Opinion
No. 34786.
January 26, 1942.
1. TAXATION.
Where contract for construction by corporation of ships for the Federal Government, provided that title to the ships and to all materials assembled for purpose of use in construction of the ships should immediately vest in the United States Maritime Commission, and at a time when the ships were partially constructed they were assessed by state taxing authorities, the title to the partially constructed ships was in the Commission on behalf of the Federal Government and under statute were exempt from state taxation (Code 1930, sec. 3108(b)).
2. UNITED STATES.
The provision of contract for construction of ships for Federal Government that the contractor shall pay all taxes lawfully assessed against the ships, materials, supplies and equipment used under the contract prior to delivery thereof to the United States Maritime Commission, contemplates that the contractor will free materials coming into the plant for purpose of going into the construction of the ships, from tax liens arising elsewhere, before they go into the construction, and the provision has no application where the ships and materials have been delivered to the Commission.
APPEAL from the circuit court of Jackson county, HON. L.C. CORBAN, Judge.
J.F. Galloway, of Gulfport, for appellant.
The next objection is to the effect that the property back assessed belonged to the United States Government on January 1, 1940, and was therefore exempt. This objection cannot be sustained for the reason that the facts do not bear out that contention. Appellee was the contractor under the usual cost-plus contract. He was the purchaser of the products and materials which went into the construction of the hull. The Maritime Commission, a government agency, advanced to appellee, as the work progressed, sums of money for the materials and labor actually incorporated in the hulls of the ships. The contract provided that in case of default by appellee the government could take possession of the hulls, and either sell them to the highest bidder, so as to recover the money advanced, or could construct the hull completely and charge the account of appellee with the amount it had cost the Maritime Commission to finish the ship. This condition created the situation which exists between mortgagor and mortgagee where a foreclosure has been determined upon. The Maritime Commission was a mere lienor, nothing more or less.
The Supreme Court of the United States, in the case of State of Alabama v. King Boozer, 62 S.Ct. 43, 86 L.Ed. ___, has already held that materials purchased under a contract, the same as involved here, are taxable by the authorities of the state. The contract between the Maritime Commission and appellee involved here specifically provided that "the contractor shall pay all United States, state, county and city, or other taxes, assessments or duties, lawfully assessed against the vessels, materials, supplies, or equipment, to be used under this contract, prior to delivery thereof to the Commission." Evidently the attorney for the Maritime Commission who drew this contract had in mind just what Chief Justice Stone announced in the case of State of Alabama v. King Boozer, supra, to the effect that Congress did not intend to exempt contractors doing business with the Government, under such contracts as are involved here, from any sort of taxes whatsoever.
And so it is submitted that this objection is without merit.
Ford Ford, of Pascagoula, and D.W. Strickland, of Birmingham, Alabama, for appellee.
We assume that there can be no dispute that the Maritime Commission is the Government itself. It was created by congressional act, shown in U.S.C.A. as Title 46, Section 1111A, and succeeded the old Shipping Board.
Property owned by the United States Government is specifically exempt under our taxation statutes — Subsection b of Section 3108 of the Mississippi Code of 1930.
It is manifest that the recent decision of the United States Supreme Court referred to by appellant in their brief is not in point, as it involved a question of sales tax on a contractor and not a question of ad valorem assessment of property belonging to the United States of America.
The appellee, a shipbuilding corporation, has its shipbuilding plant in this state in the City of Pascagoula, Jackson County. On the 1st day of January, 1940, it was and had been for some time engaged in building four ships for the Federal Government under contracts with the United States Maritime Commission, an arm of the Federal Government. The ships were being built under what is commonly known as cost-plus contracts, and for the building and completion of each the shipbuilding corporation was receive approximately $2,500,000. On the 1st of January, 1940, some of the ships were partially constructed. They consisted of hulls and parts assembled to go into their construction. The corporation had not made returns for state-county and municipal assessments for ad valorem taxes. The State Tax Collector, becoming aware that such had not been done, applied to and had the tax assessing officers of the county and municipality to assess the property. That was done. The assessment was for $27,720. (The municipal assessment is not involved here but is pending in the court below awaiting the result of this appeal.) The corporation made objections to the assessments before the board of supervisors, which were sustained and the assessments set aside. From that judgment of the board, the State Tax Collector appealed to the circuit court, in which court the action of the board of supervisors was affirmed. From that judgment, this appeal is prosecuted by the State Tax Collector. The cause was tried in the circuit court on the assessment made by the County Assessor, the proceedings before the board of supervisors and agreed facts, and a copy of the shipbuilding contracts involved and photographs showing hulls of the ships and property assembled to go into their building. The parts of the shipbuilding contract necessary to have in mind in considering the case are:
"Article 23: Title. The title to all materials, equipment, supplies, and all other property assembled at the Contractor's plant or elsewhere for the purpose of being used for the construction of the vessel as well as title to the vessel itself, on account of which payments are made shall immediately be vested in the Commission: Provided, however, that nothing herein contained shall be construed as a waiver by the Commission of its right to require the Contractor to replace, at Contractor's expense, unsatisfactory workmanship or materials as herein provided: Provided further, that the Contractor shall have an equity in any such material, equipment, supplies, and other property to the extent that it may not have been fully paid for by the Commission.
"Article 24: Taxes. The Contractor shall pay all United States, State, County, and City or other taxes, assessments or duties lawfully assessed against the vessel, materials, supplies or equipment to be used under this contract prior to delivery thereof to the Commission."
It will be observed that Article 23 provides that the title to all materials, equipment, supplies and other property assembled at the contractor's plant for the purpose of construction of the vessels, as well as title to the vessels themselves, shall immediately be vested in the Commission. That means, of course, vested in the Commission as the property of the Federal Government. That was the state of the title at the time the assessments were made.
The question is whether the state has the power to tax property belonging to the Federal Government. If a state statute denying such power was necessary, it is found in Division (b) of Section 3108, Code of 1930, which is in this language: "The following shall be exempt from taxation: . . . All property, real or personal belonging to the United States." The State Tax Collector, to sustain his contention, relies largely on the recent case of State of Alabama v. King Boozer, 62 S.Ct. 43, 86 L.Ed. ___. That case is not decisive of the question. It was a sales tax case. The Alabama Sales Tax Statute, Code 1940, Tit. 51, section 752 et seq., was there involved. King Boozer had a contract with the Federal Government to build an army camp in the State of Alabama. Under the law, they were liable for the sales tax on the materials purchased by them which went into the construction of the plant. This tax was considered as a part of the cost of the construction, and in that way became a part of the contract price which the Government agreed to pay. The question was whether or not thereby the sales tax became a tax on Federal property. The court held it was not. Here, we have a direct tax on Federal property. It is not a tax exacted of the contractor and by the latter paid and added to his contract price.
It will be observed that Article 24 of the contract provides that the shipbuilding corporation should pay all taxes, state-county, city and Federal, assessed against the ships, materials, supplies and equipment being used in their construction prior to their delivery to the Maritime Commission. That article of the contract has no application where the ships and materials have been delivered to the Maritime Commission, which, as shown above, was true in this case. Doubtless, the parties to the contract had in mind that some of the materials going into the construction of the ships might come into the plant subject to tax liens arising elsewhere. The contractor was due to free them from such taxes before they went into the construction.
Affirmed.