Scott Air Force Base v. County, St. Clair, Ill.

• Decision Date: 14 November 2008
• Docket Number: No. 08-1497.,08-1497.
• Citation: 548 F.3d 516
• Parties: SCOTT AIR FORCE BASE PROPERTIES, LLC, a limited liability company, Plaintiff-Appellant, v. COUNTY OF ST. CLAIR, ILLINOIS, a body corporate and politic, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

548 F.3d 516

SCOTT AIR FORCE BASE PROPERTIES, LLC, a limited liability company, Plaintiff-Appellant, v. COUNTY OF ST. CLAIR, ILLINOIS, a body corporate and politic, Defendant-Appellee.

No. 08-1497.

United States Court of Appeals, Seventh Circuit.

Argued September 26, 2008.

Decided November 14, 2008.

Joseph B. McDonnell, Attorney, Greensfelder, Hemker & Gale, Swansea, IL, Michael J. Wynne, Attorney (argued), Reed Smith LLP, Chicago, IL, for Plaintiff-Appellant.

Ellen G. Berkshire, Gregory J. Lafakis, Attorney (argued), Liston & Lafakis, Chicago, IL, for Defendant-Appellee.

Before RIPPLE, MANION, and SYKES, Circuit Judges.

MANION, Circuit Judge.

Scott Air Force Base Properties, LLC ("the Company"), brought this action against the County of St. Clair, Illinois ("the County") seeking a declaratory judgment that its leasehold interest in two parcels of land located on the Scott Air Force Base is not subject to the property tax which the County assessed. The district court held that the Tax Injunction Act ("TIA" or "the Act"), 28 U.S.C. § 1341, divested it of subject matter jurisdiction and dismissed the case. The Company has appealed. We affirm.

I. Background

The Military Housing Privatization Initiative ("MHPI"), enacted in 1996 as part of the National Defense Authorization Act, Pub.L. No. 104-106, § 2801, 110 Stat. 186, 544-51 (codified as amended at 10 U.S.C. §§ 2871-2885), is intended to attract private investment and expertise to build housing for members of the military and their families. Developers submit competitive bids and the federal government leases land to the successful bidder to construct housing developments. This process provides necessary housing on military bases with no capital cost to the government and at the same time supplies the developer with reliable tenants with a housing allowance to pay the rent.

The Company saw this as an attractive opportunity and entered into a lease agreement with the United States through the Secretary of the Air Force, agreeing to construct, operate, and maintain rental housing units for military personnel on land located on the Scott Air Force Base for a term of fifty years. The government also executed to the Company a quit claim deed to improvements on the land and entered into a restrictive covenant and use agreement with the Company.

While this appeared to be an attractive investment opportunity for the Company, the County of St. Clair, Illinois (where Scott Air Force Base is located) also saw this as an attractive opportunity to obtain some tax revenue. The County added the Company's leasehold interest in two parcels of the leased land to the County's tax assessment rolls and assessed an ad valorem tax¹ in the amount of $15,681,300.00 on the Company's interest in each parcel for the 2007 tax year. In response, the Company filed a complaint for declaratory judgment in the United States District Court for the Southern District of Illinois, asserting that the assessment was contrary to various provisions of the United States Constitution, federal statutory law, and Illinois law, and invoking the district court's subject matter jurisdiction under 28 U.S.C. § 1331. The Company sought a declaratory judgment that its leasehold interest was not subject to the County's assessment and that all transactions entered into under the MHPI were exempt from state taxation.

The County moved to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), contending that the TIA removed the district court's jurisdiction to grant the declaratory relief the Company had requested. In response to the County's motion, the Company argued that the Act's jurisdictional bar did not apply because the declaratory judgment sought by the Company concerned a claim of preemption under federal law.

The district court granted the County's motion to dismiss. The court concluded that because a plain, speedy, and efficient remedy was available to the Company in the Illinois courts to challenge the County's tax assessment, the TIA divested it of jurisdiction to render the declaratory relief which the Company sought.² The Company appeals.

II. Discussion

Our review of the district court's dismissal of the case for want of subject matter jurisdiction is de novo, and we accept all facts stated in the complaint as true and draw all reasonable inferences in the Company's favor. Newell Operating Co. v. Int'l Union of United Auto., Aerospace, & Agric. Implement Workers of Am., 532 F.3d 583, 587 (7th Cir.2008).

