Appellants Brief — FIRST FEDERAL S. & L. v. Massachusetts Tax Comm'n
Supreme Court brief1978
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In the |
Supreme Court of the United States.
Ocrosen Tem, 1977,
No, 77.36.
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF BOSTON ef at.,
APPELLANTS,
».
STATE TAX COMMISSION ev au.,
APre. Lees.
ON APPEAL FROM THE SUPREME JUDICIAL COURT
OF MASSACHUSETTS
Brief for Appellees.
Franc X. Beccorn,
Attorney General,
S. Srepven Rosenreo,
Assistant Attorney General,
Joun EB. Bowman, Ja.,
Assistant Attorney General,
Maroor Borsronn,
Assistant Attorney General,
One Ashburton Place,
Boston, Massachusetts 02108
BATEMAN & BLADE, INC,, POSTON, MASSACHUSETTS
FILED
Fee 17 1978
RODAK, JR., CLERK
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domiciliary corporation must share the costs
of state government. 40
V. The associations’ due proces and equal pro-
tection claims are insubstantial.
Conclusion 47
Statutory appendix
Table of Authorities Cited.
Case.
Amoskeag Savings Bank v. Purdy, 231 U.S, 373
(1913) 7
Atlantic Cleaners & Dyers, Inc. v. United States, 286
U.S. 427 (1032) 27n
Bank of Redemption v. City of Boston, 125 U.S. 60
(1888) 15, Mn
Bass, Ratoliff & Gretton, Ltd. v. State Tax Comm'n,
266 U.S. 271 (1024) 37n
Brady v, John Hancock Mut, Life Ins. Co., —
Miss, _., M2 So. 2d 205 (1977), app. diem'd,
—e US. —., 08 8, Ct, 38 (1977) 44n, 45n
Butler Brothers v. McColgan, 315 U.S. 501 (1942) 39n
Carmichael v. Southern Coal Co., 301 U.S. 405
(1937) 38, 47
TABLE OF AUTHORITIES CITED. ii
Central Railroad Co. v. Pennsylvania, 370 U.S, 607
(1962) 44, 46
Clucel v. Tlinols, 356 U.S. 571 (1058) M
Colonial Pipeline Co. v. Traighe, 421 U.S. 100
(1975) 39n, 42n
Complete Auto Transit, Inc. v. Brady, 490 U.S, 274
(1977) 40n, 42n, 44
Dandridge v. Williams, 307 U.S. 471 (1970) 199
Data Procesing Service v. Camp, 307 U.S. 150
(1970) Wn
Davenport Bank v. Davenport Board of Equalize-
tion, 123 U.S. 83 (1887) 139
Doyle v. Mitehell Brothers Co., 247 U.S. 170 (1018) »”
Educational Films Corp. v. Ward, 282 U.S. 370
(1031) 37a
Erlenbaugh v. United States, 400 U.S. 239 (1072) 27a
Ferguson v. Skrupa, 372 U.S. 726 (1963) lin
First Agricultural Nat'l Bank v. State Tax Comm'n,
302 U.S. 3309 (1068) l4n, 20
First Ped. Sav. & Loan Aan v. Connelly, 142 Conn,
483, 115 A. Od 455 (1055), app. diem'd, 350 U.S.
027 (1056) Mu
Firet Ped. Sav. & Loan Amn v. State Tax Commis-
don, —.. Mas, —., Maas. Adv, Sh. (1077) 805,
963 N.E. Od 475 (1977) passim
First Nat'l Bank v. Anderson, 260 U.S. 341 (1926) 199
First Nat'l Bank v. Louisiana Tax Comm'n, 289 U.S,
60 (1933) %
First Nat'l Bank of Hartford v. City of Hartford, 273
U.S. 548 (1927) 18
iv TABLE OF AUTHORITIES CITED.
First Nat'l Bank of Wellington v. Chapman, 173 U.S.
205 (1800) ll, 15, 18
General Motors Corp. v. Washington, 377 U.S. 496
(1964) 4in, 42, 43, 44, 450
Gurley v. Rhoden, 421 U.S. 200 (1975) 37»
Harrison v. Northern Trust Co., 317 U.S. 476 (1063) 26n
Hawley v. City of Malden, 232 U.S. 1 (1014) 440
Hedgebeth v. North Carolina, 334 U.S. 806 (1048) es)
Ivan Allen Co. v. United States, 422 U.S. 617 (1075) 30n
Kokosrka v. Belford, 417 U.S. 642 (1974) 24
La Caise Populaire Ste. Marie v. United States, 563
F. Od 505 (ist Cir, 1977) M
Laurens Ped, Sav. & Loan Aw'n v. South Carolina
Tax Comm'n, 365 U.S. 517 (1061) 12, 15n, 25, 26
Lawrence v. State Tax Comm'n, 286 U.S. 276 (1932)
41,4
Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S.
356 (1973) 46, 47
Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61
(1911) 19n
Macallen Co. v. Massachusetts, 270 U.S. 620 (1920) T7n
Madden v. Kentucky, 309 U.S. 83 (1940) 47
Manchester Fed. Sav. & Loan Amn v. State Tax
Comm'n, 105 N.H. 17, 101 A. 2d 520 (1063) M
Matson Navigation Co. v. State Bd. of Equalization
of Calif., 207 U.S. 441 (1998)
McCulloch v. Maryland, 4 Wheat. 316 (1819) l4n
Memphis Natural Gas Co. v. Beeler, 315 U.S. 649
(1942) 4)
Mercantile Bark v. New York, 121 U.S. 138 (1887) 15, M4n
TABLE OF AUTHORITIES CITED. Vv
Michigan Nat'l Bank v. Michigan, 365 U.S. 467
(1061) 11, 12;-13, 15, 17)/21, 34n et seq.
Miller Bros. Co. v. Maryland, 347 U.S. 340 (1954) 45n
Monroe v. Pape, 365 U.S. 167 (1961) 29
Moody v. Albemarle Paper Co., 417 U.S. 622 (1974)
29, 30
Muniz v. Hoffman, 422 U.S. 454 (1975) 24, 30
National Bellas Hess, Inc. v. Department of Revenue,
386 U.S. 753 (1967) 45n
National Geographic Society v. California Bd. of
Equalization, 430 U.S. 551 (1977) 45n
National Woodwork Mfrs. Ass’n v. NLRB, 386 U.S.
612 (1067) 26n, 27n
New Haven Inelusion Cases, 399 U.S. 392 (1970) 35
Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292
(1044) 40n, 42, 43n, 46
Northwestern States Portland Cement Co. v. Minne-
sota, 358 U.S. 450 (1959) 42, 44
Norton Co. v. Department of Revenue, 340 U.S. 534
(1951) 37n, 43
Owensboro Nat'l Bank v. Owensboro, 173 U.S. 664
(1899) 14n
People v. Weaver, 100 U.S. 539 (1879) 15
Perry v. Commerce Loan Co., 383 U.S. 392 (1966) 25
Postal Telegraph-Cable Co. v. Richmond, 249 U.S.
252 (1919) 42
Railroad Co. v. Commissioners, 103 U.S. 1 (1880) l4n
Shaffer v. Carter, 252 U.S. 37 (1920) 43
Sierra Club v. Morton, 405 U.S. 727 (1972) 38n
vi TABLE OF AUTHORITIES CITED.
South Carolina State Highway Dept. v. Barnwell
Brothers, Inc., 303 U.S. 177 (1938) 19n
Standard Oil Co. v. Peck, 342 U.S. 382 (1952) 40n, 44
State v. Minnesota Fed. Sav. & Loan Ass'n, 218
Minn. 229, 15 N.W. 2d 568 (1944) 34
Tidewater Oil Co. v. United States, 409 U.S. 151
(1972) 26n
Tradesmens Nat'l Bank v. Oklahoma Tax Comm'n,
309 U.S. 560 (1940) 11, 13n, 17n, 18, 36
Underwood Typewriter Co. v. Chamberlain, 254
U.S. 113 (1920) 42
Union Nat'l Bank of Clarksburg v. Home Loan Bank
Board, 233 F. 2d 695 (D.C. Cir. 1956) 27n
United States v. American Trucking Ass’ns, Inc., 310
U.S. 534 (1940) 25
United States v. Bacto-Unidisk, 394 U.S. 784 (1969) 29
United States v. City of Detroit, 355 U.S. 466 (1958) 14n
United States v. Cooper Corp., 312 U.S. 600 (1941) 27n
United States v. County of Fresno, 429 U.S. 452
(1977) 14n
United States v. Kirby Lumber Co., 284 U.S. 1
(1931) 39
United States v. State Tax Comm’n, 348 F. Supp.
397 (D. Mass. 1972), aff'd and modified, 481 F. 2d
963 (1st Cir. 1973) 4, 34
United States v. State Tax Comm’n, 481 F. 2d 963
(Ist Cir. 1973) 4, 5n, 12n, 16, 20, 21, 38n
United States Glue Co. v. Oak Creek, 247 U.S. 321
(1918) 42
Washington v. Davis, 426 U.S. 229 (1976) 19n
TABLE OF AUTHORITIES CITED. vii
Western Live Stock v. Bureau of Revenue, 303 U.S.
250 (1938) 42n, 44
Wisconsin v. J.C. Penney Co., 311 U.S. 435 (1940) 4ln
Wisconsin v. Minnesota Mining Co., 311 U.S. 452
(1940) 42
CONSTITUTIONAL AND STATUTORY PROVISIONS.
United States Constitution
Commerce Clause 2, 6, 7, 9, 19n, 37n, 40 et seq.
Fourteenth Amendment
Due Process Clause 2, 6, 37n, 45
Equal Protection Clause 2, 6, 37n, 45
12 U.S.C. (1970 and Supp. V 1975)
§ 548 12, 13n, 14, 15, 34n, 38n
§ 1421 29
§§ 1421-1449 3
§ 1423 29
§ 1424 29
§ 1433 15n
§§ 1461-1468 3, 26
§ 1464(a) 26, 27n, 32
§ 1464(b) 32n
§ 1464(c) 32, 33, 42
§ 1464(d) 32n
§ 1464(e) 26n, 27, 28n, 32n
§ 1464(f) 29, 32n
§ 1464(h) 2, 5, 6, 7, 8, 9, 10 et seq.
§ 1464(i) 32n
§ 1464(k) 32n
§ 1465 27
viii TABLE OF AUTHORITIES CITED.
§§ 1724-1730c 3
§ 1726(b) 5n
§§ 1751-1790 28
§ 1752a 29
§§ 1753-1756 29
§ 1757 28n
§ 1766 29
§ 1768 22n
28 U.S.C. § 1257(2) (1970) 2
Act of October 20, i951, c. 521, Title III, § 313(d),
65 Stat. 490 24n
Act of October 16, 1962, Pub. L. 87-834, § 6(e)(1),
76 Stat. 984 24n
Act of August 3, 1976, Pub. L. 94-375, § 22, 90 Stat.
