Gromer v. Standard Dredging Company/Opinion of the Court
The question in the case is the power of Porto Rico to tax certain machinery and boats which, at the time of the levy of the taxes, were in the harbor of San Juan, engaged in dredging work, in pursuance of a contract of the Standard Dredging Company with the United States government.

The dredging company filed a bill to enjoin the appellant, treasurer of Porto Rico, from enforcing the tax. Appellant demurred to the bill for insufficiency and want of equity, which was overruled. He declined to answer, and the injunction which had been granted was made perpetual. This appeal was then taken.

The material allegations of the bill are as follows:

The dredging company is a Delaware corporation, with its principal office and place of business at the city of Wilmington, state of Delaware. Gromer is treasurer is treasurer of Porto Rico. That theretofore and prior to April 1, 1908, the dredging company entered into a contract with the United States government to dredge certain portions of the harbor of San Juan and the channel leading from the ocean to the harbor area. Prior to that date, for use in connection with its operations under the contract, it brought to the harbor one dredge, one tugboat, two scows for dumping material to be removed, one coal scow, and one launch. The boats and machinery are its property and have been constantly used by it in the performance of its contract, and were not used in connection with any other business or operations, and were at all times within the harbor where the operations under the contract were carried on. The dredging company has neither conducted nor carried on any other business in Porto Rico or the waters adjacent thereto except its operations under the contract.

Gromer, as treasurer of Porto Rico, pretending to act under the revenue laws of Porto Rico, assumed to assess and levy on the said property as of the value of $75,000 a tax of $1,200, for the fiscal year 1908-09, and he and his agents 'have levied an embargo on part of said property . . . and are threatening to foreclose the same and to sell the property for the purpose of enforcing the collection of the said alleged tax.'

The tax is illegal and its enforcement will be illegal by virtue of the laws of the United States and of Porto Rico, and especially by virtue of the acts and proclamations of Congress and of the President of the United States, creating reservations in and about the island of Porto Rico. The insular government of Porto Rico is not authorized to levy or collect any tax in connection with property the situs of which is within the reservation or within any navigable waters of harbor areas of the island of Porto Rico. The property of the company has not been brought within the jurisdiction of the insular government, nor is it subject to taxation while being employed in the performance of the contract with the United States and within the harbor area.

It is alleged that the company is without any remedy at law, and an injunction is therefore prayed.

In support of his demurrer appellant contends that the dredging company had an adequate remedy at law, and that § 12 of the act of the legislative assembly of Porto Rico, approved March 8, 1906, which provides that an 'injunction may be issued to prevent the illegal levying of any tax, duty, or toll, or for the illegal collection thereof, or against any proceeding to enforce such collection . . .' does not apply to the district court of the United States for Porto Rico. We, however, pass the contention, as we prefer to rest our decision on the merits.

The bill of the dredging company, and its contentions here, are based on two propositions: (1) the property was not within the jurisdiction of Porto Rico, but was within the harbor area reserved by the United States; (2) the property was being used 'within the harbor area' in the performance of a contract with the United States, and therefore not subject to taxation for insular purposes.

To sustain the first proposition, § 13 of the Foraker act [31 Stat. at L. 80, chap. 191] is relied on and the act of Congress of July 1, 1902 [32 Stat. at L. 731, chap. 1383].

'That all property which may have been acquired in Porto Rico by the United States under the cession of Spain, in said treaty of peace in any public bridges, road houses, water powers, highways, unnavigable streams and the beds thereof, subterranean waters, mines or minerals under the surface of private lands, and all property which, at the time of the cession, belonged under the laws of Spain then in force to the various harbor works boards of Porto Rico, and of the harbor shores, docks, slips, and reclaimed lands, but not including harbor areas or navigable waters government established by this act, to be administered for the benefit of the people of Porto Rico, and the legislative assembly hereby created shall have authority, subject to the limitations imposed upon all its acts, to legislate with respect to all such matters, as it may deem advisable.' [Italics ours.]

