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Washington Vs United States - Citation 105509 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize Washington Vs. United States - Court Judgment	LegalCrystal Citationlegalcrystal.com/105509CourtUS Supreme CourtDecided OnMar-29-1983Case Number460 U.S. 536AppellantWashingtonRespondentUnited StatesExcerpt:
washington v. united states - 460 u.s. 536 (1983)
washington state statutes impose a sales tax on federal contractors with respect to the sale of materials to such contractors for work on federal projects, but with regard to nonfederal construction projects, the tax is imposed on the landowner, who pays tax on the full price of the project, including the contractor's labor costs and markup, as well as the cost of tangible personal property sold to the contractor. the united..... Judgment:
The Washington statutes are not invalid under the Supremacy Clause. Pp.
460 U. S. 540
(a) The Federal Government's constitutional immunity from state taxation may not be conferred on a third party simply because the tax has an effect on the United States, or even because the Federal Government shoulders the entire economic burden of the levy. Nor can immunity be conferred simply because the state tax falls on the earnings of a contractor providing services to the Government.
United States v. New Mexico,
455 U. S. 720
455 U. S. 734
. "So long as the tax is not directly laid on the Federal Government, it is valid if nondiscriminatory . . . or until Congress declares otherwise."
429 U. S. 460
(b) Washington's tax is not invalid on the asserted ground that the State has circumvented the Federal Government's tax immunity by identifying a federal activity for different tax treatment. Washington imposes a sales tax of the same rate on all purchases from nonfederal contractors. The only deviation from equality between the Federal Government and federal contractors on one hand, and every other taxpayer on the other hand, is that the former are taxed on a smaller proportion of the value of the project than the latter. Thus the Federal Government and its contractors are
than other taxpayers, which is not the mistreatment of the Federal Government against which the Supremacy Clause
protects. A tax is not invalid simply because it treats those who deal with the Federal Government differently than it treats others.
Phillips Chemical Co. v. Dumas Independent School District,
Cf. United States v. County of Fresno, supra; United States v. City of Detroit,
460 U. S. 541
(c) The important consideration is not whether the State differentiates in determining what entity shall bear the legal incidence of the tax, but whether the tax is discriminatory with regard to the economic burdens that result. The State does not discriminate against the Federal Government and those with whom it deals unless it treats someone else better than it treats them. Here, Washington has not singled out contractors who work for the United States for discriminatory treatment. It has merely accommodated for the fact that it may not impose a tax directly on the United States as the project owner. Pp.
460 U. S. 544
REHNQUIST, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, POWELL, and O'CONNOR, JJ., joined. BLACKMUN, J., filed a dissenting opinion, in which WHITE, MARSHALL, and STEVENS, JJ., joined,
460 U. S. 547
The State of Washington's principal source of revenue is a sales and use tax imposed on the buyer or consumer in all retail sales and consumer uses of tangible personal property. [
The post-1941 tax system could not, however, be applied to construction for the Federal Government, because the Supremacy Clause prohibits States from taxing the United States directly.
In 1975, the Washington Legislature acted to eliminate the complete tax exemption for construction purchased by the United States. [
] It did so by reimposing the pre-1941 tax on
contractors that work for the Federal Government ("federal contractors"). [
] Thus, Washington now taxes the sale of nonfederal projects to the landowner, and taxes the sale of materials to federal contractors. The net result is that, for federal projects, the legal incidence of the tax falls on the
In recent years, this Court has examined in some detail the history of the Federal Government's constitutional immunity from state taxation.
United States v. New Mexico, supra,
455 U. S. 730
429 U. S. 457
-464 (1977). There is no reason to repeat these discussions here; it suffices to restate our conclusions. In
we stated the rule that,
302 U. S. 150
Accord, Memphis Bank & Trust Co. v. Garner,
Washington does, however, impose a sales tax on all purchases from contractors who do not deal with the Federal Government. The tax is imposed on every construction transaction, and the tax rate is the same for everyone. The only deviation from equality between the Federal Government and federal contractors, on one hand, and every other taxpayer, on the other, is that the former are taxed on a smaller proportion of the value of the project than the latter. [
] Thus the Federal Government and federal contractors
than other taxpayers, because they pay less tax than anyone else in the State. This hardly seems, on its face, to be the mistreatment of the Federal Government against which the Supremacy Clause protects.
The United States relies upon
(1960), in which Texas taxed the lessees of property owned by the State on the value of their leasehold interest, but taxed some lessees of property owned by the United States on the full value of the premises. However, the Court there rejected the United States' argument that the tax was invalid simply because it treats those who deal with the Federal Government differently than it treats others. [
361 U. S. 382
. We plainly stated that a determination whether a tax is discriminatory "requires
an examination of the whole tax structure of the state.'"