1078 32
Federal Credit Union Act of 1934, 48 Stat. 1216 28, 29
§ 2 29
§ 7 28n
§ 16 29
Home Owners’ Loan Act of 1933, c. 64, §§ 1-9, 48
Stat. 128 13n, 26, 27n, 28
§ 5(a) 26
§ 5(e) 26n
§ 5(h) 5, 12, 24n
§ 6 27n
Pub. L. 91-156, § 2(a), 83 Stat. 434 13n
M.G.L. c. 14, § 2 (West Supp. 1977) 2n
M.G.L. c. 59 (West 1973 and Supp. 1977) 25n
M.G.L. c. 63 (West Supp. 1977)
§ 11 4, 5, 6, 8, 9, 10, 11 et seq.
§ 11(a)(1) 2, 3, 4n, 5, 8
§ 11(a)(2) 4, 5, 12n
TABLE OF AUTHORITIES CITED.
§ 11(b)(1)
§ 11(b)(2)
M.G.L. c. 64D, § 1 (West 1969)
M.G.L. c. 64H, § 2 (West Supp. 1977)
M.G.L. c. 641, § 2 (West Supp. 1977)
M.G.L. c. 93, § 34 (West Supp. 1977)
M.G.L. c. 168, § 58 (West 1971)
c. 170, § 38 (West 1971)
c
§ 21
M.G.L. c. 231A, § 1 (West Supp. 1977)
Mass. Stat. 1909, c. 419
Mass. Stat. 1926, c. 273, § 24
Mass. Stat. 1966, c. 14
§§ 1-4
§ 11
. 171 (West 1971 and Supp. 1977)
ix
2, 3, 4n, 5, 8
4, 5, 12n
23n, 31
3ln
3ln
3ln
x TABLE OF AUTHORITIES CITED.
Mass. Stat. 1971, c. 555, §§ 26, 27 3n
Mass. Stat. 1975, c. 684, § 44 3n
Mass. Stat. 1977, cs. 15, 19, 20-24 33n
Conn. Stat. Ann. Tit. 36-196 (West Supp. 1978) 3ln
N.H. Rev. Stat. Ann. § 394:5 (1968 Replacement
Ed.) ; 3ln
R.I. Gen. Laws § 19-21-5M (Bobbs-Merrill 1976) 3ln
RULES AND REGULATIONS.
12 C.F.R. (1977)
§ 500.3 32n
§§ 541.1-556.9 32n
§ 544.1 20
§ 545 32n
§ 563.13(a)(1) 6n
35 Fed. Reg. 4044 (March 4, 1970) 20
Internal Revenue Code
§ 11, subchapter H 24
§ 501(c)(14)(A) 22n, 24
§ 3112 22n
§ 3305 22n
Massachusetts Rules of Appellate Procedure, Rule 18,
365 Mass. 844, 864 (1974) 35n
Supreme Court Rule 36 35
LEGISLATIVE MATERIALS.
77 Congressional Record
2429 13n
2474-2507 13n, 26
TABLE OF AUTHORITIES CITED. xi
2479 26, 28
2480 . 27
2481 28
2483-2486 28
2567-2588 13n
2579 27
3206 28
4930 13n
4974 13n
4987 28
4995 13n
7259 28
7259-7261 28
12218 28
12218-12226 28
12223 28
12224-12225 28
H.R. Rep. No. 55, 73d Cong., Ist Sess. (1933) 13n, 26n
H.R. Rep. No. 210, 73d Cong., Ist Sess. (1933) 13n
Senate Committee on Banking, Housing and Urban
Affairs, 93d Cong., lst Sess., Report of the Presi-
dent’s Commission on Financial Structure and
Regulation (December, 1972) Including Recom-
mendations of the Department of the Treasury
(Comm. Print 1973) 29n, 30n
S. Rep. No. 91, 73d Cong., Ist Sess. (1933) 26n
S. Rep. No. 91-530, 91st Cong., Ist Sess., reprinted
in [1969] U.S. Code Cong. & Ad. News 1594 13n, l4n
xii TABLE OF AUTHORITIES CITED,
MISCELLANBOUS.,
[1976) Credit Union Guide (Prentice-Hall) 25n
Hellerstein, State Taxation and the Supreme Court:
Toward a More Unified Approach to Constitu-
tional Adjudication, 75 Mich. L. Rev. 1496 (1977) = lan
{1968} Mass. Comptroller's Report, Mass. Pub. Doo,
140 (10969), abstracted in Mas. H.R. No. 500
(1969) 17a
{1970} Mass. Comptrolier's Report, Mass. Pub. Doo,
140 (1971), abstracted in Mas. H.R. No, 500
(1971) 17n
[1976] Mass. Comptroller's Report, Mass. Pub. Doo.
140 (1977), abstracted in Mas. H.R. No. 590
(1977) 17a
Snider, J.L., Credit Unions in Massachusetts (1939)
22n, 23n, Sin, 32
Surrey, S., and Warren, W., The Income Tax Pro-
ject of the American Law Institute: Gros In-
come, Deductions Accounting, Gains and Losses,
Cancellation of Indebtedness, 66 Harv. L. Rev.
761 (1953) 39n
In the
Supreme Court of the United States.
Ocrosen Trem, 1977,
No, 77-3M.
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF BOSTON er at.,
APPELLANTS,
STATE TAX COMMISSION er at.,
Arre.Lers,
ON APPEAL FROM THE SUPREME JUDICIAL COURT
OF MASSACHUSETTS.
Brief for Appellees.
Questions Presented for Review.
i
1. Does a state tax statute discriminate against
savings and loan associations when it permits both the
federal institutions subject to the tax to deduct
income the additions which both are required by
to make to their guaranty funds
HE
2. Are credit unions “similar” to federal savings and loan
associations under the standards of 12 U.S.C. § 1464(h)
(1970)?
5. Does 12 U.S.C. § 1464(h) forbid states from imposing
on federal savings and loan associations a franchise tax
from real estate loans secured by out-of-state property?
5. Has Massachusetts violated either the Due Process or
Equal Protection Clause of the Fourteenth Amendment, by
Pron Proceepines.
This appeal is brought under 28 U.S.C. § 1257(2) (1970)
associations chartered under the provisions of 12 U.S.C.
§§ 1461-1468 (1970 and Supp. V. 10975); they all have
their home offices in Massachusetts, and the record discloses
no branch offices outside Massachusetts. They are members
of the Federal Home Loan Bank System, 12 U.S.C. §§ 1421.
1449 (1970 and Supp. V. 1975), and are insured by the
Federal Savings and Loan Insurance Corporation, 12 U.S.C.
§§ 1724-17300 (1970 and Supp. V. 1975) (A. 11).
The challenged statutory provisions, M.G.L. ©. 63, §§
ll(a)(l) and (b)(1), were enacted in substantially their
present form in 1066. Mass. Stat. 1966, © 14, § 11."
Sections ll(a)(l) and (b)(1) impose on state-chartered
principal
1966, ©. 14, §§ 1-4. The statute
amendments do not
1971, ©. S55, §§ 26, O7, Mass. Stat. 1975,
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than state law demands trom state savings and cooperative
banks." Their deduction under § 11 was therefore also
smaller, and this, they claim, represented discrimination
forbidden by § 1464(h). Further, the appellants sought to
invalidate § 11 because credit unions are not subject to the
tax. They claimed that the credit unions are “similar” to
federal savings and loan associations within the meaning of
§ 1464(h), and the exclusion of credit unions from § 11 was
therefore discriminatory. The appellants also claimed that
the type of tax imposed by § 11 was not among those
authorized by Congress in § 1464(h).
Appellants offered three constitutional grounds for invali-
dating § 11, all similar in substance to one another. On
account of the state's failure to exclude income derived from
Amendment.
The Supreme Judicial Court found the state statute valid.
It held that:
i
ts
*The guaranty fond requirements for savings benks are
M.C.L. ©. 168, § SB (West 1071). The total requirement & 7%
cent of deposits, except that the trustees may elect to transfer money to
surplus, rather than the guaranty fund, if the fund amounts to et least 5
per cent of deposits, The guaranty fund & held to meet lowes in the
business of the savings banks
oy Oy, ee ee ae banks, found at
M.G.L. ©. 170, § 38 (Wet 1971), are also to meet busines: losses as
well as for “changes in assets, or to eetablish reserves therefor.” The re
quirement totals 10 per cent of total assets, rather then of deposits. The
required additions are 5 per cent of net profits “at each distribution
date.”
7
1. The deduction for required additions to guaranty funds
is not diseriminatory under the terms of 12 U.S.C. §
1464(h), since “[t]he excise statute is wholly neutral.”
Moreover, the deduction did not frustrate the purposes of
§ 1464(h), because it was not shown to create a substantial
competitive disadvantage for the associations. Jurisdictional
Statement (“J.S.”) 40, Mass. Adv. Sh. (1977) at 909, 363
N.E. 2d at 482.
2. Massachusetts credit unions are not “similar” to federal
savings and loan associations in purpose, structure, or actual
practice, J.S. 43, Mass. Adv. Sh. (1977) at 913, 363 N.E.
Od at 484.
3. “The excise imposed by G.L. c. 63, § 11, is a franchise
tax,” measured by income. As such, it falls within the
categories of tax explicitly listed in § 1464(h), and cannot be
deemed wneuthorized by Congress. J.S. 36, Mass. Adv. Sh.
(1977) at 904, 363 N.E. 2d at 480.
4. The associations’ Commerce Clause attack failed
because (a) they had not shown “the extent of the contacts
of any association with any other State,” and (b) their asser-
tions abowt multiple taxation were speculative and un-
founded. J.S. 38, 39, Mass. Adv. Sh. (1977) at 907, 908,
963 NE. Od at 481, 482.
5. The due process and equal protection claims were
without merit. J.S. 40, Mass. Adv. Sh. (1977) at 910, 363
N.E. 2d at 482.
Summary of Argument.
Appellants’ principal claims arise under 12 U.S.C. §
1464(h). This statute reflects a Congressional policy
decision that states should be empowered to tax federal
savings and loan associations so long as the tax does not
favor state banking institutions which are in competition
with them. The judicial inquiry required by § 1464(h) has
two major parts: (1) whether the state taxes the state and
federal institutions in substantially equal measure and (2)
whether, as required by § 1464(h), the tax includes all state
institutions “similar” to federal savings and loan associa-
tions.
