Phillips Chemical Company v. Dumas Independent School District

PETITIONER:Phillips Chemical Company
RESPONDENT:Dumas Independent School District
LOCATION:Superior Court of Bibb County

DOCKET NO.: 40
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: Supreme Court of Texas

CITATION: 361 US 376 (1960)
ARGUED: Nov 17, 1959 / Nov 18, 1959
DECIDED: Feb 23, 1960

Facts of the case

Question

  • Oral Argument – November 17, 1959
  • Oral Argument – November 18, 1959 (Part 2)
  • Audio Transcription for Oral Argument – November 17, 1959 in Phillips Chemical Company v. Dumas Independent School District
    Audio Transcription for Oral Argument – November 18, 1959 (Part 2) in Phillips Chemical Company v. Dumas Independent School District

    Audio Transcription for Oral Argument – November 18, 1959 (Part 1) in Phillips Chemical Company v. Dumas Independent School District

    Earl Warren:

    Number 40, Phillips Chemical Company, Appellant, versus Dumas Independent School District.

    Mr. Davis, you may continue your argument.

    John F . Davis:

    Mr. Chief Justice, may it please the Court.

    Yesterday, I was asked what had transpired practically since the Court’s decision in the associated cases, similar cases year and a half ago, and I think I made a rather inadequate answer.

    I’d like to refer the Court if — to an article which appears in the March issue of the Wisconsin Law Review, an article by Mr. Harry Van Cleve of the General Counsel office of Department of Defense.

    And this article reviews in some detail what has, in fact, occurred as a result of those decisions and it can do much better.

    Felix Frankfurter:

    Which month it would be?

    John F . Davis:

    March.

    Felix Frankfurter:

    March.

    John F . Davis:

    March.

    Wisconsin Law Review from March by Mr. Van Cleve.

    There are two rather important aspects of this case which Mr. Clifford promised I would deal with and which I haven’t even touched yet and which I’d like to devote the rest of my time to.

    First of this is the question of classification.

    The State of Texas attempts to justify the peculiar application of this statute to lessees of the United States from the ground that this is a matter of classification.

    Now, it is true that taxing authorities are given a good deal of latitude in making classifications among taxpayers in assessing different taxpayers at different rates.

    And there’s no reason why reasonable classifications shouldn’t apply to the United States or lessees of the United States rather when they’re taxpayers as well as to anybody else.

    But as applied to this case, it — it really doesn’t — it really doesn’t help them because when their arguments are sifted down to the — to the rock bottom, we find that the — really the basis for classification that they would — would apply in this case is that the United States is exempt from taxation and therefore, they cannot tax the lessor and therefore, it’s a reasonable classification to tax the lessees.

    Well, this — this really is not — it doesn’t make any sense as a matter of classification.

    It’s merely another way of saying that the United States is exempted and we have to get around it in some way in it — a way of destroying the — destroying the — the exemption.

    In other words, as they would use the term “classification” and saying that we can discriminate without any — without any basis other than a — a basis that otherwise would not be able to raise our revenues.

    Felix Frankfurter:

    Doesn’t that depend on that they should serve tax for what the State is taxable?

    John F . Davis:

    I think it depends on — on the basis —

    Felix Frankfurter:

    If it does tax– if it does tax this with fee value of the land that maybe one thing to tax (Inaudible) the — the — if it puts in the terms of what usually called alike of excise tax, that’s another thing.

    John F . Davis:

    That is right.

    That is right but —

    Felix Frankfurter:

    It — it — the State can tax certain monetary valuable facility that a person is exercising and using of having the benefit of and the fact that it may come from the United States isn’t approved here.

    John F . Davis:

    That is right, but when they pick out the United States, a lease from the United States as being peculiarly subject to a use tax —

    Felix Frankfurter:

    Because — because you mean it doesn’t —

    John F . Davis:

    Because it is —

    Felix Frankfurter:

    — because it doesn’t pick out anybody else (Voice Overlap) —

    John F . Davis:

    That’s right.

    That’s what I mean by discrimination.

    That’s — it is — and the reason for it is not a — a business reason, a tax reason and — and economic reason, it’s just to get away from the exemption which is in the Constitution.

    Felix Frankfurter:

    Unless advantage is enduring a person from the United States present or represent to afford special kind of advantage.

    John F . Davis:

    Mr. —

    Felix Frankfurter:

    — which can also be true.

    And then you’re not taxing the United States, you’re taxing the benefit that a fellow derived from being in abolition with United States.

    John F . Davis:

    I think you would then be discriminating against the United States.

    If the United States were the only lessor that was in that field, even though you could find some business reason, it still seems to me that this is discrimination when you are picking out a lessee from the United States.

    Felix Frankfurter:

    Do you mean — do you mean if you gain advantages from the United States as you gain from no other immunized lessor.

    John F . Davis:

    And if —

    Felix Frankfurter:

    Why would that be so because a particular — a class doesn’t have to be expensive.

    John F . Davis:

    Well —

    Felix Frankfurter:

    If — if the class contains all the relevant to that class, then you got a proper classification.

    John F . Davis:

    Well, there’s no doubt, for example that, in New York, they can classify cities and they can set a city which is — which only New York City will meet.

    They do it, and that’s — it’s — it’s considered a reasonable basis for classification.

    That there you have no constitutional question of imposing a tax on another sovereignty.

    Felix Frankfurter:

    Well, this — this doesn’t take you to the question if I may say to the charge with what — it’s hard to be attributed to you, the use of (Inaudible) is hard to be attributed to you, but if you gain an advantage from the United States which you could not gain from anybody else and you’re the beneficiary of it, you don’t tax the United States.

    You tax the fellow and get some advantage from him.

    John F . Davis:

    That’s right.

    You’re — the tax is not on the United States but this Court has consistently held, not only that you may not tax the United States, but you may not tax people who deal with the United States when the result is discrimination against the United States.

    Felix Frankfurter:

    Well, if it’s discrimination of course, then I draw off my hands.

    John F . Davis:

    Well —

    Felix Frankfurter:

    The whole question is if —

    John F . Davis:

    Is it discrimination?

    Felix Frankfurter:

    — if —

    John F . Davis:

    And I am suggesting to the Court that when the basis of it is that it is leased from the United States, even though there are very good reasons why lessees from the United States should pay the tax.

    If the reason is that it is leased from the United States, then I think that is what you mean by discrimination.

    You are picking out the United States as a particular lessor.

    Felix Frankfurter:

    I’d like to call your attention to the fact that the point that you used a while ago is too those loose.

    Felix Frankfurter:

    The quotations are getting out of the case.

    It dies describe the (Inaudible) case, makes it clear that you can’t use — you can’t lump things, anybody, any person — any person —

    John F . Davis:

    In dealing with — oh, that’s right, the lessee is — there — there’s no question that all lessees can be — can be taxed and there’s no question that these lessees can be taxed as long as they’re not picked out from — from the group.

    The other — the other issue that I must speak about —

    Felix Frankfurter:

    In other words, you might have discrimination in such a situation irregardless of the fact that the lessor is the United States.

    If you — if you pick out — if you — if you — are capricious in picking out a class of lessees from lessors or in the same relation to the lessor, that would be discrimination to know United States (Inaudible)

    John F . Davis:

    Well, that would be a matter of due process.

    Yes.

    Felix Frankfurter:

    No, I mean equal protection of the law.

    John F . Davis:

    Well, that’s right.

    That — that is true.

    The — the other thing that I must mention is whether or not the United States has given permission to this tax.

    The State of Texas School District rely upon Section 6 of the Military Leasing Act as a specific permission from Congress that this type of tax should be imposed.

    And I think that we must look at this section which appears at page 15 of the Government’s brief amicus.

    Section 6 of the Military Leasing Act, and it was under this Act that this lease was made, provides in the first sentence, the lease — “The lessees’ interest made or created pursuant to the provisions of this Act shall be made subject to state or local taxation.

    And the State relies upon this as state — as ground for saying that Congress has agreed to the type of tax which is involved in this case.”

    Now, I think there are two answers to this.

    The first is that if you read Section 6 as a whole, you will find that the section, the second section states that in the event that Congress shall agree that the property as such is to be taxable by the State, then the lease made pursuant to this Act shall be subject to renegotiation.

    Now, that was put in there because at the time the Act was passed, there was a strong movement in Congress to subject federal leased property to state taxation as though it were owned by the — by the lessees, and there were at least 17 bills pending, and there was probability of likelihood that some of them would be passed.

    And if they were passed, Congress felt that then the lessees should be in a position to renegotiate with the United States and under that — that rentals be adjusted in order to take care of the additional burden.

    Now, when you read this Section then in connection with the first sentence, it doesn’t make sense to say that the first sentence was this very kind of permission which they are dealing with in the second sentence.

    And that means that the first sentence must mean that Congress was consenting to the kind of taxation which indeed had occurred in Texas before this, taxation of the leasehold under circumstances where the leasehold — the lessees from the United States were taxed in the same manner as the lessees from the State.

    And we believe that that is what — if you — if you read the — the hearings, the — the committee hearings and the reports, I think that’s — you will conclude that first sentence means.

    If so, it isn’t a consent to the kind of taxation which is tried to — which is attempted to be imposed in this case.

    No one is — is more conscious of the — the problems of the interrelationship of taxes between the States and the Federal Government than Congress and Defense Department.

    These are the problems that — that are very serious, they’re very — they’re very real in the sense that there are federally impacted areas where the States are not in a position to raise the taxes from the federal property in order to carry out their — their municipal problems.

    School is a — is a prime example.

    So this is — it’s — it’s a real problem from the point of view of the States as well as from the point of view of the Federal Government.

    And Congress has, in part, attempted to deal with this through legislations, specific legislation.

    Special grants in aid of education are made in order to take care of that situation.

    John F . Davis:

    And in this very situation in Texas that we’re dealing with, the Dumas School District has applied for and has received grants to aid education to the extent of about $200,000.

    That appears in detail in — in the record.

    Earl Warren:

    Mr. Langley.

    Earnest L. Langley:

    Mr. Chief Justice and may it please this Honorable Court.

    Before I begin my argument, I want to move the admission pro hac vice for the purpose of arguing this case on behalf of the State of Texas, Mr. Jack N. Price of Austin, a member of the bar of the Supreme Court of Texas and an Assistant Attorney General of the State of Texas.

    Earl Warren:

    Mr. Price maybe admitted for that purpose.

    Earnest L. Langley:

    Thank you, Your Honor.

    It is quite obvious from the argument that has gone before that the principal question in this case is the question of discrimination.

    I will proceed immediately to attack that question in, Your Honor.

    But first, I would like to say that this Court has been subjected thus far to this sort of a thing.

    Counsel for appellant and for the United States have placed upon appellant a label as federal lessee and has attempted to place upon all others using and occupying exempt property for profit, a lessee — a label as lessee of other exempt property, and has attempted to say that before a tax can avoid the label of discrimination that it must be a tax which bears equally upon all lessees.

    We submit that this label is not necessarily adequate that it, in itself, constitutes a form of discrimination because there are other users and occupiers with the exempt property than lessees, and there are situations where the label of lessees of federal property and other lessees is inadequate from a real and practical standpoint because another label may well be applied to appellant here and that is the label of one who uses and occupies for profit and for its own benefit, property which is exempt from taxation.

    They have also used the label of discrimination in every instance to speak of distinction and tax treatment which is not necessarily the same.

    We propose to attack this argument in two ways, first, by pointing out that under the decision of this Court last year in the Borg-Warner case and in a — to a lesser degree in the Continental Motors and Murray cases decided on the same day.

    That the situation in Texas as presented by our statute when construed in context with other taxing statutes of the State is essentially identical to the situation presented in Michigan and the Borg-Warner case in which I have received the approval of this Court.

