Petition for Writ of Certiorari — Nye County v. United States

In The

Supreme Court of the United States

October Term, 1991

+

NYE COUNTY, NEVADA, AND BERNIE C. MERLINO,

NYE COUNTY ASSESSOR,

Petitioners,

VS.

UNITED STATES OF AMERICA,

Respondent.

.

Petition For Writ Of Certiorari To The

United States Court Of Appeals For The

Ninth Circuit

°

PETITION FOR WRIT OF CERTIORARI

- S

ARTHUR F. WEHRMEISTER

District Attorney

Nye County, Nevada

Post Office Box 593

Tonopah, Nevada 89049-0593

(702) 482-8166

Counsel of Record

for Petitioners

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (602) 342-2831

QUESTION PRESENTED

Whether a state statute levying a possessory use tax

based upon the value of exempt government property

violates the federal government’s immunity from state

taxation under the Supremacy Clause of the United States

Constitution when the government property is made

available to and used by an independent contractor in a

business conducted for profit and the intent and effect of

the statute is to tax only the contractors possessory use.

il

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED occccscccsncscsovvescees i

TABLE OF COMPUT RIG Gs ion be vkkerdcdedeeneekences ii

TABLE OF AUTHIORITING 6.6 cece cc cccseccveceeees iv

OPINION TRL ... 3 cvcssctaatinceeer esa eereies 1

JUREEGIIR, FIGS 6 6 cok scecvnsbuSeeerieis eer ceneneeee 2

CONSTITUTIONAL AND STATUTORY PROVI-

SU SPOUT OES on cc nccnuccueseamearevaeeesann 2

STATEMENT OF THE CAGGS «occ oc secnsavesuecns 2

REASONS FOR GRANTING THE WRIT ........... 8

I. Certiorari should be granted because the deci-

sion of the Court of Appeals creates an intoler-

able conflict with the decision of the Nevada

Supreme Court on the constitutionality of the

Pr rr er re teehee Pare 8

II. Certiorari should be granted because the Court

of Appeals, in direct conflict with decisions of

this Court, decided that a state taxing statute

violates governmental immunity from taxation

under the Supremacy Clause of the United States

CONGUAMYON. 2. oss 0cncsssteeed dase saaeneeeeaas 9

CONCLUSAMN « oiccccueves ¢cbpeued eee cayenne 15

APPENDIX A, Findings of Fact, Conclusions of

Law and Judgment of the District Court..... App. 1

APPENDIX B, Final Judgment of the District

Oo PEEPPPEEE SC App. 8

APPENDIX C, Decision of the Ninth Circuit Court

|) er erry ee App. 11

ill

TABLE OF CONTENTS - Continued

Page

PPENDIX D, Order of the Ninth Circuit Court of

Appeals Affirming the Decision of the District

a a Pep ee a ole bar ee App. 22

APPENDIX E, Order of the Ninth Circuit Court of

Appeals Denying the Petition for Rehearing. .App.

APPENDIX Ff, Article VI, clause 2 of the United

rr ceeseweneeenes App.

APPENDIX G, Nev. Rev. Stat. § 361.159........ App.

iv

TABLE OF AUTHORITIES

Page

Cases

City of Detroit v. Murray Corporation of America,

Pe a CU es cae serene eceseedaxenys 10, 11, 14

United States v. Boyd, 378 U.S. 39 (1964)....... 6, 8, 11

United States v. City of Detroit, 355 U.S. 466 (1958)

FoR UE CIRGVISUNEE EROCEVSRNN EERO edhe OKs 6, 8, 10, 11, 14

United States v. New Mexico, 455 U.S. 720 (1982) passim

United States v. State ex rel. Beko, 88 Nev. 76, 493

ee I Ne Aes cha ee a 8, 9

United States v. Township of Muskegon, 355 U.S.

ne en ee eon 8, 10, 11

CONSTITUTION

United States Constitution, Article VI, Clause 2...... 2

STATUTES

ee es SEED os ecu soy bow vce eee es es eee E Knee R anaes 2

es eS Ghosts SS ee a Re tas eas hae eee 2

Re a re eats es rcccecer eas Mere eeetiee 2

No.

r

In The

Supreme Court of the United States

October Term, 1991

¢

NYE COUNT’, NEVADA, AND BERNIE C. MERLINO,

NYE COUNTY ASSESSOR,

Petitioners,

VS.

UNITED STATES OF AMERICA,

Respondent.

¢

Petition For Writ Of Certiorari To The

United States Court Of Appeals For The

Ninth Circuit

o--

PETITION FOR WRIT OF CERTIORARI

¢

A writ of certiorari is respectfully sought by Nye

County, Nevada, to review the Court of Appeals decision

finding a state taxing statute as applied to a government

contractor unconstitutional because it violates the immu-

nity of the federal government from state taxation.

+

OPINION BELOW

The opinion of the Ninth Circuit Court of Appeals,

reported at 938 F.2d 1040, appears as Appendix C.

The Findings of Fact, Conclusions of Law and Judg-

ment and Final Judgment of the District Court are not

reported and appear as Appendices A and B, respectively.

+

JURISDICTION

The judgment of the Court of Appeals (App. D) was

entered July 15, 1991. A petition for rehearing was denied

on September 18, 1991 (App. E). The jurisdiction of the

lower federal courts was invoked under 28 U.S.C. §§ 1331

and 1345. This Court's jurisdiction is invoked under 28

U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

This case involves the following constitutional provi-

sions and statutes:

I. Article VI, clause 2 of the United States Constitu-

tion, appears as Appendix F.

II. Nev. Rev. Stat. § 361.159, appears as Appendix G.

.

STATEMENT OF THE CASE

This case concerns the validity of a state taxing stat-

ute as applied to an independent government contractor,

Arcata Associates, Inc. (Arcata), performing its contract

with the United States Air Force on the electronic combat

ranges in Nye County, Nevada.!

Arcata is a corporation which provides certain tech-

nical services to the Air Force under a cost-plus contract

negotiated on a yearly basis. The services provided con-

sist of supplying civilian technicians who maintain and

operate sophisticated electronics property owned by the

Air Force. The property is used in military air combat

training exercises in which the pilots’ skills are measured

and scored by various electronic devices positioned at

different locations on the combat ranges. Arcata

employees spend approximately 75% of their time main-

taining the property and 25% operating the property.

