United States v. City of Leavenworth, Kan.

• Decision Date: 21 December 1977
• Docket Number: Civ. A. No. 77-2214.
• Citation: United States v. City of Leavenworth, Kan., 443 F.Supp. 274 (D. Kan. 1977)
• Court: U.S. District Court — District of Kansas
• Parties: UNITED STATES of America, Plaintiff, v. CITY OF LEAVENWORTH, KANSAS, State Corporation Commission of Kansas, comprised of G. T. Vanbebber, William F. Gray, and R. C. Loux, and the Kansas Power and Light Company, Defendants.

443 F. Supp. 274

UNITED STATES of America, Plaintiff, v.CITY OF LEAVENWORTH, KANSAS, State Corporation Commission of Kansas, comprised of G. T. Vanbebber, William F. Gray, and R. C. Loux, and the Kansas Power and Light Company, Defendants.

Civ. A. No. 77-2214.

United States District Court, D. Kansas.

December 21, 1977.

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James P. Buchele, U. S. Atty., Topeka, Kan., M. Carr Ferguson, John J. McCarthy and William L. Shraberg, Attys., U. S. Dept. of Justice, Washington, D. C., for the Tax Division.

Robert D. Beall, City Atty., Leavenworth, Kan., for defendant, City of Leavenworth, Kansas.

Thomas J. Pitner, Gen. Counsel, Topeka, Kan., for defendant, State Corp. Commission of Kansas, etc.

John J. Jurcyk, Jr., of McAnany, Van Cleave & Phillips, Joseph J. Kelly, Jr. and Basil W. Kelsey, Spencer, Fane, Britt & Browne, Kansas City., Mo., for defendant, Kansas Power & Light Co.

MEMORANDUM AND ORDER

O'CONNOR, District Judge.

The parties herein having agreed to a temporary restraining order dated September 7, 1977, this matter is now before the court for determination of the plaintiff's motion for a preliminary injunction.The question to be resolved is whether the Department of the Army and the Bureau of Prisons have sovereign immunity by virtue of their status as agencies of the United States from exactions sought to be collected by the defendantKansas Power & Light Company, a public utility that provides electricity to the Ft. Leavenworth Army installation and the United States Penitentiary in Leavenworth, Kansas.After examining the relevant cases in this somewhat murky area of the law, the court concludes for reasons more fully set forth below that the exactions in question do not constitute an impermissible interference with the sovereignty of the federal government.

Principally for this reason, the plaintiff's motion for a preliminary injunction must be overruled.

The doctrine of sovereign tax immunity, i. e., that both federal and state governments and their respective instrumentalities are immune from taxation by each other, does not arise from any express constitutional prohibition.Rather, it rests upon "an implied limitation on the taxing power of each, such as to forestall undue interference, through the exercise of that power, with the governmental activities of the other."Graves v. New York ex rel. O'Keefe,306 U.S. 466, 477-78, 59 S.Ct. 595, 597, 83 L.Ed. 927(1938);Willcuts v. Bunn,282 U.S. 216, 231, 51 S.Ct. 125, 75 L.Ed. 304(1930).While it has been observed that "the line between the taxable and the immune has been drawn by an unsteady hand,"United States v. Allegheny County,322 U.S. 174, 176, 64 S.Ct. 908, 910, 88 L.Ed. 1209(1943), the fundamental principle first announced in McCulloch v. Maryland, 4 Wheat.(U.S.) 316, 4 L.Ed. 579(1819), has remained unimpaired: the possessions, institutions, and activities of the federal government, in the absence of congressional consent, are not subject to any form of state taxation.This principle is more easily stated than applied, however, and in determining whether a tax is actually laid on the United States or its property, the court must "go beyond the bare face of the taxing statute to consider all relevant circumstances."United States v. City of Detroit,355 U.S. 466, 469, 78 S.Ct. 474, 476, 2 L.Ed.2d 424(1957).Relevant considerations include not only the particular facts of the case before the court, but extend to competing philosophies inherent in our federal scheme of government.The following cogent observation of the Supreme Court in Helvering v. Gerhardt,304 U.S. 405, 417, 58 S.Ct. 969, 974, 82 L.Ed. 1427(1937), while pertaining to state immunity from federal taxation, is thus equally applicable to the situation before us:

"If every federal tax which is laid on some new form of state activity, or whose economic burden reaches in some measure the state or those who serve it, were to be set aside as an infringement of state sovereignty, it is evident that a restriction upon national power, devised only as a shield to protect the states from curtailment of the essential operations of government which they have exercised from the beginning, would become a ready means for striking down the taxing power of the nation."

On the other hand, as the Supreme Court noted in Willcuts v. Bunn,282 U.S. at 225, 51 S.Ct. at 127, to preserve the essential powers of either the state or the federal government, it is not necessary to cripple the other's power to tax "by extending the constitutional exemption from taxation to those subjects which fall within the general application of non-discriminatory laws, . . where no direct burden is laid upon the governmental instrumentality, and there is only a remote, if any, influence upon the exercise of the functions of government."See, also, Helvering v. Producers Corp.,303 U.S. 376, 385, 58 S.Ct. 623, 627, 82 L.Ed. 907(1937).

