Under § 5(e) of the Housing Act of 1937, certain state and local
public housing agency obligations, commonly termed "Project Notes,"
are "exempt from all taxation . . . imposed by the United States."
It was generally assumed that this exemption applied only to the
federal income tax until, in 1984, a Federal District Court ruled
that Project Notes were also exempt from federal estate taxes.
Shortly thereafter, Congress enacted the Deficit Reduction Act of
1984 (DEFRA), § 641 of which eliminated the purported exemption and
foreclosed those who had already paid estate taxes on Project Notes
from obtaining a refund thereon. After the Commissioner of Internal
Revenue denied appellee executors such refunds, they filed suit in
the District Court below, which concluded that their Project Notes
were tax exempt when they filed their estate tax returns. The court
also held that § 641 of the DEFRA unconstitutionally denied
appellees due process and equal protection of the laws under the
Fifth Amendment. The United States appealed directly to this Court
under 28 U.S.C. § 1252.
Held:
1. Section 5(e) of the Housing Act does not exempt Project Notes
from federal estate taxation. The settled presumption against
implied tax exemptions applies here, particularly since 26 U.S.C.
§§ 2001 and 2002 (1982 ed. and Supp. III), which define the taxable
estate for estate tax calculation, by their terms include Project
Notes. Moreover, an exemption of property from all taxation, such
as that contained in § 5(e), has long been understood to apply only
to direct taxes such as the federal income tax, and not to excise
taxes such as the estate tax. The various aspects of the
legislative history relied on by appellees as indicia of
congressional intent are insufficient to demonstrate unambiguously
that Project Notes are exempt from estate taxes.in contravention of
the aforesaid presumption and the understood meaning of § 5(e). P.
485 U. S.
359.
2. Resolution of the estate tax exemption question obviates the
need for this Court to consider the constitutionality of § 641 of
the DEFRA.
86-2 USTC � 13,703, reversed.
Page 485 U. S. 352
BRENNAN, J., delivered the opinion of the Court, in which all
other Members joined, except KENNEDY, J., who took no part in the
consideration or decision of the case.
JUSTICE BRENNAN delivered the opinion of the Court.
This case, which consists of two actions consolidated below,
Wells Fargo Bank v. United States and
Rosenberg v.
United States, 86-2 USTC � 13,703 (CD Cal.1986), presents two
issues: first, whether certain state and local public housing
agency obligations (Project Notes or Notes) were exempt from
federal estate taxation prior to June 19, 1984, and second, if so,
whether § 641 of the Deficit Reduction Act of 1984 (DEFRA), 98
Stat. 939, which forecloses any refund for estate taxes paid on
such Project Notes, is unconstitutional. Relying on
Haffner v.
United States, 585 F.
Supp. 354 (ND Ill.1984),
aff'd, 757 F.2d 920 (CA7
1985), the District Court for the Central District of California
ruled that Project Notes were exempt. It further held § 641 of the
DEFRA unconstitutional. The United States appealed that judgment
directly to this Court pursuant to 28 U.S.C. § 1252.
Page 485 U. S. 353
We noted probable jurisdiction
sub nom. United States v.
Crocker National Bank, 481 U.S. 1047 (1987), and now
reverse.
In the late 1930's, the Nation faced a severe housing shortage.
To meet that crisis, Congress enacted the Housing Act of 1937, 50
Stat. 888
et seq., which was designed to stimulate local
financing of housing projects by empowering state and local housing
authorities to issue tax-free obligations, termed "Project Notes."
For almost 50 years after the Act's passage, it was generally
assumed that this exempted the Notes from federal income tax, but
not from federal estate tax.
See Committee on Tax Exempt
Financing, Section of Taxation, ABA, Report on the Tax Provisions
of the United States Housing Act of 1937: Beyond the Looking Glass,
33 Tax Lawyer 71, 105 (1979); Rev.Rul. 81-63, 1981-1 Cum.Bull. 455.
However, in 1984, the District Court for the Northern District of
Illinois ruled that Project Notes were exempt from estate taxes as
well, basing its decision on a variety of statutory construction
tools.
