Whether a municipality may list and tax its own property is a
matter of state practice and, except as it may affect a right
previously acquired and protected by the federal Constitution,
presents no federal question.
This Court, in order to determine whether a contract has been
impaired within the meaning of the federal Constitution, has power
to decide for itself what the true construction of the contract
is.
A contract of exemption may be impaired by wrongful construction
as well as by an unconstitutional statute attempting a direct
repeal.
A lease of property belonging to a municipality in which the
lessees have expressly agreed to pay taxes due the state or federal
government is not impaired by an assessment made by the
municipality under power to tax acquired subsequent to the making
of the lease.
Parties to a lease by a municipality not then possessing taxing
powers are chargeable with notice that the power to tax may be
subsequently conferred, and the conferring of such power does not
impair the contract in the lease if there is no exemption expressly
contained therein.
Doubts and ambiguities as to exemptions from taxation are
resolved in favor of the public.
St. Louis v. United
Railways, 210 U. S.
273.
108 Va. 28 affirmed.
From the bill in 103, to enjoin the collection of city taxes, it
appears that, prior to 1792 the Borough of Norfolk, Virginia,
existed as a municipality of limited power. It
Page 220 U. S. 473
had a mayor and council, but no power to tax. The town owned the
Fort land, and appointed commissioners to subdivide the tract and
let out the lots at public outcry. Thereupon the borough
"demised, leased, and farm-let lot No. 10 to Richard Evers Lee,
his executors, administrators, and assigns, from August 26, 1792,
for and during the term of ninety-nine years, and after that time
renewable for the further term of ninety-nine years, and so on
forever,"
he and they to pay yearly the rent of �6.6 and "the public taxes
which shall become due on said land." It was provided that, if
there should be arrears for three years in paying rent or taxes the
town should advertise and lease out the lots and improvements for
the remainder of the term of ninety-nine years, said Lee and his
assigns to make good the deficiency, if any, between the first and
last prices, together with all arrears of rent and taxes, the
overplus, if any, to be paid over to said Lee or his assigns. If
the rent and taxes were paid as stipulated, the borough and its
successors were to renew the lease for the further term of
ninety-nine years, and so on forever. The leases were renewed in
1892 on practically identical terms. Subsequently, the eastern
portion of Lot 10 was assigned to John L. Roper and the western
portion to the J. W. Perry Company, who, "relying on the
stipulations and agreements therein, purchased the lease, and at
great expense erected costly improvements on the land." The bill
charged that it was the intention of all the parties, in both the
original and renewal leases, that the stipulation as to the payment
of public taxes applied solely to such taxes as might be imposed by
Virginia and the United States, and neither the Borough nor the
City of Norfolk had ever attempted to impose any municipal tax upon
the property. But
"though the city owns the fee, it has for the year 1906 caused
the lot to be assessed in the name of it, the said City of Norfolk
at a valuation of $21,000, and intends to collect the tax of $346
from the lessees of lot 10. "
Page 220 U. S. 474
The bill also charged that the buildings, on being attached to
the land, became the property of the city as landlord, and likewise
free and clear from the payment of city taxes, notwithstanding
which it had assessed the improvement to the lessee at a value of
$6,500, and demanded the tax thereon.
Lot 9 was held by White on substantially identical terms, except
that the renewal lease made in 1892 provided that the lessee should
"pay all rent and all state and national taxes." The city contended
that this change was without consideration, and did not modify the
rights or liabilities of either party, because, from the instrument
as a whole, it appeared that there was no intention to change, but
only to renew and continue in force the original lease of 1792.
In each case, it was alleged that the assessment and collection
of taxes for city purposes impaired the obligation of the lease
contract.
The trial judge granted perpetual injunctions. Those rulings
were reversed by the Court of Appeals of Virginia (108 Va. 28), and
plaintiffs brought the case here, assigning as error that the
collection of taxes by the City of Norfolk, in pursuance of
authority conferred subsequent to the leases, impaired the
obligations of the contracts.
Page 220 U. S. 477
MR. JUSTICE LAMAR, after making the foregoing statement,
delivered the opinion of the Court.
In 1792, at a time when it had no right to tax, the municipality
of Norfolk, Virginia, leased to Lee and others, several lots of
land for ninety-nine years, renewable forever, the lessees and
their assigns to pay the annual rent and "the public taxes which
shall become due on said land." Subsequently the city was given the
power of taxation, but made no effort to assess these lots until
1906. The lessees then sought to enjoin their collection on the
ground that the "public taxes" they had assumed were those which
might be due to the state and to the United States. They contended
that for Norfolk to assess land belonging to Norfolk, for taxes
payable to Norfolk, constituted an invalid charge, and was not a
lawful public tax of the kind which the lessees had agreed to pay,
and that, if such a tax could be assessed, it was by virtue of
statutes passed since the contract was made, and for the city to
exert this new statutory power against them would impair the
obligation of their contract.
