Note: Because of rounding, detail may not add to totals. Leaders represent zero or rounds to zero. Source: U.S. Department of Commerce, Bureau of Census, "Governmental Finances in 1966-67," series GF 67, No. 3 (Washington, D.C., 1968), p. 5.

Major tax sources of the several levels of governments are shown in table 12 for the year 1966-67. Whereas the property tax had once been the main support for American governments, that distinction now belonged to income taxes, with the individual income tax producing twice the yield of corporate income taxes. The aggregate of consumption taxes (grouped as sales, gross receipts, and customs) also exceeded the yield of property taxes. When revenues are examined separately for each level of government, it is seen that 83 percent of Federal revenues came from income taxes and 17 percent from other sources, of which sales taxes far outstripped the yield of customs duties. In the States, the property tax provided only negligible support for State governments. These depended on sales taxes for over 58 percent of all tax revenues in 1966-67. Income taxes provided more than a fifth of State revenues. Local governments, however, still drew almost 87 percent of their revenues from the property tax, with sales taxes the next largest contributor.

All the revenues of the various governments, as has been indicated, did not come from their own sources, except for the Federal Government. As can be seen from table 13, States received more than $14 billion, or 23.4 precent, of their revenues through intergovernmental transfers, a large part of which were passed on to local governments. The States added some of their own revenues, so that transfers to local governments amounted to over $20 billion, or 32.2 percent, of their aggregate revenues from all sources.

The primary functional beneficiaries of transfer payments between levels of government have been education, highways, and public welfare.

Interesting and important as transfer payments have been, they have not directly affected the State and local taxation of banks, except as demands for funds have increased all tax contributions to public treasuries.

Note: Because of rounding, detail may not add to totals. Leaders represent zero or rounding to zero. Source: U.S. Department of Commerce, Bureau of Census, "Governmental Finances in 1966-67," series GF 67, No. 3 (Washington, D.C., 1968), p. 4.

1. Sales taxes.—State general sales taxes were introduced in the depression of the 1930s. They provided many States with quick revenues to help pay costs of relief and public welfare. Property taxes proceed through a time-consuming process of assessment, levy and collection. Income taxes have to be estimated, declared, and collected, a process that consumes some weeks or months. By contrast, sales taxes can go into collection almost as soon as they are enacted with remittances beginning as early as the following month, if this is desired. In some States, too, the sales taxes were among the few types of new taxes which could be enacted without change in the State constitution. In general, these imposts applied to sales of tangible personal property at retail. In some instances, the tax applied legally to vendors, in others, to vendees. Regardless of the legal theories upon which they were enacted, the sales taxes immediately demonstrated their capacity to produce needed funds.

The first State general sales tax was enacted in Mississippi in 1932. Thirteen states adopted similar taxes in 1933, and by 1938 the number had risen to 24. No other tax except the gasoline sales tax had spread as rapidly. In the decade from 1941 to 1950 five additional States adopted general sales taxes; and from 1951 through 1969, sixteen more were dded to the list. In 1970, sales taxes were in force in 45 states, not counting the Delaware use tax on lessees of tangible personal property other than household furniture, fixtures, or furnishings which went into effect July 1, 1969. Such use taxes generally accompanied the general sales tax in order to prevent loss of yields from out-of-state purchases. The spread of sales taxes through the nation is shown in table 14.

TABLE 14.-YEAR OF ADOPTION OF STATE GENERAL SALES TAXES IN STATES THAT USED THE TAX JAN. 1, 1970 1931-40:

Mississippi, 1932; Arizona, 1933; California, 1933; Illinois, 1933; Indiana, 1 1933; Iowa, 1933; Michigan, 1933; New Mexico, 1933; North Carolina, 1933; Oklahoma, 1933; South Dakota, 1933; Utah, 1933; Washington, 1933; West Virginia, 1933; Missouri, 1934; Ohio, 1934; Arkansas, 1935; Colorado, 1935; Hawaii, 1935; North Dakota, 1935; Wyoming, 1935; Alabama, 1936; Kansas, 1937; Louisiana, 1938; total..

