When North Carolina amended its intangibles tax in 1978 to reach money on deposit in stock-owned savings and loan associations, did the tax also apply to deposits in federally chartered stock savings and loan associations, or did federal law block the state from taxing those federal deposits?

Plain-English summary

The 1979 Attorney General was asked whether North Carolina's intangibles tax applied to money deposited in a federally chartered, stock-owned savings and loan association. The answer was no, although the AG read the amended state statute, G.S. 105-199, as intended to cover stock-owned associations chartered by either the state or federal government.

The opinion first examined § 1464(h), the federal provision it quotes as limiting some state taxes on federal associations. It concluded that this provision covered taxes "on associations and their properties" only. North Carolina's intangibles tax under G.S. 105-108 fell on depositors, with an association sometimes paying as their agent. On that basis, the opinion said § 1464(h) did not itself reach the depositor tax.

The AG then applied a separate discrimination analysis from Commissioner v. Flaherty. Deposits in competing state mutual associations were not taxed. Taxing deposits in federal stock-owned associations while leaving those state mutual deposits untaxed would create a distinction the AG called "a proscribed discrimination under federal law." The opinion therefore advised that G.S. 105-199 could not be applied to deposits in federal stock-owned savings and loan associations. It did not attribute that result to § 1464(h).

Currency note

This opinion was issued in 1979 and concerns the tax structure and federal law described at that time. Check current law before applying its conclusion to a present-day tax question.

What this means for you

Depositors and tax administrators. Under the opinion's 1979 conclusion, money on deposit with a federal stock-owned association could not be subjected to the G.S. 105-199 tax. The reason was the comparison with untaxed deposits at competing state mutual associations.

Savings and loan associations. The opinion distinguishes a tax imposed on the association from a tax imposed on its depositors. That distinction mattered for its reading of § 1464(h), even though the depositor tax still failed under the separate discrimination analysis.

Common questions

Did North Carolina's statute, by its terms, cover federal stock-owned associations?

Yes. The AG said G.S. 105-199 was intended to apply to "all" stock-owned savings and loan associations, state and federal.

Did § 1464(h) itself forbid the tax on depositors?

No, according to the opinion. It says the provision's scope reaches only taxes on associations and their properties, while the state intangibles tax falls on depositors.

Why did the AG still say the tax could not be applied?

The opinion followed Flaherty's discussion of a tax distinction favoring customers of a state competitor. It identified untaxed deposits at competing state mutual associations and concluded that taxing federal stock-owned association deposits would be prohibited discrimination under federal law.

Did the AG say the legislature wanted to exempt federal deposits?

No. The opinion says the General Assembly intended the state statute to reach state and federal stock-owned associations alike, but that federal law prevented this application.

Background and statutory framework

The opinion says the 1977 General Assembly authorized state stock-owned savings and loan associations under Chapter 54A. A 1978 amendment to G.S. 105-199 then brought money on deposit with stock-owned associations within the intangibles tax's terms. The AG read that language to include federal stock-owned associations too.

The opinion next separated tax incidence from discrimination. G.S. 105-108 imposed a tax on depositors, not the associations. The AG therefore read § 1464(h)'s quoted restriction on taxes imposed on associations as inapplicable to this tax. The AG relied on Commissioner v. Flaherty for the further point that a tax on customers of a federal association can still be discriminatory when comparable customers of a competing state institution are untaxed.

Citations

• G.S. 105-199
• G.S. 105-108
• G.S. 105-109
• G.S. 54-1(b)
• Chapter 54A
• Article 3D of the Revenue Act
• 12 U.S.C. § 1461 et seq.
• 12 U.S.C. § 1464(h)
• 26 U.S.C. § 1464(h) (as quoted in the opinion)
• Commissioner v. Flaherty (1940), 306 Mass. 461, 28 NE 2d 433

Source

• Landing page: https://ncdoj.gov/opinions/taxation-intangibles-tax-money-on-deposit-federal-stock-savings-and-loan-associations/

Original opinion text

Requested By: W. L. Cole, Administrator, Savings and Loan Division, North Carolina Department of Commerce

Question:

Is money on deposit with a federal stock savings and loan association subject to intangibles tax?

