Mississippi Depar Tment of Re Venue v. Pikco Fin., Inc., 2011-CA-00842-SCT

MISSISSIPPI DEPAR TMENT OF RE VENUE

v.PIKCO FINANCE, INC.

NO. 2011-CA-00842-SCT

SUPREME COURT OF MISSISSIPPI

Dated: July 26, 2012

DATE OF JUDGMENT: 05/09/2011

TRIAL JUDGE: HON. WILLIAM A. GOWAN, JR.

COURT FROM WHICH APPEALED: HINDS COUNTY CIRCUIT COURT

ATTORNEYS FOR APPELLANT: BRIDGETTE TRENETTE THOMAS GARY W. STRINGER

ATTORNEY FOR APPELLEE: CHRISTOPHER ROYCE SHAW

NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES

DISPOSITION: REVERSED AND REMANDED - 07/26/2012

MOTION FOR REHEARING FILED:

MANDATE ISSUED:

EN BANC.

CARLSON, PRESIDING JUSTICE, FOR THE COURT:

¶1. The Mississippi Department of Revenue (MDOR) issued a subpoena to Pikco Finance, Inc. (Pikco), requesting documentation pertaining to Pikco's nonpayment of finance company privilege taxes. Pikco filed a petition to quash the subpoena on the basis that MDOR's ability to audit and tax under Mississippi's Finance Company Privilege Tax law was preempted by the National Bank Act. The circuit court granted Pikco's petition to quash, and MDOR appealed. The issue on appeal is whether MDOR's use of its statutory subpoena power in administration of the Finance Company Privilege Tax is preempted by the National Bank Act. We reverse and remand, finding that Pikco is subject to the subpoena.

FACTS AND PROCEDURAL HISTORY

¶2. Pikco is an operating subsidiary of Pike National Bank, a national banking association chartered under the National Bank Act. Pikco is a loan company and the entity through which Pike National Bank conducts its sales financing and consumer lending. On December 16, 2010, MDOR issued a subpoena to Pikco requesting documents in conjunction with an audit regarding Pikco's nonpayment of finance company privilege taxes from July 1, 2005, through September 30, 2010. Pikco filed a Petition to Quash Subpoena in the Circuit Court for the First Judicial of Hinds County, claiming MDOR's ability to assess taxes and audit Pikco under Mississippi's Finance Company Privilege Tax law was preempted by federal law, specifically the National Bank Act. A hearing took place on May 6, 2011, and the circuit court granted Pikco's petition to quash the subpoena. The circuit court's order concluded:

The Department's desire to inspect property to determine whether or not Pikco Finance must pay the state's finance company privilege tax does not qualify as an exception under any federal law and therefore the subpoena must be quashed pursuant to the [National Bank] Act. However, the Department has a right to ensure state laws are followed and has every right to file a judicial enforcement action in chancery court.

MDOR disagreed with the circuit court's decision and filed a timely Notice of Appeal. In addition, because MDOR understood the circuit court's ruling to be limited to whether the subpoena could be enforced, not whether the tax could be assessed, MDOR issued an assessment to Pikco for the unpaid taxes in the amount of $322,287 for July 2005 through March 2011. On June 30, 2011, Pikco filed a Motion for Contempt with the circuit court, alleging that MDOR had violated the court's order by issuing the tax assessment. That motion is still pending.

DISCUSSION

¶3. This Court applies a de novo standard of review to questions of law, such as whether the trial court erred in granting a motion to quash a subpoena. Syngenta Crop Prot., Inc. v. Monsanto Co., 908 So. 2d 121, 124 (Miss. 2005); State v. Baptist Mem'l Hosp.-Golden Triangle, 726 So. 2d 554, 557 (Miss. 1998).

¶4. The issue on appeal is whether MDOR's use of its statutory subpoena power in administration of the Finance Company Privilege Tax is preempted by the National Bank Act.¹ To answer that question, we must first determine whether Pikco is subject to the Finance Company Privilege Tax in general.² The Finance Company Privilege Tax law is located at Mississippi Code Sections 27-21-1 to 27-21-19. Section 27-21-3 provides:

There is hereby levied a statewide privilege tax upon every person, firm, corporation, or association, other than banks, state or national, doing business of lending money secured by mortgages, trust receipts, retained-title[,] or purchase contracts, on motor vehicles, furniture, refrigerators containing mechanical freezing units operated by gas or electricity, or radios or any other tangible personal property, located in the State of Mississippi . . . .

Miss. Code Ann. § 27-21-3 (Rev. 2010) (emphasis added). MDOR states that it is responsible for administering the tax laws of this state and that the Mississippi Legislature has given it authority to issue subpoenas as part of its enforcement responsibilities. MDOR maintains thatPikco is subject to the Finance Company Privilege Tax, as well as the subpoena, which MDOR issued to obtain documents regarding Pikco's failure to pay the taxes.

