Transcript

IN THE SUPREME COURT OF THE UNITED STATES

AMERICAN BANK AND TRUST COMPANY, ET AL., Petitioners v. DALLAS COUNTY, ET AL.

No. 81-1717

March 29, 1983

The above-entitled matter came on for oral argument before the Supreme Court of the United States at 2:03 o'clock p.m.

APPEARANCES:

MARVIN S. SLOMAN, ESQ., Dallas, Texas; on behalf of the Petitioners.

ERNEST J. BROWN, ESQ., Tax Division, Department of Justice, Washington, D.C.,; on behalf of the United States as amicus curiae.

CARROLL R. GRAHAM, ESQ., Assistant City Attorney, Dallas, Texas; on behalf of the Respondents.

EARL LUNA, ESQ., Dallas, Texas; on behalf of Respondents.

PROCEEDINGS

CHIEF JUSTICE BURGER: We will hear arguments next in American Bank and Trust Company against Dallas County.

Mr. Sloman, I think you may proceed whenever you're ready.

ORAL ARGUMENT OF MARVIN S. SLOMAN, ESQ., ON BEHALF OF THE PETITIONERS

MR. SLOMAN: Mr. Chief Justice and may it please the Court:

This case involves a state property tax on the shares of state and national banks, authorized by Texas statute but imposed and calculated by local taxing authorities. In the case before the Court the banks have paid the taxes as agents for the shareholders and they and the shareholders seek to have the tax assessment declared to be in violation of Revised Statutes Section 3701 as amended in 1959 to prohibit every form of taxation that considers United States obligations in the computation of the tax.

The Respondents calculated the taxable value of the shares of each bank according to the bank's net worth. That is, as the court below put it at Appendix page 183, by taking the total assets of the bank other than real estate, which is taxed separately to the bank itself, and deducting the bank's liabilities, to come up with a net worth or equity capital or a number of names as it's known on call statements, financial statements or the taxing authorities, but in an accounting sense it is the net worth, the assets less the liabilities other than real estate.

Now, among those assets were various amounts of United States obligations that went into that net worth that was used to determine the taxable value of the shares. Petitioners contend that Respondents thereby "considered" United States obligations in computing the taxable value of the shares, in violation of Section 3701.

Thus, at the center of the case is the effect of the word "considered" as used in that statute. The word is given no special definition in the statute. Now, of course the word "consider" can be used in two senses: One, which is the sense relied on by Respondents, and they repeatedly refer to the state of mind of the tax assessors, refers to a subjective state or a mental process inside the mind. "In my considered judgment" or "This Court considers a case for decision."

But that sense of the word cannot be involved here because the word as used in the statute is addressed to and defines a prohibited form of taxation, which is incapable of a mental process.

Another sense of the word "considers" deals with an objective state of facts, which the statute itself purports to do, as reflected in the dictionary definition of "to take into account." The general law of relativity considers the effect of gravity on light or takes into account the effect of gravity.

This is the meaning that makes sense in the context of Section 3701, so that, substituting the dictionary objective meaning, the statute prohibits every form of taxation that takes into account United States obligations in the computation of the tax. And this is the sense in which this Court and the Texas courts and other authorities have described the computation of a share tax measured by net assets that included United States obligations.

For example, in Des Moines National Bank against Fairweather, cited in our brief, this Court was dealing with a share tax that was computed just exactly like the one at bar. That is, assets, which included United States obligations, less liabilities resulted in a net worth that was the basis, the base for the tax.

At that time Section 3701 was in the form before the 1959 amendment and only prohibited taxes upon United States obligations and not those which considered United States obligations, and the Court upheld the tax without a deduction for United States obligations on the familiar distinction that a tax upon a shareholder's interest is not a tax upon the corporation or the corporation's assets, even though, as this Court said in describing the tax there, "controlling consideration" is given to those assets in the computation of the tax.

The Court in its holding said Section 3701 left no authority for taxing a United States obligation to the bank, to the bank itself, "but only for taking it into account in valuing the shares of the stockholders."

So that this Court in its description of this very kind of tax recognized that the tax considers United States obligations, takes them into account, but under the former form of the statute that was permissible because the tax was only upon United States obligations, whereas since the 1959 amendment taxes are prohibited, every form of tax that considers those obligations.

We cite in our brief at page 14 Texas authorities that have used similar language and a similar approach in describing the very share tax that's before this Court. The assessment in the present cases take into account the bank's assets which include United States obligations and therefore come squarely under the statutory prohibition against considering United States obligations in the computation of the tax.

