392 U.S. 339 (1968), 755, First Agricultural National Bank or Berkshire County v. State Tax Commission

Docket Nº:No. 755
Citation:392 U.S. 339, 88 S.Ct. 2173, 20 L.Ed.2d 1138
Party Name:First Agricultural National Bank or Berkshire County v. State Tax Commission
Case Date:June 17, 1968
Court:United States Supreme Court

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392 U.S. 339 (1968)

88 S.Ct. 2173, 20 L.Ed.2d 1138

First Agricultural National Bank or Berkshire County


State Tax Commission

No. 755

United States Supreme Court

June 17, 1968

Argued April 22, 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. 339-348.

___ Mass. ___, 229 N.E.2d 245, reversed.

BLACK, J., lead opinion

MR JUSTICE BLACK delivered the opinion of the Court.

The principal issue raised by this case concerns the extent to which States may tax a national bank. The

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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 taxes1 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 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, 668; Des Moines Nat. Bank v. Fairweather, 263 U.S. 103, 106; First Nat. Bank v. Hartford, 273 U.S. 548, 550; Iowa-Des Moines Nat. Bank v. Bennett, 284 U.S. 239, 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:

In those respects in which the Red Cross differs from the usual government agency -- e.g., in that its employees are not employees of the United States, and that government officials do not direct its everyday affairs -- the Red Cross is like other institutions -- e.g., national banks -- whose status as tax-immune instrumentalities of the United States is

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beyond dispute.

Department of Employment v. United States, 385 U.S. 355, 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 System2 that they should no longer be considered nontaxable by the States [88 S.Ct. 2175] 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. § 548,3 which

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originated as part of the Act of June 3, 1864, c. 106, § 41, 13 Stat. 111. This section allows state taxation of national banks in any one of four specified ways in addition to taxes on their real estate. Before this legislation was originally enacted in 1864, there was sharp controversy in the Congress over the extent to which the States should be allowed to tax national banks. A vocal opponent to any state taxation of national banks was the powerful Senator Sumner of Massachusetts, who said:

If you allow the State to interfere with the proposed system [of national banks] in any way, may they not embarrass it? Where shall they stop? Where will you run a line?

* * * *

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.

Cong.Globe, 38th Cong., 1st Sess., 1893-1894 (1864).

On the other side, proposed amendments expressly permitting much broader state and local taxation of national banks were introduced, debated, and rejected by the Congress. Among these was an amendment introduced in the House which would have made national banks

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subject, without exception, to all state and local general taxes on personal as well as real property:

And the said associations or corporations shall severally be subject to State and municipal taxation upon their real and personal estate, the same as persons residing at their respective places of business are subject to such taxation by State laws.

Cong.Globe, 38th Cong., 1st Sess., 1392 (1864).

The result of this conflict was that the legislation, when finally passed, was a compromise which permitted state taxation of national banks in certain ways, but prohibited all other forms of state taxation. Senator Fessenden, Chairman of the Finance Committee, clearly defined the compromise that was being enacted:

If the Senator reads this bill, he will perceive that all the power of [88 S.Ct. 2176] taxation upon the operations of the bank itself, all upon the circulation, all upon the deposits, all upon everything which can properly be made by a tax, is reserved to the General Government; that the States cannot touch it in any possible form; that they are limited and controlled; the simple right is given them to say that the property which their own citizens have invested in it shall contribute to State taxation precisely as other property.

Cong.Globe, 38th Cong., 1st Sess., 1895 (1864).

It seems clear to us from the legislative history that 12 U.S.C. § 548 was intended to prescribe the only ways in which the States can tax national banks. And this is certainly not a novel interpretation of the section, as shown by previous decisions of this Court. As early as 1899, the Court declared:

This section [R.S. § 5219, 12 U.S.C. § 548], then, of the Revised Statutes is the measure of the power of a State to tax national banks, their property,

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or their franchises. By its unambiguous provisions, the power is confined to a taxation of the shares of stock in the names of the shareholders and to an assessment of the real estate of the bank. Any state tax therefore which is in excess of and not in conformity to these requirements is void.

Owensboro Nat. Bank v. Owensboro, 173 U.S. 664, 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:

There is also no doubt from the section [R.S. § 5219, 12 U.S.C. § 548] that it was intended to comprehensively control the subject with which it dealt, and thus to furnish the exclusive rule governing state taxation as to the federal agencies created as provided in the section. . . .

Two provisions in apparent conflict were adopted. First, the absolute exclusion of power in the States to tax the banks, the national agencies created, so as to prevent all interference with their operations, the integrity of their assets, or the administrative governmental control over their affairs. Second, preservation of the taxing power of the several States so as to prevent any impairment thereof from arising from the existence of the national agencies created, to the end that the financial resources engaged in their development might not be withdrawn from the reach of state taxation. . . .

The first aim was attained by the nonrecognition of any power whatever in the States to tax the federal agencies, the banks, except as to real estate specially provided for, and, therefore, the exclusion of all such powers. The second was reached by a recognition of the fact that, considered from the point of view of ultimate and beneficial interest,

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every available asset possessed or enjoyed by the banks would be owned by their stockholders and would be, therefore, reached by taxation of the stockholders as such. . . .

248 U.S. at 483. Finally, so there can be no doubt, consider these words of the Court in Des Moines Bank v. Fairweather, 263 U.S. 103:

This section [R.S. § 5219, 12 U.S.C. § 548] shows, and the decisions under it hold, that what Congress intended was that national banks and their property should be free from taxation under state authority, other than taxes on their real property and on shares held by them in other national banks, and that all shares in such banks should be taxable to their owners, the stockholders, much as other personal property is taxable. . . .

263 U.S. at 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...

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