TH

HE TAX EXEMPTION provisions of the Soldiers' and Sailors' Civil Relief Act1 have become common knowledge to most service personnel and State tax administrators. Though there

have been some misunderstandings, decided administratively, as to the effect of the Act on applicability of State income taxes to Armed Forces pay, there have been several cases litigated through the courts regarding liability for State and local taxes with respect to personal property. The most recent decision is United States and Bottomley v. Arlington County.20

2

The primary question involved in the Bottomley case was whether a member of the Armed Forces must actually be assigned to duty within a particular State other than his State of domicile, in order to be exempt from taxation with respect to his personal property, by that nondomiciliary State. Captain Bottomley whose home State or domicile was New Jersey, had been on duty in the Washington area and lived with his family in Arlington County, Virginia. In January 1959, he was transferred to sea duty in the Pacific. For a number of personal reasons familiar to all servicemen, the Captain chose to leave his family and personal property in Arlington and not move them, while he was on sea duty, until June 1960, at which time they were moved to the West coast. Arlington County officials took the position that since the Captain was not on duty within the State of Virginia or Washington, D.C. area on 1 January 1960, the assessment date for personal property taxes, section 514 of the Relief Act (50 USC App. 574) did not apply to exempt him, and an assessment was made on his personal property physically located in Arlington on that date.

*Captain Jerry R. Siefert, U.S. Navy, is presently serving as Director, Civil Law Division, in the Office of the Judge Advocate General. A graduate of the University of Wisconsin Law School, where he was a member of the Wisconsin Law Review, Captain Siefert is a member of the Wisconsin bar, the U.S. Court of Military Appeals and the Supreme Court of the United States, and holds membership in the American and Federal Bar Associations. 1. 50 USC App. § 574.

2. Dameron v. Brodhead, 345 U.S. 322, (1953); Woodroffe v. Village of Park Forest, 107 F. Supp. 906 (1952); Whiting v. Portsmouth, 118 S.E. 2d 505 (1961).

2a. 326 F. 2d 929 (4th Cir. 1964).

At the request of the Judge Advocate General, Department of Justice attorneys filed suit in a Federal District Court, on behalf of the United States and Captain Bottomley, against Arlington County to have the assessment declared void and of no effect and to enjoin County officials from levying or collecting taxes with respect to the personal property, located in Arlington County, of members of the Armed Forces who at the time of the assessment were on active duty, absent from their home States pursuant to orders, and domiciled or resident in other than Arlington, Virginia.

The U.S. District Court for the Eastern District of Virginia decided against the plaintiffs by reasoning that, under section 514 of the Relief Act, as it was worded on 1 January 1960, physical presence of the serviceman in the State of Virginia, pursuant to military orders, was required before exemption would apply. The District Court also held that a reasonableness test should be read into section 514 and that since, in the Court's opinion, the serviceman did not remove his property from the nondomiciliary State of Virginia within a reasonable time after transfer, his property was no longer within Virginia pursuant to orders and became subject to personal property taxes.

During the pendency of the suit, Congress amended section 514 by adding the following provision:

Where the owner of personal property is absent from his residence or domicile solely by reason of compliance with military or naval orders, this section applies with respect to personal property, or the use thereof, within any tax jurisdiction other than such place of residence or domicile, regardless of where the owner may be serving in compliance with such orders."

The Congressional intent in amending section 514 with the above provision was indicated, in the House and Senate Committee reports, to be for the purpose of clarification and to carry out the original intent of Congress in enacting the Relief Act. The District Court, however, held that the amendment did not abate". ..per

3. Pub. Law 87-771, 76 Stat. 768.

...

sonal property taxes assessed against Captain Bottomley or other military personnel similarly situated, prior to the effective date of the amendment."

A collateral issue raised before the district court was the question of jurisdiction. Arlington County contended that there was adequate remedy in the Virginia State courts and that there was no federal question justifying intervention or impleading of the Federal Government and trial in the Federal courts. This issue was not stressed in the briefs or raised in the oral arguments before the Court of Appeals, but that court went to considerable length in upholding its jurisdiction to decide the questions concerning applicability of the Relief Act to the Arlington tax.