Arcata owns none of the property it uses in the

performance of its contract with the Air Force and claims

no ownership interest therein. All of the property is fur-

nished directly to Arcata by the Air Force.

The Air Force reimburses Arcata for all the costs of

performing the contract. In addition, Arcata is paid an

annual fixed fee of 2% of the cost of performing the

contract that year. The contract also provides for up to an

additional 6% to be paid Arcata as a performance bonus.

The exact amount paid depends on a subjective evalua-

tion by the Air Force of Arcata’s performance. For the

' The combat ranges are within a large area withdrawn

from public entry and used exclusively for national purposes

such as Air Force bombing and training ranges and nuclear

device development and testing. The withdrawal comprises

about 65% of the total area of Nye County, Nevada. The

combat ranges are commonly referred to as the Tonopah Test

Range.

years 1983-1989, the yearly cost of performing the con-

tract averaged approximately $6,747,000.00. Arcata has

received a performance bonus every year.?

Nev. Rev. Stat. § 361.159, authorizes Nye County to

levy a tax on Arcata’s use of exempt government-owned

personal property used in the performance of its contract

with the Air Force. Computation of the tax is based on

the value of the personal property and the percentage of

time Arcata uses the property during the tax year. Value

of the property and percent of use are declared by Arcata

on declaration forms supplied by Nye County and Nye

County relies on Arcata’s declarations in computing the

tax. The Nye County Assessor accepts the declarations of

Arcata at face value. He makes no independent effort to

evaluate either the value of the property or the percent-

age of use declared by Arcata.

The tax is computed by applying the county tax rate

to the assessed value of the property.? Nye County is not

taxing any Ownership interest under Nev. Rev. Stat.

§ 361.159, neither the government’s nor Arcata’s.

The practical result of the application of the tax is

that Arcata is taxed only for its actual use of the property,

regardless of whether that use is 1% or 100% during the

tax year. The property itself is not taxed. Arcata pays the

2 The record does not disclose the exact dollar amount of

the bonuses or the percentage of the cost of performing the

contract that the bonuses represent.

3 Assessed value is 35% of the value of the property as

declared by Arcata.

tax, not the Air Force.4 The amount of taxes in contro-

versy paid by Arcata is $127,444.03 for the fiscal years

1983-1984 through 1988-1989.

On July 11, 1986, the United States filed suit against

Nye County and the Nye County Assessor seeking a

declaratory judgment and injunctive relief against the

assessment of any additional taxes against Arcata under

Nev. Rev. Stat. § 361.159, and reimbursement of taxes

paid by Arcata for the years 1983-1989.

At trial, the evidence established that Arcata has

considerable discretion in carrying out its duties under

the contract. The evidence also established that Arcata

has no ownership interest in the government property it

uses to perform the obligations of its contract. The evi-

dence also established that Nye County only taxes

Arcata’s actual percentage of use of the property based

entirely upon the declarations submitted by Arcata as to

the value of the property and the percentage of time

during the tax year that Arcata uses the property.

In addition, the evidence clearly showed that the tax

is only applied upon Arcata’s possessory use of the prop-

erty and is not an ad valorem property tax based upon the

value of the property.

The trial court concluded that Nye County could not

impose a tax on Arcata because Arcata has no personal

ownership or beneficial interest in the property since the

contract conveys no property interest to Arcata, and,

4 Arcata is reimbursed by the Air Force for the cost of the

tax under the terms of the “cost-plus” contract.

therefore, the tax imposed is an ad valorem property tax_

on the United States which is prohibited by the Suprem-

acy Clause of the United States Constitution. App. 6-7.

This ruling appears to be in direct conflict with the

evidence presented at trial.

On appeal Nye County argued that both the lan-

guage and the application of Nev. Rev. Stat. § 361.159 was

designed to tax only the possessory use of United States

property by an independent contractor carrying on a

business conducted for profit.

Nye County argued that prior decisions of this Court

starting with U.S. v. City of Detroit, 355 U.S. 466 (1958),

and culminating with U.S. v. New Mexico, 455 U.S. 720

(1982), have uniformly held that a state is not forbidden

from taxing the possessory use by an independent con-

tractor of United States owned property regardless of

whether the tax is measured by the value of the United

States’ property and regardless of whether the contractor

has any ownership or leasehold interest in the govern-

ment’s property.

This court has held that the only instance where

constitutional immunity would apply is when the facts

clearly establish that the contractor is so incorporated

into the government structure as to become an instru-

mentality of the United States. U.S. v. Boyd, 378 U.S. 39

(1964).

In this case, the United States conceded that Arcata

was not an agent or instrumentality of the federal govern-

ment. App. 12.

The Court of Appeals, in a 2-1 decision, affirmed the

ruling of the trial court holding that Nev. Rev. Stat.

§ 361.159 “effectively lays an ad valorem general property

tax on property owned by the United States.” App. 16.

The majority, while stating that they do not “exalt

form over substance” held “that when a statute says it

taxes property it probably does. And when it says it

doesn’t, it probably doesn’t.” App. 15.

The majority stated that since the language of Nev.

Rev. Stat. § 361.159 taxes the user “in the same amount

and to the same extent as though the lessee or user were

the owner of the property,” that the tax is a property tax

on property owned by the United States and therefore

violates the constitutional immunity of the United States

from state taxation. App. 15-16.

In a strongly worded dissent, Judge Noonan correctly

noted:

that tax immunity is appropriate in only one

circumstance: when the levy falls on the United

States itself, or an agency or instrumentality so

closely connected to the government that the

two cannot realistically be viewed as separate

entities, at least insofar as the activity being

taxed is concerned.

App. 17.

Judge Noonan said “New Mexico defined the

approach that should be taken today to a state tax on an

entity using property of the United States.” App. 16.

Judge Noonan noted that the Nevada statute

expressly exempts property of the United States from

taxation and that there is no intention by the State to tax

property of the United States. New Mexico, he further

noted, held that it is irrelevant that the economic burden

of the tax might ultimately fall on the government and

that it is also irrelevant that the contractor owns none of

the property being used.

Nye County’s petition for a rehearing and suggestion

for rehearing en banc was denied.

+

REASONS FOR GRANTING THE PETITION

I. Certiorari should be granted because the decision of

the Court of Appeals creates an intolerable conflict

~ with the decision of the Nevada Supreme Court on

the constitutionality of the statute.

Prior to 1988 this case would have been before this

Court by direct appeal.

Shortly after Nevada implemented Nev. Rev. Stat.

