B-119949, FEB 17, 1955

B-119949, FEB 17, 1955

PRECIS-UNAVAILABLE

MR. SECRETARY:

REFERENCE IS MADE TO LETTER OF MAY 4, 1954, FROM MR. ROGER LEWIS, ASSISTANT SECRETARY OF THE AIR FORCE, REQUESTING A REVIEW OF EXCEPTIONS STATED IN THE ACCOUNTS OF J.A. MILTON, DISBURSING OFFICER, IN CONNECTION WITH PAYMENTS MADE TO GERITY-MICHIGAN MANUFACTURING COMPANY UNDER CONTRACT NO. AF 33(038) 9758. THE AMOUNTS INVOLVED COVER CERTAIN TAX PAYMENTS MADE BY THE CONTRACTOR FOR THE PERIOD JANUARY 1, 1950, TO MARCH 15, 1951.

UNDER THE TERMS OF THE CONTRACT, ENTERED INTO ON DECEMBER 15, 1949, THE CONTRACTOR UNDERTOOK TO FURNISH MAINTENANCE AND HOUSE-KEEPING SERVICES TO THE MANUFACTURING METHODS PILOT PLANT AT ADRIAN, MICHIGAN. THE PLANT WAS CONSTRUCTED BY THE DEFENSE PLANT CORPORATION IN 1942 AND JURISDICTION THEREOF WAS TRANSFERRED TO THE RECONSTRUCTION FINANCE CORPORATION ON JULY 1, 1945, WHEN THAT CORPORATION ASSUMED THE OPERATIONS OF THE DEFENSE PLANT CORPORATION. IN JUNE OF 1946 THE PROPERTY WAS DECLARED SURPLUS TO THE WAR ASSETS ADMINISTRATION IN ACCORDANCE WITH THE SURPLUS PROPERTY ACT OF 1944, 58 STAT. 765. UNDER DATE OF MARCH 1, 1947, THE WAR ASSETS' ADMINISTRATION ISSUED TO THE RECONSTRUCTION FINANCE CORPORATION A RECEIPT OF PROPERTY ACCOUNTABILITY FOR THE PLANT. SUBSEQUENTLY, JURISDICTION OVER THE PROPERTY WAS ACQUIRED BY THE GENERAL SERVICES ADMINISTRATION AS SUCCESSOR TO THE WAR ASSETS ADMINISTRATION. THE GENERAL SERVICES ADMINISTRATION WAS GIVEN A QUITCLAIM DEED TO THE PROPERTY ON AUGUST 15, 1950. HOWEVER, THE DEED WAS NOT RECORDED UNTIL DECEMBER 9, 1953, AND RECORD TITLE DURING THE PERIOD HERE INVOLVED REMAINED IN THE DEFENSE PLANT CORPORATION.

IT APPEARS THAT WAA LEASED THE PLANT TO PRIVATE BUSINESS FOR COMMERCIAL OPERATIONS WITH THE STIPULATION THAT THE LESSEE PAY THE REAL PROPERTY TAXES ASSESSED ON THE PLANT. SUBSEQUENTLY, IN JANUARY 1950, THE DEPARTMENT OF THE AIR FORCE WAS GIVEN AN INTERIM PERMIT BY GSA FOR THE USE OF THE PLANT UNDER THE TERMS OF WHICH IT LIKEWISE WAS REQUIRED TO PAY THE REAL ESTATE TAXES. PURSUANT TO SUCH REQUIREMENT IN THE PERMIT THE DEPARTMENT OF THE AIR FORCE PROVIDED IN THE CONTRACT WITH GERITY-MICHIGAN MANUFACTURING COMPANY, OPERATOR OF THE PLANT, THAT THE COMPANY WOULD PAY THE TAXES ASSESSED ON THE PROPERTY AND BE REIMBURSED THEREFOR BY THE DEPARTMENT OF THE AIR FORCE.

IT SEEMS CLEAR THAT UNDER THE DECISION OF THE COURT OF CLAIMS IN THE BOARD OF COUNTY COMMISSIONERS OF SEDGWICH COUNTY V. UNITED STATES, 123 C. CLS. 304, THE FEDERAL GOVERNMENT BECAME IMMUNE TO STATE AND LOCAL TAXES BECOMING DUE ON OR AFTER MARCH 1, 1947, THE DATE WAA ASSUMED ACCOUNTABILITY FOR THE PLANT. HOWEVER, BY SECTION 210(A) 9 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, AS ADDED BY SECTION 5(C) OF THE ACT OF SEPTEMBER 5, 1950, 64 STAT. 581, THE ADMINISTRATOR OF GENERAL SERVICES WAS AUTHORIZED TO PAY SUMS IN LIEU OF TAXES ON REAL PROPERY DECLARED SURPLUS BY GOVERNMENT CORPORATIONS PURSUANT TO THE SURPLUS PROPERTY ACT OF 1944 WHERE LEGAL TITLE REMAINS IN ANY GOVERNMENT CORPORATION. THERE IS AMPLE EVIDENCE THAT THE WAR ASSETS ADMINISTRATION, THE GENERAL SERVICES ADMINISTRATION AND THE CONGRESS AT THE TIME UNDERSTOOD THE WORD "LEGAL TITLE" IN THAT AUTHORIZATION AS SYNONYMOUS WITH "RECORD TITLE," AND THAT PAYMENTS IN LIEU OF TAXES WERE MADE IN SUBSTANTIALLY THE AMOUNTS OF TAXES WHICH THE LOCALITIES ASSESSED. IN THIS REGARD, THE ADMINISTRATOR OF GENERAL SERVICES IN LETTER OF OCTOBER 26, 1954, TO OUR OFFICE, ADVISED THAT PRIOR TO THE SEDGWICK CASE PAYMENTS IN LIEU OF TAXES WERE MADE ON PROPERTIES DECLARED SURPLUS BY RFC UNDER THE SURPLUS PROPERTY ACT OF 1944 IN AMOUNTS APPROXIMATING THE TAXES ASSESSED. MOREOVER, LETTER OF MAY 22, 1952, FROM THE CHIEF, DISPOSAL BRANCH, REAL PROPERTY DISPOSAL DIVISION, TO A ZONE AUDIT DIVISION OF THIS OFFICE, WITH REGARD TO THE ADRIAN PROPERTY, IS, IN PERTINENT PART, AS FOLLOWS:

