Opinion ID: 763623
Heading Depth: 2
Heading Rank: 2

Heading: Interest and penalties

Text: 16 The parties dispute whether federal or state law determines the extent of Congress's waiver of immunity from taxation in § 1984. We agree with the United States that the question of the scope of a congressional waiver of the federal government's immunity is one of federal law. See Reconstruction Finance Corp. v. Beaver County, 328 U.S. 204, 208, 66 S.Ct. 992, 90 L.Ed. 1172 (1946) (What meaning Congress intended [in its waiver] is a federal question which we must determine). As Beaver County indicates, however, Congress may intend, as a matter of federal law, to apply a state rule. See also United States v. Kimbell Foods, Inc., 440 U.S. 715, 727-28, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979). 17 In Beaver County, the issue was whether Congress, in consenting to local taxation of certain federally-owned real property, permitted Beaver County to tax heavy factory machinery because under state law such machinery was considered part of the factory real estate. The Supreme Court held that, the phrase being undefined by Congress, the Congressional purpose can best be accomplished by application of settled state rules as to what constitutes 'real property.'  Beaver County, 328 U.S. at 210, 66 S.Ct. 992. Two circuits have held that the rule of Beaver County applies as well to the question whether interest and penalties were within § 1984's meaning of taxation. See Federal Reserve Bank of Richmond v. Richmond, 957 F.2d 134 (4th Cir.1992); Reconstruction Finance Corp. v. Texas, 229 F.2d 9 (5th Cir.1956). The Fourth Circuit concluded that the Federal Reserve Bank must pay interest and penalties because Virginia law provided that those charges were taxes. Richmond, 957 F.2d at 137. The Fifth Circuit concluded that the Reconstruction Finance Corporation was not liable for those items because interest and penalties were no part of the tax under Texas law. Reconstruction Finance Corp. v. Texas, 229 F.2d 9, 11-12 (5th Cir.1956). 18 With all due respect, we disagree with the approach of the Fourth and Fifth Circuits. We do not read Beaver County so broadly. Its ruling that Congress intended real estate to be determined by state law was grounded in part on the Supreme Court's recognition that [c]oncepts of real property are deeply rooted in state traditions, customs, habits, and laws. Beaver County, 328 U.S. at 210, 66 S.Ct. 992. In contrast, there is a strong federal interest in the question whether the United States should be subject to state-imposed interest, penalties and foreclosures, and we doubt that Congress intended the outcome to depend upon varying characterizations of state law. 6 We prefer the view of the Sixth Circuit, which held that the meaning of a waiver of immunity from state taxes was to be determined by federal law, notwithstanding Beaver County. See United States v. Consumers Scrap Iron Corp., 384 F.2d 62, 64-65 (6th Cir.1967); see also Missouri Pacific R. Co. v. Ault, 256 U.S. 554, 565, 41 S.Ct. 593, 65 L.Ed. 1087 (1921) (whether an award is compensation or is a penalty not included in a waiver of immunity is a question of federal, not state, law). 19 As a matter of federal law, there is a long tradition establishing that in the absence of constitutional requirements, interest can be recovered against the United States only if express consent to such a recovery has been given by Congress.... There can be no consent by implication or by use of any ambiguous language. United States v. N.Y. Rayon Importing Co., 329 U.S. 654, 659, 67 S.Ct. 601, 91 L.Ed. 577 (1947); see Library of Congress v. Shaw, 478 U.S. 310, 314-16, 106 S.Ct. 2957, 92 L.Ed.2d 250 (1986). The same principle applies with at least equal force to penalties. See United States Dep't of Energy v. Ohio, 503 U.S. 607, 615, 112 S.Ct. 1627, 118 L.Ed.2d 255 (1992); Consumers Scrap, 384 F.2d at 65. The Supreme Court has also repeatedly stated that waivers of sovereign immunity must be strictly construed in favor of the sovereign. See United States v. Nordic Village, Inc., 503 U.S. 30, 34, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992); McMahon v. United States, 342 U.S. 25, 27, 72 S.Ct. 17, 96 L.Ed. 26 (1951). 20 Applying these principles, we conclude that Congress has not waived the immunity of the United States from interest and penalties. The term taxation does not unequivocally include the assessment of interest and penalties. A closer question is whether immunity from interest and penalties is waived by the provision of § 1984 that FSA-held property is subject to taxation in the same manner and to the same extent as other property is taxed. 7 U.S.C. § 1984. There is some force to the County's argument that this provision is a broad waiver intended to permit the states to apply their entire system of enforcement machinery against the United States, in the same manner as the states would apply that machinery against private taxpayers. See Beaver County, 328 U.S. at 210, 66 S.Ct. 992; but see Library of Congress v. Shaw, 478 U.S. 310, 319-20, 106 S.Ct. 2957, 92 L.Ed.2d 250 (1986) ( [s]tatutes placing the United States in the same position as a private party ... have been read narrowly to preserve certain immunities that the United States has enjoyed historically). The difficulty with the County's approach is that, even though Congress could have entertained that intent, it did not express it unequivocally. The requirement that federally-held property be subject to taxation in the same manner as other property can refer to the time when the tax is due, the manner of valuation, or any number of other elements of the state taxing process other than the imposition of interest, penalties and foreclosure. This plausible interpretation is sufficient to render the meaning of the phrase in the same manner ambiguous and preclude us from accepting it as an unequivocal waiver of immunity from interest, penalties and foreclosure. See Nordic Village, 503 U.S. at 37, 112 S.Ct. 1011; Dep't of Energy v. Ohio, 503 U.S. at 619-20, 626-27, 112 S.Ct. 1627; see also Lane v. Pena, 518 U.S. 187, 116 S.Ct. 2092, 2100, 135 L.Ed.2d 486 (1996). 7