State v. Minnesota Federal Savings & Loan Association

The Minnesota legislature enacted the Minnesota Income Tax Act. The Income Tax Act provided that credit unions were exempt from the Minnesota income or franchise tax. Savings-and-loan associations (savings associations) were not exempt. Credit unions and savings associations are similar in that both receive money from local depositors, both lend money to members, both allow their members to vote on matters, and both are required to set aside substantial deposit reserves. However, credit unions and savings associations are different in several important respects. Savings associations make loans secured by property. Credit unions make mostly personal loans. Credit unions deal with members united by some sort of common bond or group membership. Savings associations deal with a much larger and undefined group of potential customers. Credit unions are supervised by a state official. Savings associations are supervised by a federal board. Credit unions do make loans secured by property, but not to the extent that a savings association makes secured loans. Credit unions have a community of interest among their members that the larger savings associations simply cannot replicate. Minnesota Federal Savings and Loan Association (Minnesota Federal) (defendant) was a savings-and-loan association, which made it ineligible for the tax exemption provided to credit unions. The State of Minnesota (plaintiff) brought an action to collect taxes owed by Minnesota Federal. Minnesota Federal claimed that the state law exempting credit unions from the income or franchise tax violated the uniformity provision of the Minnesota Constitution and the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution because it treated credit unions and savings-and-loan associations differently despite a lack of substantial differences between the two types of institutions. The trial court entered judgment for the state. Minnesota Federal appealed.