1. A hydroelectric power company, acting under a license from
the Federal Power Commission, erected a dam across the Susquehanna
River (here assumed to be navigable) and established an adjacent
power plant. As part of the project, it acquired the lands, partly
in the river bed and partly adjoining upland, which were submerged
by the pool created by the dam. Held, that the company and its
property are not such agencies or instrumentalities of the federal
government that the lands are immune from state taxation. P.
283 U. S.
293.
2. The exemption of an instrumentality of one government (state
or federal) from taxation by the other must be given such practical
construction as will not unduly impair the taxing power of the
government imposing the tax or the appropriate exercise of its
functions by the other government. P.
283 U. S.
294.
3. Where a privilege or franchise is granted by the federal
government to a private corporation to effect some governmental
purpose, the property owned and used by the grantee in the exercise
of the privilege, but for its private business advantage, is
subject to state taxation. P.
283 U. S.
294.
4. In taxing submerged lands of a licensee under the Federal
Water Power Act, the state may extend the assessment to the
increased value that they have acquired as part of the licensed
project, though this is made possible only by the federal license
and the use of the water of a navigable stream. P.
283 U.S. 295.
159 Md. 334, 151 A. 29, affirmed.
Appeal from a judgment sustaining an assessment of lands by the
Tax Commission.
Page 283 U. S. 292
MR. JUSTICE STONE delivered the opinion of the Court.
This case is here on appeal, § 237 Judicial Code as amended
by the Act of January 31, 1928, from a judgment of the Court of
Appeals of Maryland, 151 A. 29, which upheld an order of appellee,
the State Tax Commission, assessing 2,110 acres of appellant's
submerged lands, for 1929 taxation, at $2,349,300.
Appellant is a licensee of the Federal Power Commission, created
under the Act of June 10, 1920, c. 285, 41 Stat. 1063. Acting under
the license, it has constructed a dam across the Susquehanna River
which, for present purposes, we assume to be navigable, and has
established an adjacent power plant at a point within the state. As
a part of the power project, it acquired by purchase from private
owners and by grant from the state large areas of land, including
the bed of the river and adjoining upland. On completion of the
dam, the waters of the Susquehanna were backed up, forming a pool
about fourteen miles in length and submerging a large area formerly
upland, including a town site and land previously occupied and used
as a canal. The lands assessed by appellee lie under the pool
created by appellant's dam, and are used, and derive their chief
value, as a part of the power project.
In the present suit, brought to review the order of the
Commission fixing the assessment, appellant assailed its action,
taken under laws of Maryland, 1914, c. 841, Bagby, Ann.Code (1924),
Art. 81, § 249(2), directing assessment of property for
taxation, as in conflict with the Federal Constitution. Appellant
urges, as principal grounds for reversal, first, that in
constructing and operating its power plant under the federal
license, it, and its lands and property used in the power project,
are agencies
Page 283 U. S. 293
or instrumentalities of the federal government, state taxation
of which is impliedly prohibited by the Constitution, and, second,
that in assessing the lands for taxation, appellee has assigned to
them a value attributable to appellant's license, likewise immune
from taxation, and to the river waters, not appellant's property,
in violation of the due process clause of the Fourteenth
Amendment.
1. The Federal Power Commission is authorized to grant to
licensees permission to construct dams on navigable waterways, and
to make use of surplus water not necessary for navigation. Act of
June 10, 1920,
supra. The Act contemplates the use of such
surplus water in the development of power, and, for that purpose,
the construction and operation of works and transmission lines.
See Ford & Son v. Little Falls Fibre Co., 280 U.
S. 369. It provides (§ 14) that, after the
expiration of a license, the government shall have the right to
take over and operate the licensed project upon payment of just
compensation as defined by the Act. The Commission is given
extensive regulatory and supervisory powers over the construction,
maintenance, operation, financing, rates, and service of licensed
projects, and over the system of accounting maintained by
licensees. The Act does not deal directly with state taxation, but
§ 8, forbidding voluntary transfers of licenses, provides that
"tax sales shall not be deemed voluntary transfers. . . ."
Appellant is a business corporation, operating its power plant
for profit. The challenged tax is imposed not on the license, but
on the private property of the licensee use in its business. Lands
privately owned are subject to state taxation, although lying under
navigable waters,
Central R. Co. v. Jersey City,
209 U. S. 473;
Leary v. Jersey City, 248 U. S. 328, as
is private property in which the federal government may have an
interest,
Baltimore Shipbuilding & Dry Dock Co. v.
Baltimore, 195 U. S. 375;
New Brunswick v. United States, 276 U.
S. 547;
Shaw v.
Page 283 U. S. 294
Oil Corp., 276 U. S. 575, or
which is subject to its control in the exercise of its power over
navigable waters,
Henderson Bridge Co. v. Kentucky,
166 U. S. 150;
Keokuk & Hamilton Bridge Co. v. Illinois, 175 U.
S. 626. Hence, the present lands are subject to the
taxing power of the state unless they are to be regarded as
instrumentalities of the federal government because of their use as
a part of the project which it has licensed.
