First Agricultural National Bank of Berkshire County v. State Tax Commission
392 U.S. 339, 20 L. Ed. 2d 1138, 1968 U.S. LEXIS 2928 (1968)
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Rule of Law:
States are prohibited from taxing national banks except in the specific ways expressly authorized by Congress in 12 U.S.C. § 548. Any state tax not on this exclusive list, such as a sales and use tax whose legal incidence falls on the bank, is void.
Facts:
- First Agricultural National Bank of Berkshire County (the Bank) is a national bank chartered under federal law.
- The Commonwealth of Massachusetts enacted a general sales and use tax.
- The Bank purchased various items of tangible personal property for its own use in its operations.
- Massachusetts sought to impose its sales and use tax on these purchases made by the Bank.
Procedural Posture:
- The First Agricultural National Bank of Berkshire County was assessed sales and use taxes by the Commonwealth of Massachusetts.
- The bank challenged the tax assessment in the Massachusetts state court system.
- The case reached the Supreme Judicial Court for the Commonwealth of Massachusetts, the state's highest court.
- The Supreme Judicial Court of Massachusetts ruled against the bank, holding that it was subject to the state's sales and use taxes.
- The First Agricultural National Bank of Berkshire County (appellant) appealed the decision to the Supreme Court of the United States.
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Issue:
Does a state's sales and use tax, when applied to purchases of tangible personal property by a national bank for its own use, violate federal law that prescribes the exclusive methods by which states may tax national banks?
Opinions:
Majority - Mr. Justice Black
Yes, the state's sales and use tax violates federal law. Based on a long line of precedent originating with M'Culloch v. Maryland, states lack the power to tax federal instrumentalities, including national banks, unless Congress consents. Congress provided this consent in 12 U.S.C. § 548, which comprehensively controls and provides the exclusive methods for state taxation of national banks. The legislative history of § 548 and subsequent court decisions, such as Owensboro Nat. Bank v. Owensboro, confirm that this statute marks the outer limit of state taxing power. Since a sales and use tax is not one of the four methods permitted by the statute, it is invalid. Furthermore, the Massachusetts statute's language clearly imposes the legal incidence of the sales tax on the purchaser, the Bank, making it a direct and impermissible tax on a federal instrumentality.
Dissenting - Mr. Justice Marshall
No, the state's tax does not violate federal law. The constitutional doctrine of intergovernmental tax immunity, established in an era when national banks performed critical and unique governmental functions, is outdated and should not apply to modern national banks. Today, national banks are privately-owned, for-profit corporations that are functionally indistinguishable from their state-chartered competitors and no longer serve as primary fiscal agents for the government. Therefore, there is no constitutional barrier to a nondiscriminatory state tax. The statute, 12 U.S.C. § 548, should be interpreted narrowly as a measure to prevent discriminatory taxation against national banks, not as a grant of absolute immunity from all taxes not explicitly listed, especially general revenue taxes like sales tax which did not exist when the law was framed.
Analysis:
This decision reaffirms the doctrine of federal instrumentality immunity, solidifying the view that 12 U.S.C. § 548 provides the exclusive list of permissible state taxes on national banks. It places the burden squarely on states to lobby Congress for any expansion of their taxing authority over these institutions. The ruling underscores the supremacy of congressional legislation in defining the relationship between federal entities and state governments, even when, as the dissent argues, the underlying nature of those entities has changed dramatically over time. The case leaves a durable precedent that strictly limits state taxation of national banks to the methods enumerated by federal statute.
