Housing Authority of City of Seattle v. State of Wash., Dept. of Revenue

Decision Date09 October 1980
Docket NumberNo. 79-4067,79-4067
Citation629 F.2d 1307
Parties29 Cont.Cas.Fed. (CCH) 81,749 The HOUSING AUTHORITY OF the CITY OF SEATTLE, and L. E. Spitzer Co., Inc., Plaintiffs-Appellees, v. STATE OF WASHINGTON, DEPT. OF REVENUE of the State of Washington and Charles W. Hodde, Director or Revenue, and his successors in office, Defendants-Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

Michael Madden, Asst. Atty. Gen., Olympia, Wash., argued for defendants-appellants; Gregory Montgomery, Richard H. Holmquist, Asst. Attys. Gen., Olympia, Wash., on brief.

D. William Toone, Seattle, Wash., argued, for plaintiffs-appellees; Dwayne E. Copple, LeSourd, Patten, Fleming, Hartung & Emory, Seattle, Wash., on brief.

Appeal from the United States District Court for the Western District of Washington.

Before ANDERSON and SKOPIL, Circuit Judges, and BYRNE, * District Judge.

J. BLAINE ANDERSON, Circuit Judge:

The State of Washington appeals the order of the court below enjoining it from collecting certain sales taxes due from private contractors dealing with the Housing Authority of the City of Seattle (Authority), and ordering the refund of taxes already collected. The plaintiff Housing Authority joined with one of its contractors in challenging collection of the taxes on constitutional grounds. We reverse the order because the court lacked jurisdiction under the Johnson Act, 28 U.S.C. § 1341.


The Authority is but one of several public housing agencies which have been organized across the nation pursuant to federal coaxing under portions of the Low Income Housing Act of 1937, 42 U.S.C. § 1437, et. seq. (Act). In general, the Act contemplates the creation by state and local governments of public housing agencies whose mission is the acquisition, construction, operation, and maintenance of low-cost housing for low-income tenants, aided by federal largesse and disciplined by the benign hand of federal regulation. The congressional declaration of policy which accompanied the passage of the Act reflects a philosophy of cooperation among federal and state government in pursuit of the goal of adequate low-income housing:

"It is the policy of the United States to promote the general welfare of the Nation by employing its funds and credit, as provided in this chapter, to assist the several States and their political subdivisions to remedy the unsafe and unsanitary housing conditions and the acute shortage of decent, safe, and sanitary dwellings for families of low income and, consistent with the objectives of this chapter, to vest in local public housing agencies the maximum amount of responsibility in the administration of their housing programs. . . ." (emphasis supplied)

42 U.S.C. § 1437.

Under the Act, the Secretary of Housing and Urban Development ("HUD") has various prerogatives for funding and directing local housing agency projects. Under 42 U.S.C. § 1437b, the Secretary may make loans and loan commitments to public housing agencies. Under § 1437c, the Secretary may make "annual contributions" to agencies based upon specified need criteria. Each annual contribution contract must include certain specified provisions relating to the operation of projects, including a stipulation that the project is exempt from all real and personal property taxes levied by state or local government. § 1437d(d). The statutory authority of the Secretary is implemented in an extensive set of regulations which set mandatory guidelines for local housing authority operations. 1 Local housing agencies retain the discretionary authority to set tenant eligibility criteria and rental rates within the guidelines of the Act and the HUD regulations, though their discretion is severely limited. An agency may not, for example, set applicant priorities which are not authorized by the Act. See Fletcher v. Housing Authority of Louisville, 491 F.2d 793 (6th Cir.), judgment vacated, 419 U.S. 812, 95 S.Ct. 27, 42 L.Ed.2d 39 (1974), judgment reinstated, 525 F.2d 532 (6th Cir. 1975). The local governing body which creates the public housing agency retains the discretion to approve any application to HUD for aid, however. 42 U.S.C. § 1437c(e)(1). In addition, the local government may reject proffered aid if it so desires. See James v. Valtierra, 402 U.S. 137, 140, 91 S.Ct. 1331, 28 L.Ed.2d 678 (1971); Mahaley v. Cuyahoga Metropolitan Housing Authority, 500 F.2d 1087 (6th Cir. 1974), cert. denied, 419 U.S. 1108, 95 S.Ct. 781, 42 L.Ed.2d 805 (1975).

