TABLE -STATE NATIONA, BAM BATIKI FOR SELECTED MEASURES OF STATE-LIDAL TAD EXPENSE

In many cases, there was no ready discernibue relationship ber tween the relative percentage fr Nana and State banks withİL & State and the presence or absence of special taxes or State banks IL that State. This probably means that the effects of the tax differences were outweighed by differences in characteristics of National and State banks vithin the various States, meiuding their size distribution, type of business, branching status, and other factors.

The higher over-al tax ratios for State that for national banks appear to De attributabile mainy to differences at the larger baliks. For banks with total deposits under $200 million, for example, the ratios of State and local taxes to the various measures in table & show no marked or consistent differences, with the ratios for State banks being somewhat higher than those for national banks in 4 cases and the same or lower in 4. However, a widening spread of State-bank ratios above those for national banks emerges as the size of bank increases. For banks in the largest size class total deposits of $500 million and over the differences are marked-for example, the ratios for National and State banks are 14.68 and 18.48 percent, respectively, for net income after taxes and 1.64 and 2.04 percent, respectively, for equity capital.

While the survey data alone do not provide an explanation for these charter-status differences among large banks, the data on the relative importance of various types of taxes at large national and State banks suggest one possible influence. With respect to tangible personal property, sales, and the miscellaneous-other categories (which are in large part sales taxes)-types of taxes that were not legally enforceable against national banks in 1969-large national banks showed much smaller relative shares than large State banks. At smaller banks, on the other hand, the differences were less marked (table 10). The minimal amounts of these taxes reported by large national banks may reflect in part greater awareness of the law exempting them from certain taxes (particularly following the 1968 Supreme Court decision rejecting the sales tax for national banks"), greater concern about stockholder suits in case unauthorized taxes were paid voluntarily, or less willingness to pay such taxes as a consideration for gaining State deposits where this might be a factor. In a few jurisdictions, large national banks refused to pay sales taxes whereas smaller national banks in many cases paid those taxes as did the State-chartered banks.

TABLE 10. PERCENTAGE DISTRIBUTION OF STATE AND LOCAL TAX EXPENSES OF ALL INSURED COMMERCIAL BANKS IN 1969, BY MEASURE OF TAX, CHARTER STATUS OF BANK, AND SIZE OF BANK

At both national and State-chartered banks, the tax ratios in table 8 varied directly with bank size, but the spreads between the ratios for the smallest and the largest size classes were wider for State than for national banks for the reasons indicated above. The ratio of taxes to net income before taxes for State and national banks combined was 9.14 at the largest banks, about one-sixth above the smallest-bank ratio, while the ratio of taxes to equity capital, at 1.77, was about one11 First Agricultural National Bank of Berkshire County v. State Tax Commission, 392 U.S. 339 (1968).

TABLE 1-STATE AND LOCAL TA). EXPENSE OF AL INSURES COMMERCIAL BANKO II 1965 PAYABLE IN LARSDICTION OUTSIDE THE HOME STATE B MEASURE OF TW AND CLASE OF BAvt

This minima, vorme of on-of-State taxes for banks is in marked Contrast will other industries similariy engaged to an appreciabie extent in interstate activities. Which pay substantial amounts of out-of-State taxes. The specia, position of banks again appears att

66-236-72-pt. 3

utable at least in part to the restrictions on State powers to tax national banks contained in section 5219. Prior to the 1969 amendments, this statute confined authority to tax national banks to the State in which the principal office of the bank was located, except for taxes on real property. As in the case of the other restrictions in this law, the immunity to out-of-State taxation appears to have carried over to State-chartered banks, although legally they could be taxed by any States in which they transact business. It is also possible, however, that the manner in which State banks operate in foreign States, which generally involves no physical presence, does not often bring them within the taxing jurisdiction of those States.

Notwithstanding their statutory immunity, national banks accounted for 84 percent of all out-of-State taxes reported by banks for 1969. These payments were heavily concentrated at large banks, and were mainly associated with the operations of subsidiaries, which are not covered by the statutory immunity of the banks. Other sources of out-of-State tax liability included taxes on foreclosed property, in a few instances on out-of-State branches and respresentative offices, and on purchases of goods and services in other States.

