City of Pittsburgh v. Allegheny Valley Bank

412 A.2d 1366, 488 Pa. 544, 1980 Pa. LEXIS 550

• Court: Supreme Court of Pennsylvania
• Decided: March 20, 1980
• Docket: 213
• Status: Published

Opinions

OPINION OF THE COURT

ROBERTS, Justice.

Since 1969, the City of Pittsburgh has imposed a Business Privilege Tax on local business revenues.¹ On August 30, 1973 the City brought assumpsit actions in the Allegheny County Court of Common Pleas against five state banks and four national banks for failure to pay this tax.² The City alleged that the state banks were subject to the Business Privilege Tax for the years 1969 to 1973, resulting in unpaid tax liability of at least $300,000, and that the national banks were subject to the Business Privilege Tax for the years 1970 to 1973, resulting in unpaid tax liability of at least $4,000,000.³ The banks admit not paying the tax, but claim that the tax is invalid as applied to them.

The actions were consolidated and tried without a jury. The trial court held that the Bank Shares Tax Act and the Local Tax Enabling Act exempted appellee banks from this tax.⁴ The court decided, however, that certain “nontraditional” banking activities were subject to the Business Privilege Tax.⁵ The Commonwealth Court reversed the trial court’s holding as to the taxability of “nontraditional” banking activities, but in all other respects affirmed the court’s decision. This Court granted allowance of appeal. We affirm.

I.

The question presented is whether appellant City of Pittsburgh may validly impose its Business Privilege Tax upon the business of appellee banks. The Local Tax Enabling Act, if read alone, may possibly sustain appellant’s tax, for it grants municipalities “the power to levy, assess and collect taxes upon any and all subjects of taxation which the Commonwealth has power to tax but which it does not tax or license.” However, the Legislature’s enactment of comprehensive banking legislation compels our consideration of whether local taxation upon the business of banks has been preempted.

When laws, such as the banking legislation,

“are silent as to whether municipalities are or are not permitted ... to impinge in any manner upon the field entered by the state ...[,] the question whether municipal action is permissible must be determined by an analysis of the provisions of the . [relevant legislation] in order to ascertain the probable intention of the legislature in that regard.”

Western Pennsylvania Restaurant Ass’n v. Pittsburgh, 366 Pa. 374, 380-81, 77 A.2d 616, 619-20 (1951) (Opinion by Justice, later Chief Justice, Horace Stern); see Harris-Walsh, Inc. v. Dickson City Borough, 420 Pa. 259, 216 A.2d 329 (1966); Department of Licenses v. Weber, 394 Pa. 466, 147 A.2d 326 (1959). Review of the Commonwealth’s banking laws discloses the Legislature’s intention to exclusively reserve regulation of the state banks to the Commonwealth. It is clear, moreover, that appellant’s Business Privilege Tax impermissibly “impinges” upon this regulated area in contravention of the legislative preemption for the Commonwealth. It must be concluded therefore that appellee state banks are not taxable under appellant’s ordinance. Because federal law prohibits discrimination in taxation between state and national banks, it would be impermissible to impose this tax upon national banks while excluding state banks from such taxation. Hence, we hold that appellant’s tax is also invalid as applied to appellee national banks.

II.

The Banking Code⁶ and the Department of Banking Code⁷ manifest the Legislature’s intention to exclusively occupy the state banking field. These Codes impose statutory requirements and standards upon virtually all aspects of banking. There are provisions, for example, governing the powers of commercial and saving banks, 7 P.S. §§ 301-317 and 501-512, bank deposits, §§ 601-610, a bank’s capital structure, §§ 1101-1105, shares and shareholders, §§ 1201-1222, incorporation, §§ 1001-1011, and duties as a fiduciary, §§ 401-407.