The Court of Appeals stated that:

***The fact that the United States is not subject to the limitations of 28 U.S.C. § 1341 prohibiting the district court from enjoining the collection of state taxes has long since been settled where the United States has in fact a proprietary interest. United States v. Livingston, 179 F. Supp. 9 (E.D.S.C 1959); aff'd, 364 U.S. 281 (1960). See the authorities therein cited by Judge Haynsworth in support of the decision of the three judge district

court.

We must, however, face an additional question in this action. Does the allegation of the complaint that the United States brings this action on behalf of Bottomley and other servicemen in order to obtain a proper implementation of the governmental policy involved in the Soldiers' and Sailors' Relief Act give the government standing to bring this action? We think the answer to this question must be yes. The special interest of the sovereign United States in the protection and enforcement of its policies and programs with respect to the members of the armed forces has been affirmed by the courts in numerous instances.

In Dameron v. Brodhead, 345 U.S. 322 (1953), the Court upheld the constitutionality of the Act. In doing so it said:

The constitutionality of federal legislation exempting servicemen from the substantial burdens of seriate taxation by the states in which they may be required to be present by virtue of their service, cannot be doubted. Generally similar relief has often been accorded other types of federal operations or functions. And we have upheld the validity of such enactments, even when they reach beyond the activities of federal agencies and corporations to private parties who have seen fit to contract to carry on functions of the Federal Government. Carson v. Roane-Anderson Co., 342 U.S. 232, and cases cited; cf. James v. Dravo Contracting Co., 302 U.S. 134, 160-161.

Nor do we see any distinction between those cases and this. Surely, respondent may not rely

on the fact that petitioner here is not a business contractor. He is not the less engaged in a function of the Federal Government merely because his relationship is not entirely economic. We have in fact, generally recognized the especial burdens of required service with the Armed Forces in discussing the compensating benefits Congress provides. Le Maistre v. Leffers, 333 U.S. 1; Boone v. Lightner, 319 U.S. 561. Cf. Board of Commissioners v. Seber, 318 U.S. 705. Petitioner's duties are directly related to an activity which the Constitution delegated to the National Government, that "to declare War," U.S. Const., Art. I, § 8, cl. 11, and "to raise and support Armies." Ibid., cl. 12. Since this is so, congressional exercise of a “necessary and proper" supplementary power such as this statute must be upheld. Pittman v. Home Owners' Corp., 308 U.S. 21, 32-33; Federal Land Bank v. Bismarck Co., 314 U.S. 95, 102-104. Carson v. Roane-Anderson Co., supra, at 234. What has been said in no way affects the reserved powers of the states to tax. For this statute merely states that the taxable domicile of servicemen shall not be changed by military assignments. This we think is within the federal power." 345 U.S. at 324-25.

The right of the federal government to bring suit to enforce its policies and programs even in the absence of immediate pecuniary interest has been upheld in numerous other fields of federal activity. In re Debs, 158 U.S. 564, 584 (1895), where the government sought an injunction against private persons in connection with the Chicago railroad strike, the Court said:

We do not care to place our decision upon this ground alone (i.e., proprietary interest in the mail). Every government, entrusted, by the very terms of its being, with powers, and duties to be exercised and discharged for the general welfare, has a right to apply to its own courts for any proper assistance in the exercise of the one and the discharge of the other, and it is no sufficient answer to its appeal to one of those courts that it has no pecuniary interest in the matter. The obligation which it is under to promote the interest of all, and to prevent the wrongdoing of one resulting in injury to the general welfare, is often of itself sufficient to give it a standing in court.

Cf. United States v. City of Jackson, 318 F. 2d 1 (5 Cir. 1963); United States v. Lassiter, 203 F. Supp. 20 (W.D.-La.), aff'd., 371 U.S. 10 (1962). In United States v. San Jacinto Tin Co., 125 U.S. 273 (1888), the Court upheld the right of the Attorney General to bring suit to set aside a land patent obtained by fraud. This was in the absence of any statutory authority. In United States v. American Bell Tel. Co., 128 U.S. 315 (1888), the Court upheld the right to bring suit to cancel a patent again without statutory authority. Here we find that the interest of the national government in the proper implementation of its policies and programs involving the national defense is such as to vest in it the non-statutory right to maintain this action. Under these circumstances the incapacity of

the individual plaintiff to maintain this action is immaterial since he may find shelter under the Government's umbrella.

