U.S. v. Benton, 91-2206
| Decision Date | 16 September 1992 |
| Docket Number | No. 91-2206,91-2206 |
| Citation | 975 F.2d 511 |
| Parties | 38 Cont.Cas.Fed. (CCH) P 76,426 UNITED STATES of America, Appellee, v. Duane BENTON, Director of Revenue, State of Missouri; Missouri Department of Revenue; State of Missouri, Appellants. |
| Court | U.S. Court of Appeals — Eighth Circuit |
James R. McAdams, Jefferson City, Mo., argued (William L. Webster and James B. Deutsch, on brief), for appellants.
David English Carmack, Washington, D.C., argued (Gary R. Allen, John J. McCarthy and David M. Katinsky, on brief), for appellee.
Before RICHARD S. ARNOLD, Chief Judge, McMILLIAN, Circuit Judge, and WELLFORD, * Senior Circuit Judge.
This case involves the disputed payment of Missouri sales and use taxes by a federal contractor, the Olin Corporation. The United States argues that the taxed purchases involved materials which Olin resold to the government. In Missouri, the sales tax applies to sales for retail, a category that does not include sales for resale. As a result, the government argues, these purchases were wrongly taxed, and the United States is entitled to a refund. Missouri contends that these transactions were properly taxable.
The District Court agreed with the United States, holding that it was entitled to a refund of $683,631.26. The Court also awarded the United States prejudgment interest on this amount. United States v. Benton, No. 89-0608-CV-W-3, slip op. 3 (W.D.Mo. Mar. 25, 1991). Missouri now appeals, raising several procedural and substantive arguments for reversal. After de novo review, as required by Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991), we affirm in part and reverse in part.
The facts of this case are uncomplicated. Olin entered into a contract with the United States to operate the Lake City Ammunition Plant in Independence, Missouri. Since November 3, 1985, Olin has operated and maintained the plant under the terms of this contract. The contract requires that Olin purchase the products and materials it needs to perform its contract function, manufacturing ammunition. While Olin does not have to gain the approval of the government when it makes these purchases, it is required to report to the government, and the majority of its tasks are expressly subject to the direction or approval of an Army contracting officer.
Under the terms of the contract, Olin has the freedom to choose the vendors it would like to do business with. It is not required to solicit bids and choose the lowest bidder. The items that Olin orders are shipped directly to the plant in Independence, with the direction that title is to pass to the United States upon delivery at the plant. Appendix 691, p 9. Olin pays for these purchases with its own money and is then reimbursed by the United States under the terms of the contract. These reimbursements have included the sales and use taxes paid by Olin on these purchases.
Prior to reaching the merits of this appeal, we must confront several procedural claims raised by Missouri. It alleges that the federal courts should not consider the government's claims because (1) federal jurisdiction is prohibited under the Tax Injunction Act, 28 U.S.C. § 1341; (2) the federal government did not have standing to bring this claim; and (3) principles of comity and federalism should cause the federal courts to abstain from hearing this case. We reject these arguments. Only the first and second merit any discussion.
The Tax Injunction Act states:
The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.
28 U.S.C. § 1341. Missouri contends that the Act bars this action by the United States. It argues that the government is merely standing in the shoes of Olin, and that this case is concerned solely with the determination of state tax-law issues. As a result, it argues that this case properly belongs in the state courts.
At the heart of this dispute lies the contractual relationship between the United States and Olin. To determine whether the transfers between the original vendors and Olin, and the subsequent transfers by Olin to the United States amounted to a "sale for resale" under Mo.Rev.Stat. § 144.010.1(8) (1986), the contract between Olin and the government must be examined. The interpretation of a contract between the United States and another party depends on federal law. United States v. Jackson County, Missouri, 696 F.Supp. 479, 484 (W.D.Mo.1988). In such a situation, the Tax Injunction Act does not bar the United States from seeking a resolution of this federal question in a federal forum. See United States v. Broward County, Florida, 901 F.2d 1005, 1008 (11th Cir.1990) (). 1
The State argues that the standing of the United States to bring this action is barred by the very terms of the contract with the Olin Corporation. Under the contract, the government was not obligated to reimburse Olin for payments made by Olin to the State that were not properly due because of an exemption from taxes. Here, the whole substantive point of the government's suit is that the transactions in question were exempt. Therefore, the argument runs, the government lacks standing to bring the suit. It should have been brought by Olin. In this event, though, Olin would, by hypothesis, win the case, and Olin would then, presumably voluntarily turn over the funds to the government, which, in any event, would have an action against Olin to recover them if necessary. We see no reason why such a circuity of action should be required. Permitting the government to bring this case means that the money ends up in the right place, back with the government, after only one lawsuit, instead of two. No substantive rights are violated. To dismiss this case for lack of standing, accordingly, seems to us a needless procedural exercise. We hold that the United States does have standing, and we now turn to the merits.
The primary issue in this appeal is whether the transactions between the vendors, Olin, and the government, were properly taxable as a "sale at retail" under the Missouri tax code. Mo.Rev.Stat. § 144.020.1 (1986), levies a tax
upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state.
A "sale at retail" has been defined by the legislature as "any transfer made by any person engaged in business as defined herein of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption and not for resale in any form as tangible personal property, for a valuable consideration...." Id. at § 144.010.1(8) (1986). Thus, a "sale at retail" is a transfer for use or consumption which is "not for resale."
The government argues that the materials purchased by Olin were subsequently resold to the United States. It argues that upon receipt from the vendors, Olin immediately transfers title to the United States. This transfer of title, the government posits, renders the initial transfer between the vendors and Olin non-taxable as a sale for resale under § 144.010.1(8). Missouri responds that there is no sale for resale, that the only taxable transaction occurs between the vendors and Olin, and that, although title to the goods passes from Olin to the United States upon delivery, Olin still retains a significant ownership interest in the goods while it uses them to perform under the contract. We hold that Olin did resell the disputed materials to the United States, and thus the initial transaction between the vendors and Olin was not a sale at retail and not taxable.
Under Missouri law, the sales tax is paid by the purchaser of the goods. State ex rel. Thompson-Stearns-Roger v. Schaffner, 489 S.W.2d 207, 215 (Mo.1973); Mo.Rev.Stat. § 144.060 (1986). The Supreme Court has determined that a "purchaser" is the person who orders the goods and either pays for them or is legally obligated to pay for them. Alabama v. King & Boozer, 314 U.S. 1, 10, 62 S.Ct. 43, 46, 86 L.Ed. 3 (1941). In this case, there is no dispute that Olin was a purchaser of the goods it ordered from the vendors. Our analysis focuses on whether those transactions were final for sales-tax purposes, or whether Olin turned around and resold the goods to the United States. Under the contract between Olin and the United States, the government is required to reimburse Olin for its purchases. Appendix 688, 773. We think this is sufficient to indicate that a resale has taken place.
The Lake City Ammunition Plant is owned by the United States. Olin was hired by the Department of the Army to operate and maintain the plant. It is not an agent of the government, but is instead an independent contractor. Under the terms of its contract, Olin must furnish the equipment, supplies, and materials needed to operate and maintain the plant. To do this, Olin may go out and contract with individual vendors to purchase the materials it needs. It does not need the approval of the United States to pick any specific vendor. However, on the purchase orders, the vendors are informed that title to the goods which Olin purchases is to pass to the United States upon their delivery to the plant. Furthermore, under the terms of the contract, the government is required to reimburse Olin for all purchases of personal property needed for the operation of the plant. After delivery of the items to the plant and payment for the items by Olin, the government reimburses Olin for all of these expenses. The government argues that these facts show a...
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