First Agricultural National Bank of Berkshire County v. State Tax Commission

Background

A federally chartered bank bought office supplies and other tangible items for its own use. Massachusetts had recently enacted sales and use taxes and the state Supreme Court held the bank liable for those taxes. The question reached the high Court: how far may a State tax a national bank?

Reasoning

The Court relied on longstanding decisions about federal instrumentalities and on a federal statute (the section originally enacted in 1864 and later amended) that lists the specific ways States may tax national banks. The Court concluded Congress intended that statute to mark the exclusive methods by which States may tax national banks. The Massachusetts law required vendors to collect a tax that must be passed on to purchasers. Because the state statute places the legal incidence of the tax on the purchaser, the Court held the tax would fall on the national bank. Under the federal statute’s limits, the bank cannot be taxed in that way, so the Court reversed the state-court judgment.

Real world impact

The ruling prevents Massachusetts from collecting sales or use taxes that, by law, must be passed on to a national bank as purchaser. States that want broader taxing power over national banks must seek congressional change. The Court did not decide whether the Constitution independently bars such taxation; it resolved the case on the statutory text and history.

Dissents or concurrances

Three Justices dissented, arguing the Constitution does not itself bar nondiscriminatory state taxes on national banks and that the statute should be read more narrowly so the State could tax the bank’s purchases.