Title: KIEWIT SONS v ST BD OF EQUALIZA
Citation: N/A
Docket Number: 12199
State: Montana
Issuer: Montana Supreme Court
Date: January 29, 1973

No. 12199 I N T H E SUPREME C O U R T OF THE STATE O F M O N T A N A PETER KIEWIT SONS ' CO. , a Corporation, P l a i n t i f f and Appellant, STATE BOARD OF EQUALIZATION O F T H E STATE O F M O N T A N A , J. M O R L E Y COOPER, Chairman, JOHN C. ALLEY AND RAY J. WAYRYNEN, a s members thereof, Defendants and Respondents. Appeal from: D i s t r i c t q o u r t of t h e F i r s t J u d i c i a l District, '. \ , Honorable -. bvr H. F a l l , Judge presiding. . -. . _ ?~u~~sEJ.!.--~o.~ Record : For Appellant: \ ' . Garlington, Lohn and Robi-nson Missoula, Montana. Sherman V. Lohn and Lawrence '. Daly argued, Missoula, Montana. a Amicus Curiae S c o t t P. Crampton and G i l b e r t E . Andrews, Washington, D. C. Bruce I. Kogan argued, Washingtori, D. C. For Respondents: Poore, McKenzie & Roth, Butte, Montana. Robert A. Poore argued, Butte, Montans. Jene B e l l appeased, Helena, Montana . Submitted: NOV-mber 27, 1972 Decided: ; $ l , ( i F i l e d : 1 hr. J u s t i c e WesLey Castles delivered the Opinjon of the Court. This i s an a p p e a l from a judgment of the d i s t r i c t court of the Cilst: j u d i c i a l d i s t r i c t , county of Lewis and Clark. In February and March 1971, p l a i n t i f f Peter Kiewit sons' Cu. paid a t o t a l of $8,726.47 as gross r e c e i p t s tax payments i n compliance with Chapter 35, T i t l e 84, R.C.M. 1947. A t the same time, p l a i n t i f f a l s o f i l e d l e t t e r s of protest with defendant State Board of Equalization challenging the v a l i d i t y of the public cuntractors' license a c t and demanded refund of the payments. Within s i x t y days p l a i n t i f f proceeded t o bring an action i n he d i s t r i c t court seeking t o have Chapter 35, T i t l e 84, R.C.M. 1947, declared i n v i o l a t i o n of the laws and Constitution of the s t a t e of Montana and the Constitution of the United S t a t e s , t o obtain refund of a l l taxes and fees remitted t o the s t a t e of Xontana under the chapter i n question. The d i s t r i c t court, s i t t i n g without a jury, found the pro- visions of Chapter 35, T i t l e 84, R.C.M. 1947, did not v i o l a t e the laws or Constitution of Montana nor the Constitution of the United States. Judgment was entered f o r defendant. P l a i n t i f f f i l e d motions t o amend the findings of f a c t and conclusicns of Law and f o r a new t r i a l , which were denied by the t r i a l court. From the judgment and order denying those motions, p l a i n t i f f appeals. I n addition t o b r i e f s and argument i n t h i s Court by counsel tor che p a r t i e s , a b r i e f and o r a l argument was presented by the United States government a s amicus curiae i n support of plain- t i f f ' s position. W e f e e l a t t h i s point t h a t a b r i e f history of the Act i n question would be helpful. The i n i t i a l version of what became Chapter 35, T i t l e 84, R.C.M, 1947, was passed by the Montana legislature i n 1935. It required the licensing by the s t a t e of dealing with the s t a t e or any of i t s p o l i t i c a l sub- Ji-visions; federal contractors were excluded from the Act, In ;.larch 1965, in an at'iemyt t o ensure the payment of s t a r e and local taxes by contractors working i n the s t a t e , Chapter 277, Laws 1965, was passed by the legislature. The problem arose because some contractors working i n the s t a t e did not report a l l of t h e i r equipment t o county tax assessors, who were attempting t o impose ~ u u n t y property tax on those contractors, Also, some contractors working i n the s t a t e would not f i l e corporate o r personal income tax returns which would have f a i r l y r e f l e c t e d t h e i r business p r o f i t s from within the s t a t e . Chapter 277, Laws 1965, imposed a I% tax upon gross receipts (3)' a l l nonresident public contractors operating within the s t a t e . In April 