MR. JUSTICE REED delivered the opinion of the Court.
This appeal brings here the legality of the application of the Arkansas Gross Receipts Tax Law of 1941, Ark. Stat., 1947, § 84-1901 et seq., to a transaction by which certain private contractors engaged in a joint venture, abbreviated WHMS, procured in Arkansas two diesel tractors costing $17,146, for use in the construction there for the United States of a naval ammunition depot estimated to cost over thirty million dollars. The tractors were procured from Kern-Limerick, Inc., a local dealer. The circumstances of the transaction would concededly make Kern-Limerick liable for the tax if the real purchaser were not the United States.
The applicable sections of the Gross Receipts Tax Law levy an "excise tax of two [2%] per centum upon the gross proceeds or gross receipts derived from all sales to any person." § 84-1903. This is a sales tax, not a use tax.
The construction contract had, so far as pertinent here, the provisions as to "Materials—Purchases" which are set out in the margin.
Kern-Limerick, Inc., the seller, upon demand by the Commissioner paid under protest the amount of the sales tax and brought this action for a refund in accordance with state law. The United States intervened, as under the contract any state taxes the contractor was required to pay were reimbursable to it by the Government. The Supreme Court of Arkansas held WHMS was the purchaser and the claimed tax payable by Kern-Limerick as the "seller." It denied the contention of the United States that the Government was the purchaser. It held that the Armed Services Procurement Act authorized the Navy Department "to purchase . . . supplies or services for its own use," but did not authorize the Department "to buy nails, lumber, cement, tractors, etc., which were not to be used by the Navy but by WHMS [in this instance] to construct, as independent contractors, the Ammunition Dump." The state court further held that, even if the Department had the authority to buy the tractors, it could not, under the Procurement Act of 1947, delegate this power to WHMS. 221 Ark. 439, 254 S.W.2d 454.
Appellants seek reversal of the decision on the grounds that the Procurement Act authorizes this contract and
The state court's interpretation of the Procurement Act to deny the Navy authority to buy supplies or equipment for the construction of an ammunition dump is, we think, too restrictive. The Act gives broad powers to the Armed Services for obtaining as cheaply and promptly as possible "purchases and contracts for supplies or services . . . for the use of any such agency or otherwise," § 2 (a), and provides:
We hold that the Act allows the purchase of this machinery.
It seems to us, also, that under the Procurement Act the Armed Services may use agents, other than its own official personnel, to handle for it the detail of purchase. The contention of Arkansas which was accepted by its
Arkansas calls attention to the restrictions on delegation in § 7 (b) upon which the state court commented. But the provisions of § 7 (b), as the words show, do not
The Government asserts that §§ 4 (a) and (b) authorize this contract. Under them, negotiated contracts such as this "may be of any type which . . . will promote the best interests of the Government." Under such a provision, it seems that the determination to use purchasing agents is permissible. Where there is no prohibition of a particular type of contract and no direction to use a particular type, the contracting officers are free to follow business practices.
With this determination that the provisions of the contract are within the authority of the Procurement Act, we turn to examine the validity of the argument that the naming of the Government as purchaser was only colorable and left the contractor the real purchaser and the transaction subject to the Arkansas tax. Alabama v. King & Boozer, 314 U.S. 1, is relied upon primarily. We consider this argument under the assumption, made by the Supreme Court of Arkansas, that the contract was designed to avoid the necessity in this cost-plus contract of the ultimate payment of a state tax by the United States.
