1. The system of national bank laws extends to Puerto Rico,
ex proprio vigore and by force of the congressional
declaration (U.S.C., Title 48, § 734) that the federal laws which
are " not locally inapplicable," except the internal revenue laws,
shall have the same force and effect there as in the United States.
P.
294 U. S.
205.
2. A tax on a branch of a national bank is a tax on the bank. P.
294 U. S.
204.
3. Puerto Rico, being a dependency of the United States, may not
tax an agency of the United States, such as a national bank, except
by the clear and explicit consent of Congress, and the general
power of taxation conferred on the insular government cannot be
construed as a consent. Pp.
294 U. S.
204-205.
Page 294 U. S. 200
4. Revised Statutes, § 5219, as amended, U.S.C. Supp., Title 12,
§ 741, defining and limiting the permitted taxation of national
banks and their shares by States, applies to Puerto Rico. P.
294 U. S.
205.
5. This section applies to taxation by Puerto Rico of a local
branch of a bank having its principal place of business in a State,
notwithstanding that, in such case, the permission granted by it to
tax shares may not be availed of by Puerto Rico. P.
294 U. S.
205.
6. A tax imposed by Puerto Rico upon the branches maintained
there by a New York national bank, based upon the amount of its
capital (other than real property) employed in the Island,
held not permitted by R.S., § 5219, and invalid. P.
294 U. S.
206.
7. The fact that § 25 of the Federal Reserve Act, as amended,
refers to branches of national banks in dependencies or insular
possessions in common with those in foreign countries as " foreign
branches" is not indicative of an intention to subject them to
general taxation by the dependencies or possessions. P.
294 U. S.
204.
71 F.2d 13 affirmed.
Certiorari, 293 U.S. 549, to review a judgment reversing a
judgment of the U.S. District Court for Puerto Rico against the
national bank in a suit to recover taxes paid under protest to the
Treasurer of Puerto Rico.
MR. JUSTICE ROBERTS delivered the opinion of the Court.
The respondent, a national banking association whose principal
office and place of business is in New York, applied
Page 294 U. S. 201
for and obtained authority to operate branches in Puerto Rico,
pursuant to § 25 of the Federal Reserve Act as amended. [
Footnote 1] In 1932, the bank, as
required by local law, filed with the petitioner a sworn statement
of assets as a basis of assessment for taxation. By request, but
under protest, it attached a memorandum, stated to be for
information only, in which was set forth the amount of its total
assets, the sum of its capital, surplus, and undivided profits, the
percentage the latter was of the former, and the value of the
assets in Puerto Rico. The Treasurer considered the same percentage
of the assets in Puerto Rico fairly represented the capital there
employed. The amount thus ascertained was $2,439,200, which he
divided into three items -- real property and buildings, $732,560,
other personal property, $1,611,400, and tangible personal
property, $95,240. Applying the statutory rate to $2,439,200, he
fixed the tax at $62,122.98. Upon appeal, the Board of Equalization
sustained the Treasurer's action. The bank voluntarily paid
$17,700.24, the amount attributable to real property and buildings,
but paid under protest the balance of $44,422.74 demanded in
respect of the personal property, and brought suit in the United
States District Court for Puerto Rico to recover the amount.
Judgment in favor of the Treasurer was reversed by the Circuit
Court of Appeals. We granted a writ of certiorari [
Footnote 2] because the case involves the
application and scope of acts of Congress and their effect upon the
taxing power of insular possessions of the United States. [
Footnote 3]
Page 294 U. S. 202
Respondent concedes the competence of the island government to
tax generally, [
Footnote 4] but
asserts that R.S. § 5219, as amended, [
Footnote 5] prohibits a levy on the capital of a national
bank. The further point is made that § 320 of the Political Code of
Puerto Rico, [
Footnote 6] to
which the petitioner refers
Page 294 U. S. 203
as his authority, does not justify the imposition of the tax in
question. This the petitioner denies, and adds that the point was
not presented below, and cannot therefore be mooted here. In
addition to contending that § 5219 as amended never extended to
Puerto Rico, he claims that, in any event, the section was rendered
inoperative in the island by § 25 of the Federal Reserve Act, as
amended. [
Footnote 7]
Page 294 U. S. 204
We find it unnecessary to determine whether the tax was
authorized by § 320 of the Political Code, since we are of opinion
that R.S. § 5219 forbids its collection.
Taxation of a bank's branch is taxation of the bank itself.
