First Bank Stock Corp. v. Minnesota

Background

A Delaware corporation qualified and active in Minnesota was assessed a Minnesota property tax on its shares of stock in Montana and North Dakota banks. The company keeps stock certificates and conducts meetings and dividend activity in Minnesota. It also operates a Minnesota subsidiary that provides paid services and active control over the banks it owns, using the shares as instruments of corporate control. The trial court had barred Minnesota’s tax because the shares were lawfully taxed in Montana and North Dakota, but the Minnesota Supreme Court reversed and the case reached this Court.

Reasoning

The Court examined whether the shares, though issued by banks outside Minnesota, had become tied to Minnesota by their use in the corporation’s local business. The opinion explains that intangible property can be taxed where it is effectively used or where the owner’s commercial domicile is located. Because the corporation carried on an integrated business in Minnesota, kept the stock there, and exercised control from Minnesota, the shares were treated as having a business situs in Minnesota. The Court concluded that taxing those shares in Minnesota does not violate the Fourteenth Amendment’s due process protections and affirmed the state court’s decision. The opinion noted longstanding rules allowing taxation at an owner’s domicile or at a business situs and left some questions about double taxation unresolved.

Real world impact

States can tax intangible assets that are used in or have become integral to a local business. Corporations that actively run business and control investments from a state may face property taxes on out-of-state shares. The decision recognizes limits remain on how multiple states might tax the same intangibles.