MR. JUSTICE BLACK delivered the opinion of the Court.
This is the third in a series of cases from the State of Michigan decided today involving a claim of constitutional tax immunity.
On January 1, 1952, the City of Detroit and the County of Wayne, Michigan, each assessed a tax against Murray which in part was based on the value of materials and work in process in its possession to which the United States held legal title under the title-vesting provisions of the subcontract.
We believe that this case is also controlled by the principles expressed in our opinions in Nos. 26 and 37, ante, pp. 466, 484, and that the taxes challenged here do not violate the Constitution.
The taxes imposed on Murray were styled a personal property tax by the Michigan statutes and it relies upon this to support its contention that they were actually laid against government property. However in passing on the constitutionality of a state tax "we are concerned only with its practical operation, not its definition or the precise form of descriptive words which may be applied to it." Lawrence v. State Tax Commission, 286 U.S. 276, 280. Consequently in determining whether these taxes violate the Government's constitutional immunity we must look through form and behind labels to substance. This is at least as true to uphold a state tax as to strike one down. Cf. Wisconsin v. J. C. Penney Co., 311 U.S. 435, 443-445;
In their practical operation and effect the taxes in question are identical to those which we upheld in Nos. 26 and 37 on persons using exempt real property. We see no essential difference so far as constitutional tax immunity is concerned between taxing a person for using property he possesses and taxing him for possessing property he uses when in both instances he uses the property for his own private ends. Nor have we been pointed to anything else which would bar a State from taxing possession in such circumstances. Cf. Carstairs v. Cochran, 193 U.S. 10. Lawful possession of property is a valuable right when the possessor can use it for his own personal benefit.
It is true that the particular Michigan taxing statutes involved here do not expressly state that the person in possession is taxed "for the privilege of using or possessing" personal property, but to strike down a tax on the possessor because of such verbal omission would only prove a victory for empty formalisms. And empty formalisms are too shadowy a basis for invalidating state tax laws. Cf. Henneford v. Silas Mason Co., 300 U.S. 577, 582. In the circumstances of this case the State could obviate such grounds for invalidity by merely adding a few words to its statutes. Yet their operation and practical effect would remain precisely the same.
The respondents rely heavily on United States v. Allegheny County, 322 U.S. 174. Petitioners on the other hand contend that the decision in Allegheny is inconsistent with the general trend of our decisions in this field, that it has already been distinguished to the point where it retains no meaningful vitality and that it is erroneous. However that may be, we do not think that case is controlling, essentially for the reasons set forth in United States v. City of Detroit, ante, p. 466. In Allegheny the Court emphasized that the tax against Mesta Machine Company was, in its view, a general property tax laid on government property as such. The Court pointed out that the State had "made no effort to segregate Mesta's interest and tax it." The question was expressly reserved whether the State could tax a person possessing government property for the possession and use of such property in connection with his own profit-making activities. Here, however, state law specifically authorizes assessment against the person in possession. And the taxing authorities were careful not to attempt to tax the Government's interest in the property.
In all important particulars the taxes imposed here are very similar to that upheld in Esso Standard Oil Co. v. Evans, 345 U.S. 495, on the storage of gasoline for the
We find nothing in the Constitution which compels us to strike down these state taxes. There was no discrimination against the Federal Government, its property or those with whom it does business. There was no crippling obstruction of any of the Government's functions, no sinister effort to hamstring its power, not even the slightest interference with its property. Cf. M'Culloch v. Maryland, 4 Wheat. 316. In such circumstances the Congress is the proper agency, as we pointed out in United States v. City of Detroit, to make the difficult policy decisions necessarily involved in determining whether and to what extent private parties who do business with the Government should be given immunity from state taxes.
The judgment of the Court of Appeals is reversed and the cause is remanded for further proceedings not inconsistent with this opinion.
It is so ordered.
Opinion of MR. JUSTICE FRANKFURTER.
