First Nat. Bank of Santa Fe v. Commissioner of Revenue

• Decision Date: 05 September 1969
• Docket Number: No. 288,288
• Citation: 80 N.M. 699,1969 NMCA 90,460 P.2d 64
• Parties: The FIRST NATIONAL BANK OF SANTA FE, Claimant-Appellant, v. The COMMISSIONER OF REVENUE of the State of New Mexico, Appellee.
• Court: Court of Appeals of New Mexico

Page 64

460 P.2d 64

80 N.M. 699

The FIRST NATIONAL BANK OF SANTA FE, Claimant-Appellant, v. The COMMISSIONER OF REVENUE of the State of New Mexico, Appellee.

No. 288.

Court of Appeals of New Mexico.

Sept. 5, 1969.

Certiorari Denied Oct. 15, 1969.

W. W. Gilbert, White, Gilbert, Koch & Kelly, Santa Fe, for appellant.

James A. Maloney, Atty. Gen., Justin Reid, Asst. Atty. Gen., Santa Fe, for appellee.

OPINION

OMAN, Judge.

This appeal has been taken by the First National Bank of Santa Fe, hereinafter called Bank, from a decision of the Commissioner of Revenue of the State of New Mexico, hereinafter called Commissioner, whereby the Commissioner denied the Bank's claim for refund of gross receipts tax. The appeal is before this court pursuant to § 72--13--39, N.M.S.A.1953 (Repl. Vol. 10, pt. 2, Supp.1967), (N.M. Laws 1966, ch. 30, § 3).

The matter was presented to the Commissioner on stipulated facts. None of the findings of fact made by the Commissioner has been challenged. Two points for reversal were asserted by the Bank in its brief in chief. One of these has been conceded by the Commissioner. However, this concession does not dispose of this appeal. We must decide the other and principal point in which the Bank claims: 'The State is forbidden to levy the tax in question by Federal law.'

The facts essential to an understanding and determination of the issue are as follows:

(1) The Bank is a national banking association organized and existing under and by virtue of 12 U.S.C. § 21 et seq. (1964).

(2) The Bank owns an electronic data processing machine upon which it maintains and processes its own demand and checking account records.

(3) On or after July 1, 1967, the Bank entered into contracts with four unaffiliated banks (three state and one national) to maintain and process their demand account records on the Bank's machine for a fee or charge to be computed on the basis of activity and number of accounts processed.

(4) Electronic data processing of such accounts is a convenience but not a necessity for the conduct of the banking functions of any of the banks. It is a service made available commercially by non-banking institutions in Albuquerque and elsewhere.

(5) The gross receipts tax was imposed upon the Bank's receipts for the bookkeeping or accounting service rendered to the four other banks to whom it was under no obligation, except for the contracts aforesaid.

(6) The tax imposed is not a sales or use tax imposed upon the Bank's purchase of tangible personal property for its own use.

(7) Pursuant to its contracts, the Bank collected from the four banks for whom it performed said services the gross receipts tax, but is obligated to refund the same if successful on this appeal.

The Bank's position is that the majority opinion in First Agricultural Nat. Bank v. State Tax Commissioner, 392 U.S. 339, 88 S.Ct. 2173, 20 L.Ed. 1138 (1968), is controlling and under that opinion the state may tax a national bank, except for its real estate, only in one of the four ways authorized by 12 U.S.C. § 548 (1964). Unquestionably, language used by the Supreme Court of the United States in the Agricultural Nat. Bank case, in Des Moines National Bank v. Fairweather, 263 U.S. 103, 44 S.Ct. 23, 68 L.Ed. 191 (1923), and in Owensboro National Bank v. Owensboro, 173 U.S. 664, 19 S.Ct. 537, 43 L.Ed. 850 (1899), supports this position. The opinions in First National Bank of Homestead, Florida v. Dickinson, 291 F.Supp. 855 (N.D.Fla.1968), affirmed without opinion in 393 U.S. 409, 89 S.Ct. 685, 21 L.Ed.2d 634 (1969), and Northwestern National Bank of Sioux Falls v. Gillis, 82 S.D. 457, 148 N.W.2d 293 (1967), also appear to support this position.

However, insofar as we can tell from the opinions therein, none of these cases involved the question of a tax upon fees or charges made by a national bank for commercial services performed outside the scope of its banking powers as authorized by Congress. These powers are specified in 12 U.S.C. § 24 (1964), and they do not include the furnishing of services such as those here involved. Congress has made provision for the creation of 'Bank Service Corporations.' 12 U.S.C. ch. 18 (1964). These federally-chartered corporations are expressly granted the power to perform for banks such services as those here involved, but there is no congressional limitation on a state's power to tax these corporations.

