United States v. Hynes

FLAUM, Circuit Judge,

with whom BAUER, COFFEY, and KANNE, Circuit Judges, join, dissenting.

This case concerns the scope of the intergovernmental tax immunity doctrine. This doctrine, of course, has its genesis in M’Culloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579 (1819), which established the principle that the property, functions, and instrumentalities of the Federal Government are immune from taxation by its constituent parts. Since M’Culloch, the Supreme Court periodically has revised the immunity doctrine, allowing, for example, nondiscriminatory taxation of government employees. Graves v. New York ex rel. O’Keefe, 306 U.S. 466, 486-487, 59 S.Ct. 595, 601-602, 83 L.Ed. 927 (1939). Nevertheless, it remains a basic principle of our constitutional law that the intergovernmental tax immunity doctrine bars a tax “if it operates so as to discriminate against the Government or those with whom it deals.” Davis v. Michigan Dept. of Treasury, 489 U.S. 803, 812, 109 S.Ct. 1500, 1506, 103 L.Ed.2d 891 (1989); United States v. City of Detroit, 355 U.S. 466, 473, 78 S.Ct. 474, 478, 2 L.Ed.2d 424 (1958).

As the majority observes, Opinion ante at 1439, we considered this doctrine in the context of an earlier (unamended) version of Ill.Rev.Stat. ch. 120, ¶ 500.9a and 40 U.S.C. § 602a(d) in United States v. County of Cook, Ill., 725 F.2d 1128 (7th Cir.1984). I have no quarrel with the majority’s exposition of our holding in County of Cook, and I agree that all significant facts remain the same except for the Illinois legislature’s amendment to ¶ 500.9a. My disagreement with the majority opinion in this case is two-fold. First, I believe that the amendment to ¶ 500.9a creates the same type of unconstitutional discrimination that we recognized (and managed to avoid by statutory construction) in County of Cook. Second, I find the majority’s analysis of § 602a(d) unpersuasive, and I remain of the view that our analysis of that section in County of Cook was correct. For these reasons, I respectfully dissent.

I.

In County of Cook, the County first argued that ¶ 500.9a should be construed to exempt from taxation only property owned by state and local governments, but not the United States, because Article IX, Section 6 of the Illinois Constitution did not empower the state legislature to exempt property owned by the federal government. We recognized that the County’s proposed taxation scheme would have run afoul of M’Culloch by imposing a lighter tax burden on property acquired by the state or local governments than on property acquired by the federal government. County of Cook, 725 F.2d at 1131.

*1445We avoided this constitutional infirmity by construing the Illinois Constitution as implicitly recognizing the power of the state legislature to enact tax .exemption statutes which conform to the mandates of the Federal Constitution, thereby enabling us to interpret the term “governmental body” in unamended ¶ 500.9a to encompass the federal government. Id. We then rejected.the County’s alternative argument that even if ¶ 500.9a applies to the federal government, the broad consent of 40 U.S.C. § 602a(d) nullifies the ¶ 500.9a exemption. First, we held that § 602a(d) did not require local taxation of United States property and that the United States is entitled to take advantage of a state statutory exemption. Id. Second, and more relevant to this case, we found that § 602a(d) lacked the specificity we would expect to find if Congress intended to consent to a departure from the fundamental constitutional principle of inter-governmental tax immunity. Id. at 1131-1132.

Following our decision in County of Cook, the Illinois legislature amended ¶ 500.9a to exempt from taxation:

All 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) (amended language in italics). Cook County then assessed property taxes against the federal government for tax years 1985 through 1989. The United States declined to pay those taxes and requested that the district court declare such taxes discriminatory and unconstitutional. The district court granted summary judgment for the United States; this panel now reverses.

II.

The majority reasons that, as amended, the statute is facially neutral and constitutional. According to the majority, the legislature has removed the specter of discrimination from ¶ 500.9a by conditioning property tax status on whether the acquiring unit of government consents to taxation rather than on whether the acquiring unit is federal, state, or local. Opinion ante at 1441. In the majority’s view, the federal government has no one to blame but itself for its tax predicament because ¶ 500.9a would have no impact on the federal government in the absence of § 602a(d). In essence, the majority concludes that the' federal government, having consented to taxation in § 602a(d), cannot be heard to complain that Cook County finally has accepted its' offer.