Adjustment of the interpenetrating factors involved in the Nation-State relation of our federal system, insofar as they are amenable to adjudication, is a subtle and complicated process. It precludes easy application even
The diversity of views expressed in these cases, even when there is concurrence in result, suggests the desirability of recalling, to use an old-fashioned phrase, "first principles." After all, we are dealing with problems that have, howsoever they may have appeared in particular situations, an unbroken history of nearly a century and a half. Temerarious as the claim may appear, there is a residuum of continuity in the reconciliation that the numerous cases since M'Culloch v. Maryland, 4 Wheat. 316 (1819), have made between the power of the States to tax and the restriction against laying a tax upon "the Government, its property or officers." James v. Dravo Contracting Co., supra, at 149. The governing principles, as Chief Justice Marshall himself formulated them, bear quotation:
No less helpful in giving directions for the path of solution to our immediate problems are the comments on these principles by Mr. Justice Bradley, whose powers of penetrating analysis, particularly in this field, were in my view second to none.
When Mr. Chief Justice Hughes quoted the latter paragraph in support of the decision in James v. Dravo Contracting Co., supra, at 155, he impliedly indicated that some decisions that gave government contractors immunity from taxation for their property, profits, or purchases deviated from the traditional doctrines of implied governmental immunity, and that the decision in the Dravo case was essentially a return to orthodoxy as Mr. Justice Bradley had elucidated it. I venture to say that whatever deviations or even aberrations from true doctrine cases here and there and now happily laid to rest may disclose, there is a residuum of continuity over the long course of judicial adjustment of the States' power to tax and the limits placed upon it by the implied immunity of the National Government from the demands of the state tax collectors. No decision has ever questioned that a tax cannot be laid upon "the Government,
As Mr. Chief Justice Stone stated for a unanimous court in Alabama v. King & Boozer, 314 U.S. 1, 9, the application, and therefore the outcome, in cases like those before us of these general principles "turns on the terms of the contract and the rights and obligations of the parties under it." Nothing better illustrates the truth of this statement than a comparison of King & Boozer with Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, a case whose relevance is not minimized by the loud silence the Court's present opinions accord it. Since "intergovernmental submission to taxation is primarily a problem of finance and legislation," 347 U. S., at 122, it is immaterial that contracts by the Government have been purposefully drawn so as to vest title to the property that is the subject of the tax in the Government, and thereby withdraw it from the taxing power of the States.
If a legal decision were a vehicle for the expression of merely personal views, I might take satisfaction as a dissenter on the facts from the Allegheny decision that those who concurred in the result now for all practical purposes repudiate it. The principle on which the decision rested, that a tax cannot be laid on the property of the Federal Government, was not, as the opinion stated, questioned in that case. 322 U. S., at 177. The division turned on a relevant construction of the Pennsylvania taxing system in respect to fixtures in their enhancement of
Contract to manufacture ordnance. Machinery needed to produce ordnance to be furnished by Government, or to be manufactured or purchased by contractor.
Title to machinery furnished by Government to remain in Government; title to machinery manufactured or purchased by contractor to vest in Government upon delivery to site of work and inspection and acceptance on behalf of Government.
Machinery to be leased to contractor during period of contract.
Machinery bolted to concrete foundations in contractor's plant.
Subcontract to manufacture airplane parts, subassemblies and nondurable tools (supplies).
Title to parts, materials, inventories, work in process, and nondurable tools (materials) to vest in Government upon making of partial payments on such materials to contractor.
Materials segregated and identified as Government property, and records kept when withdrawn for use in producing supplies.
Revised contractor's previously determined assessment for ad valorem taxes by adding thereto the value of the machinery.
Assessment of contractor's personal property made including amount for materials acquired for performance of contract.
Statute provided: "The following subjects and property shall . . . be valued and assessed and subject to taxation . . . (a) All real estate . . . ." 347 Pa. 191, 193, 32 A.2d 236, 237-238. State Supreme Court held that machinery constituted part of the mill for purposes of assessment and was properly assessed as real estate.
State Supreme Court found that the tax was assessed not against the Government but against the contractor.
Statute entitled "General Property Tax Act," "AN ACT to provide for the assessment of property and the levy and collection of taxes thereon . . . . That all property, real and personal, within the jurisdiction of this state . . . shall be subject to taxation." 6 Mich. Stat. Ann., 1950, §§ 7.1-7.2.
City Charter provided: "City Treasurer shall enforce the collection of all unpaid taxes which are assessed against the property or value other than real estate." Charter of the City of Detroit, Tit. VI, c. IV, § 26.
Statute provided that taxes assessed "shall become at once a debt due . . . from the persons to whom they are assessed. . . ." 6 Mich. Stat. Ann., 1950, § 7.81.
