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Scott Air Force Base Properties, LLC v. County of St. Clair

January 29, 2008


The opinion of the court was delivered by: J. Phil Gilbert District Judge


This matter comes before the Court on Defendant County of St. Clair, Illinois's Motion to Dismiss (Doc. 6). Plaintiff Scott Air Force Base Properties, LLC has replied (Doc. 13). The time for further filings has passed. Because the Court lacks jurisdiction over the subject matter of the dispute, it GRANTS the Motion to Dismiss.


In 1996, Congress passed the Military Housing Privatization Initiative (MHPI), aimed at attracting private capital and expertise to build much needed military-family housing in a quick and cost effective manner. Under the MHPI, private developers submit competitive bids for housing development projects. For a nominal fee, the federal government leases to the winning bidder the land on which the new developments will be constructed via a long term (usually 50 year) lease. Ownership of the newly constructed housing units, however, is vested in the private developer, not the federal government. The federal government retains a reversionary interest in the units at the expiration of the lease. The cost of construction of the units is borne by the private developers, who recoup their investment by collecting "rent" on the units in the form of the Basic Allowance for Housing (BAH) allotted to the military tenants of the units. Under the MHPI, the federal government obtains much needed new construction with little to no initial capital outlay, while the private development companies get a steady stream of tenants and reliable monthly payments. The MHPI seems like a rare win-win situation. However, because ownership of the land is still vested with the federal government while ownership of the units is vested in the private developers, questions of whether state and local ad valorem taxes may be levied on the units have arisen all across the country. The instant suit raises just such a question.*fn1

Scott Air Force Base Properties, LLC (Scott) submitted a proposal to the Secretary of the Air Force (Government) and was awarded a contract to build new housing on Scott Air Force Base (AFB) pursuant to the MHPI. The Government leased Scott land located inside AFB and executed a quit claim deed to Scott of the improvements thereon. The lease provided Scott the right to contest taxes, assessments and similar charges and to assert any exemption that may be available with respect to assessments or charges. The Government specified that nothing in the lease should be construed as a waiver of sovereign immunity. Scott recorded a memorandum of the lease and quit claim deed with the St. Clair County Recorder of Deeds on January 3, 2007. In June 2007, St. Clair County (the County) placed Scott's leasehold interest on the tax assessment rolls, assessing the two parcels, for ad valorem tax purposes, at more than $31 million.

Scott contends that the ad valorem tax is improper because the property is part of a federal enclave subject to exclusive federal jurisdiction and the federal government has not expressly consented to the taxation of the leasehold. Therefore, under the Supremacy Clause of the Constitution, as well as both Illinois and federal law, the leasehold, as federal property, is exempt from state taxation. Scott brought this Declaratory Judgment action seeking a declaration that: 1) all transactions entered into under the MHPI are exempt from state taxation and 2) Scott's leasehold under the MHPI is not subject to ad valorem taxation by the County in its capacity as taxing agent under the laws of the State of Illinois. The County filed this Motion to Dismiss asserting that the Court does not have jurisdiction over the action because there is no "case or controversy" within the meaning of Article III of the Constitution and because the Tax Injunction Act strips the Court of its jurisdiction. The County also contends that Scott has failed to state a claim for which relief can be granted.


I. Tax Injunction Act

Title 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." Federal courts will abstain from actions seeking declaratory relief against state taxes when "there is a plain, adequate and complete remedy available in the state courts." Gray v. Morgan, 371 F.2d 172, 174 (7th Cir. 1966). "The mere illegality or unconstitutionality of a state or municipal tax is not in itself a ground for equitable relief in the courts of the United States." Great Lakes Dredge and Dock Co. v. Huffman, 319 U.S. 293, 298 (1943).

Therefore, the argument by Scott that the County's imposition of an ad valorem tax is unconstitutional because it violates the Supremacy Clause cannot, by itself, constitute grounds for bringing the instant declaratory judgment action in federal rather than state court, so long as Illinois offers a plain, adequate and complete remedy.

A. Plain, Speedy, Efficient State Remedy Available

Illinois law provides a plain, adequate and complete remedy via the procedures and rules established by the Illinois Property Tax Code governing the application for tax-exempt status.

35 ILCS 200/15 et seq. By following the procedures outlined in the Illinois Property Tax Code, Scott will be provided the right to a full hearing and an administrative decision, which, if necessary, may be appealed to the Illinois circuit court for St. Clair County, higher state courts, and eventually, the United States Supreme Court. 35 ILCS 200/16-70; 35 ILCS 200/18-40. Erroneous assessments will be abated, and erroneously paid taxes will be refunded. Id.

Illinois law exempts from taxation all property of the United States "except such property as the United States has permitted or may permit to be taxed." 35 ILCS 200/15-50. Taxpayers granted the exemption reserved for property of the United States need not reapply or recertify their tax exempt status until and unless ...

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