Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2017

California Constitutional Provisions

ARTICLE XIII Revenue and Taxation

Section 27

Sec. 27. Taxation of banks and corporations. The Legislature, a majority of the membership of each house concurring, may tax corporations, including State and national banks, and their franchises by any method not prohibited by this Constitution or the Constitution or laws of the United States. Unless otherwise provided by the Legislature, the tax on State and national banks shall be according to or measured by the net income and shall be in lieu of all other taxes and license fees upon banks or their shares, except taxes upon real property and vehicle registration and license fees.

History.—The amendment of June 8, 1976, substituted "a majority" for "two-thirds" in the first sentence.

Decisions Under Former Article XIII, Section 16.

Editorial Note.—This section was proposed at a special legislative session in September, 1928. A tax commission appointed by the Governor under Chapter 455, Statutes of 1927, p. 781, had urged immediate adoption of the amendment as an emergency measure to provide new methods for preferential taxation of intangibles (for present constitutional provisions relating to taxation of intangibles see Section 14, Art. XIII) and for taxation of banks and corporate franchises. At that time the taxation of banks and corporate franchises was covered by subdivisions (c) and (d) of Section 14, Art. XIII. These provisions were not repealed until June 27, 1933.

After the adoption of this section there was no further assessment of bank shares under Section 14(c), Art. XIII, nor, generally speaking, of corporate franchises under Section 14(d), Art. XIII. (For text of Section 14, Art. XIII, prior to 1933 amendment, see 1936 Revenue Laws, p. 720.) In March, 1929, the "Bank and Corporation Franchise Tax Act" (Statutes 1929, p. 19) was passed to carry into effect the new method of bank and corporation taxation provided by this constitutional amendment.

For a thorough analysis of the legal aspects of a system of taxation "according to or measured by" net income, with particular reference to the taxation of national banks, see Traynor, National Bank Taxation in California, 17 Cal.L.Rev. 83, 232, 456.

Interest from tax exempt bonds.—In providing for a franchise tax on corporations "according to or measured by" their net income, it is permissible to provide that interest from tax exempt bonds shall be included within the tax base although such interest could not be directly taxed. Pacific Co. v. Johnson, 212 Cal. 148, aff'd 285 U.S. 480; Security-First Nat'l Bank v. Franchise Tax Board, 55 Cal.2d 407, appeal dismissed 368 U.S. 3.

Franchise from State immaterial.—It is not necessary for banks or savings and loan associations to hold franchises issued by the State to make them liable for taxes under this section and the Bank and Corporation Franchise Tax Act. First Federal S. & L. Ass'n v. Johnson, 49 Cal.App.2d 465.

Taxation of bank safe deposit boxes.—Safe deposit boxes and their metal containers owned by a bank and located therein, which are not permanently affixed to the realty and not essential to general banking functions are not fixtures and cannot therefore be taxed as real property. Pajaro Valley Bank v. Santa Cruz County, 207 Cal.App.2d 621.

Neither the weight of tiers of safe deposit boxes in a bank nor their placement unattached in a vault are sufficient, as a matter of law, to classify them as fixtures. United States National Bank of San Diego v. Los Angeles County, 234 Cal.App.2d 195.

Prepayment of estimated tax.—Since Sections 25441 and 25563 of the Revenue and Taxation Code do not impose a new tax on corporations, but merely accelerate the time of payment of a previously imposed tax, they do not violate this constitutional provision by virtue of having been passed by less than a two-thirds vote of all elected members of the Legislature. Jones-Hamilton Co. v. Franchise Tax Board, 268 Cal.App.2d 343.