Mississippi State Tax Commission v. Brown

• Decision Date: 19 February 1940
• Docket Number: 33932
• Citation: 193 So. 794,188 Miss. 483
• Court: Mississippi Supreme Court
• Parties: MISSISSIPPI STATE TAX COMMISSION v. BROWN

193 So. 794

188 Miss. 483

MISSISSIPPI STATE TAX COMMISSION v. BROWN

No. 33932

Supreme Court of Mississippi

February 19, 1940

APPEAL from the chancery court of Hinds county HON. V. J. STRICKER Chancellor.

Suit by J. T. Brown against the Mississippi State Tax Commission to annul assessment of tax on income from national bank stock. From the judgment, the defendant appeals. Affirmed.

Affirmed.

J. A Lauderdale, Jr., Assistant Attorney-General, for appellant.

Under the provisions of 12 U.S.C. A., Sec. 548, the state had a right to assess and collect the taxes levied by Chapter 120 Laws of 1934, as amended.

It has been the general rule for Congress to permit a national bank, or its shares, to be taxes, provided such institutions were not discriminated against and in favor of moneyed capital coming in competition with the business of national banks.

In reference to privilege or excise tax, it has always been considered a reasonable classification for the state to classify banks, building and loan associations and other financial institutions conducting a like or similar business as a class.

Mr. Brown relies upon the opinion of the court in the case of First National Bank v. Buder, reported in 8 F.2d 883. This case was decided October 2, 1925. At that time Section 5219 of the Revised Statutes, now 12 U.S.C. A., Sec. 548, set out the method of taxing national banks and its shareholders. It then provided that the imposition by any state of the above three forms of taxation "shall be in lieu of all others."

On March 25, 1926, a few months after said case was decided, and at the first session of Congress, thereafter the Congress amended said provision so as to permit more than one form of taxation as provided in subsection (c). Said paragraph (1) (a) reads as follows: "The imposition by any state of any one of the above four forms of taxation shall be in lieu of the others, except as hereinbefore provided in subdivision (c) of this clause."

It therefore appears that said amendment was made for the purpose of changing the rule laid down in said option.

He also relies upon the opinion of the court in the case of Citizens & Southern National Bank v. City of Atlanta, 46 F.2d 88, decided January 3, 1931. This case was decided by a district judge and was decided after the statute was amended. The district judge cites the statute and gives the date of its amendment, and then states: "It permits no direct taxation of the bank, or its property, except its real estate, but allows a tax on its net income, or permits taxation of the shares, or of dividends on them to the owner, but any one form of the permitted taxation is in lieu of all the others." This statement is substantially the same as the statute before it was amended, but the statement leaves out the exceptions thereunder in the amendment. It is in direct conflict with the plain language of the statute and could not be authority.

The tax levied by Chapter 120, Laws of 1934, and amendments thereto, is a non-discriminatory tax upon the net income of petitioner when received by him, a resident citizen of the state of Mississippi and that said tax is not a tax upon the bank or the shares thereof, its capital, franchise or operations, and that if said Section 548 by its terms prohibits the state from taxing the net income of appellee, or any part thereof, then such prohibition is null, void, and of no effect, as the Congress is not authorized to exempt from taxation the net income of a citizen of the state of Mississippi.

A tax on income is not a tax on its source.

Graves et al. v. New York ex rel. O'Keefe, 83 L.Ed. 577; New York ex rel. Cohn v. Graves, 300 U.S. 308, 81 L.Ed. 666; Hale v. Iowa State Board, etc., 302 U.S. 95, 82 L.Ed. 72; James v. Dravo Contracting Co., 302 U.S. 134, 82 L.Ed. 155; Helvering v. Mountain Producers Corp., 302 U.S. 376, 82 L.Ed. 907; Helvering v. Gerhardt, 304 U.S. 405, 82 L.Ed. 1427.

Does the Congress have the power to exempt dividends received from shares in national banking associations from income taxes levied by a state? I have been unable to find a decision of any court, either state or federal, that has determined this question. It was expressly left open in the case of Graves et al. v. New York ex rel., 83 L.Ed. 577. In this case the court was considering whether or not a salary received by an employee of the Home Owners' Loan Corporation was taxable by a state. It held that the Home Owners' Loan Corporation was a governmental instrumentality engaged in the performance of governmental functions and that its employees stood in the same relationship as a officer of employee of the United States government; that the salary of such employees was liable for a state income tax, and that Congress had not undertaken to exempt such salary from such taxes.

