STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

July 10, 1968

Herman Bleeker
State's Attorney, Hansen County
Alexandria, South Dakota57311

OFFICIAL OPINION NO. 68-5

Moneys and Credits Tax

Dear Mr. Bleeker:

You have requested my official opinion as to whether or not the moneys and credits tax applies on savings accounts in savings and loan associations in South Dakota.

Our moneys and credits tax established by SDC 57.12 exempts from the payment of such tax any moneys or credits as the same are defined which are not drawing interest. (SDC 1960 Supp. 57.1203-1) There is a further exemption so far as the listing of specific moneys and credits which exempts shares of stock in corporations whose tangible property is all or substantially all situated within this state.

The question arises, do deposits in savings and loan associations constitute shares of stock in a corporation whose property is located in South Dakota?

This matter was discussed in part in an official opinion rendered at 1955-56 AGR 413. At this time and under the provisions of SDC 7.0201, the Attorney General held that the specified types of stock shares provided by law did constitute and come within the exemptions provided in SDC 57.1209(15). The Building and Loan Association Law, however, was repealed by Chapter 11 of the Laws of 1967 and it is therefore necessary to review this law in connection with the moneys and credits law and the previous opinion.

It should be noted in this regard that the capital of either of federal or state mutual association is comprised solely of share accounts which are evidenced by either a passbook or a savings certificate. In the original Attorney General's Opinion, the opinion concerned itself largely with a "passbook share" as that term was defined in the old Code and appeared as part of SDC 7.0201. The new recodification does not explicitly define "passbook share," but that definition still remains and is a part of the present Code where the same appears in the definitions as "savings account" and "savings liability." It should also be noted in this regard that what was referred to in the old Code as "prepaid shares" is now the same as a "savings certificate." As stated hereinabove, the actual operation of the association has not changed, but the terms have been redefined to be consonant with the terms actually utilized by associations in their day to day operations.

It should be further noted in this regard that members of an association (those persons owning a savings account, or a person owning a share of permanent stock) are paid dividends, not interest, on their investment.

Under the mutual type operation, whether the same be a federal or a state, the capital of such an institution is comprised of the savings accounts of the members. In addition, the only members voting concerning the election of directors and on any or all other corporate matters affecting the operation of the institution are those persons owning or holding passbook accounts or savings certificates and persons who have borrowed money from the association. Voting is restricted to one vote per member plus one additional vote for each $100 of savings liability up to a maximum of 50 votes per member. Thus, in effect, those persons owning savings accounts and savings certificates are the persons who have contributed the capital for the operation of the association, they receive dividends on their investment and they actually vote on all matters affecting the corporation and in the event the corporation were to be liquidated they would participate in the pro rata distribution of any earned surplus that would be available for distribution to the members.

A distinction must now be noted for a state stock association. Its capital is comprised of both voting and non-voting shares. Those individuals who own the permanent stock issued by the association are entitled to one vote per share. Those persons who own savings accounts in an association are not entitled to vote but do participate in the net earnings of the association. This is no different than any other corporation which has chosen to issue both voting and non-voting stock. This, of course, is often times done when a corporation issues preferred stock.

As stated hereinabove, there is no change in the operation of savings and loan associations and more particularly, the mutual type. It would also appear that the savings accounts in a stock association should not be singled out to impose the moneys and credits tax when in effect those persons owning savings accounts in these associations do own part of the capital of the association, but merely have no vote. They do, however, participate in the net earnings of the association and these earnings are called dividends.

From a review of Chapter 11 of the Session Laws of 1967, there appears nothing which should in any way change or affect the previous Attorney General's ruling contained in 1955-56 AGR at pages 413, 414. All that the new Code does is to redefine the terms to consonant with the actual operations as they are now being conducted by savings and loan associations. I, therefore, affirm the previous ruling and hold that such deposits are not subject to money and credit taxation.

Respectfully submitted,

Frank L. Farrar
Attorney General