Twenty-five States or areas are tabulated as having a tax on bank shares or a tax measured by capital structure or both. It appears, from supplementary materials sent by the tax administrators or from other sources of information, that bank shares are taxable under a selective or classified property tax in 17 of these States;2 in some of these States, there is a separate statute on bank shares taxation. Bank shares. are taxable at general property tax rates under general property taxes in another 7 States or areas.3 Arkansas is included in this group because the tax is being paid under a voluntary arrangement despite an adverse State Supreme Court ruling in 1961. In Illinois, which also is counted among the 7 States, a 1970 constitutional change abolished ad valorem taxation of personal property to individuals, effective January 1, 1971, and a further constitutional revision provides for termination of all personal property taxation before 1979; in the meantime, bank shares held by corporations presumably remain taxable. The 25th area is New York State, where there is no intangibleproperty taxation, but State banks are subject to an alternative tax on capital value previously mentioned. From table B-2 it can be seen that some respondents reported the shares tax under questionnaire item 1.5121 (Intangible property: Shares of bank stock), whereas others reported item 1.620 (Tax measured by capital structure [capital, surplus, undivided profits]), even when the name of the tax was given as bank shares tax or tax on shares of bank stock. Ohio, Tennessee and Wyoming reported both bank shares taxes and taxes based on capital value. The legal distinction between a shares tax and a tax on capital structure is spelled out by Charles F. Conlon in appendix 10 (p. 416). The tax administrators' responses may not all reflect this distinction. One characteristic of taxes on bank shares is that the tax is legally on the shareholder rather than on the bank but the assessment is usually based on a return filed by the bank with the tax then collected from the bank on behalf of the shareholders. Another characteristic is that share taxes ordinarily are part of the local property tax, whereas taxes measured by capital structure are State levies at flatand usually low-rates on nominal values. Of the remaining 27 States or areas, which were not taxing bank shares or capital values in November 1970, 18 do not tax any intangible property or, in some cases, do not tax either tangible or intangible personal property. There is some taxation of intangibles in the other 9 States. A tax measured by income from intangibles in lieu of property tax (questionnaire item 1.540) was also cited on the returns from Kansas (where the tax was called a privilege tax), Minnesota (bank excise tax), and Puerto Rico (personal property tax). 2 Delaware, Florida, Georgia, Indiana, Kentucky, Louisiana, Maine, Mississippi, Montana, Nevada, New Hampshire, New Jersey, Ohio, Pennsylvania, South Dakota, Virginia, and West Virginia. The rates are different from those levied on other taxable property except in Louisiana, Mississippi, and Nevada. Alaska, Arkansas, Illinois, Tennessee, Texas, Wyoming and (for State bank shares only) Puerto Rico. Ohio and Wyoming reported that the shares were taxable to the shareholders rather than to the banks; Tennessee reported that the tax on shares is completely local. California, Colorado, Connecticut, District of Columbia, Hawaii, Maryland, Massachusetts, Minnesota, Nebraska, New Mexico, North Dakota, Oklahoma, Oregon, South Carolina, Utah, Vermont, Washington, and Wisconsin. The reference at p. 12, fn. 6 of pt II, staff report on "State and Local Taxation of Banks" (Committee print) to 18 States and the District of Columbia includes New York, which has already been covered in this text. Alabama, Arizona, Idaho, Iowa, Kansas, Michigan, Missouri, North Carolina, and Rhode Island. 7 The Minnesota bank excise tax was entered under both item 1.530 (net income) and item 1.540, because it is explicitly in lieu of property taxes except those on real property; the base is broader than income from intangibles alone. Although the net worth of banks, or part of it, is the basis for taxes on banks or bank shareholders in some States, as explained above, intangibles taxes on bank assets have been effectively inhibited by the section 5219 prohibition on taxation of intangible assets of national banks, which is still in force under the temporary amendment (section 1 of P.L. 91-156). The 9 States which had entries for item 1.5123, tax on bank assets or any category thereof, explained them as real property taxes; Puerto Rico also reported an unspecified bank assets tax applicable to State banks only. 8 9 As for intangibles taxes relating to bank liabilities, a tax on "bank deposits taxable to depositor and collected from bank" was reported by the tax administrators in only 6 States. Such a tax would be an intangible property tax but not on the banks themselves, and could therefore be considered outside the scope of section 5219. In Rhode Island, national banks were paying on a voluntary basis. From other sources on bank tax law it appears that bank deposits are taxable but with the tax payable by the depositor in 7 States,10 and they also do not appear to be exempt from property taxation in another 11 States,11 although little or no revenue may be actually collected from this base in some of these States. Banks in several other States not mentioned here reported small amounts paid as deposits taxes, as noted in appendix 3. Other types of State and local taxes also are levied against banks, although they tend to be of lesser revenue importance than the net income and shares taxes. In some cases, these other taxes were extended to banks or to national banks only after the easing of Federal restrictions: since December 24, 1969, under the temporary amendment (section 1 of P. L. 91-156), States have been permitted to levy on national banks domiciled in the State not only taxes on real property, net income, dividends, capital