Court Opinion

ID: 9709324
Source: CourtListenerOpinion
Date Created: 2023-08-26 03:44:57.789841+00
Date Added: 2024-06-11T18:22:47.717077
License: Public Domain

Currie, J.
(dissenting). I must respectfully dissent from the majority opinion in this case. A grave question of constitutional law is presented in this case because we are confronted by the claim of the United States government, an intervenor in the action, that the city of Kenosha has collected a tax against property of the federal government. Ever since Mr. Chief Justice John Marshall’s famous decision in McCulloch v. Maryland (1819), 17 U. S. (4 Wheat.) 316, it has been the law that no state, or political subdivision thereof, can tax the property or instrumentability of the fed*326eral government unless congress has consented thereto. A clear statement of this doctrine and the underlying reason therefor is stated in Indian Motorcycle Co. v. United States (1931), 283 U. S. 570, 575, 51 Sup. Ct. 601, 75 L. Ed. 1277, as follows:
“It is an established principle of our constitutional system of dual government that the instrumentalities, means, and operations whereby the United States exercises its governmental powers are exempt from taxation by the states, and that the instrumentalities, means, and operations whereby the states exert the governmental powers belonging to them are equally exempt from taxation by the United States. This principle is implied from the independence of the national and state governments within their respective spheres and from the provisions of the constitution which look to the maintenance of the dual system. [Citing cases.] Where the principle applies it is not affected by the amount of the particular tax or the extent of the resulting interference, but is absolute.”
The entire subject of intergovernment tax immunities is reviewed in an article by Professor B. U. Ratchford in 6 National Tax Journal, 305. The author points out that, while the United States supreme court in recent years has held valid many types of state and local taxation formerly held to contravene the doctrine of governmental immunity, that court has never allowed a state or local tax to be levied upon property owned by the federal government, or by an agency of it, or which bears directly upon a government activity.
If the contract in the instant case had been entered into by American Motors with the “X” corporation instead of the United States government, I would have no hesitancy in concurring in the opinion as written because of those incidents of ownership in the property in question which inured to the benefit of American Motors in spite of the fact that legal title to such property was vested in the federal government. In such a situation the past interpretation of our property-tax *327statutes would be controlling and no question of federal law would be presented.
The fundamental error, as I view it, is in assuming that the liability for the tax is determinative by Wisconsin and not federal law.
The majority opinion cites Blair v. Commissioner (1937), 300 U. S. 5, 57 Sup. Ct. 330, 81 L. Ed. 465, as holding that in a situation such as confronts us on this appeal, Wisconsin decisions govern. That case dealt with a question of federal estate taxation. It involved no question of the immunity from a state tax on the part of the federal government, but was concerned with the interpretation of a trust instrument creating a spendthrift trust to which the government was not a party. The point at issue was whether the beneficiary of the trust could assign his interest under the trust, and under a long line of decisions this is a matter of state and not federal law. See 1 Paul, Federal Estate and Gift Taxation, p. 73, sec. 1.11.
The United States supreme court did, however, declare in Alabama v. King & Boozer (1941), 314 U. S. 1, 9, 10, 62 Sup. Ct. 43, 86 L. Ed. 3, 140 A. L. R. 615, that state law was determinative of the issue of who is a “purchaser” under an Alabama sales-tax statute in a case which involved the question of immunity of the federal government. This statement was repudiated in the recent case of Kern-Limerick, Inc., v. Scuriock (1954), 347 U. S. 110, 121, 74 Sup. Ct. 403, 98 L. Ed. 546. In such last-mentioned case the court quoted the portion of the opinion in Alabama v. King & Boozer, supra, indicating that state law governed, and then stated:
“Read literally, one might conclude this court was saying that a state court might interpret its tax statute so as to throw tax liability where it chose, even though it arbitrarily eliminated an exempt sovereign. Such a conclusion as to the meaning of the quoted words would deny the long course of *328judicial construction which establishes as a principle that the duty rests on this court to decide for itself facts or constructions upon which federal constitutional issues rest. The quotation refers, we think, only to the power of the state court to determine who is responsible under its law for payment to the state of the exaction.” (Emphasis supplied.)
