Laurens Federal Savings & Loan Assn. v. South Carolina Tax Commission

PETITIONER:Laurens Federal Savings & Loan Assn.
RESPONDENT:South Carolina Tax Commission
LOCATION:District Court of Massachusetts

DOCKET NO.: 126
DECIDED BY: Warren Court (1958-1962)
LOWER COURT:

CITATION: 365 US 517 (1961)
ARGUED: Mar 02, 1961
DECIDED: Mar 20, 1961

Facts of the case

Question

Audio Transcription for Oral Argument – March 02, 1961 in Laurens Federal Savings & Loan Assn. v. South Carolina Tax Commission

Earl Warren:

Number 126, Laurens Federal Savings and Loan Association, Petitioner, versus South Carolina Tax Commission.

Mr. Sloan.

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.

Frank K. Sloan:

For example, there arises the question of whether the state tax is discriminatory, whether it’s burdensome upon the activities of the bank.

We —

Charles E. Whittaker:

I don’t understand.

If I may ask, how do you not (Inaudible) discrimination claim?

The issue, as I understood, is whether there’s an exemption.

Frank K. Sloan:

The question raised by the State, in its brief, Mr. Justice Whittaker, is that the — that it is not discriminar — discriminatory because the state savings and loan association would have to pay it and this relieves only the federal savings and loan association.

Charles E. Whittaker:

(Inaudible) use that why you apply the states act to say if there’s an exemption.

Frank K. Sloan:

That — we do not agree that they do, sir.

We think it’s nondiscriminatory.

Now, may we say here that the short answer to the state court’s statement that the documentary state tax here imposed is nondiscriminatory and within the scope of Section 1464 (h) is that this Section gives the States power only to tax these associations on their activities and transactions in the specified areas but, in no way, gives the States the right to tax the transactions between the Federal Home Loan Banks and their members which are specifically exempted by Section 1433.

In other words, Section 1433, if the state court’s construction is to be adopted, would have to be, by implication, affected, narrowed, partly paired away by Section 1464 (h) and a following Act in the next year in an area not directly discussed.

Now, this state — we submit, this tax is an indirect and forbidden tax upon the advances, that’s the precise word in Section 1433 itself, since the note or obligation necessary to obtain these advances from the Federal Home Loan Banks are the — of course, an integral part of the entire loans transaction.

Now, the state court has actually conceded that 1433 really does control these transactions but seeks to answer our argument in this manner.

From page 18 of the transcript, “It is clear from the foregoing statute,” that’s Section 1433, “that the immunity provided therein from taxation applies only to Federal Home Loan Banks.”

The Respondent here, the State Taxing Authority, has not sought to place any documentary tax upon the Federal Home Loan Bank but, as such, has been assessed only against the appellant, which is the Savings and Loan Association.

If the respondent had attempted to place a documentary stamp tax upon some obligation issued by the Federal Home Loan Bank, the above quoted statute would be applicable and such bank would be entitled to the immunity therein provided.

Now, we respectfully submit, may it please the Court, that this Court has conclusively answered that very argument and, in truth, decided the issue, we think in this case, in the case of Pittman versus Home Owners’ Loan Corporation, opinion by Mr. Chief Justice Hughes in 1939, 308 U.S. 21 which is cited, of course, discussed in the briefs.

Now, in the Pittman case, the State of Maryland required the payment or attempted to require the payment of a state recording tax evidenced by stamps and, again, measured and graded by the amount of the loans just as these are, before the Home Owners’ Loan Corporation which, of course, was a subsidiary of the Federal Home Loan Bank to record his mortgages.

And, this Court, in the Pittman case, said, in quoting the Section 4 (c) of the Home Owners’ Loan Act of 1933 which had practically identical language, the corporation, including its loan, shall likewise be exempt from such taxation, all taxation now are here after imposed by any State or county.

Now, in striking down that Maryland state tax on these home owners’ loan mortgages, this Court said that it was immaterial who was actually required to pay the tax.

“Whoever pays it, said Mr. Chief Justice Hughes, “it’s a tax upon the mortgage and that is what is forbidden by the law of the United States.”