361 U. S. 383
Tradesmens National Bank v. Oklahoma Tax Comm'n,
309 U. S. 560
309 U. S. 568
(1940)). [
] The Texas tax was invalid only because it imposed "a heavier tax burden on lessees of federal property than is imposed on lessees of" state property. [
] 361 U.S. at
See Memphis Bank & Trust Co. v. Garner, supra,
459 U. S. 398
United States v. County of Fresno, supra,
the county imposed a tax on the owners of real property. Of course, property owned by the United States was exempt from the tax. Rather than forgo all revenue from federally owned land, the county taxed private lessees' interests in real property rented from the Federal Government and other tax-exempt owners. [
] It did not tax the interests of any lessees of nonexempt property. We rejected the United States' contention that the tax system discriminated against lessees of federal property. Because the economic burden of a tax imposed on the owner of nonexempt property is ordinarily passed on to the lessee, we explained that those who leased property from the Federal Government were no worse off than their counterparts in the private sector. 429 U.S. at
429 U. S. 464
-474 (1958), Michigan taxed private property owners, but not the United States or other exempt owners. Instead, the State taxed nonexempt parties' use of exempt property. It did not tax the use of nonexempt property. We upheld the tax because the State may "equate the tax burden imposed on private enterprise using exempt property with that carried by similar businesses using taxed property." [
. We explained that
In this case, federal contractors are required to pay no greater tax than that placed on private buyers of construction work or passed on by them to their contractors. The Court of Appeals sought to distinguish
on the ground that the tax burden in this case is not
shifted to the nonfederal contractors. 664 F.2d at 576. But there was no proof in either
that private owners would
pass the tax on to their lessees; the
for the parties to allocate the economic burden of the tax among themselves was sufficient. No more should be required here.
The important consideration, therefore, is not whether the State differentiates in determining what entity shall bear the legal incidence of the tax, but whether the tax is discriminatory with regard to the economic burdens that result. The only difference between this case and
is that the taxpayer here is a vendor of services to the United States, rather than one who receives an economic benefit from the Federal Government. To rest upon this distinction would be to elevate form over substance. The entire trend of our decisions since
(1937), has been to avoid "wooden formalism."
455 U. S. 737
See Fresno,
-461, and n. 9.
Comment, Federal Immunity from State Taxation, 45 U.Chi.L.Rev. 695, 700-702 (1978). The State does not discriminate against the Federal Government and those with
whom it deals unless it treats someone else better than it treats them. [
The Court of Appeals thought that the Washington statutes do not provide a "political check against abuse of the taxing power,"
Fresno, supra,
429 U. S. 463
, because "there is no broad state constituency taxed as are the prime contractors who deal with the federal government." 654 F.2d at 577. A "political check" is provided when a state tax falls on a significant group of state citizens who can be counted upon to use their votes to keep the State from raising the tax excessively, and thus placing an unfair burden on the Federal Government. It has been thought necessary because the United States does not have a direct voice in the state legislatures.
See generally Fresno, supra,
at 458-459, and n. 6.
The Court of Appeals focused only on the taxes levied directly on contractors, and not on "
the whole tax structure of the state.'"
Tradesmens,
). The tax on federal contractors is part of the same structure, and imposed at the same rate, as the tax on the transactions of private landowners and contractors. Indeed, the tax on contractors is part of a single sales tax scheme that is imposed at the same rate on every retail transaction in Washington; virtually every citizen is affected
by the tax in the same way. As long as the tax imposed on those who deal with the Federal Government is an integral part of a tax system that applies to the entire State, there is little chance that the State will take advantage of the Federal Government by increasing the tax. [
In short, Washington has not singled out contractors who work for the United States for discriminatory treatment. It has merely accommodated for the fact that it may not impose a tax directly on the United States as the project owner. This the State may do without running afoul of the Supremacy Clause. As the Court stated in
-738:
"If the immunity of federal contractors is to be expanded beyond its narrow constitutional limits, it is Congress that must take responsibility for the decision, by so expressly providing as respects contracts in a particular form, or contracts under particular programs.
(1952). And this allocation of responsibility is wholly appropriate, for the political process is 'uniquely adapted to accommodating the competing demands' in this area.
435 U. S. 444
435 U. S. 456
(1978). . . . But absent congressional action, we have emphasized that the States' power to tax can be denied only under 'the clearest constitutional mandate.'