City Charter provided that, "The owners or persons in possession of any personal property shall pay all taxes assessed thereon," that all city taxes upon personal property "shall become a debt against the owner from the time of the listing of the property for assessment . . . ," and that if the taxes remain unpaid, "the City Treasurer shall forthwith levy upon . . . the personal property of any person refusing or neglecting to pay such tax . . . ." Tit. VI, c. IV, §§ 1, 27, 26.
Statute provided: taxes are "declared to be a first lien on said property." 322 U.S. 174, 185.
State Supreme Court found that even if contractor defaulted in payment of tax, the rights of the Government in the machinery could not in any way be affected.
Statute provided: "all personal taxes hereafter levied or assessed shall also be a first lien . . . on all personal property of such persons so assessed. . . . The personal property taxes hereafter levied or assessed by any city or village shall be a first lien . . . upon the personal property assessed. . . ." 6 Mich. Stat. Ann., 1950, § 7.81.
City Charter provided that all city taxes "shall become a lien on the property taxed . . . ," and that "All city taxes upon personal property shall become. . . a lien thereon and so remain until paid . . . ." Tit. VI, c. IV, §§ 1, 26.
Assessor inscribed on tax roll: "Assessed Subject to Prior Rights of Federal Government."
I cannot believe that the Court would outright reject the doctrine of constitutional immunity from taxation of the Government and its property. I cannot believe that the Court is prepared frankly to jettison what has been part of our constitutional system for almost 150 years. But it does not save the principle to disregard it in practice. And it disregards it in practice to argue from the right of a State to levy an excise tax against a contractor for the enjoyment of property that gives him an economic advantage because it is otherwise immune from taxation, to the right of a State professedly and directly to lay an ad valorem property tax on what is indubitably government property.
A totally different problem is presented by Nos. 26, 37, and 38. These cases present the question whether enjoyment of the use of property that carries special economic
The only right that a taxpayer can assert against the state taxing power on the basis of governmental immunity is a "derivative one," James v. Dravo Contracting Co., 302 U.S. 134, 158, supra, and if he is to resist the exercise of this power he must stand in the Government's shoes. The immunity that he asserts is the Government's immunity, not his own. In taxing the enjoyment or use of property that is itself free from taxation, the State taxes an interest of the taxpayer, not of the Federal Government, and the tax is not laid on "the Government, its property or officers." The taxpayer is not immune from a tax because as a matter of dollars and cents it may affect the Government. To be sure, the excise in Nos. 26, 37, and 38 is measured by the value of the property, so that if the property were directly taxed the tax bill would be the same. But if the enjoyment of otherwise tax-free property is something different from the property itself for purposes of taxation, it does not lose this characteristic because the admeasurement is the same.
A principle with the uninterrupted historic longevity attributable to the immunity of government property from state taxation has a momentum of authority that reflects, if not a detailed exposition of considerations of policy demanded by our federal system, certainly a deep
The danger of hindrance of the Federal Government in the use of its property, resulting in erosion of the fundamental command of the Supremacy Clause, is at its greatest when the State may, through regulation or taxation, move directly against the activities of the Government. Scarcely less is the danger when the subject of a tax, that at which the State has consciously and purposefully aimed in attaching the consequence of taxability, is the property of the Federal Government. It is not only that the likelihood of local legislation deliberately or unwittingly discriminatory against government property either by its terms or application may be enhanced. Even a nondiscriminatory tax, if it is expressly laid on government property, is more likely to result in interference with the effective use of that property, whether because of an ill-advised attempt by the tax collector to levy on the property itself or because it is sought to hold the Government or its officers to account for the tax, even if ultimately the endeavor may fail. The defense of sovereign immunity to a suit against government officers for the tax, or a suit to assert title to
The fact that a tax on a third party for the privilege of using government property may itself have an indirect impeding effect is no reason against a rule designed to avoid the more direct and obvious evil. Because a constitutional doctrine is not pushed to the logical extremities of its policy is no argument against maintaining it as far as it has historically extended. From the beginning a broad cloak of immunity for government property has been thought the best way to allay the danger of state encroachment on the national interest, and the character of our federal system and the relations between the Nation and the States have not in this regard so changed that the principle has become outmoded.