Respondents, however, would read an implied exception into the prohibition of the statute in spite of its apparent application. But any implied exceptions are foreclosed by two specific exemptions that the 1959 amendment itself provided from its expanded prohibition.

Under the pre-1959 version of Section 3701, when only taxes upon United States obligations were prohibited, this Court had upheld share taxes, as in Des Moines against Fairweather and other cases, and it had upheld franchise taxes, and it had upheld death taxes or succession taxes, where the tax was measured by assets that included United States obligations.

And in each of those cases, which are cited in our brief and which cross-refer to one another -- the francise tax case refers to the share tax case, and so forth -- in each of those cases the tax was upheld because it was not upon United States obligations by which the tax was measured, but rather upon the shareholders' interest or the franchise or the death transfer.

Now, when Section 3701 was amended by Congress in 1959 into its present form, on which Petitioners rely and which is before this Court, Congress specifically excepted franchise taxes and specifically excepted death taxes from the expanded prohibition of the tax.

QUESTION: What about gift taxes? What about gift taxes?

MR. SLOMAN: Gift taxes are not mentioned, Your Honor.

QUESTION: Well, what happens then? Do we have one rule for estate taxes and another rule for gift taxes, even though they, in the old days anyway, used to be inter-related?

MR. SLOMAN: Certainly in the view of the Solicitor General that's so. No gifts are involved in the case before the Court. But it would appear that, not being excepted from the statute, that they would be covered.

Now, having made no exception for any kind of property tax, share taxes or otherwise, but having excepted franchise taxes and death taxes, it would be quite unwarranted to infer an exception or imply an exception, as Respondents would do, for share taxes. Respondents' several arguments end with Section 3701 having no substantive effect, at least as to banks. But the meaning of the statute is plain and its prohibition is clear, irrespective of who owns the exempt obligations.

I reserve the balance of my time for rebuttal, Mr. Chief Justice.

CHIEF JUSTICE BURGER: Very well.

Mr. Brown?

ORAL ARGUMENT OF ERNEST J. BROWN, ESQ. ON BEHALF OF THE UNITED STATES AS AMICUS CURIAE

MR. BROWN: Mr. Chief Justice and it it please the Court:

I should like, on behalf of the United States, to refer the Court particularly to the circumstances, the background leading to the 1959 amendment, which is of course central here. I think that in light of those circumstances one can conclude, in the terms used just two months ago in the Memphis Bank opinion, that it can be determined that this statute is another manifestation of what the Court called the long-established Congressional intent to prevent taxes which diminish in the slightest degree the market value or the investment attractiveness of obligations of the United States.

The legislation resulted from a presidential message, supported by an appearance of the Secretary of the Treasury, before the Ways and Means Committee, seeking what both called assistance in the management of the national debt, assistance by lifting the debt ceiling, by raising the interest ceiling, or I should say removing the interest ceiling, which was then 3.26 percent on savings bonds and -- the figure seems strange to us today -- 4.25 percent on obligations of a maturity of more than five years.

The Secretary told the Committee that the Treasury was unable to market 4.25 percent bonds and so was necessarily financing the Government on very short-term obligations and Treasury bills. Also asked was what both the President and the Secretary referred to as other technical assistance, and that of course is what is referred to here in the exemption, or the further exemption or to clarify the exemption, of national obligations, Government bonds.

The Congress did lift the debt ceiling. It did increase the savings bond ceiling. But it did not, after extended discussion of interest rates, whether they were inflationary or not -- some of them have echoes even today, of whether higher interest causes inflation or inflation causes higher interest -- but it did not.

So it was the more important that the impact of state taxes on the federal bonds be carefully observed. Both the President and the Secretary informed the Congress that the state obligations had a very highly preferential position. Federal taxes were high then, as some think them now, and the state exemption made them very attractive, highly marketable.

As a matter of fact, the Secretary informed the Committee that state obligations in the 12 postwar years had increased from $16 billion to $59 billion, which led to strenuous competition for the federal obligations in the market.

The Secretary used as an illustration to the Committee an Idaho tax which was in force seeking to reach interest on Government bonds. The justification was the tax was on the individual, measured by the interest on the bonds.

