Carl Miller Taxation k216

7/30/2019 Carl Miller Taxation k216

1/26

U.Colo.L.Rev.49 1986).LIBRARYREFERENCES

Taxation 216.C.J.S. axationSec.257

ANNOTATIONSNOTES OF DECISIONSI. GENERALLY I to 40II. OBLIGATIONS OR PROPERTYEXEMPT FROM TAXATION 41 tO 59I. GENERALLY< Subdivision ndex>Generally6Computation f tax

Computationof tax - Generally13Computationof tax - Deductions14ConstitutionalityConstructionwith other laws 6aDeductions, omputationof tax 14Estoppel 6Franchiseaxes rom which obligationsexempt9Gift taxes rom which obligationsexempt 10Historical1Income axes rom which obligationsexempt 1lJurisdiction5Nonproperty taxes rom which obligations exempt 12Nonresident liens7Particular axes rom which obligations exemptParticular axes rom which obligations exempt- Generally8Particular axes rom which obligationsexempt Franchiseaxes9Particularaxes rom which obligationsexempt Gift taxes 10

Particularaxes rom which obligationsexempt Income axes 1Particularaxes rom which obligationsexempt Nonproperty axes12Power of CongressPurposeRetroactiveeffect 41. Historical

Revenuestatuteproviding for exemption from stateor local taxation of obligations of United


2/26

States, s amendedn 1959,providedexemptionno broader n scope han hat which Constitutionrequires or tax exemptionfor governmentobligations. First Nat. Bank of Atlanta v. Bartow CountyBd. of Tax Assessors,.S.Ga.1985,05S.Ct.1516,470U.S.593,g4 L.8d.2d535.From the time when McCulloch v. Marvland, 1819.4 Wheat. 316,4 L.Ed. 579.wasdecided.an unbroken line of cases dopting he principlesof that decision.has establishedheinherent nontaxability by the statesof propertv held bv the United States.and of bonds and

obligations ssuedby the United Statesand held bv individualsor corporations.exceptbvpermissionof the United States. Statev. Mavor of City of Newark" N.J.Err. & App.l899. 44 A.654.63N.J.L.547.

UNITED STATESCODEANNOTATEDTITLE 12. BANKS AND BANKINGCHAPTER3-.FEDERALRBSERVESYSTEM* * ?k k k l IkNOTE * * *NOTE t< r ?k k rr *

OBLIGATIONS ARE NON.TAXABLEBY THE STATESOR POLITICALSUBCHAPTER XII--FEDERAL RESERVE NOTES SUB-DIVISIONS OF THE STATESCurrent through P.L. 104-98,approved 1-16-96 SEE TITLE 31. Section# 742Sec.4l 1 Issuanceo reservebanks; natureof obligation; redemptionFederal reservenotes, o be issuedat the discretionof the Boardof Governorsof the FederalReserveSystem or thepurposeof making advanceso Federal eservebanks hrough he Federalreserveagents s hereinafter et orth and or no otherpurpose, re authorized.The said notes shall beobligationsof the United Statesand shall be receivable v al l national and member banks andFederal eservebanksand for all taxes.customs. nd other public dues. They shallbe redeemednlawful moneyon demandat the TreasuryDepartment f the United States,n the city of Washington,Districtof Columbia, r at any FederalReserve ank. [[A DARN LIE IN FACT!!!lll

2. ConstitutionalityWhere economicbut not legal incidenceof tax falls on federalgovernment,such ax generallydoesnot violate constitutional immunity if it doesnot discriminateagainstholders of federalpropertyor thosewith whom federalgovernmentdeals. MemphisBank & Trust Co. v. Galner,U.S.Tenn.1983,103S.Ct. 92,459U.S.392,74L.Ed.2d562.Determination hat statewas not prohibited by federal statutoryexemption from taxing dividendincomederived rom repurchase greementsnvolving federalsecurities id not resolvechallengeo

tax on separate roundthat tax violated intergovemmental ax immunity doctrine of the supremacyclauseof theUnited StatesConstitution.asscopeof statutoryexemptionwas not necessarilyhe sameas scopeof intergovernmentalax immunit)' doctrine. Bewle)'v. FranchiseTax Bd.. Cal.1995.886P.2d 1292.37Cal.Rptr.2d298.9Cal.4th526.' Congress annot withdraw from state axation securities ssuedby the United Statesalreadysubject o such axation,andAct Feb. 25, 1862,c. 33, 12 Stat.346, ncorporatedn former Sec.742 ofthis title, so ar as t exempted rom state axationUnited States ecurities reviously ssued,was extraconstitutionally oid. Peoplev. City andCountyof New York Com'rsof Taxesand Assessments,


3/26

N Y.1862 ,37 arb .635 .3. Purpose

WhenCongress mendedormerRev.Stat. ec.3701 now this sectionlproviding hatallstocks,bonds, reasurynotesand other obligationsof the United States hallbe exempt rom taxationby or understateor municipal or local authority to add sentence tating hat exemption extends o everyform of taxation hat would require hat eitherobligationsor interest hereon,or both,be considered,directlyor indirectly n computationof tax, Congressntendedo sweepawayformal distinctionsand oinvalidateall taxesmeasured irectlyor indirectlyby thevalueof federalobligations,except hosetaxesspecifiedn amendment.American Bank andTrust Co.v. DallasCounty,U.S.Tex.1983,103s.ct .3369,463 .S.855,77 .Ed.2d1072,rehear ingen ied 04s.c t . 39,463U.S.1250, 7L.Ed.2d1457, n remand 79 S.W.2d566.

Former Sec.742of this title which generallyexemptednterestbearingobligationsof theUnited Statesrom stateand ocal taxationwas enactedo prevent axeswhich diminished n theslightestdegree he marketvalue or investmentattractivenessf obligations ssuedby the United Statesin an effort to secure ecessary redit. New JerseyRealty.Title Ins. Co. v. Division of Tax Appeals nDept.of Taxation ndFinance f N.J.,u.s.N.J.1950, 0 S.Ct. 13,338U.S.665,94L.Bd.439.

Former Sec.742of this title and ormer Sec.425 now Sec.5154]of this title wereclarificationsof congressionalntent to immunize from state axation only the interestbearingobligationsof the United Stateswhich wereneededo secure redit o carryon the necessaryunctionsof government, hich intent shouldnot havebeenexpanded r modified in anydegree y the udiciary'Smithv.Davis,U.S.Ga.1944,65.Ct.157,323 .S.111,89 .Ed.107.

Consression obli 'ederal mentreventrom ical subdiv whi h inilishtest desreemarket value or investmentattractivenessof oblisations issuedbY United Statesffort to securen 1993 w.2d eb.1215.127 .Ed. her ct .557130L.Ed.2d470.

Congressionalurposeof enacting his sectionexempting nterest rom federalobligations rommostforms of stateor local taxation,except, nter alia,nondiscriminatoryranchise axes mposedoncorporations, as o protect ederalobligationsagainstdiscriminatory tate axationwhenfederalobligationswere offered or sale n competitionwith statesecurities; n an effort to secureandprotectcredit,Congress ought o prevent he slightestdiminutionof marketvalueor investmentattractivenessof federal bligations.Stateex rel.Douglas . Karnes,Neb.1984, 46N.W.2d231,216Neb.750'

Federalpublic debt statute s intended o invalidateall stateand ocal taxesmeasureddirectly orindirectlyby vaiue of federalobligationsor any nteresthereon,except hoseexceptions pecifiednStatute.Pacific First FederalSav.Bank v. Department f Revenue,Stateof Or., Or.1989,179P 2d1033, 08Or.332.4. Retroactiveeffect


4/26

.S.COdid n eldYo. t-lfv av . C

to be8 date o hv e l o ns

axes

UnsonJa 24

ls10nI9

of ishouldbeivelv.tiof s

{ MORE LIES}

f thefact was irst v .OfedeOkla.1985.709.2d 026.BUT SEETENNESSEE t al GARNER, whichSUPREMECOURTat; 103

VrnmpnSIS BANK AND TRUST vs' STATE OFtotally upheld31 U.S.CODE Section# 742 by U'S'

Permittingbanks o recover1982corporate xcise axesdueandpaid to statedid not involveretroactiveapplicationof decisionof United

-statesSupremeCourt, in that taxeswere not due whendecisionof United StatesSupreme ourt wasrendered, ndactionby banks o contestconstitutionalityof discriminatoryassessment f the taxesdid not accrueuntil they puia tn. taxesunderprotest,whichbanksdid subsequento ruling of United StatesSupremeCourt' Miatand Bank & TrustCo' v' Olsen'Tenn.1986717 S.W.2d 80,certiorari enied 07S.Ct' 1336,479 'S' 1103'94L'Ed'2d186'

5. Powerof Congresscongresshaspowerto declare hatbonds ssuedby the united States hallnot be taxableby a

state.Newarkcity gank v. Assessor f Fourthward of city of Newark,N'J'Sup'1862'30N'J'L' 13 '

6. GenerallYTax exemptionfor governmentobligationsthat is requiredby constitution is not a total

exclusion,but, instead, fi?y be limited by ctarging obligationsand heir interestfair shareof relatedexpenses r burdens. lrriNut. Bank of Atlantav. Bartow CountyBd' of Tax Assessors'U'S'Ga'1985'105s.c t . 1516,470 .S.583,84L.Ed.2d 35.

The principle of exemption is that the statescannotcontrol the national governmentwithin thesphere f its constitutional owers--for here t is supreme--andannot ax its obligations or paymentof money ssued or purposeswithin that rangeof powers,because uch axationnecessarilymplies heassedion f the righito exercise uchcontrotl gaok, v. Mayor andControllerof City of New York'U.S.N.Y.188,74U.S.16,19L'Ed' 51,7WalL 16'

statesmay not encroachupon the borrowing power of the United Statesgovernmentby taxingfederalobligations.MontanaBankersAss'nv. MontanaDept.of Revenue,Mont'1978' 580P'2d909'177Mont .112 .


