First City Bank v. Franchise Tax Board

Plaintiff First City Bank (hereinafter First City) appeals from a summary judgment denying its claim for a $4,999 tax refund paid to respondent Franchise Tax Board (hereinafter Board). Both sides moved for summary judgment on the basis of stipulated facts. First City’s motion was denied. At issue was the question of whether a 2.5 percent tax on items of so-called “preference income” (see p. 448, post) in excess of $30,000 imposed on banking corporations under the provisions of Revenue and Taxation Code section 23400 et seq. is constitutionally valid.

The basic tax structure relating to banks (both state and federal) during the 1972 taxable period here involved included a tax against banking institutions measured by net income at the maximum rate of 11.6 percent for the year in question. This was authorized by former article XIII, section 16, of the California Constitution, and the statutes promulgated thereunder. The constitutional section provides in part:

This was implemented by sections 23181 and 23182, Revenue and Taxation Code, which, during the same period, reád, insofar as pertinent here: “(a) An annual tax is hereby imposed upon every bank located within the…