach proposed in an amendment by Mr. Garry Brown of Michigan should prevail. The Brown amendment was referred to as the "laundry-list" type since it enumerated specific taxes-sales, use, tangible personal property, documentary stamp taxes, etc.which States could adopt. The amendment was defeated. When a vote was taken the bill was adopted, 344 to 4.12

The Senate Committee on Banking and Currency held a hearing on H.R. 7491, S. 2065, and S. 2906, on September 24, 1969. This was really a "full dress" affair-a few State officials, several bankers or their representatives, a Governor, and a Federal official testified, and numerous statements, resolutions and letters were submitted.13

The position of the States was that they favored equality of taxation of State and national banks and that only section 5219 protected national banks from being taxed as other financial institutions, particularly State banks. They argued that there was no good reason why national banks should not be subject to sales, use, documentary stamp, and similar taxes to which all other corporations were subject. They urged amendment or repeal of the statute.

The bankers subscribed to the principal of overall tax equality not only among banks but among all taxpayers, particularly business

12 115 C. R., p. H19712, House report 476 (July 8. 1969); pp. H19905-7 (July 17) for debate on the rule: and pp. H19908-22 (July 17) for debate and vote on the bill. On Mr. Brown's amendment, cf. ibid., pp. H19913–20; tellers were demanded; the vote was 65 for the Brown amendment. 66 against.

13 91st Congress, 1st sess., Senate Committee on Banking and Currency, "Taxes on National Banks." Hearing... ...on S. 2065, S. 2906, and H.R. 7491, Sept. 24, 1969. Washington: U.S. Government Printing Office, 1969, 68 pp.

Testimony was given by the following: Senator Spessard L. Holland of Florida; Alfred A. McKethan for Florida Bankers Association; Ralph D. Turlington, member of the Florida House of Representatives and Chairman of its Committee on Appropriations; Honorable Norbert T. Tiemann. Governor of Nebraska; Robert Bloom, Chief Counsel to the Comptroller of the Currency; Tom Frost, Jr., for the American Bankers Association, with supplementary comments by Matthew Hale, General Counsel of the Association; Cleo F. Jaillet, Commissioner of Corporations and Taxation, Massachusetts; and Frank Wille, Superintendent of Banks, State of New York, on behalf of the National Association of Supervisors of State Banks. The record includes statements and letters from the following: Norman Gallman, Acting Commissioner, New York State Department of Taxation and Finance; Honorable William McChesney Martin, Chairman of the Board of Governors of the Federal Reserve System; Paul W. Eggers, General Counsel, U.S. Department of the Treasury; Honorable K. A. Randall, Chairman, Federal Deposit Insurance Corporation; Fred. O. Dickinson, Jr., Comptroller of the State of Florida: J. L. Driscoll of the First Security Bank of Idaho; William D. Hussey, Executive Vice President, Florida Savings and Loan League; Robert G. Willmers, Acting Finance Administrator of the City of New York; Charles R. McNeill, Director, Washington Office, American Bankers Association; Frank Wille, Superintendent of Banks, New York; Honorable Raymond P. Shafer, Governor of Pennsylvania; Missouri Bankers Association; and Charles F. Conlon, Executive Secretary, National Association of Tax Administrators.