Source: https://www.legalcrystal.com/case/101902/agricultural-bank-vs-tax-comm-n
Timestamp: 2017-10-20 00:01:00
Document Index: 418343216

Matched Legal Cases: ['§ 548', '§ 548', '§ 548', '§ 548', '§ 548', '§ 548', '§ 548', '§ 548', '§ 548', '§ 548', '§ 222', '§ 548', '§ 548', '§ 548', '§ 548', '§ 548', '§ 531', '§ 931', '§ 607', '§ 1405', '§ 548']

Agricultural Bank Vs Tax Comm N - Citation 101902 - Court Judgment | LegalCrystal
Agricultural Bank Vs. Tax Comm'n - Court Judgment
LegalCrystal Citation legalcrystal.com/101902
Case Number 392 U.S. 339
Appellant Agricultural Bank
agricultural bank v. tax comm'n - 392 u.s. 339 (1968) u.s. supreme court agricultural bank v. tax comm'n, 392 u.s. 339 (1968) first agricultural national bank or berkshire county v. state tax commission no. 755 argued april 22, 1968 decided june 17, 1968 392 u.s. 339 appeal from the supreme judicial court of massachusetts syllabus massachusetts sales tax (which, by its terms, must be passed on to the purchaser) and use tax are invalid as applied to national banks, since such taxes are not among the only four specified methods of taxation in addition to taxes on real estate by which, under 12 u.s.c. § 548, congress has permitted states to tax national banks. pp. 392 u. s. 339 -348. ___ mass. ___,.....
Agricultural Bank v. Tax Comm'n - 392 U.S. 339 (1968)
U.S. Supreme Court Agricultural Bank v. Tax Comm'n, 392 U.S. 339 (1968)
Massachusetts sales tax (which, by its terms, must be passed on to the purchaser) and use tax are invalid as applied to national banks, since such taxes are not among the only four specified methods of taxation in addition to taxes on real estate by which, under 12 U.S.C. § 548, Congress has permitted States to tax national banks. Pp. 392 U. S. 339 -348.
Supreme Judicial Court for the Commonwealth of Massachusetts held that appellant, First Agricultural National Bank of Berkshire County, was subject to Massachusetts' recently enacted sales and use taxes [ Footnote 1 ] on purchases for its own use of tangible personal property. For reasons to be stated, we believe this decision was erroneous, and we reverse.
As long ago as 1819, in the historic case of M'Culloch v. Maryland, 4 Wheat. 316, this Court declared unconstitutional a state tax on the bank of the United States, since, according to Chief Justice Marshall, this amounted to a "tax on the operation of an instrument employed by the government of the Union to carry its powers into execution." 4 Wheat. at 17 U. S. 436 -437. A long line of subsequent decisions by this Court has firmly established the proposition that the States are without power, unless authorized by Congress, to tax federally created, or, as they are presently called, national, banks. Owensboro Nat. Bank v. Owensboro, 173 U. S. 664 , 173 U. S. 668 ; Des Moines Nat. Bank v. Fairweather, 263 U. S. 103 , 263 U. S. 106 ; First Nat. Bank v. Hartford, 273 U. S. 548 , 273 U. S. 550 ; Iowa-Des Moines Nat. Bank v. Bennett, 284 U. S. 239 , 284 U. S. 244 . As recently as 1966, MR. JUSTICE FORTAS, speaking for a unanimous Court, thought this ancient principle so well established that he used national banks as an example in holding the American Red Cross immune from state taxation:
beyond dispute. "
Department of Employment v. United States, 385 U. S. 355 , 385 U. S. 360 . (Emphasis added.)
The decision below recognized the strong precedents against taxation, but the Massachusetts Supreme Judicial Court was of the opinion that the status of national banks has been so changed by the establishment of the Federal Reserve System [ Footnote 2 ] that they should no longer be considered nontaxable by the States as instrumentalities of the United States. Essentially, the reasoning of the Supreme Judicial Court is that, under present-day conditions and regulations, there is no substantial difference between national banks and state banks, and the implication of this is, of course, that national banks lack any unique quality giving them the character of a federal instrumentality. Because of pertinent congressional legislation in the banking field, we find it unnecessary to reach the constitutional question of whether today national banks should be considered nontaxable as federal instrumentalities.
