Roane-Anderson Co. v. Evans

• Decision Date: 27 April 1956
• Docket Number: ROANE-ANDERSON
• Citation: 292 S.W.2d 398,200 Tenn. 373,4 McCanless 373
• Parties: , 200 Tenn. 373 COMPANY v. James Clarence EVANS, Commissioner, etc.
• Court: Tennessee Supreme Court

Page 398

292 S.W.2d 398

4 McCanless 373, 200 Tenn. 373

ROANE-ANDERSON COMPANY v. James Clarence EVANS, Commissioner, etc.

Supreme Court of Tennessee.

April 27, 1956.

Rehearing Denied June 8, 1956.

Jackson C. Kramer and R. R. Kramer, Knoxville, for Roane-Anderson Company.

H. Brian Holland, Asst. Atty. Gen., Andrew D. Sharpe, Lyle M. Turner, Sp. Assts. to Atty. Gen., for The United States, appellant (intervenor).

William Mitchell, Washington, D. C., J. Wallace Ould, Jr., O. S. Hiestand, Jr. and David L. Oakley, Jr., Oak Ridge, for U. S. Atomic Energy Commission.

Alfred T. Adams, George P. Anderson, R. C. Boyce, Jr., J. Vaulx Crockett, Thomas H. Evans and T. James Sterritt, Nashville, Sp. Counsel for defendant.

George F. McCanless, Atty. Gen., and Allison B. Humphreys, Sol. Gen., Nashville, of counsel, for appellee-defendant.

NEIL, Chief Justice.

This appeal involves the right of the complainant, Roane-Anderson Company, a Tennessee corporation, to recover certain privilege taxes which it paid under protest. The Commissioner of Finance and Taxation assessed these taxes against the complainant as a result of its activities pursuant to its contract with the Atomic Energy Commission.

In the original bill seeking a recovery of these taxes it is charged that complainant was acting as the agent of the United States Government; that the contract, under which it operated, designated the complainant as such agent, and all of its activities have been as the authorized agent of the Federal Government, and for this reason the assessment was in violation of the Supremacy Clauses of the Federal Constitution, namely, Article I, § 8, Clause 18, and Article VI, Clause 2, of the instrument.

The United States Government filed an intervening petition, making the same contention. It was later stricken by the Chancellor on motion of the defendant. An exception was taken.

The defendant answered the bill and denied that the complainant was acting as agent of the United States Government, and insisted that it was an independent contractor and was subject to the State tax statutes, which rendered it liable for sales and use taxes, and gross receipts taxes.

These cases were brought by the complainant to collect the taxes paid, and 'to test the liability of Roane-Anderson Company and as far as possible the liability of certain Government contractors on the Oak Ridge Area, for certain State privilege taxes for the period 1944 through 1946.' To this end the bill seeks a declaratory judgment.

The Chancellor held, upon a review of the record, that the complainant was not an agent of the Government but was acting as an independent contractor; that it was exercising all of the privileges claimed by the State of Tennessee, and that the taxes paid under protest were legally exacted.

He further held and decreed that under the circumstances it would be inequitable and unjust for the complainant to be onerated with the burden of paying interest and penalties and that the Commissioner should pay to the complainant the amount of penalties and interest which had been paid under protest.

Roane-Anderson appealed from the aforesaid holding of the Chancellor, and the Commissioner also appealed. Numerous errors have been assigned by Roane-Anderson. The principal error relates to the decree which finds and holds that the Roane-Anderson Company was acting as an independent contractor with the United States of America. A decision of this sharply disputed issue will be determinative of several other assignments, which will be later considered in this opinion.

Upon the question of agency as against the status of independent contractor we are challenged by the following contention:

'Second: The learned Chancellor erred in holding that all of the elements which were before him in this suit insofar as is necessary for a determination of the question of agency as against the status of independent contractor were before the Court in the Roane-Anderson Company Sales Tax Cases (Roane-Anderson Co. v. Carson, 192 Tenn. 150, 239 S.W.2d 27), and that the determination as made in those cases is controlling in the present suits.'