Under the act of Congress of July 1, 1902, a division of the public properties of Porto Rico was made under which the President of the United States was authorized to reserve certain public properties for the use of the Federal government. The properties not reserved were granted to the government of Porto Rico, to be held or disposed of for the use and benefit of the people of the island. The reservations included lands and buildings for army and navy and other Federal governmental purposes. The exception of harbors and navigable streams was as follows:

'And all the public lands and buildings, not including harbor areas and navigable streams and bodies of water, and the submerged lands underlying the same, owned by the United States in said island, and not so reserved,' etc.

Considering these provisions alone it is, we think, manifest that they only provide for proprietary reservations and dispositions, and not for limitations upon the exercise of government. This conclusion is confirmed by § 1 of the Foraker act, which provides that the provisions of the act 'shall apply to the island of Porto Rico and to the adjacent islands and waters of the islands lying east of the seventy-fourth meridian of longitude west of Greenwich, which were ceded to the United States by the government of Spain by treaty entered into on the tenth day of December, eighteen hundred and ninety-eight eight [30 Stat at L. 1754]; and the name Porto Rico, as used in this act, shall be held to include not only the island of that name, but all the adjacent islands, as aforesaid.'

As early as 1901 the control by the government of the United States over Porto Rican waters came up for consideration and was referred by the Secretary of War to the Attorney General for determination. The elements in the question were the river and harbor act of 1899 [30 Stat. at L. 1121, chap. 425] and the act of April 12, 1900, 'temporarily to provide revenues and a civil government for Porto Rico, and for other purposes.' 31 Stat. at L. 77, 80, chap. 191. Section 14 of the latter act provided, with certain exceptions, that the statutory laws of the United States not locally inapplicable should have the same force and effect in Porto Rico as in the United States. Section 13 provided that certain harbor property which, at the time of the cession, belonged, under the laws of Spain, to the various harbor works boards of Porto Rico, 'but not including harbor areas or navigable waters,' should be 'placed under the control of the government established by this act, and to be administered for the benefit of the people of Porto Rico.' The legislative assembly created by the act was given authority 'to legislate with respect to all such matters' as it might deem advisable, and this authority was extended to all matters of a legislative character not locally inapplicable. It was further provided that all laws should be referred to Congress, which reserved the power to annul the same.

The river and harbor act of 1899 (30 Stat. at L. 1151, chap. 425, U.S.C.omp. Stat. 1901, p. 3540), prohibited unauthorized obstructions to navigation in any of the waters of the United States, and provided for control by the Secretary of War of wharves and similar structures in ports and other waters of the United States.

The Attorney General expressed the opinion that under these statutes the coastal waters, harbors, and other navigable waters of the island, were water of the United States, and that a license granted by the Secretary of War to build a wharf in the harbor, given before the ratification of the treaty with Spain, was valid, and that the power under the license to rebuild the wharf, which had been destroyed by fire, continued as against the control of the executive concil of Porto Rico. Commenting on the provisions of the river and harbor act and the acts in regard to Porto Rico, it was said that Congress, since the ratification of the treaty with Spain, has nowhere indicated that Porto Rican waters are not to be regarded as waters of the United States, nor directed that the authority of the Secretary of War, under the river and harbor act of 1899, shall not extend to the Porto Rican waters. 'On the contrary, Congress has used language in the Porto Rican act, as, for instance, in § 13, which clearly contemplates national jurisdiction over those waters as waters of the United States.' 23 Ops. Atty. Gen. 551. In other words, the jurisdiction of the United States over those waters was the jurisdiction that the United States had over all other navigable waters, an exercise of which the river and harbor act was an example.