In upholding this taxation scheme, I fear that we have let slip away an opportunity to “forestall, at least to a degree, some of the manipulation and wooden formalism that occasionally have marked tax litigation — and that have no proper place in determining the allocation of power between coexisting sover-eignties.” United States v. California, — U.S. -, -, 113 S.Ct. 1784, 1792, 123 L.Ed.2d 528 (1993) (citing United States v. New Mexico, 455 U.S. 720, 737, 102 S.Ct. 1373, 1384, 71 L.Ed.2d 580 (1982)). By resting its analysis, of ¶ 500.9a almost exclusively on the facial neutrality of the amended statute, the majority fails to probe deeply enough the question of whether “unconstitutional discrimination results.” See Opinion ante at 1441-42. Discrimination against the federal government need not be explicit in a state’s statute to be prohibited by. the Supremacy Clause. Phillips Chemical Co. v. Dumas Independent School Dist., 361 U.S. 376, 387, 80 S.Ct. 474, 481, 4 L.Ed.2d 384 (1960) (holding Texas statute unconstitutional as appliéd where it resulted in lessee of federal government paying property taxes on full value of leaseholds while similarly situated lessees of the state and its political subdivisions were not taxed on their leaseholds at all). As the Phillips Court observed, a determination of whether a tax statute is discriminatory requires “an examination of the whole tax structure of the state.” Id. at 383, 80 S.Ct. at 479.

In this ease, the district court found that the legislative-history of ¶ 500.9a “reveals the clear intent of the Illinois legislature to ‘get at’ the federal government and overcome its tax immunity.” United States v. Hynes, 759 F.Supp. 1303, 1305-1306 (N.D.Ill.1991); cf. Edwards v. Aguillard, 482 U.S. 578, 586-597, *1446107 S.Ct. 2573, 2579-2584, 96 L.Ed.2d 510 (1987) (relying on legislative history to expose the transparent insincerity of state statute’s stated purpose of protecting academic freedom and holding that a state statute mandating balanced treatment of creation science and evolution in public schools violates the Establishment Clause because it has no secular purpose). Moreover, the district court found that “[t]he amendment was specifically directed at property acquired by the United States and was the result of the County of Cook case.” Hynes, 759 F.Supp. at 1306. Indeed, the overwhelming weight of the evidence confirms that the amended ¶ 500.9a, though admittedly neutral on its face, suffers from the same discriminatory purpose and effect that we would have found unconstitutional in the pre-amended ¶ 500.9a had we not construed the term “governmental” to include the federal government. County of Cook, 725 F.2d at 1131. The only change since County of Cook — a facially neutral amendment — amounts to a thin layer of legislative camouflage that cannot conceal the fact that both before and after the amendment, the Illinois legislature intended to tax the property of the United States while leaving state and local government property untaxed. Accordingly, I believe that ¶ 500.9a “operates so as to discriminate against the [Federal] Government,” Davis, 489 U.S. at 812, 109 S.Ct. at 1506, and thus violates the intergovernmental tax immunity doctrine.1 See United States v. County of Fresno, 429 U.S. 452, 462, 97 S.Ct. 699, 705, 50 L.Ed.2d 683 (1977) (“[T]he economic burden on a- federal function of a state tax imposed on those who deal with the Federal Government does not render the tax unconstitutional so long as the tax is imposed equally on the other similarly situated constituents of the State.”) (footnote omitted); United States v. City of Manassas, Va., 830 F.2d 530 (4th Cir.1987) (holding that a Virginia statute unconstitutionally discriminated against the United States by subjecting lessees of federally-owned property to local government taxation while exempting lessees of property owned by the Virginia Port Authority or local transportation districts, both of which are subdivisions of the government of the Commonwealth of Virginia), aff'd, 485 U.S. 1017, 108 S.Ct. 1568, 99 L.Ed.2d 884 (1985). The district court properly found the amendment to ¶ 500.9a unconstitutional and severable.

*1447III.

Even if ¶ 500.9a violates the doctrine of intergovernmental tax immunity, and thus is unconstitutional under ' the Supremacy Clause, it remains true that the United States still may consent to discriminatory taxation. County of Cook, 725 F.2d at 1131. In County of Cook, we recognized such consent as a theoretical possibility, but we rejected Cook County’s argument that Congress intended to subject the United States to discriminatory taxation by enacting 40 U.S.C. § 602a(d). Id. at 1131-1132. Today the majority concludes that § 602a(d) is an unconditional waiver of immunity to taxation, and, therefore, overrules 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.” Opinion ante at 1440-41.

