First Agr. Nat. Bank of Berkshire County v. State Tax Commission

• Decision Date: 27 July 1967
• Citation: 353 Mass. 172,229 N.E.2d 245
• Parties: FIRST AGRICULTURAL NATIONAL BANK OF BERKSHIRE COUNTY v. STATE TAX COMMISSION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 245

229 N.E.2d 245

353 Mass. 172

FIRST AGRICULTURAL NATIONAL BANK OF BERKSHIRE COUNTY v. STATE TAX COMMISSION.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued March 7, 1967.

Decided July 27, 1967.

Ronald H. Kessel, Arlington (Alex J. McFarland, Boston, with him), for plaintiff.

David Berman, Asst. Atty. Gen., for State Tax Commission.

REARDON, Justice.

This is a bill for declaratory relief under G.L. c. 231A and c. 30A, § 7, which came first before a single justice. The plaintiff, a national bank, seeks a binding declaration that it is exempt from the recently enacted Massachusetts sales and use tax, St.1966, c. 14, §§ 1 and 2 (Act). Judicial review is also sought of emergency regulation No. 6 issued by the defendant State Tax Commission (Commission). The Commission demurred to the bill and, without waiving its demurrer, filed an answer. The parties have filed a statement of agreed facts constituting a case stated. The matter was reserved and reported without decision by the single justice.

The plaintiff is a national banking association organized under 12 U.S.C. § 21 et seq. (1964), with its principal place of business in Pittsfield. It is one of ninety national banking associations within Massachusetts. Since April 1, 1966, the plaintiff has paid sales and use taxes to its vendors on purchases of tangible personal property within the Commonwealth. The amount of these taxes totaled $575.66 during the period from April 1, 1966, to June 30, 1966. On March 28, 1966, the plaintiff requested from the Commission a ruling or emergency regulation that national banks are exempt from Massachusetts sales and use taxes. No ruling was received by the plaintiff pursuant to its request. The Commission on May 31, 1966, issued emergency regulation No. 6, which ruled that '(t)he sale, lease, or rental of tangible personal property to national banks and Federal savings and loan associations is subject to the sales and use tax.' ¹ This regulation remains in full force and effect. No other regulation pertaining to the sale, lease or rental of tangible personal property to national banks and Federal savings and loan associations has been issued. The plaintiff will be unable to carry on its banking operations unless it continues to make purchases which by the provisions of emergency regulation No. 6 are deemed to be subject to the Massachusetts sales and use tax. Massachusetts vendors have refused to make retail sales of tangible personal property to the plaintiff unless it agrees to reimburse such vendors for the Massachusetts sales tax thereon.

I. THE COMMISSION'S DEMURRER.

We first deal with the Commission's demurrer which is based on the ground that the Act provides an exclusive remedy by which the question of sales tax liability may be raised. While § 1, subsection 22, provides that the tax abatement remedy encompassed by subsections 20--22 shall be 'exclusive,' ² it contains no reference as to the proper mode of review of regulations issued by the Commission. Lacking an exclusive mode of review, judicial review of any regulation by a suit for declaratory relief is authorized by G.L. c. 30A, § 7. See Westland Housing Corp. v. Commissioner of Ins., Mass., 225 N.E.2d 782. ^a The Commission apparently issued emergency regulation No. 6 pursuant to its regulation making G.L. c. 14, § 4. Emergency regulation No. 6 also constitutes a 'regulation' within the meaning of G.L. c. 30A, § 1(5). See Curran & Sacks, The Massachusetts Administrative Procedure Act, 37 B.U.L.Rev. 70, 77--78. Our jurisdiction extends, at the least, to a review of the validity of emergency regulation No. 6. Curran & Sacks, supra, at 84. That regulation places in controversy the plaintiff's claim that it is exempt from the taxes imposed by the Act under subsections 6(a) and 6(d) of § 1, subsection 5(b) of § 2, and under the Constitution and laws of the United States. The Commission's demurrer should be overruled.

The issue thus presented for our determination is whether the sales and use tax imposed by the Act can be applied to purchases made by the plaintiff and other national banks doing business in the Commonwealth.

II. STATUTORY EXEMPTION.

Sales and use taxes.

Section 1, subsection 6(d), exempts '(s)ales to the United States, the commonwealth of Massachusetts or any political subdivision thereof, or their respective agencies.' ³ The plaintiff purports to be an 'agency' of the United States and, therefore, exempt from the sales and use taxes. A statute granting an exemption must be strictly construed. 'The burden of proof is upon the one claiming the exemption to show clearly and unequivocally that he comes within the terms of the exemption.' Town of Milton v. Ladd, 348 Mass. 762, 765, 206 N.E.2d 161, 164, and cases cited. Consideration may be given to the interpretation of the Act expressed by emergency regulation No. 6 and other administrative regulations contemporaneous with the enactment of the law. See Cleary v. Cardullo's Inc., 347 Mass. 337, 343, 198 N.E.2d 281, and cases cited.

