NOTICE: This opinion is subject to formal revision before publication in
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    requested to notify the Reporter of Decisions, Supreme Court of the
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                       SUPREME COURT OF THE UNITED STATES

                                    --------
                                   No. 91-2003
                                    --------

                     UNITED STATES, PETITIONER v. CALIFORNIA
                                              ____
                          AND CALIFORNIA STATE BOARD OF
                                  EQUALIZATION

                       ON WRIT OF CERTIORARI TO THE UNITED
                      STATES COURT OF APPEALS FOR THE NINTH
                                     CIRCUIT

                                [April 26, 1993]

  JUSTICE O'CONNOR delivered the opinion of the Court.

  This is another in the long line of cases, beginning with McCulloch v.
                                                            _________
Maryland, 4 Wheat. 316 (1819), in which the Federal Government asks this Court
________
for relief from what it considers illegal state taxes.  Unlike the typical tax
immunity case, however, we are not presented with a claim that the state tax is
unconstitutional; instead, the question is whether the Federal Government may
recover taxes it claims were wrongfully assessed under California law against
one of the Government's private contractors.
                                        I

  The United States has established three Naval Petroleum Reserves in California
and Wyoming, one of which is Naval Petroleum Reserve No. 1, located in Kern
County, California.  10 U. S. C. S7420.  First through the Department of the
Navy and later through the Department of Energy, the United States contracted
with Williams Brothers Engineering Company (WBEC) to manage oil drilling
operations at Reserve No. 1 from 1975 to 1985.  Under the contract, WBEC
received an annual fixed fee plus reimbursement for costs, which the contract
defined to include state sales and use taxes.
  California assessed approximately $14 million in sales and use taxes, pursuant
to Cal. Rev. & Tax. Code Ann. 

                                91-2003 - OPINION

2                          UNITED STATES v. CALIFORNIA
                                        ____

S6384 (West 1987), against WBEC for the years 1975 through 1981.  The State
informed WBEC of the tax deficiencies through two notices, one issued in July
1978 and the other in December 1982.  WBEC, at the direction of the United
States, applied to the California Board of Equalization for administrative
redetermination of the assessments, see Cal. Rev. & Tax. Code Ann. S6932 (West
1987).  WBEC argued that the State had misapplied its own law, taxing property
that was outside the scope of S6384.  The Board of Equalization denied each
claim, with minor exceptions.  Thereafter, WBEC paid the assessments under
protest, using funds the Federal Government provided.  It then filed timely
actions in state court.  In January 1988, the State and WBEC stipulated to a $3
million refund, for erroneous assessments on property that WBEC had purchased
and that Government personnel had installed, and to dismissal of both actions
without prejudice.  The remaining $11 million resulted from assessments on
property that WBEC had purchased and that private subcontractors, managed by
WBEC, had installed.
  In May 1988, the United States filed suit in the Eastern District of
California, seeking a declaratory judgment that California had classified and
taxed WBEC erroneously under California law and that the taxed property actually
was exempt.  It sought a refund of the $11 million plus interest.  In the course
of the suit, the United States argued it was entitled to recovery based on the
federal common law cause of action for money had and received.  The District
Court rejected both grounds for recovery and granted summary judgment for the
State.
  The Court of Appeals for the Ninth Circuit affirmed.  932 F. 2d 1346 (1991). 
The court began by noting that the Government did not claim that either it or
WBEC was constitutionally immune from the tax, an argument this Court rejected
in United States v. New Mexico, 455 U. S. 720 (1982).  932 F. 2d, at 1347-1348. 
   _____________    __________
Because the United

