Court Opinion

ID: 9540634
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:18:30.364154+00
Date Added: 2024-06-11T15:00:05.187341
License: Public Domain

*675DISSENTING OPINION BY
Judge FRIEDMAN.
I respectfully dissent. The majority concludes that the Bank and Trust Company Shares Tax (“Bank Shares Tax”) imposed on “shares of capital stock” under section 701 of the Tax Reform Code of 19711 (Act) is a tax on banks rather than a tax on the owners of the bank stock. (Majority op. at 673.) For the following reasons, I disagree.
I. Section 701
Section 701 of the Act provides, in pertinent part, as follows:
Every institution shall ... make to the Department of Revenue a report in writing ... setting forth the full number of shares of the capital stock subscribed for or issued, as of the preceding January 1, by such institution, and the taxable amount of such shares of capital stock determined pursuant to section 701,1.[2] It shall be the duty of the Department of Revenue to assess such shares for ... each calendar year ... at the rate of 1.26 per cent upon each dollar of taxable amount thereof, the taxable amount of each share of stock to be ascertained and fixed pursuant to section 701.1, and dividing this amount by the number of shares. It shall be the duty of every institution ... to compute the tax and to pay the amount of said tax ... either from its general fund, or from the amount of said tax collected from its shareholders ....
72 P.S. § 7701 (emphasis added). There can be no question that: (1) the “Bank Shares Tax” is assessed on shares of capital stock; and (2) banks may simply collect the assessment from their shareholders. Therefore, although the majority states that a “plain reading” of section 701 shows that the “Bank Shares Tax” is a tax on banks, I submit that a “plain reading” of section 701 shows that the “Bank Shares Tax” is a tax on the shareholders.
II. Department’s Interpretation
The majority acknowledges that the Department of Revenue’s own instructions for filing the tax returns in this case specifically state that the “Bank Shares Tax” is a tax “imposed on the shareholders of banks-” (Majority op. at 671.) Thus, the Department of Revenue, which is charged with the administration and enforcement of section 701 of the Act, see sections 408 and 702 of the Act, 72 P.S. §§ 7408 & 7702, has issued an official interpretation of section 701 that conflicts with the majority’s “plain reading” of section 701.
The majority also acknowledges that, according to the Department of Revenue’s web site, shares of stock held by exempt shareholders, e.g., charitable, religious and educational institutions, are exempt from the “Bank Shares Tax.” (Majority op. at *676672.) The majority does not dispute this. However, the majority does not explain why, if the “Bank Shares Tax” is a tax on banks, liability for the tax depends on the status of the shareholder, not the bank. In my view, this shows clearly that the tax is on the shareholder.
III. Case Law
A. Bowers
In reaching its contrary conclusion, the majority relies on Society for Savings in the City of Cleveland, Ohio v. Bowers, 349 U.S. 143, 75 S.Ct. 607, 99 L.Ed. 950 (1955). However, I cannot agree that Bowers supports the majority’s position. In that case, the United States Supreme Court stated that the true nature of a bank shares tax is determined by examining the rights and liabilities that the statute creates, and that, where a bank shares tax statute gives banks the right to recover the tax from shareholders, then the bank, in paying the tax, is acting only as a collection agent. Id.
Here, section 701 of the Act gives the banks the right to collect the “Bank Shares Tax” from shareholders.3 It is true that the banks may choose to pay the tax from general funds, but the banks need not do so. In any given tax year, banks may choose to exercise their statutory right to collect the tax from shareholders. In my view, such an option reheves banks from ultimate liability for the “Bank Shares Tax.”
B. Schuylkill I and Schuylkill II
In Schuylkill Trust Company v. Pennsylvania, 296 U.S. 113, 56 S.Ct. 31, 80 L.Ed. 91 (1935) (Schuylkill I), and Schuyl kill Trust Company v. Pennsylvania, 302 U.S. 506, 58 S.Ct. 295, 82 L.Ed. 392 (1938) (Schuylkill II), the U.S. Supreme Court interpreted a 1907 Pennsylvania statute that imposed a tax on trust company shares.4 The statute required trust companies to report to the Department of Revenue the number and value of outstanding shares. The Department of Revenue assessed the shares, and the company was required to “pay the tax from its general fund ... or collect it from the shareholders and pay it over.” Schuylkill II, 302 U.S. at 508, 58 S.Ct. 295 (emphasis added). Thus, the 1907 statutory scheme was identical to that in section 701.
