Michigan Nat. Bank v. State

• Court: Michigan Supreme Court
• Writing for the Court: KELLY; DETHMERS; SOURIS
• Citation: Michigan Nat. Bank v. State, 101 N.W.2d 245, 358 Mich. 611 (Mich. 1960)
• Decision Date: 25 February 1960
• Docket Number: No. 27,27
• Parties: MICHIGAN NATIONAL BANK, a banking association organized under the laws of the United States, Plaintiff and Appellant, National Bank of Wyandotte, First National Bank (Three Rivers, Michigan), Commercial National Bank of Iron Mountain, National Bank of Jackson and First National Bank and Trust Company of Kalamazoo, banking associations organized under the laws of United States, Intervening Plaintiffs, v. STATE of Michigan, Department of Revenue of State of Michigan, and Louis M. Nims, State Commissioner of Revenue, Defendants and Appellees.

Page 245

101 N.W.2d 245

358 Mich. 611

MICHIGAN NATIONAL BANK, a banking association organized under the laws of the United States, Plaintiff and Appellant National Bank of Wyandotte, First National Bank (Three Rivers, Michigan), Commercial National Bank of Iron Mountain, National Bank of Jackson and First National Bank and Trust Company of Kalamazoo, banking associations organized under the laws of United States, Intervening Plaintiffs, v. STATE of Michigan, Department of Revenue of State of Michigan, and Louis M. Nims, State Commissioner of Revenue, Defendants and Appellees.

No. 27.

Supreme Court of Michigan.

Feb. 25, 1960.

Butzel, Eaman, Long, Gust and Kennedy, Detroit, for appellant, Thomas G. Long, Victor W. Klein, Philip T. Van. Zile II, Harold A. Ruemenapp, Detroit, of counsel.

Paul L. Adams, Atty. Gen., Samuel J. Torina, Sol. Gen., Lansing, t. Carl Holbrook, William D. Dexter, Maurice Barbour, Richard R. Roesch, Asst. Attys. Gen., for appellees.

Before the Entire Bench, except BLACK and KAVANAGH, JJ.

KELLY, Justice.

Plaintiff's action to recover a 1952 deficiency intangibles tax assessment in the amount of $49,929.27 resulted in judgment of no cause of action.

This appeal presents the question of whether C.L.S.1956 § 205.132A (Stat.Ann.1957 Cum.Supp. § 7.556(2a), imposing a tax on bank shares, is invalid because it violates section 5219 of the Revised Statutes of the United States (12 U.S.C.A. § 548).

In 1953 (P.A.1953, No. 9) the legislature amended the intangibles tax law so as to place both State and national banks in a special and more heavily taxed category, imposing a tax on bank shares at the rate of 5 1/2 mills ($5.50 per $1,000) 'on the privilege of ownership of each * * * share of stock' based on the 'capital account' of each bank. 'Capital account' was defined to be the 'capital, surplus and undivided profits' as shown on the latest annual report for each year--in this case as of December 31, 1952.

Appellant's position is set forth in its brief as follows:

'This is not a case of tax avoidance or claimed immunity by appellant. * * * The singularly important and impelling object of this case is to assure tax equality with competitors. The powerful and rapidly growing savings and loan associations (or their shareholders) should be taxed at the same rate as shares in national banks in Michigan, as required under R.S.5219--regardless of what that rate may be.'

The validity of the tax imposed under P.A.1953, No. 9, must rest upon the grant of congressional authority contained in 12 U.S.C.A. § 548 (R.S. § 5219), whereby Congress conferred upon the States the power to tax national bank shares, providing that:

'The several States may (1) tax said shares * * * provided the following conditions are complied with: * * *

'(b) In the case of a tax on said shares the tax imposed shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State coming into competition with the business of national banks: Provided, That bonds, notes, or other evidences of indebtedness in the hands of individual citizens not employed or engaged in the banking or investment business and representing merely personal investments not made in competition with such business, shall not be deemed moneyed capital within the meaning of this section.'

Five intervening national banks asserted that they had similarly paid the 1952 tax under protest and sought to recover the amount so paid. The court, however, confined the proofs to the plaintiff, Michigan National Bank, and adjudicated only plaintiff's case.

