decided: February 4, 1935.
DOMENECH, TREASURER OF PUERTO RICO
NATIONAL CITY BANK OF NEW YORK
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FIRST CIRCUIT.
Hughes, Van Devanter, McReynolds, Brandeis, Sutherland, Butler, Stone, Roberts, Cardozo
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MR. JUSTICE ROBERTS delivered the opinion of the Court.
The respondent, a national banking association whose principal office and place of business is in New York, applied
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for and obtained authority to operate branches in Puerto Rico, pursuant to § 25 of the Federal Reserve Act as amended.*fn1 In 1932 the bank, as required by local law, filed with the petitioner a sworn statement of assets as a basis of assessment for taxation. By request, but under protest, it attached a memorandum stated to be for information only, in which was set forth the amount of its total assets, the sum of its capital, surplus, and undivided profits, the percentage the latter was of the former, and the value of the assets in Puerto Rico. The Treasurer considered the same percentage of the assets in Puerto Rico fairly represented the capital there employed. The amount thus ascertained was $2,439,200, which he divided into three items, -- real property and buildings, $732,560; other personal property, $1,611,400; and tangible personal property, $95,240. Applying the statutory rate to $2,439,200, he fixed the tax at $62,122.98. Upon appeal the Board of Equalization sustained the Treasurer's action. The bank voluntarily paid $17,700.24, the amount attributable to real property and buildings, but paid under protest the balance of $44,422.74 demanded in respect of the personal property, and brought suit in the United States District Court for Puerto Rico to recover the amount. Judgment in favor of the Treasurer was reversed by the Circuit Court of Appeals. We granted a writ of certiorari,*fn2 because the case involves the application and scope of Acts of Congress and their effect upon the taxing power of insular possessions of the United States.*fn3
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Respondent concedes the competence of the Island government to tax generally,*fn4 but asserts that R. S. 5219 as amended*fn5 prohibits a levy on the capital of a national bank. The further point is made that § 320 of the Political Code of Puerto Rico,*fn6 to which the petitioner refers
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as his authority, does not justify the imposition of the tax in question. This the petitioner denies, and adds that the point was not presented below, and cannot, therefore, be mooted here. In addition to contending that § 5219 never extended to Puerto Rico, he claims that in any event the section was rendered inoperative in the Island by § 25 of the Federal Reserve Act as amended.*fn7
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We find it unnecessary to determine whether the tax was authorized by § 320 of the Political Code, since we are of opinion that R. S. 5219 forbids its collection.
Taxation of a bank's branch is taxation of the bank itself.*fn8 The system of national banks was intended to be co-extensive with the territorial limits of the United States, and while the consent to taxation given by § 5219 refers in terms only to the states, it extends also to territorial governments and sets the limits of their exercise of the power.*fn9 The form of taxation here imposed is not permitted by the section.*fn10 The organization of a national bank in Puerto Rico is within the contemplation of the National Banking Act; but if there were doubt concerning the proposition, it finds support in legislation extending applicable laws of the United States to the Island.*fn11 Although the maintenance of branch banks is prohibited by the National Banking Act save under narrowly limited conditions,*fn12 their establishment in foreign countries, dependencies and insular possessions is authorized.*fn13 Puerto Rico, an island possession, like a territory, is an agency of the federal government, having no independent sovereignty comparable to that of a state in virtue of which taxes may be levied. Authority to tax must be derived
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from the United States. But like a state, though for a different reason, such an agency may not tax a federal instrumentality. A state, though a sovereign, is precluded from so doing because the Constitution requires that there be no interference by a state with the powers granted to the federal government.*fn14 A territory or a possession may not do so because the dependency may not tax its sovereign. True the Congress may consent to such taxation; but the grant to the Island of a general power to tax should not be construed as a consent. Nothing less than an act of Congress clearly and explicitly conferring the privilege will suffice. Not only do we find no such statutory consent but we are confronted by R. S. 5219, which proprio vigore extends to territories, and the Congressional declaration that it, like other statutes of the United States shall, if not locally inapplicable,*fn15 apply to Puerto Rico.
The petitioner insists that this section is locally inapplicable for two reasons. The first is that the section was intended to apply only to taxation by the state, territory, or governmental agency within whose borders the bank has its principal place of business. The argument is that Puerto Rico cannot avail itself of the consent to the taxing of respondent's shares, or the dividends thereon, since the shares have no situs except New York, which is, in contemplation of law, the association's home. The position is that the section must be available in its entirety or else wholly inapplicable. We think otherwise. If Puerto Rico can and does collect taxes of any of the types mentioned in R. S. 5219, the mere fact that the situation prevents resort to one of the other kinds thereby
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permitted does not make the statute a nullity in the Island. The record discloses that there has been assessed and collected a tax on the bank's local real estate, as permitted by paragraph 3 of R. S. 5219, and in addition an income tax upon the local income,*fn16 as permitted by paragraph 1 (c). These seem to afford appropriate and equitable methods of taxation in respect of the association's local branches and business.
Secondly, petitioner says § 25 of the Federal Reserve Act as amended,*fn17 exhibits an intention on the part of Congress that for purposes of taxation branches in dependencies or insular possessions shall be treated as if they were branches established in foreign countries. The argument is that as all are mentioned several times in the section as "foreign branches," and since confessedly the United States cannot limit or control the method or manner of taxation of foreign branches, the purpose was not to do so with respect to those in an insular possession.
We think the contention unsound. It does not follow from the lack of power of the United States in the one case that it did not intend to exercise its undoubted power in the other.
We are of opinion that § 5219 prohibits the imposition of the tax in question.*fn18
The judgment is
71 F.2d 13, affirmed.