Laurens Federal Savings and Loan Association v. South Carolina Tax Commission, 126

• Decision Date: 20 March 1961
• Docket Number: No. 126,126
• Citation: 5 L.Ed.2d 749,365 U.S. 517,81 S.Ct. 719
• Parties: LAURENS FEDERAL SAVINGS AND LOAN ASSOCIATION, Petitioner, v. SOUTH CAROLINA TAX COMMISSION et al
• Court: U.S. Supreme Court

365 U.S. 517

81 S.Ct. 719

5 L.Ed.2d 749

LAURENS FEDERAL SAVINGS AND LOAN ASSOCIATION, Petitioner,

v SOUTH CAROLINA TAX COMMISSION et al.

No. 126.

Argued March 2, 1961.

Decided March 20, 1961.

Mr. Frank K. Sloan, Columbia, S.C., for petitioner.

Mr. James M. Windham, Columbia, S.C., for respondents.

Mr. Justice BLACK delivered the opinion of the Court.

The question presented is whether the State of South Carolina has power to require a Federal Savings and Loan Association located in that State to pay documentary stamp taxes on promissory notes executed by the Association in favor of a Federal Home Loan Bank to cover loans from the Bank to the Association.

Petitioner is a Federal Savings and Loan Association organized under the Home Owners' Loan Act of 1933¹ and doing business in Laurens, South Carolina. It is also a member, with borrowing privileges, of the Federal Home Loan Bank of Greensboro, North Carolina, which was established under the Federal Home Loan Bank Act of 1932.² For the purpose of making mortgage money available in the community which it serves, petitioner Federal Savings and Loan Association has since August 12, 1953, secured 'advances,' or loans, from the Federal Home Loan Bank of Greensboro totalling $5,675,000, for which petitioner executed written promissory notes to the Bank as required by the 1932 Act. The State assessed against petitioner documentary stamp taxes on these notes of $2,270 under a state statute imposing a stamp tax on promissory notes at the rate of four cents on each $100.³ Petitioner paid these taxes under protest and then brought the present action in the state court for refund of the payment,⁴ claiming that the imposition of the taxes constituted an unlawful attempt by the State to tax the 'advances' of the Federal Home Loan Bank of Greensboro in violation of the provision of the 1932 Act exempting such banks from state taxation. This provision states, in pertinent part:

'The bank, including its franchise, its capital, reserves, and surplus, its advances, and its income, shall be exempt from all taxation now or hereafter imposed by the United States * * * or by any State * * *.' 12 U.S.C. § 1433, 12 U.S.C.A. § 1433. (Emphasis supplied.)

The Supreme Court of South Carolina affirmed the judgment upholding the State's taxing power, basing its affirmance on two grounds.⁵ It was of the opinion, first, that the exemption provision of the 1932 Act, although completely exempting the loans of the Federal Home Loan Bank from state taxation, did not cover the stamp taxes on the promissory notes securing the loans because these taxes were imposed upon the borrowing Savings and Loan Association rather than upon the lending Home Loan Bank and for this reason should not be considered taxes on the Bank's loans within the meaning of the 1932 provision. Secondly, the state court held that regardless of the original scope of the 1932 exemption, that exemption was implicitly repealed as to transactions like this one by the taxation provision of the Home Owners' Loan Act of 1933. We granted certiorari in order to determine whether the State has imposed a tax forbidden by Congress.⁶

The first question is whether the immunity granted 'advances' of the Federal Home Loan Bank by the 1932 Act is broad enough to bar state stamp taxes on this loan transaction. We decided a very similar question in Pittman v. Home Owners' Loan Corp., 308 U.S. 21, 60 S.Ct. 15, 84 L.Ed. 11. There the State of Maryland imposed a stamp tax upon the recording of mortgages at the rate of 10 cents for each $100 of the principal amount of the mortgage indebtedness. The Home Owners' Loan Corporation sought to record a mortgage upon payment of the ordinary recording fee without payment of the additional state stamp tax. The mortgage had been issued to it as security for a loan which the Corporation had made under now defunct provisions of the Home Owners' Loan Act of 1933. Section 4(c) of that Act provided that '(t)he Corporation, including * * * its loans' shall be exempt 'from all taxation * * * now or hereafter imposed * * * by any State' exept for real estate taxes. We unanimously affirmed the holding of the state court that this exemption provision, practically identical in language and substance to the exemption in 12 U.S.C. § 1433, 12 U.S.C.A. § 1433, precluded application of the recording tax to mortgages securing loans from the Corporation.