                                91-2003 - OPINION

                           UNITED STATES v. CALIFORNIA                         3
                                        ____

States lacked "a colorable constitutional challenge," id., at 1349, the Court of
                                                      ___
Appeals looked to whether federal common law might provide a cause of action. 
It declined to accept the Government's argument that the simple act of
disbursing federal funds was a "constitutional function" that created a federal
interest in conflict with state law.  The Government had done no more than pay
state taxes pursuant to state law; this did not rise to the level of a federal
interest requiring the application of federal law.  Ibid.  The Court of Appeals
                                                    _____
then held that the Government could not maintain a quasi-contract cause of
action because the facts did not support a claim of unjust enrichment.  Among
other things, "WBEC, backed throughout by the United States, had a fair chance
to argue against the validity of the assessments in the administrative and state
court proceedings."  Id., at 1350.  Finally, the Court of Appeals relied on the
                     ___
fact that the Government's quasi-contract argument was "posited upon the
interpretation of a state-created exemption from a state[-]created sales tax." 
Ibid.  The court found that the State's claim filing requirements, including
_____
that a court action be filed within 90 days of an administrative denial, were
conditions precedent to a cause of action for a tax refund.  Id., at 1350-1351. 
                                                             ___
The Government had failed to satisfy the conditions; therefore, the Court of
Appeals held, the Government had no state cause of action and no quasi-contract
action.  "Since federal statutes of limitations become determinative only after
the government acquires a cause of action, and since the United States never
acquired a cause of action," the court reasoned, the six-year statute of
limitations of "28 U. S. C. S2415 does not apply."  Id., at 1351.
                                                    ___
  The Court of Appeals acknowledged that the Court of Appeals for the Eleventh
Circuit, in a factually similar case, recently had reached the opposite
conclusion.  Id., at 1351-1352.  In United States v. Broward County, 901 F. 2d
             ___                    _____________    ______________
1005 (1990), the Eleventh Circuit rejected the

                                91-2003 - OPINION

4                          UNITED STATES v. CALIFORNIA
                                        ____

argument on which the Ninth Circuit relied and held that the Government had a
"federal common law cause of action in quasi-contract for money had and
received."  Id., at 1008-1009.  We granted certiorari to resolve the conflict. 
            ___
506 U. S. ___ (1992).
                                       II
  The Government concedes that it could have intervened in WBEC's administrative
and state court proceedings.  Tr. of Oral Arg. 17.  But it argues that whether
it complied with state procedural requirements or whether it could have
intervened is irrelevant, because it has a federal right to recover the taxes
under the federal common law cause of action for money had and received (also
known as indebitatus assumpsit).  Prior to the creation of federal
         _____________________
administrative and statutory remedies for the recovery of federal taxes, this
Court held that a taxpayer could bring an action for money had and received to
recover erroneously or illegally assessed taxes.  In City of Philadelphia v. The
                                                     ____________________    ___
Collector, 5 Wall. 720 (1867), the Court stated:
_________

     "[The] [a]ppropriate remedy to recover back money paid [to federal tax
   collectors] under protest on account of duties or taxes erroneously or
   illegally assessed, is an action of assumpsit for money had and received. 
   Where the party voluntarily pays the money, he is without remedy; but if he
   pays it by compulsion of law, or under protest, or with notice that he
   intends to bring suit to test the validity of the claim, he may recover it
   back, if the assessment was erroneous or illegal, in an action of assumpsit
   for money had and received."  Id., at 731-732 (citing Elliott v. Swartout, 10
                                 ___                     _______    ________
   Pet. 137, 150 (1836)).

The Government reasons that it paid WBEC's taxes, that the taxes were wrongfully
assessed, and that therefore it may recover the funds used to pay those taxes. 
Since an action for money had and received is based on a contract

