Petition — County of St. Louis v. Federal Land Bank of St. Paul
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No._83:- 1348 |
IN THE
Supreme Court of the Anite
OCTOBER TERM, 1983 —
IN THE MATTER OF THE PROCEEDINGS TO ENFORCE
PAYMENT OF THE TAX ON MINERAL INTERESTS
ASSESSED PURSUANT TO MINN. STAT. § 273.13, SUB-
DIVISION 2a, AND REMAINING DELINQUENT ON THE
FIRST MONDAY IN JANUARY, 1977, 1978 AND 1979,
— COUNTY OF ST. LOUIS, STATE OF MINNE-
COUNTY OF ST. LOUIS, STATE OF MINNESOTA,
and
MINNESOTA CHIPPEWA TRIBE,
Petitioners,
v.
THE FEDERAL LAND BANK OF *
PETITION FOR WRIT OF CERTIORARI
TO THE
MINNESOTA SUPREME COURT
HUBERT H. HUMPHREY III
Attorney General
State of Minnesota
PHILIP J. OLFELT
Assistant Attorney General
375 Centennial Building
St. Paul, MN 55155
Tel. No. (612) 296-8294
Counsel of Record
ALAN L. MITCHELL
St. Louis County Attorney
MICHAEL R. DEAN
Assistant St. Louis County
Attorney
501 St. Louis County
Courthouse
Duluth, MN 55802
Tel. No. (218) 726-2323
Attorneys for County of
St. Louis, State of Minnesota
TUPPER, SMITH &
MATTSON
KENT P. TUPPER, Esq.
P.O. Box 160
Walker, MN 56484
Tel. No. (218) 547-1711
Attorneys for Minnesota
Tribe
eo ie ——— Go SET Gm oh. ot Pal, Mien SORSL — m7
QUESTION PRESENTED FOR REVIEW
Does 12 U.S.C. § 2055, which exempts Federal Land Banks
from all federal, state and local taxes other than those on
real estate, prohibit a fair, non-discriminatory tax on Land
Bank real estate assessed by state or local governments if that
tax is not strictly and mathematically related to value?
The Minnesota Supreme Court, Justice Yetka dissenting,
ruled in the affirmative and reversed the Minnesota Tax
Court.
PARTIES TO THE PROCEEDING
County of St. Louis, State of Minnesota and Minnesota
Chippewa Tribe (Petitioners).
Federal Land Bank of St. Paul (Respondent).
TABLE OF CONTENTS
Question Presented for Review ....................
Parties to the Proceeding ......... nir
Table of Contents o
Table of Authorities R
r a re ee RE a aS
Opinions Below .
Jurisdictional Statement
Statement of the Case
. e
B. Statutory, Administrative, and Judicial History
of Minnesota’s Tax on Severed Mineral Interests
Argument for Granting the Writ
A. Legislative History Supports Minnesota’s Fair,
Non-Discriminatory Taxation of the Federal
Land Bank’s Severed Mineral Interests
B. Minnesota’s Tax of $.25 Per Acre on Severed
Mineral Interests is Sufficiently Related to the
Value of Those Interests to Satisfy 12 U.S.C.
%% ĩ [
C. The Majority Opinion in St. Louis County Fails
to Consider the “Golden Rule” of Statutory Inter-
pretation That Unreasonable Interpretations Are
to be Rejected in Favor of Reasonable Alterna-
„ atbadeecwddeka wat
10
18
* ~
Appendix
Page
St. Louis County, State of Minnesota, and Minnesota
Chippewa Tribe v. The Federal Land Bank of
St. Paul; Minn. Sup. Ct., October 7, 1983,
ee RE I in hes ba BRR c esi enh Sere |
St. Louis Cty. et al. v. Federal Land Bank of
St. Paul, Nov. 16, 1983; Minn. Supreme Court
Order denying petition for rehearing .......... A-12
St. Louis Cty. et al. v. Federal Land Bank of
St. Paul, Minnesota Tax Court, Findings,
Conclusions & Order for Judgment,
D 3-0 cael aba wea bebin ctw. Peco. ae
St. Louis County et al. v. Federal Land Bank of
St. Paul, Minnesota Tax Court Order,
,,,, ⅛ͤ L?Vꝛ s. A-22
St. Louis Cty. et al. v. Federal Land Bank of
St. Paul, Minnesota Tax Court Order for
Summary Judgment, July 23, 190 A-27
Federal Land Bank Answer in St. Louis o
Tax Delinquency Proceedings, and Letter of
rr nd b oa pe odbc atone ve ate A-36
Contos, et al. v. Herbst, et al. (Minn. 1979),
,,, . Wika Sic A-40
Minnesota Statutes 1982, Section . A -72
Minnesota Statutes 1982, Section 272.09 4-75
Minnesota Statutes 1982, Section 272.04,
r n 4-77
Minnesota Statutes 1982, Section 273.18,
. A A-77
Minnesota Statutes 1982, Section 298. 2% A878
ili
TABLE OF AUTHORITIES
Page
Cases:
United States Supreme Court:
Bells Gap R. Co. v. Pennsylvania,
r 8, Cain aa Sp es aealank ess be ass 16
Federal Election Comm., et al. v. Nat’l Right to
Work Comm., et al., —— U.S. ——, 74 L.Ed.2d
864, 103 S.Ct. —— (Dec. 18, 1982) ............. 17, 29
Federal Land Bank of St. Paul v. Bismarck
Lumber Co., 314 U.S. 96 (1941) ................ 9
Federal Land Bank of Wichita v. Bd. of County
Comm’rs., 368 U.S. 146 (19617777 9
First Agricultural Nat'l Bank of
Berkshire County v. State Tax Comm.,
eS ER Se ne ae 27
Lehnhausen v. Lake Shore Auto Parts Co.,
410 U.S. 356 (1973) C 16
Ohio Oil Co. v. Conway,
22 r 16
Reconstruction Finance Corp. v. Beaver Co., Pa.,
0% „„ „„ „„ re 2, 4, 17, 25, 28
Federal Distriet Courts:
Coleman, et al. v. Block, et al.,
D. C. N. D., S. W. Div. No. Al-83-47, May 5, 1988 26
State Supreme Courts:
Contos v. Herbst, 278 N. W. 2d 782 (Minn.),
appeal dismissed sub nom. Prest v. Herbst,
444 U.S. 804, 62 L.Ed.2d 17, 100 S.Ct. 24 (1979) . passim
Federal Land Bank of St. Paul v. North Dakota,
274 N. W. ad 580 (N. D. 1979) ................... 9
St. Louis County, State of Minnesota, and
Minnesota Chippewa Tribe v. The Federal
Land Bank of St. Paul, 338 N. W. 2d 741
, ͤũ rSwũwn cscs sch wee 1,4
St. Louis County, et al. v. Federal Land Bank
of St. Paul (Minn. Sup. Ct. Order denying
petition for rehearing, Nov. 16,1983) .......... 1
Other Courts:
St. Louis County, et al. v. Federal Land Bank
of St. Paul (Minn. Tax Court Findings,
Conclusions & Order for Judgment,
NG 5 ee ae . . .I, 7, 8, 18.
St. Louis County, et al. v. Federal Land Bank
of St. Paul (Minn. Tax Court Order,
Oct. 31, 1980) r 2,7
St. Louis County, et al. v. Federal Land Bank
of St. Paul (Minn. Tax Court Order for
Summary Judgment, July 23, 1980)
Statutes and Rules:
Federal Statutes:
e te Cie eee on Conte
12US.C.§1488............. .
aer...
12 U.S. C. 5 2055
e vbe's sso Walbugh eons ee
15 U.S.C. § 610 3
. 1 «ons ee basdru ug Ue Svewiay sue
,,,, vires denis’ b o.ce P40 w 0c Oa" 2
Farm Credit Act of 1971 (Pub. L. No. 92-181,
A 11
Federal Farm Loan Act of 1916, Act of July 17,
1916, ch. 245, 39 Stat. 30 8, 11
Federal Rules:
nch cee ene 30
Minnesota Statutes:
1973 Minn. Laws, ch. 650, art. 20 (codified as
Minn. Stat. §§ 272.039, 272.04, subd. 1, and
,,, ̃ WW 5
r . ee es 5
r one Soro. we dea cesbp on 3, 5, 25
Minn. Stat. § 272.04, subd.1 J. 3, 5
Minn. Stat. § 273.13, subd. 2 3, 5, 6, 20
, ẽũ ÜͤůRn t 3, 27
Congressional Materials:
53 Cong. Rec. 6798 (1916) ............ 1 3
53 Cong. Rec. 6966 (191) 13
, :: 13
58 Cong. Rec. 7806 (1916) ....................... 12
53 Cong. Rec. 10104 (1916) ...................... 13
117 Cong. Rec. 27992 (1971) ..................... 14
Report of the Senate Subcommittee on Agricultural
Credit and Rural Electrification on S. 1488,
the Farm Credit Act of 1971, in Relation to
Hearings Held on May 17, 18, and 20,1971 ....... 14
Treatises:
Sutherland, Statutory Construction (4th ed.) 23, 24
vi
-
<
°
SS a e a „„ ˙ OE Cs Coe ee ee *
STATUTES INVOLVED
Federal Statutes
12 U.S.C. § 2055. Taxation
Every Federal land bank and every Federal land bank asso-
ciation and the capital, reserves, and surplus thereof, and the
income derived therefrom shall be exempt from Federal, State,
municipal, and local taxation, except taxes on real estate held
by a Federal land bank or a Federal land bank association to
the same extent, according to its value, as other similar
property held by other persons is taxed. The mortgages held
by the Federal land banks and the notes, bonds, debentures,
and other obligations issued by the banks or associations shall
be deemed and held to be instrumentalities of the Government
of the United States and, as such, they and the income there-
from shall be exempt from all Federal, State, municipal, and
local taxation, other than Federal income tax liability of the
holder thereof under the Public Debt Act of 1941 (section
742(a) of Title 31).
Pub.L. 92-181, Title I, § 1.21, Dec. 10, 1971, 85 Stat. 590.
Minnesota Statutes involved in this petition and repro-
duced in the Appendix are:
Minn. Stat. § 1163.64 ....... 3 A-72
v A-15
Minn. Stat. § $72.04, eubd.1 .............0.:... A-7T
Minn. Stat. § 273.18, subd. 2 A-TT
Be NS A.. ⁰˙ ͤ—:˙Vu ˙ cee A-78
vii
* * 2 * . Pie ge:
IN THE
Supreme Court of the Anited States
OCTOBER TERM, 1983
IN THE MATTER OF THE PROCEEDINGS TO ENFORCE
PAYMENT OF THE TAX ON MINERAL INTERESTS
ASSESSED PURSUANT TO MINN. STAT. § 273.13, SUB-
DIVISION 2a, AND REMAINING DELINQUENT ON THE
FIRST MONDAY IN JANUARY, 1977, 1978 AND 1979,
FOR THE COUNTY OF ST. LOUIS, STATE OF MINNE-
SOTA.
COUNTY OF ST. LOUIS, STATE OF MINNESOTA,
and
MINNESOTA CHIPPEWA TRIBE,
Petitioners,
v.
THE FEDERAL LAND BANK OF
PETITION FOR WRIT OF CERTIORARI
TO THE
MINNESOTA SUPREME COURT
OPINIONS BELOW
The official reports and unreported opinions delivered in
the courts below are:
St. Louis County, State of Minnesota, and Minnesota Chip-
pewa Tribe v. Federal Land Bank of St. Paul, 8388 N.W.2d
741 (Minn., Oct. 7, 1983). Appendix A-1
Petition for reargument denied, Nov. 16, 1988. Appendix
A-12
St. Louis County, State of Minnesota, and Minnesota Chip-
pewa Tribe v. Federal Land Bank of St. Paul. Minnesota
Tax Court; Findings, Conclusions, and Order for Judg-
ment, March 19, 1982. Appendix A-13
St. Louis County, State of Minnesota and Minnesota Chip-
pewa Tribe v. Federal Land Bank of St. Paul. Minnesota
Tax Court Order, Oct. 31, 1980. Appendix A-22
St. Louis County, State of Minnesota, and Minnesota Chip-
pewa Tribe v. Federal Land Bank of St. Paul. Minnesota
Tax Court Order for Summary Judgment, July 23, 1980.
Appendix A-27
As noted above, all of the above opinions are reproduced
in the Appendix.
JURISDICTIONAL STATEMENT
This petition for writ of certiorari is for review of the
judgment of the Minnesota Supreme Court entered Oct. 7,
1983; petition for reargument denied November 16, 1983.
Jurisdiction of the Supreme Court is conferred by Title 28,
Sections 1257(3) and 2101(c) of the United States Code.
A substantial federal question exists when the issue before
the Court is whether a state law authorizing the taxation of
certain property as real property is included within the scope
of a federal statute authorizing state and local taxation of
real property owned by a federal instrumentality. Recon-
struction Finance Corporation v. Beaver County, Pa., 328
U.S. 204, 66 S.Ct. 992, 90 L.Ed. 1172 (1946). The wording
of 12 U.S.C. § 2055, the federal statute at issue in the present
case, is virtually identical to the wording of 15 U.S.C. § 610,
the federal statute at issue in the Reconstruction Finance
Corporation case, which provided that “any real property”
of the Reconstruction Finance Corporation or its subsidiaries
“shall be subject to State, Territorial, County, municipal, or
local taxation to the same extent according to its value as
other real property is taxed”. (Emphasis added)
8
STATEMENT OF THE CASE
A. Summary.
Minnesota law authorizes local governments to impose a
tax of $.25 per acre on real property interests known as
“severed mineral interests“. In 1979 the Minnesota Supreme
Court upheld the constitutionality of this tax in a challenge
brought by United States Steel Corporation and others in a
case entitled Contos, et al. v. Herbst, et al., 278 N.W.2d 732
(Minn., Jan. 1979), rehearing denied, March 18, 1979; here-
after referred to as “Contos” (Appendix A-40). An appeal of
that decision to the United States Supreme Court was dis-
missed in the fall of 1979, sub nom. Prest v. Herbst, 444 US.
804. Notwithstanding the Contos decision, the Federal Land
Bank of St. Paul subsequently challenged the $.25 per acre tax
as that tax was assessed against severed mineral interests
owned by the Bank. This petition arises out of that challenge.
A mineral interest in real estate which is “severed” is de-
fined as an interest in minerals which is owned separately
and apart from the fee title to the surface of such réal
property. For Minnesota real estate tax purposes, severed
mineral interests which are not subject to taxation under
any of the other elements of Minnesota’s mineral classifica-
tion and tax system are subject to an annual tax of $.25 per
acre.? As so classified, this $.25 per acre tax is a tax of last
resort. .
In the fall of 1983, the Minnesota Supreme Court,
Justice Yetka dissenting, struck down the $.25 per acre sev-
ered mineral tax in all instances where it had been assessed
“1 Minn, Stat. §§ 272.039, 272.04, subd. 1, and 273.13, subd. 2a (1982)
(Appendix A-75-A-77).
2 Minn. Stat. § 273.13, subd. 2a (1982) (Appendix A-77).
4
in Minnesota against real estate owned by the Federal Land
Bank of St. Paul. St. Louis County, State of Minnesota, and
Minnesota Chippewa Tribe v. Federal Land Bank of St. Paul,
838 N.W.2d 741 (Minn., Oct. 7, 1983), hereafter referred
to as “St. Louis County” (Appendix A-1). On November 16,
1983, the Minnesota Supreme Court denied a petition for
rehearing requested by St. Louis County, the State, and the
Chippewa Tribe (Appendix A-12). As will be discussed in
greater detail below, although the Minnesota Supreme Court
agreed with the Tax Court that the $.25 per acre tax was
fair and that it was applied without discrimination to both
federal land bank property and to non-bank property, the
supreme court reversed the Tax Court solely because the
supreme court interpreted the federal statute in question,
12 U.S.C. § 2055, as mandating that local taxes assessed
against federal land bank real estate must be strictly related
to value, “ad valorem”, in order to be valid. The supreme
court ruled the $.25 per acre tax to be “outside the letter
of the waiver” of tax exemption under § 2055 (St. Louis Co.,
Appendix A-6). The exemption found by the Minnesota
Supreme Court is a statutory exemption, not a constitutional
exemption. The narrow interpretation placed by the court
upon the waiver of tax exemption for federal land bank real
estate found in 12 U.S.C. § 2055 severely limits the authority
of local governments to tax real estate, the primary tax base
for local government. This is a substantial question of federal
law which should be settled by the United States Supreme
Court. Reconstruction Finance Corporation v. Beaver County,
Pa., 328 U.S. 204, 66 S.Ct. 992, 90 L.Ed. 1172 (1946). This
petition is requested for the purpose of reversing the decision
of the Minnesota Supreme Court in the St. Louis County case.
—
Pan.”
1
* . 5 * A 2 svt ~ a
ä a,” 8 . : oe ib. 2 a4 a. N 3 — a ee ee
133 . i / CR ee See
B. Statutory, Administrative, and Judicial History of
Minnesota’s Tax On Severed Mineral Interests.
The $.25 per acre tax on severed mineral interests was
authorized by the Minnesota Legislature in 1973.“ The tax
is levied by local taxing districts.‘ It was first levied in 1975
and first became payable in 1976. Revenues from the tax are
apportioned to local taxing districts located wituin the area
taxed in the same proportion as a taxing district’s surface
interest mill rate bears to the total surface mill rate for the
area,® except for 20 percent of the total revenue which is
deposited in a special account in the state treasury called the
“Indian business loan account”.* This account was created
by the 1973 act for the purposes of making business loans
to American Indians. The Minnesota Chippewa Tribe is a
party to this litigation because of its ongoing interest in
the integrity of this business loan account. The Federal Land
Bank of St. Paul refused to pay the $.25 per acre tax on its
severed mineral interests owned in St. Louis County when
the tax became payable in 1976 and has refused to pay each
year since. The Land Bank owns approximately 484,000 acres
of severed mineral interests in 85 of Minnesota’s 87 counties,’
and similarly has refused to pay the tax in all other counties
where assessed.
