Opinion
No. 37074
Decided February 7, 1962.
Taxation — Franchise tax — Section 5733.01, Revised Code — Production credit association subject to tax, when — Shareholder interest having passed to others than the federal government or officials.
A production credit association is subject to the Ohio franchise tax imposed by Section 5733.01, Revised Code, after the shareholder interest in the association has passed to parties other than the federal government or any of its officials.
APPEAL from the Board of Tax Appeals.
The Columbus Production Credit Association is a corporation which was organized on January 26, 1934, pursuant to Title II of the Farm Credit Act of 1933, for the purpose of making short and intermediate term loans to farmers for general agricultural purposes.
The Governor of the Farm Credit Administration chartered this corporation, which was organized by farmers, and directed it to conduct operations in a district composed of central Ohio counties designated by him.
The class B stock, which is the only voting stock in this corporation, is owned only by farmer-borrowers. The class A stock is owned by investors and by the governor on behalf of the United States.
Since 1953 all the shares of class A stock held in the association by the governor have been retired, and since 1953 the total shareholder interest in the association has been in the hands of others than the federal government or any of its officials.
The Tax Commissioner made a finding of Ohio franchise tax arrearage certifications against the association for the years 1953, 1954, 1955, 1956, 1957, 1958 and 1959, in a total amount of $6,947.25, plus a 15 per cent penalty, on the grounds that the association was a foreign corporation and that its exemption from taxation had terminated.
On appeal by the association, the Board of Tax Appeals reversed the order of the Tax Commissioner.
This cause is before this court on appeal by the Tax Commissioner.
Mr. W.S. Pealer and Mr. William J. Lohr, for appellee.
Mr. Mark McElroy, attorney general, and Mr. John J. Dilenschneider, for appellant.
The question before this court is whether a production credit association is subject to the Ohio franchise tax imposed by Section 5733.01, Revised Code, after the shareholder interest in the association has passed to parties other than the federal government or any of its officials.
The association here is an instrumentality of the United States. It has inherent as well as specific statutory exemption from a state franchise tax. See Section 1138c, Title 12, U.S. Code (Farm Credit Act of 1933).
An instrumentality of the United States may not be taxed by a state unless Congress has granted consent to the state to tax. McCulloch v. Maryland, 4 Wheat. (U.S., 1819), 316, 4 L. Ed., 579; Austin v. Aldermen (U.S., 1869), 7 Wall., 694, 19 L. Ed., 224; California v. Central Pacific Rd. Co. (1888), 127 U.S. 1, 32 L. Ed., 150, 8 S. Ct., 1073.
The Congress of the United States has granted consent to the state of Ohio to impose upon the Columbus Production Credit Association the tax authorized by Section 5733.01, Revised Code, by the language in Section 1138c, Title 12, U.S. Code (Farm Credit Act of 1933). The latter section first sets forth in statutory language the exemptions from taxation which are to be enjoyed by production credit associations, and then it sets forth in clear language under what conditions Congress consents to state taxation of such associations. This language is broad and plain, is not ambiguous, and is as follows:
"The exemption provided herein shall not apply with respect to any production credit association or its property or income after the class A stock held in it by the governor has been retired."
Decision reversed.
ZIMMERMAN, TAFT, MATTHIAS and BELL, JJ., concur.
HERBERT, J., not participating.