United States v. Nye County Nevada Bernie C. Merlino, Nye County Assessor

938 F.2d 1040, 37 Cont. Cas. Fed. 76,145, 91 Daily Journal DAR 84790, 91 Cal. Daily Op. Serv. 5484, 1991 U.S. App. LEXIS 15199, 1991 WL 126046

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 15, 1991
• Docket: 90-15128
• Status: Published

Opinions

DAVID R. THOMPSON, Circuit Judge:

The United States challenges Nye County’s imposition of a tax on Areata Associates, Inc. (Areata), a defense contractor. The United States argues that the tax violates the Constitution because it, in effect, is a tax upon property of the United States. The district court entered judgment for the United States, enjoined further assessments of the tax by the County and adjudged the County liable for the taxes previously paid. We hold that the tax Nye County levied on Areata is an ad valorem tax on property owned by the United States government. As such, the supremacy clause and McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579 (1819), render the tax unconstitutional. We therefore affirm.

FACTS

Areata is an independent federal contractor.¹ It maintains and operates government-owned electronic equipment used by the United States Air Force to simulate Soviet defense systems at the Tolicha Peak Electronic Combat Range and the Tonopah Electronic Combat Range in Nye County, Nevada. The Air Force uses these systems and devices to train Air Force pilots. Pursuant to its contract with Areata, the United States reimburses Areata for all costs incurred by the company and, in addition, pays Areata a fixed base fee and a performance award fee for its services.

The Air Force directs Arcata’s operation of all government-owned equipment. Area-ta does not have the right to use the equipment for its own account or business. It has no property interest in the equipment. Its only access to the equipment is at the time and place and in the manner directed by the United States. Areata cannot exclude Air Force personnel or other contractors from operating or maintaining the equipment. The United States can terminate its relationship with Areata at will.

Nye County contends Areata has a taxable interest in the equipment. It assessed a personal property tax against Areata under Nev.Rev.Stat. 361.159, as if Areata were the owner of the equipment. The statute provides in pertinent part:

1. Personal property exempt from taxation which is leased, loaned or otherwise made available to and used by a natural person, association or corporation in connection with a business conducted for profit is subject to taxation in the same amount and to the same extent as though the lessee or user were the owner of the property ...

Unpaid taxes under this statute do not become a lien on the property but are an obligation of the lessee or user. Id. § 361.159.2. For tax years 1983-84 through 1988-89 taxes assessed against Areata under the statute totaled $127,-414.03. Areata paid these taxes under protest. The United States reimbursed Areata as required by Arcata’s contract. It then sued Nye County to recover the taxes, to obtain a declaratory judgment that assessment of the taxes was unconstitutional, and to enjoin further assessment. After a bench trial, the district court entered judgment in favor of the United States. Nye County appeals.

DISCUSSION

The unconstitutionality of Nye County’s tax is best understood by comparing it to tax measures that have survived, and those that have perished, in the face of ad valorem challenges. The survivors have been tax measures imposed on an isolated possessory interest or on a beneficial use of United States property. The perished have been tax measures levied on the property itself.

Of the survivors, United States v. County of Fresno, 429 U.S. 452, 97 S.Ct. 699, 50 L.Ed.2d 683 (1977), illustrates a possessory use tax. There, California taxed possesso-ry interests in federally owned housing held by federal forest rangers. The Supreme Court refused to invalidate the tax, holding that, to the extent a state can isolate a private person’s property interest in property owned by the United States, the state can tax the interest. Id. at 462, 97 S.Ct. at 704-05.

A beneficial use tax was at issue in United States v. New Mexico, 455 U.S. 720, 102 S.Ct. 1373, 71 L.Ed.2d 580 (1982). There the Court upheld the tax because it was measured by the gross receipts of the lessee. The Court concluded: “In effect, the gross receipts tax operates as a tax on the sale of goods and services.” Id. at 727, 102 S.Ct. at 1379. In United States v. City of Detroit, 355 U.S. 466, 78 S.Ct. 474, 2 L.Ed.2d 424 (1958), the amount of the tax was computed with reference to the value of the United States property used by the lessee, but because the tax reached only the lessee’s beneficial use, the tax was upheld. The Court stated: “A tax for the beneficial use of property, as distinguished from a tax on the property itself, has long been a commonplace in this country.” City of Detroit, 355 U.S. at 470, 78 S.Ct. at 476.

Tax measures which have perished under an ad valorem challenge are exemplified by United States v. Colorado, 627 F.2d 217 (10th Cir.1980), summarily aff'd sub nom. Jefferson County v. United States, 450 U.S. 901, 101 S.Ct. 1335, 67 L.Ed.2d 325 (1981), and United States v. Hawkins County, 859 F.2d 20 (6th Cir.1988). In Colorado, the Tenth Circuit, after stressing that the contractor in the case held no leasehold interest in the government property, invalidated the tax. The tax could not be upheld because “the State of Colorado [sought] to impose a tax on [the contractor] to be measured by the value of the [United States land]....” 627 F.2d at 220. Similarly, in Hawkins County, the Sixth Circuit invalidated a Tennessee tax statute because it “fairly cannot be said to impose a tax on [the private entity’s] beneficial use; instead, the statute describes an ad valorem tax on an interest in real property.” Hawkins County, 859 F.2d at 23.

The teaching of the foregoing cases is that the wording of a tax measure is significant. This does not mean we exalt form over substance. It means that when a statute says it taxes property it probably does. And when it says it doesn’t, it probably doesn’t. In County of Fresno, the Court upheld California’s levy of a tax on the possessory interest of federal employees. In New Mexico, the Court upheld New Mexico’s tax on the gross receipts of an entity that used federal land. In City of Detroit, the Court upheld a tax on a private entity’s beneficial use of United States property even though the beneficial use was measured by the value of the property. In none of these cases was the property itself the subject of the tax.

In contrast, the Nevada statute under which Nye County seeks to impose its tax against Areata taxes the user “in the same amount and to the same extent as though the lessee or user were the owner of the property.” Nev.Rev.Stat. § 361.159. Here, the property belongs to the United States. Areata has no leasehold interest in it, but merely has the privilege, terminable at the will of the government, to use the property at the time and place and in the manner directed by the United States. Nye County makes no attempt to segregate and tax any possessory interest Area-ta may have in the property, or Arcata’s beneficial use of the property. Nye County simply taxes Areata as if it were the owner of the property. The tax effectively lays “an ad valorem general property tax on property owned by the United States.” Colorado, 627 F.2d at 221. As the Sixth Circuit concluded in Hawkins County:

Whether or not the Tennessee legislature had in mind a tax on beneficial use, it unquestionably did not describe one when it enacted the statute in question. Since [the contractor] has been determined not to have a real property interest in the facility, Tennessee’s attempt to tax [the contractor] resulted in what was, in reality, a tax upon the United States itself.

Hawkins County, 859 F.2d at 24.

While Nye County could no doubt enact a statute taxing a lessee’s possessory interest in, or a user’s beneficial use of, property owned by the United States, the statute under which it levied taxes against Areata is not such a tax measure. The Nye County tax is an ad valorem tax on property of the United States and as such it is unconstitutional. The judgment of the district court is AFFIRMED.

1 . The United States concedes that Areata cannot be considered an agent or instrumentality of the government.