1. Congress constitutionally may authorize state taxation of the
franchises of national banking associations. P.
309 U. S.
564.
2. R.S. § 5219, as amended March 25, 1926, authorizes state
taxation of national banking associations -- in addition to other
methods theretofore authorized -- "according to or measured by
their net income," including "the entire net income received from
all sources," subject only to certain restrictions as to the rate.
As amended in 1935, an Oklahoma statute imposing on such
associations a tax measured by net income, contained a provision
expressly including in gross income (from which the net income was
computed) interest from tax exempt federal securities, which
theretofore had been expressly excluded.
Held, a tax under
the Oklahoma statute the measure of which included dividends on
federal reserve bank stock and interest on tax-exempt federal
securities, was authorized by R.S. § 5219, and valid. P.
309 U.S. 565.
3. That the Oklahoma statute, in provisions for computing taxes
on net income of corporations other than national banking
associations, expressly excludes interest from tax-exempt federal
securities does not render it violative of the restriction in R.S.
§ 5219 that "the rate shall not be higher than . . . the highest of
the rates . . . assessed upon mercantile, manufacturing, and
business corporations doing business" within the State, where,
considering the State's tax structure as a whole, no discrimination
against national banking associations results. P.
309 U. S.
567.
That a few individual corporations, out of a class of several
thousand which ordinarily bear the same or a heavier tax burden,
may sustain a lighter tax than that imposed on national banking
associations is not proof of discrimination.
4. The restrictions placed by R.S. § 5219 on the permitted
methods of taxation are directed at systems of state taxation
which, in practical operation, discriminate against national
banking associations or their shareholders as a class. P.
309 U. S.
567.
185 Okla. 656,
95 P.2d 121,
affirmed.
Page 309 U. S. 561
Appeal from the affirmance of a judgment denying recovery of
taxes alleged to have been illegally exacted.
MR. JUSTICE MURPHY delivered the opinion of the Court.
This is an appeal under § 237 of the Judicial Code from a
judgment of the Supreme Court of Oklahoma denying recovery of taxes
alleged to have been exacted from appellant, a national banking
corporation, in violation of the provisions of R.S. § 5219 and the
Constitution of the United States.
Section 16 of the Oklahoma Income Tax Law of 1935, S.L.1935, c.
66, art. 6, [
Footnote 1] lays a
tax upon every national banking association located or doing
business within the state "according to, or measured by, its net
income" at the
Page 309 U. S. 562
rate of six percentum. Section 17, 68 Okl.St.Ann. § 888,
provides for a similar tax upon state banks and Morris Plan
Companies.
The net income used as the measure of the tax under §§ 16 and 17
is determined by subtracting from gross income, as defined in § 18,
certain deductions allowed by § 9. Section 18 defines gross income
for the purposes of "national banking associations, state banks,
trust companies and other financial corporations" (§ 8(c)). It
specifically includes in gross income
"interest upon the obligations of the United States, or its
possessions, or upon securities issued under the authority of an
Act of Congress, the income from which is tax free."
All other types of corporations are taxed at the flat rate of
six percentum upon the net income allocable to business transacted
within the state (§ 6). Net income for this purpose is determined
by making certain specified deductions from gross income (§§ 7, 9),
which is defined expressly so as to exclude interest on tax-immune
federal securities, § 8(b)(4).
The appellee Oklahoma Tax Commission, in assessing appellant's
tax for the year 1936 under § 16, included in gross income the
dividends received by appellant on stock owned by it in a federal
reserve bank and the interest received on bonds and notes issued
pursuant to acts of Congress declaring the income from such
securities tax exempt. [
Footnote
2] The present suit was brought by appellant to recover that
portion of the tax, paid under protest, which resulted from
including such dividends and interest in the computation.
Page 309 U. S. 563
R.S. § 5219, 12 U.S.C. § 548, copied in the margin, [
Footnote 3] authorizes four alternative
methods whereby a state may impose a tax on national banking
associations located within its limits. Method numbered (4)
provides for a tax on such associations "according to, or measured
by" "the entire net income received from all sources" subject only
to certain restrictions as to the rate. This method was added to
the three previously authorized under R.S. § 5219 by an amendment
of March 25, 1926, c. 88, 44 Stat. 223. The plain meaning of the
amendment is confirmed by its legislative history showing beyond
doubt that Congress intended to authorize a franchise
Page 309 U. S. 564
tax measured by net income including interest on tax-immune
federal securities. [
Footnote
4]
Oklahoma in the 1935 act expressly followed and adopted the
method thus authorized in the amendment.
See First National
Bank v. Oklahoma Tax Commission, 185 Okl. 98,
90 P.2d 438.
Subsection (b) of § 16 expressly declares that the state thereby
adopts method numbered (4) authorized by R.S. § 5219, 12 U.S.C. §
548.
The power of Congress to authorize a state to impose a tax on
the franchise of a national banking association cannot now be
doubted.
Van Allen v.
Assessors, 3 Wall. 573.
