Mesta Machine Company Case

32 A.2d 236, 347 Pa. 191, 1943 Pa. LEXIS 421

• Court: Supreme Court of Pennsylvania
• Decided: March 26, 1943
• Docket: Appeal, 77
• Status: Published

Opinions

Opinion by

Mr. Justice Drew,

This is an appeal from an order of the Court of Common Pleas of Allegheny County reducing a final assessment on the real estate of the Mesta Machine Company, a private corporation located in the Borough of West Homestead, Allegheny County, Pennsylvania, made by the Board of Property Assessment, Appeals and Review for ad valorem taxes, pursuant to the Act of May 22, 1933, 1 P. L. 853, Art. II, sec. 201, as amended by the Act of July 2, 1941, P. L. 219, sec. I. 2

At the triennial assessment for the years 1940, 1941 and 1942, the taxable value of the mill of the Mesta Company, consisting of lands, as well as buildings and machinery located therein, was valued and assessed for real estate tax purposes. In February, 1942, the Board increased the assessments, inter alia, by the sum of §618,000, to cover the value of certain additional machinery which had been installed on the premises as an integral part of the mill. This machinery was placed in the mill of the Mesta Company, which was the record owner of the land upon which its mill was located, not on a temporary basis, but instead to enable that company to carry out the very purpose for which it was organized, i. e. the manufacture of heavy equipment for profit. This revised assessment was sustained by the Board; and the Mesta Company, contending that it was not liable for the tax based on the additional assessment for the reason that the company did not own that machinery but merely leased it from the United States government which held title thereto, appealed to the Court of Common Pleas. That tribunal permitted the Federal government to intervene in the proceeding, over the objection of the County. After hearing, the court below entered an order sustaining the appeal, setting aside the assessment as to that machinery and reducing the assessment of the mill of the Mesta Company by the sum of $618,000. From that order, the County of Allegheny has appealed to this Court.

This is a case of great importance because our decision will not only dispose of the present controversy, but will also affect many similar arrangements which have been or will be entered into by the United States government with various individuals and companies throughout this Commonwealth as a result of the present national emergency.

■ The principal contention of Allegheny County is that there is no competent evidence to support the action of the court below in reducing the assessment here under consideration. The County presented a prima facie case by the production of the record of assessment, made by proper officers and approved by the Board of Property Assessment, Appeals and Review: Chatfield v. Board of Rev. of Taxes, 346 Pa. 159; Westbury Apartments, Inc., Appeal, 314 Pa. 130. The Mesta Company and the intervenor, the Federal government, to meet the burden thus cast on the company, offered in evidence a contract entered into between them on October 30,1940, whereby the company, on a cost-plus and fixed fee basis, undertook to manufacture heavy field guns for the government. This agreement specifically set forth, among other things, that the machinery, the assessment of which gave rise to this appeal, was the property of the Federal government which leased it to the Mesta Company for an indeterminate period, at the nominal rental of one dollar; that the machinery was to be installed on the land and in a building owned by the Mesta Company for the latter’s use in manufacturing for profit the war material contracted for; and that upon the termination of the contract the Mesta Company was to remove the machinery and ship the same, at the expense of the government, to a point to be designated by a representative of the War Department. This agreement was admitted in evidence over the objection of the.County, which argues that the court below thereby committed error.

