v. State of Minnesota

• Decision Date: 25 March 1946
• Docket Number: Nos. 254 and 255,s. 254 and 255
• Citation: 327 U.S. 558,66 S.Ct. 749,90 L.Ed. 851
• Parties: S.R.A., Inc., v. STATE OF MINNESOTA (two cases)
• Court: U.S. Supreme Court

327 U.S. 558

66 S.Ct. 749

90 L.Ed. 851

S.R.A., Inc.,

v STATE OF MINNESOTA (two cases).

Nos. 254 and 255.

Argued Jan. 3, 1946.

Decided March 25, 1946.

Mr.Roland J. Faricy, of St. Paul, Minn., for petitioner.

Mr. Andrew R. Bratter, of St. Paul, Minn., for respondent.

Mr. Justice REED delivered the opinion of the Court.

A question as to the power of the State of Minnesota to tax realty within the boundaries of that state, when the legal title remains in the United States is presented by this writ of certiorari.¹ The state ceded jurisdiction over the realty in accordance with the exclusive legislation clause of the United States Constitution, Article I, Section 8, Clause 17.

The realty in question was conveyed to the United States in 1867 as a site for a building to house a post office, a custom's office and offices for various departments and agencies of the United States. The building was eventually vacated and the property sold in 1939 by the Director of Procurement of the Department of the Treasury under the authority of an act for the disposal of surplus federal real estate. 49 Stat. 885, 40 U.S.C.A. §§ 304a to 304e, 304a—1, 304a—2.

It was purchased on public sale and improved by petitioner who was in full possession with right of user under an executory contract of sale between it and the United States at the time of the levy of the tax. That contract provided for a cash payment and annual instalments, possession by petitioner so long as it met the terms of the contract, and for repossession by the United States, with retention of prior instalments of the purchase price, upon the purchaser's failure to comply with any term or condition of the contract. Upon repossession, the United States was authorized to resell the realty and recover any resulting deficiency from the petitioner. All obligations due under the contract had been met. The major portion of the contract price had not fallen due and was unpaid. The contract permitted leases to others in subordination to the rights of the United States. The contract required the United States to execute and deliver a quit claim deed for the realty to the petitioner upon its completion of the requirements of the contract.

With the ownership of the property in the situation just described, taxes for general and special purposes were levied on the property for 1940 under the usual Minnesota procedure. The tax was stated in the assessment to be on the realty 'subject to fee title remaining in the United States of America.' Petitioner duly filed its objections in the proper state district court, pursuant to statute. 1 Minn.Stat. (1941) Ch. 278. So far as concerns this review, the objection to the tax was based on a claimed exemption of the realty from state taxation because title to all of the premises was in the United States. The exemption was sustained by the trial court. The Supreme Court of Minnesota reversed that judgment and denied exemption. In re Petition of S.R.A., Inc., 213 Minn. 487, 7 N.W.2d 484. On retrial, the lower court held the realty liable for the tax and declared a lien 'upon such parcel of land as against the estate, right, title, interest, claim, or lien, of whatever nature, in law or equity, of every person, company, or corporation, subject however, to the prior rights, liens and interests of the United States of America.' This second judgment was affirmed on appeal. In re Petition of S.R.A., Inc., 219 Minn. 493, 18 N.W.2d 442.

Certiorari was sought under Section 237(b) of the Judicial Code, 28 U.S.C.A. § 344. It was granted because of the importance and uncertainty of the question of the right of a state to tax realty sold by the United States in possession of a buyer from the Government under a contract of sale with uncompleted conditions for execution and delivery of the muniments of title. 66 S.Ct. 47. ²

The supremacy of the Federal Government in our Union forbids the acknowledgment of the power of any state to tax property of the United States against its will. Under an implied Constitutional immunity, its property and operations must be exempt from state control in tax, as in other matters. M'Culloch v. Maryland, 4 Wheat. 316, 425, et seq., 4 L.Ed. 579; Van Brocklin v. State of Tennessee, 117 U.S. 151, 177, 6 S.Ct. 670, 684, 29 L.Ed. 845; United States v. Allegheny County, 322 U.S. 174, 176, 177, 64 S.Ct. 908, 910, 911, 88 L.Ed. 1209. This postulate, as a matter of federal law, forces final decision of the validity of claimed exemptions under this immunity upon this Court. United States v. Allegheny County, supra, 322 U.S. at page 183, 64 S.Ct. at page 914, 88 L.Ed. 1209, and cases cited. The impact of state taxation on federal operations may be so close and threatening as to compel judicial intervention to declare the state tax invalid, as in the M'Culloch case, or so remote and incidental as to justify a federal court in refusing to relieve a taxpayer from a state tax. Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3, 140 A.L.R. 615. The line of taxability is somewhat irregular and has varied through the years.³

