Seattle-First Nat. Bank v. United States

• Decision Date: 20 April 1942
• Docket Number: No. 218.,218.
• Citation: 44 F. Supp. 603
• Court: U.S. District Court — District of Washington
• Parties: SEATTLE-FIRST NAT. BANK v. UNITED STATES.

44 F. Supp. 603

SEATTLE-FIRST NAT. BANK v. UNITED STATES.

No. 218.

District Court, E. D. Washington, Northern Division.

April 20, 1942.

Graves, Kizer & Graves, of Spokane, Wash., for plaintiff.

Lyle Keith, U. S. Atty., and Harvey Erickson, Asst. U. S. Atty., both of Spokane, Wash., for defendant.

SCHWELLENBACH, District Judge.

The plaintiff national banking association grew out of a consolidation in 1935 between the Spokane and Eastern Trust Company, a state bank and trust company of Spokane, and the First National Bank of Seattle, a national banking association. In this consolidation, the two institutions availed themselves of the provisions of Section 331, Chap. 614 of the Act of August 23, 1935, 12 U.S.C.A. § 34a. Pursuant to that act, the necessary preliminary steps looking towards consolidation were taken by the directors and stockholders of the two banks. The consolidation was finally effectuated December 28, 1935, by the issuance of a certificate of consolidation by the Acting Comptroller of the Currency. Prior to the consolidation, the Spokane and Eastern Trust Company owned and held in its security account certain bonds and other securities. It had legal title to certain bonds and stocks which it held in trust. It owned the real estate which included its banking premises. As a consequence of the consolidation, without the issuance of any deed or other instrument of conveyance as to the real estate and without the execution of any instrument of transfer as to the stocks and bonds and other securities, the title to all of such property became vested in the plaintiff. Defendant assessed transfer taxes against the plaintiff and required the purchase and cancellation of revenue stamps therefor. Plaintiff protested such assessment and brings this action for the money paid thereon.

The pertinent portions of the statute under which the consolidation occurred are:

"Any bank incorporated under the laws of any State * * * may be consolidated with a national banking association located in the same State * * * on such terms and conditions as may be lawfully agreed upon by a majority of the board of directors of each association or bank proposing to consolidate, and which agreement shall be ratified and confirmed by the affirmative vote of the shareholders of each such association or bank owning at least two-thirds of its capital stock outstanding. * * * Upon such a consolidation * * * the corporate existence of each of the constituent banks and national banking associations participating in such consolidation shall be merged into and continued in the consolidated national banking association and the consolidated association shall be deemed to be the same corporation as each of the constituent institutions. All the rights, franchises, and interests of each of such constituent banks and national banking associations in and to every species of property, real, personal, and mixed, and choses in action thereto belonging, shall be deemed to be transferred to and vested in such consolidated national banking association without any deed or other transfer; and such consolidated national banking association, by virtue of such consolidation and without any order or other action on the part of any court or otherwise, shall hold and enjoy the same and all rights of property, franchises, and interests, including appointments, designations, and nominations and all other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics and in every other fiduciary capacity, in the same manner and to the same extent as such rights, franchises, and interests were held or enjoyed by any such constituent institution at the time of such consolidation: * * *." 12 U.S.C. A. § 34a.

The pertinent provisions of the Revenue statutes are:

Schedule A(3) of Title VIII of the Revenue Act of 1926, as Amended by Section 723(a) of the Revenue Act of 1932, 26 U.S. C.A., Int.Rev.Acts, page 290:

"3. Capital stock (and similar interests), sales or transfers: On all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to any of the shares or certificates mentioned or described in subdivision 2, or to rights to subscribe for or to receive such shares or certificates, whether made upon or shown by the books of the corporation or other organization, or by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale (whether entitling the holder in any manner to the benefit of such share, certificate, interest, or rights, or not), on each $100 of par or face value or fraction thereof of the certificates of such corporation or other organization (or of the shares where no certificates were issued), 4 cents, and where such shares or certificates are without par or face value, the tax shall be 4 cents on the transfer or sale or agreement to sell on each share (corporate share, or investment trust or other organization share, as the case may be)."

