Court Opinion

ID: 9037417
Source: CourtListenerOpinion
Date Created: 2022-11-27 16:12:56.33754+00
Date Added: 2024-06-11T17:11:52.263065
License: Public Domain

Justice Blackmun,
with whom Justice White, Justice Marshall, and Justice Stevens join, dissenting.
The Court by its ruling in this case continues its recent tendency1 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.
HH
The Supremacy Clause, of course, is the foundation of McCulloch v. Maryland, 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 McCulloch, the Court “has never questioned the propriety of absolute federal immunity from state taxation.” United States v. New Mexico, 455 U. S. 720, 733 (1982). And “a State may not, consistent with the Supremacy Clause ... lay a tax ‘directly upon the United States, Mayo v. United States, 319 U. S. 441, 447 (1943).” Ibid. Federal immunity is “the un*548avoidable consequence of that supremacy which the constitution has declared.” McCulloch v. Maryland, 4 Wheat., at 436.
An established corollary of this basic principle is that “a tax may be invalid even though it does not fall directly on the United States if it operates so as to discriminate against the Government or those with whom it deals.” United States v. City of Detroit, 355 U. S. 466, 473 (1958). Accord, Memphis Bank & Trust Co. v. Garner, 459 U. S. 392 (1983). Specifically, it “remains true . . . that state taxes on contractors are constitutionally invalid if they discriminate against the Federal Government, or substantially interfere with its activities.” United States v. New Mexico, 455 U. S., at 735, n. 11. To be sure, “the economic burden on a federal function of a state tax imposed on those who deal with the Federal Government does not render the tax unconstitutional so long as the tax is imposed equally on the other similarly situated constituents of the State.” United States v. County of Fresno, 429 U. S. 452, 462 (1977).
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 McCulloch v. Maryland.
I — I h — i
I agree with the Court that Washington’s statutory provisions are best understood “in light of their history.” Ante, at 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 *549state enactments, the history here is clear and the purpose is specific.
A. Washington’s sales and use taxes came into being in 1935. 1935 Wash. Laws, ch. 180. Under that original legislation, all building contractors were treated in precisely the same manner. Sales of tangible personal property to the contractor were subject to the retail sales tax, and use of tangible personal property by the contractor was subjected to the use tax if it had not first been subjected to the sales tax. There were no exceptions to this pattern. It applied to contractors who dealt with the Federal and State Governments, with local governments, and with private parties.
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 to the contractor; instead, the taxable transaction became the sale by 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 to 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 to 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.
Clearly, this 1941 change in the statute was a knowing one. Washington accepted Federal Government immunity in exchange, as it were, for the substantial expansion of the sales *550tax base for all other construction. Thus, from 1941 through the first half of 1975, no sales or use taxes were levied on nonroad construction projects on real property owned by the Federal Government in the State of Washington. This was the result of a considered choice by the legislature generally to enlarge its tax base.
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.2 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.
The consequence of the 1975 change is that prime contractors performing construction work in the State of Washington were divided into two separate and distinct categories. The first consisted of those performing construction work for the United States; these contractors now were liable for sales and use taxes on material incorporated in their projects. *551The second consisted of prime contractors performing construction work for the State or a private person; these contractors were not liable for sales and use taxes with respect to material incorporated therein. Since the 1975 statutory-change, the State has required prime contractors on United States construction projects to pay state sales and use taxes as “consumers” of material. But similarly situated prime contractors for the State and for private persons are not so taxed.
Ill
It is easy and convenient to argue, as the Court does, ante, at 540-542, 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 Miller v. Milwaukee, 272 U. S. 713 (1927). There the Court struck down a Wisconsin income tax provision that, similarly, sought to circumvent the tax immunity of the United States. It held unconstitutional the State’s attempt to single out the income from corporation-owned Government bonds and to tax a fraction of corporate dividends equal to the fraction of the corporation’s income derived from Government bonds. It was the selection of such income for tax, to the exclusion of other income, that was the basis of the decision. Justice Holmes, in speaking for the Court, stated:
“A system of taxation that applied to stockholders of all corporations equally might tax ... the stockholders of a corporation that had invested all its property in United States bonds. But it would be a different matter if the state selected such corporations . . . and taxed their *552stockholders alone. It is a familiar principle that conduct which in usual situations the law protects may-become unlawful when part of a scheme to reach a prohibited result.” Id., at 714-715.
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., 361 U. S. 376, 383 (1960), when it pronounced that Miller v. Milwaukee 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.”3
Phillips 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:
“Here, Phillips is taxed ... on the full value of the real property which it leases from the Federal Government, while businesses with similar leases, using exempt property owned by the State and its political subdivisions, are not taxed on their leaseholds at all. The differences . . . seem too impalpable to warrant such a gross differentiation. It follows that [the statute], as applied in this case, discriminates unconstitutionally against the United States and its lessee.” 361 U. S., at 387.
*553The continuing validity of Phillips was recognized by a unanimous Court just a few weeks ago. Memphis Bank & Trust Co. v. Garner, 459 U. S., at 398. As the Court acknowledges, ante, at 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 Phillips are not so easily to be explained away.
The third case is Moses Lake Homes, Inc. v. Grant County, 365 U. S. 744 (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 Moses Lake Homes by saying merely that it “does not support the United States’ position any more than the holding in Phillips.” Ante, at 542-543, n. 7.
It seems to me that Miller, Phillips, and Moses Lake Homes 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 substan*554tial expansion of construction activity on behalf of the United States brought to the attention of the state legislature a prized target for increased state taxation. A statute singling out those who serve the United States was the result and equated with a tax on the United States itself.
The State asserts, and the Court appears to agree, ante, at 541-542 and 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 Moses Lake Homes 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.4 In *555any 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.” United States v. New Mexico, 455 U. S., at 733.
The Court’s reliance upon United States v. County of Fresno, 429 U. S. 452 (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. Id., at 464, n. 13.
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 Minneapolis Star & Tribune Co. v. Minnesota Comm’r of Revenue, also decided today, post, at 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 *556result 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.” Post, at 589; see post, at 600 (Rehnquist, J., dissenting). I had thought this measure of state taxation of the Federal Government absolutely improper as a constitutional matter. United States v. New Mexico, 455 U. S., at 733. Now the Court, in order to prevent abuse, will have to dissect and carefully measure every state system that imposes its tax burden upon the United States.
I respectfully dissent.

 See 1975 Wash. Laws, 1st Ex. Sess., ch. 90, and ch. 291, §5, and 1975 Wash. Laws, 2d Ex. Sess., ch. 1.

 Miller v. Milwaukee is not to be explained away, as the Court attempts to do, ante, at 542, n. 6, by intimating that later cases have cut back the holding in Miller. The quotation from Miller, set forth in the Court’s footnote, appears on the same page of the Phillips opinion as the Court’s more positive and specific statement of law I have quoted in the text.

 Additionally, the Court’s assumption, ante, at 541-542, n. 4, that a federal contractor will be able to pass the tax through to the Federal Gov*555ernment 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.