And, he quotes there Justice Holmes’ language from the case of the Federal Land Bank versus Crosland, also cited in the brief, in which there was an attempt to require recording tax to be placed on a Federal Home Loans Bank — or Federal Land Bank mortgage.

We submit, may it please the Court, that that precise argument answers what is said by the Supreme Court of South Carolina in its decision.

It doesn’t matter here who pays the tax.

The Supreme Court of South Carolina said, “We’re not assessing a tax on the Federal Home Loan Bank.

We’re assessing it on this association.”

The fact is that it does not matter because the tax itself on the transaction is what is forbidden.

The Federal Home Loan Bank advances $5 million.

The State of South Carolina exacts $2270 in taxes from that transaction.

It begs the question to say, “We’re not taxing the Home Loan Bank transaction.

Frank K. Sloan:

We’re taxing this local association.”

Now, may it please the Court, we think that the — that the legislative history of the this particular Section, 1433, and the word “advances” in it plainly shows exactly what is meant by this term “advances” and the fact that the Congress, in considering this Section, 1433, and in drafting it, meant plainly that the word “advances” in Section 1433 would mean the same thing as the word “loans” in the Home Owners’ Loan Act section which had been construed in the Pittman case by this Court.

That is the precise distinction.

In Section 1433, before the Court today, the word “advances,” as inserted in the exemption statute, for the word “loans” in the statute before the Court in the Pittman case.

Now, this — the bill originally did not have the word “advances” in there.

The loans or advances to be made by the Home Loan Bank, as the bill was originally drafted, were not to be tax-exempt, may it please the Court.

But, when it passed the House in that form, the Senate propo — an amendment was proposed in the Senate, this — this information is cited on — in our brief on page 16, and was promptly accepted to make specific a tax exemption for its advances to the members.

And, Senator Reed who offered the amendment had this explanation.

He said, “We should not, of course, put the loans of this bank in the position of being taxable in the several States.”

I do not believe they were to be anyway as they are part of its capital and reserves, but this would make it clear that the bank’s assets are not, in fact, taxable by the State or municipalities.

It — it went back to conference which conferred in this amendment and it went to the House which receded and the House managers, as they explained this amendment in the congressional record, stated this is a clarifying amendment to make certain that advances by Home Loan Banks to members are tax-exempt.

The House recedes with an amendment applying the provision to all advances.

Now, may it please the Court, we feel that the state court’s attempt to answer the Pittman case in this language is not adequate.

They state, the transcript on page 19, “We should emphasize,” this is the language of the state court decision, “that the mortgage sought to be taxed in the Pittman case was offered for record by the Home Owners’ Loan Corporation.”

It is readily apparent that the rule there announced is not applicable under the factual situation here.

We should also point out that, in the Pittman case, the tax was sought to be imposed against the corporation which was immune from such tax by reason of the federal statute.

May it please the Court, we submit that that was the plain language of Mr. Justice Holmes in the Crosland-Federal Land Bank case quoted and, again, reinforced in the Pittman case that it matters not against whom the tax is levied.

It’s a tax upon the transaction which is exempted by, in this case, Section 1433 and that is what the law forbids.

We think that the United States, which has filed a brief as amicus curiae in this case today, has got a very apt statement of the matter in supporting our petition and supporting our request that you reversed the decision of the state court.

They say, on page 10, “While it is true that by prohibiting discriminatory taxation of Federal Savings and Loan Associations, that statute, Section 1464 (h), impliedly allows nondiscriminatory levies upon them.

It does not follow that the Congress took this circuitous way of permitting taxation of the very advances by Home Loan Banks which it had specifically exempted in 1433.”

May it please the Court, we are firmly of the opinion that this Court has spoken in the Pittman case that the language of the two statutory sections concerned are precise and identical, for all practical and legal purposes, that this is an attempt to tax the loan transactions of the Federal Home Loan Bank.

It’s a tax on that transaction no matter which pocket it may appear to come from.

Earl Warren:

Mr. Windham.

James M. Windham:

Mr. Chief Justice, may it please the Court.

As has already been aptly demonstrated, this is a tax case.

