|
NOT FOR PUBLICATION WITHOUT THE APPROVAL
OF THE TAX COURT COMMITTEE ON OPINIONS
TAX COURT OF NEW JERSEY
DOCKET NOS. 007203-93
006999-94
RAINHOLD HOLDING COMPANY, :
UNITED STATES POSTAL SERVICE, :
and RAINTREE ASSOCIATES, :
: OPINION
Plaintiffs, :
:
v. :
:
FREEHOLD TOWNSHIP, :
:
Defendant. :
---------------------------------
UNITED STATES POSTAL SERVICE, :
RAINHOLD HOLDING COMPANY, :
and RAINTREE ASSOCIATES, :
:
Plaintiffs, :
:
v. :
:
FREEHOLD TOWNSHIP, :
:
Defendant. :
:
Decided: September 27, 1994
Michael M. Stadler for plaintiffs Rainhold Holding Company
and Raintree Associates
(Michael M. Stadler, attorney).
Andrew O. Schiff for plaintiff United States Postal Service
(Michael Chertoff, United States Attorney).
Nathan P. Wolf for defendant
(Rosenblum, Wolf & Lloyd, attorneys).
*
HAMILL, J.T.C.
In these local property tax appeals for the 1993 and 1994
tax years, the United States Postal Service moved for summary
judgment on the ground that Freehold Township could not include the
value of a post office building in the assessments because the
building is owned by the Postal Service. According to the Postal
Service, the tax, as applied, infringes on the federal government's
immunity from state and local taxation.
The property at issue is designated as Block 86, Lot 12
on the local tax map and was assessed for the 1993 and 1994 tax
years at $7,900,000, of which $4,898,800 was allocated to
improvements. The Postal Service takes the position that the
assessment must be reduced by $1,429,000 to eliminate the
assessment on the federally owned post office building.
According to the complaint, in 1988 the Postal Service
entered into a long term ground lease with plaintiff Raintree
Associates. Raintree Associates subsequently conveyed the property
to plaintiff Rainhold Holding Company, reserving to itself the
ground lease to the Postal Service. The property subject to the
lease includes certain land and "any improvements" located on the
land for the purpose of operating a post office. The lease is for
a term of 50 years, at the conclusion of which the Postal Service
has an option to purchase the leased property at a price equal to
the value of the land only. The property reverts to the landlord if
the Postal Service does not exercise the option.
Additionally, the lease obligates the Postal Service to
construct a post office building and to obtain property and
liability insurance naming the landlord as an additional insured.
In the event of a casualty to the building or the property, the
lease provides that there shall be no abatement in the rent except
that if a casualty occurs during the last two years of the term,
the Postal Service need not rebuild. If this occurs, the lease
terminates and all insurance proceeds are payable to the landlord.
In the case of condemnation, any lump sum award is to be allocated
according to the landlord and Postal Service's respective interests
"i.e., ... the appraised value of the Landlord's nonsubordinated
fee interest and the Tenant's leasehold interest ...."
The lease further provides that in the event of a
default, e.g., nonpayment of rent, the landlord has the option of
terminating the lease, removing the Postal Service, taking
possession of the property, and reletting it. The Postal Service
agrees that, to the extent necessary, a mortgage lender may modify
the lease so long as the modifications do not affect its "leasehold
interest ...." The lease is a net lease with the Postal Service
paying its proportionate share of local property taxes assuming
that the leased property is not exempt.
Initially, it is plain that the Postal Service is an
agency of the federal government and thus entitled to claim the
federal government's immunity from state and local taxation. Under
the Postal Reorganization Act, 39 U.S.C.A. §101 et seq., the Postal
Service is "an independent establishment of the executive branch of
the Government of the United States ...." See Jurzec v. American
Motors Corp.,
856 F.2d 1116 (8th. Cir. 1988), holding that the
Postal Service could claim the discretionary function exception to
the federal government's waiver of sovereign immunity in the
Federal Tort Claims Act.
It is equally plain that this court has jurisdiction
despite the involvement of an agency of the United States. Under
39 U.S.C.A.
§409(a) the federal district courts have "original but
not exclusive jurisdiction over all actions by or against the
Postal Service."