1965, the c o n s t i t u t i o n a l i t y of Chapter 277, Laws 1965, was raised t o t h i s Court and the Court found it t o be unreasonable discrimination and ruled i t unconstitutional. S t a t e ex r e l . Schultz- Lindsay v. Board of Equalization, 145 Mont. 380, 403 P. 2d 635. I n 1967, the Montana l e g i s l a t u r e again attempted t o work out a solution t o the problem of contractors not paying t h e i r taxes. That l e g i s l a t u r e enacted a revenue enforcing measure de- signed t o operate hand i n hand with ~ o n t a n a ' s long-standing personal property tax and income tax, t o ensure more e f f e c t i v e tax collec- t i o n and reduce tax avoidance. It then passed an amendment t o :hi< 1935 licensing a c t whicll required a 1% tax upon a l l recei-pts of public contractors i n the s t a t e , including both resident and nonresident contractors, covering a l l public works within the s t a t e including construction done by the United States government. The revenue enforcing measure was enacted i n an attempt t o require some of the contractors working i n the s t a t e t o meet t h e i r Cax r e s p o n s i b i l i t i e s . The mechanics of the measure a r e b e s t v~nderstood by taking, a s an example, the Kiewit contract f o r p a r t 3 1 1 the >fontma Libby D a m project. The contract was given t o Xiewit because i t was the lowest responsible bidder. The con- i:ractor then entered on the performance of i t s contract and a s the work progressed i t received payments from the landowner. It paid L;L of &,uch receiprs t-o t h e a t a t e Goaid of Eq1.ializati.cn. I n such ndnner Kiewit has paid o r w i l l pay 1% of approximately 6.4 million d o l l a r s or about $64,000 t o the S t a t e Board of Equalization, This fund i s held t o the c r e d i t of i<iev~it on an accounting .,ysi:d~n adopted by the State Board. The Act operates i n the nature ~f a withholding or prepayment program f o r Montana property and income taxes. I n t h i s case, Kiewit has s u f f i c i e n t items of heavy equipment working on the job a t Libby t o incur and pay a personal p r # ~ p e r t y tax of $35,803.22. Kiewit i s e n t i t l e d t o a d o l l a r f o r 8do:lar c r e d i t and a c t u a l refund for such personal property taxes k r o m i t s fund created with the S t a t e Eoard i n 1971 by i t s payment ~f the 1% gross receipts tax. So any time i n 1971, a f t e r having p z i d the personal property taxes Kiewit could, upon showing proof ~f such payments of personal property taxes, receive a refund of rhc payments out of the 1% gross r e c e i p t s tax. Not only could K i e w i t obtain refunds of personal property taxes paid i n Lincoln S o ~ n t y a t the job s i t e , but could a l s o have the same benefits for any personal property taxes paid by it t h a t year, a n p ~ h e r e i n Pion t ana . Payments on the job and the corollary 1 % tax thereon may ~ ~ s u ~ e ,nure rapidly than personal property taxes a r e due or may zxceed the amount of such taxes. I n t h a t event, the remainder of the 1% fund t o the contractor's c r e d i t a t the State Board may be used t o pay, d o l l a r f o r d o l l a r , the contractor's income taxes. Lf refunds of the personal property taxes have not consilmed the 1% gross receipts tax payments t o the S t a t e Board, the contractor can take d o l l a r f o r d o l l a r c r e d i t d i r e c t l y against h i s tax f o r the balance of gross receipts tax s t i l l remaining t o h i s c r e d i t at the State Board. 