Commonwealth v. Dauphin County

• Decision Date: 19 June 1939
• Docket Number: 18
• Citation: 6 A.2d 870,335 Pa. 177
• Parties: Commonwealth of Pennsylvania, State Employes' Retirement System v. Dauphin County et al., Appellants
• Court: Pennsylvania Supreme Court

6 A.2d 870

335 Pa. 177

Commonwealth of Pennsylvania, State Employes' Retirement System v. Dauphin County et al., Appellants

No. 18

Supreme Court of Pennsylvania

June 19, 1939

Argued May 22, 1939.

Appeal, No. 18, May T., 1939, from decree of C.P. Dauphin Co., 1932, No. 182 Com. Docket, in case of Commonwealth of Pennsylvania, State Employes' Retirement System v. County of Dauphin, City of Harrisburg and Harrisburg School District. Decree affirmed.

Petition by Commonwealth, through State Retirement System, to strike off assessments of taxes on real estate.

The opinion of the Supreme Court states the facts.

Petition granted and final decree entered, opinion by HARGEST, P.J Defendants appealed.

Errors assigned, among others, were various excerpts from the opinion of the court below and the final decree.

Decree affirmed at appellants' cost.

Mark T Milnor, Solicitor for School District, with him Walter R Sohn, County Solicitor, Paul G. Smith, City Solicitor, and Spencer G. Hall, Assistant City Solicitor, for appellants.

C. James Todaro, Deputy Attorney General, with him Claude T. Reno, Attorney General, for appellee.

Before KEPHART, C.J., SCHAFFER, MAXEY, DREW, LINN, STERN and BARNES, JJ.

OPINION

MR. KEPHART, CHIEF JUSTICE.

The State Employes' Retirement System invested $400,000 of its fund in a bond and mortgage, secured by properties on Market Street and North Fourth Street in the City of Harrisburg. Upon default in interest and taxes, the properties were sold at sheriff's sale to the Commonwealth as purchaser on behalf of the Retirement System. Subsequent thereto, taxes were periodically assessed against this real estate, for the years 1934 to 1937, by Dauphin County, the City, and the School District of Harrisburg, though the title to the realty remained in the Commonwealth. During this time, the properties were rented to another department of the Commonwealth and to private commercial tenants. The Commonwealth did not pay the taxes so assessed, whereupon the City caused an execution to issue against the properties for delinquent taxes, and they were duly advertised for sale. The Commonwealth, through the State Retirement System, moved by petition to strike off the assessments of the taxes for the years above mentioned and the judgments and executions based thereon. The court below granted the prayer of the Commonwealth's petition, and this appeal followed.

May real estate owned by the Commonwealth, or one of its boards, be subjected to taxation by one of its municipal subdivisions? Subject to constitutional limitations, the elementary premise is that the power to tax vests exclusively in the legislature; it may by express direction delegate segments of the taxing power to municipal bodies, whose exercise thereof is confined to the power so delegated. This was fully discussed in Wilson et ux. v. Philadelphia School Dist. et al., 328 Pa. 225, at 229. The power, therefore, to determine what property shall be subject to taxation and what shall be immune is traditionally within the province of the General Assembly. Mott et al. v. Pennsylvania Railroad Co. et al., 30 Pa. 9, 28-29. Numerous illustrations of its exercise are set forth in Butler's Appeal, 73 Pa. 448, at 451. Our present Constitution in Article IX, Sections 1 ^[1] and 2, ^[2] specifically entrusts such power to that body, with enumerated limitations as to exemptions. The Act of May 22, 1933, P.L. 853, Sections 201 and 204, is in strict compliance with the constitutional direction. Section 201 is a general provision subjecting "all real estate" to taxation by municipal bodies. Section 204 exempts property capable of exemption under section 1 of Article IX. ^[3]

