Dravo Contracting Co. v. Fox

• Decision Date: 01 October 1936
• Docket Number: No. 3492.,3492.
• Court: U.S. District Court — Southern District of West Virginia
• Parties: DRAVO CONTRACTING CO. v. FOX, Tax Com'r.

16 F. Supp. 527

DRAVO CONTRACTING CO. v. FOX, Tax Com'r.

No. 3492.

District Court, S. D. West Virginia.

October 1, 1936.

William S. Moorhead, of Pittsburgh, Pa., and W. Chapman Revercomb, of Charleston, W. Va. (Moorhead & Knox, of Pittsburgh, Pa., Koontz, Hurlburt & Revercomb, of Charleston, W. Va., Lawrence D. Blair, of Pittsburgh, Pa., and W. Elliott Nefflen, of Charleston, W. Va., on the brief), for plaintiff.

Homer A. Holt, Atty. Gen., of West Virginia (W. Holt Wooddell, Asst. Atty. Gen., on the brief), for defendant.

Before NORTHCOTT, Circuit Judge, and WATKINS and McCLINTIC, District Judges.

NORTHCOTT, Circuit Judge.

The court makes the following findings of fact and conclusions of law:

Findings of Fact.

There is no dispute as to the facts as they were stipulated. The stipulation shows the following material facts:

The plaintiff, Dravo Contracting Company, is a Pennsylvania corporation, created under the laws of that state, with its principal office and factories in Pittsburgh, Pa. It is engaged in the general contracting business and is admitted to do business as a foreign corporation in the state of West Virginia.

During the years 1932 and 1933 the plaintiff entered into four written contracts with the United States of America agreeing to construct locks and dams in the Kanawha river and locks in the Ohio river, both navigable streams. These locks and dams are constructed at or near points on said rivers known as Marmet, London, and Winfield, W. Va., on the Kanawha river, and near Gallipolis, Ohio, on the Ohio river, within the exterior boundaries of the state of West Virginia, and were being constructed primarily in the aid of navigation.

These contracts were entered into in the following manner: The United States gave notice of a proposed work and invited bids. The notice and invitations were mailed from Huntington, W. Va., and received by the plaintiff at its office in Pittsburgh, Pa. The plaintiff prepared its bid, together with the required bid bond, at its office in Pittsburgh and conveyed same by special messenger to the office of the United States engineer at Huntington, W. Va. On the acceptance of the plaintiff's bid on the four projects, written contracts and performance bonds were prepared by the United States and forwarded by mail from Huntington, W. Va., to the plaintiff at Pittsburgh, at which latter point the plaintiff executed said contracts and bonds and forwarded same by mail to the office of the United States Engineer at Huntington, W. Va. In each instance the performance bonds were approved by the Judge Advocate General of the War Department of the United States Government, at Washington, D. C.

Payments of the amount received by the plaintiff under the several contracts were made monthly, or semimonthly, by checks drawn by a disbursing officer of the War Department of the United States, at Huntington, W. Va., on the United States Treasury, and were delivered by mail from Huntington, W. Va., to the office of the plaintiff at Pittsburgh, Pa. These payments were based upon estimates made by representatives of the United States for materials delivered to, and for materials fabricated during the particular month by, the plaintiff at its Neville Island Shops at Pittsburgh, Pa., for use in said locks and dams as provided by the respective contracts and estimates made from time to time as the locks and dams were erected. A retained percentage of 10 per cent. on each estimate was paid upon the final acceptance of the completed work.

During the years 1933 and 1934 plaintiff completed the performance of its contracts pertaining to the locks and dams at Marmet and London and completed performance of its contract at Winfield in February, 1935. The locks at Gallipolis have been partially completed, and the plaintiff is now engaged in the further performance of that contract. For the work so performed during the years 1933 and 1934 plaintiff received the gross sum of $6,634,462.29.

