Amicus Curiae Brief — Director of Revenue of Mo. v. COBANK ACB

Supeme cout, S|

“L FILED, |

ee |

No. 99-1792 Mig 24. ACO

IN THE UNITED STATES SUPRE BNE OLERK

DIRECTOR OF REVENUE, STATE OF MISSOURI,

Petitioner,

vs.

COBANK ACB, AS SUCCESSOR TO THE

NATIONAL BANK FOR COOPERATIVES,

Respondent.

ON WRIT OF CERTIORARI

TO THE SUPREME COURT OF MISSOURI

BRIEF AMICUS CURIAE OF THE STATES OF

OHIO, ALASKA, ARIZONA, FLORIDA, GEORGIA,

HAWAII, ILLINOIS, INDIANA, LOUISIANA,

MARYLAND, MICHIGAN, MISSISSIPPI, MONTANA,

NEBRASKA, NEW HAMPSHIRE, NEW YORK,

NORTH DAKOTA, OKLAHOMA, OREGON, SOUTH

DAKOTA, VERMONT, AND WASHINGTON IN

SUPPORT OF PETITIONER

BETTY D. MONTGOMERY

Attorney General of Ohio

EDWARD B. FOLEY

State Solicitor

ROBERT C. MAIER*

Assistant Solicitor

*Counsel of Record

30 E. Broad Street, 17 Floor

Columbus, Ohio 43215

(614) 466-8980

ZF Pv

BRUCE M. BOTELHO

Attorney General

State of Alaska

JANET NAPOLITANO

Attorney General

State of Arizona

ROBERT A. BUTTERWORTH

Attorney General

State of Florida

THURBERT E. BAKER

Attorney General

State of Georgia

EARL |. ANZAI

Attorney General

State of Hawaii

JAMES E. RYAN

Attorney General

State of Illinois

KAREN M. FREEMAN-WILSON

Attorney General

State of Indiana

RICHARD P. IEYOUB

Attorney General

State of Louisiana

J. JOSEPH CURRAN, JR.

Attorney General

State of Maryland

JENNIFER M. GRANHOLM

Attorney General

State of Michigan

MIKE MOORE

Attorney General

State of Mississippi

JOSEPH P. MAZUREK

Attorney General

State of Montana

DON STENBERG

Attorney General

State of Nebraska

PHILIP T. MCLAUGHLIN

Attorney General

State of New Hampshire

ELIOT SPITZER

Attorney General

State of New York

HEIDI HEITKAMP

Attorney General

State of North Dakota

W.A. DREW EDMONDSON

Attorney General

State of Oklahoma

HARDY MYERS

Attorney General

State of Oregon

MARK BARNETT

Attorney General

State of South Dakota

WILLIAM H. SORRELL

Attorney General

State of Vermont

CHRISTINE O. GREGOIRE

Attorney General

State of Washington

TABLE OF CONTENTS

TABLE OF AUTHORITIEG..................:cccsceccccseeeeeeeees iii

STATEMENT OF AMICI INTEREST .................00000 1

SUMMARY OF ARGUMENT................. Secsssenenssscsneese 4

FEPEUIEEEIOT ccnescsersscessscerccssssusscssvssscssssevesccescsnsccesssets 8

A. A State needs no consent from Congress

to impose nondiscriminatory taxes on

the property, transactiens and income of

a federally chartered, but privately

owned commercial lending business................ 8

B. Because Congress’ systematically

addressed the scope of state tax

immunity in the Farm Credit Act, no

non-statutory doctrine of immunity

STITT ic didancieseninneiiiinpanaamnneumeneesenesesssesseneeee 16

1. Expressio unius defeats the

NBC’s immunity claim ........................ 16

2. Because Congress adopted the

method of explicitly specifying

immunities in the Farm Credit

Act, no immunities should be

recognized under the Act except

those explicitly authorized by

a 21

C. Principles of federalism call for a “clear

statement” of Congress’s intent to grant

ee 26

CONCLUSION

ii

iii

TABLE OF AUTHORITIES

PAGE

CASES:

In re: Appeal of Farm Credit Services of Central

Kansas et al., Nos. 1998-2839-DT, et al., 1999 Kan.

Tax LEXIS 78 (Oct. 26, 1900)..........0cccccccccccsscccccccccees 26

Arkansas v. Farm Credit Services of Central

Arkansas, 520 U.S. 821 (1997).............. 3, 6, 11, 13, 14

Arkansas v. Farm Credit Services of Central

I, Fa ei iatiieniccntciesnsiinansanintanitinidibicsinis 14

Cipollone v. Ligget Group, Inc.,

ore 7,17, 18

City of Chicago v. Environmental Defense Fund,

ee Ce et hcctcenccnescnenccnittinnpacnemeinmsecentanainuiies 20

CoBank ACB v. Fisher, No. 99CV437

(Colo. Dist. Ct. Jume 15, 2000)........................0cc0c000- 26

- Davis v. Elmira Savings Bank,

ee Ce Se iT crnnnscciencasicnnisnnacnennenssnnsnnepatussenineeios 12

Davis v. Michigan Department of Treasury,

as Ce ctasccnnneniendencntedncssssensesinemmnenenens 9

Department of Revenue v.

...- ACF Industries, Inc., 510 U.S. 332 (1994)......7, 26, 27

-— ae?

iv

Farm Credit Services of Central Arkansas v.

Arkansas, 994 S.W.2d 453 (Ark. 1999), cert.

denied sub nom., Arkansas v. Farm Credit

Services of Central Arkansas, No. 99-993, 68

U.S.L.W. 3613, 120 S. Ct. 1530 (Mar. 27, 2000)...... 25

Farm Credit Services of Mid-America v.

Department of State Revenue, 677 N.E.2d 645

| 24

Farm Credit Services of Mid-America v.

