B-134814, MARCH 5, 1958, 37 COMP. GEN. 574

B-134814: Mar 5, 1958

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STATES - FEDERAL PAYMENTS IN LIEU OF TAXES - RECONSTRUCTION FINANCE CORPORATION PROPERTY TRANSFERRED TO OTHER GOVERNMENT AGENCIES - PUBLIC SERVICE OCCUPANCY TRANSFER REAL PROPERTY WHICH WAS DECLARED SURPLUS BY THE RECONSTRUCTION FINANCE CORPORATION AND ACCEPTED BY THE WAR ASSETS ADMINISTRATION IN 1946. ALTHOUGH TITLE WAS NOT TRANSFERRED TO THE UNITED STATES UNTIL 1952. WAS NOT ON THE CITY TAX ROLLS BY REASON OF CANCELLATION OF TAXES MAY BE REGARDED AS HAVING BEEN TRANSFERRED TO THE UNITED STATES IN 1946 AT THE TIME IT WAS DECLARED SURPLUS AND ACCEPTED BY THE DISPOSAL AGENCY SO THAT THE FACT THAT THE PROPERTY WAS NOT ON THE ROLLS IN 1952 DOES NOT PRECLUDE PAYMENTS BY THE FEDERAL GOVERNMENT IN LIEU OF TAXES PURSUANT TO THE ACT OF AUGUST 12.

B-134814, MARCH 5, 1958, 37 COMP. GEN. 574

STATES - FEDERAL PAYMENTS IN LIEU OF TAXES - RECONSTRUCTION FINANCE CORPORATION PROPERTY TRANSFERRED TO OTHER GOVERNMENT AGENCIES - PUBLIC SERVICE OCCUPANCY TRANSFER REAL PROPERTY WHICH WAS DECLARED SURPLUS BY THE RECONSTRUCTION FINANCE CORPORATION AND ACCEPTED BY THE WAR ASSETS ADMINISTRATION IN 1946, ALTHOUGH TITLE WAS NOT TRANSFERRED TO THE UNITED STATES UNTIL 1952, BUT WHICH, DURING THE PERIOD 1947 TO 1952, WAS NOT ON THE CITY TAX ROLLS BY REASON OF CANCELLATION OF TAXES MAY BE REGARDED AS HAVING BEEN TRANSFERRED TO THE UNITED STATES IN 1946 AT THE TIME IT WAS DECLARED SURPLUS AND ACCEPTED BY THE DISPOSAL AGENCY SO THAT THE FACT THAT THE PROPERTY WAS NOT ON THE ROLLS IN 1952 DOES NOT PRECLUDE PAYMENTS BY THE FEDERAL GOVERNMENT IN LIEU OF TAXES PURSUANT TO THE ACT OF AUGUST 12, 1955, WHICH ADDED SECTIONS 701-704 TO THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949. A FEDERAL BUILDING IN WHICH ONE-THIRD OF THE FLOOR SPACE IS USED BY THE VETERANS ADMINISTRATION FOR SERVICES TO OR ON BEHALF OF THE PUBLIC AND TWO -THIRDS IS USED BY TWO PRIVATE CORPORATIONS FOR LIGHT MANUFACTURING AND INDUSTRIAL PURPOSES MAY NOT BE REGARDED AS HELD PRIMARILY FOR A PUBLIC SERVICE TO COME WITHIN THE TAX EXEMPTION PROVISIONS IN SECTION 704 (B) (3) OF THE ACT OF AUGUST 12, 1955, 40 U.S.C. 524 (B) (3), AND TO PRECLUDE FEDERAL PAYMENTS IN LIEU OF TAXES TO THE CITY.

