U.S. v. Lewis County
| Decision Date | 19 April 1999 |
| Docket Number | Nos. 97-35510,97-35720,s. 97-35510 |
| Citation | 175 F.3d 671 |
| Parties | 99 Cal. Daily Op. Serv. 2814, 1999 Daily Journal D.A.R. 3649 UNITED STATES of America, Plaintiff-Appellant-Cross-Appellee, v. LEWIS COUNTY, WA; Bill Brooks, County Assessor, Lewis County, Washington; Donna Karvia, Clerk, Lewis County Superior Court; Joe Cooke, Treasurer, Lewis County, Washington; Gary Zandel, Defendants-Appellees, and Kevin E. Murphy; Bernice Murphy, Defendants-Appellees-Cross-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
David English Carmack, Bridget M. Rowan, Tax Division, United States Department of Justice, Washington, D.C., for plaintiff-appellant-cross-appellee.
Douglas E. Jensen, Office of the Prosecuting Attorney, Chehalis, Washington, for defendants-appellees.
Christopher M. Constantine, Tacoma, Washington, for defendants-appellees-cross-appellants.
Appeals from the United States District Court for the Western District of Washington; Franklin D. Burgess, District Judge, Presiding. D.C. No. CV-94-05474-FDB.
Before: CANBY and TASHIMA, Circuit Judges, and TAKASUGI, 1 District Judge.
A federal statute, 7 U.S.C. § 1984, partially waives the immunity of the federal government from state taxation by authorizing state and local governments to tax farm property owned by the federal Farm Service Agency ("FSA") "in the same manner and to the same extent as other property is taxed." Id. Lewis County, Washington, imposed taxes, interest and penalties upon twenty parcels of farm property acquired by the FSA, and foreclosed on one of the parcels. The United States filed this action in district court, challenging these actions of the County. The United States contends that, because the County does not tax a comparable state agency, its tax is discriminatory and does not meet the requirements of § 1984 that the federal property be taxed "in the same manner and to the same extent as other property." Id. The United States also argues that, in any event, § 1984 does not authorize the County to collect interest and penalties, or to foreclose in the event of delinquency. The United States also disputed the County's application of a higher nonagricultural tax rate to three of the parcels. The United States now appeals from the district court's judgment for the County on the pleadings, entered pursuant to Fed. R. Civ. Pro. 12(c). We review de novo. See McGann v. Ernst & Young, 102 F.3d 390, 392 (9th Cir.1996). We conclude that Lewis County may tax the FSA properties in issue, but that it may neither impose interest and penalties nor foreclose on those properties. We also conclude that the United States may challenge the imposition of the higher non-agricultural tax rate on the ground that it discriminates against the United States. Accordingly, we affirm in part, reverse in part, and remand for further proceedings.
The United States named Kevin and Bernice Murphy as co-defendants because they had purchased an FSA parcel from Lewis County during a tax foreclosure sale. As cross-appellants, the Murphys seek to strike the declaration of a witness and obtain attorneys fees. They also assert affirmative defenses in their cross appeal. We do not rule upon most of the Murphys' contentions because they are improperly or prematurely raised.
The FSA, an agency of the Department of Agriculture, lends money to farmers and ranchers unable to obtain loans elsewhere. 2 7 U.S.C. § 1922 (1988 and Supp.1998). The agency may acquire title to property securing a particular loan if the borrower defaults. 7 U.S.C. § 1985(a). Title 7 U.S.C. § 1984 provides that:
All property ... the title to which is acquired or held by the Secretary under this chapter other than property used for administrative purposes shall be subject to taxation by State, territory, district, and local political subdivisions in the same manner and to the same extent as other property is taxed....
Thus, state and local authorities may apply a nondiscriminatory tax to property acquired by the FSA through loan default.
Lewis County assessed property taxes against twenty parcels of farmland held by the FSA. The FSA initially refused to pay the taxes, as well as the related interest and penalties. The FSA also objected to the County's taxation of three of the parcels at a higher nonagricultural rate. The County then initiated foreclosure actions against the parcels. Under protest, the FSA paid the taxes, penalties, and interest with regard to nineteen of the parcels in order to pass clear titles to eligible buyers. The County foreclosed on the remaining parcel and the Murphys purchased it at the foreclosure sale.
