American Motors Corp. v. City of Kenosha

CO cn 40, 43, N. W. 269 Wis. (2d) Industrial Comm. “The extent of disability, temporary permanent, 550. thereon, fact the commission’s finding was question evidence, is conclusive.” by any if supported must be sustained. commission’s and award findings affirmed. By Judgment Court.— Brown, took no J., part. Corporation, Plaintiff and Respondent,

American Motors City Kenosha, Defendant and Appellant: vs. Plaintiff and America, Intervening United States Respondent.* 8, 1956 January 1957.

November * denied, costs, rehearing on March 1957. Motion $25

For the there were appellant briefs Robert by V. Baker of Kenosha, Bell, and attorney, Aberg, Blake & Conrad of counsel, Madison of and oral Baker, Mr. argument by Mr. W. J. P. and Mr. Charles Aberg, P. Seibold of Madison.

For the American respondent Motors Corporation there France, a brief was La Thompson & Zahn Racine, E. La attorneys, Racine, France of Cook, Alfred Beake, Miller, Wrock & Detroit, Cross of Michigan, counsel, and oral argument by E. La France. Alfred For the United of America there States respondent Rice, a brief K. Lee Charles assistant A. attorney general, Jackson, Heine, Turner, Jr., M. and H. at- Lyle Eugene Minor, Edward torneys G. department justice, United States and Francis L. attorney, assistant McElligott, United States Mr. attorney, and oral Minor argument by and Mr. McElligott. 27, 1951, March American Motors On Cor-

Martin, J. entered into a called the poration (hereinafter “company”) Government, contract with the United States Department n Air Force called the (hereinafter “government”) the manufacture and of aircraft supply repair engines, tools, overhaul test replacement parts, ground handling in and miscellaneous services and the equipment, equipment contract, connection therewith. as a This “letter known contract,” 18, 1952, was amended on March and supplanted 29, 1952, on a August by “definitive contract.” contract a definitive contains clause which in provides

substance that the of title upon making any partial payment materials, inventories, all to parts, work in and process, nondurable tools theretofore or the by com- acquired produced for the of the contract pany performance and charge- properly able to the contract under sound should accounting practice, forthwith vest in the to and that title all like government, thereafter or the acquired produced by and performance contract chargeable as properly aforesaid vest in the should forthwith such upon or acquisition production.

Subs, and (d) (e) clause partial-payments pro- vide:

“(d) It is that recognized without property (including, limitation spare in- completed supplies, parts, drawings, formation, in partially work completed supplies, process, materials, fabricated other called for parts, and here- things hereafter become vested the title to winch is or may in) be clause from time to time to this will

government pursuant care, the of or or by custody, possession used put this the of con- in connection with performance contractor contractor, of notice before after receipt tract. either or at the may of the of acquire termination option in the govern- or of which is vested dispose clause, this terms contract- by ment under approved termination, officer, after notice of that ing provided, receipt is a termination inventory such that any part be or in accordance with may acquired only disposed clause of this contract and termination provisions case laws and price (in applicable of regulations. agreed received by by acquisition contractor) proceeds shall, the contractor case of other (in any disposition), extent such do exceed proceeds price hereunder, balance of be unliquidated partial payments paid or credited to the as the officer shall contracting direct; and such be ac- balance shall reduced unliquidated be sold Current cordingly. contractor without may production scrap officer but contracting approval will in this be proceeds provided paragraph applied which is termina- (d), provided scrap part with the inventory only tion be sold accordance may termination clause of this contract provisions appli- cable laws and all Upon partial regulations. liquidation hereunder of deliveries called payments for completion all or upon contract, this title to (or proceeds which been has not thereof) accepted delivered to under this contract or has not been in- which supplies delivered corporated accepted by gov- ernment under has this contract and to which title vested this in the under clause shall vest contractor. government The of this contract to provisions referring ‘Liability

“(e) other Property’ any provision for Government-furnished liability this contract defining government-furnished of to be to which the shall property inapplicable property virtue of the shall have acquired solely this clause shall of this clause. provisions provisions risk or destruction of loss the contractor relieve or which title in the vests damage property under the hereof.” provisions to the air-

Pursuant contract manufactured etc., Kenosha, in in craft engines, city acquir- plant a so-called of raw ing “aircraft-engine inventory,” consisting materials, work in in- supplies, process, completed parts cident to such manufacture. From time to time the company billed the therefor and payments partial made. The which also manufactured automobiles company, at its Kenosha accounts and books plant, separate kept to the respect aircraft-engine inventory, physically segregated such and used it for no other inventory, purpose.