'Mr~ere there i s heavy equipment subject t o property t a x and/ or riei income tax on a job and the taypayer claims the refunds o r credits, the gross r e c e i p t s tax washes i t s e l f out. The Act, a s can be seen from the c r e d i t s procedure, was intended a s an in- centive t o public contractors t o declare t h e i r items of personal property Cer taxation. I t a l s o encourages contractors t o more f a i r l y a l l o c a t e out-of-state home o f f i c e overhead expenses, i n p a r t a t l e a s t , t o Montana. It i s true t h a t the Act i n practice t o date has not resulted in . A totrai -shout of the 1% gross receipts payments, It does appear t h a t one of the reasons f o r t h i s f a i l u r e i s t h a t the federal government has inserted a clause i n some of the federal contracts which prohibits a contractor from taking the refunds and c r e d i t s available t o him. Such a clause was i n the contract Kiewit had with the federal government. Clause 58(f) of t h a t contract reads: "The Act (R.C.IJI., 1947, sec. 55-3514) allows t h e license fee based on gross receipts t o be used a s a c r e d i t on: (I) the Contractor's corporation license tax (R.C.M. , 1947, T i t l e 84, Chapter 15) or on Contractor's income tax (R.C.M., 1947, T i t l e 84, Chapter 49), depending upon the type of tax the Con- t r a c t o r (or subcontractor) i s required t o pay under the laws of t h e S t a t e of Montana; and (2) personal property taxes paid i n Montana on personal property of the Contractor (or subcontractor) which i s used i n the business of the Contractor and i s located within the ,State. The Contractor, and. i n turn, the subcontractors w i l l not take advantage of these credits." (Emphasis added). This prohibition by the federal government i s of necessity p a r t of the reason there i s a surplus of the revenue of the gross receipts tax. As f o r other reasons why the Act i s not a t o t a l wash item, the d i s t r i c t court, upon hearing the evidence, found t h a t some of the contractors were not aware of the c r e d i t available t o them and some were simply indi-fferent t o the use of t h e i r c r e d i t s , In i t s finding of f a c t No, 1 7 , the d i s t r i c t court said: I '-1. -L -1- 4b 4b 8b That the present residue of tax with the S t a t e Board or S t a t e of Montana i s not f a i r l y representative of how the tax i s l i k e l y t o operate i n future years, 1 1 There has been nothing presented t o t h i s Court on appeal which would change the finding of the d i s t r i c t court and it i s c l e a r that t h i s Act i s intended t o operate a s a revenue enforcing Appellant's principal argument i s t h a t a t a x which i s placed solely on public contractors i s discriminatory. It main- t a i n s the only difference between public contractors and private contractors i s the s t a t u s of the party f o r whom the contractor i s working. Such a difference, i n appellant's view, i s not s u f f i c i e n t t o j u s t i f y the imposj-tion of the tax, Since t h a t was the same point raised i n Schultz-Lindsay, a review of t h a t decision w i l l give us a view of Montana law on the issue of tax discrimination. There, we stated t h a t the l e g i s l a t u r e may impose a license tax on c e r t a i n occupations and I l not on others, a s long a s a r b i t r a r y and unreasonable c l a s s i f i - cations" a r e not permitted. Schultz-Lindsay p . 398. I n Schultz-Lindsay a t p. 390, the Court c i t i n g S t a t e v , Sunburst Refining Co., 73 Mont. 68, 235 P. 428, s t a t e d t h a t i n making such c l a s s i f i c a t i o n s : "'Equal protection of the law i s seldom, i f ever, obtained; and because of the very f r a i l t y of human agencies, the a u t h o r i t i e s a l l recognize the r i g h t of the l e g i s l a t i v e branch of government to make reasonable c l a s s i f i c a t i o n s a£ sulnjects f o r property or occupation taxes : y * + and i f t h e c l a s s i f i c a t i o n i s reasonable, and i f a l l of the subjects within a given c l a s s a r e accorded the same treatment, t h e 1egi.slation cannot be said t o deny t o anyone within such c l a s s the equal protection of the law, even though the burden imposed upon him may be more onerous than t h a t imposed upon a member of another c l a s s . [Citing cases] But t o j u s t i f y such discriminatory l e g i s l a t i o n , and avoid the condemnation of the Four- teenth Amendment t o the federal Constitution, the c l a s s i f i c a t i o n must