tion. Necessarily, no State had such a statute up to 1929, because everybody went on the theory that property owned by the Federal Government, by the mere reason of ownership, was exempt from State taxation. But that was because the Government never went into these things; the Government never became a partner in these private enterprises, and that is the condition that has arisen since the depression.

When we rewrote our law in 1929, our law now reads that the property of the Federal Government, which is protected from taxation by the States through the Federal Constitution, should be exempt. Now, then, there were two decisions. I told you about the Kentucky case, in which the court went wholly on the proposition that ownership settled it. The other decision was by the Supreme Court of Maine, and I was so impressed by that decision that I have memorized it, and with your permission, I am going to give you that opinion from memory. The question was asked through the Governor of the Supreme Judicial Court of Maine-they have a system of getting an advanced opinion, an advisory opinion from the courtand the question was asked: "Are shares of the Reconstruction Finance Corporation in national banks taxable by the State?" Now, here is the opinion: "No." That is all.

Mr. WOLCOTT. Will you comment upon the decision of the Supreme Court of Michigan?

Mr. LESER. Michigan?

Mr. WOLCOTT. You know the Michigan Supreme Court has held that these shares held by the Reconstruction Finance Corporation are not taxable?

Mr. LESER. I have not seen that decision.

Mr. WOLCOTT. It is a very interesting decision, I think you will find.

Mr. LESER. I did not know of that decision.

Mr. CLARK. I do not know about the other members of the committee, but as far as I am concerned, I do not give a snap for any opinion that has been one way or another way

Mr. LESER. But they do.

Mr. CROSS. The question is this: We want to do the thing that is equitable and fair to all of the different States. Now, the Reconstruction Finance Corporation cannot go out here and say, “Here is some town raising rates, and here is a State raising rates and we are going to put ours on the same basis." That would be just guessing in the dark in fixing, or trying to fix the different rates. But we can say what can be done, and then they are all on the same footing.

Take your State, and I do not want to accuse your State of being selfish, but you think you have got a chance to come in and get some money and you are going to take the people's money, and the other States that do not do that must put up the taxes to pay your tax, and that is not fair and right.

Mr. LESER. No, indeed.

Mr. CROSS. The only way we can do it is to say that, because taxes would be raised here and there and yonder, and the Reconstruction Finance Corporation cannot go here and make a contract and know

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what they are going to get, the only thing to do it to exempt them in all States. It is the people's money, it is all the people's money, and why should they not be exempt?

Mr. LESER. Well, the taxes on the shares may be shifted.

Mr. SISSON. Would you yield just a minute?

Mr. CROSS. Yes; I am through.

Mr. SISSON. If this law fails to pass, Maryland can collect taxes and New York cannot. How are you going to handle that situation? What is the justice in that type of procedure?

Mr. LESER. New York does not tax the shares.

Mr. SISSON. I understand, but there is a lot of money loaned in New York on capital stock up there in the name of preferred stock

Mr. LESER. If they choose not to tax the shares, I do not think that is any affair of this committee. Each State can choose its own method. You have authorized that in the very law that you put upon the books, that each can select their method of taxing income. There is no preference given to income derived from Federal money. It pays taxes in New York and all the rest of the States. But I want to tell you about these figures, because they are put in there for a purpose, of course.

In the first place, there is a list of States taxing all shares, including Idaho. Idaho does not tax the shares of banks. Idaho has an excise tax which has been in operation for one year, or about a year.

In the next place, the percentages are given here at which the assessments are made, and these percentages are inaccurate in quite a number of instances, where shares, for instance, are assessed at 10 percent. The figures are entirely different. Take the important case of Illinois. Illinois is the highest here as assessed on a 90 percent basis. The official assessment basis in Illinois fixed by the board is 39 percent and a fraction. That makes a big difference when you are dealing with a tax that they say amounts to $2,500,000, and you cut off $500,000 right there.

Furthermore, the State of South Carolina, for instance, it was put down at 100 percent.

