Boeing Co. v. Omdahl
| Decision Date | 26 June 1969 |
| Docket Number | No. 8516,8516 |
| Citation | 169 N.W.2d 696 |
| Parties | The BOEING COMPANY, a Delaware Corporation; and the United States of America, Plaintiffs and Respondents, v. Lloyd OMDAHL, as Tax Commissioner of the State of North Dakota, and his Successors in Office; Gaffaney's Minot Stationery Company, a Corporation; Souris River Telephone Mutual Aid Cooperative, a Corporation; and Porter Bros. Steel and Iron, a Partnership Composed of Harold Porter and Zalmon Porter, Partners; Defendants. Lloyd OMDAHL, as Tax Commissioner of the State of North Dakota, Cross-Claimant and Appellant, v. GAFFANEY'S MINOT STATIONERY COMPANY, Souris River Telephone Mutual Aid Cooperative, and Porter Bros. Steel and Iron, Cross-Defendants and Respondents. Civ. |
| Court | North Dakota Supreme Court |
Syllabus by the Court
1. The 'legal incidence' test is applied to determine the validity of a State-levied tax, and such test is satisfied by a determination of whether the contractor or the Federal Government is liable for the purchase price of the goods upon which the amount of the tax is based. The fact that the economic burden of the tax is passed on to the Federal Government through increased contract prices will not make it a tax on the Federal Government and thus render it invalid.
2. When the Federal Government is liable for the purchase price of the goods upon which the amount of the State tax is based, then the legal incidence of the tax is on the Federal Government and is invalid. Correspondingly, if the contractor is liable for the purchase price of the goods upon which the amount of the State tax is based, then the legal incidence is on the contractor and the tax is valid since the Constitution does not extend governmental immunity from State taxation to corporations or individuals merely because their activities are useful to the Federal Government.
3. An important consideration in determining whether the contractor or the Federal Government is the purchaser in this case is the intent of the parties, and that intent is ascertained from the provisions of the contracts relating to such items as profit, title, inspection clauses, method of paying the contractor, references to liability for States sales and use taxes, and the amount of control and discretion vested in the contractor.
4. After careful consideration of the contracts in the instant case and the provisions of Chapter 57--39 and Chapter 57--40, N.D.C.C., we conclude that Boeing was the purchaser of the goods and, as such, was liable for the taxes which would attach to these purchases, and a determination of who is a purchaser within the meaning of the foregoing taxing statutes is a question of State law.
5. An Act of the Legislature is presumed to be constitutional, and such presumption is conclusive unless one clearly shows that the Act contravenes the State or the Federal Constitution. The use tax statute incorporated by reference various sections of the sales tax statute, which sections provided that the moneys collected should be paid into the retail sales tax fund; and therefore it stated the object of the tax and did not violate Section 175 of the North Dakota Constitution. The 1963 amendment abolishing the retail sales tax fund and providing that the moneys collected thereafter should be paid into the general fund also satisfies Section 175 of the North Dakota Constitution.
6. A sale covered by a sales tax must be made inside this State, whereas the use tax generally applies to the storing, using, or otherwise consuming goods within this State which are not covered by the sales tax. The sales and use taxes, generally, cover similar sales for the same general purposes; however, there is an offsetting credit within their provisions to avoid double taxation, and while the sales tax is in effect the purchaser pays upon the sale made inside the State, but when the sales tax is abolished there no longer is an offsetting credit and the purchaser may be required to pay upon the use.
7. The use tax was properly applied to the use of purchases made at retail inside North Dakota during the period of time that North Dakota was without a sales tax law.
8. For reasons stated in the opinion, Boeing is liable to the State for sales and use taxes on the property and services procured for the purpose of carrying out Letter and Definitive Contracts No. AF 04(647)--936; for Letter and Definitive Contracts No. AF 04(694)--362; and for all property purchased at retail by Boeing for Facilities Contract No. AF 04(647)--683.
Holman, Marion, Black, Perkins & Coie, Seattle, Wash., and Degnan, McElroy & Lamb, Grand Forks, for The Boeing Co.
Mitchell Rogovin, Asst. Atty. Gen., and Lee A. Jackson, William A. Friedlander, and Stuart A. Smith, Dept. of Justice, Washington, D.C. and John O. Garaas, U.S. Dist. Atty., Fargo, for the United States.
