WASHINGTON — A battle over tax breaks for nonbank lenders is expected to move one step closer to a hearing before the U.S. Supreme Court on Friday, when Missouri is due to file a brief arguing that a Farm Credit System lender should not be immune from state corporate income tax.

The appeal challenges a January ruling by the Supreme Court of Missouri, which overturned a state commission’s decision that Farm Credit System members must pay the tax. The case arose after CoBank, a Farm Credit lender based in Denver, began arguing that it should not be subject to state taxes and requested a refund of several years’ worth of taxes already paid.

CoBank, formerly known as the National Bank for Cooperatives, was created by the Farm Credit Act of 1971. Designated by the Farm Credit Administration as an Agricultural Credit Bank, the institution provides funds to smaller nonbank lenders and makes loans to agricultural cooperatives.

The institution argued that because it is a “federal instrumentality” it has constitutional immunity from state taxes.

In a unanimous opinion, the state court agreed with CoBank, saying that while Congress has the authority to remove federal entities’ state tax immunity, it has not done so in the case of the Farm Credit System. The court ruled that CoBank is both immune from state taxes and entitled to a refund.

Wood Miller, senior counsel for the Missouri Department of Revenue, said Wednesday that the state disagrees with the court’s decision. “It is a question of the intent of Congress,” he said. “In the Farm Credit Act there are several specific entities created, a number of which Congress gave immunity to. With the National Bank for Cooperatives, they did not.”

On Wednesday the American Bankers Association announced that it will file a friend-of-the-court brief in support of the state’s case. Another supporting brief is expected from Ohio’s attorney general.

The U.S. Supreme Court is expected to hear oral arguments in the case in the coming session, which begins in October.

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