This is made clear by a subsequent opinion, in which it was declared 'that Congress committed to local control, subject to the expressed limitation upon the local legislative power, the administration of certain public property and utilities, including 'harbor shores, docks, slips, and reclaimed lands,' but excluding 'harbor areas or navigable waters." And, speaking of §§ 12 and 13 of the Porto Rican act of April 12, 1900, it was said that the 'obvious implication' from them is 'that the general government retains title to, possession of, and control over certain other public property, of which fortifications and their appurtenances are specified, and also reserves for its own administration the usual national powers over lights, buoys, and other matters affecting navigation or 'works undertaken by the United States." And it was said, further: 'From all this it is certain that the ordinary national control of the marine belt affects the coastal waters of Porto Rico as well as those of any state or any other territory of the United States.' But as to the 'harbor margins' it was said that 'the government of the United States, by reason of these grants . . . to . . . Porto Rico, is now in the same position with reference to the island government, as well as to private owners, as it would be in a similar case affecting a state of the United States.' 23 Ops. Atty. Gen. 564.

From this principle it was concluded that the United States could not appropriate the islands of Culebra for a naval base, they being within the limits described in § 1 of the act of April 12, 1900. And § 1 of that act is identical with § 1 of the Foraker act, and its provisions for 'harbor areas and navigable waters' are the same as in the Foraker act. The views of the Attorney General, therefore, are expressly applicable, for the language of the act of April 12, 1900, which determined them, was repeated in the Foraker act, which we are now called upon to consider.

The distinction made between local control of property and the exercise of government is a substantial one and is illustrated in cases. Shively v. Bowlby, 152 U.S. 30, 38 L. ed. 342, 14 Sup. Ct. Rep. 548; Thomas v. Gay, 169 U.S. 264, 42 L. ed. 740, 18 Sup. Ct. Rep. 340; Ft. Leavenworth R. Co. v. Lowe, 114 U.S. 525, 542, 29 L. ed. 264, 270, 5 Sup. Ct. Rep. 995; Western U. Teleg. Co. v. Chiles, 214 U.S. 278, 53 L. ed. 997, 29 Sup. Ct. Rep. 613; Reynolds v. People, 1 Colo. 181; Scott v. United States, 1 Wyo. 40; Territory v. Burgess, 8 Mont. 57, 1 L.R.A. 808, 19 Pac. 558.

We have seen that by § 1 of the Foraker act all of its provisions are made applicable to a certain defined area, and that the name Porto Rico 'shall be held to include not only the island of that name, but all adjacent islands and waters, of the islands.' The governmental powers conferred upon Porto Rico must be coextensive with that area, subject to the reservation that all laws passed shall not be in conflict with the laws of the United States, and the power of enacting such laws is conferred upon the legislative assembly. There is precaution against abuse. They must be reported to Congress, which has the power to annul them.

The purpose of the act is to give local self-government, conferring an autonomy similar to that of the states and territories, reserving to the United States rights to the harbor areas and navigable waters for the purpose of exercising the usual national control and jurisdiction over commerce and navigation.

The United States could have reserved government control and exercised it as it does in instances, by the consent of the states, over certain places in the states devoted to the governmental service of the United States. We do not think, as we have said, that the United States has done so, and that it has not is the view of the executive department of the government, as expressed through the Attorney General. The War Department entertained the same view as to military reservations in Porto Rico, and also as to such reservations in the Philippine Islands.

Section 12 of the Philippine act placed all property rights acquired from Spain under the control of the island government for the benefit of its inhabitants, except 'such land or other property as shall be designated by the President of the United States for military and other reservations of the government of the United States.' [32 Stat. at L. 695, chap. 1369.] The extent of the power thus reserved was referred for consideration by the Secretary of War to the Attorney General, and in an opinion written by Solicitor General Hoyt, and approved by Attorney General Moody, it was held that the provisions granted and reserved property, but did not confer governmental jurisdiction. It was said in the course of the opinion, after referring to the provisions of the Philippine act which directed that all laws passed by the Philippine government should be reported to Congress, and the reservation by Congress of the power to annul the same (a similar provision is in the Porto Rico act), that 'the relation of Congress to all territorial legislation is similar [certain organic acts of the States being cited], and thus it may be said that the exercise of local jurisdiction for ordinary municipal purposes over a reservation in a territory is valid until and unless disapproved by Congress.' 26 Ops. Atty. Gen. 91, 97.

