Petition for Writ of Certiorari — State Commission of Revenue & Taxation v. General Motors Corp.

Supreme Court brief1958

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SEVP COMMISSION OF REVENUE AND TAXA.

HON OF THE STATE OF KANSAS. Petitioner,

GENERAL MOTORS CORPORATION aud THE

UNTTED STATES OF AMERICA. Respondents.

. fal

PETITION FOR A WRIT OF CERTIORARE TO

* THE SUPREME COURT OF KANSAS AND

APPENDICES

Cavnencr J. Manone.

- Chict Attornes :

State Office Building, .

va Tope thal Kauss,

. J VursnG Piitas

Speck il ¢ onusel,

\rhanyas City Kansas,

pe DAN I BAHL AD

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° St, te Olice Buil lis 1 2

‘Teopekal Katisas

Vilormens, for Petitioners

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Wa th

PETITION FoR A Writ oF CERTIORARI TO THE SUPREME COURT OF |

INDEX

_TABLE.OF CONTENTS —

THE STATE OF KANSAS -

Crrations To Oprnions BELow

JunispICTION ° :

QuesgoNns PRESENTED

STATUTES INVOLVED,

STATEMENT |

REASONS FOR GRANTING THE Writ: :

This court may assume jurisdiction of this case because the .

Kansas Supreme Court's decision construing the Kansas

Compensating Tax: Statutes necessarily involved the de-

termination of the rights,and duties flowing from a con-

tract between the General Motors Corporation’ and the

United States Government

This case should finally be decided by this court and ie no

other, since the United States Government is the real party ©

in interest .

This case should be decided by this court and no other

because the decision of the Supreme Court of Kansas, if

allowed to stand, will impede the functions of this and

othf®r states in raising the revenue needed to maintain the

federal system of government

This case should be decided by this court and by no other

since the decision, if allowed to stand, is contrary to the

declared policy of the United States Government and is in

conflict with the recent decisions of this court

.ConcLusion

- 16

TABLE OF CITATIONS

Abie State-Bank v. Bryan, 282 U.S S. 765, 773. 75 L. ed. 690, 701,

Alabama v. King & Boozer, 314 U. §. 1, 86 L. ed. 3, 62 S.C. 43

Aveo Manufacturing C ees my v. Connelly, 1. 45 C ‘onn. 161. 140

A. 2d 47 Dggso

Broad River Power Company v. South € ‘arolina, 281 U. S. 537,

0, 74 Led. 1023, 1029 ;

Creswill v. Grand Lodge of K. & P., 225 U. S. 246, 261, 56 L. ed.

108, WL,

City of Detroit *v. Murry” Corporation, 355-6 459, Ras

aa = Ta ee —_—_

Curry ated States, 314 U. S. 14. ‘S61 . ed. 9; 62S. C. 48

Enterprise Irrigation District v. Farmers’ Mutual Canal Coin-

pany, 243 U. S$. 157, 61 L. ed. 644 :

Fisbe v. Kansas, 274 U. S. 380, 385, 386,71 L. ed, 1108, 111

James v. Dravo Contracting C ompany, 302 U. S. 134, 82 L.

ed. 155, 58 S. C. 208 :

S. R. A. v. Minnesota, 327-U. §. 558, 564, 90 L. ed. 851, 857

s Tax Commission of Utah v. Van Lott, 306 U.S: SH, $3

L. ed. 950

Union P. R. Company | v. Public Service Commission, 248

U.S. 67, 69, 70, 63 L. ed. 131, 132, 133 | one

United States v. Allegheny County, 322 U. S. 174, 183, 88 L. ed.

1209, 1217

United States v. City of Detroit, 335 U. S. 466, 2 L. ed. 2d 424.

United States v. Township of Muskegon, 355 U. S. 454, 2 L. ed.

2d 436

Ward'v. Love Gounty, 253 U. S. 17, 22, 64 L. ed. 751, 758

STATUTES -

Article I, Section 8. Clauses 3 and 18, Constitution of the United

- States

Article IV, Séction 3, Clause 2

Fourte vnlh % Amendment: Constitution of the United States

28 U.S.G. A. 1257°(3) \

Chapter 79, Article 37, General Statutes -of aetna 1949, as

ame nded

a INDEX OF APPENDICES

rh APPENDIX A

Opinion of the Supreme Cust of the State of Kansas “20

| APPENDIX B |

State: tory Provisions Invoived | 305

Article 1. Section.S, Clause 3, Constitution of the Unite ss State Ss,

Article 1. Section 8, Clause 18, Constitution of the Unite id States,”

Article iV. Section 3.-Clause 2, Constitution of the United

States’ . \ ‘

Fourteenth ae aie nt * the Constitutian of the United

States : B

~ APPENDIX C

Taxpayer's ‘Notice of Appéal

APPENDIX D ;

Journal Entry of Judgment, District Court of - Wyandotte

County, Kansas:

APPENDIX y . *

Order of the State C ommission oi Revenue and Taxation

Proceedings Before the State Commission of Revenue and

Taxation .

31°

44°

Aa the Supreme. Gout

of the — secupaua

October Term, 1958

: No, wee ; ay.

a ' ,

STATE COMMISSION’ OF REVENUE. AND TAXA-,

‘TION OF THE STATE OF KANSAS, ger

‘ Us. . mY

GENERAL MOTORS CORPORATION: And THE

UNITED STATES OF AMERICA, Respondents.

single, FOR A WRIT OF CERTIORARI TO’ THE

. SUPREME COURT OF THE STATE OF KANSAS

Petitioner prays that a writ of certiorari issue to review |

the judgment of the Supreme Court of Kansas, entere ‘d in

the above entitled case on January 25, 1958.

| CITATIONS TO OPINIONS BELOW

The — m of the Supreme Court of the State of Kan-

sas is re ported in 182 Kan. 237 and in 320 P. 2d 807.- It is

printed i in Appendix A hereto, infra, page : 20.

t) a

JURISDICTION

es judgment_ of the Sameera Court of Kansas was

entered on January 25, 1958. Thereupon, the. petitione r

filed a motion for rehearing and the same was orally argued

‘efore said court. On June. 16, 1958, the Supreme Court |

of the State of Kansas denied the relief sought by the mo-

tion for rehearing. ee | ‘ .

The. jurisdiction of. the court_ is invoked under 28°;

U.S.C. A., 1257 (3) since the validity of the state statute

is drawn in’ question on the ground of its being repugnant

to the Constitution of the United States, in particular,

article 1, section 8, clauses 3 and 18; article 4, section 3,

clause 2; and to the 14th amendmet \p endix B). and

‘since a title, right, privilege and immunity?is specially set

up and-¢laimed under the. Constitution, statutes, and com-

me mission held agd authority exercised under, the United

States. *

aw i

wee

QUESTIONS PRESENTED

Whether the Supreme Court of Geen holding that

General Motors Corporation's transactions* were npt sub-

Acct to the Kansas Use Tax Act, is in ‘direct conflict with

the decisions of this court involving similar Wansactions?

ca ioe eae

sa oe ae

_W hether the ‘Gage Court of Kansas’s- constriction

of the contract between the General Motors Corporation:

and the United States Government, that under said con-

tract title to the various items of tangible personal property

purchased by General Motors passed to the United States

Government outside ‘Maborders of the State of Kansas, is

in conflict with the construction placed upon similar con- .

tracts by this court?

goa STATUTES INVOLVED

Statutory provisions directly involved. are codified as

chapter 79, article 37 of the General Statutes of Kansas

1949, as amended. Pertinent sections of said statutes are

printed i in Appendix B, infra, page 30: ae @

oy | | ,

oP ee sr

STATEMENT 1%

The respondents, General Motors Corporation and the

e hited States Air Force entered into a facilities letter con-

tract dated January 14, 1951; whereby General Motors

Was to procure the Necessary it@ms of —— and

equipment needed to fulfill its supply contract with the

United States Air Force. (R. 131. y Under said supply

contract, -G eneral . Motors was to manufacture and fab-

ricate military aircraft for the Air Force for a: fixed fee,

tm Be ges oe

General Motors leased a government-owned plant at Kan-

Sis City, Kansas, which it used to fabricate said aircraft.

Under the uttad, General Motors was to accept. and

use such items of machinery, etc., which the Air Force |

made available. Any machinery, equipment, ete., not so»

~ furnished was purchased by General Motors Corporation .

under the “above- mentioned facilities letter contract.

Om): . aes

Pursuant to the facilities contract, General Neher pre-

pared a list of machinery and equipment needed to équip

the plant for fulfillment of its supply contract aud sub-

‘mitted this list to the Air Force for review and approval.