1941-50:

Connecticut, 1947; Maryland, 1947; Rhode Island, 1947; Tennessee, 1947; Florida, 1949; total....

Since 1951:

Georgia, 1951; Maine, 1951; South Carolina, 1951; Pennsylvania, 1953; Nevada, 1955; Kentucky, 1960; Texas, 1961; Wisconsin, 1961; Idaho, 1965; New York, 1965; Massachusetts, 1966; New Jersey, 1966; Virginia, 1966; Minnesota, 1967; Nebraska, 1967; Vermont, 1969; total..

Grand total..

1 Gross income tax; in 1963 Indiana enacted a 2 percent retail and use tax.

24

5

16

245

* Excludes the Delaware use tax (effective July 1, 1969), on lessees of tangible personal property other than household furniture, fixtures, or furnishings.

Source: Advisory Commission on Intergovernmental Relations, State and Local Finances: Significant Features: 1967 to 1970, Information report M-50, Washington, D.C., November, 1969, p. 60.

Since these taxes applied to the sale (or purchase) of tangible personal property, they reached not only the transactions of individuals but those of corporations as well. It was natural, therefore, that the States would try to apply them to national banks. Banks were consumers of paper products, printing, ink, typewriter ribbons, office furniture, and the like. If individuals and others had to pay sales taxes, why not national banks? The answer was in section 5219. Sales taxes were not among the permitted taxes, nor were gasoline taxes, cigarette taxes, or liquor taxes, to name a few others. Massachusetts, among other States, applied its sales tax to national banks only to find from the Supreme Court decision in the case of First Agricultural National Bank of Berkshire County v. State Tax Commission that this could not be done.1

The logic of extending retail sales taxes to national as well as other banks was so unassailable that many banks prior to 1968 paid the tax in many States without protest. The items covered were seldom large, so the tax ordinarily was not a substantial burden. Nevertheless, it remained for P.L. 91–156 in 1969 to legalize sales and use taxes on national banks.

1392 U.S. 339 (1968); see above, p. 263 in this appendix.

No matter how fast States worked to adopt new taxes, the demand for additional funds in the late 1960s outran their efforts. States with income taxes adopted sales taxes to supply needed revenues; States with only sales taxes adopted income taxes-and all asked for greater financial assistance from the Federal Government. By 1970, the dual use of income and sales taxes seemed to cover three-fourths of the country.3

3. Mortgage recording and transfer taxes.-Mortgage recording taxes, or real estate transfer taxes with broader coverage, received a great impetus for State adoption when the Federal transfer tax was abolished. No longer could States depend upon Federal revenue stamps for data with which to compute sales ratios for use in assessment and equalization of property taxes. If they were to secure such data conveniently they had to enact their own taxes. On January 1, 1970, 37 States and the District of Columbia had such levies. Fourteen States enacted real estate transfer taxes in 1967; six States adopted them in 1968 and 1969. Kansas was the only State that had a mortgage recording tax in 1926 but did not have it, or its equivalent, in 1970. Most of the States which had this tax in 1926 have since reenacted it with wider coverage and changes in rates. Details of the real estate transfer taxes are shown in table 16.

Although the primary objective was not necessarily revenue, collections under the Florida documentary tax were substantial—over $35,256,000. In Pennsylvania the yield was $27,432,000; in Virginia, $7,469,000; and these taxes in Massachusetts, Minnesota, and South Carolina each produced over $2,000,000 per annum. In twenty-eight States the tax was collected by means of revenue stamps which indicated the true value of the property transferred. On most transfers the amount of the tax, or of stamps purchased, was not burdensome.

3 For maps showing (1) the extent of use of broad-based personal income taxes and (2) the use of both personal income and general sales taxes by States (December 31, 1969), see Advisory Commission on Intergovernmental Relations, State and Local Finances: Significant Features: 1967-1970, Information report M-50, Washington, D.C., Nov., 1969, p. ii.