H. A. S. Loan Service, Inc. v. McColgan

CARTER, J.

— A tax at the rate of 8 per cent on the net income of plaintiff corporation was levied hy the State of California for the year, August 31, 1936, to August 31, 1937, pursuant to the Bank and Corporation Franchise Tax Act. (Stats. 1929, p. 19, as amended in 1935; Deering’s Gen. Laws, 1937, Act 8488.) The tax was paid under protest and plaintiff commenced this action to recover the amount so paid. The trial court rendered judgment in favor of defendant, and plaintiff prosecutes this appeal therefrom.

The tax was based upon a classification of plaintiff as a financial corporation under the Bank and Corporation Franchise Tax Act. That act (Stats. 1929, p. 19, § 1, as amended) adopted method number 4 set forth in the United States Statute for the taxation of national banking associations (12 U.S.C.A., § 548). The United States Statute, and plan 4 to which reference is made, reads: “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 ... (3) tax such associations on their net income, or (4) according to or measured by their net income, provided the following conditions are coupled with: 1. ... (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: ...” By the terms of the

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Bank and Corporation Franchise Tax Act, the tax is according to or measured by the income. (Stats. 1929, p. 19, § 1, as amended.) And the rate of tax on national banks, other banks, and financial corporations is the same and may not be in excess of 8 per cent. (Stats. 1929, p. 19, §§ 1, 2, 4, 4a, as amended.) The tax system is designed to eliminate inequalities in the tax burdens imposed upon business corporations and banks. Financial corporations are classed with banks both national and state in order that the tax burden they must bear shall not be less than that of banks, and thus in harmony with the federal statute. (12 U.S.C.A., § 548.) In determining whether there exists the discrimination prohibited by the federal statute it is necessary to take into consideration the state’s tax structure as a whole and ascertain therefrom whether the tax burden is greater on national banks than on state banks or mercantile, business, manufacturing and financial corporations.