1. As construed by the highest court of the State, the purchaser
is liable for the sales tax imposed by North Dakota Laws of 1937,
c. 249, and this construction is controlling. P.
314 U. S.
99.
2. Section 26 of the Federal Farm Loan Act of 1916 exempts a
federal land bank from the tax imposed by North Dakota Laws of
1937, c. 249, in respect of purchases, made by the bank from a
retail dealer, of materials for the improvement of property
theretofore acquired by the bank in the course of its operations.
P.
314 U. S.
99.
3. In the provision of § 26 that every federal land bank,
"including the capital and reserve or surplus therein and the
income derived therefrom," shall be exempt from state taxation, the
words quoted do not delimit the scope of the exemption. P.
314 U. S.
99.
4. Nothing in the legislative history of § 26, nor of similar
exemption clauses in other statutes, requires a result contrary to
that here reached. P.
314 U. S.
100.
Page 314 U. S. 96
5. A tax upon the sale of materials to be used in improving real
estate is not a tax upon the real estate, and therefore the tax
here involved is not within the exception from the exemption. P.
314 U. S.
101.
6. The exercise by the Federal Government of a power delegated
to it by the Constitution is governmental, and, when Congress
constitutionally creates a corporation through which the Federal
Government lawfully acts, the activities of such corporation are
governmental. P.
314 U. S.
102.
7. Federal land banks are created constitutionally; they are
federal instrumentalities engaged in the performance of an
important governmental function. P.
314 U. S.
102.
8. Congress constitutionally may immunize from state taxation
the lending functions (or activities incidental thereto) of federal
land banks. P.
314 U. S.
103.
9. It is for Congress to determine whether immunity from one
type of tax, rather than another, is wise. P.
314 U. S. 104.
70 N.D. 607; 297 N.W. 42, reversed.
Certiorari, 313 U.S. 556, to review the affirmance of a judgment
against the bank for the amount of a state sales tax.
MR. JUSTICE MURPHY delivered the opinion of the Court.
We are asked to decide whether, in view of § 26 of the Federal
Farm Loan Act of July 17, 1916 (c. 245, 39 Stat. 360, 380, 12
U.S.C. §§ 931-933), [
Footnote
1] petitioner is subject to
Page 314 U. S. 97
the Sales Tax Act of North Dakota, [
Footnote 2] the pertinent sections of which are set forth
in the margin. [
Footnote 3]
Page 314 U. S. 98
Petitioner, the Federal Land Bank of St. Paul, was created
pursuant to the Federal Farm Loan Act,
supra. In the
course of its operations, it acquired by foreclosure proceedings
certain farm properties in Burleigh County, North Dakota. [
Footnote 4] To effect necessary repairs
and improvements to the buildings and fences on these properties,
petitioner purchased lumber and other building materials of an
aggregate value of $408.26 from the Bismarck Lumber Company, a
retail dealer. The Lumber Company demanded the sum of $8.02 from
petitioner, representing the total amount of the state sales tax on
the various purchases. This petitioner refused to pay. On March 9,
1938, petitioner filed a complaint in the District Court of
Burleigh County against the Lumber Company and the State Tax
Commissioner, [
Footnote 5]
alleging the foregoing facts and praying for an adjudication of
nonliability for the sales tax on the ground that petitioner is
exempt under § 26 of the Federal Farm Loan Act,
supra, and
the federal Constitution. To this complaint respondents demurred.
In sustaining the demurrer, the trial court held that the sales to
petitioner were subject to the tax, that the Lumber Company was
required to collect the tax, and that petitioner was under a legal
duty to pay it. Accordingly,
Page 314 U. S. 99
judgment was entered against petitioner in the amount of the
tax. The Supreme Court of North Dakota affirmed the judgment of the
trial court.
Federal Land Bank of St. Paul v. Bismarck Lumber
Co., 70 N.D. 607, 297 N.W. 42. The case is here because it
presents a question of importance in the administration of the
Federal Farm Loan Act.
We are confronted with two questions:
First. Does § 26 include within its ban a state sales
tax such as this? We hold that it does.