    Felix Frankfurter:

    May I ask you, Mr. Langley, whether you’re going to — you said substantially the only collection is discrimination that — are you or your colleague not going to argue whether in fact the incident of this tax rests or would rest but does rest upon the property of United States.

    Earnest L. Langley:

    Yes, sir.

    I intend to deal with that.

    Felix Frankfurter:

    All right.

    Earnest L. Langley:

    Yes, Your Honor.

    First in, I would like to read the Michigan statute.

    I apologize to the Court for not having this printed in a form where it can be followed verbatim, but in the brief for appellee it is substantially set forth at page 28 at the first paragraph, which I must not rely upon, but will read the statute itself to show that, in fact, the Michigan statute is not a statute which pertains to all lessees of exempt property.

    The statute has, as it will be demonstrated, three broad exemptions from its operations.

    The Act, and I’m reading from the margin of the opinion of this Court in the Borg-Warner case, “When any real property which for any reason is exempt from taxation as leased, loaned or otherwise made available to and used by private individual association or corporation in connection with their business conducted for profit.”

    Now, that is essentially the requirement of the tax statute.

    That is the use of exempt property for profit.

    The Texas statute purports to pertain only to property of the Federal Government.

    This purports to pertain to any real property, any reason exempt.

    Then the first exception is found except, and this is quoted verbatim in my brief at page 28, “Except where the use is by way of a concession in or relative to the use of a public airport, park, market, playground or a similar property, which is available to the use of the general problem.”

    That’s the first broad exception.

    Earnest L. Langley:

    Then it provides “shall be subject to taxation in the same amount and to the same extent as though the lessee or the user were the owner of such property.”

    And then, by way of proviso, two additional exceptions, first, the only one that was actually mentioned and adverted to by this Court in its opinions under the Michigan cases that “the foregoing shall not apply to federal property for which payments are made in lieu of taxes and amounts equivalent to taxes which might otherwise be lawfully assessed.”

    That’s the second exception.

    The third exception, “or a property of any State supported educational institution.”

    That is the Michigan statute.

    There are other statutes in the State of Michigan too not mentioned by this Court in its opinion but mentioned by the Supreme Court of Michigan in its opinion particularly in the Muskegon case.

    That statute is the one in Section 7.3 of the Michigan statute annotated which provides that a person in possession of property maybe called upon to pay the taxes thereon, essentially the same as the one used in the Murray case except applicable as well to real property.

    And then 7.9 (5) of the Michigan statute, which provides that when a tenant or other person in possession of property is called upon to pay the tax thereon, they’re entitled to deduct the same from the rent, unless otherwise provided by contract with their landlord.

    Now, the argument was made by Continental Motors in the Supreme Court of Michigan that these statutes meant that any lessee of exempt property in Michigan other than a lessee from the Federal Government will thereby be entitled to recover by these statutes from the landlord, and that this, in itself, meant that the Michigan statute was directed solely to federal lessees.

    That argument was deemed immaterial by the Michigan Supreme Court in view of the overriding importance of the basis for classification of property which will be adverted to at the second point in this argument.

    Now, then, that is the Michigan situation that has been approved by this Court only last year.

    What then is the situation in Texas?

    The Texas statute itself which we are discussing now purports to apply only to federal property.

    But there are three types of exempt property generally.

    They may be classified as such, property of the Federal Government which is not exempt actually but is immune, property of State in local subdivisions of Government and property of private owners where the property is devoted to some such public use that it is deemed unworthy of exemption from taxation, property of church and charitable institutions and other organizations such as that.

    Now, in Texas by the clear reading of the Constitution and statutes, all property of exempt organizations other than governmental loses its exemption entirely when devoted to a private use or when devoted to a use for profit.

    Therefore, we may eliminate from considerations that privately owned exempt property not because the lessee has to pay taxes on it because, of course, the lessee does not, but the owner will pay taxes on it and presumably that lessee will pay taxes in the guise of increased rent to a tax paying landlord.

    Felix Frankfurter:

    You mean in Texas if a church owns property and it leases it, the church is directly taxed for the leased property.

    Earnest L. Langley:

    Yes, sir, Your Honor.

    That is true under our Constitution and statutes.

    The — every provision for exemptions specifically limits the use to which it maybe made.

    The cases decided and the Constitution and statutes are clear in that regard.

    There are no exceptions to that so far as I know.

    That leaves us then with the — a State and local government property and the federal property.

    Looking then at what happens to State and local property, we find that much of it is also taxable.

    Not all of it and not all that is taxable is fully taxable.

    Charles E. Whittaker:

    Mr. Langley, so that I might understand in the answer to Justice Frankfurter.

    You say that a church that leases property is liable for the taxes or is it just the property that maybe impressed with the lien of the tax?

    Earnest L. Langley:

    Your Honor, I would say that the — under the general wording of our Texas statute providing that all taxes are a pertinent obligation of the owner, that the church would be liable for the tax and that as well the property would be liable under the lien sections of our taxing statutes.

    Charles E. Whittaker:

    In other words both.

    Earnest L. Langley:

    Both.

    Yes, Your Honor.

    Much State and local property is also subject to taxation in full or in part.

    In the first place, the exemption from taxation of state and local property is limited to state and local property owned and held for a public purpose.

    Our State cases, many of which are cited in our briefs, hold that when the public purpose is abandoned that the property becomes subject to taxation.

    To be perfectly candid with the Court, our courts have been regulable in the interpretation of public purpose.

    I would not say that this particular purpose in which the Dumas School District is attempting to tax Phillips Chemical Company would not be considered a public purpose.

    I’m sure that it would, If this property were owned by the State of Texas, it would be a public purpose because the rents would be devoted to public purpose.

    Yet, nevertheless, that is a limitation upon the exemption of state and local property.

    Certain other property — and by and large, this property pertains to property that is held not for a governmental purpose but for some ancillary purpose.

    Much of our state property is specifically by statute made subject to taxation.

    For example, our county school lands, they are made taxable for a certain purpose, it’s limited, of course.

    Not all taxation on county school lands, the counties don’t tax themselves.

    The schools don’t tax the county school lands, but they are subject to some taxation because they are a broad class of property and are ordinarily devoted to leasing to private persons.

    As well the lands of the University of Texas are subject to county taxation, because they — again, they are ordinarily leased.

    And those two provisions were adopted by a constitutional amendment and enactment of statutes few years ago since the 1888 cases in Texas that are relied upon so heavily by opposing counsel in this case.

    A person from —

    Earl Warren:

    If the State of Texas — if the State of Texas leased its — its property to a corporation in a situation such as we have here, would that property be taxed?

    Earnest L. Langley:

    I doubt it, Your Honor.

    Earl Warren:

    I beg your pardon.

    Earnest L. Langley:

    I doubt it.

    Earl Warren:

    You don’t think it would.

    Earnest L. Langley:

    I don’t think it would.

    No, sir.

    Earl Warren:

    Suppose it was a — suppose it was a privately endowed college?

    Earnest L. Langley:

    A privately endowed college, it would be subject to taxation.

    Earl Warren:

    Even though the — the rent was used for — for school purposes?

    Earnest L. Langley:

    For educational purposes.

    That is true, Your Honor.

    Earl Warren:

    It would be taxed.

    Earnest L. Langley:

    Yes, sir.

    St. Edwards College case and Edmond against Morris and other cases cited at least in the lower courts.

    I’m not sure that we consider that a pertinent question before this Court in our brief.

    I doubt if they’re cited here.

    But there are numerous cases in the State of Texas holding the privately endowed educational institution.

    There’s one holding even that the farm that it raised the food for the table in the college dormitory was subject to taxation because it was not used for educational purposes.

    Potter Stewart:

    In that case, would the tax be assessed against the owner or against the lessor?

    Earnest L. Langley:

    It would be assessed against either one at this —

    Potter Stewart:

    I see.

    Earnest L. Langley:

    It would be assessed against the owner in that particular case.

    The exemption would be lost to the owner.

    Potter Stewart:

    To the owner.

    Earnest L. Langley:

    Yes, sir.

    Potter Stewart:

    And would it be — would the entire value of the fee be taxed?

    Earnest L. Langley:

    Yes, sir.

    The exemption is wholly lost when privately owned tax-exempt property is used for private purposes.

    And private purposes do not necessarily mean leased purposes.

    Of the case I’ve just mentioned, the college case, quite old case incidentally, where the college used a farm to grow food for the college dormitory tables.

    It was subject to taxation, because not used for purposes.

    Further, property used as resident for the teachers at the school is educational property and does not have the exemption.

    The exemption is wholly lost.

    Tom C. Clark:

    (Inaudible)

    Earnest L. Langley:

    I believe not, Your Honor, because it would not be a tax on the leaseholder.

    It would be a loss of exemption actually and the owner of the property would be subject to the taxation.

    Tom C. Clark:

    If the State owned the property?

    Earnest L. Langley:

    If the State owned the property, I — I assume that it would be applicable because the —

    Tom C. Clark:

    The — the tax wasn’t applicable (Inaudible)

    Earnest L. Langley:

    Yes, sir.

    Tom C. Clark:

    If it’s over three years.

    Earnest L. Langley:

    If it’s over three years, lease from — of the state property would be subject to taxation.

    Earnest L. Langley:

    Certain other classes of —

    Tom C. Clark:

    For the value of the lease or the whole value (Inaudible)

    Earnest L. Langley:

    That —

    Tom C. Clark:

    The tax is assessed on the value of the leasehold.

    Earnest L. Langley:

    Yes, sir.

    Article 7174 says the value of the leasehold is fair market value, fair price for cash.

    However, I reserve my own opinion, Your Honor, as to whether or not the 1888 cases actually anymore have any validity and whether or not the article — provisions of 7174 overrule the more explicit provisions of 7173 that shall be considered for all the purposes of taxation as a property of the lessee, and therefore, presumably subject to taxation at its full value.

    Reagan County against Big Lake Oil Company or Big Lake Oil Company against Reagan County, it was an error refused by the Supreme Court of Texas assumed that.

    I think it perhaps maybe assumed from the opinions of the Supreme Court of Texas in this case, that there is more validity to Article 7173 than was formally accorded to it under the old 1888 and 1889 cases.

    But that, of course, is not before this Court and perhaps may not be before any court for sometime but if it is, I think the opinion of our Supreme Court in this case will have some bearing on that.

    I think that Mr. Justice Frankfurter adverted to that yesterday mentioning that he thought Trammell against Faught might well have overruled by this case.

    The actual valuation, however, is a matter that I consider still open in Texas.

    Tom C. Clark:

    If the State, in particular, thought (Inaudible)?

    Earnest L. Langley:

    It would be subject to taxation under the leasehold in my opinion.

    We feel that the holding of — so-called holding of Daugherty against Thompson, Trammell against Faught that the lease is not a lease for a term of three years or more because subject to cancellation upon condition has been overruled not only by the Supreme Court of this case but by five other cases that we cited in our state court opinion but which we deem not pertinent here, and not cited, but I have citations, five later cases than these 1888 cases in Texas have held that a lease is nevertheless a lease for a term of year.

    The dissenters in this case in the Supreme Court of Texas did not pay any attention to our citation of those cases but —

    Felix Frankfurter:

    Well, on that — on that aspect of the case, the present decision is controlling unless it would be urged that the Supreme Court made a discriminatory departure in this case from a settled doctrine.

    Earnest L. Langley:

    Yes, sir.

    That’s true.

    Then —

    Felix Frankfurter:

    Not only in this case but before this.

    Earnest L. Langley:

    Yes, sir.

    In addition to the taxation of county school, university lands, prison lands and other types of lands in Texas, we have, of course, the taxation of the leasehold under Article 7173 and 7174, which probably has, as we have indicated, more validity than counsel for a felony that has given to it.

