American National Building & Loan Ass'n v. Mayor of Baltimore

Horney, J., delivered the opinion of the Court. These are appeals by one hundred and sixty federal and state savings and loan associations from an order of the Circuit Court of Baltimore City sustaining without leave to amend the demurrers to the bills of complaint challenging the validity of Ordinance 428 passed by the City Council of Baltimore and approved by the Mayor on December 30, 1964. Although the City evidently intended to impose an annual tax on all savings and loan associations having a place of business in the City, the applicability of the tax did not extend beyond the year 1965 because the enactment of Chapter 183 of the Laws of 1965 (amending § 128 of Article 81 of the Code so as to impose a state tax on the earnings of savings and loan associations as mutual savings banks had theretofore been taxed) had the effect of superseding the ordinance. The tax was imposed on state and federal savings and loan associations “for the privilege of doing business and carrying on operations in the City of Baltimore” to the extent that the business of each was “derived from or fairly allocable” to the City.

The tax was calculated at the rate of 10 cents per $100 1 on the amount of money invested or deposited in each association as of December 31st of the preceding year. So much of the business of an association that maintained places of business both in and out of the City was to be determined, where prac ²⁹ ticable, by separate accounting to establish what portion of the aggregate amount of money was invested or deposited in the City, but where a separate accounting was not practicable, the taxable portion was to be determined by rules and regulations promulgated by the city treasurer in accordance with the criteria set forth in the ordinance. And the severability clause provided that a judicial determination that any part of the ordinance was invalid should not affect the remaining parts of the ordinance. The total taxes collected in 1965 under the ordinance, in the approximate sum of $800,000, is held in escrow pending the outcome of this litigation.

Of the institutions involved, some were federally chartered under the Home Owners’ Loan Act of 1933, 12 U. S. C. A. 1461-1468, as amended. These institutions are members of the Federal Home Loan Bank System and the Federal Savings and Loan Insurance Corporation. The other savings and loan institutions are state chartered and are regulated by the provisions of §§ 144-161LL of Article 23 of the Code (Cum. Sup. 1966) and their deposits are insurable by the Maryland Savings-Share Corporation.

In attacking the imposition of the tax, the appellants contend in effect: (i) that the State, by the enactment of Chapter 205 of the Laws of 1961 (now codified as §§ 161A-161KK of Article 23 of the Code) imposing a state franchise tax and providing for the regulation of savings and loan associations, preempted the power of the City to impose a tax for the privilege of doing business within its confines; (ii) that the tax was invalid in that it was levied (a) on intangible personal property and (b) on securities of the United States; (iii) that the ordinance violates due process under the Federal Constitution and the “law of the land” clause of the State Constitution in that it failed to' define the measure of the tax and is vague as to the territory encompassed; (iv) that the ordinance is void in that it improperly delegated legislative authority to the city treasurer; and (v) that the failure of the ordinance to subject mutual savings banks to the tax was a violation of the provisions of 12 U. S. C. A. 1464(h) prohibiting discrimination against savings and loan associations. ³⁰ (i) The claim that the City lacked power to impose the tax because the State had preempted the field is clearly without merit. The basic power of the City to enact the ordinance is set forth in § 6 and subsection (16) of the Baltimore City Charter providing : “6. The Mayor and City Council of Baltimore shall have full power and authority to exercise all of the powers heretofore or hereafter granted to it by the Constitution of Maryland or by any Public General or Public Local Law of the State of Maryland; and in particular, without limitation upon the foregoing, shall have power by ordinance, or such other method as may be provided in its Charter, subject to the provisions of said Constitution and Public General Laws: * * * “(16) Licenses “To license, tax and regulate all businesses, trades, vocations or professions; * * *.” In McBriety v. Baltimore, 219 Md. 223 , 148 A. 2d 408 (1959), where we had occasion to discuss the taxing power of the City, it was said at p. 231: “There is no room for doubt that under this broad and comprehensive grant of charter powers the City has full power and authority not only to license for regulatory purposes but also to tax for revenue purposes * * * unless * * * the ordinance [exercising the power and authority] * * * is unconstitutional or illegal.” In addition, while the power of the City to tax is broad, we think it is significant that when the charter was amended to limit the power of the City to tax intangible personal property and certain other taxable sources (enumerated in subsection 33 1/2 of § 6 of the charter) the amendment did not preclude a tax on savings and loan associations. As authority for the proposition that the State had preempted the field, the appellants cite a line of cases, such as Gaither v. ³¹ Jackson, 147 Md. 655 , 128 Atl. 769 (1925) and Dasch v. Jackson, 170 Md. 251 , 183 Atl. 534 (1936), in which certain city-imposed taxes were declared to be invalid, but the cases are distinguishable.