There can be no doubt that the machinery here under consideration formed a real and permanent part of the mill of the Mesta Company, and was, therefore, a proper subject of assessment as real estate, under the provisions of section 201 of the Act of May 22, 1933, P. L. 853, as amended. In Patterson v. Delaware County, 70 Pa. 381, it was held that the land and building, as well as the machinery, which constituted a cotton factory, were taxable as real estate, under the 32d section of the Act of April 29,1844, P. L. 486 (the provisions of which are practically identical with those of section 201 of the Act of 1933, as amended). There the court below said, and its views were affirmed by this Court in a per curiam opinion (p. 383) : “That the property taxed in the case before us is real estate is not, of course, doubted. But the plaintiff thinks this particular hind of real estate was not intended to be taxed. He argues that the enumeration of certain kinds in the act, as ‘houses, lands, lots of ground, ground-rents, mills,’ &c., was to designate precisely what the legislature intended by the preceding terms ‘all real estate’, and that everything not embraced in this enumeration is excluded. But this view seems to overlook the very important language, before referred to, which follows the enumeration: ‘all other real estate.’ . . . Does not the property here taxed fall within the enumeration? The machinery in a mill is as much a part of it as are the walls . . . The plaintiff admits this; but says the legislature did not use the term ‘mill’ in this sense; that while such is the legal signification of the term, the popular meaning is otherwise; and that the legislature must be regarded as adopting the latter. But is the popular meaning otherwise? When a man, of common intelligence and business experience, speaks of 'Mr. Patterson’s Mill,’ what does he mean? The establishment in its completed condition — fitted for its proper use? Or the bare walls? (For there is no intermediate point; all between, from the engines to the spindles, is machinery.) He could hardly mean the latter; for the walls do not constitute a mill, and bear no more resemblance to it, than to a barn.”

Furthermore, this private arrangement between the Mesta Company, the owner of the land and buildings and operator of the mill, and the Federal government, the owner of the machinery, which treats the equipment as personal property and permits the latter to remove it at the termination of the contract, can in no way change the legal effect of the Act of Assembly which specifically designates machinery, under these circumstances, as real estate for tax purposes. In this connection, it was said in Bemis v. Shipe, 26 Pa. Superior Ct. 42, 45: “It may be admitted that, as between the owners of the land and the owners of the mill, the latter may be regarded and treated by them as personal property, and yet it by no means follows that in contemplation of law for other purposes it is not real estate. Without the express permission of the owners of the land to remove the buildings prior to a certain date, if nothing whatever had been said in regard to them in the original lease, they would doubtless belong to the owners of the land at the expiration of the lease, as being part of the real estate, but such permission does not change the physical character of the property, nor does it in any way change its legal status, except as between the parties themselves and those claiming under them and as to the legal machinery through which the title of the lessees may be transferred to creditors or others who desire to secure their rights.” See also Pennsylvania Stave Company’s Appeal, 236 Pa. 97; Guthrie v. Pittsburg Dry Goods Co., 47 Pa. Superior Ct. 384.

Nov can the Mesta Company, by its private arrangement acknowledging that the Federal government has title to the machinery which is an integral part of the mill of the company, evade the right of the County to assess the company as the owner of the mill erected upon land title to which is in its name upon the public records. The mill of the company was taxable under the statute as real estate, and this necessarily included the machinery essential to the existence and operation of that manufactory. In Guthrie v. Pittsburg Dry Goods Co., supra, the Superior Court held that the owner of the land and building cannot deny his liability for a portion of the tax because the machinery which composed a permanent and essential part of the manufactory was owned by a tenant who had the right to remove it at the end of his lease. There it was said (p. 401) : “Does the private arrangement between the tenant and the landlord which permitted the former to remove the machinery at the end of the term change the character of the property as affected by the taxing statutes? We think not ... If the machinery is not to be included there is no manufactory to be taxed and the land and building would be liable not as a factory but as ‘other real estate’ as provided in the same section of the statute. The property is either a manufactory or it is not. If a manufactory it is clearly subject to taxation under the specification of that class of property.”