In argument I appellees show that the challenged excise
provisions, M.G.L. c. 63, §§ 11(a)(1) and (b)(1), are neutral
on their face and in their practical effect. The deduction
in § 11 for each institution’s minimum required additions to
its guaranty fund is designed to recognize that such
payments deserve to be offset against income. It does not
unfairly distinguish between appellants and their state
counterparts. Nor have appellants offered any proof that
their guaranty fund requirements actually result in a
pattern of disparate tax impact. In fact, the maximum
impact of the guaranty fund deduction is quite small. At
bottom, appellants are attempting to exempt themselves
from state taxation under § 11 altogether, on the ground
that the guaranty fund deduction does not achieve
mathematical equality between federal and state institu-
tions. Section 1464(h) does not demand such rigidity. The
appellants must pay their fair share in supporting the costs
of state government. (Pp. 10-21.)
The second argument shows that the exclusion of Massa-
chusetts credit unions from the tax imposed by § 11 does
not violate § 1464(h), since credit unions are not “similar
local mutual or cooperative thrift and home financing
institutions.” The purposes of federal associations and
credit unions are different. The federal associations were
created to provide home financing. Credit unions, in
_——— er
9
contrast, enable persons of moderate means to pool their
limited savings and obtain personal loans at low interest.
Massachusetts’ tax policy on credit unions mirrors that of
Congress; it exempts federal and state credit unions from
corporate taxation at the same time it taxes federal savings
and loan associations and state cooperative and savings
banks. Section 1464(h) should not be read to prohibit
states from adopting the same framework for taxation that
Congress itself espouses. Moreover, the legislative history of
§ 1464(h) confirms that Congress did not consider credit
unions to be “similar.” If federal savings and loan associa-
tions believe that credit unions ought to be taxed in the
same manner as they, their argument is properly directed to
Congress, not this Court. (Pp. 22-29.)
Finally, an analysis of the record shows that credit unions
actually operate differently and at a far more modest level
than appellants. Their activities are thus not similar. (Pp.
30-36.)
Argument III shows that the tax imposed by § 11, a fran-
chise tax measured by income, is authorized by Congress.
Section 1464(h) includes “franchise” taxes in its terms, and
the use of net income to measure the value of the franchise
is well-accepted by the Court. Moreover, contrary to
appellants’ argument, the determination of which deduc-
tions ought to be included in determining “net income” is
not a question for the Court but a classic policy issue for the
state Legislature. (Pp. 37-39.)
The fourth argument addresses appellants’ Commerce
Clause claim. Appellants are domiciled in Massachusetts,
and all their income-producing activity is centered in
Massachusetts. Under these facts, the Commonwealth’s tax
on the associations’ franchise does not raise a serious
Commerce Clause question, even assuming appellants’
activities have substantial interstate connections. What is
10
more, appellants have failed to establish the interstate
nature of their business. Their claims of multiple taxation
are therefore speculative, and their Commerce Clause claim
without merit. (Pp. 40-45.)
The fifth and final argument treats appellants’ due
process and equal protection claims. The arguments
advanced for both were long ago disposed by this Court as
insubstantial. (Pp. 45-47.)
Argument.
I. Tue Statute’s Depucrion FROM Gross INCOME FOR
REQUIRED ADDITIONS TO AN INSTITUTION’s GUARANTY FuND
pores Nor Vio.aTE 12 U.S.C. § 1464(h), Because rr ts A
Fair, NEUTRAL, AND NONDISCRIMINATORY MEASURE WHICH
Imposes No CompetirivE DISADVANTAGE ON THE FEDERAL
ASSOCIATIONS.
The tax imposed on appellants by § 11 is sound in policy
and evenhanded in operation. The associations’ challenge
focuses on the statutory deduction from gross income for
“minimum additions during the taxable years to [the tax-
payer's] guaranty fund or surplus required by law or the
appropriate federal and state supervisory authorities.”
State and federal institutions are all obliged to set aside a
specified portion of their funds for this purpose as a contin-
gency to meet business losses.* Each institution is disad-
vantaged in its profit-making activities to the degree that it
*The guaranty funds of federal savings and loan associations, savings
banks and cooperative banks are described above. See pp. 5-6, nn. 7,
8, supra.
ll
must take these funds out of circulation. Hence, the Massa-
chusetts Legislature’s decision to eliminate additions to the
guaranty fund from taxable “net operating income” under
§ 11 is plainly rational.’
The appellants’ claim of discrimination under the
standards of § 1464(h) is without merit. The statute on its
face treats all taxed institutions identically, and the differing
guaranty fund requirements do not unfairly differentiate the
associations from their state counterparts. Indeed, the asso-
ciations offer no evidence that their actual tax burden is any
greater than the state institutions’, as measured by income,
deposits, assets, or any other standard. This failure of
proof is fatal; it disregards the Court’s admonition that
when a taxpayer seeks to show discrimination on account of
a “greater” tax, the amount of the tax itself is the starting
point. E.g., Michigan Natl Bank v. Michigan, 365 U.S.
467, 478-479 (1961); Tradesmens Nat? Bank v. Oklahoma
Tax Comm'n, 309 U.S. 560, 567 (1940).
In the place of proof appellants seek to erect a rigid
standard of undeviating equality as the measure of the tax’s
validity. They assert that because the federally-set rate of
guaranty fund additions for the associations is currently,
and fortuitously, lower than the rate set for state institu-
tions, the associations should be exempt altogether from
taxation. The true measure, however, is not mathematical
equality. First Natl Bank of Wellington v. Chapman, 173
U.S. 205, 216 (1899).'' The associations, like other busi-
'°Such a law presents a poor target for judicial intrusion. Cf. Fergu-
son v. Skrupa, 372 U.S. 726, 730 (1963) (“courts do not substitute their
social and economic beliefs for the judgment of legislative bodies, who
are elected to pass laws”).
"It is a truism, as Chapman declared, that “mathematical equality
. . cannot be reached in any system of taxation, and it is useless and
12
nesses domiciled in Massachusetts, must pay their fair share
for the maintenance of their state government. '*
At bottom, the validity of § 11 turns on the meaning of
§ 5(h) of the Home Owners’ Loan Act, § 1464(h). It reads
as follows:
No State . . . 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 coopera-
tive thrift and home financing institutions. (Emphasis
added.)
The Supreme Court has addressed the meaning of § 1464(h)
twice. On both occasions the Court construed the “greater
than” language to refer to “discrimination” in the state’s
treatment of federal and state institutions. Michigan Nat7
Bank v. Michigan, supra, 365 U.S. at 481; Laurens Fed.
Sav. & Loan Ass’n v. South Carolina Tax Comm’n, 365
U.S. 517, 523 (1961). The Court has further stated that
the meaning of discrimination in this context is to be
derived from 12 U.S.C. § 548, the law governing state
taxation of national banks, which in the Courts words
idle to attempt it. Equality, so far as the differing facts will permit,
and as near as they will permit, is all that can be aimed at or reached.”
173 U.S. at 216.
'* The associations seek to recover all taxes collected by Massachusetts
since 1966, the date the taxing statute was enacted. See, e.g.,
Complaint, {§ 83, 88, and Prayer l(a) (S.J.C. App. 47, 48, 54). The
associations have already received refunds of all moneys collected under
the deposits-based portion of the tax (M.G.L. c. 63, § 11(a)(2), (b)(2))
pursuant to the mandate in United States v. State Tax Comm'n, 481 F.
2d 963 (ist Cir. 1973).
13
should be read “in pari materia” with § 1464(h).'* Michi-
gan Nat Bank v. Michigan, supra, 365 U.S. at 4817
Thus, appellants’ speculations in favor of a constricted
reading of the words “greater than” must face compari-
'*The reasons for the “in pari materia” relationship are not hard to
find. Section 1464(h) was enacted as one part of the Home Owners’
Loan Act of 1933, c. 64, §§ 1-9, 48 Stat. 128, a detailed scheme which
created the federal savings and loan associations. Like national banks,
the associations are chartered, regulated and insured by the federal
government. In creating the associations Congress was absorbed with
the primary issue of channeling loans to homeowners. In neither the
Congressional reports, see H.R. Rep. No. 55, 73d Cong., Ist Sess.
(1933); H.R. Rep. No. 210, 73d Cong., Ist Sess. (1933), nor the floor
debate, see 77 Cong. Rec. 2429, 2474-2507, 2567-2588, 4930, 4974,
4995, did Congress focus on the meaning of § 1464(h).
In the area of national banks, however, Congress has deliberated and
legislated over a long period on the question of state taxing power. The
result has been a policy designed to “prevent actual discrimination”
against national banks while “allow[ing] the states considerable freedom
in working out an equitable tax system .. ..” Tradesmens Nat? Bank v.
Oklahoma Tax Comm'n, 309 U.S. 560, 567 (1940); see, e.g., Davenport
Bank v. Davenport Board of Equalization, 123 U.S. 83, 85 (1887).
When the Home Owners’ Loan Act of 1933 was enacted, § 548 read
as set forth in the statutory appendix to this brief (Revised Statutes
§ 5219, infra, pp. 49-51). In 1969, Congress enacted the current
version of § 548. Pub. L. 91-156, § 2(a), 83 Stat. 434. It states:
For the purposes of any tax law enacted under authority of the
United States or any State, a national bank shall be treated as a
bank organized and existing under the laws of the State or other
jurisdiction within which its principal office is located.
Legislative history to this new § 548 stated: “The committee is in full
accord with the principle that every State government should be allowed
the greatest possible degree of autonomy with regard to the formulation
of its tax structure.” S. Rep. No. 91-530, 91st Cong., Ist Sess., re-
printed in [1969] U.S. Code Cong. & Ad. News 1594, 1595.
v. Clty of Boston, 125 U.S. 60, 67
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(1) Lack of Proof of Tax Impact.
The associations’ own argument is that impact is
(Appellants’ [“App.”] Br. 21, 29), but nowhere
i9
equality is the standard
Unless precise
under § 1464(h), appellants cannot prevail. This Court has
never permitted such a “mathematical nicety”" to become
the measure of discrimination in the banking'' or indeed in
any other sphere of discrimination analysis." It should not
This burden do so in this case.”
is particularly important when a tax statute is neutral on its
tax in question “discriminates in fact.” Tradesmens Nat?
568 (Court provided with stipulated facts regarding actual
tax burdens); see, ¢.g., Piret Natl Bank of Hartford v. City
of Hartford, 273 U.S. 548, 559 (1927) (ample uncontra-
face. First Natl Bank of Wellington v. Chapman, supra,
173 U.S. at 218-219,
Bank v. Oklahoma Tax Comm'n, supra, 309 U.S. at 567-
dicted evidence demonstrated discrimination).
(2) Ambiguity of Evidence Presented.
" B.g., in Piret Nat'l Bank v. Anderson, 260 U.S. 341, 348 (1026), the
Dandridge v. Wilkams, 907 U.S. 471, 485 (1970).
