warrant recovery of the amount paid for Assignment Certificate No. 76 in discharge of the 1922-25 taxes.3

4. UNITED STATES ET AL. v. COUNTY OF ALLEGHENY

(322 U. S. 174. No. 417-Decided May 1, 1944)

Pursuant to a contract with the United States for the production of ordnance, a contractor installed machinery in his mill. In the assessment of the mill for state taxes, the value of the machinery was included. Held:

1. Whether the machinery was property of the United States was a federal question. P. 182.

2. Title to the machinery was in the United States. P. 183.

3. The state tax law, so far as it purports to authorize taxation of the property interests of the United States in the machinery in the contractor's plant, or to use that interest to tax or to enhance the tax upon the Government's bailee, violates the Federal Constitution. P. 192.

4. The claim in this case that immunity from state taxation was waived is unsupported. P. 189.

(a) A provision of the contract requiring the contractor to abide by the "applicable" state law was inadequate to waive federal immunity. P. 189.

(b) A provision of the contract whereby the Government was obligated to pay certain taxes of the contractor did not operate to waive immunity. P. 189. [175] 5. The invalidity of the tax was not dependent upon where its economic burden fell. P. 189.

6. Local governments may not impose either compensatory or retaliatory taxes on property interests of the Federal Government. P. 190.

7. The contractor, upon whom the tax was laid, and the Government, as intervenor, having made timely insistence in the proceeding below that the state tax law as applied violated the Federal Constitution, and the highest court of the State having rendered final judgment against the claim of federal right, this Court has jurisdiction on appeal. Jud. Code § 237 (a). P. 191. 347 Pa. 191, 32 A. 2d 236, reversed.

APPEAL from the reversal of a judgment which held a state tax invalid under the Federal Constitution.

MR. JUSTICE JACKSON delivered the opinion of the Court.

We are called upon to solve another of the recurring conflicts between the power to tax and the right to be free from taxation which are inevitable where two governments function at the same time and in the same territory. [176] In arguing the case of McCulloch v. Maryland, Luther Martin, Attorney General of Maryland, himself a member of the Constitutional Convention, said, "The whole of this subject of taxation is full of difficulties, which the Convention found it impossible to solve, in a maner entirely satisfactory. The first attempt was to divide the subjects of taxation between the State and the national government. This being found impracticable, or inconvenient, the State governments surrendered altogether their right to tax imports and exports, and tonnage; giving the authority to tax all other subjects to Congress, but reserving to the States a concurrent right to tax the same subjects to an unlimited extent. This was one of the anomalies of the government, the evils of which must be endured, or mitigated by discretion and mutual forbearance." McCulloch v. Maryland, 4 Wheat. 316, 376. Where discretion and forbearance have failed it often has fallen to this Court to determine specific cases for which the Convention was unable to agree upon a general

This analysis also indicates that the portion of the assignment certificate covering the period 1926-34 which discharged the taxes levied for 1926 and 1927 should be returned. The Government, however, presses no claim for these amounts here.

rule. Looking backward it is easy to see that the line between the taxable and the immune has been drawn by an unsteady hand.

But since 1819, when Chief Justice Marshall in the McCulloch case expounded the principle that properties, functions, and instrumentalities of the Federated Government are immune from taxation by its constituent parts, this Court never has departed from that basic doctrine or wavered in its application. In the course of time it held that even without explicit congressional action immunities had become communicated to the income or property or transactions of others because they in some manner dealt with or acted for the Government.1 In [177] recent years this Court has curtailed sharply the doctrine of implied delegated immunity. But unshaken, rarely questioned, and indeed not questioned in this case, is the principle that possessions, institutions, and activities of the Federal Government itself in the absence of express congressional consent are not subject to any form of state taxation. The real controversy here is whether, especially in view of recent decisions, taxing authorities of the Commonwealth of Pennsylvania have infringed this admitted immunity.

Mesta Machine Company, an appellant with the United States, exists as a corporation under the laws of Pennsylvania and has a manufacturing plant in the County of Allegheny, of that Commonwealth, the County being appellee herein. It is engaged in the manufacture of heavy machinery. In October 1940, the War Department desired to produce a quantity of large field guns. It could have assembled an organization, created a Government-owned corporation, and erected a plant which would have been wholly tax immune. Clallam County v. United States, 263 U. S. 341. But for reasons of time and policy it chose to utilize a going concern under private management and ownership. Mesta's plant was not equipped for the manufacture of ordnance. It was agreed that certain additional equipment specially required for [178] the work should be furnished at Government cost and should remain the property of the United States.

