208 U.S.

Argument for Appellants.

It is not sufficient to give this court jurisdiction upon the grounds claimed, that by possibility there may be some cloud cast upon appellee's title by some possible action of the officers of the State, because the presumption in all cases is that the courts of the State and the officers thereof will do what the Constitution and laws of the United States require. Shreveport v. Cole, 120 U. S. 36; Neal v. Delaware, 103 U. S. 370.

The property rights of the several lessees of appellee in and to their respective leasehold estates and the improvements erected thereon under their several leases are lawfully subject to taxation by the State and county.

The legislature may provide that real estate shall be assessed as personalty or that personalty shall be taxed as realty. Cooley on Taxation (3d ed.), p. 641. And see § 63, Code of Tennessee (Shannon), the effect of which was to change the common law rule that a leasehold estate is personal property. Alley & Bush v. Lanier, 1 Cold. 540; Burr v. Graves, 4 Lea, 556.

The words "owner of land," as used in the statutes of Tennessee, do not necessarily mean the person owning the entire estate in such property, but may mean any person having an interest therein, whether in fee or for a term of years. Alley & Bush v. Lanier, 1 Cold. 540. See also Cooley on Taxation (3d ed.), pp. 633, 634, and cases there cited.

Under the provisions of the clauses herein in question, the improvements made by the lessees unquestionably belong to them and the plain implication of the leases is that, unless paid for by the university at the end of the term, the lessees might lawfully remove them. Under such circumstances a lessee making improvements on leased land is liable for taxes on such improvements. See Russell v. City of New Haven, 51 Connecticut, 259; Philadelphia &c. R. R. v. Appeal Tax Court, 50 Maryland, 397; Zumstein v. Coal Co., 50 Ohio, 264; Bentley v. Barton, 4 Ohio St. 410; Parker v. Redfield, 10 Connecticut, 490; People v. Bd. of Assessors, 93 N. Y. 308, 311; Ex parte Gaines, 96 Arkansas, 227; San Francisco v. McGinn, 67 California, 110;

State v. Campbell, 23 La. Ann. 445; People v. Shearer, 30 California, 645, 656, 657; State v. Moore, 12 California, 56, 69, 70; State v. Tucker, 38 Nebraska, 56, 59, 60; Luttrell v. Knox County, 89 Tennessee, 257.

Appellee's charter exemption is personal to it. Immunity from taxation is not transferable; it is a privilege personal to the grantee. Pickard v. E. T. V. & G. Ry. Co., 130 U. S. 631; State v. Mercantile Bank, 160 U. S. 161.

The intent to confer an exemption, and especially when it is insisted that the exemption passes to a transferee of the original grantee, must be clear, beyond a reasonable doubt. Railroad Tax Cases, 18 Wall. 226; Providence Bank v. Billings, 4 Peters, 565.

Mr. James J. Lynch and Mr. Arthur Crownover, with whom Mr. William D. Spears, Mr. Isaac W. Crabtree, Mr. John J. Vertrees, Mr. Albert T. McNeal and Mr. William L, Myers were on the brief, for appellee:

The assessment act of 1903 impairs the obligation of the contract of exemption between the State and the university. At the time this charter was granted, and until the passage of the act of 1903 complained of, the common law rule that taxes on leased property should be assessed to the lessor prevailed in Tennessee. This rule is well established. Taylor on Landlord and Tenant, § 341. See also East Tenn., Va. & Ga. Ry. Co. v. Mayor &c. of Morristown, 35 S. W. Rep. 771. Thus when this exemption was granted the leasehold interests were assessable as a part of the whole estate to the university, as lessor, and formed a part of the estate exempted from taxation by this charter.

In the case of University v. Skidmore, 87 Tennessee, 155, it was decided that the property is exempt from taxation so long as the title remained in the University of the South. The State cannot now violate this contract and tax this exempt property by simply passing a statute changing the method of assessment. See State of New Jersey v. Wilson, 7 Cranch, 164, hold

ing that the exemption attached to the property and passed to the purchaser, as it has been held that the exemption attached to this property so long as the title remains in the university, and that leasing the property does not take the title out of the university so as to destroy the exemption. The exemption is for the benefit of the university, and, as the record shows, materially enhances the value of its property in leasing same. It is this value that the act we are complaining of destroys.