5/26

6A. Constructionwith other lawsDefinition of FederalReserve otesas "obligationsof the United States"within contextof 12U.S.C.A.Sec.411,whichgovernsssuance f suchnotes, s distinguishableor tax purposesrommeaning f 31 U.S.C.A.Sec.3124,whichprovides hat stocks nd obligations f theUnited Statesgovemmentareexempt rom taxationby stateor political subdivisionof state,and Code 1957,Art. 81,

Sec.280(c)(1),which provides hat nterestor dividendson obligationsof the United States hallbesubtractedrom federaladjustedgross ncome,as Sec.411 is containedwithin title which created heFederalReserveSystemand Sec.3124 andArt. 81 refer o interestbearing nstruments uchas UnitedStates onds.Provenza . Comptroller f Treasury,Md.App.1985, 97A.2d 831,64 Md.App. 563.

7. Nonresident liensUnited States onds ssuedafteras well as beforeMar. 1, l94l,and physically ocatedwithinUnited States, houldhavebeenexcluded rom taxablegrossestateof nonresident lien not doingbusinessn United States, nder ormer Sec.750of this title which exemptedUnited States ecuritiesbeneficiallyownedby suchaliens rom "taxation"; the term was not restricted o property axes.JandorfsEstatev. ommissionerofntemalRevenue,.A.2 N.Y.) 1948,171F.2d464.UnitedStates onds ssuedafter Mar. l,I94l, which were owned by nonresident lienindividualwho did no businessn United States, nd which werephysically ocated n United States,shouldhavebeenexcluded rom taxablegrossestate fnonresidentalien, or federalestateaxpu{poses, nder ormer Sec.750 of this title which exemptedUnited States ecurities eneficiallyownedby suchaliens rom taxation. Pennsylvania o for Banking & Trustsv. U S, D.C.Pa. 950,9lF.Supp. 3J , afftmed 185 F.2d 125.Where axpayer,a nonresidentalien, owned certain domesticstocks and bondswhich shehadconverted nto United StatesTreasurynotesundera preanangedprogramor understandingand solelyfor thepurposeof making a gift of suchnotes n trust,within the gift tax exemptionprovisionsofformerSec.750of this title, suchconversionwas neffectual o avoid gift tax under ormer Sec.1000etseq.of Title 26 [now Sec.2501et seq.of Title 26]. De Goldschmidt-Rothschild . C. I. R., TaxCt.79479 T.C. 325, affirmed168F 2d 975.LibertyBondswere axableby the Commonwealth f Virginia while held by the executorof anonresident lien estator.Jeffress . Commonwealth, a.7929,146S.E.296,152Va. 100.

8. Particular axes rom which obligationsexempt--GenerallyPrinciple that obligations of federal governmentare mmune from state axation embracesindirect axationof suchobligations hrough heir inclusion n tax imposedon all propertyof ataxpayer, nd t is quite mmaterial hat state ax doesnot discriminateagainst he federalobligations.Society or Savingsn City of Cleveland,Ohio v. Bowers,U.S.Ohio1955,75S.Ct.607,349U.S. 143,99 L.Ed.950,71OhioLaw Abs.280,56 O.O.365.


6/26

Obligationsof federalgovernment annotbe taxed,eitherdirectlyor indirectly,by state,municipalor localauthorities.PeterKiewit Sons'Co. . DouglasCounty,Neb.1955, 2N.W.2d415,16 1Ne b . 9 3 .

Use of the indefinite articles "a" and "an" in federalstatuteproviding that exemptionfrom localtaxationof the United States bligationsdoesnot preclude he obligations rom beingconsideredncomputinga nondiscriminatory franchise ax or an estateor inheritance ax means "an!," and a numberof acceptableorms of taxation can be imposed within that exception; statutedoesnot limit the state othe mposition f onesuch ax. FirstAmericanNat. Bankof Knoxvillev. Olsen,Tenn.19877 5lS.W.2d lT,appeal ismissed08S.Ct.1460,485 .S.1001,99L.8d.2d691.

The exemptionprovidedby former Sec.742of this title couldnot havebeenevadedby anymerechange f form or name n the law by which the tax was mposed.Monroe CountySav'Bank v.Rochester,86737 N.Y. 365.9. ---- Franchiseaxes

N.J.S.A. 54:104-1 et seq.,4(d), 5, which imposedon eachdomesticcorporationan annualfranchiseax measured y corporation's et worth, which is definedas sumof corporation'sssuedandoutstanding apitalstock,paid-inor capital surplus,earned urplusandundividedprofits, othersurplusaccounts,which will accrue o shareholders,ot includingdepreciationeserves, nd debtsowed oshareholderswning 10percentor more of corporation's tock, s valid despite he inclusionof taxexempt ederalbonds n the determination f networth. WernerMach. Co. v. Director of Division ofTaxation,Dept.of Treasury, tateof N. J.,U.S.N.J1956,76S.Ct.534,350[J-5.492,100L.Ed' 634'

A statestatute mposeda franchise ax on corporations awful so far as t affectedsecuritiesofthe UnitedStates.HamiltonCo.v. Stateof Massachusetts,.S.Mass1867,73U.S.632,18 L.Ed.904,6 Wal l .632.

Former Sec.742ofthis title did not exemptsavings ocietiesrom a franchiseax on accountofdeposits, artof which were nvested n securities f the United States.Society or Savingsv. Coite,Conn.1868, Wall. 594,18L.Ed. 897. See, lso,Provident nstitutionor Savings . Massachusetts,Mass.1868,Wal l .611,18L.Ed.907.

Where ormer Sec.742aof this title made iableto federal ncome ax interestandgainsonobligationsof United StatesssuedafterMar. l,Ig4l, as esultof which the state ranchise ax oncorporations y reasonof the adoptionof the federal ncome ax returnsasbasisof suchstate ranchisetax includedfederalsecuritiesand excludedstatesecurities n determining amountof such ranchisetax,72P.S.Sec. 3420aetseq.becamediscriminatoryagainst ecurities f the United States nd o thatextentwasunconstitutional.om.v.CurtisPub.Co.,Pa.l949,69A.zd4I0,363Pa.299,certioraridenied 0 S.Ct. 27,339U.S.928,94L.Bd.1349.

' That discriminationagainst ederalsecurities y 72 P.S.Sec.3420aet seq.wasnot intendedbythe statebut resulted rom the passage f former Sec.742aof this title did not render he discriminationany he lessunconstitutional, ince he constitutionality f a statute ouldnot havebeendetermined ya considerationf themotivesbehind ts enactment.Com.v. CurtisPub.Co., Pa.1949,69 .2d 4iO,


7/26

363Pa.299,certiorarienied 0 S.Ct.627,339U.S.928,94L.Ed.1349.The New York City financial corporation ax, which is imposed on financial corporations orprivilegeof doingbusinessn the city in a corporate r organized apacity, s a "franchiseax" withinmeaningof the federalpublic debtstatutewhich exemptsUnited StatesGovernmentobligationsandinteresthereon rom stateor municipal axation"exceptnondiscriminatoryranchiseor othernonproperty ax in lieu thereof mposedon corporations."BankersTrustNew York Corp.v.

Departmentf Finance f City of New York,N.Y.1992, 93N.E.2d275,583N.Y.S.2d821,79N.Y.2d457,certrorari enied113S.Ct.202,506U.S. 870, I2I L.Ed.2d144.Ohio corporate ranchise ax is a true franchise ax for purposes f federal aw baning taxationof obligationsof United Statesgovernmentexcept n a nondiscriminatoryranchise ax. Bank OneDayton,N.A. v. Limbach,Ohio 1990,553N.E.2d624,50Ohio St.3d163, ehearing enied555N.E.2d647,5I OhioSt.3d 10.Excise ax imposedon gross nvestmentncomeof domestic nsurance ompaniess

"nondiscriminatoryranchise ax or anothernonpropertyax" and, hus, mposition of tax on incomefrom federalbondsand other federal obligationsdoesnot conflict with federal statuteor violatesupremacy lause;statutedoesnot impose imited income ax, but rathersetsout workablemeasure fvalueof privilegeof doingbusinessn State,and ax is imposedon interestpaid on stateobligationsaswell ason federal bligations.Liberty Mut. Ins.Co. v. Commissioner f Revenue,Mass.1989,54lN.E.2d566,405Mass.352,certiorari enied 10S.Ct.1523,494U.S. 1055,108L.Ed.2d763.

By rendering nvestmentsn obligationsof federalgovernmentessattractive han otherinvestments,n calculationof taxesdueunderNew York City'sgeneral orporation ax fAdministrativeCodeSec.R46-3.0et seq.],city tax discriminated gainst ederalobligationswithin meaningof federalstatute 31 U.S.C.A.Sec.3 24f permittingonly nondiscriminatoryranchise axes o be levied onUnited States bligations,and hereforeviolatedsupremacy lause U.S.C.A.Const.Art. 6, cl.2l.Forbes,nc.v. Department f Finance f City of New York, N.Y.1985,487 N.E.2d 251,496N.Y.S.2d394,66N.Y.2d243,certiorari enied106S.Ct.1517,475U.S.1109,89L.Ed.2d9l5.Federalsecuritiesowned by corporationfor profit wereproperly included in franchise ax basein determining ranchise axes notwithstanding ormer Sec.742 of this title which exempted ederalsecuritiesrom taxation.RaymondBag Co. v. Bowers,Ohio 1955,126N.E.2d 321,163Ohio St .275,56 O.O.247,appeal ismissed6 S.Ct.648,350U.S.1003,100L.Ed.866, ehearing enied 6 S,Ct.777,351U.S.928.100L.Ed. 457R.S.Supp.1982,ec.77-2734(2)in tate orporateranchiseax which n light of sections 1,63, and 103of Title 26 resulted n a franchise ax with a base hat excluded nterest rom stateand ocalobligationsbut included ntereston federalobligations esulted n an nvalid, discriminatory ranchisetax proscribed y subsec.a) of this section. Stateex rel. Douglasv. Karnes,Neb.1984,346N.W.2d231,216Neb.750.Corporateranchiseax, mposed nderM.S.A. Secs. 90.0 , and290.08,ubd.08, whichutilizednet ncomeas a measuring tick for determining hevalue of exercising he corporateranchiseand which permitted he inclusionof interest ncomeon United States overnmentobligationsn


8/26

computation f that net income did not violate ormer Sec.742of this title which forbade he statesoconsiderntereston suchobligations n the computationof any ax other han a nondiscriminatorycorporateranchise ax or othernonpropertyax imposed n lieu thereof. ReubenL. Anderson-Cherne,Inc.v. Commissioner f Taxation ,Minn.1975,226N.W.2d611,303Minn. 124,appeal ismissed 6s .c t . 181 ,423 .S .886 ,46 .Ed .2d 18 .

