APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA.
Hughes, McReynolds, Brandeis, Sutherland, Butler, Stone, Roberts, Cardozo, Black
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
This case presents the question of the constitutional validity of a tax imposed by the State of West Virginia upon the gross receipts of respondent under contracts with the United States.
Respondent, The Dravo Contracting Company, is a Pennsylvania corporation engaged in the general contracting business, with its principal office and plant at Pittsburgh in that State, and is admitted to do business in the State of West Virginia. In the years 1932 and 1933, respondent entered into four contracts with the United States for the construction of locks and dams in the Kanawha River and locks in the Ohio River, both navigable streams.*fn1 The State Tax Commissioner assessed respondent for the years 1933 and 1934 in the sum of $135,761.51 (taxes and penalties) upon the gross amounts received from the United States under these contracts.
Respondent brought suit in the District Court of the United States for the Southern District of West Virginia
to restrain the collection of the tax. The case was heard by three judges (28 U. S. C. 380) and upon findings the court entered a final decree granting a permanent injunction. 16 F.Supp. 527. The case comes here on appeal.
The statute is known as the Gross Sales and Income Tax Law. Code of West Virginia 1931, c. 11, Art. 13, amended effective May 27, 1933. Acts of 1933, c. 33. It provides for "annual privilege taxes" on account of "business and other activities." The clause in question here is as follows:
"Upon every person engaging or continuing within this state in the business of contracting, the tax shall be equal to two per cent. of the gross income of the business."*fn2
The tax was in addition to other state taxes upon respondent, to wit, the license tax on foreign corporations (Code of West Virginia, c. 11, Art. 12, §§ 69, 71) and ad valorem taxes upon real and personal property of the contractor within the State.
The questions presented are (1) whether the State had territorial jurisdiction to impose the tax, and (2) whether the tax was invalid as laying a burden upon the operations of the Federal Government.
After hearing we directed reargument and requested the Attorney General of the United States to present the views of the Government upon the two questions above stated. Reargument has been had and the Government has been heard.
First. As to territorial jurisdiction. -- Unless the activities which are the subject of the tax were carried on within the territorial limits of West Virginia, the State had no jurisdiction to impose the tax. Hans Rees' Sons v. North Carolina, 283 U.S. 123, 133, 134; Shaffer v.
in West Virginia consisted of the installation at the respective sites within that State and an apportionment would in any event be necessary to limit the tax accordingly. Hans Rees' Sons v. North Carolina, supra.
2. As to work done within the exterior limits of West Virginia, the question is whether the United States has acquired exclusive jurisdiction over the respective sites. Wherever the United States has such jurisdiction the State would have no authority to lay the tax. Surplus Trading Co. v. Cook, supra.
(a) As to the beds of the Kanawha and Ohio rivers. The present question is not one of the paramount authority of the Federal Government to have the work performed for purposes within the federal province (Scranton v. Wheeler, 179 U.S. 141, 163; United States v. Chandler-Dunbar Co., 229 U.S. 53, 61, 62; Lewis Blue Point Oyster Co. v. Briggs, 229 U.S. 82, 88), or whether the tax lays a burden upon governmental operations; it is simply one of territorial jurisdiction.
The title to the beds of the rivers was in the State. Pollard v. Hagan, 3 How. 212, 230; Shively v. Bowlby, 152 U.S. 1, 26; Port of Seattle v. Oregon-Washington R. Co., 255 U.S. 56, 63; Borax Consolidated v. Los Angeles, 296 U.S. 10, 15, 16. It was subject to the power of Congress to use the lands under the streams "for any structure which the interest of navigation in its judgment may require." Lewis Blue Point Oyster Co. v. Briggs, supra. But, although burdened by that servitude, the State held the title. Gibson v. United States, 166 U.S. 269, 271, 272; Port of Seattle v. Oregon-Washington R. Co., supra; Borax Consolidated v. Los Angeles, supra. There does not appear to have been any acquisition by the United States of title to those lands, unless, as respondent urges, the occupation of the beds for the purpose of the improvements constituted an acquisition of title. But as the occupation was simply the exercise of the dominant
right of the Federal Government (Gibson v. United States, supra, p. 276) the servient title continued as before. No transfer of that title appears. The Solicitor General conceded in his argument at bar that the State of West Virginia retained its territorial jurisdiction over the river beds and we are of the opinion that this is the correct view.
