Federal Land Bank v. Bismarck Lumber Co. , 70 N.D. 607 ( 1941 )

I dissent. The question for decision here is whether sales of personal property within this state to a Federal Land Bank are subject to the state sales tax. The State Sales Tax Act (Laws 1937, Chap. 249) in force during the time involved in this controversy provided:

Section 2. "There is hereby imposed . . . a tax of two per cent (2%) upon the gross receipts from all sales of tangible personal property, consisting of goods, wares, or merchandise, except as otherwise provided in this Act, sold at retail in the state of North Dakota to consumers or users. . . ."

Section 3. "There are hereby specifically exempted from the provisions of this Act and from computation of the amount of tax imposed by it, the following:

"(a) The gross receipts from sales of tangible personal property which this State is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of this state. . . ."

Section 4. "Taxes paid on gross receipts represented by accounts found to be worthless and actually charged off, for income tax purposes may be credited upon subsequent payment of the tax herein provided; provided, that if such accounts are thereafter collected by the retailer, a tax shall be paid upon the amount so collected. . . ."

. . . . . . . . . . .

Section 6. "Retailers shall add the tax imposed under this Act, or the average equivalent thereof, to the sales price or charge and when added such taxes shall constitute a part of such price or charge, shall be a debt from consumer or user to retailer until paid, and shall be recoverable at law in the same manner as other debts. . . ."

Section 7. "It shall be unlawful for any retailer to advertise or hold out or state to the public or to any consumer, directly or indirectly, that the tax or any part thereof imposed by this Act will be assumed or absorbed by the retailer or that it will not be considered as an element in the price to the consumer, or if added, that it or any part thereof will be refunded."

The defendant Bismarck Lumber Company is engaged in the business of selling building materials as a retailer in Bismarck, North Dakota. During October, 1937, the plaintiff Land Bank purchased from said defendant Lumber Company certain building materials for use in repairing, maintaining and improving the buildings on certain farm properties then owned by the plaintiff Bank in North Dakota, — which properties had been acquired by the said Bank in the regular course of its business as a Federal Land Bank. The purchase price of such building materials amounted to some $401, exclusive of any state sales tax. The defendant Lumber Company added to such sales price or charge the amount of the state sales tax, namely, 2 per cent of such sales price, or the sum of $8.02. The plaintiff Bank paid the sales price, but refused to pay the amount of the sales tax that the defendant Lumber Company had added to the sales price, claiming that sales to a Federal Land Bank are exempted from such sales tax and that the defendant Lumber Company was under no obligation to account for, or pay tax on, such sales to the State. The plaintiff Land Bank contended that the imposition of a sales tax upon its purchases is forbidden by § 26 of the Federal Farm Loan Act, and by the Constitution of the United States, and that consequently the amount of such tax could not be added to the sales price, and that the plaintiff Land Bank was under no obligation to pay the same. The defendant Lumber Company, on the other hand, contended that the building material so sold by it was subject to such tax, and that consequently it was not only the right but the duty of the Lumber Company to add the amount of such sales tax to the purchase price. Action was brought by the Federal Land Bank against the Lumber Company and the State Tax Commissioner to obtain a determination of the controversy that had thus arisen and for a declaratory judgment adjudicating and determining the rights, liabilities, status and legal relations of the parties, and for a determination whether the sales in question were subject to the sales tax and whether the Lumber Company might legally add the amount of the sales tax to the sales price and whether the plaintiff Land Bank was under obligation to pay the same. The controversy was submitted to the district court of Burleigh county for determination and that court held that the sales by the Lumber Company to the plaintiff Land Bank were subject to the state sales tax; that the Lumber Company was required to collect and pay over to the state the sales tax on such sales, and that accordingly it might add the same to the sales price and that the plaintiff Bank was under legal obligation to pay the same. Judgment was entered in favor of the Lumber Company and the State Tax Commissioner and against the plaintiff, the Federal Land Bank of St. Paul, for $8.02, the amount of the sales tax in dispute, and the Federal Land Bank has appealed.

The appellant, the Federal Land Bank of St. Paul, contends:

1. That the imposition of the state sales tax upon the building material purchased by it within this state for the purpose of repairing and maintaining properties which it had acquired in the regular course of its business is forbidden by § 26 of the Federal Farm Loan Act, 12 U.S.C.A. § 931.

2. That it is forbidden by implication by the Constitution and laws of the United States, because the Federal Land Bank of St. Paul is an instrumentality of the United States and the tax in question here may in no event be imposed without the express consent of Congress and that Congress has given no consent.