I believe that County of Cook was good law when decided and remains good law today. Section 602a(d) states:

With respect to any interest in real property acquired under the provisions of this section 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). The United States concedes that this language is at least a general consent to nondiseriminatory property taxation. See Pl.Br. at 27; Pl.Sup.Br. at 4. In discussing the question of whether, in enacting § 602a(d), Congress consented to dis-cnmmatory taxation as well, the majority reasons that

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.

Opinion ante at 1442. In my view, the majority assumes too much in its willingness to infer, from a mere statutory omission, that Congress intended to permit states to levy discriminatory taxes against the United States.

I have difficulty squaring the majority’s approach with our own precedents or those of the United States Supreme Court. Those precedents require us to presume a narrow waiver of federal sovereign immunity and to look for expansion of that waiver only in affirmative acts of Congress, not by omission and implication. As we held in County of Cook, the United States cannot be found to have consented to a departure from a “fundamental constitutional principle” in the absence of an explicit and specific waiver. 725 F.2d at 1131-1132. In other words, a waiver of the federal government’s sovereign immunity — in this case from discriminatory taxation — must be “clear, express and affirmative.” 2 Kern-Limerick, Inc. v. Scurlock, 347 *1448U.S. 110, 122, 74 S.Ct. 403, 410-11, 98 L.Ed. 546 (1954). Since County of Cook, the Supreme Court has reaffirmed this rule of construction. In two recent cases, the Court held that waivers of the Government’s sovereign immunity must be “unequivocally expressed,” “construed strictly in favor of the sovereign,” and must not be “enlarge[d] ... beyond what the language requires.” United States Dept. of Energy v. Ohio, — U.S. -, -, 112 S.Ct. 1627, 1633, 118 L.Ed.2d 255 (1992); United States v. Nordic Village Inc., — U.S. -, -, 112 S.Ct. 1011, 1014-1015, 117 L.Ed.2d 181 (1992). Because neither the statutory language nor the applicable rule of construction have changed since County of Cook, I would reaffirm our holding 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.” 725 F.2d at 1132.

IV.

As I have indicated in the foregoing analysis, I believe that the district court was essentially correct in its analysis of the constitutionality of ¶ 500.9a and the applicability of § 602a(d). I disagree, however, with the district court’s conclusion that the United States owes property tax on the two federal buildings in question because it failed to file administrative applications for a property tax exemption. United States v. Hynes, 771 F.Supp. 928, 932-933 (N.D.Ill.1991). Contrary to the district court’s opinion, the claim of the United States to be free of the tax was not based upon Illinois law, but rather was grounded in the United States Constitution’s prohibition of state taxes that discriminate against the federal government. Davis, 489 U.S. at 812, 109 S.Ct. at 1506. Once the district court correctly determined (1) that the tax discriminated against the United States in violation of the Constitution and (2) that the United States had not consented to a discriminatory tax under § 602a(d), the assessed tax was void and could not be exacted. Moses Lake Homes, Inc. v. Grant County, 365 U.S. 744, 752, 81 S.Ct. 870, 874-875, 6 L.Ed.2d 66 (1961); Phillips, 361 U.S. at 387, 80 S.Ct. at 481.

V.

For the reasons set forth above, I would affirm the district court’s judgment that Ill.Rev.Stat. ch. 120, ¶ 500.9a, as amended, unconstitutionally discriminates against the United States and that Cook County cannot collect the taxes assessed on the two federal buildings for tax year 1985. I would reverse the district court’s judgment that Cook County could collect the taxes assessed on the two federal buddings for tax years 1986 *1449through 1989, and I would direct the district court, on remand, to enjoin the collection of the taxes assessed for tax years 1986 through 1989.

. Cook County contends that amended ¶ 500.9a is not discriminatory because Illinois' property tax scheme provides a political check against abusive taxation. I find this argument unpersuasive in light of the fact that the sole purpose and effect of the amendment was to tax federal property while leaving state and local government property untaxed. The state and local governments, presumably well represented in Springfield, certainly had no incentive either to complain about their own tax exempt status or to object to the prospective loss of the federal government's' tax exempt status. In fact, the state and its political subdivisions stood to benefit from the inflow of federal property tax dollars. The only party adversely affected by the amendment, the federal government, had no voice in the state legislature with which to object on its own behalf. In these circumstances, there is no political check. See Davis, 489 U.S. at 815, n. 4, 109 S.Ct. at 1508, n. 4 ("The danger that a State is engaging in impermissible discrimination against the Federal Government is greatest when the State acts to benefit itself and those in privity with it.”).

