US v. Hynes

• Decision Date: 26 March 1991
• Docket Number: No. 88 C 3732.,88 C 3732.
• Citation: 759 F. Supp. 1303
• Parties: UNITED STATES of America, Plaintiff, v. Thomas C. HYNES, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

759 F. Supp. 1303

UNITED STATES of America, Plaintiff, v. Thomas C. HYNES, et al., Defendants.

No. 88 C 3732.

United States District Court, N.D. Illinois, E.D.

March 26, 1991.

Eileen M. Marutzky, Asst. U.S. Atty., Richard A. Correa, U.S. Dept. of Justice, Tax Div., Washington, D.C., for plaintiff.

Karen J. Dimond, Asst. State's Atty., Mark R. Davis, Special Asst. State's Atty., O'Keefe, Ashenden, Lyons & Ward, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

HOLDERMAN, District Judge:

This case concerns an ongoing dispute between the United States of America and Cook County over the imposition of ad valorem property taxes by Cook County on two federal buildings being purchased by the General Services Administration on an installment basis pursuant to the Purchase Contract Program, 40 U.S.C. § 602a. Both parties have filed motions for summary judgment pursuant to Fed.R.Civ.P. 56. For the reasons stated below, plaintiff's motion for summary judgment is granted and defendants' motion for summary judgment is denied.

FACTS

Many of the facts relevant to the disposition of this motion can be found in the Seventh Circuit's opinion in United States v. County of Cook, 725 F.2d 1128, 1129-30 (1984), and need not be repeated here. Two federal buildings located in Illinois — the Harold Washington Social Security Center and the Federal Archives and Records Center (the "Centers") — were purchased on an installment basis pursuant to the Purchase Contract Program, 40 U.S.C. § 602a. That section provides that

with respect to any interest in real property acquired under the provisions of this section, the same shall be subject to State and local taxes until title to the same shall pass to the Government of the United States.

Id. § 602a(d). However, prior to 1985, Illinois Revised Statutes ch. 120, ¶ 500.9a ("unamended ¶ 500.9a") excluded from local taxation certain government property. The statute exempted

all property that is being purchased by a governmental body under an installment contract pursuant to statutory authority and used exclusively for the public purposes of the governmental body.

In County of Cook, the Seventh Circuit held that the United States was a "governmental body" under ¶ 500.9a, and that the statute's exemption from local ad valorem taxation applies to Illinois realty being acquired by the United States under the Purchase Contract Program. 725 F.2d at 1131-32.

Effective January 1, 1985, ¶ 500.9a was amended ("amended ¶ 500.9a"). The statute now exempts

all property that is being purchased by a governmental body under an installment contract pursuant to statutory authority and used exclusively for the public purposes of the governmental body, except such property as the governmental body has permitted or may permit to be taxed.

(Emphasis added.) On the basis of the amended paragraph, defendants have assessed the Centers $15,259,389.76 for tax years 1985 through the first half of 1989. None of the tax bills have been paid. (Local Rule 12(l) and 12(m) statements.)

On April 29, 1988, the United States initiated this action seeking a declaratory judgment that defendants are prohibited from imposing ad valorem real property taxes on the Centers because such taxation discriminates against the United States in violation of the Supremacy Clause of the U.S. Constitution. The United States also seeks to enjoin defendants from assessing, imposing, or collecting such taxes on the Centers. Defendants filed a motion to dismiss, which this court construed as a motion for summary judgment. In a memorandum opinion and order of May 16, 1989, this court denied defendants' motion stating that "the legislative history of the 1984 amendment raises the issue of whether the Illinois legislature, through the facially neutral amendment to ¶ 500.9a, sought `to impose a tax on properties being acquired by the United States but not on properties being acquired by state or local governments.' County of Cook, 725 F.2d at 1131." Defendants' motion for reconsideration was denied.

The United States has presently filed a motion for summary judgment on the grounds that the amendment to ¶ 500.9a discriminates against the United States in violation of the U.S. Constitution. Defendants have filed a cross-motion for summary judgment denying such discrimination and claiming that amended ¶ 500.9a conforms to the U.S. Constitution.

