United States v. Query, 932.

• Decision Date: 21 December 1937
• Docket Number: No. 932.,932.
• Citation: 21 F. Supp. 784
• Parties: UNITED STATES v. QUERY et al.
• Court: U.S. District Court — District of South Carolina

21 F. Supp. 784

UNITED STATES v. QUERY et al.

No. 932.

District Court, E. D. South Carolina.

December 21, 1937.

James W. Morris, Asst. Atty. Gen., and Robert N. Anderson and W. Croft Jennings, Sp. Assts. to the Atty. Gen. (Claud N. Sapp, U. S. Atty., and Henry H. Edens, Asst. U. S. Atty., both of Columbia, S. C., and Ed. C. Betts, Major, U. S. Army, Judge Advocate General's Department, of Washington, D. C., of counsel), for the United States.

John M. Daniel, Atty. Gen., and Claude K. Wingate, of Columbia, S. C., for defendants.

Before PARKER, Circuit Judge, and MYERS and WYCHE, District Judges.

WYCHE, District Judge.

This is a suit in equity brought by the United States to enjoin the South Carolina Tax Commission from collecting taxes imposed by an Act of the General Assembly of South Carolina, as amended, sections 2521-2554 inclusive, Code of Laws of South Carolina 1932, and from enforcing other provisions contained therein, with respect to the activities of Civilian Conservation Corps camp exchanges within the borders of the state, upon the ground that the taxing statute, as applied, infringes the Federal Constitution.

A District Court of three judges, organized in accordance with section 266 of the Judicial Code, as amended, 28 U.S.C.A. § 380, heard the case on plaintiff's application for interlocutory and permanent relief. At the hearing the cause was submitted on stipulation of facts, and it was agreed that the hearing should be on the merits for a final decree.

The state statute imposes a license tax upon the privilege of engaging in the business of selling within the state, certain articles, such as little cigars, cheroots, stogies, cigars, cigarettes, snuff, chewing tobacco, smoking tobacco, cartridges and shells, candy, playing cards. To engage in such business requires a license to be obtained by application to the South Carolina Tax Commission. The statute further provides: That a separate license be secured for each place of business operated; that any license issued thereunder may under certain conditions be revoked by South Carolina Tax Commission; that any of the enumerated articles declared to be subject to tax shall, upon a failure to conform to the mandates of the statute, be contraband and subject to seizure and confiscation; that any vehicle, not a common carrier, which may be used for the transportation, for the purpose of sale, of said articles not bearing stamps indicating the payment of the tax, shall likewise be subject to seizure and confiscation; that every person engaged in selling, manufacturing, or otherwise dealing in various commodities known as "soft drinks," shall, for the privilege of carrying on such business, be subject to the payment of a license tax measured by and graduated in accordance with the sales of such person; the payment of said license tax shall be made through the medium of soft drink license tax stamps affixed to the containers bearing the syrup utilized in the making of soft drinks and soft drink license tax crowns affixed to the containers bearing the finished drink suitable for human consumption; that every such person dealing in said soft drinks shall prepare and maintain complete records revealing an accurate account of the transactions incident to such dealing in soft drinks for a period of not less than two years from the date of each such transaction. The commission has the power of seizure and confiscation of commodities held and used in dealing in soft drinks by such person failing to comply with the requirements of the statute.

The statute Code S.C.1932, § 2526, further provides that the administration and enforcement of the act is vested in the South Carolina Tax Commission, which shall prescribe rules and regulations pertinent to the enforcement of the statute, and that said commission shall have power to enter upon the premises of any taxpayer and examine, through its agents, any books, papers, records, memoranda, or commodities bearing upon the amount of taxes payable, and to secure any other information concerned in the enforcement thereof; that violations thereof shall constitute public offenses and are punishable by divers and numerous fines, penalties, or imprisonment. Each separate act of violation of the statute is specified as a separate and independent offense.

The Civilian Conservation Corps camp exchanges, located within the borders of the state of South Carolina, are now and have been engaged in selling a number or all of the articles enumerated in the statute, as being subject to a license tax, and the sales are and have been consummated on property either owned or leased by the United States.

The plaintiff contends that the institution of the Civilian Conservation Corps camp exchange is such an instrumentality of the federal government as to be immune from state taxation, regulation, or interference.

