United States v. City of Detroit

PETITIONER:United States
RESPONDENT:City of Detroit
LOCATION:Wolverine Tube, Inc.

DOCKET NO.: 26
DECIDED BY: Warren Court (1957-1958)
LOWER COURT:

CITATION: 355 US 466 (1958)
ARGUED: Nov 14, 1957
DECIDED: Mar 03, 1958

Facts of the case

Question

  • Oral Argument – November 14, 1957 (Part 1)
  • Audio Transcription for Oral Argument – November 14, 1957 (Part 1) in United States v. City of Detroit

    Audio Transcription for Oral Argument – November 14, 1957 (Part 2) in United States v. City of Detroit

    William J. Brennan, Jr.:

    (Inaudible)

    Roger P. O’Connor:

    Yes Your Honor.

    William J. Brennan, Jr.:

    (Inaudible)

    Roger P. O’Connor:

    That’s correct.

    William J. Brennan, Jr.:

    Now all (Inaudible)

    Roger P. O’Connor:

    That’s correct.

    William J. Brennan, Jr.:

    But no (Inaudible) enter into regularly the assessment phase (Inaudible)

    Roger P. O’Connor:

    Only lands that come in under this Act 189.

    William J. Brennan, Jr.:

    (Inaudible) and I gather that given (Inaudible) lease, let’s say for a 20-year lease the tax (Inaudible) the City tax rate (Inaudible) $1000000, is that right?

    Roger P. O’Connor:

    Lumped in with a whole assessment valuation.

    William J. Brennan, Jr.:

    (Inaudible)

    Roger P. O’Connor:

    Yes.

    William J. Brennan, Jr.:

    Now if another 20-year lease on that property (Inaudible)

    Roger P. O’Connor:

    Yes in proportion for the amount of property he is using.

    Earl Warren:

    Well Mr. O’Connor do you have two rolls, do you have a personal property roll and a real property tax roll?

    Roger P. O’Connor:

    Yes we do Mr. Justice Warren.

    Earl Warren:

    Then how does this get on your real property roll, I notice this exhibit says City of Detroit personal property assessment roll.

    Now that’s different, how do you put it on —

    Roger P. O’Connor:

    It’s very well taken Your Honor please —

    Earl Warren:

    — formally here and then put it no your real property.

    Roger P. O’Connor:

    For lack of a better placed put it, I would, you know, as the answer.

    We use this and noted on this roll, leased land building Act 189 PA 1953 to distinguish the properties on this roll from properties that would be on the general personal property assessment role and subject to the general personal property assessment taxes.

    We merely use this form and placed on this form that notation, and that notation also was included in the bill, tax bill that was sent to the lessee so that he was — he could not possibly under — by any stretch of imagination conclude that this was on the personal property assessment roll subject to general personal property assessment laws, but was subject to the provisions of Act 189, which merely taxes the use.

    Earl Warren:

    Well then is this a third kind of a roll, you have your real estate roll and you have your personal property tax roll and is this a third kind of tax roll?

    Roger P. O’Connor:

    You might call it that Your Honor.

    The act was — the act was new, and when we were starting to —

    Earl Warren:

    Well, I am not criticizing and I am just trying to find out but what I wanted to ask you because I should maybe have understood you, but I didn’t.

    I do want to know if these pieces of property that are on in this Exhibit 97 are included in your real property roll for the purpose of fixing your real property rate?

    Roger P. O’Connor:

    They are Your Honor.

    Earl Warren:

    They are, all right, that’s all.

    William J. Brennan, Jr.:

    Is this another way of getting out Mr. O’Connor let’s take the first one, this Borg-Warner, if Borg-Warner owned that property instead of leasing it, but actually owned it, it would have an assessment as the owner of $352,060, wouldn’t it?

    Roger P. O’Connor:

    Right.

    William J. Brennan, Jr.:

    And that would have a tax bill at the tax rate against the $352,000?

    Roger P. O’Connor:

    That’s correct.

    William J. Brennan, Jr.:

    And the tax bill would be a real estate tax bill wouldn’t it, if it owned the property?

    Roger P. O’Connor:

    With this notation —

    William J. Brennan, Jr.:

    No I am — assuming a different case, assuming it owned the property, not leased it but owned it, is that right?

    Roger P. O’Connor:

    That’s correct Mr. Justice —

    William J. Brennan, Jr.:

    It would get a real estate tax bill and an assessment of $352,000 at the local rate, is that so?

    Roger P. O’Connor:

    That’s correct.

    William J. Brennan, Jr.:

    Now because it’s the lessee of the property it gets what, a different kind of tax bill, a different color maybe or something?

    Roger P. O’Connor:

    I think frankly they are using the same, same bills that they’ve used in connection with general personal property tax.

    William J. Brennan, Jr.:

    Yeah so that —

    Roger P. O’Connor:

    What this notation contained on it —

    William J. Brennan, Jr.:

    It gets, it gets a — whatever it maybe called it’s still a tax bill and then the assessment of $352,060 at the local rates for 1954.

    Roger P. O’Connor:

    That’s correct Your Honor and of course as I have previously said the value of the United States property maybe used as a measure of the tax and the privilege under the cases that I have cited in my brief and I believe mentioned a short while ago.

    Hugo L. Black:

    Have you cited any of the interstate commerce cases which have held that immune interstate trade can have a tax levied against it measured by the total value of the interstate trade?

    Roger P. O’Connor:

    No Mr. Justice Black I have not, but I have cited Plummer versus Coler for example which is an inheritance or succession tax which uses the full value of the United States bonds, which were included in the estate as a measure of the tax of the inheritance or succession tax and the Court concluded — this Court concluded that that tax was not on the bonds of the United States which are — were exempt from taxation, but is on the privilege of inheritance or succession.

