Opinion
No. 32063
Decided June 21, 1950.
Taxation — Exemption — Improvements owned by United States — Located on municipal property held by United States under lease — Improvements leased to private corporation — State may tax instrumentalities of United States, when — Waiver of immunity — Not effected by taking assignment of lease, when — Lease required lessee to pay taxes.
1. Improvements owned by the United States of America and located on lands owned by a municipality and held by the United States under lease acquired by assignment are exempt from taxation as to the United States, even though such improvements are leased to a private corporation engaged in private business.
2. A state may tax instrumentalities of the United States if the latter consents thereto, but the taking by the United States of an assignment of a lease providing that the lessee shall pay taxes levied against the property leased does not constitute a waiver of immunity from taxation of such property.
APPEAL from the Board of Tax Appeals.
This is an appeal by the auditor of Franklin county from a decision of the Board of Tax Appeals granting an application by the United States of America (Department of the Navy) for the remission of taxes for the year 1948 and exemption from taxation for the year 1949 on certain improvements which are owned by the United States and which had been placed on lands in Mifflin township, owned by the city of Columbus and in the possession of the United States government (Department of the Navy) as lessee.
The facts are not in dispute and are, as stated in the brief of appellant, substantially as follows:
On October 10, 1940, the city of Columbus leased to the Curtiss-Wright Corporation for a period of 25 years certain lands for the purpose of manufacturing airplanes, with an option of renewal for a like period, at a rental of $1 per year.
Among other provisions in the lease were the following:
"1. The lessee shall within 90 days from the effective date of this lease, begin and diligently prosecute to completion on said land herein leased the erection of buildings and other improvements appurtenant thereto suitable for the manufacture of airplanes, the same to cost not less than $2,000,000 * * *.
"* * *
"8. The lessee shall pay during the terms of this lease any and all property taxes on the premises described in this lease, and any improvements constructed thereon."
On December 30, 1940, Curtiss-Wright Corporation assigned to Defense Plant Corporation, an instrumentality of the Reconstruction Finance Corporation, all of its right, title and interest in and under the lease. The Reconstruction Finance Corporation succeeded to all the rights of the Defense Plant Corporation by virtue of Public Law 109, 79th Congress, approved June 30, 1945. On November 28, 1947, the Reconstruction Finance Corporation assigned the lease to the United States (Department of the Navy), which assignment was accepted March 9, 1948. The assignment contained the following:
"The United States hereby assumes the performance of all of the terms, covenants and conditions of the lease, as amended, * * * on the part of the lessee to be performed on and after the date hereof and agrees to pay the rent on the next rent day and thereafter."
On November 28, 1947, the Reconstruction Finance Corporation, by bill of sale, conveyed to the United States (Department of the Navy) all its right, title and interest in, inter alia, the improvements placed upon the land which had been leased by the city of Columbus to Curtiss-Wright Corporation and which by subsequent assignments had come into the possession of the Reconstruction Finance Corporation as lessee.
Effective as of January 1, 1948, the United States, acting through the Department of the Navy, leased to Curtiss-Wright Corporation for a period of five years the land in question which had been leased on October 10, 1940, by the city of Columbus to Curtiss-Wright Corporation, including all improvements thereon. As consideration for the lease of the plant and facilities, the Curtiss-Wright Corporation agreed to preserve, maintain and protect the plant and facilities, but could not be required to expend more than $768,000 for the first year of the lease, and agreed to pay a cash rental of $72,000 per year. Both of these were subject to renegotiation at the end of each year.
After the property was transferred from the Reconstruction Finance Corporation to the United States, the county auditor continued to assess taxes thereon as theretofore. On June 13, 1949, the United States applied to the Board of Tax Appeals for a remission of taxes for the year 1948 and exemption from taxation for 1949.
The evidence before the Board of Tax Appeals was to the effect that, subsequent to the execution of the lease between the United States and Curtiss-Wright Corporation, the latter had been almost wholly engaged in overhauling air force and navy aircraft and in producing subcontracted items for companies having contracts with the government; that there was nothing in the lease to prevent Curtiss-Wright Corporation from manufacturing products for sale to the public; and that a minor part of its production for the last two years had been for other than government use.
The Board of Tax Appeals held that the land owned by the city of Columbus was not being used exclusively for a public purpose and was taxable. It, therefore, denied the applications for remission of taxes and exemption from taxation as to the land. No appeal was taken by the United States from the denial of these applications.
The Board of Tax Appeals held also that the improvements on the land were not taxable by the state since they are owned by the United States, and Congress has not consented to their taxation. The Board of Tax Appeals therefore granted the applications for remission of taxes and exemption from taxation as to the improvements owned by the United States of America.
The auditor of Franklin county appeals from the order granting these applications.
Mr. Ralph J. Bartlett, prosecuting attorney, and Mr. David B. Sharp, for appellant.