Second. Can Congress constitutionally immunize from
state taxation activities in furtherance of the lending functions
of federal land banks? We hold that it can.
I. It is clear that the North Dakota statute makes the
purchaser, petitioner here, liable for the sales tax. Section 6 of
the Act requires the retailer to add the tax to the sales price,
and declares the tax to be a debt from the consumer to the
retailer. Section 7 makes it unlawful for the retailer to hold out
that he will absorb or refund the tax in whole or in part. The
Supreme Court of North Dakota has held that the sales tax is laid
upon the purchaser.
Jewel Tea Company v. State Tax
Commissioner, 70 N.D. 229, 293 N.W. 386. This holding was
reaffirmed in the decision below. These determinations of the
incidence of the tax by the state court are controlling, and
respondents concede the point.
The unqualified term "taxation" used in § 26 clearly encompasses
within its scope a sales tax such as the instant one, and this
conclusion is confirmed by the structure of the section. In
reaching an opposite conclusion, the court below ignored the plain
language, "That every Federal land bank . . . shall be exempt from
Federal, State, municipal, and local taxation," and seized upon the
phrase, "including the capital and reserve or surplus therein and
the income derived therefrom," as delimiting the scope of the
exemption. The protection of § 26 cannot thus be frittered away. We
recently had occasion, under other
Page 314 U. S. 100
circumstances, to point out that the term "including" is not one
of all-embracing definition, but connotes simply an illustrative
application of the general principle.
Phelps Dodge Corp. v.
Labor Board, 313 U. S. 177,
313 U. S. 189;
see also Helvering v. Morgan's, Inc., 293 U.
S. 121,
293 U. S. 125.
If the broad exemption accorded to "every Federal land bank" were
limited to the specific illustrations mentioned in the participial
phrase introduced by "including," there would have been no
necessity to except from the purview of § 26 the real estate held
by the land banks.
The additional exemptions granted to farm loan bonds and first
mortgages executed to the land banks are proper additions to the
general exemption of § 26. The bonds may be held by private
persons, and, of course, the general exemption of § 26 would not
extend to them. Likewise, the general exemption would protect
mortgages executed to the land banks and held by them, but it would
not survive a transfer.
Nothing in the legislative history of § 26 commands a contrary
result, [
Footnote 6] and a
broad construction is indicated by Congress' intention to advance
credit to farm borrowers at the lowest possible interest rate. The
legislative history of similar exemption clauses in other statutes
supports our interpretation of § 26. [
Footnote 7]
Page 314 U. S. 101
It cannot be seriously contended that the tax falls within the
real estate exception to § 26. Obviously a tax upon the sale of
building materials to be used on the real estate of a federal land
bank is not a tax upon that real estate.
II. The principal argument of respondents, and the major ground
of the decision below, is that Congress cannot constitutionally
immunize the lending functions, or the activities incidental
thereto, of federal land banks from state taxation. It runs in this
fashion: Congress has authority to extend immunity only to the
governmental functions of the federal land banks; the only
governmental functions of the land banks are those performed by
acting as depositaries and fiscal agents for the federal government
[
Footnote 8] and providing a
market for government bonds; [
Footnote 9] all other functions of the land banks are
private; petitioner here was engaged in an activity incidental to
its business of lending money, an essentially private function;
therefore, § 26 cannot operate to strike down a sales tax upon
purchases made in furtherance of petitioner's lending
functions.
Page 314 U. S. 102
The argument that the lending functions of the federal land
banks are proprietary, rather than governmental, misconceives the
nature of the federal government with respect to every function
which it performs. The federal government is one of delegated
powers, and from that it necessarily follows that any
constitutional exercise of its delegated powers is governmental.
Graves v. New York ex rel. O'Keefe, 306 U.
S. 466,
306 U. S. 477.
It also follows that, when Congress constitutionally creates a
corporation through which the federal government lawfully acts, the
activities of such corporation are governmental.
Pittman v.
Home Owners' Loan Corp., 308 U. S. 21,
308 U. S. 32;
Graves v. New York ex rel. O'Keefe, supra, 306 U. S.