As will be seen, Congress has been far from reluctant to pass legislation in the banking field. There are important committees on banking and currency in both Houses which continually monitor banking affairs and propose new legislation when changes are felt to be needed. For purposes of this case, the most important piece of banking legislation is 12 U.S.C. § 548, [ Footnote 3 ] which
"Now, sir, every consideration, every argument which goes to sustain this great judgment [ M'Culloch v. Maryland ] may be employed against the proposed concession to the States of the power to tax this national institution in any particular, whether directly or indirectly."
Owensboro Nat. Bank v. Owensboro, 173 U. S. 664 , 173 U. S. 669 . A more complete explanation of § 548 and its meaning appears in this Court's opinion in Bank of California v. Richardson, 248 U. S. 476 , where it was said:
248 U.S. at 248 U. S. 483 . Finally, so there can be no doubt, consider these words of the Court in Des Moines Bank v. Fairweather, 263 U. S. 103 :
263 U.S. at 263 U. S. 107 .
Thus, at least since the Owensboro decision, supra, in 1899, it has been abundantly clear that 12 U.S.C. § 548 marks the outer limit within which States can tax national banks. Now this Court is asked to change what legislative history and prior decisions have established is the precise meaning of an Act of Congress. This we cannot do. For, as we pointed out above, the banking field has traditionally been an area of particular congressional concern marked by legislation responsive to new problems. This can be illustrated by the history of § 548 alone. It was originally passed in 1864 because the 1863 Currency Act [ Footnote 4 ] contained no provision for state taxation of national banks or their shares. In 1868, a technical amendment was made to the section. [ Footnote 5 ] Then, in 1923, a substantive amendment was made which, among other things, authorized the state taxation of national
bank income and dividends. [ Footnote 6 ] Another important part of this amendment was the declaration that "bonds, notes, or other evidences of indebtedness" in the hands of individual citizens were not to be considered "moneyed capital . . . coming into competition with the business of national banks." Just two years before, this Court had ruled, in Merchants' Nat. Bank of Richmond v. Richmond, 256 U. S. 635 (1921), that such bonds and notes were moneyed capital in competition with national banks, and thus covered by § 548. Senator Pepper, who spoke for the amendment, made clear that it was offered as a response to this Court's decision which had placed an erroneous interpretation on the section. [ Footnote 7 ] Then again, in 1926, § 548 was amended to permit States to levy franchise and excise taxes on national banks measured by the entire income (including income from tax exempt securities) of the banks. [ Footnote 8 ] Finally, in 1950, a bill was sent to the Senate Committee on Banking and Currency which expressly permitted the levying of state sales and use taxes on national banks, but Congress did not pass it. [ Footnote 9 ]
this is true, the bank cannot object if a particular vendor decides to pass the burden of the tax on to it through an increased price. But if this is not true, and if the tax is on the bank as a purchaser, then, because it is a national balk, appellant is exempt under 12 U.S.C. § 548. Because the question here is whether the tax affects federal immunity, it is clear that, for this limited purpose, we are not bound by the state court's characterization of the tax. See Society for Savings v. Bowers, 349 U. S. 143 , 349 U. S. 151 , and the cases cited therein. And essentially the question for us is: on whom does the incidence of the tax fall? See Kern-Limerick, Inc. v. Scurlock, 347 U. S. 110 , 347 U. S. 121 -122. Also see Carson v. Roane-Anderson Co., 342 U. S. 232 .
