Falls City Brewing Co. v. Reeves, 261.

• Decision Date: 22 July 1941
• Docket Number: No. 261.,261.
• Parties: FALLS CITY BREWING CO., Inc., v. REEVES et al.
• Court: U.S. District Court — Western District of Kentucky

40 F. Supp. 35

FALLS CITY BREWING CO., Inc., v. REEVES et al.

No. 261.

District Court, W. D. Kentucky.

July 22, 1941.

Milliken & Handmaker, of Louisville, Ky., for plaintiff.

Eli H. Brown, III, U. S. Atty., of Louisville, Ky., Berryman Green, Sp. Asst. to Atty. Gen., Major E. M. Brannon, Judge Advocate General's Dept. U. S. Army, for defendants Capt. Robt. Stevenson and Post Exchange.

Hubert Meredith, Atty. Gen., of Kentucky, Harry D. France, Asst. Atty. Gen., for other defendants.

Charles W. Milner, Geo. W. Norton, Jr., and B. Hudson Milner, all of Louisville, Ky., amici curiæ.

MILLER, District Judge.

The plaintiff Falls City Brewing Company instituted this action in the Franklin Circuit Court of Kentucky as a declaratory judgment suit under the provisions of Sections 639a — 1 through 639a — 12 of Carroll's Kentucky Codes, generally known as the Kentucky Declaratory Judgment Act. The action was removed to the United States District Court for the Western District of Kentucky under the provisions of Section 1589, Title 10 U.S.C.A., by the defendants Captain Robert Stevenson of the United States Army, and Post Exchange officer at Fort Knox, Kentucky, and the Post Exchange at Fort Knox, Kentucky.

Findings of Fact.

The plaintiff is engaged in the business of a brewer in Louisville, Kentucky, and over a period of time in the past has established a substantial business with the Post Exchange at Fort Knox, Kentucky, in its sale of malt beverages to the Post Exchange. By virtue of its operations on the Federal military reservation the Post Exchange has not procured a license from the State of Kentucky to sell malt beverages and has not complied with the provisions of the Kentucky Statutes taxing and regulating sales of such malt beverages in Kentucky. Kentucky Statutes, Sections 2554b-97 through 2554b-222, Section 4281c-2 and 4281c-7. On October 9, 1940, the United States Congress adopted House Resolution No. 6687, 4 U.S.C.A. § 13 et seq., generally known as the Buck Resolution, Section 1(a), 4 U.S.C.A. § 13(a), of which provided as follows: "(a) No person shall be relieved from liability for payment of, collection of, or accounting for any sales or use tax levied by any State, or by any duly constituted taxing authority therein, having jurisdiction to levy such a tax, on the ground that the sale or use, with respect to which such tax is levied, occurred in whole or in part within a Federal area; and such State or taxing authority shall have full jurisdiction and power to levy and collect any such tax in any Federal area within such State to the same extent and with the same effect as though such area was not a Federal area." On or about December 31, 1940, the Department of Revenue of the Commonwealth of Kentucky, by the defendant H. Clyde Reeves, its Commissioner, advised the commanding officer of Fort Knox, Kentucky, that by virtue of the Buck Resolution the Post Exchange came within the taxing jurisdiction of the Commonwealth of Kentucky, and would be required to purchase a license to sell malt beverages in the future, and that all sales of such beverages in the future would be subject to the taxes and other regulations imposed by Kentucky Statutes applicable thereto. The defendant Captain Robert Stevenson, the duly appointed and acting Post Exchange officer contended that the Post Exchange was an instrumentality of the Federal Government and accordingly exempt from the provisions of the Buck Resolution, which by Section 3 thereof provided for the following exemption:

"Sec. 3 § 15. (a) The provisions of sections 113 and 214 of this Act title shall not be deemed to authorize the levy or collection of any tax on or from the United States or any instrumentality thereof, or the levy or collection of any tax with respect to sale, purchase, storage, or use of tangible personal property sold by the United States or any instrumentality thereof to any authorized purchaser.

"(b) A person shall be deemed to be an authorized purchaser under this section only with respect to purchases which he is permitted to make from commissaries, ship's stores, or voluntary unincorporated organizations of Army or Navy personnel, under regulations promulgated by the Secretary of War or the Secretary of the Navy."

