Where, as in several European nations, the value added faé ja employed, the consumption type is favored This form seeing in present fewest complexities for compliance and administration and now enjoys the advantage of widespread familiarity Since il réimpla saving, it enjoys the support of those who argue that it is wrong frian the standpoint of efficiency in resource allocation to faz ineothe Het clusive of saving and who fail to see redeeming erpuiky zaina in dond so. Our objective here, however is to ežamalo the ailem natija for 1998 of value added in terms of their merits as a bad for mtachern auf interindustry tax comparisons and not jeneruel) at a bal subject of taxation. Thus even if ve grat a tax base, for our juroses 1 muffers from the fact hat along t deduction of tacital outlas would be like? It has been argued that value added for commercial banks is difficult. to estimate because of the "free" services rendered to depositors. This is, admittedly, the case for the Department of Commerce, concerned with estimating that part of consumption that consists of such services.23 For our purposes, however, using the additive approach suggested, value added appears to be as unequivocal conceptually and from an accounting standpoint for banks as it is for other industries, even manufacturing, in which it has long been a familiar and widely used concept. It appears to us that value added most closely meets the criteria. stipulated at the outset of our discussion of the choice of a base or bases for tax comparisons. The data are available from income tax returns, although they are not now published in adequate detail. If either of the favored versions of value added is accepted there is not likely to be large capricious or controllable variance in the size of the base for any firm or industry. The value added base will provide for commensurability between firms and industries engaged in widely divergent kinds of activities. And, finally, with value added as the denominator, tax "burden" ratios will clearly reflect unneutralities where and to the extent that they exist. CONCLUSIONS That there are conceptual problems associated with efforts to compare tax burdens is clear enough, even in the case of interpersonal, as opposed to intercorporate or interindustry, comparisons. It is equally clear that these problems are unlikely to be soluble in a manner that will be satisfactory to all interested parties. Nevertheless, the first step inevitably involved in the effort to produce informative tax comparisons must be agreement on the objectives we seek in drawing these comparisons. We may, with the skeptic, hold that the only appropriate base for comparison purposes is that one which best makes the case for tax relief for the industry in which we are interested. This is to suggest that those responsible for minimizing the tax burdens of their specific industries or firms are unlikely ever to agree that one base is clearly superior to another. Tax minimization for a given industry or the effort to stave off tax increases for that industry are not the kind of objectives that will produce the agreement we have in mind. If, however, our comparative tax measures are to be so designed as to inform us about the relative weight of taxes among industries, the comparative measure that appears to us to be far superior to alternatives examined is value added. Given other objectives, however, it is conceivable that there may also be a useful role for such bases for comparison as net income or gross receipts, despite their quite obvious shortcomings. Much as we should like to believe otherwise, it is probably still true that "... the tax burden ratio method of testing for overtaxation is not a simple and objective process from which impartial and informed investigators are bound, or even likely, to emerge with a single answer.' 9 24 ANN ARBOR, MICH., March 3, 1971. 23 See Office of Business Economics, U.S. Department of Commerce, op. cit., p. 47. 24 Welch, Carrier Taxation, p. 394. APPENDIX 10 Liability of National Banks for Generally Applicable State and Local Taxes Under the mtem pernait df PL. 5-15 in addition to preser dy authored tale my sit te portes subdivision may pose of LACOLA DELke a stums I use thE & THE ESTATE LAX or a tax of the Occuplary of reu este CORTMENT&T taxes. tangible personal property tales except of fist or furnt, and Tarious rense. registration and tulsfer fee or taxes imposed with respect to the Ownership, use or trade of tag de persona proppery. Provided the SELECT puements are met, these tases may also be imposed of a maDOA DALE DO having ite prispa place of business within the taking state Ensining takes of the types mentioned become effective as tLATILA DALES Vathor urger state legislative action So long as 1 there is nothing in the sting law to barite imposition, for example, & sper statutory enemy tion in favor of national banks, and 2 the state o pozuru sion mod did not already impose another tax or al mereased nude of tax in den thereof.? The interior provisions of the new low bust perit the imposition of any generaly EXPUCEDE STATE OF JOEL TEX on a national bank except & tax on intangive persica propery. However, save for the taxes enumerated Loome, the imposition of other generaLT apparatie taxes are subject to two Anitarions. First a tax of this type may be imposed Only by Amative avion al sequent to December 24. 