Opinion ID: 1835354
Heading Depth: 1
Heading Rank: 2

Heading: how is the value of branch banks' intangible property to be determined for tax purposes?

Text: There is no specific statutory guidance for evaluating the intangible assets of branch banks. Miss. Code Ann. § 27-35-37 (1972) directs the manner of assessment of such intangibles: At the time fixed by law for the assessment of banks, the person in charge of a branch bank shall furnish the assessor, under oath, a statement showing the amount of the capital of the parent bank employed by it, less that invested in real estate of the said branch bank, and the assessor shall assess it accordingly. The said real estate shall be assessed where situated as other real estate. The branch bank shall pay taxes, state, county and municipal, upon such assessment in the county where located, at the time and in the manner that banks are required by law to pay taxes. This shall not apply to agents who do not sell exchange, but simply make collections. The amount of capital so assessed against the branch bank shall be credited on the assessment of capital of the parent bank. Nothing in the foregoing section pertains to valuation. Miss. Code Ann. § 27-35-29 (1972) deals generally with valuation of property subject to ad valorem taxes. That section provides in pertinent part: It shall be the duty of each person fixing the value of his property to estimate the same at its cash value at the time of valuation, and not what it might sell for at a forced sale, but what he would be willing and would expect to accept for it if he were disposed to sell it. (Emphasis added.) This value is generally referred to as true value. Miss. Const. § 112, as amended; Washington County Bd. of Supervisors v. Greenville Mill, 437 So.2d 401 (Miss. 1983); State Tax Commission v. Fondren, 387 So.2d 712 (Miss. 1980). The intangible value of a unitary banking system, i.e., of a parent bank and all its branches viewed as one, can be determined simply enough. The difficulty lies in apportioning this value among the parent and its branches viewed separately. Where, as in the case sub judice, the parent and its branches are located in several counties, the intangible value of the entire system has no single situs, for intangible value by definition is an incorporeal asset. There must therefore be some device by which this intangible value is distributed among all the taxing districts occupied by the banking system. In this case, appellant relied on one valuation formula for meeting this need, and appellee relied on another.
In May, 1981, the State Tax Commission suggested a formula for evaluation of branch bank intangibles. This formula was printed on the Commission's Form 71-070, Assessment of Intangibles of Branch Banks, and was clearly labeled as a suggestion only: NOTE: The Tax Commission suggests that the capital assigned to branch banks be determined by applying the ratio that Book Value of real and personal property assessed to the branch bank bears to the Book Value of real and personal property owned by the bank and its branch banks, to the Net Value for Assessment Purposes computed on Form 71-068. This formula may be expressed algebraically as follows: LBP X PC = VI ___ AP LBP is local branch property, i.e., the value of the property of the branch bank(s) located in the assessing county. AP is all property, i.e., the value of all the property of the parent bank and all its branches regardless of location. PC is parent bank's capital, i.e., the assessed capital of the parent bank and all its branches as determined from Tax Commission Form 71-068. [2] VI is value of intangibles. Operation of this formula is simple. The property fraction yields a percentage. The PC figure is then multiplied by this percentage to yield figure VI which represents that portion of the intangible value of the banking system allocated to the assessing county. In the case at bar, the value of the property of appellee's Calhoun County branches was $212,857. The value of the property of the parent bank (appellee) and all its branches was $9,736,596. Under the formula, this yields a percentage of 2.19%. Figure PC, the parent's assessed capital, was $10,814,957. Multiplied by 2.19%, this yields a VI of $236,848. From this figure VI there is then subtracted for assessment purposes the value of the real estate held by the local branches and the value of the branches' tangible personalty, as these are taxed separately. See Miss. Code Ann. § 27-35-11, § 27-35-12. Combined, these subtracted amounts equal figure LBP. Thus, in this case, VI minus LBP equals $23,991, the value of appellee's Calhoun County Branch intangibles for purposes of assessment.
