Amicus Curiae Brief — Arkansas v. Farm Credit Servs. of Central Ark.

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No. 95-1918

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

STATE OF ARKANSAS

Petitioner,

v.

FARM CREDIT SERVICES OF CENTRAL ARKANSAS,

PCA, et al.

Respondents.

BRIEF OF THE STATES OF OHIO, CALIFORNIA,

IDAHO, IOWA, MARYLAND, MICHIGAN,

NEBRASKA, NEW HAMPSHIRE, NORTH DAKOTA,

SOUTH DAKOTA, UTAH, WEST VIRGINIA AND

WISCONSIN AS AMICI CURIAE IN SUPPORT OF

PETITION FOR WRIT OF CERTIORARI

BETTY D. MONTGOMERY

Attorney General of Ohio

JEFFREY S. SUTTON

State Solicitor

ROBERT C. MAIER*

*(Counsel of Record for Amici)

Assistant Attorney General

Assistant Chief, Taxation Section

30 East Broad Street, 16th Floor

Columbus, Ohio 43215-3428

(614) 466-5967

(Additional List of Counsel on Inside Front Cover)

—

DANIEL E. LUNGREN

Attorney General

State of California

ALAN G. LANCE

Attorney General

State of Idaho

THOMAS J. MILLER

Attorney General

State of lowa

J. JOSEPH CURRAN, JR.

Attorney General

State of Maryland

FRANK J. KELLEY

Attorney General

State of Michigan

DON STENBERG

Attorney General

State of Nebraska

JEFFREY R. HOWARD

Attorney General

State of New Hampshire

HEIDI HEITKAMP

Attorney General

State of North Dakota

MARK W. BARNETT

Attorney General

State of South Dakota

JAN GRAHAM

Attorney General

State of Utah

DARRELL V. MCGRAW, JR.

Attorney General

State of West Virginia

JAMES E. DOYLE

Attorney General

State of Wisconsin

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ..............4.. ii

INTEREST OF THE AMICI] CURIAE .......... l

SUMMARY OF ARGUMENT .............. 2

REASONS FOR GRANTING THE WRIT

The Eighth Circuit's Decision Misapplies This

Court's Precedents, And Failure To Correct

The Error Will Create Substantial Uncertainty

In The Administration Of State Tax Laws ........ 3

The Eighth Circuit's Decision Is Plainly Erroneous,

Because Congress Intended That PCAs Not Enjoy

Immunity From State Gross Receipts And Income

Taxes. Under This Court's Decisions, Congress’

Intent Should Be Dispositive ................ 8

Applying Congress’ Immunity Statutes In Accordance

With Traditional Principles Of Statutory Construction

Respects The Proper Boundary Between Federal And

DT Geseceocecsceccscccccces 14

ES TT eee 18

ii

TABLE OF AUTHORITIES

PAGE

CASES

Allied Stores of Ohio, Inc.v. Bowers,

358 U.S. S22 (1DSD) ow we cee ccc ceeees 15

Cipollone v. Liggett Group, Inc., 505 U.S.

ee 13, 14

City of Chicago v. Environmental Defense

Fund, 114 S.Ct. 15988 (1994) ..........-. 12

Columbus Production Credit Ass'n v.

Bowers, 180 N.E.2d 1 (Ohio 1962) ........ |

Dep't of Employment v. United States,

98S U.S. 35S (19GB) 0. wwe wee eee ceees 11

Federal Land Bank of Wichita v. Bd. of

County Comm'rs, 368 U.S. 146 (1961) ... 5,12

Federal Land Bank v. Bismarck Lumber Co. ,

314 U.S. SS (IDS1) 2. ww eee cc ceveces 12

Federal Reserve Bank of Boston v.

