District of Columbia v. Samuel Sussman, District of Columbia v. Arthur Investment Co., Inc.

352 F.2d 683, 122 U.S. App. D.C. 207, 1965 U.S. App. LEXIS 4801

• Court: Court of Appeals for the D.C. Circuit
• Decided: July 26, 1965
• Docket: 18276_1
• Status: Published

Opinions

McGOWAN, Circuit Judge:

These two cases present the same issue. It is this: When the Federal Government takes possession of real estate in the District of Columbia, may the condemnation court prorate the prior owner’s liability to the District for real estate taxes assessed the preceding July 1, with the effect of relieving the property of such taxation for that part of the year succeeding the seizure? We say no. In allowing the District Government’s appeals to reverse the District Court, we do not, however, see the issue in quite the same light as it has been presented to us by the parties. Our differences in this regard can become manifest only in the setting of the events of record and the respective contentions as to their legal consequences.

I

On July 26, 1963, the United States of America filed a complaint in condemnation and a declaration of taking in respect of Lot 814 in Square 379, owned by Samuel and Etta Sussman and located in the City of Washington. It simultaneously deposited in the registry of the court $200,000, representing its estimate of the just compensation required by the Fifth Amendment. As provided by law, the United States thereupon acquired the right to immediate possession of the property. On August 9, 1963, an order was entered directing the Clerk to draw a check to the Suss-mans for the deposited sum, but with a further direction that the check was to be delivered to a title company with instructions to apply its proceeds to, among other things, “the payment of all taxes and assessments, due or exigible on said real property at the date of said declaration of taking * * *,” with the balance to be paid to the Sussmans. They shortly thereafter moved the court for an order requiring the title company to pay to them the sum of $3,000, representing a portion of the proceeds which had been escrowed for payment of District real estate taxes assessed in that amount for the year beginning July 1, 1963. The District filed a memorandum in opposition to this motion, as did the United States, although counsel for the District assures us in his brief, without dissent from appellees, that the latter memorandum “is not pertinent to the issues raised on this appeal.”

After oral argument, the District Court filed, on October 1, 1963, a memorandum opinion in which it characterized the District’s position as “unfair and inequitable,” and stated its view to be that property owners “should not be responsible for taxes upon their property except for the period when it was under their control and when their properties were available for their use.” It directed the title company to withhold only 8.33 per cent of District property taxes assessed for the year beginning July 1, 1963, noting that this computation reflected the July 26, 1963, date of taking. It subsequently vacated its earlier order and entered a new one on October 16, 1963, the immediately relevant ordering provisions of which are set forth in the margin.¹ *The appeal before us is by the District from this order.²

II

A great deal of the argument before us was devoted to the question of whether taxes can be said to be “due,” within the meaning of the District Court’s original orders of distribution, when the payment dates preceding default have not yet arrived. Since the orders in question appear from the record to have been wholly vacated, this inquiry had a somewhat unreal aspect. The other arena of disputation was defined by the issue of whether, as of the date of taking, the District tax was a “lien” upon the property, the point of departure here also being whether a claim can be said to be a lien before the date upon which it must be paid. Our own approach has been to let the formulation of abstract legal issues wait upon a close look at the orders appealed from.

The orders do two things. They tell the escrow agent to pay to the District of Columbia only a prorated part of the taxes levied in respect of the year beginning July 1, 1963; and they direct the District of Columbia to accept those payments as being in full satisfaction and discharge of the taxes levied. A power in the courts to relieve against property taxes lawfully assessed under explicit legislative authority is, at the least, not a familiar weapon in the judicial arsenal; and in this context a clear Congressional dispensation must surely be an essential foundation for the action taken. Although we find no express reference to it anywhere in the proceedings in the District Court, we assume from the court’s use in its opinion of the phrase “unfair and inequitable” that it was resting upon an authority conceived by it to reside in Section 16-628, D.C.Code (1961). This statute, which is a part of the scheme provided by Congress for the condemning of land in the District of Columbia by the Attorney General for the use of the United States, says in part that, in connection with a declaration of taking, the “court shall have power to make such orders in respect of encumbrances, liens, rents, taxes, assessments, insurance, and other charges, if any, as shall be just and equitable.” The statutory prescription for condemnations by the District of Columbia of land within its confines contains an identical provision (now 16 D.C.Code § 1316), as does the provision made by Congress for federal condemnation outside the District (40 U.S.C. § 258a).

