5219 of the Revised Statutes of the United States, as amended, is amended to reap as follows: "In the case of a tax on or measured by said shares or their value, the tax shall not be at a greater rate upon national banking associations or their stockholders with respect to said shares than the rate imposed by the taxing State, other than by direct taxation of real estate, upon other financial corporations or their stockholders with respect to the shares of such other financial corporations, or upon the net assets of individuals, partnerships, or associations employed in the business of banking; nor shall said rate upon or measured by the shares of national banking associations or their value be higher than the highest rate imposed by the taxing State, other than by direct taxation of real estate, upon mercantile, manufacturing, or business corporations doing business within its borders or upon the stockholders of such corporations with respect to their shares or the value thereof." EXHIBIT E IN THE SENATE OF THE UNITED STATES, June 17, 1929. Mr. Norbeck introduced the following bill; which was read twice and referred to the Committee on Banking and Currency. A BILL To amend section 5219 of the Revised Statutes, as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That subdivision (b) of paragraph 1 of section 5219 of the Revised Statutes, as amended, is amended to read as follows: "In the case of a tax on shares, the taxes imposed shall not be at a greater rate than is assessed upon other moneyed capital used or employed in the business of banking." SAN JOSE, CALIF., February 4, 1931. CHAIRMAN HOUSE COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. DEAR SIR: Inclosed I am sending a statement or brief on proposed amendment to section 5219 Revised Statutes of United States. This brief was not prepared in time to be printed with or included in the statement heretofore sent you by the joint legislative committee on taxation of the California Legislature. It should, however, be attached to and considered with that statement. When the majority brief was completed I found that I was not in full accord with its recommendation and did not sign it. I am, however, taking this method of presenting my views to your committee. Yours very truly, HERBERT C. JONES, Member of Joint Legislation Committee on Taxation, STATEMENT ON PROPOSED AMENDMENT TO 5219 REVISED STATUTES OF UNITED STATES (By Herbert C. Jones) To the Senate and House Committees on Banking and Currency: I join with the other members of the California joint legislative committee on taxation in urging on Congress the imperative need of an amendment to section 5219. The suggestion of the other members of the committee would doubtless furnish some relief from the present unfortunate conditions in California and numerous other States. Their suggestion is to allow the States to tax National banks, provided the tax does not exceed a certain specified rate. The difficulty with that suggestion, however, is that it lacks flexibility, as the rate, once established in the Federal statute, is fixed and rigid, and does not take into account changing conditions or the increasing burdens of State government which might necessitate some of the States increasing the taxes on all tax-payers. THE PROPOSED PLAN The amendment that is herein proposed is elastic. It is brief and simple. It would permit the States to tax national banks on whatever basis they tax their own State banks. By such an amendment the disasters which have befallen California in this State's attempt to tax national banks, as well as the difficulties which confront other States, could be solved The proposed amendment would permit the States to tax national banks, provided only that the States do not discriminate against national banks in favor of State banks. In other words, the States should be permitted to tax national banks upon the same basis which they tax State banks. The present requirement of section 5219 that there be included, along with State banks, financial, merchantile, manufacturing and business corporations, injects corporations of widely different structure, and with varying amounts of income in proportion to their physical property. These latter corporations (financial, merchantile, manufacturing, and business) have elements, frequently numerous, distinguishing them from banks. EFFECT OF INCLUDING NONBANKING CORPORATIONS The effect of including in the classification these financial, mercantile, manufacturing, and business corporations, is inevitably to find among them certain groups upon which a tax would be excessive or even ruinous that would be only moderate in the case of other corporations. The State would, therefore, have to "temper the wind to the shorn lamb." It would have to impose a rate so low, in being fair to certain groups of corporations, that the tax would be ridiculously inadequate as to other corporations. This very result has occurred in California. While the present California corporation tax law reduced the tax on banks to about one-fourth of what it was before the Wisconsin and Minnesota cases, it doubled, tripled and quadrupled the tax on small manufacturing, mercantile, and business corporations. The result in California has clearly demonstrated, if fairness and equality of burden are to be at all observed, that the present classification of section 5219 is unsound. PARITY FOR NATIONAL AND STATE BANKS If a national bank wishes to organize and do business in a State, receiving the protection of its laws and availing itself of the opportunities for profit, it should not ask, or expect, or be entitled to other treatment than that accorded by the State to its own State banks. The prevention of discrimination by States against national banks in favor of State corporations of identical structure is the real purpose of section 5219. This section was not intended to control the power of the State in taxation, but to protect capital invested in national bank shares from unfriendly discrimination by the State in the exercise of the taxing power. This is made clear in the case of Mercantile National Bank v. City of New York (28 Fed. 776) and a consistent line of Federal decisions. The inclusion of any nonbanking State corporation, even