AGRICULTURAL BANK v. TAX COMM'N
Legal provision: 12 U.S.C. 548
Argument of Ronald H. Kessel
Chief Justice Earl Warren: Number 755, First Agricultural National Bank of Berkshire County, appellant versus State Tax Commission.
Mr.Kessel, you may proceed with your argument.
Mr. Ronald H. Kessel: Mr.Chief Justice and may it please the Court.
The appellant, the First Agricultural National Bank of Berkshire County is a national bank chartered under Title 12, the United States Code as such just one of 19 national banks conducting banking operations in the Commonwealth.
For over two years, it has paid under protest, Massachusetts sales and use taxes on purchases of tangible personal property for its own use.
Immediately prior to the enactment of the sales and use tax statute of the appellant request of the appellee, the State Tax Commission, for a ruling or an emergency regulation that it was exempt from these taxes, no such ruling was issued.
However, emergency regulation number 6 was promulgated which stated that the sales lease or rental of tangible personal property of the national banks and to Federal Savings and Home Loan Associations was subject to the sales and use taxes.
The appellant filed a fail for declaratory release seeking in substance that it was exempt from these taxes.
The case was reserved and reported without decision to the Supreme Judicial Court for the Commonwealth of Massachusetts for the issues which are raised on this appeal were passed on by that Court.
There are five issues in the case.
Two of them relate to the nature of the Massachusetts sales tax and one of the natures of that tax is probably reviewable by this Court.
Three of them relate to the tax immune status of the national banks.
The third -- the first is whether Section 548 of Title 12 prohibits the imposition of a sales and use tax on purchases by the appellant.
If this Court should decide that issue affirmative why then none of the other tax immunity issues need be reached.
If, however, this Court should decide as the appellant submits it should not, that Section 548 is a purely permissive statute.
Why then the second immunity issue is raised, that is whether after long standing congressional reliance and acceptance of the decisions of this Court which have held at a several states are wholly without power to levy any tax direct or indirect on national banks except as Congress permits, whether those decisions should be reexamined.
Only if this Court should decide that these decisions should be sole reexamined is the pure constitution -- constitutional issue presented.
That is whether national banks, the federal instrumentalities should continue to enjoy the constitutional protection from state taxation, again, except this Congress permits.
Inherent in the nature of our federalism, is a necessity of accommodating the affairs of the nation and the power of the several states to tax.
Congress is fashioned its accommodation in Section 548.
Section 548 provides that the several states can levy taxes on national bank shares, dividends there from and on the income of national banks and taxes measured by a recording the income of these banks in addition to real estate taxes.
Section 548 does not permit the levying of a sales and use tax.
Despite the language of Section 548 and despite the overwhelming authority of the decisions of this Court, the appellee now urges upon this Court that the appellant is subject to state sales and use taxes.
The original predecessor to Section 548 was enacted in 1864, one year after the National Banking System was created.
The debates prior to the enactment of this section indicate that the Congress was well aware that it was making a decision into determining the sculpt of permissible state taxation of national banks which was a purely legislative market and was not one of constitutional dimension.
For example, one of the objects of the 1864 Legislation was to encourage the conversion of not state banks international banks.
Congress knew that any types of protection for the national banks would encourage such conversions.
This objective is of course one of legislator policy.
The congressional debates further indicate that the Congress is well aware of the decision of the McCulloch versus Maryland and of the constitutional provision against a tax on national banks.
For this reason, we're fully conscious that in setting forth the permissible mode of state taxation they were determining the outer limits beyond which the state could not tax.
Subsequent legislative activity with respect to Section 548 confirms this.
In 1923, an amendment was enacted which permitted the several states to tax the dividends and the income of national banks
The original predecessor had only permitted the taxation of national bank shares in real estate -- in the real estate of the banks.
In 1926, the amendment was passed which authorized the states to levy excise and franchise taxes.
In 1935, the Congress subjected national banks to state unemployment taxes.
In short, Congress has always seen fit to carefully define the precise scope of state taxation of these banks.
It has never seen to authorize and subject the national banks to general state taxation.
In 1950, the Congress rejected a bill which would have expressly authorized the taxation of the purchases of national banks under state sales and use taxes.