The Michigan Bankers Association took a contra view to that of appellant, as is disclosed by the following from the trial court's opinion:

'The Michigan Bankers Association (representing both State and national banks) has been permitted to file a brief as amicus curiae in which it states the position of its members in these words:

"The Michigan Bankers Association has followed the trial of this case and requested permission to file this brief because of its conviction that the present system of the State of Michigan for the taxation of banks is reasonable from the viewpoint of the public, equitable from the viewpoint of the competitors, and practical from the viewpoint of the banks themselves. Actual experience with the taxation system shows that it has produced a reasonable amount of revenue to the State; that it has not created any competitive disadvantage among the various types of institutions; and that it has proven to be simple to administer. Such a system is obviously desirable, and this Association, believing the system to be entirely legal within the limitations of the Federal Constitution and statutes, does not want to see it destroyed.'

'And their counsel takes substantially the same position upon the several questions presented as does the Attorney General on behalf of the defendants.'

Plaintiff has its principal banking office in the city of Lansing. It carries on a banking business in that city and in the cities of Battle Creek, Flint, Grand Rapids, Marshall, Port Huron and Saginaw. In these cities there are 16 building/savings and loan associations.

Appellant was incorporated in 1941, and from December 1941 to December 31, 1957, appellant had grown in total resources from about $68,000,000 to approximately $481,000,000, without the issuance of any additional common stock except stock dividends.

The transcript of testimony amounted to thousands of pages and hundreds of exhibits were introduced. The printed appendices and briefs consist of more than 1,650 pages.

Plaintiff offered testimony of officers of the loan associations and of plaintiff bank as to the claimed existence of mortgage loan competition between the 2 types of institutions, contending that:

'The only important questions are whether the capital employed by savings and loan associations in competition with national banks is substantial compared to the latter's capitalization and whether the residential mortgage loan business is a substantial phase of the business of national banks.'

Plaintiff introduced proof in regard to the growth of savings and loan associations to the effect that in 1900 the associations were composed of poor people who had banded themselves together in neighborhood groups, obligating themselves to set aside small weekly savings in order that they might mutually enable other savings members to borrow to build small homes; that banking facilities were not available to such groups, as national banks had at that time no authority to accept savings accounts nor to engage in the home mortgage loan business; that the associations of today are statewide and nationwide in operation and their moneyed capital is no longer obtained from nor loaned to the poorer class; that in 1900 the total assets of all associations in Michigan were only slightly over $10,000,000, but by 1952 these assets had increased to over $537,000,000.

Plaintiff also introduced proof that the loaning of money on the basis of mortgages secured by residential real estate, was a substantial phase of its business; that as of December 31, 1952, appellant held aggregate real estate loans of $62,000,000 and, in addition, had outstanding unsecured loans of approximately $8,000,000 for repair and modernization of residential property; that these loans amounted to approximately 22% of the total assets of appellant bank ($305,802,000); that as of that date the loans secured by mortgages on residential real estate were of the following types: FHA, approximately $27,000,000; VA, $9,000,000, and conventionals, $15,000,000.

Appellant disclosed, by the public records of the register of deeds office in each of the 6 counties where plaintiff's banks were located, that during the year 1952 2,934 mortgages were recorded by appellant, totalling $23,089,907.33, of which approximately $18,600,000 represented residential real estate loans; and that in the same counties in 1952 the records disclosed that the 16 savings and loan associations recorded 6,498 mortgages totalling $35,575,546.27, some of which, however, were secured by commercial property.

Defendants summarize their position as follows:

'In the last analysis, savings and loan associations cannot be in 'substantial competition with the business of national banks' because they cannot and do not engage sufficiently in the activities characteristically carried on by the national banks. Stated another way, if they are not comparable institutions in substance, how can they be in substantial competition?'

To substantiate their position, defendants offered proof showing:

1) While appellant engaged in all activities permitted national banking associations, including that ability to create checkbook money and receive time, savings and demand deposits, savings and loan associations were able to engage solely in the narrow activity of making first mortgage loans secured by residential properties (with minor exceptions) or loans on the security of its savings shares accounts.

2) During 1952 the 16 savings and loan associations doing business in the same cities as appellant bank made total commercial loans secured by business properties amounting to $293,000-.9 of 1% of their total real estate loans, or about 1/4 of 1% of their total assets. Appellant bank made such loans in the approximate amount of $8,000,000, which constituted 13% of its total real estate loans and was in excess of 2 1/2% of its total assets. Of loans made by the savings and loan associations, practically all--99.1%--were secured by residential real estate, while only 87% of appellant's mortgage loans were so secured. Of these 87%, 70% or 7/10ths were guaranteed by the Federal government as FHA and VA loans. Therefore, only 25% of appellant's mortgages were conventional residential nonbusiness mortgages; 60% were guaranteed FHA and VA mortgages, and 13% were mortgages on commercial...