In October of 1974, after enactment of the tax but shortly
before it was first assessed in 1975, the dax was challenged
in St. Louis County district court on constitutional and other
Minn. Laws 1973, ch. 650, art. 20. The tax provisions of that act
have been coded primarily as Minn. Stat. §§ 272.039, 272.04, subd.
1, and 273.13, subd. 2a, all of which are reprinted in the Appendix.
4 Minn. Stat. §§ 272.04 and 273.13, subd. 2a (Appendix A-77).
5 Minn. Stat. § 273.13, subd. 2a (Appendix A-77).
Minn. Stat. § 1163.64 (Appendix A-72).
7 St. Louis County, Appendix As. The Bank owns no severed min-
eral interests in Nobles or Waseca Counties.
grounds by United States Steel Corporation, Burlington
Northern, Inc., Boise Cascade Corporation, First and North-
western National Banks of Minneapolis, and by other corpo-
rate and individual plaintiffs in the Contos case, supra. After
exhaustive hearing, argument, and briefing in both the dis-
trict and supreme courts, the $.25 per acre tax on severed
mineral interests was upheld in all respects by the Minnesota
Supreme Court. In Contos the Minnesota Supreme Court
affirmed a district court judgment which ruled, among other
things, (1) that the $.25 per acre tax was valid in all respects;
(2) that all severed mineral interests had value as real prop-
erty interests, no matter where located; and (3) that the tax
validly implemented the public purpose stated in Minn. Stat.
§ 272.039 of plugging a tax loophole that had created “a class
of property having some value [that] was not paying its
proportionate share of taxes,” Contos, Appendix A-53.
The Federal Land Bank of St. Paul chose to stand apart
from the Contos litigation. Instead, it refused to pay the $.25
per acre tax and allowed its 484,000 acres of severed mineral
interests throughout the state to become tax-delinquent. How-
ever, to forestall tax-forfeiture of these mineral interests, it
filed an Answer in tax delinquency proceedings with the
district court of each county in which forfeiture proceedings
had been commenced, requesting that such proceedings be
postponed until Contos was finally decided. Its Answer to
St. Louis County tax delinquency proceedings was contained
in a letter dated April 29, 1977, addressed to the Clerk of
St. Louis County District Court, (Appendix A-36). Essentially
the same letter and Answer was sent to all other district
courts. The Answer admits the tax delinquency but asserts
two defenses: (1) unconstitutionality of the tax, and (2)
statutory exemption under 12 U.S.C. § 2055, because the real
7
estate tax in question is not strictly “ad valorem.” Delay was
requested because of the pending decision in Contos. When the
United States Supreme Court dismissed the Contos appeal in
late 1979, tax delinquency proceedings against the Bank were
reinstated in various counties throughout the state, and the
Bank chose to use the St. Louis County delinquency proceed-
ing as a test case. The matter was transferred by the district
court for St. Louis County to the Minnesota Tax Court for
trial. There the Bank was permitted to relitigate all of the
constitutional questions decided in Contos as well as assert its
defense based on its claim of statutory exemption. The Minne-
sota Chippewa Tribe joined St. Louis County and the state
in opposing the Bank’s effort to escape the tax, which by
then was being paid by all other owners of severed mineral
interests. The Minnesota Tax Court, after exhaustive pro-
ceedings, issued three significant orders: July 23, 1980 (Ap-
pendix A-27) ; October 31, 1980 (Appendix A-22) ; and March
19, 1982 (Appendix A-13). In these successive orders and asso-
ciated memoranda the Tax Court rejected all of the Bank’s
arguments and defenses, including its claim of statutory
exemption under 12 U.S.C. § 2055. In sum, the Tax Court
ruled as follows: (1) that the tax was constitutional in all
respects, as was determined by the Contos courts (see, espe-
cially, July 23, 1980 and Cctober 31, 1980 Orders); (2) that
severed mineral interests owned by the Land Bank of St. Paul
had value as a real property right, no matter where located
in Minnesota, the same as was held in Contos (see, especially,
March 19, 1982 Order) ; and (3) that the Bank acquired these
mineral interests by first foreclosing on defaulted farm mort-
gage loans it had made to rural residents and then by retain-
ing the mineral interests when it resold the foreclosed farms,
thus “severing” the mineral interests from the surface. The
.
Tax Court found that this policy of severing and retaining
mineral interests was adopted by Bank directors with the
hope of ultimately recovering all or a part of these losses
(on defaulted loans) through eventual mineral development”
and that in recent years these mineral interests were never
sold back to surface owners, except in extremely rare cir-
cumstances (see, especially, March 19, 1982 Findings, Order
and Judgment); and (4) that 12 U.S.C. § 2055 “read in its
entirety indicates a congressional intent to have Federal land
banks pay all local real estate taxes on the same basis and
to the same extent that other owners are taxed” and further
that § 2055 does not compel or contemplate a result which
“would give Federal land banks a special immunity from
non-discriminatory real estate taxes,” (July 23, 1980, Order
and Memo, page 7).
Upon the Bank’s appeal of the adverse rulings of the Tax
Court to the Minnesota Supreme Court, that court agreed
with substantially all of the Tax Court determinations de-
scribed above. For example, the supreme court found that
the Bank “has neither pleaded nor proved that the tax on
severed mineral interests . . . discriminates against the Bank.“
Nor has the Bank convinced us that the ta is unfair. Indeed
we agree that the nondiscriminatory taz in question ought
to be deemed to come within the basic spirit of the congres-
sional waiver of immunity from taæ contained in 12 U.S.C.
49
The Federal Land Bank of St. Paul, as a federally chartered farm
mortgage lending institution organized under the Federal Farm
Loan Act of 1916 (Act of July 17, 1916, Ch. 245, 39 Stat. 360) and
operating in Minnesota, Michigan, North Dakota, and Wisconsin,
is owned by 55 member banks called “association banks”, which
in turn are owned by stockholders who are borrowers from the
association banks. Net profits flow through the Federal Land
Banks of St. Paul and its member banks to the stockholders in
the form of dividends or lower interest rates on loans.
9
§ 2055.” St. Louis County, Appendix A-7; (emphasis added).
The supreme court then went on to state (there being no
known precedents under g 2055)“ that the clause “according
to its value” in § 2055 limits state and local taxes on Land
Bank property to “ad valorem” taxes; that is, those taxes
directly and precisely related to the value of the property,
an element the court found absent in the case of this extremely
modest $.25 per acre tax.
Your Petitioners urge this Court to reject this unprece-
dented, and narrow interpretation of § 2055 for reasons first
expressed by the Minnesota Tax Court and then succinctly
summarized in the supreme court by Justice Yetka, in his
dissent, quoted in its entirety below:
YETKA, Justice (dissenting).
I dissent. I believe the minimum tax per acre is an ad
valorem tax. I see no necessity that an ad valorem tax
be a perfect tax—one based exactly according to market
value. It would be difficult for the state to measure the
value of minerals on each parcel without drilling and
testing. Therefore, it sets a minimum tax per acre on
* There is no disagreement that Minnesota’s $.25 per acre tax on
severed mineral interests is a tax on real estate. None of the
reported decisions relating to Federal land banks involve taxes
on real estate. The following taxes, none of which were real
estate taxes, were struck down by the courts as being within
the scope of prohibited taxes described in 12 U.S.C. § 2055 or
similar statutes: (1) State royalty tar on gas and oil produced
from mineral estates owned by a Federal land bank, Federal
Land Bank of St. Paul v. North Dakota, 274 N.W.2d 580 (N. D.
1979); (2) State sales tar on building materials bought to repair
and improve mortgage foreclosed buildings owned by a Federal
land bank, Federal Land Bank of St. Paul v. Bismarck Lumber
Co., 314 U.S. 95 (1941); (3) State personal property taz on oil and
gas leases, and royalties derived therefrom, relating to property
owned by a Federal land bank, Federal Land Bank of Wichita v.
Bd. of County Commrs., 368 U.S. 146 (1961).
10
those reserving such minerals. Presumably, in reserving
minerals, the owner is recognizing some value. When the
tax is not discriminatory and is for such a modest amount,
I believe it is reasonable to read section 2055 as per-
mitting the state to collect the tax.
St. Louis County v. Federal Land Bank, Appendix A-11.
ARGUMENT FOR GRANTING THE WRIT
A. LEGISLATIVE HISTORY SUPPORTS MINNESOTA’S
FAIR, NON-DISCRIMINATORY TAXATION OF
FEDERAL LAND BANK SEVERED MINERAL
INTERESTS.
Federal land banks are exempt from federal, state, munici-
pal, and local taxation except taxes on real estate, pursuant
to 12 U.S.C. § 2055, which reads as follows:
Every Federal land bank and every Federal land bank
association and the capital, reserves, and surplus thereof,
and the income derived therefrom shall be exempt from
Federal, State, municipal, and local taxation, except taxes
on real estate held by a Federal land bank or a Federal
land bank association to the same extent, according to
its value, as other similar property held by other persons
is tazed. The mortgages held by the Federal land banks
and the notes, bonds, debentures, and other obligations
issued by the banks or associations shall be deemed and
held to be instrumentalities of the Government of the
United States and, as such, they and the income there-
from shall be exempt from all Federal, State, municipal,
and local taxation, other than Federal income tax lia-
bility of the holder thereof under the Public Debt Act
of 1941 (section 742(a) of Title 31).
11
(Emphasis added) Although this language was enacted by
the Farm Credit Act of 1971 (Public Law 92-181, Title I,
§ 1.21, 85 Stat. 590), it is a re-enactment of language con-
tained in section 26 of the Federal Farm Credit Act of 1916
(Act of July 17, 1916, ch. 245, 39 Stat. 360, § 26).
Congressional debate surrounding both the 1916 and 1971
enactments demonstrate, without qualification, that Federal
land bank real estate is subject to fair, non-discriminatory
real estate taxation. Neither the Minnesota Supreme Court
majority in the St. Louis County case nor the Federal Land
Bank of S. Paul have produced any legislative history to
support their conclusion that the only valid real estate tax
which may be assessed against Federal land bank real estate
under § 2055 is one which is strictly “ad valorem.” On the
contrary, congressional debate in both 1916 and 1971 focused
on the question of whether the benefits conferred upon Fed-
eral land banks through tax exemption are outweighed by
the harm done to other segments of the economy, all the while
assuming state and local taxation of Federal land bank real
estate.
The legislative history of the Federal Farm Loan Act of
1916 is illustrative. The Senate bill, S. 2986, section 29,
granted tax exemption to Federal land banks, except for real
estate taxes. Sen. Dillingham, Vermont, warned against the
dangers of tax exemption as follows:
If the amount of mortgages, we will say, in the next 10
years is to double and one class of them is to be exempted
from taxation, which must run from 1 to 2 percent, it
will be seen at a glance that anybody in competition with
this system will suffer extremely.
I do not know how it is in other sections of the country,
but in New England I think our taxes average from
12
1-1/2 to 2 percent, and if they stand at either the figures
I have given, this aggregation— that is the aggregation
provided by this bill—it seems to me, will be able to
drive all others out of business, and we will find a double
cause of trouble in it from the fact that we will be taking
money from the people in the form of taxes, the benefit
of which they have a right to enjoy. It will take a large
amount of property out of taxation, and when that is
taken out other classes in the community will have to
pay the deficit that has thus been created. In addition
to that, it is a direct attack upon established institutions
in which there has been invested a vast accumulation of
money.
53 Cong. Rec. 6798 (1916).
Senator Cummins, Iowa, stated that if Congress exempted
property from state taxation and if it did so for all govern-
ment functions, it would never create such corporations since
to do so
would withdraw from taxation throughout the country
so large a proportion of its real wealth that the sugges-
tion becomes intolerable, it would not be considered for
a single moment.
53 Cong. Rec. 7306 (1916).
Senator Hollis, New Hampshire, made the following com-
ments in regard to non-exemption of real estate:
We buy from the citizens of a State, from the owners, a
certain tract of land, and we put up a post-office building
on it. That is exempt from taxation. That is discrimina-
tion against every other piece of real estate that does
pay taxes, but we do it and we could do it here. If it
seems wise to Congress in establishing a useful instru-
mentality—one that will exist and be powerful enough
13
to be of some service to the Government — Congress may
exempt its real estate if it wants to, but I think that
would be very poor policy.
53 Cong. Rec. 6966 (1916) (emphasis added). Senator Hollis
later commented that mortgage foreclosed property would be
subject to real estate taxes under the Senate bill. 53 Cong.
Rec. 7021 (1916).
In the House, the bill under consideration also granted tax
exemption, except for real estate taxes. A conference com-
mittee appointed to consider differences between the Senate
and House bills made the following report in regard to tax
exemptions:
The Senate accepts the House provision permitting the
local taxation of real property of joint stock banks, and
it is further agreed that the real property of Federal
land banks and national farm loan associations may be
subject to local tazation.
53 Cong. Rec. 10104 (1916) (emphasis added). Nowhere does
this contemporaneous legislative history surrounding the
enactment of the Federal Farm Loan Act of 1916 hint that
only “ad valorem” local real estate taxes would satisfy this
provision.
In 1971, the debate surrounding the enactment of the Farm
Credit Act of 1971 followed a similar pattern. Senator Tal-
madge, on behalf of the Committee on Agriculture and
Forestry, led the debate on S. 1483 on the floor of the Senate.
He made the following comment concerning tax exemption
for the Federal land banks:
[T]he question of the taxation of the Federal land banks
was raised during the hearings. The committee weighed
carefully the evidence related to taxation and reserve
14
requirements, both of which remained unchanged in the
act. After examining these concerns, the committee con-
cluded that the problem raises committee jurisdictional
questions, but that it would be appropriate for the Fi-
nance Committee to undertake a separate review of the
tax and reserve obligations of the land banks to determine
equitable treatment as compared to other lending institu-
tions.
117 Cong. Rec. 27992 (1971) (emphasis added).
The questions referred to by Sen. Talmadge were those
raised by the private financial community. The Report of
the Senate Subcommittee on Agricultural Credit and Rural
Electrification on S. 1483, the Farm Credit Act of 1971, in
relation to hearings held on May 17, 18, and 20, 1971, contains
at page 451 a letter from E. A. Jaenke, the Governor of the
Farm Credit Administration, to Subcommittee Chairman Sen.
McGovern, dated May 28, 1971, which contains the following
response to the concerns of the private financial community:
Criticism: The Independent Bankers Association of
America, the American Bankers Association, the Mort-
gage Bankers Association of America, the American
Life Commission, and the Life Insurance Association of
America all raised questions regarding the taxation of
the Federal land banks and their reserve requirements
as compared with those of other lending institutions.
Comment: The taxation of the Federal land banks
and their related reserve requirements should not be an
issue in this legislation. The Farm Credit System has
assured Senator Russell B. Long and Congressman Wilbur
Mills, chairmen of their respective tax-writing commit-
tees, and assures this committee, of its willingness to
testify when these committees consider tax legislatica.
15
However, it is appropriate that an explanation of the
tax exemption and reserve requirements is rendered since
the question was raised.
From the beginning, both the Federal land banks and
Federal land bank associations have been exempt from
Federal, state and local taxes, except for state and local
taxes imposed on real property. * * *”
Report, p. 459 (emphasis added).
As with the 1916 legislation, this contemporaneous legisla-
tive history surrounding the enactment of the Farm Credit
Act of 1971 nowhere suggests that only “ad valorem” local
real estate taxes would satisfy § 2055, which was expressly
stated to be a continuation of the 1916 enactment. Farm
Credit Governor Jaenke’s statement that Federal land banks
do, in fact, pay state and local taxes on real estate, as con-
tained in his letter to Senator McGovern (the letter in which
he justified other tax exemptions for Federal land banks)
contains no qualifiers, no reservations, and no shadings of
meaning. It amounts to a straightforward promise to pay
state and local real estate taxes in consideration of retaining
the Federal land banks’ existing tax exemptions.
Governor Jaenke and members of the Congress took the
only practical and responsible position available to them in
regard to state and local taxes on Federal land bank property.
They all knew in 1971 that the thousands of state and local
real estate taxing authorities levied a wide variety of real
estate taxes; some were strictly and mathematically related
to value, i. e., “ad valorem”; others were not; and still others
were somewhere in between.
Furthermore, Congress as well as state and local taxing
authorities knew in 1971 that the United States Supreme
Court had made it clear for many years, in no uncertain terms,
that the Court did not favor federal policy which requires or
16
mandates states to impose strict “ad valorem” real property
taxes. Exactly the opposite is true; wide latitude is granted
to state and local taxing authorities when they impose fair,
non-discriminatory taxes.
The States in the exercise of their taxing power, as with
respect to the exertion of other powers, are subject to
the requirements of the due process and the equal pro-
tection clauses of the Fourteenth Amendment, but that
Amendment imposes no iron rule of equality, prohibiting
the flexibility and variety that are appropriate to schemes
of taxation. The State may tax real and personal property
in a different manner. It may grant exemptions. The
State is not limited to ad valorem taxation. It may impose
different specific taxes upon different trades and pro-
fessions and may vary the rates of excise upon various
products. In levying such taxes, the State is not required
to resort to close distinctions or to maintain a precise,
scientific uniformity with reference to composition, use
or value. To hold otherwise would be to subject the
essential taxing power of the State to an intolerable
supervision, hostile to the basic principles of our Govern-
ment and wholly beyond the protection which the general
clause of the Fourteenth Amendment was intended to
Ohio Oil Co. v. Conway, 281 U.S. 146, 159 (1930) (emphasis
added). Similar language appears in decisions as old as Bells
Gap R. Co. v. Pennsylvania, 134 U.S. 232 (1890), and as new
as Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356
(1978). The Court in Ohio Oi Co. v. Conway, supra, went on
to rule that
the State was not required to grade its tax with a nicety
which would assign to every oil produced a grade abso-
lutely corresponding to its actual value. That would mean
17
that the State could tax only on a strictly ad valorem
basis, a contention wholly inadmissible.