be reasonable---that i s , must be based upon slabs t a n t i a l d i s t i n c t i o n s which r e a l l y make one c l a s s d i f f e r e n t from another. [Citing case] (Emphasis ours.) "' Later i n the sane opinion a t p, 392, the Court said: 11 1 The constitutional safeguard against unjust dis- crimination i n l e g i s l a t i o n of t h i s type i s well defined by the decisions everywhere, and t h a t i s , t h a t the c l a s s i f i c a t i o n must be reasonable, not a r b i t r a r y , and must r e s t upon some ground of d i f f e r ence having a f a i r and substantial r e l a t i o n t o the object of the 3-egislation, so t h a t a l l persons similarly circumstanced s h a l l be treated a l i k e . M i l v. S t a t e Board of Equalizati.sn, 97 Mont. 1 1 3 , 3 1 ' , 33 2d 563.' (Emphasis durs.)" The s t a t e has the duty and authority t o levy taxes. Such i s required i n the Constitution; however, Section I1 of A r t . X I I ~ i . the Ibiontaiud i;ons'iitt~ii.on requires t h a t such ;:axes s h a l l a l s o 1 x 5 tlniform upon the c l a s s within the taxing authori-ty. I n t e r - ;;ieting t h a t section of the Montana Constitution i n Schultz- 5-ndsay a t p. 393, t h i s Court said: r t 1 Itor , s t a t i n g the principle of sections 1 and 1 1 i n d i f f e r e n t form, the mandatory injunction t o the Legis- l a t u r e i s t h a t it s h a l l prescribe such uniform mode of zssessment a s s h a l l secure a j u s t valuation of a l l :axable property, t h a t a l l taxes s h a l l be levied and ,:ollected by general laws and f o r public purposes only, dnd t h a t they s h a l l be uniform upon the same c l a s s of property wi.thin the t e r r i t o r i a l l i m i t s of the authority levying t h e tax. This i s the r u l e of uniformity declared ' ~ y our C o n s t i ~ u t i o n , i f w e a r e able t o determine the in- tention of i t s framers aright. " ''We thinlc it w i l l be admitted t h a t any tax against the jame kind of property used for i d e n t i c a l purposes i s not uniform when a d i f f e r e n t valuation and a d i f f e r e n t ratre 's applied t o two d i s t i n c t taypayers, separately d i s t i n - guishable only i n name, and the tax being imposed by the same taxing d i s t r i c t . W e further believe it w i l l be ~ d m i t t e d t h a t such disregzrd of the uniform clause of iections 1 and 1 1 of A r t i c l e X I I , supra, c o n s t i t u t e s c l e a r discrimination."' (Emphasis t h e i r s ) . In Schultz-Lindsay it i s c i e a r the s t a t e had discriminated i l ~ s c nonresident taxpayers doing public work. A l l contractors doing public work were not treated i n a f a i r manner as there was n d basis t o make the d i s t i n c t i o n between resident and nonresident public contractors. That i-s not the s i t u a t i o n here, because a l l public contractors a r e now treated equally, a l l a r e taxed on 1% of t h e i r gross receipts. There i s a c l a s s of taxpayers, public contractors, and t h a t c l a s s comes under the special tax enforcing !rleasure of the Act. This s i t u a t i o n i s c l e a r l y distinguishable from the Schultz-Lindsay situation. W e do not read the law t o require a l l contractors t o be taxed i n an i d e n t i c a l manner, only thac members of a c l a s s be given the same tax treatment. It i s true t:hat the private contractor does not have the #5ame revenue enforcing measure t h a t the public contractor has, 1 t 5ur, even though the burden imposed upon him may be more onerous chan t h a t imposed upon a member of another class", t h a t does not v i o l a t e the c a s t i t u t i o n a l safeguards if the c l a s s i f i c a t i o n i s j u s t i f i e d . Schultz-Lindsay, p. 390. Montana zase l a w has establishecl t h a t the Legislature may rncike :Lassifications f o r tax purposes on d i f f e r e n t industries i n hoiltana. As long a s the c l a s s i f i c a t i o n i s reasonable, it w i l l be upheld, Quong Wing v. Kirkendall, 39 Mont. 64, 101 P. 250; ,~ilaconda Copper Mining Co. v. Junod, 7 1 Mont. 132, 227 P. 1001; dale v. County Treasurer of Mineral Co,, 82 Mont, 98, 265 P. 6; Norum v. Ohio O i l Co., 83 Fiont. 