1. An area embracing a Naval Ordnance Plant within the Kentucky
had been acquired by the United States by condemnation. The State
consented to the acquisition, and the United States accepted
exclusive jurisdiction over the area.
Held: the fact that the area was within the "exclusive
jurisdiction" of the United States did not bar its annexation by
the City of Louisville. Pp.
344 U. S.
624-627.
2. A tax or license fee imposed by the City of Louisville for
the privilege of working within the City, measured by one percent
of income earned within the City, was an "income tax" within the
meaning of the Buck Act, 4 U.S.C. §§ 10110, and was authorized by
that Act to be applied to payments received by federal employees
for services performed at the Ordnance Plant, even though such tax
or fee was not an "income tax" under state law. Pp.
344 U. S.
627-629.
249 S.W.2d 816, affirmed.
The Court of Appeals of Kentucky upheld a tax imposed by the
City of Louisville as applied to employees of a Naval Ordnance
Plant. 249 S.W.2d 816. On appeal to this Court,
affirmed,
p.
344 U. S.
629.
MR. JUSTICE MINTON delivered the opinion of the Court.
Two questions are presented by this appeal: (1) The validity of
the annexation by the City of Louisville, Kentucky, of certain
federally owned land on which a
Page 344 U. S. 625
Naval Ordnance Plant is located, and (2) The validity of the
Louisville occupational tax or license fee ordinance as applied to
employees of this Ordnance Plant.
By condemnation proceedings filed in 1940, the United States
acquired the land on which the Ordnance Plant is located, with the
consent of the Legislature of Kentucky given in a general statute.
[
Footnote 1] In 1941, the
Secretary of the Navy, on behalf of the United States, accepted
exclusive jurisdiction over the area, and the Governor of Kentucky
acknowledged this acceptance. By ordinances enacted in 1947 and
1950, the City annexed certain territory, including the Ordnance
Plant tract. The annexation was not challenged by the United
States. After the annexation, the City started to collect from
employees of the plant a license tax for the privilege of working
in the city, measured by one percent of all salaries, wages and
commissions earned in the city. [
Footnote 2]
Page 344 U. S. 626
The appellants, employees of the Ordnance Plant, sued in the
Jefferson Circuit Court of Kentucky on behalf of themselves and
others similarly situated for a declaratory judgment that the
Ordnance Plant is not within the City, and therefore the employees
are not subject to the tax levied on them by the City, and for an
injunction restraining the collection of the tax. The appellees
filed a special and a general demurrer which were overruled by the
court. The appellees having refused to plead further, the court
granted judgment in favor of the appellants on the pleadings,
holding that the appellants were not subject to the tax because the
area occupied by the United States could not be annexed by the
City, since it ceased to be a part of the Kentucky when exclusive
jurisdiction over it was acquired by the United States. Enforcement
of the taxing ordinance was enjoined. The Court of Appeals of
Kentucky reversed,
248
S.W.2d 340, the Circuit Court accordingly entered judgment for
the appellees, and the Court of Appeals affirmed, 249 S.W.2d 816.
We noted probable jurisdiction.
The appellants first contend that the City could not annex this
federal area, because it had ceased to be a part of Kentucky when
the United States assumed exclusive jurisdiction over it. With this
we do not agree. When the United States, with the consent of
Kentucky, acquired the property upon which the Ordnance Plant is
located, the property did not cease to be a part of Kentucky. The
geographical structure of Kentucky remained the same. In
rearranging the structural divisions of the Commonwealth, in
accordance with state law, the area became a part of the City of
Louisville, just as it remained a part of the County of Jefferson
and the Commonwealth of Kentucky. A state may conform its municipal
structures to its own plan so long as the state does not interfere
with the exercise of jurisdiction within
Page 344 U. S. 627
the federal area by the United States. Kentucky's consent to
this acquisition gave the United States power to exercise exclusive
jurisdiction within the area. A change of municipal boundaries did
not interfere in the least with the jurisdiction of the United
States within the area, or with its use or disposition of the
property. The fiction of a state within a state can have no
validity to prevent the state from exercising its power over the
federal area within its boundaries, so long as there is no
interference with the jurisdiction asserted by the Federal
Government. The sovereign rights in this dual relationship are not
antagonistic. Accommodation and cooperation are their aim. It is
friction, not fiction, to which we must give heed.
This question has been before other state courts, and the right
to annex has been upheld.
Wichita Falls v. Bowen, 143 Tex.
45, 52, 182 S.W.2d 695, 699;
County of Norfolk v. City of
Portsmouth, 186 Va. 1032, 1047, 45 S.E.2d 136, 142-143. We
agree with these cases, and hold that Louisville was free to annex
the Ordnance Plant area.
Even though the Ordnance Plant is within the boundaries of the
City of Louisville pursuant to the annexation, exclusive
jurisdiction over the area still remains with the United States,
except as modified by statute. U.S.Const., Art. I, § 8, cl. 17;
Surplus Trading Co. v. Cook, 281 U.
