Production Credit Association of Eastern New Mexico

98-58

The Taxpayer, a production credit association created under federal law,  protested the Department’s denial of its claims for refund of corporate income tax for tax years 1992-1996.  The Taxpayer claimed it was exempt from state income taxes because Congress has designated production credit associations  as  federal instrumentalities.  Under the Supremacy Clause of the U.S. Constitution, federal instrumentalities are immune from state taxation in the absence of congressional authorization to tax.  In the case of production credit associations, since their creation in 1933, Congress had provided that once they were no longer owned in whole or in part by the United States, that they would be subject to state income taxes.  In 1985, however, as part of some technical amendments to the Farm Credit Act, the language giving congressional permission to impose income taxes was removed from 12 U.S.C. Section 2077.  The issue was whether the general rule of immunity from state taxation for federal instrumentalities applied or whether we should determine the congressional intent behind the 1985 amendments.  Because the doctrine of immunity for federal instrumentalities is based upon an implied immunity in the absence of direction from Congress, it is appropriate to determine the congressional intent behind the 1985 amendments.  When that is done, it is clear that Congress did not understand that these amendments would create immunity from state income taxation for production credit associations.  Protest denied.