353, 272 I ? . 534. Our question now i s - - - i s it reasonable t o make a c l a s s i f i - cation for tax purposes f o r contractors doing public work and not f o r contractors doing private work? A t t r i a l , respondent State Board stressed the differences between the two types of contractors i n t h i s manner: 1, A public work i s intended f o r the use of the public and i f the work i s inadequate in some p a r t i c u l a r way, t h i s could (2xpose and would expose some part of the public a t large t o danger, inconvenience, o r i n j u s t i c e . That of course would not be always t r u e i n the case of a private contractor, 2. Public contractors must be experienced, they must e s t a b l i s h t h e i r qualifications t o the s t a t e o r federal govern- n~efit, However, private property owners could engage a licensed o r unlicensed contractor o r an experienced o r inexperienced one. 3 . Public contractors invariably must provide a bond, Private worlcs require bonds only a t the election of the owner. 4, Public works normally would involve elaborate, profes- si(jnal1y drawn plans and specifications. They would a l s o include aandatory supervision or inspection. Private works would have such inspection and/or supervision a t the option of the owner. Appellant argues t h a t a l l of the above mentioned areas are a l s o normally included i n any private contracting job i n the ; tate; therefore, there i s no j u s t i f i c a t i o n of the c l a s s i f i c a t i o n . ivc do noc agree. It may be true t h a t private contractors w i l l cdke many of the sane precautions required by the s t a t e o r federal government, but the point i s t h a t when dealing with public works these precautions must be taken. People of the s t a t e have a right LO make sure chat a building b u i l t with t h e i r money i s safe and t h a t the contractor i s qualified i n a l l respects. For khis reason i t i s c l e a r how the c l a s s i f i c a t i o n can be made--- for the protection of the public good, The duty of a contractor i s t o the person paying the b i l l , i n the case of a public con- t r a c t o r it i s the taxpayer. In order t o ensure t h a t the duty i s m e t , the s t a t e can and does deal with public contractors i n a d i f f e r e n t way than private contractors. Because of t h i s basic difference, there i s no reason why they cannot be taxed i n a d i f f e r e n t manner, a s long a s a l l i n the same c l a s s a r e treated equally. I n Quong Wing v, Kirdendall, 39 Mont. 64, 69, 101 P, 250, t h e Court said: I t The Constitution gives the power t o impose a license tax upon persons doing business i n t h i s a -1- -1- " ,, ,, ,. The l e g i s l a t u r e i s not required t o !:ax a11 occupations equally o r uniformly. ; \ : \ f I f the constituents of each c l a s s a r e affected 3like, the r u l e of equality prescribed by the cases i s s a t i s f i e d , In other words, the law "operates equally and uniformly upon a l l persons in similar circumstances . 11 1 1 1 What could be more uniform than requiring a l l public contractors t o pay t h i s tax, a l l members of the c l a s s a r e treated a l i k e . The United States Supreme Court has given the s t a t e s great 1-atitude and freedom t o e f f e c t tax c l a s s i f i c a t i o n s , a s long a s they a r e not a r b i t r a r y or capricious. I n Brown-Forman Co. v. Kentucky, 217 U,S. 563, 30 S.Ct. 578, 54 L ed 883, 887, the s m t e of Kentucky levied a 1 114 cent per gallon tax on every corporation or individual engaged i n the business of compounding, r e c t i f y i n g , adulterating o r blending d i s t i l l e d s p i r i t s . Corporate or individual d i s t i l l e r s of pure or unadulterated s p i r i t s were not so taxed. A producer of blended s p i r i t s brought an action stating the tax was discrimi-natory. I