Finally, it is clear that the Postal Service has
standing, despite its status as a tenant, to prosecute this appeal.
The complaints are filed in the names of the property owner,
Rainhold Holding Company, the ground lessor, Raintree Associates,
and the Postal Service as tenant of the building whose assessment
is in dispute. In Village Supermarkets, Inc. v. West Orange Tp.,
106 N.J. 628 (1987), the Court held that, depending upon the
circumstances, a tenant may have standing to pursue a local
property tax appeal in the name of the owner. The circumstances
detailed by the Court, id. at 634-35, permit the Postal Service to
maintain this appeal. The lease is a net lease, which is to run
for 50 years; the assessment on the post office building is
approximately 18" of the total assessment on Block 86, Lot 12; the
Postal Service will adequately represent the landlord's interest
because a successful appeal will result in a substantial reduction
in the assessment; and the Postal Service has the ability to
effectively prosecute the appeal, particularly as it relates to the
Service's alleged tax immunity. Finally, there is no indication
that either the ground lessor or owner, both of whom are named in
the complaints, objects to the Postal Service's prosecution of the
appeal.
Prior to 1944, N.J.S.A. 54:4-3.3 provided an exemption
for the real and personal property of the United States. The
provision was repealed by L. 1944, c.24. The sponsor's statement
to the repealer bill explains that, "As there is now legislation in
Congress permitting taxation of the property of the United States,
the purpose of this act is to eliminate the exception [sic] of
property owned by the United States for taxation purposes." Since
state law contains no exemption for the federal government, any
such exemption must be found in federal law, specifically in the
doctrine of federal government immunity from state taxation.
The origin of the federal government's tax immunity is
found in McCulloch v. Maryland, 17 U.S. (4 Wheat) 316,
4 L. Ed. 579
(1819), in which Chief Justice Marshall held that under the
Supremacy Clause the State of Maryland could not tax notes issued
by the Bank of the United States. The Supreme Court's modern view
of the immunity doctrine is set forth in United States v. New
Mexico,
455 U.S. 720,
102 S. Ct. 1373,
71 L. Ed.2d 580 (1982).
The issue in the case was whether New Mexico's gross receipts and
compensating use tax could be applied to receipts received by
independent contractors for services performed in constructing,
managing, and maintaining facilities of the Atomic Energy
Commission. Under the pertinent management contracts, title to all
tangible property passed directly to the government, and the
contractors paid their creditors and employees by drawing on bank
accounts funded by the federal government. The contractors
conceded liability for gross receipts tax on the fees received from
the government but maintained that New Mexico could not tax the
funds included in the bank accounts, nor the receipts of vendors
selling tangible property to the United States through the
contractors, nor the use of government-owned property by the
contractors. United States v. New Mexico, supra, 455 U.S. at 728.
Reviewing the history of the immunity doctrine, Justice
Blackmun pointed out that, "[I]mmunity may not be conferred simply
because the tax has an effect on the United States, or even because
the Federal Government shoulders the entire economic burden of the
levy." Id. at 734. Nor is immunity conferred "simply because the
state tax falls on the earnings of a contractor providing services
to the Government." Ibid. In the case of a use tax, immunity is
not conferred when a private entity uses government property
provided the private party's use is for its own separate, profit
making purpose. Id. at 734-35. Nor is immunity conferred because
a tax is paid with government funds. Id. at 735. The federal
government's tax immunity "is appropriate in only one circumstance:
