Federal Land Bank of St. Paul v. Bismarck Lumber Co.

Background

The Federal Land Bank of St. Paul, a federally created lending institution, foreclosed on farm properties in Burleigh County, North Dakota and bought lumber and building materials worth $408.26 to repair the properties. The Bismarck Lumber Company, a retail dealer, charged an $8.02 state sales tax which the bank refused to pay. The bank sued the lumber company and the State Tax Commissioner in county court, claiming exemption under §26 of the Federal Farm Loan Act and the Constitution. The state trial court sustained a demurrer and entered judgment for the tax; the North Dakota Supreme Court affirmed, and the issue reached the United States Supreme Court.

Reasoning

The main questions were whether §26’s broad language exempts the bank from a state sales tax and whether Congress can constitutionally exempt activities that further the bank’s lending functions. The Court read §26’s unqualified grant that “every Federal land bank…shall be exempt from Federal, State, municipal, and local taxation” to include sales taxes, rejecting the state court’s narrowing interpretation of the word “including.” The Court explained that federal land banks are instrumentalities created to extend credit and that Congress may protect such instrumentalities under its constitutional powers. Prior decisions involving the same statute and similar agencies supported this holding, so the tax exemption was valid.

Real world impact

The ruling prevents North Dakota from collecting the sales tax charged on these purchases and requires retailers not to collect that tax from the bank for such transactions. It clarifies that federal land banks and national farm loan associations may be immune from state taxes on activities that further their lending functions. The Court declined to judge whether that policy is wise, saying such policy choices belong to Congress.