Dravo Contracting Co. v. James

• Decision Date: 06 September 1940
• Docket Number: No. 4654.,4654.
• Citation: 114 F.2d 242
• Parties: DRAVO CONTRACTING CO. v. JAMES.
• Court: U.S. Court of Appeals — Fourth Circuit

114 F.2d 242 (1940)

DRAVO CONTRACTING CO. v. JAMES.

No. 4654.

Circuit Court of Appeals, Fourth Circuit.

September 6, 1940.

Lawrence D. Blair, of Pittsburgh, Pa., and W. Chapman Revercomb, of Charleston, W. Va. (William S. Moorhead, of Pittsburgh, Pa., and W. Elliott Nefflen, of Charleston, W. Va., on the brief), for appellant and cross-appellee.

Clarence W. Meadows, Atty. Gen. of West Virginia (W. Holt Wooddell, Asst. Atty. Gen. of West Virginia, on the brief), for appellee and cross-appellant.

Before PARKER, SOPER, and DOBIE, Circuit Judges.

PARKER, Circuit Judge.

This is the second appeal in a suit instituted to enjoin the collection of taxes and penalties in the sum of $135,761.51 assessed by the Tax Commissioner of West Virginia against the Dravo Contracting Company. The case was first heard before a statutory court of three judges, and the taxes were held void on the ground that they burdened operations of the United States Government. Dravo Contracting Co. v. Fox, D.C., 16 F.Supp. 527. On appeal this decision was reversed by the Supreme Court and the case was remanded for further proceedings. James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155, 114 A.L.R. 318. The Supreme Court, in addition to passing upon the question as to burden upon the federal government, considered the question of the territorial jurisdiction of the State of West Virginia to impose the tax and held that the jurisdiction existed except as to certain work done in Pennsylvania and that an apportionment would be necessary as to this. The case was then heard before the District Judge, the special court of three judges no longer being necessary; and, from a decree apportioning gross income for purposes of taxation under the statute in accordance with the cost of work performed in the respective states, both parties have appealed. The commissioner contends that the tax should be assessed upon the entire amount of the payments received by the taxpayer on the government contracts, less the amounts paid upon delivery or fabrication of materials at Pittsburgh, title to which passed to the government upon such payments. Taxpayer contends that the entire tax is void because no method of apportionment has been provided by statute.

The statute involved is ch. 11, art. 13, West Virginia Code of 1931, as amended May 26, 1933, Acts W.Va.1933, 1st Ex. Sess., c. 33. The applicable provisions thereof are as follows:

"Sec. 2. There is hereby levied and shall be collected annual privilege taxes against the persons, on account of the business and other activities, and in the amounts to be determined by the application of rates against values or gross income, as follows:

* * *

"(e) Upon every person engaging or continuing within this state in the business of contracting, the tax shall be equal to two per cent of the gross income of the business."

Gross income is thus defined in the statute: "`Gross income' means the gross receipts of the taxpayer received as compensation for personal services and the gross receipts of the taxpayer derived from trade, business, commerce or sales and the value proceeding or accruing from the sale of tangible property (real or personal), or service, or both, and all receipts by reason of the investment of the capital of the business engaged in, including interest, discount, rentals, royalties, fees or other emoluments however designated and without any deductions on account of the cost of property sold, the cost of materials used, labor costs, taxes, royalties, interest or discount paid or any other expense whatsoever." Section 1.

Taxpayer is an engineering and contracting corporation existing under the laws of Pennsylvania and having its office and principal place of business as well as its extensive plant at Neville Island near Pittsburgh. During 1933 and 1934, the tax years here in question, it held four contracts with the United States Government for the construction of locks and dams in the Ohio and Kanawha rivers in the state of West Virginia. These contracts provided for the payment of unit prices for the work to be done in the construction of the locks and dams; and, with the exception hereafter noted, progress payments were made upon delivery of materials at the dam sites or upon incorporation of these materials in the locks or dams. The exception, as pointed out by the Supreme Court (302 U.S. at page 139, 58 S.Ct. 208, 211, 82 L.Ed. 155, 114 A.L.R. 318) was that partial payments were made upon the fabrication of roller gates and certain other equipment at the Pittsburgh plant, the title to which thereupon vested in the government. In the same category, of course, are payments made upon delivery at the Pittsburgh plant. All other payments were made either upon delivery of materials at the dam sites or upon incorporation in structure or erection. It is the contention of the commissioner that the entire income received from the contracts, with the exception of the partial payments made on account of the delivery or fabrication of material at the Pittsburgh plant, was income received as the result of activities taking place in the state of West Virginia, and that this is properly taxable by the state of West Virginia and is taxed by the provision of the statute in question. And in support of the position that no portion of the income should be excluded except that which was received upon delivery or fabrication of materials at the Pittsburgh plant, the commissioner relies upon the following language of the Supreme Court in the former appeal:

"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 preassembled 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 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 283 U.S. 123, 51 S.Ct. 385, 75 L.Ed. 879, supra."

The contention of the taxpayer is that the State of West Virginia may not tax activities under the contract not taking place in West Virginia; and that, in addition to the fabrication of parts at the Pittsburgh plant upon which partial payments were made, it did much work there in preparing structural steel and other materials for incorporation in the locks and dams. A stipulation as to the costs incurred at the plant and at the work sites was entered into; and the judge below made an apportionment of income based upon this stipulation. Taxpayer contends, however, that the court is without power to apportion income for the purpose of taxation on the basis of relative costs, as no such apportionment is provided for in the statute, and that, in the absence of such provision, the effect of the fact that taxpayer earns the income from the contracts by activities occurring without the state as well as within it, is to invalidate the tax as applied to such income.

We agree with taxpayer that the court was without power to apportion its income on the basis of the cost of the activities involved in earning the income within and without the state. No such basis of apportionment is prescribed by statute; and, in the absence of statute, the court is without power to adopt it, as this is a legislative function involved in the imposition of the tax, and, therefore, not one which courts may exercise. 61 C.J. 1583. Commonwealth v. P. Lorillard Co., 129 Va. 74, 105 S.E. 683. Porto Rico Mercantile Co. v. Gallardo, 1 Cir., 6 F.2d 526. Mackin v. Taylor County Court, 38 W.Va. 338, 18 S.E. 632. In cases where the tax imposed is not in its nature divisible and some part thereof is beyond the taxing power of the state and no provision is made for apportionment, the whole tax is void. Gwin, White & Prince, Inc., v. Henneford, 305 U.S. 434, 59 S.Ct. 325, 83 L. Ed. 272. Adams Mfg. Co. v. Storen, 304 U.S. 307, 58 S.Ct. 913, 82 L.Ed. 1365, 117 A.L.R. 429. Bowman v. Continental Oil Co., 256 U.S. 642, 41 S.Ct. 606, 65 L.Ed. 1139. As said by Mr. Justice Holmes in Meyer, Auditor of the State of Oklahoma v. Wells, Fargo & Co., 223 U.S. 298, 302, 32 S.Ct. 218, 220, 56 L.Ed. 445, "Neither the court below nor this court can reshape the statute simply because it embraces elements that it might have reached if it had been drawn with a different measure and intent." If, therefore, any such apportionment as was made by the court below were necessary to separate the portion of the income which the state has jurisdiction to tax from the remainder, the tax would unquestionably be void in its entirety. The fact that the Supreme Court sustained the tax, although the point was expressly...