Commissioner of Corporations

and Taxation, 499 F.2d 60

(lot Cie. 1974) 0. wc wcrc reer ew ecees 2

iii

Federal Reserve Bank of St. Louis v. Metro-

centre Improvement Dist. # 1,

657 F.2d 183 (8th Cir. 1981), aff'd

in mem. op., 455 U.S. 995 (1982) ....... 11

First Agricultural Nat'l Bank v. State Tax

Commission, 392 U.S. 339 (1968) ......... 4

Gomez v. United States, 490 U.S. 858

Des sen ehbebenebhecoetveceecan 17

Graves v. People of State of New York,

306 U.S. 466 (1937)... wee eee 16,17

Housing Authority of Seattle v. Washington

Dep't of Revenue, 629 F.2d 1307

Di Mt ho oeeee eee eles Wee ens 2

Itel Containers Int'l Corp. v. Huddleston,

ey SI ccabestecceecess 14

Jean v Nelson, 472 U.S. 846 (1985) ......... 17,18

Keene Corp. v. United States, 113 §.Ct.

ee 12

M'Culloch v. State of Maryland,

17 U.S. (4 Wheat.) 316 (1819)... .... 4, 8,15

Matthews v. Rodgers, 284 U.S. 521

Dt vesdeda CeWeabeneecensesese 15

Mescalero Apache Tribe v. Jones, 411 U.S.

PP sckveée suse wee bees oe 13, 14

iv

Nat'l Private Truck Council, Inc. v.

Oklahoma Tax Comm'n, 115 §.Ct. 2351

GREED cc ccceeoeecseeseessesesnes 15

Osborn v. Bank of the United States,

22 U.S. (9 Wheaton) 738 (1824)......... 15

Rockford Life Ins. Co. v. Illinois Dep't

of Revenue, 482 U.S. 182 (1987) ........ 16

Rodriguez v. United States, 480

tS Ff = Faaaeerrrrererrerel 12

Smith v. Davis, 323 U.S. 111 (1944) .......... 16

State of Wisconsin v. J.C. Penney Co., 311

®t |, Saeerrrrrreree 14

United States v. City of Adair, 539 F.2d

1185 (8th Cir. 1976), cert. denied

' J tS). 7. . Saar ee 11

United States v. Detroit, 355 U.S. 466

EERE cc ccccecesesececeseceses 13

United States v. State Tax Comm'n,

481 F.2d 963 (ist Cir. 1973) ..........4.- 2

Wardair Canada, Inc. v. Florida Dept. of

Revenue, 477 U.S. 1 (1986) ........-.. 14

Woodland Production Credit Ass'n v.

Franchise Tax Bd., 225 C.A.2d 293,

37 Cal. Rptr. 231 (1964) ........22545- l

we

CONSTITUTIONAL AND STATUTORY PROVISIONS

U.S. Const. art. VI, cl. 2 [Supremacy

Terrier Pe Teree 3, 8,13, 14

SEU EEE oc esesscccceccceenenets 6

PU ED oc dsedescedscdccesoees 5

TOUT KS eeeebceencbeenecesen 6,10

Cn Keenecicdeideccsanesess 6

28 U.S.C. §1341 [Tax Injunction Act]........... 2

Agricultural Credit Act of 1987, Pub. L.

100-233, 101 Stat. 1568, 1629

DD Se hbbaebaueenseboeben 1,6,7

Farm Credit Act of 1933, Pub. L. 73-43, §4(c),

48 Stat. 128, 130 (1933)............. 5,10

Farm Credit Act of 1971, Pub. L. 92-181,

§2.17, 85 Stat. 583, 602 (1971) ......... 10

REGULATORY RULING

Rev. Rul. 84-109, 1984-2C.B.7............. 17

l

INTEREST OF THE AMICI CURIAE

Amicus State of Ohio and the other amici States

submit this memorandum to express the States’ concern

regarding new difficulties in exercising their power to tax that

are raised by the decision below. Two judges of a three-

judge panel of the United States Court of Appeals for the

Eighth Circuit affirmed a District Court decision to confer

additional immunity from state taxation upon a federally-

chartered production credit association ("PCA"). Immunity

was granted over and above the immunity expressly provided

by Congress in the very enactment that authorizes the

chartering of the PCAs. This decision affects Ohio and the

other amici States directly because they face similar claims by

PCAs and by other federally-chartered entities within the

Farm Credit System. Traditionally, PCAs in which the

government owns no sliares have been subject to most State

taxes because of the language of the PCA immunity statute.

See, e.g., Woodland Production Credit Ass'n v. Franchise

Tax Bd., 225 C.A.2d 293, 37 Cal. Rptr. 231 (1964);

Columbus Production Credit Ass'n v. Bowers, 180 N.E.2d |

(Ohio 1962).