This bill never became law.
The decision below is in effect an attempt to resurrect and judicially enact that bill.
In so doing the court below relied on the cannon of construction that tax immunity is not to be granted by implication.
But the case has relied on or in opposite.
Either they are not cases of statutory construction or they aren't cases where a statutory immunity was conferred, a limited immunity.
And the issue was whether that immunity should be extended by implication.
The issue on this appeal is a far different matter.
It is a question of whether the Congress by expressly authorizing four casually defined methods of taxation, intended that other such methods of taxation should be prohibited.
Moreover, resort to that judicial kind of construction --
Justice Byron R. White: What's the case in this Court that most squarely says that answers yesterday's question.
Mr. Ronald H. Kessel: The case starting – a line of decisions starting with Owensboro --
Justice Byron R. White: Are they square holding for the --
Mr. Ronald H. Kessel: Yes, they are square holdings.
Owensboro, Bank of California versus Richardson, the --
Justice Byron R. White: Well that's alright.
Mr. Ronald H. Kessel: Des Moines National Bank versus Fairweather, First National Bank of Guthrie Center versus Anderson.
Justice Byron R. White: But either -- you need not go on but your position is that the -- these cases squarely construe the statute to exclude the other type of standard?
Mr. Ronald H. Kessel: Position we take is that this is perfectly clear.
They have in citing the statute, they have always stated unequivocally and -- and without any intimation to the contrary and the over century that this Court has construed this section that except for the permissive legislation of Congress, the states are wholly without power to levy a tax.
Justice Byron R. White: Well that's one thing right, but do you think they have -- do you think they -- these cases have held of national banks would simply immune because their federal instrumentalities or have they held that they are immune because Congress has set them to be immune?
Mr. Ronald H. Kessel: I think that the cases of -- are subject to both interpretations that the -- they can be construed as holding one that Section 548 as a legislative matter, has defined the scope beyond which states cannot tax national banks.
I further submit that they are also --
Justice Byron R. White: Whether did they would be immune constitutionally or not?
Mr. Ronald H. Kessel: Whether they would be immune constitutionally or not, and this is the first proposition upon which we were relying.
Those cases I think can also be right standing for the proposition that -- where it not so permissive legislation of Congress.
The national banks could not be taxed because it was a constitutional provision.
Justice William J. Brennan: Well you are saying that the statute said in terms that states could impose these taxes against national bank.
You'd then be arguing that that statute was unconstitutional?
Mr. Ronald H. Kessel: I would not like be in a position of having in advance with that argument.
Our position is that if Congress had authorized the state taxation of national banks, why of that -- by means of a sales and use tax well that's actually perfectly -- would be perfectly okay.
Justice Byron R. White: Congress can wave immunity.
Mr. Ronald H. Kessel: That's exactly right.
And Congress can prohibit the taxation of national banks as it sees fit.
The Court, as I mentioned, relied on this cannon of construction that immunity is not to be extended by implication as we suggest the cases are in opposite and they do not present a statute where four carefully defined modes were permitted.
The effect of the decision below is this, by utilizing that cannon of construction, it would require an expressed provision in Section 548.
But the requirement of an expressed provision in Section 548 is exactly what this Court in its decisions has made superfluous and this approaches judicial legislation in the form of judicial construction.
The analysis is somewhat disturbing.
The result is we submitted even more so.
Now, under Section 548, if a statement of levy one of the four permissible taxes, why would have to make some very complicated criteria relating to whether it was taxing at a rate higher than or rate of money capital in the hands of individuals and several others.
But now according to the Court and its interpretation, the several states could levy in numerable other taxes without having to meet a complex set of criteria which Congress has enacted in the case of Section 548.
Moreover, under Section 548 if you choose one of the four permissible modes, you cannot tax on any or the other three ways that provides other tax in either one of the fours in lieu of all the others.
But now again if the Court's interpretation, the Massachusetts's Court interpretation is -- is accepted why the states would be free to again impose many other forms of state taxation.
Mr. Ronald H. Kessel: I should like to address myself for a moment to the question of congressional reliance.
Justice Potter Stewart: Before you leave that, if 548 by its term seems to be directed to the matter in which the state may tax the shares of the National Banking Association.
