Within-State Tax Distribution

As might be expected, the within-State tax pattern in most cases showed much greater concentration on a few individual types of taxes than is evident in the aggregate data. In 41 States, over half of all bank taxes was accounted for by a single type of tax. This is indicated by the data in table 3, where Štates have been grouped according to the percentage of total commercial bank State-local taxes in the State that is accounted for by each type of tax. (See also table D for specific percentages for the several States.) The income tax accounted for over half of the total in 21 States and it was the largest category in 3 additional States (see table 4). In all, some net income tax was reported by banks in 42 States, although in 13 this tax amounted to less than 10 percent of the total. Small amounts were reported in several States which did not levy an income tax on banks; these were in large part associated with subsidiaries subject to the regular corporation net income tax.

TABLE 3.-NUMBER OF STATES DISTRIBUTED BY THE RATIO OF STATE AND LOCAL TAXES OF EACH TYPE TO TOTAL STATE AND LOCAL TAXES ON ALL INSURED COMMERCIAL BANKS IN 1969

1 Includes District of Columbia but excludes Virgin Islands.

2 Indiana tax, combining taxes based on deposits and share values (net of gross income tax credit for State banks).

Measure of tax:

Net income.

Real property.

TABLE 4.-PRINCIPAL BANK TAX CATEGORIES, BY NUMBER OF STATES, 1969

Shares or capital structure_

Bank deposits..

Gross income or gross receipts..

Tangible personal property..

Miscellaneous deductible 1

Total 2

Number 24

9

14

1 1

1 Indiana tax combining taxes based on deposits and share values (net of gross income tax credit for State banks). 2 Includes District of Columbia but excludes Virgin Islands.

51

Taxes on shares or capital were the second most important category of taxes as measured by the number of States where this was the dominant tax on banks. These taxes accounted for over half of all bank taxes in 9 States and were the largest single category in 5 additional ones. While some of these taxes were reported for 35 States, the amounts exceeded $20,000 in only 24.

The real property tax is the only tax applied to banks in all jurisdictions and was relatively important in most States. While in only 7

States was this tax more important for banks than all other taxes combined, it accounted for 20-50 percent of total tax expense in 36 additional States.

Other taxes were the major category of bank tax expense in only four jurisdictions: tangible personal property (Arkansas), bank deposits (Ohio), gross receipts (District of Columbia), and a combination deposits and shares tax (Indiana). Of these, the most extensively used was that on tangible personal property, with some amounts reported in 42 States, but for only 2 of these did the share of total taxes on banks exceed 10 percent. Bank deposit taxes, which generally are levied upon depositors but are collected from and absorbed by banks, were reported in 16 States, but their share exceeded 10 percent of all bank taxes in only 3 States. Gross receipts taxes, which were reported by banks in 12 States and the District of Columbia, accounted for more than 10 percent of the total in only 2 jurisdictions.

Next to that on real property, the general sales and use tax was the most widely applied, with payments reported in all but 3 States. However, the share for this tax (excluding amounts reported under "miscellaneous" and "other") exceeded 5 percent of all bank taxes in only 4 jurisdictions, and in 19 States it was less than 1 percent. Documentary taxes, while reported in about half the States, accounted for as much as 1 percent of total bank tax expense in only 3 States.

The high degree of within-State concentration on certain types of taxes is particularly evident in data on the percentage of total bank taxes accounted for by the two principal taxes in each State. In all but 5 States, these two categories accounted for more than 80 percent of total taxes, and in 34, their share exceeded 90 percent (table 5). The combination of net income and real property appeared in over half the States, and shares and real property was the leading combination in nearly all remaining States. In 21 States, the combination of net income and real property tax provided more than 90 percent of all bank taxes at the State-local level. The tax on real property was one of the two most important taxes on banks in every State except Michigan and Indiana.

TABLE 5. PERCENTAGE OF TOTAL STATE AND LOCAL TAX EXPENSES OF ALL INSURED COMMERCIAL BANKS ACCOUNTED FOR BY THE 2 LARGEST TAX CATEGORIES WITHIN EACH STATE, 1969

While nearly all bank taxes in most States were in two major categories, banks in every State reported small amounts of tax expense in several additional categories. In most States, some taxes were reported in 6 or more categories, including "miscellaneous" and "other". However, in all but 2 or 3 categories, the amounts generally were quite small, and probably include taxes on subsidiaries, isolated local

District of Columbia (73 per cent) and Indiana (23 per cent). Two additional States where some banks reported significant amounts of these taxes appear to represent misclassification--Alaska (5 per cent), where a tax called a gross receipts tax is applied, in the case of banks, to a net income base, and Hawaii (21⁄2 per cent), where a tax called a general excise tax and sometimes referred to as a gross income tax, is in the form of a sales tax. Only negligible amounts were reported in most of the remaining 9 States and some of th taxes also might have represented misclassification of sales taxes or possibly were taxes on subsidiaries

levies, taxes paid to out-of-State jurisdictions, and possibly some mislabeling in the responses or misclassification.

