MR. JUSTICE WHITE delivered the opinion of the Court.
In Carson v. Roane-Anderson Co., 342 U.S. 232, it was held that § 9 (b) of the Atomic Energy Act
Although Carbide exercises considerable managerial discretion from day to day in performing the contract, the Commission retains the right to control, direct and supervise the performance of the work and has issued directions and instructions governing large areas of the operation. Carbide has no investment in the Oak Ridge facility and at the time of this litigation employed some 12,000 employees and supervisors to perform the contract. Its annual fee, renegotiated periodically, was $2,751,000 at the time of suit.
The Ferguson contract was a contract to perform construction services relating both to new facilities and to the modification of the existing plant. The contract called for performing those projects ordered by the Commission. Ferguson also operated under instructions and directions of the AEC, it owned none of the property used in the performance of its contract and its purchases of property were handled in a manner similar to that
Tennessee collected from Carbide and Ferguson a sales and contractor's use tax upon purchases made by them under their contracts with the Commission. The companies and the AEC sued to recover these taxes claiming that their collection infringed upon the implied constitutional immunity of the United States. The Tennessee Supreme Court refused to permit the collection of the sales tax
The United States accepts all this but insists that under the present contracts Carbide's and Ferguson's use of government property is not use by them for their own commercial advantage which the State may tax but a use exclusively for the benefit of the United States. Since they are paid for their services only, make no products for sale to the Government or others, have no investment in the Oak Ridge facility, do not stand to gain or lose by their efficient or nonefficient use of the property, and take no entrepreneurial risks, their use of government property, it is claimed, is in reality use by the United States.
We are not persuaded. In the first place, from the facts in this record it is incredible to conclude that the use of government-owned property was for the sole benefit of the Government. Both companies have a substantial stake in the Oak Ridge operation and a separate
In Muskegon, supra, the Court remarked that "[t]he case might well be different if the Government had reserved such control over the activities and financial gain of Continental that it could properly be called a `servant' of the United States in agency terms." The Government urges that this is such a case. According to the Government this case should be viewed as though the
Because of the extraordinary range and complexity of the work to be performed in the research and development of atomic energy, Congress empowered the AEC to choose between performing these undertakings directly, through its own facilities, personnel and staff, and seeking the assistance of private enterprise by means of grants and contracts. Act of August 30, 1954, c. 1073, 68 Stat. 919, 927-928, 42 U. S. C. §§ 2051 (a), 2052. In order to utilize the skill, technical know-how, knowledge and experience of American industry, the Government has, since the inception of the atomic energy program, generally chosen private companies to conduct the various and sundry activities involved in the undertaking, including the management and operation of Atomic Energy plants. See Carson v. Roane-Anderson Co., supra. As is well stated in the preface to Carbide's contract:
The help of these companies was not sought merely to supply skilled manpower for employment by the United States and it is not argued that Carbide's 12,000 men have somehow become employees of the Commission rather
MR. JUSTICE HARLAN, concurring.
But for the legislative history set out in the Court's opinion, ante, pp. 49-50, notes 8-10, I would have thought this case an appropriate one for a thorough reconsideration of the principles governing federal immunity from state taxation, a subject which has long troubled this Court. See my opinion in the "Michigan cases," 355 U. S., at 505. In view of the legislative history, I concur in the judgment and opinion of the Court.
"Where a contractor or subcontractor hereinafter defined as a dealer, uses tangible personal property in the performance of his contract, or to fulfill contract or subcontract obligations, whether the title to such property be in the contractor, subcontractor, contractee, subcontractee, or any other person, or whether the title holder of such property would be subject to pay the sales or use tax, except where the title holder is a church and the tangible personal property is for church construction, such contractor or subcontractor shall pay a tax at the rate prescribed by § 67-3003 measured by the purchase price or fair market value of such property, whichever is greater, unless such property has been previously subjected to a sales or use tax, and the tax due thereon has been paid.
"Provided, further, that the tax imposed by this section or by any other provision of this chapter, as amended shall have no application with respect to the use by, or the sale to, a contractor or subcontractor of atomic weapon parts, source materials, special nuclear materials and by-product materials, all as defined by the atomic energy act of 1954, or with respect to such other materials as would be excluded from taxation as industrial materials under paragraph (c) 2 of § 67-3002 when the items referred to in this proviso are sold or leased to a contractor or subcontractor for use in, or experimental work in connection with, the manufacturing processes for or on behalf of the atomic energy commission or when any of such items are used by a contractor or subcontractor in such experimental work or manufacturing processes."