Department of State Revenue,

705 N.E.2d 1089 (Ind. Tax 1999)...........ccccccceeeeeeeeeees 24

In re Farm Credit Services of Western New

York ACA, Nos. 816576, 816604, 816605,

816606, 2000 N.Y. Tax LEXIS 7 (Jan 13, 2000)...... 26

Federal Land Bank v. Bismarck Lumber Co.,

II EEE 13, 14

Federal Land Bank v. Board of County

Commissioners, 368 U.S. 146 (1961) ...............cceeeeeee 14

Federal Land Bank v. Priddy,

I 14

First Agricultural National Bank v.

State Tax Commission,

BBB UB. SBD (1BGB) ..cccccccccccccccccccccscsssosees 10, 12, 21, 22

v

Freightliner Corp. v. Myrick,

EE Ae Re Ae, 18

Graves v. New York ex rel. O'Keefe,

ee Ore GI Ce ccccncsetccnsccncntnenmsnsesenmssesasmsssases 9,14

Gregory v. Ashcroft, 501 U.S. 452 (1991)......cccc000... 27

Intel Containers International Corp. v. Huddleston,

I I iccieiitiaecariitiaiateintenia ati 17

Jefferson County, Alabama v. Acker,

Ps 6,9, 16

Keene Corp. v. United States,

508 U.S. 200 (19938) ..0........ccccccssscssssessccssscesesseecseseeees 20

Mayo v. United States,

BID U.S. 441 (1943)...............ccccccccccccccccocscccsseeesseees 5,11

McCulloch v. Maryland,

17 U.S. (4 Wheat.) 316 (1819)... ccccceeeeees passim

Northwest Lousiana PCA v.

State of La. Department of Revenue and Taxation,

746 So.2d 280 (La. App. 1999) .......cccccccccccccccsceeseecees 25

Owensboro National Bank v. Owensboro,

173 U.S. 664 (1898) o.oo. ccccccccccesecececeeeceeeee 11, 12, 21

vi

PCA of Eastern N.M. v.

Taxation and Revenue Department,

No. 20,078, 2000 N.M. App. LEXIS 8

(Feb. 1, 2000), review denied,

997P.2d 820 (N.M., Mar. 13, 2000), cert. petition

docketed July 28, 2000 (No. 00-156 )..........:cceeeeereees 26

Rockford Life Insurance Co. v.

Illinois Department of Revenue,

GBB UD. 268 (21GB 7) .ncecceccccccccccctccccccccccccccscccccnscccscceees 16

Rodriguez v. United States,

. S| |f) 20

Smith v. Davis, 323 U.S. 111 (1944)... eccee eee eee 17

South Carolina v. Baker, 485 U.S. 505 (1988)......... 15

United States v. County of Fresno,

ro oO) UD, | 4,8,9

United States v. Detroit, 355 U.S. 466 (1958) .......... 16

United States v. New Mexico,

A , 4,8

Wardair Canada, Inc. v.

Florida Department of Revenue,

NUE 17

Washington v. United States,

4B0 U.S. GBB (1BBB) ..ccccccccccccescccccccccccccccccccesccessessese008 15

EP _——

vii

Wisconsin v. J.C. Penney Co. !

RR EN, 27

STATUTES:

Agricultural Credit Act of 1987,

Pub. L. 100-233, 101 Stat. 1639, §413 (1988).......... 19

Agricultural Credit Technical Corrections Act

of 1988, Pub. L. 100-399,

102 Stat. 989, 1003 (1988) ..0.... ccc ceeeccccceeeceeceeeeeees 25

Farm Credit Act Amendments of 1980,

Pub. L. 96-592, §404, \

94 Stat. 3437, 3447-48 (1980) ooo... cccccccccccceccccceseees 23

Farm Credit Act of 1971, Pub. L. No. 92-181

I passim

§§2.17, 3.13, 85 Stat. 602, 608.0000... cccccccccccceeeee 23

Farm Credit Act of 1933,

72nd Cong., 2nd Sess., ch. 98, §63,

es Cee Be CII cccicenccnncunssenseccsnseceeniaenenimnmnnes 23

Federal Farm Loan Act of 1916,

64th Cong., Ist Sess., ch. 245, §26,

39 Stat. 360, 380 (1916) ...................ccccccsssssssssssecseeeee 23

a a! 12

Le ee a ee 12

EES ean ean Nee 19, 24

12 U.S.C. 2077 .......ccccscsscccccccccccccccececesesescscccssssees 19, 24

12 U.S.C. 2098 ..........scscccscccsccereceeeeeeesesseeeeeess 19, 20, 24

12D U.S.C. B1B4...ccccccccscccccscssccccccccccsescccesesssoesceees passim

OTHER AUTHORITY:

J. Kayl, Note, “Farm Credit Amendments Act of

1985: Congressional Intent, FCA Implementation,

and Courts’ Interpretation (and the Effect of

Subsequent Legislation on the 1985 Act),”

37 Drake L. Rev. 271, 275 (1987-88) ..........cccceeeeeeeees 11

No. 99-1792

IN THE UNITED STATES SUPREME COURT

DIRECTOR OF REVENUE, STATE OF MISSOURI,

Petitioner,

vs.

COBANK ACB, AS SUCCESSOR TO THE

NATIONAL BANK FOR COOPERATIVES,

Respondents.

