1. A State cannot lay a gross receipts tax on business carried
on in another State. P.
302 U. S.
138.
2. A State has no power to tax in a place within the State over
which the United States has acquired exclusive jurisdiction. P.
302 U. S.
140.
3. The title to beds of navigable streams within a State is
vested in the State, subject to the right of the United States to
use the land for the improvement of navigation. P.
302 U. S.
140.
Occupation of the river bed by the United States for the purpose
of improving navigation does not divest the State of its title.
4. Locks and dams erected by the United States for the
improvement of navigation are "needful buildings" within the
meaning of the Const., Art. I, § 8, Cl. 17. P.
302 U. S.
141.
Clause 17 provides that Congress shall have power "to exercise
exclusive legislation" over
"all places purchased by the consent of the legislature of the
State in which the same shall be, for the erection of forts,
magazines, arsenals, dock-yards, and other needful buildings."
"Exclusive legislation" is consistent only with exclusive
jurisdiction.
Page 302 U. S. 135
5. West Va.Code of 1931, Art. 1, Ch. 1, § 3, gives the consent
of the State to acquisition by the United States of land within the
State for locks, dams, needful buildings, works for improvement of
the navigation of any water course, or for any other purpose for
which the same may be required by the Government of the United
States; authorizes gifts of land to the United States by
municipalities for such described purposes; cedes to the United
States "concurrent jurisdiction with this State in and over any
land so acquired . . . for all purposes;" provides that the
jurisdiction so ceded is to continue only during the ownership of
the United States and is to cease if the United States fails for
five consecutive years to use any such land for the purposes of the
grant, and reserves to the State the right to execute process
within the limits of the land acquired
"and such other jurisdiction and authority over the same as is
not inconsistent with the jurisdiction ceded to the United States
by virtue of such acquisition."
Held:
(1) The provision as to concurrent jurisdiction qualifies the
provision giving consent, and applies to lands acquired by purchase
or condemnation, as well as to lands given by municipalities. P.
302 U. S.
143.
(2) The provision reserving merely the right to execute process,
repeated from an earlier statute, does not derogate from the
broader reservation of jurisdiction in the statute as amended. P.
302 U. S.
145.
6. When a State gives the legislative consent as contemplated by
the Const., Art. I, § 8, Cl. 17, to purchase of land by the United
States for "needful buildings," as when, after prior purchase or
condemnation by the United States, it cedes jurisdiction, it may
reserve such a concurrent jurisdiction as will not operate to
deprive the United States of the enjoyment of the property for the
purposes for which it is acquired. P.
302 U. S.
146.
West Virginia, by a reservation qualifying her consent to their
acquisition, retained her jurisdiction to tax over lands purchased
or condemned by the United States for navigation improvements on a
river.
7. An independent contractor engaged under his contract with the
Government in the construction of locks and dams for the
improvement of navigation is not an instrumentality of the
Government. P.
302 U. S.
149.
8. As applied to such a contractor, a nondiscriminatory state
tax on his gross receipts under the contract is not
unconstitutional as a
Page 302 U. S. 136
tax laid on the contract itself, or as otherwise directly
burdening the Government. P.
302 U. S.
149.
9. Application of the principle that governmental
instrumentalities of the United States are immune from taxation by
the States, and vice-versa, requires close distinctions in order to
maintain the essential freedom of government in performing its
functions without unduly limiting the taxing power which is equally
essential to both Nation and State under our dual system. P.
302 U. S.
150.
Decisions on immunity of government bonds and of government
purchases of commodities
held inapplicable in case of tax
on earnings of independent contractor rendering services to the
Government. Pp.
302 U. S.
150-153.
10. The question of the taxability of a contractor upon the
fruits of his services to the Government is closely analogous to
that of the taxability of his property used in performing the
services. His earnings flow from his work; his property is employed
in securing them. In both cases, the taxes increase the cost of the
work, and diminish his profits. P.
302 U. S.
153.
11. The fact that the tax in this case was on gross, rather than
net, receipts does not prove it an unconstitutional burden on the
Government. P.
302 U. S.
157.
Distinguished from cases where taxes on gross receipts of
individuals engaged in interstate commerce have been held invalid
under the commerce clause.
12. Assuming (what is not necessarily so) that a state tax on
contractor's gross receipts may increase cost of service to the
Government, that fact would not invalidate the tax any more than it
would a tax on the contractor's property equipment used in the
performance of the contract. P.
302 U. S.
159.
13.
Semble that Congress has power to prevent
interference with the operations of the Government through state
taxation laid on receipts of those who render it services under
contracts. P.
302 U. S.
160.
16 F. Supp. 527 reversed.
Appeal from a final decree of the three-judge District Court
enjoining the collection of a State tax.
Page 302 U. S. 137
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
This case presents the question of the constitutional validity
of a tax imposed by the State of West Virginia upon the gross
receipts of respondent under contracts with the United States.
Respondent, the Dravo Contracting Company, is a Pennsylvania
corporation engaged in the general contracting business, with its
principal office and plant at Pittsburgh in that state, and is
admitted to do business in the state of West Virginia. In the years
1932 and 1933, respondent entered into four contracts with the
United States for the construction of locks and dams in the Kanawha
river and locks in the Ohio river, both navigable streams.
[
Footnote 1] The State Tax
Commissioner assessed respondent for the years 1933 and 1934 in the
sum of $135,761.51 (taxes and penalties) upon the gross amounts
received from the United States under these contracts.
Respondent brought suit in the District Court of the United
States for the Southern District of West Virginia
Page 302 U. S. 138
to restrain the collection of the tax. The case was heard by
three judges (28 U.S.C. § 380), and, upon findings, the court
entered a final decree granting a permanent injunction. 16 F. Supp.
527. The case comes here on appeal.
The statute is known as the Gross Sales and Income Tax Law.Code
of West Virginia 1931, c. 11, art. 13, § 1
et seq.,
amended effective May 26, 1933. Acts 1933, 1st Ex.Sess., c. 33. It
provides for "annual privilege taxes" on account of "business and
other activities." The clause in question here is as follows:
"Upon every person engaging or continuing within this state in
the business of contracting, the tax shall be equal to two percent
of the gross income of the business. [
Footnote 2]"
Acts W.Va.1933, 1st Ex.Sess., c. 33, § 2(e).
The tax was in addition to other state taxes upon respondent,
to-wit, the license tax on foreign corporations (Code of West
Virginia, c. 11, art. 12, §§ 69, 71) and
ad valorem taxes
upon real and personal property of the contractor within the
state.
The questions presented are: (1) whether the state had
territorial jurisdiction to impose the tax, and (2) whether the tax
was invalid as laying a burden upon the operations of the federal
government.
After hearing, we directed reargument and requested the Attorney
General of the United States to present the views of the government
upon the two questions above stated. Reargument has been had, and
the government has been heard.
First. As to territorial jurisdiction. Unless the
activities which are the subject of the tax were carried on within
the territorial limits of West Virginia, the state had no
jurisdiction to impose the tax.
Hans Rees' Sons v. North
Carolina, 283 U. S. 123,
283 U. S.
133-134;
Shaffer v.
Page 302 U. S. 139
Carter, 252 U. S. 37,
252 U. S. 57;
Surplus Trading Co. v. Cook, 281 U.
S. 647. The question has two aspects: (1) as to work
alleged to have been done outside the exterior limits of West
Virginia, and (2) as to work done within those limits, but (a) in
the bed of the rivers, (b) on property acquired by the federal
government on the banks of the rivers, and (c) on property leased
by respondent and used for the accommodation of his equipment.
1. A large part of respondent's work was performed at its plant
at Pittsburgh. The stipulation of facts shows that respondent
purchased outside the State of West Virginia materials used in the
manufacture of the roller gates, lock gates, cranes, substructure
racks and spur rims, structural steel, patterns, hoisting mechanism
and equipment, under each of its contracts, and fabricated the same
at its Pittsburgh plant. The roller gates and the appurtenant
equipment were pre-assembled at respondent's shops at Pittsburgh,
and were there inspected and tested by officers of the United
States government. The materials and equipment fabricated at
Pittsburgh were there stored until time for delivery, and the
appropriate units, as prepared for shipment, were then transported
by respondent to the designated sites in West Virginia, and there
installed. The United States knew at the time the contracts were
made that the above-described work was to be performed at the
plaintiff's main plant. The contracts provided for partial payments
as the work progressed, and that all the material and work covered
by the partial payments should thereupon become "the sole property
of the government." Payments by the government were made from time
to time accordingly.
It is clear that West Virginia had no jurisdiction to lay a tax
upon respondent with respect to this work done in Pennsylvania. As
to the material and equipment there fabricated, the business and
activities of respondent
Page 302 U. S. 140
in West Virginia consisted of the installation at the respective
sites within that state, and an apportionment would, in any event,
be necessary to limit the tax accordingly.
Hans Rees' Sons v.
North Carolina, supra.
2. As to work done within the exterior limits of West Virginia,
the question is whether the United States has acquired exclusive
jurisdiction over the respective sites. Wherever the United States
has such jurisdiction, the state would have no authority to lay the
tax.
Surplus Trading Company v. Cook, supra.
(a)
As to the beds of the Kanawha and Ohio rivers. The
present question is not one of the paramount authority of the
Federal Government to have the work performed for purposes within
the federal province (
Scranton v. Wheeler, 179 U.
S. 141,
179 U. S. 163;
United States v. Chandler-Dunbar Water Power Co.,
229 U. S. 53,
229 U. S. 61-62;
Lewis Blue Point Oyster Co. v. Briggs, 229 U. S.
82,
229 U. S. 88),
or whether the tax lays a burden upon governmental operations; it
is simply one of territorial jurisdiction.
The title to the beds of the rivers was in the state.
Pollard v.
Hagan, 3 How. 212,
44 U. S. 230;
Shively v. Bowlby, 152 U. S. 1,
152 U. S. 26;
Port of Seattle v. Oregon-Washington R. Co., 255 U. S.
56,
255 U. S. 63;
Borax Consolidated v. Los Angeles, 296 U. S.
10,
296 U. S. 15-16.
It was subject to the power of Congress to use the lands under the
streams "for any structure which the interest of navigation, in its
judgment, may require."
Lewis Blue Point Oyster Co. v. Briggs,
supra. But, although burdened by that servitude, the state
held the title.
Gibson v. United States, 166 U.
S. 269,
166 U. S.
271-272;
Port of Seattle v. Oregon-Washington R.
Co., supra; Borax Consolidated v. Los Angeles, supra. There
does not appear to have been any acquisition by the United States
of title to those lands unless, as respondent urges, the occupation
of the beds for the purpose of the improvements constituted an
acquisition of title. But, as the occupation was simply the
exercise of the dominant
Page 302 U. S. 141
right of the Federal Government (
Gibson v. United States,
supra, p.
166 U. S. 276),
the servient title continued as before. No transfer of that title
appears. The Solicitor General conceded in his argument at bar that
the state of West Virginia retained its territorial jurisdiction
over the river beds, and we are of the opinion that this is the
correct view.
(b)
As to lands acquired by the United States by purchase or
condemnation for the purposes of the improvements. Lands were
thus acquired on the banks of the rivers from individual owners,
and the United States obtained title in fee simple. Respondent
contends that, by virtue of Article 1, Section 8, Clause 17, of the
Federal Constitution, the United States acquired exclusive
jurisdiction. [
Footnote 3]
Clause 17 provides that Congress shall have power "to exercise
exclusive Legislation" over
"all Places purchased by the consent of the Legislature of the
State in which the Same shall be, for the Erection of Forts,
Magazines, Arsenals, dock-Yards, and other needful Buildings."
"Exclusive legislation" is consistent only with exclusive
jurisdiction.