(R. 32, 33, 59.) General Motors after dete ‘mining that a’

certain item of machinery or equipment was necessary,

@ submitted a request to the Air Force of such item. In the |

~ event that such item was not av ailable in one of the ‘Air

Force's storage sites, the Air Force approv ed said request

which was eVidenced by the signature of the Air Force

Contracting Officer. (R. 24, 32.) When such approvah a

had been granted, General Motors prepared its own pur- ’

“Midiin ceibtaittons which. was ani inter- -company document |

- to. enable ‘General * Motors to get quotes from various

vendors. (R. 47.) After General Motors: received the |

ovarious bids or quotations, it submitted ‘its “request: for ‘

_. Air Force, (R. 14 145. ) All stiles invoices, ete., indi- .

approval, of expenditure” for said machinery to the Air

Force, (R: 42.) In many ingtances, this latter trahsac-

tion was ‘not required as Ge neral Motors had the authority

to make purchases up to $25,000, without any prior ap-

proval of the Air Foree.c (R: 44.) “If approval was needed

and if approved by the Air Force, the request for approval |

its own purchase: orde? to the vendor for the items of ma-

chinery, or equipment. (R. 287, ) The vendor of the ma-

chinery shipped the machinery to General Motors at its

plant at Kansas City, Kansas, and. upon receipt of said

machinery, General Motors prepared a “Teceiving lip.”

“was returne ‘d to Ge neral Motors and General Motors issued .

made an inspection thereof and audited iftagainst the pur-

chase order, The Air Force made spot checks of. this: re-

ceiying ope ratidn. = ( R. 51.) Following: receipt of the

machinery at the plant site, an Air Force identification tag

was placed thefeon and’ the machinery was used by Gen-

eral Motors in the manufacture of airplanes. General

Motors winder. said contract had the right to use this ma-

-Chinery in the production of items. other than those is the

cated that the inattine ry and equipment had heed sold, to,

General Motors Corporation, Kansas City, Kansas. FR. 52. )

F var

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@ +6

At the time, General Motors received the vendor's in--

A voices, credited the amount of the liwakoe to its accounts

rr 8

payable, and.the same ‘amount was:set up as actounts re-

ceivable against the United States Government. ( R:72. )

General Motors then issued its check upon the J. P. Morgan

Company. CR. 60-61.) After General Motors had paid

iy the machinery, it submitted -a public voucher to the

Air Force requesting rgimbursement for the purchase price

of said machinery. Rr. 40, -301.) Subsequently, the

United States Government through the Air Force issued

— its check to Generab Motors for the amount of said: pur-

chase for the machinery and equipment. All machinery

moved f.o. b. point: of shipment ‘to the General Motors

plant in Kansas City, Kansas, on a. government bill of

lading and the Air Force paid the carrier. directly for. the

. transportation charges. . 7 :

When new parts were required to replace broken or worn

out parts of the machines in ‘question, General Motors

purchased the *m. General Motors would not be reimbursed

for these items purchased (R. 55) and sales and compen: 5

sating tax was ‘paid to. the State of Kansas by ‘General

‘Motors for these purthases. These parts were then, at-

tached to “ machines: in question and used in the per-

formance of the contract with the intervenor.

‘On January 14, 1952. the Director of Revenue fenced

_ alll

a compensating tax fassessment against Generaf Motors

for the privilege * using, storing, or “consuming within

5 rd °

the State of Kansas tangible personal property where no

sales or compensating tax had been paid therech- General

Motors appealed this assessment to the State Commission

of Revenue and Taxation setting forth that they weré

exempt hecause of the contract between them and the

United States ‘Air Force. - The Commission after hearing

(R. 111-820), scitainel’ the assessment (R..105-110) and

General Motors filed its notice of appeal with the Bistrict

Court of Wyandotte County® Kansas. (R, 8-13, Ap-_

3 pendix: C. ) The United States Government filed its ap-

plication to intervene as a party "ppellant and united with

General Motors in seeking thy relief sought by General

Motors in its notice of appeal. (R: 16-19.) The applica;

__ tion to intervene’ was granted. (R. 19-20.) The District

“Court of Wyandotte County, Kansas, overruled the assess-

ment in question and held the United States was vested

with full ownership of the equipment and that ynder the

Constitution of the United States, such transactions were :

not subject to tax in the State of Kansas. (R.'80-91, Ap-

” pendix D.) The petitioner filed its notice ” appeal in the

Supreme Court. of Kansas (R. 94-97) ) and after. o oral argu-

— ment, the court sustainedsthe lower court. (R. 815-552,

ae Appendix. A.) The petitioner then. filed a motion for re-

hearing which was denied on June 16, 1958.

12.

How the Federal Question in This C ase Was Raised

The General Motors Corporation first raised the federal

question in its appeal before the: State Cominission of Rev;

enue and Taxation. . (R. 105-120, Appendix E.)

again raised by General Motors and the United St;

Fore ‘ec in their notice of appeal to the District Court of

Ww vandotte County, Kansas. (R. 8-13, Appendix a.

From the adverse decision in the district court, the peti-

tioner appealed to the Supreme Court of Kansas and again

the various federal questions were raised, briefed, and

argued orally before said court.

REASONS FOR GRANTING THE WRIT

‘1: This court may assume jurisdiction” of this case be-

cause the Kansas Supreme Court's decision constru-

ing the Kansas Compensating ‘Fax statutes neces-

‘sarily involved the determination of the rights and

duties flowing from a contract between the General

Motors Corporation and the U nited States.Gov ern-

ment. Fay

It will undoubtedly be urged that the case sought te be

reviewed herein, is one involving the construction of a state

statute by.a state court which this court has on many oct

casions declined to review. On the other hand, this court

has held in many instances, that where a federal ground is

» aa tae

present, and the state court’s decision is based on a non-

G : Y <a

”_

Ve 13

federal ground, it is up to this court to determine if thenon-

federal ground is independent of the federal one and ade-

‘quately supports the decision. . Abie State Bank v.. Bryan,

282 U. S. 765, 773, 75 Ly ed. 690, 701; Union P. R. Co. v.

Publié Service Commission, 248 U. & 67, Dee 70, 63 L.’ ed,

‘131, 132, 133; W ‘ard -v. Love County, 25 253 U. S. 17, 22,64

olina, 281 U. S..537, 540, 74 L. ed. 1023, 1029. : In Enter-

prise Irrigation District v. Farmers Mutual Canal fe ompany,

243 U.S. 157, 61-L. ed. 644, this court stated:

“But where the oy ee ground ‘is so inter-.

woven with the other as not to be an independent

matter, or is not of sufficient breadth to sustain the

. judgment without any decision of the other, our jur-

isdiction is plain.” (243 U.S. 164.)

We submit that the Kansas court’ s decision that the Kan-

sas Compensating Tax Act did not apply to the transaction

involved hérein, was so close ly interwoven with the federal

question that its decision necessarily involved a decision of

the federal question.

The essence of the Kansas on, S decision was that title

to tangible personal property, purchased under the contract

-between General Motors and the United States, passed to

-L. ed. 751, 758; Broad River Power Company . South Car-

the Unit States outside the State of Kansas and, hence,

the C ompensating Tax Act did not apply to said transaction.

_ This court has ‘stated it will review Racing « of fact of the

. state court where such findings are so intermingled with a

federal question as to make. it necessary-te-passn the fed-

eral question. Fisbe v. Kansas, 274 U. S. 380, 385, 386, 7)

L. ed. 1108, 1114; CreSwill c. Grand Lodge of K and P. 225

U. S. 246, 261,56 L. ed. 1074. This court has held that in

determining the meaning and effect of the- contracts to

which the United States is a party, the governing rules of

‘Jaw must be finally declared by this court. $. R.A. cv. Min-

nesota, 327 U. $. 558, 564, 90 L. ed. 851, 857; U. §. ¢. AL

leghcny County, 322 U. $: 174, 183, 88 L. ed. 1209, 1217

~ This court has likewise assumed jurisdiction where a state:

court interpreted its statute as not applying to a situation

where a federal right was involved. State Tax Commission

of Utah &. Van Cott, 306 U.S. 511, 83 L. ed. 950. This

court in that case indicated that it was not bound by the

state court's construction of the state statute as applied to ,

a federal right. We contend that -when title passed must

be determined from the contract between General Motors

and the United States and that this cougt.is the proper one.

to make a final determination. The liability of the United *

States to reimburse General Motors under the contract at-

tached only after inspection and approval. (R. 149.) No-«

where in the contract does the Air Force or the United -

States government assume responsibility for the payment

the purchase price of the machinery, prior to its inspecti oe

~ 415

and acceptance upon-delivery. The United States could

_ * Feject any purchase made by General Motors under this

~ contract if it were damaged or not up to Air Force specifi-

cations. "The United States reserved unlimited power of

a The petitioner ‘contends that there ‘is basis to

argue if the writ of certiorari were granted that title to the

machinery was delivered to General Motors in Kansas and

then inspected and accepted by the Air Force.

Thus, we submit that when title passed under the con-

tract to which the United States is a party pregépts a federal

_ question which is so closely interwoveri the ground

pon which te Kansas court based its decision that this

dssume jurisdiction.

court may

2. This case should be finally decided by this court and

‘by’no other, since the United States rere 8 is

as. the real party in interest. !