The Eighth Circuit's decision to immunize PCAs will

have an impact upon Ohio's and other States’ ability to tax

many federally chartered entities. Of particular interest is an

entity which, like the PCAs, is chartered within the Farm

Credit System under the Agricultural Credit Act of 1987.

Ohio is currently defending an action in the United States

District Court for the Southern District of Ohio against an

“agricultural credit association” ("ACA") which results from

a merger of one PCA and three federal land bank

2

associations.’ The federal action attempts to bolster a refund

claim lodged with the Ohio Department of Taxation claiming

over $2 million which the ACA paid corporate franchise tax

under the ongoing assumption that, like its PCA predecessor,

it was subject to the tax. Other amici face similar challenges

by Farm Credit entities.

SUMMARY OF ARGUMENT

The United States Court of Appeals for the Eighth

Circuit proposes a change in the law. For the first time in

their 62 year history, PCAs entirely under private ownership

are to be exempt from gross receipts and income taxes

imposed by a State. Previously, PCAs enjoyed such broad

exemption only if the federal government itself owned shares

in the institution--because that is the immunity Congress

provided by statute. The sudden shift to broad immunity

absent all government ownership occurs not by Act of

Congress, but by judicial action of the Eighth Circuit.

Arkansus' petition for certiorari should be granted

and the decisions below reversed for three closely-related

reasons: (i) judicial activism in granting tax immunity injects

‘In that case, Ohio has also asserted jurisdiction is barred by the

Tax Injunction Act, 28 U.S.C. §1341. Arkansas apparently raised that

issue at the District Court level, but the Eighth Circuit decision makes no

express mention of whether the PCAs may assert the United States’ own

exemption from the Tax Injunction Act. Regardless of the status of Farm

Credit entities as "federal instrumentalitites," a separate analysis is

necessary to determine whether a Farm Credit entity can evade the Tax

Injunction Act. See Housing Authority of Seattle v. Washington Dep't of

Revenue, 629 F.2d 1307, 1310-1311 (9th Cir. 1980); Federal Reserve

Bank of Boston v. Commissioner of Corporations and Taxation, 499 F.2d

60, 62-64 (Ist Cir. 1974); United States v. State Tax Comm'n, 481 F.2d

963, 973-75 (ist Cir. 1973).

3

confusion in the administration of state taxes by preventing

reliance on the clear language of the statutes enacted by

Congress; (ii) this Court's precedents counsel deference to

congressional intent in determining the Supremacy Clause

limitations on state taxing power--deference which should be

dispositive here because Congress clearly intended that PCAs

should not enjoy the immunity conferred by the Eighth

Circuit; and (iii) the Eighth Circuit's activist approach to tax

immunity disrupts the careful balance that this Court has

attempted to strike between the States' sovereign taxing

power and the legitimate protection of federal interests

through congressional grants of tax immunity.

REASONS FOR GRANTING THE WRIT

The Eighth Circuit's Decision Misapplies This Court's

Precedents, And Failure To Correct The Error Will

Create Substantial Uncertainty In The Administration Of

State Tax Laws.

Until the decision by the United States Court of

Appeals for the Eighth Circuit, the States were able to

determine whether, and to what extent, a federally-chartered

bank within the Farm Credit System could be subjected to

state taxation. The determination was a relatively simple

matter because States could find the scope of immunity by

reading the immunity provisions Congress enacted when it

authorized the chartering of the Farm Credit institutions. If,

however, the Eighth Circuit's decision is allowed to stand,

the days of clarity and certainty are over.

This is so because the Eighth Circuit granted two tax

4

immunities (and possibly more)’ to production credit

associations ("PCAs") over and above the immunities

Congress created by statute. Despite the fact Congress

immunized only PCA obligations and Jebentures, the Eighth

Circuit decided to immunize PCAs from Arkansas’ gross

receipts and income taxes as well. In doing so, the court not

only declined to be bound by the current language of the

statute, but also ignored statutory history clearly showing

Congress’ determination that PCAs should not enjoy such

broad immunity.

The error of the lower courts lies in their

interpretation and reliance on M'Culloch v. State of

Maryland, 17 U.S. (4 Wheat.) 316 (1819). M'Culloch--the

first and most famous of the bank immunity cases--likewise

involved a claim of immunity by a federally-chartered entity.

