City National Bank v. City of Beckley

• Decision Date: 14 March 2003
• Docket Number: No. 30678.,30678.
• Citation: 213 W.Va. 202,579 S.E.2d 543
• Court: West Virginia Supreme Court
• Parties: CITY NATIONAL BANK, Appellant Below, Appellant, v. CITY OF BECKLEY, Appellee Below, Appellee.

579 S.E.2d 543

213 W.Va. 202

CITY NATIONAL BANK, Appellant Below, Appellant, v. CITY OF BECKLEY, Appellee Below, Appellee.

No. 30678.

Supreme Court of Appeals of West Virginia.

Submitted January 21, 2003.

Decided March 14, 2003.

Gordon C. Lane, Kelly M. Young, Lane Law Firm, Herschel H. Rose, Rose & Atkinson, Charleston, for the Appellant.

Charles A. Lorensen, George & Lorensen P.L.L.C., Charleston, Mark Matkovich, City Attorney, City of Beckley, Beckley, for the Appellee.

ALBRIGHT, Justice.

Appellant City National Bank (hereinafter "City National" or the "Bank") appeals from the November 5, 2001, order of the Circuit Court of Raleigh County affirming the administrative decision of Appellee City of Beckley (hereinafter the "City") in connection with its assessment against the Bank of $281,550.82 for municipal business and occupation ("B & O") taxes. In challenging the assessment, City National argues that the circuit court wrongly interpreted a legislative rule promulgated to address the proper taxing situs where a banking business has more than one location. Based on City National's processing of the subject funds at a location formerly in Scary Creek and now in unincorporated Cross Lanes, the Bank argues that Beckley is not the proper taxing situs. Upon our review of the record in this matter in connection with the applicable statutes and regulations, we find no error, and accordingly, affirm.

I. Factual and Procedural Background

On November 16, 2001, City National received an assessment for B & O taxes from the City of Beckley for four taxable quarters covering the period from October 1, 1999, through September 30, 2000, in the aggregate amount of $281,550.82. The Bank timely filed a petition for reassessment with the City, protesting the tax assessment and penalties based on its contention that the funds subject to the tax were not received in Beckley, but at another location outside of the City. Following an administrative hearing held on January 31, 2001, the B & O tax assessment and penalties were upheld.¹ The Bank appealed the administrative decision to the circuit court and, by order entered on November 15, 2001, the trial court affirmed the administrative decision. Through this appeal, City National seeks a reversal of the lower court's ruling requiring it to pay the subject tax assessment and penalties.

II. Standard of Review

Our review of this matter is de novo given the clear questions of law that exist with regard to application of the taxing statute and regulation at issue. See Syl. Pt. 1, Chrystal R.M. v. Charlie A.L., 194 W.Va. 138, 459 S.E.2d 415 (1995) (holding that "[w]here the issue on appeal from the circuit court is clearly a question of law or involving an interpretation of a statute, we apply a de novo standard of review"). Accordingly, we proceed to determine whether the lower court erred in its application of the applicable tax laws.

III. Discussion

A. City National's Banking Practices

City National introduces its arguments with a description of the growth it experienced beginning in the mid-1980's, which led to a major reorganization of both management and operations in 1996. At such time, many banking related functions were moved from various branch bank locations to its Central Office locations in Scary Creek and Cross Lanes. Examples of tasks that were performed at these two centralized locations² include loan processing, risk management, collection, generation of account statements, regulatory compliance, and investment activities.

In further explanation of how its banking business has changed, City National states that when a loan is closed at a branch location, such as in Beckley, all loan files are forwarded to and retained by personnel at the Central Office. Based on the manner in which loans, as well as numerous other banking matters are now handled at its Central Office, the Bank argues that both loan interest income and investment income "are not received at Beckley and are [therefore] not subject to Beckley B & O Tax."³ City National concedes, however, that all trust department fees and safety deposit fees; service charges for checking accounts; NSF charges; money orders; and bank checks that are charged by its five Beckley branch locations are "received at" Beckley and, thus, fully subject to the Beckley B & O tax.

Beginning with the second quarter of 1999, City National changed the manner in which it reported taxable gross income in the banking classification for its Beckley B & O tax return. At such time, the Bank ceased reporting certain income generated from its loans and investments based on its position that such funds were not being received at Beckley, but instead at its Central Office locations where such amounts were being processed. Through this self-imposed reporting change,⁴ the City realized a 90% decrease in the taxes reported by the Bank for its five Beckley branch offices in comparison to prior reporting periods.⁵

B. History of Municipal B & O Tax

As necessary background to our resolution of this matter, we find it helpful to review the history of the municipal B & O tax. Although the state first enacted a B & O tax in 1921, the Legislature first delegated to municipalities the power to enact a municipal B & O tax in 1947. See 1947 W.Va. Acts, Ex.Sess., ch. 3. In 1985, the state began phasing out the state B & O tax for most business activities with an effective date of July 1, 1987, for eliminating such tax on those selected businesses and occupations. Incident to this alteration in the state tax structure, municipalities were expressly authorized to continue to assess and collect B & O taxes under West Virginia Code § 8-13-5 (1998) (Supp.2002), provided that the business activity or occupation upon which the city seeks to assess such tax was subject to the state B & O tax prior to July 1, 1987. See Town of Burnsville v. Kwik-Pik, Inc., 185 W.Va. 696, 705, 408 S.E.2d 646, 654 (1991).