The state court in the present case, although drawing no distinction between the terms 'loans' and 'advances,' nevertheless thought the Pittman decision inapplicable here because in that case the mortgage was presented for recording by the exempt lender itself (the Home Owners' Loan Corporation) while here the South Carolina tax was assessed against the borrowing petitioner association rather than against the exempt lender (the Home Loan Bank). We distinctly said in Pittman, however, that the fact that the state taxing statute did not require payment of the tax by the lender has 'no determining significance,' our reason being that "whoever pays it it is a tax upon the mortgage and that is what is forbidden by the law of the United States."⁷ We went on in Pittman to recognize that the real question was whether the 'critical term * * * 'loans' * * * should be construed as covering the entire process of lending, the debts which result therefrom and the mortgages given * * * as security.'⁸ The question here is the same as to the synonymous term 'advances'⁹ and as to the promissory notes securing the advances, since the language of the exemption is equally broad. The factors given weight in the Pittman opinion in deciding that the exemption covered the entire loan transaction are also present here. The Act under consideration there required that the loans 'be secured by a duly recorded home mortgage' just as here the Act requires the advances to be secured by the note or obligation of the borrower. Here, as we said in Pittman, therefore, the documents sought to be taxed 'were indispensable elements in the lending operations authorized by Congress'¹⁰ and were required for the protection of the lending institution. The tax in Pittman was 'graded according to the amount of the loan'¹¹ and here too the face value of the notes is the measure of the tax.

While the question of the breadth of the exemption of 'advances' in the 1932 Act thus is persuasively answered by our reasoning in Pittman, the same conclusion is called for by the language and legislative history of that Act as a whole. It set up a system of federally chartered Home Loan Banks for the purpose, as stated in the House and Senate Committee Reports, of placing 'long-term funds in the hands of local institutions' in order to alleviate the pressing need of home owners for 'low-cost, long-term, installment mortgage money' and to 'decrease costs of mortgage money' with a 'resulting benefit to home ownership in the form of lower costs and more liberal loans.'¹² It is to this end that the Act authorizes the Federal Home Loan Banks to make 'advances' of funds to eligible borrower institutions 'upon the note or obligation' of the borrower secured primarily by mortgages on homes.¹³ The exemption of these 'advances' from taxation obviously is in keeping with the Act's over-all policy of making these mortgage funds available at low cost to home owners. Regardless of who pays the documentary stamp taxes here at issue, the necessary effect of the taxes is to increase the cost of obtaining the advances of funds from the Home Loan Bank to be used in making loans to home owners. In its impact, therefore, this tax, whether nominally imposed on the Bank or on the petitioner, is bound to increase the cost of loans to home owners and thus contravene the basic purpose of Congress in insulating these advances from state taxation. We hold that it was error to construe the exemption provision of the 1932 Act as not broad enough to bar imposition of the State's stamp taxes on the notes which were an integral part of these loan transactions.

This leaves for consideration the state court's holding that, in instances where the borrower is a Federal Savings and Loan Association such as petitioner, the exemption conferred upon the entire loan transaction by the 1932 Act was impliedly repealed by the taxation provision in the Home Owners' Loan Act of 1933. The court based this holding upon the following language of the 1933 Act:

'* * * (N)o State * * * or local taxing authority shall impose any tax on such associations or their franchise, capital, reserves, surplus, loans, or income greater than that imposed by such authority on other similar local mutual or cooperative thrift and home financing institutions.' 12 U.S.C. § 1464(h), 12 U.S.C.A. § 1464(h)....