The opinion of the court was delivered by: WILLSON
In this case, the United States prays that this court declare certain taxes levied against real property owned by the Mesta Machine Company to be null and void. Pursuant to state law, defendants, that is, the County of Lawrence, City of New Castle, City of New Castle School District and the County of Lawrence Institution District, all of Pennsylvania, in this judicial district, levied 1954 real property taxes against property situated in New Castle, formerly owned by Defense Plant Corporation. Unless the real property in question is immune from local taxation, the taxes assessed and levied in the sum of $ 116,899.40 are liens against the property.
The case is presented on a written agreed statement of facts which are separately filed so that it is unnecessary in this opinion to set forth in detail all of the evidentiary facts.
In August, 1942, the City of New Castle conveyed the property here involved to Defense Plant Corporation for a nominal consideration. The grantee in the deed is recited as a corporation created by Reconstruction Finance Corporation pursuant to Section 5d of the Reconstruction Finance Corporation Act, 15 U.S.C.A. § 604. Under this act, 15 U.S.C.A. § 607, real property of RFC is subject to local taxation to the same extent according to its value as other real property is taxed. Defense Plant Corporation erected thereon, Plancor 765 and leased the same to United Engineering and Foundry Company which operated it until the property was sold to Mesta Machine Company on July 19, 1956. The manufacturing plant erected on the property cost the government some twenty-three million dollars. During the war United Engineering manufactured defense material for the government, as well as other material for private consumption. After the war, United Engineering leased the property from the Reconstruction Finance Corporation, and carried on a private manufacturing operation for its own profit. It had the full beneficial interest in the property. Under a series of leases United Engineering agreed to pay local taxes on the property and did so through December 31, 1953. The leases required a minimum rental payment of $ 300,000 per annum with a profit-sharing right to the lessor running from 7 percent to as much as 11.6 percent of net sales.
At the outset, this court, of course, recognizes the decisions and principles in a long series of cases commencing with M'Culloch v. Maryland, 4 Wheat. 316, 4 L. Ed. 579 and including Van Brocklin v. State of Tennessee, 117 U.S. 151, 6 S. Ct. 670, 29 L. Ed. 845, and the last of which are the three decisions found in 355 United States Reports, the first of which is United States v. City of Detroit, 355 U.S. 466, 78 S. Ct. 474, 2 L. Ed. 2d 424, and the others, United States v. Muskegon Tp., 355 U.S. 484, 78 S. Ct. 483, 2 L. Ed. 2d 436 and City of Detroit v. Murray Corporation of America, 355 U.S. 489, 78 S. Ct. 458, 2 L. Ed. 2d 441.
The recent decisions are not too helpful on the precise point at issue in the instant case, because the Michigan local taxes were assessed and levied under specific state statutes authorizing the local governments to tax the privilege to use and to occupy property otherwise exempt. It should be noticed, too, that United States v. Allegheny County, 322 U.S. 174, 64 S. Ct. 908, 914, 88 L. Ed. 1209, is not too helpful in deciding the instant case, because the court ruled invalid a tax which the state did not contend was 'anything other than the old and widely used ad valorem general property tax * * *.' As the Supreme Court of Pennsylvania said in Homestead Borough v. Defense Plant Corp., 356 Pa. 500, 52 A.2d 581, it is, of course, fundamental that a sovereign may not be taxed without its consent, but, as that court said, when property has been laid open by the sovereign to local taxation, then the constitutional immunity is no longer applicable.
In the instant case, we commence the study of the facts on the basis that Congress did subject Plancor 765 to local taxation and that local taxes were paid by United Engineering until the year in question, 1954, because plaintiff, acting by heads of various owning agencies required that the United Engineering & Foundry Corporation pay the local taxes. In a prior civil action before me, United States v. Hanlon, D.C., 165 F.Supp. 1, the 1955 and 1956 taxes were finally excluded because of the passage of Public Law 388, 40 U.S.C.A. § 523, which became effective January 1, 1955. In the declaration of policy of that Act, Section 701, 40 U.S.C.A. § 521, it is stated:
'The Congress recognizes that the transfer of real property having a taxable status from the Reconstruction Finance Corporation or any of its subsidiaries to another Government department has often operated to remove such property from the tax rolls of States and local taxing authorities, thereby creating an undue and unexpected burden upon such States and local taxing authorities, and causing disruption of their operations. It is the purpose of this title to furnish temporary measures of relief for such States and local taxing authorities by providing that payments in lieu of taxes shall be made with respect to real property so transferred on or after January 1, 1946.'