financial, at once brings in nonidentical features, and consequent inequalities and complications. The argument of the national banks that the State might be hostile to all banks is no longer warranted. While some States, in the primitive days of their statehood, may have imposed onerous taxes on State banks, they have all long since learned the lesson that economic laws are superior to legislative fiat, and that the State in the long run suffers from such ill-advised legislation. The few States that have essayed such legislation are in no danger of repeating their errors. In California, by reason of Federal decisions in the Wisconsin and Minnesota cases which in effect invalidated our bank tax law, we have been precluded from taxing national banks on their shares. The present law in taxing them "according to or measured by their net income" (method 4) has resulted in revenue so trifling as to be ridiculous. The operation of the present law is shown by a few instances of taxes paid by national banks and by State banks for the years 1928 and 1929 respectively. The cases cited are the half dozen largest taxpayers among the national banks and among the State banks. The 1928 payments are under the former State law, while the 1929 payments are under the present State law. 11929 payment covers tax of seven consolidated corporations, of which American Trust Co. is one BREAK-DOWN OF STATE TAX LAWS In brief, the difficulty can be solved easily by Congress providing that the States may tax national banks-with the sole restriction that they do not tax them more neavily than their own State banks. The attempt to include other State corporations simply brings complications that make section 5219 break down as a practical means for permitting States to raise revenue. The small industrial corporations are simply made a shield behind which banks find protec- tion, and escape with a ridiculously light tax. The position herein advocated was that originally contained in the national bank act. The national bank act of 1864 limited the right of States to tax shares of stock in the national banks by providing that such taxation should not "exceed the rate imposed upon the shares in any of the banks organized under the authority of the State." This act of Congress, as originally enacted, accomplishes the purpose intended and affords to national banks all the protection to which they are legitimately entitled, namely, protection against discrimination in favor of State banks. ADVOCATED BY TAX EXPERTS The solution herein advocated is the same as that urged by the Minnesota Tax Commission, which advocates that paragraph 1 of section 5219 should read: "In case of a tax on shares, the taxes imposed shall not be at a greater rate than is assessted upon other moneyed capital used or employed in the business of banking." CONCLUSION The amendment herein proposed is that originally contained in the national bank act. It is approved by tax authorities who have recently been required to study section 5219 because of late decisions. It is simple. It is logical. It is fair. The argument against it is based on groundless apprehension. It gives to national banks all the privileges and protection to which they are entitled, namely, the same as accorded to State banks. The two types of institutions (national and State banks) being so nearly identical, afford the fairest grouping in determining what corporations should properly be classified with national banks when establishing a basis upon which States should be allowed to tax national banks. HERBERT C. JONES, Member California Joint Legislative Committee on Taxation. FEBRUARY 2, 1931. MINNEAPOLIS, MINN., June 5, 1930. Hon. LOUIS T. MCFADDEN, House of Representatives, Washington, D. C. MY DEAR CONGRESSMAN: There has recently been submitted to the banking and currency committee a proposed draft of an act to amend section 5219, United States Revised Statutes, and it has been represented to the committee that this has been agreed upon by the bankers on the one hand and the taxing authorities on the other, on the strength of which representation your committee has been asked to recommend this bill out hastily so that it can be rushed through at the present session of Congress. I am writing this letter to advise you that the banks in which this institution is interested are opposed to the proposed bill in its present form and I am also authorized to speak for the Northwestern National. I do not believe, and I think that you do not believe, that the mere fact that a small committee of the A. B. A. had agreed upon a compromise measure with a committee representing a voluntary association of some of the taxing States is by any means conclusive evidence either that the bill is satisfactory to the banks of the country generally or that it is sound legislation, and this being so it would seem to me most unwise for the committee to rush through a recommendation without giving the matter very careful study. The particular feature which is objectionable to us is contained in the following language of the proposed bill: "For the purpose of this proviso the rate of taxation upon the shares of national banking associations in any such State shall be deemed to be no higher than the rate assessed upon said mercantile, manufacturing and business corporations, if, so far as can reasonably be ascertained, the proportion which the aggregate of the taxes imposed upon the real property and the shares of national banking associations within such State bears to the aggregate of the net profits of such associations is no greater than the proportion which the aggregate of the taxes imposed upon such other corporation under authority of such State bears to the aggregate of the net profits of such corporations.” Our objection is the inclusion of real estate taxes in the comparative, for which there is neither any logical nor economical basis. In many States this comparative works to the advantage of the banks, because ordinarily banks have a very substantial investment in real estate, consisting not only of the item called "other real estate", but of expensive bank premises located in a high priced business section of the cities where they do business; but in Minnesota and in other mineral states it