                                91-2003 - OPINION

                           UNITED STATES v. CALIFORNIA                         5
                                        ____

implied in law, see Bayne v. United States, 93 U. S. 642, 643 (1876), the
                    _____    _____________
Government further reasons that its claims are governed by the 6-year statute of
limitations in 28 U. S. C. S2415(a), and not the 90-day limitation period in
the California Code.
  The taxpayers in both City of Philadelphia and the case on which it relies,
                        ____________________
Elliott v. Swartout, were attempting to recover money they had paid under
_______    ________
protest to the federal tax collector in settlement of tax assessments
erroneously made against them.  In this case, by contrast, the taxpayer - WBEC -
has had its day in court and gone home.  The Government attempts to recover
money it paid in reimbursement for state tax assessments against the contractor,
even though the contractor already has challenged the assessment and accepted a
resolution of its claims.  The Government contends that, because its contract
with WBEC involved an advanced funding arrangement, the Government was the one
that actually paid the state taxes.  Because the disbursement of federal funds
                                                                 _____________
is involved, the Government asserts, the federal action for money had and
received is appropriate.  Even assuming that federal courts may entertain a
federal common law action for the recovery of state taxes paid by the Govern-
ment, we conclude that a federal action is inappropriate here because the
Government is in no better position than as a subrogee of its contractor WBEC.
  The management contract between the Government and WBEC is in all relevant
respects identical to the contracts we discussed in United States v. New Mexico,
                                                    _____________    __________
455 U. S. 720 (1982).  There, as here, the State had imposed sales and use taxes
on private contractors managing Department of Energy sites.  Like WBEC, two of
the contractors received costs plus a fixed fee.  Id., at 723-724.  Like WBEC's
                                                  ___
contracts, the contracts provided that title to all tangible personal property
passed directly from the vendor to the Government.  Id., at 724.  "Finally, and
                                                    ___
most importantly, the contracts use[d] a so-called `advanced

                                91-2003 - OPINION

6                          UNITED STATES v. CALIFORNIA
                                        ____

funding' procedure to meet contractor costs."  Id., at 725.  The contractors
                                               ___
paid creditors and employees with drafts drawn on a special bank account in
which the Government deposited funds, so that only federal funds were expended
when the contractors made purchases.  Id., at 726.  Compare App. 142-143
                                      ___
(Declaration of Kenneth Meeks in Support of United States' Motion for Summary
Judgment, describing similar funding operations with WBEC).
  In New Mexico, the Government brought an action arguing that the contractors'
     __________
expenditures, other than those made out of the fixed fees, were constitutionally
immune from taxation.  We noted that the doctrine of federal immunity from state
taxation is "one that has been marked from the beginning by inconsistent
decisions and excessively delicate distinctions."  455 U. S., at 730.  After
surveying our "confusing" precedents, we concluded it was time to return to the
underlying constitutional principle of tax immunity: A State may not lay a tax
"`directly upon the United States.' "  Id., at 733 (quoting Mayo v. United
                                       ___                  ____    ______
States, 319 U. S. 441, 447 (1943)).  But whereas the Government is absolutely
______
immune from direct taxes, it is not immune from taxes merely because they have
an "effect" on it, or "even because the Federal Government shoulders the entire
economic burden of the levy."  455 U. S., at 734.  In fact, it is
"constitutionally irrelevant that the United States reimburse[s] all the
contractor's expenditures, including those going to meet the tax."  Ibid.
                                                                    _____
(citing Alabama v. King & Boozer, 314 U. S. 1 (1941)).  Tax immunity is
        _______    _____________
"appropriate in only 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." 
455 U. S., at 735.
  It is beyond peradventure that California did not tax - indeed, could not have
taxed - the Federal Government in this case.  California taxed WBEC.  And the

