State Alabama.. Arizona 1 Colorado Connecticut....... Hawaii.. Maryland..... South Carolina..... Tennessee.. Utah.. Vermont. Wisconsin.. TABLE 19.-STATE NET INCOME TAXES ON BANKS: 1969-70 Description of law Basis: Net income. Rate 6 percent of net income. Applies to national banking associations, banking associations, trust companies, industrial and other loan companies, building and loan associations, and any other institutions or persons coming into competition with banks. Basis: Net income. Rate: Progressive on taxable income, 2 percent to 8 percent, as all domestic and foreign corporations. All banks, investment companies and savings and loan associations, including Federal savings and loan associations subject to all taxes levied on a nondiscriminatory basis throughout State or any political subdivision to same extent as other corporations. Applies to all corporations. Basis: Net income. Includes interest income on State obligations other than those of Colorado. Deductions include income from U.S. obligations and those of U.S. instrumentalities to extent included in Federal adjusted gross income but exempt from State income taxes under U.S. law. Rate: 5 percent. Applies to all corporations. Basis: Amount of interest or dividends credited to savings accounts of depositors or shareholders. Rate: 8 percent, Jan. 1, 1969 and prior to Jan. 1, 1971 or 4 mills (Jan. 1, 1969 to Jan. 1, 1971) per dollar of average par or face value of indebtedness plus average value of issued and outstanding stock plus average value of surplus reserves and undivided profits less average value of deficits on private stockholdings, whichever is larger. Minimum tax $45 on and after Jan. 1, 1969 and prior to Jan. 1, 1971, except for State banks and trust companies, national banks, mutual savings, savings and loan associations and building and loan associations on which minimum tax is 3.2 percent of interest or dividends credited to accounts of depositors or shareholders. Applies to all savings banks and associations. Basis: Entire net income as defined under corporate income tax law. Includes income Basis: Allocable net earnings, including taxes paid to Maryland and other States. Rate: Basis: Net allocable income with no allowance for Federal income or excess profits taxes. Basis: Net income allocable to State. Rate: On national banks, 6 percent net income or Basis: Net income i.e. gross income less allowable deductions. Rates: 1st $1,000, 2 percent; 1 Excise tax repealed, May 18, 1970, effective Jan. 1, 1970. 2 Excise tax repealed as of Mar. 16, 1970. Source: Compiled from Commerce Clearing House, Inc., State Tax Guide Nov. 1, 1970). Ability to pay relates to persons, not corporations. Except under selective income taxes, such as in Massachusetts, distinctions ordinarily are not made among the various types or classes of taxpayers subject to a given income tax law. Thus, no differences of tax treatment are accorded to State or national banks or to mercantile, manufacturing, or business corporations. Uniformity is the rule. Although various other businesses are not homogeneous, State and national banks at the present time are so nearly alike it is hard to distinguish between them. Since the currency issuance function of national banks was taken over by the Federal Reserve System, the major feature distinguishing them over the years has disappeared. The slight differences in powers have been gradually eroded, and variations in supervision appear to be minimal, particularly since State banks have become members of the Federal Reserve System in large numbers and nearly all have embraced the protection of the Federal Deposit Insurance Corporation. The remaining differences do not furnish a basis for differential tax treatment. State and national banks are usually taxed the same under the various State net income tax laws. Savings banks, building and loan associations, credit unions and the like are often distinguished from other financial corporations and accorded different tax treatment. They have seldom been considered "other moneyed capital" competing with national banks. The requirement that national banks shall be taxed no higher than mercantile, manufacturing, and business corporations pays little heed to the generic differences between banks and these corporations. Only banks can create deposits out of which they earn income. Tax-exempt income plays a larger role in bank income than in other corporations, so that its exclusion from taxable income gives banks a great advantage over other corporations. Some students of bank taxation think banks, because of differences from other corporations, need to be taxed at higher nominal rates if equality is to be attained.58 The direct net income tax option under section 5219 never has been popular with State officials. The exclusion of income from Federal securities, which reduced the yield of the tax, was the primary difficulty. The excise tax which could reach exempt income has gradually replaced the net income tax. 3. Tax measured by all income (Excise tax).