U.S. v. California State Bd. of Equalization.

• Citation: 683 F.2d 316
• Decision Date: 03 August 1982
• Docket Number: No. 80-5391,80-5391
• Parties: 30 Cont.Cas.Fed. (CCH) 70,202 UNITED STATES of America, Plaintiff-Appellee, v. CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 316

683 F.2d 316

30 Cont.Cas.Fed. (CCH) 70,202

UNITED STATES of America, Plaintiff-Appellee, v. CALIFORNIA STATE BOARD OF EQUALIZATION, Defendant-Appellant.

No. 80-5391.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 8, 1982.

Submission Vacated Jan. 20, 1982.

Resubmitted June 10, 1982.

Decided Aug. 3, 1982.

Neal J. Gobar, Deputy Atty. Gen., San Diego, Cal., for defendant-appellant.

John J. McCarthy, Atty., Washington, D. C., argued, for plaintiff-appellee; Charles E. Stratton, M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews, Michael L. Paup, Jonathan S. Cohen, Washington, D. C., on brief.

Appeal from the United States District Court for the Central District of California.

Before CHAMBERS, KENNEDY, and SCHROEDER, Circuit Judges.

SCHROEDER, Circuit Judge.

The United States brought this action to recover sales and use taxes on leases of personal property executed by Defense Department contractors. The taxes were collected by the California State Board of Equalization between 1973 and 1976 from lessors who leased personalty to contractors of the United States; the lessors passed on the tax liability to the contractor-lessees. The contractors were reimbursed in turn by the Department of Defense for the tax payments under a contractual cost plus fixed fee arrangement.

The United States contends that the sales and use taxes could not constitutionally be imposed because the contractors in question were acting as agents of the United States in executing the leases involved, and as a result the legal incidence of the taxes fell upon the United States as their principal. The district court granted summary judgment to the United States. We must reverse on the authority of the recent decision of the United States Supreme Court in United States v. New Mexico, --- U.S. ----, 102 S.Ct. 1373, 71 L.Ed.2d 580 (1982).

That case involved the constitutionality of the application of New Mexico's sales, use, and gross receipts taxes to private entities engaged in operating government-owned research and development facilities. The contractors were paid their costs plus a fixed fee under their management contracts with the Department of Energy. After reviewing its past cases and the general principles of federal immunity from state taxation, the Court stated that "absent Congressional action, ... the States' power to tax can be denied only under 'the clearest constitutional mandate.' " United States v. New Mexico, supra, --- U.S. at ----, 102 S.Ct. at 1384 (quoting Michelin Tire Corp. v. Wages, 423 U.S. 276, 293, 96 S.Ct. 535, 544, 46 L.Ed.2d 495 (1976)). The Court held that in determining whether the legal incidence, as opposed to the economic burden, of the tax falls on the United States, the key consideration is not whether the United States "shoulders the burden" of the levy, nor whether the contractor acts as an "agent" for the United States in the transaction, but whether "the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned." Id. --- U.S. at ----, 102 S.Ct. at 1382.

The government advances four grounds for distinguishing the contractual relationships in this case from those involved in United States v. New Mexico. First, the government has not "formally disclaimed" the intent to designate these contractors as procurement "agents." Second, the lessors are allegedly told that the United States is the only party with an independent interest in the leases. Third, the contractors are "in fact" designated as government procurement agents. Finally, the contractors do not execute the leases in their own names, but rather as ...