Document: 455 U.S. 720 102 S.Ct. 1373 71 L.Ed.2d 580 UNITED STATES, Petitionerv.NEW MEXICO, et al. No. 80-702. Argued Dec. 8, 1981. Decided March 24, 1982. Syllabus Sandia Corporation and Zia Company have contracts with the Federal Government to manage certain Government-owned atomic laboratories located in New Mexico. Los Alamos Constructors, Inc., has a contract for construction repair work at one of laboratories. The use an "advanced funding" procedure meet contractor costs whereby is allowed pay creditors employees drafts drawn on special bank account which United States Treasury funds are deposited, so that only federal expended when meets its obligations. Mexico imposes gross receipts tax compensating those doing business within State. effect operates as sale goods services. imposed property acquired out-of-state transaction would been subject if it had occurred brought suit District Court, seeking declaratory judgment advanced not taxable contractors; vendors selling through contractors cannot be taxed by State; tax. Court granted summary Government. Appeals reversed, taking view Government-contractor relationships question did incorporate into structure make them "instrumentalities States" immune from taxes. Held: contractors, independent entities, protected Constitution's guarantee supremacy, hence state taxes question. Pp. 730-744. (a) immunity taxation conferred simply because States, or shoulders entire economic burden levy, falls earnings providing services And where involved, State levies private hands, or, indeed, paid funds. Tax appropriate levy itself, agency instrumentality closely connected two realistically viewed separate least insofar activity being concerned. A finding constitutional therefore requires something more than invocation traditional notions. 730-738. (b) With respect tax, termed "constituent parts" congruence professional interests between complete, contractors' relationship having created limited carefully defined purposes. Allowing apply such entities does offend notion supremacy. v. Boyd, 378 39, 84 1518, 12 713. For similar reasons must upheld applied received salaries internal costs. As sales facts purchases their own names presumably themselves liable vendors, informed party interest purchase, need obtain approval each all demonstrate substantial role making purchases, identity far complete. result, neither real nor symbolic sense "United itself." Kern-Limerick, Inc. Scurlock, 347 110, 74 403, 98 L.Ed. 546, distinguished. fact title passes directly vendor alone purchase long purchasing entity, purchaser, sufficiently distinct 738-743. 624 F.2d 111, 10 Cir., affirmed. George W. Jones, Chicago, Ill., petitioner, pro hac vice, leave Court. Daniel H. Friedman, Santa Fe, N.M., respondents. Justice BLACKMUN delivered opinion 1 We presented here recurring problem: what extent may impose conduct Government? 2 * A. 3 This case concerns contractual three States. agreements involved typical most respects management devised Atomic Energy Commission (AEC), now Department (DOE).1 Like many Government's undertakings, DOE generally provide plus fixed fee. But several ways unique species contract, designed facilitate long-term research development facilities. parties this acknowledge, complex intricate provisions virtually impossible describe standard terms. See App. 196-197; Hiestand & Florsheim, AEC Management Contract Concept, 29 B.J. 67 (1969) (Hiestand Florsheim). While general direction Government, vested autonomy operations procurement practices.2 4 first Corporation, was organized 1949 subsidiary Western Electric Company, manages Laboratories Albuquerque, N. M., engages exclusively federally sponsored research. It receives no fee under owns except $1,000 bonds constitute paid-in capital. guaranteed royalty-free, irrevocable licenses any communications-related discoveries inventions developed during course 34-35, company complete reimbursements salary outlays other expenditures. Id., 40-42.3 5 another Fe Industries, Since 1946, performed variety management, maintenance, related functions Scientific Laboratory, well annual performs work, none used performance activities conducted away force. 6 third (LACI), since 1953 Zia. LACI's facility. tangible personal makes purchases; procures needed equipment parent, like Zia, LACI 7 number significant features common. facility agreements, purchased 231a (Zia); id., 34 (Sandia).4 Similarly, bears risk loss procured contractors. submit voucher expenditures approval. 20 27 (LACI).5 give control over disposition contracts, contractor's procedures. Disputes resolved contracting official. 128-129 (Zia terms) 157-158 (Sandia terms). 8 On hand, place orders third-party suppliers names, identify buyers. 36-37 contract) 120 Indeed, acknowledged discovery Sandia, "may . 'independent contractor[s],' rather 'servant[s]' given 'function[s] under' contract[s] (e.g., directing details day-to-day hiring direct supervision employees)," 197, claim instrumentalities. 