B-132847, SEPTEMBER 4, 1957, 37 COMP. GEN. 170

B-132847: Sep 4, 1957

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WHEN IT WAS TRANSFERRED BY THE RECONSTRUCTION FINANCE CORPORATION TO THE FEDERAL GOVERNMENT. WHICH IS USED BY CIVIL AERONAUTICS ADMINISTRATION AND AIR PROCUREMENT DISTRICT. WHOSE EMPLOYEES OCCUPY 48 PERCENT OF THE USABLE SPACE AND DEVOTE 55 PERCENT OF THEIR TIME TO LOCAL PUBLIC SERVICE IS NOT AN INDUSTRIAL-TYPE PROPERTY FOR WHICH PAYMENTS IN LIEU OF TAXES ARE REQUIRED TO BE PAID BY THE FEDERAL GOVERNMENT TO LOS ANGELES BUT RATHER MAY BE REGARDED AS PROPERTY PRIMARILY USED FOR RENDITION OF SERVICE TO THE LOCAL PUBLIC OR OFFICE BUILDINGS USED FOR PURPOSES INCIDENTAL THERETO WITHIN THE MEANING OF 40 U.S.C. 524 (B) (3) AND (4) EXEMPTING SUCH PROPERTY FROM PAYMENTS IN LIEU OF TAXES. YOUR LETTER INDICATES THAT THE PROPERTY WAS TRANSFERRED TO THE GOVERNMENT BY THE RECONSTRUCTION FINANCE CORPORATION ON JULY 9.

B-132847, SEPTEMBER 4, 1957, 37 COMP. GEN. 170

STATES - PAYMENTS IN LIEU OF TAXES - INDUSTRIAL-TYPE PROPERTY - OCCUPANCY BY AGENCIES FURNISHING LOCAL PUBLIC SERVICE A PROPERTY IN LOS ANGELES WHICH CONSISTS OF 13.8 ACRES OF LAND AND SIX ONE-STORY BUILDINGS, KNOWN AS PLANCOR 890, DOUGLAS AIRCRAFT CORPORATION, WHEN IT WAS TRANSFERRED BY THE RECONSTRUCTION FINANCE CORPORATION TO THE FEDERAL GOVERNMENT, AND WHICH IS USED BY CIVIL AERONAUTICS ADMINISTRATION AND AIR PROCUREMENT DISTRICT, USAF, WHOSE EMPLOYEES OCCUPY 48 PERCENT OF THE USABLE SPACE AND DEVOTE 55 PERCENT OF THEIR TIME TO LOCAL PUBLIC SERVICE IS NOT AN INDUSTRIAL-TYPE PROPERTY FOR WHICH PAYMENTS IN LIEU OF TAXES ARE REQUIRED TO BE PAID BY THE FEDERAL GOVERNMENT TO LOS ANGELES BUT RATHER MAY BE REGARDED AS PROPERTY PRIMARILY USED FOR RENDITION OF SERVICE TO THE LOCAL PUBLIC OR OFFICE BUILDINGS USED FOR PURPOSES INCIDENTAL THERETO WITHIN THE MEANING OF 40 U.S.C. 524 (B) (3) AND (4) EXEMPTING SUCH PROPERTY FROM PAYMENTS IN LIEU OF TAXES.

TO THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, SEPTEMBER 4, 1957:

ON AUGUST 2, 1957, YOU REQUESTED OUR ADVICE AS TO WHETHER, UNDER THE FACTS AND CIRCUMSTANCES HEREINAFTER RELATED, PAYMENTS IN LIEU OF TAXES SHOULD BE MADE TO THE CITY OF LOS ANGELES, CALIFORNIA, ON THE 5651 MANCHESTER BUILDING, ALSO KNOWN AS PLANCOR 890, DOUGLAS AIRCRAFT CORPORATION. YOUR LETTER INDICATES THAT THE PROPERTY WAS TRANSFERRED TO THE GOVERNMENT BY THE RECONSTRUCTION FINANCE CORPORATION ON JULY 9, 1948, AND THE TITLE HAS BEEN HELD BY THE UNITED STATES CONTINUOUSLY SINCE SUCH TRANSFER.

THE PROPERTY CONSISTS OF 13.8 ACRES OF LAND AND SIX ONE-STORY BUILDINGS COMPRISING APPROXIMATELY 145,000 SQUARE FEET OF SPACE. THE CIVIL AERONAUTICS ADMINISTRATION OCCUPIES ABOUT 131,000 SQUARE FEET OF SPACE; THE LOS ANGELES AIR PROCUREMENT DISTRICT, USAF, OCCUPIES ABOUT 2,700 SQUARE FEET; AND THE GENERAL SERVICES ADMINISTRATION OCCUPIES ABOUT 12,000 SQUARE FEET.

