Supreme Court of the United States · 1946 · Federal Courts
Federal CourtsIntergovernmental Tax ImmunityFederal-State Relationsreal propertypersonal propertystate taxationfederal instrumentalityRFC
Facts
Defense Plant Corporation acquired land in Beaver County in 1941, built manufacturing facilities, and installed machinery and attachments necessary for a plant producing aircraft propellers. Much of the machinery was heavy and unattached except by its own weight; other parts were attached by removable screws and bolts, and some equipment could be moved within the plant. The fully equipped plant was leased to Curtiss-Wright Corporation, and the lease allowed the Government to receive and replace equipment, with machinery frequently interchanged or replaced. The lease also stated that the machinery would remain personalty notwithstanding any affixation to realty, but Pennsylvania treated machinery necessary to a manufactory as part of the freehold for tax purposes.
Issue
Whether machinery owned by an RFC subsidiary and taxed by Beaver County was 'real property' within the meaning of § 10 of the Reconstruction Finance Corporation Act, so that Pennsylvania could tax it, or whether it remained exempt personal property under federal law.
Rule
Where Congress subjects a federal instrumentality's 'real property' to state and local taxation without defining that term, courts should apply settled state rules governing what constitutes real property for tax purposes, provided those rules do not discriminate against the Government or patently conflict with the terms of the federal statute.
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One of 10 multiple-choice questions for this case. Pick an answer to see why.
Congress charters the Great Plains Development Agency, a federal instrumentality, and exempts its personal property from state taxation while providing that its "real property" may be taxed by local governments. The statute does not define real property. In Ohio, a long-settled tax rule treats permanently installed grain-drying machinery essential to a processing facility as real property for tax purposes, and Franklin County assesses a tax on that machinery owned by the agency.
If the agency challenges the tax, which argument is strongest under the governing rule?
Explanation. When Congress allows state taxation of a federal instrumentality's "real property" but does not define that term, the Court applies settled state tax-law concepts of real property. The majority rejected the idea that a uniform federal definition is required in this setting, because Congress already accepted variation in local tax systems. The state classification governs so long as it does not discriminate against the Government or patently run counter to the statute.