-Permission for States to impose upon national banks a tax "according to or measured by" their net income was granted in the 1926 amendment. They were authorized specifically to "include the entire net income received from all sources." As in the case of the direct tax "on" net income, "the rate shall not be higher than the rate assessed upon other financial corporations nor higher than the highest of the rates assessed by the taxing State upon mercantile, manufacturing, and business corporations doing business" within the limits of the taxing State. This provided the widest possible base for the tax-income from all sources and limited the applicable rate to that used on other financial and general corporations. The same conditions applied to inclusion of national bank dividends in the taxable income of individual stockholders. The States using the formula of "according to or measured by" net income generally enacted the tax as a privilege or franchise tax for the privilege of doing business in the State. It was also called an "excise" for the same purpose. Thus, the tax in legal contemplation was not a tax on income directly but upon one of the vague privileges conferred by the State, the value of which could be measured by something else. In this case it was measured by total income from all sources including income from Federal tax-exempt securities.59 58 Helmberger, op. cit., pp. 155, 160-61; Woosley, op. cit., pp. 85-90; and cf. Welch, op. cit., pp. 61-2, 218-20. 59 For the earlier history of this tax, cf, supra, pp. 215-21 and 255-62 in this appendix. Following the lead of Massachusetts in 1925, other States adopted this approach: New York (1926), California (1929), Washington (1929), Oregon (1929), Utah (1931), Alabama (1933), Idaho (1933), Oklahoma (1933).60 By 1970 the excise "measured by" net income was in effect in 15 States, as is shown in table 20. Two States, New York and Kansas, allow supplementary local levies of the type used by the State. New York City can impose its own supplement or excise; Kansas permits city and county supplemental taxes administered by the State Department of Revenue. The tax rates specified in the laws range from 2 percent in Alaska and the counties and cities in Kansas to 13.09 percent in Minnesota. California and Massachusetts have the rate determined by State boards so that the rates can take account of the various taxes that apply to corporations other than banks. These "equivalent" rates are determined annually and may be fixed without endangering the constitutionality of the whole law and without violating section 5219. New York has an alternate minimum tax; Rhode Island has a choice of taxes. Six states and New York City specify minimum taxes ranging from $100 to $10. Permissible deductions vary from State to State and so does the coverage of the laws. In Alaska and Minnesota, only State and national banks are covered by the excise. North Dakota adds trust companies, Oklahoma adds credit unions, North Carolina adds business development companies, Oregon adds financial and other corporations. The Michigan and New Mexico laws cover financial institutions, with a fairly complete enumeration. California omits no business; its law covers all corporations doing business in the State. Other variations are shown in table 20. The in-lieu features vary. The most common provision is that the excise shall be in lieu of all taxes except those on real estate. This is the law in California, North Dakota, Oregon, and South Dakota. Sales and use taxes are included in Michigan. Minnesota's in-lieu provision includes all taxes on capital, surplus, assets, and shares except real estate. Missouri's tax is in lieu of taxes on bank shares and personal property, neither of which could be taxed under section 5219, the one because the excise option was being utilized, the other because it was not permitted. Of like character is the in-lieu provision in North Carolina, which includes tangible and intangible personal property, franchise, income and share taxes. 60 Woosley op. cit., pp. 74-75; Kimmel, op. cit., pp. 45-56. TABLE 20.-STATE TAXES ON BANKS ACCORDING TO OR MEASURED BY NET INCOME (EXCISE TAXES): 1969-70 State Alaska...... California. Hawaii Description of law Basis: Net income means taxable income before deduction of net operating loss and official Basis: According to or measured by net income allocable to California for previous year. Basis: Net income including income from U.S. Government and municipal securities to (City and county Any city or county imposing an earnings tax on corporate or individual incomes must im- Massachusetts 2. Michigan.. Minnesota... Missouri. New Mexico.. Basis: On banks, gross income from all sources less deductions allowed by Federal Revenue Act for the year, other than losses in other fiscal years and other than dividends. Tax on savings banks measured by net operating income, i.e., gross income from all sources less (1) operating expenses, (2) Federal and State taxes, (3) net losses on assets and (4) minimum additions to guaranty fund or surplus required by law. Rates: Tax rate on net income of banks determined annually by State commissioner of taxation and corporations. Maximum rate is 11.4 percent (Laws 1969, ch. 546). Rate on savings banks is 1 percent annually. In lieu of corporate excise (income) tax Applies to banks, banking associations and trust companies, including cooperative banks organized under Farm Credit Act of 1933 doing business in Massachusetts. Tax on savings banks applies to all including cooperative banks, Massachusetts Hospital Life Insurance Co., and State and Federal savings and loan associations. Basis: Federal taxable income, as defined in §63 Internal Revenue Code, except no add Basis: Gross income less deductions excluding property consisting of bonds, stock, notes, See footnotes at end of table, p. 335. TABLE 20.