n upholding the s t a t e ' s power t o tax, the United States Supreme Court said: I 1 A very wide discretion must be conceded t o the l e g i s l a t i v e power of the s t a t e i n the c l a s s i f i c a t i o n 3f trades, c a l l i n g s , businesses o r occupations which nay be subjected to special forms of regulation or taxation through an excise or license tax. I f the selection o r c l a s s i f i c a t i o n i s neither ~ a p r i c i o u s nor a r b i t r a r y , and r e s t s upon some reasonable consideration of difference or policy, there i s no denial of the equal protection of che law, 1 1 W e believe t h a t a d i s t i n c t i o n between public and private contractors i-s not a r b i t r a r y or capricious and following the reasoning of the United States Supreme Court---the statle of Moiitana has the power t o make such a d i s t i n c t i o n and the s t a t u t e i n question i s not unconstitutional. The second h a l f of the discrimination question raised by appellant i s t h a t t h i s tax discriminates against the federal juvernment. It urges t h a t the s t a t e of Montana i s required t o t r e a t the United States and other public bodies a s well a s it ,:Teats private nongovernmental p a r t i e s . Appellant contends r a n t i n g a preferred tax s t a t u s t o a substantial number of taxpayers, contractors performing work f o r private owners, and f a i l i n g t o grant a comparable s t a t u s t o construction contractors of t h e United S t a t e s , constitutes unconstitutional discrimination against the United States and those with whom it deals. I n response t o t h i s argument, respondent Board contends, b<isicaily, t h a t since the s t a t e of Kontana i s treated i n tax .ua!:ters with public contractors the same a s the federal government i-s t r e a t e d , there i s no discrimination. Counsel f o r both p a r t i e s cite i n support P h i l l i p s Chemical Co. v. Dumas School D i s t r i c t , '361 U.S. 376, 80 S e c t . 474, 4 L ed 2d 384, 391, and Floses Lake l-lones v. Grant County, 365 U.S. 744, 81 S.Ct. 570, 6 L ed 2d 66. In P h i l l i p s Chemical Co., the s t a t e of Texas levied a tax J L ~ leases where the United States government was the lessor, but ' d i d n o t provide f o r such a tax where the s t a t e of Texas was the !-essore he court found 1:his t y p e of taxation was discriminattng igainst the federal government and therefore invalid. The court I I ; k - t . - 1 . - 4, it does not seem too much t o require t h a t the State t r e a t those v7ho deal with the Government 2s well a s i t t r e a t s those with whom it deals i t s e l f . f 1 I n Moses Lake Homes, the s t a t e of Washington sought t o tax leasehold i n t e r e s t s wherein the federal government w a s the lessor a t a higher r a t e than it taxed leasehold i n t e r e s t s where the s t a t e of Washington was the lessor. The court s t a t e d t h a t Moses Lake Homes was indistinguishable from P l ~ i l l i p s Chemical Co. and ruled t h a t a tax wbtch discriminated against the federal government was invalid. Here, we do not believe t h a t the s t a t e of Montana has discriminated against the federal government, The federal govern- ment i s being treated i n the same manner a s the s t a t e of Montana t r e a t s i t s e l f and i t s subdivi sions o r municipalities, The only discrimination the federal government can claim i.s t h a t private contractors a r e not paying the same tax a s public contractors. However, according t o case law, a l l the United States Supreme Court has required i s t h a t the s t a t e does not give i t s e l f special treatment over t h a t received by the federal government. The Act involved here t r e a t s the federal. government i n the same manner a s it t r e a t s those who deal with any p a r t of the s t a t e government, The second half of the discrimination question i s denied. Appellant and amicus curiae argue t h a t the Act i s invalid because it r e s u l t s i n interference with