If the distinctions between the taxes involved in these cases seem nice, it is because "nice distinctions are to be expected," Galveston, H. & S. A. R. Co. v. Texas, 210 U.S. 217, 225, and they are none the worse for it. Not to make them, to lump all these cases together as though some similarities and assumed similar consequences amount to identities, is to disregard a long, unbroken course of judicial history and practicalities of government that doubtless have led, under prior decisions of this Court, to the drawing of countless contracts covering the use of government property.
Accordingly, I dissent from the Court's opinion in Nos. 18 and 36, and concur in the result in Nos. 26, 37, and 38.
Opinion of MR. JUSTICE HARLAN.
Because all but two members of the Court consider that the taxes involved in these cases all stand or fall
In determining the constitutionality of a state tax against a claim of federal immunity, past cases in this Court have established a distinction between "property" and "privilege" taxes of one kind or another. That is, broadly speaking, a State may not constitutionally tax property owned by the Federal Government, even though the property is in private hands and the tax is to be collected from a private taxpayer, United States v. Allegheny County, 322 U.S. 174, but it may tax activities of private persons, even though these activities involve the use of government property and the value or amount of such property becomes the partial or exclusive basis for the measurement of the tax. Curry v. United States, 314 U.S. 14; Esso Standard Oil Co. v. Evans, 345 U.S. 495. Cf. Plummer v. Coler, 178 U.S. 115; Educational Films Corp. v. Ward, 282 U.S. 379. Although the opinions of the Court in the present cases stop short of repudiating this established distinction, they seem to me to blur it to the point where the extent of its future application is left confused and uncertain.
In view of this Court's past decisions in the privilege-tax cases, I agree with the majority today that the lessee's and user's tax in Nos. 26, 37 and 38, construed by the state court to be a tax on the privilege of using tax-exempt property, is constitutional as applied. The dissenting opinion, which I do not believe can be reconciled with these past decisions, concludes that the tax imposed upon those using tax-exempt property for private profit should be regarded in substance as a tax on the property itself because the privilege tax is measured by the full value of the leased or used property, rather than merely by the value of the lessee's or user's interest.
It should be observed that the state taxes here, as those in Curry and Esso Standard Oil Co., do not operate in a discriminatory fashion by so measuring the tax on use or activities as to impose an unequal tax burden on lessees or users of government property vis-a-vis lessees, users, or owners of other tax-exempt or nonexempt property. And since this is so, I cannot agree with the dissenting opinion that this Court's view of the state legislature's purpose in enacting the statute should affect our determination of its constitutionality. Although Michigan here sought to equalize tax burdens on users of normal and tax-exempt property, or perhaps even to by-pass Allegheny,
In Nos. 18 and 36 the Court holds that a tax which the dissenting opinions convincingly show is nothing but a conventional ad valorem personal property tax should be regarded instead as a tax upon the possession of government property privately used. This the Court finds constitutionally indistinguishable from the tax upon the use of government property privately possessed which has been upheld as a privilege tax in Nos. 26, 37, and 38. That is to say, the Court finds that the Government's property here was simply the measure, and not the subject matter, of a tax which was in effect imposed on the privilege of possessing property used for private gain.
In so holding, the Court, proceeding on the premise that Detroit's characterization of this tax as a personal property tax does not bind us, Carpenter v. Shaw, 280 U.S. 363, 367-368, relies on the circumstances that this government property was used for private gain, that the tax was collectible under the statute from the subcontractor and not from the Government or out of its property, and that the tax was nondiscriminatory. But all of these factors were present in United States v. Allegheny County, supra, where the Court struck down a local tax also cast in the traditional language of a "property" tax. Although the Court here purports to distinguish Allegheny, it seems to me that the authority of that case has now been reduced almost to the vanishing point, for neither the tax statute
What has happened in these two groups of cases no doubt reflects the difficulty of reconciling Allegheny with the privilege tax cases, and bears witness to the truth of Mr. Justice Jackson's statement in Allegheny that in the evolution of the law in this difficult field "the line between the taxable and the immune has been drawn by an unsteady hand." 322 U. S., at 176. Since the economic incidence of a state tax on the Federal Government is no longer a controlling factor, James v. Dravo Contracting Co., 302 U.S. 134; Alabama v. King & Boozer, 314 U.S. 1, and since the use of federally owned property as the measure, by value or amount, of a tax on the privilege of using (Curry v. United States, supra) or storing (Esso Standard Oil Co. v. Evans, supra) such property is permissible, the distinction between "property" and "privilege" taxes as a yardstick for judging constitutionality when both taxes are collectible from a private taxpayer holding the property is certainly left in a high degree of artificiality. See Powell, Intergovernmental Tax Immunities, 58 Harv. L. Rev. 633, 757; cf. Society for Savings v. Bowers, 349 U.S. 143, 148. This is certainly so where the property tax applies to property used by a private party in some activity which is a proper subject of state taxation, see M'Culloch v. Maryland, 4 Wheat. 316, 429, and where, as here, the State does not seek to accomplish what would in any event be procedurally impossible because of the doctrine of sovereign immunity from suit—enforcement of a lien asserted against government property. It is quite understandable, therefore, that the Court should wish to minimize the importance of that distinction.
