Opinion ID: 2399528
Heading Depth: 1
Heading Rank: 2

Heading: analysis

Text: In years past Rhode Island banking institutions have been subjected to a tax based upon the value of their average daily deposits in Rhode Island. [7] Such banks were required to file two separate bank-deposits tax returns each year with the tax administrator. See § 44-15-5. Deposits were defined by the Bank Deposits Tax Act to include deposits or savings made under any type of deposit or savings plan represented by certificates of deposit, savings bonds, or income certificates issued by any banking institution, or however such or similar time deposits or savings plan may otherwise be designated. Section 44-15-1(2)(ii). In addition a deposit was to include only those accounts that bore interest or that were entitled to dividends. See § 44-15-1(2)(i)(A). Moreover, for purposes of levying a bank-deposits tax, the General Assembly expressly excluded certain categories of deposits from its definition of the term: [T]he terms `deposits' or `time deposits' as hereinabove used shall not include any deposits of a branch or office of any banking institution located outside of this state, whether it is established de novo or acquired pursuant to an interstate merger, consolidation, or acquisition, provided that the deposits [1] are made at a branch or office outside of this state, or an international banking facility of any banking institution    or [2] which are payable only at an office located outside of the United States.  Section 44-15-1(2)(ii). (Emphases added.) The key dispute in this case is whether the Cayman deposits qualified for such an exemption by satisfying one or more of the aforementioned exclusion provisions delineated by the General Assembly in the tax act. Because this question is a matter of statutory construction, we first look to the plain and ordinary meaning of the exemption language. If the language is clear on its face, then the plain meaning of the statute must be given effect and this Court should not look elsewhere to discern the legislative intent. Gilbane Co. v. Poulas, 576 A.2d 1195, 1196 (R.I.1990). Here, § 44-15-1 appears unambiguous in laying out a two-part test for deposits to have achieved tax-exempt status. First, the deposits had to be located in a branch or an office of a banking institution located outside Rhode Island. Second, they had to satisfy one of two subtests: (1) they must have been made either at a branch or an office of a bank located outside Rhode Island or at an international banking facility, or (2) they must have been payable only at an office located outside the United States. Because the tax administrator does not dispute that the deposits in question satisfied the statute's first exemption criterion (that the Eurodollar deposits be located at a branch or office located outside Rhode Island), we turn our attention to whether these deposits satisfied one or both elements of the second set of criteria for deposits to be exempt from the bank-deposits tax. [8]
Whether the Eurodollar Deposits Were Made at a Branch or Office Located Outside Rhode Island The tax administrator urges us to interpret literally, the Legislature's requirement that the Eurodollar deposits be made at a branch or office outside of this state. He argues that a deposit was made where the customers initially placed their deposit orders and where they put their funds before they were reclassified by the bank, and then invested offshore. The tax administrator specifically relies on the trial testimony of Fleet's employees. That testimony, he says, shows that Eurodollar deposits originated from Fleet accounts. Thereafter only Fleet Providence interacted with its Cayman branch, and there were no customer-initiated transfers of funds between one customer account (in Providence) and another existing customer account (in Cayman). Thus he contends the taxable event for purposes of the tax act was the customers' initial deposit, arguing that how, when and where Fleet subsequently invested its customers' deposits are immaterial. We are not persuaded by the tax administrator's arguments on this point for two reasons. First, even if we were to adopt the tax administrator's source-of-origin theory to determine where these deposits were made for tax purposes, his theory ignores other trial testimony indicating that the Cayman deposit funds can and occasionally do originate from sources other than Fleet's commercial customers' checking accounts in Providence. Trial testimony revealed that they could also be wired from another location, another bank, another country, could be in the form of a cashier's check [or could] come in a number of ways. One Fleet witness testified that an individual interested in making a Eurodollar deposit could simply have his or her money go directly into a deposit in Grand Cayman in that particular individual's name. Thus the tax administrator is incorrect in his assertion that before any [Eurodollar] investment can occur, deposits must first be made in Providence. Moreover, we believe that the nature and the reality of modern banking transactions argue in favor of a broader view of how a deposit is made than the one advanced by the tax administrator. A proper perspective should consider the destination of deposited funds and not merely their origin. Because many banking transactions are now implemented by electronic and accounting means (rather than by the physical delivery of cash), see, e.g., Citibank, N.A. v. Wells Fargo Asia, Ltd., 495 U.S. 660, 663, 110 S.Ct. 2034, 2037, 109 L.Ed.2d 677, 685 (1990) (discussing electronic wire transfers effecting the transfer of funds to and from an offshore Eurodollar deposit account), a more contemporary view recognizes that a deposit is made when there is a corresponding accounting-book entry at the place of the funds' destination. Cf. 12 U.S.C. § 1813( l )(5)(A) (exempting from the definition of a deposit any obligation of a depository institution which is carried on the books and records of an office of such bank or savings association located outside of any State unless it is payable in the United States) (emphases added). According