Michigan municipalities assessed a tax against a subcontractor
under a prime contract between the United States and two other
private corporations for the manufacture of airplanes and airplane
parts. The tax was based in part on the value of materials and work
in process actually in the possession of the subcontractor but
legal title to which had paid to the United States under the terms
of the subcontract upon the making of partial payments
therefor.
Held: this tax does not infringe the Federal
Government's constitutional immunity from state taxation or
discriminate against the Government, its property or those with
whom it does business.
United States v. City of Detroit,
ante, p.
355 U. S. 466;
United States v. Township of Muskegon, ante, p.
355 U. S. 484. Pp.
355 U. S.
490-495.
(a) As applied, these taxes were not levied against the United
States or its property, but were levied on a private party
possessing government property which it was using or possessing in
the course of its own business. Pp.
355 U. S.
492-493.
(b) So far as constitutional tax immunity is concerned, there is
no essential difference between taxing a private party for using
property he possesses and taxing him for possessing property he
uses when, in both instances, he uses the property for his own
private ends. P.
355 U. S.
493.
(c) The particular state taxing statutes involved here do not
expressly state that the person in possession is taxed "for the
privilege of using or possessing" personal property; but to strike
down a tax on the possessor because of such verbal omission would
only prove a victory for empty formalisms. P.
355 U. S.
493.
(d) The Government eventually will feel the financial burden of
at least some of this tax, but the imposition of an increased
financial burden on the Government does not, by itself, invalidate
a state tax. P.
355 U. S.
494.
Page 355 U. S. 490
(e)
United States v. Allegheny County, 322 U.
S. 174, distinguished. Pp.
355 U. S.
494-495.
(f) This tax involves no discrimination against the Federal
Government, its property or those with whom it does business, no
crippling obstruction of any of its functions, no sinister effort
to hamstring its power, and not even the slightest interference
with its property. P.
355 U. S.
495.
234 F.2d 380, reversed and remanded.
MR. JUSTICE BLACK delivered the opinion of the Court.
This is the third in a series of cases from the State of
Michigan decided today involving a claim of constitutional tax
immunity.
Page 355 U. S. 491
In 1952, Murray Corporation was acting as a subcontractor under
a prime contract for the manufacture of airplane parts between two
other private companies and the United States. From time to time,
Murray received partial payments from the two prime contractors as
it performed its obligations under the subcontract. By agreement,
title to all parts, materials, and work in process acquired by
Murray in performance of the subcontract vested in the United
States upon any such partial payment, even though Murray retained
possession.
On January 1, 1952, the City of Detroit and the County of Wayne,
Michigan, each assessed a tax against Murray which in part was
based on the value of materials and work in process in its
possession to which the United States held legal title under the
title-vesting provisions of the subcontract. [
Footnote 1] Murray paid this part of each tax
under protest, and then sued in a Federal District Court for a
refund from the city and county. It contended that full title to
the property was in the United States, and that the taxes infringed
the Federal Government's immunity from state taxation to the extent
they were based on such property. The Government intervened on
Murray's behalf. On motion for summary judgment, the District Court
entered judgment for Murray, and the Court of Appeals for the Sixth
Circuit affirmed. 234 F.2d 380. From this decision, the city and
county both appealed and petitioned for certiorari. We granted
certiorari and
Page 355 U. S. 492
postponed the question of jurisdiction on appeal to the hearing
on the merits. 352 U.S. 963; 352 U.S. 960. The appeal was proper.
28 U.S.C. § 1254(2).
We believe that this case is also controlled by the principles
expressed in our opinions in Nos. 26 and 37,
ante, pp.
355 U. S. 466,
355 U. S. 484, and
that the taxes challenged here do not violate the Constitution.
[
Footnote 2] These taxes were
not levied directly against the United States or its property. To
the contrary, they were imposed on Murray, a private corporation,
and there was no effort to hold the United States or its property
accountable. In fact, Michigan expressly exempts from taxation all
public property belonging to the United States, 6 Mich.Stat.Ann.,
1950, § 7.7, Pub.Acts 1893, No. 206, § 7 as amended, Pub.Acts 1949,
No. 55, and these taxes were assessed, from the beginning, "subject
to prior rights of the Federal Government."
Cf. S.R.A. v.
Minnesota, 327 U. S. 558,
City of New Brunswick v. United States, 276 U.
S. 547.
The taxes imposed on Murray were styled a personal property tax
by the Michigan statutes, and it relies upon this to support its
contention that they were actually laid against government
property. However, in passing on the constitutionality of a state
tax, "we are concerned only with its practical operation, not its
definition or the precise form of descriptive words which may be
applied to it."
Lawrence v. State Tax Commission,
286 U. S. 276,
286 U. S. 280.
Consequently, in determining whether these taxes violate the
Government's constitutional immunity, we must look through form and
behind labels to substance. This is at least as true to uphold a
state tax as to strike one down.
Cf. Wisconsin v. J. C. Penney
Co., 311 U. S. 435,
311 U. S.
443-445;
Page 355 U. S. 493
Capitol Greyhound Lines v. Brice, 339 U.
S. 542. Due regard for the State's power to tax requires
no less. As applied -- and, of course, that is the way they must be
judged -- the taxes involved here imposed a levy on a private party
possessing government property which it was using or processing in
the course of its own business. It is not disputed that Michigan
law authorizes the taxation of the party in possession under such
circumstances.
Cf. Detroit Shipbuilding Co. v. Detroit,
228 Mich. 145, 199 N.W. 645;
City of Detroit v. Gray, 314
Mich. 516, 22 N.W.2d 771.
In their practical operation and effect, the taxes in question
are identical to those which we upheld in Nos. 26 and 37 on persons
using exempt real property. We see no essential difference, so far
as constitutional tax immunity is concerned, between taxing a
person for using property he possesses and taxing him for
possessing property he uses, when, in both instances, he uses the
property for his own private ends. Nor have we been pointed to
anything else which would bar a State from taxing possession in
such circumstances.
Cf. Carstairs v. Cochran, 193 U. S.
10. Lawful possession of property is a valuable right
when the possessor can use it for his own personal benefit.
It is true that the particular Michigan Taxing statutes involved
here do not expressly state that the person in possession is taxed
"for the privilege of using or possessing" personal property, but
to strike down a tax on the possessor because of such verbal
omission would only prove a victory for empty formalisms. And empty
formalisms are too shadowy a basis for invalidating state tax laws.
Cf. Henneford v. Silas Mason Co., 300 U.
S. 577,
300 U. S. 582.
In the circumstances of this case, the State could obviate such
grounds for invalidity by merely adding a few words to its
statutes. Yet their operation and practical effect would remain
precisely the same.
Page 355 U. S. 494
There is no claim that the challenged taxes discriminate against
persons holding government property. To the contrary, the tax is a
general tax which applies and has been applied throughout the
State. If anything, the economic burden on the United States is
more remote and less certain than in other cases where this Court
has upheld taxes on private parties. Of course, the Government will
eventually feel the financial burden of at least some of the tax,
but the one principle in this area which has heretofore been
clearly settled is that the imposition of an increased financial
burden on the Government does not, by itself, invalidate a state
tax.
The respondents rely heavily on
United States v. Allegheny
County, 322 U. S. 174.
Petitioners, on the other hand, contend that the decision in
Allegheny is inconsistent with the general trend of our
decisions in this field, that it has already been distinguished to
the point where it retains no meaningful vitality, and that it is
erroneous. However that may be, we do not think that case is
controlling, essentially for the reasons set forth in
United
States v. City of Detroit, ante, p.
355 U. S. 466. In
Allegheny, the Court emphasized that the tax against Mesta
Machine Company was, in its view, a general property tax laid on
government property as such. The Court pointed out that the State
had "made no effort to segregate Mesta's interest and tax it." The
question was expressly reserved whether the State could tax a
person possessing government property for the possession and use of
such property in connection with his own profitmaking activities.
Here, however, state law specifically authorizes assessment against
the person in possession. And the taxing authorities were careful
not to attempt to tax the Government's interest in the
property.
In all important particulars, the taxes imposed here are very
similar to that upheld in
Esso Standard Oil Co. v. Evans,
345 U. S. 495, on
the storage of gasoline for the
Page 355 U. S. 495
United States. A tax on storage is not intrinsically different
from a tax on possession, at least where, in both instances, the
private party is holding the property for his own gain. The tax in
Esso was measured by the quantity of government gasoline
stored, while the taxes here are measured by the value of
government property possessed, but such technical distinction is of
no significance in determining whether the Constitution bars this
tax and is completely unrelated to any rational basis for
governmental tax immunity.
We find nothing in the Constitution which compels us to strike
down these state taxes. There was no discrimination against the
Federal Government, its property or those with whom it does
business. There was no crippling obstruction of any of the
Government's functions, no sinister effort to hamstring its power,
not even the slightest interference with its property.
Cf.
17 U. S.
Maryland, 4 Wheat. 316. In such circumstances, the Congress is
the proper agency, as we pointed out in
United States v. City
of Detroit, to make the difficult policy decisions necessarily
involved in determining whether and to what extent private parties
who do business with the Government should be given immunity from
state taxes.
The judgment of the Court of Appeals is reversed, and the cause
is remanded for further proceedings not inconsistent with this
opinion.
It is so ordered.