ON WRIT OF CERTIORARI

TO THE SUPREME COURT OF MISSOURI

BRIEF AMICUS CURIAE OF THE STATES OF

OHIO, ALASKA, ARIZONA, FLORIDA,

GEORGIA, HAWAII, ILLINOIS, INDIANA,

LOUISIANA, MARYLAND, MICHIGAN,

MISSISSIPPI, MONTANA, NEBRASKA, NEW

HAMPSHIRE, NEW YORK, NORTH DAKOTA,

OKLAHOMA, OREGON, SOUTH DAKOTA,

VERMONT, AND WASHINGTON IN SUPPORT

OF PETITIONER

STATEMENT OF AMICI INTEREST

Amicus State of Ohio and 21 other amici States

write to urge that the Court reverse the decision of the

Supreme Court of Missouri. The States also write to

place the particular issue presented here in its broader

context. The question framed is quite precise: “Does

12 U.S.C. Section 2134 authorize states to tax the

2

income of the National Bank for Cooperatives, a

federally chartered instrumentality of the United

States?” But how the Court answers that question

implicates far more than state taxation of the

“National Bank for Cooperatives” (the “NBC”). Ata

minimum, the Court’s analysis will affect some of the

other federally chartered entities within the Farm

Credit System. As of July 1, 2000, the Farm Credit

Administration’s Office of Policy and Analysis

enumerated these institutions at 165. Of those, 53

were production credit associations, which have an

immunity statute identical to the NBC’s; and 44 were

agricultural credit associations, which resulted from

mergers of entities that had differing immunity

statutes, but which themselves have no clearly

applicable immunity statute.

When facing the question whether such entities

are immune, state tax administrators need a

reasonably simple method of ascertaining immune

status that is consistent with the State’s plenary,

sovereign power to tax. At one extreme is the principle

proposed by respondent and embraced by the Missouri

Supreme Court: Farm Credit System institutions on

this theory are generally immune from state taxation

unless the state administrator finds an explicit

congressional approval of particular state taxes. That

is indeed simple, but such an approach cannot be

squared with federalism’s deference to the State’s

sovereign power to tax. Moreover, the respondent’s

theory bypasses the ordinary process of construing

Congress’s intent regarding immunity.

——- oe <a

3

The amici States suggest a simple alternative:

read the statutes Congress passed (here, the Farm

Credit Act of 1971, as amended); grant the immunities

Congress explicitly provided in the Act; and-recognize

no immunities beyond what Congress provided in the

Act. Of course this does not mean a State can tax a

federal agency exercising governmental responsibilities

without consent by Congress; but where the entity is a

federally-chartered private corporation whose activity

consists of participating in a commercial lending

market, the statutes must show congressional intent to

immunize—either by expression (as in the Farm Credit

Act), or, in a proper case, by a clear statutory

implication. This approach respects the paramount

role of Congress in determining the proper degree of

state tax immunity; simplifies the job of ascertaining

immunity; and at the same time respects the plenary

nature of State taxing power within the federal system.

It is an approach consistent with ordinary construction

of statutes and with the teachings of this Court

concerning pre-emption of state law generally.

Not least, our approach fulfills this Court’s dicta

that “tax immunity . . . is a permitted consequence of

[an entity’s] status as a federal instrumentality,” but

“[aJn instrumentality of the United States can enjoy

the benefits and immunities conferred by explicit

statutes .. . without the further inference that the

instrumentality has all of the rights and privileges of

the National Government.” Arkansas v. Farm Credit

Servs. of Central Arkansas, 520 U.S. 821, 829 (1997).

Because it ignores these precepts, the decision of the

Missouri Supreme Court should be reversed.

SUM M ARY OF ARGUMENT

1. The bedrock principle of intergovernmental

immunity is that “a State may not, consistent with the

Supremacy Clause, [ ] lay a tax ‘directly upon the

United States’.” United States v. New Mexico, 455 U.S.

720, 733 (1982) (internal cite omitted). But that

principle by its terms controls only where the entity to

be taxed can be said to be the United States itself, or

its alter ego agencies. The Court’s case law shows two

circumstances that have justified an automatic,

judicial presumption of state tax immunity for a

“federal instrumentality”: federal government

ownership, in which case taxing corporate property,

transactions and income is pro tanto taxation of the

United States itself; and the exercise of federal

governmental functions, which raises the inference

that state taxation would interfere with congressional

purposes in chartering the instrumentality. But where

a federally-chartered corporation such as the NBC is

privately owned and engages in commercial lending as

opposed to issuing the Nation’s currency or acting as

fiscal agent of the United States, the more applicable

princ‘ple should be that “a tax not directly laid on the

Federal Government ... is valid if nondiscriminatory ...

or until Congress declares otherwise.” United States v.

County of Fresno, 429 U.S. 452, 460 (1977).

The respondent and the Missouri Supreme

Court predicate their contrary view upon the teachings

of McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316

(1819)—specifically, the doctrine that “federal

+ ee. + ren

5

instrumentalities” should be constitutionally immune

from state taxation absent an express consent by

Congress. But that argument is mistaken for two

reasons. First, McCulloch presents the case of the

Second Bank of the United States, an entity in which

the United States held 20% of the stock, whose

directors consisted in part of Presidential appointees (5

of 25), and which exercised currency functions of a

governmental nature. By contrast, the NBC is a

privately owned entity engaging in commercial

activity, with the result that the NBC simply cannot be

said to embody “governmental action . . . carried on by

the United States” that would justify “inherent

freedom” from state taxation. See, Mayo v. United

States, 319 U.S. 441, 448 (1943). Instead, the NBC

stands firmly among those “instrumentalities” whose

“subjection to local taxation or regulation is to be

interpreted in the setting of the applicable legislation

and the particular exaction,” id., at 447-48.

Second, the designation “federal

instrumentality” is not dispositive of immune status,

since it can mean an entity that is owned by the

Government and/or exercises core governmental

powers, as in McCulloch; or it may simply mean an

entity that Congress has the power to immunize by

statute if it chooses to do so. The latter is precisely the

way Congress used the term in 12 U.S.C. 2134.

Two additional distinctions render McCulloch’s

teachings inapplicable here. First, the tax in

McCulloch discriminated against the federal entity

because state-chartéred banks and branches were not

subject to the tax at issue. Here by contrast, Missouri

6

proposes to impose a general income tax on the NBC.

Second, McCulloch addressed a situation where

Congress made no provision concerning immunity one

way or another. Here Congress, throughout the Farm

Credit Act of 1971, as amended, exhaustively

addressed state tax immunity and specified which

institutions enjoy what degree of immunity.