However, the similarity ends there. M'Culloch addressed a

situation involving (i) absolute silence by Congress on the

entire subject of immunity; (ii) discriminatory taxation against

the federally-chartered Second Bank of the United States; and

(iii) state taxation of the central federal depository and

currency functions of that bank.’ None of those factors is

? The dissenting opinion below noted that the majority did not make

clear the scope of immunity enjoyed by PCAs under its ruling, citing real

property taxation as an example. “[T]he effect of this decision may be

to exempt PCAs from state and local real property taxes, an exemption

broader than any Farm Credit institution has enjoyed in the eighty-year

history of the System.” Pet. App. at A-11, 76 F.3d at 967 (emphasis in

original).

> The federal functions of the Second Bank of the United States are

enumerated in First Agricultural Nat'l Bank v. State Tax Commission, 392

U.S. 339, 354 (1968) (Marshall, J., dissenting). These functions

included (i) presidential appointment of five out of 25 directors; (ii)

government participation in election of other directors as shareholder, and

(iii) issuance of currency which was established as legal tender. Clearly,

the Second Bank functioned the way Treasury agencies do today. This

present in this case.

Instead, this case concerns federally-chartered PCAs

whose chartering as part of the Farm Credit System was

authorized by Congress beginning with the Farm Credit Act

of 1933. These institutions were originally owned by the

federal government but are now owned privately. The

dissenting opinion below and the petition set forth the

legislative history in extenso. Suffice it here to note that

Congress never granted any immunity (beyond that of PCA

obligations, notes and debentures) that was not conditioned

upon ownership of PCA shares by the federal government.

Since the federal government no longer owns any PCA

shares, Congress intended PCAs should no longer enjoy

broad immunity.

Because Congress specifically provided the extent of

the immunity granted to PCAs, there was no reason prior to

commencement of this case for either PCAs or the States to

consider the question of immunity apart from applying the

intent of the statute enacted by Congress. Indeed, this is

true of all the entities in the Farm Credit System, because

Congress comprehensively addressed the scope of immunity

is a far cry from the private, profit-making lending functions of the

PCAs. Compare Federal Land Bank v. Bd. of County Comm'rs, 368

U.S. 146, 151-52 (1961) (acknowledging Congress’ intent in creating the

federal land banks to allow the banks “to make a profit to be distributed

to the shareholders in the form of dividends"). See also 12 U.S.C.

$2074(c) (permitting distribution of PCA net earnings). Whether PCA

earnings are in fact distributed as dividends or instead enjoyed in the form

of lower interest rates is immaterial: either way the borrower/shareholders

of the PCAs enjoy the profits of the bank's activity.

6

provided to each of the Farm Credit System entities.‘ By

bringing this action, three PCAs broke this long-standing

consensus, and they have persuaded the courts below to

ignore statutory history as well as their own past practice of

paying state taxes. They sought and obtained a brand new

grant of immunity not from Congress but from the courts.

The holding of the District Court and Court of

Appeals inevitably injects a new uncertainty into States’

efforts (i) to administer their tax laws fairly while (ii)

observing the legitimate limits on state taxation that are

inherent in our federal system of government. From now on,

reading the statutory immunity provision will not suffice to

determine whether--and to what extent--PCAs (and other

federally-chartered entities) should be exempted from State

taxes. The States must wonder whether the mere fact of a

federal charter wil! create immunities, and if so, what the

scope of those immunities are. If it is allowed to stand, the

Eighth Circuit decision would affect all States in which one

or more PCAs are still chartered to operate. Moreover, as

a result of the Agricultural Credit Act of 1987, a number of

former PCAs and other Farm Credit System entities have

merged into new entities, and the immunity status of these

* The immunity of all the federally-chartered entities within the

Farm Credit System has long been comprehensively addressed by

Congress within a single enactment. The most recent is the Agricultural

Credit Act of 1987, Pub. L. 100-233, 101 Stat. 1568 (1987). The PCA

immunity statute is set forth therein at §2.6 of the Farm Credit Act [12

U.S.C. §2077], 101 Stat. at 1633. Other provisions in the same Act

address, for example, immunity of Farm Credit Banks, §1.55 [12 U.S.C.

§2023], 101 Stat. at 1629; and the immunity of Federal Land Bank

Associations, §2.17 [12 U.S.C. §2098], 101 Stat. at 1637.

ii

‘

7

entities would in some cases be even more unclear.”

