Source: https://supreme.justia.com/cases/federal/us/355/466/
Timestamp: 2019-04-22 19:59:53+00:00

Document:
Under Michigan Public Act 189 of 1953, the City of Detroit assessed against a private corporation engaged in business for profit taxes based upon the value of real property owned by the United States and leased to the corporation under a lease permitting the corporation to deduct from the agreed rental any such taxes paid by it but reserving to the Government the right to contest the validity of such taxes. In effect, the Act provides that, when tax exempt real property is used by a private party in a business conducted for profit, such private party is subject to taxation in the same amount and to the same extent as though he owned the property; that such taxes shall be assessed and collected in the same manner as taxes assessed to the owners of real property, except that they shall not become a lien against the property, but shall be a debt due from the user and collectible by direct action; and that the Act shall not apply to federal property for which payments are made in lieu of taxes in amounts equivalent to taxes which otherwise might lawfully be assessed.
Held: the Act, on its face and as here applied, does not invade the constitutional immunity of federal property from taxation by the States or discriminate against the Government or those with whom it deals. Pp. 355 U. S. 467-475.
(a) The Government's constitutional immunity does not shield private parties from state taxes imposed on them merely because part or all of the financial burden of the taxes eventually falls on the Government. Pp. 355 U. S. 469, 355 U. S. 472-473.
(b) The tax here involved is not levied on the Government or its property, but on the private lessee who uses the property in a business conducted for profit. P. 355 U. S. 469.
(c) The fact that the tax is measured by the value of the property used does not justify treating it as a mere contrivance to tax the property itself. Pp. 355 U. S. 470-471.
(d) United States v. Allegheny County, 322 U. S. 174, distinguished. Pp. 355 U. S. 471-472.
(e) Neither on its face nor as here applied does this tax operate so as to discriminate against the Federal Government or those with whom it deals. Pp. 355 U. S. 473-474.
(f) A different result is not required by the fact that the Act creates an exception to the tax on users where payments in lieu of taxes are made by the United States "in amounts equivalent to taxes which might otherwise be lawfully assessed" P. 474, n 6.
(g) To hold that the tax imposed here on private business violates the Government's constitutional tax immunity would improperly impair the taxing power of the State. P. 355 U. S. 475.
345 Mich. 601, 77 N.W.2d 79, affirmed.
Here, the United States was the owner of an industrial plant in Detroit, Michigan. It leased a portion of that plant to the Borg-Warner Corporation at a stipulated annual rental for use in the latter's private manufacturing business. The lease provided that Borg-Warner could deduct from the agreed rental any taxes paid by it under Public Act 189 or similar state statutes enacted during the term of the lease, but the Government reserved the right to contest the validity of such taxes.
and discriminated against those using such property. The lower court, however, upheld the tax, and the Michigan Supreme Court affirmed. 345 Mich. 601, 77 N.W.2d 79. It ruled that the tax was neither discriminatory nor on the property of the United States, but instead was a tax on the lessee's privilege of using the property in a private business conducted for profit. We noted probable jurisdiction of an appeal by the United States and Borg-Warner from this decision. 352 U.S. 962.
This Court has held that a State cannot constitutionally levy a tax directly against the Government of the United States or its property without the consent of Congress. McCulloch v. Maryland, 4 Wheat. 316; Van Brocklin v. Tennessee, 117 U. S. 151. At the same time, it is well settled that the Government's constitutional immunity does not shield private parties with whom it does business from state taxes imposed on them merely because part or all of the financial burden of the tax eventually falls on the Government. See, e.g., James v. Dravo Contracting Co., 302 U. S. 134; Graves v. New York ex rel. O'Keefe, 306 U. S. 466; Alabama v. King & Boozer, 314 U. S. 1. Of course, in determining whether a tax is actually laid on the United States or its property, this Court goes beyond the bare face of the taxing statute to consider all relevant circumstances.
The Michigan statute challenged here imposes a tax on private lessees and users of tax exempt property who use such property in a business conducted for profit. Any taxes due under the statute are the personal obligation of the private lessee or user. The owner is not liable for their payment, nor is the property itself subject to any lien if they remain unpaid. So far as the United States is concerned as the owner of the exempt property used in this case, it seems clear that there was no attempt to levy against its property or treasury.