The State of Washington has authorized each county and municipality to create a public housing authority eligible to accept aid under the Act. RCW 35.82.030. In the case of a city created authority, its jurisdiction includes the city's municipal boundaries and all areas within five miles of the boundaries. RCW 35.82.020(6). A board of five commissioners, appointed by the mayor of the municipality, oversees the operation of each authority. RCW 35.82.040. The legal status of a public housing authority in Washington is that of ". . . a public body corporate and public, exercising public and essential governmental functions, and having all the powers necessary or convenient to carry out and effectuate the purposes and provisions of this chapter, . . . ." RCW 35.82.070. As required by the Low Income Housing Act, all property of an authority is exempt from local taxes. RCW 35.82.210.

The exemption of public housing authorities from local taxation potentially blocks the collection of any sales tax on building materials incorporated into authority projects. Under Washington's sales tax scheme, a tax is imposed upon every retail sale of personal property, and the burden of taxation falls upon the "consumer." In the case of materials incorporated into a construction project, the owner or lessee of the realty is defined as the "consumer." RCW 82.04.190(1)(b) and (4). The building contractor is viewed as a mere conduit of building materials to the ultimate consumer. Where a public housing authority contracts for construction or improvements, however, its statutory tax immunity would prevent the collection of sales taxes. In order to insure collection of sales tax on building materials, Washington, in 1975, redefined "consumer" to include any contractor working on projects for a public housing authority. Under RCW 82.04.190(6), "consumer" includes:

"(6) Any person engaged in the business of constructing, repairing, decorating, or improving new or existing buildings or other structures under, upon, or above real property of or for the United States, any instrumentality thereof, or a county or city housing authority created pursuant to chapter 35.82 RCW, including the installing or attaching of any article of tangible personal property therein or thereto, whether or not such personal property becomes a part of the realty by virtue of installation. Any such person shall be a consumer within the meaning of this subsection in respect to tangible personal property incorporated into, installed in, or attached to such building or other structure by such person."

The end result of this intricate bit of draftsmanship is that only those contractors who deal with the United States or with public housing authorities are liable for sales tax upon their building materials.

On November 3, 1977, the District Court for the Western District of Washington found that RCW 82.04.190(6) unlawfully discriminated against contractors who dealt with the United States on federal construction projects in United States v. State of Washington, No. C77-355V, currently on appeal before this panel. (CA No. 78-1424). On May 1, 1978, the plaintiffs in this appeal filed a complaint for declaratory judgment, injunctive relief and refund of taxes, alleging inter alia that plaintiff L. E. Spitzer Company, Inc., had contracted with the Authority for a renovation project at a contract price of $1,476,970.00, including sales tax, and that imposition of the tax upon Spitzer impermissibly discriminated against it as an entity contracting with an instrumentality of the United States. On December 22, 1978, ruling on plaintiffs' motion for partial summary judgment and the defendants' motion to dismiss, the district court entered an order declaring the Authority to be an instrumentality of the United States, and further declaring that RCW 82.04.190(6) discriminated against those who dealt with the Authority. The order enjoined the State from collecting any sales tax pursuant to the statute, and ordered the repayment of all sales taxes impermissibly collected from the plaintiffs. The determination of the precise amount owed was deferred for stipulation by the parties or the appointment of a special master in the event that the parties could not agree. The State's appeal to this court followed.


Because the complaint called for an injunction against the collection of a state tax, we must consider the jurisdictional bar of the Johnson Act, 28 U.S.C. § 1341, which provides that:

"The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State."

Because the Johnson Act also bars declaratory relief, see, e. g., City of Houston v. Standard-Triumph Motor Company, 347 F.2d 194 (5th Cir. 1965), cert. denied, 382 U.S. 974, 86 S.Ct. 539, 15 L.Ed.2d 466 (1966), a finding that the Act is applicable would effectively eliminate federal jurisdiction over this case.

The Authority, however, contends that it comes within judicially-created exceptions to the § 1341 bar. 2 First, it argues that it is a "federal instrumentality" which may protect itself against unconstitutional state taxation by invoking federal court jurisdiction. See generally, Department of Employment v. United States, 385 U.S. 355, 87 S.Ct. 464, 17 L.Ed.2d 414 (1966). Second, the...

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