PUBLIC LAW 388, 84TH CONGRESS, ST SESSION, 69 STAT. 721, 40 U.S.C. 521 NOTE, DIRECTS VARIOUS DEPARTMENTS AND AGENCIES OF THE FEDERAL GOVERNMENT TO MAKE PAYMENTS IN LIEU OF TAXES ON CERTAIN PROPERTIES TRANSFERRED TO THEM FROM THE RECONSTRUCTION FINANCE CORPORATION ON OR AFTER JANUARY 1, 1946. THE QUESTION ARISES WHETHER THE GENERAL SERVICES ADMINISTRATION SHALL MAKE PAYMENTS IN LIEU OF TAXES TO THE CITY OF LOS ANGELES ON THE PROPERTY, IN ACCORDANCE WITH THE PROVISION OF SECTION 703, 40 U.S.C. 523, OR WHETHER THE PROPERTY IS EXEMPT FROM SUCH PAYMENTS UNDER THE PROVISIONS OF SECTION 704 (B) (3) AND (4) OF SAID ACT, 40 U.S.C. 524 (B) (3) AND (4).

SECTION 704 (B) (3) AND (4) PROVIDE:

(B) NO PAYMENT SHALL BE MADE UNDER SECTION 703 WITH RESPECT TO ANY REAL PROPERTY OF ANY OF THE FOLLOWING CATEGORIES:

(3) REAL PROPERTY USED OR HELD PRIMARILY FOR THE RENDITION OF SERVICE TO OR ON BEHALF OF THE LOCAL PUBLIC, INCLUDING (BUT NOT LIMITED TO) THE FOLLOWING CATEGORIES OF REAL PROPERTY: COURTHOUSES; POST OFFICES AND OTHER PROPERTY USED FOR PURPOSES INCIDENTAL TO POSTAL OPERATIONS; AND FEDERALLY OWNED AIRPORTS MAINTAINED AND OPERATED BY THE CIVIL AERONAUTICS ADMINISTRATION.

(4) OFFICE BUILDINGS AND FACILITIES WHICH ARE AN INTEGRAL PART OF, OR ARE USED FOR PURPOSES INCIDENTAL TO THE USE MADE OF, ANY PROPERTIES DESCRIBED IN PARAGRAPH (1), (2), OR (3) OF THIS SUBSECTION.

THE PROPERTY IS INCLUDED IN A LIST OF PROPERTIES POSSIBLY AFFECTED BY PUBLIC LAW 388, SHOWN ON PAGE 1028 OF THE CONGRESSIONAL RECORD, HOUSE OF REPRESENTATIVES, FOR JANUARY 24, 1956, WHICH CARRIES A FOOTNOTE "USED FOR OFFICE SPACE, POSSIBLY EXEMPT UNDER SECTION 704 (B).'

YOUR ANALYSIS OF THE PURPOSES FOR WHICH THE PROPERTY IS BEING USED INDICATES THAT THE CIVIL AERONAUTICS ADMINISTRATION AND THE AIR PROCUREMENT DISTRICT ( USAF) OCCUPY 64,357 SQUARE FEET OF USABLE SPACE (EXCLUDING AISLES, REST ROOMS OR EQUIPMENT ROOMS) AND EMPLOY 497 PERSONNEL; THAT 275 OF THE 497 EMPLOYEES OF THESE TWO AGENCIES OR OVER 55 PERCENT DEVOTE THEIR TIME TO THE RENDITION OF SERVICE TO, OR IN BEHALF OF, THE LOCAL PUBLIC; AND THAT THESE 275 EMPLOYEES USE FOR SUCH SERVICES, 31,202.85 SQUARE FEET, OR OVER 48 PERCENT OF THE USABLE SPACE. ADDITION, YOUR OFFICE OCCUPIES ABOUT 12,000 SQUARE FEET OF SPACE AND EMPLOYS 16 PERSONS ALL OF WHOM ARE DEVOTED ENTIRELY TO HOUSEKEEPING WORK IN SUPPORT OF THE OTHER ACTIVITIES ON THE PREMISES. THE NUMBER OF YOUR PERSONNEL AND THE SPACE OCCUPIED BY THEM, DEVOTED TO LOCAL PUBLIC SERVICE, IS DIRECTLY PROPORTIONATE TO THE ACTIVITIES THEY SUPPORT. BASED ON THE FORMULA THAT THE AVERAGE OF THE PERCENTAGE OF TOTAL SPACE DEVOTED TO LOCAL PUBLIC SERVICES AND THE PERCENTAGE OF THE TOTAL NUMBER OF EMPLOYEES DEVOTING THEIR TIME TO SUCH SERVICES WOULD REFLECT THE DEGREE TO WHICH THE PROPERTY MIGHT BE SAID TO BE USED FOR LOCAL PUBLIC SERVICE, YOU CONCLUDE THAT OVER 51 PERCENT OF THE USE MADE OF THE PREMISES IS DEVOTED TO LOCAL PUBLIC SERVICES. NOT ONLY ARE MORE THAN HALF OF THE ACTIVITIES CONDUCTED ON THE PREMISES ,FOR THE RENDITION OF SERVICE TO OR ON BEHALF OF THE LOCAL PUBLIC" SO AS TO BRING THE PROPERTY WITHIN THE PURVIEW OF SECTION 704 (B) (3) BUT YOU POINT OUT THAT THE PROPERTY IS NOT ADAPTABLE TO THE USUAL COMMERCIAL OR INDUSTRIAL-TYPE FACILITY FORMERLY OWNED BY THE RECONSTRUCTION FINANCE CORPORATION, AND THE TYPE OF PROPERTY WITH WHICH THE CONGRESS APPARENTLY WAS PRIMARILY CONCERNED WHEN IT ENACTED PUBLIC LAW 388.

