Court Opinion

ID: 9481823
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:32:51.512649+00
Date Added: 2024-06-11T17:48:35.953589
License: Public Domain

NOONAN, Circuit Judge,
dissenting:
The classic case in this area is, of course, McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579 (1819). The path from McCulloch to United States v. New Mexico, 455 U.S. 720, 102 S.Ct. 1373, 71 L.Ed.2d 580 (1982), has been neither straight nor clear. The precedents have been “confusing.” Id. at 733, 102 S.Ct. at 1382. The lines drawn were “excessively delicate.” Id. at 730, 102 S.Ct. at 1381. New Mexico defined the approach that should be taken today to a state tax on an entity using property of the United States. Less than ten years after New Mexico was decided by a unanimous Court, however, the present majority embarks again on the course that New Mexico tried to block of letting “wooden formalism” determine the great constitutional issue of the allocation of taxing power between the federal government and the states.
In so many words, the Court in New Mexico declared that “where a use tax is involved, immunity cannot be conferred simply because the State is levying the tax on the use of federal property in private hands.” Id. at 734, 102 S.Ct. at 1383. “In such a situation the contractor’s use of the property ‘in connection with commercial activities carried on for profit,’ is ‘a separate and distinct taxable activity.’” Id. at 734-35, 102 S.Ct. at 1382-83, quoting United States v. Boyd, 378 U.S. 39, 44, 84 S.Ct. 1518, 1521-22, 12 L.Ed.2d 713 (1964). The Court concluded in New Mexico that “tax immunity is appropriate in only one circumstance: when the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned.” United States v. New Mexico, 455 U.S. at 735, 102 S.Ct. at 1383.
In the present case the United States argues that the levy falls on an instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities. The United States relies heavily on a dictum in a footnote in United States v. County of Fresno, *1044429 U.S. 452, 97 S.Ct. 699, 50 L.Ed.2d 688 (1977). In County of Fresno the Court sustained a California tax on houses rented to Forest Service employees but stated that it would be different if there was a tax imposed on a Forest Service employee for a fire ax that he used only in performing his job; in that case the tax would be on property the employee did not use for his “beneficial personal use” and on property that was not part of his profit or his salary. Id. at 466 n. 15, 97 S.Ct. at 707 n. 15. The United States argues that just as the Forest Service employee cannot be taxed on his fire ax, even though by its use he earns his salary, so Areata cannot be taxed on the military equipment it uses, although from its use it derives a profit. What Areata is doing when it runs the military games is to act as the United States. Area-ta has, the Government contends, “no beneficial personal use.”
Two other courts have reached the same conclusion as to analogous taxes. See United States v. Colorado, 627 F.2d 217 (10th Cir.1980), summarily affd sub nom.; Jefferson County v. United States, 450 U.S. 901, 101 S.Ct. 1335, 67 L.Ed.2d 325 (1981); United States v. Hawkins County, 859 F.2d 20 (6th Cir.1988). In each of these cases the tax exceeded the profit of the contract. But, the United States notes, what was decisive for the Tenth Circuit in the Colorado case was not the amount of the tax but that the effect of the tax was “to lay an ad valorem general property tax on property owned by the United States.” United States v. Colorado, 627 F.2d at 221. A similar analysis was followed by the Sixth Circuit. United States v. Hawkins County, 859 F.2d at 23.
The Government’s spirited presentation demonstrates how old distinctions can be refurbished and confusion engendered despite the bright line laid down by New Mexico. Rejecting the Government’s argument, I observe that in New Mexico itself the contractors were managing Government laboratories, which the Government could have managed itself but chose not to do so. The Court observed that the Government “resists using its own employees for the tasks at hand ... because it seeks to tap the expertise of industry.” United States v. New Mexico, 455 U.S. at 737, 102 S.Ct. at 1384. As a consequence, the Court observed: “In contrast to federal employees, then, Sandia and its fellow contractors cannot be termed ‘constituent parts’ of the Federal Government.” Id. at 740, 102 S.Ct. at 1386. No “complete” “congruence of professional interests” existed between the Government and the contractors. Id. The contractors were privately owned corporations in which the Government had no ownership interest. Id. The Government in our case has pointed to no distinction between Sandia in New Mexico and Areata as a privately owned corporation whose professional interests are not completely congruent with the Government’s.
The Government’s reliance on the illustration of the Forest Service employee’s fire ax is misplaced. The forester carries his ax to carry out a governmental function, not for commercial profit. In contrast, Areata conducts the military games for its own profit. In the terms expressly used by New Mexico Areata is engaged in “commercial activity carried on for profit.” Id. 455 U.S. at 734-35, 102 S.Ct. at 1383. Consequently, Areata does not enjoy immunity from Nye County’s tax.
The majority’s acquiescence in the Government’s contentions and its apparently justified reliance on the Colorado case are undermined by the way the Supreme Court analyzed that case in New Mexico itself. The Court said:
While a use tax may be valid only to the extent that it reaches the contractor’s interest in Government-owned property, cf. City of Detroit v. Murray Corp., 355 U.S. [489], at 494 [78 S.Ct. 458, 461, 2 L.Ed.2d 441 (1958)]; United States v. Colorado, 627 F.2d 217 (CA10 1980), summarily aff’d sub nom. Jefferson County v. United States, 450 U.S. 901 [101 S.Ct. 1335, 67 L.Ed.2d 325] (1981), there has been no suggestion here that the contractors are being taxed beyond the value of their use.
Id. 455 U.S. at 741 n. 14, 102 S.Ct. at 1386 n. 14. In short, the Supreme Court gave a different rationale for United States v. *1045Colorado from that given by the Tenth Circuit — the rationale that a tax exceeding the value of the use was unconstitutional. At the same time the Court characterized the tax at issue as “a use tax,” not an ad valorem tax on property. The majority offers no reason why exactly the same analysis should not apply to the entirely analogous Nevada tax at issue in this case.
The Nevada Property Tax Statute expressly exempts the property of the United States from taxation. Nev.R.Stat. § 361.050. No intention on the part of the state to infringe federal sovereignty and to tax the United States is present. It is irrelevant that the economic burden of the tax under these cost-plus contracts falls on the United States. United States v. New Mexico, 455 U.S. at 734, 102 S.Ct. at 1382-83. It is irrelevant that Areata, as the district court found, is “the servant” of the United States. Id. at 733, 102 S.Ct. at 1382. It is irrelevant that Areata owns none of the property used and that the United States owns all of it. Id. at 738, 102 S.Ct. at 1384-85. The United States, of course, has a sure remedy for any actual infringement on its sovereignty: Congress can declare the contractor’s activity exempt. Id. at 744, 102 S.Ct. at 1388. Once again a litigant is seeking “to establish as a constitutional rule something that it was unable to obtain statutorily from Congress.” Id.
In New Mexico, the Court warned that “an immunity of constitutional stature” cannot rest “on such technical considerations” as the way a contract was drawn between the Government and its contractor. Id. at 737, 102 S.Ct. at 1384. While this caution was expressly directed at contractual technicality, the Court in the same paragraph warned against “the manipulation and wooden formalism that occasionally have marked tax litigation.” Id. It is difficult to imagine a more wooden and technical approach than that taken by the majority in finding constitutional significance in the language used by the state to describe its tax. I respectfully dissent.