Mr. Ronald H. Kessel: The statute goes on to --
Justice Potter Stewart: And then later the statute it says nothing here in to show --
Mr. Ronald H. Kessel: Yes and (Voice Overlap) --
Justice Potter Stewart: --(Voice Overlap) prohibit states power to tax the real estate of a bank.
Mr. Ronald H. Kessel: And -- but it goes on to say that the several states may tax such shares or the dividends or tax such associations on in that income or under the four subdivision, tax such associations according to a measure by the state incomes.
The latter was the 1926 Amendment or the effect of which was to authorize the levying of the state excise franchised taxes on the banks.
The reason for that first sentence which would seem to indicate that all of the Section 548 I was talking about on national bank shares is a really historical vestige.
In 1864, when the original statute was passed why it permitted only the taxation of national bank shares and that first sentence says, “Come down through the century and the amendments authorizing the taxation of national bank income and authorizing excise of franchise taxes which is added as later sentences.”
But I certainly -- we strongly submit that Section 548 covers much more than the taxation of national bank shares.
Indeed it comprehensibly controls the entire scope of the national bank taxation.
Justice Potter Stewart: I suppose your argument would be that if it didn't cover much, much more than that there would be no reason at all from putting any paragraph like paragraph three which says that nothing here in contained shall be deemed to prohibit a state from taxing the real estate of a bank.
Mr. Ronald H. Kessel: That is true too.
Justice Potter Stewart: That would be an entirely unnecessary if all the statute were directed where the matter at which shares could be taxed.
Mr. Ronald H. Kessel: That's true.
This Court has -- has held that where there has been long standing congressional reliance and acceptance of the decision to this Court that those decisions should remain undisturbed.
This is precisely the case with respect to Section 548.
The -- prior to the enactment of Section 548 this Court decided for McCulloch versus Maryland and Osborn versus the Bank of the United States, prior to the 1923 Amendment there was Owensboro National Bank and the Bank of California and I need not go on.
I think that the parallel legislative and judicial activity with respect to this section whereas Congress over the course of the years carefully defined another form of state taxation, there were constantly decisions before under which this Court had held without any qualification that except for the Section 548 the states could not levy any taxes.
This Court should decide that the -- that this congressional reliance does not preclude in reexamination of these decisions but as we suggest that it should not.
In fact it is -- it's difficult to imagine a situation where there's going to be more meaningful dialogue between this Court and the legislative branch of the government and I think that in a very real sense these decisions have become an integral part of Section 548.
If, however, this Court should decide that it will reexamine those decisions, we submit that a national bank as a federal instrumentality is still entitled to constitutional protection.
The responsibility of the Congress in the area of banking and currency is a very unique one unlike other regulatory areas such as the antitrust laws.
The Congress is responsible for designing and creating the very financial structure that the fiscal policies and affairs of this nation have conducted primary and vital with the structure on national banks.
They are the sine qua non of the National Banking System.
As such, Congress in affecting its policies has resort to a nationwide uniform system of facts.
It need not rely and be dependent upon state banks and the governments of the several states.
The national banks moreover are the keystones of the Federal Reserve System.
They are the only financial institutions in the country which are required to be members of that system.
It is true that state banks, state commercial banks can become members of the system but this in no way that we submit the tracks from the indispensable role of the national banks in affecting national monetary and fiscal policy.
Of course national banks have a proprietary aspect but this has always been and still is a fundamental part of the congressional scheme.
The -- perhaps to the matter is that these federal instruments they are vital and essential to affecting monetary and fiscal policy.
We submit that for this reason, this Court could unanimously say in Department of Employment versus the United States decided just a little over a year ago that national banks were tax immune instrumentalities and that this status was beyond dispute.
I should like to address myself for a moment to the issues relating to the --
Justice Byron R. White: What's the basis for -- if this bank is not a federal instrumentality what's the congressional basis for immunizing a national bank from state taxation.
Mr. Ronald H. Kessel: The Court has held at -- the Congress has -- there's been a trend of decisions which had indicated as the court below has suggested that the power for the Congress to immunize a federal instrumentality is a very broad one.