    Now in connection with the Home Insurance Company case, which was a New York case, that involved a franchise tax, measured by the dividends and capital stock of the corporation.

    Included in the capital stock of the corporation were United States bonds which of course were tax exempt.

    They were included as a measure, the value of those bonds along with other properties of the corporation were included as a measure of the tax on the franchise, which the Court said could be done.

    It was not a tax on the bonds but on the franchise, the privilege of the business of the company conducting business.

    Hugo L. Black:

    When you challenge the tax on the basis of it being excessive by reason of the way it’s measured or the only challenge to it is based on immunity?

    Roger P. O’Connor:

    The only challenge is based on immunity.

    Felix Frankfurter:

    Because the argument is, it’s like Miller and Milwaukee, now what do you do with that?

    Roger P. O’Connor:

    Well, Miller versus Milwaukee if Your Honor please the tax the — Miller owned dividends in a Milwaukee corporation.

    The Wisconsin statute provided for a tax on everything except United States bonds.

    They were accepted from the privilege tax from that case in measuring the privilege tax.

    When the dividends were paid out to Mr. Miller, the stockholder, the Wisconsin statute further provided that he should be taxed on those dividends only to the extent of the United States bonds, the value of the United States bonds and the Court held, and rightfully so in that case if Your Honors please, that that statute was specifically aimed at the United States bonds.

    Now of course that case did not — well as I recall a franchise or privilege tax.

    Roger P. O’Connor:

    Yes the Miller case did not involve a franchise or privilege tax or but an income tax.

    Now Macallen versus Massachusetts which government counsel cite in their brief as controlling of the situation, the statute accepted interest from United States bonds and determined that income for purposes of measuring the franchise tax on domestic corporations.

    The statute was later amended to include tax exempt securities in the measure of the franchise tax.

    So that amendment was specifically aimed at the United States bonds.

    Now the Court —

    Felix Frankfurter:

    Aren’t you here specifically aiming at government derived property interest, a government derived interest?

    Roger P. O’Connor:

    Yes.

    Felix Frankfurter:

    Does it make it any less so that you also cover some other exemption?

    Does that change the character of the general proposition of Miller against Milwaukee, namely that if you want to bring that pigeon down, you can’t do it, it doesn’t make a difference whether you bring the pigeon down from front or back?

    Roger P. O’Connor:

    That’s correct Your Honor if the —

    Felix Frankfurter:

    That’s the argument, isn’t it?

    Roger P. O’Connor:

    If the statute is aimed at the United States bonds and is not specifically, then it’s an invalid tax.

    Now of course in our case we contend that it is not aimed at the United States —

    Felix Frankfurter:

    Because you also hit other pigeons.

    Roger P. O’Connor:

    Pardon?

    Felix Frankfurter:

    Because you also hit the exemptions of Michigan (Inaudible)

    Roger P. O’Connor:

    That’s right.

    Hugo L. Black:

    And religious institutions.

    Roger P. O’Connor:

    That’s correct Mr. Justice Black.

    Hugo L. Black:

    So it gets down to a question largely on that point, does it not, of whether there is a discriminatory classification?

    Roger P. O’Connor:

    That’s very true.

    In Carmichael versus Southern Coal & Coke Company which I’ve cited at page 28 of my brief and from which I quote says this in connection with the tax and classes and with reference to exemptions, there are exemptions provided in this Act, 189 which I will later discuss.

    Carmichael versus Southern Coal Company decided by this Court in 1937, and I quote therefrom as follows.

    “It is inherent in the exercise of the power to tax that a state be free to select the subjects of taxation and to grant exemptions.

    Neither Due Process nor Equal Protection imposes upon a state any rigid rule of equality of taxation.

    This Court has repeatedly held that inequalities which result from a singling out of one particular class for taxation or exemptions infringe no constitutional limitation, citing many cases.

    Like considerations govern exemptions from the operation of a tax imposed upon the members of the class.

    A legislature is not bound to tax every member of a class or not.

    It may make distinctions of degree, having a rational basis and when subjected to judicial scrutiny, they must be presumed to rest on that basis if there is any conceivable state of facts which would support it.

    Hugo L. Black:

    Are there any exemptions in your statute?

    Roger P. O’Connor:

    Pardon?

    Hugo L. Black:

    Are there any exemptions in your statute that seek out any members of the particular class that rent tax immune property?

    Roger P. O’Connor:

    A property of any state —

    Hugo L. Black:

    It would include — is that a complete classification?

    Roger P. O’Connor:

    A property of any state supported education institution is one of the exemptions in Act 189.

    Hugo L. Black:

    You have one.

    Roger P. O’Connor:

    Yes, there are two others and the two are these, where the use is by way of a concession in or relative to use of a public airport, park, market, fairground or other similar property, which is available to the use of the general public and one more.

    In the case of federal property for which payments are made in lieu of taxes in amounts equivalent to taxes which might otherwise be a lawfully assessed.

    Those provisions appear I believe in Section 1 of Act 189.

    Felix Frankfurter:

    Suppose Mr. O’ Connor instead of this compendious provision, what’s the number of this statute 104?

    Roger P. O’Connor:

    189.

    Felix Frankfurter:

    189, suppose instead of in the form — suppose instead of in the form in which we have it, Section 1 said all leaseholds from government immune, federal government immune properties, shall be assessed on the value of the property for the privilege of having such a leasehold.

    Section 2, all leaseholds that were immune from taxation, because owned by the State of Michigan shall be assessed, shall be taxed to the full value of such immunized state property.

    Section 3, all property derived and owned by cities on lease, et cetera in Section 4, all property of charitable religious organizations enjoying immunity as such, all of the statutes are like that, four sections, putting in all the categories of property as such exempt for taxing the privilege of having a leasehold thereof.