    All of these are properties which are limited in scope perhaps but nevertheless reflect that in proper circumstances, the State of Texas has not hesitated to subject its own state and local property to some taxation if not all.

    And the property that is not taxable at all or is limited in taxation is a property that, in our opinion, is very limited in scope and is no more broad than the exceptions from the operation of the Michigan statute which we have read to the Court.

    In the first place, Texas has no industrial or commercial property.

    The property that is of that kind or is devoted to commercial or industrial use is limited in scope within the purview of the first exception in the Michigan statute that is property devoted to concession in or relative to the use of public airports, parks, playgrounds and other things, as we will demonstrate.

    Most of the property owned by the State of Texas itself is school property.

    In 1898, the Supreme Court of Texas held that all the remaining public domain of the State of Texas belonged to the school fund.

    Hogue against Baker decided in that year.

    Earnest L. Langley:

    There is no public domain in Texas except school land.

    The — the school land, of course, would be exempt under the Michigan statute.

    Property of state-supported educational institutions is exempt under that statute as it would be exempt in Texas.

    The lease property, that is concession type property, is demonstrated very vividly by what appellant has attempted to do in this particular case.

    The appellant has brought no evidence in the trial court in this case, as the record reflects.

    There is no evidence of discrimination.

    There is no evidence of — of unjust distinction for tax treatment.

    There just wasn’t any evidence on the point brought.

    They have, therefore, arranged far field and outside the record and have attempted to show in the abstract from the application of every statute that they could find and every indication that they could find in the Texas law that Texas property is subject to — is not subject to taxation but it is exempt.

    They have, for example, at page 29 of their brief, as appellant in this case, “although Texas and its political subdivisions may not hold industrial plants reserved for national defense, the State and its agencies do own and lease properties of even greater value.

    To cite the most outstanding example of such properties, as is generally known, the extremely rich and prolific oil and gas lands of Texas and its subdivisions are periodically leased for millions of dollars to private corporations.”

    That is the only example cited in the first brief and this Court well knows that a lease of oil and gas lands in Texas is not a lease at all.

    It’s a conveyance of an interest in the minerals and fee, a determinable fee in the minerals.

    This Court also knows it held so in Group No. 1 Oil Company against Bass a number of years ago that the interest of the lessee in those all in gas leases is fully taxable at the full value of the mineral interest granted, it’s not even a lease.

    Well, we complain that that was an improper example in our brief and therefore, in the reply brief, they have gone to the statute books and have come up presumably with everything they can find.

    It’s at page 7 of the brief — of reply brief of appellant filed on last Saturday.

    They give examples — of a number of Texas statutes and I’m not — yes.

    Earl Warren:

    What page, Mr. —

    Earnest L. Langley:

    7, Your Honor, of the reply brief.

    Not examples of evidence showing that, in fact, there is discrimination or that there is taxation, but rather examples of Texas statutes authorizing leasing of Government property which they would say is exempt from taxation and therefore reflects discrimination against the Federal Government.

    Let’s examine those.

    The first two are essentially the same.

    Their provisions are very similar.

    One said airports and airport facilities, the other said airport property including such lands and improvements necessary to assemble or manufacture military and naval aircraft.

    On yesterday, Mr. Davis stated that the State of Texas is authorized to lease to private persons for the purpose of manufacturing military and naval aircraft lands of the state airports.

    Your Honors, it’s quite obvious that Mr. Davis has not read that statute.

    That statute provides that lands and improvements necessary to assemble or manufacturer military and naval aircraft can be leased only to the United States.

    That is a restriction contained in that statute.

    It is true that other airport property maybe leased in the way of concession but the statute specifically provides that it must not be such a use that will exclude the general public.

    That’s what the Michigan statute says that the exemption is where it may be used by way of concession in or relative to the use of a public airport.

    Earnest L. Langley:

    It’s identical to the Michigan statute in that regard, not found in the same statute but found in the same statutory scheme.

    That’s the first example.

    The next is wharf, docks, warehouses, grain elevators, bunkering facilities, belt railroads and other harbor facilities under Article 8247 (a) (b) and (c).

    First place, I might point out that (c), that subdivision does pertain to leases again to United States.

    But the others — the statute is restricted to what we call navigation districts in Texas, much lack perhaps before New York authority is something else.

    Again, a concession type use, a use that is so large that perhaps no private industry had been found that is willing to operate it and such harbor as the Port of Houston, the Port of Galveston, Corpus Christi, Brownsville and perhaps other.

    I don’t live on the coast and don’t know about those things, but those things are interstate organizations, state instrumentalities that provide those public facilities.

    And these uses are by way of concession in or — or use of with — along with the general public these public facilities.

    That’s all they are.

    Again, they would be excluded under the Michigan statute.

    Then municipal fish markets, including facilities for cleaning, canning, and cold storage of fish.

    That article is well provides that in cities along the coast where they have fishing industry, that the city may provide for a public municipal fish market to be used by the public in general on a concession type arrangement and operation.

    The State is not authorized nor any subdivision to build fish markets and lease them to people.

    The next one is, I guess, the most — well, it’s the oddest one of the bunch to be included here Your Honors.

    Islands, flats or submerged lands, the idea being given from the brief that all the islands and the flats and the submerged lands of Texas may be leased under Article 969 (a).

    Article 969 (a) is what our friend, the Attorney General here, says is a unconstitutional special legislation statute.

    It was enacted 1929 and provide as follows, that any city which had been given or granted islands, flats and submerged lands by the Republic of Texas or the State of Texas, which city had more than 43,000 people and was located in a county with less than 100,000 people according to the last federal census could lease those islands, flats and submerged lands.

    Hugo L. Black:

    What subject was that aimed to refer to?

    Earnest L. Langley:

    It was apparently designed to answer some specific problem that some city had, Your Honor.

    It’s —

    Hugo L. Black:

    Which cities?

    Earnest L. Langley:

    I don’t know.

    Those things are not set forth in our statutes, and I don’t know where it was.

    Some city in 1929 that had more than 43,000 people and was located in the county of less than 100,000 people had been given some islands, flats and submerged lands and want to lease them I suppose.

    Hugo L. Black:

    There are many like that in Texas.

    Earnest L. Langley:

    So far as we know, there wouldn’t have been many certainly.

    Probably one isolated instance, Your Honor, that’s the reason that the Attorney General —

    Hugo L. Black:

    You don’t know which one was that?

    Earnest L. Langley:

    No, sir, I don’t.

    Hugo L. Black:

    I was just asking if you have it.

    Earnest L. Langley:

    Yes, sir.

    I often —

    Hugo L. Black:

    You mean those —

    Earnest L. Langley:

    — become curious about those special statutes.

    And you can’t find out in (Inaudible), and I don’t know in any other way to know without finding the legislator.

    We have a number of those in Texas like that.

    There — we call them special statutes and we call them bracket statutes, it’s something like that.

    But that’s all that statute is.

    Then the next one is almost, as that, facilities on reconstructed or reclaimed land, Article 1187 (a).

    1187 (a) provides that cities located on deepwater ports and within a navigation district that have inlets and canals coming into the port can build bridges over those inlets and canals.

    And for that purpose are authorized to acquire such property they need for the abundance and approaches to those bridges.

    And that if that reconstructed or reclaimed land that they use for that purpose has — has some part of it excess to its need, they can lease that.

    That’s what that part has said.

    The next one on page 8, parking garage and retail establishment in state office building, Article 678 (c).

    Article 678 (c) is the statutory authority for the construction of our new state office building in Austin, which we’re quite proud of.

    It provides that there shall be constructed as a part of the building a garage for the cars of the employees and people in that building and that they shall provide on the ground floor a barber shop and a café and a drugstore and that those things maybe leased out, and that’s what that Article provides for.

    Housing authority properties again authorizes the cities of the State to organize within themselves municipal housing authorities for the purpose of slum clearance and low cost housing and to lease their facilities to the individual rents.

    That’s what that Article provides for.

    Now, I don’t know what the Article covers that’s cited next Article 666 (a), because I don’t know and there’s no evidence in this case to show how much there is of property classified as public grounds belong to the State of Texas under the charge and control of the state boarder control.

    Presumably, that’s the catchall for property in Texas.

    That’s what my friend the Attorney General tells me.

    It’s a property that somebody else doesn’t have the boarder control watches after it until they need it or something.

    I don’t know what that covers.

    It may be that there maybe some substantial property there, but presumably, it would be excess to the immediate needs, temporarily unused and unneeded property of the State, and certainly nothing in the way of industrial or commercial property of the type that we have in this case.

    The next one, any unsold land in the public domain.

    Again, as we have said, the public domain includes the school lands of the State of Texas.

    This provides that while such lands are waiting sale, they may be leased.

    There maybe substantial amount of that.

    I don’t know how much there is of it but whatever there is, it’s owned by the public state-supported educational institutions, which are exempted under the Michigan statute as well as in Texas.

    Tom C. Clark:

    (Inaudible)

    Earnest L. Langley:

    Yes, sir, Your Honor, they are grave —

    Tom C. Clark:

    That’s — that’s your way in.

    Earnest L. Langley:

    I beg your pardon.

    Tom C. Clark:

    May I ask your way?

    Earnest L. Langley:

    We have some of them now in our way, yes, sir.

    And much of them — most of them are in West Texas.

    They’re grazing lands primarily, not suitable for anything other than grazing land or (Inaudible)

    Tom C. Clark:

    (Inaudible)

    Earnest L. Langley:

    Yes, sir.

    Leased in large tracks, most the time for something in neighborhood for five cents an acre a year.

    Then the next one is property years for pumping stations, loading racks, electric substations and tank farms.

    Now, that again would seem to put the State of Texas in the business of building, operating and leasing, pumping stations, loading racks and so forth.

    Actually what that statute is, Article 6028 is a statute that provides that where the State has leased its lands for oil and gas, and the oil and gas lessee needs to use some of the surface on an easement basis for building its pumping station and its loading racks and its substations and so forth that the State can allow to use that in connection with its oil and gas operation.

    And that’s all that statute shows.

    The next one is property owned or controlled by any state agency where not otherwise prohibited.

    Now, that Article, Article 2922 (zz) (1) is a part of the statutes of the State of Texas on public education.

    It is a school statute, and it provides in general that where any state agency has a property in a school district and where the owning of that property by the State call this a financial hardship on the School District, that that state agency is authorized to make payments in lieu of taxes to the School District.

    That’s what that statute actually provides and provides in instance at some rented property, maybe leased or — for years by the state agency or whatever it is, but it’s — it’s not — the statute authorize to enact it to authorize the State to lease property.

    It’s a payment in lieu of taxes sort of a statute.

    Now, those are the examples that are given from the statute.

    In the reply brief, we also find in the appendix three opinions of the Attorney General of Texas.

    One of them was written by Mr. Price.

    It’s here at the table, the first one.

    Two of these pertain to the leasing of property of a state-supported educational institution.

    First one of them is Texas Tech at Lubbock.

    The next one is the University of Texas in Austin.

    Both of them are instrumentalities of the State.

    They are state-supported educational institutions and their property would be exempt from the operation of the Michigan statute as it is from the operation of the Texas statutes.

    There’s no difference there.

    I might mention also that because it has already been brought into this argument and that is that this first opinion talks about Pantex.

    Earnest L. Langley:

    We call it.

    It’s Pantex Ordnance Plant in — in the Carson County, Texas over near Amarillo which was mentioned yesterday, I believe, both by Mr. Clifford and by Mr. Davis as being property where the State of Texas owns it and leases it and that it is a big ordnance plant too.

    Now, the — we’re outside the record on this of course, because we’re talking about briefs and there was no evidence in the trial court.

    But I think this opinion shows in and of itself and it is a fact that Pantex Ordnance Plant was deeded to Texas Tech with a recapture clause shortly before the Korean War.