423 U. S. 293
"Wash.Rev.Code § 82.04.190(4). Wash.Rev.Code § 82.04.050 was also amended so as to redefine 'retail sale' and 'sale at retail' to
expressly from their scope contracts calling for the improvement, repair or construction of real property owned by the United States or any of its instrumentalities and to
sales of materials to prime contractors engaged in construction work on federally owned property. As with the sales tax, the liability of federal prime construction contractors for the State's use tax arose basically from the inclusion of such contractors within the meaning of the term 'consumer,' and the use of that term in Wash.Rev.Code § 82.12.020, under which the use tax is levied."
The United States argues that it is inappropriate to consider the economic burden on the contractor and the owner together, and that we should focus solely on the tax the contractor is required to pay. When the case is viewed in this light, we are told, it is apparent that federal contractors pay more than other contractors. The Court of Appeals apparently accepted this argument.
We acknowledged that
(1929), supported the United States' argument, but explained that, "to the extent that it does, it no longer has precedential value." 361 U.S. at
See also United States v. City of Detroit,
355 U. S. 472
Miller [v. Milwaukee,
(1927), upon which the United States also seeks to rely], at least as it has been interpreted in later cases, should be read as indicating that less is required."
The United States also relies upon
365 U. S. 744
(1961). In that case, like in
the State taxed lessees of property owned by the State on a lower valuation than lessees of property owned by the United States. We held, on the authority of
that the tax was invalid. 365 U.S. at
. This holding does not support the United States' position any more than the holding in
had attempted to eliminate the discriminatory aspect of the tax by reducing the tax "to what it would have been if" it had been levied on a state lessee. 365 U.S. at
. We held that the Court of Appeals did not have the power to revise the state tax to cure a constitutional defect.
This was nothing more than a ruling on severability, and has no bearing on this case.
This answers the United States' contention that the Washington tax is invalid simply because it is an attempt to circumvent the Federal Government's tax immunity. The Washington statute is no different from any other taxing scheme that switches the incidence of the tax from one party to a transaction to another when the party that would ordinarily be taxed is immune. In this respect, this case is no different from
In this respect, this case is like
United States v. Department of Revenue of Illinois,
371 U. S. 21
202 F.Supp. 757 (ND Ill.). Illinois imposed a retail sales tax on the retailer and a tax in an identical amount on the purchaser. The State permitted the retailer to keep the tax he collected from the purchaser. Although retailers could not, of course, collect the tax from the United States when it purchased goods from them, they were nonetheless required to pay the tax imposed on them. Retailers who dealt with the United States were economically burdened by this taxing scheme unless they could adjust their prices to pass their tax burden on to the Federal Government. Nevertheless, this Court summarily affirmed the District Court's conclusion,
at 760, that such disparate treatment of taxpayers resulting from the United States' immunity from state taxation is not forbidden by the Supremacy Clause.
We note that, when Congress has acted in this field, it has applied a nondiscrimination rule.
See, e.g., Memphis Bank & Trust Co. v. Garner,
(1983) (construing 31 U.S.C. § 742). If some other test of the validity of a state tax was necessary to protect the Federal Government, it would be reasonable to expect that Congress would, for at least some situation, have devised one.
The Court by its ruling in this case continues its recent tendency [
] to be sympathetic with States in their urgent quest for new taxes. In my view, however, the Court now oversteps the important and significant boundary that separates appropriate state taxation, having only an incidental effect on federal operations, from inappropriate state taxation that is imposed directly or indirectly upon the United States, and is therefore invalid under the Supremacy Clause, Art. VI, cl. 2, of the United States Constitution. The State of Washington has sought to circumvent the United States' absolute constitutional immunity from state taxation. The District Court and the Court of Appeals in this litigation upheld the Federal Government's protest against the incursion, and granted the United States declaratory and injunctive relief. This Court, by reversing that considered judgment, upholds Washington's circumvention.
The Supremacy Clause, of course, is the foundation of
4 Wheat. 316 (1819), where the Court laid down the principle that the property, functions, and instrumentalities of the Federal Government are immune from taxation by its constituent parts. Since
the Court "has never questioned the propriety of absolute federal immunity from state taxation."
455 U. S. 733
(1982). And
"a State may not, consistent with the Supremacy Clause . . . lay a tax 'directly upon the United States,'
Mayo v. United States,
Federal immunity is "the unavoidable
consequence of that supremacy which the constitution has declared."