Even houghM.S.A. Sec.290.02usesnet ncomeasmeasuring tick for determiningvalueofexercisinghe corporate ranchiseandpermits he inclusionof interest ncomeon United Statesgovernmentobligations n computationof that income, he tax is not an income or property tax but is,in fact,a "franchiseax" imposedupon the privilegeof operatinga corporation.ReubenL. Anderson-Cheme,nc.v. Commissioner f Taxation,Minn.1975,226N.W.2d 611,303 Minn. I24, appealdismissed6 S.Ct.181.423U.S.886.46 L.Ed.2d118.

Stateexcise ax assessed nnuallyon corporationsor privilege of carryingon or doingbusinessin state s "franchiseax," and hus within exceptiono federalstatutenvalidatingstateand ocal taxeson federalobligations,even hough ax is largelymeasured y corporation's et income. PacificFirstFederalSav.Bankv. Department f Revenue, tate f Or., Or.1989, 79 P.2d 1033,308 Or . 332.

MCA 15-31-101 s a nondiscriminatoryranchiseax, and husdoesnot violate hissectionnotwithstandinghat, n computing ax, interestncome rom federalobligations s included,asit doesnot discriminateagainstholdersof federalobligationsbut, rather, axes nterestearnedbycorporate oldersof stateobligations. Schwinden . BurlingtonNorthern, nc', Mont.1984,691P.2d1351,213Mont. 382,opinionclarified730P.2d422,224Mont. 500.

Bank tax imposed"for privilege of exercising ts corporate ranchisewithin the stateaccordingto and measuredby its net income for the precedingyear" wasnondiscriminatoryfranchise ax whichfell outsideprohibitionagainst axing federalobligationsor interestshereon. CenterreBank of Cranev. Director f Revenue. o.1988. 445.W.2d754.

The taxesupon corporations,mposedunderLawsN.Y.1880,c. 542,as amended y Laws1881,c. 367, are axesuponfranchises, ot uponproperty,and he fact that dividends,a portion ofwhich arederived rom United States ecurities, xempt rom taxation, urnish he basis or computingthe amountsof the taxes,doesnot invalidate he law andsuch axation s within the authorityof thelegislature. eople . Home ns.Co.,N.Y.1883,92N.Y.328,affrrmed S.Ct.1385, l9 U.S.129,30L . E d . 3 5 0 .

Wherea tax is declared n terms o be mposedon the franchises nd privilegesgrantedacorporation,t is not void becausehe corporationmayhaveseen it to invest ts moneys n bondsorsecurities f theUnited Stateswhich are exempt rom taxation. Monroe CountySav.Bank v' City ofRochester,867,37N.Y. 365.10 . --- Gift taxes

Tax Court's finding that conversionof domesticstocksand bonds nto United StatesTreasurynoteswas solely or the purposeof making tax exemptgifts in trust wassustained y the evidence ndholding hat he giftswere not tax exemptwasproper. De Goldschmidt-Rothschild . Commissioner f


9/26

Int. Rev..C.C.A.2 1948.168F.2d 975.11. ---- Income axes

Maryland tax scheme hat taxes only gainson federalobligations,but not on stateobligations,was impermissiblydiscriminatory becauset made ederalobligations ess attractive han similar stateobligations hus violating purposeof statute o prohibit state rom imposing any burdenon any part ofnational ublicdebt. Doneskiv. Comptroller f Treasury,Md.App.1992,605A.2d 649,91Md.App.614,certiorari enied610A.2d796,327Md. 523,certiorari enied 13S.Ct.981,l22L.Ed.2d134.

Federalprohibitionagainststate axationof obligationsof United Statesgovernmentwasapplicableo state's piggybacking" axation schemewhich computedstate ax as ,rxed ercentage ffederal ax. In re ThomasC. SawyerEstate, t.1987,546A.2d 784, 49 Vt. 541.

Federalstatutory exemption from state axation of stocksand obligations of the United StatesGovernmentdid not prohibit state rom taxing dividend incomederived from repurchaseagreementsinvolving ederal ecurities.Bewleyv. Franchise ax Bd.,CaI.1995, 86 P.2d 1292,37Cal.Rptr.2d298,9 Cal.4th526.

MCA 15-31-116 which provides hatwhencorporateaxpayercomputesallowabledeductionsfrom gross ncome, hosedeductions redecreasedy a ratioof federal nterest ncome o all interestincorneearnedby the corporation, he effect of which is to add back to taxable income interest ncomefrom federalobligation, o, prr.pose f determiningstatecorporationicense ax, is unconstitutional sin directcontraventiono subsec.a) of this sectionunderwhich both federalobligationsand nteresttherefromareexempt rom taxationby states irectlyor indirectly n the computationof tax'Schwinden . BurlingtonNorthern, nc.,Mont.1984,691P.2d I35I,213 Mont. 382,opinionclarified730P 2d422,224Mont.500.

Corporate xcise ax is not an ncome ax for purposes f federalstatuteprecluding mpositionof income ax on obligationsof the United States.FirstAmericanNat. Bank of Knoxville v. Olsen,Tenn.1gg7,751.W.2d4I7,appealismissed08s.c t . 1460,485 .S.1001,99 .Ed.2d69l .

Corporateexcise axes mposedon banksand attributable o inclusion in banks'net earningsofinterestearned n obligationsof the United States nconstitutionally iscriminatedagainstFederalobligationswhere he inet earnings"did not include ntereston Tennesseetateand ocal obligations..MidlandBank& TrustCo.v. Olsen, enn.1986l l7 S.W.2d 80,certiorari enied 07S.Ct.1336,479u.s.1r03.94.Ed.2d86.

Act 1867,allowing u tu* of 5 percenton thegrossannual ncome rom interestpaid on bondsissuedby the federalgovernment,was repugnanto the Constitutionof the United States, incesuch ax

. is a tax upon he ,n.u.r, usedby the government n the executionof its expresslydelegated ower"toborrow moneyon the creditof the United States".Bank of Kentuckyv. Commonwealth,1872,72Ky46,9 Bush. 6.Act N.H. July 1, 1865,entitled "An act for thetaxationof incomes," s unconstitutional,n so


10/26

far as t providesfor the taxation of incomesderivedfrom notes,bonds' and other securitiesof theunited States iven or roansof money o theUnited states. opitrio" of Justices,1873,53 N'H' 634'

12. ----NonProPertYaxescorporate excise ax is a nonproperty ax for purposesof federalstatutepermitting obligations

of the united states o be included n ttreuase or certainstate axes. First AmericanNat' Bank ofKnoxvillev. olsen,Tenn.19g7, 51 S.w.2d 4lT,appeal ismissed 08S'Ct' 1460'485U'S' 1001'

99L.Ed.zd69r.13.Computationf tax--Generally

vernon,s nn.civ.st arr.Tl66violatedormersection 420f thistitle now hissection]providinghat ax sbaned egardlessf itsform f federal bligations ustbeconsidered'itherdirectlyor indirectly,n computingax wh"r. .q.rity "aituf iotit"la wasusualandcustomarymethod

employedn Texaso calculateax. American anLanArust Co'v' DallasCounty'U'S'Tex'1983'103 .ct. 3369,463.S.855,71L.Ed.2dI0J2,rehearingenied 04 'ct' 39'463IJ'S' 250'77L.Ed.2d 457onremand79S'W'2d566'Asexceptiontogeneralruleofimmunityoffederalgovernmentobligationsfromproper

taxationby states,axmaybe evied"n"" *:iolders.of 'ftt o' nationalbankshough ax s

measuredy corporate ssets hich *trra. federar brigations nd houghpayment f taxbycorporationscollecting gents required.Societyor Savingsn city of cleveland' hio v' Bowers'u.S.Ohio g55,75s.Ct.07, 49U.S. 43,ggr..io.950, lbhio LawAbs'280', 60'o' 365'

Ataximposedonadomesticstockinsurancecorporationandleviedintheamountopercent gainst apitalandsurplusess iabilitiesor against ntirenetworthcomputedwithoutdeduction f principalamountof tax exemptunited states onasandaccruednterest

hereon, nderN.J.S.A.54:4-22imposingtaxonuur,r"orproperty xclusive f taxexempt roperty' utrequiringassessmentgainstntangiblep.rrorJiy oi ti, f1t ^ittuni-pt"""t o1lnit1 stockandsurplusnexcess f liabilities,was nvalidas n conflictwith formersec'1a20f this itlewhichgenerallyexemptednterest earingobligations f theunited Statesrom stateand ocal axation,andcouldnothavebeen ustainedsataxrevied n hecorporateranchise. ewJersey ealty'Title ns'co' v'Division f TaxAppealsn Dept.of Taxationandinanc" fN'l'' U'S'NJ'1950' 0S'Ct'413'338u.s. 665, 4L.Bd.439'

Rev.St.Mo.1919,ec.6386,which equirednsuranceompanieso pay axonulu: 9f assets

in excess f requiredeserve ndunpaid raims sconstruedo requireeserve ndunpaid laimsobereduced y proportionhatvalue"f g"**l-tt"-'^b:1d'.b^"utsto totalassets asnvalid' Stateof

Missouri x el.Missourins'Co'"'?"h"tt' U'S'Mo'1930'O 'Ct'326'281U'S'13'74 'Ed'870'

.Rev.St .oh io ,sec.2T3T,wh ichrequ i red the taxpayer to re tu rn t 'o theassesso lasta temonthlyaverage, mount, r value, or the imeheheldor controlledhesame'within theprecedingyear,of all moneys, reditsor other if".t, within that ime nvestedn governmentecurities' utnotdeducting ny niebtedness reated*tt" purchase f-t"tn securities' id not tax thecitizen orgreenbacksr otherunited statesJ;"rtuJr h";;il;";. heldduring heyear,andwasnot n bonflic


