v. Scurlock

• Decision Date: 08 February 1954
• Docket Number: KERN-LIMERICK,No. 115,115
• Citation: 98 L.Ed. 546,74 S.Ct. 403,347 U.S. 110
• Parties: Inc., et al. v. SCURLOCK, Com'r of Revenues for State of Arkansas
• Court: U.S. Supreme Court

347 U.S. 110

74 S.Ct. 403

98 L.Ed. 546

KERN-LIMERICK Inc., et al.

v SCURLOCK, Com'r of Revenues for State of Arkansas.

No. 115.

Argued Jan. 4, 1954.

Decided Feb. 8, 1954.

Mr. Cleveland Holland, Asst. Atty. Gen., for appellants.

Mr. O. T. Ward, Little Rock, Ark., for appellee.

Mr. Justice REED delivered the opinion of the Court.

This appeal brings here the legality of the application of the Arkansas Gross Receipts Tax Law of 1941, Ark.Stat. 1947, § 84 1901 et seq., to a transaction by which certain private contractors engaged in a joint venture, abbreviated WHMS, procured in Arkansas two diesel tractors costing $17,146, for use in the construction there for the United States of a naval ammunition depot estimated to cost over thirty million dollars. The tractors were procured from Kern-Limerick, Inc., a local dealer. The circumstances of the transaction would concededly make Kern-Limerick liable for the tax if the real purchaser were not the United States.

The applicable sections of the Gross Receipts Tax Law levy an 'excise tax of two (2%) per centum upon the gross proceeds or gross receipts derived from all sales to any person'. § 84—1903. This is a sales tax, not a use tax.¹ It is to be paid to the Tax Commissioner by the seller, § 84—1908. He is the taxpayer, § 84 1902(e), and 'shall collect the tax levied hereby from the purchaser.' s 84—1908. Gross receipts derived from sales to the United States Government are exempt. § 84—1904.

The construction contract had, so far as pertinent here, the provisions as to 'Materials-Purchases' which are set out in the margin.² It was entered into by the Department of the Navy 'under the authority of Sections 2(c)(10) and 4(b)' of the Armed Services Procurement Act of 1947. 62 Stat. 21, 41 U.S.C. (Supp. V) § 151 et seq., 41 U.S.C.A. § 151 et seq. These sections authorized this cost-plus-a-fixed-fee contract by negotiation without advertising.³

Kern-Limerick, Inc., the seller, upon demand by the Commissioner paid under protest the amount of the sales tax and brought this action for a refund in accordance with state law. The United States intervened as under the contract any state taxes the contractor was required to pay were reimbursable to it by the Government. The Supreme Court of Arkansas held WHMS was the purchaser and the claimed tax payable by Kern-Limerick as the 'seller.' It denied the contention of the United States that the Government was the purchaser. It held that the Armed Services Procurement Act authorized the Navy Department 'to purchase supplies or services for its own use,' but did not authorize the Department 'to buy nails, lumber, cement, tractors, etc., which were not to be used by the Navy but by WHMS (in this instance) to construct, as independent contractors, the Ammunition Dump.' The state court further held that, even if the Department had the authority to buy the tractors, it could not, under the Procurement Act of 1947, delegate this power to WHMS. Parker v. Kern-Limerick, Inc., Ark., 254 S.W.2d 454.

Appellants seek reversal of the decision on the grounds that the Procurement Act authorizes this contract and that the Arkansas tax cannot by statute or constitutionally be applied to a purchase by the United States.

The state court's interpretation of the Procurement Act to deny the Navy authority to buy supplies or equipment for the construction of an ammunition dump is, we think, too restrictive. The Act gives broad powers to the Armed Services for obtaining as cheaply and promptly as possible 'purchases and contracts for supplies or services * * * for the use of any such agency or otherwise,' § 2(a), and provides:

Sec. 9. '(b) The term 'supplies' shall mean all property except land, and shall include, by way of description and without limitation, public works, buildings, facilities, ships, floating equipment, and vessels of every character, type and description, aircraft, parts, accessories, equipment, machine tools and alteration or installation thereof.'⁴

We hold that the Act allows the purchase of this machinery.

