Parker v. Kern-Limerick, Inc., KERN-LIMERIC

• Decision Date: 12 January 1953
• Docket Number: KERN-LIMERIC,No. 4-9924,I,4-9924
• Citation: 221 Ark. 439,254 S.W.2d 454
• Parties: PARKER, Commissioner of Revenue, v.nc., et al.
• Court: Arkansas Supreme Court

Page 454

254 S.W.2d 454

221 Ark. 439

PARKER, Commissioner of Revenue, v. KERN-LIMERICK, Inc., et al.

No. 4-9924.

Supreme Court of Arkansas.

Jan. 12, 1953.

Rehearing Denied Feb. 23, 1953.

O. T. Ward, Little Rock, for appellant.

Rose, Meek, House, Barron & Nash, Little Rock, Berryman Green, Washington, D. C., for appellee.

WARD, Justice.

The United States of America, through and on behalf of the Navy Department, entered into a written contract [designated as NOy23197] with Winston Bros. Company, C. F. Haglin and Sons Company, Missouri Valley Contractors, Inc., and Sollitt Construction Company, Inc. [hereinafter refered to as WHMS] to construct a Naval Ammunication Depot at Shumaker, Arkansas, the total cost of which was approximated at $30,800,000. By the terms of the contract of employment WHMS was to procure all labor, supplies, materials, etc., necessary for constructing and equipping said depot and pay for the same, and the Government was to reimburse WHMS for all such expenditures and pay them, in addition, the sum of $580,000 for their services as contractors. The type of contract referred to is designated and is generally known as a 'Cost-Plus-a-Fixed-Fee Contract'. Other provisions of the contract will be specifically mentioned later.

The question herein to be decided arose in the manner presently set forth. On December 14, 1950 Kern-Limerick, Inc., a machinery and equipment company of Little Rock, Arkansas, sold to WHMS [as contended by appellant] or to the United States [as contended by the latter] two diesel tractors for a total price of $17,146.66, and the tractors were delivered at the site of construction at Shumaker, Arkansas. The Revenue Commissioner for the State of Arkansas demanded payment from Kern-Limerick, Inc. in the sum of $342.93 as a 2% tax on the sale price pursuant to the provisions of the Arkansas Gross Receipts Act of 1941. Payment of the tax was made under protest by Kern-Limerick, Inc. and later suit was filed in the Chancery Court of Pulaski County, Arkansas for the recovery of the amount so paid. The United States intervened in this suit, contending that the sale in question was a sale to it and that consequently no tax was collectable thereon by the State of Arkansas. The Chancery Court held with the contention of the United States and the Commissioner of Revenues for the State of Arkansas has appealed to this Court for a reversal.

The 1941 Gross Receipts Act, referred to before, provides that no tax shall be paid on sales to the United States; therefore, the question confronting this Court is whether the sale in question was made to WHMS or to the United States. To answer this question it is necessary to examine the provisions of the contract between WHMS and the United States and to do so in the light of court decisions relating thereto.

In order to obtain the savings in money and time that may reasonably be expected by the negotiation of a cost-plus contract such as the one here involved, it is obvious that the U.S. Government must maintain, and so the contract must provide, effective control over all purchases by the contractor; otherwise, the Government could not be assured it would receive standard materials and services at the lowest possible prices. Therefore, as would be expected, the United States in this case wrote into its contract with WHMS provisions for strict control of all purchases of labor, materials, and equipment which were to be used in or for the construction of the Ammunition Depot.

Contract. Some of the pertinent provisions were: (a) All applications for purchases, all bids, and all purchases must be made on Government [Navy] forms and all must be approved by an Officer in Charge who was an officer representing the Navy Department; (b) After approval WHMS consummated the transaction by paying the purchase price and taking delivery at the site of construction at Shumaker, Arkansas; (c) Upon presentation of the evidences of purchase and upon a showing that all requirements had been complied with, the purchase price paid, and delivery made, the Government would reimburse WHMS. Before reimbursement it must also appear that the Government had appropriated money for that purpose; (d) Title to the property so purchased never vested in WHMS but did vest in the United States; (e) WHMS was acting as purchasing agent for the United States in negotiating all purchases; (f) The United States was obligated to the vendor to pay the purchase price; and (g) The vendor was to make demand for payment by submitting an invoice to WHMS.

