taxes were the following: (1) dealing in securities through an in-State office, (2) making loans through the bank's own office in the State, subject to out-of-State approval, (3) selling accounting or data processing services through an office in the State, and (4) leasing equipment for use in the State.

The States were divided on whether they might assert jurisdiction in cases of (1) binding loan commitments made by visiting bank officials, (2) loans made by an in-State affiliate or subsidiary subject to out-of-State approval, (3) issuance of credit cards within the State, and (4) selling accounting or data processing services through an inState affiliate or subsidiary.

C. PATTERNS OF RESPONSES OF INDIVIDUAL STATES

Where there was no distinct consensus among the States (i.e., in the four instances listed in the preceding paragraph), individual States tended to fall consistently on one or the other side of the split. Of the 45 States and areas responding, 20 held the same opinion for all of the 4 situations above to which they responded, and another 13 held the same opinion in 3 out of the 4 situations.

It does not appear, from the questionnaire responses, that the permanent amendment of section 5219 will have much effect on whether a State taxes out-of-State commercial banks, although presumably taxation will be extended to national as well as Statechartered banks. Thirty-one States responded (in item 3.411 in the questionnaire shown in table B-6, p, 122) that out-of-State banks that do business in the State are presently taxable.29 Thirty-five respondents reported (in questionnaire items 3.110 through 3,233, table B-5) that they might tax foreign banks under the permanent amendment.30 Three of these States reported probable changes in the laws under which they would tax foreign banks: Montana and New Jersey expect net income taxes to be passed, and West Virginia reported that it expected to apply the gross receipts tax, which has since been extended to banks.

Nine States (Florida, Pennsylvania, and 7 other States) reported that they do not tax out-of-State banks now (except perhaps under property taxes) and do not expect to in the future, while another 2 do not tax them now and are uncertain about the future.

The responses to the questions concerning probable future taxation of out-of-State banks were consistent with the reported current treatment not only of foreign State banks but also of other out-of-State financial institutions. For example, 39 States or areas reported that out-of-State leasing companies are now subject to State net or gross income taxation (item 3.419 of the questionnaire). Twenty-eight of these States reported that out-of-State banks which lease equipment for use in the State (questionnaire item 3.220) probably would or might be subject to income taxation. As for dealing in securities, 40 States or areas reported that they now tax out-of-State security brokers or dealers (questionnaire item 3.424) under net or gross income taxes.

29 Plus Texas (which reported only sales and use taxes on foreign State banks), Wyoming (which reported ad valorem (apparently real property] taxes only), and Florida and Mississippi (property taxes).

30 This covers the 1 listed in table B-6 with the addition of the District of Columbia (for activities other than lending, taking deposits, and doing trust business), Georgia, Michigan, Mississippi, and Texas, and minus New York. New York would tax out-of-State banks only if they accepted deposits within the State, but does not permit this activity.

Thirty-one of these States probably would or might subject one-of State banks to income taxation if they deal in securities in the rate through an in-State office item 3.181), though only 18 reported that they would or might assert jurisdiction for income taxes if the transactions were made by visiting officials with no permanent in State office item 3.132.

D. INTANGIBLES TAXATION

Very ite information was received in response to the menfle Trestion section 3.3 of the questionnaire regarding he ikelihood hat The States would inject intangible personal pronert; af autolime banks to taxation in the insence of Federal datutor? matretiona

Responses a section 13 of he questionnaire are emmar:201 in Table 1. Only Georgia red hat any intangible set of tal-time banks the banks ong-em Totes: would mhani” se obvert na taxation. If he ire "ates hat nentionen nanghies win writi aquiicane a mi-ate inartal raitationa

from property taxes on cash and evidences of debt. Tax administrators in some of the other States and areas may have ignored intangibles taxation because their States do not now have such taxes or because banks are now exempt. Unfortunately, the responses throw little light on whether the States would be likely to impose intangibles taxes upon bank-owned assets after national bank immunity terminates under the "permanent amendment" of section 5219.

VI. LOCAL TAXATION AND OTHER MATTERS

A. LOCAL TAXATION OF BANKS

Information from the State tax administrators on types of local taxes applicable to banks was incomplete. Some respondents mentioned local real property taxes, while others apparently limited their answers to local taxes on banks other than real property taxes. Also, the situation was complicated by the fact that there are different opinions as to what properly can be called a local tax. There are many instances of taxes the proceeds of which go wholly or in part to counties, municipalities, or other local units, but which are administered by the State government. Some respondents mentioned such taxes, while others may have left out similar taxes. Finally, some respondents failed to answer part 4 of the questionnaire at all. The answers received are tabulated in table 10. It should be remembered that even if a local tax applies to banks in a State, this may be true only in some counties or municipalities and not in others. The District of Columbia is not included in table 10.