Certain parts of the locks and dams built by the plaintiff were fabricated at its shops at Neville Island, Pittsburgh, and moved to the various locations by the plaintiff. Partial payments were made by the government to the plaintiff on some of these parts so fabricated before they were moved from plaintiff's plant. Certain materials were purchased outside the state of West Virginia and shipped to the plaintiff's plant at Pittsburgh. Part of the labor employed was hired at each of the respective sites of construction, and certain expert workmen and foremen were sent from outside into the state.

The estimates of cost and the bids based thereon did not include, and there was not included, in the contract price paid to the plaintiff by the United States, any specified item to cover the West Virginia gross income tax. The plaintiff, however, at the time of making such estimates and bids knew of the Gross Sales and Income Tax Law of West Virginia.

The United States, with the consent of the state of West Virginia, acquired, by purchase or condemnation, the land on both sides of the navigable streams upon which said locks and dams were constructed. In addition to the land owned by the United States, the plaintiff leased from private owners near the Marmet lock and dam two lots which were occupied and used from time to time for storing materials and machinery, and the plaintiff used a roadway across one of the lots so leased. Plaintiff leased one acre of land from private owners near the Winfield lock during the construction and used same to store materials. Plaintiff also leased two acres of land from a private owner in West Virginia near the Gallipolis locks, and used same to store materials and for the erection of temporary small buildings.

The United States constructed said locks and dams primarily for the development and improvement of navigation, incidentally aiding in the control of floods in said rivers. The dams were so designed and constructed as to permit the United States to use or license the use of water power thereby created for generation of electricity, and the United States has granted to a private corporation a license to use the water power resulting from the damming of the river at Marmet and at London. This license provides that nothing can be done to interfere with navigation.

The statutes of the state of West Virginia consenting to the acquisition of lands by the United States are found in article 1, chapter 1, of the Code of West Virginia.

In the years 1933 and 1934 the plaintiff performed work in the state of West Virginia for persons other than the United States government and made returns and paid taxes upon the gross income from such work and, in the same years, paid ad valorem property taxes to the state of West Virginia, and its political subdivisions, on its personal property in the aggregate amount of $5,790.62. The plaintiff has also paid the state the tax required of a foreign corporation for doing business in the state. The tax here involved is an additional charge.

The defendant is the duly qualified and acting State Tax Commissioner of the State of West Virginia, charged with the duty of enforcing the taxing statutes of the state of West Virginia and empowered to collect the taxes here involved. The defendant has his office in the city of Charleston in the Southern District of West Virginia, and is domiciled and is a resident in the Southern Judicial District of said state.

The defendant has made an assessment against the plaintiff for the calendar years 1933 and 1934 in the sum of $135,761.51, taxes and penalties, exclusive of interest, upon the gross amounts received by the plaintiff during said years from the United States government under the contracts above mentioned. The defendant has notified the plaintiff of said assessment, and has also notified it that unless said amount so claimed is paid immediately, the defendant would be forced to proceed in accordance with the law to collect the same and to distrain on the property of the plaintiff.

The assessment so made by the defendant against the plaintiff was under the provisions of the Gross Sales and Income Tax Law of West Virginia, article 13, chapter 11, Code of West Virginia 1931, and as amended, effective May 26, 1933 (Acts 1933, 1st Ex.Sess., c. 33), for the years 1933 and 1934. Said law makes no provision for payment under protest and recovery back by the taxpayer, and it was admitted in the pleadings and the argument that the plaintiff had no adequate remedy at law if its contention that the tax is not collectible is sustained. The tax sought to be imposed was 2 per cent. of the gross amount received by the plaintiff under the contracts.

A distraint by the defendant upon the plaintiff's property, at present used in plaintiff's work under the contracts, would stop said work or materially interfere therewith.

The necessary amount to give this court jurisdiction is involved.

A temporary restraining order has been issued pending the hearing, and it was agreed at the hearing that the cause should be finally submitted for determination as to whether the permanent injunction should be issued.

Conclusions of Law.

The court concludes that there is involved in this suit the necessary amount to give the...