United States v. County of Fresno

Decision Date25 January 1977
Docket NumberNo. 75-1262,75-1262
Citation50 L.Ed.2d 683,97 S.Ct. 699,429 U.S. 452
PartiesUNITED STATES et al., Appellants, v. COUNTY OF FRESNO et al
CourtU.S. Supreme Court
Syllabus

Pursuant to California statutes authorizing counties to impose an annual use or property tax on possessory interests in improvements on tax-exempt land, appellee counties imposed a tax on the possessory interests of appellant United States Forest Service employees in housing located in national forests within the counties and owned and supplied to appellants by the Forest Service as part of their compensation. Held: The tax is not barred by the Supremacy Clause as a state tax on the Federal Government or federal property. Pp. 457-468.

(a) A State may, in effect, raise revenues on the basis of property owned by the United States as long as that property is being used by a private citizen and as long as it is the possession or use by the private citizen that is being taxed. City of Detroit v. Murray Corp., 355 U.S. 489, 78 S.Ct. 458, 2 L.Ed.2d 441; United States v. City of Detroit, 355 U.S. 466, 78 S.Ct. 474, 2 L.Ed.2d 424; United States v. Township of Muskegon, 355 U.S. 484, 78 S.Ct. 483, 2 L.Ed.2d 436. P. 462.

(b) The economic burden on a federal function of a state tax imposed on those who deal with the Federal Government does not render the tax unconstitutional as long as the tax is imposed equally on the other similarly situated constituents of the State. Pp. 462-464.

(c) The "legal incidence" of the tax in question falls neither on the Federal Government nor on federal property but is imposed solely on private citizens who work for the Federal Government and threatens to interfere with federal laws relating to the Forest Service's functions only insofar as it may impose an economic burden on the Forest Service to reimburse its employees for the taxes owed or, failing reimbursement, to remove an advantage otherwise enjoyed by the Government in the employment market. Pp. 464.

(d) The tax does not discriminate against Forest Service or other federal employees, and the fact that it is imposed on real property renters only if the owner is exempt from taxation does not make it discriminatory. United States v. City of Detroit, supra. Since the state property tax imposed on owners of nonexempt property is passed on to their lessees, appellants are no worse off than those who work for private employers and rent houses in the private sector. P. 464-465.

(e) It cannot be properly contended that appellants are required to occupy their houses for the Forest Service's sole benefit and not for their own personal benefit, since the occupancy of the houses constitutes part of appellants' "compensation" for services performed and thus concededly is of personal benefit to the employee, and since moreover the Forest Service itself purports to measure the personal benefit of the occupancy to the employee and collects rent in such an amount through deductions from the employee's paycheck. Pp. 465-467.

50 Cal.App.3d 633, 123 Cal.Rptr. 548 (County of Fresno judgment); and County of Tuolumne judgment affirmed.

James B. Waterman, Fresno, Cal., for appellee County of Fresno.

Stephen Dietrich, Jr., Sonora, Cal., for appellee County of Tuolumne.

Howard E. Shapiro, Washington, D. C., for appellants.

Mr. Justice WHITE delivered the opinion of the Court.

The issue in this case is whether, consistent with the Federal Government's immunity from state taxation inherent in the Supremacy Clause of the United States Constitution, see McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579 (1819), the State of California may tax federal employees on their possessory interests in housing owned and supplied to them by the Federal Government as part of their compensation. We hold that it may.

I

The individual appellants in this case are employees of the Forest Service, a branch of the United States Department of Agriculture responsible for administering the national forests. These appellants work in the Sierra, Sequoia, and Stanislaus National Forests which are located in Fresno and Tuolumne Counties in California. During the year 1967 each appellant lived with his family in a house which was built and owned by the Forest Service in one of these national forests. Appellants were required by the Forest Service to live in these houses 1 so that they would be nearer to the place where they performed their duties and so that they would be better able to perform those duties. Structurally, the houses were very similar to residential houses of the same size available in the private sector. The Forest Service viewed the occupancy of these houses as partial compensation for the services of its employees, and made a deduction from the salary of the employee for each two-week pay period in which the employee occupied such a house. The Forest Service fixed the amount of the deduction by estimating the fair rental value of a similar house in the private sector and then discounting that figure to take account of the distance between the Forest Service house and the nearest established community and the absence, if any, of any customary amenities in or near the house.2 Adjustment was also made for the fact that the Forest Service reserved the right to remove employees from their houses at any time, to enter the houses with or without notice for inspection purposes, and to use part or all of the houses for official purposes in an emergency.