Surplus Trading Co. v. Cook, supra, p.
281 U. S. 652.
As we said in that case, it is not unusual for the United States to
own within a state lands which are set apart and used for public
purposes. Such ownership and use, without more, do not withdraw the
lands from the jurisdiction of the state. They lands
"remain part of her territory and within the operation of her
laws, save that
Page 302 U. S. 142
the latter cannot affect the title of the United States or
embarrass it in using the lands or interfere with its right of
disposal."
Id., p.
281 U. S. 650.
Clause 17 governs those cases where the United States acquires
lands with the consent of the Legislature of the state for the
purposes there described. If lands are otherwise acquired, and
jurisdiction is ceded by the state to the United States, the terms
of the cession, to the extent that they may lawfully be prescribed
-- that is, consistently with the carrying out of the purpose of
the acquisition -- determine the extent of the federal
jurisdiction.
Fort Leavenworth R. Co. v. Lowe,
114 U. S. 525,
114 U. S. 527,
114 U. S.
538-539;
Palmer v. Barrett, 162 U.
S. 399,
162 U. S.
402-403;
Arlington Hotel Co. v. Fant,
278 U. S. 439,
278 U. S. 451;
United States v. Unzeuta, 281 U.
S. 138,
281 U. S. 142;
Surplus Trading Company v. Cook, supra.
Are the locks and dams in the instant case "needful buildings"
within the purview of clause 17? The state contends that they are
not. If the clause were construed according to the rule of
ejusdem generis, it could be plausibly contended that
"needful buildings" are those of the same sort as forts, magazines,
arsenals, and dockyards -- that is, structures for military
purposes. And it may be that the thought of such "strongholds" was
uppermost in the minds of the framers. Elliot's Debates, volume 5,
pp. 130, 440, 511;
cf. Story on the Constitution, volume
2, § 1224. But such a narrow construction has been found not to be
absolutely required, and to be unsupported by sound reason in view
of the nature and functions of the national government which the
Constitution established.
In
Sharon v. Hill, 24 F. 726, 730, 731, Justice Field
(sitting with Judge Sawyer) considered the provision to be
applicable to a court building and custom house on land which had
been purchased with the consent of the state. In
Battle v.
United States, 209 U. S. 36,
209 U. S. 37, we
held that "post offices are among the
other needful
Page 302 U. S.
143
buildings'" within clause 17. See also United States v.
Wurtzbarger, 276 F. 753, 755; Arlington Hotel v. Fant,
supra. Locks and dams for the improvement of navigation, which
are as clearly within the federal authority as post offices, have
been regarded as "needful buildings." United States v.
Tucker, 122 F. 518, 522. We take that view. We construe the
phrase "other needful buildings" as embracing whatever structures
are found to be necessary in the performance of the functions of
the federal government.
The Legislature of West Virginia, by general statute, had given
its consent to the acquisition by the United States, but questions
are presented as to the construction and effect of the consent. The
provision is found in § 3 of Chapter 1, Article 1, of the Code of
West Virginia of 1931. The full text is set out in the margin.
[
Footnote 4] By the first
paragraph, the consent of the state is given
"to the
Page 302 U. S. 144
acquisition by the United States, or under its authority, by
purchase, lease, condemnation, or otherwise, of any land acquired,
or to be acquired in this State by the United States, from any
individual, body politic or corporate, for sites for . . . locks,
dams, . . . or any needful buildings or structures or proving
grounds, or works for the improvement of the navigation of any
watercourse . . . , or for any other purpose for which the same may
be needed or required by the government of the United States."
By the second paragraph, provision is made for gifts by
municipalities to the United States of land for any of the purposes
described in the first paragraph. The third paragraph cedes to the
United States "concurrent jurisdiction with this State in and over
any land so acquired . . . for all purposes." The jurisdiction so
ceded is to continue only during the ownership of the United
States, and is to cease if the United States
Page 302 U. S. 145
fails for five consecutive years to use any such land for the
purposes of the grant.
By a further provision in § 4, [
Footnote 5] the state reserves the right to execute
process within the limits of the land acquired
"and such other jurisdiction and authority over the same as is
not inconsistent with the jurisdiction ceded to the United States
by virtue of such acquisition."
The contention is made that the third paragraph of § 3 as to
"concurrent jurisdiction" was not in the Code of 1923, but was a
later addition (1931), and should not be taken as qualifying the
first paragraph. But the third paragraph was added before the
acquisition here in question, and "any land so acquired" manifestly
refers to the acquisitions previously described, which expressly
embraced all such acquisitions in the future. The suggestion that
the third paragraph applies only to the lands given by
municipalities to the United States under the second paragraph is
without force. The third paragraph appears to have been taken from
the provision, in the same language, of § 19 of the Code of
Virginia of 1919, which was not qualified by any intervening
provision as to municipalities.
See Code of West Virginia,
1931, c. 1, Art. 1, § 3, Revisers' Note. The revisers say it was
added to "make more definite the provisions as to jurisdiction."
Id. We are not referred to any decision of the Supreme
Court of West Virginia construing this paragraph.
Reference is also made to the provision of § 4 as to service of
process. This is said to be unnecessary if only concurrent
jurisdiction is granted. But this provision
Page 302 U. S. 146
was a part of the former statute (1923), and cannot be taken as
derogating from the force of the explicit amendment by the later
addition in the third paragraph of the present § 3. And, apparently
to prevent misunderstanding, there was an amendment at the same
time of the provision now in § 4 by the addition of the last clause
[
Footnote 6] in order to make
the reservation of the state's jurisdiction "more comprehensive."
Code of West Virginia, 1931, c. 1, Art. 1, § 4, Revisers' Note.
The third paragraph of § 3 carefully defines the jurisdiction
ceded by the state, and there is no permissible construction which
would ignore this definite expression of intention in considering
the effect upon jurisdiction of the consent given by the first
paragraph.
But it is urged that, if the paragraph be construed as seeking
to qualify the consent of the state, it must be treated as
inoperative. That is that the state cannot qualify its consent,
which must be taken as carrying with it exclusive jurisdiction by
virtue of clause 17. The point was suggested by Justice Story in
United States v. Cornell, Fed.Cas. No.14,867, 2 Mason 60,
65, 66, but the construction placed upon the consent in that case
made decision of the point unnecessary. There, the place (Fort
Adams in Newport Harbor) had been purchased with the consent of the
state, to which was added a reservation for the service of civil
and criminal process. Justice Story held that such a reservation
was not incompatible with a cession of exclusive jurisdiction to
the United States, as the reservation operated "only as a
condition" and "as an agreement of the new sovereign to permit its
free exercise as
quoad hoc his own process." Reservations
of that sort were found to be frequent in grants made by the states
to the United States in order to avoid the granted places being
made a sanctuary for fugitives from justice.
Page 302 U. S. 147
Story on the Constitution, volume 2, § 1225. Reference is made
to statements in the general discussion in the opinion in
Fort
Leavenworth R. Co. v. Lowe, supra, but these are not decisive
of the present question. The decision in that case was that the
state retained its jurisdiction to tax the property of a railroad
company within the Fort Leavenworth Military Reservation, as
federal jurisdiction had not been reserved when Kansas was admitted
as a state and, when the state subsequently ceded jurisdiction to
the United States, there was saved to the state the right "to tax
railroad, bridge, and other corporations, their franchises and
property, on said reservation." The terms of the cession in this
respect governed the extent of the federal jurisdiction.
See
Surplus Trading Company v. Cook, supra. There are
obiter
dicta in other cases, but the point now raised does not appear
to have been definitely determined.
It is not questioned that the state may refuse its consent and
retain jurisdiction consistent with the governmental purposes for
which the property was acquired. The right of eminent domain
inheres in the federal government by virtue of its sovereignty, and
thus it may, regardless of the wishes either of the owners or of
the states, acquire the lands which it needs within their borders.
Kohl v. United States, 91 U. S. 367,
91 U. S.
371-372. In that event, as in cases of acquisition by
purchase without consent of the state, jurisdiction is dependent
upon cession by the state, and the state may qualify its cession by
reservations not inconsistent with the governmental uses. Story on
the Constitution, volume 2, § 1227;
Kohl v. United States,
supra, p.
91 U. S. 374;
Fort Leavenworth R. Co. v. Lowe, supra; Surplus Trading Company
v. Cook, supra; United States v. Unzeuta, supra. The result to
the federal government is the same whether consent is refused and
cession is qualified by a reservation of concurrent jurisdiction,
or consent to the acquisition is granted with a like
Page 302 U. S. 148
qualification. As the Solicitor General has pointed out, a
transfer of legislative jurisdiction carries with it not only
benefits, but obligations, and it may be highly desirable, in the
interest both of the national government and of the state, that the
latter should not be entirely ousted of its jurisdiction. The
possible importance of reserving to the state jurisdiction for
local purposes which involve no interference with the performance
of governmental functions is becoming more and more clear as the
activities of the government expand and large areas within the
states are acquired. There appears to be no reason why the United
States should be compelled to accept exclusive jurisdiction or the
state be compelled to grant it in giving its consent to
purchases.
Normally, where governmental consent is essential, the consent
may be granted upon terms appropriate to the subject and
transgressing no constitutional limitation. Thus, as a state may
not be sued without its consent and "permission is altogether
voluntary," it follows "that it may prescribe the terms and
conditions on which it consents to be sued."
Beers v.
Arkansas, 20 How. 527,
61 U. S. 529;
Smith v. Reeves, 178 U. S. 436,
178 U. S.
441-442. Treaties of the United States are to be made
with the advice and consent of the Senate, but it is familiar
practice for the Senate to accompany the exercise of this authority
with reservations. Hyde, International Law, volume 2, § 519. The
Constitution provides that no state, without the consent of
Congress, shall enter into a compact with another state. It can
hardly be doubted that, in giving consent, Congress may impose
conditions.
See Arizona v. California, 292 U.
S. 341,
292 U. S.
345.
Clause 17 contains no express stipulation that the consent of
the state must be without reservations. We think that such a
stipulation should not be implied. We are unable to reconcile such
an implication with the freedom of the state and its admitted
authority to refuse
Page 302 U. S. 149
or qualify cessions of jurisdiction when purchases have been
made without consent or property has been acquired by condemnation.
In the present case, the reservation by West Virginia of concurrent
jurisdiction did not operate to deprive the United States of the
enjoyment of the property for the purposes for which it was
acquired, and we are of the opinion that the reservation was
applicable and effective.
(c)
As to property leased by respondent and used for the
accommodation of its equipment. There can be no question as to
the jurisdiction of the state over this area.
We conclude that, so far as territorial jurisdiction is
concerned, the state had authority to lay the tax with respect to
the respondent's activities carried on at the respective dam
sites.
Second. Is the tax invalid upon the ground that it lays
a direct burden upon the federal government? The Solicitor General,
speaking for the government, supports the contention of the state
that the tax is valid. Respondent urges the contrary.
The tax is not laid upon the government, its property, or
officers.
Dobbins v.
Commissioners, 16 Pet. 435,
41 U. S.
449-450.
The tax is not laid upon an instrumentality of the government.
McCulloch v.
Maryland, 4 Wheat. 316;
Osborn v.
Bank of the United States, 9 Wheat. 738;
Gillespie v. Oklahoma, 257 U. S. 501;
Federal Land Bank v. Crosland, 261 U.
S. 374;
Clallam County v. United States,
263 U. S. 341;
New York ex rel. Rogers v. Graves, 299 U.
S. 401. Respondent is an independent contractor. The tax
is nondiscriminatory.
The tax is not laid upon the contract of the government.
Osborn v. Bank of the United States, supra, p.
22 U. S. 867;
Weston v.