when the levy falls on the United States itself, or on an agency or
instrumentality so closely connected to the Government that the two
cannot realistically be viewed as separate entities, at least in
sofar as the activity being taxed is concerned." Ibid. A levy
falls on the United States only when the legal incidence of a tax
is on the federal government. Id. at 735 n.11, 742; United States
v. County of Fresno,
429 U.S. 452, 460,
97 S. Ct. 699,
50 L. Ed.2d 683 (1977). In the case of a private contractor, the taxpayer
"must actually 'stand in the Government's shoes.'" United States
v. New Mexico, 455 U.S. at 736 (quoting City of Detroit v. Murray
Corp.,
355 U.S. 495, 503 (1958) (opinion of Frankfurter, J.)).
Applying the immunity doctrine to the facts before it,
the Court in United States v. New Mexico concluded that, as the
legal incidence of New Mexico's gross receipts and use taxes fell
on the contractors rather than on the United States, and since the
contractors were privately owned corporations that were not
constituent parts of the federal government, the use tax could be
applied to the contractors and the gross receipts tax could be
applied to funds received by the contractors to meet salaries and
other costs. 455 U.S. at 740-41. As to the use tax, the
contractors had an interest in government owned property to the
extent that the property was used to further "the contractor's
essentially independent commercial enterprise." Id. at 742. Even
where the gross receipts tax was applied to property purchased by
the contractors for the government with title passing directly to
the government, the tax did not infringe on the government's tax
immunity. The Court found that the contractors were separately
liable to the vendors for the purchase price and could act with a
certain independence in procuring property. Since the contractors
were "sufficiently distinct from the Government," id. at 743, the
transactions were not in fact purchases by the United States.
In determining whether the legal incidence of a state tax
falls on the United States, the primary consideration is whether
state law requires the tax "to be charged to and collected from the
United States." United States v. County of Fresno, supra, 429 U.S.
at 459 n.7 (citations omitted). Thus in United States v.
Mississippi Tax Commission,
421 U.S. 599, 95 S. Ct. 1872,
44 L. Ed.2d 404 (1975), the Court invalidated a state liquor tax imposed on
a wholesaler's markup where the liquor in question was sold to a
federal military base. Although the statute made the wholesaler
legally liable for the tax, it required that the tax be charged to
and collected from the purchaser. Thus the legal incidence of the
tax fell on the federal government. Id. at 607-09. Similarly,
where state law required that a sales tax be collected from the
purchaser, the legal incidence of the tax was on the purchaser even
though the seller was responsible for paying the tax. First Agric.
Nat'l Bank v. Tax Comm'n,
392 U.S. 339,
88 S. Ct. 2173,
20 L. Ed.2d 1138 (1968). Only when state law requires that the tax be
passed through to one not legally obliged to collect it, e.g., in
the case of a sales tax, does the legal incidence fall on a person
other than the named taxpayer. This is not the case where the
economic burden of a tax is passed through by operation of the
market, e.g., in the case of a gross receipts tax charged to and
collected from a seller or distributor. See Peckron, Standards for
Determining the Legal Incidence of State Taxes,
29 Tax Law. 372
(1976); Compare on the one hand, United States v. Maryland,
471 F.Supp. 1030, 1037-38 (D.Md. 1979) (legal incidence of environ
mental surcharge measured by kilowatt hours generated was on
electric utilities, not federal government, where statute
authorized but did not require surcharge to be passed through to
customers) and United States v. City of Leavenworth, Kansas,
443 F.
Supp. 274, 281-83 (D. Kan. 1977) (legal incidence of public utility
gross receipts tax was on electric utilities, not federal
government, where taxing statute did not require tax to be passed
through to customers although state corporation commission required
a pass through) with United States v. Delaware,
958 F.2d 555, 562
(3rd Cir. 1992) (legal incidence of public utility gross receipts
tax was on federal government, not electric utilities, where taxing
statute required tax to be passed through to customers even though
statute also provided that tax was on distributor and was not to be
construed as a tax on customer).
A departure from the rule arises when the legal incidence
of a tax falls on a private party using federal property but that
party has no separate beneficial interest in the property that
falls within the reach of the particular tax. In that case the tax
may infringe on the government's immunity. See United States v.