The situation, factually, is that the matter reaches this Court incidentally on a writ of certiorari to the Supreme Court of South Carolina and, factually, the Laurens Building and Loan Association, a charted federal building and loan association, operates at Laurens, South Carolina and, in the course of time, it executed certain notes to the Federal Home Loan Bank of Greensborough, North Carolina.

Now, the notes were issued for the purposes of — purpose of obtaining money with which we — which there is no disagreement about this for themselves to make loans.

That is, for the petitioner, the Building and Loan, to make loans.

The notes were executed in South Carolina by the petitioner.

James M. Windham:

And, it — the — the South Carolina Code, Section 65 Sub 688, provides a documentary tax upon the creation of instruments within South Carolina.

Included in this category are instruments of the nature such as notes measured at the rate of 4 cents per $100 — first $100 and 4 cents per each additional $100 or a fractional part thereof.

Therefore, the amount of taxes involved here is measured in that light.

Now, this statute which — the South Carolina statute has been before this Court and was passed upon as to the nature of this tax in the case of Graniteville Manufacturing Company versus the South Carolina Tax Commission or Query, who was then the Chairman, and is cited in our brief.

This Court held that this tax was an excise tax of an ordinary and usual kind which had imposed a tax upon the creation of an instrument within the State of South Carolina.

So, this Court has acted to define the area in which this tax operates.

Now, this is an — this Court stated that this is an excise tax and, of course, as — as we understand it, there are two broad areas of taxes, ad valorem and excise.

Excise would include a privilege or a franchise and, here, the execution or the creation of instruments in South Carolina of a note nature would be the exercise of a privilege or in the nature of an excise tax.

Now, those are the facts involved in this matter.

The — the situation — the question or the issue, as we would see it, is whether or not the provisions of Section 1464 (h) of Title 12 U.S.C. would permit the State of South Carolina to impose documentary taxes upon these notes which were executed in South Carolina by petitioner, a Federal Building and Loan Association or whether, on the other hand, the State of South Carolina is inhibited from taxing these notes by an — under Section 1433 of Title 12 of the Federal — of the U.S.C., Federal Code.

Now, that, it seems to us, is the issue.

Incidentally, the — it should be borne in mind, at least under our construction of the matter, that there are two separate statutes involved here.

One, a part of the home — Federal Home Loan Bank Act under which the Federal Home Loan Bank of Greensborough, North Carolina was created, and there is an Act, the Home Owners’ Loan Corporation Act of 1933 which is a subsequent Act, an Act under which Federal Building and Loan Associations or Federal Savings and Loan Associations are charted.

The petitioner here was charted under the Home Owners’ Loan Act of 1933.

Now, each of those stat — those Acts operate within their own sphere.

It would seem to us, as to the Bank, that is, the Federal Home Loan Bank of Greensborough, North Carolina to whom these notes were issued by petitioner for the purpose of obtaining the money for which to make loans, the — the Congress has provided in Section 1433 in this — in this language.

“All notes, debentures, bonds issued by any bank shall be exempt from all taxation.

Also exempt is the bank, its franchise, its capital, reserves, surplus, its advances, and its income.”

Now, that is a provision dealing with the Act which is known as the Federal Home — the Federal Home Loan Bank Act.

There is no waiver of an exemption in respect to that statute.

It seems to us that it is a — that it is an all inclusive exemption from taxation.

Now, on the other hand, the other Act which comes into play here, which is the Act under which petitioner was chartered, which is to say, the Home Owners’ Act of 1933 and which was passed subsequent to the Act under which the Federal Home Loan Bank of Greensborough, North Carolina was created, likewise has a provision dealing with the exemption from taxation within the confines of its own context.

There, it states, under — in 12 — in 1464 (h) of Title 12, “Such associations, their franchises, capital, reserve, surplus, loans, their income shall be exempt from all taxation imposed by the United States from the federal level.”

Then, it goes on, “no state, territorial, county, municipal, or local taxing authority shall impose any tax on such associations, their franchises, capital, reserves, loans or income.”