We are mindful, too, of the careful attention Congress has given in recent years to a proper adjustment of tax liabilities between the federal and the state sovereignties. Congress has been solicitous to see that states and their subdivisions are not unduly burdened by federal acquisition
A phase of the question reserved in the Dravo case came up in Alabama v. King & Boozer, 314 U.S. 1. We declared that federal sovereignty "does not spell immunity from paying the added costs, attributable to the taxation of those who furnish supplies to the Government and who have been granted no tax immunity." Id., at 9. That case involved the usual type sales tax on the seller, collectible by him from the buyer. There was there, too, a cost-plus-a-fixed-fee contract with the United States. We held the state tax collectible from the sellers, notwithstanding the Government bore the economic burden. A few excerpts will make clear the purport of the ruling:
The contract here in issue differs in form but not in economic effect on the United States. The Nation bears the burden of the Arkansas tax as it did that of Alabama. The significant difference lies in this. Both the request for bids and the purchase order, in accordance with the contract arrangements making the contractors purchasing agents for the Government, note 2, supra, contain this identical, specific provision:
The purchase order is headed Navy Department Bureau of Yards and Docks, is signed by the contractor as purchasing agent, and requires the seller to make this certification on the claim for payment:
The stipulation of facts shows in detail the course of business under this contract in the purchase of supplies and the form of this purchase. Both conform to the language of the contract in requiring specific Government approval to the purchasing agent for each request for bid and each purchase. Under these circumstances, it is clear
A comment should be made about another excerpt from King & Boozer. It was referred to in the Arkansas opinion as though it were effective for the determination of this case. The quotation is this:
Read literally, one might conclude this Court was saying that a state court might interpret its tax statute so as to throw tax liability where it chose, even though it arbitrarily eliminated an exempt sovereign. Such a conclusion as to the meaning of the quoted words would deny the long course of judicial construction which establishes as a principle that the duty rests on this Court to decide for itself facts or constructions upon which federal constitutional issues rest.
We find that the purchaser under this contract was the United States. Thus, King & Boozer is not controlling for, though the Government also bore the economic burden of the state tax in that case, the legal incidence of that tax was held to fall on the independent contractor and not upon the United States.
Nor do we think that the drafting of the contract by the Navy Department to conserve Government funds, if that was the purpose, changes the character of the transaction. As we have indicated, the intergovernmental submission to taxation is primarily a problem of finance and legislation. But since purchases by independent contractors of supplies for Government construction or other activities do not have federal immunity from taxation, the form of contracts, when governmental
MR. JUSTICE BLACK, with whom THE CHIEF JUSTICE and MR. JUSTICE DOUGLAS concur, dissenting.
The Court holds that Government purchasing agents can delegate to their subordinates authority to delegate to private persons power to buy goods for the Government and pledge its credit to pay for them. Alabama v. King & Boozer, 314 U.S. 1, 13, rejected a similar contention. The Court points to no statute which either expressly or by fair implication grants any such broad delegation authority to Government agents.
Experiences through the years have caused Congress to hedge in Government purchases by many detailed safeguards such as competitive bidding after public advertising.
I think the Supreme Court of Arkansas was right in sustaining the State's tax on authority of Alabama v. King & Boozer, supra. The Court in effect overrules that case. In doing so it moves back in the direction of discredited tax immunities like that sustained in the case of Gillespie v. Oklahoma, 257 U.S. 501, later disapproved. I would not do that, but would sustain application of this Arkansas tax to purchases of the cost-plus-a-fixed-fee contractor and affirm the State Supreme Court's judgment.
MR. JUSTICE DOUGLAS, with whom THE CHIEF JUSTICE and MR. JUSTICE BLACK join, dissenting.
The Arkansas Gross Receipts Tax is laid, as the majority opinion points out, on the gross receipts from all sales to any person. Ark. Stat., 1947, § 84-1903. The Act, however, spells out the incidence of the tax in detail. "Sales of service and tangible personal property including materials, supplies and equipment made to contractors who use same in the performance of any contract are hereby declared to be sales to consumers or users and not sales for resale." § 84-1903 (e). "The term `consumer' or `user' means the person to whom the taxable sale is made . . . . All contractors are deemed to be consumers or users of all tangible personal property including materials, supplies and equipment used or consumed by them in performing any contract and the sales
On the basis of this statutory language the Supreme Court of Arkansas held that the contractor was the "purchaser" of the tractors and that the sale involved was taxable. It seems clear that, as a matter of state law, the contractor was the "consumer" and "user" of these tractors, whether or not the contractor would have been a purchaser in the common-law view. Of course Arkansas could not impose its tax on the contractor in such a way as to discriminate against the United States. But that has not been attempted here.
What Arkansas has done is to define an independent contractor as the "consumer" or "purchaser" of tractors which the contractor uses. Obviously the contractor could be made liable for the tax, if its contract were with a private corporation rather than with the Federal Government. Arkansas has not tried to collect the tax from the United States, and it clearly could not do so. See Mayo v. United States, 319 U.S. 441. Arkansas has collected the tax from the "purchaser" as that word is defined by the taxing statute. That is where the legal incidence of the tax falls. If the economic burden of the tax falls on the Federal Government, it falls there because the Government assumed it by contract, not because Arkansas placed it there. See Curry v. United States, 314 U.S. 14, 18.
