Maricopa County v. Valley Nat. Bank of Phoenix
Headline: Court upholds law shielding preferred bank shares owned by the Reconstruction Finance Corporation from state and local taxes, blocking Arizona counties from collecting 1935 and 1936 taxes on those shares.
Holding: In a one-sentence plain-English holding.
- Prevents counties from collecting taxes on RFC-owned preferred bank shares for 1935–1936.
- Affirms Congress’s power to revoke prior permissions allowing state taxation of federal instrumentalities.
- Means suits to tax federal agencies require current federal consent; consent can be withdrawn.
Summary
Background
Arizona counties and county officers tried to collect state and local taxes for 1935 and 1936 from a national bank that had issued preferred shares to the Reconstruction Finance Corporation (RFC) on February 11, 1935. A prior decision (February 3, 1936) had allowed states to tax such RFC-held preferred shares. After that, Congress passed a March 20, 1936 law saying preferred shares owned by the RFC would not be subject to any state or local taxation while the RFC owned them. The bank sued to stop Arizona from collecting the taxes, and lower federal courts issued permanent injunctions in the bank’s favor; the government filed a brief after the Attorney General was asked to review the statute’s constitutionality.
Reasoning
The Court asked whether Congress could withdraw the earlier permission that let states tax RFC-owned preferred shares and whether doing so violated the Fifth or Tenth Amendments. The Court held Congress had the power to grant and then withdraw such a permission for its own instrumentality. It explained that the tax authority had been a gratuitous legislative privilege that Congress could revoke, and that suits to enforce liens against a federal instrumentality require the United States’ consent, which Congress withdrew. The Court therefore rejected the counties’ constitutional objections and affirmed the lower courts’ injunctions.
Real world impact
The decision prevents Arizona counties from enforcing the 1935 and 1936 taxes assessed on the RFC-owned preferred shares and confirms Congress may protect federal instrumentality property from state and local taxation by statute. The ruling upheld the specific March 20, 1936 exemption and left open that Congress can change such tax permissions in the future.
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