Arkansas v. Farm Credit Services

• Decision Date: 02 June 1997
• Docket Number: 951918
• Citation: 520 U.S. 821,138 L.Ed.2d 34,117 S.Ct. 1776
• Parties: ARKANSAS, Petitioner, v. FARM CREDIT SERVICES OF CENTRAL ARKANSAS et al
• Court: U.S. Supreme Court

520 U.S. 821

117 S.Ct. 1776

138 L.Ed.2d 34

ARKANSAS, Petitioner,

v FARM CREDIT SERVICES OF CENTRAL ARKANSAS et al.

No. 95-1918.

Supreme Court of the United States

Argued April 21, 1997.

Decided June 2, 1997.

Syllabus ^*

The Tax Injunction Act (Act) restricts the federal district courts' power to prevent collection or enforcement of state taxes, but makes an exception to that jurisdictional bar where no plain, speedy, or efficient state-court remedy may be had. This Court has established another exception where the United States sues to protect itself or its instrumentalities from state taxation. Department of Employment v. United States, 385 U.S. 355, 358, 87 S.Ct. 464, 466-467, 17 L.Ed.2d 414. Production Credit Associations (PCA's) are federally chartered corporate financial institutions organized by farmers primarily to make loans to farmers. During the relevant time period, federal law has exempted PCA's from state taxes on their notes, debentures, and other obligations. Respondent PCA's, claiming that they are also immune from Arkansas sales and income taxes, sought a declaratory judgment and an injunction prohibiting the State from levying such taxes on them. Seeking to overcome the Act's jurisdictional bar, they contended that, as instrumentalities of the United States, they are not subject to the Act's provisions any more than the United States itself. The District Court granted them summary judgment, and the Court of Appeals affirmed.

Held: PCA's are not included within the judicial exception to the Act by virtue of their designation as instrumentalities of the United States and so may not sue in federal court for an injunction against state taxation without the United States as co-plaintiff. Pp. ____-____.

(a) The Act, which has been interpreted and applied as a "jurisdictional rule'' and a "broad jurisdictional barrier,'' Moe v. Confederated Salish and Kootenai Tribes, 425 U.S. 463, 470, 96 S.Ct. 1634, 1640, 48 L.Ed.2d 96, was enacted to confine federal court intervention in state government. The federal balance is well served when the several States define and elaborate their own laws through their own courts and administrative processes and without undue interference from the federal judiciary. A State's power to tax is basic to its power to exist. Given the federal balance and the basic principle that statutory language is to be enforced according to its terms, federal courts must guard against interpretations of the Act which might defeat its purpose and text. Where the United States Government is a party, the other side of the federal balance must be considered. The necessity to respect the National Government's authority underlies the rule that the Act does not constrain federal judicial power when the United States sues to protect itself and its instrumentalities from state taxation. Pp. ____-____.

(b) When the United States is not a party, the mere fact that a party challenging a tax has interests closely related to those of the Federal Government is not enough, in and of itself, to overcome the Act's bar. Moe, supra, at 471-472, 96 S.Ct., at 1640-1641. An instrumentality of the United States can enjoy the benefits and immunities conferred by explicit statutes without the further inference that it has all of the rights and privileges of the National Government. The courts of appeals have adopted different standards for deciding whether a federal instrumentality may sue in federal court to enjoin state taxation where the United States is not a co-plaintiff. Under any of those tests, PCA's would not be exempt from the Act's restrictions. The United States is not joined as a co-plaintiff and opposes the exercise of jurisdiction. Regardless of whether a federal agency or body with substantial regulatory authority is exempt from the Act when it brings suit in its own name, cf. NLRB v. Nash-Finch Co., 404 U.S. 138, 92 S.Ct. 373, 30 L.Ed.2d 328, PCA's are not entities of that description. Despite their formal and undoubted designation as instrumentalities of the United States, and despite their entitlement to those tax immunities accorded by the explicit statutory mandate, they do not have or exercise power analogous to that of the National Labor Relations Board or other United States departments or regulatory agencies. Their business is making commercial loans, and their stock is owned by private entities. Their interests are not coterminous with those of the Government any more than most commercial interests. A holding that they are subject to the Act's restriction on federal court jurisdiction furthers the State's interests without sacrificing those of the Federal Government. Pp. ____-____.