It would appear to be indisputable that a sales tax which, by its terms, must be passed on to the purchaser imposes the legal incidence of the tax upon the purchaser. See Federal Land Bank v. Bismarck Lumber Co., 314 U. S. 95 , 314 U. S. 99 . Subsection 3 of the Massachusetts sales tax provides:
I would make clear that the Constitution, of its own force, does not prohibit Massachusetts from applying its uniform sales and use taxes to, among other things, appellant's wastebaskets. [ Footnote 2/1 ] It seems to me necessary to
"[i]n cases involving constitutional issues . . . , this Court must, in order to reach sound conclusions, feel free to bring its opinions into agreement with experience and with facts newly ascertained, so that its judicial authority may . . . 'depend altogether on the force of the reasoning by which it is supported.' [ Footnote 2/2 ]"
Virtually all of the later cases in which national banks have been held to be federal instrumentalities immune from state taxation depend upon these three cases. One could, and perhaps should, read M'Culloch and Osborn simply for the principle that the Constitution prohibits a State from taxing discriminatorily a federally established instrumentality. On that view, Chief Justice Marshall's statement that "the power to tax involves the power to destroy," M'Culloch v. Maryland, supra, at 17 U. S. 431 , did not relate to a principle entirely necessary to the decision. As Mr. Justice Frankfurter pointed out in reference to what he called that "seductive cliche ":
Justice Holmes' pen: 'The power to tax is not the power to destroy while this Court sits.' [ Footnote 2/3 ]"
Absent an examination of the differences between the bank involved in Owensboro and the Second Bank of the United States, involved in M'Culloch and Osborn, the Owensboro decision might be justified upon either of the following grounds: its alternative holding that the statute that is now § 548 constituted congressional delineation of the permissible scope of the power of the State to tax a national bank, or perhaps that the particular franchise tax was invalid as applied because it was based upon a valuation that included the national bank's required investment in nontaxable bonds of the United States. [ Footnote 2/4 ] Or one might view Owensboro, in holding a nondiscriminatory tax invalid, as simply incorrect.
Constitution, but rather upon this Court's concepts of federalism. See M'Culloch v. Maryland, supra, at 17 U. S. 426 ; Graves v. New York ex rel. O'Keefe, 306 U. S. 466 , 306 U. S. 487 -492 (1939) (Frankfurter, J., concurring); T. Powell, Vagaries and Varieties in Constitutional Interpretation, c. IV (1956). I have no doubt that Congress could provide (and has provided, see infra at 392 U. S. 362 ) statutory immunity from state taxation for the federal instrumentalities it may establish. See, e.g., United States v. City of Detroit, 355 U. S. 466 , 355 U. S. 474 (1958); Maricopa County v. Valley Nat. Bank, 318 U. S. 357 , 318 U. S. 361 (1943); Railroad Co. v. Peniston, 18 Wall. 5, 85 U. S. 37 -38 (1873) (concurring in judgment). Given that congressional power, there is little reason for this Court to cling to the view that the Constitution itself makes federal instrumentalities immune from state taxation in the absence of authorizing legislation. The disparate kinds of instrumentalities and forms of state taxation create difficulties for ad hoc resolution of the immunity issue by this Court based only upon abstract concepts of federalism. See generally Powell, Waning of Intergovernmental Tax Immunities, 58 Harv.L.Rev. 633 (1945); Powell, Remnant of Intergovernmental Tax Immunities, 58 Harv.L.Rev. 757 (1945). As the Court has sometimes realized:
United States v. City of Detroit, 355 U.S. at 355 U. S. 474 .
character," Oklahoma Tax Comm'n v. Texas Co., 336 U. S. 342 , 336 U. S. 352 (1949). The wisdom of that trend counsels, I think, a rejection of the constitutional argument in this case.
Department of Employment v. United States, 385 U. S. 355 , 385 U. S. 358 359 (1966) (holding Red Cross immune). Various formulations of the controlling test have been used to determine whether institutions or individuals are immune: whether they
United States v. Boyd, 378 U. S. 39 , 378 U. S. 48 (1964); whether they "are arms of the Government deemed by it essential for the performance of governmental functions," and "are integral parts of [a government department and] . . . share in fulfilling the duties entrusted to it," Standard Oil Co. v. Johnson, 316 U. S. 481 , 316 U. S. 485 (1942) (Army post exchanges immune); whether they have been so "assimilated by the Government as to become one of its constituent parts," United States v. Township of Muskegon, 355 U. S. 484 , 355 U. S. 486 (1958), and whether the institution is regarded "virtually as an arm of the Government," Department of Employment v. United States, supra, at 385 U. S. 359 -360.