TO THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, MARCH 5, 1958:

YOUR LETTER OF JANUARY 2, 1958, REQUESTS A DECISION AS TO WHETHER, UNDER THE FACTS AND CIRCUMSTANCES HEREINAFTER RELATED, PAYMENTS IN LIEU OF TAXES UNDER PUBLIC LAW 388, 69 STAT. 721, 40 U.S.C. 521-524, SHOULD BE MADE TO THE CITY OF NEW YORK ON PLANCOR 472 (ALSO KNOWN AS THE MERGENTHALER BUILDING), 35 RYERSON STREET, BROOKLYN, NEW YORK.

THE PROPERTY, CONSISTING OF APPROXIMATELY .663 ACRES OF LAND IMPROVED BY A NINE STORY BUILDING CONSTRUCTED BY DEFENSE PLANT CORPORATION IN 1943 FOR INDUSTRIAL USE, WAS CONVEYED BY THE UNITED STATES TO THE DEFENSE PLANT CORPORATION IN SEPTEMBER 1944, 58 STAT. 765. IN MAY 1946 (APPARENTLY MAY 6), IN ACCORDANCE WITH THE SURPLUS PROPERTY ACT OF 1944, THE PROPERTY WAS DECLARED SURPLUS BY THE RECONSTRUCTION FINANCE CORPORATION AND WAS ACCEPTED BY THE WAR ASSETS ADMINISTRATION. IT APPEARS, HOWEVER, THAT BARE LEGAL TITLE TO THE PROPERTY CONTINUED IN THE RECONSTRUCTION FINANCE CORPORATION UNTIL SEPTEMBER 9, 1952, WHEN THE CORPORATION BY DEED OF THAT DATE TRANSFERRED LEGAL TITLE TO THE UNITED STATES.

BY LETTER DATED JANUARY 1, 1947, THE RECONSTRUCTION FINANCE CORPORATION ACTING BY AND THROUGH THE WAR ASSETS ADMINISTRATION LEASED THE PROPERTY TO THE VETERANS ADMINISTRATION. THE LEASE WAS TRANSFERRED TO YOUR ADMINISTRATION AS OF JANUARY 1, 1951, AND THEREAFTER YOUR ADMINISTRATION ASSUMED ALL COSTS OF MAINTENANCE, OPERATION, AND REPAIR OF THE BUILDING. IN 1951 THE GENERAL SERVICES ADMINISTRATION ASSIGNED TO THE VETERANS ADMINISTRATION THE FIRST THREE FLOORS OF THE BUILDING FOR USE AS AN OUTPATIENT MEDICAL AND DENTAL CLINIC FOR VETERANS AND SUCH USE HAS CONTINUED TO THE PRESENT DATE.

IN JULY 1953, YOUR ADMINISTRATION ASSIGNED THE REMAINING SIX FLOORS TO THE DEPARTMENT OF THE AIR FORCE AND THIS ASSIGNMENT OF SPACE IS ALSO STILL IN EFFECT. IN 1953, THE DEPARTMENT OF DEFENSE AUTHORIZED THE OCCUPANCY OF THE FOURTH FLOOR BY THE MERGENTHALER LINOTYPE COMPANY, AND THE FIFTH THROUGH THE NINTH FLOORS BY THE OTIS ELEVATOR COMPANY, WHICH ARRANGEMENT IS STILL IN EFFECT.

YOUR LETTER CONTINUES IN PERTINENT PART:

BY LETTER DATED SEPTEMBER 28, 1955, THE DEPARTMENT OF FINANCE, CITY OF NEW YORK, REQUESTED PAYMENT OF THE TOTAL ASSESSED VALUATION OF THE PROPERTY UNDER CONSIDERATION FOR THE YEARS 1954-1955, 1955-1956. LIABILITY FOR PAYMENT WAS DISCLAIMED BY GSA. BY LETTER DATED DECEMBER 6, 1956, THE CITY AGAIN REQUESTED PAYMENT, WHICH REQUEST WAS AGAIN DENIED BY GSA. BY LETTER DATED JANUARY 22, 1956, THE CITY PROPOSED AN APPORTIONED AMOUNT OF THE TOTAL ASSESSMENT BASED UPON THE USE OF SIX FLOORS AS SUBJECT TO TAX, AND THE USE OF THREE FLOORS BY THE VETERANS ADMINISTRATION AS TAX EXEMPT. COPIES OF THE PERTINENT CORRESPONDENCE ARE ATTACHED HERETO.