The Legislature established the Department of Banking to supervise the activities of state banking institutions. See Delaware County Nat’l Bank v. Campbell, 378 Pa. 311, 314, 106 A.2d 416, 418 (1954); Commercial Bank Corp. v. Freeman, 353 Pa. 563, 567, 46 A.2d 233, 235 (1946). The Legislature assigned various mandatory duties to the Department,⁸ and vested in it “auditory, investigatory and inquisitorial power . . .’’to carry out these functions. Stahl v. First Pa., 411 Pa. 121, 131, 191 A.2d 386, 392 (1963).

The Legislature also granted broad supervisory power to the Department of Banking. The Department is charged with the responsibility of protecting the safety and soundness of all banking institutions:

“[The Department] shall exercise such general supervision over institutions as will afford the greatest possible safety to depositors, other creditors, and shareholders thereof, insure the safe and sound conduct of the business of such institutions, conserve their assets, maintain the public confidence in such institutions and protect the public interest.”

71 P.S. § 733-202. In addition, the Department is legislatively directed to foster a “progressive” banking industry in this Commonwealth by promoting “competition” and the growth of diversity in the banking industry, encouraging banks to adapt to the changing community and economy, providing bank management more leeway in the development of bank operations and policy, and shaping its own regulations to “meet changes in banking and economic conditions without repeated, detailed legislative amendment.” 7 P.S. § 103(a)(v)-{ix) and Comment;⁹ see also Pennsylvania Bankers v. Secretary of Banking, 481 Pa. 332, 392 A.2d 1319 (1978).

The Great Depression is a stark reminder that the economic fate of our Commonwealth is tied to the soundness and progress of its banking institutions. Banks possess a “delicate nature,” so that even sound banks may be in jeopardy of collapse when one or more in the general area fail. Dauphin Deposit Trust Co. v. Myers, 401 Pa. 230, 236, 164 A.2d 86, 89-90 (1960); cf. Conestoga Nat’l Bank v. Patterson, 442 Pa. 289, 300, 275 A.2d 6, 11 (1971). It is the legislative judgment that unified state-wide regulation of banks is the best method for protecting the soundness and integrity of banking institutions.

“Local authorities not only are ill-equipped to comprehend the needs of the public beyond their jurisdiction, but, and equally important, these authorities, if they had the power to regulate, necessarily would exercise that power with an eye toward the local situation and not with the best interests of the public at large as the point of reference.”

Duquesne Light Co. v. Upper St. Clair Twnshp., 377 Pa. 323, 336, 105 A.2d 287, 293 (1954); see Duquesne Light Co. v. Monroeville Borough, 449 Pa. 573, 298 A.2d 252 (1972). Thus there is no position in the legislative schema for municipal “impingement” in the uniform state-wide regulation of banking institutions.¹⁰

III.

It is well established in this Commonwealth that a municipal regulation may not intrude into areas preempted by the state.¹¹ This concept is equally applicable to local taxation. See e.g., Allegheny Airlines v. Philadelphia, 453 Pa. 181, 309 A.2d 157 (1973) (state or local airport head tax preempted by congressional legislation); United Tavern Owners v. Philadelphia School District, 441 Pa. 274, 272 A.2d 868 (1971) (opinion announcing the judgment of the court) (municipal retail liquor tax preempted by state); Tempe v. Prudential Insurance Co., 109 Ariz. 429, 510 P.2d 745 (1973) (municipality preempted by state from taxing insurance company rental income); East Ohio Gas Co. v. Akron, 7 Ohio St.2d 73, 218 N.E.2d 608 (1966) (municipality preempted by state from taxing utility income); Parker v. Silverton, 109 Or. 298, 220 P. 139 (1923) (municipality preempted by state from taxing transit company); see also McCulloch v. Maryland, 4 U.S. (4 Wheat. 316) 415 (Curt.Ed.), 4 L.Ed. 579 (1819) (state preempted by Congress from taxing national bank); Weston v. Charleston, 8 U.S. (2 Pet. 449) 171 (Curt.Ed.), 7 L.Ed. 481 (1829) (municipality preempted from taxing federal bonds); see generally Antieau, 2A Local Government Law § 21.10 (1979 ed.); McQuillin, Municipal Corporations § 44.190a (1973 ed.).

