Federally Chartered Finance Agencies: Statutory Exemptions.

Fiscal institutions chartered by Congress, their shares and their property, are taxable only with the consent of Congress and only in conformity with the restrictions it has attached to its consent.160 Immediately after the Supreme Court construed the statute authorizing the states to tax national bank shares as allowing a tax on the preferred shares of such a bank held by the Reconstruction Finance Corporation,161 Congress enacted a law exempting such shares from taxation. The Court upheld this measure, saying: “When Congress authorized the states to impose such taxation, it did no more than gratuitously grant them political power which they theretofore lacked. Its sovereign power to revoke the grant remained unimpaired, the grant of the privilege being only a declaration of legislative policy changeable at will.”162 In Pittman v. Home Owners’ Corp.,163 the Court sustained the power of Congress under the necessary and proper clause to immunize the activities of the Corporation from state taxation; and in Federal Land Bank v. Bismarck Lumber Co.,164 the like result was reached with respect to an attempt by the state to impose a retail sales tax on a sale of lumber and other building materials to the bank for use in repairing and improving property that had been acquired by foreclosure or mortgages.

The state’s principal argument proceeded thus: “Congress has authority to extend immunity only to the governmental functions of the federal land banks; the only governmental functions of the land banks are those performed by acting as depositories and fiscal agents for the Federal Government and providing a market for government bonds; all other functions of the land banks are private; petitioner here was engaged in an activity incidental to its business of lending money, an essentially private function; therefore § 26 cannot operate to strike down a sales tax upon purchases made in furtherance of petitioner’s lending functions.”165 The Court rejected this argument and invalidated the tax, writing: “The argument that the lending functions of the federal land banks are proprietary rather than governmental misconceives the nature of the Federal Government with respect to every function which it performs. The federal government is one of delegated powers, and from that it necessarily follows that any constitutional exercise of its delegated powers is governmental. It also follows that, when Congress constitutionally creates a corporation through which the federal government lawfully acts, the activities of such corporation are governmental.”166

Similarly, the lease by a federal land bank of oil and gas in a mineral estate, which it had reserved in land originally acquired through foreclosure and thereafter had conveyed to a third party, was held immune from a state personal property tax levied on the lease and on the royalties accruing thereunder. The fact that at the time of the conveyance and lease, the bank had recouped its entire loss resulting from the foreclosure did not operate to convert the mineral estate and lease into a non-governmental activity no longer entitled to exemption.167 However, in the absence of federal legislation, a state law laying a percentage tax on the users of safety deposit services, measured by the bank’s charges therefore, was held valid as applied to national banks. The tax, being on the user, did not, the Court held, impose an intrinsically unconstitutional burden on a federal instrumentality.168

Footnotes

160
Des Moines Bank v. Fairweather, 263 U.S. 103, 106 (1923); Owensboro Nat’l Bank v. Owensboro, 173 U.S. 664, 669 (1899); First Nat’l Bank v. Adams, 258 U.S. 362 (1922); Michigan Nat’l Bank v. Michigan, 365 U.S. 467 (1961). [Back to text]
161
Baltimore Nat’l Bank v. Tax Comm’n, 297 U.S. 209 (1936). [Back to text]
162
Maricopa County v. Valley Bank, 318 U.S. 357, 362, (1943). [Back to text]
163
308 U.S. 21 (1939). [Back to text]
164
314 U.S. 95 (1941). [Back to text]
165
314 U.S. at 101. [Back to text]
166
314 U.S. at 102 (citations omitted). [Back to text]
167
Federal Land Bank v. Kiowa County, 368 U.S. 146 (1961). [Back to text]
168
Colorado Bank v. Bedford, 310 U.S. 41 (1940). [Back to text]