United States v. Hynes

20 F.3d 1437, 1994 WL 111474

Opinions

FAIRCHILD, Circuit Judge.

The Harold Washington Social Security Center and the Federal Archives and Records Center, both located in Chicago (which is in Cook County, Illinois), were constructed on land to which the federal government has title. The government does not yet have title to the buildings, which were constructed pursuant to installment contracts authorized by 40 U.S.C. § 602a. Legal title is held by a third party while the installment payments are made to complete the purchase. The federal government is entitled to possession and use of the properties during the installment payment period, and legal title vests in the United States when all installment payments have been completed.¹

Defendant Hynes assessed the Social Security Center and the Archives and Records Center pursuant to the Illinois Revenue Act for tax years 1985 through 1989. Defendant Rosewell sought to collect general property taxes for those tax years. The taxes have not been paid. In 1988, the United States brought this action for declaratory and in-junctive relief, requesting that the district court declare that taxation of the properties discriminates against the United States and is therefore unconstitutional. The district court granted summary judgment for the United States as to tax year 1985, and granted summary judgment for defendants-appellants (which we will refer to collectively as “Cook County”) as to tax years 1986 through 1989. Each party appeals from the judgment insofar as adverse to it.

I. BACKGROUND

In 1972, Congress enacted the Public Buildings Amendments, Pub.L. No. 92-313, 86 Stat. 216 (1972) (codified at 40 U.S.C. § 602a), authorizing the Administrator of General Services to enter into installment purchase contracts of no longer than thirty years for the purchase of federal buildings. Congress made such property subject to local taxation, until title passes to the United States:

With respect to any interest in real property acquired under the provisions of this section [§ 602a], the same shall be subject to State and local taxes until title to the same shall pass to the Government of the United States.

40 U.S.C. § 602a(d) (1992).

Prior to 1985, Illinois provided an exemption from general property taxation to “[a]ll property that is being purchased by a governmental body under an installment contract pursuant to statutory authority and used exclusively for the public purposes of the governmental body.” Ill.Rev.Stat. ch. 120, ¶ 500.9a (1983). If the term “governmental body” included the United States, then the § 602a properties in Illinois were exempted by state law. The Cook County Assessor, however, assessed ad valorem taxes on the Social Security Center for 1975 through 1978 and on the Archives and Records Center for 1972 through 1978. The United States refused to pay the taxes, arguing that ¶ 500.9a exempted the federal properties from state and local taxation. . The United States challenged Cook County’s position in a declaratory judgment action; the district court granted summary judgment for the United States. Cook County appealed to this court.

That appeal presented a question of statutory construction. Cook County argued that the term ^governmental body” in ¶ 500.9a could not be construed to include the federal government because the state legislature was not empowered by ,the Illinois Constitution to create such an exemption.² A panel of this court concluded that the Illinois Constitution should be construed as implicitly recognizing the state legislature’s power to enact exemptions which conform to the mandates of the federal Constitution, and held that the term “governmental body” did include the United States and accordingly, ¶ 500.9a did exempt property being acquired by the federal government. United States v. County of Cook, Ill., 725 F.2d 1128, 1131 (7th Cir.1984) (“County of Cook ”).

The panel went on to address an argument offered by Cook County that even if ¶ 500.9a is construed to exempt property being acquired by the federal government, § 602a(d) nullifies the exemption. This contention was rejected, the panel reasoning that § 602a(d) does not require states to tax property being acquired by the federal government, and the United States is entitled to take advantage of a state statutory exemption. Additionally, the panel was “unconvinced that section 602a[ (d) ] in fact constitutes such a waiver,” reasoning that permitting property being acquired by state or local government to incur a lighter tax burden than property being acquired by the federal government, would result in discriminatory taxes on the United States or on those with whom it deals. Id. at 1131. The panel concluded that “[t]he consent found in section 602a[ (d) ] lacks the specificity we would expect to find if Congress intended to subject the United States to discriminatory taxation.” Id. at 1132.

Following this court’s decision in County of Cook, the Illinois legislature amended ¶ 500.9a in 1984 (effective on January 1,1985) to exempt from taxation

[a]ll property that is being purchased by a governmental body under an installment contract pursuant to statutory authority and used exclusively for the public purposes of the governmental body, except such property as the governmental body has permitted or may permit to be taxed.

Ill.Rev.Stat. ch. 120, ¶ 500.9a (1992)³ (our italics indicate language added by the amendment).

