___________

No. 93-3303

___________

United States of America, *

*

Plaintiff-Appellee, *

*

v. *

*

Janette Lohman, Director of * Appeal from the United States

Revenue, State of Missouri; * District Court for the Western

Missouri Department of Revenue; * District of Missouri.

State of Missouri, *

*

Defendants-Appellants,*

*

Kansas City Power & Light Co., *

*

Defendant. *

___________

 Submitted: May 15, 1995

 Filed: January 22, 1996

___________

Before McMILLIAN, BEAM and HANSEN, Circuit Judges.

___________

BEAM, Circuit Judge.

 Missouri imposed sales tax on electricity used at a federal

facility, the Lake City Army Ammunition Plant. The United States

argues that the tax is a constitutionally prohibited direct tax on

the federal government. Alternatively, the United States contends

that the contractor-operator of the plant, Olin Corporation,

purchased the electricity from a vendor, Kansas City Power & Light

Company, and then resold it to the federal government. Since the

Missouri sales tax does not apply to such "sales for resale," the

United States contends that the sale of electricity was not

taxable. 
 1

The Honorable Dean Whipple, United States District Judge for

the Western District of Missouri.

 2Several years later, the contract number was changed to

DAAA19-70-D-0001. No substantive change was effected. For

simplicity's sake, we will refer to the contract by the old number

or as "the 1951 contract." 

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Concluding that the "sale for resale" provision applied, the

district court1 granted the federal government's motion for summary

judgment. Missouri appeals. After reviewing the grant of summary

judgment de novo, we affirm because the tax is unconstitutional as

a direct tax on the United States.

I. BACKGROUND

The United States Department of the Army owns the Lake City

Army Ammunition Plant (the Plant), which manufactures small caliber

ammunition. In 1951, the federal government entered into a

contract, number DA-23-012 AV-76,2 with Kansas City Power & Light

Company (KCPL). Under the contract, KCPL "shall sell and deliver

to the Government and the Government shall purchase and receive

from [KCPL] . . . electrical service" at the Plant. Jt. App. at

653. The contract provides that it "shall continue in effect until

terminated at the option of the Government by the giving of not

less than 30 days advance written notice of the effective date of

termination." Id. Initially, KCPL submitted bills directly to the

United States and the United States sent treasury checks to pay for

the electricity. Title to the electricity passed directly from

KCPL to the United States. 

In an effort to reduce paperwork and administrative hassle,

the federal government hired a contractor, Remington Arms, to run

the plant. Shortly thereafter, the government requested that KCPL

bill Remington Arms directly for all purchases. In 1962, the

United States and KCPL modified the 1951 contract with a
 3

The 1951 contract has also been modified in other minor ways.

These modifications are not relevant here.

 4Olin's contract with the federal government provides that

Olin acts as an independent contractor and not as an agent of the

government. 

 5Relying on an isolated typographical error, Missouri contends

that Olin's purchase order references not the 1951 contract but a

1947 contract that coincidentally bears the exact number as the

1951 contract. This assertion is entirely unsupported. We agree

with the district court that the 1951 contract is the contract at

issue.

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supplemental agreement.3 Remington Arms was not a party to this

agreement. The supplemental agreement provides that: 

The following paragraph is hereby inserted in the [1951]

Contract: 

1. SCOPE AND TERM OF CONTRACT

It is understood and agreed between the parties that

so long as the plant is operated for the Government by a

CPFF Contractor, currently Remington Arms Company, Inc.,

orders for service under this contract may be placed with

[KCPL] by such CPFF Contractor and will be honored to the

same extent as will orders placed by the Government, all

in accordance with the terms and conditions of this

contract. Furthermore, during such period of time [KCPL]

agrees that placing of such orders, and payment thereof

by such CPFF Contractor, will satisfy the requirements of

this contract concerning minimum monthly accounts to be

ordered and paid for by the Government.

Jt. App. at 674. Under the contract as modified, title to the

electricity still passes directly from KCPL to the government. 

In 1985, Olin Corporation succeeded Remington Arms as the CPFF

Contractor for the plant.4

 Olin began informing outside vendors of

the change in contractors. During this time, Olin issued a

purchase order on its own stationery, referencing the 1951

contract,5 and requesting continued electricity in accordance with
 6

The typewritten portion of the purchase order provides in

relevant part:

PROVIDE ELECTRIC SERVICE TO THE LAKE CITY ARMY AMMUNITION

PLANT, INDEPENDENCE, MISSOURI, IN ACCORDANCE WITH

CONTRACT NO. DA-23-012 AV-76 . . . BETWEEN THE UNITED

STATES OF AMERICA AND THE KANSAS CITY POWER & LIGHT

COMPANY.

