U.S. v. City of Detroit

• Decision Date: 14 May 1956
• Docket Number: No. 8,8
• Citation: 77 N.W.2d 79,345 Mich. 601
• Parties: UNITED STATES of America and Borg-Warner Corporation (Detroit Gear Division), an Illinois corporation, Co-Plaintiffs and Co-Appellants, v. CITY OF DETROIT, a municipal corporation, Defendant and Appellee.
• Court: Michigan Supreme Court

Page 79

77 N.W.2d 79

345 Mich. 601

UNITED STATES of America and Borg-Warner Corporation

(Detroit Gear Division), an Illinois corporation, Co-Plaintiffs and Co-Appellants, v. CITY OF DETROIT, a municipal corporation, Defendant and Appellee.

No. 8.

Supreme Court of Michigan.

May 14, 1956.

Glenn M. Coulter, Detroit, for Borg-Warner Corp. (Detroit Gear Division), an Illinois corporation, co-plaintiff and co-appellant.

Charles K. Rice, Acting Asst. Atty. Gen., Lee A. Jackson, Lyle M. Turner, Attys., Dept. of Justice, Washington, D. C., Fred W. Kaess, U. S. Atty., John L. Owen, Asst. U. S. Atty., Detroit, for United States, co-plaintiff and co-appellant.

Paul T. Dwyer, Corp. Counsel, Bert R. Sogge, Julius C. Pliskow, Asst. Corp. Counsel, Detroit, for City of Detroit, a Michigan municipal corporation, defendant and appellee.

Roger P. O'Connor, Asst. Corp. Counsel, Detroit, for defendant and appellee.

Before the Entire Bench.

DETHMERS, Chief Justice.

The United States owns real estate consisting of an industrial plant, building and grounds in Detroit. A portion of it is leased to plaintiff Borg-Warner Corporation, which uses it exclusively for manufacturing purposes in its business conducted for profit. The lease provides that Borg-Warner may deduct from rent to United States any taxes assessed against and paid by Borg-Warner under P.A.1953, No. 189, C.L.S.1954, 211.181, 211.182, Stat.Ann.1955 Cum.Supp. §§ 7.7(5), 7.7(6), by reason of its use of the premises, that it will cooperate with United States to contest validity of such taxes and pay same under protest, if required by United States, and that it will repay United States any such taxes refunded.

Act No. 189 reads:

'An Act to provide for the taxation of lessees and users of tax-exempt property.

'The People of the State of Michigan enact:

'211.181 Taxation of lessees and users of tax-exempt property; exception. [M.S.A. 7.7(5)].

'Sec. 1. When any real property which for any reason is exempt from taxation is leased, loaned or otherwise made available to and used by a private individual, association or corporation in connection with a business conducted for profit, except where the use is by way of a concession in or relative to the use of a public airport, park, market, fair ground or similar property which is available to the use of the general public, shall be subject to taxation in the same amount and to the same extent as though the lessee or user were the owner of such property: Provided, however, That the foregoing shall not apply to federal property for which payments are made in lieu of taxes in amounts equivalent to taxes which might otherwise be lawfully assessed or property of any state-supported educational institution.

'211.182 Assessment and collection; action of assumpsit. [M.S.A. 7.7(6)]

'Sec. 2. Taxes shall be assessed to such lessees or users of real property and collected in the same manner as taxes assessed to owners of real property, except that such taxes shall not become a lien against the property. When due, such taxes shall constitute a debt due from the lessee or user to the township, city, village, county and school district for which the taxes were assessed and shall be recoverable by direct action of assumpsit.'

Under the act the taxing authorities of defendant city imposed a tax on Borg-Warner, measured by the true cash value of the leased real estate. Borg-Warner paid the first half of the tax under written protest and this action was brought to recover it. From judgment of no cause for action plaintiffs appeal.

Plaintiffs contend that Act 189 provides for an ad valorem general property tax on real property owned by United States and is, therefore, repugnant to the Constitution of the United States, which impliedly grants immunity from State and local taxation to property of United States. Defendant counters with the contention that it is a specific tax on Borg-Warner's privilege of using the property, which tax may, constitutionally, be measured by the full value of that property.

