UNIVERSITY OF CALIFORNIA LOS ANGELES LAW LIBRARY >NSIN FREE LIBRARY COMMISSION JUSLATIVE REFERENCE DEPARTMENT tPARATiVE LEGISLATION BULLETIN No 7' MARGARET A. SCHAFFNER MADISON WISCONSIN JUNE, 1906 1XTRODUCTI* This bulletin is designed to meet the demand of leg- islators and business men for a condensed stater of the laws relating to the taxation of trust compm When they are taxed like banks only a brief refer- ence is given to the banking laws. This paper does not include any statement of or- ganization or examination fees. Chi .IJTHY. Legisfai 'hnfnf. TAXATION OF TRUST COM- PANIES MARGARET A. SCHAFFNER COMPARATIVE LEGISLATION BULLETIN NO 7 JUNE, 1906 Prepared with the co-operation of the Political Science De- partment of the University of Wisconsin WISCONSIN PBEE LIBRARY COMMISSION LEGISLATIVE REFERENCE DEP'T MADISON Wis 1906 CONTENTS. I'Al.K. THE BA9IS OF TAXATION 5 Taxe.< Based upon the Nature of the Property 5 Volume of Business 5 Amount of corporate investment 5 General deposits t> Property held in trust 7 Annual earnings . 7 Grc.s.s earnings 7 Gross amount of premiums 7 Net income 8 Kinds of Property 8 Tangible assets 8 Franchises 8 Taxes Based upon the Nature of the Corporation 9 General corporation taxation 9 Bank taxation 9 Trust company taxation 9 LAWS 10 Foreign countries 10 . United States 10 4. REFERENCES ADAMS, HENRY CARTER, Science of finance: an investigation of public expenditures and public revenues. N. Y., 1899. (American science series.) For a scientific classification of taxes, see book 2, ch. 3. Also see book 2, ch. 5 (p. 463), for a discussion of bank and trust company taxation. AMERICAN BANKERS' ASSOCIATION Trust company section. Proceedings of the annual meetings, 1896-1903. New York, 1904. Includes papers and discussions bearing on trust companies by bankers and trust company officials. AUDIT COMPANY OF NEW YORK, Comp. Trust companies of the United States. New York, 1904. Published by the United States Mortgage and Trust Company. Gives statements of the condition of trust companies in the United States . CATOR, GEORGE. Trust companies in the United States. Baltimore, 1902. Johns Hopkins University. Studies in historical and political science, ser. 20, nos. 5-6. Gives tabular statement of taxation of banks and trust companies in the several states and territories in 1901, p. 101-4. ELY, RICHARD THEODORE. Taxation in American states and cities. New York, 1888. For a valuable summary of state constitutional provisions on taxa- tion, see tabular statement facing p. 396. HERRICK, CLAY. Trust companies: their organization, growth and management. Bankers' Magazine, Jan.- Oct., 1904. vols. 68-69. A series of articles appearing each month. KIRKBRIDE, FRANKLIN B. and STERRETT, J. E. Modern trust company: its functions and organization. New York, 1905. One of the best texts on trust companies. Includes bibliography, p. 291-95. 4 THE BASIS OF TAXATION NKSBITT, ROBERT C. Trust companies. Law society, Lon- don. Proceedings of the 29th provincial meeting, 1903, p. 234-64. A description of the trustee companies of Australia, Public trust office of New Zealand, and the position of English companies or in- dividuals aualagous to these. RIDGBLEY, WILLIAM BARRET. Government control of banks and trust companies. Annals of the American academy, July, 1904. vol 24, p. 15-267. Discusses briefly the growth of trust companies. YOUNG, G. W. and COMPANY. Digest of laws relating to trust companies of the United States. New York, 1905. A convenient compilation giving comtemporary law in classified form. THE BASIS OF TAXATION Existing laws for the taxation of trust companies, vary greatly for the several states. TAXES BASED UPON THE NATURE OF THE PROP- ERTY The different taxes employed may be grouped ac- cording to the nature of the property right, 1 which is taken as the basis of assessment. On this basis taxes are levied upon : i . the volume of business ; 2. annual earnings ; 3. special kinds of property. VOLUME OF BUSINESS Taxes based upon the volume of business are lev- ied upon: i. the amount of corporate investment; 2. general deposits; 3. property held in trust. Amount of corporate investment A number of states 2 tax trust companies upon the amount of the corporate investment including capital stock, surplus, and undivided profits. iThe following: statement of trust company taxation aims to analyze and classify the taxes which exist under contemporary law, it does not aim to *ive a complete classification of possible taxes. 