S. 647,
281 U. S. 652.
Within this jurisdiction, the right to tax income paid to employees
of the Government who worked at the Ordnance Plant was granted by 4
U.S.C. §§ 105-110, known as the Buck Act. Section 106 of this Act
reads as follows:
"§ 106. Same; income tax"
"(a) No person shall be relieved from liability for any income
tax levied by any State, or by any duly constituted taxing
authority therein, having jurisdiction to levy such a tax, by
reason of his residing within a Federal area or receiving income
from transactions
Page 344 U. S. 628
occurring or services performed in such area, and such State or
taxing authority shall have full jurisdiction and power to levy and
collect such tax in any Federal area within such State to the same
extent and with the same effect as though such area was not a
Federal area."
"(b) The provisions of subsection (a) shall be applicable only
with respect to income or receipts received after December 31,
1940."
4 U.S.C. (Supp. V) § 106.
Section 110(c) defines "income tax" as follows:
"(c) The term 'income tax' means any tax levied on, with respect
to, or measured by, net income, gross income, or gross
receipts."
4 U.S.C. (Supp. V) § 110(c).
Thus, the right is specifically granted to the City of
Louisville as a taxing authority of Kentucky to levy and collect a
tax measured by the income or earnings of any party
"receiving income from transactions occurring or services
performed in such area . . . to the same extent and with the same
effect as though such area was not a Federal area."
In other words, Kentucky was free to tax earnings just as if the
Federal Government were not there.
But the appellants next argue that the Court of Appeals erred in
holding that the City's occupational tax or license fee was an
"income tax" within the meaning of the Buck Act, though holding
that this tax or fee was not an income tax under the Constitution
of Kentucky.
Was this tax an "income tax" within the meaning of the Buck Act?
In a prior case, Kentucky had held this tax was not an "income tax"
within the meaning of the Constitution of Kentucky, but was a tax
upon the privilege of working within the City of Louisville.
City of Louisville v. Sebree, 308 Ky. 420, 429-431, 214
S.W.2d 248, 253-254. But the right to tax earnings within the
area
Page 344 U. S. 629
was not given Kentucky in accordance with the Kentucky law as to
what is an income tax. The grant was given within the definition of
the Buck Act, and this was for any tax measured by net income,
gross income, or gross receipts. In the instant case, the Kentucky
Court of Appeals correctly stated that the question was whether the
tax was an income tax within the meaning of the federal law. We
hold that the tax authorized by this ordinance was an income tax
within the meaning of the Buck Act. The City, it is conceded, can
levy such a tax within its boundaries outside the federal area. By
virtue of the Buck Act, the tax can be levied and collected within
the federal area, just as if it were not a federal area.
Since the area is within the boundaries of the City of
Louisville, and this tax is an income tax within the meaning of the
Buck Act, the tax is valid. The judgment is
Affirmed.
[
Footnote 1]
"3.010. Consent of state to acquisition of lands. The
Commonwealth of Kentucky consents to the acquisition by the United
States of all lands and appurtenances in this state heretofore
legally acquired, or that may be hereafter legally acquired by
purchase, or by condemnation, for the erection of forts, magazines,
arsenals, dock yards, post offices, custom houses, courthouses, and
other needful buildings, and for locks, dams, and canals in
improving the navigation of the rivers and waters within and on the
borders of Kentucky."
Ky.Rev.Stat. 1948.
[
Footnote 2]
"On and after July 1, 1950, every person, association,
corporation, or other entity engaged in any occupation, trade,
profession, or other activity in the City shall pay into the
Sinking Fund of the City for the purposes set forth under Section
91.200 of the Kentucky Revised Statutes as amended by an Act of the
General Assembly of 1950, an annual license fee for the privilege
of engaging in said activities, which license fee shall be measured
by one percentum of (a) all salaries, wages, commissions and other
compensation earned by every person in the City for work done or
services performed or rendered in the City, and (b) the net profits
of all businesses, professions, or occupations from activities
conducted in the City."
Ordinance 83, Series 1950, City of Louisville.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BLACK concurs,
dissenting.
I have not been able to follow the argument that this tax is an
"income tax" within the meaning of the Buck Act. It is, by its
terms, a "license fee" levied on "the privilege" of engaging in
certain activities. The tax is narrowly confined to salaries,
wages, commissions, and to the net profits of businesses,
professions, and occupations. Many kinds of income are excluded,
e.g., dividends, interests, capital gains. The exclusions
emphasize that the tax is on the privilege of working or doing
business in Louisville. That is the kind of a tax the Kentucky
Court of Appeals held it to be.
City of Louisville v.
Sebree, 308 Ky. 420, 214 S.W.2d 248. The Congress has not yet
granted local authorities the right to tax the privilege of working
for or doing business with the United States.