Since all valid congressional enactments are the supreme law of the land and beyond interference by a State, the validity of State taxation of Federal instrumentalities must depend upon (1) the power of Congress to create the instrumentality, and, (2) the intent of Congress as manifested by law to protect it from, or to render it subject to, state taxation.

The Supreme Court of the United States has ruled that Congress acted within its constitutional power, (a) in creating the Federal Land Banks, and, (b) in exempting farm loan bonds issued by such Banks from Federal, state, municipal and local taxation. Smith v. Kansas City Title T. Co. 255 U.S. 180, 65 L. ed. 577, 41 S. Ct. 243. The court has declared that such banks "are instrumentalities of the Federal government, engaged in the performance of an important governmental function." Federal Land Bank v. Priddy, 295 U.S. 229, 231, 79 L. ed. 1408, 1411, 55 S. Ct. 705, 706. See also Knox Nat. Farm Loan Asso. v. Phillips,300 U.S. 194, 81 L. ed. 599, 57 S. Ct. 418, 108 A.L.R. 738. That court, also, has condemned, as beyond the constitutional power of the state, a statute subjecting mortgages executed to a Federal land bank to the payment of a recording tax. Federal Land Bank v. Crosland, 261 U.S. 374, 67 L. ed. 703, 43 S. Ct. 385, 29 A.L.R. 1.

The decisions of the United States Supreme Court are binding upon this court and definitely establish, (1) that a Federal land bank is an instrumentality of the national government, created by Congress, acting within its constitutional powers, to perform authorized governmental functions; and, (2) that such Bank is constitutionally endowed with the same immunity from State taxation, that the national government itself would have been endowed with, if it had engaged in such activity directly.

When Congress creates a corporation to carry on some activity that the national government may constitutionally undertake, such corporation may be endowed with the government's immunity from suit (Keifer Keifer v. Reconstruction Finance Corp.306 U.S. 381, 83 L. ed. 784, 59 S. Ct. 516), and from taxation. Smith v. Kansas City Title T. Co. 255 U.S. 180, 65 L. ed. 577, 41 S. Ct. 243; Graves v. New York, 306 U.S. 466, 83 L. ed. 927, 59 S. Ct. 595, 120 A.L.R. 1466; Pittman v. Home Owners' Loan Corp.308 U.S. 21, 84 L. ed. 11, 60 S. Ct. 15, 124 A.L.R. 1263; Roberts v. Federal Land Bank, 189 Miss. 898, 196 So. 763; Federal Land Bank v. Statelen, 191 Wn. 155, 70 P.2d 1053; McGovern v. Federal Land Bank (Minn.) 296 N.W. 473. Whether such immunity exists, and if so the extent thereof, are questions of congressional intention. Federal Land Bank v. Priddy, 295 U.S. 229, 79 L. ed. 1408, 55 S. Ct. 705, supra; Smith v. Kansas City Title T. Co.255 U.S. 180, 65 L. ed. 577, 41 S. Ct. 243, supra; Federal Land Bank v. De Rochford, 69 N.D. 382, 287 N.W. 522.

The plaintiff, Federal Land Bank, was established under authority of the Federal Farm Loan Act of July 17, 1916. 39 Stat. at L. 360, Chap. 245, 12 U.S.C.A. §§ 641 et seq.

That Act provides: "That every Federal land bank and every national farm loan association, including the capital and reserve or surplus therein and the income derived therefrom, shall be exempt from Federal, state, municipal, and local taxation, except taxes upon real estate held, purchased, or taken by said bank or association under the provisions of section eleven and section thirteen of this Act. First mortgages executed to Federal land banks, or to joint stock land banks, and farm loan bonds issued under the provisions of this Act, shall be deemed and held to be instrumentalities of the Government of the United States, and as such they and the income derived therefrom shall be exempt from Federal, state, municipal, and local taxation." 39 Stat. at L. 380, chap. 245, § 26 (12 U.S.C.A. § 931).

The state sales tax is not a tax imposed upon the retailer for the privilege of engaging in business or for the privilege of making the sale. The law lays the burden of the tax upon the purchaser. Jewel Tea Co. v. State Tax Commissioner, ante, 229,293 N.W. 386. It places upon the retailer the duty to collect the tax from the purchaser, and to account for and pay the tax collected over to the State Tax Commissioner (Monamotor Oil Co. v. Johnson, 292 U.S. 86, 93, 78 L. ed. 1141, 1147, 54 S. Ct. 575), but the law does not contemplate that the retailer shall pay the tax. On the contrary, he is forbidden to assume the tax or to hold out to purchaser that the tax "will be assumed or absorbed by the retailer or that it will not be considered as an element in the price to the consumer, or if added, that it or any part thereof will be refunded." Sales Tax Act, § 7.