201; see Employment 385 355, 87 464, 17 414 (1966). disclaims responsibility torts committed employees, maintains against labor-related grievances. 116-117, n. (CA10 1980). 9 Finally, importantly, so-called Advanced funding, accounting device shortly after conclusion Manhattan Project, "up-to-date meaningful records controls property," "speed up reimbursement contractors." 204 (Fifth Semiannual Report (1949)). allows deposited.6 To put funding mechanism place, contractor, establish designated account, pursuant three-party contract. dispatches letter credit Reserve Bank favor available account. pays expenses drawing time executes payment amount sufficient cover draft. forwarded Bank. balance. 19-20, 84-90a, 109-113. result this, purchases. If fails excused properly incurred claims. 11 Prior July 1, 1977, refer "agents." date—some years commencement litigation—the were modified "acts agent [of Government] purposes," including disbursement "purchase, lease, acquisition" property. 50-51, 55-56, 59-60. recognize described "long-standing status authority" 50, 55, 59. Thus made clear authorized "pledge States," 52 56, declared "considers obligations incurred" accordance "from inception." (Sandia), 56 (Zia), 60 (LACI). At same time, however, denied intent "formally [to] designat[e] agents," 64, modification stated "create rights otherwise provided contract." 52, 57, 61. B exceptions, "[f]or privilege engaging business, excise equal four per cent [4%] person Mexico." N.M.Stat.Ann. § 72-16A-4 (Supp.1975).7 In effect, also equivalent using 72-16A-7. "transaction [New Mexico]." 72-16A-7(A)(2).8 enforcement imposing already taxed; collects percentage regardless purchased. Neither "receipts thereof," "use thereof." §§ 72-16A-12.1, 72-16A-12.2. 13 Without objection, year fees they argued constitutionally taxation. 1975 initiated Mexico, State's 11-12.9 14 judgment. Relying onKern-Limerick, 546 (1954), court determined crucial inquiry whether "procurement agents" answered affirmative, noting "maintains systems, disposal practices, method operational costs, contracts." F.Supp. 993, 997 (1978). That analysis led existing even prior 1977 modifications. Ibid. held correlative invalid LACI. 998. ruled do serve compensation receipts. 998-999. 15 Tenth Circuit reversed. 111 (1980). view, Court's decisions area "more concerned preserving delicate financial balance our co-existing sovereignties rigid adherence law terminology." 116. declared, "is means accountants eliminate major weaknesses government's bookkeeping practices." 119. meeting overhead funds, satisfying obligations, exercised dominion issuing obligees. claims concerned, found "responsibility inherent cost-type contracts," 119, 9; businesses act letters banks sureties, itself finances organizations—including local governments—in manner. 16 relied Court—federal like—failed impress Appeals. concluded relationship, whole, " 'so incorporat[e] [the contractors] government [make them] instrumentalities .' 118, quoting 48, 1524, 713 (1964). little consequence, court's "decisions fee, any, primarily consequences mind." F.2d, 120. amendments terms added nothing substance affect analysis. directed enter 121. sought certiorari, we writ consider seemingly intractable problems posed 450 909, 101 1346, 332 (1981). II 18 famous declaration "the power involves destroy," McCulloch Maryland, Wheat. 316, 431, 579 (1819), Chief Marshall announced doctrine he introduced become "much litigated often confused field," City Detroit, 355 466, 473, 78 474, 478, 424 (1958), marked beginning inconsistent excessively distinctions. 19 generalized notions supremacy invalidate Second gave broad scope power: declined "deprive resources originally possessed. extend citizens Maryland hold Bank], common description throughout State." Wheat., 436, 579. Not afterwards, Marshall, speaking disregarded dictum striking down income bonds, explaining fall "operation essential important objects created." Weston Council Charleston, Pet. 449, 467, 481 (1829). During following century took heart Weston's expansive immunity, invalidating, among others, Dobbins Commissioners Erie County, 435, 1022 (1842); derived leased Gillespie Oklahoma, 257 501, 42 171, 66 338 (1922); Panhandle Oil Co. Mississippi ex rel. Knox, 277 218, 48 451, 72 857 (1928).10 These decisions, said, increasingly divorced both foundations actual workings federalism," Graves York O'Keefe, 306 490, 59 595, 603, 83 927 (1939) (Frankfurter, J., concurring), James Dravo Contracting Co., 302 134, 58 208, 82 155 (1937), 5-4 vote, change course. Over dissent's justifiable objections "overrul[ing], sub silentio, precedents," 161, S.Ct., 221, Government: 21 '[I]t necessary cripple tax] extending exemption subjects application non-discriminatory laws, laid upon governmental instrumentality, there remote, influence exercise government.' 