_The tax asserted by the State of Kansas against the Gen-

eral Motors Corporation in the amount of $25,446.23. isthe

taxeupon the privilege of using, storimg and consuming

“<4

tangible personal property consisting of various facilities

purchased under'the contract between the General Motors

Corperation and the United States Government. If the

~ tax is sustained, the United States i8 required by the con-

tract, to reimburse Genera] Motors for the amounts so ex-

pended... (R. 190.) Not orily was the United States per-

mitted to intervene in this suit in district court-(R. 16-20),

eee 16

/ but a représentative of the Department of Justice of the

United States filed briefs and’ made oral argument to the

Kansas Supreme Court petitioning the Court for the deci-

sion reached. In addition thereto, the Air Force contracted

to reimburse General Motors for certain necessary expenses

in resisting the payment of this assessment up to and not

exceeding $20,000. (R. 210.) Hence, any decision ren-

~ dered in the state court affected a United States Pight, privi-

lege, or immunity saul in| fact, the United States Govern. .

ment is the real party in interest*

3. This case should be decided finally by this court and

no other because the decision of the Supreme Court

of Kansas, if allowed to stand, will impede the func-

- tions of this and other states in raising the reyenue

needed,to maintain the federal system of government.

. %

This case is merely one of some 250 preseiitly peyding

in the State of Kansas and although the amount of tax in-

volved in this particular case is only $25,000, the aggregate

amount involved runs into millions of dollars. Not only is

Kansas the only state'concemed with this problem, but

many of,the sister states are likewise concerned. Since the .

Supreme Court of the State of Kansas handed down its

. decision, the Department of. Revenue of the State of. Kansas

has received numerous letters from tax officials of other jur-

isdictions urging the Department to-use every means at its

disposal to get the decision reversed. The Sales and Use

Tax is the primary seurce of most states’ revenues, the rea-

son being that the F ‘ederal Government has practic ‘ally pre- .

empted the field of income taxation. The states are now

faced with having their major source of revenue depleted ,

‘by private individ uals and corporations drawing the cloak of

Fede ral immunity about the ‘m. In order to ‘preserve the

sovereignty of the states, we submit that this case should

be finally dete ieee IK this court.

_ 4. This case should be decided by this court and by no_

other. since the decision, if allowed to stand, is con- °

trary to the declared policy of the United States Gov- |

ernment and is in conflict svith the-recent decisions

of this court. :

Bhe decision in the instant case is contrary to the recent

pronouncements of this court. This court has, of late, al-

_ lowed a greater freedom to the state and local government

taxing authorities, in'taxing federal activities. It has been

stated that the mere economic burden, as opposed to the

le ‘gal incidence of the tax upon the federal government, will -

not preclude the states from taxing federal contractors.

James I Dravro Contracting Co., 302 U. S. 134, 82: L. éd.

155; Alabama v. King & Boozer, 314 U. S. 1, 86°L. ed. 3;

and Curry r. United States, 314 U.S. 14, 86 L. ed. 9; to

Cnited States v. City of Detroit, 355 U. S. 466, 2 L. ed. 2d

424; United. States t. Township of Muskegon, 355 U.S.

454, 2 L. ed. 436; and City of Detroit t. Murray Corp., 355

is S. 489, 2 L. ed. 2d 441.

The latter 3 cases were decided by this court after the

*: time the principal decision. was reached in.the case at bar.

These 3 cases were brought to the Kansas Court's atten-

tion when the motion for, rehearing was .argued and the

Kansas Court disregarding said cases denied the motion

for rehearing without opinion, =~ kale

The Alabama v. Kin ud Boozer case, supra, and C1. urry

v.U.S. case, supra, were cases involving similar, if not iden-

tical, contracts to the ones involved in the instant case.

Likewise the statutes involved were similar to the Kansas

Statute. The decision in the case : sought to be reviewed is

in direct conflict with the Curry and King and Boozer de-

cisions. |

If the decision of the Supreme Court of Kansas is:allowed

to stand, the door will again be barréd to this and- many

other states, in taxing government contffictors. As a mat-

ter of fact, this decision has been cited by the C onnecticut

Supreme Court of Errors in a . decision denying the imposi-

tion of a similar state tax. Avco Mfg. Co. v. C onnelly, 145

Conn. ‘161, 140 A. 2d 479, 485. \

It is, therefore, vital that this court grant certiorari in this:

case to protect the sovereignty of this and other states and F

to prevent the contravention of the declared policy of this

court.

_ CONCLUSION |

In conclusion, we reiterate that not only was the con-

_ struction of a state statute inv vived, but the decision of the

Supreme Court of the State of Kansas involved the con-

- struction of the federal contract. Under the long-standing

; decisions of this court, only the Supreme Court ‘of the

United States may make a final: determination of ‘a right

under a contract to which the United States is a party. For

this and the other forégoing reasons, the petition for a writ.

of certiorari should be granted.

\.. Respectfully submitted,

CLARENCE J. MALONE,

Chief Attorney,

FRANK G. THEIs;

Special Counsel,

‘DEAN.BURKHEAD,

' Assistant Attorney,

Attorneys for Petitioner.

P 20

APPENDIX A.

OPINION .OF THE SUPREME COURT OF KANSAS . -

The opinion of the court was deliv ered by

Price, J.: This appeal arises under the Kansas compe n-

sating tax law: (G. S. 1949, 79-3701, | et sey.) commonly re-

ferred to as the “use” tax.

The State Commission of Rev enug

after referred to as the commissigf ) sustained an assess-

ment of compensating (use)/tax in the amount. of

$25,446.53 against General Motors:‘Corporation (hereafter

‘referred to as the corporation). The dispute involves pur-

chases-of material and equipment from vendors outside the

state between January and October 31, 1951, such: pur-

chases having been made pursuant to a contract between

the corporation and the United States of America ( here-

after referred to as the government). The corporatiow’

appealed to the district court and the g government was al-

and Taxation (here:

lowed to epee, ‘ var

The district cott reversed, vacated and set aside the as-

sessment and the commission has appealed.

In rendering judgment the ‘court, made findings of fact >

and conclusions of law as follow:

: “FINDINGS OF Fact.

ee Thisgis a statutory proceeding brought to review a

finalfirder of the State Commission of Revenue and Taxa- -

tion ‘sustaining an assessment of. Kansas Compensating

(use) taxes made by the Director of Revenue against Gen-

eral Motors Corporation for the period from November 1.

1947, ‘through October 31, 1951, -in the amount. of

$25,446.53. |

“2.. The taxes in question arise as a result of purchases

of machinery and other equipment made outside of the

State of Kansas and brought into the State for use in con-

nection with the manufacture of military airplanes.

“3. In the early-part of 1951 the United States and Gen-

eral Motors entered into two (2) contracts: (1) General

Motors ‘was to fabricate a number of airplanes for the

Uniied States, and this item is not a matter of controversy.

2) The United States was to furnish General Motors, rent’

ire ‘c, all necessary equipment to enable General Motors to

fabricate these airplanes, and the suit before’ the Court

arises out of this contract known as ‘Facilities Contract.’

“4. January 17, 1951, the ‘Facilities*Contract’ so called

was executed and because a part of a ‘Definitive Contract’

dated July 21, 1952, and made retroactive. to the 1951 date,

both documents bias among the ¢ -shibits of General Mo-

tors.

“3. No tax was le vied by the State of Kansas on the use.

of equipment acquired by General Motors from the United

States’ stock pile of niachinery,. but only.on the use of thgt

coming to the General Motors through purchase by Gen-

eral Motors, as directed by the contract hereinabove re-.

ferred to. © w

“6. Purchases by General Motors were made upon

authorization of United States officers ~in charge, at the

plant of General Motors, transported on U. S. Government

bills of lading, received at the Kansas.City, Kansas, plant of

General Motors, immediately tagged as being ‘property

of the U.S. A. F.,” and records prepared showing equip-.

“ment as Government owned. The equipment was paid

for from General Motors’ funds, and reimbursement made

by the United States to.General Motors promptly on re-

ceipt of General Motors’ voucher therefor. -

“tT. The United States, confrolled all equipment, soli

divert from General Motors to ‘other plants, could. divert

from some other plant to General Motors, and this, while

equipment was in .transity or after delivery to General

Motors.

“8. The equipment. in the General Motors’«plant, used”

in the programme, was not listed on, General Motors’. books

as patt of its assets, no depreciation or amortivation taken

thereon, and no insurance carried. oh

“9. The equipment involved was purchased naka Kan--

sas, and became U. S. pgoperty immediately after purchase:

General Motors exercised no claim of ownership to said’

equipment, and at no time owned same.

er a “CONCLUSIONS oF Law.

“1. The United States was the purchaser ok the tangible

personal, property’ in question, and Was vested with full

__ownershipthereof. y

“2. The United States was the ‘user, storer or consumer

of the property at the time said property was used, vel

‘Or consumed in the State of Kansas, > within the: meaning of

the Kansas Compensating Tax Act.