(b) As to lands acquired by the United States by purchase or condemnation for the purposes of the improvements. Lands were thus acquired on the banks of the rivers from individual owners and the United States obtained title in fee simple. Respondent contends that by virtue of Article I, Section 8, Clause 17, of the Federal Constitution the United States acquired exclusive jurisdiction.*fn3
Clause 17 provides that Congress shall have power "to exercise exclusive legislation" over "all places purchased by the consent of the legislature of the State in which the same shall be, for the erection of forts, magazines, arsenals, dock-yards, and other needful buildings." "Exclusive legislation" is consistent only with exclusive jurisdiction. Surplus Trading Co. v. Cook, supra, p. 652. As we said in that case, it is not unusual for the United States to own within a State lands which are set apart and used for public purposes. Such ownership and use without more do not withdraw the lands from the jurisdiction of the State. The lands "remain part of her territory and within the operation of her laws, save that
the latter cannot affect the title of the United States or embarrass it in using the lands or interfere with its right of disposal." Id., p. 650. Clause 17 governs those cases where the United States acquires lands with the consent of the legislature of the State for the purposes there described. If lands are otherwise acquired, and jurisdiction is ceded by the State to the United States, the terms of the cession, to the extent that they may lawfully be prescribed, that is, consistently with the carrying out of the purpose of the acquisition, determine the extent of the federal jurisdiction. Fort Leavenworth R. Co. v. Lowe, 114 U.S. 527, 538, 539; Palmer v. Barrett, 162 U.S. 399, 402, 403; Arlington Hotel Co. v. Fant, 278 U.S. 439, 451; United States v. Unzeuta, 281 U.S. 138, 142; Surplus Trading Co. v. Cook, supra.
Are the locks and dams in the instant case "needful buildings" within the purview of Clause 17? The State contends that they are not. If the clause were construed according to the rule of ejusdem generis, it could be plausibly contended that "needful buildings" are those of the same sort as forts, magazines, arsenals and dockyards, that is, structures for military purposes. And it may be that the thought of such "strongholds" was uppermost in the minds of the framers. Elliot's Debates, Vol. 5, pp. 130, 440, 511; Cf. Story on the Constitution, Vol. 2, § 1224. But such a narrow construction has been found not to be absolutely required and to be unsupported by sound reason in view of the nature and functions of the national government which the Constitution established.
In Sharon v. Hill, 24 Fed. 726, 730, 731, Justice Field (sitting with Judge Sawyer) considered the provision to be applicable to a court building and custom house on land which had been purchased with the consent of the State. In Battle v. United States, 209 U.S. 36, 37, we held that "post offices are among the 'other needful
buildings'" within Clause 17. See, also, United States v. Wurtzbarger, 276 Fed. 753, 755; Arlington Hotel v. Fant, supra. Locks and dams for the improvement of navigation, which are as clearly within the federal authority as post offices, have been regarded as "needful buildings." United States v. Tucker, 122 Fed. 518, 522. We take that view. We construe the phrase "other needful buildings" as embracing whatever structures are found to be necessary in the performance of the functions of the Federal Government.
The legislature of West Virginia by general statute had given its consent to the acquisition by the United States, but questions are presented as to the construction and effect of the consent. The provision is found in § 3 of Chapter 1, Article 1, of the Code of West Virginia of 1931. The full text is set out in the margin.*fn4 By the first paragraph the consent of the State is given "to the
acquisition by the United States, or under its authority, by purchase, lease, condemnation, or otherwise, of any land acquired, or to be acquired in this State by the United States, from any individual, body politic or corporate, for sites for . . . locks, dams, . . . or any needful buildings or structures or proving grounds, or works for the improvement of the navigation of any watercourse . . . or for any other purpose for which the same may be needed or required by the government of the United States." By the second paragraph provision is made for gifts by municipalities to the United States of land for any of the purposes described in the first paragraph. The third paragraph cedes to the United States "concurrent jurisdiction with this State in and over any land so acquired . . . for all purposes." The jurisdiction so ceded is to continue only during the ownership of the United States and is to cease if the United States
fails for five consecutive years to use any such land for the purposes of the grant.
By a further provision in § 4*fn5 the State reserves the right to execute process within the limits of the land acquired "and such other jurisdiction and authority over the same as is not inconsistent with the jurisdiction ceded to the United States by virtue of such acquisition."
The contention is made that the third paragraph of § 3 as to "concurrent jurisdiction" was not in the Code of 1923, but was a later addition (1931), and should not be taken as qualifying the first paragraph. But the third paragraph was added before the acquisition here in question and "any land so acquired" manifestly refers to the acquisitions previously described which expressly embraced all such acquisitions in the future. The suggestion that the third paragraph applies only to the lands given by municipalities to the United States under the second paragraph is without force. The third paragraph appears to have been taken from the provision, in the same language, of § 19 of the Code of Virginia of 1919 which was not qualified by any intervening provision as to municipalities. See Code of West Virginia, 1931, c. 1, Art. 1, § 3, Revisers' Note. The revisers say it was added to "make more definite the provisions as to jurisdiction." Id. We are not referred to any decision of the Supreme Court of West Virginia construing this paragraph.
