# Reply Brief — Director of Revenue of Mo. v. COBANK ACB > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0369%3A09 ## Record - **Collection:** Supreme Court brief - **Document type:** Reply Brief - **Published:** January 1, 2001 - **Citation:** 531 U.S. 316 ## Text . = —— Because it rejects the use of the New Mexico test, CoBank does not explain how it would apply to the Rural Telephone Bank, CoBank’s “apt illustration” of a federal instrumentality with implied immunity. Resp. Br. at 28. The Bank is “an agency of the United States,” subject to the supervision and direction of the Secretary of Agriculture, able to use the facilities and services of employees of the Secretary without cost, and subject to the Federal Tort Claims Act and to supervision of certain litigation by the Attorney General. 7 U.S.C. § 943 (a), (b), and (e). Because of ties to the government that the BFCs do not have, the Bank could plausibly be said to be “so closely connected to the Government that the two cannot realistically be viewed as separate entities” (New Mexico, 455 U.S. at 735). 9 By failing to distinguish between the issue here and that raised by claims of discriminatory taxes, CoBank not only reads New Mexico and its successors too narrowly, but also misinterprets this Court’s holding in Memphis Bank & Trust Co. v. Garner, 459 U.S. 392 (1983). Noting that the Court in Memphis Bank called 31 U.S.C. § 742 a codification of the constitutional rule, CoBank presents the “relevant part” of that statute, which provides that federal obligations are exempt from State tax unless otherwise provided for by law. Resp. Br. at 25. CoBank neglects to mention that § 742 statutorily defines the scope of immunity; it does not invoke or rely on implied immunity alone. And CoBank fails to acknowledge that the “constitutional rule” the Court applied was that “[wJhere, as here, the economic but not the legal incidence of the tax falls on the Federal Government, such a tax generally does not violate the constitutional immunity if it does not discriminate against holders of federal property or those with whom the Federal Government deals.” 459 U.S. at 397. The Court in Memphis Bank made clear that the scope of the protection from discriminatory taxes is wider than the protection from nondiscriminatory taxes: “Although the scope of the Federal Government’s constitutional tax immunity has been interpreted more narrowly in recent years, there has been no departure from the principle that state taxes are constitutionally invalid if they discriminate against the Government. See, e.g., United States v. New Mexico.” 459 U.S. at 397 n.7. Thus, the reason the Tennessee tax was invalidated was not solely, as CoBank implies, because it was a tax on the holders of Federal Credit Bank bonds, but rather because it violated the ban on discriminatory taxes that is “at the heart of modern intergovernmental tax immunity case law.” South Carolina v. Baker, 485 U.S. at 525-26. Because CoBank never claims that Missouri’s corporate income tax is 10 discriminatory, it cannot rely on that ban, nor on this Court’s decision not to use the New Mexico test to define its reach. 2. Congress, by merely authorizing temporary, indirect federal financial assistance, did not confer broad tax immunity. The BFCs, because they are designated governmental instrumentalities that perform functions that benefit the government, are entitled to “enjoy the benefits and immunities conferred by explicit statutes.” Arkansas v. Farm Cred. Servs., 520 U.S. at 829. But in claiming that BFCs are immune from state income taxes, CoBank cannot point to any “explicit statute.” Thus it picks and chooses from the legislative history of the 1985 Amendments to justify its theory that Congress restored — or even expanded* — the BFCs’ broad tax immunity without saying a word. 4 The Director pointed out that CoBank’s rationale would preclude the imposition even of property taxes. In its- brief, CoBank denies that premise, arguing that implied immunity never applied to property taxes, and citing M'Culloch. Resp. Br. at 36. That argument ignores post- M 'Culloch holdings. E.g. Rohr Aircraft Corp. v. County of San Diego, 362 U.S. 628, 634 (1960) (“[T]he general rule is ‘that lands owned by the United States of America or its instrumentalities are immune from state and local taxation.’”): United States v. County of Fresno, 429 U.S. 452 (1977). It fails to articulate a rationale for a line between real property and all other taxes. And it fails to explain why Congress has so consistently addressed the property tax question when it more specifically defines the nature of a financial institution’s immunity. Pet. Br. at 25-26. 