PUBLIC LAW 388 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, IF TITLE HAS BEEN CONTINUOUSLY IN THE UNITED STATES SINCE THE DATE OF TRANSFER. YOU INDICATE THAT THE PROPERTY IN QUESTION MEETS THE LITERAL REQUIREMENTS OF PUBLIC LAW 388 SO AS TO QUALIFY AS PROPERTY ON WHICH PAYMENTS IN LIEU OF TAXES MAY BE MADE, SINCE THE TRANSFER OF THE PROPERTY TO THE GOVERNMENT OCCURRED AFTER JANUARY 1, 1946, AND TITLE HAS BEEN HELD BY THE UNITED STATES CONTINUOUSLY SINCE DATE OF TRANSFER. HOWEVER, YOU SAY, IN EFFECT, THAT SINCE THE PROPERTY WAS NOT ON THE TAX ROLLS OF THE CITY OF NEW YORK AS OF THE DATE BARE LEGAL TITLE THERETO WAS TRANSFERRED TO THE UNITED STATES, THE CITY IS NOT ENTITLED TO PAYMENTS IN LIEU OF TAXES ON SUCH PROPERTY IN VIEW OF OUR DECISION OF FEBRUARY 13, 1957, B-130426, 36 COMP. GEN. 592. IN REFERENCE TO THIS DECISION YOU SAY:

IN THE CITED OPINION B-130426 YOUR OFFICE HELD THAT THE PROPERTY UNDER CONSIDERATION HAD NEVER BEEN ON THE TAX ROLLS. IN THE INSTANT CASE, THE PROPERTY WAS ON THE TAX ROLLS AND TAXES WERE PAID FOR THE YEARS 1943/44 THROUGH 1946/47. HOWEVER, TAXES WHICH WERE ASSESSED BUT NOT PAID FOR THE YEARS 1947/48 THROUGH 1953/54 BY ACTION OF THE CITY WERE CANCELLED OF RECORD. THUS AS OF THE DATE OF TRANSFER, SUBJECT PROPERTY WAS NOT ON THE TAX ROLLS AND WOULD THEREFORE BE WITHIN THE PURVIEW OF YOUR OPINION B- 130426. THE PROPERTY HAS BEEN CARRIED ON THE TAX ROLLS FROM 1954/55 THROUGH 1947/58 AS EXEMPT.

YOU CONCLUDE, IN EFFECT, THAT SINCE THE PROPERTY WAS NOT ON THE TAX ROLLS OF NEW YORK AS OF THE DATE LEGAL TITLE WAS TRANSFERRED TO THE UNITED STATES NO UNDUE OR UNEXPECTED BURDEN UPON THE LOCAL TAXING AUTHORITIES WAS CREATED. HENCE, IT IS THE POSITION OF YOUR ADMINISTRATION THAT THE PROPERTY IS NOT WITHIN THE PURVIEW OF PUBLIC LAW 388 AND ANY PAYMENTS MADE WOULD BE IN THE NATURE OF A GIFT OR WINDFALL.

IN OUR ABOVE REFERRED-TO DECISION OF FEBRUARY 13, 1957, WE HELD--- QUOTING FROM THE SYLLABUS:

A MUNICIPALITY WHICH DOES NOT FURNISH ANY OF THE CUSTOMARY COMMUNITY SERVICES (POLICE OR FIRE PROTECTION, POWER, WATER AND SEWAGE DISPOSAL) TO A GOVERNMENT-OWNED PLANT AND HAS NOT HAD THE PROPERTY ON ITS TAX ROLLS MAY NOT BE REGARDED AS SUFFERING AN UNDUE OR UNEXPECTED BURDEN AS THE RESULT OF THE TRANSFER OF THE PLANT FROM THE RECONSTRUCTION FINANCE CORPORATION TO THE NAVY DEPARTMENT IN 1947 SO AS TO BE ENTITLED TO PAYMENT IN LIEU OF TAXES AUTHORIZED BY THE ACT OF AUGUST 12, 1955, WHICH ADDED SECTIONS 701- 704 TO THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949.