11/26

with formerSec.742of this itle. Shotwell . Moore,U.S.Ohio1889,9 S.Ct.362, 129U.S. 590.32L.Bd.827.SingleExciseTax enacted s egislative esponseo Pennsylvania upremeCourtdecisionstriking down asviolative of federal aw methodof computing bank shares ax that required taxpayer oincludeobligationsof United Statesn total assetsor purposeof calculatingnet worth, that mposedtax only upon taxpayerswhich had claimed or intended o claim refundsor refused o pay taxes

assesseds esultof SupremeCourt decision,contradictedederalstatutes rohibiting mpositionofstate axeson federalobligationsandviolatedsupremacy lause.First Nat. Bank of Fredericksburg.Com.,Pa.1989, 53A.2d 937 520Pa.244.Federal tatutoryexemption rom state axationof stocksand obligationsof the United StatesGovernment xtendedo state axes hat eitherdirectly or indirectly consideredederalobligation ncomputing ax. Bewleyv. Franchise ax Bd., CaI.1995, 86P.2d 1292,37Cal.Rptr.2d 98,9 Cal.4ths26.As applied o federal ecurities, .R.S.Sec.43-12321(E)(2)(Repealed),dding ax-exemptincome o gross ncomewhen computingnet operating oss,which had effect of reducingorextinguishing et operating osswhich wascarried orward andusedas deduction n computing uturenet ncome,violated ormer Sec.742 of this title which prohibited axationof obligationsof UnitedStates.Continental ank v. ArizonaDept. f Revenue, riz.App.1981, 38 P.2d228,l3l Arrz.6.Theportionof Gen.St.1915, ec .11163,whichprovided hatwhereUnited States ondshadbeenpurchased uring theyearprecedingMarch 1,a sum shouldhavebeen isted for taxationasmoneyon handMarch 1, computedby dividing the valueof the bondsby twelve, andmultiplying thequotientby the numberof monthsof the year emainingafterdeducting he time the bondswere owned,violatedformer ec.742 fthis tit le. Larfizv.Hanna. an.1922.207 .767.111Kan.461.

Bank shareax, insofaras t allowedshares f stockholders f banksor bankingassociationsobe taxed at their fair market value on basisof net worth of bank,without subtractingvalue of federalsecurities wnedby bank,violated his sectionexemptingall federalobligations rom state axation.BartowCountyBankv. BartowCountyBd. of Tax Assessors, a.1984, 12 S.E.2d102,251Ga.831,probableurisdiction oted104S.Ct.2654,467U.S. 1214,81L.Ed.2d 61,affrrmed 05S.Ct.1516,470U.S.583, 4L.Ed.2d 35.14 . ----Deductions

The mmunity of nationalsecurities rom state axation s violated by a tax imposedunderauthorityof Code owa Sec. 1322, dkecting hat he shares f stockof statebank shall be assessedosuchbanks,andnot to individual stockholders,he effect of which is to require axationuponproperty,not including he franchiseof suchbanksand o adopt he value of the shares s he measure f thetaxablevaluationof suchproperty without permitting any deductions rom suchvaluation on accountofbondsof theUnited States wnedby its bank. Home Sav.Bank v. City of Des Moines, U.S.Iowa1907,27 S.Ct. 71,205 .S.503,51 L.Ed.901.A tax on the shares f stock n a trust companyunderRev.St.Ohio,Sec.2762,wasnot


12/26

equivalent o a tax on the property of the corporation,and therefore he shareholderswere not entitledunderformer Sec.742 of this title to have a deduction rom the value of the sharesof the amount of thecapitalstockof thecompanywhich was nvestedn United States onds. ClevelandTrust Co.v.Lander, .S.Ohio 902,22S.Ct.394,184U.S. 171,46L.Bd.456.A savings ank which ownsUnited States onds,not subject o taxation, s entitled, n theestimate f its propertysubject o taxation, o havesuchbondsdeducted rom its apparent urplusover

andabove he amountof its deposits.Peopleex rel. BridgeportSav.Bank v. Barker,N.Y.1 897 47N.E.973,154N.Y. 128.The amountpaid for United States ondspurchased ut of the generalassets f a savingsbankshouldbe deducted rom its taxableassets.Ottumwa Sav.Bank v. Citv of Ottumwa, owa 1895,63N.W. 672,95lowa 176.Statecourt not impose tax upon stockholders' nterestsn a national bank, measuredbycorporateassetvalues,without making a deduction or federal obligations owned by the bank. FirstSec.Bank of Bozeman . MontanaDept.of Revenue,Mont.I978, 80P.2d9I3,177 Mont. 119.Bank share ax had to be calculatedby proportionatemethodof deduction, hat is, determining

extent o which federalobligationswere representedn bank'sassets, nd hendeductingexempt ederalobligationso extent hat they wererepresentedn net worth,by which share ax is measured, inceallowingdeduction rom bank'snet worth of percentage f assets ttributableo federalobligationsfully insulates ederalobligations rom tax without insulatingbank's axableassets t the same ime.BartowCountyBankv. ar towCountyBd. f TaxAssessots,a.1984,3125.8.2d102,251a.831,probableurisdict ion oted104S.Ct.2654,467U.S. 2l4,8IL.Ed.2d 361,affirmed105S.Ct.1516,470U.S.583. 4L.Ed.2d 35.

This'section rovidingthat federalgovernment bligationsare exempt rom taxationunderstateor local authority does not require a specific deduction or the proportionate value of the federalobligationsheld by bank in valuing the sharesof bank stockfor taxation so long as he methodofassessmentoesnot directlyor indirectly nvolve any computationwhich takes ederalobligationsntoaccountmathematically s a factor n determining he value. AmericanBank and Trust Co. v. DallasCounty,Tex.App.-Dallas984,679 S.W.2d566.

R.S.Tex.art.4764,providing for deduction rom an nsurance ompany's ssets f thevalue ofits real estate,he remainder o be the assessedaxablevalueof its personalproperty, f so construed sto make t possible o have United States ondsexempt rom taxationunder ormer Sec.742of thistitle, in the remainderwhich was declared o be the assessedaxablevalue of the company's ersonalproperty,would havebeen nvalid to that extent; therefore,f it waspossible o give it suchconstructionas o avoid a conflict with the federalstatutes,t was the court'sduty to do so. City ofWacov. Texas ife Ins.Co.,Tex.Com.App.1923,248.W.315.' The effectof former Sec.742of this title was hat n any scheme f stateor municipal axationgovernment ondsshouldhavebeeneliminated rom considerationn any equation o reach he axableproperly,or at leastwhen they were ncluded, t compelleda deductionas such or the amountof thebonds.City of Wacov. AmicableLife Ins Co, Tex.Civ.App.l92l,230 S.W.698,affirmed248 S.W.


13/26

a a ^) ) 2 .

Corporationswereentitled,whenassessednder he New JerseyTax Act of Mar. 28,1862,tohave deducted rom the amount of their capital stockpaid in, and accumulatedsurplus, he amount ofthe stockandpublic securities ssuedby the United States wnedby them at the time of assessment.Newark City Bank v. Assessor f FourthWardof City of Newark, 1862,30 N.J.Law 13, 1 Vroom 13.See, lso,Mechanics' Traders' ankv. Bridges,1862,30N.J.L. 1I2, I Vroom 112 .In theexemption, nderActsFeb.25,1862,c.33,12Stat.345,Mar.3, 1863, .73, 12 Stat.709, ncorporatedn part in former Sec.742 of this title, of United States onds rom state axes, heirparvalue, nsteadof their marketvalue,shouldhavebeendeducted rom the personalestate.Peoplev.Commissionersf TaxesandAssessments.879.76 N.Y. 64.

I 5. JurisdictionWherebanks, n their complaints,alleged hat Department f Revenuehad llegally taxed heirshares f stock n violation of federal aw, complaint aisedquestionas o legalityof tax imposedanddid not put into issueanyquestionof valuation; therefore, ourts,not tax appealboards,had originalsubjectmatterurisdiction to hearcases.U. S. Nat. Bank of Red Lodgev. MontanaDept. of Revenue,Mont.1977, 73P.2d188,175Mont. 205.

16 .EstoppelLife insurance ompany s not estoppedo question alidity of tax imposedby stateupon tsproperty,underRev.St.79-324,without deductionof amountof United States onds ncluded nvaluation,on ground hat officer of company, n listingproperty,underRev.St.79-310,had set orth al lof the capital stockand otherproperty of the companyat its true value in money,where statementshowed hatUnited States ondsof certainamountwere ncluded n the valuationof the property isted.Farmers' Bankers' ife Ins. Co. v. Anderson, an.I925,232P 592, I7 Kan. 451

II. OBLIGATIONS OR PROPERTY EXEMPT FROM TAXATION< Subdivision ndex>Generally 1Annuities42Bank earnings 0Bonds43Certificates f indebtedness4Corporate apital45Debtsowing by United States46Determiningownership49aFederal eserve otes53aGold and silver certificates 7Income ax refund laims48Interest49


14/26

Miscellaneous bligationsor property59Moneyborrowedon obligations50MortgagesMortgages Generally51Mortgages Associationcertificates52Mutual fund income 52aNationalbank notes53Openaccount laims 54Propertyobtainedby pledgeor obligations55Silvercertificates 7Socialsecurity enefits lsrock56TreasuryTreasury Checksand orders 57

Treasury Notes 5841.Generally

Under rule of ejusdemgeneris,he words"other obligations" n former Sec.742of this title,referredonly to obligationsor securities f the same ypeas hosespecificallyenumerated'Smithv'Davis,U.S.Ga.1944,65.Ct.157,323U.S.111,89 .Ed.107.

