the governmental purpose, that the tax was in effect "laid on a transaction by which the United States secures the things desired for governmental purposes," so as to infringe the constitutional immunity, citing Panhandle Oil Co. v. Knox, 277 U.S. 218; Graves v. Texas Co., 298 U.S. 393. We granted certiorari, 314 U.S. 599, the question being one of public importance.

Congress has declined to pass legislation immunizing from state taxation contractors under "cost-plus" contracts for the construction of governmental projects. Consequently, the participants in the present transaction enjoy only such tax immunity as if afforded by the Constitution itself, and we are not now concerned with the extent and the appropriate exercise of the power of Congress to free such transactions from state taxation of individuals in such circumstances that the economic burden of the tax is passed on to the National Government. The Government, rightly we think, disclaims any contention that the Constitution, unaided by Congressional legislation, prohibits a tax exacted from the contractors merely because it is passed on economically, by the terms of the contract or otherwise, as a part of the construction cost to the Government. So far as such a non-discriminatory state tax upon the contractor enters into the cost of the organization within the same territory of two independent taxing sovereignties. The asserted right of the one to be free of taxation by the other does not spell immunity from paying the added costs, attributable to the taxation of those who furnish supplies to the Government and who have been granted no tax immunity. So far as a different view has prevailed, see Panhandle Oil Co. v. Knox, supra; Graves v. Texas Co., supra, we think it no longer tenable. See Metcalf & Eddy v. Mitchell, 269 U.S. 514; Trinityfarm Co. v. Grosjean, 291 U.S. 466; James v. Dravo Contracting Co., 302 U.S. 134, 160; Helvering v. Gerhardt, 304 U.S. 405, 416; Graves v. New York ex rel. O'Keefe, 306 U.S. 466.

The contention of the Government is that the tax is invalid because it is laid in such manner that, in the circumstances of this case, its legal incidence is on the Government rather than on the contractors, who ordered the lumber and paid for it but who, as the Government insists, have so acted for the Government as to place it in the role of a purchaser of the lumber. The argument runs: the Government was a purchaser of the lumber, and but for its immunity from suit and from taxation, the state applying its taxing statute could demand the tax from the Government just as from a private individual who have employed a contractor to do construction work upon a like cost-plus contract.

The soundness of this conclusion turns on the terms of the contract and the rights and obligations of the parties under it. The taxing statute, as the Alabama courts have held, makes the "purchaser' liable for the tax to the seller, who is required "to add to the sales price" the amount of the tax and collect it when the sales price is collected, whether the sale is for cash or on credit. 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 Alabama can speak with final authority. But it seems plain, as the Government concedes and as we assume for present purposes, that under the provisions of the statute the purchase of tangible goods who is subjected to the tax measured

by the sales price, is the person who orders and pays for them when the sale is for cash or who is legally obligated to pay for them if the sale is on credit. The Government's contention is that it has a constitutional immunity from state taxation on its purchases ad that this was sufficiently a Government purchase to come within the asserted immunity.

As the sale of the lumber by King and Boozer was not for cash, the precise question is whether the Government became obligated to pay for the lumber and so was the purchaser whom the statute taxes, but for the claimed immunity. By the cost-plus contract the contractors undertook to "furnish the labor, materials, tools, machinery, equipment, facilities, supplies not furnished by the Government, and services, and to do all things necessary for the completion of" the specified work. In consideration of this the Government undertook to pay a fixed fee to the contractors and to reimburse them for specified expenses including their expenditures for all supplies and materials and "state or local taxes***which the contractor may be required on account of his contract topay." The contract provided that the title to all materials and supplies for which the contractors were "entitled to be reimbursed" should vest in the Government "upon delivery at the site of the work or at an approved storage site and upon inspection and acceptance in writing by the Contracting Officer." The Government reserved the right to furnish any and all materials necessary for completion of the work, to pay freight charges directly to common carriers, and to pay directly to the persons concerned all sums due from the Contractor for labor, materials or other charges." Upon termination of the contract by the Government, it undertook to "assume and become liable for all obligations***that the Contractor may have theretofore in good faith undertaken or incurred in connection with said work and in accordance with the provisions of this contract.'

