ever enumerated deposite amme the permitted waxes. And although P.L. 91-156 does 101 CTE SUTES STREET wuthority to tax them, it may be inferred that States TUELT DE LOVE to tax batonal bulk deposits if State bank deposite were tused-less the exclusion of "taxes on intaEDE TERy" were to be interpreted by the courts to include back deposits. This would mean, however, that deposits. which are a hability of the bules, would be treated as though they were an asset. But what I States inring ad Tuloren stare taxes deriued to wad deposits to the "wona weroutes of madona bunks. Certainly deposits, less reserves for paying our cast. are used to provide earnings for all commercial bulks They are invested it earning assets—commezial paper, joulis. 5102ES wat other seruiies-to & fur greuter extent and volume that capita, puit in or earned surpluses Frior to 1959, sibre deposits were not traditionally treated us cupita. it is believed that & spea ametament it section 218 would have beel. Tequired to permint States it tax them to the bank. Deposits taxes that might be levied upon the banks are not at be confused with taxes on 14 idum ovners of Daliɛ deposits even the gi the banks frequenter are made the colection agents for such takes of have been forced by competition VIL other instititions to absorb deposits taxes as a cost of doing desiness. Taxes of this type are personal property taxes of the depositors and remain. sc. Section 1219 does not and never dic 297 * to tell. 4. Gross rece pts iares Gross receipts taxes of nationa banks were not permitted prior to the 19tt amendment of section 5216 Fensyvania. however, has used & lat OL gross receipts of privdie balikers. Although States colt not impose & gross receipts tax of La Jola. banks, there was no suci impertiment of Congress. For many years, Congress has prescribed gross receipts taxes for banks in the District of Columbia. The rutes var among classes of financial instrations doing business in the Disie. Details of the Fennstvala and District of Columbia tuxe are shown in tubie 21. After the passage of P5 States eor tu comarihuey national bank- or the Dusk of gross receipt 1 Stae baliks ule taxed or then gross receipts o Ł LOLUS "innaion Dusis. receipts tax, however banks in the interim perion below the permaneT ainel unent labes effect. 5. Sales and use lates vise and goemigentan taxes ALL 201 be imposed or nations palke prior to the 1960 amen ülbent. we are included explety it the inverin amenoment Luger the pertalent amendment. them aut o'be Late: * provides Siap Dalks are likerist taxer F. 1970 bant raz jegisiation P.L. 91-150 was effective or December 24, 1969. Soor. tueretfter State legislatures were elatung new legis 101 or amending existing laws to take anvantage of the new freeson giver then by Congress TABLE 21.-GROSS INCOME TAXES ON BANKS State District of Columbia......... Pennsylvania.... Description of tax Basis: Gross earnings. Rates: Classified by types of institutions as follows: 3. Savings banks having no capital stock and paying interest to depositors on surplus 4. Incorporated svaings banks, 4 percent on gross earnings less interest paid to depositors. 5. Building associations, 2 percent of entire gross earnings. 6. Private banks or unincorporated bankers, $500 annually. 7. Washington Stock Exchange, $500 per annum in lieu of tax on members. Applied to: See above rates. Basis: Gross receipts of private bankers. Rate: 1 percent. Applies to private bankers. Note: Compiled from Commerce Clearing House, Inc., State Tax Guide (Nov 1, 1970). Arizona repealed its 5 percent income excise on banks, building and loan associations, and investment companies to make them taxable under the corporate income tax at the same rates. These financial institutions were made subject to all taxes imposed generally on a nondiscriminatory basis on other corporations. The law also provided that all tangible personal property of banks and other corporations not previously assessed was to be assessed and taxed on and after January 1, 1970. Colorado repealed its 6 percent excise tax on national banks, State banks and certain other financial corporations but included them in the general corporate income tax at 5 percent of net income from Colorado sources. It also subjected personal property of banks and corporations to taxation. These provisions became effective March 16, 1970. Iowa repealed its tax on the shares of national and State banks, savings banks, loan and trust companies, etc., on May 1, 1970. These taxes were assessed to the shareholders. The rate on bank shares was 5 mills and on building and loan association shareholders, 1 mill. The law also repealed a provision which taxed personal property, money and credits of branch banks. This law makes bank stock and personal property of banks subject to property taxes in the