    Would you be making the same argument?

    Roger P. O’Connor:

    I would say this, if Your Honor please?

    As we know and as government counsel has pointed out, Section 6 of the Military Leasing Act of 1947 provides for the taxation of the lessee’s interest, as far as local taxing agencies are concerned.

    Now, I think we would have that right regardless of that provision, but we say here, we are not taxing the lessee’s interest.

    If we tax the lessee’s interest, then we would, under the language in the Allegheny case, be required to evaluate the lessee’s interest in property in accordance with regularly accepted methods of appraisal such as taking into consideration then term of the lease, the termination provisions in the lease, the amount of rent and so forth.

    Now we obviously didn’t do that.

    We based this tax upon the true cash value of the property.

    Furthermore, if we were to tax the lessee’s interest, rather than the privilege of using the property, the legislature could never have accomplished the result intended, namely to eliminate a discrimination between lessees of private and public property and put them on an equal footing for the reason that, the lessee’s interest would only amount to an infinitesimal part of the money that can be received in the fashion the legislature tax provided in this Act.

    Now as I say the legislature could have imposed a much larger sum.

    The fact that it is equal to the tax on the property, does not make it a tax on the property because again as I say, a specific tax and of course a specific tax as Your Honors know is nothing but an excise tax and examples of which are occupation taxes, privilege taxes and license taxes.

    Those taxes were placed upon the lessee’s use of the property in connection with business conducted for profit, to put the lessees on an equal basis, lessees of private or public property.

    For example, corporation A coming into the State of Michigan desires to lease property, defines that I have a parcel of real estate, a private person, and it finds the government has a parcel of real estate.

    Both parcels meet their specifications to perfection, which parcel will this corporation rent, certainly not mine because they know if they rent mine, they are going to have to pay taxes either in the amount of the rent charged or in addition to the rent charged in consideration over reduction in that rent and in that respect it’s very discriminatory and it was that very thing that the legislature sought to eliminate in passing this Act.

    Now Flint versus Stone Tracy was a situation where the federal government sought to tax franchises of corporations in various states based upon and measured by the income of the corporation, including municipally tax exempt bonds.

    Now the federal government did not grant those franchises.

    If the federal government can do that in connection with state franchises not granted by it, then certainly the states ought to be able to tax a privilege of using which arises out of an instrument namely the lease of the federal government.

    Roger P. O’Connor:

    The fact that the privilege of using the property is exercised within the jurisdiction of the state of Michigan is sufficient in and of itself alone to permit the state to tax, and I have covered that point in my brief wherein I say in connection with Home Insurance Company case which quotes from Savings versus (Inaudible) nothing can be more certain in legal decision and that the privileges and franchises of a private corporation of all trades and avocations by which the citizens acquire a livelihood maybe taxed by a state for the support of the state government.

    Authority to that affect resides in the state independent of the federal government and is wholly unaffected by the fact that the corporation or individual has or has not made an investment in federal securities.

    One other point I would like to raise, counsel for the government refers the Senate Committee hearings and refers to Section 6 of the Military Leasing Act, we say it does not apply because we are not taxing the lessee’s interest.

    The Military Leasing Act does not prohibit the taxing of a privilege of using the property.

    There was no discussions in the Senate Committee hearings in connections with the privilege of using the property and while the army and navy as I gather from a reading of the Senate Report, were both interested in seeing that properties leased by the government for commercial purposes should be taxed in order to eliminate that discrimination that was ever present between public and private lessees, they were not able to arrive at any legal basis for doing it.

    As one of the senators I recall said, when it was suggested that you transfer title of the government to the lessee during the term of the lease, one of the senators said I don’t think that would be constitutional because you cannot place ownership in a person that actually doesn’t own the property by a congressional act, therefore they forgot it, decided to leave it to general legislation but as a last measure passed Section 6 of the Military Leasing Act which only infinitesimally helps in the situation to avoid discrimination.

    It doesn’t, because you don’t get the same results as you would from a lessee of private property.

    I see my time is up if Your Honors please, Mr. Street will finish.

    Earl Warren:

    Mr. Street.

    Harold M. Street:

    Your Honor, please the Court?

    I don’t want labor this too long, but there are a few issues that are unique to a particular situation being Continental Motors Corporation located in Muskegon, County; and a few points that I would like to attempt to clarify.

    It’s quite apparent from reading opposing counsel’s brief that they refuse to make a distinction between a property tax and a privilege tax, refuse to concede that this might conceivably be a privilege tax rather that a property tax and treat it that way throughout in both their original brief and their reply brief.

    I might say our reply brief, the reply brief was only received yesterday, I will try to cover it in oral argument to save filing a reply to the reply if we can do so.

    I think it will clarify the picture somewhat if we point out some of the instances in which Act 189 does not apply.

    Post office is a prime example.

    It could never apply to a post office.

    There is so much made in the footnote of the reply brief that it might apply to the Pentagon building, that Virginia might tax the Secretary for occupying the Pentagon building.

    Of course that could never happen under one Act 189 and I don’t think it could happen under any other the very simple reason he is not a private individual or corporation who is using the property in connection with a business conducted for profit.

    So the same is of course true of an army camp, marine base; any installation of a sort that’s not used for profit it could never apply.

    Some reference has been made to forest preserves, grazing lands, I might point out too, if those are public lands, open to the public in the nature of the park and the government grants a privilege by way of a concession to someone to graze those lands, it again would not come within the Act, because of the express exception as long as that land is again open to use by the public and that’s an important feature of the Act.

    We have a forest preserve in Michigan and perhaps we can explain this a little more clearly as to just what might happen.

    The (Inaudible) Forest Preserve is a short distance north of Muskegon.

    It is not taxable.