    When the Korean War broke out, that recapture clause was exercised by the United States and the manufacturing and commercial facilities at Pantex Ordnance Plant were recaptured by the United States and are now being operated by the United States as a manufacturing plant for actual components for atomic bombs.

    They are being operated by Silas Mason Incorporated and Mason & Hanger.

    That’s — that’s what Pantex is except for that property which Texas Tech has around the fringes which include a few building, some of which are leased to our friends on the other side of the table, Phillips Chemical Company, as the opinion shows for storage purposes and the rest of which is used by Texas Tech for educational purposes with the exception of some grazing leases and some farming leases.

    But whatever use is being made by Texas Tech in the way of leasing would be exempted under the Michigan statute as well as under the Texas statutes.

    Tom C. Clark:

    How much is leased to the farmers?

    Earnest L. Langley:

    I don’t know exactly, Your Honor.

    This wasn’t in the record and I’m just not familiar but my recollection is from what I’ve been able to find out that probably half a dozen or maybe many as 10 farmers have little tracks leased in it.

    Tom C. Clark:

    Their tracks (Inaudible)

    Earnest L. Langley:

    Yes, sir, that is true.

    Tom C. Clark:

    (Inaudible)

    Earnest L. Langley:

    The — the State has no lease on the manufacturing plant of the arsenal that is the ordnance plant itself.

    That’s being — it was operated for a number of years by Procter & Gamble Defense Corporation now being operated by Silas Mason.

    Tom C. Clark:

    They never had a lease, the State?

    Earnest L. Langley:

    The State didn’t have a lease, they had title to it at one time.

    Tom C. Clark:

    (Inaudible)

    Earnest L. Langley:

    No, sir.

    Not that I know of.

    It was recaptured, as I understand it, within about six months from the time the deed was signed.

    I believe that’s what this opinion shows essentially just a few months after the deed was signed from the Government too the Texas Tech.

    One of these, the State of Texas deeded Texas Technological College which is a state-supported educational institution at Lubbock.

    Tom C. Clark:

    Well, I understood appellant says it was leased out by the State and then that lease was about to pass.

    I may have misunderstood.

    Earnest L. Langley:

    You didn’t understand him, Your Honor.

    He was referring to the fact that Texas Tech, which an instrumentality of the State, does lease the part of it, they did now have part of it not all of it.

    It uses it — their studying the bull progeny up there, they used it for studying the breeding habits of bulls and how good and cows and calves they produce and so forth and — and do other things.

    It’s the State — it’s the Texas Tech farm is what it is and part of it, excess to their immediate needs, is leased out for private purposes including some storeys of building, as I understand it, that Phillips Chemical Company leases.

    Earnest L. Langley:

    But those are leased not by the State of Texas but by our Texas Technological College which is the state-supported educational institution, and as I say it would be exempted under the provisions of the Michigan statute as well as it is here.

    Those are —

    William J. Brennan, Jr.:

    Well, I — I don’t quite follow this.

    How much of this would recaptured — which one of the ordnance plants was this during the war?

    Earnest L. Langley:

    This was Pantex Ordnance Plant.

    William J. Brennan, Jr.:

    That’s what it is now.

    What was it during the war?

    Earnest L. Langley:

    I don’t know, Your Honor.

    It’s — it’s in Panhandle — near Panhandle, Texas in Carson County, and it was a shell loading plant, as I understand, during the war but I didn’t live in that part of the State and one for me at that time, I just don’t know, sir.

    William J. Brennan, Jr.:

    Well, I don’t quite follow what you said.

    What — what’s been recaptured, the whole of it or only the —

    Earnest L. Langley:

    The manufacturing arsenal part, the part that was used as the shell loading plant during the war and is now used as a manufacturing plant for the manufacture of — what they call nuclear components — components of nuclear weapons, I believe they say it.

    William J. Brennan, Jr.:

    But Texas Tech still has some of the land —

    Earnest L. Langley:

    They have —

    William J. Brennan, Jr.:

    — which was deeded, is that it?

    Earnest L. Langley:

    Yes, sir, some of the outlying land from it, not the manufacturing part of the commercial-industrial part.

    They have — they do not have that.

    William J. Brennan, Jr.:

    Is that a large acreage?

    Earnest L. Langley:

    That whole arsenal originally included about 20 — 20 sections of land and — and just how much of it Texas Tech still has, I — I’m not sure.

    I just don’t — I’ve been there, and I’ve seen it and — but I’m just not sure.

    Tom C. Clark:

    It’s at Lubbock.

    Earnest L. Langley:

    I beg your pardon.

    Tom C. Clark:

    It’s at Lubbock, isn’t it?

    Earnest L. Langley:

    No, sir, it’s right northeast of Amarillo about 15 miles.

    Tom C. Clark:

    Amarillo.

    Earnest L. Langley:

    Yes, sir.

    Tom C. Clark:

    The Federal Government gave it to — direct to the school or through the State?

    Earnest L. Langley:

    They gave it direct to the school, Your Honor.

    That deed was from the United States Government directed to Texas Tech with the recapture clause and also a condition that it’d be held and used for educational purposes for 20 years.

    I read that deed in somewhat familiar with this.

    Earnest L. Langley:

    We represent the Panhandle School District and — and I’ve looked into it a little bit but not thoroughly, Your Honor.

    Tom C. Clark:

    It’s P-A-N, Panhandle, yes.

    Earnest L. Langley:

    Yes, sir.

    Panhandle.

    Tom C. Clark:

    I thought it was Pantex.

    Earnest L. Langley:

    No Pantex —

    Tom C. Clark:

    (Voice Overlap) —

    Earnest L. Langley:

    — P-A-N-T-E-X from Panhandle Texas, I think, the abbreviation.

    Well, these examples show, it seems to me, quite clearly that most of the property in Texas that is subject to lease, let alone what may be leased and we don’t know what it leased because we have no evidence in this record to show.

    But most of what is even subject to lease is of the type of property that would be exempted from the operation of the Michigan statute.

    I’d like to point out also that the Michigan statute, as this Court knew it was in the record in the Michigan case, was designed primarily to tax federal property.

    At page 53 of appellee’s brief in this case is quoted a little statement from the record and the Township of Muskegon case, it was found at page 58 of the record there and it represents a statement made by Mr. Street who was from Muskegon and was counsel for the Orchard View School District, one of the parties to that case to the trial court.

    He said, “Act 189 of 1953 was obviously a remedial or curative statute designed to supplement the general property tax and amounting to an amendment thereto.

    It arose the because of a claim then being asserted that this and other similar properties in the State have become exempt or would become exempt within the near future by transfer of title thereto from RFC to the United States or some agency exempt from taxation.

    The Act was passed to avoid the dissent or consequences upon the local units of Government.

    That was in the record in the Muskegon case.

    Further, the record shows, I don’t have the pages.

    I borrowed under those briefs and things earlier and read some of them.

    I don’t recall exactly how much but that the record did show that there was very little actual taxation of any property other than federal under the Michigan statute.

    The record in that case will reflect that.

    Thus, it seems to us that both by the reasoning of the Michigan statute and the Michigan cases and by the authority and the legal precedents of the Michigan cases, particularly Borg-Warner, that the Texas statute, there’s no more guilty of discrimination against the Federal Government or those with whom it deals and was the Michigan statute.

    And that — for that reason, this case should be affirmed.

    We pass then to the question of classification.

    Assuming that there is a distinction and assuming that there is some difference between sthe Texas classification system as exemplified in each statutes, Article 5248 and the others which — with which it must be considered, can there be a reasonable basis for those differences?

    Assuming arguendo that there are and they were not governed by the Michigan statute.

    The rule for classification has been stated from the bench in this Court during argument.

    Any classification for taxation is proper.

    This Court has held in, perhaps, several hundred cases.

    If any reasonable basis can be conceived for that difference in classification, a classification is not arbitrary, it’s not discriminatory, it’s not invidious, if some reasonable basis exist.

    Further, there is a presumption of validity, this Court has said on many occasions which attaches to a state taxing statute.

    Earnest L. Langley:

    And the burden of proving the invalidity is upon the appellant in this case.

    Felix Frankfurter:

    This Court has said more than that.

    It has said even if you (Inaudible) the reasonable basis for the classification, it can be attributed to the legislature.

    Earnest L. Langley:

    Yes, sir.

    Felix Frankfurter:

    You don’t have to prove it.

    You don’t have to show it by legislation itself, because most legislatures don’t disclose the operation of their minds that the reasons for legislations and therefore, you can — you can spell out some good reason.

    Earnest L. Langley:

    If anything can be reasonably conceived, not shown or proved but reasonably conceived, that is true.

    Charles E. Whittaker:

    Unless excluded by (Inaudible)

    Earnest L. Langley:

    Well, some cases have held that, I believe, Your Honor, but others have held that the motives of the legislature are important.

    Felix Frankfurter:

    But what the State —

    Charles E. Whittaker:

    (Inaudible)

    Earnest L. Langley:

    Yes, sir.

    That’s true.

    But the —

    Felix Frankfurter:

    But the State Supreme Court can — can give what — on the face of legislation may not make interpreted but may put that interpretation on unless this Court finds that that’s an evasion of some other constitutional limitation.

    Earnest L. Langley:

    Yes, sir, which we believe is not shown here Your Honor.

    It has been conceded —

    Felix Frankfurter:

    I say these things up because that’s much difficult with what the State can retrieve (Inaudible)

    Earnest L. Langley:

    I recognize that Your Honor.

    But it has been conceded by counsel for appellant here as well counsel for the United States that even a class of federal lessees could be proper.

    And that what this Court has meant when it has said as it said in the Borg-Warner case that it still remains true as it has from the beginning that a tax classification maybe arbitrary and unreasonable and therefore void if it discriminates against the United States for those against or those with whom it deals.

    We are not talking about just pointing out federal lessees, but we’re talking about discriminating against them, not distinguishing them or using a distinction in tax treatment but discrimination.

    That is the key, it seems to me, to those statements found in the opinions of this Court.

    We’re not talking about distinction, we’re talking about actual discrimination.

    And if the class of federal lessees or users and occupiers of federal property is based on reasonable grounds, it should be a valid classification.

    Again, as I say, it has been conceded.

    The only prohibition is against discrimination, not against classification.

    There are examples of that in the opinions of this Court where the courts have held statutes obviously designed to tax the interest on Government bond, the income from copyrights, the income from patents and other rights where the obvious purpose was that, yet nevertheless because the classification was not deemed arbitrary or invidious, this taxing statute was upheld.

    In fact then, is the classification adopted by the State of Texas here a reasonable classification?

    Is there a reasonable basis for it? If there is, then it seems to us that the tax statute is valid, that it does not rough out of any of the provisions of the Constitution which are the only limitations upon state taxing power and which this Court has said are not very broad limitations upon that power.

    Earnest L. Langley:

    In 1945, when the war was over, the United States found itself the owner of a vast and unique mass of commercial and industrial property.

    The hearing before the Senate and the adoption of Military Leasing Act, the National Industrial Reserve Act of 1948 reflected that the Government owned approximately 1200 industrial and commercial plants that had cost the Government about $14 billion.

    Mr. Davis told us on yesterday that that amount has now been increased to $18 billion.

    The Government is the owner of this last mass of property.

    And it is the only owner, the only exempt owner or non-exempt owner of such a vast mass of property.

    We talk about a big corporation.

    A billion dollar corporation is a big one.

    This is an $18 billion corporation just in value of its asset subject to lease alone.

    Felix Frankfurter:

    How far does that argument gets here, because I assume you can see that a State couldn’t directly tax that property $18 billion or $80 billion in the hands of the Government.

    Earnest L. Langley:

    That is true Your Honor.

