Baltimore National Bank v. State Tax Commission

Background

A Baltimore bank was reorganized in 1933 as the Baltimore National Bank, and the Reconstruction Finance Corporation (RFC), a federal agency created in 1932 to help troubled financial institutions, subscribed for the entire issue of 10,000 preferred shares. Maryland’s Tax Commission assessed a state tax on those bank shares. The bank and the RFC protested, arguing the federal agency was immune from the tax; lower courts split, and the case came to this Court to resolve the question of a state’s taxing power.

Reasoning

The central question was whether a state may tax shares of a national bank when those shares are owned by the RFC. The Court relied on a federal statute that makes “all” shares of a national bank subject to state taxation and on prior decisions treating bank shares as taxable regardless of ownership. The Court also noted Congress had recently authorized national banks to issue preferred shares and authorized the RFC to subscribe for them, showing an expectation that such shares would stand on the same footing as other shareholders. The RFC’s separate exemption for its own capital, reserves, surplus, and income does not directly exempt shares it holds in another corporation. Because the tax falls on the bank shares and Congress spoke of “all” shares, the Court concluded the state tax may be imposed and affirmed the judgment.

Real world impact

States may collect taxes on national bank shares even when a federal relief agency owns those shares. Federal agencies holding bank stock will not automatically avoid state taxation of those holdings. Banks may pay the tax first and then seek reimbursement from the shareholders who own the stock.