    It places some burdens upon our local government but certainly not unreasonable burdens and we don’t care to tax it.

    But what if the government should lease that land to be timbered?

    We know what happens in Michigan well enough, when such leases are made, a large mill is brought in that brings in hundreds of employees and they bring their families, they must be housed, their children must be schooled, roads must be built and fire protection afforded.

    Then we have an entirely different situation.

    I say that private entrepreneur, who is harvesting the trees from that land for profit should be taxed on his privilege and this Court has held that he maybe taxed.

    I’d like to refer to Wilson versus Cook, where there was an Arkansas statute which imposed a privilege on anyone engaged in the business of severing from the soil for commercial purposes, natural resources including timber.

    Now in this particular instance, it was a forest preserve.

    Harold M. Street:

    The trees belong to the United States Government as well as the land.

    This man was given a contract to sever the trees.

    He enjoyed a privilege granted exclusively by the federal government to harvest these trees yet a severance tax imposed by the state of Arkansas was upheld by this Court on the basis of James versus Dravo and other cases.

    Act 189 would affect substantially the same thing in this case, if these forest preserves were leased for that purpose and it’s only just that it should do so.

    There is some claim that Continental stands in a little different status here than Borg-Warner, because Borg-Warner is manufacturing automobile parts for profit, while Continental is confined to manufacturing tank engines for the army corps.

    There is some difference on the surface, there it’s true.

    You want to keep in mind however that Continental is competition Chrysler, General Motors and Ford who also like to make engines and who are at a distinct disadvantage in competing with Continental.

    We don’t mind that in Muskegon, but I say in the long-run anything that removes this spur of free competition is going to work detrimental to this government who may think temporarily they are getting a bargain by giving Continental the plant, rent free and tax free.

    Claim is also made the Continental because of this unusual situation is an agent or instrumentality of the government then they sure of course should be tax exempt.

    That situation I think is covered in the case cited in my brief of Henneford versus Silas Mason and I don’t know if I need to elaborate it further here.

    That same contention was made in lower court and ultimately abandoned on appeal, but what if we did even for the sake argument concede that Continental in this particular case is an agent or instrumentality of the federal government?

    Does it afford an immunity under the decisions of this Court?

    I might point out that in United States versus California which is of course familiar to you and is included in an ALR citation on my brief.

    In referring to this restriction or immunity says it’s equally a restriction on taxation by either of the instrumentalities of the other.

    The state instrumentalities supposedly enjoy the same privilege.

    But what have been some of the decisions?

    The early case of South Carolina followed up later by Ohio verus Helvering where the state owned liquor, sold it through its own dispensaries.

    This Court imposed a privilege tax upon the sale of that liquor and held it valid.

    The Court used this rather colorful language, when the state enters the marketplace seeking customers, it divests itself of its quasi-sovereignty pro tanto.

    Even more closely at home when the State of New York owning the Saratoga Springs attempted to sell water through its own public commission, the federal government imposed a tax of $0.02 per gallon upon the water, and this Court sustained the tax saying that it is clear that where a state engages in a business in competition with private enterprise, it enjoys no special privilege or immunity.

    And even closer to home is Allen versus University System where Georgia setup a state commission to operate the University of Georgia and Georgia Tech and they were held liable for their admission tax to the football games, though conceding that, that was a part of an educational function and that education was a proper function of the state, yet that tax was imposed and sustained.

    I don’t believe first that Continental is an agent or instrumentality of the federal government, but if so because of its peculiar activity, I don’t believe it’s entitled to any immunity particularly.

    Now much is made here of the measure of tax.

    In fact it’s about the only argument made against it, saying since it’s measured on the basis of the value of the property, that is therefore amounts to a tax on the property itself.

    How could such a tax be measured and really be fair and just?

    It is suggested that perhaps if it were measured on something like oh we’ll say in the case about the severance of trees on a board foot basis or in the Esso case where you sustained a tax of $0.06 per gallon on Esso for storing government owned gasoline, that perhaps if it were measured by gallons or something of that sort, it would be a different picture and wouldn’t look like a tax on the property.

    But how can it be done?

    Acres is the only thing that might come to mind as being some standard of that sort but how would Acres apply to 3.5 acres upon which this $8 million plant rests in Muskegon County, why a tax of $10,000 per acre clearly would be reasonable?

    But there is for instance say 20 acre tract adjoining that’s used as nothing but a testing ground, which is virtually vacant land, that land wouldn’t be worth $200 an acre.

    And below that is a 3 acre parcel used to dump waste that’s not worth $10 an acre, certainly you cannot arrive at a fair and just tax on any other basis than — the measure that the State of Michigan sought it to imply here.

    Harold M. Street:

    Counsel’s reply brief is directed at two things, the Military Leasing Act and the other.

    He has repeated over and over again that the uses included in the privilege I mean rather that the uses included in the lease, the privilege of uses included in the lease whether the lease be one year, five years or ten, the privilege of use is also included in ownership you want to keep in mind and it has been held that we can segregate the faggots and attach them separately.

    The burden of the argument there is that since the privilege of use is necessarily included within a lease or even ownership, it can never be taxed up to the same amount as a tax that might be imposed because of ownership or because of leasehold interest viewing it as a property right.

    Now that simply is not the case.

    In fact it maybe taxed far in excess of that amount.

    Just look at the gasoline stored by Esso Standard Oil for which they paid $0.06 a gallon for the privilege of storage.

    Now if Esso had owned that gasoline themselves and had it in their own tanks, they wouldn’t have been subject to the tax because they would not have been engaged in the business of storing gasoline.

    They would have paid the regular ad valorem personal property tax by virtue of their ownership at the end of the year.

    What would it have amounted to, possibly 10, 15 mills.

    Six mills on gasoline worth possibly $0.30 or 0.35 a gallon, it’s somewhere around a 150 mills.