281 U.S. at 161 (emphasis added).
The effect of the rule adopted by the majority in the
St. Louis County case is, in the words of the United States
Supreme Court in Ohio Oil Co., to subject the essential taxing
power of the State [of Minnesota] to an intolerable supervi-
sion, hostile to the basic principles of our Government and
wholly beyond the protection which the general clause of the
Fourteenth Amendment was intended to ensure.“ Consistent
with the above principle, the Contos court specifically found
that real estate taxes in Minnesota have not been required to
be strictly ad valorem” since 1906. (Appendix A-55)
The rule adopted by the majority is also contrary to the
rule of Reconstruction Finance Corporation, supra as reaf-
firmed on December 13, 1982, in Federal Election Commis-
sion, et al. v. National Right to Work Committee, et al.,.
U.S. ——, 51 U.S.L.W. 4087, 4039, 74 L.Ed.2d 364, 373, 103
S. Ct. —— by a unanimous court speaking through Justice
Rehnquist:
“. . [Where Congress had authorized state taxation of
‘real property’ of subsidiaries of the Reconstruction
Finance Corporation, the Court said:
‘We think the congressional purpose can best be ac-
complished by application of settled state rules as to
what constitutes ‘real property’ so long as it is plain,
as it is here, that the state rules do not effect a dis-
crimination against the Government, or patently run
counter to the terms of the Act.’ Reconstruction Fi-
nance Corporation v. Beaver County, Pa., 328 U.S. 204,
210, 90 L.Ed. 1172, 66 S.Ct. 992 (1946).”
18
From all of the above, it is clear that Congress never in-
tended 12 U.S.C. § 2055 to prohibit Minnesota’s fair, non-
discriminatory $.25 per acre tax on severed mineral interests.
B. MINNESOTA’S TAX OF $.25 PER ACRE ON SEV-
ERED MINERAL INTERESTS IS SUFFICIENTLY
RELATED TO THE VALUE OF THOSE INTERESTS
TO SATISFY 12 U.S.C. § 2055.
12 U.S.C. § 2055 permits local taxes on Federal land bank
real estate to the same extent, according to its value, as other
similar property held by other persons is taxed”.
As previously mentioned, the Minnesota Tax Court ruled
that the $.25 per acre severed mineral tax was validly applied
to Bank owned severed mineral interests under 12 U.S.C.
§ 2055. In so ruling, the Tax Court relied upon the Contos
decision, which upheld the constitutionality of the $.25 per
acre tax on severed mineral interests in all respects. In its
decision in Contos, the Minnesota Supreme Court firmly
established that severed mineral interests not otherwise taxed
are valuable property rights. In Contos, U.S. Steel and other
plaintiffs owned over 1 million acres of severed mineral in-
terests scattered throughout the state. The Contos court af-
firmed district court findings related to value of severed
mineral interests as follows:
“. . . [T]he district court found that every mineral in-
terest in Minnesota has some value as a property interest
regardless of its location, although the value of mineral
interests may vary from one part of the state to another.”
Contos, (Appendix A-51.) (emphasis added);
(2) “[t]aken together with the district court’s finding
that every mineral interest has some value as a property
19
interest regardless of its location, the uniform tax im-
posed on severed mineral interests represents a reason-
able exercise of the legislature’s authority to tax a class
of real property that has escaped taxation.”
Contos, (Appendix A-56.) (emphasis added) ;
(3) tjhe record clearly establishes that severed min-
eral interests were not paying any taxes, that some sev-
ered mineral interests were created to avoid ad valorem
taxation, and that severed mineral interests have some
value. The legislature’s response, which assures that all
severed mineral interests will pay at least some taz, is
not unreasonable as an exercise of its power to tax.”
Contos, (Appendix A-57, note 5.) (emphasis added).
The Minnesota Tax Court, in its March 19, 1982 Order
granting summary judgment against the Bank and affirming
the $.25 per acre on 484,000 acres of Bank-owned severed
mineral interests scattered throughout the State, made the
following findings:
“18. The present policy of the Bank is never to sell it
severed mineral interests [acquired through foreclosure
of farm mortgages] except in situations where refusal
would work undue hardship or release would be to the
Bank’s advantage, and then only for valuable considera-
tion.
14. Since 1978 the Bank has received a low of $100
for 682 acres in Clay County ($.15 per acre), to a high
of $100 for two acres in Kandiyohi County ($50 per
acre) for selling or releasing mineral rights.
15. Since March 1975 the Bank has had a policy of
never selling severed mineral interests for less than $1.25
per acre.
17. Every mineral interest has some value as a prop-
erty right regardless of its location, although the value
of an interest in one part of the state may vary from
that in another.” Tax Court Order, March 19, 1982,
Appendix A-16.
The Tax Court then concluded that its finding that every
mineral interest owned by the Bank has some value, brings
the case within Contos, and that the mineral interests are
therefore “fully subject to tax under Minn. Stat. § 273.13,
subd. 2(a)”. Tax Court Order, March 19, 1982, Appendix A-17.
It is important to notice that the $.25 per acre tax is assessed
under the terms of § 273.13, subd. 2a, only if no other mineral
tax has been imposed on the mineral interest. The portion
of the Contos opinion upon which the Tax Court was relying
described the interrelationship between severed mineral in-
terests valued and taxed under § 273.13, subd. 2(a), and
mineral interests valued and taxed under other laws, as
follows:
“A class of property [severed mineral interests] having
some value was not paying its proportionate share of
taxes. The remedy chosen by the legislature was to tax
mineral interest on a uniform basis, which is but one
part of the general system of mineral taxation. The tax
is imposed only on those mineral interests not “valued
and taxed under other laws relating to the taxation of
minerals, gas, coal, oil or other similar interest.” Minn.
Stat. 273.13, subd. 2a.” Contos, Appendix A-53.
In short, the Contos court recognized, first of all, that severed
mineral interests not otherwise taxed possess value as an
interest in real property and then, secondly, approved of
classifying these interests in a separate, minimum tax, classi-
fication.
21
In the instant case, (St. Louis County), the Minnesota
Supreme Court majority nowhere expressly disagrees with
the Tax Court or the Contos court in regard to any of the
above. In fact it specifically agrees that no discrimination
has been pleaded or proved against the Bank, that no unfair-
ness has been found, and “that the nondiscriminatory tax in
question ought to be deemed to come within the basic spirit
of the Congressional waiver of immunity from tax contained
in 12 U.S.C. § 2055”. St. Louis County, 338 N.W.2d 743,
Appendix A-6. The majority disagrees with the Tax Court
solely because it believes that § 2055 requires that local real
estate taxes must be strict “ad valorem” taxes and that the
$.25 per acre is tax is not such a tax. The difficulty with
the majority’s position is that § 2055, as written, does not
impose such a strict standard; rather, it is the technical
interpretation placed upon the statute by the majority that
imposes the standard. The Contos opinion relied upon by the
Tax Court openly recognized that severed mineral interests
included within the minimum value class established by
§ 273.13, subd. 2(a), were not valued on a purely “ad valorem”
basis, but that the values of these interests were, neverthe-
less, sufficiently related to value to justify the tax, considering
the practical taxing difficulties involved:
“. . . [T]he district court found that most severed min-
eral interests cannot be assessed for ad valorem property
tax purposes for two reasons:
“*(1) The value of the mineral in the ground can
only be determined by prohibitively expensive ezxplora-
tion such as drilling and drill core analysis; and
“*(2) Data currently available to assessors on sales
and exchanges of the property rights in mineral estates
(i.e., severed mineral interests) is very limited. There-
fore, in most cases such available data is insufficient to
permit the derivation of market values for individual
severed mineral interests from the sales prices or values
of comparable interests.” Contos, (Appendix A-50.) (em-
phasis added).
By so affirming this floor for mineral taxation in Minne-
sota, the Contos opinion relied upon by the Tax Court did no
basic violence to the concept of “ad valorem” taxation.
In contrast, the majority in the present case, in rigidly
insisting upon “ad valorem” taxation for severed mineral
interests not otherwise taxed, gives no reason other than
the “plain language” canon of interpretation for rejecting
the tax. The majority makes no attempt to justify the ab-
surdity of requiring local governments to spend hundreds
of dollars on mineral interest valuation experts, or thousands
of dollars on drilling and drill core analysis, on a tract of
Bank owned severed minerals to prove what already has
been proven; namely that the tract is worth at least $1.25
per acre pursuant to Bank policy of never selling for less
than that amount, and occasionally selling for up to $50
per acre. Minn. Tax Court, Order, March 19, 1982, Findings
14 and 15 (Appendix A-16). In fact, the basic valuation
principle the Bank applies to its severed mineral interests
is that they are too valuable to sell because of the Bank’s hope
of “eventual mineral development” of their interests. Minn.
Taz Court, Order, March 19, 1982, Findings 12 and 15,
(Appendix A-16). No more valuation information than this
is necessary to satisfy § 2055.
In the circumstances described above, the Federal Land
Bank of St. Paul has no basis for complaint. In the words
of the majority, the Bank’s stockholders are being treated
“fairly” and “non-discriminatorily” in all respects; just the
same as U.S. Steel stockholders or Allison Contos in Contos.
—_
The Bank, therefore, is not entitled to the majority’s judicially
created tax exemption based on technicality. To do so de-
prives local governments and Minnesota Indians of sorely
needed revenue and grants the Bank unfair competitive ad-
vantage over other lending institutions, results never intended
by Congress in enacting § 2055.
C. THE MAJORITY OPINION IN ST. LOUIS COUNTY
FAILS TO CONSIDER THE “GOLDEN RULE” OF
STATUTORY INTERPRETATION THAT UNREA-
SONABLE INTERPRETATIONS ARE TO BE RE-
JECTED IN FAVOR OF REASONABLE ALTERNA-
TIVES.
Sutherland, Statutory Construction, 4th Ed., Volume 2A,
states that “reasonableness” is the foundation for statutory
interpretation :
§ 45.12. Reasonable interpretation.
It has been called a golden rule of statutory interpreta-
tion that unreasonableness of the result produced by one
among alternative possible interpretations of a statute
is reason for rejecting that interpretation in favor of
another which would produce a reasonable result. (Cita-
tions omitted) It is said to be a “well established prin-
ciple of statutory interpretation that the law favors
rational and sensible construction” (Citations omitted).
Sutherland, in regard to the “literal” or “plain language”
rule chosen by the St. Louis County majority in the present
case, makes the following observation:
. . » Declarations in favor of literal or plain“ meanings
often are accompanied by disclaimers that statutes have
been construed in arriving at meanings which are so
characterized. (Citations omitted) As further explained,
24
in the language of a court, if. . . the intention of the
legislature is perfectly clear from the language used,
rules of construction are not to be applied.” (Citations
omitted) Statements of that nature imply that literal or
plain meanings are meanings which are arrived at by
considering nothing outside or beyond the “letter” or the
statute itself. What seems to be suggested is that, when
he uses the approach of literalism, a judge puts on
blinders, so to speak, in order to obscure from view
everything but just the tert of the statute whose effect
on the matter at issue is in question.. Sutherland, Vol.
2A, § 46.02 Literal Meaning, p. 52.
Sutherland goes on to describe the limits of “literalism” in
the following terms:
. . . The literal interpretation of the words of an act
should not prevail if it creates a result contrary to the
apparent intention of the legislature and if the words
are sufficiently flexible to admit of a construction which
will effectuate the legislative intention. The intention
prevails over the letter, and the letter must if possible
be read so as to conform to the spirit of the act. “While
the intention of the legislature must be ascertained from
the words used to express it, the manifest reason and
obvious purpose of the law should not be sacrificed to
a literal interpretation of such words.” (Citations
omitted) Sutherland, Vol. 2A, § 46.07 Limits of Literal-
ism, p. 65.
In its analysis of the language of § 2055, the St. Louis
County majority, after admitting that the $.25 per acre tax
“ought to be deemed to come within the basic spirit of the
Congressional waiver of immunity” from state and local real
estate taxation contained in § 2055, obscures from its view
everything but the “plain language” of the statute. The
majority then reaches a conclusion that produces the follow-
ing unreasonable results: ;
(1) The majority rejects a local real estate tax that it
finds to be fair and non-discriminatory. In so doing it rejects
the obvious interpretation, made by both the Tax Court and
the dissent in St. Louis County, that all that § 2055 requires
is that the tax be fair and nondiscriminatory. The majority
decision is contrary to this Court’s interpretation of similar
language in Reconstruction Finance Corp. v. Beaver Co.
(supra). Furthermore, the majority reasoning fails to recog-
nize the fact that the $.25 per acre tax is related to value
because the tax is applied only to those severed minerals that
are included in the minimum value class, which is the tax
class of last resort when no other mineral tax has been as-
sessed. The majority opinion does not even consider the
alternative possibilities that the words “according to its value”
may be intended to prohibit local real estate taxes based solely
on income derived from the property, or that the words may
be disregarded as mere surplusage;
(2) The opinion of the majority is unreasonable because
the effect of the opinion, in order to validly tax severed
minerals under § 2055, is to require the Minnesota legislature
to enact a new severed mineral tax law which requires precise
mathematical “ad valorem” valuation of these property in-
terests, a task the legislature has already found to be impos-
sible, for all practical purposes, (Minn. Stat. § 272.089, Ap-
pendix A-75). Such a result is not favored by this Court under
Reconstruction Finance Corp. (supra):
“To permit the states to tax, and yet to require them to
alter their long standing practice of assessments and
collections, would create the kind of confusion and resul-
tant hampering of local tax machinery which we are cer-
tain Congress did not intend”. 328 U.S. 210 (emphasis
added).
*
26
(3) Because of the practical impossibilities of precisely
valuing severed mineral interests for “ad valorem” tax pur-
poses, the majority opinion effectively deprives local govern-
ments of real property tax base consisting of 484,000 acres
of severed mineral] interests, thus eliminating another source
of badly needed revenue for local governments and Minnesota
Indians. In addition, this expanded exemption from local
real estate taxation provides the Federal land banks with an
additional competitive advantage over other lending institu-
tions. Both of these consequences were viewed with disfavor
in legislative debate surrounding enactment of the law;
(4) By depriving local governments of 484,000 acres of
severed mineral interest tax base, the majority opinion un-
fairly shifts a tax burden imposed non-discriminatorily on
Federal land bank property to other real estate taxpayers.
The ironic result of such a shift is to add to the tax burden
of other rural taxpayers such as farmers who are struggling
to fend off federal loan foreclosures. Here it should be noted
that on May 5, 1983, a federal district court in Bismark, N. D.,
in an unreported opinion, issued a temporary injunction which
prevented the Farmers Home Administration from foreclos-
ing on any more farm mortgages. Coleman et al. v. Block, et al.,
D.C.N.D., S. W. Div. No. Al-83-47;
(5) The majority’s conclusion that the words “according
to its value” permits only strict “ad valorem” taxes is an
unreasonably narrow interpretation that serves as adverse
precedent for statutes containing similar language, such as
12 USC § 1433 (federal home loan banks), 12 USC § 1723
a(c)(1) (government national mortgage associations); and
12 U.S.C. § 3019 (a) (National Consumer Cooperative Bank).
(6) The majority opinion casts doubt on other local real
estate taxes that are not strictly “ad valorem” that are as-
sessed against real estate owned by the Bank. In Minnesota,
27
these include § 298.26, the tax on property interests containing
deposits of taconite ore, which provides a $10 per acre
mazimum tax, if less than 1,000 tons of iron ore concentrates
are not produced from a 40 acre tract in a year. Appendix A-78.
From all of the above it is clear that the majority decision
is unreasonable and therefore violates the “golden rule” of
statutory interpretation.
CONCLUSION
In First Agricultural National Bank of Berkshire County,
Mass. v. State Tax Comm., 392 U.S. 389 (1968) the U.S.
Supreme Court disallowed a state sales and use tax imposed
on purchases of personal property by a national bank. The
statute in question, 12 U.S.C. § 548, was at that time worded
almost identically to 12 U.S.C. § 2055. Notwithstanding the
fact that the tax was a sales tax and the property was not
real estate, Mr. Justice Marshall expressed his dissatisfaction
with the situation as follows:
“(T]he implied immunity of one government and its
agencies from taxation by the other should, as a principle
of Constitutional construction, be narrowly restricted.
For the expansion of the immunity of the one govern-
ment correspondingly curtails the sovereign power of
the other to tax, and when that immunity is invoked
by the private citizen it tends to operate for his benefit
at the expense of the taxing government and without
corresponding benefit to the government in whose name
the immunity is claimed.” 392 U.S. 362, 88 S.Ct. 2185.
Justice Marshal pointed out the similarities between federally
chartered national banks and state banks and then concluded
that the waiver of tax exemption under § 548:
“was ‘merely designed to insure that the inherent taz-
ing powers which were recognizéd in” that case—‘e.g.,
the power to tax the real property of the banks as well
as the privately owned shares—be exercised in a non-
discriminatory fashion’ (case cited)”. (emphasis added)
892 U.S. 362, 88 S.Ct. 2185.
The present case is almost identical to Reconstruction Fi-
nance Corp. v. Beaver County, Pa. (supra), where this Court
unanimously affirmed the Beaver County real property tax on
defense plant machinery, under 15 U.S.C. § 610, a statute
worded virtually the same as 12 U.S.C. § 2055, but which
expressly prohibited local taxes on personal property :
„. . . Congress in permitting local taxation of the real
property, made it impossible to apply the law with uni-
form tax consequences in each state and locality. For the
several states, and even the localities within them, have
diverse methods of assessment, collection, and refunding.
Tax rates vary widely. To all of these variable tax con-
sequences Congress has expressly subjected the “real
property” of the Defense Plant Corporation. In view of
this express provision the normal assumption that Con-
gress intends its law to have the same consequences
throughout the nation cannot be made. Furthermore,
Congress, had it desired complete nationwide uniformity
as to tax consequences, could have stipulated for fixed
payments in lieu of taxes, as it has done in other statutes.
(footnote omitted) Nor can we see how application of a
local rule governing what is “real property” for tax pur-
poses would impair the Congressional program for the
production of war materials any more than the program
would be impaired by the action of Congress in leaving
the fixing of rates of taxation to local communities.
