Court Opinion

ID: 9482633
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:56:10.681072+00
Date Added: 2024-06-11T17:49:06.794243
License: Public Domain

OPINION
WIDENER, Circuit Judge:
The City of Richmond (City) appeals the district court’s grant of summary judgment in favor of the Federal Reserve Bank of Richmond (Bank). We find that the district court erred in concluding that the City’s assessment, under 12 U.S.C. § 531, of penalty and interest charges against the Bank for delinquent payment of real estate taxes was improper. We therefore reverse the district court’s grant of summary judgment.
The basic facts giving rise to the present controversy are not in dispute. The Bank maintains its principal offices on approximately seven acres of real estate located at 701 East Byrd Street in Richmond, Virginia. For calendar year 1989, the City assessed the property for purposes of real estate taxation at $66,000,000.00 and calculated that the total tax due was $1,009,-905.91. When the Bank failed to pay this amount by the June 15, 1989 deadline established under local ordinance, the City notified the Bank of the delinquency and assessed a penalty of $100,990.59 for late payment, as well as interest charges. On August 9, 1989, the Bank paid the delinquent $1,009,905.91, but refused to pay the assessed penalty and interest charges.
On January 10, 1990, the Bank filed a complaint in the Eastern District of Virginia seeking a declaration under 28 U.S.C. *135§ 2201 that the City’s penalty and interest assessment was barred as a matter of law. The parties subsequently filed cross-motions for summary judgment. The district court granted the Bank’s motion and ordered that any lien for the City’s penalty and interest assessment be expunged. This appeal followed.
Under 12 U.S.C. § 531, Federal Reserve banks are “exempt from Federal, State, and local taxation, except taxes upon real estate.” The issue presented by this appeal concerns the scope of the Congressional grant of permission to tax property of the United States as to “taxes upon real estate.” Specifically, we must determine whether such permission includes interest and late payment charges incurred by the Federal Reserve Bank of Richmond for being delinquent in the payment of real estate taxes.
Because section 531 does not itself define “taxes upon real estate,” we initially consider the question of whether the interpretation of the statute should be guided by federal or state law. Generally, of course, it is assumed that the interpretation of a federal statute of nationwide application is not dependant on state law. Jerome v. United States, 318 U.S. 101, 104, 63 S.Ct. 483, 485, 87 L.Ed. 640 (1943). The Supreme Court, however, has indicated that this assumption of uniformity should not be made with regard to all statutes and recognized that state law may be incorporated as the federal rule of decision. United States v. Kimbell Foods, Inc., 440 U.S. 715, 728, 99 S.Ct. 1448, 1458, 59 L.Ed.2d 711 (1979); Reconstruction Finance Corporation v. Beaver County, 328 U.S. 204, 209-10, 66 S.Ct. 992, 995-96, 90 L.Ed. 1172 (1946).
Indeed, in Reconstruction Finance Corp. v. Beaver County, the court specifically addressed a statute in many ways identical to the one at hand, which subjected real property owned by an instrumentality of the United States to local taxation. Beaver County was a case in which a subsidiary of the Reconstruction Finance Corporation had set up a manufacturing plant in Pennsylvania to manufacture aircraft propellers and had leased the same, land, plant and equipment, to Curtiss-Wright, the aircraft manufacturer. Under Pennsylvania law, as decided by the Supreme Court of that State, the equipment in the plant, although not affixed to the freehold and which it is obvious would ordinarily be considered personalty, was considered to be real estate because the plant was a manufactory, and without which equipment the plant would not be a manu-factory at all. A statute of the United States, section 10 of the Reconstruction Finance Corporation Act, provided that States and local governments were not permitted “to impose taxation of any kind on the ... personal property” but the same section provided that “any real property” of the governmental agency “shall be subject to state, territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed.” On this set of facts and under the statute just referred to, the Supreme Court held that the real property involved, including the machinery, was subject to the real estate tax of Beaver County. The Court held that “[tjhis [the Pennsylvania Supreme Court’s] interpretation of Pennsylvania’s tax law is binding on us.” 328 U.S. at 208, 66 S.Ct. at 995. So the Court held that it must accept the Pennsylvania definition of what constituted real estate. Despite the ordinary assumption that a statute of nationwide application should operate uniformly throughout the nation, the Court held that a federal definition of real property should not be applied. The Court reasoned that in permitting local taxation of the real property, Congress made it impossible to apply the law with uniform tax consequences within each State and locality. The several States, the Court pointed out, and even the localities within them, have diverse methods of assessment, collection, and refunding, and tax rates which vary widely. In view of the express provision for the taxation of real estate, the Court held that the normal assumption that Congress intends its law to have the same consequences throughout the nation could not be made. 328 U.S. at 209, 66 S.Ct. at 995. The Court further pointed out that *136had Congress desired nationwide uniformity, it could have required fixed payments in lieu of taxes, as it had done in other statutes.1 It added that local rules governing what is real property for tax purposes would not impair the Congressional program of the Reconstruction Finance Corporation any more than would the action of Congress in leaving the fixing of rates of taxation to local communities. The Court added that it must be plain that state rules do not effect a discrimination against the government or run counter to the ter to the terms of the statutes involved. It concluded by stating that concepts of real property are deeply rooted in state traditions, customs, habits, and laws, to which is geared local tax administration. To permit the States to tax, and yet to require them to alter their longstanding practice of assessments and collections, would create a kind of confusion and resultant hampering of local tax machinery which the Court was certain Congress did not intend. We see no meaningful distinction between the statute involved in Beaver County and the one involved here which permits “taxes upon real estate.” Every reason given by the Court to justify the taxing of machinery as real estate by Beaver County applies here to support inclusion of interest and penalties as a part of the real estate tax of the City of Richmond.