In Gaither , a city tax on auctioneers was struck down because the ordinance undertook to repeal a law providing for the payment by city auctioneers of a license fee to the State. The tax here had no such effect and in no way infringed upon the provisions of any state law. In Dasch , the tax was invalidated because, besides being an arbitrary display of police power, it was not necessary for the public health and safety. Clearly, the situation here is in no way comparable to the situation there.

The appellants argue that the matter of regulating the savings and loan business is one of a general nature to be carried out by the State and that such regulations (codified as §§ 161-161LL of Article 23), being a general law and as such in conflict with the ordinance, the general law should prevail. As authority they cite Heubeck v. City of Baltimore, 205 Md. 203 , 107 A. 2d 99 (1954) and Baltimore City v. Stuyvesunt, 226 Md. 379 , 174 A. 2d 153 (1961). In Heubeck , the city ordinance forbade the eviction of a tenant at the expiration of a lease when the State law permitted it. In Stuyvesunt , the attempt of the city to license those engaged in the business of becoming sureties in criminal cases for compensation was in conflict with the state licensing law.

These cases are distinguishable, however, because there were in those cases direct conflicts between the city and state laws. In the instant case, there is no such conflict. Rather than this being a case involving a direct conflict, the power to tax appears to be concurrent. On this point, the reasoning of Judge Prendergast is apposite: “It would appear that the tests of general laws was devised, not to draw an impermeable line between the authority of the City and the State, but rather merely to define the inclusive limits of the State’s powers. ‘General’ under this test merely means that the subject is of sufficient statewide effect to give the State authority to legislate.

It does not mean that it is not of sufficiently local effect to give the City at least concurrent power to legislate. The associations contend, in ³² effect, that what is not a local law as far as the State is concerned cannot be a local law insofar as the City is concerned, i.e., that ‘general’ and ‘local’ are absolute terms and mutually exclusive. The Court of Appeals has never adopted this theory, but on the contrary, admitted in Gaither [supra] the possibility of concurrent power. Loyola [Federal Savings and Loan Association] recognizes this possibility and counters it with the unconvincing argument that for something to be treated by both City and State simultaneously, it must be capable of division on a reasonable basis (e.g. difference of condition) in order to support that difference in treatment.

The associations contend that the non-localized character of the savings and loan associations does not come within the test. Therefore since the tax is general within this test devised for the State and cannot be made divisible, it cannot be local as being within the City’s power to enact. This argument fails because, as the City Solicitor notes, the tax is imposed only on business within or fairly allocable to the City, and to that extent there is a reasonable basis for local taxing power, even if a similar tax by the State would be general and within the power of the Legislature.” The views of this Court on the existence of concurrent power to impose certain regulations are also expressed in Billig v. State, 157 Md. 185 , 145 Atl. 492 (1929) and in Rossberg v. State, 111 Md. 394 , 74 Atl. 581 (1909). Since, according to § 161A of Article 23, the avowed purpose of the Savings and Loan Act of 1961, was to promote the security and stability of the savings and loan associations and thereby subserve an important public function, the final argument with respect to the first contention is that the ordinance passed by the City is contrary to this policy.

Likewise, they contend that § 161HH of Article 23 requiring every association to pay an annual franchise tax, had the effect of precluding the City from assessing a similar tax on such associations. The City, on the other hand, in rejecting the claim that preemption existed, contends that the statute by providing for the ³³ payment of a franchise tax “in addition to any other tax imposed by law” indicates the legislative intent not to preempt the field and refers, not only to taxes already in existence, but to future taxes as well. The City, claiming that the power to tax is concurrent, further contends that the two taxes are different in that the city tax was for revenue purposes and the state tax is solely regulatory. We think that the Savings and Loan Act of 1961 imposing a State franchise tax was regulatory and did not preempt the power of the City to impose a privilege tax for revenue purposes.

