City of Houston v. Morgan Guar. Intern. Bank

• Decision Date: 29 December 1983
• Docket Number: No. 01-83-0078-CV,01-83-0078-CV
• Parties: 16 Ed. Law Rep. 1418 CITY OF HOUSTON, Houston Independent School District, and William R. Brown, Jr., Appellants, v. MORGAN GUARANTY INTERNATIONAL BANK and Morgan Guaranty Trust Company of New York, Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 524

666 S.W.2d 524

16 Ed. Law Rep. 1418

CITY OF HOUSTON, Houston Independent School District, and William R. Brown, Jr., Appellants, v. MORGAN GUARANTY INTERNATIONAL BANK and Morgan Guaranty Trust

Company of New York, Appellees.

No. 01-83-0078-CV.

Court of Appeals of Texas,

Houston (1st Dist.).

Dec. 29, 1983.

Rehearing Denied Jan. 19, 1984.

Larry F. York, Baker & Botts, Houston, for appellees.

James B. Cameron-Stuart, Sr. Asst. City Atty., Joan C. Ward, Asst. City Atty., Houston, for appellants.

Before EVANS, C.J., and DUGGAN and BASS, JJ.

OPINION

DUGGAN, Justice.

This is an appeal from a summary judgment enjoining the collection of city and school district ad valorem taxes on shares of a federally-chartered Edge Act corporation. Although the corporation maintains a branch office at the tax situs, its shares are wholly owned by a non-resident foreign corporation which maintains its home office in Florida.

Appellees, Morgan Guaranty International Bank ("MGIB") and Morgan Guaranty Trust Company of New York ("MGT"), filed suit against appellants, the City of Houston ("City"), the Houston Independent School District ("HISD"), their tax assessor-collector and their board of equalization, to enjoin collection of ad valorem taxes on shares of MGIB's stock for the tax year 1981. The appellees pleaded that MGIB's shares are not properly taxable because, under state and federal law, they have no "tax situs" in Texas. The appellants generally denied appellees' assertions and counterclaimed for delinquent ad valorem taxes in the amount of $191,892, together with penalties, interest, attorneys' fees, and costs as authorized by statute. Following a hearing on the parties' cross-motions for summary judgment, the trial court (1) denied appellants' motion urging that delinquent City and HISD taxes on MGIB shares were due and owing by MGT as a matter of law, and (2) granted appellees' motion permanently enjoining the appellants from attempting to collect 1981 taxes assessed on stock shares issued by MGIB and wholly owned by MGT. Eight points of error are asserted. We reverse and render.

In 1974, pursuant to Section 25(a) of the Federal Reserve Act, 12 U.S.C. §§ 611-631 (1976), commonly known as the Edge Act, Morgan Guaranty International Bank of Houston ("MGIBH") commenced operation in Houston. The Edge Act authorizes the establishment of federally chartered corporations "for the purpose of engaging in international or foreign banking or other international or foreign financial operations." 12 U.S.C. § 611. From its inception through the tax year 1980, MGIBH paid the ad valorem tax on bank shares to the appellants on behalf of its sole stockholder, MGT.

In 1978, Section 25(a) of the Federal Reserve Act was amended for the first time since the section's enactment in 1919, in order to make Edge Act corporations more competitive with foreign-owned banking institutions. International Banking Act of 1978, § 3(a), 12 U.S.C.A. § 611a note (West.Supp.1983); S.Rep. No. 1073, 95th Cong.2d Sess., reprinted in 1978 U.S.Code Cong. & Ad.News 1423-24. By authority of the amending act, the Federal Reserve Board then issued regulations permitting banking organizations established pursuant to Section 25(a) of the Federal Reserve Act to operate branch banks in the United States. 12 C.F.R. § 211.4(c) (1983).

Consequently, in 1980, all of the assets and liabilities of MGIBH were transferred to MGIB, and MGIBH's banking operations in Houston were converted to a branch operation of MGIB. MGIB also operates branch offices in Los Angeles and San Francisco. It has designated Miami, Florida, as its home office of corporate headquarters, and all of its capital stock is owned by MGT of New York.

Appellees MGIB and MGT did not challenge the valuation method or the apportionment formula used to assess the tax for the year 1981 on the bank shares issued by MGIB. They insisted, instead, that neither existing federal nor state statutes permit Texas to tax shares of MGIB's stock.