IT IS CLEAR FROM THE QUOTED LANGUAGE THAT THE DECISION WAS NOT BASED ENTIRELY ON THE GROUND THAT THE PROPERTY WAS NOT ON THE TAX ROLLS OF THE CITY CLAIMING PAYMENT AS OF THE DATE OF TRANSFER OF TITLE TO THE UNITED STATES. WHILE THAT WAS ONE OF THE GROUNDS FOR THE CONCLUSION REACHED THEREIN, THE IMPORTANT FACTOR WAS THAT THE CITY INVOLVED DID NOT FURNISH ANY OF THE COMMUNITY SERVICES (POLICE OR FIRE PROTECTION, POWER, WATER AND SEWAGE DISPOSAL) CUSTOMARILY FURNISHED AN INDUSTRIAL PLANT BY A LOCAL MUNICIPALITY. IN THE INSTANT CASE WE ASSUME, SINCE THE RECORD DOES NOT INDICATE OTHERWISE, THAT THE CITY OF NEW YORK IS FURNISHING THE PROPERTY IN QUESTION THE CUSTOMARY COMMUNITY SERVICES. THEREFORE, IT MAY NOT BE SAID THAT PAYMENTS IN LIEU OF TAXES ON SUCH PROPERTY WOULD BE IN THE NATURE OF A GIFT OR WINDFALL TO THE CITY IN THE INSTANT CASE, SINCE THE CITY APPARENTLY FURNISHES SERVICES FOR WHICH PAYMENTS IN LIEU OF TAXES ARE ORDINARILY MADE.

ALSO, IN THE ABOVE CITED CASE THE PROPERTY HAD NEVER BEEN ON THE TAX ROLES OF THE CITY REQUESTING THE PAYMENT IN LIEU OF TAXES. WHILE IT MAY BE THAT THE PROPERTY IN THE INSTANT CASE WAS NOT ON NEW YORK CITY'S TAX ROLLS ON THE DATE THE BARE LEGAL TITLE THERETO WAS TRANSFERRED TO THE UNITED STATES, IT APPARENTLY WAS ON THE CITY'S TAX ROLLS ON THE DATE IT WAS DECLARED EXCESS TO THE NEEDS OF THE RECONSTRUCTION FINANCE CORPORATION AND ACCEPTED BY THE WAR ASSETS ADMINISTRATION ( UNITED STATES). WE HAVE HELD (AND SO HAVE THE COURTS) THAT UNDER THE SURPLUS PROPERTY ACT OF 1944, THE DATE PROPERTY IS DECLARED SURPLUS TO THE NEEDS OF THE RECONSTRUCTION FINANCE CORPORATION AND IS ACCEPTED BY THE DISPOSAL AGENCY IS THE DATE SUCH PROPERTY MUST BE CONSIDERED AS HAVING BEEN TRANSFERRED TO THE UNITED STATES AND IS THUS IMMUNE FROM TAXATION, EVEN THOUGH THE RECONSTRUCTION FINANCE CORPORATION MAY CONTINUE TO HOLD BARE LEGAL TITLE TO THE PROPERTY. SEE 32 COMP. GEN. 574 AND BOARD OF COUNTY COM-RS. OF SEDGWICK COUNTY, KAN. V. UNITED STATES, 105 F.1SUPP. 995. THEREFORE, THE PROPERTY IN QUESTION MUST BE CONSIDERED AS HAVING BEEN TRANSFERRED TO THE UNITED STATES ON OR ABOUT MAY 6, 1946, RATHER THAN SEPTEMBER 9, 1952, AND IT APPEARS FROM THE RECORD THAT THE PROPERTY WAS ON THE TAX ROLLS OF NEW YORK CITY ON MAY 6, 1946.

