US v. Benton

• Decision Date: 01 February 1990
• Docket Number: No. 89-0608-CV-W-3.,89-0608-CV-W-3.
• Citation: 729 F. Supp. 671
• Parties: UNITED STATES of America, Plaintiff, v. Duane BENTON, Director of Revenue, State of Missouri; Missouri Department of Revenue and State of Missouri, Defendants.
• Court: U.S. District Court — Western District of Missouri

729 F. Supp. 671

UNITED STATES of America, Plaintiff, v. Duane BENTON, Director of Revenue, State of Missouri; Missouri Department of Revenue and State of Missouri, Defendants.

No. 89-0608-CV-W-3.

United States District Court, W.D. Missouri, W.D.

February 1, 1990.

E. Eugene Harrison, U.S. Attorney's Office, Kansas City, Mo., for plaintiff.

William Webster, Atty. Gen., James Deutsch, Deputy Atty. Gen., James McAdams, Asst. Atty. Gen., Mo., for defendants.

MEMORANDUM OPINION AND ORDER

ELMO B. HUNTER, Senior District Judge.

The Court has pending before it a Motion to Dismiss Plaintiff's Complaint pursuant to Rule 12(b), Fed.R.Civ.P., and a Motion for Stay of Discovery filed by defendants Duane Benton, Missouri Director of Revenue; the Missouri Department of Revenue; and the State of Missouri. The facts of the case are as follows.

Olin Corporation ("Olin"), a private, for-profit government contractor, contracted with the Department of the Army to operate and maintain the Lake City Army Ammunition Plant (the "plant"), a government-owned facility manufacturing small arms ammunition. According to plaintiff, Olin purchases personal property necessary for the operation of the plant and is reimbursed by plaintiff for all such purchases pursuant to the contract. Plaintiff states that under the contract, title to all tangible personal property purchased by Olin passes to plaintiff upon delivery of the property by the vendors.

Plaintiff alleges that between November 3, 1985, and April 1, 1988, Olin made payments of Missouri sales and use taxes in the amount of approximately $862,000 on those purchases of tangible personal property which were made in its performance of the contract. On April 1, 1988, Olin ceased making payments of Missouri sales and use taxes on those purchases of personal property, contending that it purchased the property for the purpose of reselling it to the United States and that the Missouri sales taxes do not apply to such sales for resale.¹ Plaintiff further contends that because Olin does not store, use, or consume the tangible personal property it purchases pursuant to the contract, Missouri use taxes are not applicable. Finally, plaintiff asserts that Olin's holding of tangible personal property for resale to plaintiff is exempted from the Missouri use tax.²

Plaintiff invokes the jurisdiction of this Court pursuant to 28 U.S.C. § 1331³ and 28 U.S.C. § 1345.⁴ Plaintiff seeks the following relief:

(1) That this Court enter a judgment declaring that (a) the imposition, assessment, or collection by the defendants of sales taxes on those purchases by Olin of tangible personal property which are made in its performance of the Contract is unlawful, void, and of no effect because Olin purchased the property for the purpose of reselling it to the United States and the sales to Olin therefore were not retail sales within the purview of Mo.Rev.Stat. § 144.010.1(8) and (b) the imposition, assessment, or collection by the defendants of use taxes on all articles of tangible personal property purchased by Olin in its performance of the Contract is unlawful, void, and of no effect because Olin does not store, use or consume property within the meaning of Mo.Rev.Stat. § 144.610(1) and/or because Olin's holding of tangible personal property for resale to the United States is exempted from the use tax under Mo. Rev.Stat. § 144.615(6).

2. That this Court enter preliminary and permanent injunctions in favor of the plaintiff, the United States of America, enjoining the defendants, their successors in office, their employees, agents, attorneys, and all persons acting in concert with them who shall receive notice thereof, from assessing, imposing, or collecting the Missouri sales and use taxes, Mo.Rev.Stat. §§ 144.020 and 144.610, on purchases of tangible personal property made by Olin in its performance of the Contract.

3. That this Court order the defendants to refund to the United States of America, with interest, all sales and use taxes which have been paid to the State of Missouri on purchases of tangible personal property made by Olin in its performance of the Contract.

4. That this Court order that the plaintiff have its costs in this action and that this Court grant such other and further relief as is just and proper.