But by holding that the ad valorem personal property taxes involved in Nos. 18 and 36 should be regarded as
In my opinion, so fluid a rule incorporating these elusive additional distinctions will hardly help those who in their daily business must negotiate contracts for or with the Government. Indeed, the difficulty of its application is effectively illustrated by the divergence of opinion in these very cases, wherein five members of the Court have concluded that these particular "property" taxes are in reality "privilege" taxes. Rather than add further complications to an already troubled area of the law, I think the preferable course is to follow our past cases, upon which those contracting for the Government have undoubtedly relied, and to leave to Congress the task of adjusting to the needs of today the law which Allegheny and the privilege tax cases have created.
For these reasons, I have joined the opinion of the Court in Nos. 26, 37 and 38, and the dissenting opinion of MR. JUSTICE WHITTAKER in Nos. 18 and 36.
I respectfully dissent. The bases of my disagreement can be made clear only by a full treatment of the case.
On December 20, 1950, the United States entered into a contract with Kaiser Manufacturing Company under which the latter agreed to produce and deliver to the Air Force certain airplanes, airplane parts and subassemblies, at fixed prices; and on December 12, 1950, a similar contract was made by the Government with Curtiss-Wright Corporation. As contemplated by the parties, Kaiser, on March 23, 1951, and Curtiss-Wright, on April 19, 1951, entered into subcontracts with respondent, The Murray Corporation of America, under which the latter agreed to produce and deliver to those prime contractors certain airplane parts, subassemblies and nondurable tools (hereinafter called supplies) at fixed prices, which subcontracts were approved by the contracting officer of the Air Force. The subcontracts contained "partial payment" provisions which provided, among other things, that upon the making of any partial payments to Murray under the subcontracts "title to all parts, materials, inventories, work in process and non-durable tools theretofore [and thereafter, upon acquisition] acquired or produced by the [sub]contractor for the performance of [the] contract[s], and properly chargeable thereto . . . shall forthwith vest in the Government." Such property will hereinafter be called materials. After the date of the subcontracts, and prior to January 1, 1952, the Government, through the prime contractors, made "partial payments" to Murray in the amount of $674,776.87.
On the 1952 tax assessment date of January 1, 1952, petitioners, the City of Detroit and the County of Wayne, made an assessment (valuation) of Murray's personal property in the amount of $12,183,180, which included $2,043,670 for materials originally acquired by Murray for the performance of the subcontracts, and properly chargeable thereto. Applying their respective tax rates to that assessment, the City of Detroit imposed a tax of $67,714.96 and the County of Wayne imposed a tax of $12,572.66, more than would have been the case if the value of the materials of $2,043,670 had not been included in the 1952 assessment against Murray.
Murray paid those taxes under written protest,
The majority now reverses the Court of Appeals and reinstates the assessment and tax. In doing so, I believe, they are not only in serious error, but also they add words to the taxing Acts involved and the opinion openly so admits. See p. 493, supra.
Three principal issues are presented, namely: (1) Did the Government, by the terms of the "partial payment" provisions of the subcontracts, become "vest[ed]" with "title" to all elements of property and incidents of ownership in the materials referred to prior to the assessment date, or did it thereby acquire "title" thereto only as security and, thus, become only a lienor? (2) Is this a general ad valorem tax imposed on the materials, as contended by respondents and as found by the Court of Appeals? (3) If the materials were, in fact, the property of the Government on the assessment date, and the tax constitutes a general ad valorem tax on that property, may the tax be constitutionally imposed?
The first question of whether the Government acquired complete and absolute title to the materials prior to, and beneficially owned them on, the assessment date, as respondents contend, or had acquired "title" thereto only as security and was therefore only a lienor, as contended by petitioners, depends upon the terms of the "partial payment" provisions of the subcontracts and upon actual operations thereunder, for the question, in last analysis, is one of intention of the contracting parties.