. . .

Effective November 3, 1985, Olin Corporation, Winchester

Group, became the new Contractor-Operator of the Lake

City Army Ammunition Plant under Prime Contract Number

DAAA09-85-Z-0006.

. . .

This Purchase Order covers electric services for the

period November 3, 1985 through November 2, 1986 and

shall automatically be extended for another year as long

as the Buyer is required to process and pay invoices

under Prime Contract Number DAAA09-85-Z-0006. This

purchase order shall continue in effect until terminated

at the option of the Buyer/U.S. Government by the giving

of not less than thirty (30) days advance written notice

of the effective date of termination. 

The terms and conditions of this purchase order shall be

the same as Government Contract No. DA-23-012 AV-76 and

Purchase Order No. LCO 83843 [Remington Arms Company's

purchase order].

Jt. App. at 257-61.

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the contract's terms.6 The federal government has never provided

KCPL with the written notice required to formally terminate the

1951 contract. 

 

Determining who actually purchases the Plant's electricity

first became an issue during an audit of KCPL by the Missouri

Department of Revenue. As the supplier of electricity, it is

KCPL's responsibility to submit remitted sales tax to the Missouri

Department of Revenue. The Department of Revenue, after concluding

that Olin purchases the plant's electricity, assessed back taxes
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relating to the Plant for the period of January 1986 to September

1989. KCPL paid the taxes under protest and commenced state

administrative proceedings challenging the assessment. KCPL also

brought a lawsuit against Olin, demanding payment of the taxes. 

The United States Government then brought this action

challenging the imposition of the sales tax. As previously

indicated, the district court determined that the "sales for

resale" provision applied and granted the government's motion for

summary judgment. 

II. DISCUSSION

Missouri argues, among other things, that an intervening

decision of this circuit makes the relief granted by the district

court on the "sale for resale" issue improper. See United States

v. Lohman, 21 F.3d 844 (8th Cir. 1994). Rather than decide that

issue, we exercise our option to affirm the district court's

judgment on any grounds supported by the record. See Keller v.

Bass Pro Shops, Inc., 15 F.3d 122, 123 (8th Cir. 1994). In doing

so, our focus shifts to the federal government's argument that

assessing Missouri sales tax upon electricity sold to the plant is

an unconstitutional tax on the United States itself. 

"[A] State may not, consistent with the Supremacy Clause, U.S.

Const. Art. VI, cl. 2, lay a tax `directly upon the United

States.'" United States v. New Mexico, 455 U.S. 720, 733 (1982)

(quoting Mayo v. United States, 319 U.S. 441, 447 (1943)). Under

current conceptions of federal immunity, this prohibition means

that "the States can never tax the United States directly but can

tax any private parties with whom it does business, even though the

financial burden falls on the United States, as long as the tax

does not discriminate against the United States or those with whom

it deals." South Carolina v. Baker, 485 U.S. 505, 523 (1988).

Taxes are considered to fall directly upon the federal government
 7

Electricity is specifically included in this tax. See Mo.

Rev. Stat. § 144.020.1(3). 

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only if the legal incidence of the tax falls on the federal

government itself. See, e.g., United States v. County of Fresno,

429 U.S. 452, 459-460 n.7 (1977); New Mexico, 455 U.S. at 742. 

Missouri contends that taxing the plant's electricity is not

a direct tax on the United States. First, it argues that the

Missouri tax statute places the legal incidence of Missouri's sales

tax on the seller, KCPL, and not the purchaser. Because it is

undisputed that the federal government is not the seller, Missouri

reasons that the sales tax cannot possibly be a tax on the

government. Alternatively, Missouri contends that even if the

statute places the legal incidence of the sales tax on the

purchaser, Olin purchases the electricity, not the federal

government. 

A. 

The terms of a statute control where the legal incidence of

the tax falls. "[A] sales tax which by its terms must be passed on

to the purchaser imposes the legal incidence of the tax upon the

purchaser." First Agricultural Nat'l Bank v. State Tax Comm'n, 392

U.S. 339, 347 (1968); accord, United States v. Tax Comm'n, 421 U.S.

599, 608 (1975). Missouri argues that the Missouri sales tax law

does not require passing the tax on to the purchaser. 