Justice Byron R. White: Well yes, I know.
What if it is a federal instrumentality?
Mr. Ronald H. Kessel: Well.
We submit that it -- well we submit that in the eyes of Congress that Congress clearly considered as a federal instrumentality and that the question of whether it's a federal instrumentality for the purposes of this -- of a constitutional immunity might present this Court with a different question than a question of whether --
Justice Byron R. White: You mean it isn't automatic that just because it's a federal instrumentality it doesn't mean it's immune?
Mr. Ronald H. Kessel: No which I would suggest that there are various vehicles for carrying out some of the aims of the Government where they would not (Voice Overlap)
Justice Byron R. White: Well let's assume that (Voice Overlap)
Mr. Ronald H. Kessel: -- be entitled of constitutional immunity.
Justice Byron R. White: -- federal instrumentality for the purposes of giving Congress the power to immunize it.
Then is it automatically immune from -- unconstitutionally?
Mr. Ronald H. Kessel: I would submit that that does necessarily follow.
I think it is an easier question for the Court to hold a federal instrumental immune from state taxation where Congress has created an immunity.
I think it's a slightly closer question is the question where before this Court de novo of whether a federal instrumentality should be entitled to a constitutional immunity.
We submit that the clear -- clear stance in this case is under Section 548 where there has been the congressional conference of an immunity.
Justice Byron R. White: Well, but again now, let's assume the Court presided in its own mind that the -- this bank wasn't entitled to any constitutional immunity and then you come to the statute that you argue that that's immunize --
Mr. Ronald H. Kessel: Yes.
Justice Byron R. White: -- bank.
Well where does Congress get to parallel immunize the national bank which has been titled to a constitutional immunity?
Mr. Ronald H. Kessel: Because the -- under the --
Justice Byron R. White: Is this interstate commerce or what?
Mr. Ronald H. Kessel: Under the implied powers of the national government to create national banks and a national banking system as an implied power of the federal government implied from the authority to levying collect taxes to develop and be all means to run the affairs of the government why the decision of McCulloch versus Maryland put to rest forever.
The question of whether the Federal Government, the Congress could fashion a national banking institution.
And in fashioning that institution why -- and because this institution is fashioned under the paramount law of the United States -- of the Federal Government why it is well within the power of Congress to immunize that institution.
This Court in turning to the state sales tax issue, this Court has held at where a sales tax is required to be added to sales price and collective from a purchaser and that this tax is a debt from the purchaser to the vendor that this is a tax on the purchaser.
This is precisely the nature of the Massachusetts sales tax.
Subsection 3 cited right in appendix 57 of the appellant's brief states that reimbursement for the tax here imposed shall be paid by the purchaser to the vendor and each vendor in the Commonwealth shall add to the sales price and shall collect from the purchaser the full amount of the tax imposed by this section and that such tax shall be a debt from the purchaser to the vendor.
As a penalty for a vendor's failure to so add and so collect the tax, its registration can be suspended or revoked and it can be force to seize doing business in the common law.
Tax moreover must be separately stated and separately charged.
In addition, a vendor is prohibited from advertising that he will absorb or assume it or that he will not add it to the sales price.
Despite these characteristics, the Court below held that the sales tax was a tax on a retail merchant.
The appellee contends that this question is not before this Court.
We submit that the teachings of this Court have established that where federal rights were involved such as the appellant's rights in this appeal, that the characterization of state tax by a state court is not binding on this Court and we think that for this reason, this Court should find that the sales tax is a tax levied on the appellant as a purchaser.
Perhaps the court below relied very heavily on what it assumed to be the case that is that there was no penalty on a vendor on failing to collect the tax from the purchaser.
At the time that the Court decided this case, there wasn't affect to Massachusetts a temporary sales and use tax.
Under the temporary sales and use tax, the entire Sales Tax Act was entitled the section and all of provisions relating to the sales tax with designated subsections.
In the general penalty provision relating to the registration of vendors and the suspension on revocation of it, it said that a registration could be revoked or suspended for a vendor's failure to violate any provision of this section.
And there was some ambiguity as to whether the reference to any provisions of this section meant the subsection or the section itself which was the entire Sales Tax Act that any ambiguity has been resolved.