[
Footnote 8] The system of
national banks was intended to be coextensive with the territorial
limits of the United States, and, while the consent to taxation
given by § 5219 refers in terms only to the states, it extends also
to territorial governments and sets the limits of their exercise of
the power. [
Footnote 9] The
form of taxation here imposed is not permitted by the §. [
Footnote 10] The organization of a
national bank in Puerto Rico is within the contemplation of the
National Banking Act, but, if there were doubt concerning the
proposition, it finds support in legislation extending applicable
laws of the United States to the island. [
Footnote 11] Although the maintenance of branch banks
is prohibited by the National Banking Act save under narrowly
limited conditions, [
Footnote
12] their establishment in foreign countries, dependencies, and
insular possessions is authorized. [
Footnote 13] Puerto Rico, an island possession, like a
territory, is an agency of the federal government, having no
independent sovereignty comparable to that of a state in virtue of
which taxes may be levied. Authority to tax must be derived
Page 294 U. S. 205
from the United States. But like a state, though for a different
reason, such an agency may not tax a federal instrumentality. A
state, though a sovereign, is precluded from so doing because the
Constitution requires that there be no interference by a state with
the powers granted to the federal government. [
Footnote 14] A territory or a possession may not
do so because the dependency may not tax its sovereign. True, the
Congress may consent to such taxation, but the grant to the island
of a general power to tax should not be construed as a consent.
Nothing less than an act of Congress clearly and explicitly
conferring the privilege will suffice. Not only do we find no such
statutory consent, but we are confronted by R.S. § 5219, as
amended, which
proprio vigore extends to territories, and
the congressional declaration that it, like other statutes of the
United States, shall, if not locally inapplicable, [
Footnote 15] apply to Puerto Rico.
The petitioner insists that this section is locally inapplicable
for two reasons. The first is that the section was intended to
apply only to taxation by the state, territory, or governmental
agency within whose borders the bank has its principal place of
business. The argument is that Puerto Rico cannot avail itself of
the consent to the taxing of respondent's shares, or the dividends
thereon, since the shares have no situs except New York, which is,
in contemplation of law, the association's home. The position is
that the section must be available in its entirety, or else wholly
inapplicable. We think otherwise. If Puerto Rico can and does
collect taxes of any of the types mentioned in R.S. § 5219, as
amended, the mere fact that the situation prevents resort to one of
the other kinds thereby
Page 294 U. S. 206
permitted does not make the statute a nullity in the island. The
record discloses that there has been assessed and collected a tax
on the bank's local real estate, as permitted by paragraph 3 of
R.S. § 5219, as amended, and in addition an income tax upon the
local income, [
Footnote 16]
as permitted by paragraph 1(c). These seem to afford appropriate
and equitable methods of taxation in respect of the association's
local branches and business.
Secondly, petitioner says § 25 of the Federal Reserve Act, as
amended, [
Footnote 17]
exhibits an intention on the part of Congress that, for purposes of
taxation, branches in dependencies or insular possessions shall be
treated as if they were branches established in foreign countries.
The argument is that, as all are mentioned several times in the
section as "foreign branches," and since confessedly the United
States cannot limit or control the method or manner of taxation of
foreign branches, the purpose was not to do so with respect to
those in an insular possession. We think the contention unsound. It
does not follow from the lack of power of the United States in the
one case that it did not intend to exercise its undoubted power in
the other.
We are of opinion that § 5219 prohibits the imposition of the
tax in question. [
Footnote
18]
The judgment is
Affirmed.
[
Footnote 1]
Infra, note 7
[
Footnote 2]
293 U.S. 549.
[
Footnote 3]
See Rule 38, par. 5(b): "Where a Circuit Court of
Appeals . . . has decided an important question of federal law
which has not been, but should be, settled by this Court."
[
Footnote 4]
The Organic Act for Puerto Rico (March 2, 1917), c. 145, § 3, 39
Stat. 951, 953, as amended by the Act of February 3, 1921, c. 34, §
2, 41 Stat. 1096, provides:
"No export duties shall be levied or collected on exports from
Porto Rico, but taxes and assessments on property, internal
revenue, and license fees, and royalties for franchises,
privileges, and concessions may be imposed for the purposes of the
insular and municipal governments respectively, as may be provided
and defined by the legislature of Porto Rico. . . ."
Express authority to levy income taxes was added by the amending
Act of March 4, 1927, c. 503, § 1, 44 Stat. 1418, U.S.C. Tit. 48, §
741.