Under all these circumstances, the rule that

Congress must expressly consent to state taxation

simply does not apply to the NBC.

2. Congress addressed the subject of state tax

immunity throughout the Farm Credit Act, declaring

specific immunities for specific institutions. It granted

limited immunity for the obligations and debentures of

banks for cooperatives at 12 U.S.C. 2134, which applies

here. That should be dispositive: Congress conferred

no state income tax immunity. As the Court has stated

in the context of production credit associations, a Farm

Credit lender’s “tax immunity ... is a permitted

consequence of its status as a federal instrumentality,”

but that status means the NBC “can enjoy the benefits

and immunities conferred by explicit statutes,

however, without the further inference that the

instrumentality has all the rights and powers of the

National Government.” Arkansas v. Farm Credit

Servs. of Central Arkansas, 520 U.S. 821, 829 (1997);

accord Jefferson County, Alabama v. Acker, 119 S.Ct.

2069, 2077 (1999) (recognizing that “the area [of

intergovernmental tax immunity] is one over which

Congress is the principal superintendent”).

7

Further support for limiting immunity to the

express statutory grant comes from the Court’s forceful

application of expressio unius in the related context of

pre-emption. See Cipollone v. Ligget Group, Inc., 505

U.S. 504 , 517 (1992). Section 2134 immunizes only

the NBC's obligations and debentures, and hence does

not immunize the entity itself, or its income, property

and transactions, More broadly, the method Congress

adopted of explicitly detailing the immunities granted

in the Farm Credit Act to various entities chartered

within the Farm Credit System means that no

immunities should be recognized apart from express

statutory authorization of such immunity.

3. Principles of federalism lend additional strength

to the primacy of the statutory grants of immunity. In

construing a federal statute restricting State taxing

powers, the Court has held that “[wJhen determining

the breadth of a federal statute that impinges upon or

pre-empts the States’ traditional powers, we are

hesitant to extend the statute beyond its evident

scope.” Dep't of Revenue v. ACF Industries, Inc., 510

U.S. 332 (1994). Absent a clear and plain statement

of Congress’s intent to preempt State income taxes, the

statutes should not be construed to permit such an

immunity.

8

ARGUMENT

A. A State needs no consent from

Congress to impose nondiscriminatory

taxes on the property, transactions

and income of a federally chartered,

but privately owned commercial

lending business.

At its foundation, the doctrine’ of

intergovernmental tax immunity states that “a State

may not, consistent with the Supremacy Clause [ | lay

a tax ‘directly upon the United States’.” United States

v. New Mexico, 455 U.S. 720, 733 (1982). No one in

this case contends otherwise, nor do the amici States

doubt that Congress must expressly consent to any

“tax [laid] directly upon the United States.” But that

does not mean that taxing a corporate entity that is

completely under private ownership and that engages

in lending activity for the commercial benefit of its”

private owners somehow constitutes a tax laid “directly

on the United States,” based solely upon the

circumstance that it is chartered under federal (as

opposed to state) law; or upon the fact that it is

designated a “federal instrumentality” for some

purposes. Indeed, the fact of private ownership makes

it far more appropriate to invoke the converse

principle: the doctrine that “a tax not directly laid on

the Federal Government . . . is valid if .

nondiscriminatory . . . or until Congress declares

otherwise. . ..” United States v. County of Fresno, 429

U.S. 452, 460 (1977). That is especially true where

the entity’s function, as here, involves commercial

9

lending and not issuing the Nation’s currency, or

acting as a fiscal agent of the Federal Government.

Viewed under these bipolar principles, the

property, transactions and income of the NBC

constitute the private citizen’s property interests

rather than the interest of the Federal Government

itself. Fresno, 429 U.S. at 456-57. In Fresno, the

Court distinguished between taxing the possessory

interest owned by a private party and taxing the

Government’s ownership interest as lessor—the Court

held the private possessory interest could be taxed.

From that standpoint, the present case is an a fortiori

one: here private parties hold all ownership interests,

while the Government is involved as the sovereign that

chartered and regulated the corporation. Even less

reason presents itself to confer automatic, per se

immunity under these circumstances. Accord Jefferson

County, Alabama v. Acker, 119 S.Ct. 2069, 2077 (1999)

(intergovernmental tax immunity “closely confined ...

to ba[r] only those taxes that [are] imposed directly on

one sovereign by the other or that discriminat/e]

against a sovereign or those with whom it deal(s]”),

citing Davis v. Michigan Dep't of Treasury, 489 U.S.

803, 811 (1989); see Graves v. New York ex rel. O'Keefe,

306 U.S. 466, 480 (1939) (state tax approved where

“liJt is measured by income which becomes the

property of the taxpayer when received as

compensation for his services”).

The Missouri Supreme Court predicated its

contrary opinion upon its mistaken reading of

McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819).

Specifically, the state court cited McCulloch (along

10

with some later cases) for the proposition that “the

Supremacy Clause of the United States Constitution

accords federal instrumentalities immunity from state

taxation,” and that “Congress can waive this

immunity, but only if it expressly consents to state

taxation.” Pet. App. A-2. But McCulloch does not

control here for two main reasons. First, the Second

Bank of the United States differs materially from the

NBC; second, the designation “federal instrumentality”

does not by itself imply automatic state tax immunity.'

To be sure, McCulloch did specifically address

the state tax immunity of a federally chartered bank,

but there the similarities end and the material

differences begin. In McCulloch, the United States

Government owned 20% of the stock of the Second

Bank of the United States, and the President

accordingly appointed five of the 25 directors of the

corporation. First Agricultural Nat'l Bank v. State Tax

Comm'n, 392 U.S. 339, 355 (1968) (opinion of Marshall,

J., dissenting). The bank also exercised currency

functions on behalf of the Government by issuing legal

tender and serving as federal fiscal agent. Jd. Thus,

McCulloch exemplifies two circumstances justifying

automatic, judicially created immunity: substantial

federal ownership; and _ exercise of federal

governmental functions.