After the decision by the court below, the Massachusetts Sales Tax Act became permanent law.
As part of the permanent general laws of the Commonwealth, the Sales Tax Act is now a chapter.
And so the section which deals with the revocation and suspension of a vendor's registration states that a registration can be suspended or revoked for failure to comply with the provisions of any section of this chapter.
And so there are no longer is any ambiguity and there clearly is within the statute of penalty for a vendor's failure to collect the tax.
In conclusion, we submit that Section 548 prohibits the imposition of the Massachusetts sales and use tax on purchases by the appellant for its own use of tangible personal property.
We further submit that in view of the long standing congressional reliance and acceptance of the decisions of this Court which have held squarely and without any intimation to the contrary that national banks cannot be taxed by the several states except this Congress permits should not be reexamined.
We further submit that national banks and their role as federal instrumentalities in effecting the national and fiscal policies of this nation are entitled to a constitutional immunity from state taxation.
We further submit that the Massachusetts sales tax is a tax on national bank as a purchaser and that this question is properly reviewable by this Court.
Chief Justice Earl Warren: Mr.Dimond.
Argument of Alan J. Dimond
Mr. Alan J. Dimond: Mr.Chief Justice, may I please the Court.
I think it might be useful to look briefly at the record in this case to see some of the purchases at which the bank complains even though the same purchases when made by neighbors across the street state banks to not entitle those banks to any immunity.
On page 19 and following of the appendix, there's enumerated about 40 or 50 names of vendors from home purchases have been made here and the names of these vendors indicates the nature of the articles involved.
You'll see here vendors of office supplies and equipments.
You'll see on page 19 to be an advertising company.
You'll see on page 20 Pittsfield Neon Signs, page 21 Universal Match Company, names which indicate the exclusively commercial promotional type of articles which are included in this list.
On page 27, there's included particular items of office equipment and supplies including one waste basket.
Now what is the structure in which these articles are housed?
Reference has been made in the brief to an arch for the keystone to it, supporting it.
I submit that the keystone that supported the arch of constitutional immunity of national banks from state taxation has long been removed and that the arch or the structure such as it is today is not supported by any keystone such as that which was originally installed.
What was that keystone?
The keystone was a bond secured currency.
The bond secured bank note currency.
To explain this proposition, it's necessary to go back the time of the creation of the national banks during the Civil War.
There were two purposes which I think all financial historians accept as being the reasons for the creation of the -- what is now known as the National Bank System.
One was to establish a uniform national currency.
The second was to extend the market for government bonds solely needed in 1863 to finance of the Civil War.
As for the uniform currency, the Second Bank of the United States having gone out of existence when its charter expired in 1836 there was no federally chartered bankin existence thereafter.
Banking was wholly in the hands of state institutions.
These institutions, then conducting banking in the way in which banking of course was then conducted as a form of the issuance of bank notes as distinguished from the creation and transfer of demand deposits which is now distinctive characteristic of commercial banking.
Prior to the Civil War, the number of state bank notes ran into to thousands.
They varied in value from state to state and within the same state.
Counterfeiting of the notes was widespread.
So much so that counterfeiting had almost become a hobby.
No business or financial institution could then function without what was then known as a counterfeit detective in the office.
State bank notes were known via some other colorful terms.
There were the shinplasters of Michigan and the red dogs of Indiana and Nebraska, the wild cats of Georgia and Pennsylvania and the stump-tails of Illinois and Wisconsin.
So serious was the irregularity in the bank note system that demands the reform came from many sources, chief of whom, at that time was Secretary of the Treasury Salmon P. Chase.
When December of 1861 and a message to Congress urged a replacement of the state bank notes by a uniform federal bank note currency.
He got no immediate results but as the finances of the north worsen during the Civil War and it became necessary to enlarge the market for the government bonds then issued or to be issued by the north, a combination of Chase's objective and the fiscal needs of the Treasury were then joined so as to create what was known as the National Currency Act of 1863.
Under this Act, five or more persons could organize what were known as National Banking Associations.
By depositing with the treasurer or the comptroller of the currency, certain government bonds to hold a security for the issuance of bank notes which would then be entitled to qualify as legal tender throughout the country, the bonds which are eligible for deposit were said or since said to have had was known as the circulation privilege.