The County contends that his personal property ceased to be exempt from taxation when he was transferred pursuant to military orders to a post outside Virginia, but elected to leave his family and personal property in Arlington County for approximately a year and a half after the transfer. The district court agreed, and in so doing we think it read into the Act a limitation which is not there. In its opinion the court said:

Under (these) circumstances the personal property in question did not remain in Virginia by virtue of Captain Bottomley's military orders, and it is subject to the same personal property taxes as other personal property located in Virginia as of January 1, 1960.

As we read the Act it says that the serviceman shall not be deemed to have lost his residence or domicile in his "home" state if he is absent therefrom solely in compliance with military orders. The Act then adds: with respect to taxation of such person's personal property-that property shall not be deemed to be present in or to have a situs for taxation in such state; i.e., in a state in which he is deemed not to reside or be domiciled.

To put the matter in another way, the Act does not say that the serviceman shall not be deemed to have acquired a domicile in the host state because he was there by virtue of military orders-it says he shall not be deemed to have lost his domicile in his "home" state, and the Act further states that the same condition shall exist with respect to his personalty. Thus we think the Act makes it clear that the Congress intended to exempt the serviceman from taxation on his personal property except by his "home" state. This is the rational conclusion to be drawn from Dameron v. Brodhead, 345 U.S. 322 (1953), where the Supreme Court rejected an attempt by the host state to tax a serviceman's personalty because his "home" state did not. The argument there being that the purpose of the Act was to prevent multiple taxation and since the "home" state did not tax, the host state was free to do so. In rejecting the argument the Court said:

(I)n fact though the evils of potential multiple taxation may have given rise to this provision, Congress appears to have chosen the broader technique of the statute carefully, freeing servicemen from both income and property taxes imposed by any state by virtue of their presence there as a result of military orders. It saved the sole right of taxation to the state of original residence whether or not the state exercised the right. Page 326. (emphasis added.)

On October 9, 1962, while this case was pending, the Congress amended the Act to provide that regardless of where the owner may be serving, his personal property may not be taxed except in his home state. Legislative history states that the change was made in order to clarify the original intent of the Act that

only the "home" state should have the right to tax.' We do not need the change to read the Act as prohibiting the tax in question. The judgment is, therefore, reversed with directions to the court to enter judgment in conformity with this opinion.

Reversed and Remanded.

'S. REP. NO. 2182, 87th Cong., 2d Sess. 1-2 (1962), accompanying H.R. 9749.

In addition to further defining the intent of Congress, as expressed in section 514 of the Relief Act, the Bottomley decision is beneficial in clarifying the jurisdiction of the Federal courts and in explaining their responsibilities for the proper interpretation of federal laws enacted for the benefit of service personnel.

Although the court's decision in the Bottomley case provides exemption in the specific case under consideration, it also makes it clear that the serviceman remains subject to taxation by his home State and re-emphasizes the warnings expressed repeatedly in various articles and JAG NOTICES regarding compliance with home or domiciliary State tax laws.

5

Under the provisions of section 514 of the Relief Act, a member of the Armed Forces is not automatically relieved of his or her obligations to pay State income and property taxes when absent from his or her State of domicile pursuant to military or naval orders, unless such home State laws provide exemption. The Relief Act was very clearly not intended to provide service personnel with immunity from all State taxation while on active duty. It in effect says that while on active duty our personal property (not used in a trade or business) and our military or naval pay shall not, for tax purposes, be deemed to have a situs or to be located or to have been earned, respectively, in any State or local taxing jurisdiction, other than our place of domicile or legal residence.

The complaint is often heard, against service personnel, that they are permitted to avoid all State income and property taxes. It may be true that a few, intentionally or unintentionally, are not complying with their home State laws and consequently are illegally evading such laws, but the exemption under the Relief Act is not considered inequitable to the States. The tax situs of a serviceman's property, not used in a trade or business, and his military earnings re

5. JAG NOTICE 5840 of 24 Dec. 1963 and similar previous Notices issued each year; Siefert, Death Taxes and Estate Planning, JAG Journal, Vol. XVIII, No. 1, 207, Jan. 1964; Planert, FederalState Tax Cooperation and Its Significance to Servicemen, JAG Journal, Vol. XVII, No. 9, 183, November 1963; MacMillan, Legal Residence of Military Personnel, JAG Journal, June 1960, 6; and earlier JAG Journal articles cited therein.