Source: https://supreme.justia.com/cases/federal/us/294/199/case.html
Timestamp: 2016-10-24 08:54:46
Document Index: 630443736

Matched Legal Cases: ['§ 25', '§ 5219', '§ 320', '§ 5219', '§ 25', '§ 5219', '§ 5219', '§ 5219', '§ 5219']

Domenech v. National City Bank of New York (full text) :: 294 U.S. 199 (1935) :: Justia U.S. Supreme Court Center Log In
› Domenech v. National City Bank of New York
Domenech v. National City Bank of New York 294 U.S. 199 (1935)
U.S. Supreme CourtDomenech v. National City Bank of New York, 294 U.S. 199 (1935)Domenech v. National City Bank of New YorkNo. 386Argued January 15, 16, 1935Decided February 4, 1935294 U.S. 199CERTIORARI TO THE CIRCUIT COURT OF APPEALS
3. Puerto Rico, being a dependency of the United States, may not tax an agency of the United States, such as a national bank, except by the clear and explicit consent of Congress, and the general power of taxation conferred on the insular government cannot be construed as a consent. Pp. 294 U. S. 204-205. Page 294 U. S. 200
The respondent, a national banking association whose principal office and place of business is in New York, applied Page 294 U. S. 201 for and obtained authority to operate branches in Puerto Rico, pursuant to § 25 of the Federal Reserve Act as amended. [Footnote 1] In 1932, the bank, as required by local law, filed with the petitioner a sworn statement of assets as a basis of assessment for taxation. By request, but under protest, it attached a memorandum, stated to be for information only, in which was set forth the amount of its total assets, the sum of its capital, surplus, and undivided profits, the percentage the latter was of the former, and the value of the assets in Puerto Rico. The Treasurer considered the same percentage of the assets in Puerto Rico fairly represented the capital there employed. The amount thus ascertained was $2,439,200, which he divided into three items -- real property and buildings, $732,560, other personal property, $1,611,400, and tangible personal property, $95,240. Applying the statutory rate to $2,439,200, he fixed the tax at $62,122.98. Upon appeal, the Board of Equalization sustained the Treasurer's action. The bank voluntarily paid $17,700.24, the amount attributable to real property and buildings, but paid under protest the balance of $44,422.74 demanded in respect of the personal property, and brought suit in the United States District Court for Puerto Rico to recover the amount. Judgment in favor of the Treasurer was reversed by the Circuit Court of Appeals. We granted a writ of certiorari [Footnote 2] because the case involves the application and scope of acts of Congress and their effect upon the taxing power of insular possessions of the United States. [Footnote 3] Page 294 U. S. 202
Respondent concedes the competence of the island government to tax generally, [Footnote 4] but asserts that R.S. § 5219, as amended, [Footnote 5] prohibits a levy on the capital of a national bank. The further point is made that § 320 of the Political Code of Puerto Rico, [Footnote 6] to which the petitioner refers Page 294 U. S. 203 as his authority, does not justify the imposition of the tax in question. This the petitioner denies, and adds that the point was not presented below, and cannot therefore be mooted here. In addition to contending that § 5219 as amended never extended to Puerto Rico, he claims that, in any event, the section was rendered inoperative in the island by § 25 of the Federal Reserve Act, as amended. [Footnote 7] Page 294 U. S. 204
Taxation of a bank's branch is taxation of the bank itself. [Footnote 8] The system of national banks was intended to be coextensive with the territorial limits of the United States, and, while the consent to taxation given by § 5219 refers in terms only to the states, it extends also to territorial governments and sets the limits of their exercise of the power. [Footnote 9] The form of taxation here imposed is not permitted by the §. [Footnote 10] The organization of a national bank in Puerto Rico is within the contemplation of the National Banking Act, but, if there were doubt concerning the proposition, it finds support in legislation extending applicable laws of the United States to the island. [Footnote 11] Although the maintenance of branch banks is prohibited by the National Banking Act save under narrowly limited conditions, [Footnote 12] their establishment in foreign countries, dependencies, and insular possessions is authorized. [Footnote 13] Puerto Rico, an island possession, like a territory, is an agency of the federal government, having no independent sovereignty comparable to that of a state in virtue of which taxes may be levied. Authority to tax must be derived Page 294 U. S. 205 from the United States. But like a state, though for a different reason, such an agency may not tax a federal instrumentality. A state, though a sovereign, is precluded from so doing because the Constitution requires that there be no interference by a state with the powers granted to the federal government. [Footnote 14] A territory or a possession may not do so because the dependency may not tax its sovereign. True, the Congress may consent to such taxation, but the grant to the island of a general power to tax should not be construed as a consent. Nothing less than an act of Congress clearly and explicitly conferring the privilege will suffice. Not only do we find no such statutory consent, but we are confronted by R.S. § 5219, as amended, which proprio vigore extends to territories, and the congressional declaration that it, like other statutes of the United States, shall, if not locally inapplicable, [Footnote 15] apply to Puerto Rico.
The petitioner insists that this section is locally inapplicable for two reasons. The first is that the section was intended to apply only to taxation by the state, territory, or governmental agency within whose borders the bank has its principal place of business. The argument is that Puerto Rico cannot avail itself of the consent to the taxing of respondent's shares, or the dividends thereon, since the shares have no situs except New York, which is, in contemplation of law, the association's home. The position is that the section must be available in its entirety, or else wholly inapplicable. We think otherwise. If Puerto Rico can and does collect taxes of any of the types mentioned in R.S. § 5219, as amended, the mere fact that the situation prevents resort to one of the other kinds thereby Page 294 U. S. 206 permitted does not make the statute a nullity in the island. The record discloses that there has been assessed and collected a tax on the bank's local real estate, as permitted by paragraph 3 of R.S. § 5219, as amended, and in addition an income tax upon the local income, [Footnote 16] as permitted by paragraph 1(c). These seem to afford appropriate and equitable methods of taxation in respect of the association's local branches and business.
"* * * *" "(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."
"* * * *" "3. Nothing herein shall be construed to exempt the real property of associations from taxation in any State or in any subdivision thereof, to the same extent, according to its value, as other real property is taxed."