Assuming for present purposes that the license of the Power
Commission is a federal instrumentality, immune from taxation or
other direct interference by the state, it does not follow that the
property appellant uses in its power project is clothed with that
immunity. The exemption of an instrumentality of one government
from taxation by the other must be given such a practical
construction as will not unduly impair the taxing power of the one
or the appropriate exercise of its functions by the other.
Metcalf & Eddy v. Mitchell, 269 U.
S. 514,
269 U. S.
523-524.
With that end in view, the distinction has long been taken
between a privilege or franchise granted by the government to a
private corporation in order to effect some governmental purpose
and the property employed by the grantee in the exercise of the
privilege, but for private business advantage. The distinction was
pointed out by Chief Justice Marshall in
McCulloch
v. Maryland, 4 Wheat. 316,
17 U. S. 436,
and in
Osborn v.
Bank, 9 Wheat. 738,
22 U. S. 867;
See Railroad Co. v.
Peniston, 18 Wall. 5,
85 U. S. 34-37. It
has been followed without departure, and property so owned and used
has uniformly been held to be subject to state taxation.
Thomson v. Union Pacific
Railroad Co., 9 Wall. 579;
Central Pacific R.
Co. v.California, 162 U. S. 91;
Railroad Co. v. Peniston, supra; Baltimore Shipbuilding &
Dry Dock Co. v. Baltimore, supra; Gromer v. Standard Dredging
Co., 224 U. S. 362;
Ackerlind v. United States, 240 U.
S. 531;
Alward v. Johnson, 282 U.
S. 509;
See Choctaw,
Page 283 U. S. 295
O. & G. R. Co. v. Mackey, 256 U.
S. 531;
Group No. 1 Oil Corp. v. Bass, ante, p.
283 U. S. 279.
The present case is not only controlled by the earlier decisions
of this Court, but it would be difficult to suppose any case in
which the adverse effect of a tax upon a governmental purpose would
be more remote or attenuated, or in which the asserted immunity
would more seriously impair the sovereign power of the state to
tax, than in this one.
Appellant is not aided by
Long v. Rockwood,
277 U. S. 142, on
which it chiefly relies. It was there held that royalties derived
from a patent granted upon an invention by the federal government
could not be taxed by a state. But there would be no warrant for
extending such immunity to property of the patentee used to
manufacture the patented article, and only a comparable extension
would justify the immunity claimed here for appellant's lands
because used as a part of its licensed power project.
2. No basis is laid in the present record for assailing the tax
on constitutional grounds, either because the Commission has placed
a higher value on appellant's lands than on others having a similar
location and use or because it has directly taxed appellant's
license. The contention urged is that the lands are assessed at a
higher value than they were before they were submerged, and higher
than farm uplands in the neighborhood, and that, since their use as
a part of appellant's power project is rendered possible only by
the federal license and by the water in the river, the assessment
at the higher value in effect involves a forbidden tax on the
license, and taxation of appellant for the value of the waters of a
navigable stream.
Accepting, as we must on this record, the valuation of the
Commission as neither excessive nor discriminatory, we can perceive
no basis, either legal or economic, for relieving appellant from
the burden of the tax by attempting
Page 283 U. S. 296
the segregation of a part of that value and attributing it to
independent legal interests, not subject to taxation, because those
interests have a favorable influence on the value of the
property.
An important element in the value of land is the use to which it
may be put. That may vary with its location and its relationship to
the property or legal interests of others.
See Winnipiseogee
Lake Cotton & Woolen Mfg. Co. v. Gilford, 64 N.H. 337, 10
A. 849. Its proximity to means of transportation, highways,
railroads, or tidewater,
see New York, L.E. & W. R. Co. v.
Yard, 43 N.J.Law, 632;
Trask v. Carragan, 37 N.J.Law,
264;
cf. Hersey v. Barron County, 37 Wis. 75, or its
location in the vicinity of water power belonging to another but
available for use upon it,
State v. Flavell, 24 N.J.Law
370, may increase its utility, and hence its taxable value. A dock
on New York harbor may have a greater value than one on
nonnavigable waters,
cf. Leary v. Jersey City, supra; Central
R. Co. v. Jersey City, supra, even though the advantages of
the former may be terminated through the exercise of the superior
power of the federal government over navigable waters,
see
United States v. Chandler-Dunbar Water Power Co., 229 U. S.
53.
A large part of the value of property in civilized communities
has been built up by its interrelated uses, but it is a value
ultimately reflected in earning capacity and the price at which the
property may be sold, and hence is an element to which weight may
appropriately be given in determining its taxable value. It has
never been thought that the taxation of such property at its
enhanced value is in effect taxation of its owner for the property
of others. Nor can we say that the present tax, based upon what
must be taken to be the fair value of appellant's lands profitably
used in the business of developing and selling power, is forbidden
because that use would not have been possible without the control
which appellant has acquired over navigable waters through the
grant of
Page 283 U. S. 297
its license. Those considerations which lead to the recognition
of the power of a state to tax the property used by the grantee in
the enjoyment of a federal license require recognition of the power
to tax it on the basis of accepted standards of value, customarily
applied in the taxation of other forms of property.
See
Railroad Co. v. Peniston, supra.
We have examined other objections to the tax, made in brief and
argument, but we do not discuss them, as they are unsubstantial and
as the objections on federal grounds were not presented by the
record or passed upon by the state court.
Affirmed.