    But that argument —

    Felix Frankfurter:

    By the nature of our federal system, that is exempt from state impositions.

    Earnest L. Langley:

    The argument gets me, as I understand my argument, which we will proceed along, but it will get me eventually to the proposition that the impact of the leasing of this upon the local economy and upon the taxing situation of the areas in which this property is located is such as to raise a problem which demands solution Your Honor.

    Felix Frankfurter:

    Well, the answer I suppose you make is — is all the difference in the world, if a property is in the hands of the — of the Government of the United States and the advantages which may accrue to other people to that fact.

    Earnest L. Langley:

    Yes, sir.

    Charles E. Whittaker:

    Mr. Langley —

    Earnest L. Langley:

    Yes, sir.

    Charles E. Whittaker:

    — may I ask you please?

    You answered Justice Frankfurter that you admit that the State could not directly tax federally owned lands.

    Earnest L. Langley:

    Yes, sir, that is true.

    Charles E. Whittaker:

    Without the consent of Congress.

    Earnest L. Langley:

    Yes, sir.

    Charles E. Whittaker:

    Now, by the Military Leasing Act of 1947, Congress gave some consent.

    Earnest L. Langley:

    Yes, sir.

    Charles E. Whittaker:

    What do you understand it consented might be taxed in respect of federally owned property?

    Earnest L. Langley:

    It consented, Your Honor, to the taxation of the lessees and risk may have created under the provision of this Act.

    That’s the wording of it.

    Charles E. Whittaker:

    All right.

    Now, what’s the lessee’s interest in this Cactus Plant?

    Earnest L. Langley:

    The lessees’ interest in this plant maybe has varied from state to state as the taxation of RFC property has been held to be under — in the Beaver County case, that is, it maybe one thing in one state and one in another.

    Earnest L. Langley:

    In New York, in the Riverhead case Your Honor, the lessees entered, it was such that it was personal property and was not taxed — subject to taxation by the local units of Government, the same under this Farm & Garden case in Massachusetts and the (Inaudible) aircraft case in California.

    But in other States, the San Bernardino County case in New Mexico, the (Inaudible) case in Maryland, the (Inaudible) case in New Jersey, Lee County Housing case in Georgia, the Personal Housing case in Missouri and in state after state, the lessees interest has been held to be a taxable interest to one kind or another.

    Charles E. Whittaker:

    All right.

    Now, in this case, the lessee has a lease for a term of years.

    Earnest L. Langley:

    Yes sir.

    Charles E. Whittaker:

    That represents its interest, does it not —

    Earnest L. Langley:

    Yes.

    Charles E. Whittaker:

    — whatever you may call it under the local law.

    Earnest L. Langley:

    Yes sir.

    Charles E. Whittaker:

    Now, I understand that your statute 5248, isn’t it, that was — amended in 1950?

    Earnest L. Langley:

    Yes sir.

    Charles E. Whittaker:

    Authorizes taxation of something, now, what is it that that statute authorizes to be taxed?

    Earnest L. Langley:

    The Supreme Court of Texas held that it was the right of use and occupancy for profit of this property.

    Charles E. Whittaker:

    Well, what do you say it authorizes to be taxed?

    Earnest L. Langley:

    That’s what I say too Your Honor.

    That’s what we are contended in this case for five years that that is what it is — that that is a right, a property right, intangible, yes, but a property right which is subject to taxation.

    Charles E. Whittaker:

    Now, doesn’t the statute say that any portion of said lands being federal lands which is used or occupied in the conduct of private business shall be subject to taxation?

    Earnest L. Langley:

    That is true, Your Honor.

    Charles E. Whittaker:

    And that is plain?

    Earnest L. Langley:

    It’s — it seemed plain in a way, yet the first part of the statute saying that property of the United States is exempt from taxation which is a plain statement of an existing fact, of course, merely, would not be considered subject to being turn that around and the opposite thing said in the very same statute in a proviso, there is a presumption of validity.

    A legislature will not be presumed to have done a vain and useless thing.

    If a statute can be so read and construed as to make it constitutional, it should be done.

    The State of Texas by its Supreme Court has held that that’s what the statute said.

    There were four dissenters in the Supreme Court of Texas but two of them, Justices Walker and Calvert had no trouble with that proposition.

    They said in their opinion that we agree with the majority, that that’s what the statute intended.

    In Michigan, we had the same difficulty.

    There was an omission in the statutory wording in Michigan.

    It had to be supplied with the Courts, it was supplied.

    Charles E. Whittaker:

    One more question and I’m through, if I may, please.

    The Michigan cases upheld, as I understand, a privilege tax, is that not your understanding?

    Earnest L. Langley:

    That is my understanding from what these courts have said about that tax, Your Honor.

    Charles E. Whittaker:

    Now, do you contend that the Texas tax is a privilege or an ad valorem tax?

    Earnest L. Langley:

    Your Honor, I contend that it makes no difference to what it is.

    I contend — the appellants have said that in Texas we cannot have a use or privilege tax.

    I do not believe that is so.

    Justice Garwood in his dissenting opinion, it’s found in the record at page 194.

    That’s the last thing he said in his dissenting opinion.

    In this connection, there can now be little doubt that a use tax on lessees, whether long-term or short term, a use tax of exempt property measured by the value of the premises would be valid under our State Constitution as it evidently is under the Constitution of the United States.

    There is no constitutional inhibition against it.

    A tax did not require a label Your Honor to be valid.

    We don’t have to call it a use or privilege tax.

    The Supreme Court of Michigan didn’t say that the tax in Borg-Warner was a privilege tax.

    They said it is a specific tax on the privilege of using the property.

    Charles E. Whittaker:

    Well, isn’t that to say that it’s a use tax?

    Earnest L. Langley:

    Not necessarily.

    The privilege of using a property maybe a property interest.

    Justice Holmes said it was in Trimble against City of Seattle.

    Charles E. Whittaker:

    But you say specifically in 5248, the tax shall be on the portion of the federal lands devoted to private use.

    Earnest L. Langley:

    Yes, sir, Your Honor, I know that’s what I say.

    Charles E. Whittaker:

    Now, how do you get a use tax out of that?

    Earnest L. Langley:

    The same way you get an ad valorem tax on a lessee’s interest, I think, the Supreme Court said that’s what it meant, Your Honor.

    It doesn’t say that in words.

    It’s construed to mean that.

    Charles E. Whittaker:

    And Phillips concedes that if it were an ad valorem tax on the value of the leasehold, they would have no defense to it, would they not?

    Earnest L. Langley:

    I think that is true.

    But the Supreme Court of Texas is pointing out that Article 7173 and 7174 of the old statute providing for taxes on the leasehold, the case construing that Daugherty against Thompson said that in the absence of a statute so providing, then the lease shall be taxable less than so.

    The Supreme Court of Texas said this is a statute so providing.

    It provides for a tax upon an interest.

    Perhaps, an interest created or recognized for the first time in the statute itself that interest, a right of use and occupation of this property, a privilege tax upon it, an ad valorem tax upon the property right of use and occupation.

    This Court said in the Murray case, it makes no difference whether we tax one for the use of property which he possess or the possession of property which he uses, the label is immaterial.

    Earnest L. Langley:

    We say the label is immaterial here.

    It makes no difference if it’s a use or privilege or ad valorem tax.

    You can call it what you want to in this Court.

    In Michigan, the statute was in the ad valorem property section of the Michigan statutes and yet it was held to be a privilege or use tax by this Court, not specifically deemed to be that before it got to this Court.

    The Michigan Supreme Court said merely that it is a tax on the privilege of use of the property, specific tax.

    Charles E. Whittaker:

    Do you — do you argue — do I correctly understand your brief to argue that we should wipe out all distinctions in such matters between privilege and ad valorem taxes?

    Earnest L. Langley:

    Yes sir, I do, Your Honor.

    I think there is no distinction.

    There should be no distinction.

    Felix Frankfurter:

    Is that your — is that your position?

    Earnest L. Langley:

    That’s not my entire position, Your Honor but in — in this area —

    Felix Frankfurter:

    You know your position — you know your position better than I but I thought your position was that if the levy sought to be imposed by the State, it is sustainable on a ground that doesn’t touch the immunity of federal property and the label that the legislature gave it or the station the Supreme Court gave it or the label by which it comes in immaterial, not that there is no difference what kind of an imposition is made, I think that makes all the difference in the world.

    Earnest L. Langley:

    Perhaps it does Your Honor, and perhaps I — I misunderstand the different positions that you and Mr. Justice Whittaker are taking in this instance.

    But I say it makes no difference —

    Felix Frankfurter:

    (Voice Overlap) —

    Earnest L. Langley:

    It makes no difference whether you call it one or the other.

    It makes no difference whether you wipe out the distinction between them —

    Felix Frankfurter:

    You can make a difference what it is not what you call it.

    Earnest L. Langley:

    Yes, sir, that is true.

    The difference is if — if it is a tax on a legitimate property interest or a tax upon a legitimate privilege which is subject to taxation that it makes no difference what you call.

    Tom C. Clark:

    You should argue that (Inaudible)

    Earnest L. Langley:

    Yes, sir.

    Tom C. Clark:

    (Inaudible)

    Earnest L. Langley:

    I see by the light that I must hurry.[Laughter]

    There — there is no comparable property in Texas to this property.

    We have the laws of tax revenues on the local instrumentalities of Government that are forced to furnish school services, roads, court services, police protection, all the other incidents of local governance.

    They’re required to be furnished to these lessees.

    There are no comparable lessees anywhere else except those using property that they have leased from the Federal Government.

    Therefore, this alone, it seems to me, is a valid basis for this distinction.

    We need this equality of tax treatment for several reasons.

    Earnest L. Langley:

    First, we need to adjust the equities between the taxpayers.

    Here is the taxpayer using federal property exempt from taxation, he pays no taxes, he pays no part of the cost of the burdens of local government.

    Local government is supposed to be paid for by those who receive its benefit, this Court has said so.

    Charles E. Whittaker:

    Aren’t you making a Dumas County jury argument now?

    Earnest L. Langley:

    No, sir, Your Honor.

    I don’t think I am.

    I think that is the crux of this case.

    I think that is the crux of this case that the equities that this Court has pointed to have been important.

    In the Borg-Warner case and in the other cases are important here.

    I’m merely trying to get my point over before this other light comes on, Your Honor, if I seem to be hurrying.[Laughter]

    Congress had not only consented to this permission to tax the lessee’s interest but by doing so if it has not completely answered the constitutional question, it had at least highlighted this one thing.

    It has highlighted the basis for distinction because it has known and it has shown that there is a valid basis for classification.

    Another thing Congress has created a class.

    It has created a class of federal lessees itself here.

    And if this Court pose that the State of Texas cannot tax those lessees, then this Court will avail that Congress has discriminated against other users of property in Texas.

    And that the discrimination will be on the other foot.

    This is not a tax on federal property Your Honors.

    The Texas court held that it was not.

    Seven of the nine justices of the Supreme Court, all three in the Court of Civil Appeals and the trial judge have held that it was not a tax on federal property.

    It is — this is a question of state law, it seems to us, that nevertheless hadn’t been injected, we would say that it is not on federal property.

    Felix Frankfurter:

    How does it differ from Allegheny, Mr. Langley.

    Earnest L. Langley:

    Yes sir, I understand.

    Felix Frankfurter:

    How does it differ from Allegheny?

    Earnest L. Langley:

    How does it differ from Allegheny?

    Felix Frankfurter:

    Yes.

    Earnest L. Langley:

    It differs from Allegheny, Your Honor, in that it — the interest of the lessee was assessed here.

    Now, the assessment sheets which have been brought in, they say that it does not —

    Felix Frankfurter:

    But that was done in Allegheny, but the Court went beyond that, it wasn’t satisfied merely who’s — who was assessed.