“3. ‘General Motors Cc erporation’s use of the property

was merely in the: ‘apacity of arbailee in whose possession

the property was placed to accomplish the purposes of the

bailor, the United States, and said corporation exercised

no privilege of use, storage or consumption. _

“4. The United States.is the taxpayer within the meaning

of the Kansas Compensating Tax Act. :

“5. General Motors Corporation is not liable for any

compensating tax with respect to the use of the properties.

within the State of Karisas.

“6. Under the Constitution of the United States: the “

Federal Government is immune from taxation by the State

of Kansas with respect to its property, activities and instru;

mentalities, and it isnot liable for the payment of a com-

pensating tax with respect to its purchase, use, storage or

consumption of the property in question.

7. The State Commission of Revenue and Taxation

erroneously sustained the compensating tax assessment

| 7 Das on : me co ieee

against the General Motors Corporation, and jfs decision

. oO

must be reversed.” . °

As abstracted, the record before us contains over 500 -

pages, incfuding numerous exhibits, but only so much.

thereof sufficient to show the over-all, picture and to sup-

port the trial court's findings will be referred to.

In the earfy-part of 1951 the government (Department

of the Air Force) entered into certain agreements with the

- corporation for the manufacture of military aircraft by the

corporation at the government-owned aircraft plant in Kan-

sas City, Kansas. Two basié agreements were made—one

referred-to as a “supply contract” and the other a “facilities

contract.”. The latter contract, among other thins} pro-

vided that title to all work under it completed or in‘ the

course of manufaéture or assetbly at the plant was to be

in the government; that title to all items of facilities, ma-.

‘terials, parts and equipment, for which the corporation

would-be entitled to be reimbursed, was to be vested in

the government upon~delivery to .the corporation at any

point within the continental limits of the United States,

and that. all such property was to remain personalty al-

though it- may be affixed to realty not belonging to the

government. The facilities contract was superseded by a

“definitive contract,” which, among‘other things, provided:

__ ~A. ‘Title to all property furnished by the Govern-

» ment shall remain Yp the Government. Title to all

property purchased by the Contractor, for the cost

of which the Contractor is entitled to be reimbursed -

as _a direct item of cost under this contract, shall °

pass to and vest in thé government upon delivery

of such, property by the vendor.. Title to other prop-

erty, the cost of which is reimbursable to the Con--

traetor under this contract, shall pass to and vest

in the Government upon (i) issuance for ust of such:

property in the performance of this contract, or (ii)

commencement of processing or use of sudh prop-

erty in the performance of this contraet, or (iii) re-

imburse ‘ment of the cost thereof by the Government,

whichever first occurs. é

In aetual practice, the procedure follow ed to snails

the purpose of the contracts in question was that the gov-

ernment first ascertain if the machinery and equipment

requested by the corporation was needed to perform the

work. It then screefied its stockpiles of machinery and

equipment to ascértain what equipment was av ailable,

and then authorized the corporation to. purchase for and

on behalf of the. government those items which Were re-

quested and approved but which were unavailable through

government stockpile reserves. The corporation prepared

a proposed system for equipping the plant. with the ma-

chinery and equipment needed to produce, the aircraft, and

after réceiving government approval to acquire a facilities

item of purchase, the corporation's purchasing department

addressed a request for qiotation to various suppliers, ad-

vising them that a certain piece of machinery or equipme at

was to. be purchased for overnment account.” Orders

were placed only after government officials concurred in

_ the necessity for the item and the selection of a particular

source of supply. The corporation's purchase-order to the

selected supplier made clear the government's interest in

the property ordered, and on-the face of the purchase order

a the following:

“Not Subject to Kansas State Sales or Use Tax.”

Purchases were moved and shipped on government

hills of lading secured by the vendors from the govern-

ment, and the applications for such bills of lading contained

the certification of a goveenment official that title to the

property .was vested in ny government during transporta-°

tion, and that transportation charges were properly pav:

able from government funds. On receipt at the Kansas

ry 4

Citv plant of all property acquired by the corporation for

"the gavernment, and prior to any use of the saghe, if was

“tagged” with a property accountability number furnished

by the, government. These tags were permanently affixed

to the property and bore both an Air Force number and

the words “Property of the United States Air Porce—Do

Not Remove This Tag.” |

Upon receipt and audit, the vendor's invoice bearing the”

stamp “cost reimbursable,” was paid by*a corporation

ccheck. The identical amount paid was promptly submitted

to the government on its public voucher form, and the

amount advanced by the corperation to the supplier was.

repaid. In each instance the carrier billed the proper

government transportation office for the transportation

charges accruing on a government bill of lading, and was

paid directly by the government.

During the period in question the government at all tines

possessed the complete and absolute right to direct the

shipment of all property acquired. -« If, after the corpora-

_ tion placed an order, it was decided by the government

that the item ordered was more needed for operations un-

rélated to the Kansas City work the government could. and

in several. instances did, divert the item. Such diversion

could be ordered before the item left the supplier or even

when it was en route to the corporation's plant. At all

times all machinery and equipment located at the plant

Was treated as any other government-owned property. In

the. event the property was dainaged in transit the govern-

‘ment offset such damage against the carrier's charge under

the government bill of lading. At no time was any of the

quipment or machinery in question set up on the corpora-

tion's book#as.an asset, and the corporation did not charge

depreciation or amortization in respect to any of the ma-

chinery or equipment.’ The amounts advanced by the

corporation as purchase prices were offset on its books as

- ageounts receivable from the government. _

¢:

The. pertinent. sections . the compensating (use) tax

law read: G. S. 1949, 79-370

“For the purposes 2 this act (a) the term ‘pur-,

chase price’ shall mean the ‘consideration paid or

given or contracted to be paid or given by any per-

son to the. seller of an article of tangible personal “

property for the article purchased. .The term shall

include, in addition to the consideration paid or

given or contracted to be paid or given, the actual

_ cost of transportation from the plate where the

article was purchased to’ the person using the same

in this state. If a ¢ash discount is allowed and taken

on the sale it shall be deducted in arriving at the

purchase price.

“(c)The word: ‘use’ means and includes the exer-

cise within this state by any person of any right or

power over tangible personal property incident to «

the ownership of that property, except that it shal!

not include processing, or the sale of the property

in the regular eourse of business, and except storage

as hereinafter defined.

“(d) ‘Storage’ includes any keeping or retention

in this state for any purpose except sale in the reg-

ular course of business ‘or subsequent use solely

- outside this state of tangible personal property pur-

chased from a retailer.

or Par a ee ee

G. S$. 1949, 79-3703:

“There is hereby levied and there shall be col

lected frontevery person in this state’a tax or excise

for thes privilege of using, storing, or consuming

within this state any article of tangible personal

property parchased subsequent to June 30, 1945

Such tax shall be-levied and collected in an amount

equal to the purchase price paid by the taxpayer

multiplied by the rate of two percent.- All transac-

tions involving compensating tax or use tax prior to -

July 1, 1945, shall be administered under the law as

it exists prior to that date.” .

G: S. 1949, 79- 3703a: j ;

. “For the purpose of the proper administration of

this act and to prevent evasion of the tax, evidence

that tangible personal property was sold by any per-

son for delivery in this state shall be prima facie evi-

” dence that such tangible personal property was sold

for use in this state.”

(cE S. 1949, 79-3703, has since ‘been amended—see G. S-

1955 Supp. )

We likewise have a sales tax law (G. S. 1949, 79-3601, et

seq.) which also has since been amended in several re-

spécts immaterial fur our purposes —see.G. S. 1955 Supp.

A resumé of the purpose and stopé of the two tax acts is

contained in Southwestern Bell Tel. Co. v. State C ommis-

sion of Revenue-and Taxation, 168 Kan. 227, 212 P: 2d 363,

and Consumers Co-operative Ass'n v. State Comm. of Rec.

c Taxation, 174 Kan. 461, 256 P. 2d 850, and we summarize

brie fly: :

The sales tax law levies a tax of two percent upon the

privilege of selling tangible personal property at retail in

this state, or rendering or furnishing certain services therein:

Under that law the event which gives rise to the tax is the

sale of tangible personal property at retail, or the rendering

or furnishing certain services.’ ‘The law is framed, and has

been construed, so that the transaction which is taxed is

that by which a’ commodity moves to the ultimate con-

sumer, whoever he may be. ! :

With the enactment of the sales tax law entiees since m

arose.» Much property is purchased outside the state and

J Pa ; wo

brought into the state for various purposes. .Kansas could

not tax the-privilege of selling property when the sale took

place beyond its borders. In ether words, the necessity

for a *use” tax arose from the fact that a state is without

. power to tax sales which are completed bevond its terri-

torial limits. The result of this situation was the enactment

of the so-called “use tax” law, here involved. The two -

laws are, from a practical standpoint, complementary and

supplemental to, eich. other, and are to be construed to-

gether. Under thé “use tax” law the taxable event giving

rise to the imposition of the tax is not the sale but is the

use, storage or consumption of property witkin the stat

Which was acquired by purchase outside the state.