Charleston, 2 Pet. 449,
27 U. S. 468,
27 U. S. 475;
Pollock v. Farmers' Loan & Trust Co., 157 U.
S. 429,
157 U. S.
581-582,
157 U. S. 586;
Western Union Telegraph Co. v. Texas, 105 U.
S. 460,
105 U. S.
464-466;
Page 302 U. S. 150
Leloup v. Port of Mobile, 127 U.
S. 640,
127 U. S. 646;
Williams v. Talladega, 226 U. S. 404,
226 U. S.
418-419;
Federal Land Bank v. Crosland, supra;
Willcuts v. Bunn, 282 U. S. 216;
Panhandle Oil Co. v. Mississippi ex rel. Knox,
277 U. S. 218,
277 U. S. 222;
Indian Motocycle Co. v. United States, 283 U.
S. 570,
283 U. S. 574;
Graves v. Texas Co., 298 U. S. 393,
298 U. S. 401.
The application of the principle which denies validity to such a
tax has required the observing of close distinctions in order to
maintain the essential freedom of government in performing its
functions, without unduly limiting the taxing power which is
equally essential to both nation and state under our dual system.
In
Weston v. Charleston, supra, and
Pollock v.
Farmers' Loan & Trust Co., supra, taxes on interest from
government securities were held to be laid on the government's
contract, upon the power to borrow money, and hence were invalid.
But we held in
Willcuts v. Bunn, supra, that the immunity
from taxation does not extend to the profits derived by their
owners upon the sale of government bonds. We said (
id. at
282 U. S.
225):
"The power to tax is no less essential than the power to borrow
money, and, in preserving the latter, it is not necessary to
cripple the former by extending the constitutional exemption of
taxation to those subjects which fall within the general
application of nondiscriminatory laws, and where no direct burden
is laid upon the governmental instrumentality, and there is only a
remote, if any, influence upon the exercise of the functions of
government."
Many illustrations were given.
In
Western Union Telegraph Co. v. Texas, supra, a
specific state tax was imposed on each message sent by an officer
of the United States on public business over the lines of the
Telegraph Company. In holding the tax to be invalid, the Court
leaned heavily upon the fact that the Company had accepted the
terms of the Act of Congress of 1866 (14 Stat. 221) authorizing the
use of the military and
Page 302 U. S. 151
post roads and requiring in return that government messages have
priority over all other business, and be transmitted at rates fixed
annually by the Postmaster General. The Court considered that the
Company had thus become an agent of the government for the
transmission of messages on public business.
See, to the
same effect,
Leloup v. Port of Mobile, supra. The same
point was taken in
Williams v. Talladega, supra, involving
a local license fee applicable to the same telegraph company. The
Court said that the tax was laid upon
"the privilege of carrying on a business a part of which is that
of a governmental agency constituted under a law of the United
States and engaged in an essential part of the public business,
communication between the officers and departments of the Federal
government."
The emphasis put in these cases upon the effect of the
acceptance of the obligation of the act of Congress shows that they
cannot be regarded as sustaining the board claim of immunity here
advanced.
In
Panhandle Oil Co. v. Mississippi ex rel. Knox,
supra, and
Indian Motocycle Co. v. United States,
supra, the taxes were held to be invalid as laid on the sales
to the respective governments, the one being a state tax on a sale
to the United States and the other a federal tax on the sale to a
municipal corporation of Massachusetts. A similar result was
reached in
Graves v. Texas Co., supra. These cases have
been distinguished, and must be deemed to be limited to their
particular facts. Thus, in
Wheeler Lumber Bridge & Supply
Co. v. United States, 281 U. S. 572,
281 U. S. 579,
the federal tax on transportation, as applied to lumber which the
vendor had engaged to sell to a county for public bridges and to
deliver f.o.b. at the place of destination at a stated price, was
held to be laid not on the sale, but on the transportation.
Although the transportation was with a view to a definite sale, it
was held to be not part of the sale, but preliminary to it, and
Page 302 U. S. 152
"wholly the vendor's affair." In
Liggett & Myers Tobacco
Co. v. United States, 299 U. S. 383, the
federal tax, as applied to tobacco purchased by a state for use in
a state hospital, was sustained as a tax upon the manufacture of
the tobacco, and not upon the sale. Hence, the Court said, "the
effect upon the purchaser was indirect, and imposed no prohibited
burden."
In
Alward v. Johnson, 282 U. S. 509,
282 U. S. 514, the
Court sustained a state tax upon the gross receipts of an
independent contractor carrying the mails. The taxpayer operated an
automotive stage line. Two-thirds of his gross receipts, upon the
whole of which he was taxed, were derived from carriage of United
States mails, and the remainder from carriage of passengers and
freight. The Court found that the property used in earning these
receipts was devoted chiefly to carrying the mails, and that,
without his contract with the government, the stage line could not
be operated profitably. In upholding the tax upon his gross
receipts, we distinguished
Panhandle Oil Co. v. Mississippi ex
rel. Knox, supra, saying:
"There was no tax upon the contract for such carriage; the
burden laid upon the property employed affected operations of the
Federal Government only remotely. . . . The facts in
Panhandle
Oil Co. v. Mississippi ex rel. Knox, 277 U. S.
218, and
New Jersey Bell Tel. Co. v. State
Board, 280 U. S. 338, were held to
establish direct interference with or burden upon the exercise of a
federal right. The principles there applied are not controlling
here."
These decisions show clearly the effort of the Court in this
difficult field to apply the practical criterion to which we
referred in
Willcuts v. Bunn, supra, and again in
Graves v. Texas Company, supra. There is no ineluctable
logic which makes the doctrine of immunity with respect to
government bonds applicable to the earnings of an independent
contractor rendering services to the government.
Page 302 U. S. 153
That doctrine recognizes the direct effect of a tax which "would
operate on the power to borrow before it is exercised" (
Pollock
v. Farmers' Loan & Trust Co., supra), and which would
directly affect the government's obligation as a continuing
security. Vital considerations are there involved respecting the
permanent relations of the government to investors in its
securities and its ability to maintain its credit; considerations
which are not found in connection with contracts made from time to
time for the services of independent contractors. And, in dealing
with the question of the taxability of such contractors upon the
fruits of their work, we are not bound to consider or decide how
far immunity from taxation is to be deemed essential to the
protection of government in relation to its purchases of
commodities, or whether the doctrine announced in the cases of that
character which we have cited deserves revision or restriction.
The question of the taxability of a contractor upon the fruits
of his services is closely analogous to that of the taxability of
the property of the contractor which is used in performing the
services. His earnings flow from his work; his property is employed
in securing them. In both cases, the taxes increase the cost of the
work and diminish his profits. Many years ago, the Court recognized
and enforced the distinction between a tax laid directly upon a
government contract or an instrumentality of the United States and
a tax upon the property employed by an agent or contractor in
performing services for the United States. "Taxation of the agency
is taxation of the means; taxation of the property of the agent is
not always, or generally, taxation of the means."
Thomson v.
Pacific Railroad, 9 Wall. 579,
76 U. S. 591.
In expounding the grounds for the conclusion that the property of
the contractor was taxable, the Court envisaged the serious
consequences which would follow if immunity
Page 302 U. S. 154
were maintained. In
Railroad Co. v.
Peniston, 18 Wall. 5,
85 U. S. 33,
85 U. S. 36, the
Court said:
"It may therefore be considered as settled that no
constitutional implications prohibit a State tax upon the property
of an agent of the government merely because it is the property of
such an agent. A contrary doctrine would greatly embarrass the
States in the collection of their necessary revenue, without any
corresponding advantage to the United States. A very large
proportion of the property within the States is employed in
execution of the powers of the government. It belongs to
governmental agents, and it is not only used, but it is necessary
for their agencies. United States mails, troops, and munitions of
war are carried upon almost every railroad. Telegraph lines are
employed in the national service. So are steamboats, horses,
stagecoaches, foundries, shipyards, and multitudes of manufacturing
establishments. They are the property of natural persons, or of
corporations, who are instruments or agents of the General
government, and they are the hands by which the objects of the
government are attained. Were they exempt from liability to
contribute to the revenue of the States, it is manifest the State
governments would be paralyzed. While it is of the utmost
importance that all the powers vested by the Constitution of the
United States in the General government should be preserved in full
efficiency, and while recent events have called for the most
unembarrassed exercise of many of those powers, it has never been
decided that State taxation of such property is impliedly
prohibited. . . ."
"It is therefore manifest that exemption of Federal agencies
from State taxation is dependent not upon the nature of the agents,
or upon the mode of their constitution, or upon the fact that they
are agents, but upon the effect of the tax -- that is, upon the
question whether the tax does, in truth, deprive them of power to
serve the
Page 302 U. S. 155
government as they were intended to serve it, or does hinder the
efficient exercise of their power. A tax upon their property has no
such necessary effect. It leaves them free to discharge the duties
they have undertaken to perform. A tax upon their operations is a
direct obstruction to the exercise of Federal powers."
The dissenting opinion of Justice Bradley (with whom Justice
Field concurred), while considering that the state tax was invalid
as applied to property of the Union Pacific Railroad because of its
special relation to the government which had chartered it,
emphasized the distinction between such a situation as he conceived
it and one where the government has entered into a contract for
services to aid in the discharge of governmental functions. His
observations are strikingly pertinent here (
id., pp.
85 U. S.
41-42):
"The case differs
toto coelo from that wherein the
government enters into a contract with an individual or corporation
to perform services necessary for carrying on the functions of
government, as for carrying the mails, or troops, or supplies, or
for building ships or works for government use. In those cases, the
government has no further concern with the contractor than in his
contract and its execution. It has no concern with his property or
his faculties independent of that. How much he may be taxed by, or
what duties he may be obliged to perform towards, his state is of
no consequence to the government so long as his contract and its
execution are not interfered with. In that case, the contract is
the means employed for carrying into execution the powers of the
government, and the contract alone, and not the contractor, is
exempt from taxation or other interference by the State
government."
The question of immunity from taxation of the earnings of an
independent contractor under a government contract arose in
Metcalf & Eddy v.
Mitchell, 269 U.S.
Page 302 U. S. 156
514. The services were rendered to a political subdivision of a
state, and the contractor's earnings were held to be subject to the
federal income tax. That was a pivotal decision, for we had to meet
the question whether the earnings of the contractor stood upon the
same footing as interest upon government securities or the income
of an instrumentality of government. It is true that the tax was
laid upon net income. But if the tax upon the earnings of the
contractor had been regarded as imposing a direct burden upon a
governmental agency, the fact that the tax was laid upon net income
would not save it under the doctrine of
Gillespie v. Oklahoma,
supra. And if the doctrine of the immunity of interest upon
government bonds had been deemed to apply, the tax would have been
equally bad whether the tax was upon net or gross income. The
ruling in
Pollock v. Farmers' Loan & Trust Co., supra,
related to net income. The uniform ruling in such a case has been
that the interest upon government securities cannot be included in
gross income for the purpose of an income tax computed upon net
income. The pith of the decision in the case of
Metcalf &
Eddy v. Mitchell is that government bonds and contracts for
the services of an independent contractor are not upon the same
footing. The decision was a definite refusal to extend the doctrine
of cases relating to government securities and to the
instrumentalities of government to earnings under contracts for
labor.
The reasoning upon which that decision was based is controlling
here. We recognized that, in a broad sense, "the burden of federal
taxation necessarily sets an economic limit to the practical
operation of the taxing power of the states, and vice versa."
"Taxation by either the state or the federal government affects in
some measure the cost of operation of the other." As "neither
government may destroy the other or curtail in any substantial
manner the exercise of its powers," we said that the limitation
Page 302 U. S. 157
upon the taxing power of each, so far as it affects the
other,
"must receive a practical construction which permits both to
function with the minimum of interference each with the other, and
that limitation cannot be so varied or extended as seriously to
impair either the taxing power of the government imposing the tax .
