Appeal from judgment of Court of Common Pleas of Dauphin County, No. 395 C.D. 1962, in case of Commonwealth of Pennsylvania v. Mellon National Bank and Trust Company.
Carl F. Chronister, with him A. Sieber Hollinger, William T. Marsh, and Reed, Smith, Shaw & McClay, for appellant.
George W. Keitel, Deputy Attorney General, with him Walter E. Alessandroni, Attorney General, for Commonwealth, appellee.
Charles J. Biddle, with him Leslie M. Swope, and Drinker, Biddle & Reath, for amicus curiae.
Bell, C. J., Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Cohen. Mr. Justice Eagen concurs in the result. Dissenting Opinion by Mr. Chief Justice Bell.
This is an appeal by Mellon National Bank and Trust Company (Mellon) with respect to its shares tax report for the year 1959. The shares tax is imposed by the Act of July 15, 1897, P. L. 292, as amended, 72 P.S. § 1931, and is "at the rate of eight mills upon each dollar of the actual value" of the shares.
In computing its shares tax for 1959,*fn1 Mellon added its capital stock, surplus and undivided profits as shown on its books. To this it added its federal tax reserve for losses on loans and discounts and arrived at a total of $306,541,525.84. Mellon then subtracted (1) the difference between the book and market values of its securities ($429,112) and (2) the average reserve for its actual losses on loans and mortgages ($37,154) and (3) the difference between the book and market values of its FHA and VA mortgages ($11,203,012.72). This resulted in a taxable value of $294,872,247.12, and a per share taxable value of $115.26. The value of exempt shares -- $21,002,907.72 -- was then subtracted, leaving a value subject to tax of $273,869,339.40 and a tax of $2,190,954.71.
The Commonwealth disputed the taxpayer's computation in two respects. First, it disallowed the subtraction of the $11,203,012.72 difference between the book and "market values" of the FHA and VA mortgages;
and, second, it added back an amount of $137,639 representing the total discount on certain mortgages purchased by Mellon from others and shown on its books as a liability. These two changes produced a total actual value of $306,212,989 and, after eliminating the value of the exempt shares, a taxable actual value of $284,402,747. The tax on this value came to $2,275,221.98.
The court below agreed with the Commonwealth, and Mellon has appealed.
In reducing the book value of its FHA and VA mortgages, Mellon relied on an appraisal made for it by an independent national mortgage broker. This appraisal indicated that there existed a substantial and well-defined market throughout the country for FHA and VA mortgages and that as of December 31, 1959, market values were quite depressed, principally because of the issuance by the United States Government of a high interest rate bond which attracted much of the money which normally would be available to purchase FHA and VA mortgages. The result of this depressed state of the market was to reduce temporarily the market value of the FHA and VA mortgages held by Mellon to about 84% of their face book value. The facts further indicate, however, that Mellon has had to foreclose on only a negligible percentage of the FHA and VA mortgages held by it and that it sold none of them in 1959 (or in 1960 and 1961), thus indicating that Mellon generally held a mortgage until maturity and received the face value therefor. ...