Notwithstanding that by G. S. 1949, 79-8703a, evidence

that tangible personal property was sold by any person for

delivery'in this state shall be prima-facie evidence that such

tangible personal property was sold for use in this state, the

fact remains that under G. S. 1949, 79-3702 (¢). the word

“use” means and includes the exercise within this state by

any person of any right or power over tangible personal

property incident to the ownership thereof. In other words.

insofar as we are presently concerned, the important factor

to .be consideyetis whether the corporation's use of the

property invade was incident to its ovnership thereot,

andein our opinion the trial court's findings (No. 9 stepra

which are amply supported by competent and substantial

evidence, are concitisive of the question and binding on

this court under the faini! ur rule of appellate review.

The situation here is unlike that in Boeing Airplane Co

t. Comniission of Reventie and Taxation, 153 Kan. 712. 115

P. 2d 110, and in the Consumers case, supra. In the Boeing

case the government did not own the property at the time

liability for the tax arose. While it was true the govern-

ment had agreed to reimburse Boeing for the cost of the

property, and such property was to become government

"29

property five years hence unless one of several options to

> keep it was exercised by Boeing, in the nicanutime the prop-,

erty was owned by Boefng and it was not known whether

it would ever lose that ownership—the relore Such a situa-

tion did not justify Boeing's exemption from the challenged ~

tax. In the Consumers case there-wasvecoubt but th: at it,

the: taxpayer, owned the oil drums purchased outside the

state, and it was held that the use of the drums (as dis-

closed by the opinion) constituted a “use” of the prope rty

contemplated by the statute.” o

: Py ee

Krom the record it is re adily apparent that the contracts

involved, and the operations under. them, were merely the *

means by which the government pure thased the property. -

and equipment for the corporation's use in manufacturing

military aircraft for the goverument in a government -owned

aircraft plant. The-government owned the property upon

entry into the state and continuously thereafter. In the

last analysis, the use of such property by the corporation

was merely to accomplish the purpose of the owner—the —

production of military aire ‘raft for the gove rument. Hts use

of the property was Hot “ine ‘ident to the ownership of that

property, .

Various other contentions of appellant commission have’

been examined and considered but are found to be without.

merit, and, in view of our holding, require no discussion.

We find no error in this record and the judgme nt is there-

fore affirmed. ’

APPENDIX B

_ STATUTES ANVOLVED

G. S. Kan., 1949: ,

“79-3702. Definitions. For the purposes of this act

“(X) The term ‘purchase price’ shall mean the considera-

‘tion paid or given or contracted to be paid or given by any

person to the sellér of an article of tangible personal prop-

erty for the article purchased. The term shall include, in

addition to the consideration paid or given or contracted

~ to be. paid or given, the actual cost of transportation from*

the place where the article was purc thased to the person.

using the same in this state. If a cash discount is allowed

and taken on the sale it shall be deducted in arriving at the

pure hase price:

(B) The meaning ascribed to words and phrases i in sec-

tion 79-3602 of the General Statutes Supplement of 1943,

insofar. as is practicable, shall be applicable herein unless

otherwise provided. The provisions of sections 79-3601 to

79-3623 of the General Statutes Supplement of 1943 and

amendments thereto, both sections inclusive, relating to

enforcement, collection and administration, insofar as prac-

ticable, shall have full force and effect with re spect totaves

te under the proy isions of this act.

) The ‘word ‘use’ means and includes the exercise

w a this state by anv person of any right or power over

tangible personal praperty’ incident to the ownership. of

that property, except that it shall not include processing, or

the sale of the property in the regular course of business

and except storage as hereinafter defined.

“(D) ‘Storage’ includes any keeping or retention in this

state for any purpose except sale in the regular course of -

business or subsequent use Solely outside this state of tar

‘31

gible personal property pure hased from a retailer.” (Italics

supplied. )°

“79-3703. Tax or excise imposed; rate. There i is hereby

lev ‘ied and there shall be coécted from every person in this |

state a tax or excise for the privtege of using, storing, or

consuming.within this stata any article of tangible personal

property purchased subsequent to June 30, 1945. Such

tax shall be levied and colleéted in an amount equal to the

purchase price paid by the taxpayer multiplied by the rate

of two percent. All transactions involving compensating

tax or use tax prior to July 1, 1945, shall be administered

under the law as it exists-prior to that date.” (Italics sup-

plied. ): | '

“79-3703a. Evidence that property was s sold for use in

state. For the purpose of the proper administration of this

act and toprevent evasion of the tax, evidence that tangible

personal property was sold by any person for delivery in

this state shall be prima facie evidence that such tangible

pe sonal property was sold for use in this state.” ~

“79-3604. Exemptions. The provisions of this act shall’

not apply: (c) In the respect to the use, storage, or con-

sumption. of. any article of. tangible personal property the

sale’ or use of which has already been subjected to a tax

Cual to or in excess of that imposed by this act whether

under the laws of that (this) state or of some other state.”

C ONSTITUTION OF THE UNITED STATES

Article I, Section 8: “Congress shall have the .

power : aki

“To regulate conimerce with foreign nations, and among

the several states s, and with the Indian tribes; :

To make all laws which shall be necessary and

proper for carry ing into execution the foregoing powers

and all other powers vested by this C onstitution and _ the

_ government of the United States or in apy department or

offieer thereof.”

Article IV, Section 3

“The Congress shall have the Power to dispose of and

make all needful Rules and Regulations respecting the

Territory and other Property belonging to the United.

States; and nothing in this Constitution shall be so con-

‘strued as to Prejudige any Claims of the United States, or

of any particular state. -

Amendment 14, Section l. “Citizenship: privileges or

immunities; due process clause. All persons born or -nat-

uralized in the-United States, and subject to the jurisdiction ,

thereof, are citizens of the United States and of the State

wherein they reside. No State shall make or enforce any

law which shall abridge the privileges or immunities of

citizens of the United States; nor shall any State deprive

any person of life, liberty, or property without due process

of law; nor deny to any person within its jurisdiction the

eual protection of the laws.”

\ APPENDIX C

TAXPAYER'S NOTICE OF APPEAL,

Notice is hereby given that. General Motors Corporation,

a corporation organized and existing under the laws of

the State of Delaware, and duly authorized to do business

as a foreign corporation in the State: of Kansas at Kansas

City, Kansas, hereby appeals to the District Court of Wyan-

dotte County, Kansas, from a final order of the State Gom-

mission of Revenué and Taxation of the State of Kansas,

made in its Docket No. 14,815, assessing Kansas com-

pensating (use) tax and interest thereon in -the total

amount of $25,446.53 against said General Motors Corpora-

tion for the period from November 1, 1947, through Oc-

tober 31, 1951, a copy of which final order was mailed to

General Motors Corporation on or about the 4th day ‘of

August, 1953. ae

eiacee: |

The pertinent fae ‘ts upon w hich this appeal is grounded

-are as follows:

(a) The appellant, General Motors Corporation, a Dela-

ware corporation’duly admitted to do business as a foreign

corporation -within the State of Kansas, has ‘its principal

place of business and ‘post office address in this state at

Fairfax and Kindelberger Roads, Kansas C itv, Kansas, the

same bei ‘ing the location of one of the places of business of

‘appellant’s Buick-Oldsmobile-Pontiac Asse ‘mbly: Division.

(b) The appellant! and the United States of America

entered*into a Facilities Letter Contract known arid desig-

- nated as No. AF33 (038 )-18504, dated January 17, 1951,

which contract was entered into for the express purpose of

acquiring certain machinery and equipment for the United

States. : 7

(¢) Said Contract specifically provi: des in paragraph 6

thereof: .

“Title to all items of facilities, materials, parts and

.. equipment for which you will be entitled to be re- .

_imbursed under this contract or under the definitive

contract shall vest in the Government (i) upon de-

livery to you at’any point within the continental

limits of the. United’States, or (ii) at any place or

time directed .by the Contracting Officer, and all

such property shall remain personalty although it —

may -be affixed to realty not belonging to the Gov-

; ernment.” ;

(d) Said Contract eatealy provides that, as ‘to the

- property, acquired, title shall vest in the United States im-

mediately upon acquisition. The manner of performance

of said contract by appellant and the United States, during

the assessment period, indicated that said parties intended

that title to said property be in the United States at the

time said property left the possession. of the out-of- state

_seller or supplier.