    The name of the — of the fellow on the tax roll.

    On what —

    Earnest L. Langley:

    The difference —

    Felix Frankfurter:

    On what did the weight fall was the problem there, wasn’t it?

    Earnest L. Langley:

    Yes, sir.

    The weight fell there on — it’s a little difficult to see but, of course, it’s little difficult to see much validity in Allegheny anymore anyway in my opinion.

    And —

    Felix Frankfurter:

    That’s a good answer.

    Earnest L. Langley:

    Yes sir.[Laughter]

    I think it is a good answer, Your Honor.

    Felix Frankfurter:

    (Inaudible)

    Earl Warren:

    Mr. Price.

    Jack N. Price:

    Mr. Chief Justice, Honorable Members of the Court.

    This question of — of whether or not this tax is on federal property where or is only lessee’s interest seems to be very much bothering the Court.

    Actually, we thought that our real problem here was discrimination, and I would like to treat that, but first, I think we might as well go right back to the question of whether or not its owned federal property.

    Well, I don’t argue with the — and I can’t argue with what Mr. Justice Whittaker says the statute says because he is reading it to me.

    But just like Mr. Langley pointed out in the first section of that same statute, Article 5248, its clearly evidence is that the legislative is aware that it cannot tax federal property.

    It would be very useless and vain for them turn it right around in the same section and say we’re going to tax it anyway.

    Now, there’s another statute that gives an exemption.

    Charles E. Whittaker:

    Is that quite right?

    Does it not in the first section say you cannot tax federal property unless it has been leased?

    Jack N. Price:

    You’re right, Your Honor.

    Well, that is not exactly what it said.

    It says —

    Charles E. Whittaker:

    No —

    Jack N. Price:

    — you cannot tax federal property that is used for public purposes.

    So we can put that point to rest by going to Article 7150, Section 4 of the Texas statute which gives a complete immunity or exemption to all federal property in the State.

    Therefore, there are two exemptions provisions in the State of Texas.

    And the legislature must be deemed to be fully aware that it cannot tax federal property.

    Now, our legislature can’t be accused of being composed of constitutional lawyers.

    Therefore, we can’t say that we can’t just look at the language that it used and then hold it constitutional or unconstitutional because of the language they used.

    Now, if you’ll examine the history of the amendment, the Article 5248, you’ll see that it was passed by the first session of the legislature to convene after the enactment of the Military Leasing Act in 1947.

    Jack N. Price:

    The first legislature convened in — in 1949, and it was passed by the first call of session of that legislature effective March 17th, 1950.

    Felix Frankfurter:

    Was there a debate on this amendment?

    Jack N. Price:

    If there was, Your Honor, I — I don’t know of it.

    I had —

    Felix Frankfurter:

    Have you — have you got a state congressional record?

    Jack N. Price:

    It’s very sketchy, Your Honor.

    It — it does record debates.

    But I believe that this very history, evidence is a fact that what the legislature was seeking to tax was only that for which expressed permission had been given to tax.

    Charles E. Whittaker:

    And what was that?

    Jack N. Price:

    That was the interest created under these military leases.

    Charles E. Whittaker:

    Well, now, the interest created here in the lessee is what?

    Jack N. Price:

    Your Honor, we — we consider that the right of use an occupancy of valuable federal property, federal industrial property, is the right that is created and is the right that is vested in the lessee.

    Now, we contend that it does not make any difference whether you label this ad valorem, use, privilege, excise or put any of the label on it, because when you view its constitutionality, you view its practical operation and effect.

    And if it is constitutional by that test, you cannot condemn it merely because of its label.

    Charles E. Whittaker:

    Then you’re saying it is a — a use or privilege tax and not an ad valorem tax?

    Jack N. Price:

    Well, Your Honor, I’ll have to echo Mr. Langley on that point.

    I’m saying that we contend, it does not make any difference.

    We — we would like to point out however in answer —

    Felix Frankfurter:

    But you must stay, if I may interrupt, but you must say that it isn’t a direct levy against property owned by the United States.

    Jack N. Price:

    Yes sir, otherwise —

    Felix Frankfurter:

    You are not saying that.

    Jack N. Price:

    Otherwise, the amendments Article 5248 would be vain, meaningless, useless, and unconstitutional and the legislature will not be presumed to have done a vain or unconstitutional thing.

    Felix Frankfurter:

    But that — but to that extent, if I may say so, you must answer Mr. Justice Whittaker.

    Jack N. Price:

    Yes sir.

    Felix Frankfurter:

    Is it a tax on the property?

    Jack N. Price:

    No, it is not a tax on federal property.

    I don’t believe there should be any question about that.

    It’s certainly would not have gotten this far through the Texas courts if it were a tax on federal property.

    Charles E. Whittaker:

    Well, do you think we — we are bound or can be bound by what Texas says in that regard if includes it is a tax on federal land?

    Jack N. Price:

    Your Honor, I’ll answer that this way.

    Jack N. Price:

    I would say that ordinarily, as this Court has said in the past, that the incidence of a state levy or exaction is a question of state law.

    In this case, it has been decided adversely.

    Now, we would say that the Court is not bound by that certainly, if the practical operation and effect is otherwise.

    But examine the practical operation and effect of this tax, you’ll find that it is not otherwise.

    Now, we are not opinioned to the position that this tax has to be an ad valorem tax.

    And I’d like to answer Mr. Clifford’s argument in this respect where he says it — only, a school district in Texas may levy, only an ad valorem tax.

    And for authority for this, he quotes Article 7, Section 3 in his brief at page 41.

    And he quotes this portion.

    He says, “The legislature shall be authorized to pass laws for the assessment and collection of taxes.”

    And all said districts, referring to school districts, and for the management and control of the public school or schools of such districts.

    Now, here he has an omission.

    There’s an interjecting thought here that he does not put in and then he proceeds to say, “And the legislature may authorize an additional ad valorem tax to be levied and collected with our school districts.”

    Now, there is your only reference in that section to ad valorem taxes.

    And I assume that — that putting it this way that Mr. Clifford would like to rely upon the theory of Houston General.

    But I think he’s sort of reversed the application of it here because here, the General precedes a specific and therefore, I don’t believe there’s any question of that.

    If — if there is any question of it, it’s put to rest in another constitutional provision of the Texas Constitution which is Article 8, Section 17 which says that the enumeration of objects and subjects of taxation in the State Constitution shall not limit the legislature in their selection of subjects and objects for taxation.

    And if they deem it necessary, they can select other objects and subjects of taxation.

    Consequently, I don’t believe that there is any genuine question but that the state legislature could authorize the imposition of a use or privilege tax by the School District or any other subdivisions of the State of Texas.

    Charles E. Whittaker:

    I don’t understand the petitioner to contest that.

    He just says you haven’t done it.

    Jack N. Price:

    Well, Your Honor, of course, he contends that we haven’t done it.

    But I — I do understand him to say that — that this is contested because the very heading of this Section that I’m reading from on his brief, page 41, says this –this construction of Chapter 37 which is the amendment’s Article 5248 is required by the Texas Constitution and accords with the Texas taxing system.

    Felix Frankfurter:

    Is it your position that you have done it and constitutionally you could do it?

    Jack N. Price:

    Certainly, it is, Your Honor.

    But really, our position is this.

    That it does not matter if, by practical operation and effect, this tax is constitutional, and I don’t believe that the Michigan cases leave any doubt but that it is, because in the Michigan cases, you had a similar incidence for the tax.

    You had it measured by exactly the same thing it is measured here.

    And further, in the Murray case, you’ll remember, you didn’t levy it under a general statute or an enabling statute, you levied the tax or they levied the tax under their general ad valorem tax structure.

    And it was specifically defined an ad valorem tax and they were stuck with that in Michigan, but this Court found that that was no fatal defect, that the mere omission of the words that this shall be considered a use tax could be supplied whereas practical operation and effect were the same.

    And as a matter of fact, those — those words are not absent in our statute.

    Jack N. Price:

    You need not go so far to supply them in our statute.

    Charles E. Whittaker:

    What words — I — I’m going to ask you another question, this is my last one but for the policy, but what words do you rely on in your statute to create here a privilege tax other than the words in 5248 saying that any portion of said federal lands which is being used or occupied for private business shall be subject to taxation.

    Is that at all you rely on?

    Jack N. Price:

    No, sir.

    We cannot rely on those words.

    If we rely on those words in literal — in literal construction, Your Honor, as you had pointed out, that covers the property.

    Charles E. Whittaker:

    Well, is there any other?

    Jack N. Price:

    Well, yes, it is the duty of these courts, not only the state courts but the federal courts, if it is possible to give effect to the intendment of the legislature.

    Now, as I pointed out, the legislature knew it couldn’t tax federal property.

    Charles E. Whittaker:

    Now, give it — we have great difficulty about this type of thing among ourselves.

    Giving intention to the — giving effect to the intention of the legislature, contrary to the words it’s used or consonant with them?

    Jack N. Price:

    Well, Your Honor, I believe that — that the proper role of the Court is to give the construction that would uphold its constitutionality unless that construction is absolutely precluded by the wording of the statute.

    And I don’t believe it’s precluded here.

    Felix Frankfurter:

    You say it isn’t precluded because the introductory clause qualifies the second clause.

    Jack N. Price:

    Well, the — if you want to look at it that way, I say it’s not precluded because of the — your regular canons of statutory construction, your other extraneous aid that you — you resort to, to construe a statute like the legislative history that I’ve pointed out and your canons of construction that you can’t give it construction that would render it unconstitutional or make it a vain gesture.

    And you can presume from the fact that the legislature has two specific exemption statutes already on the books of Texas giving complete exemption on federal property that they knew they couldn’t tax federal property that they were intending to.

    Felix Frankfurter:

    Before you sit down, I wonder if you could make — draw on your — the time that’s left to summarize or to add to what Mr. Langley said at this point, namely, on the question of discrimination.

    Jack N. Price:

    Yes sir.

    Felix Frankfurter:

    Is it — let me —

    Jack N. Price:

    Pardon me.

    Felix Frankfurter:

    — (Inaudible) what I have in mind.

    This Court has said on one occasion, when dealing with questions of that sort, this Court was taken to account the whole tax scheme of a State, not merely a specific statute but a large specific statute challenged for discrimination.

    There’s nothing about it.

    It’s the duty of this Court to look to the other — all other tax provisions of the State to see where this particular one fits into the mosaic of tax measure.

    Now, would you do that?

    Jack N. Price:

    Yes sir, I can.

    I’ll summarize Mr. Langley’s argument on discrimination and how this amendment’s Article 5248 fits into our tax structure this way.

    There is certain basic proposition.

    First, privately owned tax-exempt property when leased for private purposes looses its exemption entirely.

    And I have laboriously set this forth in pages 7 through 20 of my brief and shown just where and in what respect, what cases held it and what constitutional limitations there was or on every part of privately owned tax-exempt property in Texas.

    Jack N. Price:

    Therefore, I do not believe that we can consider privately owned tax-exempt property in relation to this question of discrimination.

    If there is any discrimination, it must be found from a different source or from the difference in tax payment between lessees of federally owned property and lessees of a different type of tax-exempt property other than privately owned tax-exempt property which leaves only state property.

    Now, state property can be leased without loosing its exemption if, one, and the cases have construed the Constitution to mean this.

    The leasing is of a temporary nature.

    Two, all revenues derived from the leasing and they’re exclusively to the public benefit.

    And three that the public purpose of the property cannot be abandoned, and by that, they mean that there must be an eventual retaking of this property and devoting it to public purposes.

    Those are the limitations upon the leasing of state property.

    Now, there is a great deal of state property, and Mr. Langley had described that property and I won’t bother with it that is expressly made subject to taxation.

    I’ll describe it only as being the type that is actually characteristically available for leasing like the university property or county school lands.