If this new uncertainty were somehow a necessary

hazard of our federal system, then the Eighth Circuit's

decision could perhaps be justified and permitted to stand--but

such is not the case. This Court's precedents counsel greater

respect than that shown by the Eighth Circuit for Congress’

own determination of what immunities may be necessary to

preserve the interests of the federal government.

As the discussion below shows, this case presents a

classic example of a Court of Appeals decision addressing a

question of federal law which "should be settled by this

Court" because of its important ramifications for the

administration of state tax systems. In addition, it will be

shown below that the Eighth Circuit's failure to defer to clear

congressional guidance "conflicts with applicable decisions of

this Court," Rule 10.1(c). Therefore, certiorari should be

granted and the decision below reversed.

* As noted, Ohio is currently defending an action brought by an

“agricultural credit association" ("ACA") which is the successor to one

PCA and three federal land bank associations. Other amici also face

refund claims by ACAs. Nowhere does the Agricultural Credit Act of

1987--or the technical corrections act passed in 1988--provide any

immunity to the merged entity. Indeed, no statute even acknowledges any

alleged federal instrumentality status of ACAs. The status of such

merged entities could be clarified by a ruling that coiis must look to the

statutes as binding on the immunity question.

8

The Eighth Circuit's Decision Is Plainly Erroneous,

Because Congress Intended That PCAs Not Enjoy

Immunity From State Gross Receipts And Income Taxes.

Under This Court's Decisions, Congress' Intent Should Be

Dispositive.

The key flaw in the reasoning of the Eighth Circuit

can be found in the following passage in the majority opinion:

Beginning with M’'Culloch v. State of

Maryland, 4 Wheat. 316 (1819), the Supreme

Court has repeatedly held that because of the

Supremacy Clause of the United States

Constitution, states have no power to tax

federally created instrumentalities absent

Congressional authorization.

Pet. App. at A-3; 76 F.3d at 963.

The next sentence quotes the following language from

M'Culloch:

"[T]he states have no power, by taxation or

otherwise, to retard, impede, burden, or in

any manner control, the operations of the

constitutional laws enacted by Congress to

carry into execution the powers vested in the

general government. This is, we think, the

unavoidable consequence of that supremacy

which the constitution has declared."

Pet. App. at A-3; 76 F.3d at 963.

This very language from M'Culloch shows the essential error

of the Eighth Circuit's immunity analysis: finding immunity

based upon "federal instrumentality" status begs the question

< mee

ES

9

whether state taxation in a given instance does or does not

"retard, impede, burden, or in any manner control the

operations of the constitutional laws enacted by Congress."

This is the question Congress itself considered and

resolved in conjunction with authorizing the chartering of

PCAs:

Each production credit association and its

obligations are instrumentalities of the United

States and as such any and all notes,

debentures, and other obligations issued by

such associations shall be exempt, both as to

principal and interest from all taxation (except

surtaxes, estate, inheritance, and gift taxes)

now or hereafter imposed by the United States

or any State, territorial, or local taxing

authority. Such associations, their property,

their franchises, capital, reserves, surplus,

and other funds, and their income shall be

exempt from all taxation now or hereafter

imposed by the United States or any State,

territorial, or local taxing authority; except

that interest on the obligations of such

associations shall be subject only to Federal

income taxation in the hands of the holder

thereof pursuant to the Public Debt Act of

1941 (31 U.S.C. 742(a)) and except that any

real and tangible personal property of such

associations shall be subject to Federal, State,

territorial, and local taxation to the same

extent as similar property is taxed. The

exemption provided in the preceding sentence

shall apply only for any year or part thereof

in which stock in the production credit

associations is held by the Governor of the

10

Farm Credit Administration.°

Farm Credit Act of 1971, Pub. L. 92-181, §2.17, 85 Stat.

583, 602 (1971) (formerly codified at 12 U.S.C. §2098, now

§2077).

The Farm Credit Amendments Act of 1985 deleted the

bold-faced, italicized sentences. As the dissenting opinion

below correctly explained:

This 1985 amendment deleted the express

exemption that had been granted to a PCA and

its income for so long as the PCA was

Government-owned. ... But this court has

now construed a seemingly innocuous

technical amendment as instead conferring an

implied grant of blanket immunity from state

and local taxation. In other words, the court

construes the repeal of a limited express

exemption, for which no PCA remained

eligible, as the grant of a far broader implied

exemption. ...