value, and deposits, but also any other taxes except a tax on intangible bank assets, so long as the tax is general throughout the taxing jurisdiction, nondiscriminatory, and equally applicable to domestic State-chartered banks. In addition, section 1 of P. L. 91-156 gave a list of taxes which a State could impose on out-of-State national banks after December 24, 1969. In many instances, however, respondents reported that both State and national banks had been paying sales taxes, documentary taxes, tangible personal property taxes and other such taxes prior to December 24, 1969. Where it was explained that such taxes were being paid voluntarily or that they were being disputed, the fact has been noted in the supplementary tabulations. The question of State sales and use tares was a major factor leading to the change in the banking-tax statute. Such taxes are widespread: 43 States or areas (tabulated in table 2 and in more detail in supplement table B-2) report sales or use taxes presently applicable to banks. The questionnaire inquiry was made in terms of vendor, vendee, or "other forms" of sales tax. This distinction has been dropped from the tabulation, however, because some States have hybrid vendor-vendee sales taxes while in other States the intended impact California, Connecticut. Florida, Georgia, Louisiana, Maine, North Dakota, Texas, and Wyoming. Indiana, Kentucky, Michigan, North Carolina, Ohio, and Rhode Island. 10 Arkansas, Florida. Illinois (deposits of corporations only), Missouri, Pennsylvania, South Dakota (deposits drawing interest), and Tennessee, 11 Alaska, Arizona, Georgia, Iowa, Kansas, Montana, New Jersey. Texas, Virginia, West Virg Wyoming. of the law is ambiguous.12 Items 1.551 and 1.553 on the questionnaire (vendor and vendee taxes respectively on sales to banks) were combined as sales tax on sales to banks, while item 1.552 (vendor tax on sales by banks) and one entry under item 1.554 (other forms of sales tax) were classified as sales tax on sales by banks. Several States 13 also reported sales or use taxes on motor vehicles separately. TABLE 2. -STATE SALES AND USE TAXES REPORTED TO BE APPLICABLE TO DOMESTIC COMMERCIAL BANKS, NOV. 15, 1970 Sales tax on sales to banks (43)......-------- ALAB, ARIZ, ARK, CALIF, COL, CT, DC, FLA, GA, HAW, ID, ILL, IND, IA, KAN, KY, LA, ME, MD, MASS, MICH, MINN, MISS, MO, NEBR, NEV, NJ, NY, NC, OH, OKL, PA, RI, SC, SD, TENN, TEX, UT, VT, VA, WASH, WISC, and WYO. Sales tax on sales by banks (32)........ ALAB, ARIZ, ARK, COL, CT, DC, FLA, GA, ID, ILL, IND, IA, KAN, KY, ME, Use tax (on out-of-State purchases by ALAB, ARIZ, ARK, COL, CT, DC, FLA, HAW, ID, ILL, IND, IA, KAN, KY, 1 Information is from banking supervisor, not from questionnaire. 2 Tax is still on State-chartered banks only. Gross income taxes applicable to banks are rare, being used only in the District of Columbia (which was never bound by section 5219), in Indiana (applied as a credit against property taxes on shares, and applicable to State banks only), and in Washington (since the passage of P.L. 91-156). A proposal to subject West Virginia State and national banks to a gross income tax was turned down in 1970 (but the business and occupation tax was extended to banks and financial businesses in 1971). The only other gross receipts entries (item 1.520) appeared to be sales taxes and were tabulated as such.14 Documentary taxes applicable to banks are common, being reported by 32 States, the District of Columbia and Puerto Rico (table 3). Real estate transfer taxes are the most common type reported, and according to the questionnaire responses (see table B-2) such taxes were quite common even before passage of P.L. 91-156; they seem typically to be considered taxes on the borrower rather than on the banks. 12 For example, California is currently involved in litigation over whether the sales tax is a vendor or a vendee tax. 13 This was reported under item 1.554 by Oklahoma, under item 1.630 by Iowa and Texas, and under item 1.640 by Virginia. 14 These entries were for Arkansas and Hawaii; the tax in Hawaii is called the general excise tax. The Alaska business license tax is also on gross receipts, but for banks the tax base is measured by net income plus certain expenses. On the West Virginia tax, see below, appendix 7, p. 376, footnote 21. TABLE 3-STATE ESPORTIE DOCUMETTAP TAKE TAGRIET FERSTAN taxes. Lesponses for States were i fan refering to real prob texes and these States were no listed in the tapILAHOL Motor vetiti tre σ Tee were smlar videspread see Tabre S and probably smal in amount y small fees were redo Tec M. Some States Florian Idane Louisiana Maryland North Carolma megol... In others. Dot fees ac ac racoren waxes were involved District of Columbia Lansas. Mame Massachusetts Washritol, and in the rest of the States tabulated the precise be a fet a lax was not ascertained. Finer wares reported applicable to both. State and national banks in November 1970 besides rea property taxes were license or franchise Laxes Delaware. Tova Virginia Wyoming lux of "didends' paic of deposits New Hampshire various excises Oklahoma, and local utility taxes Virginia, License or franchise taxes or fees applicabie të State banks only were reported by lduno. Kentucky, Minesota, Oregon, and Tennessee. B. BANK TAX CHANGES REPORTED BETWEEN DECEMBER 24, 1965, AND NOVEMBER 15, 1970 Table 4 summarizes the reported instances of taxes which have been newly imposec OL or extended to domestic State or national banks since December 24, 1969. The levying of sales and use taxes on banks " was clearly the most common such change, and in many cases this did not require legislative action but was accomplished through, administrative action. As a result. States which impose sales or use taxes on banks now impose them equally of State and national banks except in hawaii Alabama, Arkansas, Massachusetts, Mississippi, Montana, Nevada, Tennessee, Washin, WYORKIE it indiana New Hampshire and OregoL. rin California, and possibly in some other States, applicability of sales taxes to banks is sti |