to the trial testimony in this case, each debit of a commercial depositor's account and the subsequent transfer of funds to the Cayman liability accounts was reflected on the accounting books of Fleet as an amount owed by the Cayman branch and not by Fleet Providence. In our judgment, that entry represents a more accurate indication of exactly where the deposited funds were made for tax purposes than does the place where the funds were first provided to the bank. [9] Accordingly, we agree with Fleet that once a deposit is booked at a particular banking location, it should be considered to have been made there so long as the funds to support that book entry are contemporaneously recorded as a liability to the Cayman branch and, additionally, the movement of those funds can be traced to the Cayman branch. We are also convinced that the book-entry accounting approach we adopt here is fully consonant with established banking principles concerning the taxable location of bank deposits. [F]or taxation purposes, money is transitory property; its mere presence on deposit in a bank does not necessarily render it subject to taxation there. 8 Michie on Banks and Banking, ch. 19, § 32 at 544 (1988). The general rule is that property of an intangible naturesuch as bank depositshas no situs of its own for purposes of taxation, and is therefore assessable only at its owner's domicile, regardless of the actual location of the evidence of such debt. Id. at 541. The tax situs of a bank deposit depends on whether the deposited funds are the property of the bank or of the depositor. Id. at 544. This question of ownership, in turn, depends on whether that initial deposit is deemed special or general. 5A Michie on Banks and Banking, ch. 9, § 3 at 36-37 (1994). Thus, even though funds may have been deposited in Rhode Island initially, their tax situs may nevertheless lie elsewhere depending on the character of those deposits as general or special. Although we agree with the tax administrator that funds deposited in Rhode Island for investment in Cayman were general deposits (whereby a depositor parts with the title to the deposited funds subject to the bank's contractual obligations to repay the funds on order), we disagree regarding the significance of this fact. The tax administrator essentially contends that the taxable location for such funds is Rhode Island because a debtor-creditor relationship began there upon the customers' depositing of the funds. But once it has been determined that the depository (and not the commercial depositor) was the owner of the deposited funds because of their character as general deposits, it follows that the tax situs is the bank branch where that deposit is carried as a debt of the bank. See Vishipco Line v. Chase Manhattan Bank, N.A., 660 F.2d 854, 862 (2d Cir.1981) (quoting Heininger, Liability of U.S. Banks for Deposits Placed in Their Foreign Branches, 11 Law & Pol.Int'l Bus. 903, 975 (1979)). Accordingly, we believe that the Cayman branch is the proper tax location for the deposits at issue here. The owner of the debt owed by the bank was the Cayman branch because it carried the bank's debt to the Eurodollar depositors as a liability on Fleet's accounting records and because funds for such deposits were actually located there. Accordingly, Grand Cayman was the tax situs of the Eurodollar funds.
Whether the Eurodollar Deposits Were Payable Only at an Office Located Outside the United States We also hold that the Cayman deposits were tax-exempt because they were payable only at an office located outside the United States. Our reasons for doing so are explained below. First, because the location of the debt incurred by Fleet upon a customer's Eurodollar deposit order was the Cayman branch, see supra, that debt could only be paid at Grand Cayman. [10] Second, in a manner consistent with the book-entry approach discussed above, any interest paid on a customer's principal deposit with Fleet was debited from the Cayman liability accounts and was therefore payable at Cayman. It is undisputed that during the relevant tax period, the Eurodollar deposits were carried as a liability only by Fleet's Cayman branch. Hence, before Fleet paid its debt to its commercial customers after the maturity of their Eurodollar investments, it first made a book entry reducing that liability of its Cayman branch. Although Fleet eventually posted (in the accounting sense) the interest earned on the Cayman deposits to the depositors' Rhode Island accounts, before any interest was posted back into a Rhode Island account, a book entry reducing the Cayman branch's liability for the Eurodollar deposit was made. [11] Finally, we agree with the District Court that the interpretations placed upon federal banking laws and regulations similar to those in question here, although not controlling, are indeed instructive for the purpose of construing the Rhode Island bank-deposits statute. [12] Section 44-15-1 employs language that is virtually identical to that in the federal statutes that predate the enactment of the Rhode Island Tax Act. [13] And a state implicitly adopts the interpretation of a statute by the courts of a particular jurisdiction when it later borrows statutory language from that jurisdiction. See Laliberte v. Providence Redevelopment Agency, 109 R.I. 565, 575, 288 A.2d 502, 508 (1972). Here, as noted by the District Court, federal authorities (the FDIC, the Office of the Controller of the Currency (OCC), and the Federal Reserve Board) have determined that the Cayman deposits are exempt from Federal Reserve and interest-rate requirements that are applicable to domestic deposits because they are payable only outside the United States. To adopt the position advanced by the tax administrator (who urges us to ignore these federal rulings) would result in an anomaly: the Cayman deposits would be payable in Providence for purposes of Rhode Island's tax act but payable only outside the United States for purposes of federal banking laws. Our contrary interpretation avoids this unnecessary conflict over the manner in which this same statutory language should be construed and applied.