From its onset, the state B & O tax was recognized as a tax on the privilege of doing business in this state. See Syl. Pt. 1, Hydraulics, Inc. v. Dailey, 171 W.Va. 648, 301 S.E.2d 605 (1983) (observing that state B & O tax is levied on privilege of selling or serving within this State and not on sales themselves or on income); Virginia Foods v. Dailey, 161 W.Va. 94, 102, 239 S.E.2d 770, 775 (1977). In City of Morgantown v. West Virginia University Medical Corp., 193 W.Va. 614, 457 S.E.2d 637 (1995), we identified the various businesses once subject to this tax:

In its most comprehensive form the statute [W.Va.Code § 11-13-1 et seq.] listed the following categories of businesses upon which the State could impose its B & O tax: production of coal and other natural resources, W.Va.Code, 11-13-2a; manufactured or compounded products, W.Va.Code, 11-13-2b; business of selling tangible property, W.Va.Code, 11-13-2c; public service or utility business, W.Va.Code, 11-13-2d; business of contracting, W.Va.Code, 11-13-2e; business of operating amusements, W.Va.Code, 11-13-2g; service business or calling not otherwise specifically taxed, W.Va.Code, 11-13-2h; business of furnishing property for hire, W.Va.Code, 11-13-2i; small loan business, W.Va.Code, 11-13-2j; banking and other financial businesses, W.Va.Code, 11-13-2k; an additional surtax on coal production, W.Va.Code, 11-13-2l; generation or production of electric power, W.Va.Code, 11-13-2m.

193 W.Va. at 616-17 n. 1, 457 S.E.2d at 639-40 n. 1 (citing statutes from 1983 Replacement Volume and 1986 Cumulative Supplement of W.Va.Code). Currently, the state levies B & O taxes on a limited number of business activities, including public service or utility businesses; gas storage; manufacturing or producing synthetic fuel from coal; and the generation or production of electric power. See W.Va.Code § 11-13-2d (1995) (Repl.Vol.1999); W.Va.Code § 11-13-2e (1995) (Repl.Vol.1999); W.Va.Code § 11-13-2f(2001) (Supp.2002); W.Va.Code § 11-13-2m (1995) (Repl.Vol.1999).

Because banking was a "business activity or occupation" for which the state previously imposed its B & O tax, municipalities are authorized under the provisions of West Virginia Code § 8-13-5 to continue to impose this type of tax. See W.Va.Code §§ 8-13-5; 11-13-2k (1983) (repealed W.Va. Acts 1989, 1st Ex.Sess., ch. 2). The essential nature of the banking business, as we discussed in Morris v. Marshall, 172 W.Va. 405, 305 S.E.2d 581 (1983), is:

the receipt of deposits. "Having a place of business where deposits are received and paid out on checks, and where money is loaned upon security, is the substance of the business of a banker." Warren v. Shook, 91 U.S. 704, 710, 23 L.Ed. 421 (1875). "Strictly speaking, the term `bank' implies a place for the deposit of money, and that is the most obvious purpose and a primary function of such an institution." 10 Am.Jur.2d Banks § 1 (1963). "The chief functions of a `bank' involve the receipt of deposits from the general public, repayable to the depositors on demand or at a fixed time, the use of deposit funds for secured loans, and the relationship of debtor and creditor between the bank and the depositor." 1 Banks and Banking 6 (1973). See also Oulton v. German Savings and Loan Society, 84 U.S. (17 Wall.) 109, 21 L.Ed. 618 (1872); Congress Industries, Inc. v. Federal Life Ins. Co., 114 Ariz. 361, 560 P.2d 1268 (1977); State v. Jefferson Finance Co., 163 La. 1005, 113 So. 355 (1927); State ex rel. Compton v. Buder, 308 Mo. 253, 271 S.W. 770 (1925); Williams v. Fidelity Loan & Savings Co., 142 Va. 43, 128 S.E. 615 (1925).

172 W.Va. at 410, 305 S.E.2d at 586.⁶ While no one can dispute that the nature of the banking business has changed considerably in recent years due both to interstate banking and various technological advancements, the banking industry still revolves around the depositing and procurement of funds by its customers through either withdrawals or loans.

C. Proper Taxing Situs

Returning to the issue at...