U.S. v. City of Columbia, Mo.

• Decision Date: 12 September 1990
• Docket Number: 89-2782WM,Nos. 89-1896W,s. 89-1896W
• Citation: 914 F.2d 151
• Parties: UNITED STATES of America, Appellee, v. CITY OF COLUMBIA, MISSOURI; Harold Boldt, Finance Director, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 151

914 F.2d 151

59 USLW 2196

UNITED STATES of America, Appellee, v. CITY OF COLUMBIA, MISSOURI; Harold Boldt, Finance Director Appellant.

Nos. 89-1896WM, 89-2782WM.

United States Court of Appeals Eighth Circuit.

Submitted June 14, 1990.

Decided Sept. 12, 1990.

Richard G. Carlisle, Kansas City, Mo., for appellant.

Robert W. Metzler, Washington, D.C., for appellee.

Before ARNOLD, Circuit Judge, FLOYD R. GIBSON, Senior Circuit Judge, and WOLLMAN, Circuit Judge.

FLOYD R. GIBSON, Senior Circuit Judge.

The United States brought this action against the City of Columbia, Missouri, asserting that a component of the City's utility rate charged to the Veterans Administration hospital constitutes an unconstitutional tax on the federal government. The district court granted the United States' motion for summary judgment and ordered the City to refund past payments. The City appeals, and we reverse.

I. BACKGROUND

The City of Columbia, Missouri, is a municipal corporation existing under its Home Rule Charter as authorized by the Constitution of the State of Missouri. The City owns and operates water and electrical utilities. Under section 102 of the City Charter the City Council is required to set rates charging customers for water and electricity. That section provides that the water and electrical rates should be set at levels to produce revenues for six purposes. The first five purposes involve the costs incurred by the City in providing water and electricity and maintaining the utilities. The last factor, underlined in the following quote, provides for the City to seek revenues over and above the cost of providing the goods and services. Section 102 provides in pertinent part:

The City Council shall from time to time fix, establish, maintain and provide for the collection of such rates, fees or charges for water and electricity and water and electric service furnished by or through the water and electric light works of the city as will provide revenues sufficient to pay the cost of operation and the maintenance of said works in good repair and working order; to pay the principal of and interest on all revenue bonds of the city payable from the revenues of said works; to provide and maintain an adequate depreciation fund for the purpose of making renewals and replacements; to provide a fund for the extension, improvement, enlargement and betterment of said works; to pay the interest on and principal of any general obligation bonds issued by the city to extend or improve said works; and to pay into the general revenue fund of the city annually an amount substantially equivalent to that sum which would be paid in taxes if the water and electric light works were privately owned.

City of Columbia, Mo., City Charter at Sec. 102 (quoted in United States v. City of Columbia, 709 F.Supp. 174, 177 n. 3 (W.D.Mo.1989)).

Pursuant to section 102, the City Council enacted section 15.645 of the Columbia Code of Ordinances, implementing the last phrase of section 102 of the Charter. Section 15.645 of the City's Code of Ordinances provides that "a seven percent in lieu of gross receipts tax payment shall be charged on customer bills" for water and electricity. Columbia Code of Ordinances, Sec. 15.645 (quoted in City of Columbia, 709 F.Supp. at 176 n. 2). This charge is also known as the "payment in lieu of taxes," or, the "PILOT."

At all times relevant to this case the City provided water and electrical services to the Harry S. Truman Memorial Hospital, an independent agency of the United States administered by the Veterans Administration ("VA"). Until 1984 the VA paid in full all utility statements submitted to it by the City. Beginning in February 1984, however, the VA began deducting the PILOT charge from its payments to the City, believing that the PILOT constituted an impermissible tax levied on the United States by the City.

In January 1986 the United States filed this action seeking a declaration that the PILOT was an unconstitutional tax, an injunction prohibiting the assessment and collection of PILOT charges, and a refund of the PILOT amounts previously paid. After some initial discovery the United States moved for summary judgment. The district court granted that motion, holding that under the Supremacy Clause a state cannot tax the federal government and reasoning that the PILOT constituted a tax because it was earmarked for the City's general revenue fund. City of Columbia, 709 F.Supp. at 180. The district court accordingly granted the requested declaratory and injunctive relief and awarded the United States $221,472.37, representing $146,821.50 of PILOT paid between January 1, 1980 and December 31, 1983, and interest thereon.

The City now appeals, arguing that the district court erred in concluding that the PILOT is an impermissible tax and in awarding and calculating the United States' refund of its previously paid PILOT charges. We hold that the PILOT does not constitute a tax on the federal government and thus reverse the judgment of the district court.

