Howell, In re

• Decision Date: 19 April 1984
• Docket Number: No. 83-2124,83-2124
• Citation: 731 F.2d 624
• Parties: In re Edward W.W. HOWELL, d/b/a Howell Electric Company, Debtor. Edward W.W. HOWELL, d/b/a Howell Electric Company, Debtor/Appellant, v. The STATE BOARD OF EQUALIZATION, Claimant/Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 624

731 F.2d 624

In re Edward W.W. HOWELL, d/b/a Howell Electric Company, Debtor.

Edward W.W. HOWELL, d/b/a Howell Electric Company, Debtor/Appellant, v. The STATE BOARD OF EQUALIZATION, Claimant/Appellee.

No. 83-2124.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 13, 1984.

Decided April 19, 1984.

Donald E. Oliver, Granada Hills, Cal., for debtor/appellant.

Patricia Streloff, Deputy Atty. Gen., San Francisco, Cal., for claimant/appellee.

Appeal from the United States District Court for the Northern District of California.

Before HUG and FERGUSON, Circuit Judges, and BYRNE ^*, District Judge.

FERGUSON, Circuit Judge:

On February 12, 1979, Edward W.W. Howell, d/b/a Howell Electric Company ("Howell"), filed a petition for reorganization under Chapter 11 of the Bankruptcy Act, 11 U.S.C. Sec. 1101 et seq. On June 22, 1979, the California State Board of Equalization ("Board") filed a priority claim in the proceeding for sales and use tax. The bankruptcy court disallowed the Board's claim, ruling that the California Sales and Use Tax impermissibly discriminated against contractors doing business with the United States Government, and thus was unenforceable. The Board appealed this decision to the district court. The district court reversed, finding that no unconstitutional discrimination against federal contractors existed, and Howell appeals. We affirm the district court.

Background

The taxes in dispute are those which the Board claims are due pursuant to Sales and Use Tax Regulation No. 1521, Cal.Admin.Code tit. 18, R. 1521. This regulation governs the taxation of construction contractors. The regulation distinguishes between three types of tangible personal property typically used or installed on a construction project--materials, fixtures, and machinery and equipment. Under the regulation, both United States and private contractors are treated as retailers of machinery and equipment and as consumers of materials. With respect to fixtures, however, the regulation provides for dissimilar treatment of United States and private contractors. United States contractors are classified as consumers of fixtures, and therefore the tax applies to the sale of the fixtures from the supplier to the contractor. Private contractors, on the other hand, are classified as retailers of fixtures; thus, the tax applies to the transfer of fixtures to the project owner rather than to the sale of the fixtures to the contractor. Howell claimed below that this distinction impermissibly discriminates against federal contractors. The bankruptcy court agreed, and additionally ruled that the regulation's taxation of materials also discriminated against federal contractors because nonfederal contractors could reimburse themselves for the tax they were charged on materials by adding the tax to the overall cost passed on to the owner, whereas the federal contractor could not compel the federal government to pay the amount representing the sales tax.

The district court reversed the bankruptcy court's ruling as to the tax on materials, holding that, contrary to the bankruptcy court's conclusion, a federal contractor could constitutionally pass on the materials tax to the United States as part of its overall costs of performance, just as a nonfederal contractor could pass on the tax to its project owner, and thus there was no impermissible discrimination. The district court also reversed the bankruptcy court's ruling as to the tax on fixtures, holding that the California fixtures tax did not place a heavier economic burden on the federal contractor than that borne by a similarly situated nonfederal contractor.

On appeal to this court, Howell advances new grounds to support its contention that the California Sales and Use Tax scheme is unconstitutional: (1) the California tax impermissibly levies a direct tax upon the United States Government; ¹ (2) the State Board of Equalization exceeded its statutory authority in adopting a regulation which makes federal contractors "consumers" of tangible personal property that is ultimately resold to the United States; and (3) the California tax impermissibly discriminates between those contractors who sell tangible personal property to the United States in the course of performing construction contracts and those contractors who sell tangible personal property to the United States without installing it.

ANALYSIS

1. Scope of Review

The Board contends that Howell has abandoned the position taken before both the bankruptcy court and the district court and, therefore, there are no issues properly The issue presented to us for review--the constitutionality of the California Sales and Use Tax as applied to federal contractors--is a question of law. Additionally, the decisions of both the bankruptcy court and the district court were based primarily on a stipulation of facts between the parties and the pertinent record on the issues raised by Howell is fully developed. We thus exercise our discretion to reach the issues raised by Howell on appeal.

                presented for appellate review.  In most circumstances, a federal appellate court will not consider an issue not passed upon below.    Singleton v. Wulff, 428 U.S. 106, 120, 96 S.Ct. 2868, 2877, 49 L.Ed.2d 826 (1976);  Helm v. California, 722 F.2d 507, 510 (9th Cir.1983).  However, the rule of waiver is one of discretion rather than jurisdiction, and the Ninth Circuit recognizes an exception under which an appellate court will review an issue not previously raised in the district court.    Telco Leasing, Inc. v. Transwestern Title Co., 630 F.2d 691, 693 (9th Cir.1980).  The court will consider an issue conceded or neglected below if the issue is purely one of law and the pertinent record has been fully developed.    United States v. Patrin, 575 F.2d 708, 712 (9th Cir.1978).  The rule of waiver may also be relaxed when there are significant questions of general impact or when injustice might otherwise result.    Krause v. Sacramento Inn, 479 F.2d 988, 989 (9th Cir.1973)
                

2. Does the California Sales and Use Tax Levy a Direct Tax upon the United States Government?

Howell's position before the bankruptcy court and the district court that the California Sales and Use Tax impermissibly discriminated against federal contractors became untenable in light of the Supreme Court's recent decision in Washington v. United States, --- U.S. ----, 103 S.Ct. 1344, 75 L.Ed.2d 364 (1983). In Washington, a state statute imposed a sales tax on the sale of materials to federal contractors, but with regard to nonfederal construction projects, the tax was imposed on the project owner. Id. at 1347. The United States argued that the statutory scheme discriminated against federal contractors in violation of the Supremacy Clause. Id. The Supreme Court rejected the United States' position, holding that the tax was not discriminatory with regard to the economic burdens that resulted, because federal contractors could pass the tax on to the federal government when they set their price. Id. at 1348 n. 4. The Court held that it was sufficient that federal contractors had the opportunity to pass on the tax to the United States; it was not required that they actually do so. Id. at 1349.

Faced with the result in Washington, Howell retreated from the position taken in the lower courts and now claims that the California Sales and Use Tax is unconstitutional because it levies a direct tax upon the United States. This contention, however, has been consistently rejected by the Supreme Court and this circuit. The Supreme Court implicitly approved the constitutionality of a federal contractor "passing on" the tax to the United States in the reasoning of Washington, see 103 S.Ct. at 1348 n. 4, and has expressly upheld its constitutionality in many cases. See United States v. New Mexico, 455 U.S. 720, 734, 102 S.Ct. 1373, 1382, 71 L.Ed.2d 580 (1982) ("immunity may not be...