    And then there’s — is another proposition or it’s the last proposition in this entire framework.

    We see the state property which is not expressly made subject to taxation and which is leased so as to preserve its exemption will be taxed to the lessee with the fair cash market value of the lease under Article 7173 and 7174 and I would assume that those statutes still apply, although I can see no other applicability of those two particular statutes to any property other than state property, which is leased so as to preserve its exemption.

    Now, it is — this — this question of discrimination must be resolve in that light.

    In other words, you got to consider whether or not the slight differentiation in actual tax or economic treatment of the two types of lessees is sufficient to vitiate the classification erected by the operation of Article 5248.

    And for that, we go to the ordinary rules of classification that this Court has devised, and that is, whether or not, there’s any reasonable basis for the classification.

    Whether or not, it is invidiously discriminatory or — or probably arbitrary.

    Whether or not, it rests upon some basis having a fair and substantial relation even to the object of the legislation or to the public policy of the State, and the last requirement that I’ve been able to gleam from the cases is that all those similarly circumstance must be treated alike.

    Do you think if there’s no dispute at all addressed to this argument that if Phillips was the lessee of this same plant from the State, it would not be subject to tax?

    Jack N. Price:

    Well, of course, this Your Honor —

    Is there any dispute about that?

    Jack N. Price:

    Your Honor, I don’t believe there seriously could be for this reason, that the United States Government has its recapture clause or this — the lease termination clause so that the — it is contemplated that they may need it for national emergency.

    And that the State had any comparable property and made such comparable lease provision, then it would be, I think —

    (Voice Overlap)

    Jack N. Price:

    — it would be evidenced that they were going to devote it to a public use in future.

    But however that — that assumes something that it really goes to our basis for the classification and that is that the — the State has any such comparable property or can create any such a comparable class of lessee than it does not have such a class of property and it cannot create such a class of lessees.

    If you’ll just look at the Military Leasing Act itself, it’s pretty evident that the federal Congress knew, United State Congress knew that under this Act, there would be created a special class of lessees.

    And by enacting this permission to tax, the evidence concerned for two factors, one, that this class of lessees would not be favored, notably favored over their local brethren or classes in a similar position or in the same economic standpoint or in a — in a position of economic competition with those lessees, and two, the evidences are concerned that that lessees’ interest created under the Military Leasing Act should bear its proportion of burden of taxation in the various states and should pay for the government services afforded and the government protections afforded to these lessees in the exercise of their interest.

    Felix Frankfurter:

    Well, you’re not resting this tax under Military Leasing Act, are you?

    Jack N. Price:

    No, sir.

    I am resting though, not completely but in part upon, Texas acceptance to tax that interest.

    In doing so, they evidence similar concerns.

    Jack N. Price:

    First, that these people should not be notably favored over lessees in the same economic position or similar lessees, lessees of similar property.

    Now, the State in point of fact does not have any similar property.

    It does not lease any similar property and —

    Felix Frankfurter:

    Well, then, all the talk that this couldn’t be taxed by Texas is fancible, isn’t it, I mean is — is a non-real thing.

    The suggestion — the suggestion that if this kind of a lease were made by Texas, the property could not be taxed by Texas is based on assumption, on a non-adjusting assumption that Texas could lease such property.

    Jack N. Price:

    Well, that’s — that’s why I thought that Mr. Harlan’s question was defective, Your Honor, because it’s a moot abstract question.

    So I’d like to sharpen up my question for you then —

    Jack N. Price:

    All right.

    Supposing you had a dozen other Phillips around Texas who leased from the State exactly comparable plants, they would not be taxed.

    Phillips leasing from the Federal Government would be taxed, but under those circumstances, it would be the basis of the classification that you would rely on is justifying that difference in tax treatment.

    Jack N. Price:

    Assuming that, Your Honor, it would appear to me just at first blush that the sole discrimination of the differentiation would be on the basis of ownership, ownership alone.

    And I would say that that is not a sufficient basis.

    Not a sufficient basis.

    Jack N. Price:

    No, sir, I was not saying —

    So what you’re really saying here is not that there is not a classification but that the discrimination does not in fact exist because Texas does not have properties of this kind to lease to other people.

    Jack N. Price:

    Exactly right, Your Honor.

    That’s your position.

    Jack N. Price:

    Exactly right.

    Now —

    Felix Frankfurter:

    If that’s so there’s no discrimination.

    Jack N. Price:

    Well, that is so, Your Honor, and there is no discrimination.

    Tomorrow Texas could go into the business if leasing a plant of this kind if it chose to put up a state on the (Inaudible)

    Felix Frankfurter:

    And then it might be called discrimination.

    Jack N. Price:

    Yes, it would.

    It might and —

    Felix Frankfurter:

    Is it not?

    Jack N. Price:

    — this Court knows it does not view problems in abstract but I would say and I would go only to appellant’s brief to answer — reply brief to answer that question and say that there is no statutory authority for the State of Texas to go into this type of business or to acquire this type of property or to make this type of lease.

    An appellant has — has displayed this fact far better than we could ourselves, Your Honor, but we did ourselves because we did not bother to trace out every little piece of statutory authority for leasing.

    And when you examine that authority, you arrive at this result that the only authorization for leasing in Texas is leasing of this — of the property of the state-supported educational institutions and leasing a property where the lease, you see, the contemplated or authorized is by way of some sort of public concession.

    And when you get at that result, you — you bring Texas in direct alignment with the situation under Public Law 189 of Michigan, because they accepted, those types of property from the operation of Public Law 189.

    Felix Frankfurter:

    Now, suppose five years from now or two years from now, Texas is empowered to acquire — has property or acquires property like on to Phillips and then leases like under this lease, two years from now.

    And — and otherwise the situation remains the same, namely, Phillips has taxed and the Texas Phillips — Texas leased Phillips, is not taxed.

    What happens then?

    Jack N. Price:

    Well, what happens then, Your Honor, is that we — we inevitably have another case, testing it for the same.

    Felix Frankfurter:

    In other words, this problem has set again and again something maybe constitutional today and become unconstitutional next year —

    Jack N. Price:

    Well, that’s —

    Felix Frankfurter:

    — on the very same statute.

    Jack N. Price:

    — that’s absolutely right, Your Honor.

    Earl Warren:

    Well, Mr. Price, let — let’s bring it down a little closer to today.

    As I understood Mr. Langley, the — the State does own some property that it acquired from the Government by gift and that it did lease that property to Phillips for storage purposes.

    I suppose it’s a — it’s a warehouse.

    Now, as I understood him, that property is not taxable under Texas law.

    What is the distinction between that piece of property and this piece of property if they have the same kind of — of leases?

    Jack N. Price:

    Well, Your Honor, I’m very familiar with that having written the opinion concerning the Pantex Ordnance Works, which held it — it was exempt to Texas Tech.

    But actually, you have to look at that thing.

    The — and — the Federal Government did cede the Pantex Ordnance Works or sell to Pantex Ordnance Works at Texas Tech.

    They sold it for something like $1 an acre and had it used ordnance works there.

    That’s right, Your Honor.

    But they conditioned the selling of that property to the proposition that it’d be devoted to educational use plant.

    Then under the deep from the United States Government to Texas Tech, had Texas Tech actually lease that ordnance works, the property would have gone by on condition subsequent to the Federal Government.

    So that possibility was completely if you read this opinion, it has —

    Earl Warren:

    What piece — what piece of property are you talking about?

    Jack N. Price:

    I’m talking about the ordnance works itself.

    Now, what was —

    Earl Warren:

    The one in this case, is this property in this case?

    Jack N. Price:

    No, sir.

    The Pantex Ordnance Works.

    There’s no property leased under that Pantex Ordnance Works had remained derivative.

    It’s owned by Texas Tech now that is comparable to this property to the Cactus Ordnance Works.

    Earl Warren:

    What is the difference between the piece of property that Mr. Langley is talking about and this piece of property referring to the — to the one that is also leased to Phillips for storage purposes?

    Earl Warren:

    I suppose, it’s a big warehouse or something of that kind.

    Jack N. Price:

    You mean the Cactus Ordnance Works, what is it?

    Earl Warren:

    I don’t know what it is.

    I’m — I — but he mentioned that — that there was another piece of property that the State did own and that it leased to the same concern, to the Phillips people.

    Jack N. Price:

    Yes, sir.

    That is — that is —

    Earl Warren:

    — and he says that that — that that lease is not taxable.

    Now, what is the distinction —

    Jack N. Price:

    Well, in the first place —

    Earl Warren:

    — between — between that — that situation and this?

    Jack N. Price:

    It is in the type of property, Your Honor.

    Earl Warren:

    I beg your pardon.

    Jack N. Price:

    It is in the type of property.

    In —

    Earl Warren:

    Well, what — what distinction and type of property meant (Voice Overlap) —

    Jack N. Price:

    It — it’s their interest created under the Military Leasing Act, these lessees of huge industrial plants, it is nothing comparable.

    The State has no such — it is never have — it — the Texas Tech for six months had entitle to an ordnance works and that is the only incidence in Texas, and that is cited outside of the record by signing an opinion of the Attorney General.

    It had that for six months and then it was recaptured by the Federal Government but had they leased that ordnance works.

    That is the actual industrial plant.

    Earl Warren:

    Yes.

    Jack N. Price:

    It would have reverted to the Federal Government because it was conditioned on being used pursuant to what was called a — an educational use plant.

    Earl Warren:

    Yes, but it kept a part of the property and it leased it and it leased it to Phillips and I suppose it didn’t lease it to Phillips for educational purposes.

    Jack N. Price:

    No, sir.

    It leased — it —

    Earl Warren:

    It leased it to it for commercial purposes.

    Jack N. Price:

    Just like Mr. Langley said, for storage.

    And — and —

    Earl Warren:

    All right, that commercial — private purpose, isn’t it?

    Jack N. Price:

    Yes, sir, that’s right.

    And (Voice Overlap) —

    Earl Warren:

    Now, what is the difference — what I want to know is what is the difference between that transaction and this one?

    Jack N. Price:

    Well, I — it’s just in — in the justification for the class erected, Your Honor.

    Earl Warren:

    I beg your pardon.

    Jack N. Price:

    It is just for — it — it goes to the justification for the class erected and that is that —

    Felix Frankfurter:

    I don’t understand you.

    Does the one —

    Felix Frankfurter:

    I just don’t hear your words.

    Jack N. Price:

    For the class erected by Article 5248.

    William J. Brennan, Jr.:

    I don’t get that word.

    Earl Warren:

    The class erected?

    Jack N. Price:

    The class erected.

    The classification erected by the operation.

    William J. Brennan, Jr.:

    Oh, class erected.

    Jack N. Price:

    Yes, sir.

    Tom C. Clark:

    I didn’t understand.

    Jack N. Price:

    And that is lessees of these huge industrial plants.

    What I —

    Jack N. Price:

    And — and point of fact, the Federal —

    — I thought you tell me a few moments ago, I misunderstood you that if you did have some other Phillips around using other plants in Texas.

    Jack N. Price:

    That’s right.

    — but then you would agree — that there was no proper classification.

    Jack N. Price:

    I said if they did.

    And I said (Voice Overlap) —

    Jack N. Price:

    That is one of the facts.

    — well, the Chief Justice has now pointed out one that does exist.

    Jack N. Price:

    No, that — that is not a — a plant, Your Honor.

    That is just a mere, a few scattered storage houses and plus a few scattered grazing acres which the State leases at all times under its property that’s held in the public school fund.

    The purpose —

    Felix Frankfurter:

    Are you saying — are you saying that a classification, I’m asking, I don’t know and I must quarrel the Chief Justice.

    Are you saying that a classification as between an industrial manufacturing plant and a warehouse is also in the part of classification?