§ 361.159, the United States challenged in the Nevada

courts the constitutional validity af the tax as applied to

independent contractors using exempt government prop-

erty to perform their contracts with the government on

federal land within Nye County, Nevada. United States v.

State ex rel. Beko, 88 Nev. 76, 493 P.2d 1324 (1972).

The Nevada Supreme Court upheld the constitu-

tionality of the statute as written, and as applied, relying

on this Court’s decisions in Boyd, City of Detroit, and

United States v. Township of Muskegon, 355 U.S. 484 (1958),

in finding that a contractor’s use of government property

in connection with commercial activities carried on for

profit is a separate and distinct taxable activity on which

the state could properly levy a use tax. Beko, 88 Nev. at 83.

In the instant case the Court of Appeals decision

specifically held that the tax “is an ad valorem tax on

property of the United States and as such it is unconstitu-

tional” because it is violative of the right of the federal

government to be free from state taxation. App. 16.

This decision creates an intolerable conflict between

the Court of Appeals and the highest court of the State of

Nevada regarding the right of the state to levy use taxes

on government contractors conducting business within

the state.

Further, this decision creates the potential for a mul-

tiplicity of suits because every government contractor

performing a cost-plus contract with the United States

anywhere in the State of Nevada may now sue for a

refund of taxes paid under the statute since the Beko

decision in 1972.

Review by this Court is appropriate to resolve the

intolerable conflict between the Nevada Supreme Court

decision upholding the constitutionality of the statute

and the Court of Appeals decision invalidating the stat-

ute under the Supremacy Clause.

II. Certiorari should be granted because the Court of

Appeals, in direct conflict with decisions of this

Court, decided that a state taxing statute violates

governmental immunity from taxation under the

Supremacy Clause of the United States Constitu-

tion.

This case presents an extremely important question

concerning the authority of a state to tax government

10

contractors operating within the state and the federal

government’s immunity from state taxation.

The statute involved here, Nev. Rev. Stat. § 361.159,

levies a tax on the use by independent government con-

tractors of otherwise exempt federal government prop-

erty.

This Court has previously decided a number of cases

which presented the issue of whether a state may consti-

tutionally levy a use tax on an independent contractor

who uses exempt government property to perform its

contract.

The benchmark case in this area is United States v.

City of Detroit, 355 U.S. 466 (1958), in which this Court

held that a state may constitutionally levy a use tax on an

independent government contractor’s use of exempt gov-

ernment property used in the performance of its contract.

The Court held that such a tax may be based on the value

of the property being used and that the tax is not uncon-

stitutional merely because the economic burden of the tax

will ultimately fall on the United States.

In a companion case, United States v. Township of

Muskegon, 355 U.S. 494 (1958), this Court also held that it

is immaterial to the constitutionality of a state taxing

statute that the contractor has no leasehold or other own-

ership interest in the property being used and that it is

also immaterial that the contractor does not use the prop-

erty to supply goods or services to anyone other than the

United States.

Further in City of Detroit v. Murray Corporation of

America, 355 U.S. 489 (1958), this Court, in addressing the

11

issue of whether the language of the statute is more

important than the legislative intent and the actual appli-

cation and effect of the statute, said it looks only to the

practical effect of the tax and not its definition or the

descriptive words which may be applied to it:

As applied - and of course that is the way [the

tax] must be judged - the taxes here imposed a

levy on a private party possessing government

property which it is using or possessing in the

course of its own business.

Id. at 493.

Later, in United States v. Boyd, 378 U.S. 39 (1964), this

Court reaffirmed the principles laid down in City of

Detroit, Township of Muskegon, and Murray Corporation,

holding that the use by a contractor of otherwise exempt

government property in connection with the contractor’s

commercial activities carried on for profit is a separate

and distinct taxable activity.

The latest decision of this Court which has examined

the constitutional limits on a state’s ability to impose use

taxes on independent government contractors using gov-

ernment property to perform their contracts was United

States v. New Mexico, 455 U.S. 720 (1982).

In New Mexico, this Court again reaffirmed the princi-

ples laid down in City of Detroit, Township of Muskegon,

Murray Corporation, and Boyd.

Further in New Mexico, this Court said that conferring

immunity on a contractor is appropriate in only one

circumstance:

12

What the Court’s cases leave room for, then, is

the conclusion that tax immunity is appropriate

in only one circumstance: when the levy falls on

the United States itself, or on an agency or

instrumentality so closely connected to the Gov-

ernment that the two cannot realistically be

viewed as separate entities, at least insofar as

the activity being taxed is concerned.

Id. at 735. “To resist the state’s taxing power, a private

taxpayer must actually stand in the government's shoes.”

Id. at 736.

As previously indicated, the United States conceded

that Arcata is not an agent or instrumentality of the

government. Therefore the relationship between the

United States and Arcata is one which creates distinctly

separate entities. As pointed out by Judge Noonan:

... Arcata conducts the military games for its

own profit. In the terms expressly used by New

Mexico Arcata is engaged in “commercial activ-

ity carried on for profit.” [Cite omitted.] Conse-

quently, Arcata does not enjoy immunity from

Nye County’s tax.

App. 19.

To this Court, then, the only issue is whether or not

the contractor can be considered an instrumentality or

constituent part of the federal government.

In this case, the Court of Appeals apparently did not

consider this to be the issue since the majority found the

Nevada statute unconstitutional merely because the

amount of the tax is based on the value of the exernpt

property- being used by the contractor.

13

In addition, the majority of the Court of Appeals

appeared to believe that if Arcata had no ownership

interest in the property, or did not use the property to

supply goods or services to another party other than the

government, for a profit, then Arcata had no beneficial

use of the property and therefore was not engaging in

any taxable activity.

The resuliing decision of the Court of Appeals is

therefore directly contrary to the criteria set out by this

Court to be used in evaluating the constitutionality of a

State taxing statute.

Lastly, the Court of Appeals concluded that the

wording of a tax statute is more important than the intent

of the legislators and the actual application and effect of

the statute. To the majority, in this case, the language of

Nev. Rev. Stat. § 361.159 which imposes the tax on a

private user of otherwise exempt property, “in the same

amount and to the same extent as though the lessee or

user were the owner of the property”, is more important

than examining the intent of the statute, the way the

Statute is applied, and the actual effect of the tax on the

contractor.

