ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
THOMAS C. BORDERS JEFFREY A. MODISETT
KEVIN J. FEELEY Attorney General of Indiana RICHARD A. HANSON Indianapolis, Indiana
McDERMOTT WILL & EMERY
MARILEE J. SPRINGER DAVID A. ARTHUR
ICE MILLER DONADIO & RYAN Deputy Attorney General
Indianapolis, Indiana Indianapolis, Indiana
FARM CREDIT SERVICES OF ) MID-AMERICA, ) an Agricultural Credit Association, ) ) ) Petitioner, ) ) v. ) Cause No. 49T10-9801-TA-00005 ) DEPARTMENT OF STATE REVENUE, ) ) Respondent. ) _____________________________________________________________________
determination of the Department of State Revenue (Department) denying Mid-America
a refund of Financial Institutions TaxSee footnote
it paid for the tax years ending December 31,
1993 and December 31, 1994.
Services, this Court determined that Mid-America was indeed a federal instrumentality.
Because the Department conceded that this determination was dispositive of Mid-
America's entitlement to a refund, this Court did not examine the further question of
the extent of the tax immunity afforded ACAs. Id. at 651 n.5. This time, the
Department concedes that Mid-America is a federal instrumentality, but now contends
that its concession in the previous case, i.e., that the determination that Mid-America
was a federal instrumentality was dispositive of Mid-America's immunity from state
taxation, was erroneous.
This case arises out of Mid-America's claim for refund of Financial Institutions Tax. On March 31, 1997, Mid-America filed amended returns requesting refunds of Financial Institutions Tax that Mid-America paid for the tax years ending December 31, 1993 and December 31, 1994. On December 5, 1997, the Department issued its final determination denying Mid-America's refund claim. On January 6, 1998, Mid-America filed this original tax appeal. On August 19, 1998, the Department filed a motion for a judgment on the pleadings.See footnote 3 On October 2, 1998, Mid-America filed a motion for summary judgment. On December 8, 1998, the Court heard argument on the motions.
bound by neither the evidence nor the issues raised at the administrative level. See
Ind. Code Ann. § 6-8.1-9-1(d) (West Supp. 1998); Indianapolis Fruit Co. v. Department
of State Revenue, 691 N.E.2d 1379, 1382 (Ind. Tax Ct. 1998).
Summary judgment is only appropriate where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. See Ind. T. R. 56(C); Roehl Transp., Inc. v. Department of State Revenue, 653 N.E.2d 539, 541 (Ind. Tax Ct. 1995). Summary judgment is particularly appropriate when the question is one of the application of the law to undisputed facts. See Koufos v. Department of State Revenue, 646 N.E.2d 733, 735 (Ind. Tax Ct. 1995). Cross-motions for summary judgment do not alter this standard. See Roehl Transp., Inc., 653 N.E.2d at 541.
law) is not applicable to tax cases in Indiana. As a result, the Department,
notwithstanding its previous concession, is free to relitigate the issue of Mid-America's
immunity from state taxation in this case
Mid-America's second argument was assumed to be correct in the previous litigation between the parties. In Farm Credit Services, 677 N.E.2d at 647, the Court stated that [t]he parties do not dispute the time-honored rule that the federal government and its instrumentalities are immune from state and local taxation absent express waiver by Congress. In this case, the Department contends that there is no such rule and that federal instrumentalities are subject to state taxation unless Congress expressly exempts them from state taxation. The Court cannot agree.
The rule that the Supremacy ClauseSee footnote 5 bars state taxation of federal instrumentalities, absent congressional waiver, dates from the U.S. Supreme Court's decision in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819). As Mid-America notes in its brief, this holding has been followed by an unbroken line of U.S Supreme Court decisions. See, e.g., Department of Employment v. United States, 385 U.S. 355, 359 (1966) (holding that Red Cross as a federal instrumentality is immune from state taxation); Federal Land Bank v. Bd. of Comm'rs, 368 U.S. 146, 149 (1961) ([A] federal instrumentality is not subject to the plenary power of the States to tax.); United States v. Allegheny County, 322 U.S. 174, 176 (1944) ([S]ince 1819, when Chief Justice
Marshall in the McColluch case expounded the principle that . . . instrumentalities of the
Federated Government are immune from taxation by [the States], this Court has never
departed from that basic doctrine or wavered in its application.); Des Moines Nat'l
Bank v. Fairweather, 263 U.S. 103, 106 (1923) (National banks immune from state
taxation, unless it is in conformity with the terms and restrictions embodied in the
assent given by Congress to that taxation.) (emphasis added). See also State v.
Pearson Constr. Co., 141 N.E.2d 448, 449 (Ind. 1957) (stating rule of McCulloch v.
Maryland). Because Congress has not waived Mid-America's immunity from state
taxation, under the Supremacy Clause, Indiana is without power to collect the Financial
Institutions Tax from Mid-America. Accordingly, Mid-America is entitled to a refund of
the taxes at issue.
The Department's arguments to the contrary do not alter this result. In its brief, the Department contends that [i]n the absence of a clear and unequivocal [congressional] mandate, there is no immunity. (Resp't Br. at 5). This turns the rule on its head. With respect to federal instrumentalities, it is the waiver and not the immunity that must be explicit.
What leads the Department astray is its failure to understand the difference between cases where the issue is whether the federal government conferred immunity from state taxation to entities that are not federal instrumentalities and cases where the issue is whether a state may tax a federal instrumentality. For example, the Department cites Mescalero Apache Tribe v. Jones, 411 U.S. 145 (1973), a case where the issue was whether an off-reservation Indian business was subject to state taxation.
In that case, there was no argument that the Indian tribe was itself a federal
instrumentality. Accordingly, the question of immunity did not turn on the reach of the
Supremacy Clause, but rather on congressional intent. As a result, the off-reservation
Indian business was not generally and automatically immune from state taxation, as it
would have been had the Supremacy Clause been applicable. Id. at 151 (emphasis
The Department also relies on statements in the U.S. Supreme Court's recent decision in Arkansas v. Farm Credit Services, 117 S. Ct. 1776 (1997). In that case, four Production Credit Associations (PCA)See footnote 6 sought an injunction and a declaratory judgment in federal district court prohibiting Arkansas from levying taxes against them. They argued that their status as federal instrumentalities See footnote 7 made them immune from state taxation. The U.S. Supreme Court did not reach the merits of their claim because the Court held that the Tax Injunction ActSee footnote 8 deprived the district court of jurisdiction, thereby barring any decision on the merits.
In that case, the Court decided that the PCAs, despite their statutory designation
as federal instrumentalities, were covered by the Tax Injunction Act, thereby forcing
them to resort to Arkansas state court to litigate their claim. In finding that the PCAs
were covered by the Tax Injunction Act, the Court distinguished federal
instrumentalities from the federal government itself. See Farm Credit Services, 117 S.
Ct. at 1781-82. The federal government is not covered by the Tax Injunction Act,
whereas federal instrumentalities often are. See id. at 1782.
This distinction, however, does not carry over to the arena of state taxation of federal instrumentalities. State taxation of federal instrumentalities implicates the Supremacy Clause, and it is difficult to see how a case interpreting the Tax Injunction Act translates into an interpretation of the Supremacy Clause. In addition, it is extremely unlikely that the Supreme Court would overrule McCulloch v. Maryland, a cornerstone of our constitutional law, sub silentio. Accordingly, the Department's reliance on the Supreme Court's decision in Farm Credit Services is misplaced.
28 U.S.C. § 1341 (1994)
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