General Motors Corp. v. State Commission of Revenue and Taxation

• Decision Date: 01 November 1947
• Docket Number: Docket No. 14,815,A
• Parties: GENERAL MOTORS CORPORATION, a Corporation, Appellee, The United States of America, Appellee, v. The STATE COMMISSION OF REVENUE AND TAXATION of the State of Kansas, Appellant. Appeal of General Motors Corporation, from a Final Order of the State Commission of Revenue and Taxation of the State of Kansas, in Itsssessing Compensating (Use) Tax Against Said Corporation for the Period from
• Court: Kansas Supreme Court

Page 807

320 P.2d 807

182 Kan. 237

GENERAL MOTORS CORPORATION, a Corporation, Appellee, The United States of America, Appellee, v. The STATE COMMISSION OF REVENUE AND TAXATION of the State of

Kansas, Appellant.

Appeal of General Motors Corporation, from a Final Order of

the State Commission of Revenue and Taxation of the State of

Kansas, in Its Docket No. 14,815, Assessing Compensating

(Use) Tax Against Said Corporation for the Period from

November 1, 1947, through October 31, 1951.

No. 40593.

Supreme Court of Kansas.

Jan. 25, 1958.

Syllabus by the Court.

In an action arising out of an assessment of compensating (use) tax (G.S.1949, 79-3701 et seq.) against a corporation which, under contracts with the government, used materials and equipment purchased outside the state in the manufacture of military aircraft for the government in a government-owned aircraft plant, the record is examined and considered, and, all as more fully set out in the opinion, it is held: The property in question was at all times owned by the government; the corporation's use of the property was not 'incident to the ownership of that property,' and the trial court correctly set aside the assessment of the tax in question.

Clarence J. Malone, of Topeka, and Frank G. Theis, Arkansas City, argued the cause and were on the briefs for appellant.

Willard N. Van Slyck, Jr., Topeka, and Edward M. Boddington, Jr., Kansas City, argued the cause, and Clayton E. Kline, M. F. Cosgrove, Robert E. Russell, William B. McElhenny, O. R. Stites, Jr., and James L. Grimes, Jr., Topeka, and Edward M. Boddington and J. O. Emerson, Kansas City, were with them on the briefs for General Motors Corp., a corporation, appellee.

H. Eugene Heine, Jr., Dept. of Justice, Washington, D. C., argued the cause, and Charles K. Rice, Asst. Atty. Gen., A. F. Prescott and John J. Crown, Dept. of Justice, Washington, D. C., and William C. Farmer, U. S. Atty., And Milton P. Beach, Asst. U. S. Atty., Topeka, were with him on the briefs for the United States of America, appellee.

PRICE, Justice.

This appeal arises under the Kansas compensating tax law (G.S.1949, 79-3701 et seq.) commonly referred to as the 'use' tax.

The State Commission of Revenue and Taxation (hereafter referred to as the commission) sustained an assessment of compensating (use) tax in the amount of $25,446.53 against General Motors Corporation (hereafter referred to as the corporation). The dispute involves purchases of material and equipment from vendors outside the state between January and October 31, 1951, such purchases having been made pursuant to a contract between the corporation and the United States of America (hereafter referred to as the government). The corporation appealed to the district court and the government was allowed to intervene.

The district court reversed, vacated and set aside the assessment and the commission has appealed.

In rendering judgment the court made findings of fact and conclusions of law as follow:

'Findings of Fact

'1. This is a statutory proceeding brought to review a final order of the State Commission of Revenue and Taxation sustaining an assessment of Kansas Compensating (use) taxes made by the Director of Revenue against General Motors Corporation for the period from November 1, 1947, through October 31, 1951, in the amount of $25,446.53.

'2. The taxes in question arise as a result of purchases of machinery and other equipment made outside of the State of Kansas and brought into the State for use in connection with the manufacture of military airplanes.