1] CoBank begins with the impetus for the 1985 Amendments: a crisis in American agriculture. But then it ignores the response to that crisis: the restructuring of the Farm Credit System to make it more independent and self-sufficient. CoBank stresses the “new federal assistance” authorized by the 1985 Amendments, but disregards that this assistance would be available only as a last resort, after the Farm Credit Administration certified that it had made the maximum practicable efforts on its own to deal with its financial stress. Even then, the Secretary of Treasury would have discretion as to whether the federal government would backstop the System's finances. And the assistance, if provided, was to go not to the BFCs, but to a separate temporary entity, the Farm Credit System Capital Corporation.° 5 Indeed, “{t]he Committee rejected the idea of a direct, mandated infusion of Federal funds into the Farm Credit System. This idea was rejected for a variety of reasons including the testimony from the U.S. Department of the Treasury that if the System uses its own resources effectively, outside assistance is not now needed and not likely to be needed through 1987, even though by 1988 the System’s capital will be substantially reduced.” H.R. Rep. No. 425, 99" Cong., 1" Sess. 14 (1985), reprinted in 1985 U.S.C.C.A.N. 2587, 2600-01. Both the Undersecretary of Agriculture and the Assistant Secretary of the Treasury testified before the Committee; both emphasized that the Farm Credit System was not in need of federal financial assistance. /d. at 35, 1985 U.S.C.C.A.N. at 2621. The $ 4 billion of federal funds to which CoBank repeatedly refers were part of the Agricultural Credit Act of 1987, appropriated two years after the 1985 Amendments and in conjunction with another restructuring of the Farm Credit System. See H.R. Rep. No. 295, 100" Cong., 1* Sess., reprinted in 1987 U.S.C.C.A.N. 2723. 12 CoBank is unable, of course, to point to legislative history tying this change to the amendment of Section 2134. CoBank argues that Congress’s silence on BFC taxation is not surprising for two reasons. First, because Congress by eliminating the states’ ability to tax the BFCs did not make an important change in the law. States were not authorized to tax BFCs during periods of federal investment prior to the 1985 Amendments, CoBank says, and the change in Section 2134 simply “conformed” the statute to “the fact of new federal investment.” Resp. Br. at 36. But prior to the 1985 Amendments, a BFC was immune from state and local taxes (except real property taxes) only while the Governor of the Farm Credit Administration owned its stock. After the 1985 Amendments, according to CoBank, all BFCs are always immune because of the mere possibility that the Secretary of the Treasury may authorize, as a last resort, discretionary financial assistance to the Farm Credit System through a temporary® corporation separate and apart from BFCs. The differences between the original capitalization and ownership of the BFCs and the post-1985 status of the Farm Credit System are too great to support CoBank’s argument. CoBank also claims that, given the time constraints in passing the 1985 Amendments, “it is not surprising that Congress did not provide a specific explanation of the amendment to Section 2134.” Resp. Br. at 37. But Congress did provide an explanation, just not CoBank’s explanation. CoBank itself invokes the legislative history that contains that ® — The 1985 Amendments included a section that terminated, on December 31, 1990, the Capital Corporation’s authority to take on new liabilities. The House Committee believed that “five years should be adequate to see the System through its difficult period.” H.R. Rep. No. 425 at 14, 1985 U.S.C.C.A.N. at 2600. 13 explanation, claiming that because of “new federal assistance,” it makes sense that Congress labeled the change to Section 2134 as a “technical and conforming amendment.” Resp. Br. at 37. This claim ignores the full explanation for the change included in the House Committee Report. That Report explained the change as “technical and conforming” because it resulted from “the elimination of the Yuthority [of the Farm Credit Administration] to make separate investments in individual institutions” and the deletion of “references to the Governor of the Farm Credit Administration . . . since such office . . . will no longer exist.” H.R. Rep. No. 425 at 28-29, 1985 U.S.C.C.A.N. at 2615. The sentences deleted from Section 2134 referred to an exemption that applied when the Governor of the Farm Credit Administration held stock in BFCs — much as the government once held shares in the Second Bank of the United States. See First Agricultural Nat'l Bank of Berkshire Cty. v. State Tax Comm'n, 392 U.S. 339, 355 (1968) (Marshall, J., dissenting). As to BFCs, that power, long dormant, was eliminated by the 1985 amendment. 14 CONCLUSION Petitioner respectfully requests this Court to reverse the judgment of the Missouri Supreme Court and to render judgment for Petitioner. Respectfully submitted, JEREMIAH W. (JAY) NIXON Attorney General JAMES R. LAYTON* State Solicitor GAIL VASTERLING DAVID LIEBER Assistant Attorneys General P. O. Box 899 Jefferson City, Missouri 65102 (573) 751-3321 Counsel for Petitioner *Counsel of Record November 2000 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0369%3A09. Public record. Not legal advice.