United States v. Com. of Va., Civ. A. No. 79-1003-R.

• Decision Date: 31 October 1980
• Docket Number: Civ. A. No. 79-1003-R.
• Citation: 500 F. Supp. 729
• Parties: UNITED STATES of America v. COMMONWEALTH OF VIRGINIA et al.
• Court: U.S. District Court — Eastern District of Virginia

500 F. Supp. 729

UNITED STATES of America v. COMMONWEALTH OF VIRGINIA et al.

Civ. A. No. 79-1003-R.

United States District Court, E. D. Virginia, Richmond Division.

October 31, 1980.

Robert W. Jaspen, Asst. U. S. Atty., Richmond, Va., for plaintiff.

Kenneth W. Thorson, Asst. Atty. Gen. of Virginia, Richmond, Va., for defendants.

MEMORANDUM

WARRINER, District Judge.

This case comes before the Court on cross motions for summary judgment. The parties agree that there are no material facts in issue. The Court will proceed to judgment on the basis of the existing record.

The plaintiff, United States of America, brings this action at the request of the National Science Foundation, an agency of the sovereign plaintiff. According to the original complaint, the action is brought to protect the pecuniary interests of the United States under its contracts with Associated Universities, Inc., the contractor whose procurement of certain property has given rise to the legal issues involved in this action.

Pursuant to contracts entered into between the National Science Foundation and AUI, AUI manages, operates, and maintains the National Radio Astronomy Observatory, an institution headquartered in Charlottesville, Virginia. The assets of the Observatory are owned by the United States and its purposes, functions, operations, and activities are those established by the National Science Foundation. The contracts between AUI and the National Science Foundation provide that, in addition to being paid a fixed fee, AUI is to be reimbursed for all allowable costs incurred incidental to its performance of the contracts.

In 1977, taxing officials of the Commonwealth of Virginia conducted a sales and use tax audit of AUI records at the National Radio Astronomy Observatory in Charlottesville. The Commonwealth initially issued a tax assessment of $345,539.33 for the period 1 December 1970 through 28 February 1977. The assessment was based on a finding that the Observatory did not qualify for an exemption either as a research and development facility or as an institution of learning, under the applicable sections of the Virginia Code.¹ AUI challenged the assessment, and upon review by the Commonwealth it was determined that the Observatory qualified for an exemption as a research facility, but not as an institution of learning. The Commonwealth's Department of Taxation thereupon issued a revised sales and use tax assessment in the amount of $8,164.92. This amount was paid by AUI under protest on 19 December 1979. The National Science Foundation reimbursed AUI for the amount paid in taxes, and the parties agree that the agency was obligated to do so under the terms of its cost-reimbursement contract.

As a preliminary matter, the defendant challenges the United States' standing to bring this suit. The defendant also maintains that the Court lacks jurisdiction under 28 U.S.C. § 1341 because there is a plain, speedy, and efficient remedy in the Virginia courts and because this action does not arise under the Constitution, laws, or treaties of the United States. The Court finds, though, that the United States has a direct interest in this controversy because of its obligations under its cost-reimbursement contract. See, United States v. Dorgan, 413 F.Supp. 173, 175 (D.C.N.D.), aff'd, 429 U.S. 953, 97 S.Ct. 373, 50 L.Ed.2d 320 (1976); United States v. Arlington County, 326 F.2d 929, 931 (4th Cir. 1964). Accordingly, the United States has standing to bring this action and it need not first resort to any State remedies which may be available. Arlington County, 326 F.2d at 931.

The defendant has also requested the Court to abstain from hearing this matter pending a determination of the issues involved in the courts of the Commonwealth of Virginia. The defendant argues that resolution of the issues presented herein is more properly within the province of the Virginia courts because the sole issue is the proper interpretation and application of § 58-441.6(t) of the Code of Virginia. Abstention is an appropriate course of action generally in circumstances where a State court's determination of State law might render a federal constitutional issue moot or where abstention is otherwise necessary to prevent the disruption of State administrative proceedings. County of Allegheny v. Frank Mashuda Company, 360 U.S. 185, 189, 79 S.Ct. 1060, 1063, 3 L.Ed.2d 1163 (1959). In this case, there has been no showing that abstention is necessary to prevent the disruption of administrative proceedings. Rather, the plaintiff alleges that there are no administrative remedies available to AUI to further challenge the assessment. Also, a decision by a State court interpreting the Virginia State statute would not affect the decision of a federal constitutional issue. As the plaintiff asserts, only the application of a Virginia statute to the particular facts is in question. The Court must therefore retain jurisdiction over this action and must decide the issue under State law, as it is called upon to do in many other circumstances. The plaintiff is entitled to its choice of forum under 28 U.S.C. § 1345.