ANALYSIS

At issue is whether amended ¶ 500.9a of chapter 120, Illinois Revised Statutes, imposes a discriminatory tax on the United States. A state regulation is invalid if it discriminates against the federal government or those with whom it deals. North Dakota v. United States, ___ U.S. ___, 110 S.Ct. 1986, 1995, 109 L.Ed.2d 420 (1990). The question of whether a state regulation discriminates against the federal government cannot be viewed in isolation. Id. Rather the entire legislative system should be analyzed to determine whether it is discriminatory with regard to the economic burden that results. Id. The state does not discriminate against the federal government and those with whom it deals unless it treats someone else better than it treats them. Id. 110 S.Ct. at 1996.

Statutory provisions are most easily understood in light of their history. Washington v. United States, 460 U.S. 536, 103 S.Ct. 1344, 1346, 75 L.Ed.2d 264 (1983). The legislative history here reveals the clear intent of the Illinois legislature to "get at" the federal government and to overcome its tax immunity. See id. 103 S.Ct. at 1352 (Blackmun, J., dissenting).

The amendment was specifically directed at property acquired by the United States and was a result of the County of Cook case. Illinois State Senator Timothy J. Degnan, one of the bill's sponsors, explained the purpose of the bill as follows:

I would move to concur with House Amendment No. 3 which in effect becomes the bill and has to do with the assessment practices on U.S. Government property. Currently, U.S. Government property is both State and Federally tax exempt except when purchased or in the process of being purchased by a non-Federal source. While the U.S. Government will permit such property being purchased on an installment contract to be taxed, the State exempts such property from taxation. This provision lifts that exemption and solves a problem ... a particular problem that we have in Cook County.

Illinois Senate Transcript, June 28, 1984, pp. 19-20. Illinois State Representative Andrew J. McGann, another sponsor of the bill, explained the bill as follows:

It's sic contents and purpose is to certify, as far as real property is concerned, with the Federal Government and the State Government as to their tax ability. That's all the Bill does. It comes from court decisions between the United States and Cook County, and it's a resolution now that we should be taxing some of the federal properties where the Federal Government states that we should be taxing such property. Therefore, we are looking into millions of dollars of revenue for localities as a result of this Bill, and I would move for its adoption.

83rd General Assembly of the State of Illinois, Transcription of Debate in the Illinois House of Representatives, June 13, 1984, p. C05.

Representative McGann continued:

We put Amendment # 3 on the Bill in order to bring out another more important or equally important, whatever way you look at it issue and that is the issue in regards to the United States Government's liability for taxes in certain counties in the State of Illinois. And this came from a Federal Court decision which.... which they consent and state that they should be paying real estate taxes on certain properties. Therefore, we are going to have a little short windfall here for the residents of the State of Illinois inasmuch as we will be taxing some of these federal properties.

Id., p. E05. Representative McGann later added:

What it does ... the actual Bill does is that it clarifies some United States court decisions in regards to the taxing of government property, and it ultimately will bring in millions of dollars into the State of Illinois, where the United States Government accepts real estate taxes on the properties that they are using.

Id., June 14, 1984, p. D11.

Defendants have shed no new light on the legislative history of the amendment to ¶ 500.9a since this court's decision of May 16, 1990 denying defendants' initial motion for summary judgment. Defendants concede that the amendment "shows a motivation among the legislators to obtain taxes which Congress provided for." (Def.Mem. in Support, p. 11.) However, assert defendants, the amended paragraph affects both federal and state installment purchase properties by initially exempting them from taxes, and then subjecting either to taxation if the government entity has consented to taxation of its respective properties. (Id. at 13-14.)

To look solely at the apparent neutrality on the face of the amendment would be to elevate form over substance, which must be avoided. Washington, 103 S.Ct. at 1350. The legislative history overwhelmingly reveals the intent of the Illinois legislature to reach into the coffers of the federal government, not the state government. Additionally, the effect of the amendment has been consistent with the intent harbored by the Illinois legislators: namely, to impose ad valorem taxes on property acquired by the federal government, and not on property acquired by state or local governments. See Maryland v. Louisiana, 451 U.S. 725, 101 S.Ct. 2114, 2134, 68 L.Ed.2d 576 (1981) (a state tax must be assessed in light of its actual effect). While the methodology of GSA's survey was far from perfect, the survey did provide some evidence that no state or local property is being taxed subject to the exception to the exemption of ¶ 500.9a. Defendants are unable to point out any such properties. Thus, there exists the discriminatory intent of the Illinois legislature, and the fruition of such...