In construing this last-mentioned statute, several courts of appeals have held that a District Court cannot prorate state property taxes on land taken by the United States, at least where such taxes have ripened into a lien on the property.³ In Collector of Revenue within and for the City of St. Louis, Mo. v. Ford Motor Co., 158 F.2d 354 (8th Cir. 1946), the Eighth Circuit ruled that state property taxes on seized land may not be relieved against by a federal condemnation court in the absence of some local law expressly authorizing this to be done. Of the critical language in Section 258a, on the basis of which, together with “general equitable principles,” the District Court had purported to act, the court said:

This statute does not purport to give power to a Federal court to fix the amount of taxes due when the proper authorities of the state have made that decision through the administrative machinery adopted by the state for that purpose * * *.⁴

We think this view of Section 258a of the U. S. Code is equally applicable to the same words as used by Congress in Section 628 of the D. C. Code. Of course, since Congress legislates for the District of Columbia, there is no constitutional obstacle of the kind foreshadowed in the Ford case, where the taxing authority was the State of Missouri. But the District has many resemblances to the states, and in no aspect more than in its need for revenue to sustain and support the municipal functions that have been assigned to it by Congress. If that body had in fact intended the District Court to have the power to relieve local real estate — or the cash into which it is transmuted by virtue of a declaration of taking⁵ — of liability for taxes already validly assessed against it, it could have made that plain in a way that it has not done thus far. And we would suppose that it would require the clearest and most explicit of declarations before we would be warranted in discerning a Congressional purpose to shift a burden of this kind from the taxpayers of the United States generally, to the taxpayers of the District in particular.

For these are really the contending interests when a problem of this kind arises in the condemnation for federal use of land in the District of Columbia. An examination of the District’s system of real estate taxation suggests the difficulty: (1) assessments of all non-exempt real estate are to be made annually by the first Monday in January; (2) from that day until the first Monday in April, assessments are subject to correction and equalization by a board constituted for that purpose, which task must be completed by the first Monday in May; (3) the valuations so arrived at must be approved by the Commissioners not later than July 1, and, when so approved, “shall constitute the basis of taxation for the next succeeding year;” and (4) on the basis of the approved valuation the Commissioners fix the rate needed to bring in the required revenue, and such rate is automatically levied by statute. No change in the ownership of property after J uly 1 affects its answerability for the tax liability fixed as of that date; and only the property itself, as distinct from the personal obligation of the record owner on the day of assessment, is subject to being levied upon to satisfy the liability. The tax itself is payable in equal installments in September and March. In short the District’s annual financial plans are based in substantial part upon tax revenues estimated on the basis of the record ownership of real property on the first day of the year.

The District, in its long-term planning, must of course take account of the likelihood that some property on the local tax rolls one year will be exempt the next. The taxpayers of the District must accommodate the use of land, not only by their local government, but, to a unique extent, by the many agencies of the national government. No area is more frequently vulnerable to the power of federal condemnation. But Congress has concluded that federally-owned land in the District should not be subject to local taxation, and that consequent year-to-year variations in the tax base must necessarily be borne by the District taxpayers. And this is the sort of dislocation that the District can, to a considerable extent, make allowance for, since revenue is estimated on an annual basis. There is no evidence, however, that Congress intended that the District taxpayers should bear the additional, unforeseeable burden that would result from mid-year cancellation of tax liability, or, specifically, that it intended to arm the District Court with the authority to effect such a cancellation.

Our decision that land in the District cannot be relieved of its liability for taxes already assessed when it is the subject of condemnation by the federal government does not mean that the former owner must silently pay the taxes for the entire year even though he has use and possession of the land for only a part of it. The land in suit here was taken for the proposed new headquarters of the Federal Bureau of Investigation — a purpose in which all of the people of the United States have an interest. Any private buyer would have paid a price arrived at in arm’s-length negotiation with the seller, including, under traditional practice, an apportioned part of the currently assessed property taxes. These owners, negotiating with the United States prior to its flexing of the muscle of condemnation, would have been able to insist upon the same approach. When negotiations fail and condemnation follows, we think they are entitled to see the ease go to the jury in the same posture, which means that a provable element of their damages is the tax liability for the portion of the year in respect of which they have been deprived of the use of their property. We have discovered no case, and know of no reason, why the dollar amount of such tax liability, offered in evidence solely for this purpose, would not be admissible.⁶ Not to treat it so, and at the same time to relieve the owners of their liability to the District, would be to prevent the burden of this tax liability from falling where it belongs — on all the people of the United States, and not simply on those who live in the District of Columbia.

