Appeal from the Circuit Court of Cook County. Honorable Joanne L. Lanigan, Judge Presiding.
Released for Publication January 29, 1997.
The Honorable Justice Zwick delivered the opinion of the court: McNAMARA, J. and Rakowski, J., concur.
The opinion of the court was delivered by: Zwick
JUSTICE ZWICK delivered the opinion of the court:
This case comes to us on cross-motions for summary judgment. The sole issue presented is whether interest paid by the Federal Home Loan Bank of Chicago ("FHLB") to its depositors on daily investment deposit accounts is exempt from State taxation. The circuit court determined that interest on such accounts is not exempt. We affirm.
Plaintiff, Bell Federal Savings and Loan Association ("Bell"), brought an action to recover money paid under protest to the Illinois Department of Revenue ("the Department"). Bell earns interest on a deposit account with the FHLB, known as a daily investment deposit account or "DID account." Bell paid taxes under protest on the interest earned on this account for a three-month period in 1992 to the Department, and filed a complaint for injunction and declaratory relief asking the circuit court to declare that Bell is entitled to a refund of the tax and any penalties incurred. The court found that the Federal Home Loan Bank Act ("the Act") does not preclude the State of Illinois from taxing the interest earned by Bell on this account. The circuit court therefore granted the defendants' motion for summary judgment, and denied Bell's motion for summary judgment.
A motion for summary judgment may be granted when "the pleadings, depositions and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005 (West 1994); Purtill v. Hess, 111 Ill. 2d 229, 240, 489 N.E.2d 867, 871, 95 Ill. Dec. 305 (1986). Maywood Proviso State Bank v. York State Bank & Trust Co., 252 Ill. App. 3d 164, 625 N.E.2d 83, 86, 192 Ill. Dec. 123 (1993). When all parties move for summary judgment, the court is invited to decide the issues thus presented as a matter of law, and entry of summary judgment for one party or the other is proper. Maywood Proviso, 252 Ill. App. 3d at 171. Where facts are undisputed and the court's decision rests on the proper interpretation of a statute, we review the circuit court's ruling de novo. Kaszubowski v. Board of Education, 248 Ill. App. 3d 451, 618 N.E.2d 609, 613, 188 Ill. Dec. 39 (1993).
At issue is the proper interpretation of section 1433 of the Act which states in pertinent part:
"Any and all notes, debentures, bonds, and other such obligations issued by any bank, and consolidated Federal Home Loan Bank bonds and debentures, shall be exempt both as to principal and interest from all taxation * * *." 12 USC § 1433 (1994).
Bell argues that its DID account falls within the "other such obligations" language of the Act.
To support its motion for summary judgment, Bell attached the affidavit of John C Savio, senior vice president and chief financial officer of Bell. Savio stated its DID account with the FHLB is "operated very similar to a commercial checking account." Savio also stated that the FHLB uses the DID deposits in furtherance of its purpose of making available low-cost funds for home mortgages. In the memorandum accompanying its motion for summary judgment, Bell argued that DID accounts fit within the catch-all statutory language of the Act, in that, although admittedly not "notes," "debentures" or "bonds," DID accounts are "other such obligations" of the FHLB. Bell also argued that allowing the state to tax the interest on the DID account interferes with "the essential purpose" of the Act.
The defendants motion for summary judgment contended that Bell's DID account does not constitute an "obligation" within the meaning of section 1433, and that the DID account interest is subject to taxation in Illinois. The defendants relied on First Federal Savings and Loan Association of Claremore v. Oklahoma Tax Commission, 743 P.2d 640 (Okla. 1987), where the Oklahoma Supreme Court held that the interest earned on an account similar to that maintained by Bell was not exempt from State taxation. The defendants also argued that there are no substantive similarities between the DID account and notes, bonds, and debentures. Additionally, the defendants argued that DID accounts are not "issued" within the meaning of section 1433.
Before addressing the arguments raised, it is helpful to set out some background. The Federal Home Loan Bank system was created by the Federal Home Loan Bank Act of 1932. 12 U.S.C. §§ 1421 - 1449. There are twelve regional FHLBs in the system, which was created by Congress to provide a reliable source of funds to homebuyers. Fidelity Financial Corporation v. Federal Home Loan Bank, 792 F.2d 1432, 1434 (9th Cir. 1986). The FHLB is owned by its member banks, which are required by law to purchase stock in the FHLB. 12 U.S.C. § 1426. The FHLB "is a federal instrumentality organized to carry out public policy and its functions are wholly governmental." Fahey v. O'Melveny & Myers, 200 F.2d 420, 446 (9th Cir. 1952). Each FHLB is authorized under the Act to make secured advances to its member banks. 12 U.S.C. § 1930. Long-term advances, however, may be made only for the purpose of providing funds for residential housing finance. Each FHLB has the power to borrow and give security and to pay interest thereon and to issue debentures, bonds, or other obligations. 12 U.S.C. § 1431. Consolidated debentures and consolidated bonds, which are the joint and several obligations of all the Federal Home Loan Banks, may also be issued. 12 U.S.C. § 1431(b) and (c).
Of particular relevance to this case is that each FHLB has the power to accept deposits made by member banks. 12 U.S.C. § 1431(e). The FHLBs may be authorized to be drawees of and to engage in or be agents or intermediaries for, or otherwise participate or assist in the collection settlement of (including presentment, clearing, and payment of, and remitting for) checks, drafts, or any other negotiable or ...