United States v. City of Detroit

• Decision Date: 03 March 1958
• Docket Number: No. 26,26
• Citation: 355 U.S. 466,2 L.Ed.2d 424,78 S.Ct. 474
• Parties: UNITED STATES of America and Borg-Warner Corporation (Detroit Gear Division), Appellants, v. CITY OF DETROIT, a Municipal Corporation
• Court: U.S. Supreme Court

355 U.S. 466

78 S.Ct. 474

2 L.Ed.2d 424

UNITED STATES of America and Borg-Warner Corporation (Detroit Gear Division), Appellants,

v CITY OF DETROIT, a Municipal Corporation.

No. 26.

Argued Nov. 14, 1957.

Decided March 3, 1958.

Mr. Roger Fisher, Washington, D.C., for appellant United States of america.

Mr. Glenn M. Coulter, Detroit, Mich., for appellant Borg-Warner Corp.

Mr. Roger P. O'Connor, Detroit, Mich., for appellee.

Mr. Justice BLACK delivered the opinion of the Court.

The United States asks this Court to strike down as unconstitutional a tax statute of the State of Michigan as applied to a lessee of government property. In general terms this statute, Public Act 189 of 1953, provides that when tax-exempt real property is used by a private party in a business conducted for profit the private party is subject to taxation to the same extent as though he owned the property.¹ Here the United States was the owner of an industrial plant in Detroit, Michigan. It leased a portion of that plant to the Borg-Warner Corporation at a stipulated annual rental for use in the latter's private manufacturing business. The lease provided that Borg-Warner could deduct from the agreed rental any taxes paid by it under Public Act 189 or similar state statutes enacted during the term of the lease, but the Government reserved the right to contest the validity of such taxes.

On January 1, 1954, a tax was assessed against Borg-Warner under Public Act 189. The tax was based on the value of the property leased and computed at the rate used for calculating real property taxes. Under protest Borg-Warner paid part of the assessment. Subsequently the United States and Borg-Warner filed this suit in a state court for refund of the amount paid. They charged that the tax was repugnant to the Constitution of the United States because it imposed a levy upon government prop- erty and discriminated against those using such property. The lower court however upheld the tax and the Michigan Supreme Court affirmed. 345 Mich. 601, 77 N.W.2d 79. It ruled that the tax was neither discriminatory nor on the property of the United States but instead was a tax on the lessee's privilege of using the property in a private business conducted for profit. We noted probable jurisdiction of an appeal by the United States and Borg-Warner from this decision. 352 U.S. 962, 77 S.Ct. 353, 1 L.Ed.2d 319.

This Court has held that a State cannot constitutionally levy a tax directly against the Government of the United States or its property without the consent of Congress. McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579; Van Brocklin v. State of Tennessee, 117 U.S. 151, 6 S.Ct. 670, 29 L.Ed. 845. At the same time it is well settled that the Government's constitutional immunity does not shield private parties with whom it does business from state taxes imposed on them merely because part or all of the financial burden of the tax eventually falls on the Government. See, e.g., James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155; Graves v. People of State of New York ex rel. O'Keefe, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927; Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3. Of course in determining whether a tax is actually laid on the United States or its property this Court goes beyond the bare face of the taxing statute to consider all relevant circumstances.

The Michigan statute challenged here imposes a tax on private lessees and users of tax-exempt property who use such property in a business conducted for profit. Any taxes due under the statute are the personal obligation of the private lessee or user. The owner is not liable for their payment nor is the property itself subject to any lien if they remain unpaid. So far as the United States is concerned as the owner of the exempt property used in this case it seems clear that there was no attempt to levy against its property or treasury.

Nevertheless the Government argues that since the tax is measured by the value of the property used it should be treated as nothing but a contrivance to lay a tax on that property. We do not find this argument persuasive. A tax for the beneficial use of property, as distinguished from a tax on the property itself, has long been a commonplace in this country. See Henneford v. Silas Mason Co., 300 U.S. 577, 582—583, 57 S.Ct. 524, 526—527, 81 L.Ed. 814. In measuring such a use tax it seems neither irregular nor extravagant to resort to the value of the property used; indeed no more so than measuring a sales tax by the value of the property sold. Public Act 189 was apparently designed to equalize the annual tax burden carried by private businesses using exempt property with that of similar businesses using nonexempt property. Other things being the same, it seems obvious enough that use of exempt property is worth as much as use of comparable taxed property during the same interval. In our judgment it was not an impermissible subterfuge but a permissible exercise of its taxing power for Michigan to compute its tax by the value of the property used.