QUESTION: Mr. Brown, let me interrupt you right there, because that Idaho example raised a question in my mind. Supposing you had a corporation that was subjected to a state income tax and some of its income was derived from income on Government bonds. Would the dividend income of that corporation be exempt from tax to the extent that it reflected interest on Government bonds?

MR. BROWN: The dividends distributed by the corporation --

QUESTION: To the shareholders, yes.

MR. BROWN: No, Justice Stevens.

QUESTION: Why wouldn't that be indirectly a tax on income, just as the tax on value of the shares is a tax on the underlying Government bond?

MR. BROWN: Well, it hasn't been thus far. The regulations under Section 312 of the Internal Revenue Code say that it doesn't carry over. I may quote Justice Holmes in Miller and Milwaukee saying that the corporation is usually an insulator which separates the nature of the corporate income.

QUESTION: But in this case you're arguing the corporation is not an insulator.

MR. BROWN: Well, no -- yes, after the statute I am arguing that it's not.

QUESTION: That it's an insulator for income purposes, but not for asset purposes.

MR. BROWN: Well, I don't know that I would make that classification if it's not essential here.

But I would like to point out that I think what's central here is not the insulation, but the use of the "or measured by" device, which has been frequently used in taxes, sometimes with unpredictable results. Justice Harlan -- the Idaho case was used as an example, but perhaps a better example would have been the case decided by this Court just four years before, the Cleveland case, Society for Savings, where the tax on financial institutions was on their capital and surplus.

But the Ohio court said, though this was a mutual savings bank, that the tax was on the interest of the depositors, measured by the assets of the bank. This Court did not agree. Justice Harlan pointed out that at times it was very hard to distinguish for practical purposes, Justice Stevens, the difference between a tax on the assets and a tax on the shares when the tax on the shares was "computed by."

So this "measured by" device which didn't succeed there sometimes does. It's hard to predict.

I might mention that just six months before this statute this Court held that a Virginia tax on the assets, what purported to be a property tax, could be measured by gross receipts, though Justice Brennan pointed out in a separate opinion that if it were measured by the property it would come to $7,000; on gross receipts it came to $126,000.

In any event, the Treasury in this case thought it would do away with this "measured by" device. So it --

QUESTION: Mr. Brown, let me be sure I follow you. I take it you feel that the amendment to 3701 broadened the exemption on Federal --?

MR. BROWN: Yes, I do, I do.

QUESTION: And intentionally so on the part of Congress?

MR. BROWN: Yes, I feel that's clear. Some people thought maybe the earlier statement was more universal than its application warranted, and they may have referred to clarification. But that would hardly be justified when you looked at the decisions.

So this statute then, I take it, eliminates any computation, and in my view the word "computation" is the operative word here, which takes into account, reaches directly or indirectly the bonds of the Federal Government or the income from those bonds. And it is clear that in this case the computation, as in the Georgia case which is pending, did include those bonds.

I would like to turn briefly, if I may, also to one other federal statute much relied on below, Rev. Stat. 5219, a later version, which is relied on as saying there could be taxes on these shares. Well, no one disputes that the shares could be taxed. This Court said so in M'Culloch and Maryland. The National Bank Act said nothing in this statute shall prohibit it.

What is objected to here is the method, and certainly that is subject to objection. If I may take the Memphis case, in this context suppose this property tax had included the federal bonds but excluded the state bonds. I take it that the share tax would have been as discriminatory there on the property, on the share, as it was held, a somewhat different tax, was held to be discriminatory two months ago in the Memphis case.

So I think that 5219 has no bearing on this case at all. It is certainly not carte blanche to tax the shares of a bank or any other corporation which is equally involved in this case, may be equally involved in this case, in any fashion that is desired.

So it seems to me that it's quite clear, and the background in Congress makes it clear, that this statute meant to eliminate computation of estate tax, any form of tax, which directly or indirectly used the value or the income from Government obligations. And that's all this case is.

Thank you.

CHIEF JUSTICE BURGER: Very well, Mr. Brown.

Mr. Graham.

ORAL ARGUMENT OF CARROLL R. GRAHAM, ESQ. ON BEHALF OF RESPONDENTS

MR. GRAHAM: Mr. Chief Justice and may it please the Court:

The National Banking Act of 1864 authorized the tax in question, and that point was litigated in 1866 very thoroughly in Van Ness versus The Assessors. Van Ness points out that there were two bases for the application of the tax, two prongs for it:

Number one, Congress said that you could tax the shares of national banks; and number two, there was no limitation to exclude any part of the value of the shares. And Van Ness versus The Assessors, 1866, held that, number one, you could tax the shares of national banks; and number two, you did not have to deduct the value of the federal obligations owned by the bank.