(e) Under and pursuant to said pouliaat. appellant de-

termined what facilities and property should be acquire d,

and recominended to the United States as to the source

from which said facilities.and property should be procured,

.as well as nresenting evidence indicating the reasonable-

—

ness- and necessity for such facilities. Thereafter, the

United States, acting through an Air Force Contracting

Officer, authorized the purchase of such property, and ap- -

pellant placed the order with the vendor or supplier on an -

order form which made clear the interest of the Unite ds

States by (i) reference to the contract number; (ii) that —

shipment was to be made on a government bill of lading:

— 85

(iii) approval of the Air -Force Contracting Officer; (iv)

reference to facilities schedule under the contract: and

(v) the statement “Not subject to Kanisas state sales or use

tax.” Appellant advanced the amount of the vendor's in-

voice and immediately invoiced the United States for re-

imbursement of the amount paid. The property and fa-

cilities acquired were delivered: to appellant which in turn,

held*ihem for the.account and at the risk of the United

States. The property and facilities were thereafter used.

under another production-type contract by appellant in the

performance of certain work for the benefit ‘of the United

States. The property and facilities could not be used by

appellant for any other purpose. )

(f) AIP property and facilities upon which said com-

pensating (use) tax assessment, appealed from herein,

has been assessed, were purchased from out-of-state vend-

ors and suppliers; title thereto had vested in the United °

States of America prior to the time said propert’ and fa-

cilities were brought into the State of Kansas; and title to

said property and facilities remained in said United States

of America exclusively throughout the assessment period:

- At no time material herein was title to said property: and

facilitiés vested in appellant. | |

(¢) The use made by appellant within the State of Kan-

sis of said property and facilities (upon the purchase price

. Of which the tax assessment herein appealed from was

based), during the assessment period, ‘did not constitute

the exercise of any right or power over said tangible per-

sonal property incident to the ownership of that property.

$ The right or power over said property and facilities inci-

‘dent to the ownership thefeof was, at-all times during said

assessment period, in the United States of America.

4 bed

. Ih.

Appellant alleges ‘and contends that said assessment of

Kansas* compensating (use) tax and interest, as made by

said final order of said State Commission of Revenue and

Taxation is erroneous, illegal, unconstitutional and. void,

and should bé by this C ourt strickeh and set aside i in whole

for the reasons: |

(a) That said asse ssinent is contrary to and unauthorived,

by the provisions of the Kansas Compensating Tax Act

(being G. $.. Kansas, 1949, 79-3701 to 79-3711, inclusive,

as amended ). and the Kansas Retailers’ Sales Tax Act (be-

ing G. S. 1949, 79-3601 to 79-3625, inclusive, as amended J,

and eannot be sustained under any other provision of the °

statutes of this state or of the Constitution of the State of

Kansas. i.

(b) That, to the extent that the statutes of the State of

Kansas*should be held to purport to.authorize the levy of

Kansas compensating (use) tax against the property of the

United States of America, its departments, agenci esa |

instrumentalities, such statutes are, to such extent) in vic.

lation of and repugnant to the C onstitution of the United

States of America, in particular Article I, Section 8, Clause

18; Article IV, Section 3, Clause 2; and’ Article VI, Clause

2 thereof. . By

-(¢) That the’ State Commission of Revenue ond Taxa-

tion, by its said order, has erroneously and illegally in-

-cluded property: belonging to the United States of America.

its departments, agencies,.and instrumentalities, in the «s-

sessment of the property of General Motors Corporation.

appellant herein, for purposes of the Tax assessment hereby

appealed from; and to the extent that said State Corniis-

sion-of Revenue and Taxation has approved, and confirmed

the. Action of the Director of Revenue in so doing, such as-

sessment of tax and interest constitutes a taking of appel-

2 ; >

“

| ; i oon

lant's Property without due process of lawecontrar® to the

14th Amendment to the Constitution of the Unite vd States,:

. and therefore-invalid.

(d) That, if the laws of the State of can properly: '

coustrued and applied, purport to authorize the asseysuretit

and taxation of such property owned by and belonging to

“the Cnited States of America, ‘such laws were and are jn

violation of the Constitution of the U nited States nnd are

the Te fore invalid.

~(e) That, by so assessing such property of the United

States of America, the Director of Revenue and said State

Commission of Revenue and Taxation of the State of Kan-

sts have applied the laws of the State of Kansas itr manner

which renders said laws invalid under the i, ae of |

the United States.

(f) That'the State Commission of Revenue and Taxation

has failed and refused to recognize and give effect to valid

and ‘binding. contractual ,provisions defining’ wid limiting

the right, powers and interests of appellant ayd the United

States in their, transactions and dealings under said Facili-

ties Letter Contract, such failure and re ‘fusal being illegal

and contrary to law. _

Wherefore, appellant, General Motors Corporation, prays

judgment that said order ‘of said State Commission of Rev-

enue and Taxation dated July 30, 1953, in its docket No.

14,515, be wholly set aside arid Held for naught, and thiit

the assessment of Kansas Compensating - tse) tax and in-

terest against appellant therein ‘contained be wholly set

et ee

aside and cancelled; and appellant further prays judgment

lor its costs herein expended and for such other and fure

ther relief in the premises as to the Court shall appear just,

equitable and in accordance'with law.

Dated this 28 day of August, 1953:

APPENDIX D © .

JOURN AL ENTRY OF JUDGME NT

District Court or Wyanporre County, KANSAS

Now, on this 26th day of September, 1955, this statutor\

appeal proceeding comes regularly on for trial to the court

sitting witheut a jury, pursuant to assignment, the appel-

lant, General Motors Corporation, appearing by its attor-

neys, Doran, Kline, Cosgrove & Russell, of Topeka, Kansas,

by Willard N. Van Slyck, Jr.; and Boddington, Emerson &

Boddington, of Kansa$ City, Kansas, by Edward M. Bod-

dington, Jr.; the appellee, State Commission of Revenue

_and Taxation of the ‘State of Kansas, appearing by its at.

torneys, Stanley, Stanley, Schroeder, Weeks & Thomas, of

Kansas City, Kansas, by Ervin G. Johnston, and Paul Hurd.

Chief Attorney. for said Commission; and the intervenor,

United States of America, appearing-by its attorneys, Lyle

M. Turner, Department of Justice, Washington, D.C., aud

Milton P. Beach, Assistant United i Attorney, Kansas °

~ Cit® Kansas. ‘i

Whereupon all of the parties announce themselves re edly

for trial, and counsel for thé respective parties request the

court to render written findings of fact and conclusions of

law in this cause, which request is by the court granted.

Whereupon, counsel for the respective parties make thei:

opening statements, after which appellant: and intervenor

proceed to the introduction of evidence in support of ap-

pellant’s Notice of Appeal and intervenor’s Intervening Pe-

tition filed herein, and the hour of }adjournment having

arrived, the court.directs that court should be, and it is, ad-

‘ journed until the 27th day of September, 1955, at 9:5

o clock a. m. of said day, to which time the further consicd-

eration of this cause is continued.

’ . J : : a

Whereupon, on this 27th day of September, 1955, at 9:30

« oclock a.m. of said day, the trial of this cause proceeds,

,. the parties appearing as hereinbefore stated, and appellant

and intervenor continue with the introduction of evidence

in support of their respective pleadings aforesaid, and the

hour of adjournment having arrived, the court directs that

court should be, and it is, adjourned until the 28th day of

September, 1955, at 9:30 o'clock a. m. of said day, to which

* time the further consideration of this cause is continued.

Whereupon, on this 28th day of September, 1955, at &.30

o'clock a.m. of said diy, the trial of this cause. proceeds,

the parties appearing as hereinbefore:stated, and appellant

and intervenor coritinue with the introduction of evidence

in support of their respective pleadings aforesaid; and upon

‘the completion thereof appellant and intervenor rest.

Whereupon, counsel for appellee orally meive the court

for an order striking from the record in this cause certain

designated documentary exhibits offered in evidence on

behalf of appellant and intervenor during the course of the

trial, after which counsel for appellee announce that ap-

pellee will introduce no evidence in its behalf.

»Vhereupon, the court announces that it will take the

said motion to strike of appellee under advisement, and

directs. counsel for the respective parties to submit mem-

orandum briefs setting forth their views upon said motion,

whereupon the trial of said cause is adjourned, the court

ing the’ entire matter under advisement.

And now on this 9th day of December, 1955. the court

rare had the said motion of appellee to strike certain

documeritary exhibits of appellant and intervenor from the

record in this cause under advisement since the 28th‘day

of September, 1955, as aforesaid, and having reviewed and

. considered said motion to strike and the exhibits and re-

lated testimony thereby sought to be stricken, having read

and considered.the memorandum briefs submitted by coun-

sel for the respective parties, and being fully advised in the

premises, finds and orders that appellee's said motion to

strike should be and is overruled in its entirety in accord:

ance with the court’s letter ruling dated December 8, 1955,

and the written journal entry of said order dated December

9, 1955, and filed with the clerk of this: court on December

15, 1955. Whereupon, the court further orders that coun-

sel for the respective parties prepare and submit to the court

consecutive original briefs f argument and authorities

with appended suggested findings of fact and. conclusions

of law, for the consideration of the court in ruling upon the

case in chief, withimthe time periods set forth in said writ-

ten journal entry filed herein on December 15, 1955.