The basic arrangement between Mesta and the Government was provided for by three separate titles of a single contract, made in October 1940. A title was devoted to each feature of the arrangement, being generally procurement of Government-owned equipment at Government cost; lease of such equipment by the Government to Mesta; and Mesta's undertaking to make and deliver the guns at a fixed price each. In February 1941 a supplemental contract was made.

Under the first title of the contract machinery was to be procured in three possible ways: Mesta, as an independent contractor and not as agent of the Government, could purchase it; Mesta could manufacture it; or the Government at its option could furnish any part of it. In carrying out the agreement Mesta manufactured one machine, the Government furnished eight gun-boring lathes and two rifling machines from its Watervliet Arsenal, and the rest Mesta purchased from

1 See Dobbins v. Commissioners, 16 Pet. 435; Collector v. Day, 11 Wall. 113: New York ex rel. Rogers v. Graves, 299 U. S. 401; Osborn v. Bank of United States, 9 Wheat. 738; Owensboro National Bank v. Owensboro, 173 U. S. 664 Choctaw, O. & G. R. Co. v. Harrison, 235 U. S. 292; Gillespie v. Oklahoma, 257 U. S. 501; Jaybird Mining Co. v. Weir, 271 U. S. 609; Federal Land Bank v. Crosland, 261 U. S. 374; Telegraph Co. v. Texas, 105 U. S. 460 Leloup v. Port of Mobile, 127 U. S. 640; Indian Motocycle Co. v. United States, 283 U. S. 570; Panhandle Oil Co. v. Mississippi ex rel. Knox, 277 U. S. 218; Graves v. Texas Co., 298 U. S. 393.

2 See Alabama v. King & Boozer, 314 U. S. 1; Graves v. New York ex rel O'Keefe, 306 U. S. 466; James v. Dravo Contracting Co., 302 U. S. 134; Helvering v. Gerhardt, 304 U. S. 405; Helvering v. Mountain Producers Corp., 303 U. S. 376.

other machine-tool manufacturers. The machinery bought or built by Mesta was inspected and accepted on behalf of the United States, which thereupon compensated Mesta as agreed. The contract provided that title to all such property should vest in the Government upon delivery at the site of work and inspection and acceptance.

By the second title of the contract the Government leased this equipment to Mesta for the period during which guns are manufactured by it under this contract or later supplements. As rental Mesta agreed to pay the sum of one dollar. Mesta was permitted to use the equipment "for the purpose of expediting the manufacture of guns" and for no other, without consent, except that such machinery as was "purchased or furnished to supplement its existing facilities" might be used "for general purposes." Liability of Mesta for loss, damage, or destruction [179] of equipment was "that of a bailee under a mutual benefit bailment." Mesta could not remove any of it without permission, and at all times it was accessible to Government inspection. On termination of the gun-supply contract, unless a stand-by contract was made, Mesta agreed to remove and ship the equipment according to Government directions, in good condition subject to fair wear and tear and depreciation.

or

The leasing title of the contract made no mention of taxation. The equipment-procurement title provided for reimbursement of Mesta "in the performance of the work under this Title" for payments "under the Social Security Act, and any applicable State or local taxes, fees, charges which the Contractor may be required on account of this contract to pay on or for any plant, equipment, process, organization, materials, supplies, or personnel." The gun-supply title recited that the contract price did not "include any tax imposed by any state, county, or municipality upon the transaction of this purchase of guns. The Government shall not be liable, directly or indirectly, for the payment of any such taxes, except that if the Contractor after using every effort short of litigation to procure exemption or refund, as the case may be, should be compelled to pay to any state, county or municipality, any tax upon the transaction of this procurement, an amount equal to the tax so paid shall be paid by the Government on demand of the Contractor, in addition to the prices herein stated." The Government admits liability to reimburse Mesta if it is obliged to pay tax by reason of the assessment in question here.

The machinery was bolted on concrete foundations in Mesta's plant on real property owned by it. It could be removed without damage to the building.

The present controversy flared when the assessing authorities of Allegheny County revised Mesta's previously determined assessment for ad valorem taxes. They added [180] thereto the value of the machinery in question, fixed at $618,000. This included property acquired from other tool manufacturers as above described, $444,000; that manufactured by Mesta, $14,000; lathes brought from the Watervliet Arsenal, $160,000. Mesta protested and exhausted administrative remedies without avail, and on July 30, 1942, paid under protest $5,137.12, the amount of the tax attributable to this increased assessment.

Mesta took a timely appeal allowed by statute to the Court of Common Pleas. The United States petitioned to intervene, reciting

that it would be required to reimburse Mesta by force of its contract. Intervention was permitted against objection by the County, and the United States has participated in the litigation since. Mesta attacked the assessment under both state and federal law, claiming that under the State Tax Law property belonging to another was not to be considered a part of its mill and that if construed to authorize assessment and taxation of this machinery, the statute violated the Federal Constitution.