                                91-2003 - OPINION

                           UNITED STATES v. CALIFORNIA                         7
                                        ____

Government's voluntary agreement to reimburse (or even fund in advance) WBEC for
those taxes does not make the Government's payments direct disbursements of
federal funds to the State.  We addressed an analogous indemnification
relationship in Brady v. Roosevelt Steamship Co., 317 U. S. 575 (1943).  The
                _____    _______________________
United States had contracted with a private corporation to operate a Maritime
Commission vessel.  A Customs Inspector suffered injuries on the vessel that led
to his death, and his widow brought a maritime tort action against the private
corporation.  In defense, respondent contended "that if the judgment against
[it] stands, the United States ultimately will have to pay it by reason of
provisions of the contract between respondent and the [Maritime] Commission.  It
is therefore urged that the United States is the real party in interest."  Id.,
                                                                           ___
at 582.  We rejected respondent's argument that petitioner could be deprived of
her cause of action by reason of the contract.  "Immunity from suit on a cause
of action which the law creates cannot be so readily obtained."  Id., at 583. 
                                                                 ___
Absent congressional action, we would not allow "concessions made by contracting
officers of the government" to make such a "basic alteration" in the law.  Id.,
                                                                           ___
at 584.
  We conclude from Brady and New Mexico that the Government cannot use the
                   _____     __________
existence of an obligation to indemnify WBEC to create a federal cause of action
for money had and received to recover state taxes paid by WBEC any more than the
Roosevelt Steamship Company could use the existence of a right to indemnity from
the Government to defeat a claim for recovery.  See Brady, supra, at 584.  Cf.
                                                    _____  _____
Farid v. Smith, 850 F. 2d 917, 923 (CA2 1988) (a State's decision to indemnify
_____    _____
its public servants does not confer Eleventh Amendment immunity on state
officials sued in their personal capacity).
  Although the Government does not cite Brady, it does cite two other cases that
                                        _____
suggest the lesson of Brady might not apply in an action for money had and
                      _____
received. 

                                91-2003 - OPINION

8                          UNITED STATES v. CALIFORNIA
                                        ____

According to the Government, Bayne v. United States, 93 U. S. 642 (1877), and
                             _____    _____________
Gaines v. Miller, 111 U. S. 395 (1884), stand for the proposition that an action
______    ______
for money had and received may "be employed by the United States to recover
money from a third party who received federal funds that had been
misappropriated by a government agent."  Brief for United States 14.  We find
these cases inapposite.  In Bayne, an Army paymaster withdrew money from the
                            _____
paymaster's account, endorsed the checks in blank, and sent them to Merchant's
Bank with instructions to credit the account of Bayne & Co.  The Court affirmed
the Government's judgment against Bayne & Co. under an action for money had and
received.  93 U. S., at 643.  In Gaines, the agent of an estate's executors sold
                                 ______
estate property and illegally kept a portion of the money.  111 U. S., at 396. 
Many years later, the agent had died, but Gaines, the legatee of the first
estate, brought an action in equity against the administrator of the agent's
estate.  The Court affirmed the lower court's judgment against Gaines because,
among other reasons, she had an adequate remedy at law: an action for money had
and received.  Id., at 397-398.
               ___
  Bayne and Gaines share two features this case lacks.  The first is that, in
  _____     ______
each, the rightful owner of the money lost it by way of theft.  That is, the
money passed from the first party to the second party unlawfully.  See Bayne,
                                                                       _____
supra, at 643; Gaines, supra, at 396.  The second feature is that in both cases
_____          ______  _____
the rightful owner of the money sued a third party who had a relationship that,
at least for our purposes, made that party legally responsible for the actions
of the one who unlawfully took the money.  The Court was satisfied in Bayne that
                                                                      _____
the transactions between the paymaster, the banks, and Bayne & Co. were "the
result of a fraudulent purpose to secure the use of the public money to Bayne &
Co., who received it with full knowledge that it belonged to the United States,
and had been applied in manifest violation of the act of