477.
The federal land banks are constitutionally created,
Smith
v. Kansas City Title & Trust Co., 255 U.
S. 180, and respondents do not urge otherwise. Through
the land banks, the federal government makes possible the extension
of credit on liberal terms to farm borrowers. As part of their
general lending functions, the land banks are authorized to
foreclose their mortgages and to purchase the real estate at the
resulting sale. [
Footnote
10] They are "instrumentalities of the federal government,
engaged in the performance of an important governmental function."
Federal Land Bank v. Priddy, 295 U.
S. 229,
295 U. S. 231;
Federal Land Bank v. Gaines, 290 U.
S. 247,
290 U. S. 254.
The national farm loan associations, [
Footnote 11] the local cooperative organizations of
borrowers through which the land banks make loans to individuals,
are also federal instrumentalities.
Knox National Farm Loan
Assn. v. Phillips, 300 U. S. 194,
300 U. S. 202;
Federal Land Bank v. Gaines, supra, 290 U. S.
254.
Congress has the power to protect the instrumentalities which it
has constitutionally created. This conclusion follows naturally
from the express grant of power to Congress
"to make all laws which shall be necessary and proper
Page 314 U. S. 103
for carrying into execution all powers vested by the
Constitution in the Government of the United States. Const. Art. I,
sec. 8, cl. 18"
Pittman v. Home Owners' Loan Corp., 308 U. S.
21,
308 U. S. 33,
and cases cited. We have held on three occasions that Congress has
authority to prescribe tax immunity for activities connected with,
or in furtherance of, the lending functions of federal credit
agencies.
Smith v. Kansas City Title & Trust Co., supra;
Federal Land Bank v. Crosland, 261 U.
S. 374;
Pittman v. Home Owners' Loan Corp.,
supra. [
Footnote 12]
The first two of these cases dealt with the very § 26 now in issue.
They are conclusive here.
In support of their argument, respondents rely on
Smith v.
Kansas City Title & Trust Co., supra, and
Federal Land
Bank v. Priddy, supra. In the
Smith case, we held
that farm loan bonds, which might be secured by first mortgages
accumulated in the course of the land banks' lending activities,
[
Footnote 13] could be
exempted from state taxation. In the
Priddy case, merely
as an aid to the proper construction of § 4 of the Federal Farm
Loan Act, giving the land banks the right to sue and be sued "as
fully as natural persons," we noted that the land banks possessed
some of the characteristics of private business corporations.
[
Footnote 14] Their
character as federal instrumentalities was specifically affirmed,
and the broad tax immunity granted to them was not questioned.
Manifestly, these cases do not support respondents' constitutional
theories.
We cannot accede to the suggestion that the
Smith and
Crosland cases can be distinguished, as they were by the
state court, on the ground that a sales tax upon purchases made by
petitioner in furtherance of its lending functions, unlike the
taxes in those cases, bears so remotely upon
Page 314 U. S. 104
petitioner's functions as to be beyond the power of Congress to
prohibit. We have found that the instant tax is within the scope of
§ 26 and that section is a valid enactment. It is not our function
to speculate whether the immunity from one type of tax as
contrasted with another is wise. That is a question solely for
Congress, acting within its constitutional sphere, to determine.
Pittman v. Home Owners' Loan Corp., supra, 308 U. S. 33;
Smith v. Kansas City Title & Trust Co., supra,
255 U. S.
213.
Reversed.
MR. JUSTICE JACKSON took no part in the consideration or
decision of this case.
[
Footnote 1]
"Sec. 26. 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 (761) 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."
"Nothing herein shall prevent the shares in any joint stock land
bank from being included in the valuation of the personal property
of the owner or holder of such shares, in assessing taxes imposed
by authority of the State within which the bank is located; but
such assessment and taxation shall be in manner and subject to the
conditions and limitations contained in section fifty-two hundred
and nineteen of the Revised Statutes with reference to the shares
of national banking associations."
"Nothing herein shall be construed to exempt the real property
of Federal and joint stock land banks and national farm loan
associations from either State, county, or municipal taxes to the
same extent, according to its value, as other real property is
taxed."
