Under Michigan Public Act 189 of 1953, the City of Detroit
assessed against a private corporation engaged in business for
profit taxes based upon the value of real property owned by the
United States and leased to the corporation under a lease
permitting the corporation to deduct from the agreed rental any
such taxes paid by it but reserving to the Government the right to
contest the validity of such taxes. In effect, the Act provides
that, when tax exempt real property is used by a private party in a
business conducted for profit, such private party is subject to
taxation in the same amount and to the same extent as though he
owned the property; that such taxes shall be assessed and collected
in the same manner as taxes assessed to the owners of real
property, except that they shall not become a lien against the
property, but shall be a debt due from the user and collectible by
direct action; and that the Act shall not apply to federal property
for which payments are made in lieu of taxes in amounts equivalent
to taxes which otherwise might lawfully be assessed.
Held: the Act, on its face and as here applied, does
not invade the constitutional immunity of federal property from
taxation by the States or discriminate against the Government or
those with whom it deals. Pp.
355 U. S.
467-475.
(a) The Government's constitutional immunity does not shield
private parties from state taxes imposed on them merely because
part or all of the financial burden of the taxes eventually falls
on the Government. Pp.
355 U. S. 469,
355 U. S.
472-473.
(b) The tax here involved is not levied on the Government or its
property, but on the private lessee who uses the property in a
business conducted for profit. P.
355 U. S.
469.
(c) The fact that the tax is measured by the value of the
property used does not justify treating it as a mere contrivance to
tax the property itself. Pp.
355 U. S.
470-471.
(d)
United States v. Allegheny County, 322 U.
S. 174, distinguished. Pp.
355 U. S.
471-472.
(e) Neither on its face nor as here applied does this tax
operate so as to discriminate against the Federal Government or
those with whom it deals. Pp.
355 U. S.
473-474.
Page 355 U. S. 467
(f) A different result is not required by the fact that the Act
creates an exception to the tax on users where payments in lieu of
taxes are made by the United States "in amounts equivalent to taxes
which might otherwise be lawfully assessed" P. 474,
n 6.
(g) To hold that the tax imposed here on private business
violates the Government's constitutional tax immunity would
improperly impair the taxing power of the State. P.
355 U. S.
475.
345 Mich. 601,
77
N.W.2d 79, affirmed.
MR. JUSTICE BLACK delivered the opinion of the Court.
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. [
Footnote 1]
Page 355 U. S. 468
Here, the United States was the owner of an industrial plant in
Detroit, Michigan. It leased a portion of that plant to the
Borg-Warner Corporation at a stipulated annual rental for use in
the latter's private manufacturing business. The lease provided
that Borg-Warner could deduct from the agreed rental any taxes paid
by it under Public Act 189 or similar state statutes enacted during
the term of the lease, but the Government reserved the right to
contest the validity of such taxes.
On January 1, 1954, a tax was assessed against Borg-Warner under
Public Act 189. The tax was based on the value of the property
leased and computed at the rate used for calculating real property
taxes. Under protest, Borg-Warner paid part of the assessment.
Subsequently the United States and Borg-Warner filed this suit in a
state court for refund of the amount paid. They charged that the
tax was repugnant to the Constitution of the United States because
it imposed a levy upon government property
Page 355 U. S. 469
and discriminated against those using such property. The lower
court, however, upheld the tax, and the Michigan Supreme Court
affirmed. 345 Mich. 601,
77 N.W.2d
79. It ruled that the tax was neither discriminatory nor on the
property of the United States, but instead was a tax on the
lessee's privilege of using the property in a private business
conducted for profit. We noted probable jurisdiction of an appeal
by the United States and Borg-Warner from this decision. 352 U.S.
962.
This Court has held that a State cannot constitutionally levy a
tax directly against the Government of the United States or its
property without the consent of Congress.
McCulloch
v. Maryland, 4 Wheat. 316;
Van Brocklin v.
Tennessee, 117 U. S. 151. At
the same time, it is well settled that the Government's
constitutional immunity does not shield private parties with whom
it does business from state taxes imposed on them merely because
part or all of the financial burden of the tax eventually falls on
the Government.