Cook County argues in this appeal that the added language avoids discrimination against the United States. It denies an exemption where the property is being acquired by a governmental body which permits the property to be taxed, and does not base a difference in treatment on the identity of the governmental body. There would be taxation, not exemption, of § 602a property because the United States permits it to be taxed. In like manner, property being similarly purchased by a state or local body would be taxed, and not exempt, if the state or local body likewise permitted it to be taxed.

The district court found that the Illinois legislature was aware of the federal consent to taxation in § 602a(d) and was also aware that the state and local governments had not similarly consented to taxation when it amended ¶ 500.9a. The district court concluded that in intentionally taking advantage of this situation, Illinois imposed a discriminatory tax upon property being acquired by the federal government under an installment purchase contract. United States v. Hynes, 759 F.Supp. 1303, 1307 (N.D.Ill.1991). Relying upon County of Cook, the district court held that § 602a(d) lacked the specificity necessary to consent to such discriminatory taxation, and granted summary judgment for the United States. Id. at 1308.

Cook County Sled a motion to reconsider, arguing that even if the United States was entitled to an exemption from tax, it had not complied with the procedural requirements for obtaining the exemption. The district court held that the 1984 amendment was severable so that the exemption was based upon pre-amendment ¶ 500.9a, rather than the federal Constitution, and that the federal government was required to comply with the Illinois procedural requirements for perfecting that state claim. Since the federal government had not complied with the procedural requirements and those requirements were applicable to tax years 1986 and later, Cook County was enjoined only from collecting taxes for tax year 1985. United States v. Hynes, 771 F.Supp. 928 (N.D.Ill.1991). These appeals followed.

II. DISCUSSION

“[A] State cannot constitutionally levy a tax directly against the Government of the United States or its property without the consent of Congress.” United States v. City of Detroit, 355 U.S. 466, 469, 78 S.Ct. 474, 476, 2 L.Ed.2d 424 (1958); United States v. New Mexico, 455 U.S. 720, 733, 102 S.Ct. 1373, 1382, 71 L.Ed.2d 580 (1982). Additionally, a state may not impose taxes which discriminate against the federal government (or those with whom it deals). North Dakota v. United States, 495 U.S. 423, 434-435, 110 S.Ct. 1986, 1994-1995, 109 L.Ed.2d 420 (1990); Davis v. Michigan Dep’t of Treasury, 489 U.S. 803, 812-813, 109 S.Ct. 1500, 1506-1507, 103 L.Ed.2d 891 (1989). Here Congress has given consent.

In County of Cook, this court was addressing the pre-amendment ¶ 500.9a, and was asked to construe “governmental body” to include the United States; this construction would avoid the question whether the statute would be unconstitutional if it failed to exempt property being acquired by the United States. See Frisby v. Schultz, 487 U.S. 474, 483, 108 S.Ct. 2495, 2501-02, 101 L.Ed.2d 420 (1988); Cohen v. City of Des Plaines, 8 F.3d 484, 493 (7th Cir.1993) (courts should construe statutes to avoid constitutional difficulties). The panel went on, however, to reach the constitutional question, and asserted that the statute would be discriminatory if it did not exempt property being acquired by the federal government and that “the consent found in section 602a[ (d) ] lacks the specificity we would expect to find if Congress intended to subject the United States to discriminatory taxation.” County of Cook, 725 F.2d at 1132.⁴ For the reasons discussed below, we conclude that § 602a(d) is an unconditional waiver of immunity. We therefore overrule County of Cook to the extent the panel reasoned that taxing federal § 602a property while exempting similar property of state and local governmental bodies would be unconstitutionally discriminatory and that § 602a(d) is not a sufficient consent to such discriminatory taxation.

Amended ¶ 500.9a does not provide different treatment depending on whether the acquiring body is federal, state or local. The exemption is denied only if the acquiring body permits the property to be taxed.

The United States seems to recognize that the amended statute does not make different treatment depend on whether the purchaser is the federal government or a state or local body. The United States’ position is that there are in fact no state or local bodies in Illinois which permit property they are acquiring to be taxed. Thus the claim is that the United States is the victim of discrimination in fact, though the statute is neutral on its face.

The record does not make clear whether state or local governments in Cook County or elsewhere in Illinois are in fact acquiring property under circumstances which fit the exemption, or whether, if there is such property, any such acquiring body has permitted it to be taxed. The United States filed an affidavit which presents a survey showing that a number of persons inquired of were unaware of state or local bodies permitting property of this' type to be taxed. Cook County challenges this material as failing to satisfy the evidentiary requirements of Kule 56(e) of the Federal Rules of Civil Procedure for material supporting summary judgment. While the claim has technical merit, Cook County, on the other hand, produced nothing to demonstrate that state or local bodies have in fact permitted taxation of this type of property.