As appellant’s complaint indicates, the tax liabilities which appellant imposed upon appellee state banks are not nominal. To the contrary, appellant seeks tax payments, calculated as a percentage of bank revenues, which would impose additional costs on appellees’ business operations in the city. Thus the Business Privilege Tax creates a direct burden upon the banking business of appellees.

The Business Privilege Tax cannot be viewed in any sense as supplementary to, or consistent with, the Legislature’s objectives in regulation of banks. Rather, the challenged local tax on bank revenues manifestly intrudes into the Legislature’s regulatory schema. Such a direct tax burden on appellee state banks undercuts the Banking Department’s responsibility, as well as its capacity, to regulate the soundness of banks, and promote their proper development. Were we to permit municipal taxing authorities in the Commonwealth to impose various business taxes upon state banks, such an accumulation of tax plans would surely impair the legislatively mandated supervisory authority of the Banking Department. Appellant may not, by the challenged tax ordinance, contravene the Legislature’s plenary statewide schema for the regulation and operation of the Commonwealth’s banking institutions.

Concluding, as we must, that taxation of bank revenues is preempted by the Commonwealth, and that the Business Privilege Tax impermissibly “impinges” upon this area, we hold that Pittsburgh’s tax is invalid as applied to appellee state banks.¹²

IV.

Our holding as to appellee state banks, as already stated, necessarily invalidates application of the Business Privilege Tax to appellee national banks. Since December of 1969, the National Bank Tax Act, 12 U.S.C.A. § 548 (Supp.1979) has authorized state taxation of national banks only so long as the tax is a “nondiscriminatory tax generally applicable to state banks.” Chase Manhattan Bank, N. A., v. Finance Administration of N. Y. C., 440 U.S. 447, 99 S.Ct. 1201, 1202, 59 L.Ed.2d 445 (1979).¹³ Since the Business Privilege Tax may not be imposed upon the state banks, so too, it may not be applied to appellee national banks.

The order of the Commonwealth Court is affirmed.

MANDERINO, J., did not participate in the decision of this case. FLAHERTY, J., joins this opinion and files a concurring opinion, joined by LARSEN, J. NIX, J., files a dissenting opinion, joined by EAGEN, C. J.

1 . The Business Privilege Tax, imposed by Ordinance No. 675 (effective February 1, 1969), as amended by Ordinance No. 594 (effective December 30, 1970), taxes business revenues at the rate of six mills. The ordinance excludes from a bank’s revenues the “cost of securities and other property sold, exchanged, paid at maturity, or redeemed, and moneys or credits received in repayment of advances, credits and loans, but not to exceed the principal amount of such advances, credits and loans, and shall also exclude deposits.”

2 . The state banks are the Allegheny Valley Bank of Pittsburgh, Commercial Bank and Trust Co., Iron and Glass Bank, Keystone Bank, and North Side Deposit Bank. The national banks are the Mellon Bank, N.A., Pittsburgh National Bank, Union National Bank, and Western Pennsylvania National Bank (changed to Equibank, N.A.).

3 . Appellant asserts that the liability of the state banks commenced with the effective date of the tax ordinance on February 1, 1969. Before December of 1969, it was impermissible for a Pennsylvania municipality to tax a national bank. See National Bank Tax Act, 12 U.S.C.A. § 548. Appellant avers, however, that the 1969 amendment to the Act permitted a tax like the Business Privilege Tax to be imposed on national banks as of December 24, 1969. See P.L. 91-156, 83 Stat. 434.