Mr. SISSON. You are speaking of the State board, or whatever they call it? In New York, it is the board of tax commissioners. I understand you are speaking of the equalizing rate that they fix? Mr. LESER. I am speaking of the percentage at which they assess. Mr. SISSON. In regard to the value, the assessment is in proportion to the true value?

Mr. LESER. Yes; sometimes it is fixed by statute, and sometimes it is fixed by custom; but it is just the same and must be taken into account when you are calculating how much tax it is going to cost this corporation. I have a right to examine into that, because it is one of the things that I am going to impress upon you, and it is going to impress upon you, and it is going to take a great deal of money from those States.

In the State of South Carolina, they have got it down at 100 percent, and the official figures is 42 percent. Furthermore, in South Carolina, before they assess the stock, the defunct Federal secu

rities. In other words, there is hardly any tax paid at all in South Carolina. I do know that in Rhode Island the same thing is true. They deduct the investment in Federal securities, and deduct them from their national banks, and deduct the Federal securities from the shares that the national bank owns, getting a minus. The same thing in New Jersey.

Mr. SISSON. Applying it to the State of New York, in which Mr. Fish and I are especially interested, applying it to the State of New York and knowing, perhaps, as a tax expert who has examined it, that our law requires that the assessment of property, if the assessment follows the law, is at full value.

Mr. LESER. Yes; that is an old story.

Mr. SISSON. To that extent, as well as to the extent that New York does not tax bank shares, is not the State of New York discriminated against, if we do not pass this law?

Mr. LESER. Not at all.

Mr. SISSON. If we do not pass this bill here?

Mr. LESER. Not a bit of it. How is New York discriminated against? I do not see that for a moment. Now, then, in addition to that, this table gives-it assumes that those cases that the State is going to apply its property rate on the full face value of this preferred stock. It takes no account of the case of the other States, where I have the percentages.

Mr. JONES. May I make a statement with regard to that?
Mr. LESER. Mr. Jones.

Mr. JONES. This tabulation was gotten up hurriedly, and there are errors in it, as was explained to Mr. Goldsborough when it was first given to him. The net result, however, in our opinion, will not be changed very much. But even though it is cut in half, it is the principle of the thing we are arguing about.

Mr. LESER. Well, I am arguing about the principle, too; and if you eliminate the trust companies, that will make another difference. Mr. JONES. May I say, in answer to that, that there are many national banks that carry "trust company" in its name, as you will find in a few instances in New York.

Mr. LESER. In Illinois, where the percentage is stated at 50 percent and where the official percentage is less than 40 percent, and where there is deducted from this stock the real estate of the bank-you know there are some pretty big pieces of real estate owned by national banks of Illinois-deduct those, and I think that the $2,500,000 assessment will shrink to a very modest figure.

Mr. BROWN of Michigan. But, as a matter of fact, when you speak of the valuation or the effect on real estate, you mix it up with the valuations that you fix on bank stock and are really not giving the full truth, because the bank stocks are not taxed at their full cash value, generally.

Mr. LESER. No.

Mr. BROWN of Michigan. That is true in the State of Michigan, And I think it is quite general throughout the country. Now, you are trying to break down these figures. These figures are based upon the law. Each State pasess its law and I say to you as one speaking as a tax expert-not myself, but yourself that bank stock is generally assessed pretty close to 100 percent.

Mr. LESER. I am not applying what you call the ordinary formula of percentage applied to all property. I am applying a percentage which was reported in the survey of the American Bankers' Association, which I have, if anyone wants to see it, where practical findings were made as to how you tax bank shares, not under property. Therefore, these figures are assumed and seem to be reliable.

Now, I know that in Illinois, as I say, there is an error in that respect, and there is a further error in not allowing the deduction I take in Maryland.

Mr. WILLIAMS. In that connection, Judge, there is not any State, is there, taxing this bank stock at its par value, regardless of its actual value?

Mr. LESER. In view of the fact that it only carries 32 percent interest, there is no State, even those that value on the basis of market value, would place a higher value than par on it.

