Nebraska Dept. of Revenue v. Loewenstein, 513 U.S. 123, 7 (1994)

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Cite as: 513 U. S. 123 (1994)

Opinion of the Court

can Bank & Trust Co. v. Dallas County, 463 U. S. 855, 862 (1983), in computing the taxable value of a taxpayer's assets or net worth for the purpose of a property tax or the like. See, e. g., First Nat. Bank of Atlanta v. Bartow County Bd. of Tax Assessors, 470 U. S. 583, 585-586 (1985) (property tax on bank shares). By contrast, the interest on the obligation is "considered" when that interest is included in computing the taxpayer's net income or earnings for the purpose of an income tax or the like. See, e. g., Memphis Bank & Trust Co. v. Garner, 459 U. S. 392, 393-394 (1983) (tax on net earnings of banks).

By participating in repos involving federal securities, the Trusts (and thus respondent) earned interest income, and Nebraska's income tax admittedly considered that interest in computing respondent's taxable income. We must decide whether for purposes of § 3124(a) the interest earned by the Trusts from these repos is interest on "obligations of the United States Government" or interest on loans of cash from the Trusts to the Seller-Borrower. We conclude that it is the latter, and we accordingly hold that Nebraska's taxation of the income derived by respondent from the repos does not violate § 3124(a).

An investor may earn interest income from a federal security in one or both of two ways. First, the investor may receive periodic payments from the United States Government at the interest rate stated on the face of the security. Such payments are traditionally known as "coupon interest." Second, the investor may acquire the security at a discount from the amount for which it will ultimately be redeemed by the Government at maturity. This discount is also considered interest for purposes of taxation.4 Although "discount

4 For example, Treasury notes and bonds, which have maturities of at least one year, pay coupon interest on a semiannual basis and may be issued at discount, par (face amount), or premium, depending on market conditions. See 31 CFR §§ 356.5(b), (c), 356.30 (1994). Treasury bills, by contrast, have maturities of not more than one year, pay no coupon interest, and are always issued at a discount. See § 356.5(a). "For purposes

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