5
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Moreover, these ratios show that in the most recent year,
1974, the associations received in the aggregate a larger
deduction for additions to the guaranty fund than either the
savings banks or cooperative banks (A. 130-132). Overall,
the ratios are in such close compass for all institutions as to
belie any injury on account of the deduction under § 11,
much less discrimination'* (A. 130-132).
ot
iali
a
ba¢s
20
(3) Unfriendly Motive.
In 1966, at the time § 11 was enacted, the federal savings
and loan associations were required under the terms of their
charter to maintain reserves equal to 10 per cent of their
1970, as noted in the Solicitor General's brief,” that the
associations’ reserve requirements were lowered to their
current level. 12 C.F.R. § 544.1, 35 Fed. Reg. 4044
(March 4, 1970; effective April 10, 1970)."" Thus, contrary
F. 2d at 970.
" See of Facts, ¢ 2 (A. 11), Charter N, ¢ 10 (S.).C. App
145), and Charter K (rev.), | 10 (S.J.C. App. 148).
“See p. 6, 0. 8, supra. Notably, the savings banks’ amets are far
21
Finally, the appellants’ characterization of their smaller
current guaranty fund additions as a burden is a self-
serving assertion contrary to reason. The smaller require-
ments permit them to use more of their money for lending
purposes or for distribution to members."* It is the institu-
tions with higher guaranty fund requirements which bear a
comparative burden, by having to take more money out of
circulation. The Massachusetts Legislature’s decision to
permit the guaranty fund deduction is plainly a reflection of
this fact. It is not surprising, therefore, that the associa-
tions have offered no credible inference of an unfriendly
legislative motive underlying the guaranty fund deduction."
See Michigan Natl Bank v. Michigan, supra, 365 U.S. at
473; of. United States v. State Tax Comm'n, supra, 481 F.
2d at 970.
The tax on appellants is rational and fair. The statute
should be upheld.
not required for guaranty fund additions could be distributed to members
. S. 40, Mass. Adv. Sh. (1977) at 909, 363 N.E. 2d
j
Il. THe Exemprion oF MassaAcuusertts Crepir UNIONS
FROM THE CHALLENGED TAx 1S CONSISTENT WITH THE
Provisions oF 12 U.S.C. § 1464(h), anp poes Nor Serve
TO INVALIDATE THE TAX.
A. Introduction.
The associations’ second line of attack under § 1464(h)
focuses on Massachusetts credit unions. Both state and
federally chartered credit unions are exempt from the § 11
excise. The associations complain that the exemption as to
the state credit unions*® violates § 1464(h) because these
entities constitute “other similar local mutual or cooperative
thrift and home financing institutions” within the meaning
of that section.
The claim demands rejection. Massachusetts credit
unions are in character, purpose and operation different
from the state-chartered banks and federal savings and loan
associations subject to the § 11 tax. Since the creation of
the state’s first credit union in 1892,*' credit unions have
always been cooperative membership organizations com-
posed of persons with moderate means who have pooled
their individual, limited savings or deposits together; the
purpose of the unions is to enable the members to obtain
**The associations limit their claim to state-chartered credit unions.
Congress has exempted federally-chartered unions from all federal and
state taxes except nondiscriminatory real and tangible personal property,
social security, Medicare and unemployment insurance taxes. 12 U.S.C.
§ 1768 (1970); I.R.C. §§ 501(c)(14)(A), 3112, 3305.
**The Globe Savings and Loan Association, a credit union with a
membership limited to employees of the Boston Globe, was established
in that year. See J.L. Snider, Credit Unions in Massachusetts at 6
(1939). Massachusetts was the first state to enact a credit union statute,
Mass. Stat. 1909, c. 419, which authorized the formation and incorpora-
tion of credit unions upon approval of the Commissioner of Banks.
<< —
23
personal loans at reasonable interest rates.** Unlike the
institutions taxed by § 11, a credit union is an organization
limited in membership to persons tied together by a
common bond of employment, association or residence; and
the members themselves control the operation of each
union. Predictably, given these characteristics, there are a
far greater number of credit unions than savings banks,
cooperative banks or savings and loan associations in
Massachusetts.** Predictably as well, the assets of credit
unions are far smaller than those of the other financial
institutions. **
Massachusetts’ policy decision to exempt its credit unions
from the franchise tax** represents a reasonable and valid
taxing judgment which Congress and a large majority of
states have also made. The legislative history of § 1464(h)
provides a further specific indication that Congress did not
intend to bring credit unions within the purview of the
“other similar . . . institutions” language of § 1464(h). In
light of these factors, the Court should not construe that
** See J.L. Snider, supra, at 3, 20. Put in statutory terms, credit
unions are corporations organized “for the purpose of accu.rulating and
investing the savings of its members and making loans to them for prov-
ident purposes ....” M.G.L. c. 171, § 2 (West 1971).
**In 1973, there were 370 credit unions (A. 145; Annual Report of the
Massachusetts Commissioner of Banks for 1973, Section B, at 84), 167
savings banks (A. 98-104), 144 cooperative banks (A. 46-51), and 34
federal savings and loan associations (A. 113-129).
**In 1973, Massachusetts credit unions’ assets totalled $1,011,568,892
(Annual Report of the Massachusetts Commissioner of Banks for 1973,
Section B, at 84); the total for savings banks was $18,456,156,660 (A.
131); the total for cooperative banks was $2,971,845,658 (A. 131); and
the total for federal savings and loan associations was $2,477,195,150 (A.
132).
** Massachusetts credit unions are subject to real property taxes, sales
and use taxes, and transfer taxes. See p. 25, n. 37, infra.
24
statutory language to include credit unions, and should
affirm the validity of the Massachusetts tax statute.
B. Congressional Taxing Policy Governing Credit Unions
and the Legislative History of § 1464(h) Both Indicate
that Credit Unions are Not “Similar” Institutions
within the Scope of § 1464(h).
When § 1464(h) is considered in the context of other
pertinent tax statutes and policies of Congress and its
legislative history, see, e.g., Kokoszka v. Belford, 417 U.S.
642, 650 (1974); see also Muniz v. Hoffman, 422 U.S. 454,
458, 468 (1975), it becomes clear that the section should not
be read to include credit unions.
1. Congressional Taxing Policy.
Congress exempts both state and federal credit unions
from federal income tax. I.R.C. § 501(c)(14)(A). It has
not granted the same income tax exemption to federal
savings and loan associations, savings banks, or cooperative
banks. Rather, since 1951 Congress has imposed a corpo-
rate income tax on these institutions. See I.R.C. § 11 and
subchapter H.**
** When Congress first created federal savings and loan associations in
1933, it exempted them from all federal taxes, including taxes on their
franchises, capital, reserves, surplus, loans, and income. Home Owners’
Loan Act of 1933, c. 64, § 5(h), 48 Stat. 133. In 1951 § 1464(h) was
amended to permit, inter alia, federal taxes on the associations’ income.
Act of October 20, 1951, c. 521, Title III, § 313(d), 65 Stat. 490. In
1962, Congress amended § 1464(h) to its present form, striking out all
the previously stated prohibitions on federal taxes. Act of October 16,
1962, Pub. L. 87-834, § 6(e)(1), 76 Stat. 984.
a
These statutes demonstrate that Congress itself has made
a tax policy determination in substance identical to that
espoused by the Massachusetts Legislature in § 11: savings
and loan associations, savings banks and cooperative banks
should be taxed on income; credit unions should not.*’ In
these circumstances, § 1464(h) should not be read as
meaning that a state which taxes federal savings and loan
associations — an activity explicitly permitted by § 1464(h)
— must apply the same tax to state-chartered credit unions.
Such an interpretation would require states either (a) to
impose a tax on a class of organizations which Congress has
consistently deemed worthy of tax protection, or (b) to
forgo collecting a tax on a class of institutions which
Congress has determined may properly be taxed. A reading
of § 1464(h) which requires this result must be avoided.
See, e.g., Perry v. Commerce Loan Co., 383 U.S. 392, 399-
400 (1966); United States v. American Trucking Ass’ns,i
Inc., 310 U.S. 534, 543 (1940). Cf. Laurens Fed. Sav. &
Loan Ass'n v. South Carolina Tax Comm'n, 365 U.S. 517,
524 (1961).
sales and use taxes on credit unions. See M.G.L. c. 59 (West 1973 and
Supp. 1977) (real property tax); c. 64H, § 2 (West Supp. 1977) (sales
tax); c. 641, § 2 (West Supp. 1977) (use tax); see also [1976] Credit
Union Guide (Prentice-Hall) { 60,003 at pp. 60,006, 60,007. In addi-
tion, Massachusetts, like the majority of states, imposes a stamp or trans-
fer tax on credit unions. See M.G.L. c. 64D, § 1 (West 1969); see also
[1976] Credit Union Guide (Prentice-Hall) { 60,003 at p. 60,005.
26
2. The Legislative History of § 1464(h).
Legislative history surrounding the enactment of the
Home Owners’ Loan Act of 1933, 48 Stat. 128, 12 U.S.C.
§§ 1461-1468, offers further guidance to the meaning of
“similar . . . institutions” in § 1464(h). The history reveals
that Congress did not consider credit unions as “similar,”
thus supporting their exclusion from the § 11 tax.**
The Home Owners’ Loan Act was designed to provide
individuals with access to credit at low cost to finance or
refinance their homes. See § 5(a) of the Act, 12 U.S.C.
§ 1464(a); 77 Cong. Rec. 2476-2477, 2479; Laurens Fed.
Sav. & Loan Ass’n v. South Carolina Tax Comm'n, 365
U.S. 517, 523 (1961). The savings and loan associations
which the Act provided for were created to offer direct,
local sources of home financing credit, particularly in
communities with inadequate institutional lending facilities.
Several sections of the Home Owners’ Loan Act contained
language very similar to the phrase “other similar local
mutual or cooperative thrift and home financing institu-
tions” appearing in § 1464(h).** Congressional debate
** Although the legislative history did not focus on § 1464(h) specifi-
cally, see p. 13, n. 13, supra, it did address the question of similar local
institutions in its discussion of other sections. When available, such in-
sights into the intent of Congress must be explored. See Tidewater Oil
Co. v. United States, 409 U.S. 151, 157 (1972); Harrison v. Northern
Trust Co., 317 U.S. 476, 479 (1963); see National Woodwork Mfrs.
Ass'n v. NLRB, 386 U.S. 612, 619-20 (1967); Laurens Fed. Sav. & Loan
Ass'n v. South Carolina Tax Comm'n, supra, 365 U.S. at 521, 523-524.
See H.R. Rep. No. 55, 73d Cong., Ist Sess. (1933), p. 2; S. Rep. No. 91,
73d Cong., Ist Sess. (1933), p. 2.
