Document: 361 U.S. 376 80 S.Ct. 474 4 L.Ed.2d 384 PHILLIPS CHEMICAL COMPANY, Appellant,v.DUMAS INDEPENDENT SCHOOL DISTRICT. No. 40. Argued Nov. 17, 18, 1959. Decided Feb. 23, 1960. Mr. Clark M. Clifford, Washington, D.C., for appellant. John F. Davis, the United States, as amicus curiae, by invitation of Court. Jack N. Price State Texas, pro hac vice, special leave Earnest L. Langley appellee. CHIEF JUSTICE WARREN delivered opinion 1 In this case, among other issues which we need not reach, are asked to decide whether a Texas tax statute, Article 5248 Revised Civil Statutes amended in 1950,1 discriminates unconstitutionally against States and those with whom it deals. We hold that does. 2 Appellant, Phillips Chemical Company, engages commercial manufacture ammonia on valuable industrial property leased from Federal Government Moore County, Texas. The lease, executed 1948 pursuant Military Leasing Act 1947, 61 Stat. 774, is primary term 15 years calls an annual rental over $1,000,000. However, reserves right terminate upon 30 days' notice event national emergency 90 sale property. 3 1954, appellee, Dumas Independent School District, assessed 1949 through 1954. tax, measured estimated full value premises, was accordance District's ordinary ad valorem procedures. When District commenced present action state courts enjoin its collection. contested both levy valuation figure amount calculated. latter issue severed trial court later decision involved appeal. lower denied relief subsequent effective date 1950 amendment 5248, writ error Supreme Court divided court, affirmed. 316 S.W.2d 382. appealed decision, noted probable jurisdiction. 359 987, 79 1118, 977. 5 power found lie 5248. Before 1950, provided general exemption land improvements 'held, owned, used occupied States' public purposes. Legislature added two provisions one providing taxation privately owned personal located federal lands, reading follows: 6 '(P)rovided, further, any portion said lands person, firm, association persons or corporation private capacity, being conduct business enterprise, shall be subject political subdivisions.' 7 As construed majority provision affirmative grant authority subdivisions users government realty. While use property, i.e., leasehold, measure apparently fee.2 constitutionality provision, thus construed, depended court's interpretation our decisions Michigan cases Terms ago, where held might v. City Detroit, 355 466, 78 474, 424; Township Muskegon, 484, 483, 436; cf. Detroit Murray Corp., 489, 458, 441. 8 three members joined fourth petition rehearing, were under majority's construction statute lessees. Their conclusion rested fact 7173 Texas3 imposes distinctly lesser burden similarly situated lessees exempt subdivisions. agree dissenters' conclusion. 9 only than authorizes It provides part that: 10 'Property lease more, contract purchase thereof, belonging State, law hands owner considered all purposes taxation, person so holding same, except otherwise specially law.' 11 courts, less burdensome respects. First, tax-exempt but price taxable leasehold would bring at fair voluntary cash—the itself.4 Second, very terms, no lessee whose years. Finally, crucial here, longer subject—like Phillips'—to termination lessor's option 'a more' 7173. Trammell Faught, 74 Tex. 557, 12 S.W. 317. Therefore, because could taxed Although is, applicable who appears fall within class Tax exemptions real organizations—charities, churches, similar entities—do survive lessee.5 becomes owner, lessee's indirect consequently heavy imposed directly Under these circumstances, there discrimination between Government's 13 appear belong defined 7173.6 view they nonexempt purpose, presumably should alike. Yet segregated them heavier case resulting difference attendant identity Phillips' lessor, extreme; concede if lessor instead Government. seems apparent. question, however, can justified. 14 argues applies invalid reason, without more. For argument, relies Miller Milwaukee, 272 713, 47 280, 71 L.Ed. 487; see also Macallen Co. Massachusetts, 279 620, 49 432, 73 874. deemed support extent does, has precedential value. See supra, page 472, note 2, 477. rather different case. thought had attempted indirectly income bonds. way contrast, exempt. U.S.C. § 2667(e), U.S.C.A. 2667(e);7 supra. true ostensible incidence tax—shareholders' corporate dividends—was itself exempt, excluded attributable bonds corporation; defect tax. Pacific Johnson, 285 480, 493, 52 424, 427, 76 893. practical operation, either income, discriminatory shareholders corporations bondholders, dealt Thus, relevance may proposition single out deal Government, capacity another, others situated. 