The introductory portion of the Missouri sales tax statute

provides, "A tax is hereby levied and imposed upon all sellers for

the privilege of engaging in the business of selling tangible

personal property or rendering taxable service at retail in this

state." Mo. Rev. Stat. § 144.020.1.7 Other portions, however,

emphasize the purchaser's role, stating that the seller "shall

collect the tax from the purchaser," and making it a misdemeanor
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for a purchaser to refuse to pay Missouri sales tax. Mo. Rev.

Stat. §§ 144.080.4; 144.060.

To interpret this potentially conflicting language, Missouri

urges us to adopt the position of the Missouri state courts, who

have repeatedly construed the sales tax as a tax upon the seller.

See, e.g., Centerre Bank v. Director of Revenue, 744 S.W.2d 754,

759 (Mo. 1988); Farm & Home Savings Assoc. v. Spradling, 538 S.W.2d

313, 316 (Mo. 1976). In doing so, Missouri courts have regarded

the legal duty of purchasers, under section 144.060, to pay the

sales tax, as essentially irrelevant. "The fact that the purchaser

bears the economic burden of the sales tax does not alter the

statutory scheme which imposes the sales tax on sellers." Centerre

Bank, 744 S.W.2d at 759. 

In determining the existence of federal immunity, we are not

bound by the Missouri courts' interpretation of state tax law.

Diamond Nat'l Corp. v. State Bd. of Equalization, 425 U.S. 268

(1976) (per curiam). Nonetheless, if the state courts'

determination is "consistent with the statute's reasonable

interpretation it will be deemed conclusive." American Oil Co. v.

Neill, 380 U.S. 451, 455-56 (1965). 

The Missouri courts' construction of the sales tax may be

appropriate, for instance, when Missouri is attempting to collect

the tax from noncompliant sellers. When evaluating the legal

incidence of the tax for immunity purposes, however, we find the

Missouri courts' construction inconsistent with the statutes'

reasonable interpretation. As noted, Missouri law provides that

the seller "shall collect from the purchaser" the amount of sales

tax due. Mo. Rev. Stat. § 144.080.4. The purchaser's failure to

pay the tax is a misdemeanor. Mo. Rev. Stat. §§ 144.060. Given

these provisions, and for the sole purpose of determining the
 8

Missouri's argument may also have little relevance because of

our ultimate conclusion that imposing the sales tax on the Plant's

electricity is unconstitutional as a direct tax on the United

States. As such, the sale of the electricity to the United States

is a tax-exempt transaction under Missouri law. See Mo. Rev. Stat.

§ 144.030.1.

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existence of federal immunity, we find that the legal incidence of

the Missouri sales tax falls on the purchaser.8

Our conclusion is confirmed by the section which prohibits

sellers from "advertis[ing] or hold[ing] out or stat[ing] to the

public or to any customer directly or indirectly that the [sales]

tax . . . required to be collected by him, will be assumed or

absorbed by the [seller,] or that it will not be separately stated

and added to the selling price of the property sold or service

rendered, or if added, that it or any part thereof will be

refunded." Mo. Rev. Stat. § 144.080.5. This ban against public

display of a seller absorbing the tax suggests that Missouri

intended for the tax to fall upon the purchaser. See, e.g., First

Agricultural Nat'l Bank, 392 U.S. at 347-48 (construing a similar

provision in a Massachusetts statute to imply that the tax is on

the purchaser). 

B. 

Concluding that the Missouri statute places the legal

incidence of its sales tax upon the purchaser does not end our

inquiry. We must determine whether the federal government is the

purchaser of the electricity. If it is, the legal incidence of the

tax falls on the federal government and the tax is prohibited as a

direct tax on the United States. 

The United States has been actively involved in obtaining

electricity. It negotiated future rates and chose the vendor for

the electricity, KCPL. It executed an indefinite delivery contract
 9

Missouri's contention that Olin's purchase order represents

a separate contract with KCPL is unsupported. The purchase order

does not purport to be a separate contract. It requests KCPL to

provide electric service to the Plant in accordance with the 1951

contract between the United States of America and KCPL. The third

page of the purchase order reiterates that the terms and conditions

of the purchase order shall be the same as the 1951 contract. For

these reasons, the purchase order is most properly considered to be

an administrative or procedural document. 

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with KCPL in 1951. The plain language of the 1951 contract

provides that "the Government shall be liable for the minimum

monthly charge specified in this contract." Jt. App. at 653.

Although the 1951 contract has been modified several times, the

contract is still in existence. Conversely, Olin does not have a

direct contract with KCPL.9 At most, Olin serves as the federal

government's "paymaster," and has a contractual obligation to pay

for the electricity under its contract with the federal government.

Taken as a whole, these factors require the conclusion that the

federal government, and not Olin, is the purchaser of the Plant's

electricity. 

