United States v. Janette Lohman

___________
No. 93-3303
___________
United States of America, *
*
Plaintiff-Appellee, *
*
v. *
*
Janette Lohman, Director of * Appeal from the United States
Revenue, State of Missouri; * District Court for the Western
Missouri Department of Revenue; * District of Missouri.
State of Missouri, *
*
Defendants-Appellants,*
*
Kansas City Power & Light Co., *
*
Defendant. *
___________
Submitted: May 15, 1995
Filed: January 22, 1996
___________
Before McMILLIAN, BEAM and HANSEN, Circuit Judges.
___________
BEAM, Circuit Judge.
Missouri imposed sales tax on electricity used at a federal
facility, the Lake City Army Ammunition Plant. The United States
argues that the tax is a constitutionally prohibited direct tax on
the federal government. Alternatively, the United States contends
that the contractor-operator of the plant, Olin Corporation,
purchased the electricity from a vendor, Kansas City Power & Light
Company, and then resold it to the federal government. Since the
Missouri sales tax does not apply to such "sales for resale," the
United States contends that the sale of electricity was not
taxable.
Concluding that the "sale for resale" provision applied, the
district court1 granted the federal government's motion for summary
judgment. Missouri appeals. After reviewing the grant of summary
judgment de novo, we affirm because the tax is unconstitutional as
a direct tax on the United States.
I. BACKGROUND
The United States Department of the Army owns the Lake City
Army Ammunition Plant (the Plant), which manufactures small caliber
ammunition. In 1951, the federal government entered into a
contract, number DA-23-012 AV-76,2 with Kansas City Power & Light
Company (KCPL). Under the contract, KCPL "shall sell and deliver
to the Government and the Government shall purchase and receive
from [KCPL] . . . electrical service" at the Plant. Jt. App. at
653. The contract provides that it "shall continue in effect until
terminated at the option of the Government by the giving of not
less than 30 days advance written notice of the effective date of
termination." Id. Initially, KCPL submitted bills directly to the
United States and the United States sent treasury checks to pay for
the electricity. Title to the electricity passed directly from
KCPL to the United States.
In an effort to reduce paperwork and administrative hassle,
the federal government hired a contractor, Remington Arms, to run
the plant. Shortly thereafter, the government requested that KCPL
bill Remington Arms directly for all purchases. In 1962, the
United States and KCPL modified the 1951 contract with a
1
The Honorable Dean Whipple, United States District Judge for
the Western District of Missouri.
2
Several years later, the contract number was changed to
DAAA19-70-D-0001. No substantive change was effected. For
simplicity's sake, we will refer to the contract by the old number
or as "the 1951 contract."
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supplemental agreement.3 Remington Arms was not a party to this
agreement. The supplemental agreement provides that:
The following paragraph is hereby inserted in the [1951]
Contract:
1. SCOPE AND TERM OF CONTRACT
It is understood and agreed between the parties that
so long as the plant is operated for the Government by a
CPFF Contractor, currently Remington Arms Company, Inc.,
orders for service under this contract may be placed with
[KCPL] by such CPFF Contractor and will be honored to the
same extent as will orders placed by the Government, all
in accordance with the terms and conditions of this
contract. Furthermore, during such period of time [KCPL]
agrees that placing of such orders, and payment thereof
by such CPFF Contractor, will satisfy the requirements of
this contract concerning minimum monthly accounts to be
ordered and paid for by the Government.
Jt. App. at 674. Under the contract as modified, title to the
electricity still passes directly from KCPL to the government.
In 1985, Olin Corporation succeeded Remington Arms as the CPFF
Contractor for the plant.4 Olin began informing outside vendors of
the change in contractors. During this time, Olin issued a
purchase order on its own stationery, referencing the 1951
contract,5 and requesting continued electricity in accordance with
3
The 1951 contract has also been modified in other minor ways.
These modifications are not relevant here.
4
Olin's contract with the federal government provides that
Olin acts as an independent contractor and not as an agent of the
government.
5
Relying on an isolated typographical error, Missouri contends
that Olin's purchase order references not the 1951 contract but a
1947 contract that coincidentally bears the exact number as the
1951 contract. This assertion is entirely unsupported. We agree
with the district court that the 1951 contract is the contract at
issue.
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the contract's terms.6 The federal government has never provided
KCPL with the written notice required to formally terminate the
1951 contract.