jurisdiction where situated. Kansas increased the rate of its income tax on banks and development credit corporations from 5 to 52 percent with a surtax of 214 percent on net income in excess of $25,000. Trust companies and savings and loan associations were made subject to a like surtax but the normal rate of 5 percent on net income was not changed. These provisions became effective on July 1, 1970. The rate of the privilege tax imposed by cities or counties was not changed; this rate still must be 2 percent if such a tax is adopted. The expiration date of the existing tax was removed so that this tax becomes a permanent feature of the Kansas law. Kentucky in 1970 made production credit corporations subject to its share tax applicable to savings and loan associations, at the rate of $1 per $1000 of paid-in capital stock. This tax is payable directly to the State treasury. The law became effective June 18, 1970. New Jersey increased the rate of its share tax from 4 to 1% percent beginning in 1970. The tax also applied to preferred stock which formerly was not assessed or taxed, but any such stock held by the United States or its agencies is not taxable. The law was approved and effective February 9, 1969. New York adopted a law which provides that any bank, trust, company, savings bank, etc., located in the State which enters into a contract with the State mortgage agency (created by the law) to service mortgages acquired by the agency is entitled to an annual credit applied to or in lieu of the payment of the franchise, or excise, tax The credit is equal to 14 of 1 percent of the average unpaid principal balance on mortgages secured by liens on one- or two-family residences which the bank shall have serviced during the fiscal year. On mortaxres upon multiple dwellings, the credit is a of 1 percent. No credit, je allowed in excess of franchise tax due. For service of less than a year on mortgages, the tax may be apportioned. The act became effective, May 12, 1970. In connection with the supplementar: excise tax on jank in Sox York City, a law which became effective on August 10, 1970. fined retroactively to May 26, 1969, the temn “Arangal sor joestioné to include any corporation of which 30 percent of the roting sock owned by a national bank or a corporation engaged in 1.6 business and subject to Act 3 or 3a of the Banking Law made provision for consolidated zet. mie. G taxable incomes have to be Sled within 30 days and reported with the next return. In Pennsylvania, 1969 egislation thrift institutions frem and made provision for arment due on the filing of 1969 and thereafter national and State stock was increased The 10 mil cate had that was approved passed before 21. mills, increased bo title insurance nd ments of naneta. Rhode stand and national creased from 3* April 1 to fren of tax to Virginia شور under its-nápe · laws and Comez Federal aw qualifying res pany, computer bank and controlled by its subsidiaries. Formerly, the definition included only corporations organized under Virginia laws which were holding companies under Federal law. The law was effective June 26, 1970 but applicable from January 1, 1970. In summary, legislation of 1969-1970 resulted in the repeal of the excise tax in two States (Arizona and Colorado) and an increase in the rate in two other States (Kansas and Rhode Island). Share taxes were increased in three States (Iowa, New Jersey, and Pennsylvania). Two States acted affirmatively to subject the tangible property of national banks to general property taxes (Arizona and Colorado). In these same States, national banks became taxable on net income under the general corporate income taxes there in effect. One State (Virginia) reflected recent developments in banking organization by changing its definition of holding companies. (This review does not include legislation that may have been enacted with reference to sales, use, transfer, and some other categories of taxes.) G. Possibilities for the future Does the legislation of 1970 presage the action State legislatures will take when the "permanent amendment" of section 5219 goes into effect? This survey, probably incomplete, indicates what to expect after 1972: no uniformity of action; some States will do one thing, some another, and others will do nothing at all or will act very slowly. On the basis of past actions it seems very likely that States will change the laws to make national bank taxes conform to their methods and levels of taxing State banks. Since 1864 the conformity has had to be the other way around: Some States have imposed taxes on their own banks which they could not apply to national banks because of section 5219, but the differences have not been great because major differences might impel State banks to transfer to the national bank system. Charter transfers have not been