See, e.g., James v. Dravo Contracting Co.,
302 U. S. 134;
Graves v. New York ex rel. O'Keefe, 306 U.
S. 466;
Alabama v. King & Boozer,
314 U. S. 1. Of
course, in determining whether a tax is actually laid on the United
States or its property, this Court goes beyond the bare face of the
taxing statute to consider all relevant circumstances.
The Michigan statute challenged here imposes a tax on private
lessees and users of tax exempt property who use such property in a
business conducted for profit. Any taxes due under the statute are
the personal obligation of the private lessee or user. The owner is
not liable for their payment, nor is the property itself subject to
any lien if they remain unpaid. So far as the United States is
concerned as the owner of the exempt property used in this case, it
seems clear that there was no attempt to levy against its property
or treasury.
Page 355 U. S. 470
Nevertheless, the Government argues that, since the tax is
measured by the value of the property used, it should be treated as
nothing but a contrivance to lay a tax on that property. We do not
find this argument persuasive. A tax for the beneficial use of
property, as distinguished from a tax on the property itself, has
long been a commonplace in this country.
See Henneford v. Silas
Mason Co., 300 U. S. 577,
300 U. S.
582-583. In measuring such a use tax, it seems neither
irregular nor extravagant to resort to the value of the property
used -- indeed, no more so than measuring a sales tax by the value
of the property sold. Public Act 189 was apparently designed to
equalize the annual tax burden carried by private businesses using
exempt property with that of similar businesses using nonexempt
property. Other things being the same, it seems obvious enough that
use of exempt property is worth as much as use of comparable taxed
property during the same interval. In our judgment, it was not an
impermissible subterfuge, but a permissible exercise of its taxing
power, for Michigan to compute its tax by the value of the property
used.
A number of decisions by this Court support this conclusion. For
example, in
Curry v. United States, 314 U. S.
14, we upheld unanimously a state use tax on a
contractor who was using government-owned materials although the
tax was based on the full value of those materials. Similarly, in
Esso Standard Oil Co. v. Evans, 345 U.
S. 495, the Court held valid a state tax on the
privilege of storing gasoline even though that part of the tax
which was challenged was measured by the number of gallons of
government-owned gasoline stored with the taxpayer. While it is
true that the tax here is measured by the value of government
property, instead of by its quantity, as in
Esso, such
technical difference has no meaningful significance in determining
whether the Constitution
Page 355 U. S. 471
prohibits this tax. Still other cases further confirm the
proposition that it may be permissible for a State to measure a tax
imposed on a valid subject of state taxation by taking into account
government property which is itself tax exempt.
See, e.g., Home
Insurance Co. of New York v. New York, 134 U.
S. 594;
Plummer v. Coler, 178 U.
S. 115;
Educational Films Corp. of America v.
Ward, 282 U. S. 379;
Pacific Co. v. Johnson, 285 U. S. 480,
285 U. S.
489-490.
In urging that the tax assessed here be struck down, the
appellants rely primarily on
United States v. Allegheny
County, 322 U. S. 174, but
we do not think that case is at all controlling. In
Allegheny, the Court ruled invalid a tax which the State
did not contend was "anything other than the old and widely used
ad valorem general property tax" to the extent it was laid
on government property in the hands of a private bailee. Reviewing
all the circumstances, the Court concluded that the tax was simply
and forthrightly imposed on the property itself, not on the
privilege of using or possessing it. In carefully reserving the
question whether the bailee could be taxed for exercising such
privileges, the Court stated:
"Whether such a right of possession and use in view of all the
circumstances could be taxed by appropriate proceedings we do not
decide."
"
* * * *"
"Actual possession and custody of Government property nearly
always are in someone who is not himself the Government, but acts
in its behalf and for its purposes. He may be an officer, an agent,
or a contractor. His personal advantages from the relationship by
way of salary, profit, or beneficial personal use of the property
may be taxed as we have held."
322 U.S. at
322 U. S. 184,
322 U. S.
186-187.