2 See states in alphabetic order under I.au'. 6 THE BASIS OF TAXATION Capital stock. Taxation based upon the amount of capital stock is commonly found in our older states. For typical cases see laws of: Conn., Md., Mass., Mich., N. H., N. J M N. Y., R. I. The tax on capital stock is assessed either to the company on the aggregate value of the shares, or to the owners of the separate shares. Assessed to company. The law of N. Y. presents a typi- -cal case of assessment to the company. Assessed to owner. The assessment of separate shares to the owners is illustrated in the laws of Mich, and R. I. Surplus. Certain states also tax surplus. Compare the laws of N. J. and N. Y. Undivided profits. Others also include undivided profits. For a plaiu statement of law on this point, see N. Y. Special provisions for real estate. Since it is gen- erally desirable to assess real estate separately for local purposes, a majority of the states have made provision for deducting the assessed value of the real property from the aggregate valuation of the capital stock. For typical laws compare: Conn., Mich., N. J., N. Y., R. I. General deposits A tax upon the deposits of trust companies is im- posed in a number of states. Aggregate deposits. For a tax upon aggregate geneial deposits, see thf laws of R. I. Also compare the laws of Vt. which place a tax upon the average amount of deposits after providing for certain deductions. THE BASIS OF TAXATION 7 Deposits upon interest. Typical illustrations of the tax- ation of deposits upon interest are found in the laws of Mass, and of N. H. Property held in trust Tax provisions relating to property held in trust, generally require trust companies to give a detailed report of all securities and investments held by them in order to subject such property to taxation. For typical provisions, see the laws of Mass, taxing personal property held in trust. Also compare the laws of Md. and of Vt. for illustrations of the taxation of securities and invest- ments. ANNUAL EARNINGS Taxes based upon the earnings of trust companies have not been as generally employed as those based upon volume of business. However, existing taxes levied according to earnings are placed upon-. I. gross earnings; 2. gross amount of premiums; 3. net income. Gross earnings Recent legislation has placed a tax upon gross earn- ings in several states. Compare the laws of the Dist. of Columbia for a \y z per cent, tax on gross earnings and the laws of Md. for a 2^ per cent, tax on gross receipts. Gross amount of premiums Another method of reaching earnings is found in the tax on the gross amount of premiums. For typical cases compare the laws of Mich, and of Ga. 8 THE BASIS OF TAXATION Net income Taxes based upon the net income of trust com- panies are sometimes employed to supplement other taxation. The Wis. law as amended in 1905, c. 442 illustrates this method. SPECIAL KINDS OF PROPERTY In certain cases, taxes are levied upon the kinds of property held by trust companies without any refer- ence to the volume of their business or the amount of their annual earnings. From this standpoint, taxes may be roughly grouped according as they are levied upon: i. tangible assets; 2. franchises. Tangible assets The method of taxing trust companies upon their tangible assets exclusively has been quite generally supplemented in order to secure an adequate basis of assessment. A typical case of taxation upon assets is found in Miss., Code, 1892, sees. 3749-58. Franchises Right to do business. A license fee for the privi- lege of conducting a corporate business is sometimes levied in a lump sum without any attempt at definite valuation of the property. See the laws of Wis. for a typical provision. Value of franchise. The value of the corporate franchise is made the basis of assessment in a number of recent laws. For different methods of estimating the value of the fran- chise, see the laws of Mass, and of N. Y. THE BASIS OF TAXATION 9 TAXES BASED UPON THE NATURE OF THE COR- PORATION The assessment of trust companies as corporate bodies is provided for under the following systems : I. general corporation taxation ; 2. bank taxation ; 3. trust company taxation. General corporation taxation The general provisions for the taxation of corpora- tions apply