* See § 5S(a) of the Act, 12 U.S.C. § 1464(a) (Federal Home Loan
Bank Board to provide for creation of federal savings and loan associa-
tions, giving “primary consideration to the best practices of local mutual
thrift and home-financing institutions in the United States” [emphasis
supplied]); § 5(e) of the Act, 12 U.S.C. § 1464(e) (“[nJo charter [for
27
concerning these sections — §§ 1464(e) and 1465 in particu-
lar — provides a clear indication of the specific types of
local institutions with which Congress was concerned.
Credit unions were not included.‘*® See 77 Cong. Rec.
2480, 2579 (remarks of Representatives Luce and Celler);*'
a federal savings and loan association] shall be granted .. . unless the
same can be established without undue injury to properly conducted
existing local thrift and home institutions” [emphasis sup-
plied]}); § 6 of the Act, 12 U.S.C. § 1465 (appropriating sums for “the
promotion and development of local thrift and home-financing institu-
tions, whether State or Federally chartered”).
“The legislative history of §§ 1464(e), 1465 and other sections of the
Home Owners’ Loan Act is clearly pertinent to a consideration of
§ 1464(h). As a general rule, words used in one part of a statute are to
be given a consistent meaning when they appear in other parts of the
same statute. See e.g., United States v. Cooper Corp., 312 U.S. 600,
606-607 (1941); Atlantic Cleaners & Dyers, Inc. v. United States, 286
U.S. 427, 433 (1932); see also Erlenbaugh v. United States, 409 U.S.
239, 243-244 (1972). There is no indication that Congress intended
“other local mutual or cooperative thrift and home financing institutions”
in § 1464(h) to have any different meaning than the similar language it
used in §§ 1464(a), 1464(e) and 1465. See Union Nat’ Bank of Clarks-
burg v. Home Loan Bank Board, 233 F. 2d 695, 696 (D.C. Cir. 1956).
In particular, the use of the terms “mutual” and “cooperative” in
§ 1464(h) but not in the other sections seems without significance; Con-
gressional discussion of the other provisions shows that the entities con-
sidered as “local thrift and home financing institutions” were in fact
“mutual” or “cooperative” organizations.
*' The Congressmen here were debating the provisions of §§ 1465 and
1464(e). Representative Luce of Massachusetts, a sponsor of the Act,
indicated at 2480 that the purpose of encouraging the development of
federal savings and loan associations — the specific aim of § 1465 —
was to serve the many communities in the country that had no “building
and loan associations, mutual savings banks, and no insurance com-
pany ....” He defined “thrift institutions” in similar terms. (He also
explained that building and loan associations were essentially identical to
cooperative banks, id.) As a sponsor, Representative Luce’s views on
the Act’s meaning are entitled to great weight. See National Woodwork
Mfrs. Ass'n v. NLRB, supra, 386 U.S. at 640.
28
4987 (remarks of Representative Hebert);** see also 77
Cong. Rec. 2479 (remarks of Representative Luce); 2481
(remarks of Representatives Celler and Luce); 2483-2486
(Federal Home Loan Bank Board study of financing institu-
tions’ mortgage activities; credit unions not included).
The failure to mention credit unions in connection with
these sections of the Home Owners’ Loan Act cannot be
explained away as happenstance. The Congress which
passed that Act was well aware of credit unions. In its next
sitting it enacted legislation to establish a federal credit
union system. Federal Credit Union Act of 1934, 48 Stat.
1216, 12 U.S.C. §§ 1751-1790. This legislation was intro-
duced by the respective branches’ Committees on Banking
and Currency, which had also been responsible for the
Home Owners’ Loan Act. See 77 Cong. Rec. 3206 (Senate,
1933); 7259-7261 (Senate, 1934); 12218-12226 (House,
1934). Indeed, in the House of Representatives the same
individuals who had managed the Home Owners’ Loan Act
were also the sponsors of the Federal Credit Union Act.
See 77 Cong. Rec. 12218, 12223, 12224-12225. In Con-
gressional debate about the Credit Union Act, no link was
drawn or suggested between credit unions and savings and
loan associations, although the Act itself permitted credit
unions to take mortgages.‘* 77 Cong. Rec. 3206, 7259,
12223-12225. Moreover, the Federal Credit Union Act
established a regulatory system which lodged supervisory
** Representative Hebert debated the language in § 1464(e) providing
that no charter for a new federal savings and loan association should be
granted if it would unduly injure “properly conducted existing local
thrift and home-financing institutions.” His discussion makes clear that
he understood “local thrift and home-financing institutions” to refer to
building and loan associations and related home financing organizations;
this interpretation appears accepted by all.
** See § 7 of the Act, now 12 U.S.C. § 1757.
control in the Farm Credit Administration rather than in
the Federal Home Loan Bank Board. The credit unions
thus operated independently of the federal savings and loan
associations and the entire Federal Home Loan Bank system
of which the associations were and are a part. Compare 12
U.S.C. §§ 1421, 1423, 1424, 1464(f), with Federal Credit
Union Act of 1934, §§ 2, 16, 12 U.S.C. §§ 1752a, 1753-
1756, 1766.
The legislative record thus shows a Congressional under-
standing of credit unions as a class of organizations separate
from the lending institutions mentioned in connection with
§ 1464(h). Neither the Federal Credit Union Act nor
§ 1464(h) has been amended in a way that would suggest a
change in this view. In such circumstances, § 1464(h)
should be construed to reflect the limitations intended by its
framers. See, e.g., Monroe v. Pape, 365 U.S. 167, 191
(1961); see also Moody v. Albemarle Paper Co., 417 U.S.
622, 626 (1974); cf. United States v. Bacto-Unidisk, 394
U.S. 784, 799-800 (1969). The reasons advanced by appel-
lants and the United States in this case for extending
§ 1464(h) are essentially policy arguments, appropriately
addressed to Congress and not this Court. See First Agri-
cultural Natl Bank v. State Tax Comm'n, 392 U.S. 339,
345-46 (1968).*
“* First Agricultural Natl Bank, also involving a Massachusetts tax on
federally-chartered financial institutions, pointed out the special im-
portance of judicial deference in this field because it is an area of partic-
ular Congressional concern. Recent legislative action relating to credit
unions and savings and loan associations underscores the wisdom of this
observation. The lending, borrowing and investment powers and tax
treatment of these entities, among others, has recently been the subject
of a comprehensive study. See Senate Committee on Banking, Housing
and Urban Affairs, 93d Cong., Ist Sess., Report of the President’s Com-
mission on Financial Structure and Regulation (December, 1972) In-
cluding Recommendations of the Department of the Treasury (Comm.
Print 1973). As this Report shows, the President's Commission recom-
30
C. The Purposes, Powers and Operation of Massachu-
setts Credit Unions as Reflected in This Record Demon-
strate the Absence of Similarity Between Credit Unions
and the Associations.
Both the associations and the Solicitor General** avoid
any reference to the legislative history of § 1464(h) or to
other relevant taxing statutes that bear on the proper
construction of § 1464(h). They would have the Court
view the issue of “similarity” in a vacuum, divorced from its
historical underpinnings and proper context. This is a path
the Court has firmly rejected. See, e.g., Muniz v.
Hoffman, supra, 422 U.S. at 467; Moody v. Albemarle
Paper Co., supra, 417 U.S. at 626. However, even if
viewed on its own terms, the associations’ argument lacks
substance.
1. Statutory Purposes and Powers.
Appellants contend that the powers and purposes of
Massachusetts credit unions coincide with those of federal
mended equal tax treatment of credit unions and other deposit inter-
mediaries, including savings and loan associations, id. at 57-58, 71; the
Treasury Department, working from the President’s Commission's re-
commendations, supported continuing tax exemptions for credit unions.
Id. at 185; see id. at 186. Congress, however, has retained the income
tax exemption for state-chartered credit unions, and the broader tax
exemption for federally-chartered unions. Congressional inaction does
not justify judicial revision. The policy-making branches should con-
tinue the debate in their own spheres.
**In judging that the exemption of Massachusetts credit unions from
§ 11 violates § 1464(h) (U.S. Br. at 14-16), the United States has con-
tented itself with summarizing the associations’ brief. Its discussion of
the credit union claim does not rely on, or cite, a single decision of this
or any other court.
31
savings and loan associations. A brief review of the two
types of institutions contradicts their argument.
Massachusetts credit unions are cooperative organizations,
chartered by the state, M.G.L. c. 171, § 2, and created to
serve the personal credit needs of people with limited
incomes.** They operate “for the purpose of accumulating
and investing the savings of [their] members and making
loans to them for provident purposes.” Id. While they
may make mortgage loans, by specific statutory command
the major focus of their lending activities is on personal
loans. See M.G.L. c. 171, § 24(a)-(g) (West Supp. 1977).*’
Credit union members are united by a common bond of
occupation, association or residence. See M.G.L. c. 171,
§ 7 (West 1971).‘* Every member must hold at least one
share in the credit union, and every member, regardless of
**See j.L. Snider, Credit Unions in Massachusetts at 3-5, 6, 20-21
(1939).
*' These provisions list the seven types of loans credit unions may
make; personal loans (§ 24[a]) and “[l]oans secured by first mortgages of
real estate” (§ 24[b]) are two of the seven. The section then provides:
Personal loans shall always be given the preference and, in the
event there are not sufficient funds available to satisfy all loan ap-
plications approved by the credit committee, preference shall be
given to the smaller loan.
** Appellants claim there are no statutory limitations on credit union
membership. They overlook M.G.L. c. 171, § 7(c), which requires that
every credit union’s bylaws define “[t]he condition of residence, occupa-
tion or association which qualify [sic] persons for membership.” The
bylaws must be approved by the state Commissioner of Banks before the
credit union may operate, and the Commissioner must specifically ap-
prove any amendment to bylaws governing membership qualifications.
M.G.L. c. 171, §§ 9, 8 (West Supp. 1977). The Massachusetts statutory
provisions on credit union membership are virtually the same as many
other states’ credit union statutes. See, e.g., Conn. Stat. Ann. Tit.
36-196 (West Supp. 1978); N.H. Rev. Stat. Ann. § 394:5 (1968 Replace-
ment Ed.); R.I. Gen. Laws § 19-21-5(M) (Bobbs-Merrill 1976).
32
how many shares, has one vote. This principle of democra-
cy in voting is combined with a high degree of membership
control over the operations of a credit union: members set
the ceiling on loans and, through their elected directors,
establish interest rates on loans and deposits and declare
dividends. See M.G.L. c. 171, §§ 13, 15, 16, 18, 21, 25
(West 1971 and Supp. 1977).
Federal savings and loan associations are structured to
operate differently. From the beginning, their mandate has
been to serve as organizations designed “to provide for the
financing of homes.” 12 U.S.C. § 1464(a). The detailed
statutory provisions governing the types and amounts of
loans which associations may make, 12 U.S.C. § 1464(c)
(Supp. V 1975, as amended by Act of August 3, 1976, Pub.
