Opinion
No. 10249.
February 20, 1980. On Rehearing January 13, 1981.
APPEAL FROM CIVIL DISTRICT COURT, PARISH OF ORLEANS, STATE OF LOUISIANA, HONORABLE PAUL P. GAOFALO, J.
Riley F. Boudreaux, Jr., Baton Rouge, for plaintiff-appellant.
Usry, Leefe Weeks, New Orleans, for defendant-appellee.
McCollister, McCleary, Fazio, Mixon, Holliday Hicks, D. Irvin Couvillion and James S. Holliday, Jr., Baton Rouge, for Great American Corp., amicus curiae.
Jones, Walker, Waechter, Poitevent, Carrere Denegre, A. J. Waechter, Jr., Thomas C. Keller, Robert R. Casey and Rudolph R. Ramelli, New Orleans, for New Orleans Bancshares, Inc., amicus curiae.
Broadhurst, Brooks, Miller Reed, William C. Broadhurst, Lafayette, for First Nat. Bank of Lafayette, amicus curiae.
Monroe Lemann, Malcolm L. Monroe, John D. Wogan, Lynn M. Allain, New Orleans, for Whitney Holding Corp. and Jena Bancshares, Inc., amicus curiae.
Kantrow, Spaht, Weaver Walter, Lee C. Kantrow, Baton Rouge, for Fidelity Nat. Financial Corp., amicus curiae.
Blossman Hand, Jack A. Blossman, Covington, for First Nat. Corp., amicus curiae.
Landry Landry, Jules F. Landry, Baton Rouge, for Feliciana Commerce Corp. and Capital Bancshares, Inc., amicus curiae.
Talley, Anthony, Hughes Knight, Richard F. Knight, Bogalusa, for Parish Nat. Corp., amicus curiae.
Gaidry LaRussa, Edward James Gaidry, Houma, for Terrebonne Corp., amicus curiae.
Before SAMUEL, LEMMON and GARRISON, JJ.
First Commerce Corporation (FCC), a corporation which owns virtually all of the shares of First National Bank of Commerce in New Orleans, derives income from dividends on that national bank stock, as well as from other sources. In this action to collect Louisiana state income tax for 1973 and 1974 on FCC's income from its national bank shares, FCC resists payment on the grounds (1) that national bank dividends, although then taxable by a state, had not been subjected to taxation by the Louisiana Legislature after Congress removed a previous obstacle to such taxation (notwithstanding R.S. 47:42 A's long-standing taxation of "dividends"); (2) that all of FCC's own income was exempted by R.S. 47:8 from taxation; and (3) that equal protection of the law requires treating FCC like corporations exempted by R.S. 47:8. We disagree on all issues, and we therefore reverse the trial court's judgment.
I
By R.S. 47:42 A and its forebears, Louisiana has since 1934 imposed a tax on income, including income from "dividends". But Louisiana had since 1878 expressly imposed an ad valorem tax on the shares of national banks "doing a banking business in this state" (see R.S. 47:1967), and federal law ( 12 U.S.C. § 548 and its forebears) prohibited a state from imposing both ad valorem and income taxation. Louisiana's tax collector therefore opined in 1935 that national bank dividends were exempt from state income tax notwithstanding the state's taxation of "dividends".
Prior to its 1969 amendment, 12 U.S.C. § 548 provided: "The legislature of each State may determine and direct, subject to the provisions of this section, the manner and place of taxing all the shares of national banking associations located within its limits. The several States may (1) tax said shares, or (2) include dividends derived therefrom in the taxable income of an owner or holder thereof, or (3) tax such associations on their net income, or (4) according to or measured by their net income, provided the following conditions are complied with: "1. (a) The imposition by any State of any one of the above four forms of taxation shall be in lieu of the others . . . .
Dividends of state banks, on the contrary, were taxed as "dividends" until 1966 when R.S. 47:8 was enacted, limiting taxation of state bank shareholders to the taxes payable by national bank shareholders.
State banks' own income (like national banks' own income) was exempted from income tax, if another tax was paid on the shares by R.S. 47:121(2) and its forebears, in effect since 1935. R.S. 47:121(2) provides: "Mutual savings banks, national banking corporations and banking corporations organized under the laws of the State of Louisiana who pay a tax for their shareholders or whose shareholders pay a tax on their shares of stock under other laws of this state, and building and loan associations".