Under those general rubrics, the Court has looked to various specific factors and characteristics to determine the status of the specific institution: whether it is organized for private profit, and whether the Government has retained such control over it so that "it could properly be called a servant' of the United States in agency terms," United States v. Township of Muskegon, supra, at 355 U. S. 486 ; whether it was organized to effectuate a specific
governmental program, Federal Land Bank of St. Paul v. Bismarck Lumber Co., 314 U. S. 95 , 314 U. S. 102 (1941); whether its ownership, substantially or totally, lies in the Government, Clallam County v. United States, 263 U. S. 341 , 263 U. S. 343 (1923); Railroad Co. v. Peniston, 18 Wall. at 85 U. S. 32 ; whether government officials handle and control its operations, Standard Oil Co. v. Johnson, supra; whether its officers or any significant portion of them are appointed by the Government, Department of Employment v. United States, supra; compare Railroad Co. v. Peniston, supra; whether the Government gives it significant financial aid, whether it is charged by law with carrying out some of the Government's international commitments, and whether it performs "functions indispensable to the workings" of a governmental unit, Department of Employment v. United States, supra, at 385 U. S. 359 .
The Second Bank of the United States, involved in M'Culloch and Osborn, would clearly be a federal instrumentality under the Court's most recent discussion of the doctrine ( Department of Employment, supra ): the United States owned 20% of its capital stock (the remainder being owned by private persons); the President appointed five of its 25 directors, and the Government, as a shareholder, participated in the election of the others; the Secretary of the Treasury was required to deposit all of the public funds in the bank, unless he could give reasons to Congress why he should not do so; the bank was required to transmit funds for the United States without charge; the bank issued currency which was established as legal tender for all debts owing to the Government, and the bank clearly acted as the fiscal agent of the Government, handling its foreign exchange transactions. See P. Studenski & H. Krooss, Financial History of the United States 83-88, 103-106 (2d ed 1963); Federal Reserve System, Banking Studies 7-8, 18, 39-41 (1941).
Even the national bank involved in Owensboro might warrant tax-immune status were it in existence today. It was established pursuant to the National Currency Acts of 1863 and 1864, [ Footnote 2/5 ] which were enacted largely to
bolster the Union's financial status, shaky because of the Civil War. Banking Studies, supra at 44-46. Most importantly, from the standpoint of analyzing the federal functions such banks served, national banks under the Civil War legislation, [ Footnote 2/6 ] to which national banks today trace their history, had important and significant functions concerning currency. They were authorized to issue currency, printed for them by the Treasury Department, and such currency was established as legal tender for all debts owing to, or payable by, the Government. To insure the stability of the national currency by insuring the stability of the issuing banks, as well as to provide a ready market for the Government, each such national bank was required to secure its currency by depositing United States bonds with the Treasury Department. Banking Studies, supra, 14-16, 41-46; Studenski & Krooss, supra, 154-155.
To be sure, the Federal Reserve System could not function without national banks, which are required to be members therein, 12 U.S.C. § 222, and, in that sense, they are part and parcel of the establishment and effectuation of the national fiscal and monetary policies. But, in my view, that does not make them sufficiently quasi -public to enjoy the tax immune status of federal instrumentalities. If that alone were enough, then it would seem that state banks which elect to join the Federal Reserve System should also be tax-immune federal instrumentalities. [ Footnote 2/7 ]
In Graves v. New York ex rel. O'Keefe, 306 U.S. at 306 U. S. 483 , Mr. Justice Stone wrote for the Court:
"[T]he implied immunity of one government and its agencies from taxation by the other should, as a principle of constitutional construction, be narrowly restricted. For the expansion of the immunity of the one government correspondingly curtails the sovereign power of the other to tax, and, where that immunity is invoked by the private citizen, it tends to operate for his benefit at the expense of the taxing government, and without corresponding benefit to the government in whose name the immunity is claimed. [ Footnote 2/8 ]"
immune from nondiscriminatory state taxation as federal instrumentalities. [ Footnote 2/9 ] I might also add that I am a bit mystified that, under the Court's decisions in this field, the Federal Government, in practical effect, must pay a state tax in dealing with its contractors (who pass the tax on to the Government), see, e.g., Alabama v. King & Boozer, 314 U. S. 1 (1941), but that a national bank, a private profit-making corporation, is constitutionally immune from state taxation.