"The ultimate burden of the tax, both in form and in substance, is thus laid upon the buyer, for consumption, of tangible personal property, and measured by the sales price. Only in event that the seller fails to pay over the tax collected or to charge and collect it as the statute requires, is the burden cast on him." McGoldrick v. Berwind-White Coal Min. Co. 309 U.S. 33, 43, 84 L. ed. 565, 568, 569, 60 S. Ct. 388, 128 A.L.R. 876.

The state sales tax is an enforced contribution exacted by the State in the exercise of its taxing power to provide for the support of the government. 61 C.J. pp. 68, 69. It is a substantial, direct and discernible tax imposed upon the purchaser of personal property, which the seller is required to collect from the purchaser and pay over to the State Tax Commissioner. If the sales which gave rise to this controversy are subject to the State sales tax, a tax of two per cent of the sales price, or $8.02 must be paid by the plaintiff Federal Land Bank. In the Act providing for the establishment of Federal Land Banks, Congress said: "Every Federal land bank . . ., including the capital and reserve or surplus therein or the income derived therefrom, shall be exempt from . . . state taxation, except taxes upon real estate held, purchased or taken by said Bank under the provisions of Section eleven and Section thirteen of this Act."

It is difficult to see that this language evidences any intention on the part of Congress to render a Federal land bank subject to a state tax on purchases made by such bank in carrying on the activities that such bank was created to perform. It seems to evidence quite a contrary intention.

"Taxation" is the act of laying a tax. It is the process or means by which the taxing power is exercised. 27 Am. Eng. Enc. Law, 2d ed. p. 581; 1 Cooley, Taxation, 4th ed. p. 72, § 7; 61 C.J. 66; 24 Cal. Jur. pp. 20, 21. Taxation is a comprehensive term; it is not restricted to taxes on property, but "covers every conceivable exaction which it is possible for a government to make" in the exercise of its taxing power. Hylton v. United States, 3 Dall. (U.S.) 171, 1 L. ed. 556; Webster's New International Dictionary.

This is not a case where Congress has been silent. It has spoken clearly and emphatically. It has said: "Every Federal land bank . . . including the capital and reserve or surplus therein and the income derived therefrom, shall be exempt from state, municipal, and local taxation, except taxes upon real estate, held, purchased, or taken by said bank . . . under the provisions of" the Federal Farm Loan Act. Congress used the comprehensive term taxation. This includes every form of tax, — every exaction that might be made for state, municipal, or local purposes by exercise of the taxing power. Congress considered not only the question whether a Federal land bank should be subject to or immune from the taxing power of the state, but whether any of its assets should be subject to such power; and it declared that every Federal land bank, including the capital and reserve or surplus therein or the income derived therefrom, shall be exempt from State taxation, and then declared further that the only exception to the immunity from state taxation should be "taxes upon real estate held, purchased, or taken by said bank under the provisions of Section eleven and Section thirteen" of the Federal Farm Loan Act. The plain and natural meaning of what Congress said is that the State taxing power shall not extend to a Federal land bank, or to any of its rights or assets, with the single exception of such real estate as the Bank may hold or have acquired under the provisions of §§ 11 and 13 of the Federal Farm Loan Act.

The imposition of the state sales tax is state taxation. It is not a tax upon any of the real estate held by the Bank. It is a tax laid directly upon the Bank as a purchaser within this state (McGoldrick v. Berwind-White Coal Min. Co. 309 U.S. 49, 84 L. ed. 572, 60 S. Ct. 388, 128 A.L.R. 876) of certain building material to be utilitzed by it in repairing structures on lands that it has acquired upon the foreclosure of mortgages it has taken in the regular course of its business. If the state may impose a tax upon a Federal land bank because it purchases certain personal property required in the conduct of its work in this state, the state may, also, impose a "use" tax if the Bank purchases such property without the state, and thereafter brings the property into this state and uses it here. Henneford v. Silas Mason Co.300 U.S. 577, 81 L. ed. 814, 57 S. Ct. 524.