difficult, but differences in taxation seem not to have been a motivating factor in such transfers in the past and are even less likely to be a factor in the future. Of course, State banks have always had some protection under State constitutions, if no more than the requirements for uniform treatment under tax laws; and they have had the protection of the Fourteenth Amendment of the U.S. Constitution. Undoubtedly, national banks will have to pay State sales and use taxes on their purchases the same as other consumers. Only section 5219 previously protected national banks from having to make such payments. State taxation of transfers of tangible property at retail was not contemplated in 1864 or even as late as 1923 or 1926 when section 5219 was previously amended. But the terms of the section were sufficiently broad to exempt national banks from these taxes. Most of the sales, use, transaction, and transfer taxes are broadly drafted and require little or no modification to apply them to national banks. Their almost universal application in the States, save on food and drugs, does not permit much avoidance. Administrative devices used to make sales taxes effective may apply to the collection of other taxes, especially taxes on net income. They revolve around what constitutes "doing business" within a State. Some fact has to transpire to give the State a basis on which to predicate its claim of jurisdiction to tax. If a foreign corporation establishes a branch within a State from which business is transacted or from which salesmen leave to solicit orders and then return, a State can assert jurisdiction to tax the activities that take place from that site. If a firm sends solicitors into a State regularly to take orders for goods to be shipped there, it is also in the State for the purpose of doing business. Sales which take place in such fashion may be taxed by the State, as may income earned thereby. The relationship to the State may be such, moreover, as to give the State the right to tax a portion of the total business or income of the company. How much may a bank or other business concern do and still not be "doing business" in a State? Sales by mail, by telephone, or telegraph might not give taxable jurisdiction, depending on details of the sales contract. If salesmen or bank solicitors are sent into the State periodically, the bank or corporation may be held to be "doing business" within the State. Banks, State and national, probably will find that correspondent relationships, loangenerating solicitations, deposit agreements, establishment of credit lines, and even loan underwritings for fees or interest payments may provide a factual basis for State assertions of tax liability. Precedents from other lines of business suggest that States will attempt to apply their taxes on the basis of various kinds of activities or incidents and that the courts will be called upon to determine whether these activities and incidents constitute "doing business" to a degree that permits or warrants taxation. It is likely also that national banks will be required to pay the customary property taxes on their tangible personal property. Such taxation is widespread and longstanding. It has applied to individuals and most businesses in most States for many years. In most States, only section 5219 has prevented its extension to national banks, whereas State banks in many cases have been taxed on similar property. The volume of bank-owned tangibles has generally been small or moderate, but it may increase substantially with the spread of equipment-leasing arrangements in which banks hold title to the equipment. The superiority of the excise or franchise tax "according to or measured by" net income over a direct net income tax suggests that this tax might be adopted more widely. Two States, however, have repealed their excises, placing national banks under general corporate income taxes. This may be only a short-run movement or an indication of local situations, including the activities of interested bankers. With taxation of personal property of banks, excise rates on national banks, where previously "built up" in an effort to equalize tax burdens, may be adjusted downward to reflect the other taxes. Although low-rate ad valorem taxes on bank shares may be raised in some States, there is also a likelihood that other States will give up this mode of taxation in favor of net income taxes of either type. The tendency seems to be to tax all corporations on the basis of net income. Share taxes may give way to this trend. Taxation of intangibles owned by national banks has been prohibited since 1864. Until 1969, this was because that form of tax was not mentioned in any of the permitted options. In the fifth option added in the "temporary amendment" of section 5219 in 1969, a tax on in |