12 U.S.C. § 548 was amended in 1969 to provide that, for federal and state tax purposes after January 1, 1973, "a national bank shall be treated as a bank organized and existing under the laws of the State" of its principal office. Louisiana's Legislature passed no new statute in response to the federal change, but state tax officials took the position that, after January 1, 1973, "dividends" taxed by Louisiana's existing statute included dividends from national bank shares.
After the 1969 amendment, 12 U.S.C. § 548 provided: "For the purpose of any tax law enacted under authority of the United States or any State, a national bank shall be treated as a bank organized and existing under the laws of the State or other jurisdiction within which its principal office is located."
FCC argues that the Louisiana Legislature did not intend to include national bank dividends among "dividends" taxed when R.S. 47:42 A was first enacted, because such dividends were then exempt by operation of federal law from state income tax. On this premise FCC further contends that taxation of national bank dividends, after the exemption was removed by amendment of federal law in 1973, required an Act of the Legislature, rather than the simple administrative application of an Act long in existence.
Except for the history of federal limitations on state taxation of national banks, reviewed in First Agricultural Nat. Bank v. State Tax Commission, 392 U.S. 339, 88 S.Ct. 2173, 20 L.Ed.2d 1138 (1968), there could be no argument that R.S. 47:42 A's taxation of "dividends" does not tax national bank dividends, and R.S. 47:8's protection of state banks from taxes higher than those allowable on national banks perhaps would not exist.
The broad, inclusive definition of gross income in R.S. 47:42 A evidently intended to tax all that it could, including among "dividends" those from state and national banks. Furthermore, the deliberate wording of R.S. 47:8, enacted in 1966 to end the unfair and unequal treatment of state bank shareholders, provides not that state bank dividends are not included in "dividends", nor even that they are exempt, but rather that state banks and their shareholders "shall be subject to the payment of all taxes of the State of Louisiana . . . in the same manner as national banking corporations doing business in Louisiana and their shareholders are taxed by the State of Louisiana . . . under the laws and regulations of the United States of America and the State of Louisiana." The Louisiana Legislature thus yielded on collection of taxes from state banks only to the extent that federal law prohibited the collection of more than one tax in respect to national banks and their shareholders.
R.S. 47:42 A defines gross income as follows: "`Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealing in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever."
R.S. 47:8 provides: "Banking corporations organized under the laws of Louisiana and other corporations whose income is derived solely from banking corporations and from securities exempt from taxation by the State of Louisiana and shareholders of such banking corporations shall be subject to the payment of all taxes of the State of Louisiana and any subdivision thereof in the same manner as national banking corporations doing business in Louisiana and their shareholders are taxed by the State of Louisiana and any subdivision thereof under the laws and regulations of the United States of America and the State of Louisiana, and in no other manner."
It is reasonable to conclude that the Louisiana Legislature originally intended to tax all the income its taxing power could reach. Indeed, it is unthinkable that the Louisiana Legislature in taxing "dividends" intended to tax state bank dividends but not national bank dividends, notwithstanding that it may then have recognized (and by its 1966 enactment of R.S. 47:8 did recognize) that federal law prevented collecting the tax on national bank dividends. The Louisiana situation from 1966 to 1973 was that the Legislature imposed a tax on all dividends, but since federal law exempted national bank dividends, the Louisiana Legislature, on the basis of fundamental fairness and without ever withdrawing its taxation of "dividends", provided that state banks be taxed no more than national banks. Thus, the Louisiana Legislature's express taxation of "dividends" was simply suspended as to both national and state bank dividends exclusively because of a federal law obstacle. When that obstacle was removed, the suspension of Louisiana's taxation of bank dividends ended, effective January 1, 1973. Presumably, every other recipient of national bank dividends in the state (with one stipulated exception) has paid Louisiana state income tax in respect to those dividends. So should FCC, unless its own income is exempt from taxation under R.S. 47:8.
FCC also argues from R.S. 47:1511 that the Collector's post-1972 interpretation of the tax law to tax bank dividends was invalid for lack of notice. However, it was not the Collector, but the Congress who, by removing the federal impediment, allowed the 1934 state law its force.
II
R.S. 47:8 affords no exemption to FCC because, as is stipulated, FCC's income is not "derived solely" from its national bank shares.
A semantic problem is that R.S. 47:121(2) only exempts from income taxation national banks "who pay a tax for their shareholders or whose shareholders pay a tax on their shares of stock under other laws of this state . . . ." R.S. 47:1967-1970 imposes a tax on the shares of banks but not on the shares of corporations which own bank shares. Probably, nevertheless, R.S. 47:8 must be interpreted to give a pure holding company and its shareholders the same tax status as any national bank and its shareholders because every national bank in Louisiana paid share taxes.