Haffner v. United States, supra. The District
Court's judgment caused a "rush to market" for Project Notes, and
also prompted those who had already paid estate taxes on the Notes
to seek refunds. Within months of the District Court's ruling,
Congress enacted the DEFRA, § 641 of which, effective June 19,
1984, eliminated the purported estate tax exemption for Project
Notes and also foreclosed those who had already paid estate taxes
on Project Notes from obtaining a refund thereon. Against this
backdrop, we turn to the facts of the instant appeal.
The
Wells Fargo appellees are the executors of the
estate of Jules C. Stein, who died in April, 1981. Included in the
estate are Project Notes with an aggregate face value of
$9,550,000. They filed an estate tax return listing these notes as
taxable, and paid the tax. In June, 1984, following the
Haffner decision, appellees timely filed an amended estate
tax return declaring that the Project Notes were exempt
Page 485 U. S. 354
from taxation and claiming a refund. After the Commissioner of
Internal Revenue rejected their claim, they brought suit in the
District Court for the Central District of California.
The
Rosenberg appellees are the coexecutors of the
estate of Morris Folb, who died in July, 1982. Project Notes with
face values totaling $250,000 are part of the estate. Appellees
filed an estate tax return, and, like the
Wells Fargo
appellees, included the Project Notes as taxable assets and paid
tax on them. In August, 1984, also like the
Wells Fargo
appellees, they filed their amended tax return claiming that the
Project Notes were exempt from estate taxation. The Commissioner
denied their claim and they too filed suit in the Central District
of California, where their case was consolidated with
Wells
Fargo.
On cross-motions for summary judgment, the District Court
concluded, as mentioned above, that the Project Notes were tax
exempt when the returns were filed, relying on the reasoning in
Haffner. The court also held that § 641 of the DEFRA
unconstitutionally denied appellees due process and equal
protection of the laws as guaranteed by the Fifth Amendment.
Although it is the portion of the judgment declaring an Act of
Congress unconstitutional that provides us with appellate
jurisdiction, such an appeal brings the entire case before us.
United States v. Locke, 471 U. S. 84,
471 U. S. 92
(1985). Moreover, our established practice is to resolve statutory
questions at the outset where to do so might obviate the need to
consider a constitutional issue.
Ibid.; Ashwander v. TVA,
297 U. S. 288, 347
(1936) (Brandeis, J., concurring). Therefore, we consider first the
question whether the statute exempts Project Notes from estate
taxation.
Informing our examination of this issue is the settled principle
that exemptions from taxation are not to be implied; they must be
unambiguously proved.
E.g., Oklahoma Tax Comm'n v. United
States, 319 U. S. 598,
319 U. S. 606
(1943);
United States Trust Co. v. Helvering, 307 U. S.
57,
307 U. S. 60
(1939);
Rapid
Page 485 U. S. 355
Transit Corp. v. New York, 303 U.
S. 573,
303 U. S.
592-593 (1938). Appellees do not dispute, however, that
26 U.S.C. §§ 2001 and 2002 (1982 ed. and Supp. III), which define
the taxable estate for estate tax calculation, by their terms
include the Project Notes. Only by referring outside the Internal
Revenue Code, specifically to § 5(e) of the Housing Act of 1937, 50
Stat. 890,
as amended, 42 U.S.C. § 1437i(b), do appellees
endeavor to establish their exemption.
Of course, we begin our analysis of § 5(e) with the statutory
language itself. This section states that "[Project Notes],
including interest thereon, . . . shall be exempt from all taxation
now or hereafter imposed by the United States." Well before the
Housing Act was passed, an exemption of property from all taxation
had an understood meaning: the property was exempt from
direct taxation, but certain privileges of ownership, such
as the right to transfer the property, could be taxed. Underlying
this doctrine is the distinction between an excise tax, which is
levied upon the use or transfer of property even though it might be
measured by the property's value, and a tax levied upon the
property itself. The former has historically been permitted even
where the latter has been constitutionally or statutorily
forbidden. The estate tax is a form of excise tax.