As we are asked to do in this case, the U.S. Supreme Court in Schuylkill II found it necessary to interpret' the statute to determine whether the tax was imposed upon the shareholder or the company. The court stated:
The statute on its face lays the tax upon the property of the stock holder, represented by the shares he owns. The state courts, and the local federal court, have held the imposition [of the] tax [to be] upon the shares. The history of legislation respecting taxation of banks and trust companies in Pennsylvania leads to the same conclusion. We are of opinion that the tax is one upon the shares as such and not upon the assets of the company.
Id. at 512-13, 58 S.Ct. 295 (footnotes omitted) (emphasis added).
Significantly, the U.S. Supreme Court noted that several decisions of the Pennsylvania Supreme Court interpret the statutory scheme as a tax on shareholders. Id. Section 1922(4) of the Statutory Con*677struction Act of 1972 provides that, when a court of last resort has construed the language used in a statute, it is presumed that the General Assembly in subsequent statutes on the same subject matter intends the same construction to be placed upon such language. 1 Pa.C.S. § 1922(4). Here, then, I must presume that the General Assembly intended the “Bank Shares Tax” described in section 701 to be a tax on shareholders.
IV. Constitutionality
A state statute that undertakes to tax things wholly beyond the state’s jurisdiction or control conflicts with the Fourteenth Amendment of the United States Constitution. Safe Deposit and Trust Company v. Virginia, 280 U.S. 88, 50 S.Ct. 59, 74 L.Ed. 180 (1929).
With respect to intangible property, in general, where the owner of intangibles confines his activity to the place of domicile, the intangibles are taxed at their situs and not elsewhere, i.e., it is the association of the intangibles with the person of their owner at his domicile that gives jurisdiction to tax. Curry v. McCanless, 307 U.S. 357, 59 S.Ct. 900, 83 L.Ed. 1339 (1939). However, in cases involving shares of stock, jurisdiction to tax is not necessarily restricted to the domiciliary state. State Tax Commission of Utah v. Aldrich, 316 U.S. 174, 62 S.Ct. 1008, 86 L.Ed. 1358 (1942); Curry. Another state which has extended benefits or protection with respect to the shares, or which can demonstrate the practical fact of its power or sovereignty with respect to the shares, may likewise constitutionally make its exaction. Id.
Here, there is nothing before this court to suggest that Pennsylvania has extended benefits or protection with respect to the bank shares of non-resident shareholders or that Pennsylvania might have power or sovereignty with respect to the shares. Thus, I would conclude that Pennsylvania may not constitutionally tax the bank shares of non-resident shareholders.
Accordingly, I would reverse.

. Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7701.

. Section 701.1(a) of the Act states generally that the "taxable amount of shares shall be ascertained and fixed by adding together the value determined under subsection (b) for the current and preceding five years and dividing the resulting sum by six.” 72 P.S. § 7701.1(a). Section 701.1(b) of the Act states that the "value for each year ... shall be determined by adding together the book value of capital stock paid in, the book value of the surplus and the book value of undivided profits with a deduction from the total thereof of an amount equal to the same percentage of such total as the book value of obligations of the United States bears to the book value of the total assets.” 72 P.S. § 7701.1(b). I note that section 701.4 of the Act allows an institution to apportion its taxable amount of shares if the institution is subject to tax in another state based on net worth, gross receipts, net income or some similar base of taxation. 72 P.S. § 7701.4.

. I am puzzled by the majority’s statement that a bank "has no statutory right to recover the tax from [its] shareholders.” (Majority op. at 673.) Section 701 states clearly that a bank may collect the "Bank Shares Tax” from its shareholders.

. The statute in question was the Act of June 13, 1907, P.L. 640, as amended.