The record showed that title to the land was in the Mesta Company, and the assessor was not obliged to go further. Under the circumstances, he was justified in treating the ground, building and machinery as an entity, a mill or manufactory, and assessing it as such to the Mesta Company, the registered owner of the land. In Pennsylvania Co. v. Bergson, 307 Pa. 44, 51, this Court said: “When a deed or other conveyance is duly recorded and registered in the name of a given person he, as the registered title holder, is regarded as the ‘owner’ for purposes of assessment and taxation, and is personally liable for taxes levied on the property. This liability attaches because he holds himself out to the world through public records as owner by being registered and recorded as owner . . . These authorities may, for the purpose of taxation, treat individuals in their several relations as they appear on the designated indices or the public records that are provided.” See also Germantown Tr. Co. v. Stanley Co., 338 Pa. 533; Starling v. W. Erie Ave. B. & L. Assn., 333 Pa. 124; N. Phila. Tr. Co. v. Heinel Bros., Inc., 315 Pa. 385. This is true whether or not the registered owner is in fact the actual owner (Trust Co. v. Bank and Tr. Co., 326 Pa. 262); though the actual owner who is not the record owner may also be assessed, if, of course, not exempt for some reason from taxation (Pennsylvania Stave Company’s Appeal, supra; Bemis v. Shipe, supra; County of Franklin v. McClean, 93 Pa. Superior Ct. 165). The application of this principle does not constitute a violation of due process within the meaning of the Fourteenth Amendment of the Federal Constitution: Fid.-Phila. Tr. Co. v. Bergson (No. 1), 328 Pa. 545.

It is well established that property held by the United States for the purposes conferred on the government by the Constitution and laws of the United States is beyond the pale of taxation by a State or its political subdivisions (Irwin v. Wright, 258 U. S. 219; City of Phila. v. Harry E. Myers, 102 Pa. Superior Ct. 424), unless, of course, permitted by congressional consent. 3 In holding that real estate owned by the United States government was immune from taxation by the State of Tennessee, the United States Supreme Court, in Van Brocklin v. State of Tennessee, 117 U. S. 151, 155, said: “All subjects over which the sovereign power of a State extends are objects of taxation; but those over which it does not extend are, upon the soundest principles, exempt from taxation. The sovereignty of a State extends to everything which exists by its own authority, or is introduced by its permission; but does not extend to those means which are employed by Congress to carry into execution powers conferred on that body by the people of the United States. The attempt to use the taxing power of a State on the means employed by the government of the Union, in pursuance of the Constitution, is itself an abuse, because it is the usurpation of a power which the people of a single State cannot give.” See also Penn Dairies, Inc. v. Milk Control Commission, 318 U. S. 261; Clallam County v. United States, 263 U. S. 341; Mint Realty Company v. Philadelphia, 218 Pa. 104. But this sound and well-settled principle of constitutional law is not in any way applicable to the instant circumstances, for the tax on the mill, which necessarily includes the machinery which forms a component part of the manufactory, is not assessed against the government, but rather against its independent contractor, the Mesta Company, which is operating the mill in furtherance of its own business, on land to which it holds the record title. To exempt this machinery from taxation would not be in relief of the government, but rather in relief of the Mesta Company, and, therefore, it is clear that the machinery is the proper subject of assessment for tax purposes as the property of the Mesta Company even though legal title to it is actually in the Federal government. The fact that the latter, by Article I-D 4 of its contract with the company, voluntarily agreed to pay the tax has no bearing whatsoever upon this decision, for the legal obligation to pay was on the company and not on the government: Alabama v. King & Boozer, 314 U. S. 1; Curry v. United States, 314 U. S. 14; Penn Dairies, Inc. v. Milk Control Commission, supra. If the Mesta Company defaults in the payment of the tax, the paramount rights of the government in the machinery could not be divested or in any way affected: Cf. New Brunswick v. United States, 276 U. S. 547; City of Phila. v. Harry E. Myers, supra. Thus, the government’s status, as far as the machinery is concerned, is precisely the same throughout, and it cannot suffer any loss by reason of the assessment of its machinery as part of the Mesta mill. For these reasons, if for no other, the tax on the mill must be held to be legal and just.