TABLE 10.-STATES REPORTING LOCAL TAXES APPLICABLE TO COMMERCIAL BANKS, NOV. 15, 1970 1

The kinds of local taxes applicable to banks reflect the limitations on local taxing authority and the practical constraints on local taxing, Consequently, the the major local taxes applicable to commercial banks are ad valorem taxes on real property. Often personal property is not taxed locally, either because there are no tangible personal property taxes on banks or because such taxation is at the State level. Of 25 States for which the respondents mentioned municipal or county property taxation of banks, 15 specified real property taxes only, while only 6 mentioned specifically that both real and personal property of banks were taxable, as tallied in table 10.

The most important type of local tax on banks aside from property taxes is the bank shares tax or a tax based on capital structure, which was reported for 11 States. In 7 of these States, these taxes are com pletely local or else are State-administered with all the proceeds dia tributed to localities. Kentucky, Louisiana, New Jersey, and Virginia report both State and local bank shares taxes or else shared taxes on bank shares. In Illinois, since November 3, 1970, the tax is effective on shares held by corporations only.

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Local income taxes applicable to banks are not common. In New York, the tax is imposed only in New York City, and the tax tabrilated for North Dakota is a State-administered privilege tax that, in distrib uted to the localities. Some Ohio municipalities levy an inerata, Yaz although the response did not specifically state that the tax isa nepie cable to banks. Local income taxes may become, there exanthday, 16, spondents from Kansas, North Dakota, and Oregon mentioned that, such taxes are now authorized. However, rearondente froxa A.axvaroa and Nevada mentioned specifically that localities are not, mindgivel to levy income taxes. Michigan has a new kesme, tax from whach banks are excinded. The rend in trate taxation z-axy from ad salueru taxes to income-basen tazes is ike!? ‘o nem a mut: wwaz berxo ama taxes to State tazes perhare with taz shariq lost. COSA

Local sales are which are low and leave ‘ky “va-za, madu, surprʻal s 10 States. In Can and T 3:26. and year area as well such taxes are aimingered by the awe s saf e Localities

corporate entity or to some other party such as shareholder, depositor, or supplier.

All the bank-tax changes which have occurred or are likely to occur are not attributable to P.L. 91-156, of course. For example, changes in State constitutions in Illinois and Nebraska have necessitated changes in bank taxes, and respondents from Connecticut and North Carolina stated that the tax law review efforts in those States were not prompted by P.L. 91-156.

Concerning the permanent amendment of P.L. 91-156, the major areas affected would be intangibles taxation and multistate taxation. The lack of response on the matter of intangibles taxation may be partly because of the way the questionnaire was set up and partly because taxation of intangible property is considered very unlikely in most States.

Responses concerning the multistate taxation of banks cannot help but be highly conjectural. In the past such taxation was limited not merely by statutory restrictions but also by restraints which many banks imposed on their activities across State lines. Such activity is becoming increasingly important, however, despite State restrictions on "doing business" and prohibitions upon interstate branching. Reflecting the State-level concern with multistate taxation, the respondent from Iowa suggested that the Board's study might include guidelines for allocating net income of nondomiciliary banks which do business in the State and of nonbanking subsidiaries of domestic banks which do business both in and out of the State.

Existing State practice regarding jurisdiction to tax out-of-State firms may not provide a very firm guide to future practice where banks are involved. Not only are changes in practices likely, reflecting the unique restrictions on bank branching, but the whole matter of uniformity and coordination of multistate taxation is a matter of current concern in Congress, the States, and business. Despite such uncertainties, the information and opinions supplied by the State tax administrators have been of great value in the Board's examination of the likely impacts of the "permanent amendment" of section 5219 of the Revised Statutes.

SUPPLEMENT A

BOARD OF GOVERNORS

OF THE FEDERAL RESERVE SYSTEM,
Washington, D.C., November 13, 1970.

Letter sent to State tax administrators. By direction of the Congress, the Board of Governors of the Federal Reserve System is making a study of State and local taxes on banks. This study is required by Section 4 of Public Law 91-156, and the Board, in conducting the study, is directed to consult with "appropriate State banking and taxing authorities." A copy of P.L. 91-156 is enclosed.

This legislation amends a provision popularly known as Section 5219 of the Revised Statutes (12 USC 548-also enclosed) which prescribes methods by which the several States may tax national banks. The act makes a temporary amendment, effective through December 31, 1971, and a permanent amendment which will become effective January 1, 1972, unless the Congress enacts further changes. As part of the study, we need information and advice from you about present and prospective taxes applicable to banks in your State. This should be provided in two steps:

(1) A letter from you at the earliest possible date advising us whether action has been taken or is contemplated for the near future that would affect State and local taxes paid by commercial banks—particularly taxes on intangible personal property, net income, gross receipts, and capital stock.