FIRST NATIONAL BANK OF ATLANTA, ETC., APPELLANT V. BARTOW COUNTY BOARD OF TAX ASSESSORS, ET AL. No. 83-1620 In the Supreme Court of the United States October Term, 1983 On Appeal from the Supreme Court of Georgia Brief for the United States as Amicus Curiae TABLE OF CONTENTS Interest of the United States Opinions below Jurisdiction Constitutional provisions and statute involved Statement Discussion Conclusion OPINIONS BELOW The original opinion of the Supreme Court of Georgia (J.S. App. A20-A23) is reported at 248 Ga. 703, 285 S.E.2d 920. The opinion on remand from this Court (J.S. App. A1-A8) is reported at 251 Ga. 831, 312 S.E.2d 102. JURISDICTION The judgment of the Supreme Court of Georgia was entered on January 4, 1984. Notices of appeal to this Court were filed in the Supreme Court of Georgia and in the Superior Court of Bartow County on March 2, 1984 (J.S. App. A24, A25), and a jurisdictional statement was filed with this Court on April 3, 1984. The jurisdiction of this Court is invoked under 28 U.S.C. 1257(2). CONSTITUTIONAL PROVISIONS AND STATUTE INVOLVED The Constitution of the United States: Art. I, Section 8, Cl. 2: The Congress shall have Power * * * To borrow Money on the credit of the United States(.) Art. VI, Cl. 2: This Constitution, and the laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every States shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding. Rev. Stat. Section 3701, as amended by the Act of Sept. 22, 1959, Pub. L. No. 86-346, Section 105(a), 73 Stat. 622: /2/ All stocks, bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation by or under State or municipal or local authority. This exemption extends to every form of taxation that would require that either the obligations or the interest thereon, or both, be considered, directly or indirectly, in the computation of the tax, except nondiscriminatory franchise or other nonproperty taxes in lieu thereof imposed on corporations and except estate taxes or inheritance taxes. QUESTION PRESENTED Whether the Supreme Court of Georgia erred in holding that, for purposes of computing the state tax on bank shares, measured by the bank's net worth, Rev. Stat. Section 3701 (as amended in 1959) did not require that the bank's net worth be reduced by the amount of the obligations of the United States held by the bank, but rather permitted a reduction by only that fraction of the net worth that United States obligations constituted of the bank's total assets. INTEREST OF THE UNITED STATES After this Court's decision in American Bank & Trust Co. v. Dallas County, No. 81-1717 (July 5, 1983), in which the United States participated as amicus curiae, this case was remanded to the Supreme Court of Georgia for further consideration in light of American Bank (J.S. App. A9). The Georgia Supreme Court has now largely adhered to the result of its prior decision, by holding that in the imposition of the State's tax on bank shares the greater part (90.25% in an example that it employed) of the obligations of the United States held by the bank could be taken into account. By subjecting obligations of the United States to state taxation, whether that taxation be direct or indirect, the Georgia Supreme Court's decision adds to the cost of borrowing by the United States. We are advised by the Department of the Treasury that as of December 1983, commercial banks held $188.9 billion in federal obligations. /1/ If other states were to impose a tax on banks or other corporate shares similar to that upheld in this case, the United States would incur additional costs of borrowing that could amount to millions of dollars. Hence, the United States has an important interest in the outcome of this litigation. STATEMENT The First National Bank of Cartersville, Georgia (Bank), to which appellant is the successor in interest, filed with local taxing authorities its 1980 "Determination of Taxable Value of Bank Shares," as required by 1933 Ga. Laws Section 91A-3301(b), codified at Ga. Code Ann. Section 48-6-90(b) (1982) (J.S. App. A27). Section 91A-3301(a) imposes upon bank shares a tax "at their fair market value, which shall be determined by adding together the amount of the capital stock, paid-in capital, appropriated retained earnings, and retained earnings as defined in Title 7" (Ga. Code Ann. Section 48-6-90(a) (1982). In its 1980 return, the Bank deducted from the net worth shown in accordance with the terms of the statute the value of obligations of the United States owned by it. That deduction was disallowed by the Bartow County Board of Tax Assessors along with similar deductions by two other banks. All three banks appealed to the Board of Equalization, which decided against the appellant Bank and (because different panels heard the cases) one of the other two banks. The three cases were consolidated on appeals to the Superior Court of Bartow County, which held that the banks could not deduct the value of federal securities in determining net worth for purposes of the share tax (J.S. App. A12-A13). The Supreme Court of Georgia affirmed (J.S. App. A10-A23). On appeals to this Court (No. 81-1834), the judgment of the Supreme Court of Georgia was vacated, and the case was remanded to that court for further consideration in light of this Court's decision in American Bank & Trust Co. v. Dallas County, No. 81-1717 (July 5, 1983) (J.S. App. A9). Upon remand, the Supreme Court of Georgia adhered in large part, although not entirely, to its prior decision. It noted that it dealt with "a value tax measured by net worth, rather than by total assets" (J.S. App. A4). It held that Rev. Stat. Section 3701, as amended, required only a proportionate deduction -- i.e., that net worth be reduced by that fraction that United States obligations owned by the bank constituted of the bank's total assets. Thus in the case of the Citizens and Southern Bank of Bartow County (C&S Bank), which it used as an example, since the $1,995,393 of federal securities owned by the bank were 9.75% of total assets of $20,463,522, the court held that only 9.75% of its net worth of $2,082,488 ($203,043) was represented by federal securities, and had to be deducted -- not