We think the Congressional purpose can best be ac-
complished by application of settled state rules as to what
constitutes “real property” so long as it is plain, as it is
here, that the state rules do not effect a discrimination
29
*
against the government, or patently run counter to the
terms of the Act. Concepts of real property are deeply
rooted in state traditions, customs, habits, and laws. Local
tax administration is geared to those concepts. To permit
the states to tax, and yet to require them to alter their
longstanding practice of assessments and collections,
would create the kind of confusion and resultant hamper-
ing of local tax machinery which we are certain Congress
did not intend, The fact that Congress subjected Defense
Plant Corporation’s properties to local taxes to the same
extent according to its value as other real property is
taxed” indicated an intent to integrate Congressional
permission to tax with established local tax assessment
and collection machinery.
. Affirmed.”
$28 U.S. 209. (emphasis added.) The basic principle of the
R.F.C. case has recently been reaffirmed in Federal Election
Commission, et al. v. National Right to Work Committee, et al.,
— U.S. —, 51 U.S.L.W. 4037, 74 L.Ed.2d 364, 103 S.Ct. —.
In the present case, there is no dispute that the $.25 per
acre severed mineral tax is a tax on real estate. As with Contos
plaintiffs, the Bank has severed and reserved its mineral inter-
ests for the purpose of realizing profits on future mineral de-
velopment. As in Contos, profits from Bank operations inure
to the benefit of private stockholders. The majority of the
Minnesota Supreme Court below, in St. Louis County, de-
termined that the tax was fair, nondiscriminatory, and
recognized that it was in keeping with the spirit of the tax
waiver of § 2055, but rejected the tax. If the majority’s deci-
sion is allowed to stand, local governments and Minnesota
Indians will be deprived of sorely needed revenue, and the
Bank will be granted an unfair competitive advantage over
other lending institutions, results never intended by Congress
in enacting § 2055. Under all of these circumstances, the
30
majority opinion below deserves to summarily reversed under
U.S. Sup. Ct. Rule 23, 28 U.S. C. A.
Your petitioners respectfully request that this petition for
a writ of certiorari be granted.
February 9, 1984.
HUBERT H. HUMPHREY III
Attorney General
State of Minnesota
PHILIP J. OLFELT
Assistant Attorney General
875 Centennial Building
St. Paul, MN 55155
Tel. No. (612) 296-3294
Counsel of Record
ALAN L. MITCHELL
St. Louis County Attorney
MICHAEL R. DEAN
Assistant St. Louis County
Attorney
501 St. Louis County
Courthouse
Duluth, MN 55802
Tel. No. (218) 726-2323
Attorneys for County of
St. Louis, State of Minnesota
TUPPER, SMITH &
MATTSON
KENT P. TUPPER, Esq.
P.O. Box 160
Walker, MN 56484
Tel. No. (218) 547-1711
Attorneys for Minnesota
Chippewa Tribe
INDEX TO APPENDIX
: Page
St. Louis County, State of Minnesota, and Minnesota
Chippewa Tribe v. The Federal Land Bank of St. Paul;
Minn. Sup. Ct., Oct. 7, 1983, 338 N.W.2d 741 ....... A-1
St. Louis Cty. et al. v. Federal Land Bank of St. Paul,
Nov. 16, 1983; Minn. Supreme Court Order denying
% esas de cet ðͤ aves 0% A-12
St. Louis Cty. et al. v. Federal Land Bank of St. Paul
Minnesota Tax Court, Finding, Conclusions & Order
for Judgment, March 19, 19122 A-13
St. Louis County et al. v. Federal Land Bank of
St. Paul, Minnesota Tax Court Order,
,,,, ² y A-22
St. Louis Cty. et al. v. Federal Land Bank of St. Paul
Minnesota Tax Court Order for Summary Judgment,
r . . A-27
Federal Land Bank Answer in St. Louis County
Tax Delinquency Proceedings, and Letter of
r, kee peer eee» bce ie 3. moma A-36
Contos, et al. v. Herbst, et al. (Minn. 1979)
,,,, eae A-40
Minnesota Statutes 1982, Section 116J.64 .......... A-72
Minnesota Statutes 1982, Section 272.0 999 A-15
Minnesota Statutes 1982, Section 272.04,
, Ace ete Pact 6s ʃ—»— A-T7
Minnesota Statutes 1982, Section 273.13,
SRE ̃ —. aig clap ae eT A-77
Minnesota Statutes 1982, Section 298.26 ..__—s... . A-78
A-l
APPENDIX
In the Matter of the Proceedings to Enforce Payment of the
Tax on Mineral Interests Assessed Pursuant to Minn. Stat.
§ 278.18, Subdivision 2a, and Remaining Delinquent on the
First Monday in January, 1977, 1978, and 1979, for the
County of St. Louis, State of Minnesota.
COUNTY OF ST. LOUIS,
Respondent,
and
MINNESOTA CHIPPEWA TRIBE,
Respondent,
C8-82-630, C4-82-846
v.
THE FEDERAL LAND BANK OF ST. PAUL,
Relator (C3-82-630),
Appellant (C4-82-846).
Nos. C3-82-630, C4-82-846.
Supreme Court of Minnesota.
Oct. 7, 1983.
In tax enforcement proceedings, Federal Land Bank claimed
exemption from state severed mineral interest tax. The Tax
Court upheld the tax as applied to the Federal Land Bank.
On review by certiorari, the Supreme Court, Coyne, J., held
that federal statute governing waiver of immunity from tax
on real estate held by Federal Land Bank precluded imposi-
tion of the severed mineral interest tax on the Federal Land
Bank, in that the tax was not an ad valorem tax.
A-2
Reversed.
Yetka, J., dissented with opinion.
* * 7 * —
Syllabus by the Court
A flat per- acre or per- interest tax on severed mineral in-
terests, even though it is a nondiscriminatory tax on real
estate, is not nondiscriminatory “according to its value” and
therefore does not come within Congress’ express waiver of
the immunity of a Federal Land Bank from state taxes, 12
U.S. C. § 2055.
Dorsey & Whitney, William J. Hempel, John W. Windhorst,
Jr., and Bruce Schnider, Minneapolis, for appellant, relator.
Hubert H. Humphrey, III, Atty. Gen., C. Paul Faraci,
Deputy Atty. Gen., Philip J. Olfelt, Asst. Atty. Gen., St. Paul,
for respondent State of Minn.
Alan L. Mitchell, County Atty., and Michael R. Dean, Asst.
County Atty., Duluth, for County of St. Louis.
Tupper, Smith & Mattson, Kent P. Tupper, Walker, for
respondent Minnesota Chippewa Tribe.
Heard, considered and decided by the court en banc.
COYNE, Justice.
This case involves a challenge by the Federal Land Bank of
St. Paul (the Bank“) to taxes assessed under Minn. Stat.
§ 273.13, subd. 2a (1982) by several counties on severed min-
eral interests held by the Bank. The Bank claims that it is ex-
empt from the tax for two reasons: (1) the tax is not a tax on
real estate “according to its value,” and the Bank is therefore
exempt under a federal statute (12 U.S.C. § 2055); and (2)
the tax is unconstitutional notwithstanding this court’s dec
sion in Contos v. Herbst, 278 N.W.2d 782 (Minn.), appeal
dismissed sub nom. Prest v. Herbst, 444 U.S. 804, 100 S.Ct.
A-3
24, 62 L.Ed.2d 17 (1979). The Minnesota Tax Court upheld
the tax as applied to the Bank, and the Bank appealed. We
reverse on the basis of the federal statute and therefore do
not reach the constitutional issue.
The Bank refused to pay the taxes assessed for the years
1975, 1976, and 1977 on its severed mineral interests in land
in St. Louis County' and filed answers in the district court
under Minn. Stat. § 279.15 (1982). The proceedings were
transferred to the tax court under Minn. Stat. § 271.01, subds.
5 and 6 (1982). The state and the county (hereinafter “the
state”) appeared on behalf of enforcement of the tax. The
Minnesota Chippewa Tribe subsequently intervened in the
tax court proceedings as an interested party .?
Both the Bank and the state moved for summary judgment.
On July 23, 1980, the tax court ordered summary judgment
for the state, finding that the Bank was not exempt under
11 U.S.C. § 2055 and that any constitutional challenge was
disposed of by Contos. On the Bank’s petition for rehearing,
however, the court ordered an evidentiary hearing limited to
the factual issue whether some severed mineral interests are
valueless, making a tax on all such interests unconstitutional.*
Following the hearing, the tax court found as fact that every
mineral interest has some value, although the value of mineral
interests may vary from place to place within the state, and,
1 The Bank paid taxes on one interest, but only as required by the
county for the recording of a deed affecting surface rights.
2 Under Minn. Stat. § 273.13, subd. 2a, 20% of the tax on severed
mineral interests is put into a fund to be used for business loans
to Indians. Minn. Stat. § 116J.64, subd. 6 (1982).
The tax court found that the determination in Contos that all
mineral interests have value was merely a determination that
the district court’s finding in that case was not clearly erroneous.
Therefore, according to the tax court, the Bank in the present
case had a right to try to prove otherwise.
A4
relying on Contos, concluded that the tax was constitutional.
Proceedings for review of the tax court decision by certiorari
and the Bank’s appeal from the judgment entered thereon
have been consolidated.
I.
a. Taz on Severed Mineral Interests. The severed mineral
interest is a type of estate in real property—the owner of the
estate owns an interest in the minerals produced from the
property but does not own the surface of the property. Minn.
Stat. § 273.13, subd. 2a (1982). Severed mineral interests
exist in much of Minnesota and are especially common in
northeastern Minnesota. Contos v. Herbst, 278 N.W.2d at
735. In Washburn v. Gregory Co., 125 Minn. 491, 147 N.W.
706 (1914), this court held that severed mineral interests are
separate interests in land, taxable separately from the surface
interest and do not forfeit to the state for nonpayment of
taxes on the surface interest. The legislature subsequently
found that the severed mineral interests themselves are rarely
taxed because of assessment difficulties. Minn. Stat. § 272.039
(1982). Therefore, separate ownership of surface and mineral
estates was practiced widely as a means of holding mineral
rights indefinitely while remaining effectively immune from
taxation and tax forfeiture.
The legislature cited the above factors as reasons for en-
acting the Mineral Registration Act in 1973, Minn. Laws
1973, c. 650, art. XX. Minn. Stat. § 272.039 (1982). The Act
was designed to enforce the registration of severed mineral
interests under § 93.52 (enacted in 1969) and to tax those
interests. First, the Act added to § 93.55, providing that such
interests would forfeit to the state if not registered within
a specified period. Second, the Act imposed the tax involved
in this case upon severed mineral interests not taxed under
A-5
other provisions. Minn. Stat. § 273.13, subd. 2a (1982).* Third,
the Act explicitly provided that severed mineral interests are
subject to forfeiture for nonpayment of the above tax. Minn.
Stat. § 272.04, subd. 1 (1982).
In Contos v. Herbst, 278 N.W. 732 (Minn. 1979), plaintiff-
owners of severed mineral interests (the plaintiffs included
U.S. Steel and Burlington Northern Railroad) challenged the
tax and registration forfeiture provisions of the Act. This
court held that the tax was constitutional because (1) it was
reasonable to classify severed interests separately from un-
severed interests for taxation, and (2) property taxes need
not be related to value. 278 N.W.2d at 736-41.“
b. Federal Land Bank and Its Mineral Policies. The Bank
is a federally chartered instrumentality of the United States.
One of twelve Federal Land Banks, it was established in 1917
pursuant to the Federal Farm Loan Act (Acts of July 17,
1916, chapter 245, 39 Stat. 360) and is presently governed by
12 U.S.C. §§ 2011-2055. The Bank provides long-term agri-
cultura] loans to farmers in Michigan, Minnesota, North
Dakota, and Wisconsin. Each borrower becomes a member
of a Federal Land Bank Association; the Associations own
4 Mineral interests which have been valued are taxed on the basis
of value. Unmined iron ore is taxed on the basis of value pursuant
to Minn. Stat. § 273.13, subd. 2, or § 273.15 (1982). Unmined
taconites and iron sulphides are assessed and taxed according to
value subject to a maximum tax of $10.00 per acre. Minn. Stat.
§ 298.26 (1982). All other severed mineral interests, to the extent
they can be valued, are susceptible to ad valorem taxation pur-
suant to Minn. Stat. § 272.04 (1982).
5 However, this court struck down as unconstitutional the for-
feiture provisions because adequate notice and hearing were not
provided. Minn. Stat. § 93.55 was subsequently amended to pro-
vide notice and a hearing before forfeiture. Minn. Laws 1979,
c. 303, art. 10, f 1.
A-6
the stock of the Bank. The Associations are similar to coop-
eratives; the net earnings of the Bank eventually inure to its
individual borrowers in the form either of dividends or of
lower interest rates on their variable interest loans.
The Bank obtains severed mineral interests by reserving
these interests when it sells any property upon which it has
foreclosed. The Bank initiated this practice in the 1930’s,
when it foreclosed on many farms and could not recover the
unsatisfied debt on resale. Most of the Bank’s interests are
50% interests in perpetuity. The remaining 50% interests
belong to the surface owners and are therefore unsevered
interests. As of the end of 1980, the Bank owned about 3,200
mineral interests situated in 85 of Minnesota’s 87 counties
and covering about 484,000 gross mineral acres. These Minne-
sota interests have provided almost no mineral income for
the Bank. It is the Bank’s policy never to release or sell its
severed mineral interests except to avoid hardship to the
surface owner or expense to the Bank.
II.
The Bank has neither pleaded nor proved that the tax on
severed mineral interests, Minn. Stat. § 273.13, subd. 2a
(1982), discriminates against the Bank. Nor has the Bank
convinced us that the tax is unfair.* Indeed, we agree with
the tax court that the nondiscriminatory tax in question ought
to be deemed to come within the basic spirit of the Congres-
sional waiver of immunity from tax contained in 12 U.S.C.
§ 2055. Unfortunately, however, it is outside the letter of the
waiver and we are, therefore, required to recognize the Bank’s
®See Contos v. Herbst, 278 N.W.2d 732 (Minn. 1979) (this unique
method of taxing severed mineral interests does not violate the
uniformity clause of the Minnesota Constitution. Minn. Const.
art. 10, § 1).
A-7
statutory immunity from the tax imposed by Minn. Stat.
§ 273.13, subd. 2a (1982).
Section 2055 provides, in relevant part:
Every Federal land bank and every Federal land bank
association and the capital, reserves, and surplus thereof,
and the income derived therefrom shall be exempt from
Federal, State, municipal, and local taxation, except tares
on real estate held by a Federal land bank or a Federal
land bank association to the same extent, according to
its value, as other similar property held by other persons
is taxed. * * *
(Emphasis added). The exemption from state taxation and
attendant waiver of immunity were part of the Federal Farm
Loan Act of 1916, Act of July 17, 1916, ch. 245, 39 Stat. 360.7
Although the clause—“to the same extent, according to its
value, as other real estate is taxed”—appeared for more than
100 years in the waiver of immunity contained in the Na-
tional Banking Act.* and although the same clause appears
in statutes exempting other federal instrumentalities from
state taxation,“ we are aware of no cases in which application
of the waiver of immunity to a flat or area-based general
712 U.S.C. § 2055 was adopted in 1971, Pub. L. 92-181, Title I, § 1.21,
85 Stat. 590, but the operative language involved here has re-
mained substantially unchanged since 1916. 12 U.S.C.A. §§ 931,
933 (West 1969); Federal Farm Loan Act of 1916, ch. 245, 39
Stat. 360, § 26.
The genesis of section 2055 is probably a section of the National
Banking Act of 1864, Act of June 3, 1864, ch. 106, § 41, 13 Stat. 111,
Rev. Stat., § 5219, which stated that national banks were exempt
from state taxation, except taxes imposed on real estate “to the
same extent, according to its value, as other real estate is taxed.”
This provision was carried forward in 12 U.S.C. § 548, 12 U.S.C.A.
§ 548 (West 1969), until the tax exemption for national banks
was repealed in 1969.
FE. ., 12 USC. §§ 1433 (Federal Home Loan Banks) and 1825
(Federal Deposit Insurance Corp.), both enacted in the 1930's, and
12 U.S.C. § 3019(a) (National Consumer Cooperative Bank, estab-
lished in 1978).
A-8
distribution tax on real estate has been at issue. The plain
language of section 2055, however, does not admit of con-
struction. It provides, in perfectly straightforward terms,
that the Bank is exempt from state taxes except nondis-
criminatory value-based taxes on real estate.
[1] The state commends to us the statement in Swords
v. Nutt, 11 F.2d 936 (9th Cir. 1926) on which the tax court
relied: “[T]he sole purpose of section 5219 [that section of
the National Banking Act upon which section 2055 was pat-
terned] is to protect the real property of national banks
against unequal assessments or assessments that shall dis-
criminate against the same.“ The Swords case, which held that
the real estate of a national bank was not exempt from a non-
discriminatory special assessment because it was a payment
for improvements directly benefitting the land and not a tax,
is inapposite.'® There is no doubt that the obligation imposed
by $ 272.13, subd. 2a, is a tax. Furthermore, to limit the tax
immunity provided by § 2055 to discriminatory real estate
taxes, whether or not value-based, would require us to ignore
the phrase “according to its value” or treat it as meaningless.
But every word and phrase of the statute should be given
meaning if possible. E.g., Gale v. Commissioner of Taxation,
228 Minn. 345, 37 N.W.2d 711 (1949).
10 There is also considerable doubt about the vitality of the holding
in Swords. E.g., U.S. v. City of Adair, 539 F.2d 1185 (8th Cir. 1976)
(Community Credit Corporation declared immune from special
assessment because Congress had not expressly waived immunity
from special assessment, which was in essence a tax).
11 The absence of the phrase “according to its value” in the tax
exemption statutes of three other federal instrumentalities is a
further indication that ignoring its presence in § 2055 is inap-
propriate. 12 U.S.C. §§ 1768 (credit unions), 2098 (production
credit associations) 2134 (banks for cooperatives), all include a
waiver of immun..y from taxation of tangible personal, as well
as real, property “to the same extent as similar property is
taxed.”
A-9
[2-4] The requirement that the tax be related to value
limits the tax which a state may levy on the Bank’s real
estate to an ad valorem (literally “according to value”) tax,
for which real estate is assessed and the tax rate is applied
on the same basis to the assessed value of all real estate
similarly situated in the taxing district. Cf. Miners National
Bank of Butte v. Silver Bow County, 116 Mont. 31, 148 P.2d
538 (1944) ; Land Title Bank & Trust Co. v. Ward, 20 F.Supp.