Nevertheless, the Government argues that, since the tax is measured by the value of the property used, it should be treated as nothing but a contrivance to lay a tax on that property. We do not find this argument persuasive. A tax for the beneficial use of property, as distinguished from a tax on the property itself, has long been a commonplace in this country. See Henneford v. Silas Mason Co., 300 U. S. 577, 300 U. S. 582-583. In measuring such a use tax, it seems neither irregular nor extravagant to resort to the value of the property used -- indeed, no more so than measuring a sales tax by the value of the property sold. Public Act 189 was apparently designed to equalize the annual tax burden carried by private businesses using exempt property with that of similar businesses using nonexempt property. Other things being the same, it seems obvious enough that use of exempt property is worth as much as use of comparable taxed property during the same interval. In our judgment, it was not an impermissible subterfuge, but a permissible exercise of its taxing power, for Michigan to compute its tax by the value of the property used.
prohibits this tax. Still other cases further confirm the proposition that it may be permissible for a State to measure a tax imposed on a valid subject of state taxation by taking into account government property which is itself tax exempt. See, e.g., Home Insurance Co. of New York v. New York, 134 U. S. 594; Plummer v. Coler, 178 U. S. 115; Educational Films Corp. of America v. Ward, 282 U. S. 379; Pacific Co. v. Johnson, 285 U. S. 480, 285 U. S. 489-490.
"Whether such a right of possession and use in view of all the circumstances could be taxed by appropriate proceedings we do not decide."
"Actual possession and custody of Government property nearly always are in someone who is not himself the Government, but acts in its behalf and for its purposes. He may be an officer, an agent, or a contractor. His personal advantages from the relationship by way of salary, profit, or beneficial personal use of the property may be taxed as we have held."
322 U.S. at 322 U. S. 184, 322 U. S. 186-187.
It is undoubtedly true, as the Government points out, that it will not be able to secure as high rentals if lessees are taxed for using its property. But, as this Court has ruled in James v. Dravo Contracting Co., 302 U. S. 134; Alabama v. King & Boozer, 314 U. S. 1, and numerous other cases, [Footnote 3] the imposition of an increased financial burden on the Government does not, by itself, vitiate a state tax. King & Boozer offers a striking example. There, a private party, acting under contract with the United States, purchased materials which the contract required him to transfer to the Government. At the same time, the Government agreed to pay his costs plus a fixed fee, so a state excise levied on his purchase was passed directly and completely to the Government. Yet, despite the immediate financial burden imposed on the United States, this Court, without dissent, upheld the tax.
States to tax what would have otherwise been immune. To hold that the tax imposed here on a private business violates the Government's constitutional tax immunity would improperly impair the taxing power of the State.
"AN ACT to provide for the taxation of lessees and users of tax exempt property."
"Sec. 1. When any real property which for any reason is exempt from taxation is leased, loaned, or otherwise made available to and used by a private individual, association, or corporation in connection with a business conducted for profit, except where the use is by way of a concession in or relative to the use of a public airport, park, market, fair ground, or similar property which is available to the use of the general public [sic], shall be subject to taxation in the same amount and to the same extent as though the lessee or user were the owner of such property: Provided, however, That the foregoing shall nor apply to federal property for which payments are made in lieu of taxes in amounts equivalent to taxes which might otherwise be lawfully assessed or property of any state-supported educational institution."
"Sec. 2. Taxes shall be assessed to such lessees or users of real property and collected in the same manner as taxes assessed to owners of real property, except that such taxes shall not become a lien against the property. When due, such taxes shall constitute a debt due from the lessee or user to the township, city, village, county and school district for which the taxes were assessed, and shall be recoverable by direct action of assumpsit."
The Government also places reliance on Macallen Co. v. Massachusetts, 279 U. S. 620. The weight of that case as a precedent was substantially impaired by its narrow distinction in Educational Films Corp. of America v. Ward, 282 U. S. 379, 282 U. S. 392, and the reasoning of the Court in Pacific Co. v. Johnson, 285 U. S. 480, 285 U. S. 495. Later, in New York ex rel. Northern Finance Corp. v. Lynch, 290 U.S. 601, a case which seems indistinguishable from Macallen on its facts, the Court, in a per curiam opinion, upheld the same kind of state tax which it had struck down in Macallen.