4 . The Bank Shares Tax Act, March 4, 1971, P.L. 6, § 701, 72 P.S. § 7701 (Supp. 1979-80), derived from Act of July 15, 1897, P.L. 292, § 1, as amended, 72 P.S. § 1961, exempts banks that pay the shares tax from local taxation on “the shares, and so much of the capital and profits ... as shall not be invested in real estate.” Both appellee state and national banks pay this shares tax. The trial court held that the Business Privilege Tax was a profits tax, and that it was therefore proscribed by the Act. The court found support for its holding in Oil City v. Oil City Trust Company, 151 Pa. 454, 25 A. 124 (1892). In light of our disposition here, we need not reach the issue of whether the Business Privilege Tax should be considered a profits tax for purposes of the Bank Shares Tax Act.

The Local Tax Enabling Act, December 31, 1965, P.L. 1257, § 3, 53 P.S. § 6903, confers upon political subdivisions the “power to levy, assess and collect taxes upon any and all subjects of taxation . which the Commonwealth has power to tax but which it does not tax or license.” The tried court ruled that the fees peud by the state banks to the Department of Banking preempted the Business Privilege Tax under the Enabling Act. In light of our decision today, we need not reach this issue.

5 . The “nontraditional” banking activities were: (1) selling merchandise at bargain rates to attract new depositors, (2) selling insurance, (3) operating a travel agency, and (4) selling computer time.

6 . Act of November 30, 1965, P.L. 847, §§ 101 et seq., as amended, 7 P.S. §§ 101 et seq.

7 . Act of May 15, 1933, P.L. 565, §§ 1 et seq., as amended, 71 P.S. §§ 733-1 et seq.

8 . These functions of the Banking Department include bank examinations, 71 P.S. §§ 733-401 to 733-404, enforcing proper banking practices upon banks, §§ 733-501 to 733-505, and taking possession of banks as a receiver, §§ 733-601 to 733-1014.

9 . Section 104 of the Banking Code provides in part:

“The comments of the commission which drafted this act may be consulted in the construction and application of its original provisions.”

10 . Like the Commonwealth Court, we see no reason to distinguish “traditional” from “nontraditional” banking activities. Both Eire within the scope of the BEinking Department’s supervision, and so within the area preempted by the Legislature.

“Nontraditional” is a vague characterization, totally unidentified in any ordinance, regulation, or anywhere else. It appears to be the creation of the trial court. The designation of “nontraditional” banking functions is internally inconsistent. The mere labelling of some services the bank provides for its customers as “nontraditional” does not alter the reality that the bank is rendering banking services authorized by the bank’s charter and approved by the SecretEiry of Banking under the Banking Code. See 7 P.S. §§ 315(e), 103 (1967). Were it otherwise, would not the bank’s activity be ultra vires? What is labelled “nontraditional” are banking services producing bank revenues and earnings which are reflected in the bank share tax, already tEixed and paid to the Commonwealth.

11 . E. g., Harris-Walsh, Inc. v. Dickson City Borough, supra; Department of Licenses v. Weber, supra; Warren v. Philadelphia, 382 Pa. 380, 115 A.2d 218 (1955); West. Pennsylvania Restaurant Ass’n v. Pittsburgh, supra.

12 . Today’s decision of course does not exempt state banks from all municipal taxation. The determination whether a tax is preempted must always turn on an examination of the Legislature’s intent. See Western Pennsylvania Restaurant Ass’n v. Pittsburgh, supra. It is clear, for example, that municipal taxation of banks’ real estate is not preempted by the Legislature. See 72 P.S. § 7701.

13 . The 1969 amendment to the National Bank Tax Act, 12 U.S.C.A. § 548 (Supp.1979), provides that as of January 1, 1973, “a national bank shall be treated as a bank organized and existing under the laws of the State . . . .” This amendment contained temporary provisions allowing more limited state taxation of national banks “to the same extent as such tax is imposed on a bank organized and existing under the laws of such State,” between December 24, 1969 and January 1, 1973. Pub.L. No. 91-156, 83 Stat. 434.