. . or the appropriate exercise of the functions of the government
affected by it."
Metcalf & Eddy v. Mitchell, supra, pp.
269 U. S.
523-524.
We said further that the nature of the governmental agencies or
the mode of their Constitution could not be disregarded in passing
on the question of tax exemption, as it was obvious that an agency
might be of such a character or so intimately connected with the
exercise of a power or the performance of a duty by the one
government
"that any taxation of it by the other would be such a direct
interference with the functions of government itself as to be
plainly beyond the taxing power."
And it was on that principle that
"any taxation by one government of the salary of an officer of
the other, or the public securities of the other, or an agency
created and controlled by the other, exclusively to enable it to
perform a governmental function,"
was prohibited. We concluded that a nondiscriminatory tax upon
the earnings of an independent contractor derived from services
rendered to the government could not be said to be imposed "upon an
agency of government in any technical sense," and could not "be
deemed to be an interference with government, or an impairment of
the efficiency of its agencies in any substantial way."
Id. at
269 U. S.
524-525.
While the
Metcalf case was one of a federal tax, the
reasoning and the practical criterion it adopts are clearly
applicable to the case of a state tax upon earnings under a
contract with the federal government.
As we have observed, the fact that the tax in the present case
is laid upon the gross receipts, instead of
Page 302 U. S. 158
net earnings, is not a controlling distinction. Respondent
invokes our decisions in the field of interstate commerce, where a
tax upon the gross income of the taxpayer derived from interstate
commerce has long been held to be an unconstitutional burden.
Philadelphia & Southern S.S. Co. v. Pennsylvania,
122 U. S. 326;
Crew Levick Co. v. Pennsylvania, 245 U.
S. 292,
245 U. S. 297;
United States Glue Co. v. Oak Creek, 247 U.
S. 321,
247 U. S.
328-329;
Fisher's Blend Station v. Tax
Commission, 297 U. S. 650,
297 U. S.
655-656.
But the difference is plain. Persons have a constitutional right
to engage in interstate commerce free from burdens imposed by a
state tax upon the business which constitutes such commerce or the
privilege of engaging in it or the receipts as such derived from
it.
Minnesota Rate Cases, 230 U.
S. 352,
230 U. S. 400.
Interstate commerce is not an abstraction; it connotes the
transactions of those engaged in it, and they enjoy the described
immunity in their own right. Here, respondent's activities at the
dam sites are local, and not in interstate commerce. Respondent has
no constitutional right to immunity from nondiscriminatory local
taxation, and the mere fact that the tax in question burdens
respondent is no defense. The defense is that the tax burdens the
government, and respondent's right is at best, a derivative one. He
asserts an immunity which, if it exists, pertains to the
government, and which the government disclaims.
In
Alward v. Johnson, supra, as already noted, the tax
was upon gross receipts, and these were derived from a contract for
carrying the mails, but the tax was upheld. It there appeared that
the tax was in lieu of taxes upon the property, and had been
treated by the state court as a property tax. But if the tax as
actually laid upon the gross receipts placed a direct burden upon
the federal government so as to interfere with the performance of
its functions, it could not be saved because it was in lieu of a
tax upon property, or was so characterized.
See
Page 302 U. S. 159
Hanover Fire Insurance Co. v. Harding, 272 U.
S. 494,
272 U. S.
509-510.
In
Fidelity & Deposit Co. of Maryland v.
Pennsylvania, 240 U. S. 319, we
sustained the tax upon the gross premiums received by a company as
surety upon bonds running to the United States for "internal
revenue, customs, United States government officials, United States
government contracts, and banks for United States deposits," and
"bonds given in courts of the United States in litigation there
pending." While the challenged tax was "an exaction for the
privilege of doing business," we held it to be valid, as
"mere contracts between private corporations and the United
States do not necessarily render the former essential governmental
agencies, and confer freedom from state control."
Id., pp.
240 U. S.
320-323. The premiums, of course, were paid by those who
were required to obtain the bonds, but the facts that the contracts
were with the United States, and that the tax was laid upon gross
receipts from the writing of such contracts, did not make the tax
an invalid exaction.
In both the
Alward case and that of the
Fidelity
& Deposit Company, the argument, pressed here, that the
state withheld for its use "a part of every dollar" received by the
taxpayer was equally pertinent, and equally unavailing.
The contention ultimately rests upon the point that the tax
increases the cost to the government of the service rendered by the
taxpayer. But this is not necessarily so. The contractor, taking
into consideration the state of the competitive market for the
service, may be willing to bear the tax and absorb it in his
estimated profit, rather than lose the contract. In the present
case, it is stipulated that respondent's estimated costs of the
respective works, and the bids based thereon, did not include, and
there was not included in the contract price paid to respondent,
any specified item to cover the gross receipts
Page 302 U. S. 160
tax, although respondent knew of the West Virginia act imposing
it, and respondent's estimates of cost did include "compensation
and liability insurance, construction bond and property taxes."
But, if it be assumed that the gross receipts tax may increase
the cost to the government, that fact would not invalidate the tax.
With respect to that effect, a tax on the contractor's gross
receipts would not differ from a tax on the contractor's property
and equipment necessarily used in the performance of the contract.
Concededly such a tax may validly be laid. Property taxes are
naturally, as in this case, reckoned as a part of the expense of
doing the work. Taxes may validly be laid not only on the
contractor's machinery, but on the fuel used to operate it. In
Trinityfarm Construction Co. v. Grosjean, 291 U.
S. 466, the taxpayer entered into a contract with the
federal government for the construction of levies in aid of
navigation, and gasoline was used to supply power for taxpayer's
machinery. A state excise tax on the gasoline so used was
sustained. The Court said that, if the payment of the state taxes
imposed on the property and operations of the taxpayer
"affects the federal government at all, it at most gives rise to
a burden which is consequential and remote, and not to one that is
necessary, immediate or direct."
But a tax of that sort unquestionably increases the expense of
the contractor in performing his service, and may, if it enters
into the contractor's estimate, increase the cost to the
government. The fact that the tax on the gross receipts of the
contractor in the
Alward case,
supra, might have
increased the cost to the government of the carriage of the mails
did not impress the Court as militating against its validity.
There is the further suggestion that, if the present tax of 2
percent is upheld, the state may lay a tax of 20 percent, or 50
percent, or even more, and make it difficult or impossible for the
government to obtain
Page 302 U. S. 161
the service it needs. The argument ignores the power of Congress
to protect the performance of the functions of the national
government and to prevent interference therewith through any
attempted state action. In
Thomson v. Union Pacific Railroad,
supra, the Court pointedly referred to the authority of
Congress to prevent such an interference through the use of the
taxing power of the state. "It cannot," said the Court,
"be so used, indeed, as to defeat or hinder the operations of
the National Government; but it will be safe to conclude, in
general, in reference to persons and state corporations employed in
government service, that, when Congress has not interposed to
protect their property from state taxation, such taxation is not
obnoxious to that objection."
See Van Allen v.
Assessors, 3 Wall. 573,
70 U. S. 585;
Fidelity & Deposit Co. v. Pennsylvania, supra.
We hold that the West Virginia tax, so far as it is laid upon
the gross receipts of respondent derived from its activities within
the borders of the state, does not interfere in any substantial way
with the performance of federal functions, and is a valid exaction.
The decree of the District Court is reversed, and the cause is
remanded for further proceedings in conformity with this
opinion.
Reversed.
[
Footnote 1]
See Act of July 3, 1930, c. 847, 46 Stat. 928; H.Doc.
No.190, 70th Cong., 1st sess.; Act of August 30, 1935, c. 831, 49
Stat. 1035; H.Doc. No. 31, 73d Cong., 1st Sess.
[
Footnote 2]
Prior to May 26, 1933, the tax was three-tenths of one percent,
and the assessment on receipts prior to that date was at that rate.
Two of the contracts of respondent were made before the rates were
changed.
[
Footnote 3]
That provision is as follows:
"The Congress shall have Power . . ."
"To exercise exclusive Legislation in all cases whatsoever, over
such District (not exceeding ten Miles square) as may, by Cession
of particular States, and the Acceptance of Congress, become the
Seat of the Government of the United States, and to exercise like
Authority over all Places purchased by the consent of the
Legislature of the State in which the Same shall be, for the
Erection of Forts, Magazines, Arsenals, dock-Yards, and other
needful Buildings."
[
Footnote 4]
"Sec. 3.
Acquisition of Lands by United States;
Jurisdiction. -- The consent of this State is hereby given to
the acquisition by the United States, or under its authority, by
purchase, lease, condemnation, or otherwise, of any land acquired,
or to be acquired in this State by the United States, from any
individual, body politic or corporate, for sites for lighthouses,
beacons, signal stations, post offices, customhouses, courthouses,
arsenals, soldiers' homes, cemeteries, locks, dams, armor plate
manufacturing plants, projectile factories or factories of any kind
or character, or any needful buildings or structures or proving
grounds, or works for the improvement of the navigation of any
watercourse, or work of public improvement whatever, or for the
conservation of the forests, or for any other purpose for which the
same may be needed or required by the government of the United
States. The evidence of title to such land shall be recorded as in
other cases."
"Any county, magisterial district, or municipality, whether
incorporated under general law or special act of the legislature,
shall have power to pay for any such tract or parcel of land and
present the same to the government of the United States free of
cost, for any of the purposes aforesaid, and to issue bonds and
levy taxes for the purpose of paying for the same, and, in the case
of a municipal corporation, the land so purchased and presented may
be within the corporate limits of such municipality or within five
miles thereof:
Provided, however, That no such county,
magisterial district, or municipality shall, by the issue and sale
of such bonds, cause the aggregate of its debt to exceed the limit
fixed by the Constitution of this State:
Provided further,
That the provisions of the Constitution and statutes of this State,
or of the special act creating any municipality, relating to
submitting the question of the issuing of bonds and all questions
connected with the same to a vote of the people, shall, in all
respects, be observed and complied with."
"Concurrent jurisdiction with this State in and over any land so
acquired by the United States shall be, and the same is hereby,
ceded to the United States for all purposes; but the jurisdiction
so ceded shall continue no longer than the United States shall be
the owner of such lands, and if the purposes of any grant to the
United States shall cease, or the United States shall for five
consecutive years fail to use any such land for the purposes of the
grant, the jurisdiction hereby ceded over the same shall cease and
determine, and the right and title thereto shall reinvest in this
State. The jurisdiction ceded shall not vest until the United
States shall acquire title of record to such land. Jurisdiction
heretofore ceded to the United States over any land within this
State by any previous acts of the legislature shall continue
according to the terms of the respective cessions."
[
Footnote 5]
"Sec. 4.
Execution of Process and Other Jurisdiction as to
Land Acquired by United States. -- The State of West Virginia
reserves the right to execute process, civil or criminal, within
the limits of any lot or parcel of land heretofore or hereafter
acquired by the United States as aforesaid, and such other
jurisdiction and authority over the same as is not inconsistent
with the jurisdiction ceded to the United States by virtue of such
acquisition."
[
Footnote 6]
See note 5
MR. JUSTICE ROBERTS, dissenting.
I regret that I am unable to concur in the Court's opinion. I
should not set forth my views in detail were I not convinced the
decision runs counter to the settled rule that a state may not, by
taxation, burden or impede the United States in the exercise of its
delegated powers. The judgment seems to me to overrule,
sub
silentio, a century of precedents, and to leave the
application of the rule uncertain and unpredictable.