We shall assume, however, arguendo, that there are no such instances and that- there may be some number of instances where state or local government bodies are acquiring property under procedures similar to those provided in § 602a, but not permitting the properties to be taxed.. Perhaps some are in Chicago where the federal § 602a buildings are located. .Even so, we are not persuaded that unconstitutional discrimination results. This case does not fit the typical scenario of discrimination against the United States. Exempting property being acquired by the state or state-created public bodies does not relieve those bodies, in the aggregate, of a burden which is being imposed on property being acquired by the federal government. For example, if a building in question is being acquired by the state, the exemption benefits the state at the expense of the state-created taxing districts in which the building is located, but those subdivisions must make up their loss out of their own public funds. The exemption does not reduce the overall burden on the state and state-created public bodies, although it redistributes the burden among them. It does not put the United States at a disadvantage vis-a-vis the public treasuries of the state and its subdivisions.

In any event, there is no discrimination because the sole cause of the difference in treatment is Congress’ decision to subject § 602a property to state and local taxes. Were that provision withdrawn, H-500.9a would exempt property being acquired by the federal government, and the difference in treatment would disappear.

For several reasons we also conclude that Congress intended to subject § 602a property to state and. local taxation whether or not property being acquired by state or local public bodies is similarly taxed. Although the legislative history contains no specific reference to an interest in having § 602a property taxed where property being similarly acquired by state or local bodies is not, it clearly shows a purpose to foster good community relations by having § 602a property carry a tax burden during the period of acquisition. Representative Clausen, a member of the Public Works Committee, stated,

In addition, a key feature of the measure before us is that it provides a means to construct Federal facilities without depriving local government of vital portions of its tax base. Traditionally, Federal installations do not pay property taxes but H.R. 10488 leaves the property in private hands under the purchase-contract concept. Thus the property will make the Federal presence in the community easier to accept.

118 Cong.Rec. 13,503 (1972). Several other congressmen similarly emphasized the importance of the consent provision in easing the burden upon the local community. 118 Cong.Rec. 13,502 (statement of Rep. Harsha), 13,505 (statement of Rep. Kluczynski), and 20,107 (statement of Sen. Tower) (1972). The House Report also noted that the consent to local taxation would ease the burden upon local communities. H.R.Rep. No. 989, 92d Cong., 2d Sess. (1972), reprinted in 1972 U.S.C.C.A.N. 2370, 2373.

Exemption from local taxation for state and local government property is commonplace. It has long been recognized that the property of a state or municipality is exempt from state taxation, unless there exists the clearest statement to the contrary. See Van-Brocklin v. Tennessee, 117 U.S. 151, 173-75, 6 S.Ct. 670, 682-83, 29 L.Ed. 845 (1886) and 12 Am. & Eng. Encyclopaedia of Law 367 (2d ed. 1899). The exemption

rests upon the most fundamental principles of government, being necessary in order that the functions of government be not unduly impeded, and that the government be not forced into the inconsistency of taxing itself in order to raise money to pay over to itself, which money could be raised only by other taxation; and the express exemptions are considered to be inserted in the tax laws only from abundant caution. ...

12 Am. & Eng. Encyclopaedia at 368-69 (footnote listing citations omitted). See also 51 Am Jur. Taxation §§ 559-60 (1944); 84 C.J.S. Taxation § 200 (1954); 71 Am.Jur.2d State and Local Taxation §§ 339-40 (1973).

Congress must have been aware that many (if not all) states exempt state or local government body property, yet Congress did not limit § 602a(d) so as to subject § 602a property to taxation only where property being similarly acquired by state or local bodies would also be taxed. Congress’ omission of a specific provision in that regard must imply an intent to subject § 602a property to taxation regardless of whether property being acquired by state or local bodies is likewise taxed.

Cook County has pointed out that the General Services Administration has paid property taxes on § 602a property in thirty-two states in which state law exempts state government property. Separate Appendix at 34a-36a. The United States concedes that it has not litigated a claim of discriminatory treatment against § 602a property, except in Illinois.⁵