By their first point of error, the appellants contend that the trial court erred in permanently enjoining them from attempting to collect the 1981 taxes assessed on bank shares issued by appellee MGIB, in that the Edge Act, as originally enacted and as amended, does permit state taxation of the MGIB bank shareholders. The relevant portion of that act, not amended in the 1978 revisions, provides as follows:

§ 627. State taxation

Any corporation organized under the provisions of sections 611-631 of this title shall be subject to tax by the State within which its home office is located in the same manner and to the same extent as other corporations organized under the laws of that State which are transacting a similar character of business. The shares of stock in such corporation shall also be subject to tax as the personal property of the owners or holders thereof in the same manner and to the same extent as the shares of stock in similar State corporations.

12 U.S.C. § 627.

Both parties call this court's attention to one of only two published opinions which discuss a state's power to tax Edge Act banks since § 627's adoption in 1919. In Commonwealth of Pennsylvania v. First Pennsylvania Overseas Finance Corporation, 425 Pa. 143, 229 A.2d 896 (1967), the Supreme Court of Pennsylvania observed that § 627 permitted Pennsylvania to subject the Edge Act corporation there involved to that state's capital stock tax since it "permits a state in which the home office of the corporation is located to tax the corporation as it would a corporation organized under its own laws." The corporation there was a wholly-owned subsidiary of a Pennsylvania corporation and had its home office in Philadelphia. The court's decision rested upon the definition of a domestic corporation within the meaning of the Pennsylvania taxing statute. The question here on appeal did not arise in that case, and could not have arisen before the act's 1978 amendment to permit interstate branch banking operations within the United States by Edge corporations. The state in which the home office of an Edge corporation was located at that time was also the only state in which the bank was doing business.

The United States Supreme Court mentioned § 627 in a footnote of an opinion as one of several statutes passed by Congress to protect federally chartered financial institutions from unequal and unfriendly competition caused by state tax laws favoring state-chartered institutions. First Federal Savings & Loan Ass'n of Boston v. State Tax Commission, 437 U.S. 255, 258, 98 S.Ct. 2333, 2335, 57 L.Ed.2d 187 (1978).

Both parties offer excerpts in their briefs from the 1919 Congressional Record to suggest the proper interpretation of § 627. Appellants quote portions of the Senate and House debates showing a distinct intention by Congress that financial entities organized under the Edge Act be subject to the same local taxes as other corporations in a state in which they are doing business. The appellees summarize part of the debate leading to the joint conference committee's proposal, which was ultimately adopted. This debate centered on whether shares of stock in Edge Act entities should be subject to taxation by the state of the shareholder's residence as well as by the state in which the home office of the corporation is located. Appellees conclude that

nothing in the Congressional debates summarized above suggests that Congress intended that any states other than the state in which the home office of the Edge Act entity was located and the states in which the shareholders of the Edge Act corporation reside should be able to impose taxes on the shares of Edge Act corporations.

(Emphasis added).

Appellees further observe that when § 627 was enacted, Edge Act corporations were not authorized to operate branch offices. Since Congress made no change in the language of § 627 in 1978 when other sections of the Act were amended to permit branch offices, appellees conclude that Congress must have "overlooked the question" or "thought that the establishment of branch offices [in 1978] should in no way alter the tax policy established [in 1919] by § 627, which makes no provision for taxation of an Edge corporation by a state in which a branch office is located." As a result, appellees insist that the limitations on state taxation expressed in § 627 preempt any contrary provisions contained in state tax statutes.

The resolution of an issue of federal statutory construction begins with an analysis of the language of the statute itself, and absent a clearly expressed legislative intention to the contrary, the plain language of the statute controls its construction. Allen v. Pierce, 689 F.2d 593, 596 (5th Cir.1982). In every case involving the interpretation of a federal statute, the analysis must begin with the language employed by Congress. Howe v. Smith, 452 U.S. 473, 480, 101 S.Ct. 2468, 2473, 69 L.Ed.2d 171 (1981).

Principles of statutory construction used by Texas courts are the same. The dominant consideration in construing a statute is the legislative intent. Minton v. Frank, 545 S.W.2d 442, 445 (Tex.1976); Calvert v. British-American Oil Producing Co., 397 S.W.2d 839, 842 (Tex.1965). Where the intent is apparent from the words of the statute, it is not necessary to analyze the extrinsic evidence of legislative intent. Minton, supra, at 445; Calvert, supra, at 842. The intention of the legislature should be ascertained from the entire act and not from isolated portions thereof. Calvert, at 842. The recently enacted Code Construction Act, Tex.Rev.Civ.Stat.Ann. art. 5429b-2 (Vernon Supp.1983), provides, however, that a statute need not be ambiguous before consideration can be given to its objectives, legislative history, and surrounding circumstances, or to the common law or former law upon the same or similar subjects, the consequences of a particular construction, and other factors. § 3.03.

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