Conclusion:

No.

The 1977 General Assembly for the first time authorized the creation of stock-owned savings and loan associations under State law, and based upon the method of organization and ownership, the manner of taxing them became different from the manner of taxing mutual savings and loan associations. For example, a mutual association was subject to a capital stock tax and an excise tax, pursuant to Article 3D of the Revenue Act, while stock-owned associations created pursuant to Chapter 54A of the General Statutes became subject to the ordinary corporate income and franchise tax. G.S. 54-1(b). In 1978, G.S. 105-199 was amended, carrying the distinction forward into the intangibles taxation of money on deposit. That statute now provides: "All money on deposit . . . with any . . . stockowned savings and loan association in this State . . . shall be subject to an annual tax. . . ."

In addition to mutual and stock savings and loan associations created under state law, mutual and stock associations may also be created under federal law, 12 U.S.C. § 1461 et seq., and the question has now arisen as to whether money on deposit in federal stock savings and loan associations is subject to the intangibles tax.

There are three types of concern which must be considered in answering the question: (1) did the General Assembly intend to restrict G.S. 105-199 to deposit only in State-chartered stockowned associations; (2) does 12 U.S.C. § 1464(h) preclude taxing deposits in federal stock-owned associations; (3) is the tax on such associations otherwise proscribed?

We are satisfied that the language of G.S. 105-199 applies, and was intended to apply, to all stock-owned savings and loan associations, both State and federal. G.S. 105-199 speaks of "stock-owned suavings and loan associations". The amendment to G.S. 105-109 was adopted months after the enactment of Chapter 54A, and was in no sense part of that "package". In fact, it would seem to be the intention of the Legislature to avoid discriminating between State and federal stock-owned associations in the area of intangibles tax by treating them equally; it was surely not their intention to discriminate against State-chartered associations by levying a tax on their deposits, but not on deposits in similar federal associations.

The federal law under which federal associations are created contains the following limitation on State taxing authority, which must be dealt with: "No state, county, municipal, or local taxing authority shall impose any tax on such associations on their franchise, capital, reserves, surplus, loans, or income greater than that imposed by such authority on other similar local mutual or cooperative thrift and home financing situations." 26 U.S.C. § 1464(h).

The tax levied by G.S. 105-108 is not a tax upon the association but a tax upon its depositors, which in some instances the associations pays as agent for such depositors. In an analogous situation, Massachusetts levied an income tax on income from such deposits, and the Massachusetts court reasoned, correctly we believe, that with reference to 26 USC § 1464(h), "the tax now assailed does not offend this provision because it was not assessed upon the association or its property. . . . A tax upon the association is different from a tax upon its customers, depositors and shareholders." Commissioner v. Flaherty (1940), 306 Mass. 461, 28 NE 2d 433, cer. den. 312 US 680, 61 S. Ct. 450, 85 L. Ed. 1119. In short, the scope of § 1464(h) reaches only taxes on associations and their properties. It does not reach taxes upon depositors.

Unfortunately, that conclusion does not dispose of the question in its entirety, because the Massachusetts court went on to say:

"The appellee does not challenge the authority of the Commonwealth to lay a tax on income received by shareholders in a federal savings and loan association, but contends that the receipt of such income cannot be taxed if no tax is laid upon the receipt of similar income by the shareholder of a co-operative bank. . . . The bank discriminates against the income received from a federal fiscal agency and in favor of income received from State co-operative banks. Such an exercise of the taxing power cannot be sustained." (citing cases) Commissioner v. Flaherty, supra.

The same observation must be made here. It is of no moment under federal law that State and federal stock-owned associations are taxed the same, or that State stock-owned associations may be treated adversely if federal stock-owned associations' deposits are not subject to the tax. The important consideration is that deposits with a state mutual association, in competition with a federal stock-owned association, are not subject to tax and that consideration impels the conclusion that such a distinction is a proscribed discrimination under federal law.

It seems clear that the General Assembly intended no such result, but we must advise that the tax imposed by G.S. 105-199 may not be applied to deposits in federal stock-owned savings and loan associations.

Rufus L. Edmisten
Attorney General

Myron C. Banks
Special Deputy, Attorney General