-STATE TAXES ON BANKS ACCORDING TO OR MEASURED BY NET INCOME (EXCISE TAXES): 1969-70-Continued State New York 3.. New York City 3 North Carolina... North Dakota.. Oklahoma.... Oregon... Rhode Island.. Description of law Basis: Net income from business of whatever kind and in whatever form received less (1) ordinary and necessary business expenses, (2) interest, (3) taxes other than on income or profit but including net income taxes of New York City, (4) uninsured losses, (5) bad debts, (6) depreciation and obsolescence, (7) amortizable bond premiums, (8) reasonable contributions to nontaxable employees' trust. If business is carried on within and without New York allocations are made under rules prescribed by Tax Commission. Savings banks may deduct interest credited to depositors, repayments of loans or advances from mutual savings bank fund, and interest subject to minimum tax. Deduction on tangible depreciable business property situated in New York allowed at twice rate of Federal income tax, for property acquired new and first used after Dec. 31, 1963, or which is constructed, reconstructed or erected after that date. Taxpayers owning and operating eligible facilities in low-income urban areas allowed specified credit but not to reduce minimum tax. Financial institutions servicing mortgages acquired by State of New York Mortgage Agency entitled to annual credit against tax of 14 of 1 percent of principal due on 1- or 2-family dwellings and of 10 of 1 percent on multiple dwellings. Rate: 6 percent since passage of U.S. Public Law 91-156, due to permission for States to impose sales and use taxes on national banks if State banks were similarly taxed. (Prior to Public Law 91-156 rate was 7 percent.) Minimum tax of $50 and not less than 14 mills per dollar of allocated capital for domestic and foreign corporations doing business in New York, except savings and loan associations which pay minimum tax of $50 and not less than 2 percent of interest credited to depositors in preceeding year. Applies to State banks, savings and loan associations, trust companies (other than a trust company owned by not less than 20 savings banks), domestic trust companies organized under special or general laws of New York, and other domestic financial corporations, national banks and production credit corporations after stock held by Federal credit corporations is retired. Basis: Net income as determined for State tax, above, except no deductions are allowed in re new buildings, permanent improvements, or restorations. Double deduction, as in State tax, applies only to depreciable tangible property situated in New York City constructed, reconstructed or erected after Dec. 31, 1965. Allocations for business carried on within and without State prescribed by finance administrator. Rate: 42 percent allocable net income of banks, production credit corporations and financial corporations, or, if higher, 1 mill per dollar of apportioned issued capital stock. Minimum tax $10. 42 percent of allocated net income of savings banks, savings and loan associations or, if higher, 2 percent of interest or dividends credited to depositors or shareholders but not in excess of interest or dividends at rate of 2 percent per year, or $10. Applies to same groups as State tax alone, including foreign financial corporations doing business in city. Corporations subject to New York City corporate income tax excluded. Basis: Entire net income including income from all sources during preceding year, including all income from Government securities, except obligations of State and political subdivisions thereof. Excise tax on building and loan associations (in addition to a capital stock tax) is based on net taxable income of preceding year less all dividends paid on outstanding shares. Rate: 6 percent of net income of banks; 41⁄2 percent on building development corporations, with minimum tax of $10; 71⁄2 percent of net income of building and loan associations. Applies to National and State banks and banking associations, and business development companies. In lieu of intangible personal property tax, franchise tax, income tax, taxes levied on shares of stock of banks and taxes levied upon tangible personal property by local jurisdictions. Excise tax also covers building and loan and savings and loan associations doing business in State. This tax and capital stock tax on such associations in lieu of all taxes and fees except those in subchapter I, ch. 54, Genl. Stat., ad valorem taxes, sales and use taxes, and taxes levied on intangible personal property. Basis: Net income for preceding year, including amounts from tax-exempt securities. Basis: Net income, with no allowance for bad debts unless charged off within taxable year. See footnotes at end of table, p. 335. |