Thereafter the plaintiff brought this action against the members of the Kentucky Alcoholic Beverage Control Board, the members of the Kentucky State Tax Commission, H. Clyde Reeves, Commissioner of Revenue of Kentucky, Cassius M. C. Porter, Administrator of the Malt Beverage Unit, Captain Robert Stevenson, Post Exchange Officer, and the Post Exchange, asking for a construction of the Buck Resolution with respect to its application to the transactions between the plaintiff and the Post Exchange, setting out the existing controversy, the refusal of the Post Exchange to comply with the ruling of the Department of Revenue of Kentucky, and its inability to do business with the Post Exchange by reason of penalties provided by the Statutes, if the position of the Department of Revenue was correct. The defendants, excepting Captain Stevenson and the Post Exchange, have moved to dismiss the complaint and have filed an answer denying several material allegations of the complaint, including the contention that the Post Exchange is a governmental instrumentality. The defendants Captain Stevenson and the Post Exchange have filed an answer admitting the allegations of the complaint and joining in its prayer for a declaration of rights with respect to the existing controversy.

Prior to December 31, 1940, and subsequent to the year 1900 the United States Government purchased a large number of tracts of land in and about Hardin County, Kentucky, and established thereon the reservation and military post known as Fort Knox; the prior owners of the land conveyed the same by deeds to the United States; and the purchase of the lands and the establishment of the military reservation was made with the consent of the State of Kentucky, given by an Act of the Kentucky General Assembly passed in 1892 and now known as Section 2376 of Carroll's Kentucky Statutes. The Post Exchange at Fort Knox is located within the Federal reservation known as Fort Knox and conducts its business in a building owned and provided by the United States. This is in accordance with army regulations which provide that buildings at military reservations are to be maintained for recreational purposes from funds appropriated for repairs to barracks, quarters and other military structures, and that recreational activities set up at posts, camps and stations are to be maintained from funds made available by the War Department. The amount of funds so made available is normally dependent on the amount included in the Appropriation Act for the fiscal year. At posts where exchange buildings have not been so provided the commanding officer is directed to set apart for the use of the Post Exchange any suitable public building or rooms available. Heating and the issue of suitable apparatus therefor for any room or building used by the Exchange is authorized, and the Quartermaster Corps is also authorized to provide supplies for interior and exterior illumination.

The parties have stipulated that the Post Exchange at Fort Knox was organized under Army Regulations 210 — 65 promulgated June 29, 1929, and under Army Regulations 210 — 65 *C 3, promulgated March 9, 1940, and that its activities and functions are as described therein. The following is a summary of its organization and operation:

At each post the commanding officer is directed to establish and maintain a Post Exchange whenever there is need for it, there are organizations present that desire participation therein, and the personnel is sufficient to profitably maintain and support such an exchange. Subject to the general supervision of superior authority, the commanding officer has complete jurisdiction over the conduct of all exchanges within his command, and he is held strictly responsible for their efficient operation and for the enforcement of exchange regulations. The primary purposes of the exchange are to supply troops, at the lowest possible prices, with articles of ordinary use, wear, and consumption not supplied by the Government, to afford to troops means of rational recreation and amusement, and through exchange profits to provide, when necessary the means for improving the company messes. It may include a meat market, a vegetable market and a gasoline filling station; a well-kept restaurant; a barber shop, laundry, tailor shop and shoe repair shop; a gymnasium with athletic equipment; recreation rooms including billiard and pool tables and bowling alleys; a library and a theatre in which moving picture service, amateur dramatics and other entertainments may be conducted. The affording of means of rational recreation and amusement is to be regarded of equal importance with the supplying of merchandise to troops at lowest possible prices, and with supplementing messes. The Post Exchange is to be conducted so as to make a small net profit and in such a manner as to be of real assistance and convenience to the enlisted men rather than as a large profit making institution. In addition to supervising the conduct of the Post Exchange the Commanding Officer is charged with the maintenance of recreational activities, entertainments, service clubs, libraries, and community cooperation. These activities are centered ordinarily about the Post Exchange, which may with the approval of the Exchange Council and the Commanding Officer provide the financial support necessary for their maintenance within certain limits. Membership is limited to such companys, troops, batteries, aero squadrons, or other similarly organized units and detachments...