"It is understood and agreed that this Order is entered into by the Company for and on behalf of the Government; that title to all supplies furnished hereunder by the Seller shall pass directly from the Seller to the Government, as purchaser, at the point of delivery; that the Company is authorized to and will make payment hereunder from Government funds advanced and agreed to be advanced to it by the Commission, and not from its own assets and administer this Order in other respects for the Commission unless otherwise specifically provided for herein; that administration of this Order may be transferred from the Company to the Commission or its designee, and in case of such transfer and notice thereof to the Seller the Company shall have no further responsibilities hereunder and that nothing herein shall preclude liability of the Government for any payment properly due hereunder if for any reason such payment is not made by the Company from such Government funds."
"Whereas, the Corporation recognizes that attainment of the Commission's over-all objectives and discharge of its responsibility for economy and efficiency in the conduct of the atomic energy program require the Commission's general direction of the program, supervision of Government-financed activities of organizations managing Commission facilities and related functions so as to assure conformity with applicable law and policies of the Commission, and full access to information concerning such activities; and that the Commission's program of administration under the Atomic Energy Act requires integration and coordination of such activities which the various organizations may be in a position to perform, for the utilization of their services and of information, materials, facilities, funds and other property of the Commission, in the manner most advantageous to the Government."
"Reducing the Commission's exemption from State and local taxes to the constitutional immunity generally applicable would result in an increase of several million dollars annually in the costs of the atomic energy program, in the form of added State and local taxes borne by the Federal Government. It is apparent that this consideration should not be regarded as decisive since it is the policy of the Federal Government to forego such savings in connection with other Federal activities, as is evidenced by the fact that other components of the Government are exempt from State and local taxation only to the extent of the constitutional immunity as delimited in the King and Boozer decision. We feel, however, that there are special aspects of the impact of the atomic energy program upon the fiscal position of the affected States and localities which should be taken into account in determining whether the broader tax exemption applicable to AEC should be preserved." Id., at 5.
The Commission went on to note that generally its installations had a favorable economic impact in the areas where they were located and where its contractors performed, although it conceded a few special problems in certain small communities. It recommended direct payments by the Government in lieu of property taxes on property acquired by the Commission and the adjustment of internal state-local arrangements to insure that the distribution of revenues would take into account the problems of these special locales. It then added:
"Eliminating the exemption applicable to sales and use taxes, to business and occupation taxes, and to the other minor taxes now comprehended by section 9 (b) might not modify the revenues of the few localities burdened by Commission activities . . . ." Id., at 5-6. (Emphasis supplied.)
"The United States Supreme Court in Carson v. Roane-Anderson Co. (342 U.S. 232 (1952)) interpreted the last sentence of the foregoing subsection as exempting transactions involving certain AEC contractors from the Tennessee sales and use taxes. The Court held that `activities' of the Commission, as that term is used in section 9 (b), may be performed by independent contractors of the Commission, as well as by its agents, and that, as a consequence, private contractors performing the governmental function under the Atomic Energy Act are within the scope of the section 9 (b) exemption from State and local taxation.
"This decision has the effect of affording the Atomic Energy Commission an exemption from State and local taxation much broader in scope than that available to the other departments and agencies of the Federal Government, which rely only upon the constitutional immunity of the Federal Government for their exemption from taxation. The Supreme Court, in Alabama v. King and Boozer (314 U.S. 1), established the principle that the constitutional immunity does not extend to cost-plus-fixed-fee contractors of the Federal Government, but is limited to taxes imposed directly upon the United States. Thus, the Atomic Energy Commission's contractors, by reason of the statutory exemption as interpreted by the Supreme Court, are entitled to an exemption from taxation which is not enjoyed by comparably situated contractors of other agencies and departments.
"A number of States have expressed the view that section 9 (b), as interpreted in the Roane-Anderson decision carves out an area of exemption from State and local taxation which deprives State and local governmental units of substantial revenue, particularly in those areas in which the Atomic Energy Commission carries on large scale activities." S. Rep. No. 694, 83d Cong., 1st Sess., 2.