OCTOBER TERM, 1996
Syllabus
ARKANSAS
v. FARM CREDIT SERVICES OF CENTRAL ARKANSAS ET
AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH
CIRCUIT
No. 95-1918. Argued April 21, 1997-Decided June 2,1997
The Tax Injunction Act (Act) restricts the federal district
courts' power to prevent collection or enforcement of state taxes,
but makes an exception to that jurisdictional bar where no plain,
speedy, or efficient state-court remedy may be had. This Court has
established another exception where the United States sues to
protect itself or its instrumentalities from state taxation.
Department of Employment v.
United States, 385 U. S. 355, 358.
Production Credit Associations (PCA's) are federally chartered
corporate financial institutions organized by farmers primarily to
make loans to farmers. During the relevant time period, federal law
has exempted PCA's from state taxes on their notes, debentures, and
other obligations. Respondent PCA's, claiming that they are also
immune from Arkansas sales and income taxes, sought a declaratory
judgment and an injunction prohibiting the State from levying such
taxes on them. Seeking to overcome the Act's jurisdictional bar,
they contended that, as instrumentalities of the United States,
they are not subject to the Act's provisions any more than the
United States itself. The District Court granted them summary
judgment, and the Court of Appeals affirmed.
Held: PCA's are not included within the judicial
exception to the Act by virtue of their designation as
instrumentalities of the United States and so may not sue in
federal court for an injunction against state taxation without the
United States as co-plaintiff. Pp. 825-832.
(a) The Act, which has been interpreted and applied as a
"jurisdictional rule" and a "broad jurisdictional barrier,"
Moe v.
Confederated Salish and Kootenai Tribes of
Flathead Reservation, 425 U. S. 463, 470, was
enacted to confine federal-court intervention in state government.
The federal balance is well served when the several States define
and elaborate their own laws through their own courts and
administrative processes and without undue interference from the
Federal Judiciary. A State's power to tax is basic to its power to
exist. Given the federal balance and the basic principle that
statutory language is to be enforced according to its terms,
federal courts must guard against interpretations of the Act which
might defeat its purpose and text. Where the United States
Government is a party, the other side of the federal balance
must
822
Syllabus
be considered. The necessity to respect the National
Government's authority underlies the rule that the Act does not
constrain federal judicial power when the United States sues to
protect itself and its instrumentalities from state taxation. Pp.
825-828.
(b) When the United States is not a party, the mere fact that a
party challenging a tax has interests closely related to those of
the Federal Government is not enough, in and of itself, to overcome
the Act's bar.
Moe, supra, at 471-472. An instrumentality of
the United States can enjoy the benefits and immunities conferred
by explicit statutes without the further inference that it has all
of the rights and privileges of the National Government. The Courts
of Appeals have adopted different standards for deciding whether a
federal instrumentality may sue in federal court to enjoin state
taxation where the United States is not a co-plaintiff. Under any
of those tests, PCA's would not be exempt from the Act's
restrictions. The United States is not joined as a co-plaintiff and
opposes the exercise of jurisdiction. Regardless of whether a
federal agency or body with substantial regulatory authority is
exempt from the Act when it brings suit in its own name, cf.
NLRB v.
NashFinch Co.,
404 U. S. 138, PCA's are
not entities of that description. Despite their formal and
undoubted designation as instrumentalities of the United States,
and despite their entitlement to those tax immunities accorded by
the explicit statutory mandate, they do not have or exercise power
analogous to that of the National Labor Relations Board or other
United States departments or regulatory agencies. Their business is
making commercial loans, and their stock is owned by private
entities. Their interests are not coterminous with those of the
Government any more than most commercial interests. A holding that
they are subject to the Act's restriction on federal-court
jurisdiction furthers the State's interests without sacrificing
those of the Federal Government. Pp.828-832.
76 F.3d
961, reversed.
KENNEDY, J., delivered the opinion for a unanimous Court.
Martha G.
Hunt argued the cause and filed briefs
for petitioner.
Deputy Solicitor General Wallace argued the cause for the United
States as amicus curiae urging reversal. With him on the brief were
Acting Solicitor General Dellinger, Assistant Attorney General
Argrett, David C. Frederick, and David English Carmack.
823
Richard A. Hanson argued the cause for respondents.
With him on the brief were Rufus E. Wolff, Kevin
J.
Feeley, and Michael L. Fayhee.
