Mississippi State Tax Comm. v. Brown

DISSENTING OPINION. As will hereinafter appear, I am in accord with much that is said in the opinion of my Brother ETHRIDGE.

The record presents three questions:

1. Does Chapter 120, Laws 1934, require dividends on shares of stock in a national bank to be included in an assessment of the owner's income for taxation? Should that question be answered in the affirmative, then.

2. Does Section 548, Tit. 12 U.S.C.A., permit this to be done? Should that question be answered in the negative, then

3. Is the permission of Congress necessary to enable a state to include dividends on shares of stock in a national bank in the assessment of the owner's income for taxation?

Ordinarily, these questions should be discussed in the order in which I have stated them, but, for convenience, the first will be discussed last.

First. Section 548, Tit. 12 U.S.C.A., not only does not permit, but forbids, the inclusion of dividends on shares in a national bank by the State of Mississippi in the taxable income of the owner.

This statute assumes, which assumption had at the time of its enactment a qualified approval by the courts (Graves v. People of State of New York ex rel. O'Keefe, 306 U.S. 466, 59 S. Ct. 595, 83 L. Ed. 927, 120 A.L.R. 1466), that a tax on income is a tax on the source from which the income is derived. It provides:

"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, except as hereinafter provided in subdivision (c) of this clause."

Mississippi taxes national and state banks on the shares of their stock, Section 3138, Code 1930, and cannot, therefore, under Section 548, Tit. 12 U.S.C.A., include dividends derived from their stock in the taxable income of an owner or holder thereof, unless permission so to do is given in subdivision (c) of Clause I of the statute, which reads as follows: "(c) In case of a tax on or according to or measured by the net income of an association, the taxing State may, except in case of a tax on net income, include the entire net income received from all sources, but the rate shall not be higher than the rate assessed upon other financial corporations nor higher than the highest of the rates assessed by the taxing State upon mercantile, manufacturing, and business corporations doing business within its limits: Provided, however, That a State which imposes a tax on or according to or measured by the net income of, or a franchise or excise tax on, financial, mercantile, manufacturing, and business corporations organized under its own laws or laws of other States and also imposes a tax upon the income of individuals, may include in such individual income dividends from national banking associations located within the State on condition that it also includes dividends from domestic corporations and may likewise include dividends from national banking associations located without the State on condition that it also includes dividends from foreign corporations, but at no higher rate than is imposed on dividends from such other corporations."

This subdivision of the statute does two things: (1) prohibits discrimination in taxation against national banks in favor of other financial, mercantile, manufacturing and business corporations; and (2) permits states taxing national banks in one of the ways provided by the preceding first paragraph of the section to include also, within the prescribed limitations, dividends from the shares of stock thereof in the taxable income of the owners.

Clause 1, in all of its provisions, seems to deal only with what a state can do when taxing national banks by the third and fourth method permitted by the first paragraph of the section, i.e., tax such associations on their net income, or according to or measured by their net income. When national banks are taxed, the proviso permits the state to include dividends from shares of their stock to be included in the taxable income of the owners thereof, provided the same course is pursued as to other corporations and their shareholders.

As hereinbefore stated, Mississippi (Chap. 120, Laws 1934) taxes national banks according to the first method provided by the statute, i.e., on their shares of stock, so that the proviso of subdivision (c) of Clause 1 seems not to here apply. But if it be said that the proviso applies also to the first method of taxing national banks provided by the statute, i.e., on their capital stock (it could not, of course, apply to the second method there provided, that is, include dividends from national bank stock in the taxable income of the owner thereof), the same result would be reached.

In order for a state which taxes national banks in one of four ways provided by the federal statute to include also dividends from their shares of stock in the taxable income of the owners thereof, three things must concur: (1) The state must impose "a tax on or according to or measured by the net income of, or a franchise or excise tax on, financial, mercantile, manufacturing, and business corporations organized under its own laws or laws of other States;" (2) must impose a tax on the income of individuals; and (3) include therein "dividends from domestic corporations," etc.