THE TYPE OF PROPERTY TOWARD WHICH THE LEGISLATION IS PRIMARILY DIRECTED IS THAT DESCRIBED BY CONGRESSMAN DONOHUE OF MASSACHUSETTS IN HIS TESTIMONY ON PAGE 30 OF THE HEARINGS BEFORE THE COMMITTEE ON GOVERNMENT OPERATIONS, HOUSE OF REPRESENTATIVES, 84TH CONGRESS, ST SESSION ON H.R. 7184, 84TH CONGRESS, WHICH IS SIMILAR TO H.R. 6182, WHICH LATER WAS ENACTED AS PUBLIC LAW 388. CONGRESSMAN DONOHUE STATED:

MY OBJECTIVE IS DIRECTED TOWARD THOSE REAL PROPERTIES THAT ARE OCCUPIED AND USED BY PRIVATE ENTERPRISES FOR PROFIT PURPOSES AND IN ALL ASPECTS ARE INDISTINGUISHABLE FROM ORDINARY INDUSTRIAL PROPERTIES, EXCEPT FOR THE ACCIDENTAL FACT THAT FEE TITLE IS HELD BY THE UNITED STATES, THEREBY PREVENTING THE IMPOSITION OF LOCAL TAXATION.

ALSO, DURING THE DEBATE IN THE HOUSE OF REPRESENTATIVES ON H.R. 6182, CONGRESSMAN MACDONALD OF MASSACHUSETTS INDICATED THE TYPE OF PROPERTY TO BE AFFECTED BY THE BILL WAS GOVERNMENT-OWNED PROPERTY OPERATED BY A PRIVATE INDUSTRIAL CORPORATION. IN REFERRING TO A PLANT OWNED BY THE GOVERNMENT BUT OPERATED BY THE GENERAL ELECTRIC CORPORATION, CONGRESSMAN MACDONALD IN THE CONGRESSIONAL RECORD OF JULY 29, 1955, AT PAGE 10401 STATED:

* * * HERE WE HAVE A GOVERNMENT-OWNED PLANT WHICH IS OPERATED BY A PRIVATE CORPORATION FOR ONE PURPOSE AND ONE PURPOSE ONLY; THAT OF MAKING A PROFIT FOR THE STOCKHOLDERS OF THE COMPANY.

IT IS CLEARLY NOT FAIR NOR IN KEEPING WITH THE BEST TRADITION OF THE FREE -ENTERPRISE SYSTEM TO HAVE PROPERTY OF THIS NATURE TAX FREE WHILE OTHER SIMILARLY LOCATED PLANTS PAY THEIR FAIR SHARE OF COSTS TO THE CITY FROM WHOM THE NECESSARY LOCAL SERVICES FLOW.

* * * WHY SHOULD THE ARMY AIR FORCE BE THE FIRST OF A NUMBER OF GOVERNMENT AGENCIES TO REFUSE TO PAY TAXES WHEN IN FACT THE ARMY AIR FORCE DOES NOT USE THE FACTORY BUT MERELY IS THE FEE HOLDER OF OWNERSHIP PAPERS? IT IS PERFECTLY CLEAR THAT THE GENERAL ELECTRIC CORPORATION RUNS AND OPERATES THIS FACTORY, AND IT IS EQUALLY CLEAR THAT GENERAL ELECTRIC, ALONG WITH THE OTHER INDUSTRIES OF THE CITY OF EVERETT, SHOULD PAY THEIR SHARE OF THE TAX-POOR CITY.

