Murray v. State, s. 36226

• Decision Date: 01 August 1963
• Docket Number: Nos. 36226,s. 36226
• Citation: 384 P.2d 337,62 Wn.2d 619
• Court: Washington Supreme Court
• Parties: Ian MURRAY et al., Appellants, v. The STATE of Washington, and William S. Schumacher, Clark Squire, and A. E. Hankins, as The Tax Commission of the State of Washington, Respondents. INLAND EMPIRE BUILDERS, INC., J. C. Boespflug Construction Co., and McLaughlin, Inc., Appellants, v. The STATE of Washington, and William S. Schumacher, Clark Squire, and A. E. Hankins, as The Tax Commission of the State of Washington, Respondents. HEBB & NARODICK CONSTRUCTION CO., Inc., and General Construction Co., joint venturers, doing business as Hebb & Narodick Construction Co., Inc. & Associates, Appellants, v. The STATE of Washington, and William S. Schumacher, Clark Squire, and A. E. Hankins, as The Tax Commission of the State of Washington, Respondents. HEBB & NARODICK CONSTRUCTION CO., Inc., a Washington corporation, Appellant, v. The STATE of Washington and William S. Schumacher, Clark Squire, and A. E. Hankins, as The Tax Commission of the State of Washington, Respondents. to 36229.

Page 619

62 Wn.2d 619

384 P.2d 337

Ian MURRAY et al., Appellants, v. The STATE of Washington, and William S. Schumacher, Clark

Squire, and A. E. Hankins, as The Tax Commission

of the State of Washington, Respondents.

INLAND EMPIRE BUILDERS, INC., J. C. Boespflug Construction

Co., and McLaughlin, Inc., Appellants, v. The STATE of Washington, and William S. Schumacher, Clark

Squire, and A. E. Hankins, as The Tax Commission

of the State of Washington, Respondents.

HEBB & NARODICK CONSTRUCTION CO., Inc., and General

Construction Co., joint venturers, doing business

as Hebb & Narodick Construction Co., Inc. & Associates, Appellants, v. The STATE of Washington, and William S. Schumacher, Clark

Squire, and A. E. Hankins, as The Tax Commission

of the State of Washington, Respondents.

HEBB & NARODICK CONSTRUCTION CO., Inc., a Washington

corporation, Appellant, v. The STATE of Washington and William S. Schumacher, Clark

Squire, and A. E. Hankins, as The Tax Commission

of the State of Washington, Respondents.

Nos. 36226 to 36229.

Supreme Court of Washington, En Banc.

Aug. 1, 1963.

Rehearing Denied Sept. 26, 1963.

Bogle, Bogle & Gates, Richard S. Sprague, Edward G. Dobrin, Seattle, for Ian Murray and others.

Allen, DeGarmo & Leedy, Seth W. Morrison, Seattle, for Inland Empire Builders, Inc., and others.

Casey & Pruzan, Seattle, for Hebb and Narodick Const. Co., Inc.

John J. O'Connell, Atty. Gen., John W. Riley, Chief Asst. Atty Gen., Timothy R. Malone, Asst. Atty. Gen., Olympia, for respondents.

OTT, Chief Justice.

This appeal is a consolidation of four actions brought by several contractors to recover a retail sales tax paid under protest, and to enjoin the state tax commission from assessing the sales tax in connection with the construction of Capehart Act housing at military installations in Washington.

From adverse judgments, the contractors appeal.

The facts upon which these appeals are predicated are not in dispute. The legal issue involved is whether the transactions, pursuant to which the military housing was constructed, are shielded from state taxation by the sovereign immunity granted to the United States government by the federal and state constitutions.

Each of the appellants was awarded contracts under the provisions of the Capehart Act (69 Stat. 651-654, as amended). Since the contract provisions are identical, we will refer only to the material portions of the documents in cause No. 36226. The procedure for the execution of a contract under the act, in so far as here material, may be stated as follows:

The Secretary of Defense, after determining a need for military housing, issues an invitation for bids. The contractor submitting the lowest acceptable bid receives a 'Letter of Acceptability' from the Secretary. The letter requires the successful bidder to establish a private 'mortgagor-builder' corporation under the laws of the state of Delaware, and to qualify it to do business in the state involved. The contractor furnishes the corporation with $1,000 for capital stock, purchases all of it, and elects its officers and directors. The United States government executes to the corporation a 55-year lease of the real estate upon which the housing is to be constructed. The corporation is to obtain private financing by giving a mortgage on its leasehold, and obtain a commitment from the Federal Housing Administration to insure its mortgage loan. The mortgage loan is in the amount of the contractor's bid.

The 'Letter of Acceptability' prescribes the 'initial closing' procedure, which entails the execution of the following documents:

(1) The 55-year lease between the United States and the corporation for a consideration of $1,000, paid by the corporation to the United States government. The corporation agrees, during the period of construction, to maintain insurance and to save the United States government harmless from any laws, ordinances, and regulations applicable to the leased premises, with regard to construction, sanitation, licenses or permits to do business.