The major form of tax paid to out-of-State jurisdictions was the income tax, nearly three-fifths of the total. Real property taxes ran second at 28 percent, and sales taxes a distant third at 4 percent. Banks with total deposits of $500 million or more accounted for all the out-of-State income tax, about three-fourths of the real property tax, and about 85 percent of the sales tax. Thus, to the extent smaller banks paid out-of-State taxes, they were mainly real property or "other" taxes (mainly sales and use taxes).

Only 227 banks are estimated to have incurred out-of-State tax liability for 1969, about two-thirds of them with liabilities in only one foreign State. The average number of States per respondent was just under two. Payments in appreciable numbers of States were reported only by a few large money-market banks. The affected States for most respondents were adjoining or nearby States. Where a more distant State was involved, the State mentioned most often was New York, and in several of these cases, the tax was associated with a bank's Edge Act subsidiary.12

Banks paying out-of-State taxes were distributed over 39 States and the District of Columbia. The maximum number of banks in any State that is estimated to have paid out-of-State taxes is 20-the total from Florida.

Changes in Taxes after December 24, 1969

To provide information on the extent to which bank taxes had been affected by the enactment of Public Law 91-156 respondents were asked to report information concerning any significant change (exclusive of a change solely in rate) in State and local taxes that had been

12 As part of a major revision in the report of income required by Federal bank supervisory authorities beginning with the year 1969, all banks were required to prepare a consolidated statement on an item by item basis for the bank and its domestic subsidiaries. For purposes of this statement, the instructions specified that Edge Act Corporations, which engage primarily in international business, are not domestic subsidiaries, but net income remitted to the bank by these corporations continued to be included under "other operating income." This resulted in some ambiguity concerning the treatment of taxes paid by these corporations in the tax expense survey, which requested reporting of the amounts of 1969 State and local tax expense "reflected" in the bank's "Consolidated Report of Income" filed with the Federal bank supervisory authority for that year. Some banks interpreted their Edge Act subsidiaries as being "reflected" in their reports of income and therefore reported taxes for those subsidiaries in the tax expense survey but others apparently did not.

made since the effective date of that legislation.13 For each tax so affected, banks were asked to furnish an estimate of what their 1969 tax expense would have been on the assumption that the change was effective throughout 1969. Thus any increase due to expansion in the tax base as a result of rising income and prices was to be excluded from the calculations.

Only 585 respondents-about one-fourth of all banks in the samplesubmitted information relating to tax changes. In no event would a 100 percent response rate have been expected since in many jurisdictions there were no tax changes to report.

Since the amendment of section 5219 applied specifically to national banks, they were more frequently affected by tax changes than State banks, and 44 percent of all national banks in the sample submitted estimates compared with 16 percent of the State banks (table 12). The response rate for both charter groups varied directly with size of bank, ranging from 34 percent for banks with total deposits of $15-100 million to 65 percent for the largest size group (total deposits of $500 million or more). Although the smallest banks (those with total deposits under $15 million) were given the option of not responding to this question, information was received from nearly 10 percent of all sample banks in this category.

TABLE 12.-BANKS REPORTING INFORMATION ON CHANGES IN TAXES BETWEEN DECEMBER 1969 AND THE SURVEY DATE (DECEMBER 1970), BY SIZE OF BANK AND CHARTER STATUS

The lower response rate at smaller banks may have been attributable in part to the difficulties of re-estimating taxes, but lack of specific information concerning the nature of tax actions that had been taken in their States, particularly actions with a deferred effective date, probably was a more important consideration. Also, as noted earlier, the smaller national banks to a much greater extent than the large ones had been making voluntary payments of types of taxes that were legally applicable only to State banks. The impact of statutory changes therefore was relatively less for the smaller national banks than for the large ones.

The 585 banks submitting tax-change information were located in 41 States. In 5 of these, however, there were only one or two responses, suggesting that the relevant tax change might have been confined to a single local community. In 10 of the remaining 36 States, half or more of all sample banks reported, and in 13 additional States, where tax action apparently had been confined to national banks since no State banks reported, close to half or more of all national banks in those States responded.

13 The "temporary amendment" authorized State and local governments to impose on national banks within the State any generally applicable and non-discriminatory tax (except an intangibles tax, in the same manner and to the same extent as the tax was applied to State banks in that State. As of January 1, 1972 the intangibles tax restriction will be removed under the present language of the "permanent amendment."