1 The other cases the Missouri Supreme Court cites

are equally unconducive to its conclusion for the

reasons set forth in our previous brief. See Brief of

Amicus Ohio et al. (supporting petition for certiorari) at

13-15.

11

In both respects, the Second Bank of the United

States contrasts sharply with the NBC. First, the NBC

was privately owned, as were its predecessor “banks for

cooperatives’°—as were the _ production credit

associations in Arkansas v. Farm Credit Servs. of ~

Central Arkansas, 520 U.S. 821, 831 (1997). See, J.

Kayl, Note, “Farm Credit Amendments Act of 1985:

Congressional Intent, FCA Implementation, and

Courts’ Interpretation (and the Effect of Subsequent

Legislation on the 1985 Act),” 37 Drake L. Rev. 271,

275 (1987-88). Second, the business of the banks for

cooperatives, again like that of the production credit

associations, was “making commercial loans,” so that

“|t]heir interests are not coterminous with those of the

Government any more than most commercial

interests.” 520 U.S. at 831. Accordingly, the NBC

simply cannot be said to embody “governmental action

.. . carried on by the United States” that would justify

“inherent freedom” from state taxation, Mayo v. United

States, 319 U.S. 441, 448 (1943), but instead stands

firmly among those “instrumentalities” whose

“subjection to local taxation or regulation is to be

interpreted in the setting of the applicable legislation

and the particular exaction,” id., at 447-48.

It is true that, even apart from federal

ownership of a bank, the Court has pronounced that

the States had no power to tax the national banks

inasmuch as the national banks were instrumentalities

of the United States. Owensboro Natl Bank v.

Owensboro, 173 U.S. 664, 668 (1898). But the Court

apparently relied on a pre-emption analysis that state

taxation would presumptively “either frustrate [ ] the

. 12

purpose of the national legislation or impair [ | the

efficiency of these agencies of the Federal government

to discharge the duties for the performance of which

they were created,” id, citing Davis v. Elmira Savings

Bank, 161 U.S. 275, 283 (1896); see also First

Agricultural Nat'l Bank, 392 U.S. at 355-57 (opinion of

Marshall, J., dissenting) (noting original functions of

national banks to issue currency and act as fiscal

agents of the Federal Government). Thus, the national

banks exercised federal governmental functions with

which state taxation might presumptively interfere.

As noted below, current pre-emption law calls

for deference to Congress’s own determination of the

scope of pre-emption, with the result that the limited

immunity conferred by 12 U.S.C. 2134 should be

applied in accordance with its terms, and no additional

immunity exists. In any event, the banks for

cooperatives, like the production credit associations, do

not resemble the early national banks because they

engage in the “business [of] making commercial

loans,” so the grounds for judicially implied pre-

emption in Owensboro are absent here.?

2 As Owensboro notes, Congress quickly passed an

immunity statute for national banks that specifically

consented to certain taxes. 173 U.S. at 668. By the

time First Agricultural Nat'l Bank was decided in

1968, the Court relied upon the statute and its history

rather than on a doctrine of automatic immunity for

instrumentalities. 392 U.S. at 346 (“Because of §548

and its legislative history, we are convinced that if a

change is to be made in state taxation of national

banks, it must come from the Congress, which has

13

The second main reason McCulloch does not

control is that the mere designation “federal

instrumentality” does not by itself imply automatic

state tax immunity. In the context of the Farm Credit

System, the Court has stated that “tax immunity .. . is

a permitted consequence of [an entity’s] status as a

federal instrumentality,” but “[aln instrumentality of

the United States can enjoy the benefits and

immunities conferred by explicit statutes . . . without

the further inference that the instrumentality has all

of the rights and privileges of the National

Government.” Arkansas v. Farm Credit Servs. of

Central Arkansas, 520 U.S. 821, 829 (1997). Earlier,

the Court had described the status of a Farm Credit

System entity (a federal land bank) as an

“instrumentality” that “Congress has, the power to

protect” by prescribing immunity through the statutes,

Federal Land Bank v. Bismarck Lumber Co., 314 U.S.

95, 102 (1941). That is precisely the way Congress

used the term in 12 U.S.C. 2134.

The Court’s prior cases addressing Farm Credit

System bank immunity concerned the immunity of

federal land banks, and the Court properly focused on

the statutorily granted immunity because where “an

established the present limits.”). In recent times,

Congress routinely addresses state tax immunity by

statute, e.g., 12 U.S.C. 531 (Federal Reserve Banks

immune); 12 U.S.C. 1768 (federal credit unions

immune). This obviates the need for the Court to set

precise contours for judicially created immunity.

14

express immunity has been conferred, there is no need

to consider whether the doctrine of implied immunity

applies.” Federal Land Bank v. Board of County

Commissioners, 368 U.S. 146, 156 (1961). Nor does the

Court’s 1941 insistence that the federal land banks’

lending function was “governmental” change the

analysis. Bismarck Lumber, 314 U.S. at 102. First,

the context for that statement was the Depression

period which saw increased Government investment

and ownership of the land banks. See Federal Land

Bank v. Priddy, 295 U.S. 229, 232, n.1, 2 (1935) (noting

resurgence of Government ownership in the wake of

1932 legislation). Second, the Court more recently

pronounced that the commercial lending business of

production credit associations involved “interests that

are not coterminous with those of the Government any

more than most commercial interests.” Arkansas, 520

U.S. at 831.

Moreover, in asserting its alleged immunity as

an “instrumentality,” the fact the NBC is a privately

owned commercial business is significant, because the

state tax immunity it claims is a sovereign interest of

the United States itself, which is most appropriately

claimed by the National Government. The Court has

cautioned that “where [state tax] 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.” Graves, 306 U.S. at

483. Indeed, in Arkansas v. Farm Credit Servs. of

Central Arkansas, No. 95-1918, the United States

disclaimed the state tax immunity asserted by the

15

production credit associations, another privately held

commercial lender within the Farm Credit System.