But, at that point, it seems to us and the — and was so construed by the South Carolina Supreme Court, there follows this language “greater than imposed by such authority on other similar local, mutual or cooperative, thrift and home financing institutions.”

Now, that’s the language of the Act dealing — relating to the Federal Savings and Loan Associations of which petitioner is one.

Now — so, Congress has moved in two directions under two separate Acts.

The — the bank — the statute dealing with the bank makes no — no exception from exemption.

The statute dealing with the petitioner, Federal Savings and Loan Associations, in our belief, does make — does operate to waive a strict and all-inclusive exemption.

Now, the — the petitioner contends that to tax the notes executed by it in South Carolina, would be — in obtaining these advances, would be to tax the advances of the bank.

James M. Windham:

That is — that is the theory of the — of the petitioner’s argument, as we understand it.

Now —

John M. Harlan II:

The economic incidence of the tax certainly ends up in the bank, doesn’t it?

James M. Windham:

I wouldn’t think so, sir, Your Honor, except insofar as there may be some interference with the ultimate use of the money for that purpose.

The — the levy of the tax, bearing in mind the — the ruling of this Court in the Graniteville case, is upon the one creating the instrument.

The petitioner, the Federal — the Laurens Savings and Loan Association, is the one that created the instrument being taxed here.

That would be my construction of a proper answer to your question, Your Honor.

Charles E. Whittaker:

Mr. Windham.

James M. Windham:

Yes, sir?

Charles E. Whittaker:

Does the statute ought to be burdened require the Home Owners’ Loan Bank to take notes evidencing the (Inaudible)?

James M. Windham:

You say does the bank have to take these notes?

Charles E. Whittaker:

Yes (Voice Overlap) —

James M. Windham:

Yes, sir, Your Honor.

They — it does, sir.

We have reproduced that in full in our — in our brief in order that the whole context might be there, sir.

Charles E. Whittaker:

That means the bank can only make the advances when evidenced by notes, and you tax the notes, have you not then taxed the advance?

James M. Windham:

In that — in that process of reasoning, in all honesty, I would have to say yes, sir, but I would go on to add that, if so, it is an indirect tax, sir and not a direct tax upon the bank.

It would op —

Charles E. Whittaker:

Now, isn’t that exactly the question ruled by the Court in the Pittman case?

James M. Windham:

No, sir.

I don’t think so, sir.

I was coming to that in a moment, but I would be —

Charles E. Whittaker:

(Voice Overlap)

James M. Windham:

To answer your question now, sir, I think that there is a difference between the ruling in the Pittman case and the situation which is an issue here.

The difference being that, in that case, as at least according to my position, the way I understand it can be differentiated and should be differentiated is that, in the Pittman case, the Home Owners’ Loan Corporation made a loan to a mortgager.

The mortgager executed mortgage directed to the Home Owners’ Loan Corporation.

The statute provided that the loans of the corporation should be exempt from taxation.

The Court — this Court went on to hold that — that the mortgage was a part of the lending process of the Home Owners’ Loan Corporation in that instance.

Now, Your Honors, the — the difference, may it please Your Honor, as I would — would honestly feel it to be, is that, here, you have a separate entity coming into play.

That is to say, an — an entirely separate independent entity so far as its creation and its organization is concerned.

James M. Windham:

Each one created under a different Act of Congress.

Each certainly, it seems to us, would be bound and operative within the sphere of the statute under which they were created, under which they operate.

So that, in the dif — the differential between the two instances would be that the entity of the — of the petitioner here would create a situation and — different, in fact, from that which — which was involved in the Pittman case.

Now, further, the point I am — am trying to make, and I believe we — we respectfully submit to the South Carolina Supreme Court was correct in its adjudication and I will point out in a moment some additional rulings by certain courts which would seem to give substance to that position.

The — these notes here incidentally, it seems to us, would be taxable irrespective of anything else by what is tantamount to a partial waiver of exemption within the context of Section 1464 (h) of Title 12, which I have read to Your Honors a moment ago.

Certainly, if — if the language there does not amount to at least a partial exemption, it would have been useless in our opinion to have placed it there.