County of Fresno, supra, 429 U.S. at 465-66 & nn. 14-15. Thus, for
instance, in United States v. Hawkins County, Tennessee,
859 F.2d 20 (6th Cir. 1988), cert. denied,
490 U.S. 1005 (1989), the court
struck down a state property tax assessed against the user of
property as applied to a government contractor operating a
government munitions facility. The court conceded that a state may
impose a tax on a private party's beneficial use of government
property but concluded that the tax at issue was not in fact a tax
on beneficial use but rather an ad valorem property tax. Since (1)
the tax was laid on property, (2) the federal government owned the
property, and (3) the contractor had no property interest but only
a right to use the government's property, the tax was imposed on
the government. Accordingly, the tax was invalid. Similar results
were reached in United States v. Nye County Nevada,
938 F.2d 1040
(9th Cir. 1991), cert. denied, __ U.S. __,
112 S. Ct. 1292 (1992)
and United States v. Colorado,
627 F.2d 217 (10th Cir. 1980), aff'd
without opinion sub nom. Jefferson County v. United States,
450 U.S. 901,
101 S. Ct. 67 1335, L. Ed.2d 325 (1981).See footnote 1 Cf. United
States v. County of San Diego,
965 F.2d 691 (9th Cir. 1992)
(distinguishing Hawkins, Nye County Nevada, and Colorado on the
ground that the state statutes at issue in those cases were
property taxes that did not extend to possessory uses, while the
California property tax at issue reached possessory uses of the
kind held by a government contractor in federally owned property).
I turn now to the legal incidence of the local property
tax.
N.J.S.A. 54:4-1 provides in pertinent part that, "All
property real and personal ... shall be subject to taxation
annually ...." N.J.S.A. 54:4-23 provides that, "All real property
shall be assessed to the person owning the same on October 1 in
each year. The assessor shall ... determine the full and fair
value of each parcel of real property situated in the taxing
district ...." The assessment is not based on an owner's title but
rather on the value of all interests in the land. In re Appeal of
Neptune Township,
86 N.J. Super. 492, 499 (App. Div. 1965). The
assessment is against the real property itself, including both land
and improvements. Koester v. Hunterdon County Board of Taxation,
79 N.J. 381, 392 (1979); Freehold Office Park Ltd. v. Freehold Tp.,
12 N.J. Tax 433, 440 (Tax 1992). Moreover, the tax "is a lien on
the entire fee even where there is separate ownership of the land
and improvement." Koester, supra, 79 N.J. at 392. As a result,
even when a lessee can be said to own a building constructed by him
on leased land, the lien for the tax is a lien against the
landowner's fee. Crewe Corp. v. Feiler,
28 N.J. 316, 320 (1958);
Becker v. Little Ferry,
126 N.J.L. 338 (E. & A. 1941).
With limited exceptions not pertinent here, the local
property tax is charged to and collected from the owner of the
property. The property is assessed to the owner, N.J.S.A. 54:4-23,
and, absent instructions to the contrary, tax bills are sent to the
owner. N.J.S.A. 54:4-64.See footnote 2 Limited statutory exceptions provide
for assessing a lessee's interest when exempt property is leased to
a person whose property is not exempt, e.g., a lease of federally
owned property to a commercial tenant. N.J.S.A. 54:4-2.3. In such
event, the tax lien is against the leasehold estate, and the lessee
is personally liable for the tax. N.J.S.A. 54:4-2.8. A similar
provision exists for exempt property when the property is used by
a private party in connection with an activity conducted for
profit. N.J.S.A. 54:4-1.10.See footnote 3 Neither of these exceptions applies
here, and with those limited exceptions, there is no statutory
provision permitting the local property tax to be charged to and
collected from a tenant.
Under limited factual circumstances not present here, New
Jersey courts have held that leasehold estates may be separately
assessed, for instance, when they have the "permanence or
perpetuity" of a fee interest. Lake End Corp. v. Rockaway Tp.,
185 N.J. Super. 248, 257 (App. Div. 1982). Thus, in the cited case the
court held that 99-year leasehold estates constituting residential
lots in two lake communities could be assessed as separate parcels.
The tenants were shareholders in the corporations that owned the
tracts of land on which the lots were located. The court reasoned
that the leases were in substance perpetually renewable because the
tenant/shareholders would never consent to sales of the entire
tracts as a sale would jeopardize the continuation of their leases.