in a number of states. See the laws of: Minn., Miss., Nev., N. D., Okla., Ore., Pa., S. D. Bank taxation In more than half of our states taxation is the same as for banks. ''Compare the laws of: Ala., Ariz.', Ark., Cal., Col., Del., Fla., Id., Ind., Kan., Ky., La., Me., Mo., Mont., Neb., N. M., N. C., Ohio, S. C., Tenn., Tex., Ut, Va., Wash., W. Va., Wy. Trust company taxation About one fourth of our states have special provi- sions for the taxation of trust companies. For leading provisions compare the laws of: Conn., D. C., Md., Mass., Mich., N. H., N. J., N. Y., R. I., Vt., Wis. 10 THE BASIS OF TAXATION LAWS Foreign countries No important laws for the special taxation of trust companies have been developed in foreign countries. United States Alabama. Taxation the same as for banks. For tax provisions see Const. 1901, sees. 217, 255; Code, 1896, sec. 3911, subd. 8; sec. 4122, subd. 55; Laws, 1896-7, no. 659, sec. 36. Arizona. Taxation the same as for banks. For tax provision see Rev. St. 1901, sees. 3837-9. Arkansas. Taxation the same as for banks. For tax provisions see Dig. of St. 1904, sees. 6919-28. California. Taxation the same as for banks other than national. For tax provisions see Const. 1879, art. 13, sec. I ; Pol Code, 1903, sec. 3608; Laws, 1905, c. 386. Colorado. Taxation the same as for banks. For tax provisions see Ann. St. Supp. 1896, sec. 3810- 38100. THE BASIS OF TAXATION 11 Connecticut. Gen. St. 1902, sec. 2328, 2331 as amended by Laws, 1903, c. 204 and by Laws, 1905, c. 54. The state tax is i% of the market value of the stock less the local tax on the real estate. Delaware. Taxation the same as for banks. For tax provisions see Rev. Code, 1893, p. 54; Laws, 1897, c. 381. District of Columbia. Act of Cong. Oct. ist, 1890, U. S. St. at L. vol. 2,6, P. 629. Real estate is taxed locally. There is also a i l / 2 % tax on gross earnings, and this is in lieu of personal taxes. Shares are not taxed. Florida. Taxation the same as for banks. For tax provisions see Rev. St. 1892, sec. 336, subd. n. Georgia. Tax provisions for banks apply: see Const. 1877, art. 7, sec. 2; Laws, 1898, p. 78. In ad- dition there is a i% tax on all premiums: see Laws, 1900, p. 28. Idaho. Taxation the same as for banks. For tax provisions see Const. 1889, art. 7, sec. 8; Pol. Code, 1901, sec. 1335. Illinois. Trust companies organized under the general incorporation laws are taxed the same as other corporations thus organized. For tax provi- sions see Rev. St. 1905, c. 120, sees, i, 3, 4, 32-4. State banks complying with the requirements made of trust companies as to the deposit of securities with the state are authorized to accept and execute trusts. 12 THE BASIS OF TAXATION When such deposit has been made the bank becomes a trust company as well as a banking company, and such companies are assessed the same as state and national banks. For provisions see Rev. St. 19/35, c. 120, sees. 13, 35-9. Indiana. Taxation the same as for banks. For tax provision see Const. 1851, art. 10, sec. i ; Ann. St. 1901, sees. 8411, 8469-76; Supp. 1905, sees. 8421, 8469-74. loiva. Trust companies are taxed under the pro- visions for the taxation of banks and of corporation stocks. See Const. 1857, art. 8, sec. 2, annotations; Code, 1897, sec. 1322 as amended by Laws, 1906, c. 50; Code, sees. 1323-25, 1327. Kansas. Taxation the same as for banks. For tax provisions see Const. 1859, art. n, sec. 1-2; Gen. St. 1905, sees. 8276-8. Kentucky. Taxation the same as for banks. For tax provisions see Const. 1891, sec. 174; St. 1903, sees. 4092-92^ Louisiana. Taxation the same as for banks. For tax provisions see Const. 1898, art. 228-9; R ev - Laws, 1904, sec. 307. Maine. Taxation the same as for banks. For tax provisions see Rev. St. 1903, c. 8, sees. 64-8; Laws, 1905, c. 172. THE BASIS OF TAXATION 13 Maryland. Pub. Gen. Laws, 1904, art. 81, sec. 138 as amended by Laws, 1906, c. 84; art. 81, sees. 148-60. Trust companies are taxed upon their capital stock for state, county and municipal purposes. In no case is the aggregate amount of stock- to be valued at less than the full value of the real estate and chattels, real or personal, belonging to the company. art. 81, .sec. 22 as amended by Laws, 1906, c. 404, fixes the rate of taxation on capital stock for state pur- poses at 16^ per $100. art. 81, sec. 164, as amended by Laws 1906, c. 712. An additional state tax of 2^/2% is levied upon the an- nual gross receipts of trust companies. 