Schedule A(9) of Title VIII of the Revenue Act of 1926, as Amended, relating to the sales and transfers of bonds, 26 U.S.C. A. Int.Rev.Acts, page 297: "9. Bonds, etc., sales or transfers: On all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to any of the instruments mentioned or described in subdivision 1 and of a kind the issue of which is taxable thereunder, whether made by any assignment in blank or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale (whether entitling the holder in any manner to the benefit of such instrument or not), on each $100 of face value or fraction thereof, 4 cents."

The pertinent Regulations which are applicable to both of the preceding sections are the two exempting provisions of Treasury Regulations 71, Article 35 (h) and (q) promulgated under the Revenue Act of 1926, approved July 27, 1928, as follows:

"Article 35: Sales and transfers not subject to tax. — The following transactions are not subject to the tax:

* * * * * *

"(h) The transfer of shares or certificates of stock from the name of a deceased or resigned trustee to the name of a substituted trustee appointed in accordance with the terms of the trust agreement, which is a transfer resulting wholly by operation of law.

"(q) Transfers of shares or certificates of stock which result wholly by operation of law are not subject to the tax. Transfers of this character are those which the law itself will effect without any voluntary act of the parties, such as transfer of stock from decedent to executor."

The statute covering deeds of conveyance, Schedule A(8) of Title VIII of the Revenue Act of 1926, reads: "8. Conveyances: Deed, instrument, or writing, delivered on or after the 15th day after the date of the enactment of the Revenue Act of 1932 and before July 1, 1934 (unless deposited in escrow before April 1, 1932), whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his, her, or their direction, when the consideration or value of the interest or property conveyed, exclusive of the value of any lien or encumbrance remaining thereon at the time of sale, exceeds $100 and does not exceed $500, 50 cents; and for each additional $500 or fractional part thereof, 50 cents. This subdivision shall not apply to any instrument or writing given to secure a debt." 26 U.S.C.A. Int.Rev.Acts, page 297.

Sporadically during our history, when financial necessities created by war or as the aftermath of war have arisen, the Congress has extended the field of federal taxation to include stamp taxes similar to the foregoing. They should be distinguished from purely excise or other taxes in which stamps are used as the paraphernalia for convenient collection. These tax statutes are passed exclusively for the purpose of raising revenue. Raybestos-Manhattan, Inc., v. United States, 296 U.S. 60, 56 S.Ct. 63, 80 L.Ed. 44, 102 A.L.R. 111. The breadth of the scope of the tax as defined in the statute requires the court to be strict in subjecting transfers to the tax. Founders General Corp. v. Hoey, 300 U.S. 268, 57 S.Ct. 457, 81 L.Ed. 639. They cover transfers of the mere legal title to the property involved by a trustee. Hartley v. Commissioner, 295 U.S. 216, 220, 55 S.Ct. 756, 79 L.Ed. 1399.

From the reading of the foregoing excerpts from the statute, it can be seen that consideration of this case necessarily divides itself into two parts: (1) Those taxes assessed against the claimed transfer of bonds, stocks and other securities and (2) the tax assessed against the claimed transfer of the real estate. The first classification must further be subdivided between (a) those securities which the bank had in its security account in which it had both the legal and beneficial title and (b) securities to which the bank had only legal title and which it held in trust.

1. As to the first group involving the securities, the plaintiff contends the tax to be improperly levied on the ground that the transfer of such securities resulted exclusively from operation of law. It bases this contention on the two Treasury Regulations heretofore quoted. Defendant's position is that the transfer of title was not wholly resultant from operation of law but that the operation of law was the mere culmination of the voluntary acts of the stockholders and directors of the two corporations which were the true motive force in the transfer.

Plaintiff relies on United States v. Merchants Nat. Trust & Savings Bank, 9 Cir., 101 F.2d 399. The consolidation in that case was under the California bank consolidation law. § 31, California Bank Act; Deering's General Laws, 1927, Act 652, § 31. It provided, as does the act here, that...