Compare Keifer &
Keifer v. RFC, 306 U. S. 381,
306 U. S. 389;
Helvering v. Gerhardt, 304 U. S. 405,
304 U. S.
411-412n;
Federal Land Bank v. Priddy,
295 U. S. 229,
295 U. S.
234-235. Any immunity attaching to the franchise by
virtue of R.S. § 5219 as it read prior to the 1926 amendment,
compare
Pittman v. Home Owners' Corp., 308 U. S.
21, could be withdrawn by Congress and the franchise
subjected to state taxing power, just as national bank shares were
so subjected by the Act of June 3, 1864.
Van Allen
v. Assessors, 3 Wall. 573.
See Des Moines
National Bank v. Fairweather, 263 U.
S. 103;
Peoples National Bank v. Board of
Equalization, 260 U.S. 702.
The power of a state to levy a tax on a legitimate subject, such
as a franchise, measured by net assets or net income including tax
exempt federal instrumentalities or their income, is likewise well
settled.
Society for Savings v.
Coite, 6 Wall. 594;
Provident
Institution v. Massachusetts, 6 Wall. 611;
Home
Insurance Co, v. New York, 134 U. S. 594;
Educational Films Corp. v. Ward, 282 U.
S. 379. Thus, state laws taxing the shareholders of
national banks in accordance with R.S. § 5219 on the full net value
of their shares, although the banks owned tax-exempt
Page 309 U. S. 565
federal securities, have been consistently upheld.
Des
Moines National Bank v. Fairweather, 263 U.
S. 103;
People's National Bank v. Board of
Equalization, 260 U.S. 702;
Van Allen
v. Assessors, 3 Wall. 573. The rule that a tax upon
a legitimate subject, measured by net income, including that from
tax immune federal instrumentalities, is not an infringement of the
immunity, was affirmed in
Flint v. Stone Tracy Co.,
220 U. S. 107,
220 U. S. 147,
220 U. S. 165,
and followed in
Educational Films Corp. v. Ward,
282 U. S. 379.
Compare Pacific Co. v. Johnson, 285 U.
S. 480,
285 U. S. 490.
The tax immunity conferred on the securities owned by appellant has
not been shown to be any greater in extent than that conferred on
the federal securities included in the measure of the taxes
sustained in the cited cases.
Sections 16 and 17 of the 1933 act were, for present purposes,
identical with the corresponding sections of the 1935 act, but § 18
of the prior act contained a provision expressly excluding from
gross income the interest on tax immune federal securities.
Appellant contends that the act of 1935, by expressly including
in the measure of the tax the interest on federal securities which
before had been expressly excluded from the measure, must be
regarded not as a valid franchise tax, but as an unconstitutional
levy on the tax-immune income itself. In support of its position,
its main reliance is placed upon our decision in
Macallen Co.
v. Massachusetts, 279 U. S. 620.
A similar contention was urged against the California franchise
tax measured by net income, including tax exempt income on state
bonds, which was upheld in
Pacific Co. v. Johnson,
285 U. S. 480. In
rejecting the claim, the holding in the
Macallen case was
referred to as follows (285 U.S. at
285 U. S.
494):
"There, the commonwealth, which had long imposed a tax on
corporate franchises measured by taxable income of the corporation,
amended
Page 309 U. S. 566
its statutes so as to add the income from tax exempt bonds of
the federal government to the measure of the tax. It was held that
this change of taxation policy, embodied in the statute and
'adopted, as though it had been so declared in precise words for
the very purpose of subjecting these securities
pro tanto
to the burden of the tax,' was invalid. Thus, the legislative
abandonment of a policy which had previously discriminated in favor
of tax-exempt securities was treated as a discrimination against
them, and the tax, although in fact nondiscriminatory, was
condemned as analogous to the discriminatory tax held invalid in
the
Miller case [
Miller v. Milwaukee,
272 U. S.
713]."
See also Educational Films Corp. v. Ward, 282 U.
S. 379,
282 U. S.
392-393.
It cannot be said that the Oklahoma tax in question here was
aimed at tax-exempt federal securities in the manner thus disclosed
and condemned in the
Macallen case. The history of the
Oklahoma legislation on this subject discloses only that it sought
to change its policy pursuant to the express authorization
conferred by R.S. § 5219. It has effected its purpose by including
within the measure of its franchise tax on national banks the
entire net income without respect to source and without
discrimination against tax exempt federal securities.
See First
National Bank v. Oklahoma Tax Commission, 185 Okl. 98,
90 P.2d
438.
We do not now decide just what circumstances, if any, would
bring a situation within the precise scope of the
Macallen
case, assuming that case still has vitality. It is sufficient to
hold, as we do, that the statute in the instant case merits the
test stated in
Pacific Co. v. Johnson, viz.:
"Since the mere intent of the legislature to do that which the
Constitution permits cannot deprive legislation of its
constitutional validity, . . . the present act must be judged by
its operation, rather than by the motives which inspired it. As it
operates to measure the tax on the corporate
Page 309 U. S. 567
franchise by the entire net income of the corporation, without
any discrimination between income which is exempt and that which is
not, there is no infringement of any constitutional immunity."