Defendants move to dismiss the action on the following grounds: (1) the federal government lacks standing to sue; (2) the action is barred by the Federal Tax Injunction Act, 28 U.S.C. § 1341; and (3) the Court should abstain on principles of comity.

I. Standing

Defendants argue that plaintiff lacks standing to assert jurisdiction and therefore is not a proper party to this action. Specifically, defendants contend that plaintiff is merely bringing this suit on behalf of Olin and, consequently, plaintiff's complaint fails to allege a direct injury to plaintiff caused by defendants. In its suggestions in opposition to defendants' motion, plaintiff counters that it has suffered a direct pecuniary injury as a result of the imposition of Missouri sales and use taxes on Olin, because "any sales and use taxes assessed or imposed under Missouri law on Olin in its performance of the Contract have in the past and would be in the future paid from the funds of the United States in accordance with the provisions of the Contract." Plaintiff's Complaint ¶ 15. The contract requires the federal government to reimburse Olin for all purchases of tangible personal property made pursuant to the contract.

The United States Supreme Court has identified the Article III requirements a plaintiff must meet in order to have standing. These requirements are: (1) an allegation of actual or threatened injury to the plaintiff; (2) the injury alleged by plaintiff must be fairly traceable to the action of the defendant that is challenged in the lawsuit; and (3) the injury alleged by plaintiff must be likely to be addressed by a favorable decision of the court. Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 102 S.Ct. 752, 70 L.Ed.2d 700 (1982); see Belles v. Schweiker, 720 F.2d 509, 513 (8th Cir.1983).

The Court finds that the United States has alleged actual direct pecuniary injury resulting from its obligation to reimburse Olin for purchases of personal property made pursuant to the contract. United States v. Commonwealth of Virginia, 500 F.Supp. 729, 731 (E.D.Va.1980); see Marquardt Corp. v. Weber County, Utah, 360 F.2d 168, 171 (10th Cir.1966). The last two requirements for standing are also met in this case. Accordingly, the Court finds that the United States has standing to assert jurisdiction and is a proper party to bring this action.

Defendants argue that plaintiff lacks standing under United States v. New Mexico, 455 U.S. 720, 102 S.Ct. 1373, 71 L.Ed.2d 580 (1982). In New Mexico the United States brought an action challenging state taxation of three government contractors as violative of its constitutional tax immunity. The Supreme Court held that "tax immunity is appropriate only in one circumstance: when 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." 455 U.S. at 735, 102 S.Ct. at 1383, 71 L.Ed.2d at 592. In citing New Mexico defendants are confusing a jurisdictional issue with a substantive determination. The Supreme Court's restrictive holding in New Mexico is relevant to a determination of whether a valid claim for relief has been stated. New Mexico is not relevant to the threshold question of standing.

II. Tax Injunction Act

Defendants contend that plaintiff's action is barred by the provisions of the Tax Injunction Act, 28 U.S.C. § 1341, which provides:

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.

While § 1341 acts to bar a private litigant from challenging state taxation, see Coon v. Teasdale, 567 F.2d 820 (8th Cir.1977), it is well-settled that § 1341 is not applicable to suits by the United States challenging the constitutionality of a state tax being levied on the federal government or on one of its agencies or instrumentalities. See United States v. State of Michigan, 851 F.2d 803, 805 (6th Cir.1988).

Defendants assert that the United States is merely standing in the shoes of Olin, a private party, and is therefore barred from bringing this action by § 1341. A similar argument was rejected by the United States District Court for the District of Colorado in United States v. State of Colorado, 666 F.Supp. 1479 (D.Colo.1987). In State of Colorado the United States challenged the imposition of a state gasoline sales tax on purchases of gasoline for sale in exchange service stations on military reservations in Colorado. Id. at 1480. The defendants argued that the action was barred by § 1341 because the government was merely seeking to protect the private interests of individual servicemen. Id. at 1481. The district court dismissed this argument, having previously established the United States did have a real interest in the dispute. Id. Likewise, this Court has already determined that the United States is a real party in interest. The United States is not merely standing in the shoes of a private party. Instead, the government has allegedly suffered a direct injury at the hands of defendants. Accordingly, this ground of challenge is denied.

Defendants further contend that the United States is exempt from 28 U.S.C. § 1341 only where it challenges state taxation on federal constitutional grounds. Defendants maintain that § 1341 acts to bar this action, because the United States has not alleged that the challenged state taxation violates the constitution. In support of this argument, defe...