Pet. App. at A-11; 76 F.3d at 967.

The dissenter, Judge Loken, perceptively went on to note that

“normal principles of statutory construction" dictated the

opposite of the majority's holding:

Because PCAs had no exemption from state

* This language from the 1971 statute varies in form but not

substance from the language of the original 1933 statutes. See Pub. L.

73-43, §4(c), 48 Stat. 128, 130 (1933). The dissent notes that "[b]y

1968, all PCAs were owned entirely by their borrower-members." Pet.

App. at A-10, 76 F.3d at 966.

and local taxation before the 1985 amendment

(other than the exemption for their

obligations), they should have no exemption

under the statute as amended, 12 U.S.C.

§2077. But this court concludes otherwise,

adhering--in my view blindly--to "no express

waiver" dicta in earlier cases that discussed

the implied constitutional immunity. This

decision is illogical, and it is contrary to the

overriding rule, grounded in constitutional and

statutory principles, that defining the extent of

federal instrumentality tax immunity is a

quintessentially legislative task. ...’

” It is important to note that the Eighth Circuit majority relied upon

the doctrine that Congress must expressly waive immunity to subject

“federal instrumentalities” to state taxation. However, the cases cited in

support of the proposition actually suggest a different approach: they

apply Congress’ intent as manifested in the ummunity statutes it enacted.

In Dep't of Employment v. United States, 385 U.S. 355, 360-61 (1966),

this Court held that the National Red Cross was an exempt instrumentality

because it functioned “virtually as an arm of the government” and

because, as such, it continued to enjoy statutory exemption from federal

unemployment compensation, which federal statutes further extended to

state taxation. Nothing in Dep't of Employment supports the Eighth

Circuit's theory that courts should imply immunities beyond those

enumerated by Congress in its immunity statutes. Nor do the Eighth

Circuit's own decisions in Federal Reserve Bank of St. Louis v.

Metrocentre Improvement Dist. # 1, 657 F.2d 183, 186 (8th Cir. 1981),

aff'd in mem. op., 455 U.S. 995 (1982), or United States v. City of

Adair, 539 F.2d 1185 (8th Cir. 1976), cert. denied 429 U.S. 1121 (1977)

support such a theory, because both of those cases involved broad

congressional grants of ummunity with narrow exception for real estate

taxation. In each case, the court decided that certain assessments sumply

failed to come within the real estate exception.

In any event, the conditional nature of the exemption clearly

implies consent to state taxation once the condition of federal ownership

is removed, as found by the California and Ohio decisions cited at page

12

Pet. App. at A-11 through A-12; 76 F.3d at 967.

This Court's cases show how correct the dissent was.

First, the opinions of this Court addressing the immunity of

entities within the Farm Credit System have always relied

upon the clear language of the statutes passed by Congress.

See Federal Land Bank of Wichita v. Bd. of County

Comm'rs, 368 U.S. 146 (1961); Federal Land Bank v.

Bismarck Lumber Co. , 314 U.S. 95 (1941).

Second, principles of statutory construction generally

give effect to Congress’ decision to omit language in one

portion of an enactment that is included in other provisions of

the same enactment. See City of Chicago v. Environmental

Defense Fund, 114 S.Ct. 1588, 1593 (1994), citing Keene

Corp. v. United States, 113 S.Ct. 2035, 2040 (1993) (internal

quote marks omitted) ("It is generally presumed that Congress

acts intentionally and purposely when it includes particular

language in one section of a statute but omits it in another.").

“Where Congress includes particular language in one section

of a statute but omits it in another section of the same Act, it

is generally presumed that Congress acts intentionally and

purposely in the disparate inclusion or exclusion." Rodriguez

v. United States, 480 U.S. 522, 525 (1987) (per curiam)

(internal quote marks omitted). This means that Congress,

by expressly defining the scope of immunities as to each farm

credit entity in the same legislation, intended to withhold any

immunity it did not expressly grant.

Finally, this Court has recognized the unique function

of Congress in determining whether state taxation in fact

interferes with its own legislative purposes:

1, supra. To require such clear implication to be expressed shows

insufficient respect for congressional intent.

