The Board of County Commissioners of Meade County (County)
appeals from the order of the Shawnee County District Court
granting the Small Business Administration (SBA) relief from real
The County does not challenge the facts found by the trial
court. In a journal entry filed September 29, 1989, the court
stated the facts as follows:
"This case represents an appeal by the Small
Business Administration, an agency of the United
States, from orders on rehearing made by the Board of
Tax Appeals of the State of Kansas. The orders of the
Board modified its original order granting exemption
from, and refund of, certain real estate taxes paid
on certain real property held by the Small Business
Administration in Meade County, Kansas, from the date
of November 12, 1985, to an effective date of
November 12, 1986, as requested on original rehearing
by Meade County. No one disputes that the Small
Business Administration, as an agency of the United
States government, is entitled to an exemption from
taxation at least from and after November 12, 1986.
"The real estate in question consisted of
approximately 156.6 acres. The Small Business
Administration held a second mortgage which was
foreclosed along with a first mortgage in favor of
Travelers Insurance Company by a judgment of the
Meade County District Court under date of October 1,
1985, on this parcel and other parcels of which the
debtors, Robert C. and Wilma F. Norsworthy, had given
mortgages to Travelers Insurance Company among
others. The priority of the liens among the
mortgagees is not an issue here. A personal judgment
on the Small Business Administration's claim in the
amount of $60,371.28 as of October 1, 1985, with
interest thereafter, was entered against the
Norsworthys and foreclosure of the subject realty
decreed with the proceeds of the sale of this
particular tract to be first applied to the costs of
the action and sale, then to payment of taxes and tax
liens, if any, then to the judgment of Travelers
Insurance Company, then to the judgment of the Small
Business Administration, and then others, junior, so
enumerated. The period of redemption in the
Norsworthys was fixed at 12 months per the governing
statute. An order of sale was duly issued October 14,
1985, notice of sale was duly 5 given for November
1985, and on that date the property was sold to the
Small Business Administration on its bid of $75,000
which sale was confirmed by order of the Court under
the date of November 22, 1985, directing that a
certificate of purchase be issued for such sale.
Subsequently, the Norsworthys remained in possession
during the period of redemption, but did not redeem
and on November 12, 1986, a Sheriff's Deed was issued
to the Small Business Administration and possession
assumed by the Small Business Administration."
The district court held SBA to be immune from payment of the
taxes which accrued during the redemption period.
The issue presented in this case is whether an agency of the
United States, which bids in and acquires a certificate of
purchase from the sheriff in a mortgage foreclosure action, is
liable for taxes accruing on the real estate during the
redemption period and before the agency receives the sheriff's
There is no dispute in this case as to the County's authority
to impose a tax directly on the United States or any agency or
instrumentality thereof. A state may not, consistent with the
Supremacy Clause, United States Const., art. VI, cl. 2, lay a tax
"directly upon the United States." Mayo v. United States,
319 U.S. 441, 447, 87 L.Ed. 1504, 63 S.Ct. 1137 (1943). This
prohibition applies to ad valorem taxes imposed by a state or
county on real estate owned by the United States. Clallam County
v. United States, 263 U.S. 341, 68 L.Ed. 328, 44 S.Ct. 121
(1923). Kansas law also recognizes the prohibition. K.S.A.
79-201a exempts "[a]ll property belonging exclusively to the
United States, except property which congress has expressly
declared to be subject to state and local taxation," from all
property or ad valorem taxes.
SBA is an agency of the United States and operates under the
general direction and control of the President. 15 U.S.C. § 633
(1988). It is an integral part of the government mechanism, not
merely a separate legal entity. Small Business Adm'n v.
McClellan, 364 U.S. 446, 450, 5 L.Ed.2d 200, 81 S.Ct. 191
(1960). Absent a waiver, SBA stands in the shoes of the United
States and is entitled to the same exemption from state and local
taxation as is the United States. United States v. City of
Roanoke, 258 F. Supp. 415 (W.D. Va. 1966).
In United States v. New Mexico, 455 U.S. 720, 71 L.Ed.2d 580,
102 S.Ct. 1373 (1982), the Court recognized the difficulty
that the immunity issue has given the courts> through the years.
The Court said:
"With the famous declaration that `the power to tax
involves the power to destroy,' McCulloch v.
Maryland, 4 Wheat. [U.S.] 316, 431 (1819), Chief
Justice Marshall announced for the Court the doctrine
of federal immunity from state taxation. In so doing
he introduced the Court to what has become a `much
litigated and often confused field,' United States
v. City of Detroit, 355 U.S. 466, 473 (1958), one
that has been marked from the beginning by
inconsistent decisions and excessively delicate
distinctions." 455 U.S. at 730.
In determining whether a federal agency is immune from state or
local taxes, the deciding factor is not whether the tax has an
effect on the United States but whether the tax is imposed
directly on property owned by the United States. The Court in
United States v. New Mexico expressed that view as follows:
"We have concluded that the confusing nature of our
precedents counsels a return to the underlying
constitutional principle. The one constant here, of
course, is simple enough to express: a State may not,
consistent with the Supremacy Clause, U.S. Const.,
Art. VI, cl. 2, lay a tax `directly upon the United
States.' . . .
"But the limits on the immunity doctrine are, for
present purposes, as significant as the rule itself.
Thus, immunity may not be conferred simply because
the tax has an effect on the United States, or even
because the Federal Government shoulders the entire
economic burden of the levy." 455 U.S. at 733-34.
Unquestionably, property owned absolutely in fee simple by the
SBA is immune from state or local taxation. United States v.
Roanoke, 258 F. Supp. 415. For the purpose of immunity, it is
not necessary that the federal agency be in possession of the
property. Thus, it has been held that both the federal government
and its bailee were immune from taxation of machinery owned by
the government. United States v. Allegheny County, 322 U.S. 174
189, 88 L.Ed. 1209, 64 S.Ct. 908 (1944). Although it is not
necessary for the federal agency to have legal title to the
property, immunity must rest on sufficient ownership that it can
be said the property was "owned" by the United States. Rohr
Corp. v. San Diego County, 362 U.S. 628
, 4 L.Ed.2d 1002, 80
S.Ct. 1050 (1960). There, property owned by the Reconstruction
Finance Corporation was declared to be surplus property and the
War Assets Administration took possession of the property
for purposes of management and disposition. Even though the
property was still titled in the Reconstruction Finance
Corporation, the Court held:
"[T]he general rule is `that lands owned by the
United States of America or its instrumentalities are
immune from state and local taxation.' We think the
land here was `owned' by the United States.
". . . We believe that the appropriate test would
turn on practical ownership of the property rather
than the naked legal title." 362 U.S. at 634.
Did the SBA in the instant case acquire sufficient ownership in
the property, as a result of being the successful bidder at the
sheriff's sale, to justify a finding that it "owned" the property
during the redemption period? The answer requires a ...