Id. at 256. Similarly, in Koester v. Hunterdon County Board of
Taxation, supra, our Supreme Court held that a taxing district
could send separate tax bills to the owners of mobile homes located
on leased land. Koester, supra, 79 N.J. at 393. The Court was
careful to point out that such a practice would not waive "the
municipality's lien on the land and its improvements for the total
assessed value of the parcel." Ibid. In so ruling, the Court
cited Becker v. Little Ferry,
125 N.J.L. 141 (Sup. Ct. 1940), aff'd
126 N.J.L. 338 (E. & A. 1941), for the proposition that, even
though a tenant may receive assessments with respect to his
interest, the landowner remains "liable for the tax on the entire
parcel including the building ...." Koester, supra, 79 N.J. at
393. Thus, in Becker the court sustained the sale of a tax sale
certificate relating to both land and improvements although the
assessor had separately assessed the tenants for the improvements
and the tax delinquency related exclusively to the taxes assessed
against the improvements. In the words of the Court of Errors and
Appeals, "Cases holding that the lessee may be taxed by reason of
his interest in real estate do not relieve the owner of his
obligation." Becker, supra, 126 N.J.L. at 340.
The legal incidence of the local property tax is thus on
the property itself. The tax is the legal obligation of the owner
of the fee, and that interest is subject to the municipality's lien
for taxes. With limited statutory and judicial exceptions, none of
which are applicable here, the tax is charged to and collected from
the legal owner of the fee. To the extent that case law sanctions
the assessment of a tenant's interest, the decisions take care to
point out that such assessments do not relieve the landowner of
liability for taxes on the entire parcel.
The Postal Service has a 50-year nonrenewable lease with
an option to buy the property at the end of the term for the value
of the land. As these interests do not include all the interests
in the property, they do not amount to ownership of the fee.
Lidell v. Mimosa Lakes Ass'n,
6 N.J. Tax 417, 423 (Tax 1984)
quoting the American Institute of Real Estate Appraisers, The
Appraisal of Real Estate, 8-9 (8 ed. 1983); Willow/ Leonie Assocs.
v. Leonia Bor.,
12 N.J. Tax 338, 344 (Tax 1992). Even if it is
assumed that the Postal Service has an ownership interest in the
post office building, the fee consists of the entire property,
including all interests in both land and buildings. Since (1) the
legal incidence of the local property tax falls on the property it
self, (2) the legal obligation to pay the tax falls on the legal
owner of the fee, and (3) the tax is charged to and collected from
the legal owner of the fee, the legal incidence of the tax is not
on the Postal Service. Cf. United States v. City of Detroit,
supra, 355 U.S. at 469 (upholding a Michigan property tax assessed
against the lessee of government-owned property and pointing out
that the statute made the lessee liable for the tax). The fact
that the Postal Service may bear the economic burden of the taxes
on the post office building by way of its contractual agreement
with its landlord does not invalidate the tax. United States v.
New Mexico, supra, 455 U.S. at 734 ("immunity may not be conferred
simply because ... the Federal Government shoulders the entire
economic burden of the levy"); United States v. County of Fresno,
supra, 429 U.S. at 460.
The Postal Service essentially concedes the principles of
tax immunity discussed above but maintains that they support its
argument because it owns the post office building. In support of
its argument, the Service relies primarily on Jamouneau v. Division
of Tax Appeals,
2 N.J. 325 (1949) and City of East Orange v. Joshua
Hendy Iron Works,
24 N.J. Misc. 82 (Div. Tax App. 1946). The
Postal Service maintains that these cases establish that ownership
of land and ownership of improvements may be split between
different persons "when exemption or immunity issues are present"
and that Joshua Hendy, involving a lease quite similar to the lease
at issue here, establishes that the Postal Service in fact owns the
improvement.
Relying on United States v. New Mexico, supra and on the
New Jersey statutes and cases imposing liability for local property
taxes on the owner of the fee, the township asserts that the owner,
Rainhold Holding Company, not the Postal Service, is legally liable
for taxes on the post office building.
Under the terms of the lease, legal ownership of the
building is not in the Postal Service. As the township points out,
there is no indication that a deed has been recorded vesting title
to the improvements in the Postal Service. That is hardly
surprising as the parties label the Postal Service's interest a
"leasehold." While the Postal Service may have the right to
exercise an option to purchase the property for the value of the
land at the conclusion of the lease, its failure to do so destroys
its "title" to the building, hardly an indication that it owns a
fee interest. The Postal Service is given no option to renew the
lease. If it holds over without exercising its option to purchase,
it has only a month-to-month lease at double the fixed rent, again
not indicative of a fee interest. The continuing obligation of the
Postal Service to pay rent despite a casualty affecting the
property, and the payment of insurance proceeds to the landlord in
the event of a casualty during the last two years of the lease and
abandonment of the property by the Postal Service further suggest
the existence of a leasehold rather than a fee interest in the
building. I therefore conclude that under the terms of the lease
the Postal Service does not have legal ownership of the post office
building.