    Now a man who owns furs and has them in a warehouse will pay an ad valorem personal property tax of a few mills on it each year.

    What if he elects to exercise his privilege which is included in his privilege of ownership of sale during a year, immediately a sales tax in Michigan of 3% or 30 mills is imposed.

    And his troubles are only beginning because the federal government then imposes a 10% tax which is a 100 mills because he exercised his privilege of sale which is included within his ownership, so that the tax upon a privilege may far exceed any tax that can be imposed because of ownership alone.

    In this instance it’s merely made equal.

    The interesting part to me about this long reference to the Military Leasing Act lies in the debate that it is recognized that a serious injustice and inequality exists.

    The long years of debate that had gone on in the Senate and in Congress results really in nothing.

    We’ve labeled a mountain and come up with a mole hill here.

    They all say it’s a serious problem.

    It’s unjust.

    Something ought to be done, but what should be done?

    What can we do that will bring about a fair and just solution?

    The inference is they have virtually given up except for one thing they’re going to resort to a federal dole in the payments, in what they call payments in lieu of taxes.

    Now some reference has been made to the fact that the school district I represent has been forced to accept some of those.

    It’s immaterial here.

    It did not apply in the year 1940 – ’54 and it did not receive any for that year.

    There has been a temporary act passed since which expires in ’58 which for hire purposes will expire next year because hire tax for ’57 isn’t payable until ’58.

    We may have one more year under that act but we don’t know whether it would be extended or not.

    I think we’ll all agree that this federal dole is certainly an unsatisfactory solution in any event.

    Felix Frankfurter:

    Is this the general act that expires next year?

    Harold M. Street:

    Yeah, it’s general, quite broad in its scope at least it covers the Continental Plant.

    Felix Frankfurter:

    Pardon me.

    Harold M. Street:

    At least it covers the Continental Plant.

    Felix Frankfurter:

    What is the generality?

    Harold M. Street:

    In this particular act, as I recall, it’s land that formally belonged to the Reconstruction Finance Corporation and then fell into government hand –-

    Felix Frankfurter:

    It’s all related to reconstruction finance?

    Harold M. Street:

    This particular act, as I recall it, it applies in hire case, there are other acts that do apply but they don’t apply in all instances such as here in ’54 there was no applicable act.

    Your Honors –-

    Felix Frankfurter:

    The presence of the applicable acts for leaseholds made today this year, are they covered by acts or are they all covered?

    Harold M. Street:

    I only suppose – I know there’s Military Leasing Act and that of course would catch a small tax with a lease of one year or returnable at will and so on.

    The point I want to make here – well here was the main problem, as I had pointed out, you’ll notice in Senate debate.

    One senator said, “Well let’s transfer title over to these people and with a recapture clause, that will make it taxable and that will solve our problem.”

    Someone pointed out the situation and it was referred to here.

    The government may want to reserve a large part of that plant for storage and on the lease we’ll say a third.

    Well the lessee if he is going to get taxed on the whole property, will like that.

    Act 189 takes care of that, it’s only the property actually used, that’s made available to and actually used.

    Now there was inference made that perhaps in the Borg-Warner case, space used for storage was included in the assessment.

    If so it was by error and could have been corrected, had it been called to the attention of the assessing officers I’m sure because that portion of the plant would not be used.

    Another problem what confronted them, what we might refer to as white elephant plant.

    Here is a big plant that costs millions of dollars to bill, we want it as a standby facility, it does not have too much value for commercial use and yet if we transfer title over, it will be taxable value.

    That’s taken care of too in this sort of situation.

    Let’s look at Continental Plant a value of $8 million cost.

    It’s on the assessment rolls at 3 million.

    Our assessor recognizes and must assess property in the state Michigan on the basis of its present market value what it will bring on the market today, which equalizes something and copes with the problem that I say cannot be solved on a federal level.

    Now the whole attitude seems to have been here by opposing counsel will have — the United States Congress has coped with this matter for a great many years and has not received a – obtained a solution which they might do sometime in the future but in the meantime let’s get along with this dole or something we have done everything that can be done.

    Now with all due respect to the United States Congress I don’t believe that they have a monopoly on wisdom.

    I think there’s a little residual of wisdom left in the Michigan state legislature.

    And instead of debating on ad infinitum, the Michigan legislature has done something and the unique part of it here is no one comes here and says that this act is unfair to the United States government, that it’s unfair to Continental Motors or to Borg-Warner or that it is unfair to anyone else.

    Most of the lower courts commented on the inherent justice and desirability of the act and no one has pointed out in any inherent evil.

    Some comment has been made that the act is a little inartistic and not sophisticated.

    I think that’s one of its best merits.

    Harold M. Street:

    It’s a very simple act.

    We make use of existing machinery that’s already in operation.

    We don’t have to set up a bureau with a lot of new elaborate employees to administer this act.

    It’s simple in its operation, it’s clear, it’s understand – and it’s equitable in its operation.

    Your Honor all we ask is this Court consider that in view of the reply brief, the action taken there, that it’s entirely possible that the legislature of the State of Michigan in using this residue of wisdom that’s left to them have solved a problem, at least on a local level, which I submit cannot be solved on a federal level.

    Thank you Your Honor.

    Earl Warren:

    Mr. Street in your time to prove Muskegon, how do you assess this property?

    Do you assess it as personal property or does it go on the real property roll as we were told?

    Harold M. Street:

    This one slipped on the real property roll.

    Earl Warren:

    Beg your pardon?

    Harold M. Street:

    This one got on the real property roll.

    It was pointed this was a new Act, the assessors didn’t know just what to do with it.

    In our township this property had been carried on the assessment roll right along you see until it was ultimately declared surplus and went through various channels and then in 1953 the year this Act became effective went to the United States as such.