This conclusion was correctly characterized by Judge

Noonan in his dissent as follows:

It is difficult to imagine a more wooden and

technical approach than that taken by the major-

ity in finding constitutional significance in the

language used by the state to describe its tax.

App. 21.

14

In Murray Corporation it was made clear to the lower

courts that they “must look through form and behind

labels to substance” in determining whether a tax violates

the government’s constitutional immunity. 355 U.S. at

492. The Court of Appeals in this case ignored this

Court’s guidance as set forth in New Mexico and its prede-

cessors. It was suggested by this Court in New Mexico

that:

If political or economic considerations suggest

that a broacer immunity rule is appropriate,

“such complex problems are ones which Con-

gress is best qualified to resolve.”

455 US. at 744, citing City of Detroit, 355 U.S. at 474. The

Court further suggested that the government should not

request the courts to establish as a constitutional rule

something it was unable to obtain statutorily from Con-

gress. Id.

This is precisely what the United States has obtained

by the Ninth Circuit’s decision in this case. This decision

significantly expands the narrow constitutional limits of

governmental immunity under the Supremacy Clause.

Such an expansion should only be accomplished by

Congressional action. To do otherwise will produce dele-

terious effects far beyond the circumstances of this partic-

ular case.

The conflict between the right of the United States to

be free from state taxation and the concomitant right of

the states to levy taxes on government contractors doing

business within their borders raises a substantial federal

question which has a significant impact on the public at

large.

15

Review is appropriate to examine the conflict

between the Ninth Circuit Court of Appeals decision in

this case with prior decisions of the Supreme Court.

*

CONCLUSION

For the reasons set fourth above, a writ of certiorari

should issue to review the decision of the Ninth Circuit

Court of Appeals on these issues.

Respectfully submitted,

ARTHUR F. WEHRMEISTER

District Attorney

Nye County, Nevada

Counsel of Record

for Petitioners

App. 1

APPENDIX A

UNITED STATES DISTRICT COURT

DISTRICT OF NEVADA

UNITED STATES OF CV-S-86-670-HDM

AMERICA,

_— FINDINGS OF FACT,

v. CONCLUSIONS OF

NYE COUNTY, NEVADA LAW, and JUDGMENT

and BERNIE C. MERLINO, .

Nye County Assessor, (Filed Sept. 1, 1989)

Defendants.

/

FINDINGS OF FACT

1. The plaintiff, United States, commenced this

action to secure a declaratory judgment that taxes

assessed by Nye County, Nevada, under the provisions of

section 36.159 [sic] of the Nevada Revised Statutes,

infringe upon the immunity of the United States from

state and local taxation, and are, therefore, unconstitu-

tional. The complaint also seeks a refund of taxes that

have been paid to the defendant, Nye County, by the

contractor, Arcata, for the fiscal years 1983 through 1988.

2. The plaintiff, United States, is a corporate sover-

eign and body politic.

3. The defendant, Nye County, Nevada, is a political

subdivision of the State of Nevada and is within the

jurisdiction of this court, and its officials, employees, and

agents have taken the actions and issued the assessments

complained of in the complaint in this action.

App. 2

4. The defendant, Bernie Merlino, is the County

Assessor of Nye County, and is charged by Nevada law

with the assessment of property and collection of taxes

imposed on personal property under the provisions of

Nev. Rev. Stat. § 361.159 (1987).

5. The United States Air Force operates the Tolicha

Peak Electronic Combat Range and Tonopah Electronic

Combat Range in Nye County, Nevada.

6. Arcata Associates (Arcata) was awarded a cost

reimbursement contract with four renewable annual

option periods commencing in 1980. The latest renewal

was for the fiscal years 1986-1990. Arcata operates

grounds systems associated with the simulated Soviet

defense systems when and as directed by Air Force per-

sonnel.

7. Payments under the contracts include a base fee,

a performance award fee, and reimbursement of the costs

of performing the contract.

8. All of the equipment used by Arcata is owned by

the United States. There is a certain amount of electronic

test equipment and vehicles leased by Arcata, but this

leased property is owned by non-exempt commercial

entities and is not in dispute in this litigation.

9. Neither the Arcata contract with the Air Force

nor any agreement, nor any deed, lease, conveyance,

license, or any other document confers on Arcata any

estate, leasehold, license, permit, or any other right, title,

or interest in the government-furnished property.

10. Arcata does not pay, and is not obligated to pay,

any rent, fee, charge, or any other consideration in

App. 3

exchange for its operation or maintenance of the property

owned by the Air Force.

11. The contract provides that Arcata operates and

maintains the equipment in accordance with the direction

of the Air Force.

12. All of the work performed by Arcata is per-

formed for the Air Force. Arcata does not use any of the

property for any purpose other than the performance of

work for the Air Force at the direction of the Air Force

under the contract. Arcata does not have the right to use

the equipment or property for its own account or for its

own business and derives no profits from the property

except under the terms of the services contract.

13. The risk of loss of all of the property is solely on

the United States as the owner of the property, except in

instances of any willful misconduct or lack of good faith

on the part of Arcata.

14. The contract also provides that the United States

may terminate the contract for its convenience at any

time with or without notice to Arcata.

15. Afcata’s only access and control over the prop-

erty is at the direction of the United States at such times

and places and in such manner as specified by the United

States.

16. Arcata cannot exclude Air Force personnel or

other contractors from operating or maintaining any of

the equipment.

17. Under the provisions of the contract, the United

States is obligated to reimburse Arcata for any taxes paid

App. 4

by Arcata on property owned by the United States in

performing Arcata’s contract.

18. The fees paid to Arcata are not related to the

value of the property it operates and maintains. Arcata is

paid a base fee and a performance award fee that is based

on the Air Force’s evaluation of Arcata’s response to the

requirements of the Air Force in connection with opera-

tions and maintenance.

19. Arcata has paid taxes to Nye County under

protest as follows: for the year 1983-1984, $11,852.24; for

the period 1984-1985, the sum of $18,952.94; for the year

1985-1986, the sum of $12,191.77; for the year 1986-1987,

the sum of $6,014.15; for the year 1987-1988, the sum of

$45,968.61; and for the year 1988-1989, the sum of

$32,434.32.

20. Arcata has no beneficial use of the property of

the United States that it operates and maintains.

21. To the extent these findings of fact are deemed

to be conclusions of law they shall constitute conclusions

of law.

CONCLUSIONS OF LAW

1. This court has jurisdiction pursuant to Sections

1331 and 1345 of Title 28 of the United States Code.