Two additional differences make McCulloch

inapposite. First, the Maryland tax in McCulloch

applied only to banks or branches establishing offices

in the state “without authority from the state first had

and obtained.” 17 U.S. (4 Wheat.) at 320-321. In other

words, Maryland-chartered banks did not pay, and the

tax was therefore discriminatory. This Court has

explained the significance of the nondiscrimination

principle in terms of its providing a “political check . .

. when a state tax falls on a significant group of state

citizens who can be counted upon to use their votes to

keep the State from raising the tax excessively, and

thus placing an unfair burden on the Federal

Government.” Washington v. United States, 460 U.S.

536, 545 (1983). In the arena of State immunities from

federal taxation the Court has gone so far as to call the

“nondiscrimination principle” the “heart of modern

intergovernmental tax immunity case law.” South

Carolina v. Baker, 485 U.S. 505, 525 n.15 (1988).

Second, Congress had not addressed the subject

of state tax immunity in McCulloch, but by contrast

the Farm Credit Act repeatedly addresses immunity

and indeed supplied limited immunity to banks for

cooperatives at 12 U.S.C. 2134. Where Congress

speaks, its word should be heeded and should control.

16

B. Because Congress’ systematically

addressed the scope of state tax

immunity in the Farm Credit Act, no

non-statutory doctrine of immunity

applies.

1. Expressio unius defeats the

NBC’s immunity claim.

At 12 U.S.C. 2134, Congress specifically

addressed the state-tax immunity of banks for

cooperatives. Applying ordinary rules of construction,

including most prominently the doctrine expressio

unius est exclusio alterius, Congress should be

understood to have intended that banks for

cooperatives enjoy only the immunities it expressly

granted—and more than that: Congress intended

banks for cooperatives to have no immunities beyond

those expressly granted. That affirmative intent of

Congress should control, because “the area [of

intergovernmental tax immunity] is one over which

Congress is the principal superintendent,” Acker, 119

S.Ct. at 2077-78 (1999); and because “[wlise and

flexible adjustment of intergovernmental tax immunity

calls for political and economic considerations of the

greatest difficulty and delicacy” so that such problems

“are ones which Congress is best qualified to resolve,”

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

Accord 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

17

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 the government. That intent .

. . should not be expanded upon or modified in any

degree by the judiciary.”); Intel Containers Int'l Corp.

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

Canada, Inc. v Florida Dep't of Revenue, 477 U.S. 1, 11-

13 (1986).

This reasoning derives additional force from the

context: a claim that the Supremacy Clause precludes

the ordinary, nondiscriminatory operation of state tax

law with respect to a federally chartered entity. In

another Supremacy Clause context, that of pre-

emption, the Court has clarified that an express pre-

emption statute should ordinarily control the scope of

pre-emption. In Cipollone v. Ligget Group, Inc., 505

U.S. 504 (1992), the Court considered the extent to

which federal laws that require warnings on cigarette

labels pre-empted state law causes of action based on

failure to fully disclose the dangers of smoking. The

Court of Appeals had found that the pre-emption

provision in the acts did not preclude the state damage

actions, but proceeded to engage in an “implied pre-

emption” analysis, concluding that state claims were

precluded. This Court reversed in part, holding the

appellate court erred by judicially re-determining the

potential conflicts between state and federal laws.

This was error, because Congress’s pre-emption

18

provision showed that Congress had already

determined and decided the question:

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,’ ‘there is no need to infer

congressional intent to pre-empt state laws

from the substantive provisions’ of the

legislation. Such reasoning is a variant of

the familiar principle of expressio unius

est exclusio alterius: Congress’s enactment

of a provision defining the pre-emptive

reach of a statute implies that matters

beyond that reach are not pre-empted.

505 U.S. at 517 (internal cites omitted). This rationale

is equally compelling in determining the scope of tax

immunity here, and it precludes inferring any intent of

Congress to confer income tax immunity on the NBC.

As the preceding section of this brief shows, no extra-

statutory reason justifies such immunity either. See,

Freightliner Corp. v. Myrick, 514 U.S. 280, 288-89

(1995).

In opposing certiorari in this case, the

respondent has argued that the 1985 amendments to

12 U.S.C. 2134 somehow evinced a legislative intent to

19

“no longer authorize[ | state taxation of the banks for

cooperatives.” Brief in Opposition at 5-6. Section 2134

furnishes a decidedly odd context for such an

argument, given that the 1985 amendment deleted a

broad immunity that had previously existed when the

government owned shares, and left in place only a

limited immunity of obligations and debentures. The

NBC’s submission would render nugatory Congress’s

careful drafting of a limited immunity provision. That

suggested construction is wrong as a matter of the

statutory language and legislative history of 12 U.S.C.

2134, as the petitioner’s brief shows in greater detail.

But it is also wrong for a larger reason. The

Farm Credit Act of 1971, as amended (the “Act”),

constitutes the enabling legislation for chartering and

regulation of Farm Credit System entities. Of

particular importance are the comprehensive

amendments of the Act in the Agricultural Credit Act

of 1987, which strongly promoted mergers of entities

within the System, see 12 U.S.C. 2279a et seq., and in

particular the merger of various banks for cooperatives

into one National Bank for Cooperatives, Agricultural

Credit Act of 1987, P. L. 100-233, 101 Stat. 1639, §413

(1988). The Act systematically addresses state tax

immunity by detailing which entities are free of which

taxes. E.g., 12 U.S.C. 2023 (broad immunity, including

exemption of the banks and the “capital, reserves, and

surplus thereof, and the income derived therefrom,” for

Farm Credit Banks created out of merger of former

Federal Land Banks with former Federal Intermediate

Credit Banks); 12 U.S.C. 2098 (broad immunity for

federal land bank associations); 12 U.S.C. 2077

(narrow immunity for production credit associations).