The partial payment provisions, in pertinent part, provide:
It was shown, by an uncontradicted affidavit, at the hearing on the motion for summary judgments that the materials originally acquired by Murray for performance of the subcontracts, and properly chargeable thereto, were completely segregated from all other personal property in its plant and were "clearly identified." by "tagging [or] labeling," as property of the Government; that as materials were withdrawn by Murray, for use in producing the supplies, complete records of the materials so withdrawn, and the Government's costs therefor, were made and kept; and that when the supplies were completed and delivered by Murray and accepted by the Government, Murray paid the Government for the materials so consumed by crediting the contract price for the supplies with an amount equal to the Government's cost (90 percent of Murray's original cost) for the materials consumed in producing the supplies, as provided in subparagraph (c) of the partial payment provisions.
As noted, supra, subparagraph (b) of the partial payment provisions of the subcontracts expressly provides that, upon the making of any partial payment to Murray under the subcontracts, "title" to the materials "shall forthwith vest in the Government." Beginning on August 10, 1951, partial payments were made from time to time by the Government to Murray in very substantial amounts (see note. 1). It cannot be doubted that the plain and simple language of subparagraph (b) was appropriate, apt and adequate to vest the title to the
As to petitioners' "lien" contention, we must ask ourselves: A lien as security for what? Admittedly Murray was not indebted, nor to become indebted, to the Government under the subcontracts and, hence, there was and would be no debt to secure. Nor can it be said that the vesting of title to the materials in the Government was in any way to secure repayment of the partial payments made by the Government to Murray, because those partial payments were not to be repaid to the Government, but were expressly made by the Government in payment of the purchase price for the materials. Neither can it be said that the vesting of title to the materials in the Government was for the purpose of securing performance of the contracts by Murray, as conveyance of the materials to the Government could not possibly have any such legal effect.
Petitioners advance several arguments in support of their claim that the terms of the subcontracts, and actual operations under them, were inconsistent with any real intention to convey actual ownership of the materials to the Government.
As to the terms of the subcontracts, they argue, first, that subparagraph (d) of the partial payment provisions, saying that "[c]urrent production scrap may be sold by the Contractor without approval of the Contracting Officer," supports their contention. That argument overlooks the fact that the subparagraph continues, saying, "but the proceeds will be [paid or credited to the Government]." Thus, the contractor is authorized merely to sell the current production scrap as agent for the Government and must account to it for the proceeds, and, hence, this procedure is in no way inconsistent with the Government's ownership of the scrap. Second, they argue that the language of subparagraph (d) saying that, "[u]pon
Concerning operations under the subcontracts, petitioners argue, first, that the use of the partial payment provisions in the subcontracts was a legal device for the purpose of escaping state ad valorem personal property taxation. This argument is not only unacceptable on its merits (cf. Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 116, 122
In United States v. Ansonia Brass & Copper Co., supra, this Court dealt at length with like contentions. There the Government had entered into a contract for the construction and delivery of a seagoing dredge to be named the Benyuard. The contract provided that the Government was to make 10 equal partial payments to the contractor, to aggregate 80 percent of the contract price, the first to be made when the hull and propelling machinery should be 10 percent complete, the second when 20 percent complete, and so on to the last payment, which was to be made when the vessel was delivered to and accepted by the Government, when the reserved 20 percent of the contract price was to be paid; and that "[t]he parts paid for under the system of partial payments above specified [were to] become thereby the sole property of the United States." Id., at 466. Before completion of the dredge the contractor became insolvent and was unable to pay bills for materials used in the vessel, and a receiver was appointed. An issue arose as to whether the provisions of the contract had conveyed ownership of the unfinished vessel to the Government, thus preventing levy thereon of materialmen's liens created under state law. The Government contended ". . . that the terms of this contract [were] such that by its expressed provisions the vessel was to become the property of the United States as fast as it was paid for." Ibid. Upon that issue this Court said:
This Court thus held that the contract—containing title-vesting provisions almost identical with the ones here—conveyed full ownership of the unfinished vessel— not a mere lien—to the Government, and it, therefore, reversed the judgment of the court below which had allowed state-created materialmen's liens to be imposed upon the unfinished vessel. The principles of that decision
I believe that these considerations require the conclusion that the District Court and the Court of Appeals were right in holding that the contracts in question conveyed full beneficial title—all elements of property and incidents of ownership—in the materials to the Government.