3 Massachusetts. Rev. Laws, 1902. c. 12. sees. 2-4, 15. Real estate is taxed locally. c. 14. sees. 35-6. A tax is placed upon all personal property held upon trust which would be liable to tax- ation if held by any other trustee residing in the com- monwealth. A tax is also placed upon all deposits held upon interest, or for investment, other than those held in trust or subject to withdrawal upon demand or within ten days. sees. 37-40. A further tax is placed upon the cor- porate franchises of trust companies. The value of the franchise is determined as follows : the tax com- missioner is required to ascertain the true market value of the shaies of capital stock, and is to estimate 8 See Pub. Gen. Laws, 1901, art. 81, sec. 153 for provisions requiring trust companies to give a detailed report to the state tax commissioners of all securities and investment? held by them in trust or otherwise in order to subject such securities and investments to state, county, and municipal taxation. 14 THE BASIS OF TAXATION therefrom the fair cash value which is to be taken as the true value of the corporate franchise. From this amount the value of real estate, assessed locally, is to be deducted. The rate of taxation is determined by making an apportionment of the whole amount of money to be raised by taxation upon property in the commonwealth. Michigan. Comp. Laws, 1897, sec. 6168. Real es- tate is taxed locally. The residue of capital is taxed as personal property. After deduction of real estate, shares are assessed by local assessors to owner at res- idence. Laws, 1897, c. 1 06. In addition there is a tax of 2% of gross amount of all premiums. Minnesota. Tax provisions for corporations appty. See const. 1857, art. 9, sec. 3; Rev. Laws, 1905, sees. 794, 797-8, 821, 838, 1685. A ! SO see Nelson v. St. Paul T. I. & T. Co. 1896, 64 Minn. 101. Mississippi Tax provisions for corporations apply. See Const. 1890, art. 7, sec. 181 ; Code, 1892, sees. 3749-58. Missouri. Taxation the same as for banks. For tax provisions see Const. 1875, art - IO< secs - 2 2I >" Rev. St. 1899, secs. 5580, 9153. Montana. Taxation the same as for national banks. For tax provisions see Const. 1889, art. 12, secs. 7, 17; Civ. Code, 1895, sec. 6n; Pol. Code, 1895, secs. 3691-4. THE BASIS OF TAXATION 15 Nebraska. Taxation the same as for banks. For tax provisions see Const. 1875, art. 9, sec. I ; Ann. St. 1903, sec. 10455. Nevada. General tax provisions for corporations apply: see Comp. Laws 1900, sees. 1084-89. In ad- dition, a license tax is placed upon trust companies the same as for banks: see sees. 1188, 1190. . Nezv Hampshire. Pub. St. 1901, c. 65, sec. 5. The state tax is ^4 of i% on the aggregate general de- posits drawing interest after deducting the value of all the real estate and of all the mortgage loans on real estate within the state made at a rate not exceeding 5%. In addition there is a tax of i% on the special deposits and capital stock after deducting the value of all the corporate real estate not already deducted from the general deposits. Such taxes are In lieu of all other taxes against the corporation, their stock holders and their depositors on account of their interests therein; Nezv Jersey. Laws, 1903. c. 208, sec. 18. Each trust company is taxed in the district where its office is located upon the full amount of capital stock paid in and accumulated surplus ; its real estate is taxed in the district where it is situated and this assessment is deducted from the assessment on the capital stock. Otherwise the capital stock, property and franchise are exempt from state taxation. New Mexico. Taxation the same as for banks. For tax provisions see Comp. Laws 1897, sees. 257-9, 4025. 16 THE BASIS OF TAXATION New York. Laws, 1901, c. 132 as amended by Laws, 1901, c. 535. Every company authorized to do a trust company business is required to pay an annual franchise tax equal to I % on the amount of its capital stock, surplus, and undivided profits. Laws, 1896, c. 908, as amended by Laws, 1901, c. 132, and Laws, 1902, c. 172. A stockholder in a trust company is not to be taxed as an individual for such stock. Laws, 1896, c. 908 as amended by Laws, 1902 c. 171. Real estate is taxed locally. Laws, 1901, c. 132 and Laws, 1902, c. 172, pro- vide for annual reports by trust companies stating the amount of capital stock, surplus, and undivided profits, and such other data as the comptroller may re- quire. Laws, 1896, c. 908, as amended by Laws, 1901, c. 118, 132, and 558 make provision for payment of taxes and prescribes penalties for failure to pay. 4 North Carolina. Taxation the same as for banks. For tax provisions see Const. 