The Civilian Conservation Corps camp exchange is a governmental undertaking. It has its existence by virtue of Congressional legislation, Act June 28, 1937, 16 U.S.C.A. § 584 et seq. Federal funds are used to pay the expenses in connection with its conduct, operation, and management. Act June 28, 1937, § 17, 16 U.S.C. A. § 584p. The federal statute creating the camp exchange provides that it be established and operated in accordance with regulations prescribed by the Director, at the camps designated by him. Section 17, Act June 28, 1937, 16 U.S.C.A. § 584p. The camp exchanges in South Carolina were established in pursuance thereof. The camp exchange is an integral and necessary part of the Corps which is engaged in providing employment as well as vocational training to unemployed citizens of the United States for the performance of useful work and in salvaging and conserving the natural resources of the United States. Such a function of the government is authorized under article 1, § 8, cl. 1, of the Federal Constitution. A high state of morale and contentment is necessary to a full consummation of the objectives of the Corps, to create and maintain which the institution of the camp exchange was established as an essential element of the program for unemployment relief. It is operated in a building erected and maintained by federal funds on lands privately owned, but leased for a specified term by the United States. It was not created for private gain, but wholly for governmental purposes. It is not conducted primarily for profit, but is operated essentially for the welfare of the camp's enrollees in furtherance of the objectives of the Corps. Sales to outsiders are strictly prohibited by the statute creating the camp exchange. It follows that the Civilian Conservation Corps camp exchange is a federal instrumentality.¹ New York ex rel. Rogers v. Graves, 299 U.S. 401, 57 S.Ct. 269, 81 L.Ed. 306; Johnson v. Maryland, 254 U.S. 51, 41 S.Ct. 16, 65 L.Ed. 126; Graves v. Texas Co., 298 U.S. 393, 56 S.Ct. 818, 80 L.Ed. 1236; Panhandle Oil Co. v. Knox, 277 U.S. 218, 48 S.Ct. 451, 72 L.Ed. 857, 56 A.L.R. 583; Ohio v. Thomas, 173 U. S. 276, 19 S.Ct. 453, 43 L.Ed. 699; United States v. Rickert, 188 U.S. 432, 23 S.Ct. 478, 47 L.Ed. 532; Clallam County v. United States, 263 U.S. 341, 44 S.Ct. 121, 68 L. Ed. 328; Shaw v. Oil Corporation, 276 U.S. 575, 48 S.Ct. 333, 72 L.Ed. 709; United States v. Wright, 4 Cir., 53 F.2d 300.

It is well settled that the instrumentalities, means, and operations employed by the United States in the exercise of its governmental powers are exempt from tax, regulation, or interference by the states, and that the instrumentalities, means, and operations whereby the states exercised their governmental powers are exempt from tax, regulation, or interference by the United States. What instrumentalities of a state or the federal government are immune from tax, regulation, or interference by the other has never been stated in terms decisive of every case, but the Supreme Court in its numerous decisions upon the question has announced certain principles whereby this case must be tested.

Thus, the Supreme Court in the case of Metcalf & Eddy v. Mitchell, 269 U.S. 514, 46 S.Ct. 172, 174, 70 L.Ed. 384, said: "Neither government may destroy the other nor curtail in any substantial manner the exercise of its powers. Hence the limitation upon the taxing power of each, so far as it affects the other, must receive a practical construction which permits both to function with the minimum of interference each with the other; and that limitation cannot be so varied or extended as seriously to impair either the taxing power of the government imposing the tax (South Carolina v. United States, 199 U.S. 437, 461, 26 S.Ct. 110, 50 L.Ed. 261, 4 Ann.Cas. 737; Flint v. Stone Tracy Co., supra, 220 U.S. 107 at page 172, 31 S.Ct. 342 55 L.Ed. 389, Ann. Cas.1912B, 1312) or the appropriate exercise of the functions of the government affected by it. Union P. Railroad Co. v. Peniston, supra, 18 Wall. 5 31 21 L.Ed. 787."

An examination of the state statute discloses that it requires each establishment to secure a license to do business issued at the discretion of the Tax Commission revocable by it under certain conditions. It permits the seizure and confiscation of the articles taxed for failure to comply with the provisions of the statute, or the rules and regulations promulgated by the Tax Commission. It authorizes the seizure of vehicles transporting alleged contraband articles. Any violation of the provisions of the statute or the rules and regulations subjects the dealer to a suppression of his business. Under such provisions of the statute the state is granted not only the power to curtail in a substantial manner the exercise of power by the federal government in the operation of the camp exchange, but is also given the authority to destroy the effect of the federal statute creating the camp exchange and to suppress a part of its business.

No reason is advanced and none occurs to us why the operation of the camp exchange as a...