Is this a general ad valorem tax imposed on the materials? The majority holds, we think erroneously, that it is not. Under the Constitution of the State of Michigan
The pertinent parts of the Charter of the City of Detroit, under which that city acted, are set forth in the margin.
We fail to see how it could be more plainly stated that these taxes are ad valorem taxes on the property. One cannot profitably elaborate a truth so evident. And the Michigan courts have repeatedly so held. City of Detroit v. Phillip, 313 Mich. 211, 213, 20 N.W.2d 868, 869; Pingree v. Auditor General, supra. Cf. Crawford v. Koch, 169 Mich. 372, 379, 135 N. W. 339, 342; In re Ever
Petitioners stridently argue that the language in § 211.40 of the Michigan Comp. Laws saying that "[t]he taxes thus assessed shall become at once a debt due to the . . . city . . . and county from the persons to whom they are assessed," and the language in §§ 1 and 7 of Tit. VI, c. IV, of the Detroit Charter, saying that "[t]he owners or persons in possession of any personal property shall pay all taxes assessed thereon [and if he] shall pay the same [he] may recover the amount from the person who ought to have paid the same . . . ," shows that the tax is not upon the materials but is, rather, upon the "owners or persons in possession." This argument overlooks the fact that § 211.40 continues, saying that "all personal taxes hereafter levied or assessed shall also be a first lien . . . on all personal property of such persons so assessed . . . and so remain until paid." The argument also overlooks the fact that Tit. VI, c. IV, § 1 of the Detroit Charter further provides that "[a]ll city taxes shall be due and payable on the fifteenth day of July in each year, and on that date shall become a lien on the property taxed," as does § 26; and § 27 says "all city taxes upon personal property . . . in addition to being a lien upon the property assessed shall become a debt against the owner from the time of the listing of the property for
Petitioners further argue that the Detroit assessor's action in writing on the tax roll, in this instance, the words "assessed subject to prior rights of the Federal Government" shows that the tax is not on the Government's interest, if any, in the materials. It principally relies upon S. R. A. v. Minnesota, 327 U.S. 558, and City of New Brunswick v. United States, 276 U.S. 547. While those cases, in an abstract sense, are relevant to the point as urged by petitioners, concretely they are inapposite
Since the landmark case of M'Culloch v. Maryland, 4 Wheat. 316, no legal principle has been more firmly established than that property owned by the Federal Government is constitutionally immune from direct taxation by a State. I agree with the majority that this, of course, does not mean that taxes directly imposed upon third parties—such as agents, contractors or employees— who may be doing business with the Government, share the Government's immunity even though the economic burden of the tax, through higher prices and the like, may ultimately fall upon the Government
Under the facts and circumstances here we think the case of United States v. Allegheny County, supra, is entirely controlling. There, Mesta Machine Company owned a factory in Pennsylvania suitable for the manufacture of ordnance required by the Government. The Government entered into a contract with Mesta under which the latter undertook to make and deliver guns to the Government
The foregoing demonstrates, I think, that the Government owned the materials on the assessment date; that the tax was imposed on those materials; that the tax was a general ad valorem tax; and that the Government was constitutionally immune from such taxation by the State.
These are my reasons for dissenting, and, upon them, I would affirm the judgment of the Court of Appeals.
"(a) The agency head may make advance payments under negotiated contracts . . . in any amount not exceeding the contract price . . . Provided, That advance payments shall be made only upon adequate security . . . . (b) The terms governing advance payments may include as security provision for, and upon inclusion of such provision there shall thereby be created, a lien in favor of the Government, paramount to all other liens, upon . . . such of the material and other property acquired for performance of the contract as the parties shall agree." (Emphasis supplied.)
