Court Opinion

ID: 9426650
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:18:35.042568+00
Date Added: 2024-06-11T17:23:02.156565
License: Public Domain

Mr. Justice Stevens,
dissenting.
The application of the California possessory interest tax to federal employees’ use of real estate located in a national forest is significantly different from other forms of state taxation and, in my opinion, creates the kind of potential for friction between two sovereigns that the doctrine of constitutional immunity was intended to avoid.
I
If a State were to tax the income of federal employees without imposing a like tax on others, the tax would be plainly unconstitutional. Cf. M‘Culloch v. Maryland, 4 Wheat. 316. On the other hand, if the State taxes the income of all its residents equally, federal employees must pay the tax. Graves v. New York ex rel. O’Keefe, 306 U. S. 466. This case involves a tax more like the former than the latter and, in my opinion, is invalid.
There are two alternatives between the two extremes just posited. Instead of just taxing federal employees, the State might impose a special tax on both state and federal employees but no one else; or, making the tax base somewhat broader, the State might impose a special tax on employees of all tax-exempt entities, including private organizations. Arguably, in the latter situation, the tax would affect enough voters in the State to provide the type of political safeguard envisioned in M‘Culloch and thereby protect federal employees from the risk of disparate treatment. In the former situation, however, that protection might be illusory because the sovereign imposing the tax could adjust the compensation of its own employees to avoid any special tax burden on them and thereby cause the tax to have a significant im*469pact on federal employees and no one else. Under the rationale of M‘Culloch, the Supremacy Clause protects federal employees, as well as federal instrumentalities, from that kind of potential discrimination.
A
The California possessory interest tax discriminates against the individual appellants as compared with persons who rent private, nonexempt property. The Federal Government has adopted a policy of charging its employees a rent equal to the fair rental value of their residences as determined by the prevailing rental value of comparable residences in the vicinity of the national forest.1 A federal employee residing in a Forest Service residence and a private tenant residing in a comparable home both pay the same rent. But the federal employee also pays a possessory interest tax while the private tenant does not pay that tax or any other real estate tax.
The amount of the possessory interest tax paid by the federal employee is not determined by his rent. Whether the rent collected by the Forest Service is over, under, or equal to the fair rental value of the premises, the employee’s tax is the same.2 For the tax is measured by the value of his possessory interest in the real estate, and, under the valuation systems employed by the counties, that value is the same regardless of whether the Federal Government elects to subsidize, in whole or in part, its employee’s use of the property. The analogy, ante, at 466, to a state income tax *470on compensation provided by means of permission to use property for less than its fair rental value is therefore inapplicable.3
The discrimination between the federal employee and the private tenant is not eliminated by the fact that the owner of the private residence pays a real estate tax which the Federal Government does not. The private owner’s tax obligation is one of the factors that determines the fair rental value of his property — and, no doubt, the fair rental value of Government-owned property as well — but it is not correct to say that the owner’s tax is paid by the tenant. When the private and the public tenant are both charged the same rent, a special tax on the latter is stirely not justified by the Federal Government’s tax exemption.4 To the extent that the exemption has significance, it provides a limit on the State’s taxing power; it cannot provide an affirmative justification for an otherwise invalid tax.5 In short, federal em*471ployees like these appellants are required to pay a discriminatory tax; Graves v. New York ex rel. O’Keefe, supra, does not control this case.
B
This California tax does not even apply to all users of tax-exempt property. By its terms the possessory interest tax applies only to “publicly owned real property.” 6 It does not, for example, apply to the residential use of real estate owned by private hospitals, schools, or religious organizations, all of which are exempt from taxation under the laws of California.7 In fact it appears that the only individuals who are similar to the federal employees with respect to the possessory interest tax are state employees living in state-owned houses. But since the State of California, and its political subdivisions, can fix their rent, the State has the practical power to adjust the economic burden of the possessory interest tax assessed against its own tenant employees. Potentially, therefore, the tax may have a practical effect on the Federal Government and its employees which is different *472from its effect on the owners or users of any other tax-exempt property in the State.
Thus, whether the federal tenants are compared with persons occupying property owned by taxpayers or with persons occupying other tax-exempt property, they are vulnerable to a discriminatory tax.
II
Whereas the California tax scheme creates a discrimination between users of property that would not otherwise exist, the Michigan taxes upheld in United States v. City of Detroit, 355 U. S. 466; United States v. Township of Muskegon, 355 U. S. 484; and City of Detroit v. Murray Corp. of America, 355 U. S. 489, were designed to eliminate disparity in the tax treatment of different users of similar property. The Michigan taxes were designed to equalize the tax burden of competing commercial enterprises whether they used tax-exempt or taxable property in the conduct of their businesses.8