                                91-2003 - OPINION

                           UNITED STATES v. CALIFORNIA                         9
                                        ____

Congress."  93 U. S., at 643.  In other words, Bayne & Co. and the paymaster
were accomplices, each liable for the acts of the other.  Cf. 18 U. S. C. S2. 
In Gaines, petitioner sued the administrator of the agent's estate, who was
   ______
legally responsible for paying the agent's debts out of the estate.  See, e.g.,
                                                                          ____
                                                                             _
2 J. Perkins, Williams on Executors and Administrators 988-990 (6th Am. ed.
1877).
  The Government does not contend that WBEC stole the money at issue in this
case or otherwise took money from the Government unlawfully.  WBEC did not.  Nor
does the Government contend that California and WBEC had a relationship that
would make California liable for WBEC's actions.  They did not.  In fact,
California and WBEC had an adverse relationship: that of creditor and debtor. 
California's demand that WBEC pay what California believed to be a lawful debt
does not make California legally responsible for the Government's
indemnification of WBEC.  In these circumstances, we do not imply a contract in
law between California and the Government.  Without an implied contract, an
action for money had and received will not lie against the State.
  Although the Government cannot proceed in an action for money had and
received, our discussion of indemnification suggests the Government may not be
without recourse: Because it indemnified the contractor, the Government has a
right to be subrogated to the contractor's claims against the State.  See 10 W.
Jaeger, Williston on Contracts S1265 (3d ed. 1967); Brief for Respondents 13
(conceding the same).  When proceeding by subrogation, the subrogee "stands in
the place of one whose claim he has paid."  United States v. Munsey Trust Co.,
                                            _____________    ________________
332 U. S. 234, 242 (1947).  Here WBEC's rights have lapsed and its claims are
barred.  Under traditional subrogation principles then, the claims of the United
States also would be barred.  The subrogee, who has all the rights of the
subrogor, usually "cannot acquire by subrogation what another whose rights he
claims did not have."  Ibid. 
                       _____

                                91-2003 - OPINION

10                         UNITED STATES v. CALIFORNIA
                                        ____

Although WBEC filed actions in state court within 90 days of the Board of
Equalization's administrative decisions, WBEC later dismissed those cases
without prejudice.  A dismissal without prejudice terminates the action and
"concludes the rights of the parties in that particular action."  Gagnon Co. v.
                                                                  __________
Nevada Desert Inn, 45 Cal. 2d 448, 455, 289 P. 2d 466, 472 (1955).  A subrogee
_________________
could have proceeded only if WBEC could have filed a new state-court action at
that time, which it could not do.
  The traditional rules of subrogation, however, do not necessarily apply to the
Government.  But cf. United States v. Standard Oil Co. of California, 332 U. S.
                     _____________    ______________________________
301, 309 (1947) (suggesting that state law controls "where the Government has
simply substituted itself for others as successor to rights governed by state
law").  The Government argues strenuously that, at the very least, state
statutes of limitations do not bind it.  It cites three cases to support this
position.  See United States v. Summerlin, 310 U. S. 414, 416 (1940); Board of
               _____________    _________                             ________
Jackson County Commrs. v. United States, 308 U. S. 343, 351 (1939); United
______________________    _____________                             ______
States v. John Hancock Mutual Life Ins. Co., 364 U. S. 301, 308 (1960).  In the
______    _________________________________
cases the Government cites, however, either the right at issue was obtained by
the Government through, or created by, a federal statute, see Summerlin, supra,
                                                              _________  _____
at 416 (United States suing under claim received by assignment pursuant to Act
of June 27, 1934, 48 Stat. 1246);  Board of Commrs., supra, at 349-350 (United
                                   ________________  _____
States suing as Indian trustee pursuant to congressional statute); or a federal
statute provided the statute of limitations, see John Hancock, supra, at 301
                                                 ____________  _____
(United States redeeming mortgage foreclosure pursuant to statute of limitations
in 28 U. S. C. S2410(c)).  Moreover, in each case, the Government was pro-
ceeding in its sovereign capacity.  As the Government rightly notes,

   "When the United States becomes entitled to a claim, acting in its
   governmental capacity, and asserts its claim in that right, it cannot be
   deemed to have

                                91-2003 - OPINION

                           UNITED STATES v. CALIFORNIA                        11
                                        ____

   abdicated its governmental authority so as to become subject to a state
   statute putting a time limit upon enforcement."  Summerlin, supra, at 417.
                                                    _________  _____