ALSO, AS POINTED OUT BY YOU, THE DISCUSSIONS BETWEEN CONGRESSMAN HOLIFIELD OF CALIFORNIA AND CONGRESSMAN MEADER OF MICHIGAN, SPONSOR OF THE BILL, AT PAGES 18 AND 19 OF THE HEARINGS BEFORE THE COMMITTEE ON GOVERNMENT OPERATIONS, HOUSE OF REPRESENTATIVES, 84TH CONGRESS, ST SESSION, ON H.R. 6182, INDICATE THAT THE LEGISLATION WAS AIMED PRIMARILY AT INDUSTRIAL PLANT OPERATIONS. IT WAS THERE STATED:

MR. HOLIFIELD. * * *

" I WOULD LIKE TO ASK THIS QUESTION, GETTING AWAY FROM INDUSTRIAL PROPERTIES: WOULD YOUR BILL ALSO APPLY TO FEDERAL GOVERNMENT OFFICES SUCH AS FEDERAL BUILDINGS IN OUR CITIES, POST OFFICE BUILDINGS, CUSTOM BUILDINGS AND THAT SORT OF THING?

MR. MEADER.

"IT WOULD NOT, AND I WOULDN-T FAVOR ANY LEGISLATION WHICH WOULD TEND TO TAX A POST OFFICE, MILITARY RESERVATION, OR PUBLIC LANDS, OR ANYTHING OF THAT KIND. I REALIZE THERE ARE DIFFERENT CLASSES OF PROPERTY OWNED BY THE FEDERAL GOVERNMENT AND THAT PERHAPS SOME OF THOSE BEYOND THE INDUSTRIAL PLANTS TO WHICH MY BILL REFERS SHOULD MAKE PAYMENTS IN LIEU OF TAXES.

" I AM SUGGESTING THAT WE TAKE THIS CLEAR STEP PERHAPS AS AN EXPERIMENT, TO SHOW THE PROBLEMS THAT ARE INVOLVED IN CASE THIS PAYMENT IN LIEU OF TAX PRINCIPLE SHOULD BE EXTENDED TO OTHER FEDERAL PROPERTIES.'

MR. HOLIFIELD.

"AND YOUR BILL APPLIES ONLY TO INDUSTRIAL PLANT OPERATIONS.'

MR. MEADER.

" RIGHT.'

AGAIN ON PAGE 21 OF THE HEARINGS MR. MEADER SAID:

* * * POSSIBLY SOME OF THESE PLANTS ARE NOT NOW USED IN ANY FASHION FOR INDUSTRIAL AND COMMERCIAL PRODUCTION, BUT ARE USED FOR GOVERNMENTAL PURPOSES. FOR INSTANCE, SOME OF THEM MIGHT BE USED TO STORE A LOT OF RECORDS OR AIRCRAFT PARTS AND THE LIKE. I DON-T KNOW OF ANY SUCH CASE, BUT IF PROPERTY IS USED FOR GOVERNMENTAL PURPOSE ON A PERMANENT BASIS, I WOULDN-T WANT TO SEE PAYMENTS IN LIEU OF TAXES PAID ON THAT PROPERTY.

IT IS THUS APPARENT THAT THE CONGRESS WAS CONCERNED PRIMARILY WITH THE TAX EXEMPT STATUS OF PROPERTY COMMONLY USED FOR INDUSTRIAL PURPOSES AND NOT FOR OFFICE SPACE. ALSO, IT IS CLEAR THAT SECTION 704 (B) (4) PROVIDES NO PAYMENT SHALL BE MADE FOR " OFFICE BUILDINGS * * * WHICH * * * ARE USED FOR PURPOSES INCIDENTAL TO THE USE MADE OF, ANY PROPERTIES DESCRIBED IN PARAGRAPH * * * (3) OF THIS SUBSECTION.'

WE CONCLUDE ON THE BASIS OF THE FOREGOING THAT THE PROPERTY INVOLVED IS NOT OF AN INDUSTRIAL TYPE WITH WHICH THE CONGRESS PRIMARILY WAS CONCERNED IN ENACTING PUBLIC LAW 388; THAT IT IS PRIMARILY USED OR HELD FOR THE RENDITION OF SERVICE TO OR ON BEHALF OF THE LOCAL PUBLIC OR IS AN OFFICE BUILDING USED FOR PURPOSES INCIDENTAL THERETO; AND IS ONE ON WHICH NO PAYMENT IN LIEU OF TAXES SHOULD BE MADE UNDER PARAGRAPH 704 (B) (2) AND (3) OF THAT ACT, 40 U.S.C. 524 (B) (2) AND (3).

THEREFORE, WE CONCUR IN YOUR VIEW THAT PAYMENTS IN LIEU OF TAXES SHOULD NOT BE MADE TO THE CITY OF LOS ANGELES IN CONNECTION WITH THE PROPERTY.