Mr. Herbert S. Duffy, attorney general, and Mr. W.H. Annat, for appellee Board of Tax Appeals.
Mr. A. Devitt Venech, Mr. Roger P. Marquis and Miss Wilma C. Martin, for appellee United States of America (Department of the Navy).
The question before this court is whether the Board of Tax Appeals erred in holding that the United States is entitled to the remission of taxes for the year 1948 and the exemption from taxation for the year 1949 on improvements owned by it and located upon certain lands owned by a municipality and now held by the United States under a lease acquired by assignment, even though such improvements so owned are leased to a private corporation engaged in private business.
The applications for the remission and exemption were based upon the provisions of Section 5351, General Code, the pertinent part of which is as follows:
"Real or personal property belonging exclusively to the state or United States, and public property used for a public purpose, shall be exempt from taxation * * *." (Italics supplied.)
The appellant claims that to be tax exempt, the property, even though owned by the United States, must be used for a public purpose. To establish the fact that it is not being so used, the appellant relies upon the record wherein it appears that one reason for leasing the property to the Curtiss-Wright Corporation was that the Secretary of the Navy had "determined that the plant and facilities are not for the time required for public use."
This court, in the case of Federal Public Housing Authority v. Guckenberger, Aud., 143 Ohio St. 251, 55 N.E.2d 265, construed the provisions of Section 5351, General Code, and held that the statute "exempting from taxation real or personal property belonging exclusively to the state or the United States is limited by the terms of Section 2 of Article XII [of the Ohio Constitution] to property used exclusively for any public purpose." On appeal of that case to the Supreme Court of the United States, that court reversed the judgment of this court and held that the property in question owned by a federal housing authority, an instrumentality of the United States, even though not used for a public purpose, was, nevertheless, exempt from taxation by the state of Ohio; and that Congress had power to exempt from taxation property owned by the United States or its instrumentalities and had done so. See City of Cleveland v. United States, 323 U.S. 329, 89 L. Ed., 274, 65 S. Ct., 280.
In the case of United States ( Farm Credit Administration) v. Board of Tax Appeals, 145 Ohio St. 257, 61 N.E.2d 481, this court held that "without the consent of the Congress a state may not tax land belonging to the United States." Judge Turner, in his opinion in that case, cited and commented upon the cases of Van Brocklin v. State of Tennessee, 117 U.S. 151, 29 L. Ed., 845, 68 S. Ct., 670, and Wisconsin Central Rd. Co. v. Price County, 133 U.S. 496, 33 L. Ed., 687, 10 S. Ct., 341.
In the case of Guckenberger, Aud., v. Toledo Cincinnati Rd. Co., 144 Ohio St. 571, 60 N.E.2d 163, wherein a factual situation almost identical with that now before us was involved, this court held:
"Structures erected by the government of the United States upon land occupied by it for military purposes under a lease by the terms of which such structures are to remain the property of the government and may be removed at the expiration of the lease are, during the period of such use and occupancy, exempt from taxation and should be placed by the county auditor on the `list of exempted property,' separate and apart from the land covered by the lease."
In the opinion in that case, Judge Matthias said:
"The precise question to be decided here is whether the structures in question owned by the United States government shall be exempted from taxation, where the land upon which they are placed is taxable. It is obvious from the record presented in this case that if the position of the appellant be sustained, a tax would in fact be levied against the United States, for it would cause such increase of rentals as would be essential to reimburse the land owner for the taxes he would be required to pay upon the structures which under the terms of the lease are the property of the United States government."
To the same effect, see United States v. County of Allegheny, 322 U.S. 174, 88 L. Ed., 1209, 64 S. Ct., 908; 51 American Jurisprudence, 285, Section 224.
The appellant claims further that since the United States, in assuming the lease on the lands in question, agreed to carry out its terms and conditions, one of which was that the lessee would pay all taxes on the land and any improvements thereon, it thereby agreed to pay the taxes in question and is estopped to claim exemption therefrom. Although a state may tax instrumentalities of the national government if the latter consents thereto, such waiver or consent must be duly authorized and clearly given. Austin v. Aldermen, 74 U.S. 694, 19 L. Ed., 244.
This question seems to have been settled in the case of United States v. County of Allegheny, supra, where, in the L. Ed. headnote, it is stated:
"Assuming the power of a contracting officer to waive by contract the immunity of the property of the United States from taxation, a contract requiring a contractor to whom the United States has leased machinery to obey and abide by the `applicable' state law, and assuming the burden of `any applicable state or local taxes' which the contractor may be required, on account of the contract, to pay, after using every effort short of litigation to procure exemption or refund, is not effective as a waiver."
The decision of the Board of Tax Appeals must be and is affirmed.
Decision affirmed.
WEYGANDT, C.J., MATTHIAS, ZIMMERMAN, STEWART, TURNER and TAFT, JJ., concur.