810 (E.D. Pa. 1937) (interpreting without discussion, but
in a different context, the waiver of immunity formerly ap-
plicable to national banks). It is clear to us that the tax im-
posed by § 273.13, subd. 2a, on severed mineral interests is
not an ad valorem tax. It is a flat tax of $.25 per acre or
$2.00 per interest. The state contends that it is simply a
“minimum” tax within the ad valorem system. But the tax
never varies according to the location or quality of the mineral
interest; by its own terms it is inapplicable to mineral inter-
ests whose value has been determined. The very reason for
the flat tax is that very few such interests will ever be as-
sessed. Minn. Stat. § 272.039 (1982). An ad valorem tax, on
the other hand, even if it contained some provision for a
minimum tax, would vary to some extent from interest to in-
terest because, as the tax court found, “the value of an in-
terest in one part of the state may vary from that in another.”
Since the severed mineral interest tax pursuant to § 273.13,
subd. 2a, is unrelated to value, section 2055 precludes its
imposition on the Bank’s interests.'?
12 See Stete v. Lakeside Land Co., 71 Minn. 283, 73 N.W. 970 (1898)
(one-cent-per-ton tax on iron ore held unconstitutional under
former uniformity clause of Minnesota Constitution). In Contos,
in which we upheld the tax on severed mineral interests, we
distinguished Lakeside Land Co., noting that since 1906 the
uniformity clause has not required taxes to be related to value.
Contos implied, however, that if a relation to value were required,
the tax would have been impermissible.
N
1
1 7
A-10
(5) Our conclusion is reinforced by the standard appli-
cable in the interpretation of statutes protective of federal in-
strumentalities. A federal instrumentality is immune from all
state taxes, whether or not discriminatory,'* unless the state
can show that Congress clearly and expressly has waived the
immunity. E.g., First Agricultural National Bank of Berk-
shire County v. State Tax Commission, 392 U.S. 339, 88 S.Ct.
2173, 20 L.Ed.2d 1138 (1968) (immunity from a state sales
and use tax on personal property was not waived clearly in
the national bank statute, so the bank was immune) ; Federal
Reserve Bank of St. Louis v. Metrocentre Improvement Dis-
13 It is not clear how this presumed immunity came about. McCul-
loch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819) held
that a federal instrumentality is constitutionally immune from
discriminatory taxes because “the power to tax is the power to
destroy,” and a state should not have such power over an arm
of the federal government. Id. 17 U.S. (4 Wheat.) at 427-428.
Only after Congress had passed statutes immunizing instrumental-
ities from state taxes did the United States Supreme Court extend
the constitutional immunity to nondiscriminatory state taxes in
order to justify a statutory presumption of immunity. Austin v.
The Alderman, 74 U.S. (7 Wall.) 694, 19 L.Ed. 224 (1868). The
constitutional immunity and the attendant presumption against
the state do not appear to be necessary where the tax is non-
discriminatory, i.e., that the state legislature has imposed the
tax on its own constituents as well as the federal instrumentality.
See, First Agricultural National Bank of Berkshire County v.
State Taz Commission, 392 U.S. 339, 348, 88 S.Ct. 2173, 2178, 20
L.Ed.2d 1138 (1968) (Marshall, J. dissenting); J. Ely, Democracy
and Distrust 85-86 (1980). We also note that the presumption
against nondiscriminatory state taxation should be less strong
when the tax is on land, over which the states exercise a peculiar
sovereignty. See McCulloch, 17 U.S. (4 Wheat.) at 436, in which
Justice Marshall stated, “This opinion does not deprive the states
of any resources which they originally possessed. It does not
extend to a tax paid by the real property of the bank, in common
with the other real property within the state, * .“ (Emphasis
added).
A-11
trict + 1, 657 F.2d 183, 186 (8th Cir. 1981) (a special assess-
ment was not a real estate “tax”; therefore, Congress has
not waived immunity); Reconstruction Finance Corporation
v. Texas, 229 F.2d 9 (5th Cir. 1956) (immunity was not
waived as to penalties and interest on real estate taxes) ; U.S.
v. County of San Diego, 249 F.Supp. 321 (S.D. Cal. 1966)
(Federal Housing Authority was immune from tax on per-
sonal property used in the operation of real property). Al-
though the state contends that the Bank is a privately owned
corporate entity which holds its severed mineral interests for
the benefit of its shareholders and, hence, must demonstrate
its entitlement to tax exemption, it was held in Federal Land
Bank of St. Paul v. Bismarck Lumber Co., 314 U.S. 95, 102,
62 S.Ct. 1, 5, 86 L.Ed. 65 (1941), that the acquisition of real
estate through foreclosure is part of the genera] lending
function of the Bank and is covered by the immunity pro-
vided by 12 U.S.C. § 2055. Inasmuch as there has been a
showing of a clear and express waiver, the Bank’s severed
mineral interests are immune from the tax imposed by Minn.
Stat. § 273.13, subd. 2a (1982).
Since we conclude that 12 U.S.C. § 2055 precludes applica-
tion of the severed mineral interest tax to the Bank, we do
not reach the issue of the constitutionality of the tax.
Reversed.
YETKA, Justice (dissenting).
I dissent. I believe the minimum tax per acre is an ad
valorem tax. I see no necessity that an ad valorem tax be a
perfect tax—one based exactly according to market value.
It would be difficult for the state to measure the value of
minerals on each parcel without drilling and testing. There-
fore, it sets a minimum tax per acre on those reserving such
minerals. Presumably, in reserving minerals, the owner is
recognizing some value. When the tax is not discriminatory
A-12
and is for such a modest amount, I believe it is reasonable
to read section 2055 as permitting the state to collect the tax.
STATE OF MINNESOTA
Office of The Clerk Of the Appellate Courts
State Capitol, St. Paul
Date: November 16, 1983
In the Matter of the Proceedings to Enforce Payment of the
Tax on Mineral Interests Assessed Pursuant to Minn. Stat.
§ 273.18, Subdivision 2a, and Remaining Delinquent on the
First Monday in January, 1977, 1978, and 1979, for the
County of St. Louis, State of Minnesota.
COUNTY OF ST. LOUIS,
Respondent,
and
MINNESOTA CHIPPEWA TRIBE,
Respondent,
C3-82-630, C4-82-846
vs.
THE FEDERAL LAND BANK OF ST. PAUL,
Relator (C3-82-630),
Appellant (C4-82-846).
Please take notice that on this date the following order
was entered in the above entitled cause:
ORDERED, that the petition for reargument herein be and
the same hereby is denied and stay vacated.
IT IS FURTHER ORDERED, that no attorney’s fees are
allowed pursuant to Rule 140, Rules of Civil Appellate Pro-
cedure.
Respectfully,
WAYNE TSCHIMPERLE
Clerk of the Appellate Courts
A-13
STATE OF MINNESOTA TAX COURT
St. Louis County Regular Division
Court File Nos. 141137, 14262714, 144338
In the Matter of the Proceedings to Enforce Payment of the
Tax on Mineral Interests Assessed Pursuant to Minn. Stat.
§ 273.13, Subdivision 2a, and Remaining Delinquent on the
first Monday in January, 1977, 1978, and 1979, for the
County of St. Louis, State of Minnesota.
COUNTY OF Sr. LOUIS,
Petitioner,
and
MINNESOTA CHIPPEWA TRIBE,
Intervenor,
-v8-
THE FEDERAL LAND BANK OF SAINT PAUL,
Defendant.
FINDINGS OF FACT, CONCLUSIONS OF LAW
AND ORDER FOR JUDGMENT
The above entitled matters came on for hearing before the
Minnesota Tax Court, Judge Earl B. Gustafson presiding, on
September 1, 1981. Testimony was concluded September 10th
and the case was submitted on post-trial briefs on January
19, 1982.
Philip J. Olfelt, Assistant Attorney General, C. Paul Faraci,
Deputy Attorney General, and Michael Dean, Assistant St.
Louis County Attorney, appeared for Petitioner, County of
St. Louis; John W. Windhorst, Jr. and William J. Hempel of
Dorsey, Windhorst, Hannaford, Whitney & Halladay, ap-
peared for Defendant, Federal Land Bank of St. Paul. Kent
A-14
P. Tupper of Tupper, Smith and Mattson, appeared for
Intervenor, Minnesota Chippewa Tribe.
The Court, having heard the testimony and considered the
evidence, briefs and arguments of counsel and upon all of the
files, records and proceedings herein, now makes the fol-
lowing:
FINDINGS OF FACT
1. The overriding issue in this case is whether Defendant,
The Federal Land Bank of Saint Paul, is subject to the tax
on severed mineral interests imposed under Minn. Stat.
273.13, Subd. 2(a), with respect to taxes payable in 1976
and subsequent years.
2. The Bank is a federally chartered, privately owned,
financial institution authorized to make long-term real estate
mortgage loans to farmers, ranchers, growers and rural
residents located in the Seventh Farm Credit District (com-
prising the states of Michigan, Minnesota, North Dakota and
Wisconsin).
8. The Bank has claimed exemption from taxation under
12 U.S.C. § 2055 and has also claimed Minn. Stat. 273.13,
Subd. 2(a) is unconstitutional on a number of grounds. This
Court in its Orders dated July 23, 1980 and October 31, 1980
ruled against the Bank on all of these issues with one ex-
ception.
4. In our Order of October 31, 1980, we reserved any
ruling on the Bank’s contention that, if it owned mineral
rights that had no value, the tax on severed minerals would
be invalid as unconstitutional. In ordering any evidentiary
hearing this Court neither accepted nor rejected the Bank’s
argument.
5. The pertinent portion of the Court’s memorandum ac-
companying our Order of October 31, 1980 reads as follows:
5
A-15
The Bank has submitted affidavits by two experts in
mineral valuation that conclude that some of the Bank’s
mineral interests have no value. Assuming this to be
true, the Bank argues the tax is unconstitutional. How
this would necessarily make the severed mineral tax
unconstitutional as a violation of due process or the
uniformity and equal protection clauses is not articulated
in the memoranda filed by the Bank. It merely maintains
that there is a “clear indication in Contos that the
Supreme Court would invalidate the special tax on sev-
ered mineral interests (under the equal protection, uni-
formity, and due process clauses) if it were established
as a matter of fact that some severed mineral interests
have no value.”
This specific argument was not developed in the orig-
inal cross-motions for summary judgment and is founded
on the assumption that this Court will make a factual
finding contrary to the Court in Contos, namely, that
some mineral interests have no value. We feel the Bank
is entitled to develop this argument fully and Petitioner
be given an opportunity to respond fully and will there-
fore hold an evidentiary hearing limited to this issue
where there now appears to be a disputed question of
fact.
6. The tax being contested subjects severed minerals, not
otherwise taxed, to a tax of 25 cents per acre per year or a
minimum tax of $2.00 per interest per year. Minn. Stat.
272.04, Subd. 1; 273.13, Subd. 2(a).
7. Under Minn. Stat. 272.04 mineral interests assessed
and taxed separately from the surface rights “may be sold
for taxes in the same manner and with the same effect
as other interests in real estate are sold for taxes.”
A-16
8. There is no statutory provision that the owner of a
severed mineral interest is personally liable for the payment
of the tax.
9. The Bank owns mineral interests in approximately
484,000 acres in 85 out of Minnesota's 87 counties as a result
of mineral reservations it made in deeds of conveyance.
10. The Bank has historically acquired property when
borrowers defaulted on their mortgage loans.
11. After acquiring real property thorough (sic) fore-
closures, or deeds given in lieu of foreclosure, the Bank would
sell the properties reserving 100 percent or 50 percent of the
mineral interests, some for a period of years and some in
perpetuity.
12. These mineral interests were retained by the Bank,
according to its Director of Mineral Operations, “with the
hope of ultimately recovering all or a part of these losses (on
defaulted loans) through eventual mineral development.”
18. The present policy of the Bank is never to sell its
severed mineral interests except in situations where refusal
would work undue hardship or release would be to the Bank’s
advantage, and then only for valuable consideration.
14. Since 1978 the Bank has received a low of $100 for
682 acres in Clay County ($.15 per acre), to a high of $100
for two acres in Kandiyohi County ($50 per acre) for selling
or releasing mineral rights.
15. Since March 1975 the Bank has had a policy of never
selling severed mineral interests for less than $1.25 per acre.
16. The Director of Minerals for the Bank, with respect to
the entire four-state area, received 19 written requests for
releases (conveyances) of mineral rights during 1980 and 29
written requests during the first eight months of 1981. He
also received some oral requests. Only one request was granted.
A-17
17. Every mineral interest has some value as a property
right regardless of its location, although the value of an in-
terest in one part of the state may vary from that in another.
18. The attached Memorandum is made a part hereof.
CONCLUSIONS OF LAW
1. The finding of this Court that every mineral interest
has some value brings this case within the holding of Contos
v. Herbst, 278 N.W. 2d 732 (Minn. 1979).
2. The mineral interests involved in this proceeding are
fully subject to tax under Minn. Stat. 273.13, Subd. 2(a).
8. The Defendant, Federal Land Bank of St. Paul, shall
pay taxes due and payable together with interest and penalties
or the property will forfeit to the State of Minnesota for non-
payment according to law.
4. Petitioner, County of St. Louis, is awarded its costs
and disbursements incurred herein.
LET JUDGMENT BE ENTERED ACCORDINGLY. A 15
DAY STAY IS HEREBY ORDERED.
By the Court
EARL B. GUSTAFSON, JUDGE
Minnesota Tax Court
Dated: This 19th day of March, 1982.
MEMORANDUM
This decision deals with two limited issues. First, are any
of the Federal Land Bank’s mineral interests without value?
Second, if some mineral interests have no value does it follow
that the tax on severed minerals imposed by Minn. Stat.
273.13, Subd. 2(a) is unconstitutional?
After considering all the evidence adduced at the hearing
held in September 1981 and allowing the Bank full opportunity
to present all arguments, I have reached the conclusion that
A-18
all mineral interests have some value and, further, that the
Bank would have suffered no injury if some of its mineral
rights were conclusively without value because payment of the
tax is optional.
The evidence presented by the Federal Land Bank tended to
prove that mineral interests severed from the surface owner-
ship vary greatly in value depending upon the type of minerals
that geologists reasonably anticipate are beneath the surface
and the cost of extracting these minerals. If the cost of extrac-
tion exceeds the present or anticipated market price that can
be obtained, the mineral rights, according to the Bank, have
only minimal or speculative value. In some situations the min-
erals are beneath such a deep overburden that no mining could
be anticipated within the foreseeable future. In other areas of
the state, no minerals of any present commercial value have
been found.
None of the evidence offered by the Bank has convinced this
Court that mineral rights have no value. We do not read into
the finding of the District Court in Contos (affirmed by the
Supreme Court) that every mineral interest must have some
measurable present market value and that speculative and
minimal values are excluded from taxation. All mineral inter-
ests have some speculative and uncertain values until ore is
actually extracted and sold. Even then, future changes in
technology and markets may turn an “exhausted and worth-
less” mine into valuable property, once again.
Aside from the expert geologic evidence presented at trial,
there remains the undisputed fact that the Bank itself treats
these mineral rights as having value,—speculative and uncer-
tain, perhaps—but, nevertheless having value. It severed and
retained these mineral rights with the expressed hope of
earning money, “through eventual mineral development.”
Beis N
A-19
As the Montan (sic) Supreme Court concluded in Northern
Pacific Ry. Co. v. Mjelde, 48 Mont. 287, 304, 137 P. 386, 391
(Mont. 1913).
It will not do to say that, because neither of these
reservations produces revenue, it is not of any value.
From the very act of making the reservation, the pre-
sumption arises that each interest has some appreciable
value, or the reservation would not have been made. Tax-
ation is the rule, exemption is the exception. (Em-
phasis added.)
Similarly, in Union Pacific R. Co. v. Hanna, 73 Colo. 162,
171, 214 P. 550, 554 (Colo. 1923), the Colorado Supreme Court
ruled:
The mere fact that the plaintiff reserved these [severed
mineral] rights, when conveying the lands to purchasers
and continues to hold them, with the right, at anytime,
to begin to exercise them, is some evidence that the reser-
vations are valuable.
Because of the “potential income and asset value of the
Bank’s mineral interests,” the express policy of the Bank since
1976 precludes the release (sale) of any of its mineral rights
except when refusal would work an undue hardship or when
it would be to the Bank’s advantage.
A detailed review of the evidence leads to but one conclu-
sion. All mineral rights have some value. This value, in the
opinion of one owner, may not justify the continued payment
of an annual tax of 25 cents per acre. That is a choice that
each owner must make. Forcing this choice does not make the
tax unconstitutional.
In Texaco, Inc. v. Short, 454 U.S. ——, 70 L. Ed. 2d 738,
102 S. Ct. 781, decided January 12, 1982, the United States
Supreme Court upheld an Indiana version of a severed min-
A-20
erals statute that goes farther than Minnesota’s statute. The
Indiana statute provides for automatic lapse and reversion to
the surface owner of the severed mineral interests if there is
no mining or exploratory use for 20 years. Writing for the
majority, Justice Stevens said that, just as a state may create
and protect a property interest, it may also condition per-
manent retention of that property on the performance of
reasonable conditions. (Four Justices dissented.)
The question of the Bank’s standing to raise this constitu-
tional challenge should not be ignored. This could be con-
sidered the threshold issue and will be discussed to finally
lay to rest this and any further litigation. The Bank, as dis-
cussed above, maintains that if it can prove some of its
mineral interests have no value, then, it has been denied due
process by being forced to pay taxes on worthless property.
This is incorrect. The tax is not enforceable as a personal
judgment and need not be paid. If the bank wishes to retain
these mineral rights, of course, it must pay the annual 25
cents acreage tax. However, if the mineral rights have no
value, the bank may decline to pay the acreage tax and these
mineral rights (which hypothetically have no value) will re-
vert to the State of Minnesota as tax delinquent real property.
It is difficult to see how the bank can, on the one hand,
argue that certain of its mineral rights have no value and
yet argue that it has suffered an injury which requires con-
stitutional protection. If the mineral rights have no value,
there is no injury to the bank in merely refusing to pay the
tax. The mineral rights that will then be forfeited are value-
less and the Bank has obviously suffered no loss.