2. The United States has a direct pecuniary interest

in this action and has standing to bring this suit. United

States v. Dekalb County, 729 F.2d 738, 741-42 (11th Cir.

1984).

App. 5

3. Nevada Revised Statute § 361.159, under which

Nye County has imposed the tax in question here, pro-

vides in pertinent part:

Personal property exempt from taxation

which is leased, loaned or otherwise made avail-

able to and used by a natural person, association

or corporation in connection with a business

conducted for profit is subject to taxation in the

same amount and to the same extent as though

the lessee or user were the owner of the prop-

erty. ...

4. A state may not, under the supremacy clause,

impose a tax on the United States upon property of the

United States. McCulloch v. Maryland, 17 U.S. 316 (1819);

United States v. New Mexico, 455 U.S. 720 (1982); United

States v. Colorado, 627 F.2d 217 (10th Cir. 1980), aff’d mem.

sub nom. Jefferson County, Colo. v. United States, 450 U.S.

901 (1981).

5. A state may impose an ad valorem tax on federal

property in the possession of a third party who holds

under a lease or bailment. The tax, however, must be

restricted to the beneficial interest the third party has in

the taxed property. The mere use of the property under a

service or management contract does not create a taxable

beneficial interest in the third party. United States v. Colo-

rado, 460 F. Supp. 1184 (D. Colo. 1978), aff'd, 627 F.2d 210

(10th Cir. 1980), aff’d mem. sub nom Jefferson County, Colo.

v. United States, 450 U.S. 901 (1981); United States v. Alle-

gheny County, 322 U.S. 174 (1944); United States v. New

Mexico, 455 U.S. 720, 741 at n.14 (1982); United States v.

Fresno, 429 U.S. 452, 466 at n.15 (1977); United States v.

App. 6

Anderson County, Tenn., 761 F.2d 1169 (6th Cir. 1985), cert.

denied, 474 U.S. 919 (1985).

6. Arcata has no personal ownership or beneficial

interest in the federally owned property which Arcata

uses in the performance of its personal services contract.

The record reflects that Arcata does not own or lease the

property. The property is used by Arcata to discharge its

responsibilities to the government pursuant to a services

contract between the Air Force and Arcata.

7. The express terms of the contract between the Air

Force and Arcata conveys no property interest to Arcata

of any real or tangible personal property located at the

Air Force combat range in Nye County, Nevada. United

States v. Jackson County, Mo., 696 F. Supp. 479, 484 (W.D.

Mo. 1988).

8. Here, the Air Force has reserved such control

over the activities of Arcata that Arcata is a servant of the

United States. Arcata has access to the equipment only

for the purpose of operating and maintaining the equip-

ment at the direction of the Air Force.

9. The contract between the Air Force and Arcata

grants Arcata a license to enter the Air Force combat

range to operate and maintain the Air Force equipment.

Id. at 486. The court cannot conclude that the provisions

of Nev. Rev. Stat. § 361.159 (1987) permit a tax to be

imposed on the functions engaged in by Arcata under its

service contract with the Air Force.

10. Having so found, the court concludes the impo-

sition of an ad valorem tax on the property the subject of

this litigation for the tax years in controversy in this case

App. 7

is a tax on the United States and is prohibited by the

supremacy clause. McCulloch v. Maryland, 17 U.S. 316

(1819).

11. To the extent these conclusions of law are

deemed to be findings of fact, they shall constituted [sic]

findings of fact.

Therefore, it is hereby ORDERED that:

1. Plaintiff's motion for summary judgment is

GRANTED;

2. The defendants are enjoined from assessing or

collecting the tax imposed by Nev. Rev. Stat. § 361 159;

3. The defendant shall refund to plaintiff taxes paid

for the year commencing July 1983; and

4. Plaintiff shall prepare a judgment consistent with

these findings and conclusions and submit the same to

the court within ten (10) days of the date of this order.

DATED this 28th day of August, 1989.

\

/s/ Howard D. McKibben

UNITED STATES

DISTRICT JUDGE

App. 8

APPPENDIX B

UNITED STATES DISTRICT COURT

DISTRICT OF NEVADA

UNITED STATES CV-S-86-670-HDM

OF AMERICA,

ristein, FINAL JUDGMENT

VS.

NYE COUNTY, |

NEVADA, et al., (Filed Oct. 6, 1989)

Defendants.

/

This matter having come on for trial on June 13, 1989,

and the court having considered the witnesses and

exhibits offered thereat, and having entered findings of

fact and conclusions of law, does hereby, pursuant to Rule

54 of the Federal Rules of Civil Procedure,

ORDER, ADJUDGE and DECREE that the United

States is entitled to declaratory judgment that:

The defendants may not impose the tax authorized

by Nev. Rev. Stat. § 361.159, on Arcata Associates, a

United States Air Force contractor, because Arcata has no

personal ownership or beneficial interest in the property

which it uses to perform its personal services contract

with the Air Force and because that contract conveys no

property interest to Arcata in the real and tangible per-

sonal property located in Nye County, Nevada, on the Air

Force Tolicha Peak and Tonopah Electronic Combat

Rangers; and, therefore, the ad valorem tax imposed by

the defendants is a tax on the United States which is

App. 9

prohibited by the Supremacy Clause of the United States

Constitution.

It is further ORDERED, ADJUDGED and DECREED

that the defendants, their successors in office, their

employees, agents, attorneys and all persons acting in

concert with them who shall receive notice thereof, are

permanently enjoined from assessing, imposing or col-

lecting from Arcata or the United States, ad valorem

personal property taxes pursuant to Nev. Rev. Stat.

§ 361.159, on the property of the United States located in

Nye County, Nevada, on the Air Force Tolicha Peak and

Tonopah Electronic Combat Ranges or on any alleged

“interest” of Arcata in that property.

It is further ORDERED, ADJUDGED and DECREED

that the defendant Nye County, Nevada, is liable in gen-

eral assumpsit to the United States for money had and

received in the total amount of $127,414.03 consisting of

ad valorem personal property taxes paid by Arcata and

reimbursed by the United States for the tax years 1983-84

through 1988-1989 as set forth below:

Amount of Date Tax Paid

Tax Year Tax Payment to Defendants

1983-84 $ 11,852.24 Jan. 23, 1984

1984-85 18,952.94 Oct. 1, 1984

1985-86 12,191.77 Oct. 1, 1985

1986-87 6,014.15 Sept. 25, 1986

1987-88 45,968.61 Nov. 25, 1987

1988-89 32,434.32 July 21, 1988

$127,414.03

App. 10

day of October , 1989

DATED this 5th

/s/ Howard D. McKibben

UNITED STATES

DISTRICT JUDGE

App. 11

APPENDIX C

UNITED STATES of America,

Plaintiff-Appellee,

V.