This situation remained throughout the years and every case which came to this Court prior to '59 upheld the true share tax, but did not uphold the taxes where they tried to levy on the bank itself rather than the shareholders.

That problem does not exist with the Texas statute, as it clearly levies the tax on the shareholders, and there is no legal obligation upon the bank to pay any part of the share tax.

QUESTION: You say prior to '59 the tax would unquestionably have been upheld?

MR. GRAHAM: Yes.

QUESTION: And you don't think anything changed that in '59?

MR. GRAHAM: No. No, I sure don't.

The point I'm trying to draw is that in 1959 for 95 years -- for 93 years it had been settled law that national banks and state banks could be taxed on their shares, and that it was not necessary to deduct the value of federal obligations, because under the Van Ness holding when Congress authorized the taxing of the shares it authorized the taxing of the full value of the shares. And that position existed in 1959 and, we respectfully submit, was not changed at all.

Number one, it was not changed because that law was not touched. That was Revised Statute 5219. It was on the books all during those years. It was on the books in 1959. It was not touched by Congress in any manner.

It's our position that the modification or the codification of the exemption statute, 3701, did not in any way apply to or control or reflect upon the taxation of the national bank shares.

QUESTION: You would concede, wouldn't you, you'd rather have the Government's case after '59 than before?

MR. GRAHAM: No, sir. No, sir. In 1959, after the modification of 3701 with the addition of the second sentence, the Bank Act still provided for taxation of bank shares in the same manner in which they're being taxed today, the same provision that the shares could be taxed, and there's never been any modification by the Congress of the definition of "shares" or in any manner changed the definition that was laid down in Van Ness.

QUESTION: Do you think the '59 amendment invalidated any tax that would have been valid before? What about Idaho? What about Idaho?

MR. GRAHAM: The gift tax --

QUESTION: What about Idaho?

MR. GRAHAM: Idaho would have been invalid before.

QUESTION: Why did they even -- why was anybody ever worried about it?

MR. GRAHAM: I don't know.

QUESTION: Well, Congress was.

MR. GRAHAM: But the Congressional Record said they probably wouldn't have prevailed, but they wanted to --

QUESTION: So they made sure that Idaho wasn't -- the tax wasn't going to pass muster, is that it?

MR. GRAHAM: Or that that particular type of tax was not going to be tried by anyone else.

In 1959, shortly before 3701 was modified, Congress did amend the national banking laws, but it did not change the provision in question whatsoever.

QUESTION: Mr. Graham, is it not true that your opponent's theory is not limited to extending the exemption on bank stock, but it covers all kinds of corporations under their reading of the '59 Act? As I understand, it would cover General Motors stock, every kind of stock that there is in the economy. So that you wouldn't expect it to focus on bank shares.

MR. GRAHAM: The General Motors, the question of the General Motors stock, the applicability there is a different question, Mr. Justice, because I know of no statute which authorizes the taxation of those shares specifically.

QUESTION: No, but if a state sought to impose some kind of a tax on any corporate entity measured by its net worth, under the Government's view they would have to exclude from the computation that portion that represented federal obligations. So they're not just talking about banks. They say this is really a pretty broad exemption they created in '59.

MR. GRAHAM: I do not take a position on other corporations, because I do not --

QUESTION: I don't know why you're afraid to. It seems to me it would support your position. You say there wasn't -- you say at least, however broad it was, it didn't repeal, didn't effect an implied repeal of the --

MR. GRAHAM: Correct.

QUESTION: -- of the banking provisions?

MR. GRAHAM: Correct, sir, for a number of reasons. Number one, if you go look at the Committee reports, they talk about Idaho, they talk about interest, they talk about debt management. They don't ever mention a word about bank stock and taxation.

QUESTION: I guess you would feel comfortable with the proposition that the state could tax everybody -- that banks are different from other corporations, that the state could not tax anyone except banks?

MR. GRAHAM: On this point, on the federal obligation point? Without excluding the federal obligations?

QUESTION: Banks are different.

MR. GRAHAM: That may well be true, yes, sir. Banks are different. Banks pay different taxes. Banks do not pay personal property taxes. Banks do not pay franchise taxes. And we have a particular statute dealing with the taxation of national banks.