The Michigan tax at issue in the first two cases applied to every private party using any type of exempt property in the State. The tax base included not only property owned by the Federal and State Governments, but also all privately owned exempt real estate. In the first case the Court expressly relied on the undisputed evidence that lessees of other exempt property were being taxed as- foreclosing any claim of discrimination against those using federal property. 355 U. S., at 474. In the third case, the tax was a general personal property tax which was applied indiscriminately throughout the State, 355 U. S., at 494.
*473The critical importance of the absence of any discrimination in the Michigan scheme, and its sharp contrast with the California scheme challenged in this case, are both apparent from this passage:
“It still remains true, as it has from the beginning, that a tax may be invalid even though it does not fall directly on the United States if it operates so as to discriminate against the Government or those with whom it deals. Cf. M’Culloch v. Maryland, 4 Wheat. 316. But here the tax applies to every private party who uses exempt property in Michigan in connection with a business conducted for private gain. Under Michigan law this means persons who use property owned by the Federal Government, the State, its political subdivisions, churches, charitable organizations and a great host of other entities. The class defined is not an arbitrary or invidiously discriminatory one. As suggested before the legislature apparently was trying to equate the tax burden imposed on private enterprise using exempt property with that carried by similar businesses using taxed property. Those using exempt property are required to pay no greater tax than that placed on private owners or passed on by them to their business lessees. In the absence of such equalization the lessees of tax-exempt property might well be given a distinct economic preference over their neighboring competitors, as well as escaping their fair share of local tax responsibility.” United States v. City of Detroit, supra, at 473-474 (footnote omitted).
The case now before us does not involve any question of economic preference between competing private parties. Indeed, unlike the Michigan cases in which the Court identified as “vital” the fact that the taxpayers were engaged in commercial activities,9 this ease only involves an application of the *474California tax to the use of Government property in the performance of a traditional governmental function: managing the national forests. The Government requires the taxpayer-forester to occupy the property. The Michigan opinions do not hold or imply that required Government service is comparable to private commercial activity. Indeed, as I read those opinions, they direct us to focus on the question whether there is equality or inequality between users of public and private property. The Michigan tax was valid because there was no discrimination between users; the California tax is invalid because it creates such inequality.
Ill
This case is not squarely controlled by M’Culloch v. Maryland, because this tax applies to the use of state as well as federal property.10 Apparently, employees of state *475parks are treated like employees of national forests. If this is sufficient to save the tax, I would suppose the State could tax a soldier’s use of Army barracks if the State also taxed its police officers whenever they resided in state quarters. Such a tax, I submit, would be patently invalid for reasons which also apply to this case. It would have an impact on federal servants different from its impact on most constituents of the taxing sovereign; and it would create a significant potential conflict between the interests of two sovereigns in the .same territory.
As explained by Mr. Justice Frankfurter in his separate opinion in City of Detroit v. Murray Corp. of America, 355 U. S., at 503-504:
“A principle with the uninterrupted historic longevity attributable to the immunity of government property from state taxation has a momentum of authority that reflects, if not a detailed exposition of considerations of policy demanded by our federal system, certainly a deep instinct that there are such considerations, and that the distinction between a tax on government property and a tax on a third person for the privilege of using such property is not an ‘empty formalism.’ The distinction embodies a considered judgment as to the minimum safeguard necessary for the National Government to carry on its essential functions without hindrance from the exercise of power by another sovereign within the same territory. That in a particular case there may in fact be no conflict in the exercise of the two governmental powers is not to the point. It is in avoiding the potentialities of friction and furthering the smooth operation of complicated governmental machinery that the constitutional doctrine of immunity finds its explanation and justification.”
*476The specific distinction which Mr. Justice Frankfurter draws in that paragraph appears to support the validity of the California tax on the use by “a third person” of real estate in a national forest. I do not, of course, know whether Mr. Justice Frankfurter would have regarded a Government employee, like the appellants in this case, as the kind of “third person” whose use of federal property in the performance of a traditional governmental function would be taxed. I am convinced, however, that the principle which he articulated supports the immunity claim of these appellants. I therefore respectfully dissent.