(2) The corporation executes a note, secured by a real and chattel mortgage on its real-estate leasehold, to the private lender.

(3) The corporation, contractor, and the United States execute a housing contract which provides that all construction is to be inspected and supervised by the United States; that progress payments are to be made by the corporation from the mortgage loan, upon request of the contractor and approval of the United States, and that, upon full payment, title to the housing units vests in the United States, subject to contractor liability for latent defects. The contract further provides that the contractor shall act as agent for the corporation, guarantee its performance, and furnish a performance bond to the corporation and the mortgagee.

(4) An irrevocable escroy agreement is executed which provides that the resignations of the officers and directors of the corporation, and the stock certificates of the corporation, endorsed in blank, are to be placed in escrow, with instructions to the escrow holder to deliver these documents to the United States upon completion and acceptance of the project.

(5) The United States executes a written guarantee to pay the mortgage installment payments to the private mortgagee and/or the Federal Housing Administration, the insurer.

The provisions of the Capehart Act were fully complied with by the contractors involved in these appeals.

Appellants' assignments of error raise two principal issues: First, the appellant contractors contend that, under Washington law, the consumer of the housing project is the party liable for payment of the sales tax, and that, as a result of the statutory method for the construction of Capehart housing, the United States is the consumer and, therefore, its constitutional immunity from state taxation applies. Secondly, appellants contend that the mortgagor-builder corporation is an agency of the United States and, as such, is immune from state tax.

The function of interpreting state statutes to determine who is liable for payment of a sales tax is reserved to the state courts involved. Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3 (1941); Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 74 S.Ct. 403, 98 L.Ed. 546 (1954).

RCW 82.08.020 provides that '* * * there shall be collected a tax on each retail sale in this state * * *.' A retail sale is defined in RCW 82.04.050 as including

'* * * the sale of or charge made for tangible personal property consumed and/or for labor and services rendered in respect to the following: * * * (b) the constructing * * * of new or existing buildings or other structures under, upon, or above real property of or for consumers, * * *.' (Italics ours.)

A consumer is defined in RCW 82.04.190 (4) as 'Any person who is an owner, lessee or has the right of possession to or an easement in real or personal property * * *.' (Italics ours.)

RCW 82.08.050 provides in part:

'The tax hereby imposed shall be paid by the buyer to the seller, and each seller shall collect from the buyer the full amount of the tax payable in respect to each taxable sale * * *.

'In case any seller fails to collect the tax herein imposed * * * he shall * * * be personally liable to the state for the amount of the tax.' (Italics ours.)

Appellants concede that a retail sale, as defined in RCW 82.04.050, did occur, but contend that the consumer defined in RCW 82.04.190, and the buyer denominated in RCW 82.08.050 are synonymous, and that the United States government is the consumer and taxable party because it becomes the owner of the housing units upon their completion and acceptance.

With this contention, we do not agree. One of the purposes of RCW 82.04.050 is to define the event that gives rise to a taxable transaction, which is the rendition of labor and services in the construction of new buildings upon real property of or for consumers. RCW 82.04.190 establishes the means by which the consumer is identified. These sections do not designate the party liable for payment of the tax in any given transaction. RCW 82.08.050 provides that the retail sales tax shall be borne by the buyer, who is primarily liable for payment of the tax. Kaeser v. Everett, 47 Wash.2d 666, 289 P.2d 343 (1955).

We must therefore determine who is the buyer under the facts of the instant case. In this regard, appellants contend that the United States is the buyer because it bears the economic burden of paying for the military housing, by virtue of its guarantee of the mortgage obligation.

In Alabama v. King & Boozer, supra, the state of Alabama, pursuant to a statute which imposed the sales tax upon the purchaser, levied a sales tax upon the sale of lumber to a contractor who was constructing installations for the Army. It was there contended that the sales tax could not be collected from the contractor for the reason that the United States was the purchaser, within the meaning of the Alabama statute. In answering this contention, the Supreme Court of the United States held:

'* * * The taxing statute, as the Alabama courts have held, makes the 'purchaser' liable for the tax to the seller who is required 'to add to the sale price' the amount of the tax and collect it when the sales price is collected, whether the sale is for cash or on credit. Who, in any particular transaction like the present, is a 'purchaser' within the meaning of the statute, is a question of state law on which only the Supreme Court of Alabama can speak with final authority. But it seems plain, as the Government concedes and as we assume for present purposes, that under the provisions of the statute the purchaser of tangible goods who is subjected to the tax measured by the sales price is the person who orders and pays for them when the sale is for cash or who is legally obligated to pay for them if the sale is on credit. * * *' (Italics ours.)

The court concluded:

'We...