See e.g., Graves v. New York ex rel. O'Keefe, 306 U. S. 466, 306 U. S. 485-486; Helvering v. Gerhardt, 304 U. S. 405, 304 U. S. 420-422; Helvering v. Mountain Producers Corp., 303 U. S. 376; Metcalf & Eddy v. Mitchell, 269 U. S. 514.
In its brief in King & Boozer, the Government strongly urged the Court to abandon whatever remained of the "economic burden" test, which at one time was used to range far afield in striking down state taxes, because that test was "illusory and incapable of consistent application."
In somewhat greater detail, Michigan statutes exempt from real property taxes all property belonging to the Federal Government, the State, political subdivisions of the State, charitable organizations, educational or scientific institutions, fraternal or secret societies (if used for charitable purposes), churches, libraries, religious societies, cemeteries, state or county agricultural societies, certain corporations making payments to the State in lieu of taxes, nonprofit trusts (if used for hospital or public health purposes), boy or girl scout organizations (up to 160 acres), certain veterans' homes, and land dedicated to public use. See 6 Mich.Stat.Ann.1950, § 7.7.
The Government points to the fact that Public Act 189 creates an exception to the tax on users where payments are made by the United States "in lieu of taxes in amounts equivalent to taxes which might otherwise be lawfully assessed" as manifesting a purpose to tax government property. But this exemption, which, if anything, operates in the Government's favor, avoids the possibility of a double contribution to the revenues of the State where private parties use federal property for their own commercial purposes. Moreover, it is not at all inconceivable that the Government might, in one way or another, pass the economic burden of such in-lieu payments to taxpayer using its property even though he was also compelled to pay the tax imposed by Public Act 189.
MR. JUSTICE WHITTAKER, with whom MR. JUSTICE BURTON joins, dissenting.
I respectfully dissent. Understanding of the bases of my convictions and reasons for doing so requires a rather full treatment of the case.
The United States owned an industrial plant in Detroit which it had leased, for a short term, to Borg-Warner at a fixed annual rental, for use in its private business. The lease provided that, if the lessee was required to pay any taxes upon the property to the Michigan, under the statute quoted infra or otherwise, during the term of the lease, the lessee might deduct the same from the rents, but the Government reserved the right to contest the validity of any such taxes.
"Taxation of Lessees and Users of Tax Exempt Real Property"
individual, association or corporation in connection with a business conducted for profit, except where the use is by way of a concession in or relative to the use of a public . . . park . . . or similar property which is available to the use of the general public, shall [sic] be subject to taxation in the same amount and to the same extent as though the lessee or user were the owner of such property: Provided, however, that the foregoing shall not apply to federal property for which payments are made in lieu of taxes in amounts equivalent to taxes which might otherwise be lawfully assessed. . . ."
but was, instead, a nondiscriminatory tax on the lessee's privilege of using the Government's property in private business for profit. The case comes here on appeal.
The Court today affirms the decision and judgment of the Michigan courts, and sustains the tax. I believe that decision is not only unsound in principle, but is also opposed to the precedents, and that appellants are quite right in both of their contention. To me, it is evident that this tax has been levied, in major part, at least, directly (though, perhaps, indirectly in form) upon a property interest of the Government, and is therefore constitutionally invalid under McCulloch v. Maryland, 4 Wheat. 316, and the myriad of uniformly conforming cases decided since its rendition in 1819.
"'Where a federal right is concerned, we are not bound by the characterization given to a state tax by state courts or Legislatures, or relieved by it from the duty of considering the real nature of the tax and its effect upon the federal right asserted.' Carpenter v. Shaw, 280 U. S. 363, 280 U. S. 367-368."
"federal property for which payments [have not been] made in lieu of taxes in amounts equivalent to [general ad valorem] taxes which might otherwise be lawfully assessed"
not become a lien against the property," but it "shall constitute a debt due from the lessee or user." § 2.