¶5. Pikco claims that it does not have to comply with MDOR's subpoena because: (1) the Finance Company Privilege Tax is preempted by the National Bank Act; (2) the subpoena is an exercise of a visitorial power, which is prohibited by the National Bank Act, because Pikco is an operating subsidiary of a national bank and is subject to exclusive oversight by the Office of the Comptroller of the Currency (OCC); and (3) Pikco is exempt from the tax under Mississippi Code Section 27-21-3. Each of Pikco's arguments will be addressed here.

A. State taxation is not preempted by the National Bank Act.

¶6. Pikco claims that it is not required to comply with MDOR's subpoena because Mississippi's Finance Company Privilege Tax is preempted by the National Bank Act. The National Bank Act is found at 12 U.S.C. Section 1, et seq.³ The purpose of the National Bank Act, enacted in 1864, was to establish a national banking system "extending throughout the country, and independent, so far as powers conferred are concerned, of state legislation which, if permitted to be applicable, might impose limitations and restrictions as various and as numerous as the states." Easton v. State of Iowa, 188 U.S. 220, 229, 23 S. Ct. 288, 47 L. Ed. 452 (1903).

¶7. The burden of demonstrating that federal law preempts state law is on the party claiming preemption, in this case, Pikco. Angle v. Koppers, Inc., 42 So. 3d 1, 8 (Miss. 2010). This Court has held that federal law preempts state law in three situations: (1) where Congress has explicitly preempted state law; (2) where Congress has occupied the entire field; or (3) where there is an actual conflict between federal and state law. Cooper v. Gen. Motors Corp., 702 So. 2d 428, 434 (Miss. 1997) (citing English v. Gen. Elec. Co., 496 U.S. 72, 78-79, 110 S. Ct. 2270, 110 L. Ed. 2d 65 (1990)).

¶8. First, Congress has not explicitly preempted state law as to taxation. The National Bank Act precludes state regulation of national banks in certain enumerated areas, but state taxation is not one of those areas. In fact, taxation is specifically exempted from the areas preempted by the National Bank Act. Section 548 provides, "For the purposes of any tax law enacted under authority of the United States or any State, a national bank shall be treated as a bank organized and existing under the laws of the State or other jurisdiction within which its principal office is located." 12 U.S.C. § 548 (2006).⁴ In addition to Section 548, the Code of Federal Regulations provides that state tax laws apply to national banks. "State laws on the following subjects are not inconsistent with the powers of national banks and apply tonational banks to the extent that they only incidentally affect the exercise of national bank powers: . . .(vi) Taxation . . ." 12 CFR § 7.4009(c)(2) (repealed July 21, 2011).

¶9. Second, Congress has not occupied the entire field as to national banks. The National Bank Act left several areas to state regulation, so long as the state laws in those areas "only incidentally affect the exercise of national bank powers." 12 C.F.R. § 7.4009(c)(2) (repealed July 21, 2011). Congress spoke directly to the issue of taxation in 12 U.S.C. Section 548 and 12 C.F.R. Section 7.4009, stating that national banks were subject to state taxation. In most cases, we look for Congress to have preempted an area of law. In this case, Congress specifically exempted taxation from federal regulation and left it to the states.

¶10. Turning to the third situation in which federal law could preempt state law, there is no duplicative federal law pertaining to collection of Mississippi state finance taxes. If an area is not preempted by the National Bank Act, state law applies. "National banks remain bound by state laws and regulations, except for those laws substantively preempted by other provisions of the Bank Act." Wells Fargo Bank N.A. v. Boutris, 419 F.3d 949, 964 (9th Cir. 2005). Because state taxation is exempt from federal regulation, there is no actual conflict between federal and state law in this area; thus, federal law will not preempt state law under that theory. As such, national banks and their subsidiaries are subject to state tax laws, such as the Finance Company Privilege Tax.

¶11. In sum, federal law does not preempt state law as to state taxation of national banks. Congress has not explicitly preempted state law in this area, Congress has not occupied the entire field, and there is no conflict between federal and state law in this area. The NationalBank Act does not preempt state taxation; in fact, it explicitly exempts it, leaving taxation to the states under 12 U.S.C. Section 548 and 12 C.F.R. Section 7.4009(c)(2).⁵

B. MDOR's subpoena was not an exercise of a visitorial power.

¶12. Pikco claims that it is not required to comply with MDOR's subpoena because the issuance of the subpoena is an exercise of a visitorial power. Pikco's argument is based on 12 U.S.C. Section 484, which provides:

(a) No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts of justice or such as shall be, or have been exercised or directed by Congress or by either House

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