In considering the immunity of federal instrumentalities from state taxation two factors lacking in a case of a claimed state immunity from federal taxation may be of importance.Since the acts of Congress within its constitutional power are supreme, "the validity of state taxation of federal instrumentalities must depend (a) on the power of Congress to create the instrumentality and (b) its intent to protect it from state taxation."Helvering v. Gerhardt,304 U.S. at 411 n. 1, 58 S.Ct. at 971.As to the latter point it is well established that Congress may curtail an immunity which might otherwise be implied by authorizing state taxation of federal instrumentalities.Id.Likewise Congress may protect its agencies from the burdens of local taxation and may enlarge an immunity beyond the point where, Congress being silent, the Constitution would set its limits.Mayo v. United States,319 U.S. 441, 446, 63 S.Ct. 1137, 87 L.Ed. 1504(1942).Where Congress has given "no intimation of any purpose either to grant or withhold immunity from state taxation," however, "there is no basis for implying a purpose of Congress to exempt the federal government or its agencies from tax burdens which are unsubstantial or which courts are unable to discern."Graves v. New York ex rel. O'Keefe,306 U.S. at 479, 480, 59 S.Ct. at 598.In these circumstances"it is in order to consider the nature and effect of the alleged burden, and if it appears that there is no ground for implying a constitutional immunity, there is equally a want of any ground for assuming any purpose on the part of Congress to create an immunity."Id. at 480, 59 S.Ct. at 598.

The Supreme Court has long held state taxation that imposes a "direct" burden on the federal government to be invalid.Whether a particular state's "money exaction,""tax," or "enforced contribution to provide for the support of government,"e. g., Mayo v. United States,319 U.S. at 447, 63 S.Ct. 1137;United States v. LaFranca,282 U.S. 568, 572, 51 S.Ct. 278, 75 L.Ed. 551(1931), presents a direct obstruction to the exercise of federal power does not depend, however, upon the nature of the federal agency, the mode of its operation, or the fact that it is a federal governmental agency.Rather, the question is "whether the tax does in truth deprive federal agencies of power to serve the government as they were intended to serve it, or does hinder the effective exercise of their power."Railroad Company v. Peniston,18 Wall. 5, 36, (85 U.S.)21 L.Ed. 787(1873);James v. Dravo Contracting Co.,302 U.S. 134, 154, 58 S.Ct. 208, 82 L.Ed. 155(1937).Under this test the Supreme Court has invalidated state taxes upon branches of the national bank, McCulloch v. Maryland, 4 Wheat.(U.S.) 316, 4 L.Ed. 579(1819); stock issued for loans to the United States, Weston v. Charleston,2 Pet. (27 U.S.) 449, 7 L.Ed. 481(1829); offices of the United States, Dobbins v. Commissioners,16 Pet. (41 U.S.) 435, 10 L.Ed. 1022(1842); telegraph messages sent by officers of the United States on official business, Telegraph Company v. Texas,105 U.S. 460, 26 L.Ed. 1067(1881); the business of telegraphy, part of which was a federal governmental agency, Williams v. Talladega,226 U.S. 404, 33 S.Ct. 116, 57 L.Ed. 275(1912); federal government leases, Indian Territory Illuminating Oil Co. v. Oklahoma,240 U.S. 522, 36 S.Ct. 453, 60 L.Ed. 779(1921); mortgages executed to the United States, Federal Land Bank v. Crosland,261 U.S. 374, 43 S.Ct. 385, 67 L.Ed. 703(1922); the property of a corporate instrumentality of the United States, Clallam County v. United States,263 U.S. 341, 44 S.Ct. 121, 68 L.Ed. 328(1923); federally-owned fertilizer shipped into state under a federal soil conservation program, Mayo v. United States,319 U.S. 441, 63 S.Ct. 1137, 87 L.Ed. 1504(1942); machinery owned by United States, United States v. Allegheny County,322 U.S. 174, 64 S.Ct. 908, 88 L.Ed. 1209(1943); the sale of property to contractor acting as agent of United States, Kern-Limerick, Inc. v. Scurlock,347 U.S. 110, 74 S.Ct. 403, 98 L.Ed. 546(1953); the sale of property to a national bank, First Agricultural National Bank v. State Tax Commission,392 U.S. 339, 88 S.Ct. 2173, 20 L.Ed.2d 1138(1967); and the sale of liquor to officers' clubs and post exchanges on federal military installations, United States v. Tax Commission of Mississippi,421 U.S. 599, 95 S.Ct. 1872, 44 L.Ed.2d 404(1974).In all of these cases, the incidence of the proscribed exaction was found to be upon the property, officers, contracts, or instrumentalities of the federal government.The tax was therefore prohibited by the supremacy clause of the federal Constitution.

The federal government's right to be free of direct taxation by the state does not, however, spell immunity from paying the added costs attributable to the taxation of those who furnish supplies and services to the United States and who have been granted no tax immunity....