76 F.3d 961 (C.A. 8 1996), reversed.

KENNEDY, J., delivered the opinion for a unanimous Court.

Martha Grissom Hunt, Little Rock, AR, for petitioner.

Lawrence G. Wallace, Washington, DC, for U.S. as amicus curiae, by special leave of the Court.

Richard A. Hanson, Chicago, IL, for respondents.

Justice KENNEDY delivered the opinion of the Court.

The Tax Injunction Act, 28 U.S.C. §1341, restricts the power of federal district courts to prevent collection or enforcement of state taxes. It states: "The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.'' The statute, on its face, yields no exception to the jurisdictional bar save where the state remedy is wanting, but at least one other exception is established by our cases: The statute does not constrain the power of federal courts if the United States sues to protect itself or its instrumentalities from state taxation. Department of Employment v. United States, 385 U.S. 355, 358, 87 S.Ct. 464, 466-467, 17 L.Ed.2d 414 (1966). The present case explores the limits of this judicial exception. We decide here whether instrumentalities called Production Credit Associations, corporations chartered under federal law, are included within the exception when they sue by themselves. We hold they are not and so may not sue in federal court for an injunction against state taxation without the United States as co-plaintiff. The action must be dismissed, and, as a result, we do not reach the merits of the taxation dispute.

I

Production Credit Associations (PCA's) are corporations chartered by the Farm Credit Administration under the Farm Credit Act of 1971, 85 Stat. 583, as amended, 12 U.S.C. §2001 et seq. A PCA is a corporate financial institution organized by 10 or more farmers and designed in large part to make loans to farmers. §§2071, 2075. PCA's have had differing tax exempt status at different times, depending on whether the United States owned shares of their stock. See, e.g., Farm Credit Act of 1933, 48 Stat. 267. In the period relevant here (when all PCA stock has been in private hands) they have been exempted, by explicit federal statute, from state taxes on their "notes, debentures, and other obligations.'' 12 U.S.C. §2077.

Four PCA's, respondents here, brought suit in the United States District Court for the Eastern District of Arkansas claiming a tax exemption going beyond the express statutory language of §2077. They assert immunity not only from the taxes described in the exemption statute we have quoted but also from Arkansas sales and income taxes. They seek a declaratory judgment and an injunction prohibiting the State from levying the taxes against them. The District Court granted the PCA's' motion for summary judgment, and a divided panel of the United States Court of Appeals for the Eighth Circuit affirmed. 76 F.3d 961 (1996).

Entitlement to the immunity is the underlying substantive issue, were we to reach it. The Tax Injunction Act, however, is an initial obstacle, for by its terms it would bar the relief the PCA's seek absent some exception. Seeking to overcome the bar under the Tax Injunction Act, the PCA's, first in the trial court and now here, contended that they are instrumentalities of the United States and so not subject to the provisions of the Act any more than the United States itself. The first point is correct: PCA's are instrumentalities of the United States because the statute which charters them says so. 12 U.S.C. §§2071(b)(7), 2077. The PCA's' argument about what follows from the designation, however, is incorrect. Instrumentalities of the United States, by virtue of that designation alone, do not have the same right as does the United States to avoid the prohibitions of the Tax Injunction Act.

An observation is proper respecting our consideration of this threshold question. Although the trial court addressed the meaning and operation of the Tax Injunction Act, in the Court of Appeals the whole question seemed to disappear, though it goes to the heart of judicial authority. Neither party, we are advised, addressed the point and neither opinion in the Court of Appeals, majority or dissent, mentions it. While the question of the Act's applicability was not raised in the State's petition for certiorari, the United States, in an amicus brief in support of the petition, called our attention to the point. In granting the petition, we asked the parties to address, in addition to the merits, whether the District Court should have dismissed the case for lack of subject-matter jurisdiction in light of the Act.

We have interpreted and applied the Tax Injunction Act as a "jurisdictional rule'' and a "broad jurisdictional barrier.'' Moe v. Confederated Salish and Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 470, 96 S.Ct. 1634, 1640, 48 L.Ed.2d 96 (1976). In dismissing an action filed in a United States District Court to challenge state taxes we held that the Tax Injunction Act "deprived the District Court of jurisdiction to hear [the] challenges.'' California v. Grace Brethren Church, 457 U.S. 393, 396, 102 S.Ct. 2498, 2501, 73 L.Ed.2d 93 (1982). Further, we found no jurisdiction...