* Together with No. 38,
Continental Motors Corp. v. Township
of Muskegon et al., also on appeal from the same Court.
[
Footnote 1]
The relevant statutory provisions are set forth in full in 6
Mich.Stat.Ann.1950, §§ 7.1, 7.10, 7.81, and Tit. VI, c. II, § 1,
and Tit. VI, c. IV, §§ 1, 7, 26, 27, of the Charter of the City of
Detroit. They provide in part that
"The owners or persons in possession of any personal property
shall pay all taxes assessed thereon. . . . In case any person by
agreement or otherwise ought to pay such tax, or any part thereof,
the person in possession who shall pay the same may recover the
amount from the person who ought to have paid the same. . . ."
[
Footnote 2]
For purposes of this case, we assume that the United States had
full title to the property, not just a bare security interest.
But cf. S.R.A. Inc. v. Minnesota, 327 U.
S. 558,
aff'g 213 Minn. 487, 7 N.W.2d 484, and
219 Minn. 493, 18 N.W.2d 442;
Land O'Lakes Dairy Co. v. Wadena
County, 338 U.S. 897,
aff'g 229 Minn. 263, 39 N.W.2d
164;
Offutt Housing Co. v. Sarpy County, 351 U.
S. 253.
Opinion of MR. JUSTICE FRANKFURTER.*
Adjustment of the interpenetrating factors involved in the
Nation-State relation of our federal system, insofar as they are
amenable to adjudication, is a subtle and complicated process. It
precludes easy application even
Page 355 U. S. 496
of accepted legal formulas. Particularly is this true when the
taxing power of the States is asserted against claims of intrusion
into areas reserved to the Nation. In this domain, it is asking too
much for rules of certainty and simplicity in application that are
hardly to be found in any live branch of the law. Even the Rule
Against Perpetuities has only precarious certainty. The necessity
for judicial accommodation between the intersecting interests of
the States' power to tax and the concerns of the Nation in carrying
on its government presents problems solutions for which cannot be
sought by a formula assuring a bright, straight line of decisions.
Accordingly, we have been admonished in the leading modern case
dealing with these problems that they require
"the observing of close distinctions in order to maintain the
essential freedom of government in performing its functions,
without unduly limiting the taxing power which is equally essential
to both nation and state under our dual system."
James v. Dravo Contracting Co., 302 U.
S. 134,
302 U. S.
150.
The diversity of views expressed in these cases, even when there
is concurrence in result, suggests the desirability of recalling,
to use an old-fashioned phrase, "first principles." After all, we
are dealing with problems that have, howsoever they may have
appeared in particular situations, an unbroken history of nearly a
century and a half. Temerarious as the claim may appear, there is a
residuum of continuity in the reconciliation that the numerous
cases since
McCulloch v.
Maryland, 4 Wheat. 316 (1819), have made between
the power of the States to tax and the restriction against laying a
tax upon "the government, its property or officers."
James v.
Dravo Contracting Co., supra, at
302 U. S. 149.
The governing principles, as Chief Justice Marshall himself
formulated them, bear quotation:
"'That all subjects to which the sovereign power of a State
extends, are objects of taxation; but those
Page 355 U. S. 497
over which it does not extend are, upon the soundest principles,
exempt from taxation.'"
"'That the sovereignty of a State extends to everything which
exists by its own authority or is introduced by its permission, but
not to those means which are employed by Congress to carry into
execution powers conferred on that body by the people of the United
States.'"
"'That the attempt to use the power of taxation on the means
employed by the government of the Union in pursuance of the
Constitution is itself an abuse, because it is the usurpation of a
power which the people of a single State cannot give.'"
"'That the States have no power, by taxation or otherwise, to
retard, impede, burden, or in any manner control the operation of
the constitutional laws enacted by Congress to carry into execution
the powers vested in the General government.'"
Weston v. City Council of
Charleston, 2 Pet. 449,
27 U. S. 467,
as quoted by Mr. Justice Bradley in
Union Pac.
Railroad Co. v. Peniston, 18 Wall. 5,
85 U. S. 38-39
(dissenting opinion).
No less helpful in giving directions for the path of solution to
our immediate problems are the comments on these principles by Mr.
Justice Bradley, whose powers of penetrating analysis, particularly
in this field, were, in my view, second to none.
"Whilst no one disputes the general power of taxation in the
States which is so elaborately set forth in the opinion of the
majority, it must be conceded that there are limits to that power.
The States cannot tax the powers, the operations, or the property
of the United States, nor the means which it employs to carry its
powers into execution. The Government of the United States, within
the scope of its powers, is supreme, and cannot be interfered with
or impeded in their exercise. "
Page 355 U. S. 498
"The case differs
toto coelo from that wherein the
Government enters into a contract with an individual or corporation
to perform services necessary for carrying on the functions of
Government -- as for carrying the mails, or troops, or supplies, or
for building ships or works for Government use. In those cases, the
Government has no further concern with the contractor than in his
contract and its execution. It has no concern with his property or
his faculties independent of that. How much he may be taxed by, or
what duties he may be obliged to perform towards, his State is of
no consequence to the Government so long as his contract and its
execution are not interfered with. In that case, the contract is
the means employed for carrying into execution the powers of the
Government, and the contract alone, and not the contractor, is
exempt from taxation or other interference by the State
government."
Union Pac. Railroad Co. v. Peniston, supra, at
85 U. S. 41-42
(dissenting opinion).
When Mr. Chief Justice Hughes quoted the latter paragraph in
support of the decision in
James v. Dravo Contracting Co.,
supra, at
302 U. S. 155,
he impliedly indicated that some decisions that gave government
contractors immunity from taxation for their property, profits, or
purchases deviated from the traditional doctrines of implied
governmental immunity, and that the decision in the
Dravo
case was essentially a return to orthodoxy as Mr. Justice Bradley
had elucidated it. I venture to say that whatever deviations or
even aberrations from true doctrine cases here and there and now
happily laid to rest may disclose, there is a residuum of
continuity over the long course of judicial adjustment of the
States' power to tax and the limits placed upon it by the implied
immunity of the National Government from the demands of the state
tax collectors. No decision has ever questioned that a tax cannot
be laid upon "the Government,
Page 355 U. S. 499
its property, or officers,"
James v. Dravo Contracting Co.,
supra, at
302 U. S. 149,
or, as it was phrased in
United States v. Allegheny
County, 322 U. S. 174,
322 U. S.
177,
"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."
This, at least, has been a bright straight line running
undeviatingly through the decisions of this Court.
See Van
Brocklin v. Tennessee, 117 U. S. 151;
United States v. Alabama, 313 U.
S. 274,
313 U. S.
279.
As Mr. Chief Justice Stone stated for a unanimous court in
Alabama v. King & Boozer, 314 U. S.
1,
314 U. S. 9, the
application, and therefore the outcome, in cases like those before
us of these general principles "turns on the terms of the contract
and the rights and obligations of the parties under it." Nothing
better illustrates the truth of this statement than a comparison of
King & Boozer with
Kern-Limerick, Inc. v.
Scurlock, 347 U. S. 110, a
case whose relevance is not minimized by the loud silence the
Court's present opinions accord it. Since "intergovernmental
submission to taxation is primarily a problem of finance and
legislation," 347 U.S. at
347 U. S. 122,
it is immaterial that contracts by the Government have been
purposefully drawn so as to vest title to the property that is the
subject of the tax in the Government, and thereby withdraw it from
the taxing power of the States.
If a legal decision were a vehicle for the expression of merely
personal views, I might take satisfaction as a dissenter on the
facts from the
Allegheny decision that those who concurred
in the result now, for all practical purposes, repudiate it. The
principle on which the decision rested, that a tax cannot be laid
on the property of the Federal Government, was not, as the opinion
stated, questioned in that case. 322 U.S. at
322 U. S. 177.
The division turned on a relevant construction of the Pennsylvania
taxing system in respect to fixtures in their enhancement of
Page 355 U. S. 500
concededly taxable realty owned by a government contractor. The
Court found that the Pennsylvania scheme of taxation was, in fact,
"the old and widely used
ad valorem general property tax."
322 U.S. at
322 U. S. 184.
As we are told by the Court in the present case,
"Reviewing all the circumstances, the Court [in
Allegheny] concluded that the tax was simply and
forthrightly imposed on the property itself, not on the privilege
of using or possessing it."
But this is so
a fortiori in the circumstances of Nos.
18 and 36 now before us. Surely the detailed analysis of my brother
WHITTAKER of "the terms of the contract and the rights and
obligations of the parties under it," in relation to the taxing
system of Michigan, demonstrates, if anything is demonstrable in
the law, that the tax imposed has all the incidents of a general
ad valorem property tax, and that it has them to a more
conclusive degree than was true of the tax levied by Pennsylvania
in the
Allegheny case.
ALLEGHENY NOS. 18 & 36
The Contract
Contract to manufacture ord- Subcontract to manufacture
nance. Machinery needed to pro- airplane parts, subassemblies
and
duce ordnance to be furnished
by Government, or to be manu-
factured or purchased by con-
tractor.
Title to machinery furnished Title to parts, materials, in-
by Government to remain in Gov- ventory, work in progress,
and
ernment; title to machinery nondurable tools (materials) to
manufactured or purchased by vest in Government upon making
contractor to vest in Govern- of partial payments on such
ma-
ment upon delivery to site of terials to contractor.
work and inspection and accep-
tance on behalf of Government.