Chapter 120, Laws 1934, imposes an income tax on corporations, but does not include dividends from their shares of stock in the taxable income of the owners thereof. It is true that the statute includes dividends from national and state bank stocks in the taxable income of the owner thereof, but no income tax is imposed on the banks themselves; consequently the three conditions of the proviso of subdivision (c) of Clause 1 are not met thereby.

Second. The permission of Congress is not necessary to enable a state to include dividends from shares of stock in a national bank in the owner's taxable income. Nor has Congress the constitutional power to forbid a state to so do. That a tax on income is a tax on the source from which the income is derived had the qualified approval of the Supreme Court of the United States when this statute was enacted, but has since been unqualifiedly disapproved by that Court. Graves v. People of State of New York, ex rel. O'Keefe, supra, and authorities there cited, which accords with State ex rel. Knox v. Gulf, M. O.R. Co., 138 Miss. 70, 104 So. 689, and Compress of Union v. Stone, Chairman, State Tax Commission, Miss., 193 So. 329, recently decided by this Court but not yet reported.

The tax here under consideration being, therefore, not a tax on a national bank, or on its shares of stock, its imposition is for the determination of the state alone; and the fact that the income is derived from the shares of a national bank confers on Congress no power to interfere therewith.

Third. Section 3, Chapter 120, Laws 1934, imposes an income tax "upon the entire net income of every resident individual, corporation, association, trust or estate".

Section 14 of the statute exempts from the tax certain designated organizations, including national banks and state banks.

"The term net income means the gross income as defined hereunder, less the deductions allowed". Sec. 6, Chap. 120, Laws 1934. Gross Income "includes . . . dividends . . . of any business carried on for gain or profit . . ., and incomes derived from any source whatever". Sec. 7, Chap. 120, Laws 1934. It does not include "Income received during the taxable year as dividends from a corporation on which such corporation has already paid or is liable by assessment to pay an income tax." Sec. 7, par. (b) (8), Chap. 120, Laws 1934.

It thus appears that national and state banks are not taxed on their income, and, consequently, dividends on their shares of stock are to be included in the income of the owner thereof. Any doubt as to this disappears when the statute is examined in connection with its predecessor, Chap. 124, Code 1930. Paragraph (b) (8) of Section 5033 of that chapter provides that the term "gross income" does not include "Income received during the taxable year as dividends from a corporation on which such corporation has already paid or is liable by assessment to pay an income tax, or dividends from a national bank or state bankorganized under the laws of the state of Mississippi." (Italics supplied.) When the statute was re-enacted as Chapter 120, Laws 1934, this paragraph of Section 5033 of the Code became paragraph (b) (8) of Section 7 of Chapter 120, Laws 1934, and was amended by eliminating therefrom the words "or dividends from a national bank or state bank organized under the laws of the state of Mississippi".

But it is said that the Legislature knowing when the statute was enacted that the Supreme Court of the United States was then holding that a tax on income was a tax on the property from which it was derived, and interpreting Title 12, Sec. 548, U.S.C.A., to prohibit it from including dividends from shares in a national bank in the taxable income of the owner thereof, did not intend by Chapter 120, Laws 1934, to include such dividends in the taxable income of the owners of such shares.

I do not know what the Legislature here had in mind, except as disclosed by the words of the statute. My guess, which is all that anyone can venture, would be that it construed Tit. 12, Sec. 548, U.S.C.A., to permit the imposition of the tax, and acted accordingly.

The language of Chap. 120, Laws 1934, is plain and unambiguous. Income from state banks and national banks are dealt with together, by the same words in the same sentences, not separately. What the statute directs as to one, it directs also as to the other. And I know of no rule of construction which would permit the Court to hold that the statute was intended to apply to one and not the other — that it was intended to apply to income from shares in state banks but not to income from shares in national banks.

The State Tax Commission committed no error, in my opinion, in including dividends from the appellee's shares in a national bank in his taxable income, and the court below should have dismissed his petition seeking the annulment of this act of the Commission.

Griffith and Anderson, JJ., concur in this opinion.