309 U.S. 560 (1940), 596, Tradesmens National Bank of Oklahoma v. Oklahoma Tax Commission

Docket Nº:No. 596
Citation:309 U.S. 560, 60 S.Ct. 688, 84 L.Ed. 947
Party Name:Tradesmens National Bank of Oklahoma v. Oklahoma Tax Commission
Case Date:March 25, 1940
Court:United States Supreme Court

Page 560

309 U.S. 560 (1940)

60 S.Ct. 688, 84 L.Ed. 947

Tradesmens National Bank of Oklahoma


Oklahoma Tax Commission

No. 596

United States Supreme Court

March 25, 1940

        Submitted March 6, 1940



        1. Congress constitutionally may authorize state taxation of the franchises of national banking associations. P. 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. 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. 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. 567.

        185 Okla. 656, 95 P.2d 121, affirmed.

Page 561

        Appeal from the affirmance of a judgment denying recovery of taxes alleged to have been illegally exacted.

        MURPHY, J., lead opinion

        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. 6,1 lays a tax upon every national banking association located or doing [60 S.Ct. 690] business within the state "according to, or measured by, its net income" at the

Page 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.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 563

        R.S. § 5219, 12 U.S.C. § 548, copied in the margin,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 564

tax measured by net income including interest on tax-immune federal securities.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, 389; Helvering v. Gerhardt, 304 U.S. 405, 411-412n; Federal Land Bank v. Priddy, 295 U.S. 229, 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...

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