State of Alabama v. King Boozer

• Decision Date: 10 November 1941
• Docket Number: No. 602,602
• Parties: STATE OF ALABAMA v. KING & BOOZER et al
• Court: U.S. Supreme Court

314 U.S. 1

62 S.Ct. 43

86 L.Ed. 3

STATE OF ALABAMA

v KING & BOOZER et al.

No. 602.

Argued Oct. 23, 24, 1941.

Decided Nov. 10, 1941.

Messrs. Thomas S. Lawson and John W. Lapsley, both of Montgomery, Ala., for petitioners.

Mr. Charles Fahy, Acting Solicitor General, for respondents.

[Argument of Counsel from pages 2-5 intentionally omitted] Mr. Chief Justice STONE delivered the opinion of the Court.

Respondents, King and Boozer, sold lumber on the order of 'cost-plus-a-fixed-fee' contractors for use by the latter in constructing an army camp for the United States. The question for decision is whether the Alabama sales tax, with which the seller is chargeable, but which he is required to collect from the buyer, infringes any constitutional immunity of the United States from state taxation.

The Alabama statute, Act No. 18, General Acts of Alabama, 1939, p. 16, Code 1940, Tit. 51, § 752 et seq., expressly made applicable to sales of building materials to contractors, § I(j), lays a tax of 2 per cent on the gross retail sales price of tangible personal property. While in terms, § II, Code 1940, Tit. 51, § 753, the tax is laid on the seller, who is denominated the 'taxpayer', by § XXVI, Code 1940, Tit. 51, § 776, it is made the duty of the seller 'to add to the sales price and collect from the purchaser the amount due by the taxpayer on account of said tax.'

Section VII, Code 1940, Tit. 51, § 757, provides that when sales are made on credit the tax is payable as and when the collection of the purchase price is made. The Supreme Court of Alabama has construed these provisions as imposing a legal obligation on the purchaser to pay the tax which the seller is required to add to his sales price and to collect from the purchaser upon collection of the price, whether the sale is for cash or on credit. See Lone Star Cement Corp. v. State Tax Commission, 234 Ala. 465, 175 So. 399; Long v. Roberts, 234 Ala. 570, 176 So. 213; National Linen Service Corp. v. State Tax Commission, 237 Ala. 360, 186 So. 478; Wood Preserving Corp. v. State Tax Commission, 235 Ala. 438, 179 So. 254. Section V, Code 1940, Tit. 51, § 755, excludes from the tax the proceeds of sales which the state is prohibited from taxing by the Constitution or laws of the United States.

Respondents, King and Boozer, who furnished the lumber in question on the order of the contractors, appealed to the state circuit court from an assessment of the tax by the state department of revenue, on the ground that the tax is prohibited by the Constitution because laid upon the United States, and is excluded from the operation of the taxing statute by its terms. The United States was permitted to intervene and joined in these contentions.

The trial upon a stipulation of facts, embodying the relevant documents, resulted in a decree sustaining the tax which the Supreme Court of Alabama reversed, 3 So.2d 572, 579. Apart from the constitutional restriction, it found no want of authority in the taxing statute for the collection of the tax from the contractors. But it concluded that although the contractors were indebted to the seller for the purchase price of the lumber, they were so related by their contract to the Government's undertaking to build a camp, and were so far acting for the Government in the accomplishment of the governmental purpose, that the tax was in effect 'laid on a transaction by which the United States secures the things desired for governmental purposes', so as to infringe the constitutional immunity, citing Panhandle Oil Co. v. State ex rel. Knox, 277 U.S. 218, 48 S.Ct. 451, 72 L.Ed. 857, 56 A.L.R. 583; Graves v. Texas Co., 298 U.S. 393, 56 S.Ct. 818, 80 L.Ed. 1236. We granted certiorari, 314 U.S. 599, 62 S.Ct. 118, 86 L.Ed. —-, the question being one of public importance.

Congress has declined to pass legislation immunizing from state taxation contractors under 'cost-plus' contracts for the construction of governmental projects.¹ Consequently the participants in the present transaction enjoy only such tax immunity as is afforded by the Constitution itself, and we are not now concerned with the extent and the appropriate exercise of the power of Congress to free such transactions from state taxation of individuals in such circumstances that the economic burden of the tax is passed on to the national government. The Government, rightly we think, disclaims any contention that the Constitution, unaided by Congressional legislation, prohibits a tax exacted from the contractors merely because it is passed on economically, by the terms of the contract or otherwise, as a part of the construction cost to the Government. So far as such a nondiscriminatory state tax upon the contractor enters into the cost of the materials to the Government, that is but a normal incident of the organization within the same territory of two independent taxing sovereignties. The asserted right of the one to be free of taxation by the other does not spell immunity from paying the added costs, attributable to the taxation of those who furnish supplies to the Government and who have been granted no tax immunity. So far as a different view has prevailed, see Panhandle Oil Co. v. State ex rel. Knox, supra; Graves v. Texas Co., supra, we think it no longer tenable. See Metcalf & Eddy v. Mitchell, 269 U.S. 514, 46 S.Ct. 172, 70 L.Ed. 384; Trinityfarm Co. v. Grosjean, 291 U.S. 466, 54 S.Ct. 469, 78 L.Ed. 918; James v. Dravo Contracting Co., 302 U.S. 134, 160, 58 S.Ct. 208, 221, 82 L.Ed. 155, 114 A.L.R. 318; Helvering v. Gerhardt, 304 U.S. 405, 416, 58 S.Ct. 969, 973, 82 L.Ed. 1427; Graves v. New York ex rel. O'Keefe, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927, 120 A.L.R. 1466.

The contention of the Government is that the tax is invalid because it is laid in such manner that, in the circumstances of this case, its legal incidence is on the Government rather than on the contractors who ordered the lumber and paid for it, but who, as the Government insists, have so acted for the Government as to place it in the role of a purchaser of the lumber. The argument runs: the Government was a purchaser of the lumber, and but for its immunity from suit and from taxation, the state applying its taxing statute could demand the tax from the Government just as from a private individual who had employed a contractor to do construction work upon a like cost-plus contract.

The soundness of this conclusion turns on the terms of the contract and the rights and obligations of the parties under it. 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 sales 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. The Government's contention is that it has a constitutional immunity from state taxation on its purchases and that this was sufficiently a Government purchase to come within the asserted immunity.

As the sale of the lumber by King and Boozer was not for cash the precise question is whether the Government became obligated to pay for the lumber and so was the purchaser whom the statute taxes, but for the claimed immunity. By the cost-plus contract the contractors undertook to 'furnish the labor, materials, tools, machinery, equipment, facilities, supplies not furnished by the Government, and services, and to do all things necessary for the...