QUESTION: So a state could tax banks but couldn't tax anything else?

MR. GRAHAM: Oh, taxation -- if we're staying on the proposition of federal obligation, yes, sir.

QUESTION: You'd think it would almost run the other way, wouldn't you? Because these are national banks holding federal obligations. And yet you say the states can tax them even if they couldn't tax any other corporation.

MR. GRAHAM: That's right, because the Congress has provided that, and for a long time set out the precise methods by which those taxes, the tax methods that had to be followed. That has now been changed in 1969 and remedied -- or, I shouldn't say remedied, but expanded.

When we come back to the point of the implied repeal which I take it the Petitioners must rest upon, we have a number of statutory construction aids which we refer to in our briefs, consistently I hope, and all of them will point to the fact that there was no intention on the part of the Congress to repeal the authority given in the Bank Act to tax the national banks without deduction of any obligations whatsoever.

The question of indirect taxation was prohibited before 1959 and if you will look -- and we cite the case of Society of Savings versus Bowers, in which Justice Harlan points out that indirect is prohibited with the exception of the bank stock tax.

In 1969, coming again to an argument against an implied repeal, in 1969 Congress amended the bank stock tax and enlarged the -- changed the method of taxation and directed the Federal Reserve to carry out a study. And during that time in '69 the Federal Reserve carried out a study and that study recognized that the bank share tax without any necessity for deducting federal obligations was, at least in the opinion of the people who made that study, still in full force and effect.

Thank you.

CHIEF JUSTICE BURGER: Very well.

Mr. Luna.

ORAL ARGUMENT OF EARL LUNA, ESQ., ON BEHALF OF RESPONDENTS

MR. LUNA: Mr. Chief Justice, may it please the Court:

This Court recently recognized in the Tennessee case the fact that the statute that we have here today, 31 742, principally restates the constitutional rule that we have had since M'Culloch versus Maryland. And in that Memphis Bank case the Court pointed out very clearly that where the legal incidence of the tax falls on the separate property interest of the stockholder or some other person other than the Government or the owner of the bonds itself, that unless there is a discrimination between the national -- the taxation as to the federal securities and others, that it didn't violate 31 U.S.C. 742.

Now, there is no contention in this case as it is before the Court at this time that there is any discrimination on federal securities versus any other type securities, such as there was in the Tennessee case. Now, if that is true, the constitutional provision -- that statutory provision, as late as the Memphis case the Court has said it does not affect this kind of a transaction.

Now, I think that takes us, if we go all the way back to the two questions or the two reasons that were raised actually in the Van Allen case, the court in Texas, our Chief Justice Guittard, I think pointed out very carefully that there were two grounds that were mentioned in the Van Allen case, either one of which were sufficient to sustain our tax.

Now, the court pointed out first that there was a distinction between taxation of the shares and taxation of bank assets, and I think that is this insulation that we were talking about earlier. There is an insulation between the corporation's assets and the stockholders. The legal incidence is on the stockholder and not the corporation.

The second reason that was mentioned in the Van Allen case which made it permissible to tax bank shares was a Congressional consent to state taxation of bank shares as expressed in Section 5219. 5219 has never been altered or changed, although it was expanded ten years after the '59 amendment that didn't allow. In 1969 the Congress expanded that amendment to include more general areas than it did before.

But in our case, if then we take a look at the question we were talking about a while ago, the taxation of federal securities, I think if the tax the legal incident of which falls on these federal securities, it doesn't make any difference who it is, we cannot tax them. That's been very clear, and the cases have pointed out that we can't do it directly or indirectly, and they said that before 31 U.S.C. 742 was amended.

All of these cases have said that they can't be taxed directly or indirectly. But at the same time that the courts were saying they can't be taxed directly or indirectly, the court also said that a tax on the stockholder is not a tax on a bank.

Now, at some stages of this litigation the banks have said, but we paid the tax actually, and of course the reason they did that is because of another federal statute that permits them to pay the tax for the stockholder and that the bank can deduct it if the stockholder doesn't deduct it himself, which really makes it not material at all to the questions that we have here.

Now, we believe then that if we were to follow the view that the banks have propounded here today, that it would indeed mean that any corporation which owns federal securities, you would have to subtract that stock or those bonds and federal securities from the value of the stock before you could tax it. As a matter of fact, in one of the footnotes in our brief we point out that there are about 20-something states who tax either corporate stock in corporations generally or bank stock or both.

