Jefferson Sav. and Loan Ass'n v. Goldberg, 62712

Decision Date12 January 1982
Docket NumberNo. 62712,62712
Citation626 S.W.2d 640
PartiesJEFFERSON SAVINGS AND LOAN ASSOCIATION, et al., Appellants, v. Gerald H. GOLDBERG, Director of Revenue, State of Missouri, Respondent.
CourtMissouri Supreme Court

Warren E. Slagle, Slagle & Bernard, Kansas City, P. Pierre Dominique, Jefferson City, for appellants.

John Ashcroft, Atty. Gen., Steven Akre, Asst. Atty. Gen., Jefferson City, for respondent.

SEILER, Judge.

This is a declaratory judgment action brought by more than ninety savings and loan associations 1 and four individual account or deposit holders for a declaration as to the constitutionality of the intangible property tax assessed on holders of accounts in savings and loan associations. Section 148.480, RSMo 1978. The plaintiffs include both federally and state chartered associations and deposit and account type associations. The trial court found the tax constitutional. Plaintiffs appealed to this court, which has jurisdiction because the validity of a statute of this state and construction of a revenue law are involved. Mo.Const. art. V, § 3.

Mo.Const. art. X, § 4(b) provides as follows:

Property in classes 1 (real property) and 2 (tangible personal property) and subclasses of class 2, shall be assessed for tax purposes at its value or such percentage of its value as may be fixed by law for each class and for each subclass of class 2. Property in class 3 (intangible personal property) and its subclasses shall be taxed only to the extent authorized and at the rate fixed by law for each class and subclass, and the tax shall be based on the annual yield and shall not exceed eight per cent thereof. (Emphasis added.)

As a preliminary observation, we note that class 1 and class 2 property may be assessed on a percentage of value as well as full value, but that a sharp distinction is drawn in this regard as to intangible personal property. The tax on intangible personal property is to be based only on the annual yield.

Sections 148.470-.530 provide for the taxation of accounts in savings and loan associations. 2 These statutes were first adopted in 1945. H.B. 869, 1945 Mo.Laws 1919. In 1969, after savings and loan associations were authorized to accept deposits, H.B. 293, 1969 Mo.Laws 509, the legislature amended §§ 148.480, .490, and .520 slightly to define earnings as including interest (from deposits) as well as dividends (from accounts). The prior statute, § 148.480 RSMo 1959, had referred only to "dividends".

Section 148.480 now reads:

There is hereby imposed upon each person either natural or corporate, holding personally or in trust, an account in an association, an annual tax of two percent of the taxable portion of the earnings, including dividends and interest, paid or credited by such association to such account in the preceding year. The "taxable portion" of such earnings shall be that proportion thereof which shall equal the proportion of the gross income of such association for the year derived from its intangible property, other than obligations of or guaranteed by the United States, to its entire gross income.

(Emphasis added.)

Under this statute, as respondent concedes and as the statute states, the tax is imposed on the holders, natural or corporate, of accounts or deposits in savings and loan associations and is assessed on the taxable portion of the earnings credited to the accounts. The association, however, is required to compute, withhold, and pay to the director of revenue the amounts of all taxes imposed on its members and, at the association's option, may absorb and pay the tax without charging the same to the particular accounts of its holders. Section 148.500.1. From the record it appears that all savings and loan associations in Missouri have, since the statute was enacted, elected to absorb the tax rather than pass it on to the account holders.

Section 148.520 classifies accounts in savings and loan associations as intangible property, defines the earnings paid or credited to an account as the annual yield, and provides that the tax imposed by § 148.480 is, with certain exceptions, in lieu of all other taxes on associations.

Section 148.480, set out above, details the mechanics for computing the intangible property tax. It is assessed not on the earnings actually paid or credited to the account but only on the taxable portion of those earnings. The taxable portion is based on a percentage which is determined by reference to the sources of the association's income rather than to the holder's earnings. The two percent tax rate is then applied to the taxable portion. What is being taxed are the holders' accounts, but this tax is based on how each association earns its money.

Under the formula, the accounts will never be taxed on the basis of their annual yield. This is because the formula will inevitably produce a fraction or ratio which is less than 100%. As is shown by the exhibits in the record of some ninety associations, the gross income for the year from intangibles is always less than the entire gross income of the association. This is true because the associations have forms of income other than from intangibles which enter into the makeup of their entire gross income, such as loan fees, service fees, rentals, commissions, appraisal fees and penalties for early withdrawals. The result is, therefore, that in no instance will the tax base be the annual yield, which is defined in § 148.520 as the full amount of the earnings paid or credited to the amounts, but will instead be the product of a proper fraction applied to the annual yield.