Our review of the constitutional and statutory provisions of the thirty-two states cited by Cook County reveals that all of the states exempt state property (and in most cases, property owned by local government bodies as well). Of these thirty-two states which have § 602a buddings, sixteen arguably exempt property owned by the federal government unless the United States has consented to taxation.⁶ For the provisions regarding federal property, see Alaska Const, art. XII, § 12; Cal.Rev. & Tax.Code § 5081(a); Conn. Gen.Stat.Ann. § 12-81(1); Fla.Stat.Ann. § 196.199(l)(a); Haw. Const, art. XVI, § 9 and Haw.Rev.Stat. § 246-36(1); Idaho Const, art. VII, § 4; Ind.Code Ann. § 6-1.1-10-1(a); Iowa Code Ann. § 427.1(1); Kan. Stat.Ann. § 79-201A; Mass.Gen.Laws Ann. ch. 59, § 5; Mich.Comp.Laws Ann. § 211.7; N.C.Gen.Stat. § 105-278.1(a); N.Y.Real Prop.Tax Law § 400(1); Or.Rev.Stat. § 307.040; Penn.Stat.Ann. tit. 72, § 5020-204(a)(7); Wash. Const. art. VII, § 3.

Congress, in instances where it has given its consent for taxation by the states but has not intended to consent to discriminatory treatment, has said so. See e.g., 4 U.S.C. § 111 (“The United States consents to the taxation of pay or compensation for personal service as an officer or employee of the United States ... by a duly constituted taxing authority having jurisdiction, if the taxation does not discriminate against the officer or employee because of the source of the pay or compensation.”) (discussed in Davis v. Michigan Dep’t of Treasury, 489 U.S. 803, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989)); 31 U.S.C. § 3124 (“Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax, except — -(1) a nondiscriminatory franchise tax or other non-property tax instead of a franchise tax, imposed on a corporation....”) (discussed in Memphis Bank & Trust Co. v. Garner, 459 U.S. 392, 103 S.Ct. 692, 74 L.Ed.2d 562 (1983)).

The present Illinois statute is not discriminatory on its face. It calls for a difference in tax treatment which does not depend on the identity of the governmental body acquiring the property, but on whether that governmental body permits taxation of the property. The different treatment of § 602a property, however, results from Congress’ unconditional consent to taxation of § 602a property. In substance, the Illinois legislature accepted Congress’ invitation to tax § 602a property. If- courts were to imply a condition on the United States’ consent that similar state and local property must likewise be taxed, that condition would defeat in many states the announced purpose of § 602a. We reject the district court’s conclusion that because the Illinois legislature was aware that the United States permits taxation of § 602a property while state and local bodies do not so permit, the amendment .results in unconstitutional discrimination against the United States.

We conclude that taxation in Illinois of the § 602a buildings in 1985 and thereafter was constitutionally permissible, and we do not reach the district court’s holding that the United States forfeited the state-created exemption in the years it did not fulfill state procedural requirements.

As to tax year 1985, the judgment appealed from is Reversed, with directions to enter judgment for defendants. As to tax years 1986 through 1989, the judgment is Affirmed, although not on the reasoning of the district court. Defendants-appellants shall recover their costs on appeal.

1 . The final payments for both properties are scheduled to be completed in 2003.

2 . Cook County argued that ¶ 500.9a should not be construed to exempt property owned by the United States because Article IX, Section 6 of the Illinois Constitution provided that the Illinois General Assembly could exempt only state and local' governmental property from taxation.

3 . Now codified at 35 ILCS 205/19.9a (effective January 1, 1993).

4 . The panel in County of Cook did refer to another provision of the Illinois statutes, ¶ 500.4 (now codified at 35 ILCS 205/19.4 (effective January 1, 1993)), exempting "[plroperty of the United States, except such property as the United States has permitted or may permit to be taxed.” The court noted that § 602a(d) "provides the consent called for by paragraph 500.4.” 725 F.2d at 1130.

5 . We found only two published opinions (other than County of Cook and the lower court opinions in this case) which mention § 602a. In United States v. Broward County, 901 F.2d 1005 (11th Cir.1990), the United States challenged the amount of a tax assessment for a § 602a building, but did not allege that the state statute was discriminatory. The pertinent Florida statute provided that "[a]ll property of the United States shall be exempt from ad valorem taxation, except such property as is subject to tax by this state or any political subdivision thereof or any municipality under any law of the United States.” Fla. Stat.Ann. § 196.199(l)(a). The statute also provided an exemption for "[a]ll property of this state which is used for governmental purposes ...” and "[a]U property of the several political subdivisions and municipalities of this state ... which is used for governmental, municipal, or public purposes_" Fla.Stat.Ann. § 196.-199(1)(b) and (c). The other case, United States v. Metropolitan Gov't of Nashville, 808 F.2d 1205 (6th Cir.1987), is not relevant to the present issue.

6 . We have examined the County of Cook briefs; this material regarding the thirty-two states was not presented to the court in that case.