[
Footnote 5]
Rev. St. § 5219, as amended, U.S.C. Supp. Tit. 12, § 548, so far
as material, is:
"The legislature of each State may determine and direct, subject
to the provisions of this section, the manner and place of taxing
all the shares of national banking associations located within its
limits. The several States may (1) tax said shares, or (2) include
dividends derived therefrom in the taxable income of an owner or
holder thereof, or (3) tax such associations on their net income,
or (4) according to or measured by their net income, provided the
following conditions are complied with:"
"1. (a) The imposition by any any one of the above four forms of
taxation shall be in lieu of the others, except as hereinafter
provided in subdivision (c) of this clause."
"
* * * *"
"(c) In case of a tax on or according to or measured by the net
income of an association, the taxing State may, except in case of a
tax on net income, include the entire net income received from all
sources, but the rate shall not be higher than the rate assessed
upon other financial corporations."
"
* * * *"
"3. Nothing herein shall be construed to exempt the real
property of associations from taxation in any State or in any
subdivision thereof, to the same extent, according to its value, as
other real property is taxed."
[
Footnote 6]
"The assessment of every corporation, joint stock, and limited
liability company not incorporated in Porto Rico but engaged in the
transaction of business therein, other than banks and banking
institutions having a share capital, shall be made in the manner. .
. . All the shares of stock in banks and banking institutions,
whether of issue or not, existing by authority of the United States
or of any the United States, or of Porto Rico, or otherwise, and
located and doing business within Porto Rico, shall be assessed by
the Treasurer of Porto Rico to the owners thereof in the municipal
districts where such banks are located, and not elsewhere. In the
assessment of all Insular and municipal taxes that have been or may
hereafter be duly imposed by law in such municipality, whether such
owners are residents of said municipality or not, all such shares
shall be assessed at their fair market value on the fifteenth day
of January, first deducting therefrom the proportionate part of the
value of real estate belonging to the bank and the persons or
corporations who appear from the records of the bank to be owners
of shares at the close of business on the day next preceding the
fifteenth day of January of each year shall be taken and deemed to
be the owners thereof for the purposes of this section. Every such
bank shall pay to the Treasurer of Porto Rico at the time in each
year when other taxes assessed in the municipality become due the
amount of the tax so assessed in such year upon the shares in such
bank. If such tax is not paid, the bank shall be liable for the
same. . . ."
Compilation of Revised Statutes and Codes of Porto Rico of 1911,
par. 2972, p. 559.
[
Footnote 7]
Act of December 23, 1913, c. 6, § 25, 38 Stat. 273, as amended
by Acts of September 7, 1916, c. 461, 39 Stat. 755, and September
17, 1919, c. 60, § 2, 41 Stat. 286, U.S.C. Tit. 12, § 601.
"Any national banking association possessing a capital and
surplus of $1,000,000 or more may file application with the Federal
Reserve Board for permission to exercise, upon such conditions and
under such regulations as may be prescribed by the said board,
either or both of the following powers:"
"First. To establish branches in foreign countries or
dependencies or insular possessions of the United States. . .
."
[
Footnote 8]
McCulloch v.
Maryland, 4 Wheat. 316, 317-318,
17 U. S.
424-425.
[
Footnote 9]
Talbott v. Silver Bow County, 139 U.
S. 438,
139 U. S. 443,
139 U. S.
446-448.
[
Footnote 10]
Owensboro National Bank v. Owensboro, 173 U.
S. 664.
[
Footnote 11]
Compare Talbott v. Silver Bow County, supra. 23
Op.Attys.Gen. 169.
And compare 36 Op.Attys.Gen. 59.
Section 9 of the Organic Act of March 2, 1917, c. 145, 39 Stat.
954, U.S.C. Tit. 48, § 734:
"The statutory laws of the United States not locally
inapplicable, except as hereinbefore or hereinafter otherwise
provided, shall have the same force and effect in Porto Rico as in
the United States, except the internal revenue laws. . . ."
[
Footnote 12]
R.S. § 5155, amended by Act Feb. 25, 1927, c.191, § 7, 44 Stat.
1224, 1228, and Act June 16, 1933, c. 89, § 23, 48 Stat. 162, 189,
190.
[
Footnote 13]
Supra, note 7
[
Footnote 14]
McCulloch v. Maryland, supra; Des Moines National Bank v.
Fairweather, 263 U. S. 103,
263 U. S.
106.
[
Footnote 15]
Supra, note
11
[
Footnote 16]
[
Footnote 17]
Supra, note 7
[
Footnote 18]
Compare National City Bank v. Domenech, Treasurer, 47
Puerto Rico 29.
National City Bank v. Posados, Collector,
Supreme Court of the Philippine Islands, September 21, 1934.