    Felix Frankfurter:

    Is that what you’re saying?

    Jack N. Price:

    I believe it is, Your Honor.

    I believe it is.

    That industrial plant, the — the persons who — who worked there, who use the Government roads, who send their children to the Texas schools, have much more of an impact upon the economy of the taxing authorities within which they’re located, then a few cows on the grazing lease aren’t here or the fact that there’s a —

    Felix Frankfurter:

    But — but if you had a comparable government lease, U.S. Government lease, storage house, it would be taxable under your statute, would it not?

    Jack N. Price:

    Well, Your Honor, I — I really don’t know.

    I really don’t know.

    Felix Frankfurter:

    State (Voice Overlap) —

    Jack N. Price:

    That — that question is not — that question is — is open actually because of the —

    Felix Frankfurter:

    Why is that open?

    It’s not open under the statute, is it, the statute doesn’t —

    Jack N. Price:

    Well, you look at the history of it, you could say it’s very well open because you could —

    Felix Frankfurter:

    You say — you say to that for the under state construction might be limited so as to apply it.

    Jack N. Price:

    That’s — that’s exactly right because the history of it, evidence is the intention of the legislature only to take advantage of the taxation permission granted by the Federal Government, the Military Leasing Act.

    Earl Warren:

    Well, has the — have your courts made any distinction between these two classes of property that you and I have been talking about?

    Jack N. Price:

    Well, between the industrial and — and the other commercial uses?

    Earl Warren:

    Yes.

    Jack N. Price:

    Well, Your Honor, not in this connection.

    This Court has — has found this more than a sufficient basis to distinguish property and to distinguish excises and uses and privileges.

    In one case, the (Inaudible) case, this Court found a distinction between colored oleo and white oleo is sufficient to base a classification for taxation purposes.

    Hugo L. Black:

    You said you wrote an opinion on it.

    Jack N. Price:

    Yes, sir.

    Hugo L. Black:

    What was the basis on which you distinguished and upheld it?

    Jack N. Price:

    The basis was this, Your Honor.

    Just as we have set forth in our brief that the State, a state institution, and the Texas Tech is such an institution, may lease its property provided that the leasing is temporary that all revenues from that leasing are tp the state benefit and that the public purposes is not abandoned, and if you read this opinion, it is conditioned upon those three conditions just as every case that, and there are only about three of them that he has cited where there are other similar to this, have also been similarly conditioned.

    Felix Frankfurter:

    And are you saying that a like lease from the United States of the identity property, would you found exempt under state law would have the benefit of those exemptions?

    Is that what you’re saying?

    Jack N. Price:

    I’m — I’m saying that I really don’t know, Your Honor, because it has not been cited.

    Felix Frankfurter:

    Well, but if — if not, if not, I should think you must claim that they would enjoy the same exemption of the State because then, although there might be different proper classifications between industrial plants and the non-industrial plants, there can’t be a classification between non-industrial plants leased by the Government and non-industrial plants leased by the State.

    Jack N. Price:

    Well, Your Honor, that goes — that — that’s viewing it from — from one side of the question.

    Jack N. Price:

    This classification question can actually be viewed from two standpoints.

    One, is there any justification for segregating the class of federal lessees?

    Two, is there any justification for distinguishing or differentiating the treatment of state lessees?

    Now, this — this second question is interesting also, and we actually believe that you can’t find that justification.

    In this fact, when the State leases its own property, it can equate the actual economic burden upon that property with the tax burden upon federal lessees or lessees of other exempt property by setting the lease facts.

    In other words, the State gets the market value for its lease.

    And this market value, as far as the state lease is concerned, is going to be directly affected by the absence of taxes on that lease.

    In other words, an actual effect that money that the State gets from the lease is the same that it would get or gets in a form of taxes from another lease where it does not have a control —

    Felix Frankfurter:

    What you’re —

    Jack N. Price:

    — and certainly has no such control over such property.

    Felix Frankfurter:

    — what you’re saying is that — are you saying that the State can protect its fiscal interest by the price — by the — by the leasing price —

    Jack N. Price:

    Yes, sir.

    That’s — that’s true.

    Felix Frankfurter:

    — and that would be in lieu of the use the phrase of statutes, in lieu of what it might directly impose upon taxes —

    Jack N. Price:

    That’s right, Your Honor.

    Felix Frankfurter:

    — as against leases by the Federal Government which are entirely outside the control of the State?

    Jack N. Price:

    That — that’s right, Your Honor, because rent is just as much revenue to the State as our taxes.

    There is no distinction between them.

    Earl Warren:

    Then let me ask you this question as to this piece of property that’being used — leased to Phillips for storage purposes now, if that belong to the Federal Government at the present time, it was leased by the Federal Government, would it come under this tax?

    Jack N. Price:

    Well, that’s just a question that — that I — I could not answer to Mr. Frankfurter because that would involve another construction of the statute and that would be whether it — it actually was intended to apply to more than this class of industrial lessees erected by the Military Leasing Act.

    I think there is a genuine question.

    I think you only have to remove one question and that is this history of the Act falling from the heels as it did of the passage of the Military Leasing Act.

    If you remove that, I would say this, Your Honor, that — that it would be leased and — and it would be taxed and have the Federal Government under Article 5248 but there is a genuine question there.

    Hugo L. Black:

    Do you defend that all your tax on the ground that the Government charges so little for its lease places that state owners who have leased in other ways had a disadvantage?

    Jack N. Price:

    Well, Your Honor, I think —

    Hugo L. Black:

    I’m not asking you to make an argument.

    I’m asking —

    Jack N. Price:

    Yes, sir.

    Hugo L. Black:

    — if you have made an argument.

    Jack N. Price:

    I — I think I have made —

    Hugo L. Black:

    Where is it?

    Jack N. Price:

    I did not make it clear.

    Hugo L. Black:

    Where is it?

    Jack N. Price:

    No, it’s not in my — it’s not in my brief but it’s all through Mr. Langley’s brief.

    Hugo L. Black:

    Is it in his brief?

    Jack N. Price:

    I — I thought you were referring to my oral argument.

    Hugo L. Black:

    Is it in his brief?

    Jack N. Price:

    Yes, sir.

    Hugo L. Black:

    Where is it in his brief?

    Jack N. Price:

    Well, it — it’s actually just —

    Hugo L. Black:

    Do you know?

    Jack N. Price:

    — it’s just scattered out through there where he — where he says that right in his initial proposition as a matter of fact.

    Hugo L. Black:

    Is there any — any evidence or anything in connection with the price of the Government lease as compared to the price of leases that other operators have to pay in the State of Texas where they do not lease from the Government?

    Jack N. Price:

    No, sir, there’s not.

    There’s evidence as to what the lease price is.

    There was a million 20 — $266,666 (Voice Overlap) —

    Hugo L. Black:

    Of course that’s the point I ask about it and asked if you’d argue it —

    Jack N. Price:

    No, sir.

    Hugo L. Black:

    — unless it’s also shown that by reason of that price being so low which the Government gives on its places, the other leaseholders in the State of Texas are at a disadvantage.

    Jack N. Price:

    Well, Your Honor, I think you can infer that.

    Hugo L. Black:

    I’m not saying it would be a justification for this —

    Jack N. Price:

    No, but if — if you wanted — if you want to pursue that evidence, I think you could say that because it —

    Hugo L. Black:

    — I don’t care to pursue it.

    I’m asking if you have pursued it if you have anything in the record that does pursue it.

    Jack N. Price:

    No, sir, we did not view that as our burden.

    We have viewed an affirmative burden to prove discrimination upon — on the appellant.

    But — but actually the record shows that this lease price is about 2.5% of the actual value of that Cactus Ordnance Works which was leased.

    Now, any landlord know just an economic price that you have to get to retire your investment, 1% per month, which is 12% per year, tax they make a profit any realization whatsoever into — to retire your capital investment.

    So obviously, this is pretty low as far as the actual capital investment of the Government is concerned.

    It’s pretty obvious that any other lessee of comparable property in Texas, if there is, I mean, it has not been shown.

    Hugo L. Black:

    Well, we couldn’t take judicial knowledge of that, does it?

    Jack N. Price:

    It’s an economic principle, Your Honor.

    Charles E. Whittaker:

    Do you think the State of Texas, on its property that it has leased, is getting a return of as much as 1% a month.

    Jack N. Price:

    Well, Your Honor, I — I really would not know.

    I’d say this that if it’s not it’s a mighty poor land.

    Charles E. Whittaker:

    But it maybe an involuntary landlord such as the Government is here.

    Property designed for other uses is not doing the best it can indirectly.

    Jack N. Price:

    That’s — that’s possibly true.

    That’s possibly true, Your Honor.

    Earl Warren:

    All right, sir.

    Mr. Clifford.

    Clark M. Clifford:

    Please Your Honors.

    In the very few minutes I have before noon recess, I would like to direct the Court’s attention to the question that this tax is a tax against federal property.

    First, we start with the language of the tax that Mr. Justice Whittaker has referred to.

    Any portion of federal lands leased to a private party shall be taxed.

    That’s the language in the substance of the statute.

    Second, is this an ad valorem tax?

    The parties here in their briefs concede that this is an imposition of an ad valorem tax.

    On page 6 of the State of Texas brief, it says “This Court’s opinion,” referring to the United States Supreme Court, “will seriously affect future ad valorem taxation by a great number of the county school districts and other taxing authorities of the State.”

    We have the language of the statute.

    We have next that it is construed to be an ad valorem tax and third, if Your Honors please, we had in the transcript of the record on page 109, each of Your Honors has before it, page 109.

    We have the entry in the tax records of the Dumas Independent School District.

    It says here, “Owner, Phillips Chemical Company.

    Address, P.O. box,” and so forth, “Amarillo, Texas for assessment of taxes for the year 1953 by John R. Powell, assessor of Dumas Independent School District, Moore County, State of Texas.”

    Now, what is that?

    All of the following described realty commonly known as Cactus Ordnance Works including buildings, improvements, fixtures, machinery and the pertinencies thereto belonging and more particularly described as follows to wit.

    There’s a clerk’s note here follows approximately 10 pages of legal description of seven tracks of land, 23 easement areas being identical to the descriptions found in the lease from the United States of America.

    We would like to suggest that when the refuge has to be made that the — the language here is not perhaps what they intended to say but that some construction will be put upon it, I say that the language as it appears seems clear, it is at no place described as a use tax in there.

    We know that it is an ad valorem tax, the briefs are replete with reference to the ad valorem tax and then we finally come down to the entry in the tax records and what has taxed the Cactus Ordnance Works including all of the realty, all of the pertinencies, all of the machinery and so forth.

    What do you say to the State’s argument that the decisions of last year about little breath of light now again?

    Clark M. Clifford:

    I would say with reference to that, that this Court distinguished Allegheny from the so-called Michigan cases because they said that in the Allegheny case, there was no ruling there as to whether a tax, a use or occupation tax, would be valid.

    What the Court did say in the Allegheny tax — Allegheny case was when federal property in the possession of a lessee is taxed that even though the tax is directed to the lessee that is an invalid tax.

    And as I recall, the Master Machine Works had machinery of the Federal Government in its plant and the tax was levied upon other property of Master Machine Works and that machinery that was included in.

    And when the tax bill came in, the objection was made that they owed no tax on the federal property.

    The tax in that case was not the bill, it was not sent to the Federal Government, it was sent to the — to the Master Machine Works.

    And this Court held that the Master Machine Works didn’t have to pay any tax on that and that particular effort was invalid and illegal, because it affects a tax to federal property that was in the possession of the Master Machine Works.

    And in this instance, this is federal property in the hands of the Phillips but it’s still federal property and the tax attached to it.

    Earl Warren:

    We’ll recess now.

    Clark M. Clifford:

    Thank you.