Impact of Section 5219

The concentration of taxes indicated in the preceding review developed mainly as a result of the restrictions on State powers to tax national banks imposed by the Congress in section 5219 of the Revised Statutes. Prior to December 1969, the States were permitted use of only two basic methods of taxing national banks, apart from taxation of their real property, and each State could select only one of these either a tax on the value of the bank's shares or a tax on its net income, including an excise tax according to or measured by net income. 10

Over the years, States have levied additional kinds of taxes on businesses generally, such as taxes on tangible personal property, gross receipts, and sales, and in some cases the taxes have been extended to banks, including national banks, even though they were not specifically authorized by section 5219. Often through negotiation or common consent, national banks agreed to pay these taxes voluntarily. In several instances, these agreements were publicized and applied over long periods. In other instances, taxes not authorized by section 5219 were levied on State banks only. Taxes on bank deposits also have been levied in some instances, with the legal incidence on the depositors so that the tax was not subject to the constraints in section 5219. Banks usually absorbed such taxes, rather than try to pass them on to the depositor, owing to fears of losing deposits to banks in neighboring jurisdictions where similar taxes might not apply. Also, as indicated above, subsidiaries of banks sometimes were liable for types of taxes not applicable to the banks. For all these reasons, the pattern of reported bank taxes in most States includes relatively small amounts of various types of taxes not specifically authorized by section 5219.

TABLE 6.-TYPES OF BANK TAXES COMPRISING 2 LARGEST CATEGORIES WITHIN EACH STATE, 1969

Number of States

Categories:

Net income plus real property..

Shares or capital plus real property

Tangible personal property plus real property.

Bank deposits plus real property

Gross receipts plus real property..

Sales and use plus real property.

Net income plus bank deposits.

Miscellaneous deductible 1 plus gross receipts

Total 2

1 Indiana tax combining taxes based on deposits and share values (net of gross income tax credit for State banks). 2 Includes District of Columbia but excludes Virgin Islands,

27

18

1

51

States generally tended to apply the same basic tax structure to their State-chartered banks as they did to national banks, owing to the close competitive relationship between the two groups of banking institutions, equity considerations, and provisions of section 5219 designed to prevent discrimination. Where certain types of taxes were levied against State banks and other businesses that did not

10 A dividend tax also could be used in combination with a tax on net income but since this is a tax upon shareholders rather than the banks, it is not considered here an alternative tax on banks.

apply to national banks, higher rates or other special provisions were in some instances applied to national banks as a device to equalize burdens. Data relating to the distribution of taxes between national and State banks are examined in the following section.

Comparisons of National and State-Chartered Banks

State and local taxes of national banks were $355 million in 1969, or 57 percent of the total for all insured banks (table 7). There were significant differences between National and State-chartered banks in the relative importance of certain types of taxes. In particular, real property and shares taxes were much more important for National than State-chartered banks, while net income taxes were less important. In the aggregate, these three major types of taxes specifically authorized by section 5219 made up more than 88 percent of all State-local tax expense of national banks, compared with 83 percent for State banks. The differences in percentage share for the three undoubtedly reflect in part differences in relative importance of national and State banks in the various States, which have a wide diversity of tax structures and rates. While the deposits tax was about equally important for both groups, the tangible personal property, gross receipts, and sales tax all showed appreciably higher (though still nominal) ratios for State-chartered than national banks. In each of these categories, State banks accounted for about two-thirds of the all-bank total.

TABLE 7.-STATE AND LOCAL TAX EXPENSES OF ALL INSURED COMMERCIAL BANKS IN 1969, BY MEASURE OF TAX AND CHARTER STATUS OF BANK

1 Includes sales and use taxes of $407 thousand, of which $303 thousand was at national banks and $104 thousand at State banks. (See table 1, above.)

2 Includes sales and use taxes of $12,272 thousand, of which $4,689 thousand was at national banks and $7,583 thousand at State banks. (See table 1, above.)

The survey data indicate that in a substantial number of States, certain of these taxes were reported only by State-chartered banks or the relative importance of the tax was much larger for State than for national banks. (See table D, p. 49.) Taxes on tangible personal property and sales taxes were the most frequent examples of this. In over onethird of the 34 States in which State banks reported paying a particular tax and national banks did not, the amounts were relatively small-aggregating 1 percent or less of total tax payments of State banks in those States. States in which State-chartered banks paid relatively significant amounts of taxes not reported by national ban included Alabama, Alaska, Arizona, Hawaii, Idaho, Indiana, M

Nevada, Pennsylvania, Rhode Island, Utah, West Virginia and Wyoming.

In some cases, the selective imposition of taxes on State banks that did not apply to national banks appears to have resulted in a tax burden on State-chartered banks commensurately higher than that on national banks. In other cases, the States have made compensating adjustments, including differential rates or permitting one type of tax to be used as an offset against another.

The over-all data suggest, however, that State-chartered banks were taxed somewhat more heavily than national banks in 1969, as shown by the ratios of total State and local taxes to various balance sheet and income statement measures (table 8). For example, the ratios for State banks exceeded those for national banks by one-half of 1 percentage point on net income before taxes and nearly 1 percentage point on net income after taxes. Differences were proportionately greater when taxes are measured in relation to total assets and equity capital.

TABLE 8. RATIOS OF TOTAL STATE AND LOCAL TAX EXPENSES IN 1969 TO SELECTED BALANCE SHEET AND INCOME STATEMENT AGGREGATES FOR ALL INSURED COMMERCIAL BANKS, BY CHARTER STATUS AND SIZE OF BANK