It is apparent that § 161HH, supra, was. intended only to provide the operating expenses of the newly created Board of Building, Savings and Loan Association Commissioners. This is evidenced by the imposition of a minimal franchise tax of only one hundred seventy-five ten-thousandths of one per cent (175/10,000 of 1%) of the aggregate withdrawal value of the free shares purchased in Maryland as of the end of each year. In Maryland Theatrical Corporation v. Brennan, 180 Md. 377 , 24 A. 2d 911 (1942), our predecessors, in describing the test for determining whether a tax is primarily a revenue measure or is regulatory in nature, said at p. 381 : “The question whether a particular Act is primarily a revenue measure or a regulatory measure is important, because different rules of construction apply. A regulatory measure may produce revenue, but in such a case the amount must be reasonable and have some definite relation to the purpose of the Act.

A revenue measure, on the other hand, may also provide for regulation, but if the raising of revenue is the primary purpose, the amount of the tax is not reviewable by the courts. There is no set rule by which it can be determined in which category a particular Act primarily belongs. In general, it may be said that when it appears from the Act itself that revenue is its main objective, and the amount of the tax supports that theory, the enactment is a revenue measure. ‘In general, * * * where the fee is imposed for the purpose of reg ³⁴ ulation, and the statute requires compliance with certain conditions in addition to the payment of the prescribed sum, such sum is a license proper, imposed by virtue of the police power; but where it is exacted solely for revenue purposes and its payment give the right to carry on the business without any further conditions, it is a tax.’ 33 Am.Jur., Licenses, [§ 19, p. 340].” Applying this test, it is apparent that the State tax is regulatory in nature and that the City ordinance was enacted solely for revenue purposes. This conclusion is reinforced by the inclusion in § 161HH of a clause providing that “any other tax imposed by law” would be valid regardless of when the tax became effective.

The same conclusion was reached in Austin v. Seattle, 30 P. 2d 646 (Wash. 1934), where an almost identical clause as that included in § 161HH was held not to have hampered the imposition of a local tax in the same area as was taxed by the State. Finally, although the legislature, by the enactment of § 128 of Article 81 of the Code of 1957 requiring the payment of a franchise tax on deposits of mutual savings banks, had partially preempted the area, we conclude that the intent of the legislature not to preempt the entire area in 1961 (when it undertook to regulate the building, savings and loan and homestead business and imposed a minimal franchise tax to pay the cost thereof) is demonstrated by its having wholly preempted the area in 1965 (when it imposed a franchise tax on the net earnings of all mutual savings banks and building, saving and loan associations). (ii a and b) The appellants also contend that the City tax is invalid in that it is a tax on intangible personal property rather than a privilege tax and, as such, is prohibited by the provisions of subsection 33 1/2 of § 6 of the City Charter. In support of this contention they point out certain similarities between the tax imposed and a property tax.

They advance several arguments. First, they claim that the tax is measured by the value of property and that this makes it a property tax. They say that it is ³⁵ determined as of a particular day each year as is a property tax. They point out that the penalty for nonpayment, being the imposition of a lien on the deposits, is a property tax remedy.

Finally, they insist that its purpose, being that of revenue producing, classifies it as a property tax. While there is authority to support the proposition that a tax measured by the value of property is a tax on such property, the overwhelming weight of authority, in a case like this, is to the contrary. The cases are collected in an annotation in 103 A.L.R. 18 . The Maryland cases are in line with the holdings of the majority of courts elsewhere.

In Rohr v. Gray, 80 Md. 274 , 30 Atl. 632 (1894), it was held that the requirement of a license for each of several places of business measured by the amount of merchandise kept on hand was not a property tax but was a license tax. A tax on all persons engaged in the business of packing or canning oysters was upheld as a valid privilege tax even though it was measured by the quantity of oysters packed in State v. Applegarth, 81 Md. 293 , 31 Atl. 961 (1895). Also see State v. Shapiro, 131 Md. 168 , 101 Atl. 703 (1917); Maryland Racing Commission v. Maryland Jockey Club, 176 Md. 82 , 4 A. 2d 124 (1939); and Herman v. M. & C. C. of Baltimore, 189 Md. 193 , 55 A. 2d 491 (1947). These cases make it apparent that the fact that taxes are measured by the amount or quantity of the property taxed does not mean that the tax is classifiable as a property tax.

On the contrary, we think it is obvious that the tax in question is a privilege tax. The funds involved are subject to the tax only because they are on deposit in the taxed