Machinery to be leased to
contractor during period of
contract.
Machinery bolted to con- Materials segregated and iden-
crete foundations in contrac- tified as Government property,
tor's plant. and records kept when withdrawn
for use in producing supplies.
Page 355 U. S. 501
Action of Taxing Authority
Revised contractor's previ- Assessment of contractor's
ously determined assessment for personal property made
includ-
ad valorem taxes by adding ing amount for materials acquired
thereto the value of the ma- for performance of contract.
chinery.
Authorization
Statute provided: "The fol- Statute entitled "General Pro-
lowing subjects and property perty Tax Act," "AN ACT to pro-
shall . . . be valued and vide for the assessment of pro-
assessed and subject to taxa- perty and the levy and
collection
tion . . . (a) All real estate. of taxes thereon. . . . That
all
. . ." 347 Pa. 191, 193, 32 property, real and personal,
A.2d 236, 237-238. State within the jurisdiction of this
Supreme Court held that ma- state . . . shall be subject to
chinery constituted part of the taxation." 6 Mich.Stat.Ann.,
the mill for purposes of as- 1950, §§ 7.1-7.2.
sessment, and was properly
assessed as real estate.
City Charter provided: "City
Treasurer shall enforce the col-
lection of all unpaid taxes which
are assessed against the property
or value other than real estate."
Tit. VI, c. IV, § 26.
State Supreme Court found Statute provided that taxes
that the tax was assessed not assessed "shall become at once
a
against the Government, but debt due . . . from the persons
against the contractor. to whom they are assessed. 6
Mich.Stat.Ann., 1950, § 7.81.
City Charter provided that,
"The owners or persons in posses-
sion of any personal property
shall pay all taxes assessed
thereon," that all city taxes
upon personal property "shall
become a debt against the owner
from the time of the listing of
the property for assessment. . . ,"
and that, if the taxes remain un-
paid, "the City Treasurer shall
forthwith levy upon . . . the
personal property of any person
refusing or neglecting to pay
such tax. . . ." Tit. VI,
c. IV, §§ 1, 27, 26.
Page 355 U. S. 502
Statute provided: taxes are Statute provided: "all per-
"declared to be a first lien on sonal taxes hereafter levied
or
said property."
322 U. S. 174,
assessed shall also be a first
185. lien . . . on all personal pro-
perty of such persons so as-
sessed. . . . The person pro-
perty taxes hereafter levied or
assessed by any city or village
shall be a first lien . . .
upon the personal property as-
sessed. . . ." 6 Mich.Stat.Ann.
1950, § 7.81.
City Charter provided that
all city taxes "shall become a
lien on the property taxed.
. . , and that "All city taxes
upon personal property shall
become . . . a lien thereon
and so remain until paid. . . ."
Tit. VI, c. IV, §§ 1, 26.
State Supreme Court found Assessor inscribed on tax
that, even if contractor de- roll: "Assessed Subject to
faulted in payment of tax, the Prior Rights of Federal
Govern-
rights of the Government in ment."
the machinery could not in
any way be affected.
I cannot believe that the Court would outright reject the
doctrine of constitutional immunity from taxation of the Government
and its property. I cannot believe that the Court is prepared
frankly to jettison what has been part of our constitutional system
for almost 150 years. But it does not save the principle to
disregard it in practice. And it disregards it in practice to argue
from the right of a State to levy an excise tax against a
contractor for the enjoyment of property that gives him an economic
advantage because it is otherwise immune from taxation, to the
right of a State professedly and directly to lay an
ad
valorem property tax on what is indubitably government
property.
A totally different problem is presented by Nos. 26, 37, and 38.
These cases present the question whether enjoyment of the use of
property that carries special economic
Page 355 U. S. 503
advantages to the user because, for one reason or another, the
property as such cannot be the subject of a tax, is included within
Chief Justice Marshall's principle that "all subjects over which
the sovereign power of a state extends, are objects of taxation. .
. ."
Weston v. City Council of
Charleston, 2 Pet. 449,
27 U. S. 467.
If a State may impose an excise tax on something that gives
advantage or pleasure, such as the practice of a particular
profession, why is it not also a taxable advantage that is had from
being able to use property that, for reasons extraneous to the
user, is not subject to the taxing power?
Cf. Watson v. State
Comptroller, 254 U. S. 122.
The only right that a taxpayer can assert against the state
taxing power on the basis of governmental immunity is a "derivative
one,"
James v. Dravo Contracting Co., 302 U.
S. 134,
302 U. S. 158,
supra, and, if he is to resist the exercise of this power,
he must stand in the Government's shoes. The immunity that he
asserts is the Government's immunity, not his own. In taxing the
enjoyment or use of property that is itself free from taxation, the
State taxes an interest of the taxpayer, not of the Federal
Government, and the tax is not laid on "the government, its
property or officers." The taxpayer is not immune from a tax
because, as a matter of dollars and cents, it may affect the
Government. To be sure, the excise in Nos. 26, 37, and 38 is
measured by the value of the property, so that, if the property
were directly taxed, the tax bill would be the same. But if the
enjoyment of otherwise tax-free property is something different
from the property itself for purposes of taxation, it does not lose
this characteristic because the admeasurement is the same.
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
Page 355 U. S. 504
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.
The danger of hindrance of the Federal Government in the use of
its property, resulting in erosion of the fundamental command of
the Supremacy Clause, is at its greatest when the State may,
through regulation or taxation, move directly against the
activities of the Government. Scarcely less is the danger when the
subject of a tax, that at which the State has consciously and
purposefully aimed in attaching the consequence of taxability, is
the property of the Federal Government. It is not only that the
likelihood of local legislation deliberately or unwittingly
discriminatory against government property either by its terms or
application may be enhanced. Even a nondiscriminatory tax, if it is
expressly laid on government property, is more likely to result in
interference with the effective use of that property, whether
because of an ill-advised attempt by the tax collector to levy on
the property itself or because it is sought to hold the Government
or its officers to account for the tax, even if ultimately the
endeavor may fail. The defense of sovereign immunity to a suit
against government officers for the tax, or a suit to assert title
to
Page 355 U. S. 505
or recover property erroneously levied upon to satisfy a tax,
may in practice be an inadequate substitute for the clear assertion
of federal interest at the threshold.
The fact that a tax on a third party for the privilege of using
government property may itself have an indirect impeding effect is
no reason against a rule designed to avoid the more direct and
obvious evil. Because a constitutional doctrine is not pushed to
the logical extremities of its policy is no argument against
maintaining it as far as it has historically extended. From the
beginning, a broad cloak of immunity for government property has
been thought the best way to allay the danger of state encroachment
on the national interest, and the character of our federal system
and the relations between the Nation and the States have not in
this regard so changed that the principle has become outmoded.
If the distinctions between the taxes involved in these cases
seem nice, it is because "nice distinctions are to be expected,"
Galveston, H. & S.A. R. Co. v. Texas, 210 U.
S. 217,
210 U. S. 225,
and they are none the worse for it. Not to make them, to lump all
these cases together as though some similarities and assumed
similar consequences amount to identities, is to disregard a long,
unbroken course of judicial history and practicalities of
government that doubtless have led, under prior decisions of this
Court, to the drawing of countless contracts covering the use of
government property.
Accordingly, I dissent from the Court's opinion in Nos. 18 and
36, and concur in the result in Nos. 26, 37, and 38.
* [NOTE: This opinion applies also to No. 26,
United States
v. City of Detroit, ante, p.
355 U. S. 466, and
No. 37,
United States v. Township of Muskegon, ante, p.
355 U. S.
484.]
Opinion of MR. JUSTICE HARLAN.
Because all but two members of the Court consider that the taxes
involved in these cases all stand or fall
Page 355 U. S. 506
together, I deem it advisable to state my reasons for believing
that these cases require different conclusions as to the
constitutionality of the taxes involved.
In determining the constitutionality of a state tax against a
claim of federal immunity, past cases in this Court have
established a distinction between "property" and "privilege" taxes
of one kind or another. That is, broadly speaking, a State may not
constitutionally tax property owned by the Federal Government, even
though the property is in private hands and the tax is to be
collected from a private taxpayer,
United States v. Allegheny
County, 322 U. S. 174, but
it may tax activities of private persons, even though these
activities involve the use of government property and the value or
amount of such property becomes the partial or exclusive basis for
the measurement of the tax.
Curry v. United States,
314 U. S. 14;
Esso Standard Oil Co. v. Evans, 345 U.
S. 495.
Cf. Plummer v. Coler, 178 U.
S. 115;
Educational Films Corp. of America v.
Ward, 282 U. S. 379.
Although the opinions of the Court in the present cases stop short
of repudiating this established distinction, they seem to me to
blur it to the point where the extent of its future application is
left confused and uncertain.
In view of this Court's past decisions in the privilege tax
cases, I agree with the majority today that the lessee's and user's
tax in Nos. 26, 37 and 38, construed by the state court to be a tax
on the privilege of using tax exempt property, is constitutional as
applied. The dissenting opinion, which I do not believe can be
reconciled with these past decisions, concludes that the tax
imposed upon those using tax exempt property for private profit
should be regarded in substance as a tax on the property itself,
because the privilege tax is measured by the full value of the
leased or used property, rather than merely by the value of the
lessee's or user's interest.