Underrule of ejusdemgeneris,words "otherobligations"within former Sec.742of this titlewhich provided hat,exceptasotherwiseprovidedby law, all stock,bonds, reasurynotesandotherobligationsof United States houldhave beenexempt rom taxationby state,municipalor localauthority, eferredonly to obligationsof the same ypeasspecificallyenumerated.MontgomeryWardLife Ins.Co. v. State,Dept.of Local Government ffairs, ll.App. 1 Dist.1980, 11 N.E.2d973,44Il l .Dec.607 89 Ill.App.3d 92.42 .Annuities

Annuitypayments aid to retired ederalemployeesrom civil servicepensionplan, a qualifiedpensionplan trust, were subject o state ncome tax, although axpayersclaimed that portion of pensionannuitypaymentswere derived from "U.S. Government nterest"and thus exempt from state axation;neitheramount of civil servicepensionbenefitsnor amountof state ncometax payable hereonwasmeasuredby or computedon or dependent n anyway on amountof interestreceivedby pension undby reason f its ownershipof United States ecurities, nd statewas not required o characterize nnuitypayments spass-through istributionsof tax exempt nterest.Meunierv. MinnesotaDept.ofRevenue, inn.1993, 03N.W.2d I25, certrorarienied 14S.Ct.635,126L.Ed.2d 94.

Wherea widow surrenders er dower nterestand distributiveshare n her husband's statenconsideration f an annuity, axation of suchannuitydoesnot involve the questionof taxationof theproperty nvested o producesuchannuity, so as o render t a tax on governmentbonds nvested orthatpurpose.Chisholm . Shields,Ohio Cir.1900,11 Ohio C.D. 361.43.Bonds


15/26

Impositionof bank shares ax on nationalbankdid not violate72P.5. Sec.4752-2exemptingall stateand municipal obligations from taxation wherebank sharesax was imposedon capitalownedand employedby bank in its banking operations,which capitalwas property interestseparaterom stateandmunicipalobligationshemselves.DaleNat. Bankv. Com.,Pa.1983, 65A.2d965,502 Pa.170.

Statutepurporting to exempt county expresswaybondsfrom state axation, underwhich nobondshadeverbeen ssued,did not have o be consideredn determiningwhether epealer rovisioncontained n law which created ranchise ax was sufficient to negateexemption later provided inexpressway ond exemptionprovision. Department f Revenue . First Union Nat. Bank of Florida'FIa.1987, 13So.2d114,appeal ismissed 08S.Ct.1253,485 .S.949,99 L'Ed-2d408.

UnderActJuly 14,1870,c.256,16Stat. T2,incorporatedinpartinformerec'742of thistitle, which provided or the issueof United States onds, all of which severalclasses f bondsand heinteresthereonshall be exempt rom thepaymentof all taxesandduesof the United States, swell asfrom taxation n anyform by or understate,municipalor localauthority,"and Gen.LawsR'I. c. 44, Sec'2, which exemptedrom taxation"thebondsand othersecuritiesssuedandexempted rom taxationbythe government f the United States,"he exemptioncovered bonds"andevery ncident hereto,includingpremiumsabovepar which suchbondscommandedn the market. Peoplev. Commissionersof TaxesandAssessmentsn City of New York, 1882,90 N.Y. 63 . See, lso,Rhode slandHospitalTrustCo.v. Armington, 898, l A.570,27 R.I.33.

The principle of former Sec.742 of thistitle was, that whenever,by state aw, a tax was laiduponpropertywhich consisted f United States onds,exempt rom taxation, hen, n whatever orm,or in whatevererms, he law was expressed,t wasvoid, andcouldnot havebeenenforced.MonroeCountySav.Bank v. Rochester,1867,37 .Y. 365.44. Certificates f indebtedness

Certificatesof indebtednessssuedby the United States o creditorsof the government orsupplies urnished o it in carrying on the war for integrity of the Union, and by which the governmentpromised o pay he sumsof money specified n themwith interestat a time named,werebeyond heiaxing powerof the states.Banksv. Mayor and Controllerof City of New York, U.S.N'Y.1868,74U.S.16,19L.Ed.57,7Wal l .16.

Certificates ivenby the Treasurer f the United States,o secure loanof money,wereUnitedStates ecurities,d, u, such,exempt rom state axation. Mutual Life & Casualty ns' Co. v. Haight,1870.34N.J.Law128,5Vroom 128.

Certificates f indebtednessf the United Statesssuedpursuant o Act Mar. 1, 1862, .35' 12Stat.352,given n "satisfaction f auditedand settleddemands, nd n discharge f checksdrawnbydisbursingofficers,"werenot exempt rom taxationby virtue of former Sec.742of this title. Peoplev'Gardiner, .Y.1867 48 Barb.608.45. Corporate apital


16/26

. A state ax on corporatecapital measued by federalsecuritiesmay be invalid even houghimposedwithout discriminationagainst he federarobligations.New JerseyRealty'Title Ins' co' v'Divisionof Tax Appeals n Dept.of TaxationandFinance f N'J'' U'S'N'J'1950'70 S'Ct'413' 338u.s. 665, 4L.Ed.439.

An assessmentf thecapitalof abankwhichrefusedo payo" tht,fll-Td that ts capitalnotinvestedn rearestate onsisted f uniteJ i,u,., legar endernoteswassustained snot invadinganyright securedo it by the ederalconstitutionor laws. New orleanscanal& Bankingco v' city ofNewOrleans, .S.La.1l8,ggU'S'97,9 Otto97 25 L'Ed'409'A tax aidby astate onbanks,on avaluationequal o theamountof theircapitalstockpaid n'

or securedo bepaid n,', s atax onthepropenyof the nrtli.rtionand'when hatproperty onsists fstocks f the ederal overnment,he ari, ayini tfr"tax suoia' Nt* Yorkv' TaxCom'rs'N'Y'1865'69U.S.200,2Wa11.00,11L.Ed.93.Sel, so, Whitney ' Cityof Madison' 864' 3 nd'331'

BondsoftheUnitedStatesheldbyanationalbank.aspartofitscapitalcannotbetaxestate rundertsauthority. eard. p."pf"', iuui"g' eunk ig13' 101N'E--3?5' 3 nd'App'

185'See, lso,OldNat.Bankv. Berkeley orinty ourt,l905, 2S'E' 494'58W'Va' 559'

UnitedStatesbondsownedbyabankarepropertywhichtendstoenhancethevaluecapital tock, ndareproperly on_1qya n determiningthessessabrealueof its shares'NationalState ank . city of Burlington, 903,% N'W' 234,lrq o*u 696' See' lso', ecurity av 'Bank 'carroll,1905, 03N.W. 37g,l2growa230; irstNat.lJu. cityof Independence'904'99N'W'142,l23Iowa 82.

CapitalstockofabankorganizedunderActsl5thGen.Assem.Iowa,c.60,investedStates onds r securities,asnot iable o stateaxation'German-American

av'Bankv' city ofBurlington,owa1880, N'W' 105'54Iowa 09'

Laws1929c, 64,taxingmoneys ndcredits ndmoneyedapita^l-wasot nvalidas axingsharesf state anking orporation,"r;t;..ause of theito*""trrrip of UnitedStates ecurities' ankof Miles ity v. custer ounty,Mont.19j319 P.2d 85, 3Mont.291.

As former sec.742of his itle,whichexemptedublicsecuritiesf general overnment.fromtaxationwassupfemeaw of land,underu.s.c.A.const.Art. 6, cr.2,states erewithoutauthorityotaxproperty f state anksor rrrorr"y"Jcapital onsisting ito"at of theUnitedStates'houghsuchbondswerenotexpresslyxemptedyMont.cons]'1tr 12,

S"t' 2' Rev'cod s1921,Sec'1998 EastHelena tate a#u. Roge's,vtont'tqZS236P' 1090'73Mont'210'

Wherestate 'underConst.Art. |2,Sec.lT,couldnottaxbothsharesofstockonstindividualshareholders,nd o bank tself,by choosingo iax propertyof bank tself it cannotax ts. propertywhich s invesiedn bonds f UnitedStates. ustH"it"u Stut"Bankv' Rogers'Mont'1925'236P.1090, 3Mont'210'

Taxassessor,sormula or determiningropertyaxeso beassessednbanks iolatedederalaw in that t took nto account, t east ndire-ctiy,ederalobligationshatconstituted artof baflks'


17/26

assets,whereassessor omputed ax by determining otal amountof capital assetsof eachbank andsubtracting rom that figure only bank's iabilities and assessedalue of real estateowned by bank.CharlesSchreinerBank,of Kerrville v. Kerrville Independent choolDist., Tex.App.-SanAntonio1984,683S.W.2d 66.

The Alabama evenue aw of 1868,exempting al l shares f the capitalstockof corporationswhich are equired o list their property or taxation,"did not apply o shares f the stock of a nationalbank whosecapitalconsistedmainly, if not entirely,of United States onds,which the corporationwasno trequiredo list for taxation.Mclver v. Robinson, Ia.187553 Ala. 456.

Capital of a private banking firm, constantlyabsorbed n someform of governmentsecurities y resaleand repurchase, as exempt rom stateand municipal axation. City of Chicagov.Lunt,1869,52IlI.414.A bank,which claims that aportion of its capital s investedn United States onds,stocks,orcuffency,must show affirmatively the exact amountof its capital so invested; otherwise,suchcapital

will not be exempt rom taxation. City of New Orleans . New OrleansCanal& BankingCo., 1877,29La.Ann.851,affirmed99U.S. 97, 25 L.Ed. 409.The capital of a private bank invested n United Statesbonds s not taxableby the state. Stateex rel.Davisv. Rogers, 883, 9Mo.283.While it is true thatUnited States onds,as such,cannotbe taxedby a state, t is also ruethat

the sharesof the capital stock of a corporation can be taxedat their true value, althoughpart or thewhole of suchcapitalmay be invested n suchbonds. St.Louis Building & Sav. Ass'nv. Lightner,187147 Mo. 393.