In upholding the minimum price regulations of the Pennsylvania Milk Control Law of April 28,1937, P. L. 417, as it affected a dealer selling milk to the government to be disposed of on lands belonging to this Commonwealth but in use by the Federal government as a military encampment, Mr. Chief Justice Stone, in speaking for the United States Supreme Court, in Penn Dairies, Inc. v. The Milk Control Commission, supra, said (p. 270) : “The trend of our decisions is not to extend governmental immunity from state taxation and regulation beyond the national government itself and governmental functions performed by its officers and agents. We have recognized that the Constitution presupposes the continued existence of the states functioning in coordination with the national government, with authority in the states to lay taxes and to regulate their in ternal affairs and policy . . .” It is a matter of great seriousness to the states and their municipal subdivisions that individuals and corporations pay their fair share in taxes for the benefits they and their personnel undoubtedly receive from the public services they enjoy, such as police and fire protection, the use of streets and schools, and other advantages of community life. These are adjuncts of civilization, necessary but expensive, and those who have them should and must pay for them.

Moreover, the fact that one of the two possible parties liable for a tax — the record owner or the actual owner— may for some reason be exempt from taxation will not defeat the right of the taxing power to enforce payment by the other. In County of Franklin v. McClean, supra, the County levied a tax against buildings erected upon lands leased by the Commonwealth to a tenant who owned the buildings and under his lease had the right to remove the same at the expiration of his term. The record owner being the sovereign, which is not subject to taxation by its subdivisions, the tax upon the structures was assessed in the name of the tenant, the real owner thereof, and this was held proper by the Superior Court. There it was said (p. 171) : “We regard the fact that appellant’s estate is held under the State as lessee, rather than under an individual, as immaterial. The tax is not laid against the State nor its interest in the land.” In Kittanning Academy v. Kittanning Boro., 8 Pa. Superior Ct. 27, it was held that a dwelling-house and property leased by a corporation for school purposes for a term of years at an annual money rental and an agreement to pay taxes and keep the property in repair does not work an exemption from taxes assessed against the owner of the real estate.

The County of Allegheny further contends that the court below also erred in permitting the Federal government to intervene in the appeal filed in the court below by the Mesta Company against whom the assessment was made. We need not pass upon this question, for obviously under our disposition of the controversy the County in no way was harmed by such intervention.

We are satisfied that the evidence that the machinery was not owned by the Mesta Company was irrelevant and, therefore, improperly admitted. Since the record contains no competent evidence to warrant the action of the court below, the order must be reversed and the assessment of the Board reinstated.

The order is reversed, and the assessment of $3,-901,504 made by the Board of Property Assessment, Appeals and Review of Allegheny County of the mill of the Mesta Machine Company for the year 1942 is restored and affirmed; costs to be paid by the Mesta Machine Company.

1 The provision contained in sec. 12 of the Act of June 21, 1939, P. L. 626, that “The action of the court [below] shall be final”, does not apply to assessments made prior to those for the triennial period beginning 1943.

2 This section of the statute provides: “The following subjects and property shall, as hereinafter provided, be valued and assessed and subject to taxation for all county, city, borough, town, township, school and poor purposes at the annual rate:

(a) All real estate to wit: Houses, lands, lots of ground and ground rents, mills and manufactories of all kinds, furnaces, forges, bloomeries, distilleries, sugar houses, malt houses, breweries, tan yards, fisheries, and ferries, wharves, and all other real estate not exempt by law from taxation.” (Italics added.)

3 As an example of this, consent to tax the real estate of certain Federal agencies was given in the Act of Congress of January 22, 1932, ch. 8 §10 (15 U. S. C. §610), as amended, which provides: “. . . any real property of the corporation [the Reconstruction Finance Corporation and other corporations created under its authority, such as the Defense Plant Corporation, etc.] shall be subject to State, Territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed.”

4 “Article I-D: 1. The Contractor shall be reimbursed in the • manner hereinafter described for ... (g) Payments from bis own funds made by the Contractor [the Mesta Machine Company] under the Social Security Act, and any applicable State or local taxes, fees, or charges which the Contractor may be required on account of this contract to pay on or for any plant, equipment, process, organization, materials, supplies, or personnel; and, if approved in writing by the Contracting Officer in advance, permit and license fees, and royalties on patents used including those owned by the Contractor.”