Reference is also made to the provision of § 4 as to service of process. This is said to be unnecessary if only concurrent jurisdiction is granted. But this provision
was a part of the former statute (1923) and cannot be taken as derogating from the force of the explicit amendment by the later addition in the third paragraph of the present § 3. And apparently to prevent misunderstanding, there was an amendment at the same time of the provision now in § 4 by the addition of the last clause*fn6 in order to make the reservation of the State's jurisdiction "more comprehensive." Code of West Virginia, 1931, c. 1, Art. 1, § 4, Revisers' Note.
The third paragraph of § 3 carefully defines the jurisdiction ceded by the State and there is no permissible construction which would ignore this definite expression of intention in considering the effect upon jurisdiction of the consent given by the first paragraph.
But it is urged that if the paragraph be construed as seeking to qualify the consent of the State, it must be treated as inoperative. That is, that the State cannot qualify its consent, which must be taken as carrying with it exclusive jurisdiction by virtue of Clause 17. The point was suggested by Justice Story in United States v. Cornell, Fed. Cas. No. 14,867; 2 Mason 60, 65, 66, but the construction placed upon the consent in that case made decision of the point unnecessary. There the place (Fort Adams in Newport Harbor) had been purchased with the consent of the State, to which was added a reservation for the service of civil and criminal process. Justice Story held that such a reservation was not incompatible with a cession of exclusive jurisdiction to the United States, as the reservation operated "only as a condition" and "as an agreement of the new sovereign to permit its free exercise as quoad hoc his own process." Reservations of that sort were found to be frequent in grants made by the States to the United States in order to avoid the granted places being made a sanctuary for fugitives from justice.
Story on the Constitution, Vol. 2, § 1225. Reference is made to statements in the general discussion in the opinion in Fort Leavenworth R. Co. v. Lowe, supra, but these are not decisive of the present question. The decision in that case was that the State retained its jurisdiction to tax the property of a railroad company within the Fort Leavenworth Military Reservation, as federal jurisdiction had not been reserved when Kansas was admitted as a State and, when the State subsequently ceded jurisdiction to the United States, there was saved to the State the right "to tax railroad, bridge, and other corporations, their franchises and property, on said Reservation." The terms of the cession in this respect governed the extent of the federal jurisdiction. See Surplus Trading Co. v. Cook, supra. There are obiter dicta in other cases but the point now raised does not appear to have been definitely determined.
It is not questioned that the State may refuse its consent and retain jurisdiction consistent with the governmental purposes for which the property was acquired. The right of eminent domain inheres in the Federal Government by virtue of its sovereignty and thus it may, regardless of the wishes either of the owners or of the States, acquire the lands which it needs within their borders. Kohl v. United States, 91 U.S. 367, 371, 372. In that event, as in cases of acquisition by purchase without consent of the State, jurisdiction is dependent upon cession by the State and the State may qualify its cession by reservations not inconsistent with the governmental uses. Story on the Constitution, Vol. 2, § 1227; Kohl v. United States, supra, p. 374; Fort Leavenworth R. Co. v. Lowe, supra; Surplus Trading Co. v. Cook, supra; United States v. Unzeuta, supra. The result to the Federal Government is the same whether consent is refused and cession is qualified by a reservation of concurrent jurisdiction, or consent to the acquisition is granted with a like
qualification. As the Solicitor General has pointed out, a transfer of legislative jurisdiction carries with it not only benefits but obligations, and it may be highly desirable, in the interest both of the national government and of the State, that the latter should not be entirely ousted of its jurisdiction. The possible importance of reserving to the State jurisdiction for local purposes which involve no interference with the performance of governmental functions is becoming more and more clear as the activities of the Government expand and large areas within the States are acquired. There appears to be no reason why the United States should be compelled to accept exclusive jurisdiction or the State be compelled to grant it in giving its consent to purchases.
Normally, where governmental consent is essential, the consent may be granted upon terms appropriate to the subject and transgressing no constitutional limitation. Thus, as a State may not be sued without its consent and "permission is altogether voluntary," it follows "that it may prescribe the terms and conditions on which it consents to be sued." Beers v. Arkansas, 20 How. 527, 529; Smith v. Reeves, 178 U.S. 436, 441, 442. Treaties of the United States are to be made with the advice and consent of the Senate, but it is familiar practice for the Senate to accompany the exercise of this authority with reservations. Hyde, International Law, Vol. 2, § 519. The Constitution provides that no State without the consent of Congress shall enter into a compact with another State. It can hardly be doubted that in giving consent Congress may impose conditions. See Arizona v. California, 292 U.S. 341, 345.