As of 1st in in May assessed years question appellant aircraft-engine inventory company, possession levied and collected taxes thereon. personal-property lower court held assessments on the invalid ground in owned United States question

There nois ment, in consent, the absence of is not express congressional subject to form of state taxation. Stats.,

Sec. 70.18 provides part: thereof, “Personal shall be assessed to owner that when it be in except shall or charge possession some other than owner person or en- beneficially person titled thereto ... it shall be assessed so person or charge the same.” possession 70.19, Stats., of sec. provisions the situation apply where personal is assessed “to some person charge or possession thereof other than the owner or bene- person thereto,” entitled ficially giving person charge possession a of action the owner “against or person entitled to such beneficially for the property” amount of such taxes.

320 of local for tax is one question purposes ownership 5, Blair 300 U. 57 Ct. Sup.

law. v. S. Commissioner (1937), 330, County 81 L. In United States Allegheny Ed. 465. v. 1209, 174, 182, 908, Ct. 88 L. Ed. U. S. (1944), law would court stated state United States supreme title in the not be decisive of the question govern- ment, are two but in instances title and many ownership as will be dealt different more particularly things, will concede that “title” in hereinafter. We in in Detroit here has vested as held involved 380, v. 234 Fed. where Murray Cir. Corp. (6th 1956), (2d) clause a contract identical practically partial-payments with this construed. also that federal was We assume may law with to the transfer of Wis- tangible respect law, the absence consin not different than Wisconsin in the No has been made contrary. proof proof case. present

In v. Bareis University Bldg. State ex rel. Wisconsin Corp. 497, 505, 259, 44 N. where 257 Wis. W. (2d) title to the real estate was the name question the beneficial was the state of Wis- but owner corporation consin, it not was held “taxation exemption depends but on the status owner legal beneficial interest property.”

In Co. Housing Sarpy County (1956), Offutt Ed. 100 L. where 76 Sup. whether erected buildings presented from the lands leased corporation upon Nebraska, taxable the state the United States supreme court stated: as the ‘owner’ not fore- does

“Labeling nature close us of the real interests ascertaining . . created so does solve the . The problem. title, ‘title,’ . but .” ment have . may only paper v. Bowers Corliss 281 U. Similarly, (1930), S. 378, Ct. 74 L. Ed. 916: Sup. refine-

“. . . taxation is not so much concerned with the ments of title as it is with actual command over the property taxed—the benefit for the tax is actual which paid.”

See also Helvering Clifford 84 L. Ed. 788. We are therefore concerned with the whether only the or was the true owner of the government company involved. property the terms of this contract the in its

Under company, materials needed for private capacity, acquires performance of the contract. In such materials it does not act procuring as for the government agent purchasing for incurs to the vendor of the payment no responsibility made, has If a is or previ- partial payment purchase price. contract, all such title to been made under ously by company. in the upon acquisition vests clause specifically pro- of the Sub. (d) partial-payment : vides notice of of contractor, after receipt either before or “The or may acquire of the at the option

termination is which title vested dispose clause, contracting terms approved this upon under officer.” or credit govern- for

It further payment provides in the case price” of the amount “agreed ment account case in the or proceeds company of acquisition Thus, the com- it appears other “any disposition.” is or dispose to acquire pany’s right for restriction, price being the only requirement to no officer the contracting with be agreed such acquisition and the amount involved be or credited to the paid immaterial, ment as the It officer direct. as set forth may facts, that the has stipulation never company acquired under this disposed permitted clause, thereunder, since it is the rather company acts, than its that controls.

Current be sold production scrap may company without thereto With approval respect is the sole of what materials shall be judge much, sold, how to whom it shall be scrapped, what be price, providing only accord- proceeds applied ance officer’sdirection. of the deliveries called for

Upon completion the con- by tract, title all not delivered and property accepted by will revert to the government company.