Determining who actually purchases the Plant's electricity
first became an issue during an audit of KCPL by the Missouri
Department of Revenue. As the supplier of electricity, it is
KCPL's responsibility to submit remitted sales tax to the Missouri
Department of Revenue. The Department of Revenue, after concluding
that Olin purchases the plant's electricity, assessed back taxes
6
The typewritten portion of the purchase order provides in
relevant part:
PROVIDE ELECTRIC SERVICE TO THE LAKE CITY ARMY AMMUNITION
PLANT, INDEPENDENCE, MISSOURI, IN ACCORDANCE WITH
CONTRACT NO. DA-23-012 AV-76 . . . BETWEEN THE UNITED
STATES OF AMERICA AND THE KANSAS CITY POWER & LIGHT
COMPANY.
. . .
Effective November 3, 1985, Olin Corporation, Winchester
Group, became the new Contractor-Operator of the Lake
City Army Ammunition Plant under Prime Contract Number
DAAA09-85-Z-0006.
. . .
This Purchase Order covers electric services for the
period November 3, 1985 through November 2, 1986 and
shall automatically be extended for another year as long
as the Buyer is required to process and pay invoices
under Prime Contract Number DAAA09-85-Z-0006. This
purchase order shall continue in effect until terminated
at the option of the Buyer/U.S. Government by the giving
of not less than thirty (30) days advance written notice
of the effective date of termination.
The terms and conditions of this purchase order shall be
the same as Government Contract No. DA-23-012 AV-76 and
Purchase Order No. LCO 83843 [Remington Arms Company's
purchase order].
Jt. App. at 257-61.
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relating to the Plant for the period of January 1986 to September
1989. KCPL paid the taxes under protest and commenced state
administrative proceedings challenging the assessment. KCPL also
brought a lawsuit against Olin, demanding payment of the taxes.
The United States Government then brought this action
challenging the imposition of the sales tax. As previously
indicated, the district court determined that the "sales for
resale" provision applied and granted the government's motion for
summary judgment.
II. DISCUSSION
Missouri argues, among other things, that an intervening
decision of this circuit makes the relief granted by the district
court on the "sale for resale" issue improper. See United States
v. Lohman, 21 F.3d 844 (8th Cir. 1994). Rather than decide that
issue, we exercise our option to affirm the district court's
judgment on any grounds supported by the record. See Keller v.
Bass Pro Shops, Inc., 15 F.3d 122, 123 (8th Cir. 1994). In doing
so, our focus shifts to the federal government's argument that
assessing Missouri sales tax upon electricity sold to the plant is
an unconstitutional tax on the United States itself.
"[A] State may not, consistent with the Supremacy Clause, U.S.
Const. Art. VI, cl. 2, lay a tax `directly upon the United
States.'" United States v. New Mexico, 455 U.S. 720, 733 (1982)
(quoting Mayo v. United States, 319 U.S. 441, 447 (1943)). Under
current conceptions of federal immunity, this prohibition means
that "the States can never tax the United States directly but can
tax any private parties with whom it does business, even though the
financial burden falls on the United States, as long as the tax
does not discriminate against the United States or those with whom
it deals." South Carolina v. Baker, 485 U.S. 505, 523 (1988).
Taxes are considered to fall directly upon the federal government
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only if the legal incidence of the tax falls on the federal
government itself. See, e.g., United States v. County of Fresno,
429 U.S. 452, 459-460 n.7 (1977); New Mexico, 455 U.S. at 742.
Missouri contends that taxing the plant's electricity is not
a direct tax on the United States. First, it argues that the
Missouri tax statute places the legal incidence of Missouri's sales
tax on the seller, KCPL, and not the purchaser. Because it is
undisputed that the federal government is not the seller, Missouri
reasons that the sales tax cannot possibly be a tax on the
government. Alternatively, Missouri contends that even if the
statute places the legal incidence of the sales tax on the
purchaser, Olin purchases the electricity, not the federal
government.
A.
The terms of a statute control where the legal incidence of
the tax falls. "[A] sales tax which by its terms must be passed on
to the purchaser imposes the legal incidence of the tax upon the
purchaser." First Agricultural Nat'l Bank v. State Tax Comm'n, 392
U.S. 339, 347 (1968); accord, United States v. Tax Comm'n, 421 U.S.
599, 608 (1975). Missouri argues that the Missouri sales tax law
does not require passing the tax on to the purchaser.
The introductory portion of the Missouri sales tax statute
provides, "A tax is hereby levied and imposed upon all sellers for
the privilege of engaging in the business of selling tangible
personal property or rendering taxable service at retail in this
state." Mo. Rev. Stat. § 144.020.1.7 Other portions, however,
emphasize the purchaser's role, stating that the seller "shall
collect the tax from the purchaser," and making it a misdemeanor
7
Electricity is specifically included in this tax. See Mo.