4 Wheat. at
(1983). Specifically, it
455 U. S. 735
, n. 11. To be sure,
429 U. S. 462
But here, contractors for the Federal Government are singled out for a special tax that applies to no other contractor within the State of Washington. A contractor who deals with the Federal Government is subject to the tax. One who deals with the State or a private party is not subject to the tax. It is as simple as that. It necessarily follows that the tax violates the Supremacy Clause, just as if the tax were laid directly upon the United States. To hold otherwise, by measuring the perceived economic burden, demeans the principle of
I agree with the Court that Washington's statutory provisions are best understood "in light of their history."
460 U. S. 538
. But that history reveals, it seems to me, the clear purpose of the Washington Legislature to "get at" the Federal Government and to overcome its tax immunity. In contrast with the usual silence of legislative history behind
B. In 1941, however, a major change was effected in the State's system as it applied to contractors. The taxable transaction no longer was the sale
the contractor; instead, the taxable transaction became the sale
the contractor to the property owner. 1941 Wash. Laws, ch. 178, § 2.
See Klickitat County v. Jenner,
15 Wash.2d 373, 130 P.2d 880 (1942). The sale of building items
the contractor then became a nontaxable wholesale transaction. This change, for purposes of the present case, had two important consequences. The first was that the State's sales tax base was expanded. Before 1941, it had included only property sold to the contractor. Now it included the contractor's total charge to the owner. This charge, of course, included not only the costs of material, but labor costs and the contractor's profit as well. The second consequence of the 1941 statute related to construction for the Federal Government. Here the tax base was diminished. Most sales of property
the contractor were immune, because they were at wholesale. But the transaction between the contractor and the Federal Government also was immune because of the Government's vendee status and its constitutional immunity from a direct tax.
C. This happy situation for federal construction projects in the State became the subject of the Washington Legislature's concern and disapproval in 1975. In an attempt to collect sales and use taxes with respect to material incorporated in building construction projects owned by the United States, the legislature redefined the terms "retail sale" and "consumer" in the State's sales and use tax statutes. [
] It is conceded that the target was specific and the change purposefully made to catch the burgeoning federal construction in the State. Brief for Appellants 6-8; Tr. of Oral Arg. 7. As a result, prime contractors performing construction work on real property owned by the United States now were required to pay sales and use taxes on material and personal property incorporated into such construction projects. In stark contrast, however, the 1975 legislation did not amend the State's sales and use tax laws so as to impose like obligations on contractors performing construction work on real property owned by the State or by private persons. With respect to these, any such taxes imposed continued to be the obligation of the particular project's owner. The enlargement of the tax base that had been effectuated in 1941 was thus preserved.
It is easy and convenient to argue, as the Court does,
-542, that Washington imposes a sales tax on all purchases from contractors who do not deal with the Federal Government, that the tax rate is the same for everyone, and that the Federal Government is really better off than others because the tax consequence to it is a lesser amount inasmuch as the contractor's labor costs and markup are not included in the tax base. The latter alleged fact, as I shall endeavor to point out, is a glib and, in my view, unwarranted assumption.
Three cases, in particular, decided by this Court demand affirmance of the judgment of the Court of Appeals. The first is
272 U. S. 714
Such discriminatory selectivity is forbidden by the Constitution. This analysis was reaffirmed by a unanimous Court in
Phillips Chemical Co. v. Dumas Independent School Dist.,
(1960), when it pronounced that
stands for the proposition that "a State may not single out those who deal with the Government, in one capacity or another, for a tax burden not imposed on others similarly situated." [
is the second case. It demonstrates that discrimination against the Federal Government need not be explicit in a State's statute to be prohibited by the Supremacy Clause. There, Texas legislation provided for taxation of private users of Government realty, but the tax was less for property held under a lease for three years or more. Because a federal lease was subject to termination in the event of sale, the lessee could not qualify for the preferential tax treatment. Accordingly, the Court held the Texas statute unconstitutional. It said:
The continuing validity of
was recognized by a unanimous Court just a few weeks ago.
Memphis Bank & Trust Co. v. Gailer,
. As the Court acknowledges,
460 U. S. 542
, the Texas tax was said to be invalid "because it imposed
a heavier tax burden on lessees of federal property than is imposed on lessees of' state property." The reference to the comparative weight of the tax was not one to the rate, but to the quantity of the property interest taxed. So it is here, for what the State of Washington taxes with respect to a federal building contractor is different from what it taxes with respect to any other building contractor. The holding and principle of
are not so easily to be explained away.