A section of the contract, designated as one of several "special requirements," stipulated that contractors should "reduce to writing every contract in excess of two thousand dollars ($2,000) made by him for the purpose of the work hereunder for services, materials, supplies * * *; insert therein a provision that such contract is assignable to the Government; make all such contracts in his own name, and not bind or purport to bind the Government or the Contracting Officer thereunder." While this section refers to contracts in excess of $2,000, we think all the provisions which we have mentioned, read together, plainly contemplate that the contractors were to purchase in their own names and on their own credit all the materials purchased should be delivered, inspected and accepted at the site.

The course of business followed in the purchase of the lumber conformed in every material respect to the contract. King and Boozer submitted to the contractors in. advance a proposal in writing to supply as ordered, at specified prices, all the lumber of certain description required for use in performing their contract with the Government. The contractors, after procuring approval by the contracting officer of the particular written order for lumber with which we are presently concerned, placed it with King and Boozer on January 17, 1941. It directed shipment to the Construction Quartermaster at the site "for account of" the contractors and stated "this purchase order does not bind, nor purport to bind, the United States Government or Government officers." King and Boozer

thereupon shipped the lumber ordered by the contractors by contract trucks to the site as directed, where it was used in performance of the contract. The sellers delivered to the contractors the invoice of the lumber, stating that it was "sold to the United States Construction Quartermaster % (for account of) the contractors." The invoice was then approved by the Construction Quartermaster for payment; the contractors paid King and Boozer by their check the amount of the invoice and were later reimbursed by the Government for the cost of the lumber.

We think, as the Supreme Court of Alabama held, that the legal effect of the transaction which we have detailed was to obligate the contractors to pay for the lumber. The lumber was sold and delivered on the order of the contractors, which stipulated that the Government should not be bound to pay for it. It was in fact paid for by the contractors, who were reimbursed by the Government pursuant to their contract with it. The contractors were thus purchasers of the lumber, within the meaning of the tax statute, and as such were subject to the tax. They were not relieved of the liability to pay the tax either because the contractors, in a loose and general sense, were acting for the Government in purchasing the lumber or, as the Alabama Supreme Court seems to have thought, because the economic burden of the tax imposed upon the purchaser would be shifted to the Government by reason of its contract to reimburse the contractors.

The Government, to support its thesis that it was the purchaser, insists that title to the lumber passed to the Government on shipment by the seller, and points to the very extensive control by the Government over all purchases made by the contractors. It emphasizes the fact that the contract reserves to Government officers the decision of whether to buy and what to buy; that purchases of materials of $500 or over could be made by the contractors only when approved in advance by the contracting officer; that the Government reserved the right to approve the price, to furnish the materials itself, if it so elected; and that in the case of the lumber presently involved, the Government inspected and approved the lumber before shipment. From these circumstances it concludes that the Government was the purchaser. The necessary corollary of its position is that the Government, if a purchaser within the taxing statute, became obligated to pay the purchase price.

But however extensively the Government may have reserved the right to rstrict or control the action of the contractors in other respects, neither the reservation nor the exercise of that power gave to the contractors the status of agents of the Government to enter into contracts or to pledge its credit. See United States v. Algoma Lumber Co., 305 U.S. 415, 421; United States v. Driscoll, 96 U.S. 421. It can hardly be said that the contractors were not free to obligate themselves for the purchase of material ordered. The contract contemplated that they should do so and that the Government should reimburse them for their expenditures. It is equally plain that they did not assume to bind the Government ot pay for the lumber by their order, approved by the Contracting Officer, which stipulated that it did not bind or purport to bind the Government. The circumstance that the title to the lumber passed to the Government on delivery does not obligate it to the contractor's vendor under a cost-plus-contract more than under a lump sum contract. Cf. James v. Dravo Contracting Co., supra; United States v. Dirscol, supra.

We cannot say that the contractors were not, or that the Government was, bound to pay the purchase price, or that the contractors were not the purchasers on whom the statute lays the tax. The added circumstance that they were bound by their contract to furnish the purchased material to the Government immunity than did the tax laid upon the contractor's gross rec receipts from the Government in James v. Dravo Contracting Co., supra. See Metcalf & Eddy v. Mitchell, supra. 523, 524; Trinityfarm Co. v. Grosjean, supra, 472; Helvering v. Gerhardt, supra, 416; Graves v. New York ex rel. O'Keefe, supra, 483.