The Company asserts that the district court erred by not addressing two threshold questions before reaching the TIA: 1) whether the subject parcels were under the exclusive legislative jurisdiction of the United States pursuant to Article I, Section 8, Clause 17 of the Constitution, and 2) if so, whether Congress authorized state taxation of the land through the MHPI or the lease agreement the parties entered in accordance with the statute.

In support of its position, the Company cites Humble Pipe Line Co. v. Waggonner, 376 U.S. 369, 84 S.Ct. 857, 11 L.Ed.2d 782 (1964), and Atlantic Marine Corps Communities, LLC v. Onslow County, North Carolina, 497 F.Supp.2d 743 (E.D.N.C. 2007). Humble Pipe Line was an appeal from the Supreme Court of Louisiana where the Supreme Court of the United States considered "whether the United States has such exclusive jurisdiction over a ... tract of land ... on which the Barksdale Air Force Base is located that Louisiana is without jurisdiction to levy an ad valorem tax on privately owned property situated on the tract." 376 U.S. at 370, 84 S.Ct. 857. However, the Court did not mention the TIA—nor should it have— because the case was litigated in the Louisiana state courts and never appeared in a district court of the United States. While Humble Pipe Line may or may not be of some utility to the Company on the merits of its claims, it has no bearing on the question of the district court's jurisdiction in light of the TIA.

In Atlantic Marine Corps, a company had entered into a fifty-year ground lease of certain housing units located on several Marine Corps installations pursuant to the MHPI. 497 F.Supp.2d at 748. The company sought a declaratory judgment that these properties were under the exclusive jurisdiction of the federal government and thus not subject to ad valorem taxation by two counties. Id. at 745-46. The district court found that the properties were not subject to state taxation because they were under the exclusive jurisdiction of the United States which the government had not surrendered in the MHPI. Id. at 758. Although Atlantic Marine Corps is facially analogous to the instant matter, the Company's reliance upon it is misplaced.

First, the TIA was not mentioned in the Atlantic Marine Corps opinion; therefore, the case does not directly support the Company's argument that threshold questions must be reached before the Act comes into play. Second, to the extent that Atlantic Marine Corps may be read to suggest that the TIA has no operative effect until constitutional or other federal issues pertaining to the merits of a case are addressed, we reject that view. Were district courts to declare that properties assessed with state taxes are not subject to such taxes due to the operation of the Constitution or other federal law before reaching the jurisdictional question of the TIA, the Act would be rendered nugatory. Such declarations on the merits of cases would effectively "restrain or suspend" state taxation procedures and thereby diminish or encumber rightful state tax revenue—which, as we discuss below, is exactly what the TIA proscribes. Rather, because it potentially divests the district courts of subject matter jurisdiction, the TIA is itself a predicate consideration in the jurisdictional determination.³ "The requirement that jurisdiction be established as a threshold matter `spring[s] from the nature and limits of the judicial power of the United States' and is `inflexible and without exception.'" Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (quoting Mansfield, C. & L.M. Ry. Co. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510, 28 L.Ed. 462 (1884)). Indeed, "[i]t is axiomatic that a federal court must assure itself that it possesses jurisdiction over the subject matter of an action before it can proceed to take any action respecting the merits of the action." Cook v. Winfrey, 141 F.3d 322, 325 (7th Cir.1998). For these reasons, we find the Company's "threshold questions" argument unpersuasive.

We now consider the TIA, which provides that "[t]he 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." 28 U.S.C. § 1341. The TIA divests the district courts of subject matter jurisdiction in "cases in which state taxpayers seek federal-court orders enabling them to avoid paying state taxes." Hibbs v. Winn, 542 U.S. 88, 107, 124 S.Ct. 2276, 159 L.Ed.2d 172 (2004). Put another way, if the relief sought would diminish or encumber state tax revenue, then the Act bars federal jurisdiction over claims seeking such relief. Levy v. Pappas, 510 F.3d 755, 762 (7th Cir.2007). The TIA strips the district courts of the power to hear suits seeking not only injunctive but also declaratory relief from state taxes. California v. Grace Brethren Church, 457 U.S. 393, 411, 102 S.Ct. 2498, 73 L.Ed.2d 93 (1982); RTC Commercial Assets Trust 1995-NP3-1 v. Phoenix Bond & Indem. Co., 169 F.3d 448, 453 (7th Cir.1999). In addition, the Act applies to any state tax, including municipal and local taxes. Hager v. City of W. Peoria, 84 F.3d 865, 868 n. 1 (7th Cir.1996). Moreover, the TIA's ambit is not confined by the law under which a state tax is challenged, for even federal constitutional claims do not render the Act inapplicable....