## Facts

- A federal government corporation, acting through its subsidiary, owned land and built and equipped a war-production plant in Beaver County, Pennsylvania, then leased the facility to a private aircraft-propeller manufacturer.
- The equipment included heavy machinery, much of it resting by its own weight; other items were attached by removable bolts or screws and were movable within the plant.
- The lease stated that the machinery would remain personal property even if attached to the realty.
- A federal statute exempted the corporation and its subsidiaries from state and local taxes on, among other things, personal property, but provided that their “real property” would be subject to state and local taxation “to the same extent according to its value as other real property is taxed.”
- Beaver County assessed a real-property tax on the plant machinery, treating it as part of the real estate under Pennsylvania’s settled tax rule that essential manufacturing machinery is taxable as real estate.
- The Supreme Court of Pennsylvania upheld the assessment; the federal corporation challenged the tax as inconsistent with the federal exemption for personal property.

## Issues

1. Whether state and local taxation of the machinery as “real property,” based on Pennsylvania’s property-tax classification, conflicts with the federal statute exempting the federal corporation’s personal property but consenting to taxation of its real property.
2. Whether, in applying the federal statute’s term “real property,” the federal court should accept Pennsylvania’s settled classification of essential plant machinery as real estate for tax purposes.

## Decision

- The Supreme Court affirmed the judgment sustaining the tax.
- The Court accepted the Pennsylvania Supreme Court’s interpretation of Pennsylvania tax law as to how the state classifies the machinery for local property-tax purposes.
- The Court held that using Pennsylvania’s settled rule to treat the machinery as real property did not conflict with the federal statute’s use of “real property.”
- The Court found no discrimination against the federal government and no interference with Congress’s program from permitting taxation under generally applicable state rules.

## Legal Principles

- When Congress consents to state taxation of a federal instrumentality’s “real property” to the same extent as other real property is taxed, Congress may be understood to incorporate settled, nondiscriminatory state property-tax classifications to determine what counts as “real property,” absent a conflicting federal purpose.
- A state court’s authoritative construction of its own tax law is binding as to state-law meaning; however, state definitions cannot control if they conflict with the scope of the federal statutory term.
- Federal consent to taxation of “real property” may be implemented through local assessment and collection systems, even if that results in nonuniform treatment among states and localities.
- Nondiscriminatory state rules of general application that classify essential manufacturing machinery as real estate for tax purposes may be applied to federally owned property where consistent with the federal statute’s terms.

## Conclusion

The Court upheld Beaver County’s real-property tax on machinery in a federally owned, leased war-production plant, concluding that Congress’s consent to tax federal “real property” permits use of Pennsylvania’s settled, nondiscriminatory rule treating essential plant machinery as taxable real estate.


Reconstruction Fin. Corp. v. Beaver Cnty., 328 U.S. 204 (1946)