# Petition — County of St. Louis v. Federal Land Bank of St. Paul > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_1418%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1984 - **Citation:** 466 U.S. 928 ## Text 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_1418%3A1. Public record. Not legal advice.