The Court holds that 12 U.S.C. § 548, ante at 392 U. S. 341 , n. 3, "was intended to prescribe the only ways in which the States can tax national banks." Ante at 392 U. S. 343 . I would be less than candid not to acknowledge that that holding has the virtue of being supported by substantial precedent. But that seems to me to be its only virtue. That interpretation of § 548 has its judicial origin in the Owensboro case. Given the constitutional premise of Owensboro, that interpretation would be quite clearly correct. But since I reject the constitutional premise so far as national banks today are concerned, it seems to me § 548 ought to be examined freshly, for the "immunity formerly said to rest on constitutional implication [should not] . . . now be resurrected in the form of statutory implication." Oklahoma Tax Comm'n v. United States, 319 U. S. 598 , 319 U. S. 604 (1943).
bank, and taxes "according to or measured by" a bank's income. It provides that the imposition of any one of the four listed taxes "shall be in lieu of the others." That statement, together with language of the section omitted in the Court's note as not pertinent ( ante at 392 U. S. 341 -342, n. 3), [ Footnote 2/10 ] makes clear that the purpose of the section was to
(4 Wheat. at 17 U. S. 436 .) I view § 548 as congressional delineation of those areas of state taxation of national banks permitted by the M'Culloch decision itself. I would hold that the section was "merely designed to insure that the inherent taxing powers which were recognized in" that case --
" e.g., the power to tax the real property of the banks as well as the privately owned shares -- be exercised in a nondiscriminatory fashion."
Liberty Nat. Bank v. Buscaglia, 21 N.Y.2d 357, 370, 235 N.E.2d 101, 108 (1967). As this Court said in Tradesmens Nat. Bank v. Oklahoma Tax Comm'n, 309 U. S. 560 , 309 U. S. 567 (1940),
Moreover, whatever else may be said of the statute, it most assuredly does not provide specifically that it is the sole measure of the State's power of taxation. One could argue that, given the state of constitutional law as it then existed, Congress saw no need to say specifically in § 548 that national banks were immune from state taxation except as that section permitted. Aside from the misreading of M'Culloch that such a view entails, the constitutional immunity of federal instrumentalities was just as plain when Congress provided statutory immunity for such agencies as, e.g., the Federal Reserve banks, 38 Stat. 258 (1913), 12 U.S.C. § 531; Federal land banks, 39 Stat. 380 (1916), 12 U.S.C. § 931; many other federal banking institutions; [ Footnote 2/11 ] the Reconstruction Finance Corporation, 47 Stat. 9 (1932), 15 U.S.C. § 607, and the Public Housing Administration, 50 Stat. 890 (1937), 42 U.S.C. § 1405(e), and a host of government-owned corporations. [ Footnote 2/12 ]
Burnet v. Coronado Oil & Gas Co., 285 U. S. 393 , 285 U. S. 412 -413 (1932) (dissenting opinion), quoting from Passenger Cases, 7 How. 283, 48 U. S. 470 (1849) (Taney, C.J.).
Graves v. New York ex rel. O'Keefe, 306 U. S. 466 , 306 U. S. 489 , 306 U. S. 490 (1939) (concurring opinion), quoting from Panhandle Oil Co. v. Knox, 277 U. S. 218 , 277 U. S. 223 (1928) (dissenting opinion).
Owensboro might also be viewed simply as prohibiting a franchise tax, i.e., as holding that a State may not condition the privilege to operate within its borders granted to the bank by Congress, by exacting that kind of tax. (Such a tax is permissible under 12 U.S.C. § 548, as amended after Owensboro, see Tradesmens Nat. Bank v. Tax Comm'n, 309 U. S. 560 (1940).) The taxes in M'Culloch and Osborn, apart from their discriminatory aspects, might be similarly viewed: the Maryland tax was directly upon the bank's operations, and alternatively upon its privilege to operate within the State; the Ohio tax in Osborn was also a condition upon the bank's privilege to transact business there. While the language and holdings of later cases go well beyond that limited view, that view would seem preferable to me to interpreting those constitutional decisions as flatly prohibiting all forms of state taxation, aside from exceptions listed in M'Culloch, 4 Wheat. at 17 U. S. 436 ( see infra at 392 U. S. 361 ).
Accord, Indian Motorcycle Co. v. United States, 283 U. S. 570 , 283 U. S. 580 (1931) (Stone, J., dissenting).