In the case of Federal Land Bank v. Crosland, 261 U.S. 374, 67 L. ed. 703, 43 S. Ct. 385, 29 A.L.R. 1, the Supreme Court of the United States held that a tax imposed by the state of Alabama as a condition for the recording of a mortgage might not be imposed on a Federal land bank and that the imposition of such tax was forbidden by the Federal Farm Loan Act. The Supreme Court of Alabama sustained the tax on the ground that the amount of the recording tax was optional and that the Federal Land Bank was not required to put its mortgage on record and that if it did not record it, no tax was imposed, but that if it desired to have the mortgage recorded it must pay what others were required to pay for the registration of its security. The Supreme Court of the United States held this reasoning to be unsound, and pointed out that the laws of Alabama made it practically necessary to record real estate mortgages because unless recorded a mortgage would be of no effect as to a purchaser without notice, and that consequently the effect of the law was to impose the tax upon the mortgages of the Federal Land Bank and compel the Bank to pay such tax and that this was forbidden by the provisions of the Federal Farm Loan Act. The decision in the case of Federal Land Bank v. Crosland was adhered to and followed by the Supreme Court of the United States in its decision in Pittman v. Home Owners' Loan Corp. 308 U.S. 21, 84 L. ed. 11, 60 S. Ct. 15, 124 A.L.R. 1263, supra. That case involved a tax imposed by the state of Maryland upon mortgages recorded or offered for record. The question arose whether mortgages taken by the Home Owners' Loan Corporation were subject to the tax. The court held that the imposition of the tax was forbidden by the provisions of the Home Owners' Loan Act that "the Corporation, including its franchise, its capital, reserves and surplus, and its loans and income" shall be exempt "from all taxation" imposed by "any state, county, municipality, or local taxing authority," except that "any real property of the Corporation shall be subject to taxation to the same extent, according to its value, as other real property is taxed." In the decision in the Pittman Case, the Court said:

"Congress has not only the power to create a corporation to facilitate the performance of governmental functions, but has the power to protect the operations thus validly authorized. `A power to create implies a power to preserve.' M'Culloch v. Maryland, 4 Wheat. (U.S.) 316, 421, 422, 4 L. ed. 579, 605. This power to preserve necessarily comes within the range of the express power conferred upon Congress to make all laws which shall be necessary and proper for carrying into execution all powers vested by the Constitution in the Government of the United States. Const. Art. 1, § 8, ¶ 18. In the exercise of this power to protect the lawful activities of its agencies, Congress has the dominant authority which necessarily inheres in its action within the national field. Shreveport Case (Houston, E. W.T.R. Co. v. United States) 234 U.S. 342, 351, 352, 58 L. ed. 1341, 1348, 1349, 34 S. Ct. 833. The exercise of this protective power in relation to state taxation has many illustrations. See, e.g., Bank of New York v. New York County, 7 Wall. (U.S.) 26, 31, 19 L. ed. 60, 62; Choate v. Trapp, 224 U.S. 665, 668, 669, 56 L. ed. 941, 943, 32 S. Ct. 565; Smith v. Kansas City Title T. Co. 255 U.S. 207, 65 L. ed. 588, 41 S. Ct. 243; Trotter v. Tennessee, 290 U.S. 354, 356, 78 L. ed. 358, 359, 54 S. Ct. 138; Lawrence v. Shaw,300 U.S. 245, 249, 81 L. ed. 623, 626, 57 S. Ct. 443, 108 A.L.R. 1102. In this instance, Congress has undertaken to safeguard the operations of the Home Owners' Loan Corporation by providing the described immunity. As we have said, we construe this provision as embracing and prohibiting the tax in question. Since Congress had the constitutional authority to enact this provision, it is binding upon this Court as the supreme law of the land. Const. Art. 6." 308 U.S. 32, 33, 84 L. ed. 16, 17, 60 S. Ct. 15, 124 A.L.R. 1263.

The tax involved in this case is nondiscriminatory. It applies to all sales of goods, wares or merchandise sold at retail in this State to consumers or users, except to the sales of tangible personal property which the State is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of the state. But the taxes involved in the Crosland and Pittman Cases were, also, nondiscriminatory. The taxes involved there were laid generally upon the recording of all real estate mortgages. The tax involved here is a direct tax of 2 per cent, upon the entire purchase price, to be paid by the purchaser. If sales within this state to a Federal land bank of tangible personal property which the bank is required to purchase in carrying on the functions which Congress intended it should carry on within this state, are subject to the sales tax, then the Federal land bank is required to pay a tax of 2 per cent on all such purchases made by it. In the instant case the tax so imposed would amount to $8.02, — the amount of the judgment rendered against the plaintiff Land Bank. As I construe the Federal Farm Loan Act, and the decisions of the Supreme Court of the United States interpreting and construing the same and analogous acts, the state is inhibited from laying this tax upon a Federal land bank, and the judgment against the plaintiff Bank should be reversed.