13

Wise and flexible adjustment of

intergovernmental tax immunity calls for

political and economic considerations of the

greatest difficulty and delicacy. Such complex

problems are ones which Congress is best

qualified to resolve.

United States v. Detroit, 355 U.S. 466, 474 (1958).

This principle is reflected in decisions of this Court

declining to extend immunity or pre-emption under the

Supremacy Clause any further than Congress itself provides.

See Mescalero Apache Tribe v. Jones, 411 U.S. 145, 151

(1973) (rejecting argument by an Indian tribe that its off-

reservation resort business should be exempt from state

taxation) ("Congress itself felt it necessary to address the

immunity question and to provide tax immunity to the extent

it deemed desirable. There is, therefore, no statutory

invitation to consider projects undertaken pursuant to the Act

as federal instrumentalities generally and automatically

immune from state taxation."); Cipollone v. Liggett Group,

Inc., 505 U.S. 504, 517 (1992) (considering the extent to

which federal laws that require warnings on cigarette labels

preempt state law causes of action based on failure to fully

disclose the dangers of smoking) ("...Congress' enactment of

a provision defining the pre-emptive reach of a statute implies

that matters beyond that reach are not pre-empted.").*

* In Cipollone, this Court indicated that applying the principle of

statutory construction expressio unius est exclusio alterius best

accommodated the differing functions of the Congress and the courts. “In

our opinion, the pre-emptive scope of the 1965 Act and the 1969 Act is

governed entirely by the express language in §5 of each Act. When

Congress has considered the issue of pre-emption and has included in the

enacted legislation a provision explicitly addressing that issue, and when

that provision provides a “reliable indicium of congressional intent with

respect to state authority", Malone v. White Motor Corp., 435 U.S., at

14

Just as Congress defined the effect of the Supremacy

Clause upon the legislation at issue in Mescalero Tribe and

Cipollone, so too it has defined the scope of PCA immunity

here. There is no reason why the courts should reconsider

immunities which Congress could have created but decided

not to provide. See /tel Containers Int'l Corp. vy.

Huddleston, 507 U.S. 60, 75-76 (1993); Wardair Canada,

Inc. v. Florida Dept. of Revenue, 477 U.S. 1, 11-13 (1986).

Yet this is precisely what the Eighth Circuit's interpretation

of the "federal instrumentality" doctrine would do.

Applying Congress' Immunity Statutes In Accordance

With Traditional Principles Of Statutory Construction

Respects The Proper Boundary Between Federal And

State Sovereignty.

The federal system involves delicate questions

concerning the relationship between two sovereigns exercising

authority within the same territory. The question of state tax

immunity is perhaps the most sensitive of all. It involves

limitations upon an essential attribute of the States’

sovereignty: the power to tax, which this Court has called

"the most basic power of government." State of Wisconsin

v. J.C. Penney Co., 311 U.S. 435, 444 (1940).

The very essential nature of the taxing power has

heightened the sensitivity and deference this Court has shown

when called upon to interfere with the operation of state tax

systems. In rejecting equal protection challenges, for

505, 55 L.Ed.2d 613, 107 S.Ct. 683 “there is no need to infer

congressional intent to pre-empt state laws from the substantive

provisions” of the legislation. (cite omitted) Such reasoning is a variant

of the familiar principle of expression (sic) unius est exclusio alterius...”

505 U.S. at $17.

15

example, this Court has stated that "'|t}he States have a very

wide discretion in the laying of their taxes.'" Allied Stores

of Ohio, Inc.v. Bowers, 358 U.S. 522, 526 (1959). When

rebuffing attempts to “end run" state tax procedures, this

Court has noted the ordinary reasons for deferring to legal

remedies are “of particular force where the suit ... is brought

to enjoin the collection of a state tax in courts of a different

though paramount sovereignty:

The scrupulous regard for the rightful

independence of state governments which

should at all times actuate the federal courts,

and a proper reluctance to interfere by

injunction with their fiscal operations, require

that such relief should be denied in every case

where the asserted federal right may be

preserved without it. "

Matthews v. Rodgers, 284 U.S. 521, 525-26 (1932).