The United States then sued for damages and declaratory relief. The district court dismissed the complaint for lack of jurisdiction pursuant to the Tax Injunction Act, 28 U.S.C. § 1341 (1993). This court reversed in an unpublished decision and remanded for a consideration of the substantive issues. United States v. Lewis County, 94 F.3d 654 (9th Cir.1996)(Table). On remand, the Murphys and the County moved for judgment on the pleadings. The district court granted the motion, reasoning that 7 U.S.C. § 1984 provided a broad waiver of the federal government's immunity from state and local taxation with regard to agricultural property acquired by the FSA.
Washington's property tax scheme exempts from taxation "[a]ll property belonging exclusively to the United States, the state, any county or municipal corporation." Wash. Rev.Code § 84.36.010 (1991). The state's tax scheme also provides that, notwithstanding § 84.36.010, federally owned property is taxable whenever authorized by federal law. See id. § 84.40.315. 3 Thus, property acquired by the FSA through loan default is taxable pursuant to 7 U.S.C. § 1984.
The United States emphasizes that all state and local government property in Washington is tax-exempt, including property acquired by the Washington State Housing Finance Commission ("Housing Commission"). The Housing Commission performs a mission that is similar to the mission of the FSA. The United States then points out that Lewis County may tax FSA property only "in the same manner and to the same extent as other property is taxed." 7 U.S.C. § 1984. It insists that property acquired by Washington's Housing Commission is the relevant "other property." It reasons that, because Lewis County may not tax property held by the Housing Commission, or any other state or local government property, the County may not tax property held by the FSA. Thus, the United States would construe "other property" as "other publicly held property."
We do not read "other property" so narrowly. Congress must have known that states uniformly exempt state and local property from taxation. See Van Brocklin v. Tennessee, 117 U.S. 151, 173-75, 6 S.Ct. 670, 29 L.Ed. 845 (1886). If we construe 7 U.S.C. § 1984 to subject FSA property to taxation only where state and local government property is also taxed, then the waiver would rarely (if ever) take effect. By enacting 7 U.S.C. § 1984, however, Congress plainly intended to preserve the local tax base in counties where the FSA operates. We decline to interpret the provision in a way that would frustrate the obvious intent of Congress. See Philbrook v. Glodgett, 421 U.S. 707, 713, 95 S.Ct. 1893, 44 L.Ed.2d 525 (1975); United States v. Hynes, 20 F.3d 1437, 1442 (7th Cir.1994) (en banc). "Other property" must mean "other non-exempt property." Thus, Lewis County did not violate 7 U.S.C. § 1984 because it taxed FSA property just as it taxed other non-exempt property. 4
The United States also invokes the general principle of intergovernmental tax immunity that prohibits discrimination against a state taxpayer because of that taxpayer's connection with the federal sovereign. See Davis v. Michigan Dep't of the Treasury, 489 U.S. 803, 816, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989) (citing Phillips Chem. Co. v. Dumas Indep. Sch. Dist., 361 U.S. 376, 383, 80 S.Ct. 474, 4 L.Ed.2d 384 (1960)). The relevant inquiry in such cases is whether the inconsistent treatment is justified by significant differences between the class of persons or items taxed and the class that is not taxed. Id.
Washington's tax scheme undeniably discriminates between farmland that is held by the FSA and farmland that is similarly held by the state. State and local governments have traditionally exempted themselves from state and local taxation, however. See, e.g., Burr v. Boston, 208 Mass. 537, 538-39, 95 N.E. 208, 209-10 (1911). The state or local government would gain no revenue, and would incur some expense, by taxing itself. Taxation of federally owned property, however, does generate revenue for the state. It is possible that this distinction might not be sufficiently significant in the absence of congressional action because, in evaluating the difference in treatment, " 'the [federal] Government's interests must be weighed in the balance.' " Davis, 489 U.S. at 816, 109 S.Ct. 1500 (quoting Phillips Chemical, 361 U.S. at 385, 80 S.Ct. 474). Here, however, Congress has made its assessment of the federal interest in 7 U.S.C. § 1984 and, as we have already pointed out, that statute reflects an intent to prevent federal repossession from causing farm land to be removed from the state's tax rolls. Congress's action sufficiently qualifies the intergovernmental immunity of the United States to permit the state to make the distinction it has. We see no reason why state or local governments must engage in a circular process of taxing themselves in order to impose the tax on the federal government that Congress has authorized.
It is also worth noting that the County's tax on FSA-owned farmland is also imposed on privately-owned farmland in general. Thus there is a political check against excessive taxation. See ...
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