*
JUSTICE KENNEDY delivered the opinion of the Court. The Tax
Injunction Act, 28 U. S. C. § 1341, restricts the power of federal
district courts to prevent collection or enforcement of state
taxes. It states: "The 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." The statute, on its face, yields no
exception to the jurisdictional bar save where the state remedy is
wanting, but at least one other exception is established by our
cases: The statute does not constrain the power of federal courts
if the
*Briefs of
amici curiae urging reversal were filed for
the State of Ohio et al. by
Betty D. Montgomery, Attorney
General of Ohio,
Jeffrey S.
Sutton, State Solicitor,
Robert C.
Maier, Assistant Attorney General, and
Steven M. Houron, Acting Attorney General of New Hampshire,
and by the Attorneys General for their respective jurisdictions as
follows:
Bruce M. Botelho of Alaska,
Daniel E.
Lungren of California,
Richard Blumenthal of
Connecticut,
Robert Butterworth of Florida,
Michael
J. Bowers of Georgia,
Margery S.
Bronster of Hawaii,
Alan G.
Lance of Idaho,
Jeffrey A. Modisett of Indiana,
Thomas J.
Miller of Iowa,
Carla J. Stovall of
Kansas,
J. Joseph Curran, Jr., of Maryland,
Scott
Harshbarger of Massachusetts,
Frank J.
Kelley of Michigan,
Jeremiah W Nixon of Missouri,
Joseph P. Mazurek of Montana,
Don Stenberg of
Nebraska,
Tom Udall of New Mexico,
Heidi Heitkamp of
North Dakota,
Mark W Barnett of South Dakota,
John Knox
Walkup of Tennessee,
Jan Graham of Utah,
Jeffrey L.
Amestoy of Vermont,
James S.
Gilmore III of
Virginia,
Christine Q Gregoire of Washington,
Darrell V.
McGraw, Jr., of West Virginia, and
James E. Doyle of
Wisconsin; for the American Bankers Association et al. by
John J. Gill III and
Michael F.
Crotty; for the Multistate Tax Commission by
Paull
Mines; and for the National Association of Securities and
Commercial Law Attorneys by
Kevin P. Roddy, G.
Robert
Blakey, Patrick E. Cafferty, Bryan L. Clobes, and
Jonathan W
Cuneo.
Michael A. Cardozo and
William L. Daly filed a
brief for the National Hockey League as
amicus curiae urging
affirmance.
824
United States sues to protect itself or its instrumentalities
from state taxation.
Department of Employment v.
United
States, 385 U. S.
355, 358 (1966). The present case explores the limits of this
judicial exception. We decide here whether instrumentalities called
Production Credit Associations, corporations chartered under
federal law, are included within the exception when they sue by
themselves. We hold they are not and so may not sue in federal
court for an injunction against state taxation without the United
States as co-plaintiff. The action must be dismissed, and, as a
result, we do not reach the merits of the taxation dispute.
I
Production Credit Associations (PCA's) are corporations
chartered by the Farm Credit Administration under the Farm Credit
Act of 1971, 85 Stat. 583, as amended, 12 U. S. C. § 2001
et
seq. A PCA is a corporate financial institution organized by 10
or more farmers and designed in large part to make loans to
farmers. §§ 2071, 2075. PCA's have had differing tax-exempt status
at different times, depending on whether the United States owned
shares of their stock. See,
e. g., Farm Credit Act of
1933, 48 Stat. 267. In the period relevant here (when all PCA stock
has been in private hands) they have been exempted, by explicit
federal statute, from state taxes on their "notes, debentures, and
other obligations." 12 U. S. C. § 2077.
Four PCA's, respondents here, brought suit in the United States
District Court for the Eastern District of Arkansas claiming a tax
exemption going beyond the express statutory language of § 2077.
They assert immunity not only from the taxes described in the
exemption statute we have quoted but also from Arkansas sales and
income taxes. They seek a declaratory judgment and an injunction
prohibiting the State from levying the taxes against them. The
District Court granted the PCAs' motion for summary judgment, and a
di-
825
vided panel of the United States Court of Appeals for the Eighth
Circuit affirmed.
76 F.3d
961 (1996).