Where the offrcers of a bank furnish the assessorwith the namesof the shareholders,ogetherwith the amountof stock heldby each, heir shares houldbe soassesseds o cover he value of theirbonds,and t will be the duty of their officers o pay he tax on behalf of the shareholders.St.LouisBuilding& Sav.Ass'nv. Lightner,I87l,47 Mo.393.Where apart of the capitalstock of a corporationwas nvestedn the bondsof the United States,anda tax was eviedupon this part of the capitalstockseparately nder he name of "shares f stock nincorporated ompanies,"he assessment as against he corporationn respectof its capitalstock,andwas llegal. St .Louis Bldg.& Sav.Ass'nv. Lightner,1868,42Mo.421.Theprinciple hat he capitalof an ncorporated ompany s, when nvested n bondsor othersecurities f the United States, xempt rom state axation,unless here s an express ongressionalpermissiono tax the same, s clearly established.Mutual Life & Casualty ns. Co. v. Haight, 1870,34

N.J.Law128.5Vroom 128.' A shareholdern a bankwhosecapital s invested n government ecuritiess not a holderofsuchsecurities, nd anassessmentponhis sharess not an assessmentf the securities eld by thebank. People . Assessors f Town of Barton,N.Y.1861,44Barb.148,29 How.Prac.37l.


18/26

A foreigncorporations not liableto be taxed or anyportionof its capital nvested n the stockof the United States. nternationalLife Assur.Soc.v. Commissioners f Taxes,N.Y.1858, 28 Barb.318.17How.Prac. 06.46. Debtsowing by United States

GNMA mortgage-backed ecuritieswere not "obligationsof the United States"exemptfrom advalorem ax. RockfordLife Ins.Co. v. Department f Revenue,11.1986,492 .E.2d 1278,97 ll.Dec.405,l12Il l.2dl74,probable urisdictionnoted 07S.Ct.430,479tJ.5.947, 93L.8d.2d380, ff irmed107S.Ct. 3t2,482U.S.182, 6 L.Ed.2d 52.An unpaidbalanceof a debt owedon account rom the United Stateson a fully performedwarcontractwas not taxableunderGreaterNew York CharterandMcKinney'sN.Y.Tax Law Sec.12, astaxationby the statewould have hindered he exercise f the federalgovernment's onstitutionalpowers o borrowmoneyon the creditof the United States,o declarewar, and o raiseand supportarmies; that was rue,notwithstandingormer Sec.742of this title was of doubtful application.Peopleex rel.Astoria ight,Heat& PowerCo.v. Cantor, .Y.1923, 41N.E. 901,236N.Y. 417.

47. Gold and silver certificatesNotesand gold and silver certificatesof the United Statesare not taxable by or under theauthorityof any state,without the permissionof the United States. Statev. Mayor of City of Newark,N.J.En. App.1899,44 .654,63 N.J.L.547.

48. Income ax refundclaimsUnder ormer Sec.742of this title "otherobligations"did not include claim of corporationlisted asasset n its books againstUnited States or refund of federal ncome axeson accountofacceleratedepreciation f war facility whetheramountwas agreed pon or not so as o exemptclaimfrom inter countypersonalproperty ax. GliddenCo. v. Glander,Ohio 1949,86 N.E.2d 1, I 5 Ohio St.344 .39 .O. 184 .

49. InterestIntereston federalobligation s "considered"n state axation, or purposes ffederal statutoryexemption rom state axation,when that nterest s included n computing axpayer's et incomeorearningsor purposeof income ax or the like. NebraskaDept. of Revenue . Loewenstein,

U.S.Neb.1994,15S.Ct.557,130L.Ed.2d 70.

Formersection 742of thistitleproviding hat,exceptasotherwiseprovidedby law, all stocks,bonds,Treasury otesandother obligationsof the United States hallbe exempt rom taxationby orunderstateor municipalor local authorityapplied o income n form of interestearnedby bank onvarious ederalobligations,primarily notesandbills of the United StatesTreasuryand obligationsoffederal reditbanks.MemphisBank & TrustCo. v. Garner,U.S.Tenn.1983, 03 S.Ct.692,459U.S.392.74L.Ed.2d562.


19/26

' FormerSec.742 of this title which generallyexemptednterestbearingobligationsof theUnited States rom stateand local taxation alsoexemptedaccruedbut unpaid interest on federalsecurities.New JerseyRealty.Title Ins. Co. v. Division of Tax Appeals n Dept. of TaxationandFinance f N.J . ,U.S.N.J.1950,70.Ct. 13,338U.S.665,94L.Bd.439.Taxpayerwas not required o pay state ncome ax with respect o proceedseceived rom

investment rust for short-termUnited States overnment ecurities,epresenting ass hroughofinterestncome eceivedby trust directly from United States overnment.Comptrollerof the Treasury,IncomeTax Div. v. FirstUnitedBank& Trust,Md. 1990,578A.2d I92, 320Md. 352.Interestearnedby taxpayeron investmentn retirement und which investedsolely n federalobligationswas ncomederived rom federalobligationsand as such,wasexempt rom state axation.Keysv. VermontDept.of Taxes,Vt.1987,552A.2d 418,149Vt. 658,certiorari enied108S.Ct.1596,485U.S.1035. 9 L.Ed.2d9rr .Paymentsby borrower pursuant o repurchase greementnvolving borrower'sconveyanceof

federalobligation to trust and trust'sreconveyance f obligation in future were not interestderivedfromfederalobligationand were subject o state axation. In re ThomasC. SawyerEstate,Yt.I987,546A.2d784, 49 Vt.54L

Statewas not prohibited, by doctrine of intergovernmentalmmunity, from including interestreceivedon FederalHome Loan Banks consolidated onds n calculatingbank'snet income or purposeof nondiscriminatoryranchise ax on financial nstitutions; statewas not taxing bondsor interestonthem,but ratherprivilegeof doing business s inancial nstitution n corporate orm in state,with taxmeasured y net ncomewhich included ntereston federalobligations. StateDept. of AssessmentsndTaxation . MarylandNat. Bank,Md.1987,531A.2d294,310 Md. 664,appeal ismissed 08S.Ct.2812 ,486 .S .1048 , 00 .Ed .2d9 l3 .

State's orporation business ax was nondiscriminatorywithin intent of federalpublic debtstatuteso as o permit tax to include interest ncome of federalobligations in the net incomebaseandfacevalue of theobligations n the net worth base. GarfieldTrust Co. v. Director,Div. of Taxation,N.J.1986,508.2d 1104,102N.J.420,ppeal ismissed07S.Ct. 90,479U.S.925,93L.F,d.2d345

Inclusion of interestderived from, andproceeds rom corporation'ssale of, tax exemptUnitedStates overnment bligations n the allocation ormulaused o measure orporation's et ncomesubject o tax by statewas mpermissible, n light of fact that t involved an ndirect evy of tax on tax-exempt ederal ecurities. ederalProductsCorp.v. Norberg,R.I.1981429 A.2d 441

Corporationwhich had entered nto agreement ith bankby which bank soldUnited StatesTreasuryBills andNotes o corporation rom its portfolio andcorporationsimultaneously greedoresell them to bank at agreed-uponprice and on certaindatewith bank paying corporation nterestwas'not "owner"of the securities, owas not entitled o exemption rom state ncome ax for interestincomeearned ursuanto repurchase greement.HammondLeadProducts,nc. v. Stateof Ind. TaxCom'rs, Ind.1991,75N.E.2d 98.


20/26

. Wherecorporationentered nto agreementwith bank wherebybank sold United StatesTreasurybills and notes o corporation rom its portfolio andcorporation imultaneously greed o resell hem tobank at agreed-upon rice and on certaindatewith bankpaying corporation nterest at fixed rate forperiodbetweenoriginalsaleandrepurchase,orporationwas not entitled o exemption rom stateincome axes or interest ncomeearnedpursuanto repurchase greement; epurchase greement as,in effect,a collateralizedoan because orporationdid not bearany risk of market luctuationsandcouldnot sell he securitieso third parties, nterest ate on United States bligationswas not materialto computationof tax on corporation's nterest ncome,and corporationfailed to prove that any burdenon United States reasuryexisted f exemptionwas denied. HammondLead Products, nc. v. StateofInd. Tax Com'rs, nd.Tax1990,549N.E.2d424, affirmed575N.E.2d998.Tax-exempt nterest ncome on obligationsof the United Statescould not be taken intoconsiderationn apportioningtaxpayer bank's axable ncome under formula utilized to determineportionof financial nstitution'smultistatebusinessncomewhich could be taxed by Illinois.ContinentalllinoisNat. Bank andTrust Co.of Chicago . Lenckos , 11.1984,64 N.E.2d1064,80Il l .Dec. 1,102111.2d210,ertiorari enied 05S.Ct. 96,469U.S.918,83 L.Ed.2d231.

Interestearnedon governmentnationalmortgageassociation ertificateswas neitherconstitutionallymmune rom state axationnor did it constituteotherobligationsof United States othat it wasnot exemptfrom state axation under this section. Farmers& Traders StateBank v.Johnson,ll.App.4 Dist.1984, 58N.E.2d1365, 6 Il l .Dec.565,l2l I l l .App.3d 3.

Section745 of Title 48 exemptingPuertoRican bonds rom federalor state axation ncludedbyimplication he sameexceptioncontained n former Sec.742of this title which exemptedobligationsofthe United States rom taxation, hat suchobligationswere exempt "exceptas otherwiseprovidedbylaw;" therefore,nterest eceivedby bankon Puerto ucan bondsheld by the bankwas ncludable n itstaxablenet ncome or purposes f the computationof the bankexcise ax, underM.S.A. Sec.290.08,subd.1,providing hat the statestatutoryexemption rom taxation or obligationsof the United Statesand ts possessionsasnot applicableo corporationsaxable nderM.S.A. Sec.290.361.RochesterBank& TrustCo. v. Commissioner f Revenue,Minn.1981,305N.W.2d 776.

Even f federalpublic debt statuteexceptsonly onestate ranchise ax from its prohibition onstateor local axationoffederal obligations,statecorporationexcise ax could be applied o interestearned n federalobligations,where second tate ranchiseax was basedon amountof capitalstockauthorizedn corporation's rticlesof incorporation, ather han on interestearnedon federalobligations.PacificFirst FederalSav.Bank v. Department f Revenue,Stateof Or., Or.1989,779P.2d1033, 08Or.332.