This question has not been raised or determined in the Supreme Court of the United States since said decision was rendered, and so far as that court is concerned the question is still an open one. The decisions of the courts are not in accord as to what is a tax on a state by the federal government, or what is a tax on the federal government by a state. However, all of the courts are in accord in holding that because of its sovereignty a state is immune from a tax laid or imposed by the Congress, and because of its sovereignty the United States is immune from a tax levied or imposed by a state.

The courts hold that, "The power to tax is the power to destroy." It is likewise true that a power to prohibit a state from levying a tax which it may legally levy under the state and federal constitutions is a power to destroy the state and to make it entirely subservient to the federal government.

Flowers, Brown & Hester, of Jackson, for appellee.

A national bank is an instrumentality of the federal government, engaged in the practice of a governmental function, and neither it nor its shares can be taxed except in the manner and to the extent permitted by Congress.

M'Culloch v. The State of Maryland et al., 4 L.Ed. 606.

The grant of authority to the states to tax national banks is found in 12 U.S.C. A., sec. 548.

Gully v. First Nat. Bank (Miss.), 184 So. 615, 81 F.2d 502, 81 L.Ed. 70.

By the express language of subsection (c) of Section 548, 12 U.S.C. A., the State of Mississippi is not permitted to include dividends derived from national bank shares in the taxable income of the shareholder.

As to the proposition that Congress is without power to prevent the states from imposing an income tax upon dividends received from national banks, here the attorney-general completely bogs down and admits that he has been unable to find any authority, state or federal, to support his contention. His failure to produce an authority is in no way accounted for by a lack of diligence on his part. There is none to be found in the books. That Congress has the power to create national banks is not challenged, and it is admitted that these institutions are instrumentalities of the government, engaged in the practice of governmental functions. It cannot be denied that the power to create them included the power to protect them, and since the power to tax is a power to destroy, then certainly Congress had and still enjoys the right and authority to grant or withhold immunity of such governmental agencies from state taxation.

Gully v. First National Bank of Meridian (Miss.), 184 So. 615, 81 F.2d 502, 81 L.Ed. 70; Helvering v. Gerhardt, 304 U.S. 405, 82 L.Ed. 1427, 1432.

In the case at bar we have under consideration the immunity of a federal instrumentality from state taxation. In the creation of this instrumentality Congress has not been silent as to its immunity from state taxation. Quite the contrary, Congress has clearly manifested its intent to protect it from state taxation, and as stated in the above quoted note, has the power to so protect it "beyond the point where, being silent, the court would set its limits." We most earnestly insist, therefore, that the learned chancellor was amply justified in setting aside the order of the State Tax Commission assessing appellee with the income tax on the dividends paid him by the bank, and his decree to that effect should be affirmed.

Ethridge, J., Smith, C. J., and Griffith and Anderson, JJ., dissenting.

OPINION

Ethridge, J.

The appellee owned several shares of capital stock in a national bank, and the State Tax Commission included the dividends received by him from such stock in assessing his income taxes under chapter 120, Laws of 1934. The appellee filed his bill in the Chancery Court of Hinds county for hearing upon the action of the State Tax Commission in making such assessment for income tax upon this capital stock, challenging the right and power of the State Tax Commission to do so, and setting forth the allegations upon which he sought relief. In his petition he alleged that the bank in which he held stock was a national bank, an instrumentality of the Federal Government, the capital, franchise and operations of which are not taxable by the state, except by consent of the Congress of the United States; and the only consent given by Congress to the several states to tax national banks is found in section 548 of title 12 of United States Code Annotated; that the state of Mississippi had elected to tax the shares of national banks according to their value, as provided in section 3138 of chapter 61, Code of 1930; and that all taxes due the state of Mississippi upon shares of the said bank in which the appellee owned shares for the preceding years had been duly assessed and paid to the state, and that therefore the share-holders of the bank cannot be required to pay anything further thereon, either income taxes or otherwise, since by...