There is a well-established line of authority that no litigant
can question the constitutionality of a statute unless he can
first show that the statute has caused him or is about to cause
A-21
him, some injury. The leading United States Supreme Court
decision enunciating this rule is Massachusetts v. Mellon, 262
U.S. 447, 43 S. Ct. 597 (1923) and this has been followed in
Minnesota. State ex rel. Clinton Falls Nursery Co. v. County
of Steele, 181 Minn. 427, 232 N. W. 737 (1930); State ex rel.
Smith v. Haveland, 223 Minn. 89, 25 N. W. 2d 474 (1946);
Lee v. Delmont, 228 Minn. 101, 36 N. W. 2d 530 (1949) ; State
v. Meyer, 228 Minn. 286, 37 N.W. 2d 3 (1949); Beatty v.
Winona Housing and Redevelopment Authority, 277 Minn.
76, 151 N.W. 2d 584 (1967).
In St. Paul Chamber of Commerce v. Marzitelli, 258 N.W.
2d 585 (Minn. 1977) the Court said:
When a constitutionality of a statute is challenged, the
litigant bringing the challenge must, in order to invoke
the jurisdiction of the court, be able to show that the
statute is, or is about to be, applied to his disadvantage.
258 N.W. 2d 585, 588.
For the several reasons stated the Bank should pay the
contested tax or the property should be forfeited.
E. B. G.
STATE OF MINNESOTA TAX COURT
St. Louis County Regular Division
File Nos. 141187, 14262714, 144338
In the Matter of the Proceedings to Enforce Payment of the
Tax on Mineral Interests Assessed Pursuant to Minn. Stat.
273.13, Subdivision 2a, and Remaining Delinquent on the
first Monday in January, 1977, 1978 and 1979, for the
County of St. Louis, State of Minnesota.
A-22
COUNTY OF ST. LOUIS,
Petitioner,
-vs-
THE FEDERAL LAND BANK OF ST. PAUL,
Defendant,
and
MINNESOTA CHIPPEWA TRIBE,
Intervenor.
ORDER
The above entitled matters came on for hearing before
the Minnesota Tax Court, Judge Earl B. Gustafson presiding,
on the 11th day of September, 1980 at the Tax Court, St. Paul,
Minnesota, on Defendant’s Petition for Re-Hearing and
Amended Order for Summary Judgment.
Philip J. Olfelt, Assistant Attorney General, and Michael
Dean, Assistant St. Louis County Attorney, appeared for
Petitioner, County of St. Louis; John W. Windhorst, Jr. and
Bruce J. Shnider appeared for Defendant, Federal Land Bank
of St. Paul.
The Court, having heard and considered the briefs and
oral arguments of counsel and upon all of the files, records
and proceedings herein DOES HEREBY ORDER that an
evidentiary hearing be held on the fact issue of whether
some of Defendant’s mineral interests are without any value.
All other requests that the severed minerals tax be held un-
constitutional are denied.
The attached Memorandum is made a part of this order.
Dated: October 31, 1980.
MINNESOTA TAX COURT
EARL B. GUSTAFSON
Judge
A-23
MEMORANDUM
The Defendant, The Federal Land Bank of St. Paul, has
moved the Court to amend its Order For Summary Judgment
herein dated July 23, 1980 and grant summary judgment to
the Bank or, in the alternative, set the matter for trial on
the issue of whether or not some of the Bank’s severed
mineral interest have no value.
In granting summary judgment for the Petitioner, County
of St. Louis, we considered all of the arguments raised by
Defendant in its 49 page Memorandum. We discussed the
principal arguments at some length and concluded, “We find
no other reason to consider this tax unconstitutional or un-
enforceable against the Bank.”
In support of this present Petition for Rehearing the Bank
requests that we reconsider three constitutional arguments
not discussed in detail in our Memorandum of July 23, 1980.
The first constitutional issue raised by this Petition for
Rehearing is the Bank’s contention that the severed minerals
tax violates the equal protection and the uniformity clauses
because there is no rational] basis for taxing severed mineral
interests by a different method from that used to tax un-
severed mineral interests. As the Bank correctly points out,
severed mineral interests, as a result of the registration
portion of this 1973 law, can now be more readily identified
and can therefore, to that extent, be more readily valued and
assessed. The Bank further points out that unsevered minerals
are necessarily included in the entire bundle of property
rights comprising the fee simple interest which is valued and
taxed under the ad valorem real estate tax system. When
minerals in the future are severed from the fee the assessor
is now in a position to value the mineral interest separately
and deduct this figure from the estimated market value of
ee ‘
A-24
the entire fee interest. The Bank argues therefore, that from
and after the time registration of severed minerals became
mandatory no justification exists for placing severed mineral
interests in a separate class and subjecting them to an acre-
age tax.
We can agree with only a portion of this argument and
disagree entirely with the conclusion. The registration of
severed minerals interests now undoubtedly assists in their
identification but the expensive, speculative and burdensome
administrative problems of valuation remain. These practical
difficulties were considered by the Minnesota Supreme Court
in Contos when it upheld the constitutionality of the tax as
a reasonable classification.
In sum the evidence supports the legislature’s finding
that a class of valuable property interests were escaping
taxation because of the practicable difficulties in iden-
tifying, valuing, and assessing those interests within
more traditional tax schemes. In light of this evidence
we cannot say that the practical considerations which
prompted the legislature to classify separately severed
mineral interests and to impose a tax of $.25 per acre
per year or $2.00 per year, whichever is greater, were
unreasonable.
That practical considerations can serve as the basis
for the classification and taxation of property was estab-
lished long ago in Mutual Benfit (sic) Ins. Co. v. County
of Martin, 104 Minn. 179, 116 N.W. 572 (1908).
Contos v. Herbst, 278 N.W. 2d 732, 738.
There is, of course, a presumption favoring the constitu-
tionality of this statute. The Bank in this case has “the burden
to show beyond a reasonable doubt that the act conflicts
with the uniformity clause of the state constitution.” Contos
v. Herbst, 278 N.W. 2d 782, 736; Elwell v. County of Henne-
A-25
pin, 221 N. W. 2d 538; McCannel v. County of Hennepin, ——
N. W. 2d ——- (1980) ; Guilliams v. Commissioner of Revenue,
—— N. W. 2d —— (1980). In the field of taxation, the legis-
lature’s power is inherently broader and its exercise more
flexible than in other areas. Reed v. Bjornson, 258 N. W. 102
(1934); McCannel v. County of Hennepin, N.W. 2d
—— (1980); Guilliams v. Commissioner of Revenue, ——
N.W. 2d —— (1980).
We do not find this statute to be either clearly arbitrary
nor without a reasonable basis. We, therefore, have no choice
but to consider it constitutional.
The second constitutional argument is one claiming unequal
protection of the laws based on unequal or selective enforce-
ment of the severed mineral tax. In 29 counties out of the
85 where the Bank owns mineral interests, it apparently has
never been required to pay this tax. We consider this con-
stitutional argument, coming from the Bank, as being raised
by a party without standing. There is no claim of discrimina-
tion that in anyway injures the Bank. It temporarily, at least,
is benefitting from unequal enforcement. If and when this
issue is raised by some other party claiming and showing
actual discrimination, we will give it due consideration after
all parties involved have an opportunity to present their
evidence. The most likely answer to this present situation
is that some counties are uncertain about how to proceed
in taxing the Bank’s mineral interests while this litigation
is pending and once there is a final court determination,
uniform enforcement will follow.
The third constitutional argument involves the question of
whether some of the Bank’s mineral interests have no value.
This factual issue was considered in the Contos case but, of
course, the Bank was not a party to that proceeding so it is
TS
ie 4
A-26
not res judicata. In Contos the trial court found that every
mineral interest in Minnesota has some value as a property
interest regardless of its location although the value of
mineral interests may vary substantially from one part of
the state to another. This finding by the trial court was sus-
tained by the Supreme Court. The Bank has submitted affi-
davits by two experts in mineral valuation that conclude that
some of the Bank’s mineral interests have no value. Assum-
ing this to be true, the Bank argues the tax is unconstitutional.
How this would necessarily make the severed mineral tax
unconstitutional as a violation of due process or the uni-
formity and equal protection clauses is not articulated in the
memoranda filed by the Bank. It merely maintains that there
is a “clear indication in Contos that the Supreme Court would
invalidate the special tax on severed mineral interests (under
the equal protection, uniformity, and due process clauses) if
it were established as a matter of fact that some severed
mineral interests have no value.”
This specific argument was not developed in the original
cross-motions for summary judgment and is founded on the
assumption that this Court will make a factual finding con-
trary to the Court in Contos, namely, that some mineral in-
terests have no value. We feel the Bank is entitled to develop
this argument fully and Petitioner be given an opportunity
to respond fully and will therefore hold an evidentiary hearing
limited to this issue where there now appears to be a disputed
question of fact.
Finally, the Petition for Rehearing requests the Court to
reconsider and change its decision on the fundamental issue
of statutory construction of 12 U.S.C. Sec. 2055. After con-
sidering the additional written and oral arguments of all
counsel, we find no reason or basis for changing our original
decision on this issue.
E. B. G.
A-27
STATE OF MINNESOTA
TAX COURT
In the Matter of the Proceedings to Enforce Payment of the
Tax on Mineral Interests Assessed Pursuant to Minn. Stat.
273.18, Subdivision 2a, and Remaining Delinquent on the first
Monday in January, 1977, 1978 and 1979, for the County of
St. Louis, State of Minnesota.
File Nos. 141137, 14262714, 144338
COUNTY OF ST. LOUIS,
Petitioner,
vs.
THE FEDERAL LAND BANK OF ST. PAUL,
Defendant,
and
MINNESOTA CHIPPEWA TRIBE,
Intervenor.
ORDER FOR SUMMARY JUDGMENT
The above entitled matters came on for hearing before the
Minnesota Tax Court, Judge Earl B. Gustafson presiding, on
the 16th day of May, 1980 at the St. Louis County Courthouse,
Duluth, Minnesota, on cross-motions for summary judgment.
Philip J. Olfelt, Assistant Attorney General, C. Paul Faraci,
Deputy Attorney General, and Michael Dean, Assistant St.
Louis County Attorney, appeared for petitioner, County of
St. Louis; John W. Windhorst, Jr. and Bruce J. Shnider ap-
peared for defendant, Federal Land Bank of St. Paul; Mr.
Kent Tupper appeared for intervenor, Minnesota Chippewa
Tribe.
A-28
The Court, having heard and considered the briefs and oral
arguments of counsel and upon all of the files, records and
proceedings herein DOES HEREBY ORDER summary judg-
ment for petitioner, St. Louis County and against Federal
Land Bank of St. Paul.
The attached Memorandum is made a part of this order.
Minnesota Tax Court
EARL B. GUSTAFSON, Judge
Dated: July 23, 1980.
MEMORANDUM
The material facts are not in dispute. The Federal Land
Bank of St. Paul is exempt from all taxes with but one excep-
tion. It is obligated to pay taxes on real estate “to the same
extent, according to its value, as other similar property held
by other persons is taxed.” 12 U.S.C. § 2055. The tax being
contested is Minnesota’s “severed mineral tax” enacted in
1973, (Chapt. 650, Laws 1973) and now coded as Minn. Stat.
Sections 272.089 ; 272.04, Subd. 1; and 273.14, Subd. 2a. This
is considered a tax on real property and was held constitu-
tional by the Minnesota Supreme Court in Contos, et al v.
Robert L. Herbst, et al, Andrew Korda, St. Louis County
Auditor, and the Minnesota Chippewa Tribe, —— Minn. ——,
278 N. W. 2d 732, Jan. 26, 1979, rehearing denied March 13,
1979, Appeal dismissed Oct. 30, 1979, 100 S. Ct. 24.
The Federal Land Bank claims it does not have to pay the
“severed minerals” tax because it is not an ad valorem tax.
We are ordering summary judgment for petitioner County
of St. Louis and against the Federal Land Bank because—
there being no genuine issue as to any material fact—peti-
tioner is entitled to judgment as a matter of law.
*
a
Ps. tien
A-29
The Federal Land Bank owns “severed” mineral rights in
85 of the 87 counties in Minnesota as a result of mineral
reservations it made in deeds of conveyance. The Bank makes
loans to farmers and rural residents and over the years has
acquired property through foreclosures (or deeds in lieu of
foreclosure) when borrowers defaulted on their mortgage
loans. After acquiring real estate in this fashion, the Bank
would turn around and sell the property to recover its loan.
As a matter of custom it would reserve (sever) 100% or 50%
of the mineral interest—some for 25 years and some in per-
petuity. The Bank now owns mineral interests in approxi-
mately 500,000 acres throughout Minnesota on which it pays
approximately $60,000 in taxes annually.
Prior to 1973 mineral interests that were owned separately
from the fee ownership escaped taxation unless the property
was actually being mined or was specifically valued through
core drilling or other analysis. When it enacted a minimum
annual tax of 25¢ per acre on minerals owned separately from
the surface interests, the legislature made specific Findings
and Conclusions that read in part as follows:
M.S. 272.089 LEGISLATIVE FINDINGS AND CON-
CLUSIONS RELATED TO THE TAXATION OF MIN-
ERALS OWNED SEPARATELY FROM THE SUR-
FACE. The legislature finds, for the reasons stated
below, that a class of real property has been created
which, although not exempt from taxation, is not assessed
for tax purposes and does not, therefore, contribute any-
thing toward the cost of supporting the governments
which protect and preserve the continued existence of the
property. These reasons are as follows: (1) In the case
of Washburn v. Gregory, 1914, 125 Minn. 491, 147 N.W.
706, the Minnesota Supreme Court determined that where
A-30
mineral interests are owned separately from the surface
interests in real estate, the mineral interest is a separate
interest in land, separately taxable, and does not forfeit
if the overlying surface interest forfeits for nonpayment
of taxes due on the surface interest; (2) Since this 1914
decision, mineral interests owned separately from the
surface have been valued and assessed for tax purposes,
as a practical matter, only if the value of the minerals
has been determined through drilling and drill core anal-
ysis; and (3) The absence of any taxation of mineral
interests owned separately from the surface, except where
drilling analysis is available, has encouragtd the separa-
tion of ownership of surface and mineral estates and re-
sulted in the creation of hundreds of thousands of acres
of untaxed mineral estate lands which thus are immune
from tax forfeiture... .
On the basis of the above findings, and for the purpose
of requiring mineral interests owned separately from sur-
face interests to contribute to the cost of government at
a time when other interests in real property are heavily
burdened with real property taxes, the legislature con-
cludes that the taxation of severed mineral interests as
provided in section 272.18, subdivision 2a is necessary and
in the public interest, and provides fair taxation of a class
of real property which has escaped taxation for many
years.
It is, therefore, clear that the 25¢ per acre tax ($2 min-
imum) on mineral interests owned separately and apart from
the fee title is a tax on real estate and was a legislative re-
sponse to the historical phenomena that allowed these real
property interests to effectively escape taxation. All claims
that the tax was an unconstitutional denial of equal protection
A-31
or uniformity were fully considered and denied by the Dis-
trict Court and, on appeal, by the Minnesota Supreme Court.
Contos v. Herbst, 278 N.W. 2d 732.
Although mineral rights all have some value these values
vary substantially. Contos v. Herbst, 278 N.W. 2d at 738.
Most severed mineral interests cannot be assessed for ad
valorem property tax purposes because (1) the value can
only be determined by prohibitively expensive exploration;
and (2) data available on sales and exchanges of mineral
interests is very limited. Contos v. Herbst, 278 N.W. 2d at
738. As the Minnesota Supreme Court found:
In sum the evidence supports the legislature’s find-
ings that a class of valuable property interests were
escaping taxation because of the practicable difficulties
in indentifying, (sic) valuing, and assessing those inter-
ests within more traditional tax schemes. In light of this
evidence we cannot say that the practical considerations
which prompted the legislature to classify separately
severed mineral interests and to impose a tax of $.25
per acre per year or $2.00 per year, whichever is greater,
were unreasonable. Contos v. Herbst, 278 N.W. 2d at 738.
In the instant case the Bank makes no claim that it is re-
ceiving unequal treatment when compared to other owners of
“severed” mineral interests. The claim it makes is one of tax
exemption. Simply put, the Bank maintains that it is required
to pay only ad valorem real estate taxes or taxes based upon
the value of its property and that this is a real estate tax
based on acreage, not on value. The language in the federal
law that grants the Bank tax exemption from everything but
real estate taxes is the basis for this argument and reads as
follows:
12 U.S.C. § 2055. TAXATION. Every Federal land
bank and every Federal land bank association and the
A-32
capital, reserves, and surplus thereof, and the income
derived therefrom shall be exempt from Federal, State,
municipal, and local taxation, except taxes on real estate
held by a Federal land bank or a Federal land bank
association to the same extent, according to its value, as
other similar property held by other persons is taxed.
(Emphasis added)
This statutory language has remained essentially the same
since 1916, through several reenactments. No reported cases
have interpreted this provision. It, therefore, becomes a ques-
tion of statutory interpretation which, in turn, is an attempt
to determine the congressional intent when this statute was
originally passed.
The Bank points to the words “according to its value”, and
argues that Congress must have meant that Federal land
banks are obligated to pay ad valorem real estate taxes only.
This construction focuses on the parenthetical phrase, “ac-
cording to its value” to the exclusion of the operative language,
“to the same extent as other similar property held by other
persons is taxed”’.
It must be remembered that the burden is clearly upon the
taxpayer to prove exemption from taxation because all prop-
erty is presumed taxable unless specifically exempt by law,
Minn. Stat. 272.01, Subd. 1. Exemptions from taxation are
strictly construed and to be granted only when some public
purpose is being served and not merely for the benefit of any
particular persons or organizations at the expense of tax-
payers generally. Christian Business Men’s Committee of
Minneapolis, Inc. v. State, 228 Minn. 549, 554, 38 N.W. 2d
808, 808 (1949) ; Camping and Education Foundation v. State,
282 Minn. 245, 164 N.W. 2d 369 (1969); State v. Board of
Foreign Missions of Augustana Synod, 221 Minn. 536, 22
N.W. 2d 642 (1946).
