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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0369%3A13

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2001
- **Citation:** 531 U.S. 316

## Text

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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0369%3A13. Public record. Not legal advice.