The declared purpose of R.S. 47:8 (which is applicable to all forms of state taxation) was to put state banks and bank stock holding corporations and their shareholders on the same footing for all tax purposes with national banks and their shareholders. But the purpose cannot then have been to preserve from income tax the pure bank holding corporation the statute describes, because such a corporation would already owe no income tax: all its income was already tax-free because it was derived solely from non-taxed dividends from bank shares and from tax-exempt securities. The inclusion of holding companies preserved them from other taxes, but it was their shareholders who required exemption from state income tax. Without R.S. 47:8, non-taxable bank dividends would have become taxable holding company dividends when passed from the bank through the holding company to the ultimate shareholders.
The language of the Title of the Act, "shareholders of such banking and other corporations", is broader than the language of the body of the Act, "shareholders of such banking corporations".
As surely as the Legislature by R.S. 47:8 intended to avoid that consequence, it did not intend to allow all corporations to escape income and other taxation by buying a share of bank stock. A line had to be drawn and it was drawn, clearly and unmistakably: to achieve the advantageous tax status of a national bank, the corporation's income had to be "derived solely from banking corporations and securities exempt from [state] taxation." A bank holding company could own bank shares, bank accounts and tax-exempt bonds, but could derive income from no other source. FCC chose to derive income from other sources and thus has crossed the line dividing corporations that own bank stock into those that pay and those that do not pay income tax.
III
FCC argues that it is denied equal protection of the law by being categorized with all other shareholders rather than with Hibernia Corporation, which, it is stipulated, was accorded the tax status of a bank because its income is "derived solely" from its shares of Hibernia National Bank.
This complaint is like that of a corporation denied federal Subchapter S tax treatment because it has one more shareholder than permitted by 26 U.S.C. § 1372. As we have already observed, a legislative body must draw a line at some point. The federal Subchapter S line is drawn at 15 shareholders; Louisiana's bank holding company line is drawn at companies who do nothing but hold bank shares or otherwise derive income from banks (and tax-exempt securities). The Louisiana law allows a company that is a pure conduit to treat its income as that of its shareholders, much as any law might allow a nominee or agent to attribute his apparent income to its beneficial owner. By doing so, the Louisiana law does not discriminate unreasonably against another company (Commerce) which is part conduit and part independent commercial enterprise.
Perhaps it might have been as reasonable for Louisiana to allow every corporation that holds any stock in any other corporation to treat income from the stock it holds as income of the holder's own shareholders. But the constitutional test is not whether the legislative categorization could not be improved upon.
The test is only whether the statutory classification is "supported by [some] rational basis reasonably related to the governmental interest sought to be advanced", Succession of Robins, La., 349 So.2d 276, 280 (1977), and bears "some rational relationship to a legitimate state purpose", ( Weber v. Aetna Cas. S. Co., 406 U.S. 164, 92 S.Ct. 1400, 31 L.Ed.2d 768 (1972). The facilitating of bank holding companies, to afford greater banking service flexibility and capacity, without any threat that concentrated banking power might then take over some other area of commerce or industry, is a legitimate state purpose served reasonably by the statute.
The judgment of the trial court is reversed, and there is judgment for plaintiff in the stipulated amount of $133,047.80 for 1973, and $98,736.96 for 1974, with 12% interest from date due until paid, with all costs.
REVERSED AND RENDERED
ON REHEARING
We granted a rehearing in this cause to reconsider our original determination that dividends from national bank stock constitute taxable income to the parent holding company of the bank for state income tax purposes.
The facts, which were submitted to the trial court on stipulation, are not in dispute.
The State seeks additional income taxes from First Commerce Corporation (FCC) for the years 1973 and 1974 on dividends received by the latter on its shares of stock in its wholly-owned subsidiary, First National Bank of Commerce, New Orleans, Louisiana. From a judgment rejecting its demands the State appealed. We affirm.
The State relies on R.S. 47:42 A which defines "Gross Income" for income tax purposes as follows:
"`Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal service, of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, or sales, or dealing in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever."
FCC opposes the tax on the basis that the State, without implementing legislation, cannot now in view of prior federal restrictions impose an income tax on dividends received from national bank stock.
A resolution of this dispute necessitates an understanding and consideration of the pertinent statutes, federal and state, relating to state taxation of national banks in general and on their dividends in particular.
