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National Bank of Hyde Park v. Isaacs
Citations: 27 Ill. 2d 205; 188 N.E.2d 704; 1963 Ill. LEXIS 616Docket: No. 37312
Court: Illinois Supreme Court; February 1, 1963; Illinois; State Supreme Court
An amendment to the Retailers’ Occupation Tax Act in 1953 exempted sales proceeds to the State of Illinois and its subdivisions from taxation, a provision repealed on July 31, 1961. During its existence, this exemption was deemed unconstitutional by both the U.S. District Court and the Illinois Supreme Court, as it discriminated against sales to the United States by exempting sales to state entities only. The National Bank of Hyde Park filed a complaint on October 14, 1960, claiming that the exemption unlawfully discriminated against national banks, which are considered instrumentalities of the U.S. Government, by imposing taxes on their purchases while exempting those made by state entities. A temporary injunction required defendant companies to pay the tax under protest. In April 1962, the Cook County Circuit Court ruled that the National Bank was entitled to a refund for taxes paid up to the repeal date. State officials have appealed this decision, emphasizing that the tax is levied on sellers, not buyers, and that the burden of the tax does not affect its legal incidence. The court also noted that national banks, while privately operated, are chartered by Congress and can be taxed only within limits set by Congress, with the tax at issue imposed on independent sellers rather than the banks themselves. The bank does not have a greater immunity from indirect taxes than the federal government. The tax in question does not violate federal sovereign immunity or Congress’s restrictions on taxing national banks. The primary challenge is based on alleged discrimination, as proceeds from sales to the State were exempt while similar sales to the federal government were taxed. The law mandates equal treatment for those dealing with the federal government and the State, as established in relevant case law. The statute clearly differentiates between State and federal instrumentalities, exempting the former but not the latter. There is no evidence that State-chartered banks are considered State instrumentalities, nor that the State intended to exempt them from taxation. The distinction drawn does not constitute arbitrary discrimination; tax exemptions should relieve government burdens, not increase profits for private entities. Exempting sales to banks would not reduce government costs but would merely benefit private businesses. The absence of any claim that the rescinded exemption aided State-chartered banks supports the conclusion that the exemption did not discriminate against national banks. Historical judicial decisions and congressional intent affirm that states can tax national banks as long as the tax is not discriminatory when compared to similar private activities. The court incorrectly ruled that the tax discriminated against national banks, leading to a reversal of its decree.