302 U.S. 134 (1937), 3, James v. Dravo Contracting Co.

Docket Nº:No. 3
Citation:302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155
Party Name:James v. Dravo Contracting Co.
Case Date:December 06, 1937
Court:United States Supreme Court
 
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302 U.S. 134 (1937)

58 S.Ct. 208, 82 L.Ed. 155

James

v.

Dravo Contracting Co.

No. 3

United States Supreme Court

Dec. 6, 1937

Argued April 26, 27, 1937

Reargued October 12, 1937

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE SOUTHER DISTRICT OF WEST VIRGINIA

Syllabus

1. A State cannot lay a gross receipts tax on business carried on in another State. P. 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. 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. 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. 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.

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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. 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. 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. 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. 149.

8. As applied to such a contractor, a nondiscriminatory state tax on his gross receipts under the contract is not unconstitutional as a

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tax laid on the contract itself, or as otherwise directly burdening the Government. P. 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. 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. 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. 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. 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. 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. 160.

16 F.Supp. 527 reversed.

Appeal from a final decree of the three-judge District Court enjoining the collection of a State tax.

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HUGHES, J., lead opinion

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 [58 S.Ct. 211] Ohio river, both navigable streams.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

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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.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, 133-134; Shaffer v.

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Carter, 252 U.S. 37, 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...

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