United States v. New Mexico, 455 U.S. 720 (1982)

United States v. New Mexico

No. 80-702

Argued December 8, 1981
Decided March 24, 1982
455 U.S. 720

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE TENTH CIRCUIT

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 Government contract for construction and repair work at one of the laboratories. The contracts use an "advanced funding" procedure to meet contractor costs whereby the contractor is allowed to pay creditors and employees with drafts drawn on a special bank account in which United States Treasury funds are deposited, so that only federal funds are expended when the contractor meets its obligations. New Mexico imposes a gross receipts tax and a compensating use tax on those doing business within the State. The gross receipts tax in effect operates as a tax on the sale of goods and services. The use tax is imposed on property acquired out-of-state in a transaction that would have been subject to the gross receipts tax if it had occurred within the State. The Government brought suit in Federal District Court, seeking a declaratory judgment that advanced funds are not taxable gross receipts to the contractors; that the receipts of vendors selling property to the Government through the contractors cannot be taxed by the State; and that the use of Government-owned property by the contractors is not subject to the- use tax. The District Court granted summary judgment for the Government. The Court of Appeals reversed, taking the view that the Government-contractor relationships in question did not so incorporate the contractors into the Government structure as to make them "instrumentalities of the United States" immune from the New Mexico taxes.

Held: The contractors, as independent taxable entities, are not protected by the Constitution’s guarantee of federal supremacy, and hence are subject to the state taxes in question. Pp. 730-744.

(a) Federal immunity from state taxation cannot be conferred simply because the tax has an effect on the United States, or because the Federal Government shoulders the entire economic burden of the levy, or because the tax falls on the earnings of a contractor providing services to the Government. And where a use tax is involved, immunity cannot be conferred simply because the State levies the tax on the use of federal property in private hands, or, indeed, simply because the tax is paid with Government funds. Tax immunity is appropriate only when the state levy falls on the United States itself, or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned. A finding of constitutional tax immunity therefore requires something more than the invocation of traditional agency notions. Pp. 730-738.

(b) With respect to the New Mexico use tax, the contractors cannot be termed "constituent parts" of the Federal Government. The congruence of professional interests between the contractors and the Government is not complete, the contractors’ relationship with the Government having been created for limited and carefully defined purposes. Allowing a State to apply use taxes to such entities does not offend the notion of federal supremacy. United Sates v. Boyd, 378 U.S. 39. For similar reasons, the New Mexico gross receipts tax must be upheld as applied to funds received by the contractors to meet salaries and internal costs. As to the tax on sales to the contractors, the facts that Sandia and Zia make purchases in their own names and presumably are themselves liable to the vendors, that the vendors are not informed that the Government is the only party with an independent interest in the purchase, and that the contractors need not obtain Government approval for each purchase, all demonstrate that the contractors have a substantial independent role in making purchases, and that the identity of interests between the Government and the contractors is far from complete. As a result, sales to Sandia and Zia are in neither a real nor a symbolic sense sales to the "United States itself." Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, distinguished. The fact that title passes directly from the vendor to the Government cannot alone make the transaction a purchase by the United States, so long as the purchasing entity, in its role as purchaser, is sufficiently distinct from the Government. Pp. 738-743.

624 F.2d 111, affirmed.

BLACKMUN, J., delivered the opinion for a unanimous Court.