"REAL PROPERTY OWNED BY THE RECONSTRUCTION FINANCE CORPORATION IS SUBJECT TO STATE AND LOCAL TAXES, AND IN THE CASE OF THIS PROPERTY AND ALL OTHER PROPERTY OWNED BY THE RECONSTRUCTION FINANCE CORPORATION DECLARED SURPLUS TO WAR ASSETS ADMINISTRATION, THAT CORPORATION AND GENERAL SERVICES ADMINISTRATION AS ITS SUCCESSOR CONTINUE UNDER SPECIFIC AUTHORIZATION BY CONGRESS, TO PAY SUCH REAL ESTATE TAXES AS HAVE BEEN ASSESSED BY THE STATE AND LOCAL TAXING AUTHORITIES. WE HAVE ALSO CONSISTENTLY REQUIRED THE CONTINUED PAYMENT OF TAXES BY THE GOVERNMENT'S LESSEES OR PERMITTEES DURING THE PERIOD OF SUCH LEASES OR PERMITS. ***

"THE ADRIAN PLANT WAS UNDER LEASE TO A PRIVATE BUSINESS CORPORATION WHICH HAD ASSUMED THE OBLIGATION TO PAY TAXES AT THE TIME WHEN THE DEPARTMENT OF THE AIR FORCE REQUESTED AND RECEIVED CONDITIONAL INTERIM PERMIT FOR THE USE OF THE PROPERTY ***. UNDER THE TERMS OF THE INTERIM PERMIT THE DEPARTMENT OF THE AIR FORCE AGREED, AMONG OTHER THINGS, TO THE PAYMENT OF REAL ESTATE TAXES. WITHIN A REASONABLE TIME AFTER THE ISSUANCE OF THE INTERIM PERMIT THE DEPARTMENT OF THE AIR FORCE SPONSORED LEGISLATION TO DIRECT THE TRANSFER OF PERMANENT JURISDICTION OVER THIS PROPERTY FROM THIS ADMINISTRATION TO THAT DEPARTMENT WITHOUT AN EXCHANGE OF FUNDS. ***

"THIS ADMINISTRATION HAS CONCLUDED *** THAT THE OBLIGATION OF THIS ADMINISTRATION TO PAY REAL PROPERTY TAXES, WHICH OBLIGATION HAS BEEN ASSUMED BY THE DEPARTMENT OF THE AIR FORCE BY VIRTUE OF THE INTERIM PERMIT, SHOULD CONTINUE UNTIL PASSAGE OF THE LEGISLATION DESCRIBED HEREIN OR UNTIL SUCH OTHER FINAL DISPOSAL AS MAY BE ACCOMPLISHED ***."

SUCH POLICY WAS BROUGHT TO THE ATTENTION OF CONGRESS IN CONNECTION WITH THE REFERRED-TO LEGISLATION, H. R. 1215, 82D CONGRESS, WHICH WAS ENACTED AS PUBLIC LAW 210, APPROVED OCTOBER 25, 1951. AS PASSED BY THE HOUSE, H. R. 1215 CONTAINED A PROVISION (TITLE III) WHICH WOULD HAVE AUTHORIZED A TRANSFER OF THE ADRIAN PLANT, AMONG OTHERS, TO THE AIR FORCE. SUCH PROVISION WAS ELIMINATED BY THE SENATE BASED UPON A DESIRE TO KEEP THOSE PLANTS ON THE TAX ROLLS. SEE SENATE REPORT NO. 924, 82D CONGRESS, 1ST SESSION, AND HOUSE CONGRESSIONAL RECORD FOR OCTOBER 16, 1951, P. 13576.

THUS, UNDER THE POLICY OF GSA WHICH WAS IN EFFECT PRIOR TO THE DATE OF THE DECISION IN THE SEDGWICK CASE, PAYMENTS IN LIEU OF TAXES WERE REGULARLY MADE UNTIL RECORD TITLE WAS VESTED IN THE UNITED STATES OR GSA. THE POSSESSION OF THE AIR FORCE WAS BY VIRTUE OF A PERMIT FROM GSA WHICH REQUIRED THE PAYMENT OF TAXES IN LINE WITH THAT POLICY. THE CONTRACTOR ACTED IN GOOD FAITH IN MAKING THE PAYMENTS IN ACCORDANCE WITH THE TERMS WITH THE DEPARTMENT OF THE AIR FORCE. ACCORDINGLY, CREDIT WILL BE ALLOWED FOR THE PAYMENTS MADE TO GERITY-MICHIGAN MANUFACTURING COMPANY IN REIMBURSEMENT OF THE TAXES INVOLVED.