In contrast, the Government here became entitled to its claim by indemnifying a
private contractor's state-law debt.  It can assert its claim only by way of
subrogation, an equitable action created by the courts.  Summerlin is clearly
                                                         _________
distinguishable.
  Whether in general a state-law action brought by the United States is subject
to a federal or state statute of limitations is a difficult question.  We need
not resolve it today, however, because Guaranty Trust Co. v. United States, 304
                                       __________________    _____________
U. S. 126 (1938), provides guidance in this case.  There the United States was
proceeding as the assignee of the Soviet Government and sought to collect under
state law.  The petitioner argued that the statute of limitations had run, and
the United States asserted, among other defenses, that it was not bound by state
statutes of limitations.  We found that the circumstances of the case
"admit[ted] of no appeal to such a policy."  Id., at 141.  Even if the United
                                             ___
States had a right to be free from the statute of limitations, it was deprived
of no right on those facts.  "[F]or the proof demonstrate[d] that the United
States never acquired a right free of a pre-existing infirmity, the running of
limitations against its assignor, which public policy does not forbid."  Id., at
                                                                         ___
142.
  Here, although the Government acquired a right to subrogation to WBEC's claims
upon payment of the taxes, the Government did not assert that right until it
filed the federal judicial proceeding.  As the California Supreme Court has
held, "`[A] surety by payment does not become ipso facto subrogated to the
                                              __________
rights of the creditor, but only acquires a right to such subrogation, and . . .
before the substitution or equitable assignment can actually take place he must
actively assert his equitable right thereto.  It is not a substantive tangible
right of such nature and character that it can be seized and held and enjoyed

                                91-2003 - OPINION

12                         UNITED STATES v. CALIFORNIA
                                        ____

independently of a judicial proceeding.'"  Offer v. Superior Court of San
                                           _____    _____________________
Francisco, 194 Cal. 114, 117, 228 P. 11, 12 (1924) (quoting 25 Ruling Case Law
_________
1391 (1929)).  Accord, 10 W. Jaeger, Williston on Contracts S1265, at 848, and
n. 9 (citing cases).  Because the Government waited until after the state
statute of limitations had run against WBEC to bring suit, the Government was
not subrogated to "a right free of a pre-existing infirmity."  Guaranty Trust,
                                                               ______________
supra, at 142.  That the doctrine of subrogation is one of equity only strength-
_____
ens our conclusion that the Government may not proceed: The Government waited
ten years after the first notice of deficiency was issued, eight years after the
second notice was issued, and almost six years after the state statute of
limitations ran to bring this suit.
  The Government argues that affirming the Court of Appeals often will leave it
"without an effective remedy to contest a tax improperly exacted from a federal
contractor" and subject it to the "vagaries" of 50 state tax-law procedures. 
Brief for United States 26-27.  But federal contractors already are subject to
the substantive tax laws of the 50 States.  Nothing in our decision prevents the
Government from including in its contracts a requirement that its contractors be
responsible for all taxes the Government believes are wrongfully assessed, a
contract term that likely would remove any disinterest a contractor may have
toward litigating in state court.  If our decision today results in an
intolerable drain on the public fisc, Congress, which can take into account the
concerns of the States as well as the Federal Government, is free to address the
situation.  See New Mexico, 455 U. S., at 737-738.
                __________
                                       III
  In United States v. New Mexico, we held that the Federal Government is immune
     _____________    __________
only from state taxes imposed on it directly.  Id., at 734.  In so holding, we
                                               ___
hoped to "forestall, at least to a degree, some of the

                                91-2003 - OPINION

                           UNITED STATES v. CALIFORNIA                        13
                                        ____

manipulation and wooden formalism that occasionally have marked tax litigation -
and that have no proper place in determining the allocation of power between
coexisting sovereignties."  Id., at 737.  Today we hold that shouldering the
                            ___
"entire economic burden of the levy," id., at 734, through indemnification does
                                      ___
not give the Federal Government a federal common law cause of action for money
had and received to challenge a state tax on state-law grounds simply because it
is the Government.  To do otherwise would be to return to the "manipulation and
wooden formalism" we put aside in New Mexico.
                                  __________
  The judgment of the Court of Appeals is
                                                                       Affirmed.
                                                                       _________