Source: https://supreme.justia.com/cases/federal/us/365/744/
Timestamp: 2019-04-19 18:27:22+00:00

Document:
1. Respondent County attempted to tax the full value of the buildings and improvements on privately owned Wherry Act leaseholds of housing developments on a federally owned Air Force base, although it taxed other leaseholds, including privately owned leaseholds of tax-exempt state lands, at a lower valuation.
Held: the tax is unconstitutional and void, because it discriminates against the United States and its lessees. Phillips Co. v. Dumas School District, 361 U. S. 376, followed. Offutt Housing Co. v. Sarpy County, 351 U. S. 253, distinguished. Pp. 365 U. S. 749-751.
2. The Court of Appeals erred in holding that the fact that the taxes were higher did not invalidate them entirely, but only required that the amount collectible be reduced to a valid amount, and in directing the District Court to decree a valid tax for the invalid one which the State had attempted to exact. Such a discriminatory tax is entirely void, and federal courts have no authority to assess or levy taxes on behalf of States or their counties. Pp. 365 U. S. 751-752.
3. An opinion and judgment of the Supreme Court of Washington holding that such leaseholds may lawfully be so valued was not res judicata as to the County's tax claims against one of the leaseholds here involved for the years 1955 and 1956, because no tax had been levied or assessed against that leasehold when that decision was rendered, and, hence, no issue of discrimination was or could have been presented and adjudicated in that case. P. 365 U. S. 752.
Among their various contentions, petitioners sought our writ of certiorari on the ground that, although finding that the State of Washington had discriminatorily, and therefore unconstitutionally, valued and taxed their federal Wherry Act leaseholds, the Court of Appeals for the Ninth Circuit nevertheless sustained and enforced those taxes. 276 F.2d 836. We granted the writ, limited to that question. 364 U.S. 814. Understanding of our decision will require a brief statement of the relevant facts of the case.
lease. Each lease contemplated and provided that the lessee would raise the money necessary to construct the project by an FHA insured mortgage loan on its leasehold and the improvements, to be serviced and amortized by the lessee out of its rents from the housing units, which were to be rented at such rates and to such military and civilian personnel as the Commanding Officer of the air base might designate. The leases further provided that the buildings and improvements, "as completed," would become the property of the United States, and so remain, regardless of any termination of the lease, without further compensation to the lessee.
With the proceeds of FHA insured mortgage loans on their respective leaseholds and the improvements, aggregating more than $6,000,000, the lessees erected the respective housing projects and undertook their management and operation as agreed in the leases.
In June, 1954, the Grant County assessor placed the Moses Lake leasehold on his assessment list for taxation in the year 1955, but he did not then levy any tax against it. Moses Lake promptly sued for and obtained a decree in the Superior Court of the State enjoining the County from levying any taxes on its leasehold for the year 1955 and thereafter. Upon the County's appeal, the Supreme Court of Washington reversed on November 14, 1957, holding that the leasehold was taxable by the County, and further holding, upon its understanding of our opinion in Offutt Housing Co. v. Sarpy County, 351 U. S. 253, that it would be proper, for such purpose, to value the leasehold at "the full value of the buildings and improvements" thereon. Moses Lake Homes, Inc. v. Grant County, 51 Wash.2d 285, 287, 317 P.2d 1069, 1070.
enjoined Grant County from proceeding with its tax sales pending final determination of the case.
By its answer, the County claimed, and asked the court to award it, the greater part of the deposit to satisfy its tax demands. [Footnote 5] The lessees disputed the County's claim, contending, inter alia, that the asserted taxes were invalid because discriminatorily assessed in violation of § 511 of the Housing Act of 1956 (70 Stat. 1091, c. 1029, 42 U.S.C. (1958 ed.) § 1594 note) and in violation of the United States Constitution. That issue, among others, was litigated between those parties as adversary codefendants.
method used in assessing the Moses Lake leaseholds resulted in a higher tax than would have been true in the case of a non-Wherry Act leasehold,"
"the fact that the taxes are higher does not invalidate the entire tax. It only requires that the amount collectible be reduced to what it would have been if the tax had been levied on a non-Wherry Act leasehold basis,"
276 F.2d at 847, and -- otherwise upholding the County's levies against the Moses Lake leasehold for the years 1955, 1956 and 1957 -- it remanded the case to the District Court to make the proper reduction in the amount of those taxes, and also for further proceedings respecting the other taxpayers and tax years involved, except it held that the 1959 taxes were invalid because levied on the leaseholds after the United States had acquired them.