A number of decisions by this Court support this conclusion. For example in Curry v. United States, 314 U.S. 14, 62 S.Ct. 48, 86 L.Ed. 9, we upheld unanimously a state use tax on a contractor who was using government-owned materials although the tax was based on the full value of those materials. Similarly in Esso Standard Oil Co. v. Evans, 345 U.S. 495, 73 S.Ct. 800, 97 L.Ed. 1174, the Court held valid a state tax on the privilege of storing gasoline even though that part of the tax which was challenged was measured by the number of gallons of government-owned gasoline stored with the taxpayer. While it is true that the tax here is measured by the value of government property instead of by its quantity as in Esso such technical difference has no meaningful significance in determining whether the Con- stitution prohibits this tax. Still other cases further confirm the proposition that it may be permissible for a State to measure a tax imposed on a valid subject of state taxation by taking into account government property which is itself tax-exempt. See, e.g., Home Insurance Co. of New York v. State of New York, 134 U.S. 594, 10 S.Ct. 593, 33 L.Ed. 1025; Plummer v. Coler, 178 U.S. 115, 20 S.Ct. 829, 44 L.Ed. 998; Educational Films Corp. of America v. Ward, 282 U.S. 379, 51 S.Ct. 170, 75 L.Ed. 400; Pacific Co. v. Johnson, 285 U.S. 480, 489—490, 52 S.Ct. 424, 425—426, 76 L.Ed. 893.

In urging that the tax assessed here be struck down the appellants rely primarily on United States v. Allegheny County, 322 U.S. 174, 64 S.Ct. 908, 914, 88 L.Ed. 1209, but we do not think that case is at all controlling. In Allegheny the Court ruled invalid a tax which the State did not contend was 'anything other than the old and widely used ad valorem general property tax' to the extent it was laid on government property in the hands of a private bailee. Reviewing all the circumstances the Court concluded that the tax was simply and forthrightly imposed on the property itself, not on the privilege of using or possessing it. In carefully reserving the question whether the bailee could be taxed for exercising such privileges, the Court stated:

'Whether such a right of possession and use in view of all the circumstances could be taxed by appropriate proceedings we do not decide.

'Actual possession and custody of Government property nearly always are in someone who is not himself the Government but acts in its behalf and for its purposes. He may be an officer, an agent, or a contractor. His personal advantages from the relationship by way of salary, profit, or beneficial personal use of the property may be taxed as we have held.' 322 U.S. at pages 184, 186, 187, 64 S.Ct. at pages 915, 916.

Here we have a tax which is imposed on a party using tax-exempt property for its own 'beneficial personal use' and 'advantage.'²

It is undoubtedly true, as the Government points out, that it will not be able to secure as high rentals if lessees are taxed for using its property. But as this Court has ruled in James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155; Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3, and numerous other cases,³ the imposition of an increased financial burden on the Government does not, by itself, vitiate a state tax. King & Boozer offers a striking example. There a private party, acting under contract with the United States, purchased materials which the contract required him to transfer to the Government. At the same time the Government agreed to pay his costs plus a fixed fee so a state excise levied on his purchase was passed directly and completely to the Government. Yet despite the immediate financial burden imposed on the United States, this Court, without dissent, upheld the tax.

We are aware of course that the general principles laid down in Dravo, King & Boozer and subsequent cases do not resolve all the difficulties in the area of intergovernmental tax immunity, but they were adopted by this Court, with the full support of the Government, as the least complicated, the most workable and the proper standards for decision in this much litigated and often confused field and we adhere to them.⁴

It still remains true, as it has from the beginning, that a tax may be invalid even though it does not fall directly on the United States if it operates so as to discriminate against the Government or those with whom it deals. Cf. McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579. But here the tax applies to every private party who uses exempt property in Michigan in connection with a business conducted for private gain. Under Michigan law this means persons who use property owned by the Federal Government, the State, its political subdivisions, churches, charitable organizations and a great host of other entities.⁵ The class defined is not an arbitrary or invidiously...