Entitlement to the immunity is the underlying substantive issue,
were we to reach it. The Tax Injunction Act, however, is an initial
obstacle, for by its terms it would bar the relief the PCA's seek
absent some exception. Seeking to overcome the bar under the Tax
Injunction Act, the PCA's, first in the trial court and now here,
contended that they are instrumentalities of the United States and
so not subject to the provisions of the Act any more than the
United States itself. The first point is correct: PCA's are
instrumentalities of the United States because the statute which
charters them says so. 12 U. S. C. §§ 2071(b)(7), 2077. The PCAs'
argument about what follows from the designation, however, is
incorrect. Instrumentalities of the United States, by virtue of
that designation alone, do not have the same right as does the
United States to avoid the prohibitions of the Tax Injunction
Act.
An observation is proper respecting our consideration of this
threshold question. Although the trial court addressed the meaning
and operation of the Tax Injunction Act, in the Court of Appeals
the whole question seemed to disappear, though it goes to the heart
of judicial authority. Neither party, we are advised, addressed the
point and neither opinion in the Court of Appeals, majority or
dissent, mentions it. While the question of the Act's applicability
was not raised in the State's petition for certiorari, the United
States, in an
amicus brief in support of the petition,
called our attention to the point. In granting the petition, we
asked the parties to address, in addition to the merits, whether
the District Court should have dismissed the case for lack of
subjectmatter jurisdiction in light of the Act. 519 U. S. 805
(1997).
We have interpreted and applied the Tax Injunction Act as a
"jurisdictional rule" and a "broad jurisdictional barrier."
Moe v.
Confederated Salish and Kootenai Tribes of
Flathead Reservation, 425 U. S. 463, 470
(1976). In dismissing
826
an action filed in a United States District Court to challenge
state taxes we held that the Tax Injunction Act "deprived the
District Court of jurisdiction to hear [the] challenges."
California v.
Grace Brethren Church, 457 U. S. 393, 396
(1982). Further, we found no jurisdiction even though the defendant
State argued in favor of the federal court's jurisdiction.
Id., at 417, n. 38. In explaining our holding in
Grace
Brethren that declaratory relief is as violative of the Tax
Injunction Act as an injunction itself, we said the Act was first
and foremost a vehicle" 'to limit drastically federal district
court jurisdiction to interfere with so important a local concern
as the collection of taxes.'''
Id., at 408-409 (quoting
Rosewell v.
LaSalle Nat. Bank, 450 U. S. 503, 522
(1981)). These statements underscore the fundamental importance of
the restrictions imposed by the Tax Injunction Act, restrictions we
proceed to address.
II
The federal balance is well served when the several States
define and elaborate their own laws through their own courts and
administrative processes and without undue interference from the
Federal Judiciary. The States' interest in the integrity of their
own processes is of particular moment respecting questions of state
taxation. In our constitutional system, the power of the State to
tax is a concurrent power. "That the power of taxation is one of
vital importance; that it is retained by the States; that it is not
abridged by the grant of a similar power to the government of the
Union; that it is to be concurrently exercised by the two
governments: are truths which have never been denied."
McCulloch v.
Maryland, 4 Wheat. 316, 425 (1819). The
power to tax is basic to the power of the State to exist.
Wisconsin v.
J. C.
Penney Co., 311 U. S. 435, 444
(1940);
Rosewell, supra, at 522.
Enactment of the Tax Injunction Act of 1937 reflects a
congressional concern to confine federal-court intervention
827
in state government, a concern prominent after the Court's
ruling in
Ex parte Young, 209 U. S. 123 (1908),
that the Eleventh Amendment is not in all cases a bar to
federal-court interference with individual state officers alleged
to have acted in violation of federal law. See
Rosewell,
supra, at 522, n. 28;
Perez v.
Ledesma, 401 U. S. 82, 104-115
(1971) (Brennan, J., concurring in part and dissenting in part).
Given the systemic importance of the federal balance, and given the
basic principle that statutory language is to be enforced according
to its terms, federal courts must guard against interpretations of
the Tax Injunction Act which might defeat its purpose and text.
Where the Government of the United States is a party, of course,
the other side of the federal balance must be considered. In our
constitutional system the National Government has sovereign
interests of its own. The necessity to respect the authority and
prerogatives of the National Government underlies the now settled
rule that the Tax Injunction Act is not a constraint on federal
judicial power when the United States sues to protect itself and
its instrumentalities from state taxation. The importance of
allowing the United States to proceed in federal court to determine
tax immunity questions is no doubt one reason why the exception was
established with little discussion in
Department of
Employment v.
United States. There the Court indicated
the exception was consistent with a well-settled understanding that
the Government is not bound by its own legislative restrictions on
the exercise of remedial rights unless the intent to bind it is
express. 385 U. S., at 358, n. 6 (citing
United States v.