Thus, the tax, as it applies to this case, is computed not upon the value of the lessee's short-term leasehold estate in -- nor, hence, upon the value of its term right to use -- the federal property, but, rather, is computed upon the entire value of the whole of the federal property, in the same manner and at the same rate and amount, "as though the lessee or user were the owner of such property" (§ 1), but -- and I think this is of particular significance -- the tax is not to "apply to federal property" if the Government waives its sovereign immunity and pays general ad valorem taxes on the property, or the equivalent. Does not this really admit that the tax, in major part at least, is directly imposed upon the Government's property interests? The fact that the statute does not create a lien "on Government property itself, which could not be sustained in any event, hardly establishes that it is not being taxed. . . ." United States v. Allegheny County, supra, at 322 U. S. 187.
"If the avowed purpose or self-evident operation of a [state taxing] statute is to follow the bonds of the United States and to make up for [the State's] inability to reach them directly by indirectly achieving the same result, the statute must fail even if, but for its purpose or special operation, it would be perfectly good."
"But, as the court in that case was careful to point out, in language later quoted with approval in Macallen Co. v. Massachusetts [279 U.S. 620, 279 U. S. 631],"
"Here, the Michigan statute plainly says that the tax shall"
"apply to federal property for which payments are [not] made in lieu of taxes in amounts equivalent to taxes which might otherwise be lawfully assessed"
(§ 1), and, hence, it cannot be said that this tax is "casual [in its] effect . . . upon the [property] of the United States," and it must be said that the tax is plainly "aimed at [it]." Educational Films Corp. of America v. Ward, supra, at 282 U. S. 393.
"If the state law lays the tax upon them, rather than the [Government] with whom they enter into a cost-plus contract like the present one, then it affects the Government . . . only as the economic burden is shifted to it through operation of the contract."
Government's] property. It is a bailee for mutual benefit. [Footnote 2/2]"
". . . the State has made no effort to segregate Mesta's interest and tax it. The full value of the property, including the whole ownership interest, as well as whatever value proper appraisal might attribute to the leasehold, was included in Mesta's assessment. . . . We think, however, that the Government's property interests are not taxable either to it or to its bailee."
Here, it is undeniable that (1) the Government owned this industrial plant, (2) the only element of economic value in its ownership of the plant is its right to use it. That right of use was a government property interest, and any state tax on that right of use is a tax on an instrumentality of the United States, and, hence, invalid. See McCulloch v. Maryland, supra, and Allegheny, at 322 U. S. 186-189.
"A State may tax personal property, and might well tax it to one in whose possession it was found, but it could hardly tax one of its citizens because of [property] of the United States which [was] in his possession as . . . agent, or contractor. We hold that Government-owned property, to the full extent of the Government's interest therein, is immune from taxation, either as against the Government itself or as against one who holds it as a bailee."
Here, however, the statute does not purport to segregate the value of the leasehold estate from the Government's estate in fee, subject to the lease, in this property, but rather computes and imposes the tax on both estates "as though the lessee or user were the owner of such property." § 1. It therefore seems quite plain that the statute imposes the tax on the Government's property interest, which is immune from state taxation, as well as upon the local property of the lessee in its leasehold estate which is not exempt from state taxation, and thus lays a forbidden burden upon instrumentalities of the United States. McCulloch v. Maryland, 4 Wheat. 316.
For these reasons, I would reverse the decision and judgment of the Michigan court.
It is immaterial to the question here that the lease authorized the lessee to deduct from the rentals any taxes it might be required to pay under this statute during the term of the lease, because the direct thrust of the tax upon the Government's right of use of its property, so let to the lessee, arises from the terms of the statute independently of such contractual assumption.
It seems quite certain that a "bailee" of chattels for mutual benefit stands in no different position or relation to the Government than a "lessee," and, in fact, the Mesta Company held the chattels under a lease in that case.
The matter is so stated to point up what should be the obvious necessity, in levying any tax based on or measured by the value of a limited estate in property, of first identifying, and determining the nature and extent of, the estate or interest of the taxpayer therein, which, naturally, must be done before any valuation can properly be ascribed thereto, and, hence, before it can be known whether the tax is or is not equal, reasonable, and nonconfiscatory, and therefore meets or fails to meet state tests and Fourteenth Amendment Due Process.

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