Page 355 U. S. 507
In effect, it seems to me that the dissenters equate the measure
of the tax with the subject of the tax. But I do not think that the
formula here employed by Michigan to measure these taxes can be
meaningfully distinguished from that applied in the Alabama use tax
upheld in
Curry v. United States, supra. There, the use
tax collected from a government contractor was measured by a
percentage of the full value of government-owned property used by
the contractor to execute its obligations. Indeed, the only
distinction I can see is that the compensating use tax in
Curry was imposed just once, whereas the privilege tax in
Michigan is assessed yearly; but, having regard to the wide
latitude of a State's taxing power within the due process
limitations of the Fourteenth Amendment, I can hardly believe that
this difference points to a contrary constitutional result. The
decision in
Esso Standard Oil Co. v. Evans, supra, which
upheld a state tax assessed to a private taxpayer on the privilege
of storing gasoline, although the tax was measured in part by the
amount of government gasoline stored multiplied by a fixed rate,
provides further support for this conclusion. And, in both of those
cases, as is true here, the Government bore the full economic
burden of the state taxes.
It should be observed that the state taxes here, as those in
Curry and
Esso Standard Oil Co., do not operate
in a discriminatory fashion by so measuring the tax on use or
activities as to impose an unequal tax burden on lessees or users
of government property
vis-a-vis lessees, users, or owners
of other tax exempt or nonexempt property. And, since this is so, I
cannot agree with the dissenting opinion that this Court's view of
the state legislature's purpose in enacting the statute should
affect our determination of its constitutionality. Although
Michigan here sought to equalize tax burdens on users of normal and
tax exempt property, or perhaps even to bypass
Allegheny,
Page 355 U. S. 508
I thing it hardly repaying to speculate on the motives behind a
local tax, as long as it is otherwise constitutionally permissible.
Finally, it should be noted that assessment of the privilege tax to
the user of government property in Nos. 37 and 38 would present a
quite different problem if the user were deemed to be an
instrumentality of the United States Government, but petitioners in
those cases make no such showing, and I do not understand the
dissenters here to rely on such a ground.
In Nos. 18 and 36, the Court holds that a tax which the
dissenting opinions convincingly show is nothing but a conventional
ad valorem personal property tax should be regarded
instead as a tax upon the possession of government property
privately used. This the Court finds constitutionally
indistinguishable from the tax upon the use of government property
privately possessed which has been upheld as a privilege tax in
Nos. 26, 37, and 38. That is to say, the Court finds that the
Government's property here was simply the measure, and not the
subject matter, of a tax which was in effect imposed on the
privilege of possessing property used for private gain.
In so holding, the Court, proceeding on the premise that
Detroit's characterization of this tax as a personal property tax
does not bind us,
Carpenter v. Shaw, 280 U.
S. 363,
280 U. S.
367-368, relies on the circumstances that this
government property was used for private gain, that the tax was
collectible under the statute from the subcontractor, and not from
the Government or out of its property, and that the tax was
nondiscriminatory. But all of these factors were present in
United States v. Allegheny County, supra, where the Court
struck down a local tax also cast in the traditional language of a
"property" tax. Although the Court here purports to distinguish
Allegheny, it seems to me that the authority of that case
has now been reduced almost to the vanishing point, for neither the
tax statute
Page 355 U. S. 509
here nor that in
Allegheny qualified application of the
tax to property employed in private commercial activity.
What has happened in these two groups of cases no doubt reflects
the difficulty of reconciling
Allegheny with the privilege
tax cases, and bears witness to the truth of Mr. Justice Jackson's
statement in
Allegheny that, in the evolution of the law
in this difficult field, "the line between the taxable and the
immune has been drawn by an unsteady hand." 322 U.S. at
322 U. S. 176.
Since the economic incidence of a state tax on the Federal
Government is no longer a controlling factor,
James v. Dravo
Contracting Co., 302 U. S. 134;
Alabama v. King & Boozer, 314 U. S.
1, and since the use of federally owned property as the
measure, by value or amount, of a tax on the privilege of using
(
Curry v. United States, supra) or storing (
Esso
Standard Oil Co. v. Evans, supra) such property is
permissible, the distinction between "property" and "privilege"
taxes as a yardstick for judging constitutionality when both taxes
are collectible from a private taxpayer holding the property is
certainly left in a high degree of artificiality.
See
Powell, Intergovernmental Tax Immunities, 58 Harv.L.Rev. 633, 757;
cf. Society for Savings v. Bowers, 349 U.
S. 143,
349 U. S. 148.
This is certainly so where the property tax applies to property
used by a private party in some activity which is a proper subject
of state taxation,
See McCulloch v.
Maryland, 4 Wheat. 316,
17 U. S. 429,
and where, as here, the State does not seek to accomplish what
would in any event be procedurally impossible because of the
doctrine of sovereign immunity from suit -- enforcement of a lien
asserted against government property. It is quite understandable,
therefore, that the Court should wish to minimize the importance of
that distinction.
But, by holding that the
ad valorem personal property
taxes involved in Nos. 18 and 36 should be regarded as
Page 355 U. S. 510
"privilege" taxes, it seems to me that the Court has injected
further uncertainties into a field already plagued by excessive
refinements. For, until today, the line between property and
privilege taxes, if "drawn by an unsteady hand," was at least
visible. A State could not tax government property, even though the
property was in the hands of, and the tax was collectible only
from, private persons. However, it now appears that not all
property taxes are indeed "property" taxes for purposes of
constitutional immunity, even though so characterized or construed
by state authorities. Henceforth, apparently, we must determine
whether the tax which a State has drafted as and denominated a
"property" tax could, had the State so desired, have been
constitutionally imposed as a "privilege" tax, measured by the
value of the taxed property, upon some activity embracing the use
of the property.
In my opinion, so fluid a rule incorporating these elusive
additional distinctions will hardly help those who in their daily
business must negotiate contracts for or with the Government.
Indeed, the difficulty of its application is effectively
illustrated by the divergence of opinion in these very cases,
wherein five members of the Court have concluded that these
particular "property" taxes are in reality "privilege" taxes.
Rather than add further complications to an already troubled area
of the law, I think the preferable course is to follow our past
cases, upon which those contracting for the Government have
undoubtedly relied, and to leave to Congress the task of adjusting
to the needs of today the law which
Allegheny and the
privilege tax cases have created.
For these reasons, I have joined the opinion of the Court in
Nos. 26, 37 and 38, and the dissenting opinion of MR. JUSTICE
WHITTAKER in Nos. 18 and 36.
Page 355 U. S. 511
MR. JUSTICE WHITTAKER, with whom MR. JUSTICE FRANKFURTER, MR.
JUSTICE BURTON and MR. JUSTICE HARLAN join, dissenting.
I respectfully dissent. The bases of my disagreement can be made
clear only by a full treatment of the case.
On December 20, 1950, the United States entered into a contract
with Kaiser Manufacturing Company under which the latter agreed to
produce and deliver to the Air Force certain airplanes, airplane
parts, and subassemblies at fixed prices; and on December 12, 1950,
a similar contract was made by the Government with Curtiss-Wright
Corporation. As contemplated by the parties, Kaiser, on March 23,
1951, and Curtiss-Wright, on April 19, 1951, entered into
subcontracts with respondent, The Murray Corporation of America,
under which the latter agreed to produce and deliver to those prime
contractors certain airplane parts, subassemblies and nondurable
tools (hereinafter called
supplies) at fixed prices, which
subcontracts were approved by the contracting officer of the Air
Force. The subcontracts contained "partial payment" provisions
which provided, among other things, that, upon the making of any
partial payments to Murray under the subcontracts,
"title to all parts, materials, inventories, work in process and
non-durable tools theretofore [and thereafter, upon acquisition]
acquired or produced by the [sub]contractor for the performance of
[the] contracts[s], and properly chargeable thereto . . . shall
forthwith vest in the Government."
Such property will hereinafter be called
materials.
After the date of the subcontracts, and prior to January 1, 1952,
the Government, through the prime contractors, made "partial
payments" to Murray in the amount of $674,776.87. [
Footnote 2/1] None of the supplies to
Page 355 U. S. 512
be produced by respondent under the subcontracts had been
completed or delivered prior to January 1, 1952.
On the 1952 tax assessment date of January 1, 1952, petitioners,
the City of Detroit and the County of Wayne, made an assessment
(valuation) of Murray's personal property in the amount of
$12,183,180, which included $2,043,670 for materials originally
acquired by Murray for the performance of the subcontracts, and
properly chargeable thereto. Applying their respective tax rates to
that assessment, the City of Detroit imposed a tax of $67,714.96
and the County of Wayne imposed a tax of $12,572.66, more than
would have been the case if the value of the materials of
$2,043,670 had not been included in the 1952 assessment against
Murray.