federal government func- tions and i s i n c o n f l i c t with federal procurement l e g i s l a t i o n . Therefore, i t v i o l a t e s the supremacy clause of the United States Constitution. Their b a s i s f o r such argument i s t h a t our licensing s t a t u t e gives Montana the power of review a s t o whether o r not a contractor can operate within Montana, even i f he has already been awarded a public contract. A 1 1 p a r t i e s c i t e Miller v. Arkansas, 352 U.S. 187, 77 S e c t , 257, 1 L ed 2d 231, There, Arkansas had a licensing s t a t u t e similar t o the one i n question here which allowed the s t a t e t o review contractors who had been awarded public contracts, including federal contracts, a s t o t h e i r f i t n e s s t o perform the work. Under the authority of t h a t s t a t u t e , the s t a t e brought an action against a contractor awarded a federal contract because t h a t contractor was riot Licensed in riricansas, In reviewixng the case, the United States Supreme Court held si-npl-y t h a t the s t a t u t e was n o t applicable t o contractors working on federal government contracts. W e do not find the United States Supreme Court s t a t e d +hat such Arkansas s t a t u t e was unconstitutional per se. It only s ~ a t e d t h a t the s t a t e does not have the power t o review federal contractors as t o t h e i r f i t n e s s . Here, we hold, a s did the d i s t r i c t court, t h a t the provi- ,ions of the Act which pertain t o qualifications o r competence ,,f public contractors i s not applicable t o federal contractors. The qualifications t e s t of the Act remains i n force i n regard t o conixactors working on s t a t e contracts, and the gross receipts tax w i l l remain i n force a s t o a l l public contractors performing work i n Montana. Finally, i t i s argued that t h i s Act v i o l a t e s the immunity 02 t h e federal government from taxation or the economic impact of taxat~ion. It has been established t h a t a s t a t e cannot tax i:ne federal government. But, the s t a t e can tax an independent contractor f o r the privilege of doing work within the s t a t e . The United States Supreme Court decided t h a t point i n James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L. ed 155, 166, 173. In James, the p l a i n t i f f was a contractor domiciled i n Penn- sylva~xia. A s an independent contractor i t had four construction cdntracts with the federal government f o r the building of locks and dams i n the Kanawha River and Ohio River within the s t a t e of !&lest Virginia. West Virgi-nj.a had a stacute known a s the gross 8,dles and income tax law which provided f o r annual and privilege taxes on contractors dohg business i n the s t a t e of West Virginia. The tax was 2% of the gross income of the contractor within the scate. Such tax was i n addition t o a l l other s t a t e taxes. The I I c w r t was faced with t h i s problem: I s the tax invalid upon the ground t h a t j.t lays a d i r e c t burden upon the Federal ~overnment?" 1.o t h a t question the court answered: , I ;y -?- fb : ; the West Virginia t a x ; ; 2 does n o t i n t e r f e r e f-n any sul>stantial way with the performance of the federal functions and i s a valid exaction. 11 lhe 12oux-L ~11en went on t o point out t h a t the economic impact uptjn the federal government must be d i r e c t and substantial and t h a t the 2% gross tax was neither d i r e c t nor substantial, For 3 further discussion of t h i s rationale, see S i l a s Mason Co. v. S t a t e Tax Commission, 188 Wash. 98, 61 P.2d 1269. Following the reasoning of the United States Supreme Court, we firtd the tax involved here was not aimed a t nor does i t impede the federal government i n performing i t s functions. I f there is any burden on the federal government, it i s i n d i r e c t and n o t substantial. The tax i s valid. The judgment of the d i s t r i c t court i s affirmed, k s s o c a e J u s t i c e , I Chief J u s t i c e A s s c i a t e ~ u s t i c k s . i 1