L. 94-375, § 22, 90 Stat. 1078), show that this statutory
purpose remains in full force today: virtually all permissi-
ble loans are related to real estate, and the associations’
powers to lend money for personal loans, or non-real es-
tate loans of any kind, is extremely limited. See 12 U.S.C.
§ 1464(c)(A), (B).*
The core of appellants’ complaint about credit unions is
their ability to make loans secured by first mortgages on
real property. Credit unions have had this power for many
years. See Mass. Stat. 1926, c. 273, § 24; J.L. Snider,
Credit Unions in Massachusetts at 13-16 (1939). While the
**In terms of organization as well, the federal savings and loan as-
sociations are markedly distinct from state credit unions. The associa-
tions’ operations are regulated in all important particulars by the Federal
Home Loan Bank Board. See 12 U.S.C. §§ 1464(a), (b), (d), (e), (f), (i)
(1970 and Supp. V 1975); 12 C.F.R. §§ 500.3, 541.1-556.9 (1977). In
addition, a federal savings and loan association, when designated as a
depository fiscal agent of the United States, 12 U.S.C. § 1464(k) (1970),
is subject to direct regulation by the Secretary of the Treasury. See 12
C.F.R. § 545 (1977). The central role played by the members in the
affairs of credit unions thus finds no parallel among the associations.
33
restrictions on credit unions’ abilities to make mortgage
loans have been relaxed over time,*® the terms and condi-
tions governing such loans overall remain very different
from those applicable to federal savings and loan associa-
tions.*' Compare G.L. c. 171, § 24(B), with 12 U.S.C.
§ 1464(c). The state court recognized this fact. See J.S.
43-44 and n. 9, Mass. Adv. Sh. (1977) at 913-914 and n. 9,
363 N.E. 2d at 484 and n. 9.
The relationship between state-chartered credit unions
and federal savings and loan associations is not an issue of
first impression. Three state courts in addition to the
examined the question and all have found that credit unions
fall outside § 1464(h). First Fed. Sav. & Loan Ass'n v.
Connelly, 142 Conn. 483, 492, 115 A. 2d 455, 459 (1955),
*°In citing maximum permissible amounts a credit union may accept
The maximum deposits and loans which smaller credit unions are per-
mitted to accept and make are more limited. See M.G.L. c. 171, §§ 10,
24(A), 24(B) (West Supp. 1977, as amended by Mass. Stat. 1977, c. 15,
19, 20-24).
34
appeal dismissed for want of a substantial federal question,
350 U.S. 927 (1956); State v. Minnesota Fed. Sav. & Loan
Ass'n, 218 Minn. 229, 239-241, 15 N.W. 2d 568, 573-574
(1944); Manchester Fed. Sav. & Loan Ass'n v. State Tax
Comm'n, 105 N.H. 17, 19-21, 191 A. 2d 529, 531-532
(1963); see also United States v. State Tax Comm'n, 348 F.
Supp. 397, 400 (D. Mass. 1972), aff'd and modified, 481 F.
2d 963 (1st Cir. 1973); cf. La Caisse Populaire Ste. Marie v.
United States, 563 F. 2d 505, 507-509 (lst Cir. 1977).
These decisions reflect reasoned judgments about the basic
nature of credit unions, and should be followed here.**
2. Actual Operation of Credit Unions.
The Supreme Judicial Court concluded that the test of
“similarity” for purposes of § 1464(h) was what credit
unions and federal savings and loan associations do “in
fact,” rather than what they might do. J.S. 43, Mass. Adv.
Sh. (1977) at 913, 363 N.E. 2d at 484. Under this standard
the associations claim to have demonstrated actual competi-
tion between themselves and the Massachusetts credit
** There is a final consideration. Decisions of this Court concerning
12 U.S.C. § 548, the national bank tax provision, recognize that the
states have wide latitude in deciding how to treat a class of its own
state-chartered financial institutions for tax purposes. See, e.¢., Michi-
gan Natl Bank v. Michigan, 365 U.S. 467, 482 (1961); Bank of Re-
demption v. City of Boston, 125 U.S. 60, 67-68 (1888); Mercantile Bank
v. New York, 121 U.S. 138, 160-161 (1887). All conclude that the states
could reasonably exempt savings banks from taxes they imposed on the
national banks. The same principle applies to Massachusetts’ exemption
of credit unions from the tax under attack. Its determination is a
reasonable exercise of legislative judgment which should not be interfered
with by this Court, particularly since it is one which is shared by Con-
gress and most other states. See pp. 24-25, nn. 36, 37, supra.
unions (App. Br. at 39-41). The assertion is without
support. |
In making their claim of competition, appellants rely
heavily on statistics and data drawn from the Annual
Report of the Massachusetts Commissioner of Banks for
1973, Section B (“Annual Report”), filed with the Legisla-
ture (App. Br. 40-41). Most of this information was never
introduced as part of the record before the Supreme Judicial
Court,*? and therefore cannot be considered by this Court
in this case.** New Haven Inclusion Cases, 399 U.S. 392,
450 n. 66 (1970); Ciucci v. Illinois, 356 U.S. 571, 573
(1958); Hedgebeth v. North Carolina, 334 U.S. 806 (1948);
Sup. Ct. R. 36.
On the record that was before the state court, the associa-
tions failed to support their claim of discrimination, for they
did not make any showing of the extent, if any, to which
the two classes of institutions were in direct or actual
competition with each other.** As the state court ruled,
to the Supreme Judicial Court after oral argument; the appellees filed a
timely objection (A. 145). That court did not rule on the inclusion of
this evidence in the record, but its rules prohibit the inclusion absent
affirmative permission. Mass. R. App. P. 18, 365 Mass. 844, 864 (1974).
Since that permission was not forthcoming, the material should not be
considered as part of the record before this Court.
In addition, the associations’ brief contains references to other portions
of the Annual Report that were not submitted at any time to the Su-
preme Judicial Court.
associations, however, it is appropriate that the Court have before it the
entire Annual Report. To that end, defendants have filed a separate
Motion To Accept Material to Supplement Record, which pertains to
this Report.
** The only evidence in the record is « comparison of the percentages
of assets which credit unions and federal savings and loan associations
hold in various categories (A. 135-144). As the Supreme Judicial Court
36
such a showing was essential. J.S. 44, Mass. Adv. Sh.
(1977) at 914, 363 N.E. 2d at 484. See Michigan Nat
Bank v. Michigan, supra, 365 U.S. at 477, 482; First Nat7
Bank v. Louisiana Tax Comm'n, 289 U.S. 60, 64-65 (1933).
The associations fare no better if the selected statistical
evidence on which they now depend is considered. They
rely in large part on the real estate lending practices of 20
of the 370 credit unions (App. Br. 40). It is settled that
proof of discrimination must show the evil to exist on a class
basis; it is not enough merely to show that, in a limited
number of individual instances, competition might be
present. Tradesmens Natl Bank v. Oklahoma Tax
Comm'n, 309 U.S. 560, 568 (1940); see also Michigan Nat7
Bank v. Michigan, supra, 365 U.S. at 476. A factual
comparison by class negates appellants’ selective marshalling
of data and defeats their claim.**
In sum, appellants have not shown as a matter either of
law or of fact that credit unions are “similar” institutions
within the meaning of § 1464(h). They cannot escape the
Massachusetts franchise tax on this ground.
pointed out, examination of these figures simply serves to highlight the
difference in real estate activities of credit unions on the one hand and
savings and loan associations, cooperative banks, and savings banks on
the other. J.S. 44, Mass. Adv. Sh. (1977) at 913-914, 363 N.E. 2d
at 484.
**In 1973, the year on which the associations have focused, there were
370 credit unions in Massachusetts. Annual Report at 84. Their average
assets were 3.45 per cent of those held by federal savings and loan as-
sociations. Compare id. at 84 with A. 132. Of the 370 credit unions,
220, or 60 per cent, placed no real estate loans during 1973. Annual
Report at 46-79. The credit unions’ aggregate investments in real estate
loans were approximately 15 per cent of the savings and loan associations’
aggregate investments. Compare Annual Report at 84 with A. 132, 143.
37
III. Tue Tyre or Tax CHOSEN BY THE MASSACHUSETTS
LEGISLATURE — A FRANCHISE TAX MEASURED BY INCOME
— 1s AUTHORIZED BY 12 U.S.C. § 1464(h).
The Supreme Judicial Court found that the tax imposed
by § 11 is a franchise tax measured by income, a levy on
the privilege of doing business in the Commonwealth. J.S.
36, Mass. Adv. Sh. (1977) at 904-905, 363 N.E. 2d at 480.
The terms of § 1464(h) explicitly authorize states to impose
a “tax on such associations or their franchise . . .” (empha-
sis added). Although the meaning intended by Congress in
using the word “franchise” may be subject to independent
inquiry by this Court,*’ appellants have offered nothing in
legislative history or any other source to contradict the
judgment of the court below that the § 11 tax falls into a
category permitted by the explicit terms of § 1464(h).**
Therefore, the state court’s determination that the tax is
authorized by Congress should stand.*°
** Compare Macallen Co. v. Massachusetts, 279 U.S. 620, 626 (1929)
(independent inquiry required), with, e.g., Norton Co. v. Department
of Revenue, 340 U.S. 534, 538 (1951) (state construction conclusive as
long as constitutional). Cf. Gurley v. Rhoden, 421 U.S. 200, 208 (1975).
** Appellants contend that the tax cannot be considered a “franchise”
tax imposed on the privilege of doing business in Massachusetts, because
it contains no apportionment provision (App. Br. 50-52). This is not so.
The Court has recognized that state corporate franchise taxes may be
measured by a variety of objects, including property exempt from direct
taxation. See Educational Films Corp. v. Ward, 282 U.S. 379, 389-391
(1931); Bass, Ratcliff & Gretton, Ltd. v. State Tax Comm'n, 266 U.S.
271, 280-285 (1924). The real issue is not whether the tax may properly
be called a “franchise” tax, but whether the absence of an apportion-
ment provision violates the Commerce Clause or Due Process and Equal
Protection Clauses of the Fourteenth Amendment. These questions are
discussed below. See pp. 40-47, infra.
**The court below accepted the appellants’ general proposition that
the state tax should it within one of the categories listed in § 1464(h) to
38
The associations’ other objections offered on appeal fail to
raise any points which were not answered satisfactorily by
the state court. They contend that the measure of the tax
in § 11 is defective because it imposes only an income-
related tax on appellants, while state institutions pay both
an income- and deposits-related tax*° (App. Br. 48, 60-61).