Rev. Stat. § 144.020.1(3).
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for a purchaser to refuse to pay Missouri sales tax. Mo. Rev.
Stat. §§ 144.080.4; 144.060.
To interpret this potentially conflicting language, Missouri
urges us to adopt the position of the Missouri state courts, who
have repeatedly construed the sales tax as a tax upon the seller.
See, e.g., Centerre Bank v. Director of Revenue, 744 S.W.2d 754,
759 (Mo. 1988); Farm & Home Savings Assoc. v. Spradling, 538 S.W.2d
313, 316 (Mo. 1976). In doing so, Missouri courts have regarded
the legal duty of purchasers, under section 144.060, to pay the
sales tax, as essentially irrelevant. "The fact that the purchaser
bears the economic burden of the sales tax does not alter the
statutory scheme which imposes the sales tax on sellers." Centerre
Bank, 744 S.W.2d at 759.
In determining the existence of federal immunity, we are not
bound by the Missouri courts' interpretation of state tax law.
Diamond Nat'l Corp. v. State Bd. of Equalization, 425 U.S. 268
(1976) (per curiam). Nonetheless, if the state courts'
determination is "consistent with the statute's reasonable
interpretation it will be deemed conclusive." American Oil Co. v.
Neill, 380 U.S. 451, 455-56 (1965).
The Missouri courts' construction of the sales tax may be
appropriate, for instance, when Missouri is attempting to collect
the tax from noncompliant sellers. When evaluating the legal
incidence of the tax for immunity purposes, however, we find the
Missouri courts' construction inconsistent with the statutes'
reasonable interpretation. As noted, Missouri law provides that
the seller "shall collect from the purchaser" the amount of sales
tax due. Mo. Rev. Stat. § 144.080.4. The purchaser's failure to
pay the tax is a misdemeanor. Mo. Rev. Stat. §§ 144.060. Given
these provisions, and for the sole purpose of determining the
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existence of federal immunity, we find that the legal incidence of
the Missouri sales tax falls on the purchaser.8
Our conclusion is confirmed by the section which prohibits
sellers from "advertis[ing] or hold[ing] out or stat[ing] to the
public or to any customer directly or indirectly that the [sales]
tax . . . required to be collected by him, will be assumed or
absorbed by the [seller,] or that it will not be separately stated
and added to the selling price of the property sold or service
rendered, or if added, that it or any part thereof will be
refunded." Mo. Rev. Stat. § 144.080.5. This ban against public
display of a seller absorbing the tax suggests that Missouri
intended for the tax to fall upon the purchaser. See, e.g., First
Agricultural Nat'l Bank, 392 U.S. at 347-48 (construing a similar
provision in a Massachusetts statute to imply that the tax is on
the purchaser).
B.
Concluding that the Missouri statute places the legal
incidence of its sales tax upon the purchaser does not end our
inquiry. We must determine whether the federal government is the
purchaser of the electricity. If it is, the legal incidence of the
tax falls on the federal government and the tax is prohibited as a
direct tax on the United States.
The United States has been actively involved in obtaining
electricity. It negotiated future rates and chose the vendor for
the electricity, KCPL. It executed an indefinite delivery contract
8
Missouri's argument may also have little relevance because of
our ultimate conclusion that imposing the sales tax on the Plant's
electricity is unconstitutional as a direct tax on the United
States. As such, the sale of the electricity to the United States
is a tax-exempt transaction under Missouri law. See Mo. Rev. Stat.
§ 144.030.1.
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with KCPL in 1951. The plain language of the 1951 contract
provides that "the Government shall be liable for the minimum
monthly charge specified in this contract." Jt. App. at 653.
Although the 1951 contract has been modified several times, the
contract is still in existence. Conversely, Olin does not have a
direct contract with KCPL.9 At most, Olin serves as the federal
government's "paymaster," and has a contractual obligation to pay
for the electricity under its contract with the federal government.
Taken as a whole, these factors require the conclusion that the
federal government, and not Olin, is the purchaser of the Plant's
electricity.