By the terms of the leases the university is required to enter into a new contract, as to the amount of rent to be paid, at the expiration of each term. Necessarily, if the property is assessable for taxes, as against the lessee, it will not be so valuable to him as when free from taxation. As shown, this immunity from taxation entered into and became a part of the original lease contract, and was one of the things taken into consideration in fixing the annual rent thus contracted for. This element of value in the property of the university is thus destroyed by this act of which we complain.

This tax against the lessee is a tax on the right to occupy the land. Hence, in taxing the property when leased, or in taxing the interest leased, a tax is placed upon the only use to which the property can possibly be put, to be made of value to the university. The State insists that, while it may not tax the property directly, it may, nevertheless, tax its use or right of occupancy; while it may not tax the land, it may, nevertheless, tax the rent or income from the land, and thus burden its only value to the university. But see Pollock v. Farmers' Loan & Trust Co., 157 U. S. 427; Dougherty v. Thompson, 71 Texas, 202; Moseley v. State, 115 Tennessee, 52. Cases of San Francisco v. McGinn, 67 California, 110; State v. Tucker, 38 Nebraska, 56; Luttrell v. Knox County, 89 Tennessee, 257, and others, cited by appellants, discussed and distinguished.

It is not true, as stated by appellants, that the lessees own the buildings, and the arguments based upon this alleged ownership are therefore without force.

VOL, COVIII-32

The Supreme Court of Tennessee in the Skidmore case, treated these improvements as the property of the university, and the decision in that case is based on that theory.

Even if the construction contended for by appellant that the lien should be limited to the lessee's interest in the property, the State would only have a right to sell the lessee's interest for the payment of taxes.

The injury to the university remains the same; if the State is permitted to assess the lessee's interest, and sell same for the payment of taxes, the university's control over this property is lost, and one of the greatest advantages provided for, in § 10 of the charter, is destroyed.

By retaining the title to, and the absolute control over, this one-thousand-acre reservation the university has been able to say who shall come near it. The leases all provide that they may not be assigned without the consent of the university. But, if the State can sell the property for taxes at public auction, the university is helpless to prevent the intrusion of outsiders. Its power to protect its students from contaminating influences will be gone, and one of its most cherished ideals will be destroyed.

MR. JUSTICE PECKHAM, after making the foregoing statement, delivered the opinion of the court.

The appellant insists that the Circuit Court had no jurisdiction of this suit, because all the parties are citizens of Tennessee. We think, however, that jurisdiction existed, because the case is one arising under the Constitution of the United States, the complainant insisting that under such Constitution the law of the State of Tennessee, passed in 1903, is invalid, because it impairs the obligations of a contract protected by that instrument. Illinois R. R. Co. v. Adams, 180 U. S. 28, 35. We therefore pass to the merits of the controversy.

As the complainant maintains that the exemption clause in the tenth section of its charter is broader than that contained in the second section of the act of 1903, we may at once refer

to the charter exemption, and if the contention of complainant is not justified by that exemption, it is unnecessary to consider that which is given by the act of 1903. It is by the charter exemption that we are to judge the matter.

Upon the question of the proper construction of the exemption clause in the charter, the case of the University of the South v. Skidmore, 87 Tennessee (3 Pickle), 155, is cited, and it is urged that within that case no tax can be assessed against the lessees of this property within the 1,000 acres. While in such a case as this we form our own judgment as to the existence and construction of the alleged contract, and are not concluded by the construction which the state court has placed on the statute that forms such contract, yet we give to that construction the most respectful consideration and it will in general be followed, unless it seems to be plainly erroneous.

Looking at the Skidmore case, we find that it does not uphold the contention maintained by the complainant. In that case the university filed a bill against Skidmore, trustee of Franklin County, to enjoin him from assessing for taxation against the university the property belonging to it within the 1,000 acres. In answer to the bill the State contended that the thousand acres would be exempt from taxation so long only as they were substantially owned by the university, but that when it gave a lease of the kind described in the case before us it ceased during the term of the lease to be the real and substantial owner of the land so leased, which by the lease was taken out of the exemption granted by the statute, and was from that time taxable against the university. The Supreme Court, however, held that the assessment made was void because the property, the land owned by the university, was exempt from taxation so long as it belonged to that corporation, and the making of the leases did not permit the property to be taxed against the university.

This is a different proposition from the one asserted by the complainant, and is not authority for its contention that the assessment cannot be made against the lessee in his own name