The doctrine which forbids a state to interfere with the
exercise of federal powers does not have its origin in the
Page 302 U. S. 162
common law exemption of the sovereign from regulation or
taxation. It springs from the necessity of maintaining our dual
system of government. [
Footnote
2/1]
"The attempt to use it [the power of taxation] on the means
employed by the government of the Union, in pursuance of the
Constitution, is itself an abuse because it is the usurpation of a
power which the people of a single state cannot give. We find,
then, on just theory, a total failure of this original right [of
the states] to tax the means employed by the government of the
Union, for the execution of its powers. [
Footnote 2/2]"
"The immunity is derived from the Constitution in the same sense
and upon the same principle that it would be if expressed in so
many words." [
Footnote 2/3]
This immunity was defined by Chief Justice Marshall in
McCulloch v.
Maryland, 4 Wheat. 316,
17 U. S.
436:
"The States have no power, by taxation or otherwise, to retard,
impede, burden or in any manner control the operations of the
constitutional laws enacted by congress to carry into execution the
powers vested in the general government."
In its application, the principle forbids taxation by a state of
property of the federal government, [
Footnote 2/4] or of the office or salary of any of its
officers. [
Footnote 2/5]
Page 302 U. S. 163
I agree that the gross receipts tax laid by West Virginia upon
the appellee's transactions with the United States is not upon the
government as such, upon its property, or upon its officers.
The government need not perform all its functions by the use of
its property and the activity of its officers, but may establish
agencies to these ends. Such an agency, created not for private
gain but wholly devoted to governmental purposes and wholly owned
by the United States, is as free from state taxation on its
property and its activities as the government itself, and the
exemption extends to the salaries of its officers. [
Footnote 2/6] In the exertion of the powers
conferred upon it by the Constitution, the United States may, in
its discretion, erect corporations for private gain and employ them
as its instrumentalities. [
Footnote
2/7] No tax can be laid upon their franchises or operations,
[
Footnote 2/8] but their local
property [
Footnote 2/9] is subject
to nondiscriminating state taxation. In contrast, the bestowal of
benefits, rights, privileges, or immunities, or the imposition of
duties by federal law upon a natural person or a corporation, does
not convert him or it into a federal agency exempt from uniform
state excise or
Page 302 U. S. 164
property taxes. [
Footnote
2/10] Where the United States, by contract, constitutes a
person or corporation its agent to fulfill a governmental
obligation, a state tax upon such an agent is forbidden if it falls
upon the avails of the operation in which the government has an
interest, or is an excise or privilege tax upon the agent's
operations; [
Footnote 2/11] but a
general and uniform state property tax which falls only upon the
agent's property used in the performance of the contract is valid.
[
Footnote 2/12] The opinion of
the court adverts to these distinctions, but, since admittedly the
appellee is not an agency or instrumentality of the United States,
a discussion of taxes laid upon the operations, as contrasted with
those imposed upon the property of such an agency or
instrumentality, is beside the point upon which the case turns.
[
Footnote 2/13]
I agree that the challenged tax is not, in terms, laid upon the
contract of the government, but I am of opinion that it directly
burdens and impedes the operations of the United States within the
reason and scope of the principle of immunity, and according to the
application of that principle in numerous decisions of the court.
If this be so, the fact that the exaction is not in terms upon the
contract with the government, the appellee
Page 302 U. S. 165
is an independent contractor, the tax is nondiscriminatory, or
that it is not excessive in amount cannot serve to exculpate the
statute from the charge that it transgresses the rule. These
considerations, as repeatedly held, are irrelevant where the tax
falls directly, immediately, and palpably upon an operation of the
federal government or a means chosen for the exercise of its
powers. Many illustrations are available of exactions which plainly
burden and impede in some degree the lawful operations of the
United States. As the opinion of the court indicates, a tax in
terms laid upon the contract would do so; such as an excise for the
privilege of making the contract or performing it, [
Footnote 2/14] a stamp tax upon the
documents evidencing the contract, or a requirement that the
contract be recorded and a tax be paid upon its recordation.
[
Footnote 2/15]
The court has, moreover, repeatedly held a tax nominally upon
one who contracts with the government was in effect and in fact
imposed upon the operations of the latter. Thus, an excise upon a
telegraph company which, under contract with the United States,
transmits government messages, whether the tax be at a given sum
per message [
Footnote 2/16] or in
the form of a license tax upon all business, private and
governmental, [
Footnote 2/17] is
prohibited because it imposes a burden upon the operations of the
United States. The cases so holding are sought to be distinguished
by the circumstance that the telegraph companies carrying the
messages of the United States were by federal statute given the
privilege of using the post roads, and it is said that this in some
way gave them a peculiar status which rendered their gross receipts
untaxable.
Page 302 U. S. 166
But that was not the basis of decision. The ground of immunity
was that the tax was, in effect, on the government's transactions
in the exertion of its lawful powers. Thus, in
Telegraph Co. v.
Texas, 105 U.S. at
105 U. S. 465,
it was said,
"The tax is the same on every message sent, and because it is
sent. . . . Clearly, if a fixed tax for every two thousand pounds
of freight carried is a tax on the freight, or for every measured
ton of a vessel a tax on tonnage, or for every passenger carried a
tax on the passenger, or for the sale of goods a tax on the goods,
this must be a tax on the messages. . . . As to the government
messages, it is a tax by the State on the means employed by the
government of the United States to execute its constitutional
powers, and therefore void. It was so decided in
McCulloch v.
Maryland, 4 Wheat. 316, and has never been doubted
since."
That the privileges granted telegraph companies by federal law,
had no bearing upon the validity of the tax is shown by
Western
Union Telegraph Co. v. Massachusetts, 125 U.
S. 530, and
Massachusetts v. Western Telegraph
Co., 141 U. S. 40, in
which state taxes on the property and franchises of companies,
operating under the same statute as the Telegraph Company in the
Texas case, were sustained because not on the transactions
between the carrier and the United States.
Stock issued by the United States evidencing indebtedness to the
holder cannot be taxed
ad valorem by a state. [
Footnote 2/18] A tax upon the assets of a
corporation is bad if obligations of the United States are included
in the assessment. [
Footnote
2/19] A gross income tax is invalid to the extent
Page 302 U. S. 167
that it is laid on income from federal securities. [
Footnote 2/20] The reason is that
"the tax . . . is a tax upon the contract subsisting between the
government and the individual. It bears directly upon that
contract, while subsisting and in full force. The power operates
upon the contract the instant it is framed and must imply a right
to affect that contract."
The government's obligation is for the payment both of principal
and interest, and an exaction which bears upon either of these
features of the obligation is prohibited.
Certificates of indebtedness issued by the United States,
payable at a future date, with interest, issued to creditors for
supplies furnished by them to the nation, cannot be taxed by a
state. They differ from the gross receipts here taxed only in the
respect that they were issued to secure payment of past-due
contractual obligations, whereas the cash paid the appellee was in
solution of a present obligation of like nature. Of the taxability
of these certificates, it was said: [
Footnote 2/21]
"But we fail to perceive . . . that such certificates, issued as
a means of executing constitutional powers of the government other
than of borrowing money, are not as much beyond control and
limitation by the States through taxation as bonds or other
obligations issued for loans of money."
Many sorts of imposts, however, which bear merely upon the
obligee of a government contract for the exercise of a privilege
having no relation to the contractual nexus between him and the
government have been sustained.
Page 302 U. S. 168
So, a franchise or privilege tax measured by assets or by income
is not rendered void by the circumstance that the taxpayer's assets
or income include federal securities or interest thereon. [
Footnote 2/22] And a law which imposes an
excise upon the privilege of transmission of property at death may
include federal securities in the estate by which the tax is
measured. [
Footnote 2/23] Upon
the like reasoning, a tax upon moneys and credits in the assessment
of which uncollected government checks are included is valid.
[
Footnote 2/24]
There can be no difference in reason, or in practical effect,
between taxation of government contracts to repay borrowed funds or
written promises to pay for goods previously furnished and a
contract to pay for goods and services as furnished, or any other
form of contract whereby the government exercises its granted
powers. The federal power to contract for supplies or services is
as necessary and as fundamental as the power to borrow money. Thus,
it has been said, speaking of a tax upon government obligations:
[
Footnote 2/25]
"If the states and corporations throughout the Union possess the
power to tax a contract for the loan of money, what shall arrest
this principle in its application to every other contract? What
measure can government adopt, which will not be exposed to its
influence?"
If the government, as guardian of an incompetent Indian, leases
land to a mining company on a royalty consisting of a percentage of
the gross proceeds derived from the sale of ores mined, a state
ad valorem tax assessed to the lessee on the ores mined
and in storage upon the
Page 302 U. S. 169
leased land before any sale or segregation of the equitable
interests of the government as guardian, is void as burdening and
impeding an operation of the government. [
Footnote 2/26] A sales tax on commodities sold to the
government, though laid upon the seller at a given rate per unit
sold, is also bad as directly burdening the government's
transactions. [
Footnote 2/27] A
tax on storage or withdrawal from storage essential to the sale of
a commodity contracted to be delivered to the United States is in
the same class as a tax on sales to the government. [
Footnote 2/28] On the other hand, a sales
tax upon articles purchased by a government contractor, [
Footnote 2/29] or a net income tax laid
upon his income, is valid. [
Footnote
2/30] The reason is that exactions of the latter sort do not
impinge upon or directly affect the transaction between him and the
government; do not affect the government's choice of means for
executing its powers.
While a gross income tax upon receipts derived from a government
contract would, in itself, be bad, if the exaction is in lieu of
all property taxes and intended as a property tax, measured by
receipts of the property, it is valid. [
Footnote 2/31]
Over a century ago, the Court said: [
Footnote 2/32]
"Can a contractor for supplying a military post with provisions
be restrained from making purchases within any state, or from
transporting the provisions to the place at which the troops were
stationed? or could he be
Page 302 U. S. 170
fined or taxed for doing so? We have not yet heard these
questions answered in the affirmative. It is true, that the
property of the contractor may be taxed, as the property of other
citizens. . . . But we do not admit, that the act of purchasing, or
of conveying the articles purchased, can be under state
control."
There is no distinction between a sales tax on goods sold to the
federal government and a gross receipts tax upon the furnishing of
goods and services under a contract with the government. As was
said in
Panhandle Oil Co. v. Mississippi ex rel. Knox,
277 U. S. 218,
277 U. S.
221:
"The right of the United States to make such purchases is
derived from the Constitution. The petitioner's right to make sales
to the United States was not given by the State, and does not
depend on state laws; it results from the authority of the national
government under the Constitution to choose its own means and
sources of supply. While Mississippi may impose charges upon
petitioner for the privilege of carrying on trade that is subject
to the power of the State, it may not lay any tax upon transactions
by which the United States secures the things desired for its
governmental purposes."
As in the
Panhandle case, so in the present, the
receipt of the thing contracted for constitutes the transaction by
which the tax is measured, and on which the burden rests. We may
thus paraphrase what was there said: to use the value and amount of
the goods and services furnished to the United States as a measure
of the tax is in substance and effect to tax the transaction
itself. The amount of the tax rises and falls in direct ratio to
the contract value of the goods and services rendered to the
government. This is to tax the sale, and that is to tax the United
States.