Some of the terms of the contract, including those designated (e), (f) and (g) above, were printed on the back of all 'Request for Bids' and 'Purchase Order' blanks which went to prospective vendors.

Arkansas Statute. The tax sought to be imposed herein by the Arkansas Revenue Commissioner is levied by Act No. 386 of 1941, which specifies a tax of 2%, Ark.Stats. § 84-1903, upon the gross proceeds derived from all sales, and requires the vendor, Ark. Stats. 84-1908, to pay the tax to the Commissioner. Some other pertinent provisions of said Act No. 386 are set out below.

(1) Ark.Stats. 84-1902(c):

'Sales: The term 'sale' is hereby declared to mean the transfer of either the title or possession for a valuable consideration of tangible personal property, regardless of the manner, method, instrumentality, or device by which such transfer is accomplished.'

(2) Ark.Stats. 84-1902(i):

'Consumer--User: The term 'consumer' or 'user' means the person to whom the taxable sale is made, or to whom taxable services are furnished. All contractors are deemed to be consumers or users of all tangible personal property including materials, supplies and equipment used or consumed by them in performing any contract and the sales of all such property to contractors are taxable sales within the meaning of this act.

(3) Ark.Stats. 84-1903(e)--last paragraph:

'Sales of service and tangible personal property including materials, supplies and equipment made to contractors who use same in the performance of any contract are hereby declared to be sales to consumers or users and not sales for resale.'

As has been previously stated, the vital question is: Who was the 'purchaser' in this instance? Was it WHMS or the United States? It is conceded that if it was the former the tax is collectable, and if it was the latter the tax is not collectable. The opinion of the United States Supreme Court in the case of Alabama v. King and Boozer [which will be cited later], in which this same question was under consideration, contains this language: 'Who, in any particular transaction like the present, is a 'purchaser' within the meaning of the statute, is a question of state law on which only the Supreme Court of Alabama can speak with final authority.' Giving a reasonable interpretation to the language of the Arkansas Gross Receipts Act as it is set out in sub-paragraphs above (1) defining a Sale, (2) defining Consumer-User and (3) relating to contractors, and having in mind all the provisions of the contract between WHMS and the United States, we ae of the opinion that WHMS was the 'purchaser' in this instance and that consequently Kern-Limerick, Inc. is liable to the Commissioner for the tax on the two tractors which it sold.

Notwithstanding the above, however, it is obvious that the State of Arkansas could not arbitrarily define WHMS as the 'purchaser' and thereby impose a tax on the United States Government if in fact and in truth the latter was the purchaser in this instance, and so we will proceed to consider the question from that standpoint after making this further observation. In determining whether or not the State of Arkansas has acted arbitrarily in enacting this particular Act with the language it contains depends on whether the Act is discriminatory, and, particularly in this instance, whether it discriminates against the United States. The opinion referred to above recognizes this test and makes it clear that the mere fact that the tax is eventally passed on to the Federal Government is no indication it is discriminatory or that it violates the immunity of the Government. In our opinion on the Arkansas Statute meets all the tests.

Was the United States the Purchaser? In coming to the conclusion that the United States was not, in this instance, the 'purchaser', we base our decision primarily on the opinion in the case of State of Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 46, 86 L.Ed. 3, decided in 1941. The question for decision in that case was the same as presented here and was based on facts, with the exceptions later noted, very similar to the facts of this case. The opinion which overruled some former decisions and approved others is comprehensive and logical and appears to be a landmark case on the issue involved. It upheld the imposition of a sales tax by an Alabama Statute on the sale of lumber by King and Boozer to a cost-plus-a-fixed fee contractor who was engaged in constructing a project for the Government pursuant to a contract presently to be mentioned.

For the sake of brevity it suffices for this opinion to say that the Government contract in the King & Boozer case was like the contract here with the same provisions and regulations except three on which the intervenor relies to distinguish the two cases. The three exceptions referred to are: (a) In the cited case the contractor was liable to the vendor for the purchase price while here the contract provides the Government shall be liable; (b) Here the contract designates the contractor [WHMS] as Purchasing Agent for the Government, while in the cited case no such provision appears in the contract; and (c) Here the contract provides that title to any purchased article vests immediately in the Government while in the cited case it vested in the Government upon delivery at the site of construction and approval by the Government.

It is our judgment that the...