1909, the effective case of P... K-156. Senóba, ent & tax may be imposed only of the state or political stoluso in vijek the Ladona bank has ite principe, place of business. If the permanent provisions of P.L. 21-156 become effective without farther amendment by Congress, a state and its poitra Subdisios wold be free to impose any type of tax or compilations of taxes of nationa DELLE COLLEE ing business activities with the state or politica subirision, vinether or not the prineops ofce of the bulk were located to that state. In short, the status of a national bank for state and volk tax purpose: WOLL DE THE SAME as any other Dustless CorporatioL. No specie probleme are foreseen in connection with the impositic of the taxes Rogoodtionally authorised in the interim provisions of P.L. 91-155. surt be skies and use tales taxes of tangible på SOLL. property, Locumentary tales, motor vehicle fees and taxes, and the like. Astortingy, the comments with folow deal oly with those potentia new tensions to the taxation of national banks which 1. The "doing business" types of taxes from which, save for taxes on or measured by net income, national banks have hitherto been exempt under R.S. Sec. 5219; 2. Taxes on intangible property other than the share tax authorized by R.S. Sec. 5219; 3. Exposure of a national bank to liability for "doing business” types of taxes, including taxes on or measured by net income, in a state other than the one in which its principal office is located; and 4. The division, apportionment or allocation of income, assets or other taxable base attributable to business activities in two or more states. Presumably the states generally will continue their usual practice of taxing state banks comparably to national banks in which case these comments are equally applicable to the taxation of state banks. In any event, constitutional principles would no doubt prohibit a state from discriminating against a national bank by taxing state chartered banks on more favorable terms than national banks. "DOING BUSINESS" TYPES OF TAXES Aside from taxes on or measured by net income, the major "doing business" types of taxes authorized by P.L. 91-156 are (1) those on or measured by the value of issued or authorized capital stock or the use of capital or property within the state, and (2) those, other than retail sales taxes, imposed on or measured by gross receipts or gross income from business activities within the state. CAPITAL STOCK TAXES Taxes on or measured by capital stock or the use of capital or property in the state are imposed in 32 or so states. These taxes variously referred to as corporation franchise taxes, corporation license taxes but perhaps more frequently as capital stock taxes, are conceptually a type of property tax. However, from a legal standpoint, they are usually imposed in the form of an excise and thus are not subject to the uniformity requirement which might be applicable to a property tax. The legal incidence of this type of tax differs somewhat from state to state, but generally speaking, it is imposed on the privilege of doing business as a corporation, on the privilege of exercising the corporate franchise or of conducting business activities including the use or ownership of property within the state, or as a license to do business in corporate form. The kinds of activities that constitute doing business may be spelled out in some detail. Capital stock-type franchise taxes may be classified in three groups in respect to their application to domestic and foreign corporations. In one group of states, a domestic corporation is taxed on the total amount of its authorized or issued stock and a foreign corporation on that proportion of its capital stock representing capital employed or business done in the state. Alabama, Florida, Georgia, Kansas, Nebraska, Washington, and West Virginia are in this category. In the second group, domestic and foreign corporations alike are taxed on that proportion of the capital employed or business done in the state. Arkansas, Illinois, Kentucky, Louisiana, Michigan, Mississippi, Missouri, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas and Wyoming are in this group. In a third group of states, the capital stock of a domestic corporation is subject to a tax graduated by brackets while foreign corporations pay a low flat fee. The states in this group are Colorado, Maine, Maryland, Oregon, Rhode Island, Virginia, and the District of Columbia. New Hampshire probably should be classed with this group since a foreign corporation pays only an annual "maintenance fee." Delaware taxes the capital stock of domestic corporations only and there are alternative invested capital provisions in the general corporation taxes measured by net income in Connecticut, New Jersey and New York, and a property element in the general corporation excise (income tax in Massachusetts. Idaho taxes both domestic and foreign corporations on the full amount of authorized capital stock. For the most part, capital stock taxes are imposed at a mill per dollar for equivalent basis or at bracket rates graduated according to the value of the capital stock or the amount of capital employed in the state. The use of minimum and maximum rates is not uncommon. For example, in Florida, the minimum tax is $20 and the maximum is $2.000. The maximum is imposed in respect to $2,000,000 or more in capital stock issued by a domestic corporation or a similar amount of capital employed in the state by a foreign corporation. Examples of rates in other states are: Alabama. $2.50 per $1,000 of capital employed; Michigan. $5 per $1.000; Ohio, classified rates ranging up to $5 per $1,000, and Pennsylvania. $7 per $1.000. The bases of cavital stock or franchise taxes also vary considerably. In some states. the value of a cor, oration's capital stock is the stated value of the authorized or issued stock or the stated value of the stock plus paid in survins. In others, the male of the capital stock for camp ital stock or franchise tax proses may include the stated value, undivided stri is, reserves and borrowed capital. In most states, capital stock and franchise taxes are generally applicable to business corporations alsough there are exceptions, for example, an insurance con Sany wzich pars a gross premium tax in lieu of other takes excabt Lose on reaj ostate, Banks are also expressly exempt from tapital sterk mnd francaise taxes of this kind in some states. monition vont wing all its business operations in ≫ tauital stock or Tranenkse tax involves no unusual trition and the amount of tax paid xle and base in effect in the state wxrge from a nominal amount eggewy tax on the assets repres |