Despite the federal government's involvement, Missouri
contends that Olin is the purchaser because Olin fills out the
paperwork and signs the checks. To support its argument, Missouri
relies on cases such as United States v. New Mexico, 455 U.S. 720
(1982), and Alabama v. King & Boozer, 314 U.S. 1 (1941). Those
cases do not require a denial of immunity here. In both cases, the
contractors made the purchases in their own names and had direct
contractual liability to the vendors. New Mexico, 455 U.S. at 743;
King & Boozer, 314 U.S. at 11-12. There, the federal government
did not have a separate contract with the vendor, but attempted to
obtain immunity based in part on its responsibilities under its
internal contract with the contractor. New Mexico, 455 U.S. at
724, 743; King & Boozer, 314 U.S. at 8, 10. Here, the federal
government has a direct contract with the vendor and the contractor
9
Missouri's contention that Olin's purchase order represents
a separate contract with KCPL is unsupported. The purchase order
does not purport to be a separate contract. It requests KCPL to
provide electric service to the Plant in accordance with the 1951
contract between the United States of America and KCPL. The third
page of the purchase order reiterates that the terms and conditions
of the purchase order shall be the same as the 1951 contract. For
these reasons, the purchase order is most properly considered to be
an administrative or procedural document.
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does not. Because of these differences in contractual obligations,
New Mexico and King & Boozer have little relevance.10
Although it is not controlling, our decision is supported by
the reasoning of our sister circuit in United States v. Kabeiseman,
970 F.2d 739 (10th Cir. 1992). The Kabeiseman court determined
that the United States was immune from Wyoming sales tax on diesel
fuel used by a contractor at a federally owned facility. Id. at
744. In Kabeiseman, the contractors told the federal government
how much fuel it needed, and then the federal government ordered
the fuel directly from a government-chosen vendor. Although title
passed directly to the federal government, the contractors accepted
delivery of the fuel, exercised substantial control over the use of
the fuel, and paid the bills directly to the vendor. In finding
the federal government immune from the state sales tax, the
Kabeiseman court relied primarily on the federal government's
intensive involvement with the vendor: The United States "placed
the orders for diesel fuel, as well as taking title thereto,
directly from the vendor." Id. at 743. The federal government's
involvement with KCPL is similarly intensive.11
10
Missouri also argues that granting the federal government
immunity here permits federal immunity to be acquired by the
"stroke of a pen." We are mindful of the Supreme Court's wariness
towards immunity that can be acquired without cost to the federal
government. See New Mexico, 455 U.S. at 737 (criticizing
government's technical argument that its contractors are entitled
to immunity "because, among other things, they draw checks directly
on federal funds, instead of waiting a time for reimbursement").
As we have previously indicated, however, the federal government's
involvement here surpasses technicalities: its own credit is on the
line.
11
Missouri argues that Kabeiseman is distinguishable because
the checks issued by the Kabeiseman contractor were drawn directly
on federal funds, rather than the reimbursement method used by
Olin. The Kabeiseman court did not rely on the funding mechanism,
however, and we do not consider the small funding difference to
suggest a different result here.
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Aside from its constitutional argument, Missouri provides two
reasons why we should consider Olin to be the purchaser of the
electricity. Neither reason is persuasive. First, Missouri
contends that the 1962 supplemental agreement discharged the
federal government's obligation. See supra page 3. We disagree.
The terms of the supplemental agreement do not unconditionally
discharge the federal government from its obligations. Instead,
the supplemental agreement merely permits actions by another party,
Olin, to satisfy the federal government's obligations. If Olin
fails to order or pay for electricity, the terms of the
supplemental agreement do not exempt the federal government from
liability.
Second, Missouri argues that because the federal government
conceded that it might suffer tax disadvantages after implementing
the supplemental agreement, it should not receive immunity from
taxation. The alleged concession involves the federal government's
admission that permitting contractors to deal directly with vendors
was a calculated risk.12 We do not consider the alleged concession
relevant in our determination of federal immunity. To do otherwise
transforms cautious planning by federal bureaucrats into an
invitation for states to rummage through the federal pocketbook.
12
The alleged concession is as follows:
It is the responsibility of the CPFF or other cost type
contractor to utilize [federal government] indefinite
delivery type contracts for any and all types of services
and supplies where the price, quality and terms obtained
are more advantageous than could be obtained otherwise.
In certain instances it is possible that the Government
will suffer tax disadvantages as a result of this revised
procedure. The procedure has been adopted with due
advertence to this fact on the basis that the overall
savings possible thereby will more than offset any
possible cost increase resulting from taxes.
Jt. App. at 1786.
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We have considered Missouri's other arguments and find them to
be without merit.
III. CONCLUSION
Under the present contractual arrangement, we conclude that
the United States Constitution prohibits Missouri from imposing
sales tax on electricity for the Lake City Army Ammunition Plant
because such a tax is a direct tax on the federal government. We
therefore affirm the judgment of the district court.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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