The decision in Joshua Hendy Iron Works is of no aid to
the Postal Service because the Division of Tax Appeals there
concluded that title to the building in question had in fact vested
in the federal government. As previously stated, the lease at
issue here does not vest title to the building in the Postal
Service.See footnote 4
Jamouneau v. Division of Tax Appeals, supra, involved the
question of whether property owned by the City of Newark and leased
to a corporation for use as a factory was subject to local property
tax. The pertinent statute provided an exemption for, among other
things, property "of the respective counties, school districts and
taxing districts, when located therein and used for public purposes
...." N.J.S.A. 54:4-3.3. As to the factory building, the Court
concluded that the city had not established that it owned the
improvement. As to the land, the Court held that the city had
failed to prove that the land was used for a public purpose. Thus
the property was not exempt. The city's failure to establish
ownership of the building resulted from the terms of its lease with
its commercial tenant. The lease had a 50-year term, and the
tenant had an option, exercisable at any time, to purchase the land
and buildings for the value of the land. Insurance proceeds were
to remain the property of the tenant. In the case of a major
casualty, the tenant could opt to terminate the lease and receive
a share of the insurance proceeds equal to the portion of the lease
still to run. Significantly, the Court did not hold that these
lease terms gave the tenant legal ownership of the factory
building. Rather, the Court held that the tenant's rights were
"comparable to those of an owner," 2 N.J. at 329, and that, "[t]he
case for city ownership of the buildings has not been sustained."
Id. at 331.
In contrast to the lease involved in Jamouneau, the
Postal Service's lease does not give it rights "comparable to those
of an owner." The Postal Service's option to purchase the property
can be exercised only at the termination of the lease. The Postal
Service must thus remain a tenant for 50 years; it cannot become
the owner of the fee whenever it chooses. Moreover, under the
Postal Service lease, a casualty affecting the property does not
relieve the Service from paying rent or permit the Service to
terminate the lease except during the last two years of the term.
These provisions strongly suggest a leasehold, not an ownership
interest.
Ultimately, Jamouneau does not address the issue in this
case, namely the legal incidence of the local property tax. In
particular, there was no issue in Jamouneau as to whether the city
as owner of the fee or the commercial tenant had the legal
liability for the taxes on the factory building once it was
determined that the tenant had rights in the building comparable to
those of an owner. Even if the case may stand for the proposition
that legal and beneficial ownership may be separated between owner
and tenant for local property tax purposes, it does not hold or
suggest that in those circumstances legal liability for the taxes
switches from the legal to the beneficial owner. Since the only
question under United States v. New Mexico is whether the legal
incidence of a state tax falls on the federal government and since
Jamouneau does not suggest that the legal incidence of the local
property tax falls on a tenant, even if that tenant has rights
comparable to an owner, the case does not support the Postal
Service's position.
The Service suggests in its reply brief that the issue
here is whether the value of the post office building can be
included in the assessment in the first place, not whether taxes on
the building are chargeable to the landlord.See footnote 5 The argument is
misplaced. The only issue under United States v. New Mexico is
whether the legal incidence of a state tax is on the federal
government. The fact that the measure of the tax may take into
account the value of the post office building is irrelevant. As
the Supreme Court stated in United States v. Detroit, supra, in
upholding a state property tax as applied to a private party's
leasehold in government owned property, "[s]till other cases
further confirm ... that it may be permissible for a State to
measure a tax imposed on a valid subject of state taxation by
taking into account government property which is itself tax-exempt." 355 U.S. at 471.
