Memphis Bank & Trust Co. v. Garner, 459 U.S. 392 (1983)

Memphis Bank & Trust Co. v. Garner

No. 81-1613

Argued November 29, 1982
Decided January 24, 1983
459 U.S. 392

APPEAL FROM THE SUPREME COURT OF TENNESSEE

Syllabus

A Tennessee statute imposes a tax on the net earnings of banks doing business in the State, and defines net earnings to include interest received on obligations of the United States and its instrumentalities and of other States, but not interest earned on obligations of Tennessee and its political subdivisions. Appellant bank brought an action in a Tennessee state court to recover taxes paid on interest earned on various federal obligations, alleging that the bank tax, as applied to appellant, violated 31 U.S.C. § 742 -- which exempts obligations of the United States from state and local taxation except where the taxes are "nondiscriminatory franchise or other nonproperty taxes in lieu thereof imposed on corporations" or estate or inheritance taxes -- and thus was unconstitutional under the Supremacy Clause. The trial court granted appellant’s motion for a summary judgment. The Tennessee Supreme Court reversed, holding that the bank tax fell within the exception for "nondiscriminatory franchise taxes" set forth in § 742.

Held: The Tennessee bank tax violates the immunity of obligations of the United States from state and local taxation. The tax cannot be characterized as nondiscriminatory under § 742. It discriminates in favor of securities issued by Tennessee and its political subdivisions and against federal obligations by including in the tax base income from federal obligations while excluding income from otherwise comparable state and local obligations, and thus improperly discriminates against the Federal Government and those with whom it deals. Pp. 395-399.

624 S.W.2d 551, reversed and remanded.

MARSHALL, J., delivered the opinion for a unanimous Court.