the entire $1,995,393 of United States obligations (J.S. App. A4-A7). From that decision the Bank again appeals. DISCUSSION On this Court's remand of this case for further consideration in light of American Bank & Trust Co. v. Dallas County, supra, the Georgia Supreme Court has substantially adhered to its prior position, and (contrary to the holding in American Bank and Rev. Stat. Section 3701) has denied the complete exemption from state taxation that Congress provided for obligations of the United States. /3/ As American Bank pointed out (slip op. 1, 7, 9-10), this Court has long and consistently held that a tax on a corporation's net worth (New Jersey Realty Title Ins. Co. v. Division of Tax Appeals, 338 U.S. 665, 672-673 (1950)), or its capital (Bank of Commerce v. New York City, 67 U.S. (2 Black) 620 (1863)), or its "'capital stock paid in * * * and * * * surplus earnings'" (Bank Tax Case, 69 U.S. (2 Wall.) 200, 200 (1865) (emphasis and citation omitted)) is invalid insofar as obligations of the United States are included in the computation by which the amount of the tax is ascertained. In each of those cases the Court held that the amount on which the tax is computed must be reduced by the amount of United States obligations held by the corporation. See also Society for Savings v. Bowers, 349 U.S. 143, 147-148 (1955); Weston v. Charleston, 27 U.S. (2 Pet.) 449 (1829). Prior to 1959, however, as American Bank also noted (slip op. 1-2, 7-8), neither the Constitution nor Rev. Stat. Section 3701 was held to prohibit a tax on the value of a corporation's shares "even though the value of that discrete interest was measured by the underlying assets, including United States obligations." This was true even though the distinction was "economically meaningless" (slip op. 2) and "rather formalistic" (id. at 6). See also Society for Savings v. Bowers, 349 U.S. at 148. But in 1959 the Congress amended Rev. Stat. Section 3701 by adding to the exemption of United States obligations from state and local taxes the provision that "(t)his exemption extends to every form of taxation that would require that either the obligations or the interest thereon, or both, be considered, directly or indirectly, in the computation of the tax, with exceptions only for nondiscriminatory franchise or other nonproperty taxes, and for estate or inheritance taxes. Act of Sept. 22, 1959, Section 105(a), 73 Stat. 622. As the Court pointed out in American Bank (slip op. 5), the language of the amendment is "sweeping." "The 1959 amendment rejected and set aside this Court's rather formalistic pre-1959 approach to Section 3701. * * * Under the plain language of the 1959 amendment, * * * the tax is barred regardless of its form if federal obligations must be considered, either directly or indirectly, in computing the tax" (slip op. 6 (emphasis in original)). If the tax had been on the net worth of the banks in this case, the amount on which the tax was computed would have had to be reduced by the amount of the obligations of the United States held by the banks. New Jersey Realty Title Ins. Co. v. Division of Tax Appeals, supra. So too, in computing Georgia's tax on bank shares, the value of the shares subject to tax must be ascertained by first removing from the computation all of the obligations of the United States held by the banks. To do otherwise would be to return to the pre-1959 "formal but economically meaningless distinction between taxes on government obligations and taxes on separate interests" (American Bank, slip op. 2). "Section 3701 prohibits any form of tax that would require consideration of federal obligations in computing the tax; it cannot matter whether such consideration is mandated by the tax assessor in practice or by the state statute in so many words" (American Bank, slip op. 9 (footnote omitted)). The Supreme Court of Georgia has construed the Georgia statute to mandate, with respect to obligations of the United States held by a bank, only a proportionate reduction of the net worth on which the bank share tax is computed, i.e., a reduction of net worth by only that fraction which obligations of the United States constitute of the total assets of the bank (J.S. App. A4-A5). In the example that the court employed (id. at A7), where obligations of the United States represent 9.75% of the total assets of the bank, 90.25% of the obligations of the United States are taken into account in computing the tax. The decision of the Supreme Court of Georgia is therefore inconsistent with the decision of this Court in American Bank, and in conflict with Rev. Stat. Section 3701, as amended in 1959. /4/ CONCLUSION Probable jurisdiction should be noted and, on the authority of this Court's decision in American Bank & Trust Co. v. Dallas County, the judgment below should be reversed. Respectfully submitted. REX E. LEE Solicitor General GLENN L. ARCHER, JR. Assistant Attorney General MICHAEL L. PAUP ERNEST J. BROWN Attorneys MAY 1984 /1/ See Bureau of Gov't Financial Operations, Office of the Secretary, U.S. Dep't of Treasury, Treasury Bulletin 31 (1st Quarter FY 1984). /2/ As noted by this Court in its American Bank opinion (slip op. 2 n.1), Rev. Stat. Section 3701 was succeeded by 31 U.S.C. 3124(a) when Title 31 of the United States Code was enacted into positive law without substantive change on September 13, 1982, subsequent to the year here involved. Act of Sept. 13, 1982, Pub. L. No. 97-258, Section 3124(a), 96 Stat. 945. /3/ The Court in American Bank noted that the Supreme Court of Georgia had upheld a bank share tax statute similar to the one it was invalidating (slip op. 5 n.5). /4/ United States v. Atlas Life Ins. Co., 381 U.S. 233 (1965), invoked by the court below, has no bearing on this case. It involved the constitutionality of Section 804 of the Internal Revenue Code of 1954 (26 U.S.C.) calling for the division of a life insurance company's investment income, including income from municipal bonds, into two parts, the company's share and the policyholders' share, and the tax computations dependent thereon. It in no way involved the amended Rev. Stat. Section 3701, which is controlling in this case.