Bartow County Bank v. Bartow County Bd. of Tax Assessors

• Court: Georgia Supreme Court
• Writing for the Court: HILL; Chase; All the Justices concur, except MARSHALL
• Citation: Bartow County Bank v. Bartow County Bd. of Tax Assessors, 248 Ga. 703, 285 S.E.2d 920 (Ga. 1982)
• Decision Date: 06 January 1982
• Docket Number: Nos. 37868,37869 and 37870,s. 37868
• Parties: BARTOW COUNTY BANK v. BARTOW COUNTY BOARD OF TAX ASSESSORS et al. The CITIZENS & SOUTHERN BANK OF BARTOW COUNTY v. BARTOW COUNTY BOARD OF TAX ASSESSORS et al. FIRST NATIONAL BANK OF CARTERSVILLE, Georgia v. BARTOW COUNTY BOARD OF TAX ASSESSORS et al.

Page 920

285 S.E.2d 920

248 Ga. 703

BARTOW COUNTY BANK v. BARTOW COUNTY BOARD OF TAX ASSESSORS et al.

The CITIZENS & SOUTHERN BANK OF BARTOW COUNTY v. BARTOW COUNTY BOARD OF TAX ASSESSORS et al.

FIRST NATIONAL BANK OF CARTERSVILLE, Georgia v. BARTOW COUNTY BOARD OF TAX ASSESSORS et al.

Nos. 37868, 37869 and 37870.

Supreme Court of Georgia.

Jan. 6, 1982.

Herbert M. Crane, Jr., Cartersville, for First National Bank of Cartersville, Georgia and for Citizens & Southern Bank of Bartow County.

Michael J. Bowers, Atty. Gen., James C. Pratt, Asst. Atty. Gen., Warren Akin, William Morgan Akin, Carey Nelson, Steve Bradley, Cartersville, for Bartow County Bd. of Tax Assessors et al. in Nos. 37869, 37870.

William Morgan Akin, Warren & William Morgan Akin, Cartersville, for Bartow County Bank.

Michael J. Bowers, Atty. Gen., James C. Pratt, Asst. Atty. Gen., Herbert M. Crane, Crane & Jones, Stephen R. Bradley and Carey Nelson, Bradley & Nelson, Cartersville, for Bartow County Bd. of Tax Assessors et al. in No. 37868.

HILL, Presiding Justice.

This appeal raises the question of whether Georgia's bank share tax violates the supremacy clauses of the U. S. and Georgia Constitutions. U.S.Const. Art. VI, Cl. 2 (Code Ann. § 1-602); Ga.Const. Art. XI, Sec. I, Par. I (Code Ann. § 2-6801).

The question has its origin in McCulloch v. Maryland, 4 Wheat. (17 U.S.) 316, 4 L.Ed. 579 (1819), where the Supreme Court in the landmark opinion by Chief Justice John Marshall held a state tax on notes issued by a branch of the Bank of the United States to be unconstitutional, saying [4 Wheat. (17 U.S.) at 436]: "[T]he states have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control, the operations of the constitutional laws enacted by congress to carry into execution the powers vested in the general government. This is, we think, the unavoidable consequence of that supremacy which the constitution has declared."

As a historical consequence of the freedom of national banks from state taxation, national banks (and to make them competitive, state banks) in Georgia pay no income taxes, pay no tangible or intangible property taxes, and pay no franchise or business license taxes. ¹ Banks are taxed on their real property, real estate transfers and sales and uses, and their stockholders are taxed on the bank's shares. It is the bank share tax which is in issue here.

The validity of a bank share tax, if not discriminatory against national banks, was upheld in Van Allen v. The Assessors, 3 Wall. (70 U.S.) 573, 18 L.Ed. 229 (1865). Our bank share tax is a tax, remitted by the bank, imposed on the value of the shares of a bank issued to its stockholders, which value includes the bank's investment in stocks and bonds of the United States. Daniel v. Bank of Clayton County, 154 Ga. 282(1), 114 S.E.2d 210 (1922).

Georgia's bank share tax at present reads in pertinent part as follows, Code Ann. § 91A-3301, Ga.L.1978, pp. 309, 523: "(a)(1) No tax shall be assessed upon the capital of banks or banking associations organized under the authority of this State or of the United States located within this State, but the shares of the stockholders of the banks or banking associations, whether resident or nonresident owners, shall be returned and taxed at their fair market value which is hereby fixed and shall be determined by adding together the amount of the capital stock, paid-in capital, appropriated retained earnings, and retained earnings as defined in the Financial Institutions Code of Georgia (Title 41A) and as shown on the unconsolidated statement of condition of the bank or banking association as of January 1 next preceding the date of making the return as required in this section and dividing the result by the number of outstanding shares, at the same rate provided by law for the taxation of tangible personal property in the hands of private individuals." Thus the tax is upon the bank's shareholders rather than the bank itself, although the value of those shares is based upon the capital (net worth) of the bank.