Now, in Texas that question is not material because we do not tax the corporate stock in other types of corporations, only banks. But as this Court mentioned in one of its opinions, if that should be -- if we should have to deduct it in all cases, it would be nothing but chaos in the taxing systems of the various states.

Now, there is nothing in 31 U.S.C. 742 as amended in 1959 to require or suggest that it applies to ad valorem taxation if we can rely to any extent on the Congressional history. Secretary Anderson introduced Section 105 of that bill and in his introduction to the Ways and Means Committee of the bill he pointed out very carefully that indeed Idaho had attempted to tax the income from federal securities and they had not been able to convince them it wasn't taxable and Idaho was including it in the net income.

And he pointed out in his statement, which we quote at length in our brief, that it was -- that they believed that Idaho was wrong, but that this seemed to be the easiest way to clarify the problem, and therefore he recommended that Congress pass 105, Section 105 of that bill, in order to clarify the situation that they had as to Idaho. And that was the only thing that we had before the Congress at that time insofar as reasons as to why that statute ought to be amended in that particular.

Now, the Petitioners say that we shouldn't take into consideration in thinking about statutes anything subjective, that it's all objective. Now, unless we look at it subjective we don't get to the question here, because our state statute simply says that the value of stock, the bank stock, shall be assessed at its cash value less the value of the real estate which may be taxed separately.

So our statute just talks about cash value. It doesn't say anything about the things we have here. Now, as a measuring stick of cash value we might use several things. In the Bank of Texas case where this decision was written, had we used cash value that they were getting when they were selling the stock down at the bank, the testimony showed it was bringing nine dollars a share. And the measuring stick that we used was $5.65 a share.

So they're really arguing about our formula, not that we taxed the bank too high, the stock too high. So they say, if they use our formula, which was based on equity capital and not on what it was selling for at the marketplace, they wound up paying less tax than they would otherwise have paid.

Are they injured? Is there harm? And when one is challenging a statute, doesn't he have the burden of proving that there has been some harm? Certainly that has not been shown in this case. The only thing that has been shown is that by using the formula with which they argue the banks got a windfall.

QUESTION: Well, would you be making the same argument if Section 5719 had never been on the books?

MR. LUNA: If Section 5719 would have never been on the books, I would be making the same argument, because we believe Van Allen stands for two propositions which permit bank stock to be taxable: One, because of the separate ownership of the stock and the corporation; and then number two, the consent statute, 5219 itself, either one of which --

QUESTION: You don't think the '59 amendment had any impact on that Van Allen line of cases at all?

MR. LUNA: I don't believe it had one iota on Van Allen, because I cannot believe that in all of the hearings of Congress they would have overruled almost 100 years of cases of this Court and never told anybody that's what they were doing. That's just not the way Congress ordinarily works.

And they said that, instead of talking about the decisions of this Court, while the Congressional history was going on they said that, we're doing it in order to clarify the problem that we've got up in Idaho, and that is the only thing that there is in the Congressional history. And it would be indeed unusual if Congress were to overrule that many cases of this Court and not a word ever be said about what was going on.

In Plummer versus Coler the Court, this Court, had also pointed out in inheritance tax cases that there really was no impact on the market in the first place, on the market of bonds. I mention that very quickly because of one of the arguments that was made by, I believe it was the Solicitor General, that there was an impact on the market.

Now here the non-banking world owned 77 percent of all of these, of all of United States securities. Of the 23 percent that is owned by the banks, there's only about five percent of the total that is owned by the banks in the six states or seven states that tax bank shares, six now since Georgia just recently repealed theirs.

And the only case, of course, that they have in their favor is the Montana case, and the Montana case -- and as they argue here, this permits bank share case -- it prohibits the bank share taxation, but permits the franchise tax. And of course as we know, Montana just recently ruled that their franchise tax is unconstitutional, too. We believe that, as the Texas court held, the Montana case is not reliable, and 732 was something that was aimed at the Idaho income tax, that it has absolutely no effect on the tax that's before the Court at this time.

Thank you very much.

CHIEF JUSTICE BURGER: Do you have anything further, Mr. Sloman?

ORAL ARGUMENT OF MARVIN S. SLOMAN, ESQ. ON BEHALF OF PETITIONERS -- REBUTTAL

MR. SLOMAN: If I may briefly, Mr. Chief Justice.