Sub. shall have the (e) provides company complete “risk of loss or destruction of or to which damage property in vests under the hereof.” provisions

As stated in 42 Am. Jur., Property: ... of certain constituent ele- “Property composed ments, wit, use, the unrestricted and right enjoyment, 189, sec. 4. disposal particular subject property.” p. “Both common and he is parlance legal acceptation, who, destruction, the owner of in case of its must property 215, sustain the loss of it.” sec. 37. p. Brown,

See also Personal sec. 5. Property (2d ed.), p. In our the unrestricted opinion, under the contract to acquire and the dispose risk of loss are elements of inconsistent with the ownership of such title in the render vesting would immune from taxation. that title was Conceding transferred, was, however, there no true transfer of owner- ship.

In to the Detroit v. contrary holding Murray Corp., where an identical supra, clause was con- partial-payments strued, we are not satisfied that United States court considered the appeals provisions respecting acquisition loss, risk disposition it would although appear that based on those arguments were provisions there advanced. court considered that the decision in United States v. Allegheny County 322 U. S. 88 L. Ed. was the au- controlling ; it that all said thority made arguments by city Detroit were But that case rejected Allegheny Case. no such as we are here confronted with. presented problem interest government’s assessed ownership was established the machines facts: One of by following contractor, was manufactured ten of them were by furnished and the remainder were by pur- manufacturers; chased the -contractor from other those or built the contractor were bought inspected, accepted, The case arose when paid added the value of machines to the said Allegheny county ad determined assessment for valorem contractor’s previously States court said : 187) taxes. United supreme (p. interests in have held where private “We held was that all „so preponderant interest, the whole value was tax- naked title and a nominal Northern Ry. owner. Co. able equitable Pacific States, 589; New Brunswick v. United Myers, here, that is not situation and the state 547. But the U. S. Mesta’s effort to segregate has made no contractor’s] [the tax it. The full value property, including interest and interest, well as whatever value the whole ownership leasehold, the was included attribute to appraisal might proper assessment.” in Mesta’s the the court Case Allegheny

Thus supreme distinguished title” the holds a “naked only from cases where government is in one whose interests are and the equitable ownership Case, Detroit on the Alie- to purporting rely taxable. Case, face the of true which does not issue gheny ownership is basic to the court’s decision the Case. Allegheny the has no act whatever with Here government performed to the company’s except respect property possession not, as in make the contract. It has under partial payments Case, There for it. and Allegheny accepted, paid inspected, was, indeed, no at the time the assessments certainty be and made that so would accepted; property segregated the contract title to all such property provides should delivered and government eventually accepted in the control which the vest company. only regulatory has to the com- over government respect to of” it to right dispose prior delivery pany’s “acquire amounts to no more than and acceptance, supervision see it that the is not to to bookkeeping charged of. These so any acquired disposed facts are inconsistent with ownership

Counsel for the company argues purpose of the contract was to safe- title-vesting provision primarily that its guard government against possibility be attachment while in the would to possession or that to immediate would right possession company USCA, be interfered with. sec. Under Navy, p. USCA, Contracts, and 41 Public sec. p. partial- in a contract for payments provision supplies a lien in creates favor of the which is “paramount other to all liens” on and the supplies, government’s title insure would be sufficient to interference with its against any freedom attachment possession. right right are of a and the secured creditor possession rights rather than incidents ownership. event, lien for local taxes

In no would attach in this case because the contract requires company of such taxes litigate levying protest provides shall be reimbursed promptly ment for such taxes assessed against paid by company. to that it And this indicates us in contemplated that some instances the would be to tax. property S., Taxation, 381, 382,

As stated in 84 C. sec. pp. 198: J. . . tax “. the state may private which the property interest, have an or government may property States, title to which is in the legal United but the beneficial . . . another. This ownership immunity the govern- [of rests on the of the federal sovereign right ment] free, to hold tax and it property grows out the supremacy of the federal and the that it be necessity able deal with own from free property any interference or embarrassment. . . .

“The of federal from state taxation is to be a given so as attain its practical application purpose, but without unnecessary interference with the of taxa- tion. It is and is personal government, not transferable to, for, or to be used special protection the citizen.” See also the cases cited therein.