IN VIEW OF THE FOREGOING, WE CONCLUDE THAT THE PROPERTY INVOLVED HERE IS NOT WITHIN THE PURVIEW OF OUR DECISION OF FEBRUARY 13, 1957, B 130426, 36 COMP. GEN. 592, AND THAT DECISION DOES NOT PRECLUDE PAYMENT IN LIEU OF TAXES TO THE CITY OF NEW YORK FOR SUCH PROPERTY.

HOWEVER, ANOTHER QUESTION HERE INVOLVED IS WHETHER THE PROPERTY FALLS WITHIN THE PURVIEW OF SECTION 704 (B) OF PUBLIC LAW 388, 40 U.S.C. 524 (B), BECAUSE OF THE USE MADE OF THE FIRST THREE FLOORS BY THE VETERANS ADMINISTRATION. THIS SECTION PROVIDES, IN PERTINENT PART, AS FOLLOWS:

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

(B) REAL PROPERTY USED OR HELD PRIMARILY FOR ANY PURPOSE FOR WHICH REAL PROPERTY OWNED BY ANY PRIVATE CITIZEN WOULD BE EXEMPT FROM REAL PROPERTY TAX UNDER THE CONSTITUTION OR LAWS OF THE STATE IN WHICH THE PROPERTY IS SITUATED.

(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: * * * ( ITALICS SUPPLIED.)

THE QUOTED PROVISIONS PRECLUDE OR PROHIBIT PAYMENTS IN LIEU OF TAXES ONLY IF THE REAL PROPERTY INVOLVED IS USED OR HELD PRIMARILY FOR THE PURPOSES SET FORTH THEREIN. THE WORD "PRIMARILY" HAS BEEN DEFINED TO MEAN "CHIEFLY" OR "PRINCIPALLY.' PEOPLE V. BERRY, 304 P.2D 818. THE RECORD DISCLOSES THAT APPROXIMATELY ONE-THIRD OF THE FLOOR SPACE IN THE BUILDING INVOLVED HERE IS USED BY THE VETERANS ADMINISTRATION AND APPROXIMATELY TWO -THIRDS OF SUCH SPACE IS USED BY THE TWO CORPORATIONS. THE SPACE OCCUPIED BY THE VETERANS ADMINISTRATION IS USED FOR THE RENDITION OF SERVICES TO OR ON BEHALF OF THE LOCAL PUBLIC AND THE TWO CORPORATIONS USE THEIR SPACE FOR LIGHT MANUFACTURING OR INDUSTRIAL PURPOSES. THE RECORD ALSO DISCLOSES THAT THE CORPORATIONS EMPLOY A TOTAL OF 1,450 PEOPLE ON THE SIX FLOORS THEY OCCUPY AND THAT THE VETERANS ADMINISTRATION EMPLOYS 260 PEOPLE ON ITS THREE FLOORS.

FROM THE FOREGOING, IT APPEARS THAT THE INSTANT REAL PROPERTY IS NOT USED OR HELD PRIMARILY FOR ANY PURPOSE SET FORTH IN SECTIONS 704 (B) (2) OR (3), 40 U.S.C. 524 (B) (2) OR (3), SO AS TO PRECLUDE PAYMENTS IN LIEU OF TAXES BEING MADE ON THE ENTIRE PROPERTY. THEREFORE, YOU ARE ADVISED THAT UNDER THE PRESENT CIRCUMSTANCES PAYMENTS IN LIEU OF TAXES MAY BE MADE TO THE CITY OF NEW YORK ON THE PROPERTY IN QUESTION, ON THE BASIS OF THE TOTAL ASSESSED VALUATION AND WITHOUT REGARD TO APPORTIONMENT, FOR ANY PERIOD SUCH PAYMENTS ARE OTHERWISE AUTHORIZED UNDER PUBLIC LAW 388.