In addition to the foregoing diminution of the tax base to less than the annual yield of the intangible property being taxed, the formula has another built in reducing effect. Depending upon whether an association has income from United States government obligations, two different formulas are used to determine the taxable portion of earnings.

Where the association does have income from United States government obligations, the formula is as follows:

                gross income from intangible less          annual yield
                income from U.S. government                (earnings        taxable
                obligaions                              x  credited      =  portion
                --------------------------------------
                entire gross income of the association     or paid          of
                                                           to accounts)     earnings
                

Where the association does not have income from United States government obligations the formula is different and is as follows:

                gross income of the association            annual yield     taxable
                from intangibles                        x  (earnings     =  portion
                --------------------------------------
                entire gross income of the association     credited         of
                                                           or paid          earnings
                                                           to accounts)
                

To illustrate the difference in the taxable portion produced by these two formulas let us take the following examples of two associations with the same amount of gross income but with one having income from United States government obligations and the other not:

                Gross income from intangibles including U.S
                government obligations                        $100,000
                Income from U.S. government obligations       $ 10,000
                Gross income from all sources                 $180,000
                Annual yield (earnings credited or paid
                to accounts)                                  $ 50,000
                

Applying these figures to formula one above, the equation is as follows:

                $100,000 - $10,000                 $25,000 taxable
                ------------------  x  $50,000  =
                     $180,000                      portion of earnings
                

on which the two percent tax would be $500 and the effective tax rate would be one percent.

Using formula two above and assuming the association does not have any income from government obligations, the equation is as follows:

                $100,000                 $27,777.78 taxable
                --------  x  $50,000  =
                $180,000                 portion of earnings
                

on which the two percent tax would be $555.56 and the effective tax rate would be 1.1 percent.

Thus we see the results are different because the tax base is different. The association without government income pays $555.56, while another association with the same gross income from intangibles and the same gross income from all sources but which has some government income in its intangibles pays only $500. The tax is 11.1% higher in the second example than it is in the first. Additionally, in neither instance is the tax on the annual yield of the accounts.

As seen from art. X, § 4(b) quoted earlier, the tax on intangible property "shall be based on the annual yield". The noun "yield" in the sense used in the constitutional provision means, of course, the return upon an investment. The parties are in agreement that the annual yield from an account in a savings and loan association is the earnings paid or credited to the account during the year, as the statute declares, § 148.520. The statute under attack § 148.480, supra, does not base the tax on the annual yield of the intangible property, but bases it instead only on the taxable portion thereof which by definition applies a fraction which will vary from association to association and excludes from the intangible property income of the association income or yield derived from obligations of the United States. This, to repeat, will always produce a tax base less than the annual yield. Counsel for respondent conceded at trial that the "legislature has chosen to exempt some portion of the earnings to the account" and the trial court found that the formula produces a taxable portion of earnings which varies from association to association. While the tax is two percent of whatever the taxable portion of earnings turns out to be, the record shows that the tax actually paid on accounts of the same size with the same yield varies widely...

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4 cases
  • Community Federal Sav. & Loan Ass'n v. Director of Revenue
    • United States
    • Missouri Supreme Court
    • May 17, 1988
    ...of intangible property taxes paid under section 148.480, RSMo 1978, subsequently held unconstitutional in Jefferson Savings and Loan Association v. Goldberg, 626 S.W.2d 640 (Mo. banc 1982). The principal question is whether appellants are precluded by sovereign immunity from recovery under ......
  • Conseco Fin. Corp. v. Missouri Dep. of Rev.
    • United States
    • Missouri Supreme Court
    • March 4, 2003
    ...are incomplete and are incapable of being executed in accordance with the legislative intent. Sec. 1.140. See Jefferson Say. and Loan Ass'n v. Goldberg, 626 S.W.2d 640, 644 (Mo. banc 1982) (where portion of statute struck down, remainder cannot stand where it is too intertwined with stricke......
  • Community Federal Sav. & Loan Ass'n v. Director of Revenue, 72500
    • United States
    • Missouri Supreme Court
    • October 16, 1990
    ...of the state. We have jurisdiction. Mo. Const. art. V, §§ 3 and 18. Section 621.189, RSMo 1986. Affirmed. I. Jefferson Savings & Loan Association v. Goldberg, 626 S.W.2d 640 (Mo. banc 1982), declared the intangible personal property tax imposed on holders of accounts in savings and loan ass......
  • Home Sav. of America, F.A. v. State, No. WD44209
    • United States
    • Missouri Court of Appeals
    • August 6, 1991
    ...was $1,211,454.00. A number of savings and loan associations challenged the constitutionality of § 148.480 and in Jefferson Sav. and Loan Assoc. v. Goldberg, 626 S.W.2d 640 (Mo. banc 1982), the intangible tax imposed by that section was declared to be unconstitutional. Following that holdin......

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