United States v. Bureau of Revenue of State of NM, 6608.

• Decision Date: 16 May 1961
• Docket Number: No. 6608.,6608.
• Citation: 291 F.2d 677
• Parties: UNITED STATES of America and Phillips Petroleum Company, Appellants, v. BUREAU OF REVENUE OF STATE OF NEW MEXICO; Robert Valdez, Commissioner of Revenue; and Carl Folkner, Director School Tax Division, Bureau of Revenue, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

291 F.2d 677 (1961)

UNITED STATES of America and Phillips Petroleum Company, Appellants, v. BUREAU OF REVENUE OF STATE OF NEW MEXICO; Robert Valdez, Commissioner of Revenue; and Carl Folkner, Director School Tax Division, Bureau of Revenue, Appellees.

No. 6608.

United States Court of Appeals Tenth Circuit.

May 16, 1961.

Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, I. Henry Kutz and George F. Lynch, Attorneys, Department of Justice, Washington, D. C., and James A. Borland, U. S. Atty., Albuquerque, N. M., for appellants.

Earl E. Hartley, Atty. Gen. of New Mexico, F. Harlan Flint, Asst. Atty. Gen., and John W. Chapman, Chief Counsel, Bureau of Revenue, Santa Fe, N. M., for appellees.

Before MURRAH, Chief Judge, PICKETT, Circuit Judge, and SAVAGE, District Judge.

SAVAGE, District Judge.

This action was brought by the United States of America and Phillips Petroleum Company against the Bureau of Revenue of the State of New Mexico, Robert Valdez, Commissioner of Revenue, and Carl Folkner, Director School Tax Division, Bureau of Revenue, seeking a declaratory judgment that the New Mexico Emergency School Tax Act¹ is unconstitutional and for the recovery of taxes paid by Phillips Petroleum Company under protest in compliance with such Act.

The complaint alleges, and for our purposes it must be taken as true, that during the period from August 1, 1958, to March 31, 1960, Phillips processed uranium bearing ore at its mill in McKinley County, New Mexico, and sold uranium concentrate to the Atomic Energy Commission, an agency of the United States, in the amount of $25,968,108; that defendants assessed a tax on these sales in the amount of $129,840; that Phillips, at the request of the United States, paid the tax under protest; that by the terms of the contract between Phillips and the Atomic Energy Commission, the price paid to Phillips included the amount of the tax exacted and provided that Phillips would reimburse the Commission to the extent of any refund obtained; that the taxes were imposed pursuant to the provisions of the New Mexico Emergency School Tax Act which levies a tax upon persons engaged in the processing of metalliferous mineral products computed on the gross receipts of production within the State of New Mexico; that sales of such minerals to the United States are expressly subject to the tax although all sales of tangible personal property to the State, its political subdivisions, and all societies, hospitals, fraternal or religious organizations not organized for profit are exempt; that such Act is unconstitutional because it discriminates against the United States, its instrumentalities and those with whom it deals, and that the tax violates the immunity of the United States, its instrumentalities and agencies, from taxation.

The relief sought is a declaration that the Emergency School Tax Act is unconstitutional and a judgment in the amount of taxes paid by Phillips under protest, plus interest.

At the hearing on a motion to dismiss filed by the defendants, the United States and Phillips were permitted to amend their complaint by adding to their prayer for relief a request that the defendants be enjoined from the assessment or enforcement of the tax against them and all other persons engaged in the sale of tangible personal property or metalliferous metals to the United States.

The Court held that it was without jurisdiction on the grounds that the United States was not a real party in interest and that the action is precluded by 28 U.S.C.A. § 1341, and decided, in the alternative, if jurisdiction was present, that it should in the interest of comity forego its exercise.² An order of dismissal was entered from which this appeal was taken.

We hold that the Court has jurisdiction and the duty to proceed to a decision on the merits. The action pleaded by appellants is essentially to establish the right of the United States and those with whom it deals to be relieved from an unconstitutionally discriminatory tax and to assert the constitutional immunity of the United States from taxation by the state. The United States is the proper party to prosecute an action to protect its sovereign rights.³ It is the real party in interest. If immunity from the state tax exists, it is in behalf of the United States. The exaction of the tax can only be resisted on such ground by the government or one who stands in its shoes. If the taxpayer has any right to assert the government's immunity, it is a "derivative one".⁴

The United States is not foreclosed from prosecuting this kind of action by Section 1341 of Title 28 U.S.C. A. While this section provides in substance that the district courts shall not enjoin the assessment of any tax under state law where "a plain, speedy and efficient remedy may be had in the courts of such State", we find no case construing this section to bar the United States from applying to her own courts for protection against an...