Greiner v.
Lewellyn, 258 U. S. 384
(1922) (municipal bonds subject to federal estate taxation
notwithstanding an intergovernmental tax immunity barring a direct
tax on the bond);
Murdock v. Ward, 178 U.
S. 139,
178 U. S. 148
(1900) (federal tax exemption on federal bonds did not extend to
taxation on the right to transfer the bonds at death);
Plummer
v. Coler, 178 U. S. 115
(1900) (State may calculate estate tax based on total value of
property passing through the estate, including federal obligations
exempt from direct taxation by the State).
See also United
States Trust Co. v. Helvering, supra, at
397 U. S. 60
(applying the rule of
Greiner, Murdock, and
Plummer to hold that property subject to a general
exemption from "all taxation" would not exempt it from excise taxes
such as the estate tax);
Page 485 U. S. 356
Treas.Reg. § 20.2033-1, 26 CFR § 20.2033-1 (Supp.1964) (statutes
exempting federal obligations from "all taxation" refer only to
direct taxation).
Cf. West v. Oklahoma Tax Comm'n,
334 U. S. 717, 727
(1948) (recognizing the distinction between direct taxes and excise
taxes);
Reinecke v. Northern Trust Co., 278 U.
S. 339,
278 U. S. 347
(1929) (same). Consistent with this understanding, on the rare
occasions when Congress has exempted property from estate taxation,
it has generally adverted explicitly to that tax, rather than
generically to "all taxation."
E.g., Revenue Act of 1934,
§ 404, 48 Stat. 754,
repealed by the Revenue Act of 1962,
§ 18, 76 Stat. 1052. Placed in context, then, § 5(e) does not stand
for appellees' proposition that Project Notes were intended to be
exempt from estate taxes; it stands for exactly the opposite.
Appellees attempt to bolster their contrary view with various
indicia of an alleged congressional intent. Although these
considerations were found compelling in
Haffner, we
conclude, as did the Tax Court in
Estate of Egger v.
Commissioner, 89 T.C. 726 (1987), that the factors appellees
rely upon, whether considered alone or in combination, are
insufficient to demonstrate that Congress intended to exempt
Project Notes from estate taxation in contravention of the
understood meaning of § 5(e), a demonstration which must be
unambiguous under the principle disfavoring implied tax
exemptions.
Appellees' first argument centers on § 20 of the Housing Act of
1937, 50 Stat. 898, later repealed, which gave the newly created
United States Housing Authority the power to issue bonds and other
obligations. Section 20(b) provided that
"[s]uch obligations shall be exempt, both as to principal and
interest, from all taxation (except surtaxes, estate, inheritance,
and gift taxes) now or hereafter imposed. . . ."
The familiar argument goes that Congress knew how to limit the
scope of the exemption when it wanted to do so; its decision not to
include limiting language in § 5(e), in light of an
Page 485 U. S. 357
express limitation in § 20(b), demonstrates an intent to exempt
Project Notes from estate tax.
This argument does not withstand careful scrutiny. In 1937, when
the Housing Act was passed, what is now the income tax comprised
two parts: a "normal" tax set at a flat 4 percent, and a graduated
"surtax" with rates reaching up to 75 percent. As is plain from the
face of § 20(b), Congress intended federal housing obligations to
be exempt only from the normal tax. Yet as the normal tax and the
surtax were both direct, simply making the federal obligations
"exempt from all taxation" would exempt too much. Thus, Congress
"excepted" surtaxes from the exemption. But that exception, if left
by itself, would have created its own anomaly: the strict
application of the rule "
expressio unius est exclusio
alterius" --
i.e., the expression of one is the
exclusion of others -- would have resulted in exempting these
obligations from all taxes, direct or indirect, except the surtax.