A condemnee does not have to accept in full payment for his property the sums deposited in court at the time of taking. He is entitled to try to persuade a court or jury that he has been damaged in a larger amount, and to support that claim by all relevant and competent evidence. That evidence may, in our view, include the taxes payable to the District with respect to a period when his property is in the hands of the Government. Given this opportunity, he cannot complain of action by the condemnation court to assure payment, as they fall due, of tax liabilities that run against the land in the first instance, or, alternatively, against the deposited cash which takes its place. Against this backdrop, we are strengthened in our conviction that Congress did not intend the court to do equity, within the meaning of the statute, by cancelling the District’s right to receive taxes it has duly assessed and levied, and upon the basis of which it has planned its activities and budgeted its expenditures for the impending fiscal year.

The condemnees, however, urge upon us that, in any event, the court’s obligation to withhold sums for the payment of District real property taxes depends upon whether such liabilities have risen to the dignity of a lien, existing on the day of the taking. Their argument is that, since on the dates of taking (i. e., July 26,1963, and August 6, 1963) the dates on which tax payments are due (September, 1963 and March, 1964) had not yet arrived, there could be no lien. The equation pressed upon us is, thus, one of delinquency in payment, on the one hand, and lien, on the other; and some language of this kind, which this court referred to in an earlier case, is relied on heavily as sustaining this view. See Cobb v. United States, 84 U.S.App.D.C. 228, 172 F.2d 277 (1949).

But Cobb did not involve the problem with which we are now concerned; and the one thing that emerges with any clarity from the tangled lore of tax liens is that their existence or nonexistence for one purpose casts a feeble light indeed for the pursuit of another. We have not heretofore had occasion to scrutinize the District’s system of real estate taxation in the context now before us. In looking at it from this standpoint, we note that, prior to the dates of taking, appellees’ land had been assessed and the valuations approved by the Commissioners. The tax rate had been fixed, and the tax had been levied. No change in ownership among private owners would have affected the liability of the property to answer for the tax so levied. Only the time of payment had yet to arrive.

Whether this all adds up to the existence of a lien in the traditional sense, and for all purposes, we do not think it necessary to decide.⁷ The statute immediately involved refers to the making of appropriate orders in respect of “encumbrances, liens * * * taxes, assessments * * * and other charges * * * For the purposes of the statutes with which we are presently concerned, that is to say, those dealing generally with federal condemnation in the District of Columbia and, in particular, with the distribution of funds paid into court pursuant to a declaration of taking, we hold that the District real property tax assessed for the year beginning July 1, 1963, was a proper subject of an order by the District Court under Section 628 providing for the payment of such tax from the deposited funds on or before the time payment would become in default. We do not believe that, in the circumstances reflected in this record, the court had power, either under Section 628 or its general equitable power, to cancel the taxes imposed on these properties for the year in question.

We remand the cases to the District Court for further proceedings not inconsistent herewith. Since the money on deposit stands in the place of the property itself, it must answer for the tax. The court’s order should, accordingly, make provision for the payment therefrom to the District of Columbia of the tax in respect of the entire year. It may or may not be still open to these particular appellees to reject the condemnor’s estimate of the value of the property, as represented by the amount of the deposit, and to require that the issue be tried. If they have foreclosed themselves from such trial, they have acted at their peril in respect of this appeal. If they have not, the portion of the tax allocable to the period after the taking is a provable element of damage.⁸

It is so ordered.

BAZELON, Chief Judge:

I join in Judge McGowan’s opinion for the following reason.

We all agree that fairness requires that the original owner of the condemned property pay real property tax only for that part of the year in which he had effective use of the property. The essential question here is whether the District of Columbia must lose the tax for the remainder of the year or whether that tax may be imposed on the Federal Government as part of its condemnation cost.