In our true is in ownership assessments are therefore valid. to other As questions raised on this we with appeal, agree v. decision Detroit Murray Corp., supra. reversed, By causes Judgments remanded Court.— directions dismiss the complaints. I must (dissenting). dissent respectfully Currie, J. in this case. A majority opinion grave question con- stitutional law is in this case because presented we are con- fronted the claim the United States an action, intervenor in the of Kenosha has city collected tax the federal against Ever since Mr. Chief famous decision Marshall’s Justice John Maryland McCulloch U. S. (4 Wheat.) state, it has been the law that no or subdivision political thereof, can tax the instrumentability the fed- A has consented thereto. unless

eral congress reason and the doctrine underlying clear statement this States in Indian Co. United Motorcycle is stated therefor 1277, 575, 601, 75 L. Ed. 51 U. S. Ct. Sup. 283 (1931), as follows: constitutional system is our “It an established principle means, instrumentalities,

of dual government States exercises the United operations whereby states, and from taxation are exempt by mental powers instrumentalities, means, whereby and operations that to them states exert the powers belonging governmental This from taxation States. by are United exempt equally of the national from the implied independence is principle and state within their spheres governments respective which look from constitution provisions Where the system. of the dual [Citing maintenance cases.] amount of the it is not affected by par- principle applies interference, is but ticular tax or extent resulting absolute.” tax immunities entire intergovernment B. Ratchford in 6 in an article Professor U. by

reviewed that, The author out while National Tax 305. Journal, points has held court recent years the United States supreme local taxation held formerly of state and valid many types that immunity, the doctrine of contravene governmental tax to be levied has never allowed a state or local court an federal agency owned it, or a activity. which bears directly upon instant case been entered into by If the contract had “X” instead of the Motors with the corporation American no I would have hesitancy States government, United as in the because those incidents written concurring which inured to the question of ownership fact Motors in that legal of American spite benefit In such was vested in federal of our interpretation property-tax situation past statutes be no would of federal question law controlling would be presented. error, it,

The fundamental as I view inis assuming for the tax is determinative liability Wisconsin and not federal law. cites Blair v. Commissioner majority opinion L. Ed. holding

in a situation such as confronts us on this Wisconsin appeal, decisions That case with a dealt govern. question estate taxation. It involved no

a state tax the on of the federal but part of concerned with a trust creat- instrument interpretation a trust to which the ing spendthrift was not a at issue party. was whether the point beneficiary trust trust, could his under assign interest and under a line of decisions a matter long this is of state and not Paul, 1 Taxation, federal law. See Federal Estate and Gift 73, sec. 1.11. p. did, however, States United court declare in supreme 9,1,

Alabama & Boozer King 314 U. S. 62 (1941), L. Ct. 86 Ed. 140 A. R. Sup. L. that state law was is a determinative of issue of who under an “purchaser” Alabama case sales-tax statute a which involved of question immunity federal This state Kern-Limerick, ment was case recent repudiated of Inc., 110, 121, v. Scuriock S. 74 Ct. Sup. U. 403, 98 L. 546. In such Ed. last-mentioned case the court in Alabama v. & quoted portion King Boozer, that state law supra, and then indicating governed, stated: one conclude literally,

“Read this court was might saying that a its tax state court statute so as to might interpret throw chose, tax it it where even elimi- liability though arbitrarily nated an a as to exempt Such conclusion sovereign. words would course quoted deny meaning long of of a which establishes as principle construction judicial to decide construc- rests this court on duty facts for itself issues rest. which constitutional tions refers, think, of the state court we only power quotation under its law payment who is responsible to determine to the state of exaction.” (Emphasis supplied.) case, of issue whether there further which holds A state or local taxation an property, interest, claims an presents which Allegheny not law is United States v. of federal and state 174, 183, 908, 88 County (1944), This in no was stated equivocable language L. Ed. 1209. follows: federal authority

