TABLE 20.-STATE TAXES ON BANKS ACCORDING TO OR MEASURED BY NET INCOME (EXCISE TAXES): 1969-70-Continued State South Dakota.. Description of law Basis: Net income. Income from Government securities not excluded from gross income 1 Rate of State tax increased from 5 to 52 percent with surtax of 214 percent; rate on trust companies and savings and loan associations not changed but same surtax applied. Provision effective July 1, 1970. See also text comments at p. 332, 2 Does not include deposit tax on savings banks. * See also text comments, infra at pp. 332, 339, 340. Source: Compiled from Commerce Clearing House, Inc., State Tax Guide (Nov. 1, 1970). TABLE 20A.-TREATMENT OF INTEREST RECEIVED ON GOVERNMENTAL OBLIGATIONS AS AN ELEMENT IN STATE AND LOCAL TAXES MEASURED BY NET OR GROSS INCOME OF COMMERCIAL BANKS, JAN. 1, 1971 [CB-Commercial banks, State and national banks, OF-Other financial institutions, G-Corporations, generally, NB-National banks, SB-State banks] State State and local obligations of the taxing State State and local obligations of other States U.S. Government obligations Differences from treatment of similar re- Reference to State revenue laws ceipts of corporations (1) (2) (3) (4) (5) (6) Alabama. Included (CB, OF).. Included (CB, OF). Included (CB, OF).. Interest from Alabama State and local Sec. 425(b), title 51, Code. obligations and U.S. Government obliga tions is exempt from taxation under the corporate tax law. Under the corporate tax law, interest from Sec. 43.70.030. all 3 categories is exempt. Cols. 2, 3, 4, are excluded from the cor- Secs. 47-1701, 47-1703. porate income tax. None Excluded (NB, OF, G). Included (NB, OF, G). Excluded (NB, OF, G).. do. Included (G). Included (G). Included (G). .do.. Excluded (G)" ..do.. Excluded (G). .do.. Connecticut.. Delaware. Included (G). do.. Included (G). do.. Exlcuded (SB, OF, G). Included (SB, OF, G). District of Columbia.. Included (CB, OF). Included (CB, OF). Excluded (SB, OF, G). Included (CB, OF). do. A Corpcions do not pay taxes on the Secs. 72 15A-1 to 72-15A-15. Perost oa federal soligations is excluded Tax law, arts. 9A, 9B, 9C. Operations do not pay taxas 30 United Secs, 44-14-13, 44-14-14. Se6, 67-2701 TABLE 20A.-TREATMENT OF INTEREST RECEIVED ON GOVERNMENTAL OBLIGATIONS AS AN ELEMENT IN STATE AND LOCAL TAXES MEASURED BY NET OR GROSS INCOME OF COMMERCIAL BANKS, JAN. 1, 1971-Continued [CB-Commercial banks, State and national banks, OF-Other financial institutions, G-Corporations, generally, NB-National banks, SB-State banks] State State and local obligations of State and local obligations of other States U.S. Government obligations Differences from treatment of similar re- Reference to State revenue laws ceipts of corporations 1 This entry reports the treatment of interest under the license tax on gross receipts. 2 Included in the income base unless such interest has been specifically excluded by Colorado Only municipal revenue bonds are exempt. 4 Certain State and local obligations are exempt from income tax under the laws of Kansas authorizing their issuance. 5 If a State bank pays the franchise tax instead of the corporate income tax, the interest from obligations would follow (b) instead of (a). • State banks pay both tax (a) the bank tax and (b) the corporate income tax. 7 In Ohio, local governments impose income taxes, but provisions pertaining to banks vary. 8 There are 1 or 2 exceptions where the interest from these obligations is exempt. 