And now, on, this 28th day of September, 1956, the court

having had this cause under advisement since the 28th day

of September, 1955, as aforesaid, having heard and cousid-

ered the evidence adduced at the trial, having read and

‘ cousidered the briefs of argument and authorities and the

proposed findings of fact and conclusions of law submitted

‘by counsel for the respective parties, and being fully ad-

vised in the premises, renders its written findings .of fact

and Gonclusions of law in this cause-as follows:

Finpincs, oF Fact AND ConcLusions oF Law

Tlic above matter having come on: for hearing, and the

Court having heard the witnessés and examined the docu-

mentary evidence presented, as weli as having considered

the arguments and_ briefs of counsel, finds the following .

facts to be true, and ‘upon-those facts, makes the following

conclusions of law. o

-Finpincs or Fact \

1.. This is a statutory proceeding -brought to review a

finial order of the State Commission of Revenue-and Taxa-

tion sustaining an assessment of Kansas Compensatiig

(use) taxes made by the’ Director of Revenue against Gen-

o 7

eral Motors Corporation for the ‘period from: November 1,

‘1947, through October 31, 1951, in the amount ‘of

$25,446.53. :

2. The taxes in question arise as a result of purchases

of machinery and other gquipment made outside of the

State of Kansas and brought into the State for use in cdi-

nection with the manufacture of military airplanes. — ;

3. In the early part of 1951 the United States and Gen-

eral Motors entered into two (2) contracts: (1) General

Motors was to fabricate a number of airplanes*for the

Cnited States, and this item is not a matter of controversy.

(2) The United States was to furnish General Motors, rent

free, all necessary equipment to enable General Motors to

fabricate these airplanes, and the suit before the Court

arises out of this contract knowin as “Facilities Contract.”

4. January 17, 1951, the “Facilities Contract” so called |

was executed and became a part of a “Definitive Contract”

dated July 21, 1952, and miade retroactive to the 1951 date,

both documents being among the exhibits of General Mo-

tors. ** ° | ; .

5. No tax was levied by the State of Kansas on the use °

of equipment acquired by General Motors from the United

States’ stock pile of machinery, but only on the use of that

coming to the General. Motors through purchase by Gen-

eral Motors, as directed by the contract hereinabove re-

ferred to.

6. Purchases by General Motors were made upon au-

thorization of United States officers in charge, at the plant

of General Motors, transported on U, S. Government bills

— of fading, received at the Kansas City, Kansas, plant of

> ane

General Motors, immediately tagged as being “property

of the U. S$. A. F.,” and records prepared showing equip-

ment as Government owned. The equipment was paid Tor

from General Motors’ funds, and reimbursement: made by

/ oo

the United States to General Motors promptly on receipt ot

General Motors’ voucher therefor.

7. The’ United States: controlled all equipment, could

divert from General Motors to other plants, could, divert

from some other plant to General Motors “and this, whil:

equipment was in transit, or after delivery to General Mo-

tors. e’ AG ‘ ,

8. The equipment in the General Motors’ plant. usa!

in the programme, was not listed on General Motors’ books

as part of its assets, no depreciation or amortization tatks T

thereon, and no insurance carried.

9. The equipment involved was purctiased outside Kan-

sas, and beeame U. S, propes@immediately after purchase

General Motors exercised ‘no claim of ownership to suid

equipment, and at no time owned same.

Conc Lusions or Law

1. The United States was the purchaser of the tangible

personal property in question, and was vested with full

ownership thereof. | :

2. The United States wag the “user, storer or consumer.

of the property at the time capicl property. was, used stored

or consumed in the State of Kansas, within, the meaning of

the Kansas Compensating Tax Act.

3. General Motors Corporation's use of the prope rts

was merely in the capacity of a bailee.in whose possession

the property was placed to accomplish the purposes of the

‘bailor, the United States, and said corporation exercised

no privilege of use, storage or consumption.

4. The United States is the taxpayer within the meaning

of the Kansas Compensating Tax Act. °

5. General Motors Corporation is not liable for any corll-

pensating tax with respect to the use of the properties

within the State of Kansas.

6. Under the Constitution of the United States, the Fed-

eral Government is immune from taxation by the State of

Kansas with respect. to its property, activities and instru-

mentalities, and it is not liable for the payment of a com-

pensating tax with respect to its purchase, use, storage or

gyusumption of the property in question.

«% 7. The State Commission of Revenue and Taxation

erroneously svstained the’ compensating tax assessment

against the General Motors Corporation, and its decision

must be reversed. -

lv Is THekerore By tur Court Gonsipenen, Onpenen,

a« DGED AND Decreep:

- That the Order of the State Cc OmMMmission of Bi Revenue

and Taxation of the State of Kansas entered in its Compen-

sating Tax Docket No. 14,515 on July 30; 1953, modifying

and affirming an assessment of Kansas comppnsating | lise )

tax and interest thereon made by the Director of Revenue

of the State of Kansas against the appellant, General Mo-

tors C — Buick-Oldsmobile-Pontiac Assembly Di-

“—. Kz tity, Kansas, for the period from November

. 1947, a October 31, 1951, erroneously sustaine “dl

af assessment of compensating (use) tax against appel-

lant, and that said Order must be and it is hereby reversed.

2. That judgrhent be and it is hereby rendered in favor

of appellant, General Motors Corporation; and intervenor.

United States of America, for the taxable costs and dis-

hursements of this action.

Wat. H. Hare,

District Judge, Division No. 4.

,_ *

o o

APPENDIX E

PROCEEDINGS AND ORDER BEFORE STATE COMMIS-

_ SION OF REVENUE AND TAXATION

Order ,

Now, on-this 20th day of March, 1952, there comes on

for hearing before the State Commission of Revenue and

Taxation of the State of Kansas the appeal of General Mo-

tors Corporation, Buick-Oldsmobile-Pontiac Assembly Di-

vision from an assessment by the Director of Revenue’ of

~ Compensating (Use) Tax in the amtount of $37,530.77, aid

interest in the amount of $2,937.07, or a total of $40,467.84

for the period from November J, 1947, through October

31, 1951.

The taxpaver appears by D. K. Barnes, attorne v. The

United. States Air Force appears by H. V. Galia, attorney.

The Director of Revenue, Bert E. Mitchner, ’ appears in

* person. ‘

The Commission is informed that there is no contre CTSV

(on the purchase and use of property in the amount ‘of

358,959.34, the taxpayer admitting the tax thereon to be

Joualls due. The taxpayer takes specific exception ’to the

~assessment on the following grounds: .

1. That personal property in the amount of $76,291.50 . :

is exeanpt from tax unde r the provisions of the Kansas Com-

pensating Tax Act, said figure including property used in

industrial processing, charges for services, error in audit

report. property purchased for resale, and property of its

own manufacture. +. :

2. That personal property in the amount of $1.241,287.55

was purchased by the taxpaye ras an agent of the United

States Government and title to such property vested in and

., remained at all oe the United States Government, and

7 =

45 ;

at no time was there any title or owne rship of any such

property vested in the taxpayer during the time at which

‘said personal property Was within the territorial limits of

the State of Kansas.

Alter hearing the statements of the taxpaver and the Di-:

rector of Revenue and the contentions of the respective

parties, after examining the transcript and the bricf filed

by the United States Air Force, and bei ‘ing fully advised in

the premises, the Commission takes the matter under -ad-

.SVincment.

And now, on this 30th day of July, 1953, the matter comes

on for final consideration and: determination by the Con.

Inission. | , ae

After reviewing the file, inchpding all of the exhibits, the

Commission makes the following fiiidings;

1. That General Motors Corporation and the United

States entered into a facilfties letter contract ‘known and

designated as No. AF33 (038 )-18504, dated January 17.

1951, under which contract General Motors Corporation

sasscmbled facilities for the manufacture of airplanes and

their component parts for the United States.Air Force.

2. Under the terms and provisions of said contract, Gén-

eral Motors Corporation purchased, without the limits of

the State of Kansas, ‘personal property in the amount of.

$1.241,287.83, and used said property within this state for

the manufacture : airplanes and_ their component parts

for the United States Air Force. . :

3. General Medes Corporation purchase J the property

here involved and paid for the same with its-own funds in

the form of checks drawn.on the Gene ‘ral: Motors Corpo-

ration account, and, subsequently, was reimbursed for such

expenditures by the United States Government.

4. Genéral Motors Corporation has failed to produce

any evidence that it is an agent of the United States Gov-

erument, nor has it produced any evidence tending to show.

5 r] ©

‘

’

-any authority whereby the United States Air Force could

delegate to it the powers of an agent.

5. General Motors Corporation has failed to produce

any evidence that’ it has authority to pledge the credit of

the United States Government to the vendor of the prop

erty herein involved.

6. The relationship of General Mators Chapacation to:

the United States Government is that of an independent

contractor.and it enjoys no privileged status ander the .

7. General Motors Corporation purchased the prope rty

here involved for-use and not for resale, and-did use said

propefty within this state for the manufacture of airplanes

and their component parts in carrying out its contract for

profit.with the United States. Government.

8. That part of ‘the cofitract providing that title to the

property shall vest-in the Government at the time it passes

from vendor or supplier is but a legal fiction not sufficient

to create a different taxable result under the Provisions of

ithe Kansas Compensating Tax Act.