Murray paid those taxes under written protest, [
Footnote 2/2] and, after having exhausted all
administrative remedies, it brought three actions against
petitioners in the United States District Court for the Eastern
District of Michigan for refund of that part thereof ($80,287.62
plus interest) allocable to inclusion in the assessment of the
$2,043,670 upon the materials referred to. [
Footnote 2/3] The United
Page 355 U. S. 513
States intervened in the actions, and, by stipulation, they were
consolidated for trial. Murray moved for summary judgments, and the
parties stipulated that no genuine issue of material fact existed
in the actions. The court, after considering the motion, and the
exhibits and affidavits in support of and in opposition thereto and
hearing the arguments and considering the briefs of counsel,
granted the motion and rendered judgment in each of the actions in
favor of Murray and against petitioners for the amount prayed, plus
interest. 132 F. Supp. 899. The Court of Appeals, holding that the
materials were owned by the Government, and not by Murray, on the
assessment date, that the tax assessed and imposed thereon and
collected by petitioners was a general
ad valorem personal
property tax on the Government's property, and that the Government
was constitutionally immune from such taxes, affirmed the judgments
of the District Court. 234 F.2d 380.
The majority now reverses the Court of Appeals and reinstates
the assessment and tax. In doing so, I believe, they are not only
in serious error, but also they add words to the taxing Acts
involved, and the opinion openly so admits.
See p.
355 U. S. 493,
supra.
Three principal issues are presented, namely: (1) Did the
Government, by the terms of the "partial payment" provisions of the
subcontracts, become "vest[ed]" with "title" to all elements of
property and incidents of ownership in the materials referred to
prior to the assessment date, or did it thereby acquire "title"
thereto only as security, and thus become only a lienor? (2) Is
this a general
ad valorem tax imposed
on the
materials, as contended by respondents and as found by the Court of
Appeals? (3) If the materials were, in fact, the property of the
Government on the assessment date, and the tax constitutes a
general
ad valorem tax
on that property, may the
tax be constitutionally imposed?
Page 355 U. S. 514
I
The first question of whether the Government acquired complete
and absolute title to the materials prior to, and beneficially
owned them on, the assessment date, as respondents contend, or had
acquired "title" thereto only as security, and was therefore only a
lienor, as contended by petitioners, depends upon the terms of the
"partial payment" provisions of the subcontracts and upon actual
operations thereunder, for the question, in last analysis, is one
of intention of the contracting parties.
The partial payment provisions, in pertinent part, provide:
"11.
Partial payments. -- Partial payments . . . may be
made upon the following terms and conditions."
"(a) The contracting officer may, from time to time, authorize
partial payments to The Murray Corporation of America (hereinafter
called 'the Contractor') upon property acquired or produced by it
for the performance of this contract:
Provided, that such
partial payments shall not exceed 90 percent of the cost to the
Contractor of the property upon which payment is made [and] in no
event shall the total of unliquidated partial payments (see (c)
below) . . . made under this contract, exceed 80 percent of the
contract price of supplies still to be delivered."
"(b) Upon the making of any partial payment under this contract,
title to all parts, materials, inventories, work in
process and nondurable tools theretofore (and thereafter, upon
acquisition) acquired or produced by the Contractor for the
performance of this contract, and properly chargeable thereto . . .
shall forthwith vest in the Government. . . . "
Page 355 U. S. 515
"(c) In making payment for the supplies furnished hereunder,
there shall be deducted from the contract price therefor a
proportionate amount of the partial payments theretofore made to
the Contractor, under the authority herein contained."
"(d) It is recognized that [the materials],
title to which
is or may hereafter become vested in the Government pursuant to
this Article will from time to time be used by . . . the
Contractor in connection with the performance of this contract. The
Contractor, either before or after receipt of notice of termination
[by the Government],
may acquire or dispose of property to
which title is vested in the Government under this Article,
upon terms approved by the Contracting Officer. . . . The agreed
price (in case of acquisition by the contractor) or the proceeds
received by the Contractor (in case of any other disposition),
shall, to the extent that such price and proceeds do not exceed the
unliquidated balance of partial payments hereunder, be paid or
credited to the Government as the Contracting Officer shall direct,
and such unliquidated balance shall be reduced accordingly. Current
production scrap may be sold by the Contractor without approval of
the Contracting Officer, but the proceeds will be [paid or credited
to the Government]. . . . Upon liquidation of all partial payments
hereunder or upon completion of deliveries called for by this
contract,
title to all property (or the proceeds thereof)
which has not been delivered to and accepted by the Government
under this contract or which has not been incorporated in supplies
delivered to and accepted by the Government under this contract and
to which title has vested in the Government under this Article
shall vest in Contractor. "
Page 355 U. S. 516
"(e) . . . The provisions of this Article shall not relieve the
Contractor from risk of loss or destruction of or damage to
property to which title vests in the Government under the
provisions hereof."
(Emphasis supplied.)
It was shown by an uncontradicted affidavit at the hearing on
the motion for summary judgments that the materials originally
acquired by Murray for performance of the subcontracts, and
properly chargeable thereto, were completely segregated from all
other personal property in its plant, and were "clearly
identified," by "tagging [or] labeling," as property of the
Government; that, as materials were withdrawn by Murray for use in
producing the supplies, complete records of the materials so
withdrawn, and the Government's costs therefor, were made and kept;
and that, when the supplies were completed and delivered by Murray
and accepted by the Government, Murray paid the Government for the
materials so consumed by crediting the contract price for the
supplies with an amount equal to the Government's cost (90 percent
of Murray's original cost) for the materials consumed in producing
the supplies, as provided in subparagraph (c) of the partial
payment provisions.
As noted
supra, subparagraph (b) of the partial payment
provisions of the subcontracts expressly provides that, upon the
making of any partial payment to Murray under the subcontracts,
"
title" to the materials "
shall forthwith vest in the
Government." Beginning on August 10, 1951, partial payments
were made from time to time by the Government to Murray in very
substantial amounts (
see 355
U.S. 489fn2/1|>note 1). It cannot be doubted that the plain
and simple language of subparagraph (b) was appropriate, apt, and
adequate to vest the
title to the
Page 355 U. S. 517
materials in the Government. [
Footnote 2/4] Petitioners concede, and the majority
assumes, that this is so. Petitioners' position is, however, that
the title so vested in the Government
Page 355 U. S. 518
was for security purposes, and created only a lien on the
materials as security to the Government, and also that actual
operations under the contracts were inconsistent
Page 355 U. S. 519
with any real intention to convey actual ownership of the
materials to the Government.
As to petitioners' "lien" contention, we must ask ourselves: a
lien as security for what? Admittedly, Murray was not indebted, nor
to become indebted, to the Government under the subcontracts, and
hence there was and would be no debt to secure. Nor can it be said
that the vesting of title to the materials in the Government was in
any way to secure repayment of the partial payments made by the
Government to Murray, because those partial payments were not to be
repaid to the Government, but were expressly made by the Government
in payment of the purchase price for the materials. Neither can it
be said that the vesting of title to the materials in the
Government was for the purpose of securing performance of the
contracts by Murray, as conveyance of the materials to the
Government could not possibly have any such legal effect.
Petitioners advance several arguments in support of their claim
that the terms of the subcontracts, and actual operations under
them, were inconsistent with any real intention to convey actual
ownership of the materials to the Government.
As to the terms of the subcontracts, they argue, first, that
subparagraph (d) of the partial payment provisions, saying that
"[c]urrent production scrap may be sold by the Contractor without
approval of the Contracting Officer," supports their contention.
That argument overlooks the fact that the subparagraph continues,
saying, "but the proceeds will be [paid or credited to the
Government]." Thus, the contractor is authorized merely to sell the
current production scrap as agent for the Government, and must
account to it for the proceeds, and hence this procedure is in no
way inconsistent with the Government's ownership of the scrap.
Second, they argue that the language of subparagraph (d) saying
that,
"[u]pon
Page 355 U. S. 520
liquidation of all partial payments hereunder or upon completion
of deliveries called for by this contract, title to all property
(or the proceeds thereof) which has not been delivered to and
accepted by the Government under this contract or which has not
been incorporated in supplies delivered to and accepted by the
Government under this contract and to which title has vested in the
Government under this Article
shall vest in the
Contractor"
shows that the Government's title to the materials was not real
and beneficial. (Emphasis supplied.) This argument cannot be
accepted, for it, as was plainly true, the language of subparagraph
(b) saying that, upon the making of partial payments by the
Government to Murray, title to the materials "shall forthwith vest
in the Government" was adequate to effect a transfer by Murray to
the Government, it must follow that the similar language in
subparagraph (d) was adequate to effect a retransfer, upon full
completion of the subcontracts, of any remnant of the materials by
the Government to Murray; nor can it be denied that the Government
had the right and power validly to retransfer that property under
those circumstances.
Concerning operations under the subcontracts, petitioners argue
first that the use of the partial payment provisions in the
subcontracts was a legal device for the purpose of escaping state
ad valorem personal property taxation. This argument is
not only unacceptable on its merits (
cf. Kern-Limerick, Inc. v.
Scurlock, 347 U. S. 110,
347 U. S. 116,
347 U. S. 122
[
Footnote 2/5]), but, in addition,
it is contrary to the stipulation
Page 355 U. S. 521
made by the parties at the hearing in the District Court.
