Home Savings Bank v. City of Des Moines

Background

A group of Iowa state-chartered banks challenged an Iowa law that said shares of stock would be assessed to the banks rather than to individual stockholders. Each bank owned United States bonds and asked the assessor to deduct those bonds when valuing property for tax. Iowa tax officials refused and the State Supreme Court upheld the tax, so the banks took the case to the nation's highest court to decide whether the law actually taxed federal bonds.

Reasoning

The Court looked at how the law worked in practice rather than just its words. It found assessors were instructed to base taxes on capital, surplus, and undivided earnings and in fact included the value of the banks’ United States bonds in the taxable property. The Constitution and federal law protect U.S. government securities from state taxation, and prior decisions forbid states from taxing those securities even indirectly. Because the Iowa method effectively taxed the federal bonds held by the banks, the Court held the tax violated federal immunity and could not stand.

Real world impact

The ruling means states cannot get around the federal protection for U.S. bonds by measuring corporate tax by the value of shares or corporate assets. State banks that hold federal securities cannot be taxed on those bonds through corporate-property valuations. The case was returned to lower courts for further proceedings consistent with the decision.

Dissents or concurrances

Three Justices dissented, disagreeing with the majority’s interpretation of the state law and its application to the banks’ holdings.