Title Guarantee Loan & Trust Co. v. State

Decision Date24 May 1934
Docket Number3 Div. 102.
Citation228 Ala. 636,155 So. 305
PartiesTITLE GUARANTEE LOAN & TRUST CO. v. STATE.
CourtAlabama Supreme Court

Appeal from Circuit Court, Montgomery County; Walter B. Jones Judge.

Appeal to the circuit court by the Title Guarantee Loan & Trust Company from an assessment for taxation made by the State Tax Commission. From the decree, complainant appeals.

Affirmed.

Facts showed that Title Guarantee Loan & Trust Company employed moneyed capital in substantial competition with loan and investment features of national banks, making company subject to excise tax imposed by statute for privilege of conducting business employing moneyed capital coming into competition with business of national banks (Gen.Acts 1932 [Ex.Sess.] p 107).

The appeal is taken from the decree of the circuit court of Montgomery county, in equity, rendered upon appeal to that court to review an assessment of an excise tax against appellant, made by the State Tax Commission pursuant to the Act of October 22, 1932, levying an excise tax on the business of banking and financial institutions. Gen. Acts 1932 (Ex. Sess.), p. 107.

The cause was tried on an agreed statement of facts, as follows:

"The Title Guarantee Loan and Trust Company is a body corporate under the laws of the State of Alabama, incorporated under a special Act of the Legislature of Alabama in the year 1901 (Acts of Legislature 1900-01, p. 910), a copy of said Act is hereto attached marked Exhibit 'A' and made a part hereof. Shortly after organization the entire capital was invested in its abstract or title plant and its nine story office building in the City of Birmingham Alabama, a part of which is used by it for its office. It has established a guarantee fund (title insurance reserve) against contingent liabilities to which additions are made from time to time and this fund is invested in bonds and loans, principally secured by mortgages upon real estate.
"It has never done any banking business or received deposits subject to check. All monies in its custody are carried on deposit in commercial banks. It makes no loans for outside parties and does not buy stock or bonds for resale. It does from time to time make investments of its own surplus funds and investments for its fiduciary accounts in interest bearing loans (principally long time loans of from three to five years with interest payable semi-annually) secured by mortgages on real property and by purchase of bonds.
"The fiscal year of the Company is from October 1st, to the following 30th day of September of each year. During this fiscal year ending September 30th, 1931, it made loans secured by mortgage on real property aggregating the sum of $178,658.00, which were as follows:

For its fiduciary accounts"loans due in three to five years ....... $128,030.00

For its fiduciary accounts"due in one year ........................... 1,208.00

For its fiduciary accounts"renewals of balances on existing loans

to be repaid in three to five years ............................... 49,420.00

-----------

Total ........................................................... $178,658.00

"It likewise on Sept. 30, 1931, held loans made during previous years still outstanding amounting to approximately several hundred thousand dollars.

"It also, for its own account, purchased one mortgage loan, due in one year, of $3,000.00, purchased one collateral note, due in one year, of $3,000.00 and made one short time collateral loan of $500.00.

"During the same period of time, it purchased bonds of the face value of $87,000.00, of which $59,000.00 was investment of its own funds, and $28,000.00 was for its fiduciary accounts.

"It likewise on Sept. 30, 1931, owned bonds purchased for its own a/c during previous years in the amount of $429,500.63 and held over $200,000.00 for its fiduciary accounts.

"During the year 1932 no other loans were made of its own fund except a total of $748.50 advanced for the payment of insurance and taxes in protection of existing mortgage liens and also varying amounts advanced to its fiduciary accounts from time to time as required.

