First Federal Savings & Loan Ass'n v. Tax Commission

Background

A group of federally chartered savings and loan associations challenged a Massachusetts excise tax that applied to state cooperative banks, state savings banks, and state and federal savings and loan associations. The associations argued the tax discriminated under a federal law that bars heavier taxation of federal associations than of 'similar' state institutions. The case, brought in 1975 after a 1973 ruling struck down the deposits part of the tax, asked state court to decide the income portion; the Massachusetts Supreme Judicial Court upheld the law and the United States Supreme Court reviewed the appeal.

Reasoning

The central question was whether Massachusetts' income tax imposed a heavier burden on federal associations than on similar state institutions. The statute allowed all institutions to deduct required additions to reserves, but federal and state reserve rules differed. The Court found the tax's language neutral and said differing regulatory practices do not automatically create unlawful discrimination. The record did not show that federal associations suffered a practical competitive handicap; the Court noted the 1970 federal rule change that lowered reserve requirements and the associations' quick charter amendments, which may have offset any disadvantage. The Court therefore affirmed the state court judgment.

Real world impact

As a result, Massachusetts may continue to collect the income portion of the excise from federal savings and loan associations, while credit unions in the State remain exempt. The decision relies on factual differences between credit unions and savings and loan associations — membership limits, lending preferences, percentages of mortgage lending, and relative asset size — and on the State's choice to classify its institutions. The earlier ruling that struck down the deposits part of the tax was not disturbed here.

Dissents or concurrances

Justice Blackmun agreed that reserve-deduction differences alone did not prove discrimination, but he would have found Massachusetts credit unions similar to federal savings and loan associations and would have reversed on that ground.