[
Footnote 2/6] Second, they argue
that the fact that Murray insured the materials and its admittedly
owned property in one policy in its own favor is inconsistent with
government ownership of the materials, and indicates that Murray
regarded these materials as owned by it. As noted
supra,
Murray agreed, under the terms of the contracts, to be liable to
the Government for loss or destruction of or damage to the
materials, occurring while in its possession, "to which title [had]
vest[ed] in the Government under the provisions [of the
subcontracts]." To insure that contractual liability, Murray caused
its insurance policy to be expanded to cover,
inter
alia,
". . . personal property . . . sold but not delivered or
removed, or for which [it is] liable, all while located in and/or
on the premises occupied by the insured. [
Footnote 2/7]"
Plainly, this precautionary action by Murray was in no way
inconsistent with outright government ownership of the
Page 355 U. S. 522
materials, but, on the contrary, it strongly indicates Murray's
intention and understanding that the materials had been sold to and
were owned by the Government, though not delivered.
Cf. United
States v. Ansonia Brass & Copper Co., 218 U.
S. 452,
218 U. S.
467.
In
United States v. Ansonia Brass & Copper Co.,
supra, this Court dealt at length with like contentions.
There, the Government had entered into a contract for the
construction and delivery of a sea-going dredge to be named the
Benyuard. The contract provided that the Government was to
make 10 equal partial payments to the contractor, to aggregate 80
percent of the contract price, the first to be made when the hull
and propelling machinery should be 10 percent complete, the second
when 20 percent complete, and so on to the last payment, which was
to be made when the vessel was delivered to and accepted by the
Government, when the reserved 20 percent of the contract price was
to be paid; and that
"[t]he parts paid for under the system of partial payments above
specified [were to] become thereby the sole property of the United
States."
Id. at
218 U. S. 466.
Before completion of the dredge, the contractor became insolvent
and was unable to pay bills for materials used in the vessel, and a
receiver was appointed. An issue arose as to whether the provisions
of the contract had conveyed ownership of the unfinished vessel to
the Government, thus preventing levy thereon of materialmen's liens
created under state law. The Government contended
". . . that the terms of this contract [were] such that by its
expressed provisions the vessel was to become the property of the
United States as fast as it was paid for."
Ibid. Upon that issue, this Court said:
"It is undoubtedly true that the mere facts that the vessel is
to be paid for in installments as the work progresses, and to be
built under the superintendence
Page 355 U. S. 523
of a government inspector, who had power to reject or approve
the materials, will not, of themselves, work the transfer of the
title of a vessel to be constructed, in advance of its completion.
But it is equally well settled that, if the contract is such as to
clearly express the intention of the parties that the builders
shall sell and the purchasers shall buy the ship before its
completion, and at the different stages of its progress, and this
purpose is expressed in the words of the contract, it is binding
and effectual in law to pass the title. . . ."
"
* * * *"
"As we construe the contract for the construction of the
Benyuard, it did 'divest the builder of any title to the
property in the vessel during the process of construction. . .
.'"
"
* * * *"
"We are not now dealing with the right of a State to provide for
such liens while property to the chattel in process of construction
remains in the builder, who may be constructing the same with a
view to transferring title therein to the United States upon its
acceptance under a contract with the government. We are now
treating of property which the United States owns. . . . The
Benyuard, as fast as constructed, became one of the
instrumentalities of the government. . . ."
Id. at
218 U. S.
466.
This Court thus held that the contract -- containing
title-vesting provisions almost identical with the ones here --
conveyed full ownership of the unfinished vessel -- not a mere lien
-- to the Government, and it therefore reversed the judgment of the
court below which had allowed state-created materialmen's liens to
be imposed upon the unfinished vessel. The principles of that
decision
Page 355 U. S. 524
appear to have been followed in every decided case in this
country upon the question [
Footnote
2/8] save one. [
Footnote
2/9]
I believe that these considerations require the conclusion that
the District Court and the Court of Appeals were right in holding
that the contracts in question conveyed full beneficial title --
all elements of property and incidents of ownership -- in the
materials to the Government.
II
Is this a general
ad valorem tax imposed on the
materials? The majority holds, we think erroneously, that it is
not. Under the Constitution of the State of Michigan, [
Footnote 2/10] only two general methods
of taxation by the State or its subdivisions are authorized,
namely, (1)
ad valorem taxes, and (2) excise or privilege
taxes.
C. F. Smith Co. v. Fitzgerald, 270 Mich. 659, 672,
259 N.W. 352, 357;
Pingree v. Auditor General, 120 Mich.
95, 102, 109, 78 N.W. 1025, 1027, 1029-1030. The taxes here
questioned were levied both by the city and county subject to the
authority of the General Property Tax Act of Michigan. Act 206 of
the Public Acts of Michigan, 1893, as amended (6
Mich.Stat.Ann.1950, §§ 7.1-7.243) ("[a]n act to provide for the
assessment of property and the levy and collection of
Page 355 U. S. 525
taxes thereon. . . ."). Section 211.40 of Mich.Comp.Laws 1948 (6
Mich.Stat.Ann.1950, § 7.81) provides in pertinent part:
"Property taxes; lien, priority. Sec. 40. The taxes thus
assessed shall become at once a debt due to the . . . city . . .
and county from the persons to whom they are assessed. . . . And
all personal taxes hereafter levied or assessed
shall also be a
first lien . . . on all personal property of such persons so
assessed . . . and so remain until paid, which said tax liens
shall take precedence over all other claims, encumbrances and liens
upon said personal property whatsoever. . . ."
(Emphasis supplied.)
The pertinent parts of the Charter of the City of Detroit, under
which that city acted, are set forth in the margin. [
Footnote 2/11] Briefly summarized, they
provide that
"[a]ll
Page 355 U. S. 526
real and personal property within the city, subject to taxation
by the laws of Michigan, shall be assessed at its true cash value,
and that all city taxes shall be due and payable on the fifteenth
day of July in each year, and on that date shall become a lien on
the property taxed;"
that the "owners or persons in possession" of personal property
shall pay the taxes assessed thereon, but, in case any other
person, "by agreement or otherwise," ought to have paid the tax,
the person in possession who has paid the same "may recover the
amount from the person who ought to have paid the same" in an
action of assumpsit, or may deduct the amount from rents due or to
become due; and that, if the "taxes which are
assessed against
the property" are not paid by the 26th day of August, the City
Treasurer "shall forthwith
levy upon and sell at public auction
the personal property"; that the personal property taxes,
"
in addition to being alien upon the property assessed,
shall become a debt
against the owner from the time of the
listing of the property for assessment, and shall remain a debt
against the owner of the property or his estate after his
death, until the same are paid."
(Emphasis supplied.)
We fail to see how it could be more plainly stated that these
taxes are
ad valorem taxes
on the property. One
cannot profitably elaborate a truth so evident. And the Michigan
courts have repeatedly so held.
City of Detroit v.
Phillip, 313 Mich. 211, 213, 20 N.W.2d 868, 869;
Pingree
v. Auditor General, supra. Cf. Crawford v. Koch, 169
Mich. 372, 379, 135 N.W. 339, 342;
In re Ever
Page 355 U. S. 527
Krisp Food Products Co., 307 Mich. 182, 196, 11 N.W.2d
852, 856. Actually, the pleadings formally admit that this is so.
[
Footnote 2/12]
Petitioners stridently argue that the language in § 211.40 of
the Michigan Comp. Laws saying that "[t]he taxes thus assessed
shall become at once a debt due to the . . . city . . . and county
from the persons to whom they are assessed," and the language in §§
1 and 7 of Tit. VI, c. IV, of the Detroit Charter, saying that
"[t]he owners or persons in possession of any personal property
shall pay all taxes assessed thereon, [and if he] shall pay the
same, [he] may recover the amount from the person who ought to have
paid the same . . . ,"
shows that the tax is not upon the materials, but is rather upon
the "owners or persons in possession." This argument overlooks the
fact that § 211.40 continues, saying that
"all personal taxes hereafter levied or assessed
shall also
be a first lien . . . on all personal property of such persons so
assessed . . . , and so remain until paid."
The argument also overlooks the fact that Tit. VI, c. IV, § 1 of
the Detroit Charter further provides that "[a]ll city taxes shall
be due and payable on the fifteenth day of July in each year, and
on that date
shall become a lien on the property taxed,"
as does § 26; and § 27 says
"all city taxes upon personal property . . . ,
in addition
to being a lien upon the property assessed, shall become a
debt
against the owner from the time of the listing of the
property for
Page 355 U. S. 528
assessment, and shall remain a debt
against the owner of the
property . . . until the same are paid."
See 355
U.S. 489fn2/11|>note 11. (Emphasis supplied.) Thus, though
the Michigan statute makes the tax a debt of the "owner or person
in possession," it also makes the tax "a lien on the property
taxed," and the Detroit Charter, in addition to making the tax a
debt "against the owner," makes it "a lien upon the property
assessed." Moreover, the precise question was specifically ruled by
this Court in
United States v. Allegheny County,
322 U. S. 174,
where it was said:
"While personal liability for the [personal property] tax may be
and sometimes is imposed, the power to tax is predicated upon
jurisdiction of the property, not upon jurisdiction of the person
of the owner, which often is lacking without impairment of the
power to tax. In both theory and practice, the property is the
subject of the tax, and stands as security for its payment. . .
."
Id. at
322 U. S.
184.
"But, in all of these cases, [
Footnote 2/13] what we have denied is immunity for the
contractor's own property, profits, or purchases. We have not held
either that the Government could be taxed
or its contractors
taxed because property of the Government was in their hands. . .
."
Id. at
322 U. S.
186.
"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.
