United States v. Nevada Tax Commission

• Decision Date: 19 March 1971
• Docket Number: No. 23754.,23754.
• Citation: 439 F.2d 435
• Parties: UNITED STATES of America, Reynolds Electrical & Engineering Co., Inc. and Cashman Equipment Co., Appellees, v. NEVADA TAX COMMISSION, Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

439 F.2d 435 (1971)

UNITED STATES of America, Reynolds Electrical & Engineering Co., Inc. and Cashman Equipment Co., Appellees, v. NEVADA TAX COMMISSION, Appellant.

No. 23754.

United States Court of Appeals, Ninth Circuit.

March 19, 1971.

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Robert A. Groves (argued), Harvey Dickerson, Atty. Gen. of Nev., Carson City, Nev., for appellant.

William Massar (argued), Atty., Dept. of Justice, Johnnie M. Walters, Asst. Atty. Gen., Lee A. Jackson, Atty., Chief., Washington, D. C., Bart M. Schouweiler, U. S. Atty., Reno, Nev., for appellees.

Before HAMLEY, BROWNING and HUFSTEDLER, Circuit Judges.

HAMLEY, Circuit Judge:

The United States, Reynolds Electrical & Engineering Co., Inc. (Reeco), and Cashman Equipment Co. (Cashman), brought this action against the Nevada Tax Commission for declaratory and monetary relief. Specifically, plaintiffs sought a judicial declaration that the Nevada Sales and Use Tax Act (Nev. Rev.Stat. §§ 372.105, .110, .185, .190) does not provide for any tax on the particular transactions described in the complaint, a judicial declaration that certain deficiency determinations made by defendant against Reeco and Cashman are illegal, and a refund of amounts paid under protest pursuant to such deficiency determinations.

The Commission moved to dismiss the action as to all plaintiffs upon the grounds that the complaint does not state a claim, the United States District Court is without jurisdiction, and the Government does not have standing to sue. The district court granted the motion as to Reeco and Cashman and denied it as to the Government. The Commission and the Government then filed cross motions for summary judgment. The district court granted summary judgment for the Government based upon an extensive memorandum opinion reported in 291 F.Supp 530 (D.Nev. 1968). This appeal followed.

The essential facts are set forth in the opinion of the district court and will not be repeated here.

The Government predicated district court jurisdiction upon 28 U.S.C. §§ 1331 and 1345. The Commission argues that the single district judge lacked jurisdiction because the Government seeks to have the state statute declared unconstitutional, thereby requiring a three-judge district court pursuant to 28 U.S.C. § 2281.

In this suit the Government does not seek an "injunction restraining the enforcement, operation or execution" of a state statute, to use the language of section 2281. And even if we were to assume that a case could be stated in which an action solely for declaratory relief would be appropriate for consideration by a three-judge court, this is not such a case. As the Supreme Court said in Kennedy v. Mendoza-Martinez, 372 U.S. 144, 154, 83 S.Ct. 554, 9 L.Ed.2d 644 (1963), section 2281 and its complement, 28 U.S.C. § 2282, were enacted to prevent a single federal district judge from being able to paralyze totally the operation of an entire statutory scheme, state or federal, by issuance of a broad injunctive order. The declaratory judgment here sought would not have this effect with respect to Nevada's Sales and Use Tax Act.

The Commission further contends that the district court lacked jurisdiction because the Nevada statute under which a recovery of taxes paid under protest may be sought, Nev.Rev.Stat. § 372.680, confines such suits to the state courts. Accordingly, the state argues, the United States must act in conformity with the limited waiver of the state's sovereign immunity manifested by that statute.

