Does a federally chartered production credit association (a farm-credit lending institution) have to pay Utah sales and use tax on its own purchases?

Plain-English summary

A production credit association (PCA) — a member institution of the federal Farm Credit System, created by Congress to provide affordable credit to farmers and other agricultural borrowers — asked the Commission to confirm that its purchases of tangible personal property and services were exempt from Utah sales and use tax.

The Commission agreed, based on the association's federal legal status rather than any farm-specific exemption. Congress expressly designated production credit associations as federally chartered instrumentalities of the United States under 12 U.S.C. § 2071 (part of the Farm Credit Act of 1971). Under longstanding constitutional doctrine tracing back to McCulloch v. Maryland, the Supremacy Clause means a state cannot tax a federal instrumentality unless Congress has expressly consented. Before 1985, the Farm Credit Act's statutes had contained language that permitted state taxation of PCAs as long as certain stock-ownership conditions were met. When Congress amended the Act in 1985 (now codified at 12 U.S.C. § 2077), it removed that qualifying language — eliminating the express waiver that had allowed states to tax PCAs. Since Congress hasn't re-authorized state taxation since, the Commission concluded PCAs are exempt from Utah taxation, including sales and use tax, citing a supporting 1996 Eighth Circuit decision reaching the same conclusion for Arkansas.

Utah's own law implements this: § 59-12-104(13), Utah Code Annotated, exempts sales/use of property the state is constitutionally barred from taxing, and Rule R865-19S-54 specifically extends that exemption to federal agencies, institutions, and instrumentalities (expressly listing federal land banks as an example of the same Farm Credit System family).

To actually buy tax-free, the Commission told the association it must give each vendor a completed exemption certificate (or a purchase order form containing the same required information: the vendor's name, the boxed information from the standard exemption certificate, the U.S. Governmental Exemption language, and an authorized signature).

What this means for you

Production credit associations and other Farm Credit System institutions

Your purchases of tangible personal property and services are exempt from Utah sales and use tax based on your federal-instrumentality status — but the exemption isn't automatic at the register. Give vendors a properly completed exemption certificate (or an equivalent purchase order containing all the required certificate language) so they have documentation to support not charging you tax.

Vendors selling to farm credit institutions

Don't assume a customer claiming farm-credit exemption is automatically exempt — confirm they're a chartered Farm Credit System institution (production credit association, federal land bank, etc.) and get a completed exemption certificate or equivalent documentation for your own records before selling tax-free.

Accountants and tax professionals

This exemption rests on federal constitutional immunity (Supremacy Clause / McCulloch v. Maryland), not a state-law carve-out specific to agriculture — so it applies to the association's own purchases as a federal instrumentality, not to every farm-related transaction generally. The relevant federal statute is 12 U.S.C. § 2077 as amended in 1985; pre-1985 case law analyzing the old ownership-conditioned exemption language is no longer good law on this point.

Common questions

Q: Do production credit associations owe Utah sales tax on their purchases?
A: No. As federally chartered instrumentalities of the United States, they're constitutionally immune from state taxation, including Utah sales and use tax, absent express congressional consent — which hasn't existed since a 1985 statutory amendment.

Q: What paperwork does a PCA need to buy tax-free?
A: A completed Utah sales tax exemption certificate for the vendor's records, or a purchase order form containing the same required boxed information, vendor name, U.S. Governmental Exemption language, and an authorized signature.

Q: Does this exemption cover other Farm Credit System entities, like federal land banks?
A: Utah's own implementing rule (R865-19S-54) expressly lists federal land banks as exempt federal instrumentalities, consistent with the same underlying constitutional reasoning applied here to a production credit association.

Q: Does this ruling apply to my organization's purchases?
A: Not automatically. This is a private letter ruling binding only on the Commission as to this taxpayer's specific facts. It can't be relied on as binding by anyone else, though it may carry weight if your facts closely match.

Citations and references

Statutes and rules:

• Utah Code Ann. § 59-12-104(13) (exemption for property the state is constitutionally prohibited from taxing)
• Utah Admin. Rule R865-19S-54 (exempts sales to/use by federal agencies, institutions, and instrumentalities, including federal land banks)
• 12 U.S.C. § 2071 (federal chartering of production credit associations)
• 12 U.S.C. § 2077 (removed prior ownership-conditioned state-taxation language, effective 1985)
• U.S. Const. art. VI, cl. 2 (Supremacy Clause); McCulloch v. Maryland, 17 U.S. 316 (1819); Farm Credit Services of Central Arkansas v. Arkansas (E.D. Ark.), aff'd 8th Cir. 1996

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/96-126.pdf

Original ruling text

96-126

Response September 11, 1996

Request

August 7, 1996

XXXXX

Utah State Tax Commission

210 North 1950 West

Salt Lake City, Utah 84134

Re: XXXXX

Dear XXXXX:

REQUEST
FOR ADVISORY OPINION

We are writing on behalf of
the above‑referenced production XXXXX to request a written confirmation
that, based upon the information provided herein, such XXXXX is exempt from
Utah sales and use tax on purchases of tangible personal property and services
to be used in the conduct of its exempt activity.

Facts

XXXXX is a member institution
of the XXXXX. The XXXXX consists of a
series of cooperative lending institutions chartered and subject to regulation
by the Farm Credit Administration, as prescribed by the Farm Credit Act of
1971, 12 U.S.C. 2001, et seq.

