Request By:
Jeffery L. Ashworth
Auditor/License Inspector, City of Owensboro
City Hall, P.O. Box 847
Owensboro, Kentucky 42302
Opinion
Opinion By: Frederic J. Cowan, Attorney General; Ross T. Carter, Assistant Attorney General
You have presented the following questions to the Attorney General:
Is the City of Owensboro authorized to impose the tax defined at KRS 136.270(3) on the "shares" generated by these branch offices [of banks located outside the city]? If not, is the assessment of a privilege occupational license fee pursuant to KRS 92.280 against these organizations permissible? Considering a second unfavorable response, in what manner would a taxing jurisdiction defeat the discriminatory cry heard from those local banking institutions paying their own way under KRS 136.270?
Federal or State Savings and Loan Institutions and other like institutions have an exemption from local taxation afforded them at KRS 136.300. Again I ask regarding these organizations, how can this exemption be presented as non-discriminatory to the local banking industry?
Regarding your first question, a city may not impose the bank shares tax codified at KRS 136.270 on a branch of a bank. The bank shares tax is not a tax on the bank or any of its property, but rather is a tax on the intangible property owned by the shareholders. The bank merely serves as an agent for collection.
Board of Supervisors of Somerset v. Farmers National Bank of Somerset, 293 Ky. 157, 168 S.W.2d 371 (1942). Although banks generally absorb the tax rather than passing it on to the shareholders (see e.g.
United States v. Lewis, 10 F.Supp. 471 (W.D.Ky. 1935)), the tax nevertheless applies to all taxable shares wherever located. Each shareholder possesses an ownership interest in the bank as a whole; no shares are "generated" by the branch offices as you posit in your letter.
Our conclusion gains support from the observation that the statutes provide no mechanism for apportioning bank share tax liability between a principal office and its branches. The reporting statute, KRS 136.280, requires each bank to submit a single report showing the number and value of its issued shares and other information without any allocation or apportionment to the bank's branches. Furthermore, any attempt to assign shares to branches would be confounded by KRS 287.180, which as a general rule requires banks to obtain authorization before certain "powers necessary to carry on the business of banking" may be exercised at branch locations. A branch is not simply an extension of the principal office; a branch might carry on only some of the bank's activities, making the task of apportioning shares or property even more unmanageable.
Your second question is answered by KRS 92.300, which says, "No city of the second to sixth class or urban county government may impose or collect any license tax upon any bank . . . ."
Your third and fourth questions ask how such apparent discrimination in favor of certain institutions may be justified. The perceived discrimination results from legislative classifications, which carry a presumption of validity.