 The court below endorsed the undisputed finding of the trial court that this policy was in effect at the time this litigation arose, 50 Cal. App. 3d 633, 637, 123 Cal. Rptr. 548, 550 (1975).

 It is true, as the majority notes, ante, at 466, that appellee counties have sought to tax the individual appellants only on that portion of the total value of the residences which may be properly attributed to their personal, non-job-related, possessory interest. This fact affects the amount of the tax but not its discriminatory character.

 Although the Federal Government’s complaint alleged that the occupancy of the residences constituted part of appellants’ “compensation,” the proof established that the Forest Service charged its employees the fair rental value of similar houses in the private sector. The state courts so found, see n. 1, supra.

 The fact that the Federal Government receives higher net rents than those received by private landlords is a consequence of its tax-exempt status which avoids one of the burdens of ownership of property regardless of how the Government elects to use its property.

 The majority states that the only burden the tax imposes on the Forest Service is economic — causing it to reimburse its employees for “the taxes legally owed by them” or, failing reimbursement, removing an advantage otherwise enjoyed by the Government in the employment market, ante, at 464. But an attempt to reimburse all federal employees for taxes legally owed would entail a great deal more than the economic burden represented by the value of the taxes. Appellees Fresno and Tuolumne Counties have different methods of computing the value of the possessory' interest, ante, at 456 n. 4. Once these counties determine the assessed vahiation of the possessory interests, presumably they apply different tax rates to determine the actual dollar value of each appellant’s tax. The Forest Service owns residences in many coun*471ties throughout the United States. The administrative burden of determining the correct amount of tax owed on each unique residence operating under myriad payment systems and due dates would be immense. In my judgment, this administrative cost provides another reason why this exercise of a State’s taxing power runs afoul of the Supremacy Clause. Moreover, I do not believe the State’s power can be exercised in a manner which requires the Federal Government to surrender its own tax exemption in order to protect its employees from a discriminatory tax. I do not understand the relevance of the Federal Government’s so-called advantage in the employment market.

 Title 18 Cal. Adm. Code § 21 (b) (1971), quoted ante, at 455 n. 3.

 See Cedars of Lebanon Hospital v. County of Los Angeles, 35 Cal. 2d 729, 221 P. 2d 31 (1950) (private hospital); Church Divinity School v. County of Alameda, 152 Cal. App. 2d 496, 314 P. 2d 209 (1957) (college-level private school); Serra Retreat v. County of Los Angeles, 35 Cal. 2d 755, 221 P. 2d 59 (1950), and Saint Germain Foundation v. County of Siskiyou, 212 Cal. App. 2d 911, 28 Cal. Rptr. 393 (1963) (religious organizations).

 “The United States asks this Court to strike down as unconstitutional a tax statute of the State of Michigan as applied to a lessee of government property. In general terms this statute, Public Act 189 of 1953, provides that when tax-exempt real property is used by a private party in a business conducted for profit the private party is subject to taxation to the same extent as though he owned the property.” United States v. City of Detroit, 355 U. S., at 467.

 “The vital thing under the Michigan statute, and we think permissibly so, is that Continental was using the property in connection with its own *474commercial activities. The case might well be different if the Government had reserved such control over the activities and financial gain of Continental that it could properly be called a ‘servant’ of the United States in agency terms. But here Continental was not so assimilated by the Government as to become one of its constituent parts. It was free within broad limits to use the property as it thought advantageous and convenient in performing its contracts and maximizing its profits from them.” United States v. Township of Muskegon, 355 U. S., at 486.
The Michigan tax at issue in the first two cases applied only to use in connection with a business conducted for profit, United States v. City of Detroit, 355 U. S., at 467-468, n. 1.
See also City of Detroit v. Murray Corp. of America, 355 U. S., at 493, where there is emphasis on the fact that the taxpayer used the Federal Government’s personal property “in the course of its own business.”

 In M‘Culloch v. Maryland, the State taxed notes issued by the Bank of the United States differently from any other property. But if the state tax in that case had applied to a national bank and also to a group of state-operated institutions which the State could subsidize in order to eliminate the economic burden of the tax — but to no other taxpayers — it surely would have been equally invalid. In such a situation, as in M‘Culloch itself and as in this case, the federal instrumentality *475would have been vulnerable to discriminatory treatment by the State different from that accorded to the State’s own constituents.