Dexter Horton Bldg. Co. v. King County, 10 Wash.2d 186, 116 P.2d 507.
Even the facts of the Metropolitan cases are remarkably similar to the facts here. There, the Metropolitan Company acquired a 50-year lease of land owned by the State. As required by the lease, the lessee erected very substantial improvements upon the land -- funding their cost with a large issue of mortgage bonds -- which improvements, immediately upon completion, became the property of the State. In the first of those cases, 62 Wash. 409, 113 P. 1114, the Court held that the leasehold should not be assessed at a "speculative" value, but at its "actual . . . value in money . . . ," and that it was error to assess it at the value of the improvements. In the two later Metropolitan cases (64 Wash. 615, 117 P. 495; 72 Wash. 47, 129 P. 883), the court emphasized that, in determining the fair market value of the leasehold, consideration must be given to its burdens, including mortgages upon it, as well as to its benefits.
full value of the buildings and improvements thereon, and the Offutt case held that such might constitutionally be done. It did not hold, as the Supreme Court of Washington has construed it in the Moses Lake case, that a State might constitutionally discriminate against leaseholds on federally owned lands in favor of leaseholds on state-owned lands.
"It still remains true, as it has from the beginning, that a tax may be invalid even though it does not fall directly on the United States if it operates so as to discriminate against the Government or those with whom it deals."
355 U.S. at 355 U. S. 473.
"[I]t does not seem too much to require that the State treat those who deal with the Government as well as it treats those with whom it deals itself,"
361 U.S. at 361 U. S. 385, and we held the tax to be void because it "discriminates unconstitutionally against the United States and its lessees." 361 U.S. at 361 U. S. 379. That case is indistinguishable from this one on the point here.
be reduced to what it would have been if the tax had been levied on a non-Wherry Act leasehold basis"
(276 F.2d at 847), and in remanding the case to the District Court to make the necessary adjustment. We held in the Dumas case, supra, that a discriminatory tax is void and "may not be exacted." 361 U.S. at 361 U. S. 387. The effect of the Court's remand was to direct the District Court to decree a valid tax for the invalid one which the State had attempted to exact. The District Court has no power so to decree. Federal courts may not assess or levy taxes. Only the appropriate taxing officials of Grant County may assess and levy taxes on these leaseholds, and the federal courts may determine, within their jurisdiction, only whether the tax levied by those officials is or is not a valid one. When, as here, the tax is invalid, it "may not be exacted." Phillips Co. v. Dumas School District, 361 U.S. at 361 U. S. 387.
Nor is there any merit in respondent's contention that the opinion and judgment of the Supreme Court of Washington in the Moses Lake case, supra, is res judicata of the County's tax claims against the Moses Lake leasehold for at least the years 1955 and 1956. This is so because no tax whatever had then been assessed and levied against the Moses Lake leasehold, and, hence, no issue of discrimination was or could have been presented and adjudicated in that case.
The Moses Lake lease was entered into on May 31, 1950, the Larsonaire lease on August 6, 1953, and the Larson Heights lease on August 2, 1954.
"The assessor . . . shall enter in the detail and assessment list of the current year any property shown to have been omitted from the assessment list of any preceding year at the valuation of that year, or if not then valued at such valuation as the assessor shall determine from the preceding year. . . . When such an omitted assessment is made, the taxes levied thereon may be paid within one year of the due date of the taxes for the year in which the assessment is made without penalty or interest."
The County's tax claims against petitioners' leaseholds were as follows: Moses Lake, $142,285.73; Larsonaire, $68,838; and Larson Heights, $47,088.
The deposited sum of $253,000 was allocated among the three petitioners as follows: Moses Lake, $126,500; Larsonaire, $65,300; and Larson Heights, $61,200. Thus, the County's claims against the Moses Lake and Larsonaire leaseholders were greater than the amount deposited by the United States as their reasonable value. See note 3 Had the County been successful on all items of its claim, it would have received all but $14,112 of the deposited sum.
". . . Nothing contained in the provisions of title VIII of the National Housing Act in effect prior to August 11, 1955, or any related provision of law, shall be construed to exempt from State or local taxes or assessments the interest of a lessee from the Federal Government in or with respect to any property covered by a mortgage insured under such provisions of title VIII: Provided That no such taxes or assessments (not paid or encumbering such property or interest prior to June 15, 1956) on the interest of such lessee shall exceed the amount of taxes or assessments on other similar property of similar value. . . ."

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