There is an allegation in the bill that the property was not 'subject to any lien or burden of taxation while being employed in the performance of its said contract with the United States of America and within the said harbor area.' It is not clear what is meant by the allegation. So far as it means that the property is an instrument of the national government, and not subject, therefore, to local taxation, the contention cannot prevail. Baltimore Shipbuilding & Dry Dock Co. v. Baltimore, 195 U.S. 375, 382, 49 L. ed. 242, 244, 25 Sup. Ct. Rep. 50. Indeed, the contention is a very broad one, and would seem to be independent of the situation of the property, and, if true at all, would apply to property employed in the service of the United States, wherever situated, and no matter to what extent employed. Appellant discusses it somewhat. We shall consider it in the aspect presented by appellee. Counsel say that 'the basic and underlying principle which must control in the determination of the case is as to the extent of the control or jurisdiction of the insular government over the harbor of San Juan; and in this connection, as to whether or not property situated entirely within the harbor area, engaged in operations connected with the lands underlying such harbor area, could receive any benefit from the expenditure from moneys raised by the insular government from taxation.'

There is a confusing mixture of elements. If Porto Rico had jurisdiction over the harbor area, it had jurisdiction to tax property which was situated in the harbor, no matter how engaged; and, being so situated, the validity of the tax upon it cannot be determined by an inquiry of the extent it may be benefited. Thomas v. Gay, 162 U.S. 264, 42 L. ed. 740, 18 Sup. Ct. Rep. 340; Wagoner v. Evans, 170 U.S. 588, 42 L. ed. 1154, 18 Sup. Ct. Rep. 730.

It, however, may be said that the property was only temporarily in the waters of Porto Rico, and that its situs was at the domicil of the dredging company.

The fact is not alleged, and no other fact which removed the property from the application of the rule that tangible personal property is subject to taxation by the state in which it is, no matter where the domicil of the owner may be. Old Dominion S. S.C.o. v. Virginia, 198 U.S. 299, 305, 49 L. ed. 1059, 1062, 25 Sup. Ct. Rep. 686, 3 A. & E. Ann. Cas. 1100.

The allegation is that prior to the 1st of April, 1908, the property was brought to and within the harbor of San Juan. The date is that of the assessment and levy of the tax, but whence the property had been brought, or how long it had been in the harbor before the levy of the tax, is not averred, nor was it necessary for the purpose of the cause of action alleged. There is not an intimation that the property had its situs for taxation elsewhere. The claims of exemption from the tax, and the only claims of exemption, were: (1) That Porto Rico, by virtue of the laws of the United States and of Porto Rico, and especially by virtue of those acts and proclamations of Congress and of the President of the United States creating reservations in and about the island of Porto Rico, was 'not authorized to levy or collect any tax in connection with property the [situs?] of which' was 'within such reservation, or within any navigable waters or harbor areas of the said island of Porto Rico.' (2) That the property was not subject to taxation 'while being employed in the performance of' the dredging company's 'contract with the United States of America and within the said harbor area.'

These allegations are, as we have already seen, the basis of the contentions made and argued by the company. It is true that after discussing them counsel* 'invite the attention of the court' to 'certain other considerations' expressed in the opinion of the court below. To analyze or summarize the opinion would extend our discussion unduly. Elements that are really independent are mingled somewhat, making it difficult to assign the exact strength given to them respectively, but we think the basis of the decision was, as it is of the contentions discussed by counsel for the company, that the property was not subject to the taxing power of Porto Rico because of its situation within the harbor area and because the title to such area had been reserved to the national government,-an untenable position, as we have seen.

Decree reversed, with directions to sustain the demurrer and dismiss the bill.

Mr. Justice Day, with whom concurred Mr. Justice Hughes and Mr. Justice Lamar, dissenting: 

Notes