The Court of Common Pleas held that the State Act authorized the assessment, but that the machinery here involved was "owned by the United States" and so for constitutional reasons could not be included.

The Supreme Court of Pennsylvania, on appeal of the County, reversed, and reinstated the assessment. It held that under the state law regardless of who held the title to it the machinery constituted a part of the mill for purposes of assessment and was properly assessed as real estate. It acknowledged that property held by the United States is "beyond the pale of taxation" by a state, but this assessment, it said, is not against the United States but against Mesta, which is operating its mill for private purposes. If Mesta defaulted in tax payments, the Court held that "the paramount rights of the Government in the [181] machinery could not be divested or in any way affected," hence the Government could suffer no loss. Evidence that the machinery was not owned by Mesta it held to be irrelevant and improperly admitted. Two Justices dissented.

The United States and Mesta appealed and we postponed consideration of jurisdictional questions to the hearing on the merits.

I

It is denied that the Government has valid title to the machinery. This contention is urged by the member cities of the National Institute of Muncipal Law Officers, permitted to file a brief and to argue orally as amici curiae. Their position is that "the Government is subject to the legal rules applicable to private transactions." Under Pennsylvania law transfer of title to personal property to be good as against subsequent purchasers and lienors must be accompanied by delivery of possession. They say that inspection and acceptance by a contracting officer on behalf of the United States at the Mesta plant did not under decisional law of Pennsylvania amount to delivery of possession to the United States and hence that its title is defective. The position of the County is less extreme. It argued earlier in the litigation that the machinery became part of Mesta's real estate upon installation and that the United States had only "a reversionary interest after the termination of the contract." It later conceded that title to the property was not in Mesta "except for tax purposes." The Pennsylvania Supreme Court thought it immaterial whether title was in the Government, but said. "... this private arrangement between the Mesta Company, the owner of the land and buildings and operator of the mill, and the federal government, the owner of the machinery, which treats the equipment as personal property and permits [182] the latter to remove it at the termination of the contract, can in no way change the legal effect of the Act of Assembly which specifically designates machinery, under these circumstances, as real estate for tax purposes.”

We do not determine whether, under Pennsylvania law, the retention possession by Mesta would protect only good-faith purchasers or lienors who relied upon it or whether, as urged by the amici, it also makes the Government's title imperfect as against these taxing authorities, who were fully advised of the Government's claim before the assessment was made. Even if the latter were true, we do not think the state law would be decisive of the question of title.

The Constitution provides that "The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States . . Art. IV, § 3, cl. 2. It also gives Congress the power "To make all Laws which shall be necessary and proper for carrying into Execution" all powers vested in the Government or in any department or officer thereof, Art. 1 § 8, cl. 18, and it makes the laws of the United States enacted pursuant thereto "the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” Art. VI, cl. 2.

Every acquisition, holding, or disposition of property by the Federal Government depends upon proper exercise of a constitutional grant of power. In this case no contention is made that the contract with Mesta is not fully authorized by the congressional power to raise and support armies and by adequate congressional authorization to the contracting officers of the War Department. It must be accepted as an act of the Federal Government warranted by the Constitution and regular under statute.

[183] Procurement policies so settled under federal authority may not be defeated or limited by state law. The purpose of the supremacy clause was to avoid the introduction of disparities, confusions and conflicts which would follow if the Government's general authority were subject to local controls. The validity and construction of contracts through which the United States is exercising its constitutional functions, their consequences on the rights and obligations of the parties, the titles or liens which they create or permit, all present questions of federal law not controlled by the law of any State. Clearfield Trust Co. v. United States, 318 U. S. 363; Jackson County v. United States, 308 U. S. 343; Carpenter v. Shaw, 280 U. S. 363; Utah Power & Light Co. v. United States, 243 U. S. 389; United States v. Ansonia Brass & Copper Co., 218 U. S. 452; see D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U. S. 447; Deitrick v. Greaney, 309 U. S. 190; Federal Land Bank v. Bismarck Lumber Co., 314 U. S. 95. Federal Statutes may declare liens in favor of the Government and establish their priority over subsequent purchasers or lienors irrespective of state recording acts. Detroit Bank v. United States, 317 U. S. 329;* United States v. Snyder, 149 U. S. 210. Or the Government may avail itself, as any other lienor, of state recording facilities, in which case, while it has never been denied that it must pay nondiscriminatory fees for their use, the recording may not be made the occasion for taxing the Government's property. Federal Land Bank V. Crosland, 261 U. S. 374; Pittman v. Home Owners' Loan Corp., 308 U. S. 21.

We hold that title to the property in question is in the United States and is effective for tax purposes.

*Page 154 herein.