Interest ncome from niutual fund derived from interestpaid by federalgovemment o fund onsecurities f theUnited Stateswas not subject o state ncome axationwhen passed n to holders ofund. Borg v. Department f Revenue, tateof Or., Or.1989, 74P.2d 1099,308 Or.34.Provisionsor in lieu bank axesunder68 O.S.1981 ecs. 370 and237l, which specificallyexcluded nterestncomeearnedon stateand ocalobligations rom taxable ncome,did not likewiseexcludenterestncome rom federalobligations, nd husviolated31 U.S.C (1976Ed.) Sec.742, 'which barsa tax regardless f its form if federalobligationsareconsideredn computing he tax, and


21/26

alsoviolatedU.S.C.A.Const.Art. 1, Sec.8, cl. 2 (the"BorrowingClause") ndArt. 6, cl-2 (the"supremacyClause").irstofMcAlesterCorp.v.OklahomaTaxCom'n,Ok1a.1985,709P.2d1026'

Interest ncomereceived by taxpayerson exemptfederalobligationswas not includable n netincome or purposes f calculatingMontanacorporationicense ax, MCA 15-31-101'First FederalSav.andLoan Ass'nv. Departmentof Revenue,Mont.1982,654P 2d 496,200Mont. 358,certioraridenied103 S.Ct.3128.462 U.5. 1144,77 L.Ed.2d 378.

Interestncome rom obligations ssuedby FederalNationalMortgageAssociationandGovernmentNationalMortgageAssociationwas subject o stateexcise axation. First TennesseeBank,N.A. Chattanooga. Olsen,Tenn. 987,736 S'W.2d601.

The interest esbonds xable sta not havebeende tax e a

rncome nited S ':did s taxa ediateid in f the bo State714.115Tenn.52.49A. DeterminingownershiP

In determiningownershipof federalobligationson which owner would be entitled to exemptionfrom state ncome tax for interestreceived, o,rrt -uy considerwhetherparty claiming ownershipbearsrisk of marketfluctuations,whetherthat party has ability to sell securities o third party, whetherselleror United StatesGovemmentpays nterest ncome,andwhetherobligationsmustbe consideredncomputing ax. HammondLeadProducts,nc. v. Stateof Ind. Tax Com'rs, nd.199I, 575 N'E'2d 998

50.Moneyborrowed n obligationsMoneyborrowedon government onds s liableto taxation. Peoplev. Assessors f Town of

Flushing,1886,3 N.Y.St.Rep.148.5 1 Mortgages--Generally

Arrangement,whereby successfulbidder on military housingproject becamesolestockholderofcorporationswhich obtained .ur., of federal andandgavemortgages nderSec' 1748et seq'of Titlel2 in orderto procure necessary rivate financing for constructionof project with paymentofmortgagesguaranteed y United States,was designed o relieve governmentof obligation to providehousing orits military personnelandat same ime avoid ncreasinghe nationaldebt,government idnot pledge ts credit n the usualsense nd mortgageswerenot exempt rom mortgage ecording axunder ormerSec.742 f this title. S.S.Silberblatt,nc. v. Tax Commission f Stateof N'Y',N.y.1959,159N.E.2d195,186N.Y.S.2 646,5N.Y.2d635,certiorari enied 0 S.Ct.253,361U'S'9 r2 ,4 L .Ed .2d 83 .

Wherecontractor,who was successful idderon military housingproject,wassolestockholderof corporationswhich obtained eases f federal andandgavemortgages nderSec.1748er seq'of

t of thw.


22/26

Titre 12 n orderto procurenecessary rivate financing for constructionof project with mortgagepaymentsguaranteeJfy United States, t would not be assumed,n absenceof statute' hat thegovernmentunctionwas nvolved,so as o exemptmortgag"' f'o* N:yI":\mortgage recording ax'S.S.Silberblatt,Inc.. Tax Commission f state f N.y', N'y'tgsq' 159N'E"2d195'186N'Y'S'2d646,5N.Y.2d 35,certiorari enied 0 S.Ct.253,361U.S. 12,4 L.Ed.2d183.

where contractor,who was successful idderon military housingproject'wassolestockholderof corporationswhich obtained eases f federal andandgavemortgageiunderSec' 1748et seq'ofTitre 12 n orderto procurenecessary rivate financing for constructionof project with mortgagepaymentsguaranteed y united states,contractorand corporatemortgagorswere not exemptfrom stateand ocal taxation or statemortgage ecordingtax as nstrumentalitiesof federal governmentor ltsagencies, otwithstanding act that all oi.upi,ut stockof eachcorporationwould ultimately be ownedby federal ovemment.5.S.Silberblatt,nc. v' Tax Commissiontf Stuttof N'Y'' N'Y'1959' 159N.E.2d195,186N.Y.S.2d 646,SN.v.ia 635,certiorari eniea 0 S'Ct ' 253'361U'S' 912' 4L'Ed:d18 3 .52. ----Mortgageassociationcertificates

Instruments ommonlyknown as ,'GinnieMaes," ssuedby private inancial nstitutionsandguaranteed y GovemmentNational lvtortgageAssociationwere fundamentallydifferent fromsecuritiesspecified n tax immunity statuti and thuswerenot exemptfrom state axation as "otherobligationsof theunited States',; t was sru., of certificatehatboie primaryobligation o maketimely payments,United States u, grrtu*or only, not obiigo'' Rockiord Life Ins' Co' v' Illinois

Dept'of Revenue, .S.Ill '19 7 107S'Ct'23 12' 482U'S' 182'96L'Ed'zd 152'

Interestearnedon federarnationarmortgageassociationcertificateswas not constitutionallyexemptfrom state axation nor did it constitut"-ott", obligationsof the Yiit:9 States

so that it was notstatutorilyexemptfrom state axation, in that certificates td;;i t"--i:^illing

promiseby the UnitedStateso pay specifiedsumsat specifredimes, heydid not havecongressional uthorizatton ledgingfuIl faith andcredit of the united states n supportof p,o-i'" to pay'-andcertif,rcateswerenot used osecurecredit for government,but a *""t ptiuut" "unt-11fso that governmentcredit would

not benecessary.arm.rs& TradersStateBanku. loft rron, ll'App' + ilst'tgg+' 458 N'E'2d 1365'76I l l .Dec.565,l2l I l l .APP'3d 3'

Governmentnationalmortgageassociationcertificateswere not constitutionally immune fromstate,s apitalstock ax andwerenot l,otherobligationsof theUnited states"within meaningof formerSec.742of his title which provided hat,excepiasotherwiseprovidedby laY' alt s1c-\s'-!l1|^tl

treasurynotesandotherobligationsof united States .r..*.-pt from taxationby state,municipalor

rocalauthority, n right of fact that guarantyof the united States o pay the certificateson default byissuerwas not a binding promise and that certificateswere not issuedby governmentagency o borrowmoneyon credit of Uniied States o financean essentialgou"tnrn""J{fu":11"n' MontgomeryWardLife Ins.Co. v. State,Dept.of LocalGovernment ffairi Ill 'App' 1 Dist'1980'411 N'E'2d 973'44- Ill.Dec.607,89 lLAPP3d292'

Factthat Departmentof Local GovernmentAffairs publishedassessment tandardsn effecterroneouslyndicating that governmentnationalmortgageassociationcertificateswere exemptfrom


23/26

state's apitalstock ax would not precludea subsequentorrectionof the error and axationof theproperty, hough it was assertedhat investmentcommunityhad relied on suchexemption.MontgomeryWardLife Ins. Co. v. State,Dept.of Local GovernmentAffairs, Ill.App. I Dist.l980, 4l IN.E.2d973,44 Ill.Dec.607,89 lll.App.3d292.52A. Mutual fund income

Interest ncome earnedby mutual funds from repurchase greementsnvolving federalsecuritieswas not intereston "obligationsof the United StatesGovernment,"or purposes f federalstatutoryexemption rom taxationby states, ut insteadwas ntereston loans rom mutual funds o seller-borrower.Nebraska ept.of Revenue . Loewenstein, .S.Neb.1994,15 S.Ct. 557,130L.Ed,.2d 70.Trustwhich invested n short erm federalsecurities nd repurchase greementsnvolvingfederalsecurities id not actuallyown the securities, nd, hus,neithersupremacy lausenorconstitutional rohibitionagainststate axation equiringobligationof governmentor interestonobligationof governmento be consideredn computing ax applied o preventState rom taxing theincomederived rom repurchase greements.Everettv. State,Dept.of Revenueand Finance, owa1991.470 .W.2d13.Mutual fund dividendswhich were directly attributable o income from the United Statestreasury otesandbondswere exempt rom state ncome axation. Yurista v. Commissioner fRevenue,Minn.1990,460N.W.2d24 .Mutual fund income derived from repurchase greements, nder which sellersother than theUnited Statessold United Statesobligationsto mutual fund and simultaneouslyagreed o repurchasesameor similar securities t a price that ncluded nterestduringperiodof sale,was axable o holdersof fund even houghsecuritieswould be tax exempt f incomewerepaid directly by federalgovernment. org v. Department f Revenue, tate f Or., Or.1989, 74P.2d 1099,308 Or.34.

53 .NationalbanknotesAct June30,1864,c. 172,13Stat.218, ncorporatedn part n former Sec.742of this itle,which declaredhat all bonds, reasurynotes,andotherobligationsof the United States houldhavebeenexempt rom state axation,and hat the words"obligationor other securityof the United States"meantall bonds,nationalcurrency,United States otes,and other representationsf value which mayhavebeenor may be ssuedunderany Act of Congress, id not exempt he notesof nationalbanks romstate axation. Boardof Com'rsof MontgomeryCountyv. Elston, nd.1869, 32 Ind,. 7 2 Am.Rep.327.

53A. Federaleserve otesFederal eservenotesarenot federalobligationswithin meaningof exemption rom statet'axationor federalobligations; like other ypesof United States urency, federal eservenotesarelegal ender or al l debts,public charges,axes,and dues. Richeyv. IndianaDept. of StateRevenue,Ind.Tax1994,634 .E.2d1375.