Clause 17 contains no express stipulation that the consent of the State must be without reservations. We think that such a stipulation should not be implied. We are unable to reconcile such an implication with the freedom of the State and its admitted authority to refuse
or qualify cessions of jurisdiction when purchases have been made without consent or property has been acquired by condemnation. In the present case the reservation by West Virginia of concurrent jurisdiction did not operate to deprive the United States of the enjoyment of the property for the purposes for which it was acquired, and we are of the opinion that the reservation was applicable and effective.
(c) As to property leased by respondent and used for the accommodation of its equipment. There can be no question as to the jurisdiction of the State over this area.
We conclude that, so far as territorial jurisdiction is concerned, the State had authority to lay the tax with respect to the respondent's activities carried on at the respective dam sites.
Second. Is the tax invalid upon the ground that it lays a direct burden upon the Federal Government? The Solicitor General speaking for the Government supports the contention of the State that the tax is valid. Respondent urges the contrary.
The tax is not laid upon the Government, its property or officers. Dobbins v. Commissioners, 16 Pet. 435, 449, 450.
The tax is not laid upon an instrumentality of the Government. McCulloch v. Maryland, 4 Wheat. 316; Osborn v. Bank of the United States, 9 Wheat. 738; Gillespie v. Oklahoma, 257 U.S. 501; Federal Land Bank v. Crosland, 261 U.S. 374; Clallam County v. United States, 263 U.S. 341; New York ex rel. Rogers v. Graves, 299 U.S. 401. Respondent is an independent contractor. The tax is non-discriminatory.
The tax is not laid upon the contract of the Government. Osborn v. Bank of the United States, supra, p. 867; Weston v. Charleston, 2 Pet. 449, 468, 475; Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 581, 582, 586; Telegraph Company v. Texas, 105 U.S. 460, 464, 466;
post roads and requiring in return that government messages have priority over all other business and be transmitted at rates fixed annually by the Postmaster General. The Court considered that the Company had thus become an agent of the Government for the transmission of messages on public business. See to the same effect Leloup v. Port of Mobile, supra. The same point was taken in Williams v. Talladega, supra, involving a local license fee applicable to the same Telegraph Company. The Court said that the tax was laid upon "the privilege of carrying on a business a part of which is that of a governmental agency constituted under a law of the United States and engaged in an essential part of the public business -- communication between the officers and departments of the Federal Government." The emphasis put in these cases upon the effect of the acceptance of the obligation of the Act of Congress shows that they cannot be regarded as sustaining the broad claim of immunity here advanced.
In Panhandle Oil Co. v. Mississippi ex rel. Knox, supra, and Indian Motocycle Co. v. United States, supra, the taxes were held to be invalid as laid on the sales to the respective governments, the one being a state tax on a sale to the United States, and the other a federal tax on the sale to a municipal corporation of Massachusetts. A similar result was reached in Graves v. Texas Company, supra. These cases have been distinguished and must be deemed to be limited to their particular facts. Thus, in Wheeler Lumber Co. v. United States, 281 U.S. 572, 579, the federal tax on transportation as applied to lumber which the vendor had engaged to sell to a county for public bridges and to deliver f. o. b. at the place of destination at a stated price, was held to be laid not on the sale but on the transportation. Although the transportation was with a view to a definite sale, it was held to be not part of the sale but preliminary to it and
"wholly the vendor's affair." In Liggett & Myers Co. v. United States, 299 U.S. 383, 386, the federal tax as applied to tobacco purchased by a State for use in a state hospital was sustained as a tax upon the manufacture of the tobacco and not upon the sale. Hence, the Court said, "the effect upon the purchaser was indirect and imposed no prohibited burden."
In Alward v. Johnson, 282 U.S. 509, 514, the Court sustained a state tax upon the gross receipts of an independent contractor carrying the mails. The taxpayer operated an automotive stage line. Two-thirds of his gross receipts, upon the whole of which he was taxed, were derived from carriage of United States mails and the remainder from carriage of passengers and freight. The Court found that the property used in earning these receipts was devoted chiefly to carrying the mails and that without his contract with the Government the stage line could not be operated profitably. In upholding the tax upon his gross receipts we distinguished Panhandle Oil Co. v. Mississippi ex rel. Knox, supra, saying: "There was no tax upon the contract for such carriage; the burden laid upon the property employed affected operations of the Federal Government only remotely . . . The facts in Panhandle Oil Co. v. Mississippi ex rel. ...