Plaintiffs believe that United States v. Allegheny County, 322 U.S. 174, 64 S.Ct. 908, 916, 88 L.Ed. 1209, is controlling, urge that under decision in that case the tax in the instant case must be held to be on United States property, and quote from opinion therein:

'We hold that Government-owned property, to the full extent of the Government's interest therein, is immune from taxation, either as against the Government itself or as against one who holds it as a bailee.'

In that case Mesta Machine Company undertook to make guns for United States. It owned a manufacturing plant which was not equipped for manufacture of ordinance. United States leased necessary machinery to Mesta, which installed it in its plant. Allegheny County, in assessing Mesta's real property for ad valorem taxes, included the value of the machinery. This the court held unconstitutional as constituting imposition of a tax on immune property of United States. The court said, inter alia:

'It is not contended that the scheme of taxation employed by Pennsylvania is anything other than the old and widely used ad valorem general property tax. * * * This form of taxation is not regarded primarily as a form of personal taxation but rather as a tax against the property as a thing. Its procedures are more nearly analogous to procedures in rem than to those in personam. While personal liability for the tax may be and sometimes is imposed, the power to tax is predicated upon jurisdiction of the property, not upon jurisdiction of the person of the owner, which often is lacking without impairment of the power to tax. In both theory and practice the property is the subject of the tax and stands as security for its payment.

'The Pennsylvania statutes embody this scheme of taxation. They are a century old. The basic provision reads: 'The following subjects and property shall * * * be valued and assessed, and subject to taxation.' [72 P.S.Pa. § 5020-201] Taxes are 'declared to be a first lien on said property.' (Emphasis supplied.) It is only under these legislative provisions that the tax in question is laid.

'The procedure of the assessors is consistent with no other theory than that the machinery itself was being assessed and taxed exactly as land was being assessed and taxed. * * *

'We hold that the substance of this procedure is to lay an ad valorem general property tax on property owned by the United States. * * *

'Mesta has some legal and beneficial interest in this property. It is a bailee for mutual benefit. Whether such a right of possession and use in view of all the circumstances could be taxed by appropriate proceedings we do not decide. * * *

'We think, however, that the Government's property interests are not taxable either to it or to its bailee. The 'Government' is an abstraction, and its possession of property largely constructive. 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. But neither he nor the Government can be taxed for the Government's property interest.' (Emphasis supplied.)

We agree with defendant that Allegheny is distinguishable from the instant case in controlling respects. To begin with, the hiatus in Section 1 of Act 189 resulting from failure to express the subject of the predicate 'shall be subject to taxation', which had been expressed in the bill as passed in the House, was apparently occasioned by inadvertent omission in the Senate. That subject was clearly intended to be, as in the House draft, 'the lessee or user of such property.' This is evident from the title of the act as well as from Section 2, which provides that the taxes shall be assessed to the lessees or users of real property. Thus, the Michigan act provides that it is the users of tax-exempt property who shall be subject to taxation, as contrasted with the Pennsylvania act considered in Allegheny, which provided that certain property should be subject to taxation. In further contrast with Allegheny, and stated in the converse of the language therein, the taxt at bar is a form of personal taxation and not a tax against the property as a thing--its procedures are more analogous to procedures in personam than in rem--the power to tax is not predicated upon jurisdiction of the property, but upon jurisdiction of the user--the property is not the subject of the tax and does not stand as security for its payment. These distinctions between Allegheny and the case at bar we think go to the roots of the problem of the nature of the taxes in the two cases and leave the holding in Allegheny that the tax there was on United States property without application here.

In Educational Films Corp. v. Ward, 282 U.S. 379, 51 S.Ct. 170, 171, 75 L.Ed. 400, the court upheld a New York franchise tax on certain classes of domestic corporations, payable each year in advance and measured by the corporation's entire net income of the proceeding year, which, in the case of plaintiff therein, was derived in part as royalties from copyrights granted by the United States. The court held that,...