[
Footnote 2]
North Dakota Laws of 1937, c. 249.
[
Footnote 3]
"§ 2. TAX IMPOSED. There is hereby imposed, beginning the first
day of May, 1937, and ending June 30th, 1939, a tax of two percent
(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 North Dakota
to consumers or users. . . ."
(Laws of 1939, c. 234, § 1, extends the period of the tax
through June 30, 1941, and S.B. No. 40, Laws 1941, c. 283, approved
March 14, 1941, extends the tax through June 30, 1943.)
"§ 3. EXEMPTIONS. 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."
"§ 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. . .
."
"§ 7. UNLAWFUL ACTS. 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."
[
Footnote 4]
Section 13 of the Federal Farm Loan Act, 39 Stat. 360, 372,
gives federal land banks the power
"To acquire and dispose of . . . parcels of land acquired in
satisfaction of debts or purchased at sales under judgments,
decrees, or mortgages held by it."
[
Footnote 5]
Owen T. Owen was named as the original defendant. He resigned
the office of Tax Commissioner on December 26, 1938. His successor,
respondent Gray, who took office on May 18, 1939, was substituted
by order of this Court on May 26, 1941.
[
Footnote 6]
The committee reports emphasize the tax exempt character of the
farm loan bonds. S.Rpt. No. 144, 64th Cong., 1st Sess., p. 7;
H.Rpt. No. 630, 64th Cong., 1st Sess., p. 8; H.R.Doc. No. 494, 64th
Cong., 1st Sess., p. 11. The lengthy debates in the Senate over the
constitutionality of section 26 may be explainable in part on the
ground that the broad exemption thereby created would deprive the
States of a large source of potential revenue.
See 53
Cong.Rec. 6851-6854, 6961-6970, 7245-7247, 7305-7318,
7372-7378.
[
Footnote 7]
Most enlightening is the recent amendment (Act of June 10, 1941,
c. 190, 55 Stat. 248) to § 10 of the Reconstruction Finance
Corporation Act (47 Stat. 5, 9), which declares that exemption
includes sales taxes. The committee reports make it clear that
Congress sought only to confirm its original understanding of the
scope of the exemption by this amendment. H.Rpt. No. 514, 77th
Cong., 1st Sess., p. 2; S.Rpt. No. 292, 77th Cong., 1st Sess., p.
2.
See also 87 Cong.Rec. 4255-4256, 4616, 4626-4629
(pamph.)
When Congress moved to avoid the effect of our decision in
Baltimore National Bank v. State Tax Commission,
297 U. S. 209,
that the Reconstruction Finance Corporation was taxable on its
national bank shares, the committee reports explain that § 10 "was
intended to give as wide immunity as possible to the functions and
activities of the corporation." H.Rpt. No.1995, 74th Cong., 2d
Sess., pp. 1-2; H.Rpt. No. 2199, 74th Cong., 2d Sess.; S.Rpt. No.
1545, 74th Cong., 2d Sess.
See also the committee report on the Federal Reserve
Act, in which the standard exemption clause first appeared, H.Rpt.
No. 69, 63d Cong., 1st Sess., p. 39, and the report on the bill
creating the Federal Savings and Loan Insurance Corporation. H.Rpt.
No.1922, 73d Cong., 2d Sess., p. 4.
[
Footnote 8]
§ 6, 39 Stat. 360, 365.
[
Footnote 9]
§ 5, 39 Stat. 360, 364, Sec. 13, 39 Stat. 360, 372.
[
Footnote 10]
§ 13, 39 Stat. 360, 372.
[
Footnote 11]
§ 7, 39 Stat. 360, 365.
[
Footnote 12]
See also Owensboro National Bank v. Owensboro,
173 U. S. 664,
173 U. S.
667-668;
Colorado National Bank v. Bedford,
310 U. S. 41,
310 U. S.
50-51.
[
Footnote 13]
§ 18, 39 Stat. 360, 375.
[
Footnote 14]
See also R.F.C. v. J. G. Menihan Corp., 312 U. S.
81,
312 U. S.
83.