150, 216, Willcuts Bunn, 282 225, 51 125, 126, 75 304 (1931). 22 recent cases involving hewed Alabama King Boozer, 314 62 43, 86 (1941), overruling supra. Decisions supra, validated holding 23 Even post-James set entirely unwavering line. Allegheny 322 174, 64 908, 88 1209 (1944), invalidated included assessment value machinery party; later decision large part overruled County Fresno, 429 452, 462-463, 10, 97 699, 705, 50 683 (1977). Livingston 364 281, 80 1611, 1719 (1960), summarily aff'g 179 (EDSC 1959), without citation, approved invalidation contractor. Yet identical confining "extraordinary" facts. U.S., 45, 6, 1522. 24 fail speak voice relevance rules determining taximmunity Thus, find lacked "status 13, 47, Township Muskegon, 484, 486, 483, 485, 436 caveat "case might different contractor] could called 'servant' terms." (1954). flatly dependent 'upon nature agents, mode constitution, agents.' 154, Railroad Peniston, Wall. 5, 36, 787 (1873) (plurality opinion). rejected argument agents immune, stating States." 1524. 25 confusing precedents counsels return underlying principle. constant here, course, simple enough express: not, consistent Supremacy Clause, U.S.Const., Art. VI, cl. 2, lay "directly Mayo 319 441, 447, 63 1137, 1140, 1504 (1943). "[o]ne could, perhaps should, read M'Culloch principle Constitution prohibits taxing discriminatorily established instrumentality," First Agricultural Comm'n, 392 339, 350, 2173, 2179, 1138 (1968) (dissenting opinion), never questioned propriety absolute 160 years, gathered "a momentum authority reflects, detailed exposition considerations policy demanded system, certainly deep instinct considerations. ." Detroit Murray Corp., 489, 503-504, 458, 491, 441 (1958) (opinion Frankfurter, J.). 26 limits are, present purposes, rule itself. levy. import cost-plus irrelevant reimbursed expenditures, going tax: right free "does spell paying attributable who furnish supplies immunity." 9, 45. similarly irrelevant; immediately shipment seller. 47. levying entity goods, supra; services, Curry 14, (1941); situation "in connection commercial carried profit," activity." 44, 1521-22. funds; apparently arrangement here. 41, 1520. 28 What room for, then, circumstance: believe, comports principal purpose doctrine, forestalling "clashing sovereignty," 430, 579, preventing laying demands 504-505, 491-492 structure—along doctrine11—has evolved, command taken essentially importance, visible "consequence [federal] constitution declared." narrow approach accords competing imperatives, giving full range sovereign's authority. 599-600. notions: resist power, taxpayer actually "stand shoes." 503, 491 compelled exploring guarantee. Hughes' James, modern suggested impermissible "so intimately duty" 'a interference itself.' 157, 219, Metcalf Eddy Mitchell, 269 514, 524, 46 172, 174-75, 70 384 (1926). point settled field. There, tax-exempt agents. discussion suggestion out-of-hand, declaring "we believe are] assimilated constituent parts.' 1523, 485. continued: 30 "Should [Atomic Energy] intend build operate plant servants aware familiar it. chose conclude contractors], profit, incorporated thus enjoy 31 describing language: "virtually arm Government," 359-360, 467-468; "integral parts [a department]," "arms deemed functions," Standard Johnson, 316 481, 1168, 1170, 1611 (1942). 32 Granting "incorporated structure" can forestall, degree, some manipulation wooden formalism occasionally litigation—and proper allocation coexisting sovereignties. case, example, litigation obvious attempt strengthen nonliability. resists tasks hand—or, formally designating agents—because seeks tap expertise industry, subjecting burdensome regulations. 81; 182-184. Instead, earnestly argues entitled because, things, draw checks instead waiting reimbursement. Brief 32-35. stature rests technical considerations, "any functionary line changing few words 412-413 33 expanded beyond limits, Congress take decision, expressly particular form, programs. 221; Carson Roane-Anderson 342 232, 234, 257, 258, 96 (1952). wholly appropriate, political process "uniquely adapted accommodating demands" area. Massachusetts 435 444, 456, 1153, 1161, 55 403 (1978) 478. absent congressional action, emphasized States' clearest mandate." Michelin Tire Corp. Wages, 423 276, 293, 535, 544, 495 (1976). III remains these principles contracts. concedes legal incidence 25, disagree. 581 803, 806 1978). issue, considered so, 35 So case. issue Boyd relevant ones maintenance facilities, They materials, arrangement; passed owned "for behalf Government." 42, 4, 1520, 4. Tennessee differ way before us.12 36 noted above, close immune. difficulty upholding concluding '[t]he vital thing' 'using [their] activities.' 1522, benefit—something definition will true every contract—was irrelevant, remained pursuing "private ends," actions "commercial profit." 