"Within the time provided by an act of the Legislature of Alabama, entitled 'An Act to provide for the levy, assessment, payment and collection of an excise tax for the privilege of carrying on, in the State of Alabama, of the business of banking,' etc., approved October 22nd, 1932, this appellant, after demand from the State Tax Commission, and, under protest, filed with the State Tax Commission in Montgomery, Alabama, upon the form provided by said Commission, a return for the fiscal year ending September 30th, 1931, showing a net income for said period of $19,127.14, exclusive of income from obligations of the United States, the State of Alabama, and subdivisions of the State of Alabama. Included in the income thus excluded or deducted from the net income shown in said return, was an item of $959.20, which was interest received during said period on bonds of the Alabama State Bridge Corporation.

"In this return, the appellant claimed credit for the following items:

1932 ad valorem taxes on abstract books, office equipment and other

personal property ................................................... $972.00

1932 State Corporation franchise tax ................................... 400.00

1932 State Corporation permit .......................................... 100.00

leaving, according to contention of appellant, no tax payable upon said return.

"Under date of December 28th, 1932, the State Tax Commission mailed notice to the appellant of the assessment of a tax upon the return for said year, in the sum of $1,004.32, which was arrived at by adding to the net income shown by said return, the amount of interest received from bonds of the Alabama State Bridge Corporation, and disallowing all of the credits claimed upon said return.

"This appeal was taken from said assessments.

"The following questions are presented to the Court for determination:

"1. Is said Act of the Legislature entitled: 'An act to provide for the levy, assessment, payment and collection of an excise tax for the privilege of carrying on, in the State of Alabama, of the business of banking,' etc., approved October 22, 1932 (Gen. Acts 1932, Ex. Sess., p. 107) valid and constitutional?
"2. Does the Title Guarantee Loan and Trust Company come within the terms of said Act and is it subject to the tax therein prescribed?
"3. Should income from bonds of the Alabama State Bridge Corporation be included in its taxable income?
"4. Are ad valorem taxes assessable as of October 1, 1931, and due October 1, 1932, deductible from the tax levied under said excise tax act?
"5. Are ad valorem taxes on personal property assessable as of October 1, 1931, and due October 1, 1932, deductible from the tax levied under said excise tax act? "6. Is the amount paid for, the corporation franchise tax and the corporation permit fee for the year 1932 deductible from the tax levied under said excise tax act?"

On the hearing the trial court sustained the assessment, except that one item of $959.20, income from Alabama Bridge Corporation bonds, was stricken as part of the net income upon which the excise tax is to be calculated, thus reducing the tax to $956.36.

Smyer, Smyer & Bainbridge, of Birmingham, for appellant.

Thos. E. Knight, Jr., Atty. Gen., and Frontis H. Moore, Asst. Atty. Gen., for the State.

The constitutionality of the statute (Gen. Acts 1932, Ex. Sess., p. 107) is questioned upon the ground that the tax therein levied is actually an income tax; that income is property, and the tax imposed is in excess of the ad valorem tax rate limited by section 214 of the Constitution. Eliasberg Bros. Mercantile Co. v. Grimes, 204 Ala. 492, 86 So. 56, 11 A. L. R. 300.

The act specifically defines the tax levied to be "an excise tax for the privilege of engaging in this State in the business of banking and of conducting a financial institution, as in this Act defined, and of conducting a business employing moneyed capital coming into competition with the business of national banks measured by its net income for such taxable year at the rate of five per cent. of such net income." Section 3. The same intent is expressed in the title and throughout the body of the act.

Our decisions have long recognized the distinction between a direct property tax and a tax on the privilege of doing business in which such property is employed.

Among many cases we cite, as illustrative, the cases of Smith v. Court of County Commissioners, 117 Ala. 196, 23 So. 141; Windham v. State, 16 Ala. App. 383, 77 So. 963 (Id., 202 Ala. 697, 79 So. 877); Mills v. Court of Com'rs of Conecuh County, 204 Ala. 40, 42, 85 So. 564.

In fixing the measure of the excise tax the Legislature may, and should, have regard to the value of the privilege to the taxpayer. The gross income from the business has been recognized for a third of a century as a legitimate basis...

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