Silas Mason Co. v. Henneford, E-4473.

• Decision Date: 03 August 1936
• Docket Number: No. E-4473.,E-4473.
• Citation: 15 F. Supp. 958
• Parties: SILAS MASON CO., Inc., et al. v. HENNEFORD et al.
• Court: U.S. District Court — District of Washington

15 F. Supp. 958

SILAS MASON CO., Inc., et al. v. HENNEFORD et al.

No. E-4473.

District Court, E. D. Washington, N. D.

August 3, 1936.

Graves, Kizer & Graves, of Spokane, Wash., for plaintiffs.

G. W. Hamilton, Atty. Gen., State of Washington, and R. G. Sharpe, Asst. Atty. Gen., State of Washington, for defendants.

Before HANEY, Circuit Judge, and WEBSTER and CAVANAH, District Judges.

CAVANAH, District Judge.

The United States, under an act of Congress (33 U.S.C.A. § 701 et seq.), is engaged in the construction of the Grand Coulee Dam, on the Columbia river, for the purpose of controlling floods, improving navigation, providing for the storage and delivery of stored water for the reclamation of public land, and generation of electrical energy. After receiving bids for the construction of the dam, which is one of unusual magnitude, a contract was, on July 16, 1934, entered into by the United States and the plaintiffs (other than the Mason-Walsh-Atkinson-Kier Company) whereby plaintiffs named agreed to furnish some of the materials and to perform work required for the construction of the naked dam and power plant in accordance with specifications of the Columbia Basin Project. Consideration of the contract was that plaintiffs were to receive $29,339,301.50 for the performance of the work and such materials as were to be supplied by them, and such additional amount caused by changes to be made in the plans and specifications by the United States, which has increased the amount of the agreed contract price by over $7,000,000.

The plaintiffs are nonresidents of the state of Washington, and have no other business and are not engaged in other operations in that state, than the construction of the dam, and are within the state solely for the purpose of discharging their contract obligations with the United States.

The defendants constitute the Tax Commission of the state of Washington and as such are demanding payment of and endeavoring to collect the tax which is the subject of the controversy.

The Legislature of the state of Washington, at the 1935 Session of the Legislature enacted a general revenue Act, chapter 180 Session Laws of Washington 1935 (page 706). By title 3 of that act (page 721, § 16 et seq.) it provided for a tax on retail sales within the state of Washington, and by title 4 for what is called a compensating tax, which is, in effect, a tax upon purchases of materials made by persons within the state of Washington, and in other states of the Union.

Claiming to act under authority of the act, the Tax Commission has adopted a number of rules and regulations relating to the various taxes provided by the act, and respecting title 4 (page 726, § 31 et seq.), the Tax Commission has by rule provided that the nature of the tax is a compensating tax and so enacted to supplement the retail sales tax, by imposing a like tax for the privilege of using within the state tangible personal property purchased at retail, subsequent to April 30, 1935, and with respect to which property, neither the sales tax nor the use tax of 2 per cent. has been imposed by the state of Washington or any other state, and the rules further provide that "the primary purpose of the compensating tax is to protect the merchants of Washington from discrimination arising by reason of the inability of the State, because of the Federal Constitution, to impose a tax upon sales made to residents of this State by competitive merchants in other states." Rule 178, p. 104.

Having then in mind the facts appearing in the complaint and affidavits presented and the provisions of the act, we find that prior to the enactment of the act, plaintiffs had purchased in other states than Washington, heavy equipment and machinery which were necessary for the construction of the dam under their contract. After considering the character of the work done, the frequent repairs and replacement of machinery required, which cannot be obtained within the state of Washington, but must be purchased in other states, during the months of May and June, 1935, plaintiffs purchased within the United States and outside of the state of Washington, equipment and machinery and other articles used in the construction of the dam, the purchase price of which was $899,390.91 plus transportation cost $21,798.43.

In the light of the facts, the requirements of the act and the regulations of the Commission, plaintiffs, by their complaint and affidavits assert that as against them, the provisions of title 4, chapter 180 of the Laws of Washington 1935, are illegal and unenforceable and that such tax be removed as a cloud upon the title of their personal property purchased by them outside of the state of Washington and that defendants be enjoined and perpetually restrained from enforcing and attempting to enforce the collection of such tax from them or by the sale of their property.