20

“It is presumed that Congress acts intentionally and

purposely when it includes particular language in one

section of a statute but omits it in another.” City of

Chicago v. Environmental Defense Fund, 511 U.S. 328,

338, (1994), citing Keene Corp. v. United States, 508

U.S. 200, 208 (1993) (holding in part that inclusion of

“generating waste” language in other portions of

environmental act indicated that its omission from

exemption section meant facility engaged in generating

waste was not within exemption) (“[W]Jhere 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) (holding that section of crime

act did not impliedly deprive judge of statutory

discretion where language in other sections in the

same act did so explicitly).

Thus, where Congress’ intended broad

immunity, including such immunities as are claimed in

this case, it crafted language that explicitly conferred

such immunity, 12 U.S.C. 2023, 12 U.S.C. 2098.

Under the reasoning of Environmental Defense Fund,

Keene Corp., and Rodriguez, Congress must be

presumed to have acted intentionally and purposely

both by not including broad immunity language in

Section 2134, and’ by expressly conferring a lesser

immunity on banks for cooperatives. In short, the laws

Congress wrote compel the inference that Congress

affirmatively intended that banks for cooperatives not

enjoy broad immunity of its property, transactions and

income.

21

2. Because Congress adopted the

method of explicitly specifying

immunities in the Farm Credit

Act, no immunities should be

recognized under the Act

except those explicitly

authorized by statute.

The foregoing discussion clarifies that state tax

immunity vel non needs to be decided as a matter of

Congress’s intent under the Act. But that is not the

whole story. Congressional intent can be discerned

either through reading an express grant of immunity

or, in a proper case, through a statutory implication of

immunity. With the Farm Credit System, however,

Congress chose the method of detailing which

institutions should be immune from which taxes, and

consequently, claims of implied immunity simply

cannot be squared with the Act.

The prime example for an implied grant of

immunity by Congress comes from the national banks,

where Congress passed a statute expressly consenting

to particular types of taxes. By implication, those

taxes Congress dia not expressly allow were intended

to be precluded. That is the gravamen of the majority

opinion in First Agricultural National Bank, supra.

As previously noted, the Court in the 1899

Owensboro decision had pronounced national banks

immune on general pre-emption principles in the first

instance, even apart from Congress’s explicit statute

addressing state taxation of those banks. In 1968, the

Court confronted the argument that the nature of the

22

national banks’ activity had so changed that state tax

immunity was unwarranted. Specifically, the State

argued that through the Federal Reserve Act of 1913

and later developments, the Federal Reserve System

displaced the former function of the n«tional banks in

issuing currency and serving as fiscal agents of the

Federal Government. See 392 U.S. at 356-57 (opinion

of Marshall, J., dissenting).

In the face of this contention, the Court

preserved broad immunity for the national banks, but

in doing so the Court found it “unnecessary to reach

the constitutional question of whether today national

banks should be considered nontaxable as federal

instrumentalities.” 392 U.S. at 341. Instead, the

Court relied on “pertinent congressional legislation in

the banking field.” Jd. Specifically, the Court cited

the statute consenting to particular categories of state

taxation, reviewed the congressional debates

underlying that legislation, and held the Congress

reached a “compromise which permitted state taxation

of national banks in certain ways, but prohibited all

other forms of state taxation.” 392 U.S. at 343. The

Court declined to “change what legislative history and

prior decisions have established is the precise meaning

of an Act of Congress.” 392 U.S. at 345. Thus, the

Court decided the national bank immunity question

solely as a matter of construing Congress’s intent from

statutes and history, and concluded that taxes not

expressly permitted were impliedly precluded.

By stark contrast, Congress throughout the

history of the Farm Credit System has specifically and

expressly stated what degree of immunity should be

23

enjoyed by which institutions. That was so in the

Federal Farm Loan Act of 1916, 64*» Cong., 15t Sess.,

ch. 245, §26, 39 Stat. 360, 380 (1916), which originally

authorized and immunized the federal land banks; and

also in the Farm Credit Act of 1933, 72°4 Cong., 2°4

Sess., ch. 98, §63, 48 Stat. 257, 267 (1933), authorizing

and immunizing the production credit associations and

banks for cooperatives. When Congress amalgamated

prior Farm Credit System legislation in the Farm

Credit Act of 1971, Pub.L. No. 92-181, §§ 2.17, 3.13, 85

Stat. 583, 602, 608 (1971), the same approach

prevailed. When Congress chose to authorize “service

corporation” subsidiaries for Farm Credit System

entities in 1980, it crafted a pass-through provision

that specifically referenced tax immunities, 12 U.S.C.

2214, Farm Credit Act Amendments of 1980, Pub. L.

96-592, § 404, 94 Stat. 3437, 3447-48 (1980). Because

of this method of granting immunity through express

provision, state tax administrators are justified both in

recognizing those immunities expressly granted and

denying any claim of immunity not founded upon an

explicit authorization of immunity in the statute.

That means the NBC’s immunity claim here

must fail. Elsewhere in the Farm Credit System, this

reasoning becomes significant for claims of immunity

by entities that arose from certain other mergers

consummated in the wake of the Agricultural Credit

Act of 1987’s amendments to the Farm Credit Act. The

1987 Act encouraged and authorized not only the

merger of former banks for cooperatives into the

National Bank for Cooperatives, but also mergers of

“unlike associations,” 12 U.S.C. 2279c-1, which

24

themselves each had statutes conferring differing

degrees of immunity.

The example for this in the existing case law is

the “agricultural credit associations” (*ACAs”). ACAs

result from merger of federal land bank associations,

which enjoyed broad immunity at 12 U.S.C. 2098, and

production credit associations, which enjoyed a limited

immunity statute like the NBCs, 12 U.S.C. 2077.

