Farmers and Mechanics Sav. Bank of Minneapolis v. Minnesota

Background

A savings bank fought Minnesota tax assessments for 1908 after the State included all the bank’s assets when computing a taxable “surplus.” The bank held about $700,000 in municipal bonds issued by cities and towns in the Territory of Oklahoma and the Indian Territory, plus roughly $161,000 in mortgage notes on Minnesota land for which a registry tax had been paid. Minnesota treated the bank’s surplus as taxable property under state law §839.

Reasoning

The Court addressed whether the territorial municipal bonds could be taxed by Minnesota when held by the bank. Relying on earlier rulings about federal supremacy and the immunity of federal instrumentalities from state interference, the Court concluded those territorial municipalities were agencies of the United States in issuing bonds. Taxing the bonds as part of the bank’s surplus would effectively tax the government’s operations and was therefore unconstitutional. The Court accepted Minnesota’s separate treatment of savings banks for mortgage registration tax purposes, finding the State’s classification reasonable for those institutions.

Real world impact

The decision means banks holding these territorial municipal bonds cannot be taxed by Minnesota on those bonds as part of their surplus, reducing the State’s power to collect that portion of the tax. The Court reversed the state-court judgment and sent the case back for further proceedings consistent with this ruling. The ruling does not change Minnesota’s separate registry-tax rules for mortgages as applied to savings banks.