In the very beginning the United States Supreme Court in the landmark case of McCullogh v. Maryland, 4 Wheaton 316, 4 L.Ed. 579 (1819) held that it was not within the power of a state to tax a national bank on any basis whatsoever. In 1864, pursuant to Act of June, 1864, Ch. 106, Section 41, 13 Stat. 111, Congress granted the states the authority to levy an ad valorem property tax on national bank shares. No other tax was permitted. The Act of 1864 remained unchanged until 1923 when Congress enacted Act of March 4, 1923, Ch. 267, 42 Stat. 1499, which permitted a state to tax (1) said shares (ad valorem), or (2) dividends in the taxable income of an owner or holder thereof, or (3) the net income of such associations, with the provision that, "The imposition by said state of any one of the above three forms of taxation shall be in lieu of the others." In 1926 the Act was further amended to permit a tax (4) according to or measured by the net income of such associations. This latter amendment continued in effect the limitation that the imposition of any one of the above taxes was in lieu of any of the other three taxes. These statutes were the source statutes of 12 U.S.C. § 548. For an extensive review of the federal statutes and jurisprudence relative to state taxation of national banks, see First Agricultural Nat. Bank v. State Tax Com'n., 392 U.S. 339, 88 S.Ct. 2173, 20 L.Ed.2d 1138 (1968). See also 127 A.L.R. 919, 944; 51 Am.Jur. 254, et seq. (265).
In 1878 Louisiana enacted its first ad valorem tax statute. Act No. 8 of 1878, Ex.Sess., Sect. 1, par. 8. This statute is the forerunner of R.S. 47:1967-1970. It is undisputed that since 1878 and until 1973 and in view of the limitation placed on the state by the federal statutes noted above, Louisiana collected only ad valorem taxes on national bank stock.
Louisiana's income tax was initiated by Act 21 of 1934. Section 1 of the act is identical to the language now found in R.S. 47:42(A), above. Although the act has been amended on four subsequent occasions, this particular section has remained unchanged. Notwithstanding the broad general language of Section 1, the act was amended the following year by Act 21 of 1935, 1st Ex.Sess., to exclude, inter alia, national banks. Section 27(2) of the act is now R.S. 47:121(2), and it reads as follows:
"The following organizations shall be exempt from taxation under this chapter:
* * * * * *
"(2) Mutual savings banks, national banking corporations and banking corporations organized under the laws of the State of Louisiana who pay a tax for their shareholders or whose shareholders pay a tax on their shares of stock under other laws of this state, and building and loan associations; * * *" (emphasis ours)
The 1935 amendment was an obvious attempt by the legislature to have our own income tax statute conform to existing federal legislation and jurisprudence.
With the adoption of Act 21 of 1934 the state commenced the income taxation on dividends derived from state bank stock and continued to do so until 1966 when R.S. 47:8 was enacted. This statute reads as follows:
"Banking corporations organized under the laws of Louisiana and other corporations whose income is derived solely from banking corporations and from securities exempt from taxation by the State of Louisiana and shareholders of such banking corporations shall be subject to the payment of all taxes of the State of Louisiana and any subdivision thereof in the same manner as national banking corporations doing business in Louisiana and their shareholders are taxed by the State of Louisiana and any subdivision thereof under the laws and regulations of the United States of America and the State of Louisiana, and in no other manner." (Emphasis ours)
Thus ended the disparity that existed between dividends derived from national and state bank stock vis a vis state income taxation. State bank stock dividends were no longer subject to such taxes.
In 1969 Congress amended R.S. § 5219, now 12 U.S.C. § 548, as follows:
"(a) Section 5219 of the Revised Statutes ( 12 U.S.C. § 548) is amended to read:
"SEC. 5219. For the purposes of any tax law enacted under authority of the United States or any State, a national bank shall be treated as a bank organized and existing under the laws of the State or other jurisdiction within which its principal office is located.
"(b) The amendment made by subsection (a) becomes effective on January 1, 1972."
The saving clause of the act provided:
"(a) Except as provided in subsection (b) of this section, prior to January 1, 1972, no tax may be imposed on any class of banks by or under authority of any State legislation in effect prior to the enactment of this Act unless
"(1) the tax was imposed on that class of banks prior to the enactment of this Act, or
"(2) the imposition of the tax is authorized by affirmative action of the State legislature after the enactment of this Act.
"(b) The prohibition of subsection (a) of this section does not apply to
"(1) any sales tax or use tax complementary thereto,
"(2) any tax (including a documentary stamp tax) on the execution, delivery, or recordation of documents, or
"(3) any tax on tangible personal property (not including cash or currency), or for any license, registration, transfer, excise of other fee or tax imposed on the ownership, use or transfer of tangible personal property.