Such tax may be imposed only with the Federal Government’s consent.¹ Courts have found Federal consent to State property taxes during the year of Federal purchase where the State had imposed a tax lien prior to the purchase.² The District tax statute does not explicitly create such lien,³ and this might be dispositive in favor of Federal exemption if a State tax were at issue here; “[t]here is good ground for avoiding the appearance of any exercise of power over the property of another sovereign, even by means of an earlier reservation which would be lawful, if express.”⁴ But an explicit lien is not determinative here since conflicting sovereignties are not involved; Congress legislates both for the Federal Government and the District.

The tax statute which Congress enacted for the District expresses a policy that property taxes should be fixed at the beginning of the tax year to permit fiscal planning on the basis of clearly anticipated revenues. The statute provides that real property must be valued and assessed before the tax year begins.⁵ And it is well established under the statute that property purchased by tax-exempt institutions, such as universities and churches, remains taxable during the year of purchase.⁶ This congressionally sanctioned policy favoring certainty of tax revenues would be significantly undermined if the Federal Government’s tax exemption began at the moment it took title to property during the tax year.⁷ I therefore find that Congress, in enacting the District tax statute, has implicitly consented to taxation during the tax year in which the Federal Government takes property in the District.

1 . Further Ordered that Lawyers Title Insurance Corporation be and it is hereby authorized and directed to pay to the District of Columbia 8.33% of the taxes assessed for the period July 1, 1963 to June 30, 1964 on Lot 814 in Square 379 and that the District of Columbia shall accept payment of said sum in full satisfaction and discharge of District of Columbia taxes assessed for the period July 1, 1963 to June 30, 1964 on Lot 814 in Square 379 and any liens on the award in condemnation relative to such taxes * * *.

2 . The events in Number 18,276 followed a virtually identical pattern with only slight differences in the dates involved. Although a different judge entered the first disbursement order, the respective motions to release the escrowed funds were heard by the same judge, and his memorandum opinion applies to both cases. The two cases are indistinguishable for our purposes, and wha. we say herein relates to both.

3 . See People of Puerto Rico v. Palo Seco Fruit Co., 136 F.2d 886 (1st Cir. 1943); United States v. 150.29 Acres of Land in Milwaukee County, 135 F.2d 878 (7th Cir. 1943); United States v. Certain Parcels of Land in Philadelphia, 130 F.2d 782 (3d Cir. 1942); Cobo v. United States, 94 F.2d 351 (6th Cir. 1938).

4 . 158 F.2d at 356.

5 . 16 D.C.Code § 639 (1961) provides that the money paid into court upon a declaration of taking “shall be deemed to be vested in the persons owning or interested in said lands, according to their respective estates and interests, and said money shali take the place and stand in lieu of the lands condemned.”

6 . The dollar amount of the apportioned tax is, of course, something quite different from the figure at which the property is carried on the assessment rolls. The reasons for excluding the latter figure operate with greatly attenuated force, if at all, upon the admissibility of the former.

7 . We recognize that the court in the Ford Motor Co. case, supra, found that the Missouri tax had become a lien on the property before the United States acquired title, and that its holding seems to rest on that finding. But we also note that the parties there had in effect stipulated the issue out of the case. And the procedures required to be followed for the creation of a lien, under Missouri law. were substantially identical to those that had already been employed by the District prior to the Government’s declaration of taking in this case. For the court there noted:

In Missouri the lien for taxes does not accrue and become a fixed encumbrance until the amount of the tax has been determined by an annual assessment of the land and an annual levy of the tax.

158 F.2d at 356. As in the District, the record owner of property in Missouri on the first day of June was liable for the taxes thereon for the following year. Liability depended not on continued ownership, but on ownership on the assessment date.

In any event, the principle relied on by the Eighth Circuit does not, in our view, depend for its applicability on whether the local tax has become a lien, but on the fact that the proper local authorities have determined the amount of tax due, alerted the owner, and budgeted accordingly. See text accompanying note 4 supra.

8 . Wo leave undisturbed the provision of the District Court’s order that reads: “[N]o penalty or interest for nonpayment of said taxes when due shall be assessed by the District of Columbia for the period the matter of said taxes is pending before the Court.” By virtue of the fund on deposit in the District Court, the District has throughout been assured of collecting the taxes ultimately determined to be due it. And it was the District’s decision to appeal that postponed final resolution of that question.