'3. In the early part of 1951 the United States and General Motors entered into two (2) contracts: (1) General Motors was to fabricate a number of airplanes for the United States, and this item is not a matter of controversy. (2) The United States was to furnish General Motors, rent free, all necessary equipment to enable General Motors to fabricate these airplanes, and the suit before the Court arises out of this contract known as 'Facilities Contract.'

'4. January 17, 1951, the 'Facilities Contract' so called was executed and became a part of a 'Definitive Contract' dated July 21, 1952, and made retroactive to the 1951 date, both documents being among the exhibits of General Motors.

'5. No tax was levied by the State of Kansas on the use of equipment acquired by General Motors from the United States' stock pile of machinery, but only on the use of that coming to the General Motors through purchase by General Motors, as directed by the contract hereinabove referred to.

'6. Purchases by General Motors were made upon authorization of United States officers in charge, at the plant of General Motors, transported on U. S. Government bills of lading, received at the Kansas City, Kansas, plant of General Motors, immediately tagged as being 'property of the U. S. A. F.,' and records prepared showing equipment as Government owned. The equipment was paid for from General Motors' funds, and reimbursement made by the United States to General Motors promptly on receipt of General Motors' voucher therefor.

'7. The United States controlled all equipment, could divert from General Motors to other plants, could divert from some other plant to General Motors, and this, while equipment was in transit, or after delivery to General Motors.

'8. The equipment in the General Motors' plant, used in the programme, was not listed on General Motors' books as part of its assets, no depreciation or amortization taken thereon, and no insurance carried.

'9. The equipment involved was purchased outside Kansas, and became U. S. property immediately after purchase; General Motors exercised no claim of ownership to said equipment, and at no time owned same.

'Conclusions of Law

'1. The United States was the purchaser of the tangible personal property in question, and was vested with full ownership thereof.

'2. The United States was the 'user, storer or consumer' of the property at the time said property was used, stored or consumed in the State of Kansas, within the meaning of the Kansas Compensating Tax Act.

'3. General Motors Corporation's use of the property was merely in the capacity of a bailee in whose possession the property was placed to accomplish the purposes of the bailor, the United States, and said corporation exercised no privilege of use, storage or consumption.

'4. The United States is the taxpayer within the meaning of the Kansas Compensating Tax Act.

'5. General Motors Corporation is not liable for any compensating tax with respect to the use of the properties within the State of Kansas.

'6. Under the Constitution of the United States, the Federal Government is immune from taxation by the State of Kansas with respect to its property, activities and instrumentalities, and it is not liable for the payment of a compensating tax with respect to its purchase, use, storage or consumption of the property in question.

'7. The State Commission of Revenue and Taxation erroneously sustained the compensating tax assessment against the General Motors Corporation, and its decision must be reversed.'

As abstracted, the record before us contains over 500 pages, including numerous exhibits, but only so much thereof sufficient to show the over-all picture and to support the trial court's findings will be referred to.

In the early part of 1951 the government (Department of the Air Force) entered into certain agreements with the corporation for the manufacture of military aircraft by the corporation at the government-owned aircraft plant in Kansas City, Kansas. Two basic agreements were made--one referred to as a 'supply contract' and the other a 'facilities contract.' The latter contract, among other things, provided that title to all work under it completed or in the course of manufacture or assembly at the plant was to be in the government; that title to all items of facilities, materials, parts and equipment, for which the corporation would be entitled to be reimbursed, was to be vested in the government upon delivery to the corporation at any point within the continental limits of the United States, and that all such property was to remain personalty although it may be affixed to realty not belonging to the government. The facilities contract was superseded by a 'definitive contract,' which, among other things, provided:

'A. Title to all property furnished by the Government shall remain in the Government. Title to all property purchased by the Contractor, for the cost of which the Contractor is entitled to be reimbursed as a direct item of cost under this contract, shall pass to and vest in the Government upon delivery of such property by the vendor. Title to other property, the cost of which is reimbursable to the Contractor under this contract, shall pass to and vest in the Government upon (i) issuance for use of such property in the performance of this contract, or (ii) commencement of processing or use of such property in the performance of this contract, or (iii) reimbursement of the cost thereof by the...