National City Bank v. Domenech

• Decision Date: 18 May 1934
• Docket Number: No. 2896.,2896.
• Citation: 71 F.2d 13
• Parties: NATIONAL CITY BANK OF NEW YORK v. DOMENECH.
• Court: U.S. Court of Appeals — First Circuit

71 F.2d 13 (1934)

NATIONAL CITY BANK OF NEW YORK v. DOMENECH.

No. 2896.

Circuit Court of Appeals, First Circuit.

May 18, 1934.

E. T. Fiddler, of San Juan, P. R. (H. S. McConnell, of San Juan, P. R., on the brief), for appellant.

William C. Rigby, of Washington, D. C. (Fred W. Llewellyn and Arthur W. Brown, both of Washington, D. C., and Benjamin J. Horton, Atty. Gen., of Puerto Rico, on the brief), for appellee.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

BINGHAM, Circuit Judge.

This is an appeal from a judgment of the federal District Court for Puerto Rico dismissing plaintiff's suit to recover certain property taxes paid under protest to the defendant as treasurer of Puerto Rico. By stipulation in writing trial by jury was waived, and the case was submitted to the court on the pleadings and a further stipulation in which it was agreed that the plaintiff bank was, in the year 1917, after due compliance with the terms of section 601, title 12 USCA, authorized to do business in the Island of Puerto Rico.

The facts are in substance as follows: The plaintiff is a national banking association located and doing business in New York, created under the National Bank Act. It is also doing business in Puerto Rico through various branches established under the authority of the Federal Reserve Board, granted pursuant to the provisions of section 25 of the Federal Reserve Act, as amended (12 USCA § 601).

On March 15, in compliance with the provisions of sections 319 and 320 of the Political Code of Puerto Rico (Rev. St. & Codes Puerto Rico 1913, §§ 2971, 2972), the plaintiff filed with the treasurer of Puerto Rico a sworn statement or schedule setting forth all its assets as of January 15, 1932, for the purpose of taxation for the fiscal year 1932, 1933; and, at the request of the treasurer, but under protest, it attached to its schedule of properties an exhibit entitled "Memorandum for Purposes of information only," in which memorandum appears the following:

                  1. Average amount of capital
                     surplus and undivided
                     profits of Bank as a
                     whole .......................   $ 225,942,636.00
                  2. Average amount of total
                     assets of the Bank as a
                     whole .......................   1,869,012,164.00
                  3. Percentage of item (1) to
                     item (2) ....................           12.08%
                  4. Average amount of total
                     assets of the Bank in Puerto
                     Rico (not including tax
                     exempt securities) ..........      20,192,112.00
                  5. Item (3) applied to item
                     (4) .........................       2,439,207.00
                  6. Due notification to the
                     Treasurer that The National
                     City Bank of New
                     York regarded any tax
                     except taxes on real estate
                     and net income prohibited
                     by section 548 of title
                     12 of the United States
                     Code (section 5219, Rev
                     Stat.)
                

On July 26, 1932, the defendant notified the plaintiff of the assessment of a property tax for the fiscal year 1932-1933 from which it appeared that the bank was to be taxed upon the basis of $2,439,200 of capital employed in Puerto Rico, which was divided by the treasurer into the following classifications:

                  Real Property and Buildings ..    $732,560.00
                  Other personal property ......   1,611,400.00
                  Tangible personal property ...      95,240.00
                                                  _____________
                     Total .....................  $2,439,200.00
                

From this assessment the plaintiff appealed to the Board of Review and Equalization claiming a deduction of $1,705,640, that being the amount of the items assessed against "other personal property" and "tangible personal property." The Board sustained the assessment in its entirety and thereupon, at the request of the Treasurer that it pay a tax of $62,122.98, it paid without protest $17,700.24, the amount of the tax against the real property and buildings, and paid under protest the balance of the tax of $44,422.74, being that portion assessed against "other personal property" and "tangible personal property." Within the time allowed by law, the plaintiff brought this complaint seeking to recover the $44,422.74 paid under protest.

In the complaint it was further alleged that the defendant, in addition to assessing and collecting the tax on the real property of the plaintiff in Puerto Rico, had assessed and collected a tax on its net income under the provisions of the Act of the Legislature of Puerto Rico, No. 74, entitled "The Income Tax Act of 1924," approved August 6, 1925.

The defendant, having admitted in his answer the facts alleged in the complaint, denied that the plaintiff bank was acting in Puerto Rico as a national banking association, and denied that the provisions of section 548, title 12 USCA (section 5219, Rev. Stat.) were applicable to the plaintiff bank when doing business in Puerto Rico.

In the court below it was ruled:

1. "That the National City Bank of New York in New York and the National City Bank of New York doing business in Puerto Rico cannot be treated in the same manner for the purposes of taxation.

2. "That the National City Bank of New York doing business in Puerto Rico from its branch and banking house in the city of San Juan and other cities in the Island of Puerto Rico are separate and distinct entities as relating to business transactions between them and are not subject to the same rules as to taxation as The National City Bank of New York in New York.

3. "That section 548 of title 12 of the United States Code, Annotated, is not applicable to the branch of said bank in Puerto Rico, insofar as taxation is concerned.

4. "That branches of national banks of the United States in the dependencies or insular possession of the United States are to be treated for the purposes of taxation in Puerto Rico the same as if they were branches in foreign countries and that the Organic Act of Puerto Rico gives its Insular Legislature full power and authority to tax the Puerto Rican branch of The National City Bank of New York in the same manner and to the same extent as it does other branches of foreign banks doing business in Puerto Rico.

5. "That the Treasurer of Puerto Rico, acted within the law when he imposed the taxes in question.

6. "That The National City Bank of New York, Puerto Rican branch, is subjected to the laws of the island in regard to taxation, the same as any other banking institution doing business on the island.

7. "That the complaint filed herein by The National City Bank of New York against Mr. Manuel V. Domenech as Treasurer of Puerto Rico is without substance or merit and the plaintiff will take nothing by reason thereof. * * *"

The questions involved in this case are:

1. Whether under the National Bank Act authorizing the establishment of national banks such a bank may be located and do business in Puerto Rico.

2. Whether a national bank so located and doing business can be taxed there without the consent of Congress.

3. Whether section 5219 of the Revised Statutes, as amended, is applicable to Puerto Rico and authorizes it to tax national banks located and doing business there; and

4. Inasmuch as it is conceded and must be conceded that the National City Bank of New York, located and doing business in New York, is authorized under the acts of Congress and permission granted thereunder by the Federal Reserve Board to conduct a banking business through branches in Puerto Rico, has Congress authorized the taxation of such bank by Puerto Rico to the extent that it does business there through its branches, either under section 5219, as amended, or otherwise.

We think that under the National Bank Act and other acts of Congress a national bank may be located in Puerto Rico and authorized to do business there; that this question was, in part at least, decided by the Supreme Court as early as 1890 in construing the provisions of the National Bank Act in the case of Talbott v. Silver Bow County, 139 U. S. 438, 442-446, 11 S. Ct. 594, 35 L. Ed. 210. It is there pointed out that "the national banking system was national in its design, coextensive in its operation with the territorial limits of the United States, and intended to be the banking system for the whole country, territories as well as states." Page 442 of 139 U. S., 11 S. Ct. 594, 595.

After referring to the various sections of the Revised Statutes contained in chapters 1, 2, 3, and 4 of title 62 (section 5133 et seq.) relating to the organization and powers of national banks, the obtaining and issuing of circulating notes, the regulation of the banking business, and the dissolution and receivership of such banks, and particularly to section 5134,...