First Bank Stock Corp. v. Minnesota

Background

A Delaware corporation qualified to do business and operating in Minnesota owned controlling stock in many banks, including banks organized in Montana and North Dakota. Minnesota assessed a property tax on the corporation’s shares in those out-of-state banks. The corporation sued, arguing that it would violate the Fourteenth Amendment’s due process clause to tax the same intangible bank shares in Minnesota when the shares were already lawfully taxed by the banks’ home states. A Minnesota trial court agreed, but the Minnesota Supreme Court reversed, and the case reached the U.S. Supreme Court.

Reasoning

The Court addressed whether Minnesota could tax shares that the corporation used in its Minnesota business. It explained that when a company establishes a commercial home and conducts business in a state, intangible assets used in that business can be treated as located there for tax purposes. The Court found the bank shares were integral to the company’s local business and received protection and benefits from Minnesota’s laws. Relying on earlier decisions, it held that taxing such shares at the place of business satisfied due process and affirmed the Minnesota tax. The Court declined to decide whether the home states’ taxation entirely prevents another state’s tax.

Real world impact

Companies that operate and control investments inside a state may face local property taxes on out-of-state shares if those shares are used in the state business. The ruling lets states tax intangible assets tied to local operations, but leaves unresolved some questions about overlapping state taxes.