The district court, however, did not mention Beaver County in its opinion, although that case is on quite similar facts as we have mentioned, and rejected the City’s argument that state law should control the interpretation of section 531, relying upon United States v. Kimbell Foods, Inc. It largely analyzed the case as a question of sovereign immunity under cases involving claims against the Government such as Title VII and federal tort claims cases, which it is not, rather than a question of the tax exemption of property owned by the United States or an instrumentality thereof, which involves Congressional intent, the supremacy clause (M’Culloch v. Maryland, 17 U.S. [14 Wheat.] 316, 4 L.Ed. 579 [1819]), and Article IV § 3 (the property power) (Reconstruction Finance Corporation v. Texas), which it is.2 We believe that Kimbell does not require such a result, because, not only did Kimbell adopt State law as the rule of decision, that opinion specifically recognized that the question of “[wjhether to adopt state law or to fashion a nationwide federal rule is a matter of judicial policy ‘dependent upon a variety of considerations always relevant to the nature of the specific governmental interests and to the effects upon them of applying state law.’ ” 440 U.S. at 728, 99 S.Ct. at 1458 (quoting United States v. Standard Oil Co., 332 U.S. 301, 310, 67 S.Ct. 1604, 1609, 91 L.Ed. 2067 (1947)). As specific considerations to be taken into account by the courts, the Supreme Court mentioned several factors, including whether the federal program in question necessitates formulation of a uniform national rule and whether application of state law would frustrate specific objectives of the federal program. Kimbell, 440 U.S. at 728, 99 S.Ct. at 1458. Taking these factors into account, we are of opinion that application of state law is required in this case by Beaver County. There is no indication that a uniform national rule with respect to whether penalties and interest constitute a part of real estate taxes is necessary to protect the federal interest underlying the Federal Reserve system. Furthermore, we note that applying state law to determine whether penalties and interest are a part of the tax would not impair the federal interest any more than that interest is impaired by Congress’ deei*137sion to leave the fixing of tax rates and assessment procedures to localities. We cannot, in short, attribute to Congress the intent to permit the States and localities to tax the real property of the Federal Reserve banks and yet require them to alter their settled practices concerning the collection of these taxes.3
In adopting this position, we are in agreement with the view expressed by the Fifth Circuit in Reconstruction Finance Corporation v. Texas, 229 F.2d 9 (5th Cir.), cert. denied, 351 U.S. 907, 76 S.Ct. 695, 100 L.Ed. 1442 (1956). But cf. United States v. Consumers Scrap Iron Corp., 384 F.2d 62 (6th Cir.1967). The Texas case is almost, if not exactly, on all fours with the case at hand, and construed an analogous section of the Reconstruction Finance Corporation Act, which waived taxation immunity by providing that “any real property of the Corporation ... shall be subject to State, Territorial, county, municipal, or local taxation. ...” The Fifth Circuit held that “the determination of whether penalties and interests, as such, are part of the ad valorem tax must be governed by the substantive law of the State of Texas.” 229 F.2d at 11. The Texas case further stated that “it is ... clear by force of the Beaver County decision that the Congressional purpose can best be accomplished by application of settled State rules in determining whether the word ‘taxation’ as used in Section 8 includes penalties and interest.” In view of our agreement with this approach, we now turn to the meaning of “real estate taxes” as developed under the law of Virginia.
In granting the Bank’s motion for summary judgment, the district court ordered that “[a]ny lien for penalties and interest imposed against plaintiff by defendant is hereby EXPUNGED.” This statement referred to the fact that under Virginia law, there is a lien on real estate for the payment of taxes and levies. Va.Code Ann. § 58.1-3340. The statute that creates this lien expressly provides that “[t]he words ‘taxes’ and ‘levies’ as used in this section include the penalties and interest accruing on such taxes and levies in pursuance of law.” Va.Code Ann. § 58.1-3340. Virginia has thereby included penalty and interest assessments within the meaning of “taxes” upon real estate.4 There is no indication that this Virginia rule was designed to discriminate against the federal government. See Beaver County, 328 U.S. at 210, 66 S.Ct. at 995. Having concluded that the application of this settled state rule is proper in this case, we are of opinion that the waiver of tax exemption in section 531 encompasses the interest and late payment charges incurred by the Bank for its delinquent payment of the 1989 assessment.
Accordingly, the district court’s order granting the Bank’s motion for summary judgment and denying that of the City is reversed. The case is remanded for proceedings not inconsistent with this opinion.
REVERSED AND REMANDED.

