Colorado National Bank of Denver v. Bedford

delivered the opinion of the Court.

This appeal involves the validity of the Public Revenue Service Tax Act of Colorado.^[1] The act, § 5, imposes upon the services specified in the act, a percentage tax based upon the value of the services rendered or performed by any person subject to its provisions.

Under the rules and regulations issued by the treasurer on the Public Revenue Service Tax Act, the service tax is construed as invalid as applied to so-called banking services.^[2]

Under rule 27, however, such service as the furnishing of safety vaults by depositories or banks is held to come within the act, and the two per cent tax applies to the charges made for this service. These regulations were approved by the judgment and decree of the trial court and that judgment was affirmed in all particulars by the Supreme Court of Colorado.

While § 4 (a) makes it unlawful for any person to render the defined services without “first having obtained a license therefor,” the treasurer demands no license fees from a national bank. Such exception was held proper by the lower court.^[3]

The appellant here, the Colorado National Bank, was a national banking corporation duly organized and existing under the national banking act. The bank operated a safe-deposit service under its own name and in the building and vaults used for its other banking activities. The rentals received for the use of that portion of. its vaults utilized for safe-deposit boxes were reported to the Comptroller of the Currency as income in the bank; the fixtures employed in the business are-part of the assets of the bank and are supervised by the Comptroller of the Currency.

The trial court sustained the bank. The supreme court first affirmed by an equally divided court and then on re

(1) This appeal is here under § 237 (a) of the Judicial Code. The treasurer makes the point that as the federal question raised was the immunity to the exaction of the bank as a federal instrumentality withdrawn from state taxation by congressional action, the determination that the tax was on a non-banking activity foreign to its federal character and on the user of the services eliminated the necessity of a decision on the federal question. As the statute was held valid after the conclusion of the Supreme Court of Colorado that the manner of state taxation of national banks must accord with R. S. § 5219 and must not interfere with federal functions,^[6] it seems clear the federal question as to the validity of the statute as tested by the Constitution and laws of the United States was necessarily involved and decided. This gives this Court jurisdiction of the appeal.^[7]

Gully v. First National Bank,^[8] relied upon by the treasurer, dealt with the right to remove to a federal court^[9] because the cause of action arose under the federal laws,^[10] but the issue here is the right to appeal where a state statute is held valid against a defense of repug-nancy to the same laws.^[11] The difference is brought out

(2) The genesis of the present system of national banks is the National Bank Act of June 3, 1864.^[13] It was called “An Act to provide a National Currency, secured by a Pledge of United States Bonds and to provide for the Circulation and Redemption thereof.” From this act, correlated with the Federal Reserve Act,^[14] there has' developed the present nationwide banking facilities. R. S. § 5153 makes these associations the depositories of public money. Though the national banks’ usefulness as an agency to provide for currency has diminished markedly, their importance as general bankers shows a constant growth.^[15] We may assume that national banks possess only the powers conferred by Congress.^[16] These are set out in R. S. § 5136 as frequently amended and include “all such incidental powers as shall be necessary to carry on the business of banking,” with the proviso “that in carrying on the business commonly known as the safe-

(3) We may assume, as did the Supreme Court of Colorado, that the tax is invalid if laid upon the bank as an instrumentality of government in the incidents referred to in the preceding section;^[23] that its banking operations are free from state taxation except as Congress may permit;^[24] that Congress permits the taxation only of shares and real estate;^[25] and'that Congress may inter

Congress has not legislated against taxation of the customers of national banks. This Court has approved a tax assessed upon the deposits of customers of national banks.^[27] By § 6 of the Colorado act the “person rendering or performing services shall be liable” for the payment of the tax imposed. But as subsection (b) of that same section requires the tax paid to be added to the charges for service “as a separate and distinct item” and makes it a debt from the user of the services until paid, the tax is upon the user of the safe-deposit boxés, not upon the bank. Furthermore, as by § 2 (h) credit is given to the bank for taxes paid on accounts subsequently found worthless and the bank is in a position to require payment of box rentals and taxes in advance, there is no occasion for a bank ever to have saddled upon it any part of the tax burden.

In National Bank v. Commonwealth^[28] this Court determined a similar question in favor of the validity of the state tax. The case was decided in 1869. At that time the applicable federal statute^[29] read: “Sec. 41. . . . Provided, That nothing in this act shall be construed to prevent all the shares in any of the said associations, held by any person . . . from being included in the valuation of the personal property of such person ... in the assessment of taxes imposed by or under state authority at the place where such bank is located, and not elsewhere. . . .”

The statute of Kentucky laid a tax of fifty cents on each share. The same statute enacted: “The cashier of

A national bank refused payment on the ground that it as a bank was not subject to state taxation. It was decided that this was a tax on shares, that the state in a .legal proceeding against the shareholder could have garnisheed the bank and that because the bank was a federal instrumentality was no reason for not requiring it to collect and pay over the money from the shareholder. A similar tax was upheld in Des Moines Bank v. Fairweather.^[30]

The person liable for the tax, primarily, cannot always be said to be the real taxpayer. The taxpayer is the person ultimately liable for the tax itself.^[31] The funds which were received by the State came from the assets of the user, not from those of the federal instrumentality, the bank.^[32] The Colorado Supreme Court holds the user is the taxpayer.^[33] The determination of the state court as to the incidence of the tax has great weight with us and, when it follows logically the language of the act, as here, is controlling.^[34] As the user directly furnishes the funds for the tax, not as an ultimate consumer with a transferred burden but by § 12 of the act as the responsible obligor, we conclude the tax is upon

(4) The tax being a permissible tax on customers of the bank, it is settled by our prior decisions that the statutory provisions requiring collection and remission of the taxes do not impose an unconstitutional burden on a federal instrumentality.^[35] Especially is this true since the bank under the Colorado act is allowed three per cent of the tax for the financial burden put upon it by the obligation to collect.

Affirmed.