"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 moneys of the United States which were
in his possession as . . . agent, or contractor. We hold
that Government-owned property, to the full extent of the
Government's interest therein, is
Page 355 U. S. 529
immune from taxation, either as against the Government itself
or as against one who holds it as a bailee."
Id. at
322 U. S. 184,
322 U. S.
186-187,
322 U. S.
188-189. (Emphasis supplied.)
Petitioners further argue that the Detroit assessor's action in
writing on the tax roll, in this instance, the words "assessed
subject to prior rights of the Federal Government," shows that the
tax is not on the Government's interest, if any, in the materials.
It principally relies upon
S.R.A. v. Minnesota,
327 U. S. 558, and
City of New Brunswick v. United States, 276 U.
S. 547. While those cases, in an abstract sense, are
relevant to the point as urged by petitioners, concretely they are
inapposite, [
Footnote 2/14] for,
in each of those instances, the tax was assessed directly upon
property beneficially owned by third parties, while here the tax is
directly assessed on property beneficially owned by the Government.
Moreover,
"renunciation of any 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.
Furthermore, inasmuch as the Government in this case beneficially
owned the entire interest in the materials and the Detroit tax was
assessed "subject to" the Government's interest therein, it would
seem to follow that the Detroit tax in question was never in fact
assessed against anyone.
Page 355 U. S. 530
It therefore seems inescapable that the tax here involved was an
ad valorem tax on the property of the Government.
III
Since the landmark case of
M'Culloch v.
Maryland, 4 Wheat. 316, no legal principle has been
more firmly established than that property owned by the Federal
Government is constitutionally immune from direct taxation by a
State. I agree with the majority that this, of course, does not
mean that taxes directly imposed upon third parties -- such as
agents, contractors or employees -- who may be doing business with
the Government, share the Government's immunity, even though the
economic burden of the tax, through higher prices and the like, may
ultimately fall upon the Government, [
Footnote 2/15] for such "is but a normal incident of
the organization within the same territory of two independent
taxing sovereignties."
Alabama v. King & Boozer,
314 U. S. 1,
314 U. S. 9. In
that case, this Court upheld a state sales tax imposed not directly
upon the Government, but rather directly upon a government
contractor relating to materials purchased by him for use
Page 355 U. S. 531
in the performance of a government contract. [
Footnote 2/16] The case of
Kern-Limerick, Inc.
v. Scurlock, 347 U. S. 110,
makes the distinction clear. In that case, the government
contractor was authorized to and did purchase,
as agent of and
directly for the United States, certain tractors which the
contractor was permitted to use in the performance of his "cost
plus fixed fee" contract with the Government. The purchaser was the
Government, and it paid the vendor for and took title to the
tractors. The state law required the vendor to collect from the
vendee, and remit to the State, a sales tax on local sales. The
vendor, at the request of the Government, paid the tax on these
sales under protest and sued for refund. The State Supreme Court
sustained the tax. On certiorari, this Court reversed, holding that
the sale was directly to the Government and that the tax was
imposed directly upon the Government, which was immune from state
taxation.
Under the facts and circumstances here, we think the case of
United States v. Allegheny County, supra, is entirely
controlling. There, Mesta Machine Company owned a factory in
Pennsylvania suitable for the manufacture of ordnance required by
the Government. The Government entered into a contract with Mesta
under which the latter undertook to make and deliver guns to the
Government
Page 355 U. S. 532
at a fixed price. Mesta lacked some of the necessary machine
tools to do the contemplated work. The contract provided that the
Government would, and it did, furnish various lathes and other
machines, which were "leased" to Mesta and installed in its factory
by being "bolted on concrete foundations, [and] . . . could be
removed without damage to the building."
Id. at
322 U. S. 179.
The contract further provided that, if Mesta, after using every
effort short of litigation to procure exemption or refund, should
be compelled to pay any state, county, or municipal tax upon the
government-owned machinery, the Government would reimburse Mesta
for that amount. Subsequently, Allegheny County revised Mesta's
previously determined assessment for
ad valorem taxes by
adding thereto the value of the government-owned machinery, and
assessed an additional tax on that account. Mesta protested, and
exhausted administrative remedies without avail and then sued for
refund. The United States intervened. The trial court held that the
machinery in question "was
owned by the United States' and so
far constitutional reason could not be included." Id. at
322 U. S. 180.
The Supreme Court of Pennsylvania, 347 Pa. 191, 32 A.2d 236,
reversed, and reinstated the assessment and tax. It acknowledged
that the government-owned property was "`beyond the pale of
taxation' by a state" (ibid.), but thought that the tax
was not against the United States, but was assessed against Mesta,
as a part of its real estate, and constituted a debt of
Mesta and a lien on its real estate, but not a debt of the
Government nor a line on its chattels. The case came here on
appeal, and this Court reversed, saying, inter
alia:
"It is not contended that the scheme of taxation employed by
Pennsylvania is anything other than the old and widely used
ad
valorem general property
Page 355 U. S. 533
tax. . . . This form of taxation is not regarded primarily as a
form of personal taxation, but rather as a tax
against the
property as a thing. Its procedures are more nearly analogous
to procedures
in rem than to those
in personam.
While personal liability for the tax may be and sometimes is
imposed, the power to tax is predicated upon jurisdiction of the
property, not upon jurisdiction of the person of the owner, which
often is lacking without impairment of the power to tax.
In
both theory and practice, the property is the subject of the tax,
and stands as security for its payment."
Id. at
322 U. S.
184.
"The assessors simply and forthrightly valued Mesta's land as
land, and the Government's machines as machinery, and added the
latter to the former. We discern little theoretical difference, and
no practical difference at all, between that was done and what
would be done if the machinery were taxed in form. Its full value
was ascertained and added to the base to which the annual rates
would apply for county, city, borough, town, township, school, and
poor purposes."
"We hold that the substance of this procedure is to lay an
ad valorem general property tax on property owned by the
United States."
Id. at
322 U. S. 185.
(Emphasis supplied.)
The foregoing demonstrates, I think, that the Government owned
the materials on the assessment date; that the tax was imposed
on those materials; that the tax was a general
ad
valorem tax; and that the Government was constitutionally
immune from such taxation by the State.
These are my reasons for dissenting, and, upon them, I would
affirm the judgment of the Court of Appeals.
[
Footnote 2/1]
In the period beginning August 10 and ending December 31, 1951,
partial payments were made to Murray, by the Government, under the
Kaiser prime contract in the total amount of $163,940.20, and under
the Curtiss-Wright contract in the total amount of $510,827.67,
aggregating $674,776.87, and, on the latter date, requests for
further partial payments in the amount of $569,211.09 were
outstanding and being processed.
[
Footnote 2/2]
It there contended that materials of the value of $2,043,670,
included in the assessment against it and its personal property,
were owned by the Federal Government, and were therefore
constitutionally immune from state taxation, and that the
additional tax assessed on account thereof of $80,287.62 was
void.
[
Footnote 2/3]
It appears that Detroit personal property taxes are payable in
two installments. The first two suits (Nos. 12108 and 12482) were
brought against the City of Detroit for refund of the first and
second halves, respectively, of the taxes so paid under protest.
The third suit (No. 12483) was brought against the County of Wayne
for refund of the taxes so paid to it under protest.
[
Footnote 2/4]
Petitioners, however, contend that the partial payment
provisions of the subcontracts are invalid as beyond the power of
the Government to make. They rely principally upon the provisions
of the Armed Services Procurement Act of 1947, c. 65, 62 Stat. 21,
and particularly upon the language in § 5(a) and (b) thereof,
saying, in pertinent part:
"(a) The agency head may make advance payments under negotiated
contracts . . . in any amount not exceeding the contract price . .
.
Provided, That advance payments shall be made only upon
adequate security. . . . (b) The terms governing
advance payments may include as security provision for,
and upon inclusion of such provision there shall thereby be
created, a lien in favor of the Government, paramount to all other
liens, upon . . . such of the material and other property acquired
for performance of the contract as the parties shall agree."
(Emphasis supplied.) They therefore argue that the Government is
not empowered to enter into contracts to make "partial payments"
for the purchase of materials, as was done here. This argument
fails to recognize the long existing and well established
distinction between "advance payments," dealt with in § 5, and
"partial payments." At the time the Act was passed, the terms
"advance payments" and "partial payments" had long since become
terms of art in government procurement laws and regulations.
(
See Joint Resolution No. 24, May 5, 1894, 28 Stat. 582;
Act of August 22, 1911, c. 42, 37 Stat. 32; Act of October 6, 1917,
c. 79, § 5, 40 Stat. 345, 383; Act of June 28, 1940, c. 440, 54
Stat. 676; Act of July 2, 1940, c. 508, 54 Stat. 712; First War
Powers Act, 1941, c. 593, 55 Stat. 838, § 201; Executive Order 9001
(December 27, 1941), 6 Fed.Reg. 6787; War Department Procurement
Regulations (July 1, 1942), §§ 81.321, 81.331, 81.347, 81.348, 7
Fed.Reg. 6098, 6105, 6108, 6112, 6113; War Department Procurement
Regulations (August 25, 1945), §§ 803.321, 803.330, 803.331, 10
Fed.Reg. 10449, 10501-10503, 10507-10508; Army Procurement
Regulations (November 18, 1947) §§ 804.400-804.407, 805.405,
806.407-2(a)(b), 12 Fed.Reg. 7692-7693, 7700-7705.) The two terms
are not synonymous. It has long been recognized and understood that
an "advance payment" is a loan by the Government, and can be made
"only upon adequate security" as provided in § 5 of the Armed
Services Procurement Act, but "partial payments" are payments made
by the Government in purchase of materials, and are authorized when
ownership thereto vests in the Government. Army Procurement
Regulations (November 18, 1947), §§ 804.400-7, 805.405,
805.407-2(a)(b), 12 Fed.Reg. 7692-7693, 7700, 7704-7705. The
distinction is made clear in Armed Services Procurement Regulations
of November 23, 1950 (32 CFR (1949 ed.) § 402.501), saying:
"Advance payments shall be deemed to be payments made by the
Government to a contractor in the form of loans or advances prior
to and in anticipation of complete performance under a contract.