Page 355 U. S. 472
Here, we have a tax which is imposed on a party using tax exempt
property for its own "beneficial personal use" and "advantage."
[
Footnote 2]
It is undoubtedly true, as the Government points out, that it
will not be able to secure as high rentals if lessees are taxed for
using its property. But, as this Court has ruled in
James v.
Dravo Contracting Co., 302 U. S. 134;
Alabama v. King & Boozer, 314 U. S.
1, and numerous other cases, [
Footnote 3] the imposition of an increased financial
burden on the Government does not, by itself, vitiate a state tax.
King & Boozer offers a striking example. There, a
private party, acting under contract with the United States,
purchased materials which the contract required him to transfer to
the Government. At the same time, the Government agreed to pay his
costs plus a fixed fee, so a state excise levied on his purchase
was passed directly and completely to the Government. Yet, despite
the immediate financial burden imposed on the United States, this
Court, without dissent, upheld the tax.
We are aware, of course, that the general principles laid down
in
Dravo, King & Boozer, and subsequent cases do not
resolve all the difficulties in the area of intergovernmental tax
immunity, but they were adopted by this
Page 355 U. S. 473
Court, with the full support of the Government, as the least
complicated, the most workable and the proper standards for
decision in this much litigated and often confused field, and we
adhere to them. [
Footnote
4]
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. 17 U.
S. 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. [
Footnote 5] The
class defined is not an arbitrary or invidiously discriminatory
one. As suggested before, the the legislature apparently was trying
to equate the tax burden imposed on private enterprise using exempt
property with that carried by similar business using taxed
property. Those using exempt property are required to pay no
greater tax than
Page 355 U. S. 474
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.
Cf. Henneford v.
Silas Mason Co., 300 U. S. 577,
300 U. S.
583-585. Nor is there any showing that the tax is in
fact administered to discriminate against those using federal
property. To the contrary, undisputed evidence introduced by
appellees demonstrates that lessees of other exempt property have
also been taxed. [
Footnote
6]
Today, the United States does business with a vast number of
private parties. In this Court, the trend has been to reject
immunizing these private parties from nondiscriminatory state taxes
as a matter of constitutional law.
Cf. Penn Dairies v. Milk
Control Commission, 318 U. S. 261,
318 U. S. 270.
Of course, this is not to say that Congress, acting within the
proper scope of its power, cannot confer immunity by statute where
it does not exist constitutionally. Wise and flexible adjustment of
intergovernmental tax immunity calls for political and economic
considerations of the greatest difficulty and delicacy. Such
complex problems are ones which Congress is best qualified to
resolve. As the Government points out, Congress has already
extensively legislated in this area by permitting
Page 355 U. S. 475
States to tax what would have otherwise been immune. To hold
that the tax imposed here on a private business violates the
Government's constitutional tax immunity would improperly impair
the taxing power of the State.
Affirmed.
[For opinion of MR. JUSTICE FRANKFURTER,
see post, p.
355 U. S.
495.]
[For opinion of MR. JUSTICE HARLAN,
see post, p.
355 U. S.
505.]
[
Footnote 1]
Now compiled in 6 Mich.Stat.Ann.1950 (1957 Cum.Supp.), §§ 7.7(5)
and (6). In full, the Act reads:
"AN ACT to provide for the taxation of lessees and users of tax
exempt property."
"
* * * *"
"Sec. 1. When any real property which for any reason is exempt
from taxation is leased, loaned, or otherwise made available to and
used by a private individual, association, or corporation in
connection with a business conducted for profit, except where the
use is by way of a concession in or relative to the use of a public
airport, park, market, fair ground, or similar property which is
available to the use of the general public [
sic], shall be
subject to taxation in the same amount and to the same extent as
though the lessee or user were the owner of such property:
Provided, however, That the foregoing shall nor apply to federal
property for which payments are made in lieu of taxes in amounts
equivalent to taxes which might otherwise be lawfully assessed or
property of any state-supported educational institution."