“Procurement so settled under policies law. The not or limited state purpose be defeated may the was to avoid the introduction dis- clause supremacy if the confusions, conflicts which would follow parities, controls. local government’s general authority which the and construction contracts through The validity their its constitutional exercising functions, States is United the parties, on the rights obligations consequences present which create or all they permit, the titles or liens questions the law law controlled of federal state. [Citing (Emphasis supplied.) cases.]” law not state is decisive issue Because federal and court the recent decision of the United States here presented, circuit in Detroit Murray Corp. for the Sixth appeals controlling 234 Fed. is (2d) absolutely Cir. 1956), (6th entered into here. The subcontracts result government for the were manufacture parts the Murray Corporation air for the United States force assemblies required defense, in the instant case the while government the national American Motors was entered into with contract aircraft for the the latter of same engines manufacture for the same Murray purpose. agency contained the same partial payment subcontracts Corporation vesting-of-title clause as did the American Motors contract. In substance such clause provided upon making materials, any partial inventories, title to all payment, parts, work in and nondurable process, tools theretofore or acquired the contractor produced by for the of the contract performance and properly chargeable the contract under sound account- ing practices should vest in the government; forthwith title to all like thereafter or acquired produced by the contractor for performance contract and properly as chargeable aforementioned should vest the government forthwith upon acquisition production. court Detroit v. Murray Corp., supra, affirmed the

judgments the United States district court awarding recovery by local corporation taxes personal-property materials paid upon parts, to which had vested in the under the clause partial-payment subcontracts. On the issue of court strongly relied the case of United States v. Allegheny County, supra, appears extract following taken from the Fed. opinion (234 (2d), 382): p. we think “Upon analysis, all of the substantially argu-

ments advanced by appellant rejected by the supreme court the Allegheny Case. The court supreme declared unshaken, principle indeed rarely questioned, that institutions, ‘possessions, and activities of the federal govern- ment itself in the absence of express consent congressional are not subject to form of state taxation.’ 322 U. S. 64 S. Ct. 911.” herein majority opinion seeks to distinguish Case from

Allegheny the instant one on the ground that in the latter has but bare title in legal be taxed. This attempted the self- totally ignores evident clause, purpose partial-payment and certain of such clauses. provisions The contract with American Motors was entered into the Korean during conflict when The needed aircraft engines.

the government desperately materials to be that any wished sure government obviously American Motors for performance and parts procured by with- to purpose the contract would not be diverted other any Thus, for if Motors should out its consent. American contract, on could reason default its step use the materials and on hand toward completion and parts control retained govern- of the contract. The title. its far more than a bare legal ment made ownership a from the statement majority opinion quotes Housing Sarpy Co. v. County (1956), Offutt 100 L. Ed. title,” a the inference that such “only being have paper may not confer from state taxes. An immunity title would paper it is not in such case discloses that clearly examination There, here. owned the federal government land point at nominal housing leased company plaintiff for under the seventy-five Wherry rental years Military Act, erect to buildings improve- Housing to for ments thereon adequate housing personnel provide base in assessor an air force Nebraska. county sought fixtures, furniture of the assess the improvements, state and county personal-property plaintiff the United States Two issues were presented taxes. consented to congress court: Whether had (1) supreme state, subdivisions, such if taxing or its property, (2) to have been consent were found could entire given, fixtures, and furniture be of such taxed improvements, value diminution of such value because of without any tó plaintiff therein. interest held majority opinion the government’s consent, this had removed holding that congress given from On the the case issue tax. second valuation, the court determined that the bare of security had merely legal purposes only, ment which to that of a did mortgagee, prevent similar full assessed lessee. being against value inference be drawn from the applicable majority- Case, Co. opinion Housing purposes Offutt case, that, if the instant the court had not construed the Act as Wherry Military Housing granting permission state tax the lessee’s interest in the there would property, been an have from state and local taxes. herein,

For the reasons stated the able memorandum of the learned trial should be judge, judgment affirmed. Telephone Respondent, Company,

Wisconsin Leh vs. W. R. Appellant.* mann, Son, Lehmann d/b/a & 7, 1957. 9, 1956 January November * denied, costs, rehearing Motion for on March 5. 1957. $25

Case Details

Case Name: American Motors Corp. v. City of Kenosha

Court Name: Wisconsin Supreme Court

Date Published: Jan 7, 1957

Citation: 80 N.W.2d 363

Court Abbreviation: Wis.