114 F.2d 242 (4th Cir. 1940), 4654, Dravo Contracting Co. v. James

Docket Nº:4654.
Citation:114 F.2d 242
Case Date:September 06, 1940
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 242

114 F.2d 242 (4th Cir. 1940)




No. 4654.

United States Court of Appeals, Fourth Circuit.

September 6, 1940

Page 243

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 Woodell, 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

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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, 52 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 is taxed by the provision of the statute in question. And in support of the position that no portion of the income should be...

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