RESPONDENT: South Carolina Tax Commission
LOCATION: District Court of Massachusetts
DOCKET NO.: 126
DECIDED BY: Warren Court (1958-1962)
CITATION: 365 US 517 (1961)
ARGUED: Mar 02, 1961
DECIDED: Mar 20, 1961
Facts of the case
Media for Laurens Federal Savings & Loan Assn. v. South Carolina Tax Commission
Audio Transcription for Oral Argument - March 02, 1961 in Laurens Federal Savings & Loan Assn. v. South Carolina Tax Commission
Number 126, Laurens Federal Savings and Loan Association, Petitioner, versus South Carolina Tax Commission.
Frank K. Sloan:
Mr. Chief Justice, may it please the Court.
Your petitioner, the Laurens Federal Savings and Loan Association, respectfully submits that the issue for the Court's consideration here is a very narrow one.
It is briefly stated whether Section 1433 of Title 12 of the United States Code, which was Section 13 of the Federal Home Loan Bank Act of 1932, prohibits taxation by the State of South Carolina in the form of -- of a documentary stamp tax, notes given by the Federal Home Loan Bank to -- or to the Federal Home Loan Banks by their member, savings and loan associations over the Nation, two other States, Florida and Pennsylvania, have similar documentary stamp tax statutes which are referred to in the brief.
The precise question before this Honorable Court is the correctness of the construction of two federal statutes by the Supreme Court of South Carolina.
That is, the Section 1433 of the Federal Home Loan Bank Act of 1932 and Section 1464 (h) of the same Title which was Section 5 (h) of the Home Owners' Loan Act of 1933.
Now, the Supreme Court of South Carolina has ruled, in effect, that the second Section, 1464 (h), narrowed the exemption from taxation provided by the main section, 1433, and that this reduction or narrowing process enables the States to tax this particular transaction.
Now, the factual situation, may it please the Court, is relatively simple.
The petitioner, Sa -- the Federal Savings and Loan Association here, as do other savings and loan associations, paid under protest and then brought suit to recover in the state court documentary stamp taxes of $2200 some which were levied under Section 688 of Title 65 of the South Carolina Code which is a general statute exacting a 4 cents per $100 documentary stamp tax on promissory notes executed in the State.
Now, these taxes of $2200 some represented the documentary stamp tax on some $5,675,000 worth of notes given by this petitioner, Savings and Loan Association, to the Federal Home Loan Bank at Greensborough, North Carolina, the bank that it is a member of.
As the Court is aware, of course, these Home Loan Banks are set up in each of the districts.
The volume of loans which they make to their members and, therefore, the amount of tax incidence that might arise from this sort of taxing statute could be substantial indeed.
For example, at -- December 31, 1959, this Federal Home Loan Bank at Greensborough, alone, had some $51 million of outstanding loans.
Now, then, the trial court and the -- on appeal, the Supreme Court of South Carolina ruled that the general exemption from state taxation which is provided to the Federal Home Loan Banks and their transactions by Section 1433 of the Act of 1932 had been so narrowed by Section 1464 (h), which was the Act of 1933, as to permit a taxation of this character.
Briefly stated, may it please the Court, the two sections concerned provide in the pertinent part as follows.
Section 1433 grants to the Federal Home Loan Bank the following.
The bank, including its franchise, its capital, reserves, surpluses, its advances or loans, and its income shall be exempt from all taxation now or hereafter imposed by the United States or by any territory, dependency, possession, or by any state, county, municipality, or local taxing authority.
This, may it please the Court, gave to the Federal Home Loan Banks a general exemption from taxation with the exception of real property taxes mentioned in the same section, not here pertinent.
Now, then, in 1933, in enacting the Home Loan -- the Home Owners' Loan Act of 1933, in Section 1464 (h), which is the Section relied upon by the State Court in South Carolina, there was a provision that States might tax the associations which are members of the Federal Home Loan Bank.
And, its language was no state territory, county, municipal or local taxing authority shall impose any tax on such associations or their franchise, capital, surplus, and so forth greater than that imposed on other similar local, mutual or cooperative, home financing institutions.
Now, then, may it please the Court, the Supreme Court of South Carolina, grasping this section of the Home Owners' Loan Act of 1933, said that, since this documentary stamp tax is applied with an even hand, that they interpret the Section 1464 (h) to permit the taxation of this transaction with the Home Loan Bank itself.
They consider it to be a narrowing by implication, at least, of the 49 -- Section 1433 exemption.
John M. Harlan II:
The effect of that is to say that, to view the 1933 Act, would be to tax -- the state can tax but they can only do so under discriminatory basis.
Frank K. Sloan:
Yes, that's correct, sir.
Now, then, the state court, in relying here, of course, was then brought to and it attempted, may it please the Court, to deal with some very troublesome problems there because it had to consider then whether or not these federal savings and loan associations are federal instrumentalities and whether or not the tax, as levied, was nondiscriminatory and, of course, this would also bring the problem to bear of whether the tax of this sort would interfere with the transactions of the Federal Home Loan Bank itself which are plainly exempt under 1433.
These problems your petitioner has firmly astute, we say that they are not necessary.
They should not be reached and the construction of the Supreme Court of South Carolina in the area is not correct.
There, the Court said there – there rather, we state -- addressed our -- that problem this answer.
The Court's reading of this federal statute raises a difficult and substantial problem which should be avoided unless the language of 1464 (h) makes it inescapable.