As the Supreme Judicial Court correctly observed, “ [tJhis is
not a circumstance of which the associations properly may
complain,” because the statute obviously does not forbid
“discrimination ... in favor of Federal savings and loan
associations.” J.S. 37-38, n. 8, Mass. Adv. Sh. (1977) at
906, n. 8, 363 N.E. 2d at 481, n. 8.
Appellants also argue that if the § 11 tax is considered as
a tax on “income” within the meaning of § 1464(h), it is not
sanctioned by that section because the income taxed is not
truly “net income.” Their complaint is that Massachusetts
does not recognize distributions to association members as a
be valid. However, the concern of the statute is nondiscrimination.
The type of tax a state chooses bears no relation to that issue. Congress
may therefore have intended its list as illustrative rather than exhaustive,
to make the point that whatever the method of taxation, equality in
treatment should be observed. Such a reading would be in harmony
with Congress’ current treatment of national banks. See 12 U.S.C.
§ 548, quoted at p. 13, n. 13, supra. Under such a reading, appellants’
argument about the proper definition of the state tax would be academic.
*° The difference in measures is the result of United States v. State Tax
Comm'n, 481 F. 2d 963 (lst Cir. 1973), which enjoined application of
the deposits-based tax to federal associations. See p. 5, supra.
*' Additionally, appellants lack standing to make this argument. Data
Processing Service v. Camp, 397 U.S. 150, 152 (1970) (the first question
in standing is whether the challenged action has caused plaintiff injury
in fact, economic or otherwise); Sierra Club v. Morton, 405 U.S. 727,
734-735 (1972) (party seeking review of government policy must himself
be among those injured by it).
39
deduction from gross income® (App. Br. 52-58). The
argument founders on a false premise. Appellants imply
that either Congress or this Court has enacted a single, fixed
definition of “net income” which the states are obliged to
follow. This is not the case. The Court has recognized
that “net income” is not a worthy candidate for judicial
definition. It treats the term’s meaning as a policy issue;
net income is gross income less those exclusions or
deductions authorized by the taxing authority. Doyle v.
Mitchell Brothers Co., 247 U.S. 179, 183-187 (1918). Cf.
United States v. Kirby Lumber Co., 284 U.S. 1, 3 (1931).**
The adoption of a particular definition would introduce a
rigidity especially inappropriate in the tax area, where state
policy judgments are given wide latitude. Carmichael v.
Southern Coal Co., 301 U.S. 495, 509-510 (1937).*
**In the state court appellants treated their grievance about distribu-
tions primarily as a state law issue, arguing that such distributions
should be included in the term “operating expenses” in § 11. The court
disagreed. J.S. 35, Mass. Adv. Sh. (1977) at 903-904, 363 N.E. 2d at
480. This judgment on state law has not been appealed, and in any
event should be deemed conclusive. See Colonial Pipeline Co. v.
Traigle, 421 U.S. 100, 109 (1975).
** Expert tax commentators share the Court’s recognition of the futility
in trying to “capture the concept of income and confine it within a
phrase.” S. Surrey and W. Warren, The Income Tax Project of the
American Law Institute: Gross Income, Deductions Accounting, Gains
and Losses, Cancellation of Indebtedness, 66 Harv. L. Rev. 761, 771
(1953).
** Appellants endeavor to gain support for their preferred definition of
net income from accounting texts, an inadequate surrogate for legislative
history, especially in light of federalism principles supporting state judg-
ments on tax policy. See Butler Brothers v. McColgan, 315 U.S. 501,
507 (1942); cf. Ioan Allen Co. v. United States, 422 U.S. 617, 635
(1975).
40
IV. THe Associations’ COMMERCE CLAUSE ARGUMENT
Lacks SUPPORTING EVIDENCE AND IS CONTRADICTED BY THE
FUNDAMENTAL PRINCIPLE THAT A DOomMICILIARY CoRPo-
RATION Must SHARE THE Costs OF STATE GOVERNMENT.
The associations are all institutions domiciled in Massa-
chusetts. They have their home offices in Massachusetts,
and the record shows no branch office in any other state.
Further, the appellants have introduced no evidence whet-
ever that any of their income derives from activities outside
Massachusetts.
Such circumstances do not merit the attention of the
Commerce Clause. The fact of domicile,** coupled with an
absence of proof that out-of-state property or activities are
being taxed, disposes of the issue. This Court has without
exception held:
The obligation of one domiciled within a state to pay
taxes there, arises from unilateral action of the state
government in the exercise of the most plenary of sover-
eign pow<cs, that to raise revenue to defray the expenses
of government and to distribute its burdens equably
among those who enjoy its benefits. Hence, domicile
in itself establishes a basis for taxation. Enjoyment of
the privileges of residence within the state, and the
** Unlike labels which emphasize “draftsmanship and phraseology,”
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 281 (1977), domi-
cile imports a reasoned analysis of both the nexus between the taxpayer
and the state, and the benefits conferred on the taxpayer by the state.
Only in exceptional circumstances, not presented by the record in this
case, is domicile an insufficient foundation for taxation. See Standard
Oil Co. v. Peck, 342 U.S. 382, 383-384 (1952) (state cannot levy ad
valorem personal property tax on river barges lacking contact with the
state); but see Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 294-
295 (1944).
41
attendent right to invoke the protection of its laws, are
inseparable from the responsibility for sharing the costs
of government. Lawrence v. State Tax Comm'n, 286
U.S. 276, 279 (1932) (Stone, J.).
The Lawrence case concerned gn individual who brought a
due process challenge to his domiciliary state’s taxation of
income derived from activities elsewhere. The Court re-
jected the claim. Eleven years later, in Memphis Natural
Gas Co. v. Beeler, 315 U.S. 649 (1942), the Court (again
through Chief Justice Stone) applied parallel reasoning to
reject a corporation’s Commerce Clause attack op income
tax imposed by its state of “commercial domicile”:
[E]ven if taxpayer's business were wholly interstate
commerce, a nondiscriminatory tax by Tennessee upon
the net income of a foreign corporation having a com-
mercial domicile there ... is not prohibited by the
commerce clause on which alone taxpayer relies. 315
U.S. at 656.°*
** More recently, the Court has indicated that the cases which raise
substantial problems under the Commerce Clause involve nondomiciliary
taxpayers. In General Motors Corp. v. Washington, 377 U.S. 436, 441
(1964), the Court stated:
which the State has afforded. Where ... the taxing State is not
the domiciliary State, we look to the taxpayer's business activities
within the State . . . to determine ... “... whether the state has
given anything for which it can ask return” (quoting Wisconsin v.
].C. Penney Co., 311 U.S. 435, 444 [1940]) (emphasis added).
42
As with other domiciliaries, every federal savings and
loan association which is a party to this appeal bears a re-
sponsibility to “pay its way.” Postal Telegraph-Cable Co.
v. Richmond, 249 U.S. 252, 259 (1919). As long as the
center of activity is Massachusetts, income from business
with interstate elements may be taxed along with income
from purely intrastate business. General Motors Corp. v.
Washington, 377 U.S. 436, 439 (1964); Northwestern States
Portland Cement Co. v. Minnesota, 358 U.S. 450, 458-465
(1959); Northwest Airlines, Inc. v. Minnesota, 322 U.S.
292, 294-298 (1944); Matson Navigation Co. v. State Bd. of
Equalization of Calif., 297 U.S. 441, 443-444 (1936); Wis-
consin v. Minnesota Mining Co., 311 U.S. 452, 453 (1940);
Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113,
120 (1920); United States Glue Co. v. Oak Creek, 247 U.S.
321, 327 (1918).
Thus, even if the associations carried on interstate com-
merce, the tax imposed by § 11 would not be undermined.*’
Moreover, in this case the record contains no evidence that
interstate commerce is involved in the activities which are
taxed. The measure of the tax is each association’s net
operating income. The primary source of that income is
from interest paid by those who have borrowed money to
purchase real estate and build homes. See 12 U.S.C.
§ 1464(c). Appellants present no evidence as to how many,
if any, of these borrowers live outside Massachusetts. They
offer no proof that any of the loan transactions took place
*" It is axiomatic that the act of doing business in interstate commerce
does not relieve a corporation from its just share of the state tax burden
even though it increases the cost of doing business. Colonial Pipeline
Co. v. Traigle, 421 U.S. 100, 108 (1975); Western Live Stock v. Bureau
of Revenue, 303 U.S. 250, 254 (1938). See Complete Auto Transit, Inc.
v. Brady, supra, 430 U.S. at 288 (Court has rejected proposition that
interstate commerce is immune from taxation).
43
outside Massachusetts. Since the offices of the associations
are within the state, it is unlikely that loan transactions are
centered anywhere but Massachusetts. Appellants do pre-
sent evidence that a portion of their loans are secured by
out-of-state real estate (A. 134). But the tax is imposed on
income, not real estate, and the situs of the property is im-
material to Commerce Clause analysis.** The associations
have therefore failed to shoulder, much less carry, their
burden of proof.
This Court has left no doubt that it is the taxpayer who
must establish his case on the record:
The general rule, applicable here, is that a taxpayer
claiming immunity from a tax has the burden of es-
tablishing his exemption. Norton Co. v. Department
of Revenue, 340 U.S. 534, 537 (1951).
Accord, General Motors Corp. v. Washington, supra, 377
U.S. at 441; cf. Shaffer v. Carter, 252 U.S. 37, 55 (1920).
Similar practical principles dispose of appellants’ assertions
about multiple tax burdens. One danger in permitting any
state taxes on foreign corporations is that multiple taxes im-
posed by a number of states might, in cumulation, intrude
** Appellees recognize that Massachusetts has no power to impose a tax
on tangible property permanently located in another state. See North-
west Airlines, Inc. v. Minnesota, supra.
**In Norton Co. v. Department of Revenue, supra, the Court pointed
out that the appellants’ burden is not met by “showing a fair difference
of opinion which as an original matter might be decided differently. . . .
[W]e have power to examine the whole record to arrive at an inde-
pendent judgment as to whether constitutional rights have been invaded,
but that does not mean that we will re-examine, as a court of first in-
stance, findings of fact supported by substantial evidence.” 340 U.S. at
537-538.
44
impermissibly on interstate commerce. Western Live Stock
v. Bureau of Revenue, 303 U.S. 250, 256, 258 (1938); see
General Motors Corp. v. Washington, supra, 377 U.S. at
440. It is fear of multiple taxation which leads the Court
on occasion to insist that the state adopt a formula to ap-
portion income in such a way that only income related to
the taxpayer's business contacts in the state will be subject
to tax. Id. at 440-441. However, the Court does not ex-
press such fears or impose apportionment when the tax ema-
nates from the state of domicile and the subject of the tax
has not establsihed a “tax situs” elsewhere. Central Rail-
road Co. v. Pennsylvania, 370 U.S. 607, 612 (1962); cf.