    So the assessor already had it on his roll, so he simply went ahead and made an assessed value and set it down in this instance on the real property roll.

    It seems to me — I don’t see any substance to the difference, technically there probably should be a third roll setup for this type of property I believe.

    Earl Warren:

    Thank you.

    William J. Brennan, Jr.:

    May I ask Mr. Street.

    I gather in striking the tax rate, you aggregate both real property assessments and personal property tax assessments, don’t you?

    Harold M. Street:

    This Act does not apply to personal property here.

    William J. Brennan, Jr.:

    Well no, I’m speaking generally.

    In striking the local tax rate, you have a uniform rate that applies both to real estate assessments and personal property tax assessments?

    Harold M. Street:

    It’s the mechanics, the way it’s done in Michigan is the assessor goes out and he evaluates all the property.

    William J. Brennan, Jr.:

    Real or personal?

    Harold M. Street:

    Real or personal, yes and then finds out what the school must, the county must have and so on and then it decides what millage must be applied to that valuation to produce the amount of money needed, that’s the mechanics of it.

    William J. Brennan, Jr.:

    So that you have the same rate, the consequence is you get the same rate, whether the tax is on personal property or on real property.

    Harold M. Street:

    Yes, that is correct.

    William J. Brennan, Jr.:

    It’s the same rate and then arriving at the rate you aggregate the assessments against real property and the assessments against personal property all together.

    Harold M. Street:

    We lump them all together, yes.

    William J. Brennan, Jr.:

    And then wipe the rates from that.

    Harold M. Street:

    That’s correct.

    William J. Brennan, Jr.:

    So it doesn’t practically make any difference whether this assessment is listed on a personal property tax roll or real estate tax roll or otherwise, does it?

    Harold M. Street:

    Not applied (Inaudible) to go on the third tax rule, it all comes out the same place, yes.

    Felix Frankfurter:

    Mr. Street you said several times this can’t be dealt with by Congress, it must be dealt with locally.

    Now if that’s so that for me at least could have a very important bearing on striking the adjustment between the state and federal authority, why do you say that?

    Harold M. Street:

    One, where the difficulty is pointed out, about the only way it could be done on a federal level would be to transfer this title back with a recapture clause.

    Felix Frankfurter:

    But just an authorization by Congress so that each state do what Michigan tried to do would do it, wouldn’t it?

    Harold M. Street:

    If they said that — well you would get the same result though.

    Then you would be — you will say de-immunizing all of these plants.

    In some instances —

    Felix Frankfurter:

    I mean it could exactly what it does about taxing bank staff, national bank staff.

    Harold M. Street:

    Oh it could, but I don’t believe it would be a satisfactory —

    Felix Frankfurter:

    Well why not?

    Harold M. Street:

    Well if these difficulties like your white elephant plants that they fear or a plant where the government wants to retain portions of it, well say for storage and future use.

    If they de-immunize the whole thing so to speak it all becomes taxable, which maybe unjust to the federal government in certain ways.

    Felix Frankfurter:

    Why can’t they make the same qualifications that you make, I don’t follow?

    Harold M. Street:

    It’s possible if they would say used in connection with the business conducted for profit such portions.

    If it could — federal government adopted in substance 189 they might solve it Your Honor on the same level.

    Thank you.

    Earl Warren:

    Mr. Fisher.

    Roger D. Fisher:

    Mr. Chief Justice, may it please the Court?

    The counsel for Muskegon Mr. Street has just agreed with us that the privilege of use is one of the bundles of rights that represent a property right.

    He has said that Michigan can take this one right of the property rights, the right to use and occupy, and they can tax that at the full value of the government’s property.

    I believe in agreeing that right to use, privilege of use is one of the property rights, is the only property right that the lessee has.

    The extent of his right is measured by the lease.

    He is agreeing that the lessee’s interest and the privilege of use are just the same thing, not only in substance, but analytically.

    There is no difference.

    I suggest that to my main argument that the privilege of use of lessee, the tax against property are the lessee’s interest which they have.

    Congress, in the Military Leasing Act, said you can tax the value of the lessee’s interest.

    We believe that certainly applies in the Borg-Warner case.

    The Supreme Court, this Court has for years gone through and considered the ramifications of federal immunity.

    Roger D. Fisher:

    It is a major substantive problem with which this Court has wrestled time and again.

    In no case and here I refer to Dravo, as well as the cases that followed it, in no case was it suggested that the full value of government owned property is subject to state taxation, provided the state changes the words.

    Felix Frankfurter:

    So it all gets down then to amounts, does it, because you must accept you rely on — you talk about Macallen, I think the light is taken out of Macallen by educational film?

    Roger D. Fisher:

    I’ll a heavier foot on Miller and Milwaukee on that.

    Here the — that’s not the only thing, the measure is not the only thing bad about this tax.

    We believe this tax is directed aimed at federal property.

    Now they went through and showed there were four pieces of property in Detroit that has been assessed under this statute.

    98% of the valuation there listed is federally owned property.

    They have carried two pieces of property, one was $500 and one about $12,000.

    Felix Frankfurter:

    That’s because the facts found so, that doesn’t prove sinister purpose.

    Roger D. Fisher:

    It doesn’t prove sinister purpose.

    It proves that the major substantive effect of this.

    Now the statute exempts all state aided educational institutions.

    They can lease out their property to the defense plant or to anyone else for profit and that lessee is not taxed.

    There is no tax on him, he is exempt, he gets the privilege of the state, although he is working for profit, everything else, this tax has been whittled down by the cutting out — the major form of statement exempt institutions which do these properties, they educate large educational institutions and they — I think the statute is very much like the one you suggested Your Honor where they said the federal property here, we will offer tax, a little state property, we get another little pigeon in this flock of ducks.