The National Currency Act was amended and replaced in 1864 but without significant change in the essential characteristic that it originally had namely the issuance of a bond secured currency.
Now, the national bank currency thereafter had an interesting and not very edifying history.
Much has been written about its defects, chief of which was its so-called inelasticity.
That is, its inability to expand or contract according to the needs of business and agriculture.
When time look good, the banks consider buying more bonds as a base for augmenting the bank note issue would put their money to other purposes so that at the very time that an augmented currency was needed to meet the expense -- expanding demands of industry and agriculture, the currency was not there.
Although it might be an overstatement to say that this inelasticity brought on the panics of 1873 or 1884 or 1903 or 1893 or 1907, I think it is fair to say reading from his financial historians that the national bank note currency due to its inelasticity and it was also sometimes called its reversed elasticity seriously intensified the crisis and the money panics once they had started.
After the panic of 1907, country had just about had enough.
In that year the National Monetary Commission was established and in a series of studies which number over 20 volumes made an intensive study of banking practices both here and abroad.
Commission filed its report in 1912, finding many inadequacies in the existing banking structure of this country.
Many of which of course had often been noted the immobility of reserves, scattering of reserves, the lack of any centralized control over reserve -- banking reserves.
But among the chief defects found in the existing banking system was the national bank note currency which was indicted by the National Monetary Commission or its inelasticity as I have just described it.
The result of course of the National Monetary Commission's work was the enactment of the Federal Reserve Act in 1913.
Worth not for the threat and danger causing a serious loss on the bonds that have the circulation privilege, the Federal Reserve Act would have abolished the national bank notes in that year.
As it was, the Federal Reserve Act of course created a new form of bank note currency with greater elasticity Federal Reserve notes.
It was anticipated, however, that the national bank notes would be retired in due course and indeed in 1935 they were so retired.
When the Secretary of the Treasury called in for redemption, all bonds then possessing the circulation privilege, the result was that from 1935 on national banks have seized to have their originally distinctive function namely the issuance of bank notes.
Any national bank notes now in circulation are simply those notes which have not been turned in for redemption.
The -- if any distinction now exists between the national banks and the state banks, it is simply that they are each subject to different supervisory agencies and even the state banks today are subject to such a variety of federal controls that to speak of our dual banking system is it sometimes called -- is actually and is nowhere we have today Federal Reserve System, we have the Federal Deposit Insurance Corporation and the comptroller of the currency all exercising controls of various sorts of both the faith of the state as well it has of the federal banks.
Justice Potter Stewart: Mr.Dimond, I understand that the trust of what you've been telling us is to show the difference between what national banks are today and what they were today as of McCulloch against Maryland or even in the days of 1864 --
Mr. Alan J. Dimond: Yes, Your Honor.
Justice Potter Stewart: Or prior to 1913, which goes I supposed to the constitutionality of state imposing nondiscriminatory taxes upon national banks in 1968.
Mr. Alan J. Dimond: Yes sir.
Justice Potter Stewart: Does this mean that if Congress -- if this is mean that if Section 548 means what your opponent says it means is, that is that Congress has given permission to states to tax national banks only in certain specified ways that that Act of Congress is not within the power of Congress to enact to constitutionally or what does it mean?
In other words, does your argument go at all to the -- to your opponent's argument based on the statute?
Mr. Alan J. Dimond: I have not gone as far as Your Honor suggests, I'm not aware of any decision of this Court that goes that far.
I suppose it would not be unreasonable to anticipate that under the necessary improper clause, Congress might extend 548 to national banks even though they do not enjoy constitutional immunity so that it is conceivable that the absence of a constitution immunity and the reach of 548 to national banks that was standing immunity might co-exist.
Justice Potter Stewart: Because as I understood, your brother's argument on the other side it was primarily bottomed down the statute.
Mr. Alan J. Dimond: It was Your Honor.
Justice Potter Stewart: And if the statute means what he says it means then that wins the case for him unless there's some reason that statute was not within the -- unless for some reason that statute is not constitutionally there because it was not within the constitutionally power of Congress to enact or because it violate some explicit constitutional provision.