"
* * * *"
"Sec. 2. Taxes shall be assessed to such lessees or users of
real property and collected in the same manner as taxes assessed to
owners of real property, except that such taxes shall not become a
lien against the property. When due, such taxes shall constitute a
debt due from the lessee or user to the township, city, village,
county and school district for which the taxes were assessed, and
shall be recoverable by direct action of assumpsit."
[
Footnote 2]
The Government also places reliance on
Macallen Co. v.
Massachusetts, 279 U. S. 620. The
weight of that case as a precedent was substantially impaired by
its narrow distinction in
Educational Films Corp. of America v.
Ward, 282 U. S. 379,
282 U. S. 392,
and the reasoning of the Court in
Pacific Co. v. Johnson,
285 U. S. 480,
285 U. S. 495.
Later, in
New York ex rel. Northern Finance Corp. v.
Lynch, 290 U.S. 601, a case which seems indistinguishable from
Macallen on its facts, the Court, in a per curiam opinion, upheld
the same kind of state tax which it had struck down in
Macallen.
[
Footnote 3]
See e.g., Graves v. New York ex rel. O'Keefe,
306 U. S. 466,
306 U. S.
485-486;
Helvering v. Gerhardt, 304 U.
S. 405,
304 U. S.
420-422;
Helvering v. Mountain Producers Corp.,
303 U. S. 376;
Metcalf & Eddy v. Mitchell, 269 U.
S. 514.
[
Footnote 4]
In its brief in
King & Boozer, the Government
strongly urged the Court to abandon whatever remained of the
"economic burden" test, which at one time was used to range far
afield in striking down state taxes, because that test was
"illusory and incapable of consistent application."
[
Footnote 5]
In somewhat greater detail, Michigan statutes exempt from real
property taxes all property belonging to the Federal Government,
the State, political subdivisions of the State, charitable
organizations, educational or scientific institutions, fraternal or
secret societies (if used for charitable purposes), churches,
libraries, religious societies, cemeteries, state or county
agricultural societies, certain corporations making payments to the
State in lieu of taxes, nonprofit trusts (if used for hospital or
public health purposes), boy or girl scout organizations (up to 160
acres), certain veterans' homes, and land dedicated to public use.
See 6 Mich.Stat.Ann.1950, § 7.7.
[
Footnote 6]
The Government points to the fact that Public Act 189 creates an
exception to the tax on users where payments are made by the United
States "in lieu of taxes in amounts equivalent to taxes which might
otherwise be lawfully assessed" as manifesting a purpose to tax
government property. But this exemption, which, if anything,
operates in the Government's favor, avoids the possibility of a
double contribution to the revenues of the State where private
parties use federal property for their own commercial purposes.
Moreover, it is not at all inconceivable that the Government might,
in one way or another, pass the economic burden of such in-lieu
payments to taxpayer using its property even though he was also
compelled to pay the tax imposed by Public Act 189.
MR. JUSTICE WHITTAKER, with whom MR. JUSTICE BURTON joins,
dissenting.
I respectfully dissent. Understanding of the bases of my
convictions and reasons for doing so requires a rather full
treatment of the case.
The United States owned an industrial plant in Detroit which it
had leased, for a short term, to Borg-Warner at a fixed annual
rental, for use in its private business. The lease provided that,
if the lessee was required to pay any taxes upon the property to
the Michigan, under the statute quoted
infra or otherwise,
during the term of the lease, the lessee might deduct the same from
the rents, but the Government reserved the right to contest the
validity of any such taxes.
The Michigan had recently enacted a statute, known as Public Act
189 of 1953 (6 Mich.Stat.Ann.1957 Cum.Supp., § 7.7(5) and (6))
which, in pertinent part, says:
"
Taxation of Lessees and Users of Tax Exempt Real
Property"
"SECTION 1. When any real property which for any reason
is
exempt from taxation is leased, loaned or otherwise made
available to
and used by a private
Page 355 U. S. 476
individual, association or corporation in connection with a
business conducted for profit, except where the use is by way of a
concession in or relative to the use of a public . . . park . . .
or similar property which is available to the use of the general
public, shall [
sic] be subject to taxation
in the same
amount and to the same extent as though the lessee or user were the
owner of such property: Provided, however, that the foregoing
shall not apply
to federal property for which payments are
made in lieu of taxes in amounts equivalent to taxes
which
might otherwise be lawfully assessed. . . ."