16 A determination invalid, test, cannot rest merely examination article. does operate vacuum. necessary determine how taxpayers treated. Such requires 'an whole structure state.' Cf. Tradesmens' National Bank Oklahoma Comm., 309 560, 568, 60 688, 693, 84 947. have departed somewhat rule, nothing Miller, least been interpreted cases, read indicating required. Educational Films Corp. Ward, 282 379, 51 170, 75 400; 424. 17 must focus nature classification erected Articles imposition justified significant differences classes. addresses problem, essentially, equal protection, uphold classification, though discriminatory, 'if facts reasonably conceived sustain it.' Allied Stores Ohio, Inc., Bowers, 358 522, 528, 437, 441, 480. context, turns supposed say collect rent what loses taxes own lessees—something do, course, argue legitimately foster interests adopting measures facilitate leasing claim allegedly greater magnitude, more serious impact finances operations local State's activities. 18 None considerations solid classification. undoubtedly true, proposition, free adopt designed land. But incentive form reduction lessees, question remains, permissible? 19 Likewise, enough make up What lose made fashion. Other taxpayers—including lessees—must difference. 20 Nor here supported leasing, contrasted government. claimed, respect, neither nor exactly comparable—in size, value, number employees involved—to ordnance works based such factors. burdens conceded enterprises, Warehouse facilities example.8 bears relation identical Still, variant consequences lessee, hand other, differ widely. 21 perfection means required protection test permissible clear, field necessarily controlling problems intergovernmental immunity involved. An example, 'dealing (its) proper domestic concerns, trenching prerogatives Government.' 526, 440. classify indeed, extremely broad, discretion limited constitutional rights doctrine palpably arbitrary. Id., pages 526—528, 440—441. concerned, weighed balance. Accordingly, seem too much require treat well treats deals itself. Compare Esso Standard Oil Evans, 345 495, 500, 800, 802, 97 1174. 22 Nevertheless, claimed assertedly created case.9 although generally property,10 contained exception state-supported educational institutions. Appellee's school-owned supports 23 This argument misconceives scope decisions. did decide—in fact, decide—whether rendered discriminatory. Neither applicable, character.11 Since raised, basis separate schools examined. shed light problem here.12 24 arguments, urged adequate justify substantial transparent Here, leases while businesses leases, using subdivisions, their leaseholds all. classes, when balance, impalpable warrant gross differentiation. follows applied lessee. occasion state, quite recently, still remains time M'Culloch Maryland, Wheat. 316, 579, discriminate 473, 478. exacted. 25 Reversed. 26 Justice FRANKFURTER concurs result. Vernon's Tex.Rev.Civ.Stat., (Supp. 1950), Art. amendatory Tex.Laws, 1st C.S.1950, c. 37. Appeals 307 605, 609, expressed indicated above. points out, statements opinions appellate dicta, decided bare taxability, reserving presently critical, for, will indicated, circumstances Phillips. 1948, 7174; Taylor & Kelley, 72 297, 176; Daugherty Thompson, 192, 99; Robinson, 364, 245. Tex.Const., VIII, Ann.St.; Morris Masons, 68 698, 519; Settegast, Tex.Com.App., 254 925; Houston Scottish Rite Benev. Ass'n, 111 191, 230 978; Markham Hospital Longview, Tex.Civ.App., 191 695. exenpt XI, 9; 7150, subd. 4, certain conditions exceptions exemption. 'public purpose' abandoned. Abilene 113 631; Beaumont, 161 344. concedes condition met emergency. Exceptions statutes expressly types specific taxing authorities. E.g., agricultural grazing VII, 6a; 7150a; farms convict labor employed county school 4; prison Arts. 7150(17) (18); forms endowment University 7150c. nontaxability reduce obviously do eliminate it. During predecessor now codified 2667(e). Section '(t)he interest, Act, taxation.' See, e.g., Op.Tex.Atty.Gen., WW—531, Dec. 9, 1958. Mich.Acts 1953, 189, compiled Mich.Stat.Ann., (1957 Cum Supp.), §§ 7.7(5) 7.7(6). 467, 1, 475. 'Under charitable organizations great host entities.' brief, stated pertinent argument. Its was, reality, 'special legislation' directed argued purpose manifested payments 'in lieu amounts equivalent lawfully assessed.' improper pointed rejecting relied connection served protect possibility double contribution revenues substantially impaired 6, 477, Only raised jurisdictional statement certiorari, be, Rules, 15, par. 1(c)(1), 1(c), 28

Category: 9