It seems to us, also, that under the Procurement Act the Armed Services may use agents, other than its own official personnel, to handle for it the detail of purchase. The contention of Arkansas which was accepted by its Supreme Court is, as we understand it, that the Procurement Act does not permit a delegation to private contractors of any authority to purchase for or pledge the credit of the United States even though these contractors have contracts for construction or supplies on a cost-plus basis. Further, it follows from the Arkansas contention, that without such statutory authority the purchase by the contractor was not for the United States but for itself. This contention is based on the language of the Procurement Act, §§ 7(a) and (b).⁵ Pursuant to § 7(a), the Secretary of the Navy, somewhat obscurely, appears to have delegated his authority to determine the necessity for a negotiated contract to a Navy Contracting Officer asserted in the contract, without exception, to be the Chief of the Bureau of Yards and Docks. See 32 CFR §§ 400.201—5 and 402.101. That official negotiated the contract, as it stated and as is admitted by stipulation, under the authority of § 2(c)(10) of the Procurement Act—'for supplies or services for which it is impracticable to secure competition'.

Arkansas calls attention to the restrictions on delegation in § 7(b) upon which the state court commented. But the provisions of § 7(b), as the words show, do not cover actions under § 2(c)(10), and the section's prohibition of delegation in certain instances is inapplicable. We find nothing in the Procurement Act that bars a contract for purchase for the United States of supplies or services by private persons.

The Government asserts that §§ 4(a) and (b) authorize this contract. Under them, negotiated contracts such as this 'may be of any type which * * * will promote the best interests of the Government.' Under such a provision, it seems that the determination to use purchasing agents is permissible. Where there is no prohibition of a particular type of contract and no direction to use a particular type, the contracting officers are free to follow business practices.⁶ We conclude that the Navy Department has power to negotiate contracts which provide for private purchasing agents for supplies and materials.

With this determination that the provisions of the contract are within the authority of the Procurement Act, we turn to examine the validity of the argument that the naming of the Government as purchaser was only colorable and left the contractor the real purchaser and the transaction subject to the Arkansas tax. State of Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3, is relied upon primarily. We consider this argument under the assumption, made by the Supreme Court of Arkansas, that the contract was designed to avoid the necessity in this cost-plus contract of the ultimate payment of a state tax by the United States.

We are mindful, too, of the careful attention Congress has given in recent years to a proper adjustment of tax liabilities between the federal and the state sovereignties. Congress has been solicitous to see that states and their subdivisions are not unduly burdened by federal acquisi- tion of property taxable by the states when otherwise held. It understands the burdens on local public agencies from the new federal installations and their accompanying personnel. Provisions deemed suitable have been made.⁷ These include recent legislation designed to make independent contractors carrying on activities of the Atomic Energy Commission subject to state sales taxes.⁸ But in recommending the legislation the Joint Committee on Atomic Energy, while providing for voluntary contributions, did not propose to subject Government property and purchases to state taxes. The enactment left them free.⁹ This recognition of the constitutional immunity of the Federal Government from state exactions rests, of course, upon unquestioned authority. From McCulloch v. State of Maryland, 4 Wheat. 316, 4 L.Ed. 579, through Gillespie v. State of Oklahoma, 257 U.S. 501, 42 S.Ct. 171, 66 L.Ed. 338, and People of State of New York ex rel. Rogers v. Graves, 299 U.S. 401, 57 S.Ct. 269, 81 L.Ed. 306, a host of cases upheld freedom from state taxation not only for Government activities but also for the agencies and salaries of persons that carried on the work. James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155, reviewed this judicial history, adopted for federal contractors and state taxation the reasoning that subjected a state contractor's earnings to federal income tax and upheld the state's gross receipts tax upon a federal contractor's earnings on the ground that it did not interfere 'in any substantial way with the performance of federal functions'. Id., 302 U.S. at page 161, 58 S.Ct. at page 221. The question of the immunity of Government in relation to its purchases of commodities was left open. Id., 302 U.S. at page 153, 58 S.Ct. at page 218. Graves v. People of State of New York ex rel. O'Keefe, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927, overruled People of State of New York ex rel. Rogers v. Graves, supra, and Gillespie, supra, fell in Oklahoma Tax Comm. v. Texas Co., 336 U.S. 342, 365, 69 S.Ct. 561, 573, 93 L.Ed. 721.

A phase of the question reserved in the Dravo case came up in State of Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3. We declared that federal sovereignty 'does not spell immunity from paying the added costs, attributable to the taxation of those who furnish supplies to the Government and who have been granted no tax immunity.' Id., 314 U.S. at page 9, 62 S.Ct. at page 45. That case involved the usual type sales tax on the seller, collectible by him from the buyer. There was there, too, a cost-plus-a-fixed-fee contract with the United States. We held the state tax...