Fed. Land Bank of St. Paul v. Bismarck Lumber Co.

• Decision Date: 26 May 1941
• Docket Number: No. 6549.,6549.
• Citation: 297 N.W. 42,70 N.D. 607
• Parties: FEDERAL LAND BANK OF ST. PAUL v. BISMARCK LUMBER CO. et al.
• Court: North Dakota Supreme Court

70 N.D. 607

297 N.W. 42

FEDERAL LAND BANK OF ST. PAUL

v.BISMARCK LUMBER CO. et al.

No. 6549.

Supreme Court of North Dakota.

March 17, 1941.

Writ of Certiorari Granted May 26, 1941.

See 61 S.Ct. 1105, 85 L.Ed. ---.

Syllabus by the Court.

1. The tax imposed by the State Sales Tax Act, Chapter 249, Session Laws 1937, is laid upon the buyer and not upon the seller. Jewel Tea Company v. State Tax Commissioner, 70 N.D. ---, 293 N.W. 386.

2. The entire power of taxation abides in the states and except as restrained by the Constitution of the United States, the power of the states to tax is absolute.

3. The test as to whether a tax laid on a federal instrumentality is constitutional and valid, is, does it hinder or embarrass the instrumentality in the performance of its governmental functions. If it does, it is unconstitutional. If it does not, it is valid.

4. The tax laid under the State Sales Tax Act, Chapter 249, Session Laws 1937, on sales to a federal land bank of lumber and other building material to be used in the conservation and repair of buildings and fences on farm lands acquired by the bank through the foreclosure of mortgages securing farm loans made pursuant to the Federal Farm Loan Act, Chapter 245, 39 Stats. 360, 12 U.S.C.A. § 641 et seq., and acts amendatory thereto, is, for reasons stated in the opinion, a valid and constitutional tax.

Appeal from District Court, Burleigh County; Fred Jansonius, Judge.

Action by the Federal Land Bank of St. Paul against the Bismarck Lumber Company, and Owen T. Owen, as Tax Commissioner of the State of North Dakota, to determine whether the plaintiff was subject to the North Dakota sales tax on purchases made under certain circumstances. From an adverse judgment, the plaintiff appeals.

Judgment affirmed.

CHRISTIANSON, J., dissenting.

George F. Shafer, of Bismarck, and John Thorpe, of St. Paul, Minn. (Peyton R. Evans and Gerald E. Lyons, both of Washington, D. C., and Robert J. Barry, of St. Paul, Minn., of counsel), for appellant.

Alvin C. Strutz, Atty. Gen., and T. A. Thompson and B. F. Tillotson, Asst. Attys. Gen., for respondents.

NUESSLE, Justice.

The question for determination in this case is as to whether the Federal Land Bank of St. Paul, hereinafter referred to as the appellant, is subject to the North Dakota Sales Tax on purchases made under the circumstances hereinafter disclosed.

The Sales Tax Act, chapter 249, Session Laws 1937, in force at the time this controversy arose, provides:

Ҥ 2. There is hereby imposed * * * a tax of two per cent (2%) upon the gross receipts from all sales of tangible personal property, consisting of goods, wares, or merchandise, except as otherwise provided in this Act, sold at retail in the State of North Dakota to consumers or users. * *

§ 3. There are hereby specifically exempted from the provisions of this Act and from computation of the amount of tax imposed by it, the following:

(a) The gross receipts from sales of tangible personal property which this State is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of this State. * *”

The appellant, the Federal Land Bank of St. Paul, a body corporate, created pursuant to the Act of Congress, approved July 17, 1916, chapter 245, 39 Stats. 360, 12 U.S.C.A. § 641, et seq., and acts amendatory thereof, known and cited as the Federal Farm Loan Act, is engaged in the business of making loans to farmers in the state of North Dakota and states adjacent thereto. The respondent, the Bismarck Lumber Company, is engaged in the business of selling lumber and other building material as a retail dealer in Bismarck. In October, 1937, the appellant bought certain lumber and other building material from the respondent. This material was for use in repairing and improving the buildings and fences on certain farm lands owned by the appellant in North Dakota. These lands had been acquired by appellant through the foreclosure of mortgages taken to secure farm loans made in the course of its business. The respondent added to the regular sales price of the material so bought, two per cent thereof, the amount of the state sales tax, reckoned pursuant to the provisions of section 2 of the Sales Tax Act, supra. The appellant paid the sales price but refused to pay the tax, claiming that no tax could be collected from it for the reason that it was an agent and instrumentality of the federal government and, therefore, exempt from any state taxation. The respondent, on the other hand, contended that the material so sold by it was subject to such tax and that it was its duty to collect the same. Action was then brought by the appellant to determine the controversy thus arising and for a declaratory judgment adjudicating and determining the rights, liabilities, status, and legal relations of the parties, and whether the sales in question were subject to the tax. The State Tax Commissioner was joined as a party defendant. The controversy was submitted to the District Court of Burleigh County and that court held that the sales made to the appellant Bank by the respondent Lumber Company were subject to the tax; that the Lumber Company was required to collect and pay over to the State the tax on such sales, and that the appellant Bank was under legalobligation to pay the same. Judgment was entered accordingly. Thereupon the Bank perfected the instant appeal.

