Appeal from the United States District Court for the Northern District of Indiana, Hammond Division - No. 73 H 231 Allen Sharp, Judge.
Pell, Sprecher and Lay,*fn* Circuit Judges.
The plaintiffs, lessees of land owned by the United States Government, brought this action, individually and as representatives of a class, seeking declaratory and injunctive relief. The plaintiffs claim that the defendants, county assessors and tax collectors, improperly assessed real estate taxes against the plaintiffs. Jurisdiction was invoked under 42 U.S.C. § 1983 and 28 U.S.C. §§ 1331 and 1343. The district court dismissed the complaint on the ground that federal jurisdiction was barred by 28 U.S.C. § 1341 and the plaintiffs appeal.
Under 16 U.S.C. § 460u, the Secretary of the Interior is authorized to acquire property for the Indiana Dunes National Lakeshore. In the case of improved property, the owner may, in selling his property to the Government, retain a right of use and occupancy (commonly called a "leaseback") for noncommercial residential purposes for a term of 25 years or less. 16 U.S.C. § 460u-5. Where such a leaseback is retained, the fair market value of the leaseback is deducted from the purchase price. Id.
The plaintiffs here allege in their complaint that they sold their property in the lakeshore to the Government but retained leasebacks. The defendants, according to the complaint, eliminated the local and state property tax assessments with respect to the real estate portions of the property acquired by the federal Government but assessed and collected taxes from the plaintiffs for the improvements on the property. The plaintiffs ask that the defendants be enjoined from collecting the tax and that the leasebacks be declared immune from local taxation.
28 U.S.C. § 1341 provides:
"The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State."
The plaintiffs argue, on appeal, that § 1341 does not bar this action because the plaintiffs are instrumentalities of the federal Government or, alternatively, because Indiana does not provide a "plain, speedy and efficient remedy" in its courts.*fn1
A state may not, without the consent of Congress, levy a tax directly against the property of the United States or of an instrumentality of the United States. Department of Employment v. United States, 385 U.S. 355, 17 L. Ed. 2d 414, 87 S. Ct. 464 (1966); United States v. City of Detroit, 355 U.S. 466, 2 L. Ed. 2d 424, 78 S. Ct. 474 (1958). Moreover, where the United States or an instrumentality of the federal Government seeks to protect itself from an unconstitutional state tax, § 1341 does not bar the action. Department of Employment, supra at 358; Moses v. Kinnear, 490 F.2d 21, 24-25 (9th Cir. 1973); Agua Caliente Band of Mission Indians v. County of Riverside, 442 F.2d 1184, 1186 (9th Cir. 1971), cert. denied, 405 U.S. 933, 30 L. Ed. 2d 809, 92 S. Ct. 930 (1972).
The plaintiffs here argue that they are acting as the federal Government's "caretakers" with regard to the homes on the Dunes and that, therefore, they are instrumentalities of the United States. The plaintiffs base their assertion on the fact that, under their contract with the federal Government, they are required to insure and maintain the improvements on the property. The plaintiffs also point out that, under 16 U.S.C. § 460u-5, the plaintiffs' use of the property is restricted to noncommercial purposes.
"There is no simple test for ascertaining whether an institution is so closely related to governmental activity as to become a tax-immune instrumentality." Department of Employment, supra at 358-59. However, it is well established that a private party does not become an instrumentality of the federal Government merely because the party does business with or has a contract with the United States. City of Detroit, supra ; Metcalf & Eddy v. Mitchell, 269 U.S. 514, 70 L. Ed. 384, 46 S. Ct. 172 (1926).
The relationship between the plaintiffs here and the federal Government was essentially just an ordinary lessee-lessor arrangement. In authorizing the acquisition of the property on the Indiana lakeshore, Congress intended to preserve, "for the educational, inspirational, and recreational use," certain portions of the Indiana Dunes. 16 U.S.C. § 460u. The purpose of the leasebacks, as the plaintiffs concede, was to reduce the acquisition costs for the federal Government. By leasing the homes back to the sellers, the Government recoups at least part of the purchase price attributable to the improvements on the property. See H.R. Rep. No. 1782, 89th Cong., 2d Sess., 3 U.S. Code Cong. & Adm. News 4116, 4118-19 (1966). The plaintiffs occupy and use the homes as ordinary lessees. The contract provisions requiring the plaintiffs to insure and maintain the improvements are not ...