The fact that the enumerated powers of a national bank do not include the performance of such services for other banks, the fact that Bank Service Corporations are expressly empowered to perform such services for banks, and the fact that Congress has not limited the taxation by a state of Bank Service Corporations, indicates to us that Congress does not intend that the performance of these services may not be taxed by a state. It seems illogical to us to hold that Congress intended to limit a state's taxation on functions or services performed by national banks, when such functions or services are clearly not necessary, and not reasonably incident, to the execution of the powers conferred by Congress thereon.

In Arizona State Tax Com'n. v. First Bank Building Corp., 5 Ariz.App. 594, 429 P.2d 481 (1967), the building corporation was duly organized and qualified to do business in Arizona. All of its issued and outstanding stock was held and owned by the First National Bank of Arizona, a national banking association; the executive committee of the bank served as the board of directors for the building corporation; all of the officers of the building corporation were also officers of the bank; all of the bookkeeping with respect to the building corporation books and accounts was performed by personnel of the bank; and the building corporation had no employees. The state had assessed against the building corporation a transaction and privilege tax upon rentals from several properties owned by it. It claimed exemption from the tax on the ground that its ownership of the properties was solely for the benefit and convenience of the bank, and that each of its properties had a direct relationship to the transacting of business by the bank. It relied upon the holding in O'Neil v. Valley Nat. Bank of Phoenix, 58 Ariz. 539, 121 P.2d 646 (1942). The Arizona court of appeals rejected the claimed exemption, and in so doing stated:

'* * * we would hold that plaintiff having been created as a separate entity enjoying the benefits of a corporate existence including, among others, real estate holding and tax advantages, and although performing functions of importance as a subsidiary of a national bank, the taxing by the commission of the business in which it is engaged herein is not such as to impair the operation of said bank as to make it exempt from state taxation within the meaning of the laws giving it the claimed immunity under 12 U.S.C. § 548. Commissioner of Banks v. Chase Securities Corporation, 298 Mass. 285, 10 N.E.2d 472 (1937).'

Although the Arizona court based its rejection of the claimed exemption in part upon the separate corporate existence of the building corporation, the quoted language shows the rejection was also predicated in part upon the fact that the imposition of the tax was not such as to impair the operation of the bank to the extent of clothing the building corporation's activities with immunity under 12 U.S.C. § 548 (1964). That is, the tax exemption granted by Congress to national banks is to be determined not alone by its existence as such a bank, but, at least in part, by the nature of the activities, or services, it has performed upon which a tax is imposed.

We are of the opinion that the question of the propriety of the imposition of a tax on an activity or service performed by a national bank should be determined on the basis of whether the activity or service is reasonably related or incidental to the accomplishment of its bank functions. This is consistent with the intent of the New Mexico Legislature in enacting the present tax law on banks and financial corporations (N.M. Laws, 1969, ch. 151). Section 6 of this act provides:

'The taxes imposed by Sections 3 and 4 of the Banking and Financial Corporations Tax Act are in lieu of all other taxes imposed by the state and its political subdivisions upon banks and financial corporations for calendar year 1969 and all subsequent years, except taxes upon their real property and taxes arising from activities which are not in the course of their regular banking and financial corporation functions.' (Emphasis added).

We believe our opinion is also in accord with the declarations of the Supreme Court of the United States to the effect that exemption or immunity from taxation is to be narrowly restricted, and, in case of doubt as to the existence or extent thereof, the doubt should be decided in favor of the taxing authority. In Bank of Commerce v. Tennessee, 104 U.S. 493, 26 L.Ed. 810 (1882), which involved the extent of tax exemption of a state bank under its charter and the state law, the court stated:

'That statutes imposing restrictions upon the taxing power of a State, except so far as they tend to secure uniformity and equality of assessment, are to be strictly construed, is a familiar rule. Against the power nothing is to be taken by inference and presumption. Where a doubt arises as to the existence of the restriction, it is to be decided in favor of the State. * * * In our judgment, the limited exemption cannot be extended to property used beyond the actual wants of the Corporation in carrying out the purpose of its creation. As well observed by the Supreme Court of the State, the contract of exemption, beyond the extent prescribed, ceased when taxable property was held for any other purpose.

'* * *

'* * * The doctrine declared in them (cited railroad cases) that the exemption, in cases like the one in the charter before us, extends only to the property necessary for the business of the company, is...