"SEC. 2. Taxes shall be assessed to such lessees or users of
real property and collected in the same manner as taxes
assessed to owners of real property, except that such
taxes
shall not become a lien against the property. When
due, such taxes shall constitute a debt due from the lessee or user
to the township, city, village, county and school district for
which the taxes were assessed, and shall be recoverable by direct
action of
assumpsit."
(Emphasis supplied.)
Acting under that statute, the City of Detroit levied a tax
against the lessee computed on the assessed value of the
Government's industrial plant and calculated in the same manner and
at the same rate applicable to all real estate in Michigan. Protest
was made without avail, and, after administrative remedies were
exhausted without success, the tax was paid and the United States
and the lessee, Borg-Warner, sued for refund in the state court,
contending that the tax was repugnant to the Constitution because
it constituted a tax upon property owned by the Government and
discriminated against the lessee. The trial court sustained the
tax, and the Supreme Court of Michigan affirmed (345 Mich. 601,
77 N.W.2d
79), holding that the tax was neither on property owned by the
United States nor discriminatory against the lessee,
Page 355 U. S. 477
but was, instead, a nondiscriminatory tax on the lessee's
privilege of using the Government's property in private business
for profit. The case comes here on appeal.
The Court today affirms the decision and judgment of the
Michigan courts, and sustains the tax. I believe that decision is
not only unsound in principle, but is also opposed to the
precedents, and that appellants are quite right in both of their
contention. To me, it is evident that this tax has been levied, in
major part, at least, directly (though, perhaps, indirectly in
form) upon a property interest of the Government, and is therefore
constitutionally invalid under
McCulloch v.
Maryland, 4 Wheat. 316, and the myriad of uniformly
conforming cases decided since its rendition in 1819.
In determining the nature of a tax we, are not bound by, nor
even permitted solely to look to, labels affixed by the State, but,
rather, as pointed out in
United States v. Allegheny
County, 322 U. S. 174,
322 U. S.
184:
"'Where a federal right is concerned, we are not bound by the
characterization given to a state tax by state courts or
Legislatures, or relieved by it from the duty of considering the
real nature of the tax and its effect upon the federal right
asserted.'
Carpenter v. Shaw, 280 U. S.
363,
280 U. S. 367-368."
Examination of the nature of this tax, and of its effect upon
the federal rights asserted by appellants, shows that it purports
to be a tax upon "real property which . . . is exempt from
taxation," if it is "made available to and used by a private
individual . . . or corporation in connection with a business
conducted for profit," including
"federal property for which payments [have not been] made in
lieu of taxes in amounts equivalent to [general ad valorem] taxes
which might otherwise be lawfully assessed"
(§ 1), and the tax is to be "assessed to such lessees or users .
. . in the same manner as taxes [are] assessed to owners of real
property," though the tax "shall
Page 355 U. S. 478
not become a lien against the property," but it "shall
constitute a debt due from the lessee or user." § 2.
Thus, the tax, as it applies to this case, is computed not upon
the value of the lessee's short-term leasehold estate in -- nor,
hence, upon the value of its term right to use -- the federal
property, but, rather, is computed upon the entire value of the
whole of the federal property, in the same manner and at the same
rate and amount, "as though the lessee or user were the owner of
such property" (§ 1), but -- and I think this is of particular
significance -- the tax is not to "apply to federal property"
if the Government waives its sovereign immunity and pays
general
ad valorem taxes on the property, or the
equivalent. Does not this really admit that the tax, in major part
at least, is directly imposed upon the Government's property
interests? The fact that the statute does not create a lien "on
Government property itself, which could not be sustained in any
event, hardly establishes that it is not being taxed. . . ."
United States v. Allegheny County, supra, at
322 U. S.
187.