works the other way, because the real estate taxes paid by the mining companies are so large that the average for corporations other than banks is brought up to a point where the protection of the proviso is of no value to the banks. Particularly is this true in Minnesota, because most of the iron ore taxes are paid by steel corporation subsidiaries which, as a matter of accounting, are not permitted by the parent corporation to carry any substantial profits, so that the ratio of taxes to profits is out of all proportion. There is no logical basis for comparing the real estate taxes of a bank, which owns real estate only as incidental to its banking business, and the real estate taxes of a mining company whose very stock in trade is real estate, and this comparison would under the present bill, be made the basis for increasing the tax upon other assets of the bank not represented by real estate. It is obvious to me that the inclusion of this real estate comparative, which is of minor importance both to the banks and the taxing authorities in a majority of the States, was insisted upon by Senator George Sullivan, of Minnesota, who is chairman of the tax commissioners association, for the express purpose of rendering the protection of 5219 nugatory so far as Minnesota is concerned, and to enable him to enact a bill at the next session of the legislature taxing banks and other financial institutions just about as he pleases. The A. B. A. committee, after determing unanimously at a meeting in Chicago which I attended that the real estate comparative should be eliminated, yielded upon this point at the meeting in Washington. In other words, Minnesota and the mineral states were sold out for the benefit of others who were not affected by this particular provision. I am appealing to you particularly because you were the author of the act in its present form, and I am satisfied that you would not willingly permit it to be mutilated by any amendment which is economically unsound and illogical, and the proposed amendment is clearly both. I also want to make it clear that the agitation on the part of the taxing authorities for the inclusion of this particular provision comes almost entirely, if not exclusively, from Minnesota (that is, from Senator George Sullivan) and if the bill is to be recommended out on the theory that it has been consented to by both sides, then surely the consent of the Minnesota banks ought to be obtained as to this particular provision, which is far from being the case. I sincerely hope that the committee will go into this matter carefully before recommending out the bill in its present form. Yours truly, A. McC. WASHBURN, Hon. LOUIS T. MCFADDEN, STATE OF NEW YORK, DEPARTMENT OF TAXATION AND FINANCE, House of Representatives, Washington, D. C. DEAR CONGRESSMAN MCFADDEN: May we not direct your attention to the vital, almost imperative, need for an amendment to section 5219 of the United States Revised Statutes along the lines of Congressman Goodwin's proposal as contained in H. R. 12490, subject to such an amendment as may be proposed by Congressman Wingo to take care of the Arkansas situation. Until the Macallen decision (279 U. S. 620) we had thought that New York's bank tax problem was solved. We had embraced the alternative permitting the taxation of national banking associations according to the franchise method measured by net income from all sources. There is very grave doubt now as to the constitutionality of our law, although the banks have not as yet pressed the question. They recognize that the tax which our statute imposes is a fair and just tax and express willingness to pay an equivalent amount. Of course they wish to do it under a constitutional law, otherwise stockholders might object. The specific tax alternative contained in the Goodwin bill is the one which interests us and which we will wish to adopt if and when section 5219 is amended. That proposal is also of interest to States like Massachusetts, California, Oregon, and Washington. Other amendments contained in the Goodwin bill are of vital interest to a group of general property tax States. In fact that bill, as it is proposed to be amended by Congressman Wingo, grants needed and substantial relief to many American States. It has the support of the banking fraternity and of a substantial group of State tax officials. It is highly desirable that this amendment be secured before State legislatures meet in January, 1931. Because of all these facts, we respectfully urge that this bill be reported and passed at this session of Congress. The Oregon Bankers Association strongly opposes proposed amendment to Goodwin Bill exempting from designation as other financial corporations mutual savings banks, mutual building, or savings and loan associations, and certain other corporations. Such organizations are strong competitors of national banks in Oregon and should be taxed in the same manner. T. P. CRAMER, jr., Secretary Oregon Bankers Association. HARTFORD, CONN., January 31, 1931. Hon. LOUIS T. MCFADDEN, Chairman Committee on Banking and Currency, House of Representatives, Washington, D. C. DEAR CONGRESSMAN MCFADDEN: I have been invited to attend a hearing on the question ofp ermitting States to tax national banks, which hearing will be held before the Committee on Banking and Currency on Wednesday, February 4. It will be impossible for me to get away from here at that time, and, as I am intensely interested in this subject, I am taking the liberty of presenting my view in writing, and I am doing this partly because I am sure that former Governor Trumbull of Connecticut, and our Attorney General, and our tax commissioner are all in agreement with me in the opinion that it is very important that some change be made in this statute. We all feel that the present statute is so complicated that it is an impossibility to formulate a State statute that will with any reasonable measure of certainty be constitutional. I have been for two years a member of the board of equalization, and as a member of that board have dealt with the problem of imposing an ad valorem tax on shares of both State and national banks and have found it a most difficult task. In fact, it would have been impossible had it not been |