10 In Vermont, banks are subject to both a corporate net income tax (a) and a franchise tax on bank- Source: Table compiled by Mrs. Arlene Lustig, Division of Research and Statistics, Federal Reserve The thing that distinguishes the excise "measured by" from a direct tax on net income is not just the use of a State-granted "privilege” as a basis for the tax but, more especially, the definition of income. By design, the excise tax was framed to include in the tax base income derived from Federal tax-exempt securities-a concept to which some objected, and one which gave Massachusetts trouble when that State adopted it overtly but was sanctioned by the Supreme Court when used by New York and California. The importance to the States of including income from Federal securities in the tax base is clear. In 1954, for example, national banks in the 18 States with excise taxes had net income before taxes of $602 million, of which $283 million, 47 percent, came from interest on Federal obligations. The Federal securities deductions arise because of the character of our federation with its dual sovereignty for the national government and the States. No similar impediments prevent one State from taxing the obligations of another State held by its own residents or income therefrom. The usual deductions from gross income include the appropriate costs of doing business. Some States tie these deductions to those permitted under the Federal income tax. This is done in Massachusetts, Michigan, and New Mexico. Other States add deductions of their own. Minnesota allows deductions for dividends paid to the United States or to instrumentalities exempt from Federal income tax on preferred stock owned by them-probably an obsolete provision. New Mexico excludes income taxed to another member of an affiliated group of corporations. New York excludes specifically among enumerated deductions reasonable contributions to non-taxable employees' trusts. Bad debt charges in Oklahoma cannot be deducted unless charged off in the taxable year. Rhode Island allows the deduction of dividends received from stock of any corporation owning over 50 percent of its business in the State, or of any public utility if over 50 percent of its earnings are apportioned to the State, or of any banking institutions liable for this tax. How burdensome upon the national banks are the taxes "according to or measured by" net income? At least in the early years, they were less burdensome than the share taxes which they generally replaced.66 They also produced less than the 3, 4, or 5 mill taxes on invested capital would have produced. Like the direct tax on net income, the excise tax is not paid unless net income is realized. When there is no 61 Cf. Welch, op. cit., p. 160n, citing Professor C. G. Piehn to this effect in the California Law Review, vol. 17 (1928-29), pp. 364–69. Macallen Co. v. Massachusetts, 279 U.S. 620 (1929). 6 International Films Corp. of America v. Ward. 282 U.S. 379 (1931); Fox Film Corp. v. Doyal, 286 U.S. 123 (1932); Pacific Co. Ltd. v. Johnson, 285 U.S. 480 (1332). See especiality Thomas Reed Powell, "The Macallen Case and Before" and "The Macallen Case-and Beyond," in National Income Tax Magazine, vol. 8, pp. 47f, 118f (1930). Also Weich, op. cit., pp. 50-53. The Massachusetts tax law was later amended to conform to the decision (Acts 1930, ch. 214; Acts 1933, ch. 327): ibid., p. 53. Helmberger, op. cit., p. 120. Refunds required in Massachusetts as a result of the Macallen decision amounted to 31.8 percent of taxes originally assessed for 1928. Welch, ibid., pp. 156–57. 0 Cf. table 20A. 66 Cf. Welch, op. cit., p. 165. The last year the share tax was in effect in Californis (1928) it produced $4.767,000: the revenue from the excise tax in the next year was $555,000 and in 1930, $906,000. In Massachusetts the share tax produced in its final year $1,038,000 (1922); the excise in its first year. $1.086,000. In New York the comparison was $13,905,000 (1926) to $6,501.000. In Oregon it was $411,000 (1929) to $140,000. In Utah the last year of the share tax produced $281,000 (1930); the excise yield in 1932 was $28,000. The Wisconsin share tax yielded $1,935,000 in 1926, the income tax yield in 1925 was $406,000. Ibid., table XIX, p. 166. Revenue from personal income taxes on dividends paid to shareholders is not included. For year-to-year changes in Massachusetts. cf. Kimmel, op. cit., p. 47. Additional data appear in Woosley, op. cit. p. 83. Woosley, op. cit., p. 90. 66-236-72-pt. 3 -23 |