Newman, Rader, and Bryson, Circuit Judges.
The opinion of the court was delivered by: Bryson, Circuit Judge
Appealed from: United States Court of Federal Claims
United States Court of Appeals for the Federal Circuit
Among the oldest principles of constitutional law is that a state may not tax the United States. That issue has been settled since 1819, when the Supreme Court held in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, that the State of Maryland could not tax the Bank of the United States. That principle, which has been extended to municipalities and subdivisions of states, is simple and absolute:
A state or local governmental body may not tax a federal entity in the absence of congressional consent. See United States v. County of Allegheny, 322 U.S. 174, 177 (1944). In practice, however, the principle has proved difficult to apply. See United States v. New Mexico, 455 U.S. 720, 733-38 (1982).
One issue courts have had to decide is whether the assessment in question should be characterized as a tax, and thus impermissible when imposed on a federal entity, or whether the assessment should be considered a fee for services provided to the federal entity, and therefore permissible. See, e.g., United States v. City of Huntington, 999 F.2d 71 (4th Cir. 1993) (municipal "fire service fee" and "flood protection fee" were taxes that could not be imposed upon federal entities); United States v. City of Columbia, 914 F.2d 151 (8th Cir. 1990) (surcharge on municipal water and electric utility bills was a fee, not a tax, and therefore could be assessed against federal entities). While that question is often difficult to answer, we do not reach it in this case, because the city's complaint runs aground on a preliminary matter:
It fails to establish the elements of an implied contract between the city and the United States and therefore fails to state a claim upon which the Court of Federal Claims may grant relief. For that reason, we affirm the judgment of the trial court dismissing the complaint.
The City of Cincinnati operates a stormwater management system, which is designed to control stormwater runoff within the city. A city ordinance provides for a "storm drainage service charge" to be imposed on property owners within the city in order to pay the expenses of the stormwater management system. The amount of the assessment against each property owner is a function of the size of the property and its "intensity of development." The general goal of the assessment formula is to impose higher assessments on properties that are expected to produce more stormwater runoff, such as commercial or industrial properties, and to impose lower assessments on properties that are expected to produce less stormwater runoff, such as residential or undeveloped properties. Not all of the distinctions in the rates of assessment can be accounted for by the expected amount of stormwater runoff from particular kinds of properties, however. As counsel for the city confirmed at oral argument, some distinctions among the assessment levels are based on a decision that certain kinds of properties, such as churches, should be subject to lower assessments.
The property owner in this case is a federal entity, the National Institute of Occupational Safety and Health (NIOSH), which operates a facility within the City of Cincinnati. The city contends that NIOSH owes more than $60,000 in storm drainage service charges. NIOSH has declined to pay the assessments, contending that the storm drainage service charge amounts to an unconstitutional tax on a federal entity. The city filed suit in the Court of Federal Claims to recover the assessed charges, arguing that the storm drainage charge is not a tax, but a charge for services that the United States, like any other user of city services, is required to pay.
The Court of Federal Claims dismissed the complaint for failure to state a claim upon which relief could be granted. In a thorough opinion, the court noted that the federal government can properly be charged for services that it purchases from local governmental entities, such as water or other utility services. The court held, however, that the storm drainage charge, which was imposed on all property owners within the city and was not the product of a voluntary purchase decision by the federal government, constitutes a tax, not a fee for services, and therefore could not be exacted from a federal entity such as NIOSH. The city appeals from that decision.
The Court of Federal Claims has jurisdiction "to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort." 28 U.S.C. § 1491(a)(1). The trial court understood the city to be basing its invocation of jurisdiction on an implied-in-fact contract between the city and the United States, and the city confirmed at oral argument that it was basing its claim of jurisdiction on that ground. As the Court of Federal Claims explained, the invocation of the implied contract theory is sufficient in this case to set forth a basis for subject-matter jurisdiction, because the city has made a non-frivolous assertion of an implied contract with the United States. See Trauma Serv. Group v. United States, 104 F.3d 1321, 1325 (Fed. Cir. 1997); Lewis v. United States, 70 F.3d 597, 602-04 (Fed. Cir. 1995). As the court further explained, however, the fact that subject-matter jurisdiction is properly invoked does not mean that the city has stated a claim upon which relief can be granted. That question turns on whether the ...