Despite the federal government's involvement, Missouri

contends that Olin is the purchaser because Olin fills out the

paperwork and signs the checks. To support its argument, Missouri

relies on cases such as United States v. New Mexico, 455 U.S. 720

(1982), and Alabama v. King & Boozer, 314 U.S. 1 (1941). Those

cases do not require a denial of immunity here. In both cases, the

contractors made the purchases in their own names and had direct

contractual liability to the vendors. New Mexico, 455 U.S. at 743;

King & Boozer, 314 U.S. at 11-12. There, the federal government

did not have a separate contract with the vendor, but attempted to

obtain immunity based in part on its responsibilities under its

internal contract with the contractor. New Mexico, 455 U.S. at

724, 743; King & Boozer, 314 U.S. at 8, 10. Here, the federal

government has a direct contract with the vendor and the contractor
 10Missouri also argues that granting the federal government

immunity here permits federal immunity to be acquired by the

"stroke of a pen." We are mindful of the Supreme Court's wariness

towards immunity that can be acquired without cost to the federal

government. See New Mexico, 455 U.S. at 737 (criticizing

government's technical argument that its contractors are entitled

to immunity "because, among other things, they draw checks directly

on federal funds, instead of waiting a time for reimbursement").

As we have previously indicated, however, the federal government's

involvement here surpasses technicalities: its own credit is on the

line. 

 11Missouri argues that Kabeiseman is distinguishable because

the checks issued by the Kabeiseman contractor were drawn directly

on federal funds, rather than the reimbursement method used by

Olin. The Kabeiseman court did not rely on the funding mechanism,

however, and we do not consider the small funding difference to

suggest a different result here.

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does not. Because of these differences in contractual obligations,

New Mexico and King & Boozer have little relevance.10

Although it is not controlling, our decision is supported by

the reasoning of our sister circuit in United States v. Kabeiseman,

970 F.2d 739 (10th Cir. 1992). The Kabeiseman court determined

that the United States was immune from Wyoming sales tax on diesel

fuel used by a contractor at a federally owned facility. Id. at

744. In Kabeiseman, the contractors told the federal government

how much fuel it needed, and then the federal government ordered

the fuel directly from a government-chosen vendor. Although title

passed directly to the federal government, the contractors accepted

delivery of the fuel, exercised substantial control over the use of

the fuel, and paid the bills directly to the vendor. In finding

the federal government immune from the state sales tax, the

Kabeiseman court relied primarily on the federal government's

intensive involvement with the vendor: The United States "placed

the orders for diesel fuel, as well as taking title thereto,

directly from the vendor." Id. at 743. The federal government's

involvement with KCPL is similarly intensive.11

 
 12The alleged concession is as follows:

It is the responsibility of the CPFF or other cost type

contractor to utilize [federal government] indefinite

delivery type contracts for any and all types of services

and supplies where the price, quality and terms obtained

are more advantageous than could be obtained otherwise.

In certain instances it is possible that the Government

will suffer tax disadvantages as a result of this revised

procedure. The procedure has been adopted with due

advertence to this fact on the basis that the overall

savings possible thereby will more than offset any

possible cost increase resulting from taxes. 

Jt. App. at 1786.

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Aside from its constitutional argument, Missouri provides two

reasons why we should consider Olin to be the purchaser of the

electricity. Neither reason is persuasive. First, Missouri

contends that the 1962 supplemental agreement discharged the

federal government's obligation. See supra page 3. We disagree.

The terms of the supplemental agreement do not unconditionally

discharge the federal government from its obligations. Instead,

the supplemental agreement merely permits actions by another party,

Olin, to satisfy the federal government's obligations. If Olin

fails to order or pay for electricity, the terms of the

supplemental agreement do not exempt the federal government from

liability.

Second, Missouri argues that because the federal government

conceded that it might suffer tax disadvantages after implementing

the supplemental agreement, it should not receive immunity from

taxation. The alleged concession involves the federal government's

admission that permitting contractors to deal directly with vendors

was a calculated risk.12 We do not consider the alleged concession

relevant in our determination of federal immunity. To do otherwise

transforms cautious planning by federal bureaucrats into an

invitation for states to rummage through the federal pocketbook.
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 We have considered Missouri's other arguments and find them to

be without merit. 

III. CONCLUSION

Under the present contractual arrangement, we conclude that

the United States Constitution prohibits Missouri from imposing

sales tax on electricity for the Lake City Army Ammunition Plant

because such a tax is a direct tax on the federal government. We

therefore affirm the judgment of the district court.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.