NYE COUNTY NEVADA; Bernie C.

Merlino, Nye County Assessor,

Defendants-Appellants.

No. 90-15128.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted April 8, 1991.

Decided July 15, 1991.

Appeal from the United States District Court for the

District of Nevada.

Before PREGERSON, NOONAN and THOMPSON,

Circuit Judges.

DAVID R. THOMPSON, Circuit Judge:

The United States chailenges Nye County’s imposi-

tion of a tax on Arcata Associates, Inc. (Arcata), a defense

contractor. The United States argues that the tax violates

the Constitution because it, in effect, is a tax upon prop-

erty of the United States. The district court entered judg-

ment for the United States, enjoined further assessments

of the tax by the County and adjudged the County liable

for the taxes previously paid. We hold that the tax Nye

County levied on Arcata is an ad valorem tax on property

owned by the United States government. As such, the

supremacy clause and McCulloch v. Maryland, 4 Wheat.

316, 4 L.Ed 579 (1819), render the tax unconstitutional. We

therefore affirm.

App. 12

FACTS

Arcata is an independent federal contractor.! It main-

tains and operates government-owned electronic equip-

ment used by the United States Alr Force to simulate

Soviet defense systems at the Tolicha Peak Electronic

Combat Range and the Tonopah Electronic Combat Range

in Nye County, Nevada. The Air Force uses these systems

and devices to train Air Force pilots. Pursuant to its

contract with Arcata, the United States reimburses Arcata

for all costs incurred by the company and, in addition,

pays Arcata a fixed base fee and a performance award fee

for its services.

The Air Force directs Arcata’s operation of all gov-

ernment-owned equipment. Arcata does not have the

right to use the equipment for its own account or busi-

ness. It has no property interest in the equipment. Its only

access to the equipment is at the time and place and in

the manner directed by the United States. Arcata cannot

exclude Air Force personnel or other contractors from

Operating or maintaining the equipment. The United

States can terminate its relationship with Arcata at will.

Nye County contends Arcata has a taxable interest in

the equipment. It assessed a personal property tax

against Arcata under Nev. Rev. Stat. 361.159, as if Arcata

were the owner of the equipment. The statute provides in

pertinent part:

' The United States concedes that Arcata cannot be consid-

ered an agent or instrumentality of the government.

App. 13

1. Personal property exempt from taxation

which is leased, loaned or otherwise made avail-

able and used by a natural person, association

or corporation in connection with a business

conducted for profit is subject to taxation in the

same amount and to the same extent as though

the lessee or user were the owner of the prop-

3) Ae

Unpaid taxes under this statute do not become a lien

on the property but are an obligation of the lessee or user.

Id. § 361.159.2. For tax years 1983-84 through 1988-89

taxes assessed against Arcata under the statute totaled

$127,414.03. Arcata paid these taxes under protest. The

United States reimbursed Arcata as required by Arcata’s

contract. It then sued Nye County to recover the taxes, to

obtain a declaratory judgment that assessment of the

taxes was unconstitutional, and to enjoin further assess-

ment. After a bench trial, the district court entered judg-

ment in favor of the United States. Nye County appeals.

DISCUSSION

The unconstitutionality of Nye County’s tax is best

understood by comparing it to tax measures that have

survived, and those that have perished, in the face of ad

valorem challenges. The survivors have been tax measures

imposed on an isolated possessory interest or on a benefi-

cial use of United States property. The perished have

been tax measures levied on the property itself

Of the survivors, United States v. County of Fresno, 429

U.S. 452, 97 S.Ct. 699, 50 L.Ed.2d 683 (1977), illustrates a

possessory use tax. There, California taxed possessory

App. 14

interests in federally owned housing held by federal for-

est rangers. The Supreme Court refused to invalidate the

tax, holding that, to the extent a state can isolate a private

person’s property interest in property owned by the

United States, the state can tax the interest. Id. at 462, 97

S.Ct. at 704-05.

A beneficial use tax was at issue in United States v.

New Mexico, 455 U.S. 720, 102 S.Ct. 1373, 71 L.Ed.2d 580

(1982). There the Court upheld the tax because it was

measured by the gross receipts of the lessee. The Court

concluded: “In effect, the gross receipts tax operates as a

tax on the sale of goods and services.” Id. at 727, 102 S.Ct.

at 1379. In United States v. City of Detroit, 355 U.S. 466, 78

S.Ct. 474, 2 L.Ed.2d 424 (1958), the amount of the tax was

computed with reference to the value of the United States

property used by the lessee, but because the tax reached

only the lessee’s beneficial use, the tax was upheld. The

Court stated: “A tax for the beneficial use of property, as

distinguished from a tax on the property itself, has long

been a commonplace in this country.” City of Detroit, 355

U.S. at 470, 78 S.Ct. at 476.

Tax measures which have perished under an ad val-

orem challenge are exemplified by United States v. Colo-

rado, 627 F.2d 217 (10th Cir. 1980), summarily aff'd sub nom.

Jefferson County v. United States, 450 U.S. 901, 101 S.Ct.

1335, 67 L.Ed.2d 325 (1981), and United States v. Hawkins

County, 859 F.2d 20 (6th Cir. 1988). In Colorado, the Tenth

Circuit, after stressing that the contractor in the case held

no leasehold interest in the government property, invali-

dated the tax. The tax could not be upheld because “the

State of Colorado [sought] to impose a tax on [the con-

tractor] to be measured by the value of the [United States

App. 15

land]... .” 627 F.2d at 220. Similarly, in Hawkins County,

the Sixth Circuit invalidated a Tennessee tax statute

because it “fairly cannot be said to impose a tax on [the

private entity’s] beneficial use; instead, the statute

describes an ad valorem tax on an interest in real prop-

erty.” Hawkins County, 859 F.2d at 23.