II. DISCUSSION

As we review the district court's grant of summary judgment we are bound by the same standard as was the district court. Our review is thus de novo. Holloway v. Conger, 896 F.2d 1131, 1134 (8th Cir.1990). Summary judgment is proper only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. We must view the evidence in the light most favorable to the nonmoving party and give that party the benefit of all reasonable inferences. Woodsmith Pub. Co. v. Meredith Corp., 904 F.2d 1244, 1247 (8th Cir.1990).

The parties do not dispute the legal principle that is the basis of this suit. As far back as the landmark case of McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579 (1819), it was recognized that the federal government is immune from taxation by the states absent Congressional authorization. See Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 109 S.Ct. 1698, 1707, 104 L.Ed.2d 209 (1989). Federal immunity from state taxation is based on the Supremacy Clause of the United States Constitution, U.S. Const. art. VI, cl. 2. See South Carolina v. Baker, 485 U.S. 505, 518-19, n. 11, 108 S.Ct. 1355, 1366, n. 11, 99 L.Ed.2d 592 (1988); Massachusetts v. United States, 435 U.S. 444, 455, 98 S.Ct. 1153, 1161, 55 L.Ed.2d 403 (1978). Unlike the states' immunity from federal taxation, which is somewhat limited, the United States' immunity from state taxation is a "blanket immunity." Baker, 485 U.S. at 519 n. 11, 108 S.Ct. at 1366 n. 11.

What the parties do dispute is whether the PILOT charged by the City constitutes a tax. In addressing this issue, the district court first considered the United States' contention that under the three-part test set out in United States v. Maine, 524 F.Supp. 1056 (D.Me.1981), it is clear that the PILOT is a tax against the United States. The district court concluded that the Maine test is inapplicable to this case. City of Columbia, 709 F.Supp. at 179. The issue in Maine was whether a sliding scale fee imposed by the State of Maine on federal credit unions was an impermissible tax on the federal government. The Maine court borrowed the three-part test used by the Supreme Court in deciding whether the Commonwealth of Massachusetts was immune from a federal aircraft registration tax in Massachusetts v. United States, 435 U.S. 444, 98 S.Ct. 1153, 55 L.Ed.2d 403 (1978).

The immunity question in Massachusetts arose in the context of a state's immunity from federal taxation. The states' immunity from federal taxation is more limited than the federal government's immunity from state taxation, and is based on a different constitutional source. See Baker, 485 U.S. at 518-19 n. 11, 108 S.Ct. at 1366 n. 11. Generally, the states are immune from federal taxation that would unduly burden essential state functions. Massachusetts, 435 U.S. at 459-60, 98 S.Ct. at 1163. Federal immunity from state taxation, however, is a blanket immunity and is not subject to the same limits. Baker, 485 U.S. at 518-19 n. 11, 108 S.Ct. at 1366 n. 11. In Massachusetts, the Court was considering whether a registration tax levied by the federal government against a state was of a type that could permissibly be levied against a state; it was not considering, as we are here, whether a charge levied by a sovereign was a tax at all. We thus join the district court in refusing to adopt the Maine test to determine in this case whether the PILOT is a tax.

The district court believed that "[t]he correct approach for determining whether a charge is a tax is found in United States v. Maryland, 471 F.Supp. 1030, 1036 (D.Md.1979)." City of Columbia, 709 F.Supp. at 179. There the court addressed whether a state's charge of an "environmental surcharge" against federal agencies purchasing electricity within the state was a tax. The court relied on the definition provided in United States v. LaFranca, 282 U.S. 568, 572, 51 S.Ct. 278, 280, 75 L.Ed. 551 (1931), where the Court stated that a tax is an "enforced contribution to provide for the support of government." The Maryland court noted that it was clear that Maryland's surcharge was used to benefit the general public, and went on to state that "[t]he fact that obvious benefits accrue to the general public conclusively establishes that Maryland's environmental surcharge is a tax and not a utility rate." Maryland, 471 F.Supp. at 1036 (citation omitted). Relying on Maryland, the district court in this case believed that the dispositive feature of the PILOT that establishes that it is a tax is the fact that it is earmarked for the City's general revenue fund, which benefits the general public and not just utility customers. City of Columbia, 709 F.Supp. at 180.

The United States also relies heavily on that factor in this appeal. In addition, the United States argues that, contrary to the City's assertion, the PILOT is not simply the profit...