They therefore argue that the Government is not empowered to enter into contracts to make "partial payments" for the purchase of materials as was done here. This argument fails to recognize the long-existing and well-established distinction between "advance payments" dealt with in § 5 and "partial payments." At the time the Act was passed the terms "advance payments" and "partial payments" had long since become terms of art in government procurement laws and regulations. (See Joint Resolution No. 24, May 5, 1894, 28 Stat. 582; Act of August 22, 1911, c. 42, 37 Stat. 32; Act of October 6, 1917, c. 79, § 5, 40 Stat. 345, 383; Act of June 28, 1940, c. 440, 54 Stat. 676; Act of July 2, 1940, c. 508, 54 Stat. 712; First War Powers Act, 1941, c. 593, 55 Stat. 838, § 201; Executive Order 9001 (December 27, 1941), 6 Fed. Reg. 6787; War Department Procurement Regulations (July 1, 1942), §§ 81.321, 81.331, 81.347, 81.348, 7 Fed. Reg. 6098, 6105, 6108, 6112, 6113; War Department Procurement Regulations (August 25, 1945), §§ 803.321, 803.330, 803.331, 10 Fed. Reg. 10449, 10501-10503, 10507-10508; Army Procurement Regulations (November 18, 1947) §§ 804.400-804.407, 805.405, 805.407-2 (a) (b), 12 Fed. Reg. 7692-7693, 7700-7705.) The two terms are not synonymous. It has long been recognized and understood that an "advance payment" is a loan by the Government and can be made "only upon adequate security" as provided in § 5 of the Armed Services Procurement Act, but "partial payments" are payments made by the Government in purchase of materials and are authorized when ownership thereto vests in the Government. Army Procurement Regulations (November 18, 1947), §§ 804.400-7, 805.405, 805.407-2 (a) (b), 12 Fed. Reg. 7692-7693, 7700, 7704-7705. The distinction is made clear in Armed Services Procurement Regulations of November 23, 1950 (32 CFR (1949 ed.) § 402.501), saying:
"Advance payments shall be deemed to be payments made by the Government to a contractor in the form of loans or advances prior to and in anticipation of complete performance under a contract. Advance payments are to be distinguished from `partial payments' and `progress payments' and other payments made because of performance or part performance of a contract." (Emphasis supplied.)
The bill which became the Armed Services Procurement Act of 1947 was introduced at a time when there were existing War Department Procurement Regulations describing and making provisions for both "advance payments" and "partial payments." The latter provisions required that title to all materials acquired by the contractor for performance of the contract should vest in the Government on the making of such "partial payments." War Department Procurement Regulations, August 25, 1945, §§ 803.330-803.331, 10 Fed. Reg. 10507-10508. Against this historical background the terms of § 5 of the Armed Services Procurement Act of 1947 cannot be construed to prohibit the making of "partial payments" by the Government to a contractor in respect to materials procured for performance of a government contract when title to those materials, by the terms of the contract, vests in the Government. These were negotiated contracts made in pursuance of § 2, c. 65, of the Armed Services Procurement Act of 1947 (62 Stat. 21), and being such, Congress, by § 4 of that Act, has expressly granted wide discretion to the agency head in determining the type of contract which will promote the best interests of the Government. There being no prohibition against the use in government contracts of partial payment provisions made in purchase of materials, contracting officers are free to follow business practices. Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 116. Thus, there is no merit in petitioners' claim that the Government was not empowered to agree to the partial payment provisions in these contracts.
The following sections appear in Tit. VI, c. IV:
"Section 1. All city taxes shall be due and payable on the fifteenth day of July in each year, and on that date shall become a lien on the property taxed . . . [and] the owners or persons in possession of any personal property shall pay all taxes assessed thereon."
"Sec. 7. In case any person by agreement or otherwise ought to pay such tax, or any part thereof, the person in possession who shall pay the same may recover the amount from the person who ought to have paid the same, in an action of assumpsit as for moneys paid out and expended for his benefit, or may deduct the amount from any rent due or to become due to the person who should have paid such tax."
"Sec. 26. On and after the twenty-sixth day of August in each year . . . the City Treasurer shall enforce the collection of all unpaid taxes which are assessed against the property or value other than real estate. If such taxes shall remain unpaid the City Treasurer shall forthwith levy upon and sell at public auction the personal property of any person refusing or neglecting to pay such tax, or collect the same through the courts. . . . All city taxes upon personal property shall become on said fifteenth day of July a lien thereon and so remain until paid, and no transfer of the personal property assessed shall operate to divest or destroy such lien.
"Sec. 27. All city taxes upon personal property . . . in addition to being a lien upon the property assessed shall become a debt against the owner from the time of the listing of the property for assessment, and shall remain a debt against the owner of the property or his estate after his death, until the same are paid." (Emphasis supplied.)