A-33
This is a claim for tax exemption. The Bank seeks to be
treated differently from other taxpayers in the same class.
The United States Supreme Court long ago said language
granting tax immunity must be unequivocal. “It is the settled
doctrine of this Court that an immunity from taxation by the
state will not be recognized unless granted in terms too plain
to be mistaken.” Chicago, Burlington & Kansas City Railroad
v. Missouri ez rel, Guffey, 7 S. Ct. 693, 696, 120 U.S. 569,
575 (1887). Although this is an immunity claimed under
federal rather than state law, the requirement that any tax
exemption should be expressed in clear and unmistakable
language obtains.
Congress could not have had this 1973 Minnesota law in
mind when it first enacted this requirement in 1916. It is
more logical to assume it wanted the banks to pay all non-
discriminatory real estate taxes on the same basis as other
taxpayers even though it might not be calculated strictly on
its market value, particularly where that value could not be
determined without prohibitive cost.
The federal circuit court in the case of Sword v. Nutt, 11
F. 2d 936 (9th Cir. 1926) dealt with a contested assessment
for public improvements which the taxpayer argued was a
tax that should be voided because it was not based on value.
The court discussed nearly identical language contained in
the federal law regulating National Banks which provided:
Nothing herein shall be construed to exempt the real
property of associations from either state, county, or
municipal taxes, to the same extent, according to its
value, as other real property is taxed. Revised Statutes,
§ 5219.
A-34
The thrust of this decision is one we agree with—that a
national bank owning real estate should be treated equally
with other property owners.
. . . But it is clear that the sole purpose of section 5219
is to protect the real property of national banks against
unequal assessments or assessments that shall discrimi-
nate against the same, Sword v. Nutt, 11 F. 2d at 988.
Nothing is found in the national legislation on the
subject to justify the conclusion that Congress, in grant-
ing to national banks authority to own real estate,
intended to absolve such property from the burdens im-
posed by state authority upon like lands within its
domain. Sword v. Nutt, 11 F. 2d at 937.
The Sword v. Nutt, Supra case was ultimately decided on
the ground that the assessment was not a tax. Nevertheless,
the court’s view of congressional intent is consistent with our
decision in this case.
We think the language of Sec. 2055 read in its entirety
indicates a congressional intent to have Federal land banks
pay all local real estate taxes on the same basis and to the
same extent that other owners are taxed. They should not be
singled out to pay on a value higher than similarly situated
taxpayers nor should they be exempt from taxes paid by
similarly situated taxpayers based on acreage where value
is not susceptible of accurate determination. A contrary deci-
sion would give Federal land banks a special immunity from
nondiscriminatory real estate taxes and, in our opinion, would
be a result not compelled nor contemplated by Sec. 20565.
A second defense raised by the Bank is that the tax on
severed mineral interests is invalid under the equal protection
clause of the federal constitution and the uniformity clause
of the Minnesota constitution because the taxation of all
A-35
severed mineral interests at a uniform rate, despite sub-
stantial disparities in value, is arbitrary and capricious.
Identical arguments were made in the Contos case and the
trial court (Hon. Harold W. Schultz) made the following
Conclusions of Law:
3. The classification and treatment for tax purposes,
of severed mineral interests separately and apart from
unsevered mineral interests as well as all other interests
in real property violate neither the equal protection pro-
visions of the State and Federal Constitutions (Minn.
Const. Art. 1, § 2; U.S. Const. Amend. XIV, § 1) nor
the State constitutional provision against special legisla-
tion (Minn. Const. Art. 12, § 1).
4+ The taxation of severed mineral interests in the
manner and at the rates provided by Minnesota Statutes,
Section 273.18, Subdivision 2a (1974) violates neither
the uniformity clause of the State Constitution (Minn.
Const. Art. 10, § 1), nor the equal protection or due
process clause of the Federal Constitution (U.S. Const.
Amend. XIV, § 1).” (Exhibit A, Conclusions 3 and 4)
The Minnesota Supreme Court affirmed the judgment of
the district court “in all respects”. Contos v. Herbst, 278
N.W. at 736. We consider that decision binding on this court.
We find no other reason to consider this tax unconstitu-
tional or unenforcsable against the Bank and therefore are
granting St. Louis County’s Motion for summary judgment
which, of course, has the effect of denying the Bank’s motion
for summary judgment.
EARL B. GUSTAFSON
Judge
A-36
DORSEY, MARQUART, WINDHORST,
WEST & HALLADAY
2300 First National Bank Building
Minneapolis, Minnesota 55402
(612) 340-2600
Cable: Dorow
Telex : 29-0605
Telecopier : (612) 340-2868
1468 W-First National Bank Building
St. Paul, Minnesota 55101
(612) 227-8017
115 Third Street Southwest
Rochester, Minnesota 55901
(507) 288-3156
April 29, 1977
Clerk of District Court
St. Louis County Courthouse
Duluth, Minnesota
Re: The Federal Land Bank of Saint Paul—
Answer in 1977 Tax Delinquency Proceedings
Dear Sir:
We enclose for filing pursuant to Minnesota Statutes, Sec-
tion 279.15, an Answer of The Federal Land Bank of Saint
Paul in tax delinquency proceedings and our check in the
amount of $10.00 in payment of the filing fee for the Answer.
The tax involved in this case is the tax on severed mineral
interests imposed by Minnesota Statutes, Section 273.13, Sub-
division 2a. One of the defenses raised in the Answer is that
this tax is unconstitutional on several grounds. The same issue
is now pending before the Minnesota Supreme Court in Contos
v. Herbst, Supreme Court File No. 47346. We request that
A-37
the present Answer not be placed upon the trial calendar until
a final decision has been rendered in the Contos case in order
to avoid unnecessary duplication of effort and expense. If
there should be any difficulty in granting this request, I
would appreciate your contacting me.
Very truly yours,
JOHN W. WINDHORST, JR.
IWWdr:dn
Enclosures
STATE OF MINNESOTA DISTRICT COURT
County of St. Louis Sixth Judicial District
* —
In the matter of the Proceedings to Enforce Payment of the
Tax on Mineral Interests Assessed Pursuant to Minnesota
Statutes, Section 273.13, Subdivision 2a, and Remaining De-
linquent on the first Monday in January, 1977, for the County
of St. Louis, State of Minnesota.
141137
(Petition)
ANSWER OF THE FEDERAL LAND BANK
OF SAINT PAUL
1. Defendant has an estate, right, title, or interest in cer-
tain “mineral interests,” within the meaning of Minnesota
Statutes, Section 273.13, Subdivision 2a, which are situated in
the County of St. Louis, State of Minnesota, and are described
in Exhibit A attached hereto.
2. The duly constituted local and county officials have
levied and assessed a tax upon said mineral interests in 1975,
for payment in 1976, pursuant to Minnesota Statutes, Section
273.13, Subdivision 2a.
A-38
8. Defendant did not pay the tax described in Paragraph
2, and permitted it to become delinquent. The mineral interests,
and the taxes in respect thereto, were thereupon included in
the delinquency list filed with the clerk of district court pur-
suant to Minnesota Statutes, Section 279.05, and published by
the county auditor in Chisholm Free Press on April 14, 1977
and April 21, 1977, pursuant to Minnesota Statutes, Section
279.09.
4. The mineral interests described in Paragraph 1 are
exempt from the tax imposed pursuant to Minnesota Statutes,
Section 273.13, Subdivision 2a, and because (a) said tax vio-
lates the uniformity clause of Article X, Section 1 of the Min-
nesota Constitution, the equal protection clause of the Four-
teenth Amendment to the United States Constitution, the
prohibition upon class or special legislation contained in
Article I, Section 2 and Article XII, Section 1 of the Minne-
sota Constitution and the Fourteenth Amendment to the
United States Constitution, and the due process clauses con-
tained in Article I, Section 7 of the Minnesota Constitution
and the Fourteenth Amendment to the Federal Constitution;
and (b) Title 12, Section 2055 of the United States Code ex-
empts federal land banks from said tax because it is not a
tax “on real estate .. of a federal land bank] to the same
extent, according to its value, as other similar property held
by other persons is taxed.”
5. Accordingly, the levy and assessment upon the mineral
interests described in Paragraph 1 of the tax on mineral
interests imposed by Minnesota Statutes, Section 273.13, Sub-
division 2a, was erroneous.
WHEREFORE, defendant prays that the Court determine
that the levy and assessment of the tax in question was er-
roneous, and that it order judgment discharging the parcels
A-39
from such taxes and from all penalty and interest liabilities
in respect thereto, allowing defendant its costs and disburse-
ments, and granting such other relief as may be just and
proper.
Dated: April 1, 1977.
THE FEDERAL LAND BANK OF SAINT PAUL
By DONALD F. HATHAWAY
Its Assistant Secretary
STATE OF MINNESOTA
COUNTY OF RAMSEY—<«s
Donald F. Hathaway, being first duly sworn, says that he
is the Assistant Secretary of The Federal Land Bank of
Saint Paul, the defendant named in the foregoing Answer;
that he has read the Answer and knows the contents thereof;
and that the Answer is true to his own knowledge.
DONALD F. HATHAWAY
Subscribed and sworn to before me this Ist day of April, 1977.
Janette L. Oss, Notary Public—Minnesota, Dakota County.
My Commission Expires June 14, 1983.
DORSEY, WINDHORST,
HANNAFORD, WHITNEY &
HALLADAY
JOHN W. WINDHORST, JR.
2300 First National Bank Bidg.
Minneapolis, MN 55402
Telephone: (612) 340-2645
Attorneys for Defendant
A
ALLISON CONTOS, et al.,
Appellants,
v.
ROBERT L. HERBST, Individually, and as Commissioner
of the Minnesota Department of Natural Resources, et al.,
Respondents,
ANDREW KORDA, Individually, and as Auditor for
St. Louis County,
Respondent,
MINNESOTA CHIPPEWA TRIBE,
Respondent.
No. 473846.
Supreme Court of Minnesota.
Jan. 26, 1979.
Rehearing Denied March 13, 1979.
Owners of severed mineral interests brought action seeking
declaration that registration, forfeiture and tax provisions of
the Mineral Registration Act are unconstitutional and an
injunction prohibiting their enforcement. The District Court,
Ramsey County, Harold W. Schultz, J., concluded that the
registration, taxation, and forfeiture provisions were con-
stitutional but that the procedures attending the forfeiture
provisions were unconstitutional, and appeals were taken.
The Supreme Court, Kelly, J., held that: (1) Mineral Registra-
tion Act, which classifies separate mineral interests for pur-
poses of taxation, does not violate uniformity clause of Minne-
sota Constitution; (2) uniformity clause did not require that
real property taxes be related to value; (3) forfeiture provi-
sions of Act did not violate due process clause of State and
Federal Constitutions; (4) procedures attending forfeiture —
A-41
provisions of Act violate due process clause of State and
Federal Constitutions, and (5) language governing registra-
tion requirements of Act is not unconstitutionally vague.
Affirmed.
> 7 . * *
Syllabus by the Court
1. L. 1973, e. 650, art. XX [mineral registration act]
which classifies severed mineral interests for purposes of tax-
ation does not violate the uniformity clause of the Minnesota
Constitution.
2. The uniformity clause does not require that real prop-
erty taxes be related to value.
8. The forfeiture provisions of the mineral registration
act do not violate the due process clauses of the state and
Federal constitutions.
4. The procedures attending the forfeiture provisions of
the mineral registration act violate the due process clause of
the state and Federal constitutions because the notice provi-
sions are inadequate and because an owner of severed mineral
interest who fails to comply with the registration require-
ment is denied an opportunity for a hearing before the for-
feiture occurs.
5. The language governing the registration requirements
of the mineral registration act is not unconstitutionally vague.
Hanft, Fride, O’Brien & Harries and Tyrone P. Bujold and
Paul J. Lokken, Duluth, for appellants.
Warren Spannaus, Atty. Gen., C. Paul Faraci, Deputy
Atty. Gen., Philip Olfelt, Asst. Atty. Gen., Stephen G. Thorne,
Sp. Asst. Atty. Gen., Keith Brownell, County Atty., Leo
McDonnell, Asst. County Atty., Duluth, Kent Tupper, Walker,
for respondents.
A-42
Heard, considered, and decided by the court en banc.
KELLY, Justice.
In 1969 the legislature enacted Minn. St. 93.52, which
required every owner of a fee simple interest in minerals
which interest is owned separately from the fee title to the
surface of the property [hereinafter referred to as severed
mineral interests] to file for record a verified statement
describing that interest with the register of deeds or the
register of titles in the county where the interest is located.
Minn. St. 93.52, subd. 2. The purpose of this requirement, as
stated by the legislature, was:
“* * * [T]lo identify and clarify the obscure and
divided condition of severed mineral interests in this
state. Because the ownership condition of many severed
mineral interests is becoming more obscure and further
fractionalized with the passage of time, the development
of mineral interests in this state is often impaired. There-
fore, it is in the public interest and serves a public pur-
pose to identify and clarify these interests.” Minn. St.
9352, subd. 1.
Notice of the registration requirement was provided by pub-
lication of the legislation in legal newspapers within each
county of the state and in two publications related to mining
activities having nationwide circulation. Minn. St. 1971,
§ 93.58.
In 1978 the legislature enacted additional legislation con-
cerning severed mineral interests which is the basis for this
action. L. 1973, c. 650, art. XX hereafter referred to as
mineral registration act. First, the legislature provided that
anyone who failed to file the verified statement within the
statutory period would forfeit that interest to the state. The
only remedy for persons claiming an ownership interest at
A-43
the time of forfeiture was the recovery of the fair market
value of the mineral interest at the time of the forfeiture or
at the time of trial, whichever is lesser. Minn. St. 93.55. The
legislature found the additional legislation necessary “to pro-
vide adequate identification of [severed mineral interests]
and to prevent the continued escape from taxation of obscure
and fractionalized severed mineral interests.” Minn. St.
272.0389.
Secondly, the legislature subjected severed mineral interests
not otherwise taxed to a tax of $.25 per acre per year or $2.00
per interest per year, whichever is greater. Minn. St. 272.04,
subd. 1; 273.13, subd. 2a. In describing the basis for imple-
menting the tax the legislature enacted the following:
“The legislature finds, for the reasons stated below,
that a class of real property has been created which, al-
though not exempt from taxation, is not assessed for
tax purposes and does not therefore, contribute anything
toward the cost of supporting the governments which
protect and preserve the continued existence of the
property. These reasons are as follows: (1) In the case of
Washburn v. Gregory, 1914, 125 Minn. 491, 147 N. W.
706, the Minnesota Supreme Court determined that where
mineral interests are owned separately from the surface
interests in real estate, the mineral interest is a separate
interest in land separately taxable, and does not forfeit
if the overlying surface interest forfeits for nonpayment
of taxes due on the surface interest; (2) Since this 1914
decision, mineral interests owned separately from the
surface have been valued and assessed for tax purposes,
as a practical matter, only if the value of the minerals
has been determined through drilling and drill core analy-
sis, and (3) The absence of taxation of mineral interests
A-44
owned separately from the surface, except where drilling
analysis is available, has encouraged the separation of
ownership of surface and mineral estates and resulted
in the creation of hundreds of thousands of acres of
untaxed mineral estate lands which thus are immune
from tax forfeiture. The legislature also finds that the
province of Ontario in Canada, which has land ownership
patterns and mineral characteristics similar to that of
Minnesota, has imposed a tax of $.50 an acre on minerals
owned separately from the surface since 1968, and $.10
an acre before that. The legislature further finds that
the identification of separately owned mineral interests
by taxing authorities requires title searches which are
extremely burdensome and, where no public tract index
is available, prohibitively expensive. This result is caused
in part by the decision in Wichelman v. Messner, 1957,
250 Minn. 88, 83 N.W.2d 800, where the so called ‘40
year law’ was held inapplicable to mineral interests
owned separately from surface interests. On the basis
of the above findings, and for the purpose of requiring
mineral interests owned separately from surface interests
to contribute to the cost of government at a time when
other interests in real property are heavily burdened with
real property taxes, the legislature concludes that the
taxation of severed mineral interests as provided in sec-
tion 278.13, subdivision 2a is necessary and in the public
interest, and provides fair taxation of a class of real
property which has escaped taxation for many years
„„., Minn. St. 272.089.
Plaintiffs, owiieé?é of severed mineral interests situated
primarily in northern Minnesota, brought this action seeking
a declaration that the registration, forfeiture and tax provi-
A-45
sions of the mineral registration act are unconstitutional and
an injunction prohibiting their enforcement. The district court,
siting (sic) without a jury, entered findings of fact which
agreed with the legislative findings quoted previously. In
addition the district court incorporated in its findings a
description of the history and magnitude of the severed in-
terest phenomenon contained in an amicus brief prepared by
attorney W. K. Montagne for the case of Kangas-Jacobsen
Dairy, Inc. v. Lloyd-Smith, 241 Minn. 317, 62 N.W.2d 915
(1954) :
“They [severed mineral interests] are of wide extent:
the entire length of the Mesabi Range from Gunflint
Lake * * * down to Grand Rapids, to a width of probably
twenty miles from the iron formation, is blanketed with
mineral reservations, on each side of the east end of the
Mesabi Range through Lake and Cook counties down to
Lake Superior, a distance of fifty to sixty miles, nearly
every forty has a mineral reservation. Large areas in
Carlton and Crow Wing Counties are similarly covered.
While we are not familiar with details of mineral reserva-
tions in other Northern Minnesota counties, we under-
stand they are not uncommon. Every city and village on
the Mesabi Range from Aurora through Eveleth, Vir-
ginia, Chisholm, Hibbing, down to Coleraine, is located
on lands subject to mineral reservations. Every home,
store, factory and farm in that area is subject thereto.”
The district court’s findings of fact concerning the taxa-
tion of severed mineral interests also incorporated a descrip-
tion contained in the amicus brief of attorney Montague:
“In a substantial number of cases the reservations
[severed mineral interests] were created as a result
A-46
of the tax laws, and do not represent arm’s length negotia-
tions between parties. They represent deliberate attempts
to arrange a transaction under which the grantor could
retain for generations his speculative interest in the
minerals without carrying charges, and, if merchantable
ore should ever be discovered, could re-acquire the surface
without cost.”