Mr. Alan J. Dimond: Well, the -- he started that one end of the street and I've started at the other.
I would try to get to the middle of the street if I may.
The interpretation of Section 548 which is relied on here by the appellant is one that is so interwoven with this concept of immunity that I think it cannot be adequately comprehended without some attempt as I am tried to do perhaps to show that the constitutional underpinnings have been eroded.
If the 548 is read as it is written, there is absolutely no language of immunity contained in it.
There has been concededly a traditional gloss placed on it over the years.
Justice Byron R. White: Do you think that you concede that the Court has squarely construed that statute to exclude other form of protection?
Mr. Alan J. Dimond: It has done it in terms -- in these terms Your Honor.
It's done it by making some broad statements to that effect but it's done it in --
Justice Byron R. White: Or has it ever invalidated the tax because the statute immunizes the banks from the kind of taxation of suddenly imposed?
Mr. Alan J. Dimond: It is done so Your Honor in circumstances where the tax sought to be imposed as had a direct effect shall we say on the value of an investment in a national bank as compared to the investment in other forms of moneyed capital.
All these cases in which the broad statements of immunity had been made, have been cases which have with the exception of Owensboro I believe, have dealt with a discriminatory form of taxation.
They've all been cases which have dealt with investments in national banks, has dealt with their franchises, their income, things which directly are related to what an investor would be concerned about when he would be -- making a decision as to whether to invest in a national bank as against a state bank.
Justice Byron R. White: But nevertheless, these taxes were invalidated because it held that Congress had intended to authorize those taxes.
Mr. Alan J. Dimond: Yes, Your Honor.
The cases --
Justice Byron R. White: Or Congress intended to immunize against those taxes.
Mr. Alan J. Dimond: Immunize against those actually.
Justice Byron R. White: And as evidenced by the statute.
Mr. Alan J. Dimond: Yes, Your Honor.
And quite frankly, we are attempting today to ask the Court to reexamine some of those decisions to conclude that they have stated rules that are much to sweeping, that they --
Justice William J. Brennan: But ordinarily if it goes out far though that kind of problem after lapse of time and Congress has let it alone, don't you think they'll let Congress handle rather than we do?
Mr. Alan J. Dimond: In some circumstances that would be so Your Honor.
If it could be said that an existing form of business or industry has structured itself in reliance on those interpretations.
There are many situations where of course such position would be warranted.
Here, however, we are dealing with (Voice Overlap) --
Justice William J. Brennan: Well you're not suggest -- you're not suggesting are you that we apply that principle that Congress take care of it if they don't like the interpretation.
Only in cases which demonstrated that there's been some kind of reliance by the affected industry.
Mr. Alan J. Dimond: I won't say, only then I think that is a factor that would be considered Your Honor.
Justice Byron R. White: Now how do we -- how do we know that situation has so changed about banks just by judicial notice?
Mr. Alan J. Dimond: What we've attempted to document the change in our brief, there is I believe references to the various sources which indicate the fundamental change in the character of national banks so that today there's simply ordinary private commercial institution say perform no significant fiscal or monetary function for the Federal Government.
It has been suggested that they are so imminently connected with the Federal Reserve System that they should be given an immunity on that ground.
Justice Thurgood Marshall: Is there anything in your argument or in your brief that isn't thoroughly familiar on Capitol Hill?
Mr. Alan J. Dimond: I think every item of history that I've cited here your Honor is generally familiar.
On the other hand, I respectfully submit some of it is not as well-known as it should be.
Justice Thurgood Marshall: Well isn't it is well-known as it is to -- me for example?
Mr. Alan J. Dimond: Well --
Justice Thurgood Marshall: That's the other question I ask is, the Congress has intention to it.
Mr. Alan J. Dimond: Congress has not and I think it has -- once again, not had occasion to do it.
There was reference made to the 1950 bill.
I am curious, that bill -- everybody wanted the bill to pass in putting the banks.
So there was no opposition to it.
It just seems to dive on legislative process.
So this is something that you can't say Congress has been opposed that this based on the 1950 episode that has been referred to you.
It just --
Justice Byron R. White: Were this state tax, applied to Federal Reserve bank?