In the case at bar, the Calhoun County Tax Assessor employed an evaluation formula different from that suggested by the State Tax Commission. The Tax Assessor's formula was based upon deposits received rather than property held: LBD X PC = VI ___ AD LBD is local branch deposits, i.e., the value of all deposits made to the branch banks in the assessing county. AD is all deposits, i.e., the value of all deposits made to the parent bank and all its branches regardless of location. As with the Commission's suggested formula, PC is parent bank's assessed capital, and VI is value of intangibles. Deposits made to appellee's Calhoun County branches during the period in question totalled $30,909,000. Combined deposits made to the parent bank (appellee) and all its branches totalled $452,824,747. Under the Tax Assessor's formula, this yields a percentage of 6.83%. In the case at bar, the Tax Assessor used a percentage of 6.8%. Figure PC multiplied by 6.8% yields a VI of $735,417. As with the Commission formula, there is subtracted from this figure VI an amount equal to the Commission formula LBP. Thus, in this case, under the Calhoun County Tax Assessor's formula, VI minus LBP equals $522,560, the value of appellee's Calhoun County bank intangibles for purposes of assessment. [3]
It should be apparent from comparison of these two formulas that the parent bank and all its branches, when viewed as a whole, receive the same valuation under either formula. If the same formula is used for the parent and all its branches, then the adding together of every separate figure VI reached will equal figure PC. Since figure PC is the same in both formulas, the overall valuation reached under either formula is the same. What differs between the two formulas is the result in apportioning the overall valuation among the parent and all its branches. Under the Calhoun County formula, the valuation of appellee's Calhoun County branches is nearly 22 times greater than under the Tax Commission formula. However, the result is that if the Calhoun County formula is applied to appellee and its remaining branches elsewhere, valuation of some other branch or branches will necessarily be correspondingly lower than would have been the case under the Tax Commission formula. Again, this is because overall evaluation (figure PC) is the same under either formula. But notwithstanding this fact, the overall tax liability of appellee and all its branches, when viewed as a whole, may be substantially greater under the Calhoun County formula because the effect of the formula may be to transfer a substantial amount of value to the Calhoun County branches from branches in other counties with lower millage rates. The competing interests between the parties make clear the reason for the dispute over which formula to use. Each taxing county is vitally interested in employing the formula which determines it as the situs for the greatest possible portion of a bank's intangible value. Taxpayers such as appellee are equally interested in minimizing their tax liability by having as much of this intangible value as possible situated in counties with the lowest millage rates. The question is, therefore, how can the overall capital of the parent bank and all its branches be most equitably apportioned among the branches for valuation for tax purposes? The first major consideration in determining equitable apportionment of intangible value is selecting a valuation constant which will represent the entire intangible value of the parent bank and all its branches, e.g., figure PC in the two formulas discussed above. We think both the State Tax Commission formula and the Calhoun County Tax Assessor's formula are questionable in this respect. Figure PC, which is the valuation constant in both formulas, represents the total value of the parent's and all branches' stated capital and undivided profits. However, it is apparent from Tax Commission Form 71-068 that the Commission considers the value of the parent's and branches' real and personal property to be included in this figure PC. Indeed, appellee's Form 71-068 for the period in question indicates that real and personal property constituted 97% of figure PC. [4] Since this real and personal property is excluded from the tax imposed by § 27-35-37 and is instead taxed separately (§ 27-35-11, § 27-35-12), it is unclear why a formula to determine the assessed value for such a tax would base its valuation almost entirely on assets exempt from the tax on intangibles. It appears to us that the valuation constant should logically be figure PC less the value of the parent's and all its branches' real and personal property. Such a figure could be calculated with a reasonable amount of certainty. The valuation constant, or VC, could be expressed algebraically as follows: (SC + UP) - AP = VC SC is stated capital of the parent and all its branches. UP is undivided profits of the parent and all its branches. Each of these figures is ascertained from the combined balance sheet of the parent and all its branches. AP is all property, i.e., the value of all real and personal property owned by the parent and all its branches. This figure is reported to county and city assessors on State Tax Commission Form 71-069. Applied to appellee, this suggested approach would yield a valuation constant of $1,078,361: $ 6,702,980 (SC) + 4,111,977 (UP) ___________ 10,814,957 - 9,736,596 (AP) ___________ 1,078,361 (VC) The second major consideration in determining equitable apportionment of intangible value is selecting the basis of the ratio by which each branch's share of the valuation constant will be computed. The Tax Commission's formula bases this ratio on the amount of real property and personal property owned by a branch as opposed to that of the parent and all its branches. Appellee's Calhoun County branches account for 2.19% of all the real and personal property of appellee and all its branches; thus, under the Tax Commission formula, the intangible value of the Calhoun County branches is assessed at 2.19% of the valuation constant (figure PC), or $236,848. On the other hand, the Calhoun County Tax Assessor's formula bases its ratio on the amount of deposits received by a branch as opposed to the amount received by the parent and all its branches. Appellee's Calhoun County branches account for 6.83% of all the deposits made to appellee and all its branches; thus, under the Calhoun County formula, the intangible value of the Calhoun County branches is assessed as 6.83% of the valuation constant (figure PC), or $735,417. The ratio employed is necessarily somewhat of an arbitrary factor because it is being employed to allocate intangible value of a multicounty banking corporation viewed as a single unitary business with its intangible value having no true situs or location. The basis of the ratio might be any number of factors: property owned, deposits received, notes or mortgages held, or perhaps a combination of any of these. But the prime consideration in selecting a basis for the ratio is to arrive at a figure which fairly, reasonably and realistically represents a branch's relative worth to the parent bank and all its branches as a whole, i.e., its true value. See Miss. Const. § 112, as amended. We fail to see how a ratio based solely upon real and personal property owned by a branch can serve as an accurate indicator of its relative value to the parent and its branches. A branch bank's value to its parent is not in the worth of the branch's building or lot or equipment, but, rather, in the amount of business it generates. Deposits received and notes and mortgages held are far more indicative of a branch's business productivity than is the value of the building out of which it operates. For this reason, we agree with appellant that the Calhoun County Tax Assessor's approach in using deposits as the basis for the ratio is more reasonable than the property basis suggested by the State Tax Commission.
