Fourteen states are trying to overturn a court ruling that gives providers of Farm Credit Administration loans what industry sources are calling an unfair competitive advantage over rural banks.
In February, the U.S. Court of Appeals for the Eighth Circuit ruled that production credit associations (PCAs) - which provide Farm Credit Administration loans to farmers - are exempt from state and local taxes.
Arkansas is asking the U.S. Supreme Court to review the ruling this fall. The 13 other states, led by Ohio, have filed a brief with the high court in support of Arkansas.
Banking industry representatives said the suit is an attempt by Farm Credit System lenders to gain a competitive advantage over commercial banks.
"This just represents another way that the Farm Credit System is pursuing any market advantage it can get over rural and agricultural banks," said Philip Ankel, federal administrative counsel for the American Bankers Association.
The original suit was brought in the U.S District Court for the Eastern District of Arkansas by four PCAs there. The associations argued that the mere existence of their federal charters implies that the associations are exempt from state and local taxes.
Arkansas appealed the district court decision and lost.
The states are arguing that the only state and local tax exemptions Congress offers the PCAs are on the securities the PCAs issue.
"The PCA contention is that because they have federal charters ... they are automatically granted a broad immunity," said Ohio Assistant Attorney General Robert C. Maier. "But Congress expressly provided a narrow immunity, and the courts should respect that."
The Farm Credit System is a government-sponsored enterprise that lends to farmers and other rural borrowers through such federally chartered entities as PCAs.
Rural bankers have repeatedly branded the system as an unfair competitor. Recently, they slammed a proposal by the Farm Credit Administration that would loosen restrictions on who is eligible to borrow from the system as well as widen the list of reasons for borrowing.
"If these groups are now exempted from state and local taxes, it provides one more reason they should not be allowed to expand outside of agricultural lending and into non-farm activities," said Mark Scanlan, the Independent Bankers Association of America's agricultural lobbyist.