Disregarding form and labels, and looking to substance, it is, I
think, crystal clear that this is a transparent direct imposition
upon the Government's property interests (as distinguished from the
lessee's leasehold estate) in this real estate of the general
ad valorem real property tax commonly assessed on, and
against the owners of, all real estate in Michigan, but under the
guise of a tax upon the lessee for the
privilege (as
construed by the majority) -- granted by the Federal Government,
not the State -- of using (though it will be noted, the statute
does not in terms tax "use," but rather taxes "real property,"
see § 1) the Government's property, and, thus, the statute
seeks to accomplish by indirection that which the State is
constitutionally prohibited from doing directly. Such attempted
evasion of the Government's constitutional immunity from state
taxation cannot legally be permitted
Page 355 U. S. 479
to succeed. As said in
Miller v. City of Milwaukee,
272 U. S. 713,
272 U. S.
715:
"If the avowed purpose or self-evident operation of a [state
taxing] statute is to follow the bonds of the United States and to
make up for [the State's] inability to reach them directly by
indirectly achieving the same result, the statute must fail even
if, but for its purpose or special operation, it would be perfectly
good."
In
Educational Films Corp. of America v. Ward,
282 U. S. 379,
282 U. S. 393,
after quoting the above language from the
Miller case, the
Court said:
"But, as the court in that case was careful to point out, in
language later quoted with approval in
Macallen Co. v.
Massachusetts [
279 U.S.
620,
279 U. S. 631],"
"A tax very well may be upheld as against any casual effect it
may have upon the bonds of the United States when passed with a
different intent and not aimed at them. . . ."
"Here, the Michigan statute plainly says that the tax shall"
"apply to federal property for which payments are [not] made in
lieu of taxes in amounts equivalent to taxes which might otherwise
be lawfully assessed"
(§ 1), and, hence, it cannot be said that this tax is "casual
[in its] effect . . . upon the [property] of the United States,"
and it must be said that the tax is plainly "aimed at [it]."
Educational Films Corp. of America v. Ward, supra, at
282 U. S.
393.
The majority rely principally upon
Henneford v. Silas Mason
Co., 300 U. S. 577;
Esso Standard Oil Co. v. Evans, 345 U.
S. 495, and, as does also MR. JUSTICE HARLAN in his
separate opinion, upon
Curry v. United States,
314 U. S. 14, but,
as I read them, those cases do not at all support the Court's
conclusion. In
Henneford, this Court merely held that a
tax imposed by a State upon its citizen for his use within the his
own property which he had purchased in another State and imported
in interstate commerce was not a prohibited tax on such commerce,
which had earlier ended. It did not in any way involve a tax upon
government property interests. The
Esso case
Page 355 U. S. 480
simply upheld a state privilege tax imposed not upon any
property interest of the Government, but directly upon a storer of
gasoline, on a gallonage basis, for his privilege of conducting
that business within the State. One of its customers was the
Government, which had,
by contract, agreed to reimburse
Esso for any tax imposed upon it by the State in consequence of
having stored the Government's gasoline. Thus, the tax was not
imposed by the State upon the Government's property interests, but
upon Esso, which did not share the Government's immunity from state
taxation, and the obligation of the Government derived not from the
statute, but
through operation of the contract. The
Curry case merely held that government cost-plus
contractors who had imported into the State certain materials which
they used in the performance of their contract were not entitled to
share the Government's constitutional immunity from a state use
tax, and said:
"If the state law lays the tax upon them, rather than the
[Government] with whom they enter into a cost-plus contract like
the present one, then it affects the Government . . . only as the
economic burden is shifted to it
through operation of the
contract."
314 U.S. at
314 U. S. 18.
(Emphasis supplied.) Here, the tax is imposed by the Michigan
statute directly upon the Government's property interests --
including its right to the use of its property -- and it is not
suffered by any voluntary assumption or "through operation of [a]
contract." [
Footnote 2/1]
In
United States v. Allegheny County, supra, this Court
pointed out that
"Mesta [a lessee of government chattels] has some legal and
beneficial interest in [the
Page 355 U. S. 481
Government's] property. It is a bailee for mutual benefit.
[
Footnote 2/2]"
The Court then proceeded to say:
"Whether such a right of possession and use in view of all the
circumstances could be taxed by appropriate proceedings we do not
decide."