Helgi Johanneson, Atty. Gen. of North Dakota, and Kenneth M. Jakes, Sp. Asst. Atty. Gen., Bismarck, for Tax Commissioner of North Dakota.
Pringle, Herigstad, Meschke, Loder, Mahoney & Purdy, Minot, for Gaffaney's Minot Stationery Co., Souris River Tel. Mut. Aid Co-op., and Porter Bros. Steel & Iron.
This is an appeal from an amended declaratory judgment entered in the District Court of Burleigh County, North Dakota, on October 10, 1966, Clifford Jansonius, J., presiding. The Boeing Company entered into contracts with the United States Government and, pursuant to said contracts, was engaged in installing, calibrating, and checking out various components of the missile launch sites, control centers, support buildings, and other facilities constituting the Minuteman missile bases at the Minot and Grand Forks Air Force bases. The contracts are designated as follows:
Letter Contract No. AF 04(647)--936
Definitive Contract No. AF 04(647)--936
Letter Contract No. AF 04(694)--362
Definitive Contract No. AF 04(694)--362
Certain items of tangible personal property and services were utilized in North Dakota, pursuant to the above-listed contracts. In addition, there were other items of tangible personal property purchased outside North Dakota but utilized inside North Dakota, and, as a result of this purchasing procedure, the State claimed sales and use taxes on certain of the materials that were purchased both inside and outside North Dakota to complete these contracts.
The Boeing Company and the United States took issue with the State's claim that sales and use taxes were owed on the abovementioned transactions. Boeing and the United States sought a declaratory judgment in the district court determining that they were not liable for the sales and use taxes by virtue of the contractual relationship existing between The Boeing Company and the United States.
The State Tax Commissioner was named as a defendant, and also designated as defendants were Gaffaney's Minot Stationery Company, Souris River Telephone Mutual Aid Cooperative, and Porter Bros. Steel and Iron, three of the retailers from whom goods and services were purchased. Prior to the commencement of the trial in the district court, certain stipulations of fact were executed by all parties concerned. Some of the pertinent parts of the stipulations are as follows:
The State claims sales and use taxes are owing on the following:
1. Property and services procured by Boeing in North Dakota, pursuant to Letter or Definitized Contracts No. AF 04(647)--936 or No. AF 04(694)--362;
2. All property which was procured by Boeing outside North Dakota, pursuant to the contracts alluded to in paragraph 1; and
3. All property which was purchased at retail by Boeing under Facilities Contract No. AF 04(647)--683, and as first used in North Dakota by Boeing.
It was further stipulated that Boeing was not liable for North Dakota sales and use taxes with respect to the following:
1. Property procured and produced by Boeing under Letter or Definitive Contracts No. AF 04(694)--107 or No. AF 04(694)--431, or under Negotiated Contract No. AF 04(694)--46;
2. Property acquired from the General Services Administration or under Federal Supply Schedules;
3. Property furnished to Boeing by the Government from its industrial reserves; and
4. Government-owned property used by the Government, Boeing, or others outside North Dakota prior to its utilization in North Dakota.
The district court awarded judgment to Boeing and the United States by determining that, under the laws of North Dakota, The Boeing Company was not liable for any sales or use taxes because it had in effect purchased the goods and services as an agent of the Federal Government, and thus these purchases were nontaxable.
The appeal was taken from the judgment of the lower court, and the State sets forth the following specifications of error:
'No sales or use taxes are payable with respect to any purchase, procurement, use, storage, or consumption of tangible personal property or services by the Plaintiff, Boeing, heretofore or hereafter in the performance of said contracts for which it is entitled to reimbursement from the Plaintiff, Government, or which is owned by and furnished to it by the Plaintiff, Government.'
'2. The District Court erred in ordering judgment against the Defendants declaring:
'That Plaintiff, Boeing, is not and will not be liable to Defendants, Gaffaney's Minot Stationery Company, a corporation, Souris River Telephone Mutual Aid Cooperative, a corporation, and Porter Bros. Steel and Iron, a partnership composed of Harold Porter and Zalmon Porter, partners, with respect to any procurement or purchase of tangible personal property or services in North Dakota by Boeing in the performance of said contracts for which it is entitled to reimbursement from the Government."
The basic contentions of the parties to this lawsuit are:
The State contends that Boeing is liable for the North Dakota sales and use...
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