    Felix Frankfurter:

    Well little, why do you say little?

    Suppose there were in Detroit religious institutions (Inaudible) like the Trinity Church in New York with vast holding and all of it exempt, would that change the legal problem?

    Roger D. Fisher:

    It would change one aspect of the problem, it would remove the fact that this is — we think it is directed primarily that of profit.

    Felix Frankfurter:

    But then you must — then it does turn or the question of directive tort is decisive and you say derived from the fact that the bulk of the property which feels this tax happens to be or is, not to put in a question begging words, is federally exempt.

    You prove sinister purpose, do you prove design, this record against federal property otherwise and the fact that a lot of the property is federally exempt.

    Roger D. Fisher:

    No, that was relied upon in the Macallen case explicitly by Justice Holmes speaking for the Court saying, certainly that one can be — is the most conspicuous instance of exemption at the present time, that statute too covered the state ones and was much less direct.

    Felix Frankfurter:

    Well they first had a statute which tried to reach it and then it didn’t and — but I put to you —

    Roger D. Fisher:

    The state —

    Felix Frankfurter:

    — I put it to you that this isn’t the Miller Milwaukee.

    Roger D. Fisher:

    No.

    Felix Frankfurter:

    And I put it to you that Macallen really is — is hardly breathing anymore.

    Roger D. Fisher:

    We do not rely exclusively on that.

    The tax, the problem with which Congress and the Court have dealt is a major substantive problem.

    The burden on the locality is enormous, that burden is the same whether it’s an air base, which has a lot of people going in there, whether it’s a government run plant such as atomic energy plants might be run exclusively by government employees and non-taxable, the burden is the same whether a not for profit corporation moves in or whether a for profit corporation moves in.

    Now the weapon which Michigan is trying to deal with this substantive problem is saying that by changing six words, ten words, whatever the left statute is, by calling this a privilege tax, using a name that has been favored as a different kind of tax, we can take a property interest, the right to use this property, the lessee’s property — we can take the leasehold interest and we will say we are taxing that privilege of the lessee and then we, the whole federal immunity of government property is defeated.

    Roger D. Fisher:

    The substantive problem is just really it turns out they say, a matter of form.

    For a 100 years we thought that federal property is immune, but it turned out that states didn’t know they could call a property interest a — call a property interest a privilege and then measure the privilege by the whole property.

    In Allegheny they were taxing part of the property, the real estate measured by the whole property.

    This Court explicitly said you cannot do that.

    Even if you can tax the property you can tax, you cannot include in that property interest, the property interest of the United States.

    You cannot measure the value of —

    Hugo L. Black:

    Do you believe that?

    Roger D. Fisher:

    I believe the language of the court although not necessarily the holding —

    Hugo L. Black:

    I want to reserve your point of the taxation of — the value of the leasehold income.

    Roger D. Fisher:

    There you are dealing not with the leased interest in the government’s machinery that was reserved, but real estate tax in Allegheny was on Mesta’s plant measured by — Mesta’s plant plus the government machinery.

    The Court said the state has made no effort to segregate Mesta’s interest in taxing.

    The full value of the property, including the whole ownership interest as well as whatever value proper appraisal might attribute to the leasehold, was included in Mesta’s assessment.

    It is contented the whole value of the property maybe reached since the impact of the tax is upon Mesta.

    We think, however, that the government’s property interest are not taxable either to it or to its bailee.

    They then went on referring to the fact that beneficial personal use of property maybe taxed and then the next sentence said that neither he, meaning the contractor nor the government can be taxed for the government’s property interest.

    Now I do not believe that the reasoning of that case can stand up if this statute in Michigan is upheld.

    Hugo L. Black:

    It seems to me there’s a difference I concur in result (Inaudible) the state made no effort to segregate the two, here it maybe aborted effort, but the state has made an effort to tax nothing but (Inaudible) concerned the value of the leasehold in that case.

    Now it has fixed the value (Inaudible) raise of tax rate and one value of property, but do you say that fixing, having one factor value of the property — deprived it of complete validity and (Inaudible).

    Suppose instead of fixing it using those two factors, it simply said whereas the real estate tax without saying, real estate tax of 2% we fix the tax on leasehold interest as 10% would that been unconstitutional?

    Supposing now that the government was not in, is there anything wrong with that?

    Roger D. Fisher:

    There is nothing wrong with a tax of 10% on leasehold interest as such I suppose if it is fairly applied across the board to lessees of property and it appears it does not merely meant and in substance effect and operation a way of getting the real estate tax.

    I think that the tax immunity of the United States in this property which is government owned is a matter of a substance.

    I think that there are the tax of all federally owned property was subject to normal tax could be about $2 billion a year.

    If this were passed out it would be a bonanza to some communities which have no real services to the federally owned property they —

    Hugo L. Black:

    Would that affect this lease, don’t you have this problem here, what you argue now seems to me would be a question of classification not the question of the other, unless we can just simply infer from the fact that this tax be levied on property leased from government, federal or state or religious, where they have religious immunity, unless we can infer from that there is an invidious purpose to tax the property of the government.

    I agree with you, if we look at sum, but are you saying that looking in those circumstances we must reach the conclusion that this is a tax on government property and if so what goes with the Michigan tax law insofar as the attempt to tax property leasehold value of property owned by the state and by religious institutions?

    Roger D. Fisher:

    Well let’s see if I can kind of answer that Your Honor.

    One argument which is this tax is plainly designed to offset tax immunity.

    Its conceited purpose is to offset the tax immunity of tax exempt property.

    The —

    Felix Frankfurter:

    That’s the goal across the board —

    Roger D. Fisher:

    This is —

    Felix Frankfurter:

    That’s the whole board —

    Roger D. Fisher:

    The purpose —

    Felix Frankfurter:

    — of all tax exempt properties.