The Solicitor General, as
amicus curiae, proposes a
single test of the constitutionality of a state tax upon the
operations of the United States, or the means chosen for
Page 302 U. S. 171
the execution of its powers. That test is whether the taxing
statute discriminates against the government and in favor of other
taxpayers. He frankly admits that, if the proposed criterion be
adopted, we must overrule
Indian Motocycle Co. v. United
States, 283 U. S. 570;
Panhandle Oil Co. v. Mississippi ex rel. Knox, supra, and
Graves v. Texas Co., 298 U. S. 393. He
professes himself, as I am, unable to distinguish a sales tax or a
tax upon storage preliminary to sale to the United States from a
gross receipts tax upon goods and services furnished the
government. In a brief filed as
amicus curiae in
Graves v. Texas Co., supra, he urged the court to hold
such a tax imposed on gasoline under contract to the United States
invalid as an unconstitutional impediment and burden upon the
operations of the government. [
Footnote 2/33] It is said that these cases have been
distinguished. But, in the cases distinguished from them, the tax
was found to be one on the property of a contractor with the United
States, or on its net income, not on the gross receipts of his
contract with the government. To distinguish them from the present
case is not to rely upon any principle, but upon the mere name or
label given to a tax. Such distinctions only serve to confuse.
I do not think the Solicitor General, in brief or argument,
answered the question propounded by the Court in the present case
-- whether the tax is invalid as laying a burden upon the
operations of the federal government. He responds that the tax is
valid in spite of the fact that it lays such a burden. Thus, he
states:
"We have indicated that a tax upon the contractor, the sole
result of which is to increase the cost to the sovereign by the
Page 302 U. S. 172
amount of the normal tax burden, presents no interference with
its operations."
Again, he says that the imposition of the tax in question "is in
no sense a threat to the capacity of the government to perform its
functions."
Thus, it appears that, in his view, a nondiscriminatory state
tax is to be judged not by the "burden" it imposes, but by the
extent of its "interference" with the functioning of government. If
this be the test, no tax, however great, can prevent such
functioning, so long as the United States' taxing and borrowing
powers remain adequate to meet the ordinary expenses of its
operations and the added cost of state taxes thereon. The adoption
of any such theory would require the overruling not only of the
three decisions the Solicitor General singles out for deletion, but
literally scores of others, beginning with
McCulloch v.
Maryland and ending with
Graves v. Texas Co.,
298 U. S. 393,
decided at the 1935 term in accordance with the views then
earnestly pressed upon us by the Solicitor General.
It is not clear to what extent the court's opinion adopts the
doctrine advocated by the government. It is said merely that the
appellee is an independent contractor, that the tax is
nondiscriminatory and is not laid upon the contract of the
government, and it is suggested that if, in the view of Congress,
the burden of such a tax becomes too heavy, Congress has the means
of redress. Whether one or all of these factors is requisite to
justify the exaction we are not told.
The cases on which the opinion especially relies do not justify
sustaining this tax.
Metcalf & Eddy v. Mitchell,
269 U. S. 514,
throws no light upon the problem presented. A contractor employed
to advise a state and its municipal subdivisions sought exemption
from a federal tax upon net income. The law imposing the tax did
not discriminate against the receipts from the contract, but
treated them as part of the gross income upon which
Page 302 U. S. 173
the taxable net income was to be calculated. In accordance with
all of this Court's applicable decisions, the tax was held not to
be upon the state or its contract with the taxpayer, not upon an
instrumentality or means chosen by the state for executing its
powers, not directly upon the amount of the taxpayer's compensation
received from the state. The exaction was not, as here, of a
proportion of each dollar paid by the government. It was upon net
income remaining after allowable deductions from gross.
The decision in
Fidelity & Deposit Co. v.
Pennsylvania, 240 U. S. 319,
relied on as sustaining the instant exaction, neither rules nor
aids in the decision of the present cause. There, a foreign surety
company was required by law to pay an annual fee equal to 2 percent
of its gross premiums in order to be admitted to do business in
Pennsylvania. Under a federal statute surety companies desiring to
execute bonds running to the United States were required to obtain
written authority from the Attorney General so to do. The Fidelity
Company obtained such authority and became surety in Pennsylvania
on a number of bonds insuring the faithful performance of official
duties by federal employees. It challenged so much of the state tax
as was laid upon the premiums received for writing these bonds. The
challenge was not sustained. The claim that the company, by
obtaining leave to execute bonds running to the United States, had
become a federal instrumentality, was properly overruled. [
Footnote 2/34] But it is said that, in
sustaining the tax, the court held that an exaction on the gross
receipts of government contracts is valid. A moment's reflection
will show that this is incorrect. The premiums received by the
surety company were received from its clients; those for whom it
wrote the bonds. It received no compensation from the United States
and its transactions, in essence, were with
Page 302 U. S. 174
citizens of the state of Pennsylvania as such. They did not
differ from transactions with federal officers and employees
whereby the latter procured any other sort of goods or service.
[
Footnote 2/35] Of course, the
mere fact that a contractual relation, that of suretyship, was
created between the Fidelity Company and the United States, was
not, in and of itself, sufficient to relieve the company of the
burden of paying a local tax for the privilege of doing business
with its customers.
Alward v. Johnson, 282 U. S. 509, is
cited as an instance where a gross receipts tax incident upon the
consideration paid the contractor by the United States was
sustained. Examination of the case demonstrates that the contrary
is true. Alward was engaged in operating an automotive stage line
between points in California. In his business, he employed
automotive property and used the state highways. In classifying
property for taxation the state separately classified property of
persons carrying on such a business as his and laid a tax on this
class of property, in lieu of all other taxes at the rate of 4 1/2
percent of gross receipts. Other classes of property were taxed at
a percentage of value. As the major portion of Alward's gross
receipts arose from a contract for carrying United States mails, he
insisted that the tax was invalid because, by virtue of his
contract with the government, he became a federal agency immune
from taxation upon his gross receipts.
This Court found that the Supreme Court of California had
declared the tax one upon property in cases having no relation to
its incidence upon federal instrumentalities or means. It further
found that the challenged classification for taxation of automotive
property used in a business transacted on the public roads was not
arbitrary or unreasonable. The case was likened to those
arising
Page 302 U. S. 175
under the commerce clause in which the intrastate property of an
interstate carrier was either directly taxed or was taxed by use of
a percentage of gross receipts in lieu of all other taxes,
including property taxes, in order to reach a fair measure of the
taxable value of the carrier's intrastate property.
Pullman Co.
v. Richardson, 261 U. S. 330;
Hopkins v. Southern California Tel. Co., 275 U.
S. 393. It was pointed out that the tax was not on gross
receipts as such, and did not bear upon the contract between the
taxpayer and the government. In the instant case, the tax is
admittedly an excise for revenue imposed in addition to property
taxes and foreign corporation fees paid by the appellee.
It may be considered, though I do not think with reason, that
the conclusion of the court that the tax was a property tax and not
a tax upon gross receipts as such was erroneous, but, even if this
be conceded, it cannot be contended that the case stands as
authority for the proposition that a gross receipts tax as such
upon the earnings of a government contractor, from his government
contract, is not a burden or impediment upon the operations of the
United States within the rule of federal immunity.
Much stress is laid by the Solicitor General upon the decision
in
Liggett & Myers Tobacco Co. v. United States,
299 U. S. 383, and
he suggests that the views therein stated be adopted in the present
case in preference to those embodied in the
Panhandle Oil
case,
supra. The suggestion implies, contrary to the fact,
that the two decisions are contradictory. The Liggett & Myers
Company, a manufacturer of tobacco, sold a portion of its product
to a state. The company resisted the collection of a federal
internal revenue tax laid
"upon all tobacco and snuff manufactured in or imported into the
United States, and hereafter sold by the manufacturer or importer,
or removed for consumption or sale"
at a flat rate in cents
Page 302 U. S. 176
per pound "to be paid by the manufacturer or importer thereof."
Upon analysis of the statute, it was concluded that the tax was
upon the manufacture, and that payment was merely postponed until
removal or sale. The tax did not vary in amount with the price
received for the tobacco, and was not in terms upon its sale. Upon
this ground, the
Indian Motocycle Co. case and the
Panhandle case were distinguished.
It may be conceded that often it is difficult to determine
whether a tax is laid upon the local operations of a manufacturer
or contractor or upon the actual sale of his product. But such
distinctions must be made. Indeed, the court itself is required to
make such a one in the instant case in determining that payment for
what the appellee manufactured for the government in Pittsburgh,
Pennsylvania, did not constitute a gross receipt in West Virginia
under the contract. The court has repeatedly been confronted with
the problem whether a tax was in fact on the sale of a commodity or
upon some prior dealing with it by the producer or supplier. While
the distinctions drawn may seem somewhat nice, examination of the
facts carries conviction that the distinctions are substantial.
[
Footnote 2/36]
It is suggested that the appellee's status as an independent
contractor lifts the ban from the tax. This is to ignore the direct
bearing of the exaction on the transaction between the contractor
and the government. The fact that the tax is laid upon him who
contracts with the government, rather than upon the contract as
such, or the government itself, is immaterial. Every purchaser of
government obligations is an independent contractor
Page 302 U. S. 177
with the government. If the fact that the taxpayer is an
independent contractor were significant, it would have validated
every tax laid upon the ownership of government obligations or upon
the interest received therefrom. [
Footnote 2/37] It has been held that ores produced by
an independent contractor for the government, though still in his
possession, cannot be taxed by a state; [
Footnote 2/38] and that a license tax upon an
independent contractor cannot be measured by the gross receipts
from his transactions with the government. [
Footnote 2/39]
What was said by Mr. Justice Bradley, dissenting in
Railroad Company v.
Peniston, 18 Wall. 5,
85 U. S. 38, when
read in the light of its context, has no bearing upon the issue
here presented. In
McCulloch v. Maryland, in holding that
a tax upon the operations of the United States Bank invaded the
federal immunity, Chief Justice Marshall said: "It [the immunity]
does not extend to a tax paid by the real property of the bank, in
common with the other real property within the state."
In the
Peniston case, the question was whether a
uniform
ad valorem state tax could lawfully be assessed
upon the intrastate property of the railroad, a federal
corporation. The court held that it could. The correctness of the
decision has never been doubted. Justices Bradley and Field,
however, thought that the scope of the immunity was so broad as to
exempt even the local property of a federal instrumentality from
such a uniform local tax. It is to be observed that no other kind
of exaction was involved. Mr. Justice Bradley insisted that,
while
Page 302 U. S. 178
such a tax might lawfully be laid upon the property of one who
was a mere contractor with the United States, it could not be laid
upon the local assets of a federal corporate instrumentality. The
challenged tax was not upon the franchise of the corporation
granted by the government, not on its right to exist within the
state nor upon the gross receipts from its operations. Confessedly
the property of a contractor with the government is more remote
from the government's operations than is the property of a
government instrumentality. If the latter may be locally taxed
a fortiori, the former may, and the language of Mr.
Justice Bradley applied only to that situation, and not to a gross
receipts tax such as we have here.
Does the fact that the tax is nondiscriminatory save it? The
Solicitor General, as we have seen, so argues. He says that both
the appellee and the United States derive substantial benefits in
connection with the federal projects located in the state, and adds
that it seems these benefits should not be free. Though he does not
overlook the fact that, when the work is completed the United
States will continue to receive benefits from the state, he
contends that a nondiscriminatory tax upon the gross receipts of
the contractor is but a method of reimbursing the state for
benefits conferred. The argument proves too much. It requires that
equal and uniform state taxation upon federal property on which
stand customs houses, post offices, forts, arsenals,
et id.
omne genus, be upheld. In every instance of the ownership and
use of property within a state, according to the argument, the
federal government receives substantial benefits for which it
should pay. The Solicitor General balks at the result of his
position. He says:
"We recognize that the logic of our analysis of benefits
received would lead to taxation of the sovereign itself. But the
attributes of sovereignty may be such as to prevent a tax from
being
Page 302 U. S. 179
imposed upon the government itself. Certainly the principle of
the tax immunity of the sovereign itself is too firmly established
now to be reexamined."
