Constitutional Law – Federal Immunity from State Taxation – Validity of State Sales Tax Upon Purchases and Sales by National Banks

The 1949 revision of the Michigan Sales Tax Act changed the federal exemption provision so as to permit taxation of sales to corporations acting as agents or instrumentalities of the federal government but not wholly owned by the United States. Accordingly, defendant department of revenue took the position that sales to plaintiff, a national banking institution organized under the National Banking Act, are taxable. In the course of its operations, plaintiff purchases office equipment and other tangible personal property from Michigan. retailers. It also sells food and services to employees through its cafeteria, and sells repossessed merchandise to other parties. Contending that the imposition of the sales tax violates the bank’s statutory and constitutional immunity, plaintiff sought a declaratory decree that (1) retail sales to plaintiff are not taxable, and (2) retail sales by plaintiff are not taxable. The trial court denied that the asserted immunity exempts plaintiff from the economic burden of taxes on its purchases, but ruled that sales by the plaintiff are immune from the sales tax. On appeal, held, affirmed. The Michigan sales tax is imposed upon the retailer and he is in legal contemplation the taxpayer. Therefore, as to its purchases, plaintiff’s immunity is not violated even though the economic burden may be shifted to it. Plaintiff’s immunity does prevent taxation of its sales because as to these transactions the legal incidence of the tax rests upon it. National Bank of Detroit v. Department of Revenue, 340 Mich. 573, 66 N.W. (2d) 237 (1954), appeal dismissed (U.S. 1955) 75 S.Ct. 781.