1876, art. 5, sec. 3 ; Re- visal, 1905, sees. 5162, 5267-70. Trust companies not doing banking business are taxed under the gen- eral provisions for the taxation of private corpora- tions: see Revisal, 1905. sees. 5108, 5190. Xorth Dakota. General tax provisions apply : see Co3e, 1899, sec. 1198. *For laws holding trust companies liable for the transfer tax upon making a transfer of securities, deposits, or assets of a decedent, see Laws, 1896, c. 908 as amended by Laws, 1906, c. 368. Also see Laws, 1905, c. 241, as amended by Laws, 1906, c. 414, under which trust companies are required to pay a tax on transfers of stook at the rate of 2c on 8100. THE BASIS OF TAXATION 17 Ohio. Taxation the same as for banks. For tax provisions see Const. 1851, art. 12, sees. 2, 3; Ann. St. 1906, sees. 2762-9. Oklahoma. Corporation laws apply. For tax pro- visions see Rev. & Ann. St. 1903, sees. 5913, 5915, 5928-3L Oregon. Corporation laws apply. For tax pro- sions see Ann. Codes & St. 1902, sees. 3044, 3049, 3055- Pennsylvania. Corporation tax provisions apply. See Pub. Laws, 1885, p. 193 ; Pub. Laws, 1889, p. 420 as amended by Pub. Laws, 1891, p. 229; Pub. Laws, 1893, p. 353 and p. 417; Pub. Laws, 1897, p. 292; Pub. Laws, 1899, p. 261. Also see Brightly's Dig. of Laws, 1903, p. 829. Rhode Island. Gen. Laws, 1896, c. 29, sec. 4; c. 45, sees, i, 10; c. 46, sees. 11-12. The state tax is 40^ per $100 of deposits. After deducting value of real estate, shares are taxed to owner at residence by local assessors. South Carolina. Taxation the same as for banks. For tax provisions see Code, 1902, sees. 313-24. South Dakota. Corporation laws apply. For tax provisions see Const. 1889, art. n, sees. 2-4: Pol. Co3e, 1903, sees. 2053-55, 2 O57-59> 2O 79- Tennessee. Taxation the same as for banks. For tax provisions see Code, 1896, sees. 790-2. 18 THE BASIS OF TAXATION Texas. Taxation the same as for banks. J 7 or tax provisions see Civ. St. 1897, arts. 5061-4, 5077-80, 5084, 5118, 5243 i-j; Supp. 1904, art. 5049, Annota- tions; Supp. 1906, arts. 5243 i-j. Utah. Taxation the same as for banks. For tax provisions see Const. 1895, art. 13, sees. 2-3; Rev, St. 1898. sees. 25079. Vermont. St. 1894, sees. 368-71 ; sec. 583 as amended b> Laws, 1896, no. 18; and Laws, 1902, no. 20, sec. 40. Every trust company or savings bank and trust company incorporated by the state and doing business therein, is required to pay a state tax assessed at the rate of n> of i% annually, upon the average amount of its deposits including money or securities received as trustee under order of court or otherwise, after deducting therefrom the average amount not exceeding 10% of its assets invested in U. S. govern- ment bonds, and also the amount, if any, of individual deposits in excess of $2.000 each, listed to the deposi- tors in towns of this state wherein such depositors re- side. No other tax is to be assessed against deposits or "depositors except on individual deposits exceeding in the aggregate $2,000. Real estate is taxed locally. Virginia. Taxation the same as for banks. For tax provisions see Const. 1902, sec. 182 ; Code, 1904, sec. 492C as amended by Laws, 1906, c. 291 ; sees. iO4oa b: Appendix, sees. 1722'. Washington. Taxation same as for banks. For tax provisions see Const. 1889, art. 7, sec. 3 ; Codes & St. sees. 1677-81 ; Supp. 1903, sec. 1677. THE BASIS OF TAXATION 19 West Virginia. Taxation the same as for banks. For tax provisions see Const. 1872, art. 10, sec. i ; Code, 1899, c. 29, as amended by Laws, 1904, c. 4, sees. 55d and C, 79, 83 ; by Laws, 1905, c. 35, sees. 55d and k, 79 ; and by c. 38. Wisconsin. Rev. St. 1898, sec. 1039, and sec. 1222k as amended by Laws, 1905, c. 442. Requires payment of a license fee of $500 annually, also a tax of 3% on the net income. This license together with the per- centage on net income is in lieu of all other taxes ex- cept the tax on real estate, which is assessed locally. Wyoming. Taxation the same as for banks. For tax provisions see Rev. St. 1899, sees. 1774, 3128. A 000 949 847 8