We do not agree. In United States v. California, 328 F.2d 729 (9th Cir. 1964) this court held that, under section 1345, original jurisdiction lies in the federal district court over civil suits brought by the United States against a state. The states waived their immunity to suit by the United States when they became members of the Union. Id. at 737 n. 39. The waiver cannot be withdrawn or limited by state consent statutes. The cases cited by the Commission upholding the validity of a limited consent statute are cases between a private party and the state and are not controlling here. It is irrelevant, for jurisdictional purposes (although it may be relevant to a consideration of the issue of standing), that the United States might not be the "taxpayer" who is required to be the claimant in a recovery suit under Nev.Rev.Stat. § 372.680.

The Commission contends that the United States does not have the requisite interest to be a proper party plaintiff in this proceeding. The state argues that the corporate contractors, Reeco and Cashman, are the real parties in interest in this action and that the United States is acting as their "alter ego." In this connection, the Commission notes that Reeco and Cashman were dismissed as plaintiffs in the district court action because of the Eleventh Amendment's limitation on the jurisdiction of the district court and because, as private parties, Reeco and Cashman were bound by Nevada's limited consent to be sued for the recovery of taxes in its own courts.

The issue of the standing of the United States to bring a suit against a state for recovery of taxes paid by contractors and for a declaration that the tax was unconstitutionally discriminatory was considered in United States v. Bureau of Revenue of New Mexico, 291 F.2d 677 (10th Cir. 1961).¹ The district court had dismissed the action, partly upon the ground that the United States was not the real party in interest. The court of appeals reversed saying, on this point:

"The action * * * 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. * * * If the taxpayer has any right to assert the government\'s immunity, it is a `derivative one.\'" Id. at 678-679 (footnotes omitted).²

Since the proper interest and standing of the United States as a party litigant, apart from any interest of the corporate contractors, is thus established, the Eleventh Amendment constitutes no barrier to the maintenance of the suit by the United States, because it is inapplicable to suits by the United States.

The Commission argues that the district court should have abstained from deciding the issues raised in this proceeding to allow the state court to construe the taxing statutes involved. In addition, the Commission urges that equitable relief in the form of a declaratory judgment should not be available to the United States since there is an adequate remedy at law in the state courts. We discuss these two arguments together since both hinge on the availability of the state court remedy.

The Nevada sales tax exempts from taxation receipts from the sale of tangible personal property to the United States. The district court found that the incidence of the Nevada sales tax fell on the buyer, and that the buyer, with regard to the assessed sales involved in this suit, was the United States. Both sides agree that a tax on sales to the United States is unconstitutional if the legal incidence of the tax falls on the vendee rather than the vendor.

With respect to the sales tax the statute is unambiguous. It exempts sales to the United States. The question of whether the United States is the purchaser, or, indeed, whether the incidence of the tax falls upon the purchaser or the seller, although closely linked with state law, is a question of federal law upon which decisions of the states are not binding.

In First Agricultural Nat'l Bank v. State Tax Commission, 392 U.S. 339, 88 S.Ct. 2173, 20 L.Ed.2d 1138 (1968) the Supreme Court ruled that the incidence of the Massachusetts' sales tax fell on the purchaser. Id. at 347, 88 S.Ct. 2173, 2177. The Massachusetts court had construed its own statute as being a tax on the seller, but "because the question here is whether the tax affects federal immunity, it is clear that for this limited purpose we are not bound by the state court's characterization of the tax." Id. Similarly in Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 74 S.Ct. 403, 98 L.Ed. 546 (1954), involving an Arkansas tax statute, the Court found that the United States, rather than the contractor, was the purchaser in certain allegedly taxable sales. Id. at 122, 74 S. Ct. 403. The highest court of Arkansas had concluded otherwise. Id. at 113, 74 S.Ct. 403. The Supreme Court, clarifying a possible contrary implication found in Alabama v. King & Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3 (1941), said that the issue was clearly one of federal law — "the duty rests on this Court to decide for itself facts or constructions upon which federal constitutional issues rest." Kern-Limerick, 347 U.S. at 121, 74 S.Ct. at 410 (footnote omitted).

We accordingly hold that the district court was not required to abstain from determining the Nevada sales tax issues in this case.

The challenge to Nevada's...