On Appeal from the District Court of the United States for the Southern District of West Virginia.
[302 U.S. 134, 136] Messrs. Clarence W. Meadows, Homer A. Holt, and W. Holt Wooddell, all of Charleston, W. Va., for appellants.
[302 U.S. 134, 137] Messrs. William S. Moorhead, of Pittsburgh, Pa., and W. Elliott Nefflen and W. Champan Revercomb, both of Charleston, W. Va., for appellee.
Mr. Stanley Reed, Sol. Gen., of Washington, D.C., for the United States as amicus curiae.
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. 1 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 [302 U.S. 134, 138] to restrain the collection of the tax. The case was heard by three judges ( 28 U.S.C. 380, 28 U.S.C.A. 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, 1 et seq., amended effective May 26, 1933. Acts 1933, 1st Ex.Sess., 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.' 2 Acts W.Va.1933, 1st Ex.Sess., c. 33, 2(e).
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 ex rel. Maxwell, 283 U.S. 123, 133 , 134 S., 51 S. Ct. 385, 388, 389; Shaffer v. [302 U.S. 134, 139] Carter, 252 U.S. 37, 57 , 40 S.Ct. 221, 227; Surplus Trading Company v. Cook, 281 U.S. 647 , 50 S.Ct. 455. The question has two aspects: (1) As to work alleged to have been done outside the exterior limits of West Virginia; and (2) as to work done within those limits but (a) in the bed of the rivers, (b) on property acquired by the federal government on the banks of the rivers, and (c) on property leased by respondent and used for the accommodation of his equipment.
1. A large part of respondent's work was performed at its plant at Pittsburgh. The stipulation of facts shows that respondent purchased outside the state of West Virginia materials used in the manufacture of the roller gates, lock gates, cranes, substructure racks and spur rims, structural steel, patterns, hoisting mechanism and equipment, under each of its contracts, and fabricated the same at its Pittsburgh plant. The roller gates and the appurtenant equipment were preassembled at respondent's shops at Pittsburgh, and were there inspected and tested by officers of the United States government. The materials and equipment fabricated at Pittsburgh were there stored until time for delivery, and the appropriate units as prepared for shipment were then transported by respondent to the designated sites in West Virginia and there installed. The United States knew at the time the contracts were made that the above- described work was to be performed at the plaintiff's main plant. The contracts provided for partial payments as the work progressed, and that all the material and work covered by the partial payments should thereupon become 'the sole property of the government.' Payments by the government were made from time to time accordingly.
It is clear that West Virginia had no jurisdiction to lay a tax upon respondent with respect to this work done in Pennsylvania. As to the material and equipment there fabricated, the business and activities of respond- [302 U.S. 134, 140] ent 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 Company 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 , 21 S.Ct. 48; United States v. Chandler-Dunbar Water Power Co., 229 U.S. 53, 61 , 62 S., 33 S.Ct. 667; Lewis Blue Point Oyster Co. v. Briggs, 229 U.S. 82, 88 , 33 S.Ct. 679, 680, Ann.Cas.1915A, 232), 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 , 14 S.Ct. 548; Port of Seattle v. Oregon-Washington R.R. Co., 255 U.S. 56, 63 , 41 S.Ct. 237, 239; Borax Consolidated v. Los Angeles, 296 U.S. 10, 15 , 16 S., 56 S.Ct. 23, 26. 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 S., 17 S.Ct. 578; Port of Seattle v. Oregon-Washington R.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 [302 U.S. 134, 141] right of the federal government (Gibson v. United States, supra, 166 U.S. 269 , at page 276, 17 S.Ct. 578) 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 1, section 8, clause 17, of the Federal Constitution, the United States acquired exclusive jurisdiction.