24/26

54. Openaccount laimsAn openaccountclaim against he United Statesdoesnot representa "credit instrumentality ofthe United States"within constitutional immunity from stateand local taxation of all properties,functions,and nstrumentalities f the federalgovernment.Smithv. Davis, U.S.Ga.1944,65 S.Ct. 157,323U.S .11 , 8 9L .Ed .107 .

FormerSec.742of this title did not apply o an openaccountclaim of a creditorof UnitedStates.Smith . Davis,U.S.Ga.1944,5 S.Ct.157,323U.S. 111,89 L.Ed.107.55.Propertyobtainedby pledgeor obligations

Thoughgovernmentbonds are not subject o taxation, the money or propertyobtainedby apledgeof suchbonds s subject o taxation. Hooperv. State,A1a.1904,37So. 662, 141Ala. I I 1.56. Stock

Georgiastatute mposing propertytax on fair marketvalue of sharesof bank stockholders,asconstruedby GeorgiaSupremeCourt, to allow bank to deduct rom net worth not full value of UnitedStates bligations t heldbut, rather,only percentage f fair obligationsattributableo assets, id notviolaterevenue tatuteproviding for exemption rom stateor local taxationof obligationsof UnitedStates.FirstNat. Bankof Atlantav. BartowCountyBd. of Tax Assessors, .S.Ga.1985, 05S.Ct.1516,470 .S.583,84L.Ed.2d 35.

Exemptionof all stocks,bonds, reasury otesandotherobligationsof United Statesrom everyform of taxation hat would require hat either he obligationsor the interest hereon,or both, beconsidered, irectlyor indirectly, n computationof tax, barsall such axes, egardless f their form.AmericanBankandTrustCo . v. DallasCounty,U.S.Tex.1983, 03S.Ct.3369,463 U.S. 855,77L.Ed.2d1072,rehearingenied104S.Ct.39,463U.S.1250, 7 L.Ed.2d1457, nremand 79S.W.2ds66.

Stock and securities ssuedby the United Statesunderthe power to borrow money are exemptfrom taxation.Weston . City of Charleston, .C. 829,21 J 5. 449,2Pet.449,7 L.Ed.481 See,also,New York ex rel. N.Y. Nat. Bkg. Ass'nv. Connelly,N.Y.1869,7 Wall. 16,19 L.Ed.57; HamiltonMfg. Co. v. Massachusetts,ass.1868, Wall. 632,18L.Ed. 904; Bank of Commonwealth .Commissionerf Taxes, 863, Black 635,67U.S.635 note), 7 L.Ed.456; Bankof Commerce.C i t yandCoun tyo fNewYork ,N .Y . lS63 ,6T.S .620 ,2B |ack620 ,17.Ed .451 ;Cano l l v .Per ry ,C.C.Mich.1845, ed.Cas. o. 2,456; FirstNat. Bank v. Boardof Equalization f IndependenceCounty, 909, 22 S.W.988,91 Ark. 335; Cityof Madison . Whitney,1863, l Ind.26l;Commonwealthv. orrison,1819,9Ky.75,2 A.K.Marsh.75;Cityof Pittsburghv. irstNat.Bank,1867,55Pa.45,5P. F. Smith45; NewarkCityBank v.Assessorof ourthWardofCityofNewark,1862,30N.J.Law 13,1 Vroom 13; People . Boardof Com'rsof TaxesandAssessmentsor City andCountyof New York, N.Y.1870,41How.Prac. 59; MonroeCountySav.Bank v. City of Rochester,1867,37N.Y. 365; People . Commissionersf TaxesandAssessmentsor City and Countyof NewYork. N.Y.1863.25 How.Prac. .


25/26

A tax itpo-1t9 by a law of anystate,or under he authorityof sucha law, on stock ssued orloansmade o theYttlt-a!*es, is repugnanto the constitution. weston v. charleston,S.c. lg2g,27U'S' 449'2Pet' 449,7L'Ed' 481. See, lso,People . Taxcom'rs,N.y. l g63,2Black 620,17 .Ed.451 .when a tax is assessedn the marketvalueof sharesn a statebankingcorporation,a specificdeduction or federalsecurities eld by the bank s not necessarilyequiredas he valueofthe shares fstockhaveno fixed or necessaryelation o,thecompany's ssets;marketvaluemay be determined ysuch actorsas he experience nd ability.of the-*ug."*nt, generaleconomicprospectsn thecommunity'andsellingpricesof altemative_investm#,yi.tairrg comparableeturnswith comparablesafety' AmericanBank andTrust co. v. Dallascounty, Tex.App.-Dallasgg4, 679s.w.2d 566.

57. Treasurychecksand ordersunited StatesTreasurychecksor orders ssued or interestaccruedupon registeredbondsof theUnited Stateswere ntended or immediatepayments nJcould havebeen axedby a state n thehandsof the ownerwithout havingviolated ormer sec.742of this title. HiberniaSav.Bank & Loan Soc.v.ci ty andcountyof SanFrancisco, .S.cal.1906,26 .ct. 265,200u.s. 310,50L.Ed. 4g5,4

Am.Ann.Cas.934.Checksor ordersof the Treasurer f the united States ayableon demandarenot within thereasonand scopeof the rule forbidding such axationby the statesas may tend to destroy he powersofthenationalgovernment r impair their efficiency. Hibemia Sav.& Loan Soc.v. city andcounty ofsan Francisco,al . 1903 72 P. 920,139 cal. 20i, affirmed 6 S.ct. 265,200u.s. 310,50 L.Ed. 4g5,Am.Ann.Cas.934.The words "and other obligations" read n connectionwith the context ,,stocks,bonds, reasurynotes" ncludeonly obligationsof the government imilar n charactero thosespecificallynamedandgivenunder he generalpowerto bonow moneyon thecreditof the united States, nd o issueandreturn hereforobligationsn anyappropriateorm, and heydo not includechecksgiven n paymentofsuchobligations'HiberniaSav.& LoanSoc.v. City andcfunty of SanFrancisco, al.1903,72 p. 920,139cal. 205,affirmed 6 s.ct. 265,200 u.s. 3 r0, 50L.Ed. 495,4Am.Ann cas. 934.

58.Treasury otesUnitedstates otes ssued nderActs Feb.25, lg62,c. 33, 12 Stat.345,and,Mar. , 1g63, .73' 12 stat' 709, ntended o circulateasmoney,andactuallyhavingconstituted,with the nationalbanknotes' he ordinarycirculatingmediumof the country,weremoreover,obligationsof the nationalgovernment, ndexempt rom state axation. Peopleof Stateof New yorklx rel Bank of New york v.Boardof Sup'rs f New york county,U.S.N.y. gos,74 u.s. 26, g L.Ed. 60,7 wall. 26 .Money in the handsof otherssubject o draft is a credit due a bank, and is not exemptthough!h-emoneyoriginallydepositedmay havebeenTreasury otes. Griffin v. Heard,Tex.1g90,14 S.w.892,78Tex.607.Gold coin andunited StatesTreasurynoteson deposit n New york city werenot subject o


26/26

taxationunder he Alabama evenue aw of 1868. Vamer v. Calhoun,Ala. 1872,48 Ala. 178.United StatesTreasurynotes,popularly known as "greenbacks,"were not liable to statetaxation. Boardof Com'rsof MontgomeryCountyv. Elston, nd.l869, 32Ind. 27 2 Am.Rep.327

59. Miscellaneous bligationsor property

Bank sharesax imposedon nationalbank violated his sectionexemptingobligationsof UnitedStatesrom taxationby or under stateauthoritywhere ax wascomputedon basisof equitycapitalandwhereequity capitalwasdeterminedn partby bank'sownershipof United Statesobligations.DaleNat.Bankv. Com.,Pa.1983, 65A.2d965,502Pa.170.

Federalstatutoryexemption rom state axationof stocksand obligationsof the United StatesGovemmentdid not prohibit state rom taxing dividend incomederived from repurchaseagreementsinvolving ederal ecurities.Bewleyv. Franchise ax Bd.,CaI.1995, 86P.2d 1292,37Cal.Rptr.2d298,9 Cal.4th 26.

Congress id not intend or former Sec.742of this title, as amended,o withdraw in anyrespectits consento state axation of nationalor statebankshares.Bank of Texasv. Childs,Tex.Civ'App.-Dallas1981,615 S.W.2d810, ef. n.r.e., njunctiongranted 34 S.W.2d2, certiorari rantedn part 103S.Ct. 91, 59U.S.966,74L.Ed.2d276,reversed03S.Ct. 369, 63U.S.855,71 .Ed.2d 072,rehearing enied104S.Ct.39,463U.S. 1250,77 L.Ed.2d1457,onremand679 S.W.2d566.

Nonpropertyexcise ax on privilegeof operating ankor savingsassociationwithin the statewas a franchise ax contemplated y exception o statute rohibiting axationof United Statesobligationsby the states.Departmentof Revenue . FirstUnion Nat. Bank of Florida,Fla'1987,513So.2d114, ppeal ismissed 08S.Ct.1253,485U.S.949,99L.Ed.2d 08.60. Bank earnings

T.C.A. Sec.67-751 mposing ax on net earnings f banksdoingbusinessn statewhich definesnet eamingsas ncluding nterest eceivedon obligationsof the United Statesand ts instrumentalitiesandobligationsof other states, ut not interestearned n obligationsof Tennesseend ts politicalsubdivision,discriminates in favor of securities ssuedby Tennessee nd its political subdivisionand against ederal obliqations and. therefore. Tennessee ank tax impermissiblv discriminatesasainst federal sovernment and thosewith whom it deals. MemphisBank & Trust Co. v. Garner,U.S.Tenn.983, 03S.Ct.692,459U.S. 392,74 L.Ed.2d562.61 . Socialsecurity enefits

"Obligations." fo r purposesof federalstatutestating hat stocksand obligationsof UnitedStatesGovernmentare exempt rom taxation by stateor political subdivisionof statewereinvestmentsecurities. ather than government'sdutv to pay socialsecuritv benefitsand thus.suchstatutedid not precludestate rom imposing ncome ax on socialsecurifvbenefits eportedas ederal axable ncome. Boersmav. Karnes.Neb.1988. 17 N.W.2d 341"227 Neb.329.aDDeal

Documents

Carl Miller Taxation k216