Without question, as contended by the plaintiff, national banks are subject to certain supervision by the Federal government. The same may be said of railroads, airlines, commercial carriers of mail, radio stations, and many other private concerns which enter into relationships with the government of the United States and perform governmental services. That they do so does not in and of itself make them 'agencies' of the United States. A national bank is essentially a privately owned corporation, privately managed and operated in the interest of its stockholders. Whatever role a national bank has in furthering the fiscal policies of the Federal government is incidental to its primary purpose of returning profit to its stockholders. See National Labor Relations Bd. v. Bank of America Natl. Trust & Sav. Assn. 130 F.2d 624, 627 (9th Cir.). 'Instrumentalities like the national banks * * *, in which there are private interests, are not departments of the government. They are private corporations in which the government has an interest.' United States Shipping Bd. Emergency Fleet Corp. v. Western Union Tel. Co., 275 U.S. 415, 425--426, 48 S.Ct. 198, 202, 72 L.Ed. 345. ⁴ Their status as private corporations will be more thoroughly explored below. ⁵

In our view the Legislature intended 'agency' to mean either a regularly constituted department of government or an entity which is wholly owned by the government and which exercises exclusively governmental functions. At best, the plaintiff is a creature of the United States and not entitled to an exemption as an 'agency' of the United States. We therefore hold that purchases made by the plaintiff national bank are not exempt by virtue of either subsection 6(d) of § 1 or subsection 5(b) of § 2 of the Act as sales to an 'agency' of the United States.

III. CONSTITUTIONAL EXEMPTIONS.

A. Sales tax.

Since the plaintiff is not exempted under the terms of subjsection 6(d) of § 1 of the Act, can there be exemption in its favor under subsection 6(b)? That provision exempts from the imposition of the sales tax '(s)ales which the commonwealth is prohibited from taxing under the constitution and laws of the United States.'

The Commission contends that the sales tax is not imposed upon the purchaser, as alleged by the plaintiff, but rather is a tax upon the vendors who sell tangible personal property to the plaintiff. If the tax does fall on the vendor, that the economic burden of the tax may be passed on by the vendor to the plaintiff offends neither the sovereign immunity of the United States nor the laws of the United States relative to State taxation of national banks. Western Lithograph Co. v. State Bd. of Equalization, 11 Cal.2d 156, 78 P.2d 731, 117 A.L.R. 838; National Bank of Hyde Park v. Isaacs, Director of Rev., 27 Ill.2d 205, 188 N.E.2d 704; Federal Reserve Bank v. Department of Rev., 339 Mich. 587, 64 N.W.2d 639; National Bank of Detroit v. Department of Rev., 340 Mich. 573, 66 N.W.2d 237, app. dism., 349 U.S. 934, 75 S.Ct. 781, 99 L.Ed. 1264. See State of Alabama v. King & Boozer, 314 U.S. 1, 8--9, 62 S.Ct. 43, 86 L.Ed. 3, 140 A.L.R. 615. Any exemption the plaintiff may claim under subsection 6(a) will be controlled by whether the purchaser of the vendor bears the legal incidence of the Massachusetts sales and use taxes. State of Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43; Curry, Commr. of Rev. of Alabama v. United States, 314 U.S. 14, 62 S.Ct. 48, 86 L.Ed. 9; Kern-Limerick Inc. v. Scurlock, Commr. of Rev. for Arkansas, 347 U.S. 110, 121--122, 74 S.Ct. 403, 98 L.Ed. 546.

The legal incidence of a tax has been held by the Supreme Court of he United States to be determined by 'who is responsible * * * for payment to the state of the exaction.' Kern-Limerick, Inc. v. Scurlock, Commr. of Rev. for Arkansas, 347 U.S. 110, 121--122, 74 S.Ct. 403, 410. This determination is not always easy because of the similarities existing generally in the structure of State sales taxes regardless of whether the legal incidence of the tax is imposed upon the vendor ⁶ on upon the purchaser. ⁷ The economic burden of the tax is almost universally passed along to the purchaser although practical considerations necessitate its collection and remission to the State by the vendor. Notwithstanding these ambiguous aspects inhering generally in sales taxes, we confront the question of which party the General Court intended should bear the legal incidence or ultimate burden of the tax.

Our Act is neither a vendor tax nor a purchaser tax but a hybrid tax containing elements of both vendor and purchaser taxes. See Dane, The New Sales and Use Tax Law, 51 Mass. L.Q. 239, 246--249. The tax is in part a levy on the vendor for the privilege of selling at retail. ⁸ The liability for the sales tax is based on three per cent of a vendor's 'gross receipts' from all retail sales of tangible personal property rather than the amount of...