Colorado National Bank of Denver v. Bedford

Background

The dispute is between a national bank that operates safe-deposit boxes and the Colorado State Treasurer, who enforces the Public Revenue Service Tax Act. Colorado’s law imposed a two-percent tax on specified services, including certain bank services, and required service providers to add the tax to charges, collect it, and remit it to the State. The bank refused to pay the tax on safe-deposit box rentals and the treasurer sued for a declaration that the tax applied. State courts ultimately held the tax valid and the bank appealed to this Court.

Reasoning

The central question was whether the tax fell on the bank — a federal instrumentality — or on the bank’s customers, and whether making the bank collect and report the tax unlawfully interfered with its federal functions. The Court found that Congress had authorized banks to run safe-deposit operations but that the Colorado law, by requiring the tax to be listed separately and making it a debt of the user, placed the tax on the customer rather than on the bank. The statute also lets banks claim credit for taxes on accounts later found worthless and permits banks to require payment in advance, so the bank would not bear the tax burden. The act also allows a three percent allowance to cover collection costs. Prior decisions were cited to support that requiring collection and remittance does not unconstitutionally impair a national bank.

Real world impact

The decision allows Colorado to collect the two-percent service tax from safe-deposit customers while permitting banks to collect and remit the tax for the State. National banks retain their authority to operate safe-deposit services, and the ruling confirms that collection duties, with a small allowance, do not make the tax unconstitutional.