The teaching of the foregoing cases is that the word-

ing of a tax measure is significant. This does not mean we

exalt form over substance. It means that when a statute

says it taxes property it probably does. And when it says

it doesn’t, it probably doesn’t. In County of Fresno, the

Court upheld California’s levy of a tax on the possessory

interest of federal employees. In New Mexico, the Court

upheld New Mexico’s tax on the gross receipts of an

entity that used federal land. In City of Detroit, the Court

upheld a tax on a private entity’s beneficial use of United

States property even though the beneficial use was mea-

sured by the value of the property. In none of these cases

was the property itself the subject of the tax.

In contrast, the Nevada statute under which Nye

County seeks to impose its tax against Arcata taxed the

user “in the same amount and to the same extent as

though the lessee or user were the owner of the prop-

erty.” Nev. Rev. Stat. § 361.159. Here, the property

belongs to the United States. Arcata has no leasehold

interest in it, but merely has the privilege, terminable at

the will of the government, to use the property at the

time and place and in the manner directed by the United

States. Nye County makes no attempt to segregate and

tax any possessory interest Arcata may have in the prop-

erty, or Arcata’s beneficial use of the property. Nye

County simply taxes Arcata as if it were the owner of the

App. 16

property. The tax effectively lays “an ad valorem general

property tax on property owned by the United States.”

Colorado, 627 F.2d at 221. As the Sixth Circuit concluded

in Hawkins County:

Whether or not the Tennessee legislature had in

mind a tax on beneficial use, it unquestionably

did not describe one when it enacted the statute

in question. Since [the contractor] has been

determined not to have a real property interest

in the facility, Tennessee’s attempt to tax [the

contractor] resulted in what was, in reality, a tax

upon the United States itself.

Hawkins County, 859 F.2d at 24.

While Nye County could no doubt enact a statute

taxing a lessee’s possesory interest in, or a user’s benefi-

cial use of, property owned by the United States, the

statute under which it levied taxes against Arcata is not

such a tax measure. The Nye County tax is an ad valorem

tax on property of the United States and as such it is

unconstitutional. The judgment of the district court is

AFFIRMED.

NOONAN, Circuit Judge, dissenting:

The classic case in this area is, of course, McCulloch v.

Maryland, 4 Wheat. 316, 4 L.Ed. 579 (1819). The path from

McCulloch to United States v. New Mexico, 455 U.S. 720, 102

S.Ct. 1373, 71 L.Ed.2d 580 (1982), has been neither

straight nor clear. The precedents have been “confusing”.

Id. at 733, 102 S.Ct. at 1382. The lines drawn were “exces-

sively delicate.” Id. at 730, 102 S.Ct. at 1381. New Mexico

defined the approach that should be taken today to a

state tax on an entity using property of the United States.

App. 17

Less than ten years after New Mexico was decided by a

unanimous Court, however, the present majority embarks

again on the course that New Mexico tried to block of

letting “wooden formalism” determine the great constitu-

tional issue of the allocation of taxing power between the

federal government and the states.

In so many words, the Court in New Mexico declared

that “where a use tax is involved, immunity cannot be

conferred simply because the State is levying the tax on

the use of federal property in private hands.” Id. at 734,

102 S.Ct. at 1383. “In such a situation the contractor’s use

of the property ‘in connection with commercial activities

carried on for profit,’ is ‘a separate and distinct taxable

activity.’ ” Id. at 734-35, 102 S.Ct. at 1382-83, quoting

United States v. Boyd, 378 U.S. 39, 44, 84 S.Ct. 1518,

1521-22, 12 L.Ed.2d 713 (1964). The Court concluded in

New Mexico that “tax immunity is appropriate in only one

circumstance: when the levy falls on the United States

itself, or an agency or instrumentality so closely con-

nected to the Government that the two cannot real-

istically be viewed as separate entities, at least insofar as

the activity being taxed is concerned.” United States v.

New Mexico, 455 U.S. at 735, 102 S.Ct. at 1383.

In the present case the United States argues that the

levy falls on an instrumentality so closely connected to

the Government that the two cannot realistically be

viewed as separate entities. The United States relies

heavily on a dictum in a footnote in United States v.

County of Fresno, 429 U.S. 452, 97 S.Ct. 699, 50 L.Ed.2d 683

(1977). In County of Fresno the Court sustained a Califor-

nia tax on houses rented to Forest Service employees but

stated that it would be different if there was a tax

App. 18

imposed on a Forest Service employee for a fire ax that he

used only in performing his job; in that case the tax

would be on property the employee did not use fer his

“beneficial personal use” and on property that was not

part of his profit or his salary. Id. at 466 n. 15, 97 S.Ct. at

707 n. 15. The United States argues that just as the Forest

Service employee cannot be taxed on his fire ax, even

though by its use he earns his salary, so Arcata cannot be

taxed on the military equipment it uses, although from its

use it derives a profit. What Arcata is doing when it runs

the military games is to act as the United States. Arcata

has, the Government contends, “no beneficial personal

””

use.

Two other courts have reached the same conclusion

as to analogous taxes. See United States v. Colorado, 627

F.2d 217 (10th Cir. 1980), summarily aff'd sub nom.; Jefferson

County v. United States, 450 U.S. 901, 101 S.Ct. 1335, 67

L.Ed.2d 325 (1981); United States v. Hawkins County, 859

F.2d 20 (6th Cir. 1988). In each of these cases the tax

exceeded the profit of the contract. But, the United States

notes, what was decisive for the Tenth Circuit in the

Colorado case was not the amount of the tax but that the

effect of the tax was “to lay an ad valorem general prop-

erty tax on property owned by the United States.” United

States v. Colorado, 627 F.2d at 221. A similar analysis was

followed by the Sixth Circuit. United States v. Hawkins

County, 859 F.2d at 23.

The Government's spirited presentation demon-

strates how old distinctions can be refurbished and con-

fusion engendered despite the bright line laid down by

New Mexico. Rejecting the Government’s argument, |

observe that in New Mexico itself the contractors were

App. 19

managing Government laboratories, which the Govern-

ment could have managed itself but chose not to do so.

The Court observed that the Government “resists using

its own employees for the tasks at hand . . . because it

seeks to tap the expertise of industry.” United States v.

New Mexico, 455 U.S. at 737, 102 S.Ct. at 1384. As a

consequence, the Court observed: “In contrast to federal

employees, Sandia and its fellow contractors cannot be

termed ‘constituent parts’ of the Federal Government.”