In its reply brief the Postal Service further maintains
that United States v. Nye County Nevada, supra, and United States
v. Hawkins, supra, stand for the proposition that government owned
property "remains immune from taxation, even if the tax is a levy
on a private party." To the contrary, the two cases hold that, in
the case of a property tax ostensibly levied on a private party
using government property, where the private party in fact has no
property interest and the tax thus falls on the federal government
as owner of the property, the tax is invalid. Here, it is plain
that the local property tax is assessed against the property itself
and is the legal obligation of the owner of the fee, Rainhold
Holding Company. It is equally plain that Rainhold Holding has a
beneficial interest in the property apart from the Postal Service's
leasehold interest. Rainhold Holding owns the fee subject only to
the leasehold interests of Raintree Associates and the Postal
Service. It thus has a property interest that is separable from
the government's leasehold estate and may be reached by an ad
valorem property tax. As previously pointed out, the fact that the
measure of the tax (the assessed value of the property) takes into
account the government's leasehold interest does not render it
invalid as a tax on government owned property. United States v.
City of Detroit, supra 355 U.S. at 470-71, 78 S.Ct. at 476-77.
The narrowness of the Postal Service's argument should be
emphasized. It is not arguing that the local property tax
discriminates against the federal government, and it is not arguing
that the tax is legally imposed on beneficial as well as legal
interests. Its sole argument is that it owns the post office
building and that under Jamouneau and Joshua Hendy Iron Works the
local property tax is separately assessed against the owner of an
improvement. As I have concluded that the Postal Service does not
own the improvement, that, with limited statutory exceptions not
applicable here, the local property tax is assessed against the
owner of the fee, and that Jamouneau and Joshua Hendy Iron Works do
not support plaintiff's position, the Postal Service's argument
must be rejected.
Since the local property tax is not legally imposed on
the Postal Service's leasehold estate, the federal government's
immunity from state taxation is not infringed. Accordingly, the
Postal Service's motion for summary judgment is denied. A
telephone conference call will be scheduled to determine whether
the cases should be dismissed or whether plaintiffs wish to pursue
the valuation issue raised in paragraph 8 of the complaints.
Footnote: 1The reasoning in United States v. Colorado and United
States v. Hawkins has been questioned on the ground that the
government contractor's use of the property was in furtherance of
its separate, profit making operation and that use could be
subjected to a state tax. See Hellerstein and Hellerstein, II
State Taxation, ¶22.03 [2] at 22-20 & n.102, (2d ed. 1993). See
also the dissenting opinion of Judge Noonan in United States v.
Nye County Nevada, supra, 938 F.
2d at 1044-45, and United States
v. County of San Diego,
965 F.2d 691 (9th Cir. 1992). The
dispute in these cases centers on whether the particular state
tax reaches the particular interest held by the government
contractor, which is generally a right to lease or use government
property.
Footnote: 2This does not mean that a property owner has personal
liability for the tax. Freehold Office Park Ltd. v. Freehold
Tp., supra, 12 N.J. Tax at 440. The lien is against the
property, not the owner, but the "property" is the owner's fee
interest. Becker v. Little Ferry, supra, 126 N.J.L. at 340.
Footnote: 3N.J.S.A. 54:4-2.3 and N.J.S.A. 54:4-1.10 in combination are
analogous to the Michigan tax statute upheld in United States v.
City of Detroit,
355 U.S. 466,
78 S. Ct. 474
2 L. Ed.2d 424,
(1958), as applied to a lease of federally owned property to a
private industrial concern. See Egg Harbor City v. Atlantic
Cty.,
10 N.J. Tax 7, 12-17 (Tax 1985).
Footnote: 4Moreover, defendant correctly points out that the Tax Court
is not bound by Joshua Hendy Iron Works, a decision of the former
Division of Tax Appeals, an administrative agency that was part
of the executive branch of government. Even if viewed as a
judicial opinion, the decision is no more than a decision of a
trial court, which is not binding on another trial court. State
v. Machuzak,
227 N.J. Super. 279, 281 (Law Div. 1988) ("Absent an
appellate court determination on point, a trial court is not
bound to follow the holding of another trial court.")
Footnote: 5The landlord in this case is the ground lessor Raintree
Associates. The taxes in fact are chargeable to the owner
Rainhold Holding Company.
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