APPEAL FROM THE SUPREME COURT OF GEORGIA.
Blackmun, J., delivered the opinion for a unanimous Court.
JUSTICE BLACKMUN delivered the opinion of the Court.
Two Terms ago, this Court, by a 6-2 vote, ruled that Rev. Stat. § 3701, as amended, 31 U. S. C. § 742 (1976 ed.), prohibited a State from imposing on bank shares a property tax computed on the basis of the bank's net worth without deduction for tax-exempt United States obligations held by the bank. American Bank & Trust Co. v. Dallas County, 463 U.S. 855 (1983). Section 3701 at that time provided:*fn1
"[All] stocks, bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation by or under State or municipal or local authority. This exemption extends to every form of taxation that would require that either the obligations or the interest thereon, or both, be considered, directly or indirectly, in the computation of the tax, except nondiscriminatory franchise or other nonproperty taxes in lieu thereof imposed on corporations and except estate taxes or inheritance taxes."
In this case, we address a question left open in American Bank, see 463 U.S., at 865, n. 10: must a State, for property tax purposes, allow a bank to deduct from net worth the full value of tax-exempt United States obligations it holds, or is § 3701 satisfied by a limited deduction that excludes from net worth only that portion of the federal obligations properly attributable to assets rather than to liabilities?
Effective January 1, 1980, the State of Georgia imposed a property tax on the fair market value of the shares of the
stockholders of banks and banking associations. 1978 Ga. Laws, No. 795, § 2, p. 523, codified as Ga. Code Ann. § 48-6-90(a)(1) (1982).*fn2 The fair market value of a bank's shares was to be determined "by adding together the amount of the capital stock, paid-in capital, appropriated retained earnings, and retained earnings . . . as shown on the unconsolidated statement of condition of the bank . . . and dividing the sum by the number of outstanding shares. . . ." This fair market value represented the bank's net worth. The State allowed banks, in the calculation of net worth, to deduct certain holdings, such as real estate taxed separately, § 48-6-90(a)(1), but did not authorize a deduction for the value of United States obligations held by the bank.
When appellant's predecessor-in-interest bank filed its 1980 amended return, entitled "Determination of Taxable Value of Bank Shares," with appellee Bartow County Board of Tax Assessors, it deducted from its net worth the total value of the federal securities the bank held. App. A-4. The Board disallowed that deduction, and the Board of Tax Equalization affirmed the disallowance. Appellant then took its case to the Superior Court of Bartow County, which consolidated it with cases filed by two other banks: Citizens and Southern National Bank, whose deduction of United States securities the Board of Tax Equalization also had disallowed, and Bartow County Bank, whose deduction a different panel of the same Board had allowed. The Superior Court ruled in favor of disallowance, and the Supreme Court of Georgia affirmed. Bartow County Bank v. Bartow County Bd. of Tax Assessors, 248 Ga. 703, 285 S. E. 2d 920 (1982).
The banks appealed to this Court; we vacated the judgment and remanded the case for reconsideration in light of
the then-recent decision in American Bank, supra. Bartow County Bank v. Bartow County Bd. of Tax Assessors, 463 U.S. 1221 (1983). On the remand to the Supreme Court of Georgia, the parties conceded that the Georgia bank-share tax statute, if construed to prohibit any deduction for the value of federal obligations a bank holds, would be invalid under the principles announced in American Bank. The court therefore sought to save the statute by construing it to allow a bank to deduct from its net worth "the percentage of assets attributable to federal obligations." Bartow County Bank v. Bartow County Bd. of Tax Assessors, 251 Ga. 831, 834, 312 S. E. 2d 102, 105 (1984). The court explained that if 9.75 percent of a bank's total assets consisted of federal obligations, the bank would be entitled to reduce its net worth by 9.75 percent. Id., at 835-836, 312 S. E. 2d, at 106. According to the court, such a proportionate deduction recognizes that some of a bank's federal obligations are represented on the bank's balance sheet by liabilities, while some are represented by net worth.*fn3 Because the bankshare tax is assessed on net worth, not on total assets, the court reasoned, a proportionate deduction immunizes tax-exempt values, for it excludes federal obligations from the tax base -- net worth -- to the extent that they are represented there. Id., at 833, 312 S. E. 2d, at 105. The court rejected the banks' argument that the total value of federal obligations had to be deducted from net worth in order for § 3701 to be satisfied; it indicated that such an absolute deduction would not only insulate the federal obligations from the share tax, as § 3701 requires, but would go beyond § 3701 and shelter the bank's taxable assets from the tax. Id., at 834, 312 S. E. 2d, at 105.*fn4
One of the three banks, appellant First National Bank of Atlanta, appealed.*fn5 We noted probable jurisdiction pursuant to 28 ...