The reasons urged by plaintiffs as to the illegality of the tax as against them are:

First: That the construction of the dam upon which plaintiffs are engaged under their contract with the United States is a governmental work in the prosecution of which the Executive Department of the United States is exercising a franchise granted by Congress to construct a dam across the Columbia river, a navigable stream, to the end that navigation may be improved and irrigation of public lands and flood control be effected, and that as the United States is in the exercise of the franchise and the prosecution of the governmental work the plaintiffs are employed as agencies and instrumentalities of the United States, and their property is exempt from the imposition of the tax.

We think that under the record before us this contention is not well founded, when we are confronted with the facts that the plaintiffs are nothing more than independent contractors performing work and furnishing materials for a definite price which the government has agreed to pay and they have agreed to accept under the contract obtained by competitive bids. Their relations to the government are contractual; they do not exercise governmental functions, as they only undertook to construct the dam according to plans and specifications, adopted by the government, for a profit to be made in so complying. In no way is the government affected by the fact that they pay or do not pay taxes or that they are a government instrumentality. The cases relied upon by plaintiffs are not applicable to the facts here for we find that most of them are based upon facts where the parties claiming exemption were either agents of the government or engaged as employees or officers of the government in the exercise of governmental functions. The authorities seem to agree that independent contractors with the government for gain cannot claim immunity from taxation by reason of furnishing material or labor to the United States. Susquehanna Power Company v. State Tax Commission of Maryland, 283 U.S. 291, 51 S.Ct. 434, 75 L.Ed. 1042; Broad River Power Co. v. Query et al., 288 U.S. 178, 53 S.Ct. 326, 77 L.Ed. 685; Trinityfarm Construction Co. v. Grosjean, Supervisor of Public Accounts of Louisiana, 291 U.S. 466, 54 S.Ct. 469, 78 L.Ed. 918; Six Cos., Inc., v. De Vinney, County Assessor (D. C.) 2 F.Supp. 693; Nevada-California Power Co. v. Ullom et al. (D.C.) 3 F.Supp. 934, 935; Rainier National Park Co. v. Henneford, 182 Wash. 159-163, 45 P.(2d) 617; General Construction Co. v. Fisher, 149 Or. 84, 39 P.(2d) 358-361, 97 A.L.R. 1252. Citations of similar import might be multiplied many times, but those cited are enough to demonstrate beyond peradventure that under the record plaintiffs are not so situated as to urge that they are an agency or instrumentality of the United States exercising governmental functions in order to bring them under the rule of exemption of taxes.

Second: We come then to the real question in the case as to the constitutionality of the tax as against the plaintiffs. It is urged that the tax is levied against articles purchased outside of the state of Washington by plaintiffs because in the light of its history and present setting it is a deliberate attempt to tax articles purchased and brought in from another state, which is discriminating in its incidence against the articles because of their origin in another state. The Commerce Clause of the Federal Constitution (article 1, § 8, cl. 3) is invoked as it is asserted that the act attempts to regulate commerce between states, the power of which is in Congress. The provisions of the act in question, which are pertinent to our inquiry are section 31 (Laws Wash.1935, p. 726): "There is hereby levied and there shall be collected from every person in this state a tax or excise for the privilege of using within this state any article of tangible personal property purchased subsequent to April 30, 1935. Such tax shall be levied and collected in an amount equal to the purchase price paid by the taxpayer multiplied by the rate of 2%." Section 33 (page 727): "If any article of tangible personal property has already been subjected to a tax by this or any other state in respect to its sale or use in an amount less than the tax imposed by this title, the provisions of this title shall apply, but at a rate measured by the difference only between the rate herein fixed and the rate by which the previous tax upon the sale or use was computed." Section 35 (a): "The term `purchase price' shall mean the consideration paid or given or contracted to be paid or given by any person to the seller of an article or tangible personal property for the article purchased. The term shall include, in addition to the consideration paid or given or contracted to be paid or given, the actual cost of transportation from the place where the article was purchased to the person using the same in this state."

The terms of the act are that the tax is levied and collected on any article of tangible personal property in an amount equal ...