To avoid that particular pitfall, Congress also excepted estate,
inheritance, and gift taxes from § 20(b). Such language was
commonplace when Congress sought to exempt items from the normal
tax, but not the surtax.
E.g., Home Owners' Loan Act of
1933, § 4(c), 48 Stat. 130; Farm Credit Act of 1933, § 63, 48 Stat.
267.
In contrast, § 5(e) needed no parenthetical exception. Congress
fully intended Project Notes to be exempt from surtaxes as well as
normal taxes, and thus exempting them "from all taxation" stated
with precision the congressional will. We cannot attribute to
Congress an intent to break new ground in tax law by cleverly
hiding an estate tax exemption, discernible only by comparing two
unrelated provisions of the Housing Act. Nor would it make sense
for Congress to legislate in such a bizarre fashion. If Congress
really wanted to create an especially broad tax exemption for
Project Notes, as appellees assert, one would expect it to do so
notoriously enough to attract investors, not surreptitiously enough
to evade detection for half a century.
Page 485 U. S. 358
Appellees' second indicator of congressional intent is a
statement made by Senator Walsh during the floor debate. In the
midst of a lengthy speech, he stated:
"Obligations, including interest thereon, issued by public
housing agencies, . . . are to be exempt from all taxation now or
hereafter imposed by the United States. In other words, the bill
gives the public housing agencies the right to issue tax-exempt
bonds, which means they are free from income tax, surtax, estate,
gift, and inheritance taxes."
81 Cong.Rec. 8085 (1937). If, as appears from the statement's
structure, the Senator intended to offer a definition of
"tax-exempt bonds," then we must conclude that he misspoke, for as
we have already demonstrated, tax-exempt bonds were presumed to be
exempt only from direct taxes. Even if, as appellees assert, the
Senator intended to refer solely to Project Notes, we do not deem
his statement compelling in this case. The relevant passage comes
in the middle of a long speech, and no similar expression is to be
found in any other legislative debate or document. This short,
isolated comment simply cannot overcome the understood meaning of §
5(e) and the presumption against implied tax exemptions.
Appellees also assert that Congress' intent can be discerned by
reference to a rejected administration housing proposal, which
contained in its analogue to § 5(e) an express statement that
Project Notes would be subject to estate taxes. We are unpersuaded
by appellees' contention that the Finance Committee's decision not
to include a similar express reference to the estate tax indicates
a desire to exempt Project Notes from that tax. Equally plausible
is that the Committee omitted the express exception as unnecessary.
Further, neither the administration, the Finance Committee nor even
a single Senator considered this difference worthy of comment,
although numerous other variations between the two proposals
received attention.
Finally, appellees point to a statement Warren J. Vinton, who
later became the first Chief Economist of the United
Page 485 U. S. 359
States Housing Authority, made to the American Federation of
Housing Authorities shortly after the Housing Act was passed. He
stated that Project Notes were
"exempt from all Federal taxes, not only normal income taxes but
surtax, inheritance tax, and gift tax. Investments of that nature
are getting rare in the country."
Brief for Appellees Wells Fargo Bank
et al. 15
(emphasis added in brief omitted). However, at the time he uttered
these words, Vinton was not yet employed by the Housing Authority.
We cannot attribute to this isolated comment the aura of a
contemporaneous agency interpretation.
The understood meaning of § 5(e) and the presumption against
implied tax exemptions are too powerful to be overcome by the
indicia of congressional intent put forward by appellees.
Accordingly, we conclude that the Housing Act of 1937 does not
exempt Project Notes from estate taxation. We therefore need not
consider the constitutionality of § 641 of the DEFRA. The judgment
of the District Court is
Reversed.
JUSTICE KENNEDY took no part in the consideration or decision of
this case.