1 . See, e.g., United States v. City of Detroit, 355 U.S. 466, 469, 78 S.Ct. 474, 2 L.Ed.2d 424 (1958). Compare District of Columbia v. John R. Thompson Co., 346 U.S. 100, 73 S.Ct. 1007, 97 L.Ed. 1480 (1953).

2 . See, e.g., United States v. State of Alabama, 313 U.S. 274, 61 S.Ct. 1011, 85 L. Ed. 1327 (1941); United States v. Davidson, 139 F.2d 908 (5th Cir. 1943); Collector of Revenue Within and for the City of St. Louis, Mo. v. Ford Motor Co., 158 F.2d 354 (8th Cir. 1946); Moses Lake Homes, Inc. v. Grant County, 276 F.2d 836 (9th Cir. 1960), reversed on other grounds, 365 U.S. 744, 81 S.Ct. 870, 6 L.Ed.2d 66 (1961).

3 . In Cobb v. United States, 84 U.S.App. D.C. 228, 229, 172 F.2d 277, 278 (1949), this court stated that the District real property tax “lien does not arise prior to the occurrence of a delinquency.” But CoTjl) involved the District’s attempt to defeat a Federal lien imposed for delinquency in Federal taxes, and it might be distinguished on the ground that Federal tax liens have traditionally been given more rigorous protection against state claims than Federal immunity from local property tax. Compare United States v. Reese, 131 F.2d 466 (7th Cir. 1942), with United States v. State of Alabama, supra, note 2.

4 . United States v. City of Buffalo, 54 F.2d 471, 475 (2d Cir. 1931) (Learned Hand, C.J., concurring).

5 . D.C.Code §§ 47-709, 47-1209 (1961).

6 . Washington Mosque Foundation v. District of Columbia, 74 Wash.L.Rptr. 1189 (D.C.Bd.Tax App.1946); Bethel Pentacostal Tabernacle v. District of Columbia, 106 A.2d 143 (D.C.Mun.Ct. of App. 1954). Cf. District of Columbia v. The Salvation Army, 105 U.S.App.D.C. 85, 264 F.2d 371 (1959); District of Columbia v. George Washington University, 104 U.S.App.D.C. 324, 262 F.2d 36 (1958).

7 . Compare the speculative State interest protected in United States v. State of Alabama, supra, note 2. In that case, the State statute created a lien befoi-e the tax was assessed or the property even valued, and the Supreme Court ruled that land purchased by the Federal Government during the tax year was subject to the State tax for that year.

1 . The section was enacted on March 1, 1929, as part of the Act to provide for the acquisition of land in the District of Columbia for the use of the United States, 45 Stat. 1417. Insofar as pertinent here, it reads:

“The petitioner may file in the cause, with the petition or at any time before judgment, a declaration of taking signed by the authority empowered by law to acquire the lands described in the petition, declaring that said lands are thereby taken for the use of the United States. Said declaration of taking shall contain or have annexed thereto— 'i'

“(5) A statement of the sum of money estimated by said acquiring authority to be just compensation for the land taken.

“Upon the filing of said declaration of taking and of the deposit in the registry of the court, to the use of the persons entitled thereto, of the amount of the estimated compensation stated in said declaration, title to the said lands in fee simple absolute, or such less estate or interest therein as is specified in said declaration, shall vest in the United States of America, and said lands shall be deemed to be condemned and taken for the use of the United States, and the right to just compensation for the same shall vest in the persons entitled thereto; and said compensation shall be ascertained and awarded in said proceeding and established by judgment therein, and the said judgment shall include, as part of the just compensation awarded, interest at the rate of 6 per centum per annum on the amount finally awarded as the value of the property as of the date of taking, from said date to the date of payment; but interest shall not be allowed on so much thereof as shall have been paid into the registry. % :f: & sjs

“Upon the filing of a declaration of taking, the court shall have power to fix the time within which and the terms upon which the parties in possession shall be required to surrender possession to the petitioner. The court shall have power to make such orders in respect of encumbrances, liens, rents, taxes, assessments, insurance, and other charges, if any, as shall be just and equitable.”