The act authorizes as deductions from the fair market value of the shares (net worth of the bank) real estate taxed separately, investments in subsidiary banks taxed under the act, undistributed earnings of other subsidiaries subject to Georgia corporate taxes, and reasonable capital reserves. Code Ann. § 91A-3301(a)(2). The act does not provide for deduction of U. S. government securities.

The Bartow County Bank, a state bank, filed with the local taxing authorities its 1980 "Determination of Taxable Value of Bank Shares". This return showed a total capital or net worth of $902,243.85 and total deductions of $950,548.21, which reduced the taxable value of the bank's shares to zero. In making the deductions, the bank included as a deduction the net book value of bank-owned U. S. government securities in the sum of $543,800.92. The Bartow County Board of Tax Assessors disallowed this deduction and determined that the taxable value of the bank's shares therefore was $495,496.56. The bank appealed to the Bartow County Board of Tax Equalization, contending that the federal securities held by the bank were exempt from state taxation under federal law. The Board of Equalization ruled in favor of the bank, the majority of the Board finding that federal securities are not taxable. The Bartow County Board of Tax Assessors appealed the decision of the Board of Equalization to the Superior Court of Bartow County.

The C&S Bank of Bartow County, a state bank, and the First National Bank of Cartersville, a national bank, had also filed 1980 returns deducting the value of federal securities, which deductions reduced the value of C&S bank shares to zero and reduced the value of First National bank shares to $557,187. These deductions were disallowed by the Bartow County Board of Tax Assessors and these two banks also appealed to the Board of Equalization but because different panels heard the cases, the untenable result at the Board of Equalization level was a decision in favor of the Bartow County Bank but against the other two banks. ² The other two banks appealed to the Superior Court of Bartow County, where all three cases were consolidated and heard jointly.

The State Revenue Commissioner then moved, and over the banks' objections was allowed, to intervene. The trial judge issued a lengthy order reviewing the authorities, finding that the share tax act is not unconstitutional and concluding that the banks were not entitled to deduct the value of federal securities in determining net worth for imposition of share tax. The banks appeal.

1. The principal issue in this case is the constitutionality of Georgia's bank share tax act, Code Ann. § 91A-3301; Ga.L.1978, pp. 309, 523, supra, which provides for the taxation of bank shares held by stockholders based on the net worth of a bank without subtracting the value of federal securities owned by the bank. The banks contend that the bank share tax is in contravention of 31 U.S.C.A. § 742, as amended by Pub.L. 86-346, and therefore violates the supremacy clauses of the United States Constitution and the Constitution of the State of Georgia. U.S.Const. Art. VI, Cl. 2 (Code Ann. § 1-602); Ga. Const. Art. XI, Sec. I, Par. I (Code Ann. § 2-6801). ³

The banks contend that the tax act should be declared unconstitutional in its entirety, or that this court could render the statute constitutional by allowing banks to deduct the value of the U. S. obligations owned by the banks. ⁴ The Revenue Commissioner contends that the banks are seeking to obtain a double or duplicative exemption. The Commissioner argues that the shares of a bank with $1 million in capital and $1 million in deposits which loans its capital to private enterprises and purchases federal securities with the money on deposit would, if the bank's position were valid, not be subject to the tax because the federal securities would be offset against the bank's capital of $1 million which would otherwise be taxable.

As noted above, the banks contend that the share tax act violates federal law and thereby violates the supremacy clause of the Constitution. Our review involves two federal laws, 12 U.S.C. § 548 and 31 U.S.C. § 742, and their predecessors. But our first inquiry is as to the cases which were the progeny of McCulloch v. Maryland, supra.

In Osborn v. President, Directors and Company of the Bank of the United States, 9 Wheat. (22 U.S.) 738, 868, 6 L.Ed. 204 (1824), also written by Marshall, C. J., the Court declined to overrule McCulloch v. Maryland, supra, and held a state statute levying a tax on the Bank of the United States, a federal instrumentality, to be unconstitutional.

In Weston v. City Council of Charleston, 2 Pet. (27 U.S.) 449, 469, 7 L.Ed. 481 (1829), again written by Marshall, C. J., the Court applied McCulloch v. Maryland and held a city ordinance which levied a personal property tax on bonds, notes, insurance stock, and stock issued by the United States, to be invalid as to stock of the United States.

In Bank of Commerce v. The Commissioners of Taxes of the City and County of New York, 2 Black (67 U.S.) 620, 17 L.Ed. 451 (1862), in an opinion written by Nelson, J., the Court applied Weston v. City of Charleston, supra, and held that a state tax could not be imposed on the value of the capital of a state bank which consisted partially or entirely of stock of the United States.

In the Bank Tax Case, 2 Wall. (69 U.S.) 200, 17 L.Ed. 793 (1864), also written by Nelson, J., the Court held that the New York legislature could not avoid Bank of Commerce v. The Commissioners of Taxes of the City and County of New York, supra, by imposing the tax "on a valuation equal to" the amount of the bank's capital stock as opposed to the tax on the actual value of the capital stock held invalid in Bank of Commerce.

In 1862, Congress authorized the Secretary of the Treasury to issue notes and...