I'd like to point out in response to Respondent's argument concerning the Idaho case that had Congress intended solely to deal with the problem raised by the Idaho case it could have taken the then-existing form of Section 3701 and added four words. After the words "United States obligations" it could have added "or the interest thereon" were it addressing only the Idaho problem.

QUESTION: Do you think this tax would have been permissible before '59?

MR. SLOMAN: The tax in the case at bar, Your Honor? Yes, I certainly do.

QUESTION: So the '59 amendments you think did have the affect of overturning that line of cases, Van Allen and the whole crowd?

MR. SLOMAN: It had the effect of overturning the results of those cases.

QUESTION: Yes, yes.

MR. SLOMAN: Those cases stood, beginning with the Van Allen case in 1866 and ending with the Bowers case in 1955, those cases rested not on an interpretation of Section 5219, but on the shareholder-corporation distinction.

QUESTION: Yes, yes.

MR. SLOMAN: Now, under that distinction --

QUESTION: But isn't it true that --

MR. SLOMAN: Excuse me, Justice.

QUESTION: Isn't it true that your view of '59 is it really destroys that distinction?

MR. SLOMAN: Well, I think that it goes --

QUESTION: At least for this kind of tax?

QUESTION: Well, it has to go that far or it wouldn't have overturned the cases.

MR. SLOMAN: It overturns the result of the cases by --

QUESTION: Well, as well as that theory --

MR. SLOMAN: -- providing a different test.

QUESTION: As well as that theory. Doesn't it have to overturn that theory, or the theory, as your opponent argues, would still prevail right on this tax?

MR. SLOMAN: That theory was germane only, Justice White, to a prohibition against a tax upon United States obligations. That distinction is not germane any more.

QUESTION: So that that distinction was -- it isn't germane any more because of the '59 amendments?

MR. SLOMAN: Exactly.

QUESTION: What do you say to the argument he makes that making that significant a change in the law, where you had 90-some years of settled rule, would have invoked some comment in the legislative deliberations?

MR. SLOMAN: Well, it did evoke some comment, Justice Stevens. The comment on the whole subject that we're talking about, including this Idaho question or --

QUESTION: Well, that really says nothing about the differences between a corporation --

MR. SLOMAN: Exactly. There is a great --

QUESTION: There really is nothing in the legislative history that would tell the Congressmen who weren't as sophisticated in this area as lawyers who practice all the time just what was happening.

MR. SLOMAN: Well, the words of the statute --

QUESTION: Unless they just read into the words of the statute the "indirectly" language and the computation and the concern language.

MR. SLOMAN: And they did make that, those words, those 52 words of the statute, not four words to deal with an Idaho problem -- they put the 52 words of the statute into the Act in furtherance of a stated purpose, which was stated by the Congress and the Congressional Committee, to make United States obligations more attractive as investments, and indeed to encourage banks to hold them.

QUESTION: Was this statute debated on the floor? Did it ever reach the floor, or was it just on the consent calendar?

MR. SLOMAN: I can't answer the question, Your Honor. I think that it was debated on the floor because there were some remarks of Congressman Mills mentioned.

QUESTION: Didn't the Secretary of the Treasury indicate that the purpose of the amendment was to make federal -- U.S. Government bonds more attractive to investors?

MR. SLOMAN: Yes, indeed, Your Honor.

QUESTION: That's certainly part of the legislative history.

MR. SLOMAN: Mr. Chief Justice, and to the banks.

QUESTION: Finally, I would like to point out one question that was raised by counsel for Dallas County as to injury or harm. At the time the 1979 cases were first before the Texas Court of Civil Appeals, the Court of Civil Appeals entered its first opinion, in which it resolved every single state law question that was involved in these cases, including a question as to injury which was specifically raised by Dallas County in that case.

Now, that opinion is withdrawn. I'm not saying that that opinion is still in effect. But I am saying that this Court in the 1979 case has no state law questions concerning injury or anything else. And in the 1980 case there was a judgment entered in favor of the Petitioners here, which was then vacated and a new judgment entered based on the reversal of the judgment of the Court of Civil Appeals in the 1979 case.

But at one point in all of these cases all state law questions have been resolved and they're not present in the case. The Court is I think very clearly presented with a pure question of what the word "considers" means in Section 3701.

Thank you, Mr. Chief Justice.

CHIEF JUSTICE BURGER: Thank you, gentlemen.

The case is submitted.

(Whereupon, at 2:55 p.m., the case in the above-entitled matter was submitted.)