General Elec. Credit Corp. v. Oregon State Tax Commission

• Decision Date: 14 August 1962
• Citation: 373 P.2d 974,231 Or. 570
• Parties: GENERAL ELECTRIC CREDIT CORPORATION, a corporation, Respondent, v. OREGON STATE TAX COMMISSION, comprised of Dean Ellis, Commissioner and Chairman, F. H. W. Hofke, Commissioner, and C. H. Mack, Commissioner and Secretary, Appellants.
• Court: Oregon Supreme Court

Page 974

373 P.2d 974

231 Or. 570

GENERAL ELECTRIC CREDIT CORPORATION, a corporation, Respondent, v. OREGON STATE TAX COMMISSION, comprised of Dean Ellis Commissioner and Chairman, F. H. W. Hofke Commissioner, and C. H. Mack Commissioner and Secretary, Appellants.

Supreme Court of Oregon, In Banc.

Argued and Submitted Jan. 8, 1962.

Decided Aug. 14, 1962.

Donald H. Burnett, Asst. Atty. Gen., Salem, for appellants. With him on the brief were Robert Y. Thornton, Atty. Gen., John C. Mull, and Carlisle B. Roberts, Asst. Attys. Gen., Salem.

Samuel B. Stewart, Portland, for respondent.

Before McALLISTER, C. J., and ROSSMAN, WARNER, PERRY, SLOAN, O'CONNELL and GOODWIN, JJ.

ROSSMAN, Justice.

This is an appeal by the State Tax Commission from a decree of the circuit court which held invalid an excise tax assessed against the plaintiff under ORS 317.060. The tax was assessed pursuant to a belief that the plaintiff is a 'financial corporation' within the contemplation of the section of our laws just cited and as a deficiency for the year 1957. From the assessment an unsuccessful appeal was taken to the State Tax Commission. Later, the plaintiff appealed to the circuit court and January 13, 1961, the court entered findings of fact and conclusions of law which ruled that the deficiency assessment was unlawful and reversed the commission's order. From that ruling the commission has appealed to this court.

The plaintiff computed and paid its 1957 excise tax upon the premise that it is a 'business corporation' taxable under ORS 317.070, and therefore subject to a rate of 6 per cent of net income. The commission, on the other hand, maintains that the plaintiff is a 'financial corporation' taxable under ORS 317.060 and therefore subject to a 9 per cent rate. This difference of opinion gains added interest from the possibility that the plaintiff's interpretation of the act, if correct, means that the excise tax, insofar as it applies to national banks, violates federal law. ORS 317.060(1) reads as follows:

'Every bank, other than a national banking association, and every financial corporation, building and loan association, savings and loan association and mutual savings bank, located within the limits of this state, shall annually pay to the state, for the privilege of carrying on or doing of business by it within this state, an excise tax according to or measured by its net income to be computed in the manner provided by this chapter at the rate of nine percent.'

The following is the material part of ORS 317.070:

'(1) Every centrally assessed corporation, the property of which is assessed by the State Tax Commission under ORS 308.505 to 308.730, and every mercantile, manufacturing and business corporation doing or authorized to do business within this state, except as provided in ORS 317.080 to 317.090, shall annually pay to this state, for the privilege of carrying on or doing business by it within this state, an excise tax according to or measured by its net income, to be computed in the manner provided by this chapter, at the rate of six percent.'

The case was tried in the circuit court upon stipulated facts. The stipulation includes all facts found by the commission in its opinion and order of January 22, 1960, and affords a portrayal of the plaintiff's business activities. It was stipulated that the business consists 'mainly' of two activities which were described as follows: '(1) The financing of the acquisition of inventory by General Electric dealers from General Electric distributors; (2) the purchasing of retail installment sales contracts from General Electric dealers.' The first of these activities was accomplished by means of trust receipts and it was stipulated for purposes of the trial that this constituted 'lending money' within the meaning of ORS 317.010(10), a crucial definition subsection of ORS chapter 317 to which we will refer again. The words of ORS 317.010(10) are:

"Financial institution' or 'financial corporation' means every corporation whose principal business is lending money in direct competition with national and state banks.'

It was further stipulated, however, that the purchase of retail installment sales contracts constitutes the 'principal' business of the company within the meaning of ORS 317.010(10). This is supported by a summary of business operations which indicates that 87 per cent of the plaintiff's 1956 gross income from the two sources was from installment sales purchases; while 85 per cent of gross income for the tax year 1957, and 86 per cent of gross income for 1958 was from this activity. It was further agreed that the purchase of retail installment contracts by the plaintiff 'operates directly in competition with national and state banks within the State of Oregon within the meaning of ORS 317.010(10).'