The constitutional problem, of course, is to determine whether the legal incidence of a tax will be disregarded because the economic burden of the tax is on the United States. When Congress has not spoken, that determination must be made by the Court.
In Alabama v. King & Boozer, 314 U.S. 1, we allowed a sales tax to be exacted from an independent contractor acting for the Government on a cost-plus-a-fixed-fee basis. That tax was measured by the value of lumber
In that case, however, the Supreme Court of Alabama had held the transaction immune from the tax. There was no authoritative state determination of the legal incidence of the tax. The Court therefore assumed, 314 U. S., at 10, that the tax fell on the "purchaser" of the lumber in the common-law sense. The Court then went on to show, in answer to the same arguments which the Government has made in this case, that the United States was not a purchaser of the lumber even under common-law rules. It is this segment of the opinion which the Court now uses practically to overrule the decision itself. No doubt the United States was, under some of the language used in King & Boozer, the "purchaser" of these two tractors. But the United States is not the "purchaser" under the language used in the Arkansas statute, and it is the Arkansas statute that controls this case. What was important in King & Boozer was the substance of the transaction and the nature of the economic burden on the United States. On these two paramount issues it is impossible to distinguish the present case.
The concepts "title," "agency," and "obligation to pay" are no basis for this constitutional adjudication. Today they are used to permit any government functionary to draw the constitutional line by changing a few words in a contract. When the Congress deliberates over this
Alabama v. King & Boozer and the cases it followed
"(b) Title to all such materials, articles, supplies and equipment, the cost of which is reimbursable to the Contractor hereunder, shall pass directly from the vendor to the Government without vesting in the Contractor, and such title (except as to property to which the Government has obtained title at an earlier date) shall vest in the Government at the time payment is made therefor by the Government or by the Contractor or upon delivery thereof to the Government or the Contractor, whichever of said events shall first occur. This provision for passage of title shall not relieve the Contractor of any of its duties or obligations under this contract or constitute any waiver of the Government's right to absolute fulfillment of all of the terms hereof.
"(c) No purchase in excess of $500 shall be made hereunder without the prior written approval of the Officer-in-Charge, except that the Officer-in-Charge may, in his discretion, either reduce the limitation on the amount of any purchase which may be made without such prior approval or authorize the Contractor to make purchases in amounts not in excess of $2500 for any one purchase without obtaining such prior approval."
These provisions were also applicable to subcontractors.
"All purchases and contracts for supplies and services shall be made by advertising, as provided in section 3, except that such purchases and contracts may be negotiated by the agency head without advertising if—
"(10) for supplies or services for which it is impracticable to secure competition; . . . ."
Section 4 (b) prohibits use of cost-plus-a-percentage-of-cost contracts and prescribes other operative limitations not pertinent here. All provisions required by those sections were included in the contract.
"To make it clear that the bill relates to all procurement by the services, except purchases with nonappropriated funds, subsection (b) of this section defines `supplies' to include all property except land, and shall include, but without limitation, public works, buildings, facilities, ships, floating equipment, and vessels of every character, type and description, aircraft, parts, accessories, equipment, machine tools, and alteration or installation thereof. These are really examples and this section is to be construed in the broadest manner possible."
The corresponding House Report, No. 109, p. 23, omitted only the last sentence.
"(b) The power of the agency head to make the determinations or decisions specified in paragraphs (12), (13), (14), (15), and (16) of section 2 (c) and in section 5 (a) shall not be delegable, and the power to make the determinations or decisions specified in paragraph (11) of section 2 (c) shall be delegable only to a chief officer responsible for procurement and only with respect to contracts which will not require the expenditure of more than $25,000."
Appellee also refers to § 10. As that provides only for interservice procurement, we do not think it pertinent.
This principle covers the question of who is the "purchaser." S. R. A., Inc. v. Minnesota, 327 U.S. 558, 564; Metropolitan Bank v. United States, 323 U.S. 454, 456; Standard Oil Co. v. Johnson, 316 U.S. 481, 483.