In a similar vein, the majority finds support for its conclusion that the Illinois tax exemption scheme is not discriminatory because it "does not reduce the overall burden on the state and state-created 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.” Opinion ante at 1440. In my view, this proposition is sustainable only if one views the "public treasuries of the state and its subdivisions” as a singular whole. If Illinois and the United States were the only taxing bodies in the relevant universe, there would be neither a distribution nor a discrimination issue in this case. In such circumstances it would be illogical to require that Illinois transfer money from one side of its ledger to the other so that it could tax the federal government. How- . ever, like all states, Illinois has numerous political subdivisions with taxing and spending authority that regularly function independently of one another so that absent an exemption, a locality's tax scheme would impose a real tax burden on the state; that is, money would flow from the state treasury to the treasury of the local taxing unit. Thus an exemption for the state relieves it of this real burden and has the effect of disadvantaging the United States in particular. Indeed, as the legislative history indicates, the Cook County Assessor and the Illinois General Assembly not only recognized the possibility of such an effect, but actually intended it. See State of Illinois, 83rd General Assembly, House of Representatives Transcription Debate, June 13, 1984, at 57.

. In his concurring opinion, Judge Cudahy is dismissive of the notion that the intergovernmental tax immunity and federal sovereign immunity doctrines are closely related, noting that the former stems from the Supremacy Clause while arguing that the latter "notoriously lacks a home in the Constitution’s text." Concurring opinion ante at 1444 n. 1.

In my view, the two doctrines are so closely related as to require the application of a uniform waiver doctrine. First, the Supreme Court appears to regard the doctrine of intergovernmental tax immunity as a 'subspecies of the broader doctrine of federal sovereign immunity. See Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 122, 74 S.Ct. 403, 411, 98 L.Ed. 546 (1954) ("The doctrine of sovereign immunity is so embedded in constitutional history and practice that this Court cannot subject the Government or its official agencies to state taxation without a clear congressional mandate."). Furthermore, I cannot see a distinction between the doctrines with respect to their constitutional source. I agree that federal sovereign immunity is not comfortably enshrined in the text of the Constitution, but the same can be said of intergovernmental tax immunity. Both doctrines nevertheless are indisputably incorporated in the latticework of that document. Thus, even in criticizing federal sovereign immunity as "an anachronistic survival of monarchical privilege ... [that] runs counter to democratic notions of the moral responsibility of the State," Justice Frankfurter had to concede that "this immunity from suit without consent is embodied in the Constitution.” See Kennecott *1448Copper Corp. v. Tax Comm’n, 327 U.S. 573, 580, 66 S.Ct. 745, 748, 90 L.Ed. 862 (1946) (Frankfurter, L, dissenting). Similarly, the doctrine of intergovernmental tax immunily falls within the "great outlines” of the Constitution, though no express provision makes reference to it. See M'Culloch, 17 U.S. (4 Wheat.) at 407. As then-justice Rehnquist explained,

Any ^document — particularly a constitution — is built on. certain postulates or assumptions; it draws on shared experience and common understanding. On a certain level, that observation is obvious. Concepts such as "State” and "Bill of Attainder" are not defined in the Constitution and demand external referents. But on a more subtle plane, when the Constitution is ambiguous or silent on a particular issue, this Court has often relied on notions of a constitutional plan — the implicit ordering of relationships within the federal system necessary to make the Constitution a workable governing charter and to give each provision within that document the full effect intended by the Framers. The tacit postulates yielded by that ordering are as much engrained in the fabric of the document as its express provisions, because without them the Constitution is denied force and often meaning. Thus, in McCulloch [M’Culloch] v. Maryland, ... Chief Justice Marshall, writing for the Court, invalidated a state tax on a federal instrumentality even though no express provision for intergovernmental tax immunity can be found in the Constitution. He relied on the notion that the power to tax is the power to destroy, and that to concede the States such a power would place at their mercy the Constitution’s affirmative grants of authority to the Federal Government — a result the Framers could not have intended.

Nevada v. Hall, 440 U.S. 410, 433-434, 99 S.Ct. 1182, 1194-1195, 59 L.Ed.2d 416 (1979) (Rehnquist, J., dissenting) (footnote omitted).

Judge Cudahy apparently acknowledges that a single waiver rule may be appropriate. Concurring opinion ante at 1444 n. 1. The sole basis for the foregoing discussion of federal sovereign immunity and intergovernmental tax immunity together was the establishment of this proposition.