The district court specifically found that 140,000 to 145,000
acres of the 721,640 acres of severed mineral interests owned
by plaintiff United States Steel were created through a series
of transactions between United States Steel and its subsid-
iaries whose purpose was to avoid ad valorem property taxes
on property valuable primarily for its mineral potential. The
district court further found that plaintiffs paid ad valorem
property taxes on approximately 3,212 of their 1,262,664 acres
of severed mineral interests.' Reference to additional findings
of fact follows where appropriate.
Based on its findings of fact the district court concluded
that the registration, taxation, and forfeiture provisions were
constitutional but that the procedures attending the forfeiture
provisions were unconstitutional. By virtue of the latter con-
clusion the district court further concluded that defendants
be enjoined from claiming or asserting an ownership in plain-
tiffs’ mineral interests by reason of the forfeiture procedures.
Judgment was entered accordingly. Plaintiffs appeal from
that part of the judgment upholding the registration, taxation
and forfeiture provisions; defendants appeal from that part
of the judgment invalidating the procedures attending for-
feiture and granting injunctive relief. We affirm the judg-
ment of the district court in all respects.
Ot the 3,212 acres the majority were taxed at $1.00 per acre
pursuant to the tax on unmined taconite. Minn. St. 298.26.
AAT
The issues presented are the following: (1) Whether the
classification of severed mineral interests for purposes of
taxation violates the uniformity clause of the Minnesota
Constitution; (2) whether the uniformity clause of the Minne-
sota Constitution requires that taxation of property be related
in some way to its value; (3) whether the forfeiture provi-
sions violate the due process clauses of the state and Federal
constitutions; (4) whether the procedures attending the for-
feiture provisions comport with the due process clauses of
the state and Federal constitutions; and (5) whether the
language governing the registration requirements is uncon-
stitutionally vague.
[1-3] 1. The uniformity clause of the Minnesota Con-
stitution reads in part:
“Taxes shall be uniform upon the same class of subjects
and shall be levied and collected for public purposes
„. Minn. Const. art. 10, § 1.
In applying that provision we have stated that the legislature
has a wide discretion in classifying property for purposes
of taxation. Where the classification has a reasonable basis
in fact, the judgment of the legislature will not be disturbed.
See Johnson v. Donovan, 290 Minn. 421, 188 N.W.2d 864
(1971) ; State v. Minnesota Farmers’ Mut. Ins. Co., 145 Minn.
231, 176 N.W. 756 (1920). Every presumption being invoked
in favor of the constitutionality of an act of the legislature,
plaintiffs have the burden of proof to show beyond a reason-
2The uniformity clause of our state constitution is no more re-
strictive upon the legislature’s power to tax or classify than is
the Equal Protection Clause of the Fourteenth Amendment.
Elwell v. County of Hennepin, 301 Minn. 63, 221 N.W.2d 538 (1974).
The United States Supreme Court has stated that where taxation
is concerned and no specific Federal right, other than equal
protection, is involved, the states have considerable discretion.
Lehnhausen v. Lake Shore Auto Parts Co., 410 US. 356, 93 S.Ct.
1001, 35 L.Ed.2d 351 (1973).
A-48
able doubt that the act conflicts with the uniformity clause
of the state constitution. See Elwell v. County of Hennepin,
301 Minn. 63, 221 N.W.2d 538 (1974).
Plaintiffs contend that they have met their burden in that
the record shows that there is no difference between severed
and unsevered mineral interests which can constitutionally
justify the tax imposed on the former“ without similar treat-
ment of the latter. Specifically plaintiffs argue that, to the
extent severed mineral interests have gone untaxed, so too
have unsevered mineral interests escaped taxation. In addition
plaintiffs argue that the practical problems attending the tax-
ation of severed mineral interests; i.e., the difficulty in valu-
ating and assessing severed mineral interests, apply with equal
force to unsevered mineral interests. We disagree with plain-
tiffs’ view of the record.
The pertinent provisions of Minn. St. 273.13, subd. 2a, which sub-
jects severed mineral interests to taxation, read in part: “Class
1b. ‘Mineral interest’, for the purpose of this subdivision, means
an interest in any minerals, including but not limited to gas, coal,
oil, or other similar interest in real estate, which is owned sep-
arately and apart from the fee title to the surface of such real
property. Mineral interests which are filed for record in the offices
of either the county recorder or registrar of titles pursuant to
sections 93.52 to 93.58, constitute class 1b, and shall be taxed as
provided in this subdivision unless specifically excluded by this
subdivision. A tax of $.25 per acre or portion of an acre of mineral
interest is hereby imposed and is due and payable annually. If an
interest filed pursuant to sections 93.52 to 93.58 is a fractional
undivided interest in an area, the tax due on the interest per acre
or portion of an acre is equal to the product obtained by multi-
plying the fractional interest times $.25, computed to the nearest
cent. However, the minimum annual tax on any mineral interest
is $2. No such tax on mineral interests is due and payable on the
following: (a) Mineral interests valued and taxed under other
laws relating to the taxation of minerals, gas, coal, oil, or other
similar interests; (b) Mineral interests which are exempt from
taxation pursuant to constitutional or related statutory provisions
A-49
Upon the evidence the district court entered the following
finding of fact:
“Where taxable real property includes the rights to
both surface and mineral interests (estates), the assessed
valuation, and hence the property tax levied, reflects the
value, if any, assigned by market forces to the totality
of these rights. Plaintiffs have failed to demonstrate that
such ‘unsevered’ mineral rights have, like severed mineral
interests, escaped ad valorem property taxation.”
This finding is supported by the testimony of Peter N. Hand-
berg, the St. Louis County Assessor. He testified that in deter-
mining the “market value” of a parcel of land for tax purposes
he looks to “sales of comparable properties wherever they are
available,” and that for rural lands (which account for the
bulk of severed mineral interests) “sales are the only basis”
for determining market value. These comparisons are made
on the assumption that the entire “bundle of rights” that
comprise the fee simple interest in the parcel, including min-
eral rights, are merged in one owner.
{4, 5] The value determined by this method might very
well be affected by the value of the mineral rights. Mr. Hand-
berg so testified in response to a question put to him by one
of plaintiffs’ attorneys:
“Q. Now, as a practical matter, in St. Louis County,
with the exception of the Mesabi or Biwabik Iron forma-
tion * *, would you agree that the practice is and has
been as long as you have known it, not to include the
value of the minerals in arriving at an assessment where
there is no objective evidence or reliable data to indicate
whether or not there are minerals located therein?
THE WITNESS [Mr. Handberg]: I don't think that’s
a correct statement. I think that the value we put on the
A-50
property based on sales of similar property do include a
mineral value. For example, if the property is sold in an
area where the mining companies are interested or many
properties are sold, it drives up the sales prices of the
property, and so we use the sale prices as a basis of our
valuation.”
The fact that assessors may not value mineral interests as a
separate item is not significant. As Mr. Handberg’s testimony
clearly shows the value of a piece of property is a composite
of a number of factors, one of which includes the value of the
mineral interests if unsevered. Cf. Independent School Dist.
No. 99 v. Commr. of Tazation, 297 Minn. 378, 211 N.W.2d 886
(1978). In determining market value of property for ad va-
lorem tax purposes, assessing authorities should consider and
give due weight to every element and factor affecting market
value. Therefore the district court’s finding that unsevered
mineral interests are valued and taxed under the normal ad
valorem property tax system is adequately supported by the
evidence. Since none of the parties disputes the district court’s
findings that severed mineral interests have escaped taxation,
we cannot say that the separate classification of severed min-
eral interests is without a reasonable basis in fact. Johnson
v. Donovan, supra. ,
Concerning the separate taxation of severed mineral inter-
ests the district court made two critical findings. First, the
district court found that most severed mineral interests can-
not be assessed for ad valorem property tax purposes for two
reasons:
“(1) The value of the mineral in the ground can only
be determined by prohibitively expensive exploration such
as drilling and drill core analysis; and
A-451
(2) Data currently available to assessors on sales and
exchanges of the property rights in mineral estates (i. e.,
severed mineral interests) is very limited. Therefore, in
most cases such available data is insufficient to permit the
derivation of market values for individual severed mineral
interests from the sales prices or values of comparable
interests.”
Second, the district court found that every mineral interest in
Minnesota has some value as a property interest regardless
of its location, although the value of mineral interests may
vary from one part of the state to another. The first finding
is not contested.
Plaintiffs vigorously contest the second finding. They rely
on the expert testimony of Donald Lindgren, a geologist, who
testified that the value of plaintiff's mineral interests vary
widely in value, some having no economic value at the present
time. The record also contains, however, testimony of other
expert witnesses who detailed the abundance and distribution
of minerals within the state, the history of mineral develop-
ment, and the potential for future development. Even Mr.
Lindgren testified to the potential for future development.
On this record we cannot say that the district court’s finding
is clearly erroneous.
In sum the evidence supports the legislature’s findings that
a class of valuable property interests were escaping taxation
because of the practicable difficulties in identifying, valuing,
and assessing those interests within more traditional tax
schemes. In light of this evidence we cannot say that the
practical considerations which prompted the legislature to
classify separately severed mineral interests and to impose
a tax of $.25 per acre per year or $2.00 per year, whichever is
greater, were unreasonable.
A-52
That practical considerations can serve as the basis for the
classification and taxation of property was established long
ago in Mutual Benefit Ins. Co. v. County of Martin, 104 Minn.
179, 116 N.W. 572 (1908).* There this court upheld the taxa-
tion of mortgages separately from other personalty with the
following language:
“There were good and sufficient reasons why a special
method should be devised for the taxation of this kind of
property. It is a notorious fact that the owners of secur-
ities in the form of bonds and notes have not been in the
habit of paying their proportionate share of the taxes.
This has been due in a measure to the ease with which
the existence of such property can be concealed from the
tax officials. But when the owner of a note takes a mort-
gage on real estate as security and places it upon the
public records, he exposes his ownership * and enables
the assessor to reach him. * * The owner is thus tempted
to seek some devious method for escaping taxation, in
order that he may be on an equality with the owner of
an unsecured note or bond, which rests undiscovered in
a safety deposit vault. * * * Experience has shown that
it is very difficult, if not impossible, to fairly and suc-
cessfully tar this kind of property under the system
ordinarily applied to personal property. This practical
difficulty alone furnishes a basis for a classification, and
justifies the legislature in devising a special method for
the tazation of the subjects of that class. * * By requir-
ing a registration tax, every mortgage security pays a
The United States Supreme Court has also recognized practical
considerations as sufficient bases for state tax classifications. See
Lehnhausen vo. Lake Shore Auto Parts Co., 410 US. 35%, 3 S.CL
1001, 356 LEA 351 (1973); Medden tb. Kentucky, 398 US. 5&3.
6 S.Ct. 06, L.Ed 580 (1940).
A-53
moderate tax, and this, in the judgment of the legislature,
is preferable to the certain uncertainties of the old sys-
tem.” (Emphasis added.) 104 Minn. 182, 116 N.W. 574.
Cf. Johnson v. Donovan, supra.
We think the reasoning in the Mutual Benefit case applies
with equal force here. Here the taxation of severed mineral
interests in the same manner as other realty proved to be
impracticable and also, because of this impracticability, had
encouraged the separate ownership of surface and mineral
estates. A class of property having some value was not paying
its proportionate share of taxes. The remedy chosen by the
legislature was to tax mineral interests on a uniform basis,
which is but one part of the general system of mineral taxa-
tion. The tax is imposed only on those mineral interests not
“valued and taxed under other laws relating to the taxation
of minerals, gas; coal, oil or other similar interests.” Minn.
St. 273.13, subd. 2a. For example: the state tells us that where
the value of the minerals themselves is determined, a tax is
levied on the basis of such value. Unmined iron ore, except
certain low recovery ore, is designated as Class la real prop-
erty, presently assessed at 50 percent of its market value, and
taxed at the prevailing mill rate. Minn.St. 273.13, subd. 2. Low
recovery iron ores also fall within class la but are valued at
from 30 percent to 48½ percent of market value. Minn.St.
273.15. Unmined taconites and iron sulphides are to be as-
sessed and taxed on the basis of value with the one important
difference that the tax may not exceed $10.00 per acre. Minn.
St. 298.26. Finally, all other severed mineral interests, to the
extent they can be valued, are susceptible to ad valorem tax-
ation pursuant to Minn.St. 272.04 in the same manner as other
interests in land. In effect the legislature has directed that
severed mineral interests be taxed in relation to value or
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production where possible but that under no circumstances
can such an interest be taxed at less than $2.00 per interest.
We cannot say that the legislature has exceeded its discretion.
The cases upon which plaintiffs rely do not compel a con-
trary conclusion. In State ez rel. Owen v. Donald, 161 Wis.
188, 153 N. W. 238 (1915), the plurality opinion declared
unconstitutional a statute which imposed a tax on severed
mineral interests. The concurring opinion of Justice Timlin,
however, indicates that the reason the statute was invalid was
because its tax forfeiture provisions treated owners of severed
mineral interests differently from owners of other property
interests. Likewise, in Northwestern Improv. Co. v. Morton
County, 78 N.D. 29, 47 N.W.2d 543 (1951), the statute taxing
severed mineral interests was unconstitutional because it im-
posed a tax on severed mineral interests created by reserva-
tions in deeds but did not tax severed mineral interests created
by a direct conveyance of the mineral interest. The court cited
an earlier decision upon which plaintiffs heavily rely, North-
western Improv. Co. v. State, 57 N.D. 1, 220 N. W. 436 (1928),
only for the proposition that a classification cannot be based
solely on the manner mineral rights are severed from the
surface interest. The North Dakota Supreme Court did not
give the decision the broad interpretation the plaintiffs urge
this court to adopt.
(6) 2. Plaintiffs also argue that the Minnesota Con-
stitution requires that real property taxes be related to value.
Plaintiffs have cited no authority, however, and we have dis-
covered none, that directly supports their argument. To the
contrary the language of the constitution and its interpreta-
tion by this court suggest that the controlling constitutional
provision was specifically amended to eliminate the absolute
requirement that taxes be related to value.
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The Minnesota Constitution currently provides only that
“(t]axes shall be uniform upon the same class of subjects
* * *.” Minn. Const. art 10, § 1. Prior to 1906, however, the
Minnesota Constitution required “taxes to be as nearly equal
as may be, and all property on which taxes are to be levied
shall have a cash valuation, and be equalized and uniform
throughout the state.” Minn. Const. art. 9, § 1 (1857),
amended 1869, 1881, 1894, 1906. Interpreting the prior con-
stitutional language, this court declared unconstitytional a
probate fee arbitrarily based upon a cash valuation, State v.
Gorman, 40 Minn. 232, 41 N.W. 948 (1889); and a tax of
one per cent per ton on iron ore mined within the state. State
v. Lakeside Land Co., 71 Minn. 283, 78 N.W. 970 (1898). In
response to a number of unfavorable tax decisions the people
of the state amended the constitution in 1906 to its present
broad provision. Anderson, The Need for Constitutional Revi-
sion in Minnesota, 11 Minn. L, Rev. 189, 204. The purpose of
the 1906 amendment was to free the legislature from most of
the previous constitutional restraints.
“The fair adjustment of tax burdens * * * demanded
more comprehensive powers in the legislature; and the
people, relying upon the responsibility of that body to its
constituents, relaxed the restraints theretofore existing.”
Reed v. Bjornson, 191 Minn. 254, 259, 253 N.W. 102, 104
(1984).
The “wide-open tax amendment,” as it was popularly called,
eliminated the “absolute requirement of taxation of all prop-
erty on the basis of a cash valuation.” W. Anderson, A History
of the Constitution of Minnesota 190 (1921).
The cases upon which plaintiffs rely do not directly support
their position. In Independent School Dist. No. 99 v. Commr.
of Taxation, 297 Minn. 378, 211 N.W.2d 886 (19738), this court
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reversed a decision of the Tax Court because the record did
not indicate whether the assessing authorities considered
every element affecting market value as required by the
statutory scheme. The decision did not, however, contain any
language indicating market value was a constitutional require-
ment. Similarly, plaintiffs’ reference to Minn. St. 273.11 as
legislative recognition that property must be taxed according
to value can be equally rationalized as a legislative recognition
of equality. See Jn re Petition of Dulton Realty, Inc. v. State,
270 Minn. 1, 15, 182 N.W.2d 394, 405 (1964).
(7, 8] Nor are cases involving the validity of assessments
for real estate taxes persuasive. See In re Petition of Dulton
Realty, Inc. v. State, supra; In re Petition of Hamm v. State,
255 Minn. 64, 95 N.W.2d 649 (1959), Both cases simply re-
quire that taxes on any one piece of roperty be uniform in
relation to the taxes levied on other property of the same
class. It is true that this court said, in reference to the uni-
formity clause, that it does not “permit the adoption of an
arbitrary yardstick of valuation for all properties which
ignores their differences in actual market value.” 255 Minn.
70, 95 N.W.2d 654. Here however, none of the parties contest
the fact that severed mineral interests cannot readily be
valued. Taken together with the district court’s finding that
every mineral interest has some value as a property interest
regardless of its location, the uniform tax imposed on severed
mineral interests represents a reasonable exercise of the
legislature's authority to tax a class of real property that has
escaped taxation. The uniformity clause does not require
absolute equality :
„ © The distribution of the tax burden in such
manner as seems equitable is recognized as a proper
exercise of the power of taxation. The selection of sub-
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jects of taxation * * * is inherent in that power. The
process of selection involves classification with resulting
diversity in the subjects selected for taxation * * * as
well as in the amount of the tax.” C. Thomas Stores Sales
System, Inc. v. Spaeth, 209 Minn. 504, 297 N.W. 9, 16
(1941).
As noted earlier the separate classification of severed mineral
interests is reasonable. Therefore the fact that the amount
of tax may vary in some instances depending on the number
of owners does not make the tax constitutionally infirm.“
Plaintiffs also have referred to cases from other jurisdic-
tions which support their position. See, e.g., State of Teras
v. Federal Land Bank of Hous
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