A further case, which holds that the issue of whether there is an immunity from state or local taxation of property, in which the government claims an interest, presents a question of federal and not state law is United States v. Allegheny County (1944), 322 U. S. 174, 183, 64 Sup. Ct. 908, 88 L. Ed. 1209. This was stated in no equivocable language as follows:
“Procurement policies so settled under federal authority may not be defeated or limited by state law. The purpose of the supremacy clause was to avoid the introduction of disparities, confusions, and conflicts which would follow if the government’s general authority were subject to local controls. The validity and construction of contracts through which the United States is exercising its constitutional functions, their consequences on the rights and obligations of the parties, the titles or liens which they create or permit, all present questions of federal law not controlled by the law of any state. [Citing cases.]” (Emphasis supplied.)
Because federal and not state law is decisive of the issue here presented, the recent decision of the United States court of appeals for the Sixth circuit in Detroit v. Murray Corp. (6th Cir. 1956), 234 Fed. (2d) 380, is absolutely controlling of the result here. The government subcontracts entered into by the Murray Corporation were for the manufacture of parts and assemblies required by the United States air force for the national defense, while in the instant case the government contract entered into with American Motors was for the manufacture by the latter of aircraft engines for the same government agency and for the same purpose. The Murray Corporation subcontracts contained the same partial payment *329vesting-of-title clause as did the American Motors contract. In substance such clause provided that upon the making of any partial payment, title to all parts, materials, inventories, work in process, and nondurable tools theretofore acquired or produced by the contractor for the performance of the contract and properly chargeable to the contract under sound accounting practices should forthwith vest in the government; and title to all like property thereafter acquired or produced by the contractor for performance of the contract and properly chargeable as aforementioned should vest in the government forthwith upon such acquisition or production.
The court in Detroit v. Murray Corp., supra, affirmed the judgments of the United States district court awarding recovery by the corporation of local personal-property taxes paid upon materials and parts, title to which had vested in the federal government under the partial-payment clause of the subcontracts. On the issue of immunity the court strongly relied upon the case of United States v. Allegheny County, supra, as appears from the following extract taken from the opinion (234 Fed. (2d), p. 382):
“Upon analysis, we think that substantially all of the arguments advanced by appellant were rejected by the supreme court in the Allegheny Case. The supreme court declared that the principle is unshaken, indeed rarely questioned, that ‘possessions, institutions, and activities of the federal government itself in the absence of express congressional consent are not subject to any form of state taxation.’ 322 U. S. 177, 64 S. Ct. 911.”
The majority opinion herein seeks to distinguish the Allegheny Case from the instant one on the ground that the government in the latter has but bare legal title in the property attempted to be taxed. This totally ignores the self-evident purpose of the partial-payment clause, and certain provisions of such clauses. The contract with American Motors was entered into during the Korean conflict when *330the government desperately needed aircraft engines. The government obviously wished to be sure that any materials and parts procured by American Motors for performance of the contract would not be diverted to any other purpose without its consent. Thus, if American Motors should for any reason default on its contract, the government could step in and use the materials and parts on hand toward completion of the contract. The right of control retained by the government made its ownership far more than a bare legal title.
The majority opinion quotes a statement from the opinion in Offutt Housing Co. v. Sarpy County (1956), 351 U. S. 253, 76 Sup. Ct. 814, 100 L. Ed. 1151, that the government may have “only a paper title,” the inference being that such paper title would not confer immunity from state taxes. An examination of such case discloses that it clearly is not in point here. There, land owned by the federal government was leased to the plaintiff housing company at a nominal rental for seventy-five years under the Wherry Military Housing Act, the company to erect buildings and improvements thereon to provide adequate housing for personnel of an air force base in Nebraska. The county assessor sought to assess the improvements, fixtures, and furniture of the plaintiff as subject to state and county personal-property taxes. Two issues were presented to the United States supreme court: (1) Whether congress had consented to the state, or its subdivisions, taxing such property, and (2) if such consent were found to have been given, could the entire value of such improvements, fixtures, and furniture be taxed tó plaintiff without any diminution of such value because of the government’s interest therein. The majority opinion held that congress had given its consent, and this holding removed from the case the issue of immunity from tax. On the second question of valuation, the court determined that the government had merely bare legal title for purposes of security only, similar to that of a mortgagee, which did not prevent the full value being assessed against the lessee.
*331The applicable inference to be drawn from the majority-opinion in the Offutt Housing Co. Case, for the purposes of the instant case, is that, if the court had not construed the Wherry Military Housing Act as granting permission to the state to tax the lessee’s interest in the property, there would have been an immunity from state and local taxes.
For the reasons stated herein, and in the able memorandum opinion of the learned trial judge, the judgment should be affirmed.