"imposed by a State which does not impose a tax, or an increased rate of tax, in lieu thereof."
The effective date of the act was later changed to January 1, 1973. Pub.L. 92-213, § 4(a), Dec. 22, 1971, 85 Stat. 775.
The congressional history of the amendment clearly reflects that the Congress was cognizant of the statutes in many of the states, such as our own, and the disarray and confusion that would result in the immediate removal of the federal limitations. The four year delay in the effective date of the amendment (1969-1973) was to enable the states to take appropriate legislative steps to avoid and/or minimize the problem. Our legislature has taken no such action and the question presented here is whether our prior laws on the subject permit the tax now sought to be imposed by the State. For reasons hereinafter stated we hold that they do not.
The State contends that the broad language of R.S. 47:42(A), above, evidence a legislative intent to levy an income tax on all possible sources of income. While it concedes that until 1973 it was prohibited from taxing dividends derived from national bank stock, it now reasons that with the removal of the prior federal limitation the full import of the statute [R.S. 47:42(A)] is applicable.
The State further contends that R.S. 47:8, above, clearly grants a "contingent" exemption to certain corporations and was "also an indication that the Legislature was looking forward to the day when national banks could be treated as state banks." We fail to detect any such indication. The clear meaning of the statute is to the effect that by taxing state banks the same as national banks no income tax would be imposed on state banks because prior state law [R.S. 47:121(2)] specifically and federal law prohibited the same.
Under the State's present interpretation of R.S. 47:8, the State will not levy an income tax on state or national banks, dividends on state and national bank stock in the hands of the holders thereof where the ad valorem tax is paid (R.S. 47:1967 et seq.), or state and national bank holding companies whose sole income is from banking operations; but will, as here, include as taxable income dividends received by state and national bank holding companies whose income is also derived from other sources. These latter corporations previously paid income taxes on their other sources of income but their dividends on state and national bank stock were excluded from their gross income. FCC is one of these latter holding companies.
FCC submits (1) that R.S. 47:42(A), above, absent supplemental legislation, cannot now serve as statutory authority for the imposition of state income taxes; (2) that its income from national bank stock should continue the exemption it previously enjoyed under R.S. 47:8, above; and (3) that equal protection of the law requires that it be treated the same as other banking corporations.
We choose to resolve the issue by determining that R.S. 47:42(A), above, as intended by the Legislature did not include in its definition of "Gross Income" dividends derived from National bank stock. Accordingly, it is not necessary that we address the remaining two objections raised by FCC.
The function of the Court, in interpreting a given statute, notwithstanding its broad and comprehensive language, is to ascertain legislative intention and to give effect to that intention. Hayden v. Torrence, 355 So.2d 1362 (La.App. 1st Cir. 1978), writ refused 357 So.2d 1166, La. 357 So.2d 1169 (La. 1978); Bonnette v. Karst, 261 La. 850, 261 So.2d 589 (La. 1972); In re Hibernia Bank Trust Co., 185 La. 448, 169 So. 464 (1936); Anderson v. West, 354 So.2d 636 (La.App. 1st Cir. 1977). Laws, like contracts, are to be construed in light of conditions as they existed at the time of their enactment. Tennessee Gas Transmission Co. v. Violet Trapping Co., 248 La. 49, 176 So.2d 425 (1965).
Were there any doubt in our minds that the legislature did not intend to include dividends from national bank stock in the definition of gross income by the Act of 1934 [R.S. 42(A)] that doubt is totally removed by the Act of 1935, 1st Ex.Sess. [R.S. 47:121(2)] which specifically excluded "national banking corporations" and shareholders who pay a "tax on their shares of stock under other laws of this state", namely ad valorem. R.S. 47:121(2) remains a viable statute of this state on the subject and its repeal cannot be effected by implication. Gulf Oil Corporation v. State Mineral Board, 317 So.2d 576 (La. 1975).
We think it would be very unsound statutory construction to attach to a statute an intention based on some future contingency, namely the withdrawal of the federal limitation, where the statute itself does not expressly set forth the contingency. The legislature is presumed to know the existing law and the effect of its own legislation. In our opinion the legislature manifested a knowledge of the federal limitations and the alternatives available to it when it adopted the general income tax statute in 1934, amended it to exclude national banks in 1935, and has not addressed itself to the issue since.
At stake is the effect the State's position will have on the entire banking industry within the state. It is a matter that truly addresses itself to the legislature.
For these reasons our original judgment is recalled and vacated and the judgment of the district court is affirmed. All such costs as are permitted by law are to be borne by the state.
AFFIRMED.