Appellant finally contends that the tax here in question
violates the restriction in R.S. § 5219 that "the rate shall not be
higher than . . . the highest of the rates assessed . . . upon
mercantile, manufacturing, and business corporations doing
business" within the state. [
Footnote 5]
A consideration of the course of judicial decision on R.S. §
5219 and its predecessors can leave no doubt that the various
restrictions it places on the permitted methods of taxation are
designed to prohibit only those systems of state taxation which
discriminate in practical operation against national banking
associations or their shareholders as a class.
Compare First
National Bank v. Hartford, 273 U. S. 548;
New York ex rel. Amoskeag Savings Bank v. Purdy,
231 U. S. 373, 375
[argument of counsel -- omitted];
Covington v. First National
Bank, 198 U. S. 100;
Lionberger v.
Rowse, 9 Wall. 468. Thus, it is not a valid
objection to a tax on national bank shares that other moneyed
capital in the state or shares of state banks are taxed at a
different rate or assessed by a different method unless it appears
that the difference in treatment results in fact in a
discrimination unfavorable to the holders of the shares of national
banks.
New York ex rel. Amoskeag Savings Bank v. Purdy,
231 U. S. 373, 375
[argument of counsel -- omitted];
Covington v. First National
Bank, 198 U. S. 100.
[
Footnote 6] We think the same
purpose to prevent actual discrimination, but to allow the states
considerable freedom in working out an equitable tax system
Page 309 U. S. 568
is discernable in the particular restriction upon which
appellant relies.
The resolution of the issue raised by appellant thus turns upon
an examination of the whole tax structure of the state. Counsel
have stipulated that six thousand business and mercantile
corporations, in addition to paying the income tax imposed by § 6
on six percentum of their net income, filed a corporation license
tax return for the year 1936 and paid a tax based on one dollar per
one thousand dollars of the value of the capital stock employed
within the state, and that the Government bonds held by each were
included as capital in the measure of the franchise tax. They
further stipulated that only thirty-seven of these six thousand
corporations owned Government bonds, and that, in the case of all
but three, the franchise taxes paid exceeded the additional amounts
which would have been due under the income tax imposed by § 6 had
their gross income, contrary to the fact, included the interest
derived from the bonds. In addition to the foregoing taxes, so it
is stipulated, each of these corporations paid an
ad
valorem tax on its moneyed capital.
This brief survey suffices to show that, considering all the
taxes imposed upon business and mercantile corporations doing
business in the state, the scheme of taxation adopted by Oklahoma
does not discriminate against national banking associations.
Discrimination is not shown merely because a few individual
corporations, out of a class of several thousand which ordinarily
bear the same or a heavier tax burden, may sustain a lighter tax
than that imposed on national banking associations.
Compare New
York ex rel. Amoskeag Savings Bank v. Purdy, 231 U.
S. 373, at
231 U. S. 393;
Lionberger v.
Rowse, 9 Wall. 468. Judged in the light of the
established policy of Congress with respect to this subject, the
1935 Oklahoma taxing statute cannot be held to violate the
provisions of R.S. § 5219.
Page 309 U. S. 569
The other contentions advanced by appellant have been considered
and found to be without substance.
Affirmed.
MR. JUSTICE McREYNOLDS took no part in the consideration or
decision of this case.
[
Footnote 1]
The text of § 16 reads as follows:
"(a) In lieu of the tax imposed by Section Six, every national
banking association located or doing business within the limits of
the Oklahoma, shall annually, pay to this State, a tax according
to, or measured by, its net income, to be computed in the manner
hereinafter provided at the following rates upon the basis of its
entire net income for the next preceding fiscal or calendar
year:"
"Six (6%) percentum of the amount of the net income as herein
provided."
"(b) The Oklahoma is hereby adopting method numbered (4),
authorized by Section 5219, U.S. Revised Statutes, as amended. The
tax imposed by this Section shall be exclusive and in lieu of all
taxes imposed by the Oklahoma, or any subdivision thereof, on the
property of any association liable to tax hereunder; provided, that
nothing in this Section shall be construed to exempt the real
property of national banking associations from taxation to the same
extent, according to its value, as other real property is taxed. .
. ."
[
Footnote 2]
The stipulation of facts shows that the interest used in the
computation of the tax was derived from the following types of
securities: U.S. Treasury Notes; U.S. Treasury Bonds; Bonds of the
Federal Farm Loan Act; Joint Stock Land Bank Bonds; Home Owners'
Loan Corporation Bonds, and Federal Land Bank Bonds.
[
Footnote 3]
"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, nor higher than the highest of
the rates assessed by the taxing State upon mercantile,
manufacturing, and business corporations doing business within its
limits:"
"
* * * *"
"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 4]
67 Cong.Rec. 5760-5762, 5822-5823, 6082-6089.
[
Footnote 5]
No claim is made that state financial institutions receive more
favorable treatment than national banking associations. Sections
17, 18 and 8(c) show that the tax imposed on such state
institutions is the equivalent of the tax levied by § 16 on
national banks.
[
Footnote 6]
See also Davenport Nat. Bank v. Davenport Board of
Equalization, 123 U. S. 83;
Mercantile Nat. Bank v. New York, 121 U.
S. 138;
Des Moines Nat. Bank v. Fairweather,
263 U. S. 103.