Pursuant to 16 U.S.C. § 480, the States retain civil and criminal jurisdiction over the national forests notwithstanding the fact that the national forests are owned by the Federal Government. Under the California Revenue and Taxation Code, §§ 104, 107 (West 1970), and § 21(b) of Title 18 of the California Administrative Code (1971), counties in California are authorized to impose an annual use or property tax on possessory interests in improvements on tax-exempt land.3 The Counties of Fresno and Tuolumne imposed such a tax on the appellants Forest Service employees who live in the federally owned houses in the national forests located in those counties. In computing the value of the possessory interests on which the tax is imposed, the counties used the annual estimated fair rental value of the houses, discounted to take into account essentially the same factors considered by the Forest Service in computing the amount that it deducted from the salaries of employees who used the houses.4

Appellants paid the taxes under protest and they, together with the United States, sued for a refund in California courts in Fresno and Tuolumne Counties. They claimed, inter alia, that the tax interfered with a federal function i. e., the running of the Forest Service that it discriminated against employees of the Federal Government and that it was therefore forbidden by the Supremacy Clause of the United States Constitution. E. g., McCulloch v. Maryland, supra. The trial courts each sustained appellants' claims, holding, inter alia, that appellants had no taxable possessory interest under state law. The California Court of Appeal, Fifth Appellate District, reversed, 50 Cal.App.3d 633, 123 Cal.Rptr. 548 (1975) (County of Fresno case, followed in County of Tuolumne case (unreported)). It held that each appellant had a possessory interest in the houses owned by the Forest Service that was subject to taxation under state law. The court then held that the tax on such possessory interests is not a tax on the Federal Government, on Government property, or on a "federal function." Rather, it is a tax imposed on "the private citizen, and it is the private citizen's usufructuary interest in the government land and improvements alone that is being taxed. (City of Detroit v. Murray Corp., 355 U.S. 489, 78 S.Ct. 458, 2 L.Ed.2d 441; United States v. Township of Muskegon, 355 U.S. 484, 78 S.Ct. 483, 2 L.Ed.2d 436; United States v. City of Detroit, 355 U.S. 466, 78 S.Ct. 474, 2 L.Ed.2d 424.)" Id., at 640, 123 Cal.Rptr., at 552. Consequently, the court held, the tax is not barred by the Supremacy Clause of the Federal Constitution. The California Court of Appeal also rejected appellants' contention that the tax operates to discriminate against the Federal Government and its employees. The Supreme Court of California denied review. We noted probable jurisdiction to review the decision of the California Court of Appeal, 425 U.S. 970, 96 S.Ct. 2165, 48 L.Ed.2d 793 (1976).

Appellants argue that the tax is "a levy upon the activities of the United States" because the occupancy of the houses by the Forest Service employees was "for the sole purpose of discharging their governmental function of running the national forests." Brief for Appellants 11. Consequently, the Government argues, the tax is forbidden by the doctrine announced in M'Culloch v. Maryland, that under the Supremacy Clause of the Federal Constitution the States may not tax the properties, functions, or instrumentalities of the Federal Government. We disagree with the Government, and affirm the judgment below.

II

The Government relies principally on the landmark case of M'Culloch v. Maryland. There the State of Maryland imposed a tax on notes issued by "any Bank ... established without authority from the State.5 The only such bank in Maryland was the Bank of the United States, created and incorporated by Act of Congress in order to carry out Congress' enumerated powers. No similar tax was imposed on the issuance of notes by any other bank in Maryland. The Court held the tax to violate that part of the Federal Constitution which declares that the laws of the United States are the "supreme law of the land." An Act of Congress had created the bank in order to carry out functions of the National Government enumerated in the United States Constitution. The Court noted that the power to tax the bank "by the States may be exercised so as to destroy it," 4 Wheat., at 427, and consequently that the power to tax, if...

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