Court Opinion

ID: 9421544
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:58:49.704536+00
Date Added: 2024-06-11T17:22:31.054197
License: Public Domain

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 State of 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.
The State of Michigan had recently enacted a statute, known as Public Act 189 of 1953 (6 Mich. Stat. Ann., 1957 Cum. Supp., § 7.7 (5) and (6)) which, in pertinent part, says:

“Taxation of Lessees and Users of Tax-Exempt Beal Property.

“Section 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 *476individual, 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 he lawfully assessed ....
“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.” (Emphasis supplied.)
Acting under that statute, the City of Detroit levied a tax against the lessee, computed on the assessed value of the Government’s industrial plant and calculated in the same manner and at the same rate applicable to all real estate in Michigan. Protest was made without avail and, after administrative remedies were exhausted without success, the tax was paid, and the United States and the lessee, Borg-Warner, sued for refund in the state court, contending that the tax was repugnant to the Constitution because it constituted a tax upon property owned by the Government and discriminated against the lessee. The trial court sustained the tax, and the Supreme Court of Michigan affirmed (345 Mich. 601, 77 N. W. 2d 79), holding that the tax was neither on property owned by the United States nor discriminatory against the lessee, *477but 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 contentions. 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 M’Culloch v. Maryland, 4 Wheat. 316, and the myriad of uniformly conforming cases decided since its rendition in 1819.
In determining the nature of a tax we are not bound by, nor even permitted solely to look to, labels affixed by the State, but, rather, as pointed out in United States v. Allegheny County, 322 U. S. 174, 184:
“ '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, 367-368.”
Examination of the nature of this tax, and of its effect upon the federal rights asserted by appellants, shows that it purports to be a tax upon “real property which ... is exempt from taxation,” if it is “made available to and used by a private individual ... or corporation in connection with a business conducted for profit,” including “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” (§1), and the tax is to be “assessed to such lessees or users ... in the same manner as taxes [are] assessed to owners of real property,” though the tax “shall *478not 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 187.
Disregarding form and labels, and looking to substance, it is, I think, crystal clear that this is a transparent direct imposition upon the Government’s property interests (as distinguished from the lessee’s leasehold estate) in this real estate of the general ad valorem real property tax commonly assessed on, and against the owners of, all real estate in Michigan, but under the guise of a tax upon the lessee for the privilege (as construed by the majority)— granted by the Federal Government, not the State — of using (though it will be noted, the statute does not in terms tax “use,” but, rather, taxes “real property”; see § 1) the Government’s property, and, thus, the statute seeks to accomplish by indirection that which the State is constitutionally prohibited from doing directly. Such attempted evasion of the Government’s constitutional immunity from state taxation cannot legally be per*479mitted to succeed. As said in Miller v. Milwaukee, 272 U. S. 713, 715: “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.” In Educational Films Corp. v. Ward, 282 U. S. 379, 393, after quoting the above language from the Miller case, the Court said: “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, 631], ‘A tax very well may be upheld as against any casual effect it may have upon the bonds of the United States when passed with a different intent and not aimed at them ....’” 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. v. Ward, supra, at 393.
The majority rely principally upon Henneford v. Silas Mason Co., 300 U. S. 577; Esso Standard Oil Co. v. Evans, 345 U. S. 495, and, as does also Mr. Justice Harlan in his separate opinion, upon Curry v. United States, 314 U. S. 14, but, as I read them, those cases do not at all support the Court’s conclusion. In Henneford this Court merely held that a tax imposed by a State upon its citizen for his use within the State of his own property which he had purchased in another State and imported in interstate commerce was not a prohibited tax on such commerce, which had earlier ended. It did not in any way involve a tax upon government property interests. The Esso case *480simply upheld a state privilege tax imposed not upon any property interest of the Government but directly upon a storer of gasoline, on a gallonage basis, for his privilege of conducting that business within the State. One of its customers was the Government which had, by contract, agreed to reimburse Esso for any tax imposed upon it by the State in consequence of having stored the Government’s gasoline. Thus the tax was not imposed by the State upon the Government’s property interests but upon Esso which did not share the Government’s immunity from state taxation, and the obligation of the Government derived not from the statute but through operation of the contract. The Curry case merely held that government cost-plus contractors who had imported into the State certain materials which they used in the performance of their contract were not entitled to share the Government’s constitutional immunity from a state use tax, and said: “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.” 314 U. S., at 18. (Emphasis supplied.) Here the tax is imposed by the Michigan statute directly upon the Government’s property interests — including its right to the use of its property — and it is not suffered by any voluntary assumption or “through operation of [a] contract.” 1 In United States v. Allegheny County, supra, this Court pointed out that “Mesta [a lessee of government chattels] has some legal and beneficial interest in [the *481Government’s] property. It is a bailee for mutual benefit.” 2 The Court then proceeded to say:
“Whether such a right of possession and use in view of all the circumstances could be taxed by appropriate proceedings we do not decide.” Id., at 186.
However, the Court did proceed to decide that the Government’s property interests in the chattels, distinguished from the bailee’s interest therein, could not legally be subjected to any state tax. It said: “. . . 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.” Id., at 187. (Emphasis supplied.)
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 M’Culloch v. Maryland, supra, and Allegheny, at 186-189.
Before the lease, only one estate existed in the plant, namely, the Government’s ownership in fee, which included its inherent right to use, and to let the use of, that property. That estate was, and continued to be, a property interest of the Government, to the fruits of which it was and is exclusively entitled; and its right *482of use, so let to its lessee, in no way derived from any privilege granted — or that could be withheld — by the State, but, rather, derived solely from the United States, and, thus, was not a privilege which the State did or could grant or withhold, nor, hence, regulate or tax; but, on the contrary, it remained immune from state taxation, as pointed out in Allegheny:
“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.” Id., at 188-189. (Emphasis supplied.)
By the lease, the Government, in exercise of its right to use, and to let the use of, its property, carved from its fee a subservient leasehold estate and vested the same in the lessee. That leasehold estate was private local property of the lessee and, therefore, was subject to state regulation, and, hence, to ad valorem or privilege of use taxation by the State, in such measure as is not unequal, unreasonable or confiscatory — on the basis of the value of the leasehold estate being taxed or used as the measure of the tax.3
*483Here, 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. M’Culloch 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.