Now, remembering that the position of the petitioner here would be, if it is supported and found to be correct, that the — that there would have been no necessity whatever to have enacted the provisions of Section 1464 (h) of Title 12 when, under the previous existent Act, under petitioner’s argument, would have been exempted anyway.

So then, that this Section 1464 (h) was enacted subsequently to the Act under which petitioner would claim that the exemption would operate in its favor irrespective of anything else.

It was already provided for.

Now, we certainly have no quarrel with the fact and it’s been adjudicated numbers of times that — that the Congress has a perfect right to protect its — to create agencies, instrumentalities for carrying on federal functions, that it has a perfect right to protect those agencies, those instrumentalities, to exempt them from taxation.

But, likewise, we respectfully submit and is strongly impressed in the law is the fact that the Congress has a right to waive exemption from taxation.

We respectfully submit that, to the extent that it is specifically provided here, there has been a waiver on the part of Congress of an all-inclusive exemption from taxation in the enactment of — of Section 1464 (h) of Title 12.

Charles E. Whittaker:

Is that to say Congress has consented that they may be taxed but at no greater than other similar (Voice Overlap) —

James M. Windham:

That is the contention that we would place upon it.

That is, we believe, the correct interpretation of it, Your Honor.

Now — actually, we — as we feel it, as we see it, we have not found any case which is dis — dispositive of this issue that is here today.

We do not feel that there has been any adjudication which would answer this issue completely.

However, this issue has the construction, the operation.

Section 1464 (h) of Title 12 has not been entirely dormant judicially.

Certain courts and certain — the highest courts of certain — of our States have operated within its sphere as to the consideration of the meaning of Section 1464 (h) of Title 12.

One of these cases is one which we’ve cited in our brief, arising in the State of Minnesota where that — it was held there that in allowing credit to a — to a state savings and loan association with respect to — to interest and dividends, that is, credit against net income with respect to — to dividends and interest paid to members of that association, was void as discriminating against the Federal Savings and Loan Association.

Now, that court, therefore, considered that — that there was an exemption implied in this provision of Section 1464 (h).

The Court made this statement, that is, the Minnesota Supreme Court made this statement with reference to the purpose of this provision in this language.

“The purpose was to protect federal associations from discriminatory taxation which would put them on any less favorable basis than State Building and Loan Associations.”

Now, that was the — that was the treatment as to the purpose of this Section given by the Minnesota Supreme Court.

The — in the State of California, there rose a case in which this provision was likewise considered.

That’s — the case is that of First Federal Savings and Loan Association of Altadena, California versus Johnson in which the eminent present Chief Justice of this Court was listed in the record as counsel in his capacity and service rendered as Attorney General of the State of California.

There, now, that court held that a Federal Savings and Loan Association was not exempt from a franchise tax imposed by the State of California computed on the basis of net income derived from investments in both local and federal funds.

The holding of the Court was further, to the extent that where the tax is not greater than that levied on state, local, industrial, thrift organizations that — that the tax was proper.

So, that court, likewise, considered that there — that, within the context of this language, there was a — a right given to impose a tax, but that it was limited by the — by the fact that it could be no greater than that imposed upon local lending institutions.

James M. Windham:

Now, in effect and in substance, that is the ruling.

That is the decision of the South Carolina Supreme Court in this matter.

We will submit that, in considering the matter, the South Carolina Supreme Court likely did go into some areas of consideration which were not absolutely necessary in the decision of the issue before the Court but, nonetheless, we think, inform and in substance, and in reality, that the — that the extent of the South Carolina Supreme Court ruling is none other than to give realistic consideration to what is felt to be, in our opinion, a waiver of another wise all-inclusive exemption.

We — we respectfully submit that the decision of the South Carolina Supreme Court should be affirmed in this matter.

Thank you.

Frank K. Sloan:

Mr. Chief Justice and may it please the Court.

Just a word in response to Attorney General Windham’s argument, we would like to comment principally that the two decisions which he cites, the Minnesota decision which had dealt with the income tax which is specifically permitted by Section 1464 (h) and the California case which had to do with the Farm Credit Act in which Section 1138 (c) of the Farm Credit Act providing exemptions specifically excludes loans and advances by the Farm Credit Administration.