The short answer is that the immunity from state taxation upon
the means, the operations, and the instruments of the government is
just as firmly established as is the immunity from taxation of the
government's property or offices or posts created by it, and that
neither class of taxation can be justified by the fact that the
burden on the government is uniform with that laid on others.
Taxes condemned by the court's decisions which were imposed upon
the principal and interest of federal securities, upon the product
of mining lessees in which the government had an interest, upon
storage and sale of property sold to the government, upon the
operation and franchises of federal instrumentalities such as
national banks, were nondiscriminatory. They bore equally and alike
upon property and operations in which the government was interested
and those which were alien to it, but they were voided as illegally
burdening the operations of the United States. The fact that taxes
upon government property and upon property of wholly owned
government corporations were nondiscriminatory did not suffice to
save them. Taxes on franchises granted by the federal government,
taxes upon the office or salary of a federal official, though
nondiscriminatory, nevertheless fell under the ban. It was said in
Johnson v. Maryland, 254 U. S. 51,
254 U. S.
55:
"Here, the question is whether the State can interrupt the acts
of the general government itself. With regard to taxation, no
matter how reasonable, or how universal and undiscriminating, the
State's inability to interfere has been regarded as established
since
McCulloch v. Maryland, 4
Wheat. 316."
The element of discrimination becomes important only in a case
where a tax which would otherwise be permissible
Page 302 U. S. 180
is aimed at the taxpayer because of his relation to the
government. Of course, a state cannot lay a heavier burden upon
those contracting with the government simply because they are such
contractors. A discrimination of that nature on its face spells a
hostile purpose, an intent to hinder and burden the government, to
impede its operations, and to discourage dealing with it. But the
question of discrimination has no place in the consideration of the
legality of an exaction laid directly upon the government, upon its
operations, or upon the means or instrumentalities it has chosen
for executing its powers.
As we have seen, the Solicitor General suggests that the tax
should be sustained, although it lays a burden on the United
States, because the burden is a "normal tax burden," and the United
States can bear it. The opinion of the Court suggests the same
thought, and adds that, if West Virginia ever imposes a gross
receipts tax uniform in its incidence, but inordinately heavy,
Congress has power to relieve the government from such
interference. Both suggestions are in the teeth of all that has
been said by the Court on the subject of federal immunity. The
necessity for enforcement of the doctrine was embodied in the
phrase of Chief Justice Marshall in
McCulloch v. Maryland,
supra, that "the power to tax involves the power to destroy."
As was said in
Knowlton v. Moore, 178 U. S.
41,
178 U. S.
60:
"This principle is pertinent only when there is no power to tax
a particular subject, and has no relation to a case where such
right exists. In other words, the power to destroy which may be the
consequence of taxation is a reason why the right to tax should be
confined to subjects which may be lawfully embraced therein, even
although it happens that in some particular instance no great harm
may be caused by the exercise of the taxing authority as to a
subject which is beyond its scope. "
Page 302 U. S. 181
Chief Justice Marshall denied the existence of the power. From
that day to this, the Court has consistently held that the question
is not one of quantum, not one of the weight of the burden, but one
of power. The Court has said that the attempt to tax the means
employed by the government is "the usurpation of a power which the
people of a single state cannot give." Referring to the decision in
McCulloch v. Maryland, it was said:
"The decision in that case was not put upon any consideration of
degree, but upon the entire absence of power on the part of the
States to touch, in that way at least, the instrumentalities of the
United States;
17 U. S. 4 Wheat. 429,
17 U. S. 430, and that is the
law today. [
Footnote 2/40]"
Again, the Court has said:
"It is obvious that the same power which imposes a light duty
can impose a very heavy one, one which amounts to a prohibition.
Questions of power do not depend on the degree to which it may be
exercised. If it may be exercised at all, it must be exercised at
the will of those in whose hands it is placed. If the tax may be
levied in this form by a state, it may be levied to an extent which
will defeat the revenue by impost, so far as it is drawn from
importations into the particular state. [
Footnote 2/41]"
Again it was recently said:
"Where the principle applies it is not affected by the amount of
the particular tax or the extent of the resulting interference, but
is absolute.
McCulloch v. Maryland, 4
Wheat. 316,
17 U. S. 430;
United
States v. Baltimore & Ohio R. Co., 17 Wall.
322,
84 U. S. 327;
Johnson v.
Maryland, 254 U. S. 51,
254 U. S.
55-56;
Gillespie v. Oklahoma, 257 U. S.
501,
257 U. S. 505;
Crandall
v. Nevada, 6 Wall. 35,
73 U. S.
44-46. [
Footnote
2/42]"
No one denies the competence of the Congress to waive the
immunity in whole or in part. [
Footnote 2/43] But his is the
Page 302 U. S. 182
reverse of saying the power to tax federal means and operations
exists in the states subject to veto by Congress of any exorbitant
exercise of the power. And it may be pertinent to suggest that if,
as the Court has always held, the immunity is reciprocal, the state
legislatures, by a parity of reasoning, ought to have the power to
prohibit federal taxes upon state operations if they be deemed
immoderate.
It must be evident that, if the principle of federal immunity is
to be preserved, if all that the court has said respecting it is
not to be set aside, the gross receipts tax under review cannot be
rescued from condemnation by the circumstances that it bears upon
an independent contractor, does not discriminate, and is not so
burdensome as seriously to interfere with governmental
functions.
Such a tax upon gross receipts has been contrasted in all the
decisions, including those dealing with burdens upon commerce, with
a tax upon net income, the one being held a forbidden burden and
the other a permissible exaction. Despite the fact that the Court
has repeatedly applied the same tests of validity to taxes alleged
to burden interstate commerce as it has to exactions said to burden
the operations of the federal government, [
Footnote 2/44] it is said in the opinion:
"Respondent invokes our decisions in the field of interstate
commerce, where a tax upon the gross income of the
Page 302 U. S. 183
taxpayer derived from interstate commerce has long been held to
be an unconstitutional burden. . . ."
"But the difference is plain. Persons have a constitutional
right to engage in interstate commerce free from burdens imposed by
a state tax upon the business which constitutes such commerce or
the privilege of engaging in it or the receipts as such derived
from it."
As has been pointed out, the doctrine of federal immunity from
state taxation is based upon the right of the federal government to
carry on its lawful operations free from burden or impediment
imposed by a state upon the business which constitutes such
operations or the privilege of engaging in them. The Constitution
contains no clause forbidding the states to burden, impede, or
interfere with the operations of the federal government. In express
terms, it confers upon that government power to conduct those
operations. Nor does the Constitution contain any clause
prohibiting the states from burdening or interfering with the
conduct of interstate commerce. In express terms, it confers upon
Congress the power to regulate that commerce. In each case, there
is implied from the federal power delegated by the people an
immunity from interference or burden by the states. The cases are
entirely analogous. Comparing the immunity of interstate commerce
from state taxation with the like immunity of the federal
government, the court has said:
"The rule as to instrumentalities of the United States on the
other hand is absolute in form and at least stricter in substance.
[
Footnote 2/45]"
The cases in our reports respecting the immunity of interstate
commerce from burden by state taxation are the complete analogue of
those dealing with the federal immunity from the like burden. As in
the case of a private corporation employed as an agency of the
United
Page 302 U. S. 184
States, so in the case of a private corporation engaged in
interstate commerce, the states are free to lay a uniform and
nondiscriminatory tax upon the property employed in the business
within their jurisdiction. [
Footnote
2/46]
A tax upon the gross receipts of corporations derived both from
intrastate and interstate commerce is bad because it burdens the
latter. [
Footnote 2/47] A
franchise tax upon a corporation transacting an interstate
business, measured by its interstate business or its property
without the state, is void, on the same principle that a tax laid
upon the franchise of a corporation which is a federal agency or
instrumentality is void. [
Footnote
2/48]
A sales tax on gasoline sold within a state is invalid as it
affects gasoline purchased outside the state for use therein, for
the same reason a sales tax upon sales to the United States in
invalid. [
Footnote 2/49] A tax
upon the gross receipts of one engaged in interstate commerce is
bad because
Page 302 U. S. 185
a direct burden on that commerce in the same sense that a tax on
the gross receipts of business done with the United States is a
direct burden on the transaction with the federal government.
[
Footnote 2/50] In contrast, a
tax on the net income of one engaged in interstate commerce is not
upon his transactions in that commerce, but so remote therefrom as
not to burden it, just as a net income tax upon one who contracts
with the federal government is inoffensive to the rule of federal
immunity. [
Footnote 2/51]
A state may not lay an occupation tax upon the act of engaging
in interstate commerce, for the same reason that it may not lay a
similar tax upon the employment of an officer of the United States.
[
Footnote 2/52] The same
considerations of remoteness sustain taxes upon the mere purchase
of articles intended for use in interstate commerce or for the
fulfillment of government contracts. [
Footnote 2/53]
I conclude, then, that the tax in question is plainly imposed
upon the operations of the federal government; that it falls
squarely within the definition of such a burden, and is prohibited
upon the principle announced
Page 302 U. S. 186
in
McCulloch v. Maryland and ever since consistently
applied in the decisions of the court. I think that the judgment
should be affirmed.
These views with respect to the nature of the tax render it
unnecessary to express any opinion as to the asserted exclusive
federal jurisdiction over the area within which the appellee
pursued the activities which are the subject of the exaction.
MR. JUSTICE McREYNOLDS, MR. JUSTICE SUTHERLAND, and MR. JUSTICE
BUTLER join in this opinion.
[
Footnote 2/1]
Indian Motocycle Co. v. United States, 283 U.
S. 570,
283 U. S. 575;
Board of Trustees v. United States, 289 U. S.
48,
289 U. S. 59;
Helvering v. Powers, 293 U. S. 214,
293 U. S.
225.
[
Footnote 2/2]
McCulloch v.
Maryland, 4 Wheat. 316,
17 U. S. 430;
Weston v.
Charleston, 2 Pet. 449,
27 U. S.
467.
[
Footnote 2/3]
Clallam County v. United States, 263 U.
S. 341,
263 U. S.
344.
[
Footnote 2/4]
McGoon v.
Scales, 9 Wall. 23,
76 U. S. 27;
Tucker v.
Ferguson, 22 Wall. 527,
89 U. S. 572;
Van Brocklin v. Tennessee, 117 U.
S. 151;
Wisconsin Central R. Co. v. Price
County, 133 U. S. 496,
133 U. S. 504;
Irwin v. Wright, 258 U. S. 219,
258 U. S. 228.
But property acquired from the Government, upon its severance,
loses the immunity in the hands of the transferee.
Forbes v.
Gracey, 94 U. S. 762;
Group No. 1 Oil Corp. v. Bass, 283 U.
S. 279;
Indian Territory Oil Co. v. Board,
288 U. S. 325.
[
Footnote 2/5]
Dobbins v.
Commissioners, 16 Pet. 435;
Collector
v. Day, 11 Wall. 113. But the exemption does not
extend to taxes laid upon his privately owned property or a sales
tax on his personal purchases, even though they be of articles he
uses in connection with his performance of his government work.
Dyer v. City of Melrose, 215 U.S. 594;
Tirrell v.
Johnston, 293 U.S. 533; 86 N.H. 530.
[
Footnote 2/6]
Clallam County v. United States, 263 U.
S. 341;
New Brunswick v. United States,
276 U. S. 547;
New York ex rel. Rogers v. Graves, 299 U.
S. 401. For the same reason, a state tax which burdens
the fiscal operations of a territory must fall:
Farmers' &
Mechanics' Savings Bank v. Minnesota, 232 U.
S. 516.
[
Footnote 2/7]
Interstate railroad:
Railroad Co. v.
Peniston, 18 Wall. 5; National banks:
McCulloch v.
