United States v. Maryland Savings-Share Ins. Corp.

Background

Maryland created a nonprofit insurer in 1962 to protect accounts of shareholders in certain savings and loan associations. That insurer asked for a tax-exempt status that a federal law gives to similar nonprofit insurers, but the law only covers corporations organized before September 1, 1957. A district court held the cutoff date arbitrary and therefore unconstitutional, allowing the Maryland insurer to claim the exemption.

Reasoning

The central question was whether Congress acted unfairly by limiting the exemption to insurers organized before the cutoff date. The Court said Congress had a rational basis for the date. The law’s history shows Congress kept the exemption for a small group of existing insurers while removing it for other savings institutions in 1951, later moving the grandfather date forward in 1960, and rejecting a 1963 House proposal to extend the date after concerns that many new state insurers could harm federal deposit-insurance programs. The Court concluded the cutoff was not arbitrary and that the district court erred in invalidating the statute. The Court also rejected the argument that the Maryland insurer was a state instrumentality entitled to immunity from federal taxation.

Real world impact

The ruling means newer, state-created mutual insurers like the Maryland corporation cannot get the specific federal tax exemption limited to pre-1957 organizations. Congress remains free to set or change grandfather dates. The decision reverses the lower court’s order and leaves federal taxing rules in place as written.

Dissents or concurrances

Mr. Justice Harlan stated he would have given the case full argument rather than deciding it per curiam, indicating a desire for plenary consideration.