(1961). There the county attempted to tax the full value of improvements on privately owned Wherry Act leaseholds of housing developments on a military base. It taxed other leaseholds, however, including privately owned leaseholds of tax-exempt state lands, at a lower valuation. A unanimous Court held the tax unconstitutional and void, and it reversed the lower court's judgment to the effect that the Constitution required only that the amount collectible be reduced to the level of taxes upon other leaseholds. The Court today would distinguish
by saying merely that it "does not support the United States' position any more than the holding in
-543, n. 7.
Miller, Phillips,
all require the conclusion that the Washington tax under submission here is invalid as applied to contractors for the Federal Government. A State cannot single out the Federal Government and those with whom it deals for special tax burdens. For more than 30 years, the State of Washington apparently remained content with the choice it made in its 1941 restructuring of its sales and use taxes to gain enhanced revenue from other sources at the price of sacrificing revenue from Federal Government contractors. A substantial
The State asserts, and the Court appears to agree,
-542 and
460 U. S. 543
, that, so long as the monetary burden on Government contractors is no greater than the burden on others, the discrimination is constitutionally acceptable. It asserts, in other words, that the United States has no ground for complaint unless it is placed at a competitive disadvantage in the marketplace.
This conclusion is misguided as a matter of law. The decision in
establishes that the Supremacy Clause guarantees more than that the United States will not be placed at a competitive disadvantage, for there this Court reversed a ruling that would have resulted in equal tax burdens on federal and nonfederal lessees. The Supremacy Clause does not merely guarantee equality; it absolutely immunizes the contractors and lessees of the United States from discriminatory state taxation.
The Court's economic burden argument is also questionable as a matter of fact. That the incidence of the tax as applied to federal contractors does not include labor and profit components does not necessarily mean that the total costs to the contractors, and hence to the United States, are less than the total costs to a nonfederal contractor. Only the federal contractor is required, under Washington's system, to put out additional tax money "up front," as the project progresses, to maintain special records, to hire personnel for such recordkeeping, and to prepare and file returns. This is not inexpensive activity, and its costs could exceed what would have been the tax increment on the labor and profit components. The record does not disclose the facts. [
any event, those facts are inconsequential, for it is discrimination, not the quality of the burden, that carries unconstitutional consequences. It is "absolute federal immunity from state taxation" that this Court "has never questioned."
(1977), deserves passing mention. There, a possessory use tax was imposed solely on private citizens who used tax-exempt land. The individual appellants in that case were United States Forest Service employees who lived in federally owned houses. The Court concluded, however, that there was no discrimination, for the tax did not discriminate against the Forest Service or other federal employees. Indeed, the United States expressly abandoned any claim that the tax treated federal employees differently from state employees who lived in state-owned houses.
Finally, it is of interest to note the Court's obvious discomfort in evaluating the relative burdens of different methods of taxation by States of the Federal Government and of those with whom it does business. In
460 U. S. 589
-590, n. 12, the Court struggles with the problem of the economic incidence of a tax on the Federal Government. There it says that a State remains free to impose the economic incidence of a tax on the United States so long as that tax is not discriminatory, and it explains the
result in this Washington case as a mere accommodation. This, the Court says, may "force us, within limits, . . . to compare the burdens of two different taxes." For me, that is a new approach to state taxation of the Federal Government, and it flies in the face of the Court's simultaneously expressed view that "courts as institutions are poorly equipped to evaluate with precision the relative burdens of various methods of taxation."
460 U. S. 600
(REHNQUIST, J., dissenting). I had thought this measure of state taxation of the Federal Government absolutely improper as a constitutional matter.
But compare Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, post,
1975 Wash. Laws, 1st Ex. Sess., ch. 90, and ch. 291, § 5, and 1975 Wash. Laws, 2d Ex. Sess., ch. 1.
is not to be explained away, as the Court attempts to do,
, n. 6, by intimating that later cases have cut back the holding in
set forth in the Court's footnote, appears on the same page of the
opinion as the Court's more positive and specific statement of law I have quoted in the text.
Additionally, the Court's assumption,
-542, n. 4, that a federal contractor will be able to pass the tax through to the Federal Government is highly suspect. First, the assumption hardly can be applied to a contract made prior to the 1975 legislation. A contractor trapped with such a contract has the burden of the tax; a private contractor is not at the same risk. Second, the Court seems to believe that a federal contractor has the same amount of bargaining power with the Federal Government as his private counterpart has with his contractual partner. I suspect that, in most circumstances, this is not correct. Under Washington's tax, a private contractor charges his client the amount of the state tax on top of the contract price; it is far from clear that a federal contractor is able to pass the tax on in the same way to the Federal Government.