As indicated by the record in this case, the activities of the National Radio Astronomy Observatory are manifold, but its goal is singular and is expressed in the Foreward to its official publication, National Radio Astronomy Observatory:

The Observatory is devoted to research in astronomy .... The scope of the work at the Observatory is broadly conceived and directed to one common purpose-to discover and explain new scientific facts about the universe.²

From this starting point, the plaintiff has argued long and well that the Observatory is a unique facility dedicated to expanding man's knowledge of the outermost fringes of his environment. The commitment to exploring the universe which is evidenced throughout the record in statements by the Director of the Observatory and other scientists associated with the Observatory is inspiring. Few quests could equal that of seeking an understanding of man's place in the universe. This Court's inquiry is, regrettably, more earth-bound.

Section 58-441.6(t) of the Code of Virginia sets forth the relevant description of property exempt from taxation:

Tangible personal property for use or consumption by a college or other institution of learning ... provided such college or institution of learning ... is not conducted for profit.

The question for resolution is whether, under Virginia State law, AUI is a "college or other institution of learning." The Virginia taxing authorities have determined that the astronomical observatory operated by AUI is not part of a "college or other institution of learning" within the meaning of Section 58-441.6(t).

The Virginia State Tax Commissioner, in accordance with the power delegated to him under Section 58-441.41 of the Virginia Code, has promulgated the Virginia Retail Sales and Use Tax Rules and Regulations. Section 1-96 of the regulations clarifies the phrase, "college or other institution of learning," as it is used in Section 58-441.6(t). The version of Section 1-96 which was in effect during the time period at issue here provided that "the term `college or other institution of learning' contemplates the existence of a faculty, a student body, and prescribed courses of study." Effective 1 January 1979, Section 1-96 was revised to more fully explain the nature of an "other institution of learning." According to the revised regulation,

An "other institution of learning" must be similar to a college. To be similar to a college, an institution must (1) employ a professionally-trained faculty; (2) enroll and graduate students on the basis of academic achievement; (3) prescribe courses of study; and (4) provide instruction at regular intervals over a reasonable period of time.

Under either version, the plaintiff must show that the Observatory maintains a faculty, enrolls a student body, and offers prescribed courses of study, as those terms are commonly understood.

The Virginia Supreme Court has been called upon only once to decide under § 58-441.6(t) whether a particular institution qualified as an "other institution of learning." In Department of Taxation v. Progressive Community Club, 215 Va. 732, 213 S.E.2d 759 (1975), the Supreme Court held that an institution administering a child development "Headstart" program was not an "institution of learning" as such institutions are commonly known in Virginia. 213 S.E.2d at 763-64. In so holding, the Supreme Court accepted without question the institution's claim that its program had educational value; the Court further agreed that the institution had taken on many aspects of an institution of learning. However, the child development program, in the opinion of the Virginia Supreme Court, did not sufficiently partake of the characteristics of an institution of learning to qualify for tax exemption. Id.

What is most instructive about Progressive is not the Court's holding but instead the basis upon which the Court's reasoning was built. Starting with Article X, Section 6(f) of the revised Constitution of Virginia (1971),³ the Court acknowledged its prior view that exemption should be leniently viewed. It then pointed to its post-1971 decision in Commonwealth v. Research Analysis, 214 Va. 161, 163, 198 S.E.2d 622, 624 (1973) and Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 278, 199 S.E.2d 511, 513 (1973). Both, construing exemptions not here applicable, applied strict readings of the exemptions against the taxpayer. The Court then explained its earlier decision in Richmond v. Day Nursery Ass'n, 207 Va. 561, 151 S.E.2d 370 (1966), a finding of an exemption in favor of a taxpayer, as being based on its pre-1971 understanding of the law. Finally, and most pertinently, the Court quoted the Maryland case of Perdue, Inc. v. State Dept. of Assessment, 264 Md. 228, 232-33, 286 A.2d 165, 167 (1972) as being expressive of the "same rule"...