Immunity status after merger was addressed by the

Indiana Tax Court in 1997 (Farm Credit Servs. of Mid-

America v. Dep't of State Revenue, 677 N.E.2d 645 (Ind.

Tax 1997), and again in 1999 (Farm Credit Servs. of

Mid-America v. Dep't of State Revenue, 705 N.E.2d

1089 (Ind. Tax 1999).) Contrary to that Indiana court’s

theory, however, Congress’s pattern of expressly

granting specific degrees of immunity to specific

entities indicates Congress intended no immunity for

the new entity, the ACA, once the merger was

complete. Nor is that construction anything but

consistent with the overall intent to privatize the Farm

Credit System and, through mergers, to make its

entities viable private players in the agricultural

lending market.

3 It is worth noting that, after the tax years at issue in

this case, the NBC merged with the former Farm

Credit Bank of Springfield. The farm credit banks, in

turn, resulted from merger of federal land banks and

district federal intermediate credit banks, and the

successor entities were accorded broad state tax

immunity at 12 U.S.C. 2023. Thus, CoBank as it exists

today, after the period at issue, parallels the situation

with the ACAs: entities with different degrees of

25

As if to make its silence even more significant,

Congress in the Agricultural Credit Technical

Corrections Act of 1988, Pub. L. 100-399, 102 Stat. 989,

1003 (1988), added 12 U.S.C. 2279g—a provision that

expressly exempts merger transactions themselves from

certain taxes and prevents States from reassessing

upward the value of corporate property based upon

occurrence of the merger. Absent once more is any

mention of an immunity for the entities after the

merger.

Of course the immunity vel non of Farm Credit

System entities other than the NBC is not before the

Court, and cannot be properly decided here. But in

resolving this case it would be proper for the Court to

admonish that the immunity of Farm Credit System

entities generally should rest upon determination of

Congress’s intent in the Farm Credit Act, and not upon

reference to any extra-statutory doctrine of immunity.

The need for such admonition is evidenced not only by

the decision below, and by the Indiana Tax Court

rulings regarding the agricultural credit associations,

but also by state court rulings concerning the immune

status of production credit associations. See Farm

Credit Servs. of Central Arkansas v. Arkansas, 994

S.W.2d 453 (Ark. 1999), cert. denied sub nom.,

Arkansas v. Farm Credit Servs. of Central Arkansas,

No. 99-993, 68 U.S.L.W. 3613, 120 S.Ct. 1530 (Mar. 27,

2000); Northwest Lousiana PCA v. State of La. Dep't of

statutorily prescribed immunity merged and formed an

entity that can point to no provision explicitly granting

it immunity.

26

Revenue and Taxation, 746 So.2d 280 (La. App. 1999);

In re: Appeal of Farm Credit Servs. of Central Kansas

et al., Nos. 1998-2839-DT et al., 1999 Kan. Tax LEXIS

78 (Oct. 25, 1999); CoBank ACB v. Fisher, No.

99CV437 (Colo. Dist. Ct. June 15, 2000), but see PCA

of Eastern N.M. v. Taxation and Revenue Dep't, No.

20,078, 2000 N.M. App. LEXIS 8 (Feb. 1, 2000), review

denied, 997 P.2d 820 (N.M., Mar. 13, 2000), cert.

petition docketed July 28, 2000 (No. 00-156); In re

Farm Credit Servs. of Western New York ACA, Nos.

816576, 816604, 816605, 816606, 2000 N.Y. Tax

LEXIS 7 (Jan 13, 2000).

C. Principles of federalism call for a

“clear statement” of Congress’s intent

to grant immunity.

In Dep’t of Revenue v. ACF Industries, Inc., 510

U.S. 332 (1994), the Court decided that the restrictions

on state taxing power enacted as part of the Railroad

Revitalization and Regulatory Reform Act of 1976 (the

“4-R Act”), which on _ their face _ prohibited

discriminatory property tax rates, did not erase the

State’s discretion to exempt various classes of non-

railroad property from its generally applicable ad

valorem property tax. After analyzing the statutes, the

Court observed:

Principles of federalism support, in fact

mandate, our view. Subsection (b)(4), like

the whole of §11503 [49 U.S.C. 11501], sets

limits upon the taxation authority of state

government, an authority we have

recognized as central to state sovereignty.

27

When determining the breadth of a federal

statute that impinges upon or pre-empts

the States’ traditional powers, we are

hesitant to extend the statute beyond its

evident scope.

510 U.S. at 345 (internal cites omitted). This doctrine

applies not only to taxation, but to every fundamental

sovereign power of the States, and has led the Court to

formulate a “clear statement” or “plain statement”

rule, see Gregory v. Ashcroft, 501 U.S. 452, 460-61

(1991) (“plain statement rule” means that “(ilf

Congress intends to alter the usual constitutional

balance between the states and the Federal

government,” it must make its intention to do so

“unmistakably clear in the language of the

statute”|internal cites omitted]). The Court has called

the power to tax “the most basic power” of State

government, Wisconsin v. J.C. Penney Co., 311 U.S.

435, 444 (1940); congressional interference with it

cannot be lightly implied, but must be clearly

expressed in the statute.

Because no provision of the Act—and certainly

not 12 U.S.C. 2134—makes any plain statement that

the NBC should be exempted from nondiscriminatory

state income taxes, no such immunity should be

recognized.

28

CONCLUSION

For all of the foregoing reasons, the decision of

the Supreme Court of Missouri should be reversed.

Respectfully submitted,

BETTY D. MONTGOMERY

Attorney General of Ohio

EDWARD B. FOLEY

State Solicitor

ROBERT C. MAIER*

*Counsel of Record for Amici

Assistant Solicitor

30 East Broad Street, 17th Floor

Columbus, Ohio 43215-3428

(614) 466-8980

August 24, 2000.