Livingston, 179 F. Supp. 9, 12 (EDSC 1959) (three-judge
District Court), aff'd,
364 U. S. 281 (1960);
United States v.
Arlington County, 326 F.2d
929, 931 (CA4
1964); United States v.
Bureau of
Revenue of N.
M., 291 F.2d
677, 679 (CAlO 1961)). See also
Dollar Savings Bank v.
United States, 19 Wall. 227, 239 (1874). The Court
concluded, "in accord with an unbroken line of authority, and
828
convincing evidence of legislative purpose, that § 1341 does not
act as a restriction upon suits by the United States to protect
itself and its instrumentalities from unconstitutional state
exactions." 385 U. S., at 358 (footnotes omitted). In all the
District Court and Court of Appeals cases cited in
Department of
Employment, the United States was either the sole plaintiff or
a co-plaintiff. The United States had joined as co-plaintiff with
the Red Cross in
Department of Employment, arguing that the
Red Cross was a federal instrumentality immune from state taxation,
and we held that the Tax Injunction Act did not deprive the
District Court of jurisdiction to decide the merits and order
relief.
We have not before now considered whether federal
instrumentalities fall under the exception to the Tax Injunction
Act when they sue without the United States as coplaintiff. In
Moe v.
Confederated Salish and Kootenai Tribes, we
reasoned that when the United States is not a party, the mere fact
that a party challenging the tax has interests closely related to
those of the Federal Government is not enough, in and of itself, to
avoid the bar of the Act. We considered whether the Act barred the
exercise of federal judicial power when Indian tribes were
challenging the lawfulness and constitutionality of certain state
taxes. Although the tribes did not have formal designations as
instrumentalities of the United States, we assumed the interests
they asserted were aligned with the interests of the Federal
Government. Reserving the question of the precise significance of a
federal instrumentality designation, the Court said this congruence
of interests was not sufficient to give the tribes an exemption
from the Act. 425 U. S., at 471-472. We went on to find the tribes
exempt from the Act only because a second federal statute granted
sweeping federalcourt jurisdiction where an Indian tribe was a
party.
Id., at 472 (citing 28 U. S. C. § 1362 (1976 ed.)).
Moe is instructive here. As in
Moe, the PCA's say
their own mission is defined and controlled by federal law and that
their interests are the
829
same as those of the United States. We conclude here, as we did
in
Moe, that this argument is insufficient to justify an
exception to the Tax Injunction Act.
True, important consequences flow from the congressional
decision to designate a PCA formed pursuant to statute as "an
instrumentality of the United States." 12 U. S. C. § 2071(b)(7).
The tax immunity a PCA has under § 2077 is a permitted consequence
of its status as a federal instrumentality. An instrumentality of
the United States can enjoy the benefits and immunities conferred
by explicit statutes, however, without the further inference that
the instrumentality has all of the rights and privileges of the
National Government.
Respondents attempt to counter this point by arguing that
NLRB v.
Nash-Finch Co., 404 U. S. 138 (1971), is
applicable here and supports their cause.
Nash-Finch
involved not the Tax Injunction Act, but the Anti-Injunction Act,
the statute which restricts the authority of federal courts to
enjoin proceedings in state courts. 28 U. S. C. § 2283. The
AntiInjunction Act provides: "A court of the United States may not
grant an injunction to stay proceedings in a State court except as
expressly authorized by Act of Congress, or where necessary in aid
of its jurisdiction, or to protect or effectuate its judgments."
Just as the Tax Injunction Act is inapplicable where the United
States is a party, a parallel rule prevails under § 2283.
Leiter
Minerals, Inc. v.
United States, 352 U. S. 220, 225-226
(1957) (The restrictions of § 2283 are inapplicable in a suit
brought by the National Government). The question in
Nash-Finch was whether the National Labor Relations Board
(NLRB) came within the United States' exception to § 2283. We held
it did. In so ruling, we observed the NLRB's regulatory power
"pre-empts the field." 404 U. S., at 144; see also
id., at
147 ("The exclusiveness of the federal domain is clear ... "). The
case does not aid the PCA's, for their powers are far different
from those of the NLRB. As will be discussed in more detail below,
the
830
PCA's more closely resemble the private entities
Nash-Finch distinguished from the Federal Government and its
agencies.
Id., at 146.