Id. at 740, 102 S.Ct. at 1386. No “complete” “congruence

of professional interests” existed between the Govern-

ment and the contractors. Id. The contractors were pri-

vately owned corporations in which the Government had

no ownership interest. Jd. The Government in our case

has pointed to no distinction between Sandia in New

Mexico and Arcata as a privately owned corporation

whose professional interests are not completely congru-

ent with the Government’s.

The Government’s reliance on the illustration of the

Forest Service employee's fire ax is misplaced. The for-

ester carries his ax to carry out a governmental function,

not for commercial profit. In contrast, Arcata conducts

the military games for its own profit. In the terms

expressly used by New Mexico Arcata is engaged in “com-

mercial activity carried on for profit.” Id. 455 U.S. at 733,

102 S.Ct. at 1382. Consequently, Arcata does not enjoy

immunity from Nye County’s tax.

The majority’s acquiescence in the Government's

contentions and its apparently justified reliance on the

Colorado case are undermined by the way the Supreme

Court analyzed that case in New Mexico itself. The Court

said:

App. 20

While a use tax may be valid only to the extent

that it reaches the contractor’s interest in Gov-

ernment-owned property, cf. City of Detroit. v.

Murray Corp., 355 U.S. [489], at 494 [78 S.Ct. 458,

461, 2 L.Ed.2d 441 (1958)]; United States v. Colo-

rado, 627 F.2d 217 (CA10 1980), summarily aff’d

sub nom. Jefferson County v. United States, 450

U.S. 901 [101 S.Ct. 1335, 67 L.Ed.2d 325] (1981),

there has been no suggestion here that the con-

tractors are being taxed beyond the value of

their use.

Id. 455 US. at 741 n. 14, 102 S.Ct. at 1386 n. 14. In short,

the Supreme Court gave a different rationale for United

States v. Colorado from that given by the Tenth Circuit -

the rationale that a tax exceeding the value of the use was

unconstitutional. At the same time the Court charac-

terized the tax at issue as “a use tax,” not an ad valorem

tax on property. The majority offers no reason why

exactly the same analysis should not apply to the entirely

analogous Nevada tax at issue in this case.

The Nevada Property Tax Statute expressly exempts

the property of the United States from taxation.

Nev.R.Stat. § 361.050. No intention on the part of the state

to infringe federal sovereignty and to tax the United

States is present. It is irrelevant that the economic burden

of the tax under these cost-plus contracts falls on the

United States. United States v. New Mexico, 455 U.S. at 734,

102 S.Ct. at 1382-83. It is irrelevant that Arcata, as the

district court found, is “the servant” of the United States.

Id. at 733, 102 S.Ct. at 1382. It is irrelevant that Arcata

owns none of the property used and that the United

States owns all of it. Id. at 738, 102 S.Ct. at 1384-85. The

United States, of course, has a sure remedy for any actual

App. 21

infringement on its sovereignty: Congress can declare the

contractor’s activity exempt. Id. at 744, 102 S.Ct. at 1388.

Once again a litigant is seeking “to establish as a constitu-

tional rule something that it was unable to obtain stat-

utorily from Congress.” Id.

In New Mexico, the Court warned that “an immunity

of constitutional stature” cannot rest “on such technical

considerations” as the way a contract was drawn between

the Government and its contractor. Id. at 737, 102 S.Ct. at

1384. While this caution was expressly directed at con-

tractual technicality, the Court in the same paragraph

warned against “the manipulation and wooden formal-

ism that occasionally have marked tax litigation.” /d. It is

difficult to imagine a more wooden and technical

approach than that taken by the majority in finding con-

stitutional significance in the language used by the state

to describe its tax. I respectfully dissent.

App. 22

APPENDIX D

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

NO. 90-15128

CT/AG#: CV-86-0670-HDM

UNITED STATES OF (Filed

AMERICA Sep. 30, 1991)

Plaintiff-Appellee

v.

NYE COUNTY NEVADA;

BERNIE C. MERLINO,

Nye County Assessor

Defendants-Appellants

APPEAL FROM the United States District Court for

the District of Nevada (Las Vegas).

THIS CAUSE came on to be heard on the Transcript

of the Record from the United States District Court for

the District of Nevada (Las Vegas) and was duly submit-

ted.

ON CONSIDERATION WHEREOF, It is now here

ordered and adjudged by this Court, that the

judgment of the said District Court in this cause be, and

hereby is affirmed.

Filed and entered July 15, 1991

App. 23

APPENDIX E

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF

AMERICA,

No. 90-15128

D.C. No.

CV-86-0670-HDM

ORDER

)

)

Plaintiff-Appellee,

)

NYE COUNTY NEVADA; (Filed Sep. 18, 1991)

)

)

)

)

V.

BERNIE C. MERLINO,

Nye County Assessor,

Defendants-Appellants.

Before: PREGERSON, NOONAN and THOMPSON, Cir-

cuit Judges.

A majority of the panel, as constituted above, has

voted to deny the petition for rehearing and to reject the

suggestion for rehearing en banc.

The full court has been advised of the suggestion for

en banc rehearing and no judge of the court has

requested a vote on the suggestion for rehearing en banc.

Fed. R. App. P. 35(b).

The petition for rehearing is DENIED, and the sug-

gestion for a rehearing en banc is REJECTED.

App. 24

APPENDIX F

I. Article VI, clause 2 of the United States Constitu

tion provides:

This constitution, and the Laws of the United

States which shall be made in Pursuance

thereof; and all Treaties made, or which shall be

made, under Authority of the United States,

shall be the supreme Law of the Land; and the

Judges in every State shall be bound thereby,

anything in the Constitution or Laws of any

State to the Contrary notwithstanding

App. 25

APPENDIX G

Il. Nev. Rev. Stat. § (NRS) 361.159 provides:

361.159 Exempt personal property subject to

taxation if used in business conducted for profit.

1. Personal property exempt from taxation

which is leased, loaned or otherwise made avail-

able to and used by a natural person, association

Or corporation in connection with a business

conducted for profit is subject to taxation in the

same amount and to the same extent as though

the lessee or user were the owner of the prop-

erty, except for personal property used in vend-

ing stands operated by blind persons under the

auspices of the bureau of services to the blind of

the rehabilitation division of the department of

human resources.

2. Taxes must be assessed to lessees or

users of exempt personal property and collected

in the same manner as taxes assessed to owners

of other personal property, except that taxes due

under this section do not become a lien against

the personal property. When due, the taxes con-

Stitute a debt due from the lessee or user to the

county for which the taxes were assessed and if

unpaid are recoverable by the county in the

proper court of the county