Mr. Alan J. Dimond: No Your Honor, because they are specifically exempt by Act of Congress from state taxation.
The word of exemption is used in the Federal Reserve Act with respect to state taxation.
Our position here is that Section 548 does not speak in terms of an exemption.
It speaks wholly in terms of a regulation of the types of taxation enumerated in Section 548.
Now, may I say this.
When 548 was first passed which I took the form of proviso in Section 41 I believe it was of the Currency Act of 1864.
It was cast in the form that it was I submit for two reasons.
One was the nature of state taxation in those days and the other was the continuing vitality of an important reservation in McCulloch versus Maryland.
In 1864, the only type of state taxation of any consequence was the local property tax.
So that when Congress adopted this proviso which was all that it was in 1864, it was thinking only in terms of the local property tax and I believe I've documented that statement in a brief.
As for the reservation in McCulloch versus Maryland, there is an important statement in that case which I believe is often gone unnoticed where Chief Justice Marshall pointed out that nothing in that decision was to prevent local taxation of the property of national banks.
And may I say this -- I should say -- no I shouldn't say national banks, I should say the Second Bank of the United States which was a true federal instrumentality certainly significantly different from the national banks as we know them today.
And may I say this further with respect to McCulloch versus Maryland because I think this is important.
The reference to which that case is given -- which is given to that case is based on the centrally -- because of its enunciation of the implied powers doctrine and doctrine of the supremacy of the Constitution.
In the course of that opinion, Chief Justice Marshall said that it wasn't even worth discussing whether or not the Second Bank of the United States was a true federal instrumentality because at that time, in view of its history and its functions, it was a true agent, fiscal agent of the Government of the United States.
And in Osborn against the Bank of the United States a few years later when factual examination of the Second Bank was considered more fully, Chief Justice Marshall again stated almost summarily.
His words were that the banks exercise of these, its banking faculties greatly facilitates the fiscal operations of the Government is too obvious for controversy.
Well it's not too obvious for controversy today Your Honors.
It's an entirely different banking system.
It's an entirely different bank.
And as far as Section 548 is concerned, may I just point out this.
This is not the first time, I'm sure it would be the last that a litigant has attempted to use the shield as a sword.
548, historically, was designed to prevent discrimination against the national banks.
It was not designed to give the national banks a preference over their competitors, the state banks.
And this is what the appellant here –-
Justice Byron R. White: Or do you suggest that national banks perform no -- for the no of role for the Federal Government at all?
Mr. Alan J. Dimond: No role of sufficient importance to justify than being given a constitutional immunity Your Honor.
Justice Byron R. White: But some role.
Mr. Alan J. Dimond: They perform some role, yes.
But the same as many other (Voice Overlap) --
Justice William J. Brennan: Well the basic of a role I put this squarely.
Mr. Alan J. Dimond: Yes, Your Honor.
Justice William J. Brennan: That suggests that Congress could grant them this immunity and that constitutional authority would be a necessary part of course as it related to the national --
Mr. Alan J. Dimond: I -- as I say, I would -- I've suggested as a possibility.
I would not want to say that that may necessarily be a valid ground --
Justice William J. Brennan: Well would you not see fit to --
Mr. Alan J. Dimond: No, I'm not challenging you.
Justice William J. Brennan: To challenge the statute.
If it were to be interpreted as your adversary suggests, you don't challenge the Constitution.
Mr. Alan J. Dimond: I have not Your Honor in my brief.
Justice Byron R. White: (Inaudible)
Mr. Alan J. Dimond: Very minor in terms of the criteria which this Court has in recent years established for the enjoyment by an organization of a constitutional immunity.
I think we have -- we might have one standard with regard to the -- say the necessary improper clause, I think we have an entirely different standard with respect to a constitutional immunity.
And under recent decisions of this Court, immunities are very, very carefully restricted.
This is not a time when intergovernmental immunities should be extended and I respectfully point out that the essence of the banks' argument here today is really that they are asking for the creation of a new immunity, because they in effect acknowledge as I read their argument that the old grounds have disappeared.
Your Honors, I respectfully submit that the decision of the Massachusetts Supreme Judicial Court is correct and should be affirmed.