Opinion ID: 712972
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Heading: PCAs: Federal Instrumentalities Immune from State Taxation Absent Congressional Waiver

Text: 9 Production credit associations are expressly termed federal instrumentalities in relevant statutes 1 and case law 2 . Arkansas concedes that PCAs are federal instrumentalities, but contends that PCAs resemble private corporations, and that the structure and objectives of the PCAs within the farm credit system indicate that their connection to the federal government is not so close as to confer upon them immunity from state taxation. 10 Arkansas relies upon United States v. New Mexico to support its contention that federal instrumentalities like PCAs do not implicitly merit federal immunity from state taxation. Arkansas contends that New Mexico dictates that federal instrumentalities like PCAs are immune from state taxation only if, like government contractors, they are so closely connected to the Government that they stand in the Government's shoes. 3 Arkansas thus argues that the district court's grant of summary judgment was erroneous; Arkansas should have the opportunity to present factual evidence concerning the function, control, ownership, and operation of the PCAs. We disagree. 11 Beginning with M'Culloch v. State of Maryland, 4 Wheat. 316, 4 L.Ed. 579 (1819), the Supreme Court has repeatedly 4 held that because of the Supremacy Clause of the United States Constitution, states have no power to tax federally created instrumentalities absent Congressional authorization. [T]he states have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control, the operations of the constitutional laws enacted by congress to carry into execution the powers vested in the general government. This is, we think, the unavoidable consequence of that supremacy which the constitution has declared. Id. at 436, 4 L.Ed. 579. 12 The proprietary functions and other attributes of the PCAs have no bearing on their status as federal instrumentalities immune from state taxation. The Supreme Court has made it clear that the Federal Government performs no 'proprietary' functions. If the enabling Act is constitutional and if the instrumentality's activity is within the authority granted by the Act, a governmental function is being performed. Federal Land Bank of Wichita v. Bd. of County Comm'rs, 368 U.S. 146, 150-51, 82 S.Ct. 282, 286, 7 L.Ed.2d 199 (1961) (citing Federal Land Bank v. Bismarck Lumber Co., 314 U.S. 95, 102, 62 S.Ct. 1, 5, 86 L.Ed. 65 (1941)). Arkansas makes no claim that the PCAs or their activities are unconstitutional. Thus, no further review or factual development of the PCAs' functions or objectives is necessary. 13 Arkansas incorrectly contends that the reasoning of United States v. New Mexico applies to PCAs. 455 U.S. 720, 102 S.Ct. 1373, 71 L.Ed.2d 580 (1982). In New Mexico, the Supreme Court clarified the test for determining which government contractors merit immunity from state taxation 5 . The Court granted certiorari solely to consider the seemingly intractable problems posed by state taxation of federal contractors. 455 U.S. at 730, 102 S.Ct. at 1380. The Court thus considered and discussed the objectives, functions, and ownership of the contractors in light of the clarified standard after concluding that the contractors were not instrumentalities of the United States 6 . Id. at 739-40, 102 S.Ct. at 1385-86. By contrast, PCAs are federal instrumentalities, clearly designated as such by federal statutes. Thus New Mexico is readily distinguishable as applicable to tax immunity cases involving federal contractors, not Congressionally created federal instrumentalities like PCAs 7 . Indeed, in New Mexico, the Court reaffirmed the rule that federal instrumentalities are exempt from state taxation 8 . 14