It is not to be presumed that the general provisions of Section 201, delegating a portion of the power to tax real estate to municipal subdivisions, was meant to include property owned by the Commonwealth. The legislators did not intend to upset the orderly processes of government by allowing the sovereign power to be burdened by being subjected to municipal taxes. Legislative enactments presumptively affect only private rights and do not embrace the rights of a sovereign unless the sovereign is explicitly designated or clearly intended. See Baker et al. v. Kirschnek et al., 317 Pa. 225, 231-232. From this general principle, the rule arises that a municipality cannot successfully tax state-owned property unless it points to a statute clearly authorizing it to do so. See County of Erie v. City of Erie, 113 Pa. 360, 366; Heron v. Pittsburgh, 57 Pa.Super. 648, 649. In the latter case the court said: "The general statutes of the state, upon the subject of taxing property, undoubtedly refer to private property and not to that owned by the state . . . ." The rules as to the property of municipal subdivisions or charities have no applicability here.

Not only is this real estate outside the scope of the general taxing provisions of the Act of 1933, but it has, also, been specifically exempted by Section 17 of the State Employes' Retirement Act. ^[4] This section furnishes a broad and sweeping exemption from taxation to the Retirement Fund as well as to the benefits and rights accruing to individuals under the provisions of the Act. The intention was to exempt the contributions made to the fund by members and by the Commonwealth as well as the payments to members therefrom.

The retirement fund consists of property in various forms. Not more than ten per cent of the entire amount may be kept on deposit in banks; the remainder is invested in securities and other forms of interest-bearing obligations, under Section 6(5) of the Retirement Act. ^[5] This mortgage originally taken by the Retirement System was without doubt a constituent part of the retirement fund exempted by Section 17 from tax burdens. The purchase of the real estate, at sheriff's sale, was only incidental to the primary investment, forced on the Commonwealth by the default on the mortgage and the absence of other purchasers at the sheriff's sale. When the security thus became a part of the fund, the legal incidents attaching to the mortgage continued to attach to the real estate, and immunity from taxation was not surrendered by the Commonwealth or the Retirement System.

Appellants argue that the exemption of Section 17 to "the moneys in the fund" does not embrace real estate. The words employed were not meant to be restrictive, and to apply only to cash, deposits, and the like. The context confirms the understanding that the word "moneys" was used comprehensively and synonymously with the word "property," thereby including real estate. See Newhard v. Newhard, 303 Pa. 299; and also Jacobs' Estate, 140 Pa. 268; Ostrom v. Datz, 274 Pa. 375; Talbot et al. v. Anderson, 292 Pa. 454; Williamson's Estate, 302 Pa. 462. The ordinary presumption against exemption does not apply where the property involved is owned by the Commonwealth, since such property has for reasons of public policy been consistently recognized as free from taxation. See Mattern v. Canevin, 213 Pa. 588, 590. The construction in such cases should always be in favor of the Commonwealth.

It is objected that the Constitution forbids the grant of immunity as to the property involved because the premises are partially occupied by tenants for private commercial purposes. Even assuming that the constitutional restriction of Article IX be applicable to property owned by the State, it does not follow that there has been a violation. Section 1 of that Article permits the exemption of public property used for public purposes, and the Act of 1933, as well as Section 17 of the Retirement Act, carries this into effect. Notwithstanding its rental to commercial enterprises, the real estate is in fact being used for a public purpose, that is, it is part of the fund of the State Employes' Retirement System. Even if owned outright by the State, the revenues therefrom could only be devoted to public purposes under the Constitution. So long as the use of the property by the State is public there can be no constitutional violation.

The resulting issue is whether the fund of the Retirement System is property used for a public purpose of the Commonwealth and whether the real estate here involved is being held by it as a properly acquired part of that fund, rather than as a private business enterprise. Generally, the question whether public property is being used for a public or private purpose under Article IX is resolved by determining whether the particular property is held for governmental or proprietary reasons. Such an inquiry cannot be controlled by the criteria...