Standard Oil Co. v. Peck, 342 U.S. 382, 384 (1952). In-
deed, a decision precluding state taxation of a domiciliary
corporation, solely on speculation that another state might
attempt to tax the same items, would serve to exempt a
corporation from any tax on its interstate operations.”
Such notions of immunity have long since been rejected.
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 288
(1977). Accordingly, this Court — emphasizing that it
“cannot deal in abstractions” — has held that when “[tJhere
is nothing to show that multiple taxation is present(,]” a
taxpayer's claim fails of proof. Northwestern States Port-
land Cement Co. v. Minnesota, supra, 358 U.S. at 463.
The associations have not shown that they are victims of
multiple taxation, or that they are likely to be.” Their
Here, as in Hawley v. City of Malden, 232 U.S. 1, 13 (1914):
The real ground of complaint ... is not that ... [income is]
taxed in one place rather than in another but that . . . [it is] taxed
at all... ..
"' The associations’ reliance on Brady v. John Hancock Mut. Life Ins.
Co., __. Miss. ___., 342 So. 2d 295 (1977), appeal dismissed for want
of a substantial federal question, ___. U.S. ___., 98 S. Ct. 32 (1977), is
45
claim that § 11 violates the Commerce Clause is without
merit and should be rejected.
V. Tue Associations’ Due Process anp Equa
PROTECTION CLAIMS ARE INSUBSTANTIAL.
Appellants’ arguments under the Due Process and Equal
Protection Clauses of the Fourteenth Amendment restate
prior claims, in different dress. They contend that appor-
tionment of income according to state of origin is compelled
misplaced. The tax in Brady was upheld on the basis of specific -evi-
dence in the record that the taxpayer, an insurance company, had offices
the taxpayer to justify the tax. See National Geographic Society v. Cali-
fornia Bd. of Equalization, 430 U.S. 551, 560 (1977); see also General
Motors Corp. v. Washington, supra, 377 U.S. at 442-446.
en OE RNS 1 SEED Op Sning
t
[t}he record is devoid of any information with respect to the con-
tacts and activities of any individual Federal savings loan as-
sociation in any other jurisdiction. J.S. 39, Mass. Adv. Sh. (1977)
at 908, 363 N.E. 2d at 482.
On this record the associations fall within the protective ambit of Na-
tional Bellas Hess, Inc. v. Department of Revenue, 386 U.S. 753, 754-
758 (1967), and Miller Bros. Co. v. Maryland, 347 U.S. 340, 341-342
(1954), and could not be taxed by a
46
by due process, but they offer no evidence that income can
be fairly allocated to any state other than Massachusetts.
Moreover, their claim fails on an independent ground. The
associations are domiciled in Massachusetts, and, as indi-
cated above, § 11 comes well within the taxing powers of a
domiciliary state. This Court has stated:
If . . . property has had insufficient contact with States
other than the owner’s domicile to render any one of
these jurisdictions a “tax situs,” it is surely appropriate
to presume that the domicile is the only State affording
the “opportunities, benefits, or protection” which due
process demands as a prerequisite for taxation... .
Central Railroad Co. v. Pennsylvania, 370 U.S. 607,
612 (1962) (citation omitted).
See Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292,
294 (1944).
A taxpayer has a heavy burden of proof in trying to over-
come the strong presumption favoring the taxing power of
the domiciliary state. It must, at a minimum, show that
the subject of the tax, here the interest from mortgage loans,
may be similarly taxed in another jurisdiction. Central
Railroad Co. v. Pennsylvania, supra. This appellants have
failed to do.
Finally, the associations assert, without great vigor, that
the deduction for required additions to guaranty funds
denies them equal protection of the laws. It is doubtful
that the record establishes any inequality, in practical effect,
sufficient to invoke a constitutional inquiry into the statute’s
rationality. See Lawrence v. State Tax Comm'n, 286 U.S.
276, 283-284 (1932). In any event, the discretion of the
states in setting tax policy is very broad. Lehnhausen v.
47
Lake Shore Auto Parts Co., 410 U.S. 356, 359-365 (1973).
The Massachusetts Legislature is to be afforded “the widest
possible latitude within the limits of the Constitution,” Car-
michael v. Southern Coal Co., 301 U.S. 495, 510 (1937),
for “in taxation, even more than in other fields, legislatures
possess the greatest freedom in classification.” Madden v.
Kentucky, 309 U.s. 83, 88 (1940). The challenged de-
duction reflects rational policymaking, not “a hostile and
oppressive discrimination against particular persons and
classes.” Id. Appellants’ equal protection claim is therefore
insubstantial.
Conclusion.
For the reasons presented above the Court should affirm
the judgment of the Supreme Judicial Court.
Respectfully submitted,
FRANCIS X. BELLOTTI,*
Attorney General,
S. STEPHEN ROSENFELD,
Assistant Attorney General,
JOHN E. BOWMAN, JR.,
Assistant Attorney General,
MARGOT BOTSFORD,
Assistant Attorney General.
* The assistance of Jill Nexon and Robert J. Baum, Class of 1978,
Boston College Law School, is gratefully acknowledged.
49
Statutory Appendix.
Trrte 12, Unrrep States Cope, § 1464(h) (1970).
(h) Exemptions from taxation.
No State, county, municipal, 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.
Revisep Statutes, § 5219, 44 Star. 223 (1926).
The legislature of each State may determine and direct,
subject to the provisions of this section, the manner and
place of taxing all the shares of national banking associations
located within its limits. The several States may (1) tax
said shares, or (2) include dividends derived therefrom in
the taxable income of an owner or holder thereof, or (3) tax
such associations on their net income, or (4) according to or
measured by their net income, provided the following con-
ditions are complied with:
(a) The imposition by any State of any one of the above
four forms of taxation shall be in lieu of the others, except
as hereinafter provided in subdivision (c) of this clause.
(b) In the case of a tax on said shares the tax imposed
shall not be at a greater rate than is assessed upon other
moneyed capital in the hands of individual citizens of such
State coming into competition with the business of national
banks: Provided, That bonds, notes, or other evidences of
indebtedness in the hands of individual citizens not em-
ployed or engaged in the banking or investment business
and representing merely personal investments not made in
50
competition with such business, shall not be deemed mon-
eyed capital within the meaning of this section.
(c) In case of a tax on or according to or measured by the
net income of an association, the taxing State may, except
in case of a tax on net income, include the entire net in-
come received from all sources, but the rate shall not be
higher than the rate assessed upon other financial corpora-
tions nor higher than the highest of the rates assessed by the
taxing State upon mercantile, manufacturing, and business
corporations doing business within its limits: Provided, how-
ever, That a State which imposes a tax on or according to
or measured by the net income of, or a franchise or excise
tax on, financial, mercantile, manufacturing, and business
corporations organized under its own laws or laws of other
States and also imposes a tax upon the income of individuals,
may include in such individual income dividends from
national banking associations located within the State on
condition that it also includes dividends from domestic
corporations and may likewise include dividends from na-
tional banking associations located without the State on
condition that it also includes dividends from foreign corpo-
rations, but at no higher rate than is imposed on dividends
from such other corporations.
(d) In case the dividends derived from the said shares are
taxed, the tax shall not be at a greater rate than is assessed
upon the net income from other moneyed capital.
2. The shares of any national banking association owned
by non-residents of any State, shall be taxed by the taxing
district or by the State where the association is located and
not elsewhere; and such association shall make return of
such shares and pay the tax thereon as agent of such non-
resident shareholders.
3. Nothing herein shall be construed to exempt the real
property of associations from taxation in any State or in any
51
subdivision thereof, to the same extent, according to its
value, as other real property is taxed.
4. The provisions of section 5219 of the Revised Statutes
of the United States as heretofore in force shall not prevent
the legalizing, ratifying, or confirming by the States of any
tax heretofore paid, levied, or assessed upon the shares of
national banks, or the collecting thereof to the extent that
such tax would be valid under said section.
(Approved, March 25, 1926.)
Mass. Gen. Laws ANN. c. 63, § 11 (West 1977).
Every savings bank as defined in chapter one hundred
and sixty-eight, every cooperative bank as defined in chapter
one hundred and seventy and every state or federal savings
and loan association located in the commonwealth shall pay
to the commissioner an annual excise equal to the following:
(a) on or before the twenty-fifth day of the seventh month
of the taxable year, there shall be paid (1) six hundred
twenty-seven one thousandths per cent of a reasonable esti-
mate of its net operating income, as hereinafter defined, for
the taxable year, and (2) one-sixteenth of one per cent of
the average amount of its deposits or of its savings accounts
and share capital for the first six months of the taxable year,
after deducting from such average amounts (i) its real estate
used for banking purposes, valued at cost less reasonable
depreciation, and (ii) the unpaid balances on its loans se-
cured by the mortgage of real estate taxable in this com-
monwealth, or real estate situated in a state contiguous to
the commonwealth, and within a radius of fifty miles of the
main office of such bank or association, and in the case of a
bank or association not previously subject to tax by the
commonwealth the unpaid balances on such of its loans
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secured by the mortgage of real estate located outside of the
commonwealth which are outstanding on March first, nine-
teen hundred and sixty-six, both as of the close of such six-
month period; and
(b) on or before the twenty-fifth day of the first month
following the close of the taxable year, there shall be paid
(1) one and two hundred fifty-four one thousandths per
cent of its net operating income, as hereinafter defined, for
the taxable year, less the estimated amount previously paid
with respect to such income, and (2) one-sixteenth of one
per cent of the average amounts of its deposits or of its
savings accounts and share capital for the second six months
of the taxable year, after deducting from such average
amount (i) its real estate used for banking purposes, valued
at cost less reasonable depreciation, and (ii) the unpaid
balances on its loans secured by the mortgage of real estate
taxable in this commonwealth, or real estate situated in a
state contiguous to the commonwealth, and within a radius
of fifty miles of the main office of such bank or association,
and in the case of a bank or association not previously
subject to tax by this commonwealth the unpaid balances
on such of its loans secured by the mortgage of real estate
located outside of this commonwealth which are outstanding
on March first, nineteen hundred and sixty-six, both as of
the close of the taxable year.
For the purpose of this section, “net operating income”
shall mean gross income from all sources, without exclusion,
for the taxable year, less (i) operating expenses, (ii) net losses
upon assets sold, exchanged or charged off as uncollectible
during the taxable year, and (iii) minimum additions during
the taxable years to its guaranty fund or surplus required by
law or the appropriate federal and state supervisory au-
thorities; and “taxable year” shall mean any fiscal or calen-
dar year or period for which the bank is required to make a
53
return to the federal government. Federal and state taxes
paid or accrued during the taxable year shall not be de-
ductible in computing “net operating income”.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.