As to the Tax Injunction Act itself, the Courts of Appeals have
adopted different standards over time for deciding whether a
federal instrumentality may sue in federal court to enjoin state
taxation where the United States is not a co-plaintiff. Under the
most restrictive approach, there is no exception to the Tax
Injunction Act for federal instrumentalities unless the United
States sues as a co-plaintiff. See,
e. g., United States v.
State Tax Commission, 481 F.2d
963, 975 (CA1 1973) ("It is reasonable, as a prerequisite to
by-passing normal state tax collection and litigation channels,
that [the instrumentalities] persuade the Attorney General of the
United States ... to join in their claim");
Housing Authority of
Seattle v.
State of Washington, Dept. of Revenue,
629 F.2d
1307, 1311 (CA9 1980) (agreeing with the First Circuit in
State Tax Commission that "such joinder [with the United
States as co-plaintiff] is necessary before a federal
instrumentality can overcome the restrictions" of the Tax
Injunction Act). After its decision in
State Tax Commission,
the Court of Appeals for the First Circuit modified what had seemed
to be a bright-line rule to produce a different test: "[E]ach
instrumentality must be examined in light of its governmental role
and the wishes of Congress as expressed in relevant legislation."
Federal Reserve Bank of Boston v.
Commissioner of
Corporations and Taxation of Mass., 499 F.2d
60, 64 (1974). Federal Reserve banks, the Court of Appeals
noted, are not analogous to private corporations, but rather are
"plainly and predominantly fiscal arms of the federal government"
with interests "indistinguishable from those of the sovereign."
Id., at 62. The court also pointed to a federal statute
giving a Federal Reserve bank "unrestricted access to the district
courts,"
id., at 63 (referring to 12 U. S. C. § 632); and to
the Federal Reserve System's unusual position "outside the
executive chain of
831
command," 499 F. 2d, at 63. See also
Bank of New England Old
Colony v.
Clark, 986 F.2d
600, 602-603 (CAl1993) (describing
Federal Reserve bank
standard as a "flexible test").
Under any of the tests we have described, PCA's would not be
exempt from the restrictions of the Tax Injunction Act. The United
States has not joined as a co-plaintiff and indeed opposes the
District Court's exercise of jurisdiction. We need not inquire
whether the holding of
Nash-Finc~to the effect that an
agency with broad regulatory power is exempt from § 2283 when it
sues in its own name and not through the Attorney General or in the
name of the United States-is applicable as well to the Tax
Injunction Act. Whatever may be the rule under the Tax Injunction
Act where a federal agency or body with substantial regulatory
authority brings suit, PCA's are not entities of that description.
PCA's are not granted the right to exercise government regulatory
authority but rather serve specific commercial and economic
purposes long associated with various corporations chartered by the
United States. Other examples include the Atlantic and Pacific
Railroad Company (chartered under an Act of 1866 to construct and
maintain a railroad and telegraph line from Springfield, Missouri,
to the Pacific Ocean, see
Smith v.
Reeves, 178 U. S. 436, 436437
(1900)); the Rural Telephone Bank (7 U. S. C. § 941); the United
States Enrichment Corporation (42 U. S. C. § 2297a, repealed
effective on date of privatization, Pub. L. 104-134, § 3116, 110
Stat. 1321). Indeed, in
Smith v.
Reeves, we treated
the federally chartered corporation as a private citizen, not as an
arm of the United States, and held it to be subject to the Eleventh
Amendment bar on suits against States. 178 U. S., at 446-447.
The PCAs' business is making commercial loans, and all their
stock is owned by private entities. Their interests are not
coterminous with those of the Government any more than most
commercial interests. Despite their formal and undoubted
designation as instrumentalities of the United
832
States, and despite their entitlement to those tax immunities
accorded by the explicit statutory mandate, PCA's do not have or
exercise power analogous to that of the NLRB or any of the
departments or regulatory agencies of the United States. This
suffices for us to conclude that instrumentality status does not in
and of itself entitle an entity to the same exemption the United
States has under the Tax Injunction Act.
The Tax Injunction Act is grounded in the need of States to
administer their fiscal affairs without undue interference from
federal courts. As all parties concede, respondents have a "speedy,
plain, and efficient remedy" in state court. In holding that the
PCA's are subject to the Act's restriction on federal-court
jurisdiction, we further the State's interests without sacrificing
those of the Government of the United States.
The judgment of the Court of Appeals is reversed.
It is so ordered.
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