Kern-Limerick v. Scurlock/Dissent Douglas

, with whom and  join, dissenting.

The Arkansas Gross Receipts Tax is laid, as the majority opinion points out, on the gross receipts from all sales to any person. Ark. Stat., 1947, § 84-1903. The Act, however, spells out the incidence of the tax in detail. 'Sales of service and tangible personal property including materials, supplies and equipment made to contractors who use same in the performance of any contract are hereby declared to be sales to consumers or users and not sales for resale.' § 84-1903(e). "The term 'consumer' or 'user' means the person to whom the taxable sale is made All contractors are deemed to be consumers or users of all tangible personal property including materials, supplies and equipment used or consumed by them in performing any contract and the sales  of all such property to contractors are taxable sales within the meaning of this act." § 84-1902(i).

On the basis of this statutory language the Supreme Court of Arkansas held that the contractor was the "purchaser" of the tractors and that the sale involved was taxable. It seems clear that, as a matter of state law, the contractor was the "consumer" and "user" of these tractors, whether or not the contractor would have been a purchaser in the common-law view. Of course Arkansas could not impose its tax on the contractor in such a way as to discriminate against the United States. But that has not been attempted here.

What Arkansas has done is to define an independent contractor as the "consumer" or "purchaser" of tractors which the contractor uses. Obviously the contractor could be made liable for the tax, if its contract were with a private corporation rather than with the Federal Government. Arkansas has not tried to collect the tax from the United States, and it clearly could not do so. See Mayo v. United States, 319 U.S. 441. Arkansas has collected the tax from the 'purchaser' as that word is denied by the taxing statute. That is where the legal incidence of the tax falls. If the economic burden of the tax falls on the Federal Government, it falls there because the Government assumed it by contract, not because Arkansas placed it there. See Curry v. United States, 314 U.S. 14, 18.

The constitutional problem, of course, is to determine whether the legal incidence of a tax will be disregarded because the economic burden of the tax is on the United States. When Congress has not spoken, that determination must be made by the Court.

In Alabama v. King & Boozer, 314 U.S. 1, we allowed a sales tax to be exacted from an independent contractor acting for the Government on a cost-plus-a-fixed-fee basis. That tax was measured by the value of lumber used by the contractor in performing its contract. The Government exercised much the same sort of detailed control over that transaction as it did over the present one. The Court was careful to point out, in rejecting the claim of immunity, that "Who, in any particular transaction like the present, is a 'purchaser' within the meaning of the statute, is a question of state law on which only the Supreme Court of [the State] can speak with final authority." 314 U.S., at 9–10.

In that case, however, the Supreme Court of Alabama had held the transaction immune from the tax. There was no authoritative state determination of the legal incidence of the tax. The Court therefore assumed, 314 U.S., at 10, that the tax fell on the "purchaser" of the lumber in the common-law sense. The Court then went on to show, in answer to the same arguments which the Government has made in this case, that the United States was not a purchaser of the lumber even under common-law rules. It is this segment of the opinion which the Court now uses practically to overrule the decision itself. No doubt the United States was, under some of the language used in King & Boozer, the "purchaser" of these two tractors. But the United States is not the "purchaser" under the language used in the Arkansas statute, and it is the Arkansas statute that controls this case. What was important in King & Boozer was the substance of the transaction and the nature of the economic burden on the United States. On these two paramount issues it is impossible to distinguish the present case.

The concepts "title," "agency," and "obligation to pay" are no basis for this constitutional adjudication. Today they are used to permit any government functionary to draw the constitutional line by changing a few words in a contract. When the Congress deliberates over this problem, as it often has, it does not worry about the passing of title or other legal technicalities. The Congress debates whether as a matter of policy, including the need of the States for revenue, the holder of a cost-plus government contract should be immune from state taxation.

Alabama v. King & Boozer and the cases it followed were a long step forward from the time when a State's power to tax was nullified whenever the federal treasury was even remotely affected. We should not take this equally long step backwards. We should hold that, until the Congress says differently, the States are free to tax all sales to cost-plus government contractors. We should dispense with fruitless talk of agency, titles, and obligations to pay. The legal incidence of a tax is a matter for the States to determine. We should decide today, as we did more than a decade ago, that a tax on a contractor for goods he uses is constitutional, even though the economic burden falls on the Federal Government.