UNITED STATES v. LIVINGSTON

179 F. Supp. 9 (E.D.S.C. 1959)

Aff'd., 364 U.S. 281 (1960)

Reversed.

HAYNSWORTH, Circuit Judge.

In this action by the United States and E.I. du Pont de Nemours and Company against the members of the South Carolina Tax Commission, the plaintiffs seek an injunction against the collection of South Carolina sales and use taxes upon the use of purchased materials at the Savannah River Project, a facility of the United States, producing, under the direction of du Pont and the supervision of the Atomic Energy Commission, nuclear and related materials.

The Savannah River Plant was designed and constructed, and is now operated by du Pont under a contract dated 30 September 1953, but effective as of 1 August 1950, as of which date the work had commenced.

There was early agreement between the Atomic Energy Commission and the South Carolina Tax Commission that purchases of materials and supplies for the Savannah River Plant were not subject to South Carolina sales or use taxes. The contract between the AEC and du Pont assumed such immunity from taxation on both constitutional and statutory grounds, and required du pont to inform AEC of any attempt to levy or collect such taxes and, if directed by AEC, to pay them under protest (presumably, by drawing upon the bank balances of the United States established for the purpose of enabling du Pont to pay expenses of the project) and to assign to AEC rights to have such taxes abated or refunded. The agreement of the South Carolina Tax Commission, however, was apparently founded upon the provisions of § 9(b) of the Atomic Energy Act of 1946 (60 Stat. 765), which specifically provided, in its last sentence:

"The Commission, and the property, activities, and income of the Commission, are hereby expressly exempted from taxation in any manner or form by any State, county, municipality, or any subdivision thereof."

When that sentence was repealed, the South Carolina Tax Commission took the position that, beginning 1 October 1953, du Pont would be required to pay sales or use taxes upon all such purchases. Subsequently the position of the Tax Commission was extended to include a claim of use tax upon delivery to the Savannah River Plant of materials purchased by the United States for the purpose of use at that plant.

At issue are South Carolina sales taxes upon the purchase from South Carolina vendors of supplies for the Savannah River Plant during the period 1 October 1953-20 March 1954, the tax amounting to approximately $52,000 and use taxes upon purchases from out-of-state vendors during the period 1 October 1953-31 March 1958, the tax amounting to approximately $1,700,000.

The doctrine of mutual immunity of state and of nation from taxation by the other, enunciated by Chief Justice Marshall in M'Culloch v. State f of Maryland, 4 Wheat. 316, 4 L.Ed. 579, has not lost vitality with age. If, at times, it has seemed that "the line between the taxable and the immune has been drawn by an unsteady hand," the basic principle that the United States, its property, its essential functions and activities are not subjects of taxation by the states has not been questioned in modern times.

The doctrine was born of the necessity of protection of the functions of each sovereignty, operating in the same territory, from a frustrating taxing power of the other. Since the principle requires immunity from the economic burden of the other's taxes, it is not surprising that in an earlier year when governments were small and taxes and economics less complex, a concentration upon the economic burden should have led to an extension of the doctrine to persons dealing with the governments. Taxation of salaries of government employees and of the activities of vendors to Government of goods and services created an economic burden readily perceived, if imperfectly measured. Carried to its extreme in modern society, however, the logical extension of the doctrine would be ridiculous. Economists may estimate the total tax increment in the cost of a complicated machine or of construction of a building, but an attempt to relieve a purchasing sovereign of the economic burden of all taxes, however remote and indirectly imposed, would not only be impossible of accomplishment, but would seriously disrupt the functions of each of the dual sovereignties. Confinement of the extension was difficult, ffor distinctions between imposts more or less remote and indirect frequently lacked substance. Furthermore, it was not easy to see why the obligation of a manufacturer to the state and community, whose protection and services he enjoyed, should vary with the fluctuations in the ratio of his sales to the United States to his total sales.

In a series of cases, beginning with James v. Dravo Contracting Company, 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155, the extension was withdrawn. There it was held that West Virginia might include in the measure of here gross receipts tax upon a contractor, receipts from the United States for work done in West Virginia. Washington's occupation tax measured by the gross income of a contractor engaged in the construction of Grand Coulee Dam was sustained in Silas Mason Company v. Tax Commission, 302 U.S. 186, 58 S.Ct. 233, 82 L.Ed. 187.