Id. at
322 U. S. 186.
However, the Court did proceed to decide that the Government's
property interests in the chattels, distinguished from the bailee's
interest therein, could not legally be subjected to any state tax.
It said:
". . . the State has made no effort to
segregate Mesta's
interest and tax it. The
full value of the property,
including the whole ownership interest,
as well as whatever
value proper appraisal might attribute to the leasehold, was
included in Mesta's assessment. . . . We think, however, that
the Government's property interests are not taxable either
to it or to its bailee."
Id. at
322 U. S. 187.
(Emphasis supplied.)
Here, it is undeniable that (1) the Government owned this
industrial plant, (2) the only element of economic value in its
ownership of the plant is its right to use it. That right of use
was a government property interest, and any state tax on that right
of use is a tax on an instrumentality of the United States, and,
hence, invalid.
See McCulloch v. Maryland, supra, and
Allegheny, at
322 U. S.
186-189.
Before the lease, only one estate existed in the plant, namely,
the Government's ownership in fee, which included its inherent
right to use, and to let the use of, that property. That estate
was, and continued to be, a property interest of the Government, to
the fruits of which it was and is exclusively entitled, and its
right
Page 355 U. S. 482
of use, so let to its lessee, in no way derived from any
privilege granted -- or that could be withheld -- by the State,
but, rather, derived solely from the United States, and thus was
not a privilege which the State did or could grant or withhold,
nor, hence, regulate or tax; but, on the contrary, it remained
immune from state taxation, as pointed out in
Allegheny:
"A State may tax personal property, and might well tax it to one
in whose possession it was found, but it could hardly tax one of
its citizens because of [property] of the United States which [was]
in his possession as . . . agent, or contractor. We hold
that Government-owned property,
to the full extent of the
Government's interest therein, is immune from taxation, either as
against the Government itself or as against one who holds it as a
bailee."
Id. at
322 U. S.
188-189. (Emphasis supplied.)
By the lease, the Government, in exercise of its right to use,
and to let the use of, its property, carved from its fee a
subservient leasehold estate and vested the same in the lessee.
That leasehold estate was private local property of the lessee, and
therefore was subject to state regulation, and hence to
ad
valorem or privilege of use taxation by the State in such
measure as is not unequal, unreasonable, or confiscatory -- on the
basis of the value of the leasehold estate being taxed or used as
the measure of the tax. [
Footnote
2/3]
Page 355 U. S. 483
Here, however, the statute does not purport to segregate the
value of the leasehold estate from the Government's estate in fee,
subject to the lease, in this property, but rather computes and
imposes the tax on both estates "as though the lessee or user were
the owner of such property." § 1. It therefore seems quite plain
that the statute imposes the tax on the Government's property
interest, which is immune from state taxation, as well as upon the
local property of the lessee in its leasehold estate which is not
exempt from state taxation, and thus lays a forbidden burden upon
instrumentalities of the United States.
McCulloch
v. Maryland, 4 Wheat. 316.
For these reasons, I would reverse the decision and judgment of
the Michigan court.
[
Footnote 2/1]
It is immaterial to the question here that the lease authorized
the lessee to deduct from the rentals any taxes it might be
required to pay under this statute during the term of the lease,
because the direct thrust of the tax
upon the Government's
right of use of its property, so let to the lessee, arises
from the terms of the statute independently of such contractual
assumption.
[
Footnote 2/2]
It seems quite certain that a "bailee" of chattels for mutual
benefit stands in no different position or relation to the
Government than a "lessee," and, in fact, the Mesta Company held
the chattels under a lease in that case.
[
Footnote 2/3]
The matter is so stated to point up what should be the obvious
necessity, in levying any tax based on or measured by the value of
a limited estate in property, of first identifying, and determining
the nature and extent of,
the estate or interest of the
taxpayer therein, which, naturally, must be done before any
valuation can properly be ascribed thereto, and, hence, before it
can be known whether the tax is or is not equal, reasonable, and
nonconfiscatory, and therefore meets or fails to meet state tests
and Fourteenth Amendment Due Process.