[1] The tax here in question is imposed on retail sales. It is general in its operation. It is required to be paid by the buyer. Jewel Tea Company v. State Tax Commissioner, 70 N.D. ---, 293 N.W. 386.

The appellant contends it is wholly exempt from the tax pursuant to section 3(a) of the Sales Tax Act, supra, since it is an instrumentality of the United States and, as such, is not liable for the payment of any state sales tax without the consent of Congress; that such consent has not only not been given, but on the contrary, by section 26 of the Farm Loan Act, the appellant has been expressly exempted from the payment of such tax. The appellant further contends that as it is an instrumentality of the federal government, the State Sales Tax Act, supra, is, as attempted to be applied in this case, null and void and in conflict with the Constitution of the United States in that it violates section 8 of Article 1 of the Constitution, which provides: “The congress shall have power * * * To make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this constitution in the government of the United States, or in any department or officer thereof,” and clause 2 of Article 6 of the Constitution, which provides: “This constitution, and the laws of the United States which shall be made in pursuance thereof, * * * shall be the supreme law of the land; * * * anything in the constitution or laws of any state to the contrary notwithstanding.”

The issues thus made are so important and their solution so difficult, that we deem it necessary to consider somewhat at length the powers and rights of the federal and state governments with respect to the matter of taxation.

[2][3] As we read the authorities they establish beyond question that the fact that Congress may have decreed an exemption from state taxation is not in itself enough. Though Congress may waive immunity from taxation, it cannot by its mere fiat confer immunity. Its action in that respect must be grounded upon a constitutional foundation. It must be predicated upon the proposition that “the 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.” McCulloch v. State of Maryland et al., 4 Wheat. 316, 435, 4 L.Ed. 579;Osborn et al. v. Bank of United States, 9 Wheat. 738, 6 L.Ed. 204; Clallam County v. United States, 263. U.S. 341, 44 S.Ct. 121, 68 L.Ed. 328. But except as thus restrained the power of the states to tax is absolute.

[4] We have found no better statement respecting the concurrent power of taxation of the national and state governments and the manner of the exercise of that power than that of Mr. Justice Strong in Union Pacific R. R. Company v. Peniston, 18 Wall. 5, 29, 21 L.Ed. 787, which we quote:

“As was said in Lane County v. Oregon [7 Wall. [71], 77, 19 L.Ed. 101]: ‘In respect to property, business, and persons within their respective limits, the power of taxation of the States remained, and remains entire, notwithstanding the Constitution. It is, indeed, a concurrent power (concurrent with that of the General government), and in the case of a tax upon the same subject by both governments, the claim of the United States as the supreme authority must be preferred; but with this qualification it is absolute. The extent to which it shall be exercised, the subjects upon which it shall be exercised, and the mode in which it shall be exercised, are all equally within the discretion of the legislatures to which the States commit the exercise of the power. That discretion is restrained only by the will of the people expressed in the State constitutions, or through elections, and by the condition that it must not be so used as to burden or embarrass the operations of the National government. There is nothing in the Constitution which contemplates or authorizes any direct abridgment of this power by National legislation. To the extent just indicated it is as complete in the States as the like power within the limits of the Constitution is complete in Congress.’ Such are the opinions we have expressed heretofore, and we adhere to them now.

There are, we admit, certain subjects of taxation which are withdrawn from the power of the States, not by any direct or express provision of the Federal Constitution, but by what may be regarded as its necessary implications. They grow out of our complex system...