1521-1522. reason, "instrumentalities" 1524.13 37 factors activity, Boyd. privately corporations; "Government officials run ownership interest." 354, 2181 contrast fellow true, type agent, differences employee crucial. complete; supremacy.14 38 reasons, Once conceded disputed taxable. follows reaching "gross amounts 137, 211. event, incurring achieve ends significantly despite arguments, is, heart, efficient reimbursing contractors—something recognized contexts litigation. contract), 189 (Ninth (1951)), 191 (same). receipt coextensive easily become, 39 Mexico's presents problem. discussed above entity's beneficial involved. Unless whole parts," should seen falling States; furtherance enterprise. arguable serving associated lack sale—in sense—a though structure. 40 Such heavily relies. identified Government; sale. Equally important, price, required specific transaction. 120-121, 409-410. And, emphasized, statutory scheme envisioned 114, 406. Arkansas tax.15 elsewhere, Kern-Limerick "stands proposition 459-460, 7, 703. 41 think evident accepting representation Tr. Oral Arg. 42-45,16 nevertheless names—Sandia, fact, contractually obligated 37—and vendors. Vendors formal intention denominate advance purchase.17 but factor There final irony (1952), differed closer O.T.1951, Nos. 186 187, pp. 8-12. last sentence 9(b) Act Stat. 765—which barred "activities" statutorily exempted taxation, activities. 258. responded repealing 9(b), Pub.L. 262, 575, "place basis, agencies." S.Rep.No.694, 83d Cong., 1st Sess., (1953). endorsed "constitutional cost-plus-fixed-fee 2. 43 suggest repeal waives immunity; intended shielded "as interpreted courts." 3. worth remarking asking us unable Congress. out broader "[s]uch best qualified resolve." 44 Accordingly, 45 Affirmed. Responsibility Nation's nuclear program transferred Research Development Administration 1975, 1977. Reorganization 1974, 93-438, 1233, U.S.C. 5801 seq.; Exec. Order 11834, CFR 943 (1971-1975 Comp.); Organization Act, 95-91, 91 565, 7101 seq. (1976 ed., Supp.IV). secure production fissionable while industry's resources. 234-236, 258-59, (1952); 4-6. parent receive additional benefits Most obviously, develop acquire valuable information. Newman, Industry: An Experiment Hybridization, Yale L. J. 1263, 1320-1321 (1951). well: Sandia's furnishing products 120, retains furnishes company. 29. written advancing subcontractors $15,000, 31, entering transaction" $100,000. 36. whenever "advances finance recipient organization's activities," 205.2(a) Recipients include government." 205.3(a). initiation statutes amended, 7-9-1 7-9-81 rate lowered 3.5%, substantive change, pertinent made. consistency, conform pleadings primary references briefs, citations herein old codification. statute catchall provision, initially "but transaction, buyer's subsequent property, tax." 72-16A-7(A)(3) (Supp.1975). 1967, Bureau Revenue year, period January 1966, June 30, 1967. challenged assessment, Commissioner estopped assessing Revenue, N.M. 164, 531 P.2d 212 (1975). One judge, specially concurring, estoppel unavailable, imposed. 166, P.2d, 214. address validity cited Holmes dissent, joined Brandeis Stone, countered great Justice's observation well-known words: "The destroy sits." 223, 453. (1939), observed: web unreality spun Marshall's brushed stroke Mr. Holmes' pen." abandonment economic—as opposed legal—incidence relevant, becomes difficult maintain insulate effects discriminate substantially interfere 463, 11, (1977); Moses Lake Homes, Grant 365 744, 81 870, (1961); 495, 461, (1958). discriminating advances ground distinguishing ; contends "privilege-type tax," "compensating 15; Reply understand argument, attempting enforce analyzed distinction substance. "exercising privilege" "selling property" "us[ing] consum[ing] item article Tenn.Code Ann. 67-3003 (1963 Cum.Supp.), paid. 67-3003(b). Section 67-3004 specifically "unless previously subjected consideration precisely way. Both reach property; mechanisms ensure either hands nonimmune taxed, matter both, terms, (Supp.1975) (gross business"); 72-16A-7 (use property"). short, "practical operation effect." 493, 460. supported 1959). affirmed 16, entered agreement "contribution defense effort." 17. dollar operated "without hope gain," 17-18. experience gained unlikely benefit corporation. 23. acted alter ego Commission." 18. distinguished facts, factual determination 6. inapplicable reasons. LACI, cash obtains 723-724, suggestion—let below—that altruistic valid reaches cf. 494, 461; Colorado, 627 217 1980), aff'd nom. Jefferson 901, 1335, 325 (1981), use. corresponding accurate. See, e.g., Continental Illinois Nat. Trust Chicago 112 Ct.Cl. 563, 596 (1949) (no action Claims privity contract). light about significance aspects issue. contents review 20, 27; transactions $100,000 more.

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