We will refer hereafter to Roane-Anderson Co. v. Carson as the Carson Sales Tax case. The majority opinion by Mr. Justice Burnett gives a complete history of the vast development of the Oak Ridge Area by the Federal Government. It was sponsored by the Government for the sole purpose of making nuclear weapons as "potentially destructive beyond the wildest nightmares of the imagination; * * *. This weapon has been created not by the devilish inspiration of some warped genius but by the arduous labor of thousands of normal men and women working for the safety of their country.' Smyth Report, Page 163, released in August, 1945.' [192 Tenn. 150, 239 S.W.2d 29.]

It is pointed out in that opinion, 192 Tenn. at page 158, 239 S.W.2d at page 30, 'The land and all facilities in the plant at Oak Ridge are wholly owned by the United States government.' We might say in passing that this continues to be true now as it was then. It was strictly a Government operation.

Regarding the nature of the operation and the risk of invested capital, it is said:

'The contractors are not required to risk their own money in the operation of Commission facilities. This provision of the contract obviously came about by reason of the enormity of the project, the newness of what was being done and of the uncertainty of the result. It is said that 'regardless of what happened the government would pay the bill' and it was on this basis that the contracts were originally made with the various companies in the production of Atomic energy. All the contracts have a 'hold-harmless' provision and the expenses and procurements are on a reimbursable basis.'

It was necessarily a secret operation in order that the enemy not be apprized of the development of a weapon so destructive that a great city could be wiped out by a single atomic bomb. This secrecy was fully justified.

The repeated declaration in the contract that Roane-Anderson is the agent of the United States Government, and that this status was accepted and acknowledged by Roane-Anderson was conclusive upon the parties to this contract. But not so as to others and especially the State of Tennessee's right to levy and collect taxes from individuals and agencies who were exercising taxable privileges which were admittedly authorized by law.

In considering the relationship of the parties in the case now before us we must examine the contract in its entirety, the nature and use of the physical properties, as well as its ownership, and the activities of any and all persons engaged in operating the Oak Ridge project, and thus determine the intention of the parties.

The said contract was on the usual costplus basis of remuneration for services rendered. The contractual duties to be performed by Roane-Anderson were so varied and multitudinous that they could not be foreseen and specified in any written instrument. These activities were performed subject to Government approval. It conclusively appears that every duty performed by Roane-Anderson, its agents and servants, was in the use of Government property and Government facilities, all of which was to accomplish one single purpose, namely the production of an atomic bomb for use by the Armed Forces of the United States of America. But this is not sufficient in and of itself to justify us in holding that the collection of charges for the use of Government property, such as rental to employees of houses, to concessionaires, and other like operations, is exempt from State taxation, provided the tax so levied is not laid upon the property itself and does not interfere with or embarrass the Government in the unfettered use of its property.

The foregoing was in substance the basis of our holding in the Carson Sales Tax case, that Roane-Anderson was an independent contractor, but was exempt from the tax by reason of Section 9(b) of the Act of Congress creating the Atomic Energy Commission. The Court rested its opinion largely upon James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155, 114 A.L.R. 318, and State of Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3, 140 A.L.R. 615. But for the exemption provided for in the Act of Congress, supra, the State tax as levied was lawful and did not encroach upon Federal authority.

Contention is made by counsel for Roane-Anderson that our decision in the Carson Sales Tax case is not res judicata as to the issue involved in the case at bar. It is insisted that the facts here are vastly different. It is true that in the instant case there appears testimony as to the exact use of Government property by Roane-Anderson and not brought out in the former case. Moreover the Court rested its decision on the authority of State of Alabama v. King & Boozer, supra, that the cost of material purchased by Roane-Anderson, and other contractors, to be used in furtherance of the Oak Ridge project was subject to our Sales Tax Statute. In the instant case the tax exacted is upon Government owned property and revenue derived from such property.

The doctrine of Collateral Estoppel cannot be applied in tax cases unless the identical taxes are involved in the second or later suit. State v. Bank of Commerce, 95 Tenn. 221, 31 S.W. 993; Union & Planters' Bank v. City of Memphis, 101 Tenn. 154, 46 S.W. 557. See also, Willis v. Willis, 48 Wyo. 403, 49 P.2d 670.

The facts developed in the case at bar give rise to the contention by Roane-Anderson that the tax levied and sought to be exacted constitutes an interference with Federal authority in the Oak Ridge Area, and is in effect a tax upon Government property. This question is presented for the first time, both in the trial court and on this appeal. The contention is made that the tax here exacted is in violation of the Supremacy Clauses of the Federal Constitution. The...