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MEMPHIS BANK & TRUST CO. v. GARNER
decided: January 24, 1983.
MEMPHIS BANK & TRUST CO
GARNER, SHELBY COUNTY TRUSTEE, ET AL.
APPEAL FROM THE SUPREME COURT OF TENNESSEE.
Marshall, J., delivered the opinion for a unanimous Court.
JUSTICE MARSHALL delivered the opinion of the Court.
The Tennessee bank tax imposes a tax on the net earnings of banks doing business within the State, and defines net earnings to include income from obligations of the United States and its instrumentalities but to exclude interest earned on the obligations of Tennessee and its political subdivisions. Tenn. Code Ann. § 67-751 (Supp. 1982). This appeal presents the question whether the Tennessee bank tax violates the immunity of obligations of the United States from state and local taxation.
Appellant Memphis Bank & Trust Co. (Memphis Bank) brought this action in state court to recover $56,696.81 in taxes covering the years 1977 and 1978 which had been assessed pursuant to the Tennessee bank tax, Tenn. Code Ann. § 67-751 (Supp. 1982).*fn1 Each bank doing business in Tennessee
is required under § 67-751 to pay to local governments of the State a tax of 3% of the bank's net earnings for the preceding fiscal year, less a portion of the ad valorem taxes paid by the bank for that year.*fn2 Under the statute, net earnings include interest received by the bank on the obligations of the United States and its instrumentalities, as well as interest on bonds and other obligations of States other than Tennessee, but exclude interest on obligations of Tennessee and its political subdivisions.*fn3
Appellant alleged that the bank tax, as applied to it, violated 31 U. S. C. § 742, and thus was unconstitutional under the Supremacy Clause. The parties stipulated that the amount of tax paid by appellant for the years 1977 and 1978 was based entirely on interest earned on various federal
obligations, primarily notes and bills of the United States Treasury and obligations of Federal Credit Banks.*fn4 They also stipulated that if the interest earned on such federal obligations were excluded from the computation, Memphis Bank would owe no taxes for the years in question.
The Chancery Court of Shelby County granted Memphis Bank's motion for summary judgment, holding that 31 U. S. C. § 742 prohibits the inclusion of interest on obligations of the United States and its instrumentalities in the computation of taxable "net earnings" under the Tennessee bank tax. The Supreme Court of Tennessee reversed. 624 S. W. 2d 551 (1981). It held that the bank tax fell within the exception for "nondiscriminatory franchise ...
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