Maryland, 4 Wheat. 316;
Smith v. Kansas City
Title & Trust Co., 255 U. S. 180.
[
Footnote 2/8]
Osborn v.
Bank, 9 Wheat. 738;
Railroad Co.
v. Peniston, 18 Wall. 5;
Owensboro National
Bank v. Owensboro, 173 U. S. 664.
[
Footnote 2/9]
Railroad Co. v.
Peniston, 18 Wall. 5;
Indian Territory Oil Co.
v. Board, 288 U. S. 325,
288 U. S.
327-328.
[
Footnote 2/10]
Thomson v. Pacific
Railroad, 9 Wall. 579;
Western Union Tel. Co.
v. Massachusetts, 125 U. S. 530;
Massachusetts v. Western Union Tel. Co., 141 U. S.
40;
Baltimore Shipbuilding & Dry Dock Co. v.
Baltimore, 195 U. S. 375;
Fidelity & Deposit Co. v. Pennsylvania, 240 U.
S. 319;
Choctaw, O. & G. R. Co. v. Mackey,
256 U. S. 531;
Susquehanna Power Co. v. Tax Commission, 283 U.
S. 291;
Broad River Power Co. v. Query,
288 U. S. 178;
Federal Compress & Warehouse Co. v. McLean,
291 U. S. 17.
[
Footnote 2/11]
Choctaw, O. & Gulf R. Co. v. Harrison, 235 U.
S. 292;
Gillespie v. Oklahoma, 257 U.
S. 501;
Jaybird Mining Co. v. Weir,
271 U. S. 609.
[
Footnote 2/12]
Indian Territory Oil Co. v. Board, 288 U.
S. 325;
Taber v. Indian Territory Oil Co.,
300 U. S. 1.
[
Footnote 2/13]
The Solicitor General's argument, noticed later, would, however,
validate a tax of any description imposed upon federal
instrumentalities, provided the exaction were
nondiscriminatory.
[
Footnote 2/14]
Osborn v.
Bank, 9 Wheat. 738,
22 U. S.
867.
[
Footnote 2/15]
Federal Land Bank v. Crosland, 261 U.
S. 374.
[
Footnote 2/16]
Telegraph Co. v. Texas, 105 U.
S. 460.
[
Footnote 2/17]
Leloup v. Port of Mobile, 127 U.
S. 640;
Williams v. Talladega, 226 U.
S. 404.
[
Footnote 2/18]
Weston v.
Charleston, 2 Pet. 449.
[
Footnote 2/19]
Bank of Commerce v. New York
City, 2 Black 620;
Bank Tax
case, 2 Wall. 200;
Bank v.
Supervisors, 7 Wall. 26;
Home Savings Bank v.
Des Moines, 205 U. S. 503;
Missouri v. Gehner, 281 U. S. 313.
[
Footnote 2/20]
Northwestern Ins. Co. v. Wisconsin, 275 U.
S. 136;
National Life Ins. Co. v. United
States, 277 U. S. 508. And
no form of words or subterfuge can save an act the intent of which
is to reach the income from federal bonds.
Miller v.
Milwaukee, 272 U. S. 713;
Macallen Co. v. Massachusetts, 279 U.
S. 620,
279 U. S.
629.
[
Footnote 2/21]
The Banks v. The
Mayor, 7 Wall. 16,
74 U. S. 25.
[
Footnote 2/22]
Home Ins. Co. v. New York, 119 U.
S. 129;
Home Ins. Co. v. New York, 134 U.
S. 594.
[
Footnote 2/23]
Plummer v. Coler, 178 U. S. 115;
Greiner v. Lewellyn, 258 U. S. 384.
[
Footnote 2/24]
Hibernia Savings Society v. San Francisco, 200 U.
S. 310.
[
Footnote 2/25]
Weston v.
Charleston, 2 Pet. 449,
27 U. S.
465.
[
Footnote 2/26]
Jaybird Mining Co. v. Weir, 271 U.
S. 609.
[
Footnote 2/27]
Indian Motocycle Co. v. United States, 283 U.
S. 570;
Panhandle Oil Co. v. Mississippi ex rel.
Knox, 277 U. S. 218;
Grayburg Oil Co. v. Texas, 278 U.S. 582; 3 S.W.2d 427.
Compare 25 U. S.
Maryland, 12 Wheat. 419,
25 U. S.
440.
[
Footnote 2/28]
Graves v. Texas Co., 298 U. S. 393.
[
Footnote 2/29]
Trinityfarm Construction Co. v. Grosjean, 291 U.
S. 466.
[
Footnote 2/30]
General Construction Co. v. Fisher, 295 U.S. 715; 149
Or. 84, 39 P.2d 358;
Burnet v. A. T. Jergins Trust,
288 U. S. 508.
[
Footnote 2/31]
Alward v. Johnson, 282 U. S. 509.
[
Footnote 2/32]
Osborn v.
Bank, 9 Wheat. 738,
22 U. S.
867.
[
Footnote 2/33]
In this brief, the Solicitor General stated that figured upon
the estimated purchases of the Government for the then current
fiscal year, state sales taxes on gasoline of 4 cents per gallon,
imposed by all the states, would impose an added burden upon the
United States of $4,479,661.
[
Footnote 2/34]
See the cases cited in
302
U.S. 134fn2/10|>note 10,
supra.
[
Footnote 2/35]
See 302
U.S. 134fn2/5|>note 5,
supra.
[
Footnote 2/36]
Cornell v. Coyne, 192 U. S. 418;
Hope Natural Gas Co. v. Hall, 274 U.
S. 284;
Wheeler Lumber Bridge & Supply Co. v.
United States, 281 U. S. 572. The
same problem arises in connection with taxation alleged to burden
interstate commerce.
See American Manufacturing Co. v. St.
Louis, 250 U. S. 459.
[
Footnote 2/37]
See the cases cited in
302
U.S. 134fn2/17|>notes 17, 18 and 19.
[
Footnote 2/38]
Jaybird Mining Co. v. Weir, 271 U.
S. 609.
[
Footnote 2/39]
Western Union Tel. Co. v. Texas, 105 U.
S. 460;
Williams v. Talladega, 226 U.
S. 404;
Indian Motocycle Co. v. United States,
283 U. S. 570;
Panhandle Oil Co. v. Mississippi ex rel. Knox,
277 U. S. 218;
Graves v. Texas Co., 298 U. S. 393.
[
Footnote 2/40]
Johnson v. Maryland, 254 U. S. 51,
254 U. S.
55.
[
Footnote 2/41]
Brown v.
Maryland, 12 Wheat. 419,
25 U. S.
439.
[
Footnote 2/42]
Indian Motocycle Co. v. United States, 283 U.
S. 570,
283 U. S.
575.
[
Footnote 2/43]
Van Allen v.
Assessors, 3 Wall. 573.
[
Footnote 2/44]
Telegraph Co. v. Texas, 105 U.
S. 460,
105 U. S. 465;
Western Union Telegraph Co. v. Taggart, 163 U. S.
1,
163 U. S. 14;
Western Union Telegraph Co. v. Kansas, 216 U. S.
1,
216 U. S. 32;
U.S. Express Co. v.
Minnesota, 223 U. S. 335,
223 U. S. 344;
Choctaw, O. & G.R. Co. v. Harrison, 235 U.
S. 292,
235 U. S. 299;
Kansas City, Ft. S. & M. Ry. Co. v. Botkin,
240 U. S. 227,
240 U. S. 232;
Gillespie v. Oklahoma, 257 U. S. 501,
257 U. S.
504-505;
Northwestern Mutual Life Ins. Co. v.
Wisconsin, 275 U. S. 136,
275 U. S. 140;
Macallen Co. v. Massachusetts, 279 U.
S. 620,
279 U. S. 627;
Indian Motocycle Co. v. United States, 283 U.
S. 570,
283 U. S. 575;
Eastern Air Transport, Inc. v. So. Carolina Tax
Commission, 285 U. S. 147,
285 U. S. 152;
Fox Film Corp. v. Doyal, 286 U. S. 123,
286 U. S. 126;
Liggett & Myers Tobacco Co. v. United States,
299 U. S. 383,
299 U. S. 387.
[
Footnote 2/45]
Gillespie v. Oklahoma, 257 U.
S. 501,
257 U. S.
505.
[
Footnote 2/46]
Pullman's Palace-Car Co. v. Pennsylvania, 141 U. S.
18;
Western Union Tel. Co. v. Taggart,
163 U. S. 1;
Old
Dominion S.S. Co. v. Virginia, 198 U.
S. 299;
United States Express Co. v. Minnesota,
223 U. S. 335;
Pullman Co. v. Richardson, 261 U.
S. 330. And, as in the case of agents of the federal
government or contractors with it, a state may measure the value of
the property within its borders by a receipts tax in lieu of all
property taxes.
Compare United States Express Co. v.
Minnesota, 223 U. S. 335;
Cudahy Packing Co. v. Minnesota, 246 U.
S. 450;
Pullman Co. v. Richardson, 261 U.
S. 330,
with Alward v. Johnson, 282 U.
S. 509.
[
Footnote 2/47]
Philadelphia & Southern S.S. Co. v. Pennsylvania,
122 U. S. 326;
Galveston, H. & S.A. Ry. Co. v. Texas, 210 U.
S. 217;
Meyer v. Wells, Fargo & Co.,
223 U. S. 298.
[
Footnote 2/48]
Compare Western Union Tel. Co. v. Kansas, 216 U. S.
1,
and Ozark Pipe Line Corp. v. Monier,
266 U. S. 555,
with California v. Central Pacific R. Co., 127 U. S.
1;
Owensboro National Bank v. Owensboro,
173 U. S. 664;
Third National Bank v. Stone, 174 U.
S. 432,
and Louisville v. Third National Bank,
174 U. S. 435.
[
Footnote 2/49]
Compare Cook v. Pennsylvania, 97 U. S.
566,
and Bowman v. Continental Oil Co.,
256 U. S. 642,
with Panhandle Oil Co. v. Mississippi ex rel. Knox,
277 U. S. 218.
[
Footnote 2/50]
Compare Cook v. Pennsylvania, 97 U. S.
566;
Fargo v. Michigan, 121 U.
S. 230;
Crew Levick Co. v. Pennsylvania,
245 U. S. 292;
New Jersey Bell Tel. Co. v. State Board, 280 U.
S. 338;
Fisher's Blend Station v. Tax
Commission, 297 U. S. 650;
Puget Sound Stevedoring Co. v. Tax Commission,
302 U. S. 90,
with Western Union Tel. Co. v. Texas, 105 U.
S. 460.
[
Footnote 2/51]
Compare Shaffer v. Carter, 252 U. S.
37;
United States Glue Co. v. Oak Creek,
247 U. S. 321,
and Atlantic Coast Line R. Co. v. Daughton, 262 U.
S. 413,
with General Construction Co. v.
Fisher, 295 U.S. 715; 149 Or. 84, 39 P.2d 358,
and Burnet
v. A. T. Jergins Trust, 288 U. S. 508.
But see Gillespie v. Oklahoma, 257 U.
S. 501,
and Burnet v. Coronado Oil & Gas
Co., 285 U. S. 393.
[
Footnote 2/52]
Compare East Ohio Gas Co. v. Tax Commission,
283 U. S. 465,
with 41 U. S. Erie
County Commissioners, 16 Pet. 435,
and New York ex rel.
Rogers v. Graves, 299 U. S. 401.
[
Footnote 2/53]
Compare Eastern Air Transport, Inc. v. South Carolina Tax
Commission, 285 U. S. 147,
with Trinityfarm Construction Co. v. Grosjean,
291 U. S. 466,
and Tirrell v. Johnston, 293 U.S. 533.