Although we are persuaded by the Calhoun County formula, we have no authority to require the use of it or any other valuation formula absent some indication of how the legislature intends branch banks to be valued for purposes of taxation. We recently acknowledged that questions of accounting theory have no proper part in our decision, except that such theory has been incorporated into our law. There is no natural law of tax liability. No brooding omnipresence or invisible hand informs our consideration of such cases. The amount of tax a taxpayer owes to this state is determinable solely by reference to the positive provisions of the tax laws of this state and the regulations of the State Tax Commission promulgated within the scope of its authority. Mississippi State Tax Comm'n v. Dyer Investment Co., Inc., 507 So.2d 1287, 1290 (Miss. 1987) (footnote omitted). As the Tax Commission formula is not a regulation but only a suggestion, the positive provisions of our tax laws must govern the disposition of this issue. It is a well-settled principle of statutory construction that all statutes dealing with the same or similar subject matter must be read in pari materia, with each statute given effect to the extent possible, so that the intent of the legislature may be ascertained. Allgood v. Bradford, 473 So.2d 402 (Miss. 1985); Miss. Public Service Comm'n v. Municipal Energy Agency of Mississippi, 463 So.2d 1056 (Miss. 1985); Andrews v. Waste Control, Inc., 409 So.2d 707 (Miss. 1982); Lamar County School Board v. Saul, 359 So.2d 350 (Miss. 1978). For insight as to how the legislature intends the intangible property of branch banks to be valued, we look to Miss. Code Ann. § 27-13-13 (Supp. 1987), which prescribes a formula for the valuation of local offices of multistate corporations: In the case of organizations doing business both within and without Mississippi, the value of the capital employed in this state shall be determined by first computing the ratio between (1) the real and tangible personal property owned in Mississippi and gross receipts from business carried on in Mississippi, and (2) the total real and tangible personal property owned and gross receipts wherever located and from wherever received. Said ratio then shall be applied to the total capital stock, surplus, undivided profits and true reserves and the result of that application shall be the capital employed in this state. This valuation formula may be expressed algebraically as follows: (LP + LR) X TC = VI _________ (AP + AR) LP is local property, i.e., the value of the corporation's property located in Mississippi. LR is local receipts, i.e., the value of the corporation's gross receipts derived from business transacted in Mississippi. AP is all property, i.e., the value of all the property of the corporation regardless of location. AR is all receipts, i.e., the value of all gross receipts of the corporation regardless of origin. TC, the valuation constant, is total capital of the corporation. VI is value of intangibles. Although this formula's ratio is based in part upon the value of property held by the local office, the formula also bases its ratio on the relative value of local business as measured by local gross receipts, which, like bank deposits received, is a far more reliable indicator of the worth of the local office to its parent corporation than property value alone. Section 27-13-13 is particularly well-suited for application to this case because the problems encountered in valuing the assets of a multistate corporation's Mississippi assets are directly analogous to those faced in valuing the intangible assets of branch banks, which are essentially parts of multicounty corporations. Further, the multistate corporation formula is more persuasive authority for valuation of branch banks since it represents a legislative mandate for resolution of a virtually identical problem, while the Tax Commission formula is merely a suggested approach of a state agency. The multistate corporation formula is easily adapted to branch bank valuation in the following terms: (LBP + LBD) X VC = VI ___________ (AP + AD) LBP is local branch property, i.e., the value of the property of the branch bank(s) located in the assessing county. LBD is local branch deposits, i.e., the value of all deposits made to the branch bank(s) in the assessing county. AP is all property, i.e., the value of all the property of the parent bank and all its branches regardless of location. AD is all deposits, i.e., the value of all deposits made to the parent bank and all its branches regardless of location. VC is the valuation constant, excluding the value of the parent's and branches' real and personal property, as formulated earlier in this discussion. [5] VI is value of intangibles. Applied to appellee, the adapted multistate corporation formula works as follows: (212,857 + 30,909,000) X $1,078,361 = 72,574 __________________________ (9,736,596 + 452,824,747) The ratio yielded by this formula is 6.73%. This ratio, applied to figure VC, yields an intangible value of $72,574. It must be remembered that under this adapted multistate corporation formula, there is no deduction of the value of the branches' real and personal property from figure VI, because these values are excluded from the formula at the outset, unlike the formulas suggested by the Tax Commission and Calhoun County. The final valuations reached under the three formulas discussed above are as follows: Tax Commission Formula $ 23,991 Calhoun County Formula 522,560 Adapted Multistate Corporation Formula 72,574 If these amounts are assessed and levied upon as directed by the court below (22.269% at 95.5 mills), the following tax liability results for appellee: Tax Commission Formula $ 510.21 Calhoun County Formula 11,113.23 Adapted Multistate Corporation Formula 1,543.42
The reason why it is especially important to employ the valuation formula which most fairly, reasonably, and realistically represents the branches' relative worth is because the same formula must be applied to all branches statewide. Section 112 of the Mississippi Constitution requires that [t]axation shall be uniform and equal throughout the state. [6] This mandate takes precedence even over the principle that assessment must be made on true value, for if there is no uniformity of evaluation of those taxed, then the result is that the taxpayer is deprived of the very protection guaranteed by § 112. Further, under certain circumstances, lack of uniformity in valuation may lead to double taxation. In fact, double taxation would occur in the case at bar if Calhoun County were allowed to use its own valuation formula. All of the other counties in which appellee maintains branches use the Tax Commission formula. If appellee's Calhoun County branches are valued at 2.19% of the total intangible value according to the Commission formula, then appellee and all its branches share among themselves 100% of the total intangibles valuation. But if the Calhoun County formula is used so that the local branches are valued at 6.8% of total intangible value while the Tax Commission formula is used in all other counties, then the result is that appellee and all its branches share among themselves 104.61% of the total intangibles valuation: the effect is that nearly 5% of the intangible assets of appellee and its branches are taxed twice. See Craig v. Dun & Bradstreet, 202 Miss. 207, 30 So.2d 798 (1947); Thompson v. Craig, 196 Miss. 465, 17 So.2d 439 (1944); Panola County v. C.M. Carrier & Sons, 92 Miss. 148, 45 So. 426 (1908). Additionally, it is evident that mixed use of the two formulas would result in taxation of the entire value of all the intangibles of appellee and its branches at an amount in excess of true value. Such would also be a violation of § 112. Stuart v. Board of Supervisors of Scott County, 195 Miss. 1, 11 So.2d 212 (1943). The formula sought to be employed by the Calhoun County Tax Assessor must fail because it (1) destroys uniformity of valuation, (2) creates a partial double tax, and (3) results in valuation of the entire intangible assets of appellee and all its branches at greater than true value. Without question, these objections would be cured if the Calhoun County formula were used in every county in which appellee maintains branches. However, the facts in this case are otherwise. It is apparent that we must sustain the use of the Tax Commission formula in the case at bar, notwithstanding that use of the adapted multistate corporation formula more closely adheres to the intent of the legislature. The latter formula cannot be applied to appellee retroactively because such application would create a retroactive partial double tax, as explained above. The only alternative to use of the Tax Commission formula under these facts, considering the equality and uniformity provisions of Miss. Const. § 112, would be to require retroactive revaluation under the adapted multistate corporation formula and reassessment of every branch bank in Mississippi for each tax year dating back to 1982. We decline to impose such an administrative burden on the banks and counties of this state. The trial court reached the right result in assessing the intangibles of appellee's Calhoun County branches according to the State Tax Commission formula. However, in view of the overriding constitutional consideration of equality and uniformity in the application of tax laws, and in view of our duty to construe statutes in accordance with the perceived intent of the legislature, we now prospectively require use of the adapted multistate corporation formula as discussed herein for valuation of branch banks until such time as the legislature may provide otherwise.