Mr. WILLIAMS. Some would naturally be placed higher than par? Mr. LESER. I do not think 312 percent stock

Mr. WILLIAMS. I do not see that; I mean the general taxation of banks throughout the country, and the basis of valuation, or basis of taxation is the actual value of that stock, less a certain percent fixed by the equalization board.

Mr. LESER. It is different, of course, in the different States. Some States

Mr. WILLIAMS. Is there any State which taxes stock on its par value, regardless of its actual value?

Mr. LESER. As a matter of fact, on the par value, it would be, of course, rather foolish, because it would not take into account the other capital asset, although Pennsylvania had laws for many years giving an option on applying the par value.

Mr. WILLIAMS. I am asking you, from your study of the taxing system, whether or not there is a single State that taxes bank stock on its par value at the present time?

Mr. LESER. For instance, we have taxed this very stock held in the Baltimore National Bank at par, because we think that is the value of it. However, we assess lots of bank stock at less than par value.

Mr. WILLIAMS. That is what I am talking about. The par value does not cut any figure, it is the actual value?

Mr. LESER. It does not in my State, and does not in most States, but there may be States that use par. That would be a very foolish thing to do when there is a differential.

In Maryland there were six national banks in which the preferred stock is held by the R. F. C. on the 1st of January 1935. So that as to those six banks I have an assessment figure. I only want to say this: We allowed certain deductions. We allow, from the assessment on the shares the deduction of the real estate, and we allow the deduction of other taxable investments.

On a bank holding shares in a trust company, those shares are taxed to the trust company. Then this bank is entitled to that deduction. We also allow a certain class of Baltimore City Bonds to be deducted.

The result is this: That there are two classes of stock of a corporation. We approach this question in that proportion which they bear to the aggregate value of both classes of stock.

It so happens that here is the Canton National Bank, and the Reconstruction Finance Corporation holds $250,000 preferred stock We actually assessed them-I am not talking about theory, but we actually have put on the books an assessment on that preferred stock on which the Reconstruction Finance Corporation will have to pay $72,580 because of these credits. That is what comes out of their pockets.

We have another bank, I will not name it, but the Reconstruction Finance Corporation holds $360,000, and the assessment is $231,000. That is not your assessment, that is the net assessment.

Another bank, $15,000, and the assessment is $10,000. Another bank, $187,500, and the assessment is $158,000. In another bank, they hold $75,000, and the assessment is $49,000; still another one, $100,000 and the assessment is $61,000. I want to show you, in the matter of estimating if you are influenced at all by how much it is going to cost the Government, you ought to have the facts, and if it takes time to get the facts, you should get the facts.

Mr. SPENCE. Do you think it is really a sound public policy to allow a State to tax national funds?

Mr. LESER. I think it is absolutely correct that a State should have a right to tax national banks.

Mr. SPENCE. Would not the National Government then have the right to tax State functions and State funds?

Mr. LESER. Does it not do that? Did you ever read the decision in the case of North Dakota v. Olson (33 Fed. (2d)) in which there was the National Bank of North Dakota, capitalized at $2,000,000, every penny contributed by the State of North Dakota; all of the stock held by the State of North Dakota; and all of the officers, officials of the State of North Dakota. The title to the act says [reading]:

For the promotion of industry, agriculture, and commerce.

The Federal courts sustained the tax by the United States Government against that bank.

Mr. WILLIAMS. What kind of tax?

Mr. LESER. Capital stock tax; every kind of tax.

Mr. WILLIAMS. Levied by the United States Government? Mr. LESER. The United States Government did, yes, and the Supreme Court of the United States dismissed the appeal. What did they do with the South Carolina Dispensary cases? That is where the State of South Carolina, in the solution of an economic problem, became the proprietor of these dispensaries, and the Supreme Court said that when a State goes into business, it has to stand the racket with the others; and the Bank of North Dakota is an extreme case. That case said that a State had a right to run a bank; that was all right, but that it was not the usual function of the Government and, therefore, it was highly competitive, it was in a competitive capacity, and it must stand the tax. Gentlemen, that is precisely the situation here.