Advance payments are to be distinguished from 'partial
payments' and 'progress payments' and other payments made because
of performance or part performance of a contract."
(Emphasis supplied.)
The bill which became the Armed Services Procurement Act of 1947
was introduced at a time when there were existing War Department
Procurement Regulations describing and making provisions for both
"advance payments" and "partial payments." The latter provisions
required that title to all materials acquired by the contractor for
performance of the contract should vest in the Government on the
making of such "partial payments." War Department Procurement
Regulations, August 25, 1945, §§ 803.330-803.331, 10 Fed.Reg.
10507-10508. Against this historical background, the terms of § 5
of the Armed Services Procurement Act of 1947 cannot be construed
to prohibit the making of "partial payments" by the Government to a
contractor in respect to materials procured for performance of a
government contract when title to those materials, by the terms of
the contract, vests in the Government. These were negotiated
contracts made in pursuance of § 2, c. 65, of the Armed Services
Procurement Act of 1947 (62 Stat. 21), and, being such, Congress,
by § 4 of that Act, has expressly granted wide discretion to the
agency head in determining the type of contract which will promote
the best interests of the Government. There being no prohibition
against the use in government contracts of partial payment
provisions made in purchase of materials, contracting officers are
free to follow business practices.
Kern-Limerick, Inc. v.
Scurlock, 347 U. S. 110,
347 U. S. 116.
Thus, there is no merit in petitioners' claim that the Government
was not empowered to agree to the partial payment provisions in
these contracts.
[
Footnote 2/5]
A similar contention was made in that case, and, in rejecting
it, this Court said:
"[W]e turn to examine the validity of the argument that the
naming of the Government as purchaser was only colorable, and left
the contractor the real purchaser and the transaction subject to
the Arkansas Tax.
Alabama v. King & Boozer,
314 U. S.
1, is relied upon primarily. We consider this argument
under the assumption, made by the Supreme Court of Arkansas, that
the contract was designed to avoid the necessity in this cost-plus
contract of the ultimate payment of a state tax by the United
States. . . . We find that the purchaser under this contract was
the United States. . . . [We do not] think that the drafting of the
contract by the Navy Department to conserve Government funds, if
that was the purpose, changes the character of the
transaction."
347 U.S. at
347 U. S. 116,
347 U. S.
122.
[
Footnote 2/6]
It was stipulated that, in the negotiation of the subcontracts,
the
"parties did not consider the possible avoidance of City and
County
ad valorem and personal property taxes as an
element in their decision as to whether or not the standard partial
payment clause (referred to in procurement regulations) should be
inserted in these contracts."
[
Footnote 2/7]
That insurance coverage provision reads as follows:
"All real and personal property of the insured, including
manuscripts, mechanical drawings, tools, dies, jigs and patterns,
their own, or held by them in trust or on commission, or on
consignment, or sold but not delivered or removed, or for which
they are liable, all while located in and/or on the premises
occupied by the insured."
[
Footnote 2/8]
In re Read-York, Inc., 152 F.2d 313, 316, 317;
Douglas Aircraft Co. v. Byram, 57 Cal. App. 2d
311, 134 P.2d 15;
Craig v. Ingalls Shipbuilding Corp.,
192 Miss. 254, 5 So. 2d 676;
State ex rel. Superior
Shipbuilding Co. v. Beckley, 175 Wis. 272, 185 N.W. 199;
and cf. Kern-Limerick, Inc. v. Scurlock, 347 U.
S. 110,
347 U. S.
116-122;
United States v. Allegheny County,
322 U. S. 174,
322 U. S. 178,
322 U. S. 183;
In re American Boiler Works, 220 F.2d 319, 321, and
Wright Aeronautical Corp. v. Glander Corp., 51 Ohio St.
29, 84 N.E.2d 483.
[
Footnote 2/9]
The one exception is
American Motors Corp v. City of
Kenosha, 274 Wis. 315, 80 N.W.2d 363, but even that case fails
to mention that court's earlier decision to the contrary in
State ex rel. Superior Shipbuilding Co. v. Beckley,
supra.
[
Footnote 2/10]
Mich.Const., Art. X, § 3.
[
Footnote 2/11]
Tit. VI, c. II, § 1.
"All real and personal property within the city subject to
taxation by the laws of this state shall be assessed at its true
cash value. . . ."
The following sections appear in Tit. VI, c. IV:
"Section 1. All city taxes shall be due and payable on the
fifteenth day of July in each year, and on that date
shall
become a lien on the property taxed . . . [and] the owners or
persons in possession of any personal property shall pay all taxes
assessed thereon."
"
* * * *"
"Sec. 7. In case any person by agreement or otherwise ought to
pay such tax, or any part thereof, the person in possession who
shall pay the same may recover the amount from the person who ought
to have paid the same, in an action of assumpsit as for moneys paid
out and expended for his benefit, or may deduct the amount from any
rent due or to become due to the person who should have paid such
tax."
"
* * * *"
"Sec. 26. On and after the twenty-sixth day of August in each
year . . . , the City Treasurer shall enforce the collection of all
unpaid taxes which are assessed
against the property or
value other than real estate. If such taxes shall remain unpaid,
the City Treasurer shall forthwith levy upon and sell at public
auction the personal property of any person refusing or neglecting
to pay such tax, or collect the same through the courts. . . .
All city taxes upon personal property shall become on said
fifteenth day of July
a lien thereon and so remain until
paid, and no transfer of the personal property assessed shall
operate to divest or destroy such lien."
"Sec. 27. All city taxes upon personal property . . .
in
addition to being a lien upon the property assessed shall become a
debt against the owner from the time of the listing of the
property for assessment, and shall remain a debt
against the
owner of the property or his estate after his death, until the
same are paid."
(Emphasis supplied.)
[
Footnote 2/12]
Paragraph 3 of the complaint in the first action alleged -- and
it is stipulated that the complaints in the three cases were the
same -- that the tax was assessed as "the
ad valorem tax
on the personal property of this plaintiff for the year 1952. . .
." The answer of the city "admits the allegations in paragraph
three," and the answer of the county
"admits . . . that the assessed valuation placed upon the
personal property of plaintiff [by the city and adopted by the
county was] the
ad valorem tax on the personal property of
plaintiff for the year 1952."
[
Footnote 2/13]
James v. Dravo Contracting Co., 302 U.
S. 134;
Graves v. New York ex rel. O'Keefe,
306 U. S. 466, and
Alabama v. King & Boozer, 314 U. S.
1.
[
Footnote 2/14]
In
S.R.A v. Minnesota, the Government had sold real
estate in Minnesota to S.R.A., Inc., under an installment contract
for a deed, but had retained legal title only as security and was,
in effect, a mortgagee. S.R.A. took possession and improved the
land. Afterward, the State assessed general
ad valorem
taxes upon the property "subject to fee title remaining in the
United States." S.R.A. claimed exemption from the tax on the ground
that title to the property was in the United States. This Court
upheld the tax because the contract of sale had transferred to the
purchaser the equity in the property upon which alone the tax was
levied.
City of New Brunswick v. United States is almost
identical to the
S.R.A. case, and varies from it in no
substantial respect.
[
Footnote 2/15]
See Trinityfarm Co. v. Grosjean, 291 U.
S. 466, which sustained an excise tax imposed by a State
directly upon a government contractor on account of gasoline
consumed by him in the performance of government contract;
James v. Dravo Contracting Co., 302 U.
S. 134,
302 U. S. 160,
which upheld a gross receipts tax imposed by a State directly upon
a government contractor on account of materials purchased by it for
its use in performing the contract;
Helvering v. Gerhardt,
304 U. S. 405,
which sustained an income tax levied directly upon a construction
engineer and two assistant general managers, employees of an agency
of the United States, in respect of their salaries from the United
States;
Graves v. New York ex rel. O'Keefe, 306 U.
S. 466, is precisely like the
Gerhardt case;
Esso Standard Oil Co. v. Evans, 345 U.
S. 495, which upheld a state privilege tax imposed
directly by a State upon a storer of gasoline even though, by
contract, the Government, which had stored its gasoline with the
storer, assumed liability for all state taxes.
[
Footnote 2/16]
In its companion case of
Curry v. United States,
314 U. S. 14, the
Court followed the same principle in holding 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."
Id. at
314 U. S. 18.
(Emphasis supplied.) As in
King & Boozer, the impact
of the tax upon the Government derived from the Government's
voluntary assumption, or, as said by the Court, "through operation
of the contract."