96-0126DJ

96-126

Response September 11, 1996

Request

August 7, 1996

XXXXX

Utah State Tax Commission

210 North 1950 West

Salt Lake City, Utah 84134

Re: XXXXX

Dear XXXXX:

REQUEST FOR ADVISORY OPINION

We are writing on behalf of the above‑referenced production XXXXX to request a written confirmation that, based upon the information provided herein, such XXXXX is exempt from Utah sales and use tax on purchases of tangible personal property and services to be used in the conduct of its exempt activity.

Facts

XXXXX is a member institution of the XXXXX. The XXXXX consists of a series of cooperative lending institutions chartered and subject to regulation by the Farm Credit Administration, as prescribed by the Farm Credit Act of 1971, 12 U.S.C. 2001, et seq.

XXXXX institutions, including XXXXX, were created to implement the federal policy objective of providing a reliable source of affordable credit to farmers and other borrowers in the agricultural industry. Because of the special role XXXXX fulfill, Congress expressly designated them as federally chartered instrumentalities of the United States. [12 U.S.C. 2071]

XXXXX is chartered as a federal instrumentality under Sec. 2.0 of the Farm Credit Act. [12 U.S.C. 2071] XXXXX charter authorizes it to lend and provide credit services to eligible agricultural producers in a prescribed territory.

Legal Analysis

State Law

Section 59‑12‑104(13), Utah Code Annotated, provides that the Asales or use of property which the state is prohibited from taxing under the Constitution of the United States...@ is exempt from sales and use taxation in Utah. This exemption is interpreted in Utah Regulation, Rule R865‑19S‑54 to exempt sales to and use by A...federal agencies, institutions, and instrumentalities...[including]...federal land banks...@

Federal Law

The Supremacy Clause of the United States Constitution [U.S. Const. Article VI, Par. 2], has been interpreted to provide that no state may impose tax on a federal instrumentality unless Congress expressly consents to the tax. [McCulloch v. Maryland, 17 U.S. 316, 41.Ed. 579 (1819); Federal Reserve Bank of St. Louis v. Metrocentre Improvement District, 657 F.2d 183 (8th Cir., 1981), aff'd 455 U.S. 995 (1982); Farm Credit Services of Central Arkansas, PCA, et al. v. State of Arkansas, USDC, Eastern District of Arkansas, No. LR‑C‑94‑394, (March 6, 1995) aff d CA‑8, No. 95‑1856, (February 23, 1996) (AFCSCA@)]

As indicated in FCSCA, Aimplied immunity from state taxation for federal instrumentalities has been a settled niche in American jurisprudence since the early days of the Republic.@ The establishment of PCA as a federal instrumentality implies immunity from state and local taxation. As previously indicated, a production credit association is expressly designated as a federal instrumentality under 12 U.S.C. 2071. This designation was affirmed in Rohweder v. Aberdeen Production Credit Association, 765 F.2d 109 (1985).

To overcome a federal instrumentality's implied immunity from state and local taxation, it would follow that the taxing authority must demonstrate that Congress has expressly waived such instrumentality's immunity. Congress has not enacted any legislation or otherwise expressly consented to state taxation of production credit associations subsequent to the 1985 amendments. Prior to their amendment in 1985, the requisite statutes indicated that a production credit association was exempt from state taxation, so long as the stock of such association was held by the Governor of the Farm Credit Administration. The statutes in effect since 1985 reflect a different policy than those in effect prior to the amendments. Effective with the 1985 amendments, 12 U.S.C. 2077 (formerly 12 U.S.C. 2098, redesignated in 1990) excludes any qualifying language concerning ownership, thereby removing the express waiver of immunity which gave the states the ability to subject production credit associations to tax. Therefore, absent this express consent by Congress, PCA is exempt from state taxation, including the sales and use taxes imposed by the State of Utah.

This is supported by the decision of the U.S. District Court for the Eastern District of Arkansas in FCSCA (cited above), and was affirmed by the U.S. Court of Appeals for the Eighth Circuit on February 23,1996. The rationale behind the Court of Appeals' position is summarized in the following excerpt from its decision:

There is no provision in any statute, including 12 U.S.C. Sec. 2077, which indicates an intent on the part of Congress to waive the PCAs' tax immunity as federal instrumentalities. Therefore, the PCAs, as instrumentalities of the United States, are immune to state taxation, and we affirm the district court's judgement to that effect.

It should be noted that Arkansas has petitioned the United States Supreme Court for grant of a writ of certiorari with respect to the decision by the Court of Appeals. The State's petition is pending at this time.

Conclusion and Request for Ruling

On the basis of the facts and the analysis provided above, we respectfully request that the State of Utah issue a ruling confirming that PCA is exempt from the sales and use taxes imposed by the State. PCA further requests guidance as to the appropriate documentation which should be provided to vendors evidencing PCA's exempt status.

Please direct your response to XXXXX at the letterhead address. If you have any questions or require additional information, please call XXXXX at XXXXX or XXXXX at XXXXX.

Very truly yours,

XXXXX

September 11, 1996

XXXXX

Advisory Opinion - Application of Sales Tax to Purchases by XXXXX

Dear XXXXX,

We have receeived your request for an opinion pertaining to the application of sales tax to purchases by production credit associations. We find as follows:

Under Utah Administrative Rule R865-19S-54, sales tax does not apply to Afederal agencies and instrumentalities.@ As instrumentalities of the United States, production credit associations are exempt from sales tax. '12 U.S.C. 2077.

To purchase items tax free, the production credit association must complete an exemption certificate for the vendor=s tax records. A copy of the form is enclosed. If the association prefers, it may design its purchase order forms to include the necessary language from the exemption certificate. If the association designs its own form, the form must include the information requested in the boxes on the front page of our exemption certificate, the vendor=s name, language that essentially mirrors the paragraph on the back of the exemption certificate form pertaining to United State Governmental Exemption, and an authorized signature.

Please let us know if we can be of further assistance.