. The Court in Beaver County, 328 U.S. at 209 n. 5, 66 S.Ct. at 995 n. 5, referred to a listing of such payments. See, e.g., 42 U.S.C. § 1546, requiring the Secretary of Housing and Urban Development to make payments in lieu of taxes. See also Executive Order 8034, dated January 16, 1939, and especially the appendices thereto, listing various payments in lieu of taxes to the States and political subdivisions.

. M'Culloch, it will be remembered, did not involve real property, but notes on standard form paper which was taxed, and originally did not include real property but has since been construed to include it. See United States v. County of Fresno, 429 U.S. 452, 457, 97 S.Ct. 699, 702, 50 L.Ed.2d 683, et seq. (1977); Rohr Corp. v. San Diego County, 362 U.S. 628, 633, 80 S.Ct. 1050, 1053, 4 L.Ed.2d 1002 (1960).

. Whether the rule be federal or state, there will be no disruption of any commercial relationship predicated on state law, a third factor mentioned by the Court. See 440 U.S. at 728-29, 99 S.Ct. at 1458-59.

. The Bank has recited that Va.Code Ann. § 58.1-3916, the statute that authorizes counties, cities, and towns to impose penalties and interest on delinquent taxpayers, provides that penalties shall become a part of the tax but makes no similar mention concerning interest. That section does not exclude interest, however, as included in the term taxes, so it does not affect the plain meaning of § 58.1-3340.