Federal Land Bank of St. Paul v. Bismarck Lumber Co. et al.

Supreme Court of United States
314 U.S. 95 (1941)

ELI5:

Rule of Law:

Congress, under its constitutional authority to make all laws necessary and proper, may immunize a federal instrumentality from state taxation, and a statutory exemption from all 'taxation' is broad enough to include state sales taxes on purchases made in furtherance of the instrumentality's governmental functions.

Facts:

The Federal Land Bank of St. Paul was a corporation created pursuant to the Federal Farm Loan Act.
In the course of its operations, the bank acquired certain farm properties in North Dakota through foreclosure proceedings.
The bank purchased lumber and other building materials from the Bismarck Lumber Company to make necessary repairs and improvements to the foreclosed properties.
The total cost of the materials was $408.26.
Bismarck Lumber Company demanded an additional $8.02, representing the North Dakota state sales tax on the purchases.
The Federal Land Bank of St. Paul refused to pay the sales tax, asserting it was exempt.

Procedural Posture:

The Federal Land Bank of St. Paul (petitioner) filed a complaint in the District Court of Burleigh County, North Dakota, against the Bismarck Lumber Company and the State Tax Commissioner.
The bank sought a judicial declaration of its non-liability for the state sales tax.
The defendants (respondents) demurred to the complaint.
The state trial court sustained the demurrer, holding the bank was liable for the tax, and entered judgment against the bank.
The bank, as appellant, appealed the judgment to the Supreme Court of North Dakota.
The Supreme Court of North Dakota affirmed the judgment of the trial court.
The Federal Land Bank of St. Paul then petitioned the U.S. Supreme Court for review.

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

May North Dakota impose its state sales tax on purchases of building materials made by the Federal Land Bank of St. Paul, a federal instrumentality, when § 26 of the Federal Farm Loan Act exempts the bank from all 'Federal, State, municipal, and local taxation'?

Opinions:

Majority - Mr. Justice Murphy

No. The state of North Dakota may not impose its sales tax on the Federal Land Bank because the bank is a federal instrumentality engaged in a governmental function, and Congress has the constitutional power to immunize it from such state taxation. The exemption from 'taxation' in § 26 of the Federal Farm Loan Act is a valid exercise of that power and is broad enough to cover the sales tax. The court's reasoning proceeded in two parts. First, the court determined that the federal statute intended to provide this immunity. The plain language of § 26, exempting the bank from all 'taxation,' is broad and unqualified. The specific items mentioned after the word 'including' are merely illustrative examples, not a limitation on the general exemption. Second, the court affirmed that Congress has the constitutional authority to grant this immunity. Any constitutional exercise of the federal government's delegated powers is 'governmental,' and when Congress creates a corporation like a land bank to carry out these powers, its activities are governmental. Citing precedent like Pittman v. Home Owners' Loan Corp., the court confirmed that Congress has the power under the Necessary and Proper Clause to protect the instrumentalities it creates, including immunizing them from state taxes that would interfere with their functions. The purchases here were incidental to the bank's lending function, which is an important governmental function.

Analysis:

This decision solidifies the principle of federal supremacy by affirming Congress's broad power to shield its instrumentalities from state taxation. It clarifies that such exemptions are not limited to direct taxes (e.g., property or income tax) but can also cover indirect transaction taxes like sales tax. The court's broad interpretation of what constitutes a 'governmental function'—essentially, any constitutional exercise of federal power—strengthens the legal position of quasi-governmental entities. This precedent limits states' ability to generate revenue from entities connected to the federal government, ensuring that federal objectives, such as providing affordable farm loans, are not burdened by state fiscal policies.

Gunnerbot

AI-powered case assistant

Loaded: Federal Land Bank of St. Paul v. Bismarck Lumber Co. et al. (1941)

Try: "What was the holding?" or "Explain the dissent"

Premium Feature