XXXXX institutions, including
XXXXX, were created to implement the federal policy objective of providing a
reliable source of affordable credit to farmers and other borrowers in the
agricultural industry. Because of the
special role XXXXX fulfill, Congress expressly designated them as federally
chartered instrumentalities of the United States. [12 U.S.C. 2071]

XXXXX is chartered as a
federal instrumentality under Sec. 2.0 of the Farm Credit Act. [12 U.S.C. 2071]
XXXXX charter authorizes it to lend and provide credit services to eligible
agricultural producers in a prescribed territory.

Legal Analysis

State Law

Section 59‑12‑104(13),
Utah Code Annotated, provides that the Asales
or use of property which the state is prohibited from taxing under the
Constitution of the United States...@ is exempt from sales and use taxation in
Utah. This exemption is interpreted in
Utah Regulation, Rule R865‑19S‑54 to exempt sales to and use by A...federal agencies, institutions, and
instrumentalities...[including]...federal land banks...@

Federal Law

The Supremacy Clause of the
United States Constitution [U.S. Const. Article VI, Par. 2], has been
interpreted to provide that no state may impose tax on a federal
instrumentality unless Congress expressly consents to the tax. [McCulloch v. Maryland, 17 U.S. 316, 41.Ed.
579 (1819); Federal Reserve Bank of St. Louis v. Metrocentre Improvement
District, 657 F.2d 183 (8th Cir., 1981), aff'd 455 U.S. 995 (1982); Farm Credit
Services of Central Arkansas, PCA, et al. v. State of Arkansas, USDC, Eastern
District of Arkansas, No. LR‑C‑94‑394, (March 6, 1995) aff d
CA‑8, No. 95‑1856, (February 23, 1996) (AFCSCA@)]

As indicated in FCSCA, Aimplied immunity from state taxation for federal
instrumentalities has been a settled niche in American jurisprudence since the
early days of the Republic.@ The establishment of PCA as a federal
instrumentality implies immunity from state and local taxation. As previously indicated, a production credit
association is expressly designated as a federal instrumentality under 12
U.S.C. 2071. This designation was
affirmed in Rohweder v. Aberdeen Production Credit Association, 765 F.2d 109
(1985).

To overcome a federal
instrumentality's implied immunity from state and local taxation, it would
follow that the taxing authority must demonstrate that Congress has expressly
waived such instrumentality's immunity.
Congress has not enacted any legislation or otherwise expressly
consented to state taxation of production credit associations subsequent to the
1985 amendments. Prior to their amendment in 1985, the requisite statutes
indicated that a production credit association was exempt from state taxation,
so long as the stock of such association was held by the Governor of the Farm
Credit Administration. The statutes in
effect since 1985 reflect a different policy than those in effect prior to the
amendments. Effective with the 1985
amendments, 12 U.S.C. 2077 (formerly 12 U.S.C. 2098, redesignated in 1990)
excludes any qualifying language concerning ownership, thereby removing the
express waiver of immunity which gave the states the ability to subject
production credit associations to tax.
Therefore, absent this express consent by Congress, PCA is exempt from
state taxation, including the sales and use taxes imposed by the State of Utah.

This is supported by the
decision of the U.S. District Court for the Eastern District of Arkansas in
FCSCA (cited above), and was affirmed by the U.S. Court of Appeals for the
Eighth Circuit on February 23,1996. The
rationale behind the Court of Appeals' position is summarized in the following
excerpt from its decision:

There is no provision in any
statute, including 12 U.S.C. Sec. 2077, which indicates an intent on the part
of Congress to waive the PCAs' tax immunity as federal instrumentalities. Therefore, the PCAs, as instrumentalities of
the United States, are immune to state taxation, and we affirm the district
court's judgement to that effect.

It should be noted that
Arkansas has petitioned the United States Supreme Court for grant of a writ of
certiorari with respect to the decision by the Court of Appeals. The State's petition is pending at this
time.

Conclusion and Request for
Ruling

On the basis of the facts and
the analysis provided above, we respectfully request that the State of Utah
issue a ruling confirming that PCA is exempt from the sales and use taxes
imposed by the State. PCA further
requests guidance as to the appropriate documentation which should be provided
to vendors evidencing PCA's exempt status.

Please direct your response
to XXXXX at the letterhead address. If
you have any questions or require additional information, please call XXXXX at
XXXXX or XXXXX at XXXXX.

Very truly yours,

XXXXX

September
11, 1996

XXXXX

Advisory Opinion -
Application of Sales Tax to Purchases by XXXXX

Dear XXXXX,

We
have receeived your request for an opinion pertaining to the application of
sales tax to purchases by production credit associations. We find as follows:

Under
Utah Administrative Rule R865-19S-54, sales tax does not apply to Afederal agencies and instrumentalities.@ As
instrumentalities of the United States, production credit associations are
exempt from sales tax. '12 U.S.C. 2077.

To
purchase items tax free, the production credit association must complete an
exemption certificate for the vendor=s
tax records. A copy of the form is
enclosed. If the association prefers,
it may design its purchase order forms to include the necessary language from
the exemption certificate. If the
association designs its own form, the form must include the information
requested in the boxes on the front page of our exemption certificate, the
vendor=s name, language that essentially mirrors the
paragraph on the back of the exemption certificate form pertaining to United
State Governmental Exemption, and an authorized signature.

Please
let us know if we can be of further assistance.

For
the Commission,

Alice
Shearer,

Commissioner