Such deference reflects what the Court just last term

called "the strong background presumption against

interference with state taxation." Nat'l Private Truck

Council, Inc. v. Oklahoma Tax Comm'n, 115 §.Ct. 2351,

2356 (1995). These cases recognize that, absent a

congressional provision limiting state powers, the very nature

of the federal system imposes particular limitations upon the

federal judiciary when it is asked to interfere with the

administration of state tax systems.

At our nation's inception, this Court found it

necessary to protect the infant United States government by

judicially implying tax immunity to protect the Second Bank

of the United States from dir >riminatory taxation by States.

See M'Culloch v. State of Maryland, 17 U.S. (4 Wheaton)

316 (1819), and Osborn v. Bank of the United States, 22

16

U.S. (9 Wheaton) 738 (1824). However, as Congress gained

institutional experience in authorizing the chartering of

federal entities, Congress increasingly addressed the

necessary scope of tax immunity through the enabling

legislation. During the course of this development, this Court

has placed increasing reliance on Congress’ own

pronouncements and engaged less and less in judicially

determining the need for immunity. Compare Rockford Life

Ins. Co. v. Illinois Dep't of Revenue, 482 U.S. 182, 191

(1987) ("...{O]ur job is neither to assess the underlying

merits of the program, nor to opine on whether Congress

would be wise to exempt Ginnie Maes from state taxation. ...

A court must proceed carefully when asked to recognize an

exemption from state taxation that Congress has not clearly

established."); Smith v. Davis, 323 U.S. 111, 119 (1944)

("All of these related statutes are a clear indication of an

intent to immunize from state taxation only the interest-

bearing obligations of the United States which are needed to

secure credit to carry on the necessary functions of

government. That intent, which is largely codified in §3701,

should not be expanded or modified in any degree by the

judiciary."). This principle also accords with the separation

of powers at the federal level and reflects the common sense

proposition that Congress--as the body enacting the laws--

occupies the best position to determine how to protect its own

purposes in doing so.

In light of these fundamental principles, this Court has

long since abandoned an earlier willingness to infer tax

immunity. One landmark in this development occurred as

long ago as Graves v. People of State of New York, 306 U.S.

466 (1937). In that case, this Court declined to extend tax

immunity to the incomes of employees of the Home Owners’

Loan Corporation absent express exemption by Congress.

Like the present case, Congress expressly exempted the

Corporation's bonds from taxation. Rejecting the claim of a

17

broader implied immunity, this Court noted:

[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

government correspondingly curtails the

sovereign power of the other to tax, and

where 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.”

306 U.S. at 483.

The same policy is reflected in the traditional

reluctance of this Court to engage in judge-made

constitutional law where careful statutory interpretation settles

the matter. See Jean v Nelson, 472 U.S. 846, 856-57

(1985); Gomez v. United States, 490 U.S. 858, 864 (1989) (It

is our settled policy to avoid an interpretation of a federal

statute that engenders constitutional issues if a reasonable

alternative interpretation poses no constitutional question. ...

» The United States is conspicuous by its absence as a plaintiff in this

case which purportedly asserts a federal sovereignty interest. That

absence can perhaps be understood in light of the ruling by the United

States’ own taxing authority that PCAs are actually to be regarded as

private businesses. See Rev. Rul. 84-109, 1984-2 C.B. 7: “[T)he

description of these PCAs as federal instrumentalities does not reflect

their true economic function and status and therefore is not determinative

for purposes of (the business investment tax credit)." Moreover, it could

be regarded as inherently contradictory of the PCAs to seek the benefit

both of private business tax credits and government tax immunities.

18

In this case, such an alternative interpretation of the

additional duties clause may be deduced from the context of

the overall statutory scheme.")

Likewise, in the present case the issue of the existence

and scope of the immunity possessed by PCAs can most

clearly and properly be resolved by applying the immunity

statutes Congress enacted.

CONCLUSION

For all of the foregoing reasons, this Court should

grant certiorari and reverse the decision of the Eighth Circuit.

Respectfully submitted,

BETTY D. MONTGOMERY

Attorney General of Ohio

JEFFREY S. SUTTON

State Solicitor

ROBERT C. MAIER*

*(Counsel of Record for Amici)

Assistant Attorney General

Assistant Chief, Taxation Section

30 East Broad Street, 16th Floor

Columbus, Ohio 43215-3428

(614) 466-5967

June 21, 1996