RESPONDENT:Farm Credit Services of Central Arkansas
DOCKET NO.: 95-1918
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Eighth Circuit
CITATION: 520 US 821 (1997)
ARGUED: Apr 21, 1997
DECIDED: Jun 02, 1997
Lawrence G. Wallace – on behalf of the United States, as amicus curiae, supporting the Petitioner
Martha Grissom Hunt – on behalf of the Petitioner
Richard A. Hanson – on behalf of the Respondents
Facts of the case
The Tax Injunction Act provides that federal “district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” In Department of Employment v. United States, 385 U.S. 355, the U.S. Supreme Court held that the Act does not limit the power of federal courts if the U.S. sues to protect itself or its instrumentalities from state taxation. Four Production Credit Associations (PCA’s), federally chartered corporate financial institutions organized by farmers primarily to make loans to farmers, sued, seeing a declaratory judgment and an injunction prohibiting Arkansas from levying sales and income taxes against them. The PCA’s argued that they constituted instrumentalities of the U.S. and that they were not subject to the Act’s provisions. The District Court granted the PCA’s summary judgment and the Court of Appeals affirmed.
Do Production Credit Associations fall within the exception in the Tax Injunction Act created by Department of Employment v. United States when they sue by themselves?
Media for Arkansas v. Farm Credit Services of Central Arkansas
Audio Transcription for Opinion Announcement – June 02, 1997 in Arkansas v. Farm Credit Services of Central Arkansas
The opinions of the Court in two cases will be announced by Justice Kennedy.
The first case to be announced is 95-1918, Arkansas versus Farm Credit Services.
The United States Code under judiciary and judicial procedure is Title 28.
The Title 28 has a provision called the Tax Injunction Act.
The Act restricts the power of Federal Courts to issue an injunction against the collection or enforcement of state taxes.
There is one exception that’s on the face of the statute that allows an injunction where in effect, the state remedy is inadequate.
In addition, there is a case-based exception, one established by our presidents.
This one exception provides that the statute does not constrain the power of federal courts if the United States is a party and seeks the injunction.
Now this case involves entities which are called Production Credit Associations, PCAs, we refer to them in the opinion.
PCAs are corporations which are chartered under federal law to lend money to assist in farming operations.
The federal statute which charters PCAs provides in explicit terms that they are instrumentalities of the United States.
Now the PCAs in this case are located in Arkansas.
They sued the State of Arkansas to enjoin the payment of the state tax.
They claim that since PCAs are instrumentalities of the United States, they have the same right to seek an injunction as with the United States itself if the United States were a party.
The State, not surprisingly, insisted on enforcing the bar of the statute, so too does the United States.
The Government here sides with the States, not with the PCAs.
We agree with the State and with the Government, the Court of Appeals proceeded right to the merits of the case but in this opinion, we point out that the statute bars the exercise of federal judicial power, simply because PCAs have status as instrumentalities of the United States.
They are not exempt from the statute when the United States does not join the suit as party.
Our decision accords with the Act’s purpose to maintain a proper balance between federal and state governments.
The enactment of the Tax Injunction Act reflects the congressional concern to limit federal court intervention in the sensitive area of state taxation, an area that is fundamental to a state’s ability to exist.
So for the reasons explained in the decision, we reverse the Court of Appeals for the Eighth Circuit and that decision is unanimous.