(dissenting). Since M’Culloch v. Maryland, 4 Wheat. 316, 4 L. Ed. 579 (1819), the United States Supreme Court has adhered to the rule that states may neither impose taxes directly on the federal government, nor impose taxes the legal incidence of which falls on the federal government. United States v. County of Fresno, 429 U.S. 452, 459 (1977). Because I conclude that sec. 71.05(l)(a), Stats., does not impose a tax the legad incidence of which falls on the federal government, I dissent from that part of the majority opinion which affirms the judgment declaring the statute unconstitutional.
Section 71.05(l)(a), Stats., imposes a state income tax on corporate dividends paid to investor shareholders. Section 71.05(l)(b)l excludes from state income tax "[t]he amount of any interest or dividend income, less related expenses, which is by federal law exempt from taxation by this state.”
31 U.S.C. sec. 3124 provides:
(a) Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax, except—
(1) a nondiscriminatory franchise tax or another nonproperty tax instead of a franchise tax, imposed ón a corporation; and
(2) an estate or inheritance tax.
Section 31 U.S.C. 3124 is a revision and recodification of Rev. Stat. sec. 3701, as amended, 31 U.S.C. sec. 742 (1976).
Rev. Stat. sec. 3701, as amended, provided:
*851[A]I1 stocks, bonds, Treasury notes and other obligations of the United States, shall be exempt from taxation by or under State or municipal or local authority. This exemption extends to every form of taxation that would require that either the obligations or the interests thereon, or both, be considered, directly or indirectly, in the computation of the tax, except nondiscriminatory franchise or other nonproperty taxes in lieu thereof imposed on corporations and except state taxes or inheritance taxes.
The last sentence of sec. 3701 was added in 1959. Pub. L. 86-346, sec. 105(a), 73 Stat. 622. Title 31 of the United States Code was not enacted into positive law until 1982, when it was reformulated, "without substantive change." See Pub. L. 97-258, sec. 4(a), 96 Stat. 1067. Decisions construing Rev. Stat. sec. 3701, as amended, are therefore binding authority in the construction of 31 U.S.C. sec. 3124 (1982).
The United States Supreme Court consistently has "treated [sec. 3701] as principally a restatement of the constitutional rule [of immunity]." 1st Nat. Bank v. Bartow Cty. Assrs., 470 U.S. 583, 593 (1985), quoting Memphis Bank & Trust Co. v. Garner, 459 U.S. 392, 397 (1983).
The 1959 addition to sec. 3701 did not broaden the scope of the exemption beyond that mandated by the constitution, as interpreted in previous decisions of the Court. Bartow Cty. Assrs., 470 U.S. at 593. In American Bank & Trust Co. v. Dallas County, 463 U.S. 855, reh’g denied, 463 U.S. 1250 (1983), the Court stated that the exemption for federal obligations provided by sec. 3701, as amended is "sweeping[,] with specific exceptions, it 'extends to every form of taxation that would require that either the obligations or *852the interest thereon, or both, be considered, directly or indirectly, in the computation of the tax’ (emphasis supplied).” Id. at 862, citing Memphis Bank & Trust Co. v. Garner, 459 U.S. at 395-96, where the Court also stated that the statute "establishes a broad exemption.”
The American Bank court said further:
Under the plain language of the 1959 amendment ... the tax is barred regardless of its form if federal obligations must be considered, either directly or indirectly, in computing the tax.
Id. at 862. (Emphasis in original.)
American Bank involved a Texas property tax on bank shares. The tax was computed by use of an "equity capital formula,” which involved determining the amount of the bank’s capital assets, subtracting from that figure the bank’s liabilities and the assessed value of the bank’s real estate, and then dividing the result by the number of shares.
The Court said that such a tax took into account, at least indirectly, the federal obligations that constituted a part of the bank’s assets. "Giving the words of amended sec. 3701 their ordinary meaning, there can be no question that federal obligations were considered in computing the bank’s shares tax at issue here. In context, the word 'considered’ means taking into account, or included in the accounting.” Id. Because "[s]ec. 3701 prohibits any form of tax that would require consideration of federal obligations in computing the tax,” id. at 865, the Court held that the bank shares tax violated the plain language of sec. 3701.
The question involved on this appeal is whether the tax imposed by sec. 71.05(l)(a), Stats., requires consideration of federal obligations or the interest *853thereon in computing the tax. I conclude that it does not.
The dividends to shareholders consist of interest earned on federal obligations. Administrative expenses, including management fees, are, however, deducted from the interest income. Thus, any identity between that income and the dividends has been lost by the time the dividends are distributed. The tax levied under sec. 71.05(l)(a), Stats., is computed on the amount of dividend reported by the taxpayer and not on the interest earned on the federal obligations. I therefore conclude that the tax imposed by sec. 71.05(l)(a) does not violate 31 U.S.C. 3124 or the supremacy or borrowing clauses of the federal constitution.