The right of a state to tax realty directly depends primarily upon its territorial jurisdiction over the area. The realty of petitioner had been conveyed to and used by the United States for the essential governmental activities which authorized the exercise of its exclusive legislative jurisdiction.⁴ Exclusive legislative power is in essence complete sovereignty.⁵ That is, not only is the federal property immune from taxation because of the supremacy of the Federal Government but state laws, not adopted directly or impliedly by the United States, are ineffective to tax or regulate other property or persons upon that enclave.⁶ It would seem that the United States obtained this property in compliance with cession by Minnesota of exclusive sovereignty. Act of February 9, 1867, Minn.Laws 1867, Jan., Ch. LXXIX. The acceptance by the United States at that time of the power ceded is presumed.⁷ This Court apparently has never directly passed upon the effect on federal sovereignty of the property's transfer by the United States to private hands.

In this instance there were no specific words in the contract with petitioner which were intended to retain sovereignty in the United States. There was no express retrocession by Congress to Minnesota, such as sometimes occurs.⁸ There was no requirement in the act of cession for return of sovereignty to the state when the ceded territory was no longer used for federal purposes.⁹ In the absence of some such provisions, a transfer of property held by the United States under state cessions pursuant to Article I, Section 8, Clause 17, of the Constitution would leave numerous isolated islands of federal jurisdiction, unless the unrestricted transfer of the property to private hands is thought without more to revest sovereignty in the states. As the purpose of Clause 17 was to give control over the sites of governmental operations to the United States, when such control was deemed essential for federal activities, it would seem that the sovereignty of the United States would end with the reason for its existence and the disposition of the property. We shall treat this case as though the Government's unrestricted transfer of property to non-federal hands is a relinquishment of the exclusive legislative power.¹⁰ Recognition has been given to this result as a rule of necessity.¹¹ If such a step is necessary, Minnesota showed its acceptance of a supposed retrocession by its levy of a tax on the property. Under these assumptions the existence of territorial jurisdiction in Minnesota so as to permit state taxation depends upon whether there was a transfer of the property by the contract of sale.

In determining the meaning and effect of contracts to which the United States is a party, the governing rules of law must be finally declared by this Court. United States v. Allegheny County, supra, 322 U.S. at page 183, 64 S.Ct. at page 914, 88 L.Ed. 1209. Turning to the contract, we find in it no characteristics which differentiate it from the normal executory contract for the sale of land with partial payments. Normally, contracts between the United States and others are construed as contracts between private parties. Lynch v. United States, 292 U.S 571, 579, 54 S.Ct. 840, 843, 78 L.Ed. 1434. This Court has been of the opinion that contracts for the sale of land transfer to the purchaser the equity in the land. We think this contract did so. That equity is realty. It was owned by the vendee. The United States retains only a legal title as security. In substance it is in the position of a mortgagee.¹² Minnesota has the same rule. In re Petition of S.R.A., Inc., 219 Minn. 493, 507, 18 N.W.2d 442, Id., 213 Minn. 487, 495, 499, 7 N.W.2d 484. Therefore when petitioner entered into possession of this real estate under its contract of purchase, the taxed property by the transfer became subject to the territorial jurisdiction of Minnesota.¹³

Territorial jurisdiction in Minnesota does not dispose of this tax problem. The nub of this case, that is the immunity from state taxation of property to which the United States holds legal title, remains. Minnesota took care to leave unassessed whatever interest the United States holds. The levy and judgment was 'subject to fee title remaining in the United States of America.' 219 Minn. at page 496, 18 N.W.2d at page 445. Although Minnesota real estate taxes are assessed on the parcel of land as a 'unitary item' including 'all rights and privileges,' the state does not claim that a tax sale will divest the fee title of the United States. 213 Minn. at pages 493, 499, 7 N.W.2d at pages 487, 490. Apparently the state is of the view that the equitable interest alone may be sold under its laws, leaving the fee of the United States in its position of priority over any interests which may be transferred by the tax sale. 219 Minn. at page 513, 18 N.W.2d at...