So that, we have in Section 1433 a specific inclusion of an exemption for these particular loans and transactions.

We do not have that in the California case.

In the Minnesota case, the income tax levied on the association is specifically permitted by Section 1464 (h).

So, we respectfully take the position that neither case can be of used to the Court in considering this question.

The precise matter is that Section 1464 (h), if it’s to be interpreted the way the Supreme Court of South Carolina has interpreted, would require this Court to say that the Congress by implication, in an indirect way stating that States might tax associations, live to and did, in fact, amend or repeal this provision that says that the advances and the loan transactions of the Home Loan Banks cannot be taxed.

This requires or would require, may it please the Court, a finding that this was done by implication in the teeth of the strong legislative history of the fact that it was purposely determined, plainly argued in both houses that these advances and loan were supposedly tax-exempt.

We believe, again, may it please the Court, that the language of this Court in the Pittman case is controlling.

It says, may I quote, “The critical term in the present relation is “loans,” in this case, “advances.”

We think that this term, in order to carry up the manifest purpose of the broad exception, should be construed as covering the entire process of lending, the debts which result there from, and the mortgages given to the corporation as security.

May it please the Court, we believe that the decision of this Court in the Pittman case is controlling.

Hugo L. Black:

Was the point presented by South Carolina here presented in that case?

Frank K. Sloan:

No, because the question of the exemption of 1464 (h) did not apply to this precise loan transaction, you see.

It was a direct mortgage loan.

We think that the burden of the State’s argument here is that, since the State can tax income and loans made by the association, that the Congress intended by implication to go back and cut down the precise exemption it gave in 1433, and we think that that raises a strained construction which is not justified by the language and immediately raises the question whether similar taxes by the States or burdens among the transaction of the banks, it brings us to this troublesome question of whether or not a Federal Savings and Loan Association is an instrumentality and, thereby, pro — protected, and so forth.

Hugo L. Black:

I thought they were —

Frank K. Sloan:

We’ve reached none of these.

Hugo L. Black:

I thought they were raising the question as to which statute governed as to tax immunity.

Frank K. Sloan:

The — their position that — that they take is that 1464 (h), which permits the State to tax associations, carries over into the transaction exempted by 1433.

So, it’s a quick matter of how this Court construes these two Sections together and we believe their construction is a strained one which brings both an undesirable economic result, as far as taxing the Home Loan Bank operations, and the undesirable legal questions that would be difficult to resolve as each tax statute of this nature had to be separately considered.

Two other States presently have such statutes, Cal — pardon me, Florida and Pennsylvania.

Charles E. Whittaker:

May I ask you, sir.

Frank K. Sloan:

Yes, sir, Mr. Justice?

Charles E. Whittaker:

Is not our question, the question we have to decide, whether this is a tax on savings and loan association or a tax on the bank?

Charles E. Whittaker:

Isn’t that our question?

Frank K. Sloan:

Essentially, yes, and we say that, as this Court has said in the Pittman case, that you can’t split up the loan.

It’s the entire loan transaction by the bank that’s protected in the exemption statute and we — I concur that that is the correct question, sir.

Earl Warren:

Is there any distinction, in that, this is one degree removed from (Voice Overlap) —

Frank K. Sloan:

I do not see the distinction because, in the first case which had an identical exemption statute, the loan was made directly to an individual.

Here, it’s made to a member of the bank but the transactions are, in all other respects, identical.

And, I believe that the reading of 1464 (h) does not justify the construction of going beyond the State’s power to tax the association’s income and property, and things of that sort, all the way through to taxing the transaction with the Federal Home Loan Bank itself which is specifically exempt.

It’s — it’s a construction that requires a strain to reach and it upholds the tax which directly operates against the loan and, thereby, reduces the amount of money available for home loan transactions which was the basic purpose.

We believe that the insistence of the Congress on the including of the word “advances” and their insistence upon its meaning in this broad exemption makes this Section, 1433, identical to the Section considered in the Pittman case and that, therefore, the logical result was followed.

Thank you.

Earl Warren:

We’ll recess now.