In support of their claim that the city as lessor could not tax
its own property, so as to make it a valid public tax, payable by
the lessee, they rely on the general rule that taxes are assessed
to the owner, and as the landlord receives the rent, he ought to
bear the burdens imposed upon the property. On the authority of
State ex Rel. Glenn v. Mississippi River Bridge Co., 134
Mo. 321;
Thurston v. Mustin, 3 Cranch C.C. 335, and like
cases, they insist that this is a liability arising out of the
relation of landlord and tenant,
Page 220 U. S. 478
and is not limited to short-term leases, but applicable to those
for ninety-nine years, renewable forever.
It is true that, in the present case, the indenture uses apt
words to create a lease, and the Virginia court held that it was
technically such. But there are other and controlling features
which show that, even if the legal title is in the city, the
lessees have rights different from those usual in a mere leasehold
estate.
On condition broken, they do not
ipso facto lose all
interest in the property and its proceeds. The contract does not
contain the common stipulation that the tenant shall be compensated
for his permanent improvements. On the tenant's default, the city
cannot at once enter into possession, but "the lot and improvements
shall be leased out at public outcry for the remainder of the
term," and after deducting unpaid rent and taxes, the overplus, if
any, shall be paid to the lessees. This overplus would represent,
in part, the value of permanent improvements and also of the
unexpired term. Selling the city's property to say rent due the
city is not at all consistent with the idea of a mere lease. It
indicated rather that the tenant had a substantial interest in the
property which was security for the payment of whatever he owed the
city. The contract creates an estate somewhat like the perpetual
lease of the civil law, where the tenant was for many purposes
treated as owner, and liable for taxes. Merlin Rep., vol. 10, p.
232; Cooper's Inst. 277, 278; Sohmn's Inst.3d ed. 346. It was also
similar in its nature to ground rent, where an annual rental and
public taxes are perpetually charged on the land, instead of a
gross sum's being paid or secured. There, the grantor is treated as
having a fee in the rent reserved, and the grantee a fee in the
land, subject, among other things, to the payment of public taxes.
Duane on Landlord & Tenant 96; Cadwalader on Ground Rents 101;
Robinson v. Allegheny County, 7 Pa. 161.
The Court of Appeals held that, in Virginia, the general
Page 220 U. S. 479
rule that the landlord is responsible for the taxes has
"no application to the case of a perpetual leaseholder, where
the tenant is in effect the virtual owner of the property, and
entitled to its use forever. . . . For the purposes of taxation,
the mere legal title remaining in the landlord will be
disregarded."
It adopted that part of the language in
Wells v.
Savannah, 87 Ga. 397,
aff'd in
181 U. S. 181 U.S.
531, where, in speaking of the liability of one who had a perpetual
lease and a right to convert it at will into a fee, Judge Bleckley
said:
"The value of property consists in its use, and he who owns the
use forever, though it be on condition subsequent, is the true
owner of the property for the time being."
Crowe v. Wilson, 65 Md. 479;
Brainard v.
Colchester, 31 Conn. 407.
Ordinarily it would be a useless thing for a city to tax its own
property. But this can be done under Virginia practice, and is not
a vain thing if thereby property of the city, subject to taxation,
is listed in its name as holder of the legal title, so as to fix
the amount of the tax on the property which the tenant may have
agreed to pay. Cooley on Taxation, 3d ed., 263. This ruling of the
Virginia court presents no federal question, but does establish
that the tax was not illegal, as claimed, but was based on an
assessment valid under the laws of the state.
Whether it is a "public tax" contemplated by the contract, or
whether forcing the lessees to pay it impairs that contract, is a
matter we must consider, for a valid contract of exemption from
taxation may be impaired by wrongful construction as well as by an
unconstitutional statute attempting a direct repeal. This Court
therefore "has power, in order to determine whether any contract
has been impaired, to decide for itself what the true construction
of the contract is."
Huntington v. Attrill, 146 U.
S. 657;
Bryan v. Board of Education,
151 U. S. 639;
Mobile & Ohio R. Co. v. Tennessee, 153
U. S. 495;
Jefferson Branch Bank v.
Skelly, 1 Black 446.
Page 220 U. S. 480
It is admitted that the lessees have expressly agreed to pay
taxes due Virginia or the federal government, regardless of the
character of the estate created. And, while it is true that, when
the lease was made, the borough had no authority to tax, both
parties were charged with notice that such power might, and
probably would, be conferred when increase of population made it
necessary. Even if the borough could have made a valid contract of
exemption in 1792, there is nothing to show that it did so. On the
contrary, the provision that the lessee was to "pay public taxes"
was sufficiently comprehensive to embrace municipal taxes whenever
they could thereafter be lawfully assessed on land or the
improvements which were a part of the land. Where one relies upon
an exemption from taxation, both the power to exempt and the
contract of exemption must be clear. Any doubt or ambiguity must be
resolved in favor of the public.
St. Louis v. United
Railways, 210 U. S. 273.
Here there is not only no language of exemption, but a positive
agreement on the part of the lessees to pay public taxes on the
land. In compelling them to do so, the contract is enforced instead
of impaired. The judgment of the Court of Appeals of Virginia is
therefore
Affirmed.