    Roger D. Fisher:

    Purpose is to remove the tax exemption of tax exempt properties.

    I say that Michigan has full power to remove the tax exemption of property which it makes tax exempt, but that by doing that it does not, because it decides to remove its own immunity which it creates, it might not have any tax immunity, it might decide not to have any local state laws, because it decides to remove its immunity does not give it a privilege of making an offsetting compensatory tax aimed at offsetting the federal tax immunity.

    And however much of Michigan’s tax immunity they offset or decide to cancel out or not to cancel out, they are aiming a portion of their shot is solely for the tax exempt federal property and they can do what they want with Michigan but they cannot have a statute which grabs federal tax immune property and says, we have now got a new formula of words, it turns out we can remove this property because it is tax exempt.

    We can tax — the incidence of the tax falls because the property is tax exempt.

    Felix Frankfurter:

    That is why they are taxing.

    Roger D. Fisher:

    That’s why they are —

    Felix Frankfurter:

    And that’s why they are taxing.

    In order to equalize taxation of owners of property or manufacturers of property, they want to have every owner who enjoys a certain privilege, a certain source of power a part of his running expenses of the government.

    And they take care of all the other fellows by one form of taxation and they say you have a certain, you are given a certain power, you may have been given it by a certificate to have a water powered plant, you may have been given it because somebody left you some money and you have an estate tax or you may have been given it by the United States government and that is what we call in the law generally a license tax, a privilege tax.

    It isn’t any to less privilege because (Inaudible) is the grant holder of the privilege and you can’t cut under with reference to this particular type of privilege, the whole rate division of the tax law between taxing property because you own property and taxing — in fact imposing a tax on a person, because all taxation falls on a person, it doesn’t fall on the unanimous thing, it falls on person, because he is in possession of certain prerogative powers.

    Roger D. Fisher:

    Your Honor the privilege here is a property interest.

    The particular privilege which they call a privilege is not like being a corporation.

    It’s not like engaging in a business of storing gasoline.

    The particular privilege they have picked out as a privilege tax is one of the property interests in the government property.

    It is — I’ll come back with the Secretary of Defense.

    It’s a different thing to tax the Pentagon.

    It would be something else to tax him for the privilege of using the Pentagon and I would say that that he is paid a salary to use it, he is supposed — there is no difference in private person.

    He is doing government business on government property for a pay and he has the privilege of occupying that property.

    This is the same thing that Continental is doing in the government plant in Muskegon.

    They are working for pay on government property doing the government’s business of building tank engines.

    Now if — I agree there is a distinction between privilege and property taxes, I do not – we submit we cannot take a property interest, a right of use, an occupancy of government property and call that privilege by just calling it a privilege.

    Felix Frankfurter:

    Mr. Fisher the Secretary of Defense or the postmaster in Detroit is an instrumentality of the government, but ever since Dravo you can no longer speak of any fellow who does work for the government of United States, an instrumentality.

    Roger D. Fisher:

    The substantive problem, — there are distinctions whether we paid put Oakridge on salaries or had a private contractor run it, the substantive problem is here that government plans have a major impact on local communities, a tremendous impact and there is appreciable problem.

    This problem is one with which Congress can deal because it alone can waive immunity of full government property where it caused an impact and of plants in which they have divided interest.

    It has expressly stated that the lessees maybe taxed for their interest up to the value of the leasehold interest.

    Roger D. Fisher:

    We believe that they can be tax no further.

    Hugo L. Black:

    Let me ask you one other question excuse me, (Inaudible).

    Suppose the ones that disagree with you about this tax and think that this is a legitimate tax on a leasehold interest except your argument that we do not look into the words of the statute, we try to see just exactly how it functions, where does that put us in connection with the other two, other case if we accept the idea we do not look at labels, we do not look at names, but their taxes (Inaudible) the same preference in the State of Michigan as this one does, would it be consistent in your way of thinking on these cases to hold this tax valid and hold the others invalid?

    Roger D. Fisher:

    Yes, I — even if Your Honors disagree with position we have presenting in this case, in these two cases, the Continental and Borg-Warner, I would believe that as to the Michigan personal property ad valorem tax on aircraft manufacturing in process and materials, that there the tax is a — because of the property and there is no other instance that it falls on, it’s not because of the use of the property.

    You might say that both —

    Hugo L. Black:

    Just doing what you admonish us not to do here looking at the words that have been used (Inaudible) practically functions?

    Roger D. Fisher:

    The — it’s my position that you — my position is that you should take a look at the substantive problem and deal with the fact for — since at least for a long time this Court had held that federally owned property which is really officially owned by the United States cannot be taxed.

    I believe that you should say that a tax which is called a tax on that property on the first Michigan cases we were talking about the Murray case is clearly that once we find if you agree with us that the government at substantial beneficial ownership interest in those parts we have power to control over them.

    I think you should come to this case and say that they have taken a property interest, the right to use, which is one of the fundamental rights of the property and they have taken this property interest and said we will tax this property interest, which the occupant has by the value the entire property and that is not an appropriate measure of the privilege which these people of the use they are having of it I’d say.

    You are taking property interest and taxing by the whole property so I’d say that – we say that they’re both bad.

    If you disagree in this case I think it’d be because of the line which Justice Frankfurter suggested that there is always been a distinction between a privilege tax and a property tax and it would be emphasizing the form that this is the tax on the right to use, the privilege of use and it would be because of that, that you would — might disagree with us in this case, but if you adopt to that rule, it is because of the form of the tax it is good, you could not then say that Detroit personal property tax could be well applied to the government property.

    Thank you Your Honor I am sorry to —

    Earl Warren:

    It’s alright.