In House Report No. 1453, submitted July 27, 1955, the Committee on Government Operations indicated the reasons why the enactment of the statute was desirably. The report, found in United States Code Congressional and Administrative News, Volume 2, Eighty-fourth Congress, 1955, page 3114, recites that Congress specifically made the real property of the Reconstruction Finance Corporation and its subsidiaries subject to state and local taxation to the same extent according to its value as other real property is taxed. The legislative history goes on to say:
'* * * Because of a ruling by the United States Court of Claims in 1952, and a subsequent ruling by the Comptroller General in the same year, certain real properties that had formerly been subject to local taxation have now been rendered nontaxable by the local authorities. This is true whether complete legal title to real property has been transferred from a Government corporation to another Government department, or whether the Government corporation retains legal title and transfers custody, control, or accountability for the real property to another Government department. Thus, the real property which has been on the State and local tax rolls by specific provisions of an act of Congress has been taken off such tax rolls by a transfer to another Government department without any break in the chain of title being held by the United States. In the view of your committee this has resulted in the imposition of an unjustifiable financial burden upon communities. The nature and use of the commercial or industrial facilities involved has not changed. The Congress has already provided that these properties should be taxed when they are held by and under the exclusive control of the Reconstruction Finance Corporation. It, therefore, appeared just and necessary that provisions be made, as in this bill, at least on a temporary basis, to make payments in lieu of taxes until a comprehensive policy with regard to payments in lieu of taxes shall have been enacted by the Congress.'
The Committee report refers to the Court of Claims case, Board of County Com'rs of Sedgwick County, Kan. v. United States, 105 F.Supp. 995, 123 Ct.Cl. 304, and a subsequent ruling by the Comptroller General. Plancor 765, New Castle, Pennsylvania, is the government designation for this property which is one of the properties referred to in the committee report.
Congress having waived the immunity of this particular property from local taxation, the point to be decided is whether that immunity continued to and including the year 1954. As the Sedgwick County case is the foundation of the rulings of the Administrator of General Services and of the Comptroller General as well as the basis for the government's argument in the instant case, it is appropriate to quote three paragraphs from the opinion in that case. Commencing at page 1001 of 105 F.Supp., the court says:
'We believe, however, that the taxes for the year 1947 fall into a different category, as a result of the declaration of the property as surplus, and the acceptance thereof by the WAA on April 16, 1947, acting presumably under the authority conferred in section 11(d) of the Surplus Property Act.
'The law did not require that the RFC execute a deed of the property upon its transfer to the control of the WAA, and the RFC continued after April 16, 1947, as the 'owning agency' within the meaning of the Surplus Property Act -- apparently as a matter of convenience to the Government and to minimize actual paper work and expense until the WAA made final disposition of the property. While a bare legal title for the use of the United States may have thus remained in the RFC from April 16, 1947, until February 25, 1948, when the property was transferred to the Department of the Air Force, nevertheless the entire responsibility for the care and handling, and disposition of the property was in the WAA during that period. United States v. Shofner Iron & Steel Works, 9 Cir., 168 F.2d 286, 287.
'The waiver of constitutional immunity from taxes of 'real property of the corporation' enacted with respect to the RFC in 1932, 47 Stat. 10, was undoubtedly intended to apply to that real property of the corporation held by it in the performance of the duties and responsibilities imposed upon it by law. But by the August 21, 1946, declaration of the property as surplus under the Surplus Property Act, 58 Stat. 765, enacted some 12 years after 47 Stat. 10, the RFC declared that the property was surplus to its 'needs and responsibilities', and by the acceptance of April 16, 1947, was divested of all control and responsibility. At no time after the acceptance by the WAA on April 16, 1947, did the RFC or any of its employees have physical possession, control, or custody of the property. It had neither the use nor the right to use the property. It could not even withdraw the declaration of surplus property without the approval of the War Assets Administrator. 32 CFR, 1946 Supp. 8301.15(b).'
The following is a brief comparison of the facts and issues in the instant case and the facts in the Sedgwick County case:
U.S. v. County
of Lawrence Sedgwick v. U.S.
District Court Court of Claims
105 F.Supp. 995
I. Complaint --
Government seeks to I. Complaint -- County sought
strike off local
tax lien on money judgment against United
nongovernment property States for tax assessed against
realty for the years 1944, '45,
'46 and '47.
II. Facts: II. Facts:
1. August, '42 --
deed to Defense 1. 1942 -- deed to Defense Plant
Plant Corp. Corp.
a. Realty/plant --
subject to tax, a. Realty/plant -- subject to
15 U.S.C.A. § 607 tax, 15 U.S.C.A. § 607
Lease to United
Engineering & Lease to Boeing -- no provision
Foundry Co. --
United to pay tax for it to pay tax
2.July, 1945 --
Defense Plant Corp. 2. July, 1945 -- Defense
-- to RFC Plant Corp. liquidated -- to RFC
-- taxable, 15 U.S. a. Realty/plant -- taxable 15
C.A. § 607 U.S.C.A. § 607
Lease to United
-- United Lease to Boeing -- no provision
obligated to pay
local tax for it to pay local tax; it did
not pay tax
4, 1947 3. April, 1947
of transfer of RFC owner
from RFC to
a. Under Sedgwick
case non-taxable, a. Authority and responsibility
but lease from
RFC required in WAA, and RFC neither physical
Engineering to possession/Control/custody
pay taxes which
it did pay or the right to use the premises
4. June 13, 1950 4. February, 1948
deed RFC to RFC to United States
a. Sedgwick holds
such a deed a. Deed by WAA for RFC
b. Taxes levied
against realty. b. Deed was subject to taxes of
Lease to United
Engineering '44 to '47
requiring it to
and it did pay
local taxes c. Custody of property turned
over to Air Force
5. April 25, 1952