Plaintiff's complaint alleges two causes of suit. First, it alleges that it is a 'business corporation' under ORS 317.070, and had been unlawfully assessed as a 'financial corporation' under ORS 317.060. Second, it alleges that the Oregon excise tax upon national banks was repugnant to Section 5219 of the Revised Statutes of the United States (12 U.S.C.A. § 548) and therefore any attempt to tax the plaintiff as a financial corporation would be a denial of equal protection of the laws under the Fourteenth Amendment to the United States Constitution and Article I, §§ 20 and 32 of the Oregon Constitution. We will shortly quote the material part of Section 5219.

The parties stipulated that the second cause of suit should not be an issue in the circuit court. This was on the understanding that several national banks had filed a suit in the circuit court for Marion County challenging the validity of the excise tax. It was agreed that the outcome of the Marion County suit would be determinative of the validity of ORS 317.060, and the parties stipulated to be bound by the outcome of the Marion County suit.

The only question before the circuit court, and now before this court, is whether the plaintiff, on the stipulated facts, is a 'financial corporation' within the purview of ORS 317.060, supra.

In order to understand the position taken by the commission in this case, it is necessary to review briefly the history of federal and state legislation regulating state taxation of national banking associations.

National banks were established by the National Bank Act of 1864. June 3, 1864, chapter 106, 13 Stat. 99. Congress surmised that the immunity from state taxation which the United States Supreme Court declared to apply to the second Bank of the United States in M'Culloch v. Maryland, 4 Wheat. 316, 17 U.S. 316, 4 L.Ed. 579 (1819), would adhere also to the new banks, and therefore included in Section 41 of the Act a partial waiver, to permit limited taxation of such institutions by the states: 13 Stat. 111. Shortly thereafter the validity of the waiver provision was upheld in Van Allen v. The Assessors, 3 Wall 573, 70 U.S. 573, 18 L.Ed. 229 (1866). The decision also necessarily implied that national banks could not be taxed by the states in the absence of congressional consent.

As amended by Act of February 10, 1868, chapter 7, 15 Stat. 34, the waiver was codified in Section 5219, Revised Statutes of 1878 (R.S. § 5219) which reads:

'Nothing herein shall prevent all the shares in any association from being included in the valuation of the personal property of the owner or holder of such shares, in assessing taxes imposed by authority of the State within which the association is located; but the legislature of each State may determine and direct the manner and place of taxing all the shares of national banking associations located within the State, subject only to the two restrictions, that the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State, and that the shares of any national banking association owned by non-residents of any State shall be taxed in the city or town where the bank is located, and not elsewhere. Nothing herein shall be construed to exempt the real property of associations from either State, county, or municipal taxes, to the same extent, according to its value, as other real property is taxed.'

Significant for our purposes is the proviso that the tax on bank shares 'shall not be at a greater rate than is assessed upon other moneyed capital.' From an early period it was held that 'moneyed capital' meant only that which was employed 'in substantial competition' with the business of national banks. Mercantile Nat. Bank v. New York, 121 U.S. 138, 7 S.Ct. 826, 30 L.Ed. 895 (1887); Bank of Redemption v. Boston, 125 U.S. 60, 8 S.Ct. 772, 31 L.Ed. 689 (1888); Commercial Nat. Bank of Ogden v. Chambers, 182 U.S. 556, 21 S.Ct. 863, 45 L.Ed. 1227 (1901); First Nat. Bank of Guthrie Center v. Anderson, 269 U.S. 341, 46 S.Ct. 135, 70 L.Ed. 295 (1925); First Nat. Bank of Hartford v. Hartford, 273 U.S. 548, 47 S.Ct. 462, 71 L.Ed. 767 (1927). 'Rate' was construed to define the entire assessment process. It was, for instance, stated in Stanley v. Board of Supervisors, 121 U.S. 535, 7 S.Ct. 1234, 30 L.Ed. 1000 (1886):

'* * * the prohibition against discrimination has reference to the entire process of assessment, and includes the valuation of the shares, as well as the rate of percentage charged.'

In People of State of New York ex rel. Williams v. Weaver, 100 U.S. 539, 25 L.Ed. 705 (1880), the court ruled:

'* * * Congress had in mind an assessment, a rate of assessment, and a valuation; and, taking all these together, the taxation on these shares was not to be greater than on other moneyed capital.'

See Annotation, 59 A.L.R. 10, 18. Thus, even though the mill rate of tax on national bank shares and competing capital might be identical, the state tax would be held invalid where the effect of the statutory scheme of taxation was to discriminate against national banks in favor...