9. The tax in question is. non-discriminatory; the legal

incidence of which falls upon, the General Motors Corpo-

ration, an independent contractor, and does not impede the

. United States Government’in carrying on its operations, nor

_ restrict its choice of the means by which it discharges its

functions.

10, The ‘tax. base should be reduced in the following

amounts: | as | | .

(a) $55,882.02, the same representing items 1, 2, 5. 6

and 8 of the taxpayer's petition, said items being used in

industrial processing, the same being. fuel consumed. in:

creating heat for processing, or property used in the fiabri-

cation of a new article which becomes an integral part of

an article intended to be sold ultimately at retail.

(b) . $5,278.38, the same representing items 3 and 4 of

the taxpayer's petition, being charges for services-not sub-

_ jeet to tax under the Kansas Compensating Tax Acct.

the taxpayer's petition, being property purchased for resale

_and not subject to tax under the Kansas Compensating Tax

Act.

(d) $7,629°67, the same representing item 10 of the tax-

_ payer's petition, being tools of General Motors Corpora-

tion’s own manufacture (Fishér Body Division ).-

(e) $296.79, the same representing item 11 of the tax-

paver's petition, being errors in the Director of Revenues

assessment,

1L. The tax base inthe amount of $1,800,247.17 is cor-

- rect, and should be sustained. |

. 12. General Motors Corporation, has paid tax in the

amount of $11,179.18; and interest thereon in the amount

of $1,793.50 on the 15th day of December, 1952, the same

being the compensating tax legally due on the purchase

and use of property in the amount of $558,959.34 included

in the Director's assessment.

It IS THEREFORE, BY THE STATE COMMISSION OF REVENU FE

AND TAXATION OF THE STATE or Kansas, CONSIDERED AND

Orverep that the assessment of the Director of Revenue

against General Motors Corporation for the’ period from

November 1, 1947, through October 31, 1951, be and the

same is hereby modified as follows: . $1,525.83 of said ‘as-

sessment is hereby overruled and set aside, the same being

the compensating tax wrongfully assessed on the use of

property in the amount of $76,291.30; that $36,004.94 of

said assessment is hereby sustained, the same being the

compensating tax legally due on the use of property in the

amount of $1,800,247.17; that the interest included in said

assessment in the amount of $522.80 is hereby overruled

and set aside, the same being attributable-to the tax wrong-

fully assessed; that the interest included in said assessment |

in the amount of $2,414.27 is hereby sustained; that ther: mh

is due and owing from General Motors Corporation $:36,-\

OU-4.94 total taxes, less SLL,179.18 previously paid, $2,414.2 37 \

total interest, less $1,793.50 previously paid, or a total af \

$25,446.53 taxes and interést.

Dated at Tope ‘ka, Kansas, this 30th. dav of July, 1953.

Wat. Goucn, Jr,

Dace A. Fister,

0. W. Scrwannt,

7) Caminissioners.

[seac] -. iy She cee Oe oo

Attest: S ; \

Barrett W ILSON, Secretary.

- STATE oF “KANSAS

See ee

Orrick oF THE STATE Commission OF REVENUE

AND TAXx4TIO: e.

I, Barrett Wilson, Secretary ofthe State: Commission of

Revenue and Taxation, of the § State f Kansas, do hereby

certify that the above ‘aiid forégoing is a true and correct

copy.of an order made by the State Cammission of Rev-

enue and Taxation as thé same appears in the office of the |

State Commission of Revenue and Taxation. ?

Ix Testimony Wuereor, TF have hereunto subscribed my

name and affixed the official seal of the State Commission —

of Revenue and Taxation, this —— day of Augnst, .

1956. 19...

BARRETT Wixson, Secretary.

49 a

.» EXHIBIT 2

BEK« RE THE SratE CoMMISSION OF REVENUE in TAXATION

OF THE STATE OF KANSAS °

March 20, 1952

Compensating Tax Hearing

“GENERAL Motors CORPORATION, BUiICK- |

OxpsMOBILE-PONTLAC ASSEMBLY Division, |

‘ > oP | ~

Appellant, ace ‘Docket 14815

: oe * a

THe DireEcTOR OF REVENUE, Aasittine.

Commission Present: fe

Mr. William Gough, Jr... Chairman

Mr. Dale A: Fisher, Copimissioner .

Dr.O. W. Schwalm, Commissioner 7

Mr. W.G. Leonard, . Chief Attorney ee 7

Appellee Represented by: , ,

\r..Bert E. Mitchener, Director of Revenue

Mr. Harry Kendall,- Chief, C ompensating Tax .

; ; Division

-- Mr-C. O. Robertson, - Chief, Sales Tax Division-

Mr. Don Symes, General Accountant ‘

Mr. H.R. O’Harra, -. Accountant

Mr: William Grier, Accountant

Appellant Represented by: ‘ wth

Mr.D.K. Barnes, = Attortiev, General Motors Corpora-

tion, Detroit, Mich.;

Mr. R. A. Bywaters, Resident Comptroller, Buick-Olds-

mobile-Pontiac Assembly Di-

vision, Kansas City, Kansas;

Mr. C. B. Armstrong, Tax Supervisor, General Motors

Corporation, Detroit, Mich.,;

2 50

Mr. M-C..Barnes, Assistant to Division’‘Comptroller,

~ Buick- Oldsmobile-Pontiac Division,

oar . Detroit, Mich.; —

Mr. F.C, King, . —_ Resident Auditor, Buick-Olds-

. eae mobile- Pontiac Division, Kansas

; er City, Kansas;

Mr. H. V. Galia, Attorney, United States Air Force.

Mr. Goucu: The matter before the C ommission at this

_ time is the request for a hearing by General. Motors Cor-.

poration, Buick -Oldsmobile-Pontiac Assembly Division of

Kansas City, Kansas, in the matter of a compensating tax |

assessment in the amount of $37,530.77 with interest -

thereon. int the amount of $2,937.07 for a total. liability of

$40,467.84 as transmitted by Director of Revenue under

date of January 14, 1952, COV vering the period between No-

vember 1, 1947, through October 31, 1951.

The Taxpayer's Registration No. is 1-C-8.

It appears that the taxpayer’s request for hearing was

received by the Secretary of the Commission on February

7, 1952, and the matter duly docketed for hearing at this

time. . It further appears that under date-of February 29.

-. 1952, the taxpayer filed a petit‘on for reassessment and or

redetermination of the ass’ ..nent making reference to the

assessment under date of January 14, 1952, which docu-

ment was filed with thé Commission on the theory that the

original notification had been received within thirty days,

namely February 5, 1952. * ”

The taxpayer appears by and through Mr. D. K. Barnes,

its Attorney Mir. F.C. King, Resident Auditor, Buick-Olds-

mobile-Pontiac Diyision, Kansas City, Kansas; Mr. R. A.

By waters, Resident Comptroller, Buick-OldsmobiJe-Pontiac

Assembly Division, Kansas City, Kansas; Mr. C. B. Arm."

strong. Tax Stipervisor, General Motors Corporation, De-

troit, Michigan; Mr. M. C. Barnes, Assistant to Division

Comptroller, Buick-Oldsmobile-Pontiac Division, Detrort.

: . ‘ ‘ ms

: Sl

Michigan, and Mr. iH. Vv. Galia, Attimey, U nited States Air

Force.

The Director.of Revenue appears in person, aa by and

through Mr.. Harry Kendall, Chief of the Compensating

Tax Division; Mr. C. O. ‘Robertson, Chief of the Sales Tax

Division; Mr. Don Symes, General Accountant; Mr. H.R.

O'Harra, Accountant, and Mr. William Grier, Accountant.

Very well, Mr. Barnes, will you. present your contentions

against the assessment for benefit of the Contmission.

Min. D, K. Barnes: May it please the Commission, for

* the convenience of the Commission ‘I would like to refer

first to Item 12 of the items in our petition taking exce ption

to the matters in the apdit.. The reason for that is to con-

tinue the matters that were in the hearing just closed before

we move to something else. Si

Mr. Mitcuner: We are not sure just what item you are

talking about? (Addressing Mr. D. K. Barnes.

Mr. D..K. Barnes: Item 12.

Mr. Govcu: That is Government Facilities items, .

Mr. Mircuner: I thought maybe it was something in

the audit? ; 7

Mr. D. K. Barnes: No, it is not numbered in the audit.

(Reporter's Note: At this stage of the hearing a discus-

~ sion was held.off the record at the conclusion of which the *

- following further oral proceedings were had, to-wit: )

Mr. D. K: Barnes: The Buick-Oldsmobile-Pontiac As-

sembly ‘Division Plant at Kansas City has a Government

Facilities Contract for the Air Force. The effect of that

contract is to require General Motors Corporation to as-

will be accomplished on another contract. That facilities °°

contract is the only one which is involved in this proceed-

ing, .

The contract requires that the corporation screen pools

of machinery now owned by the Air Force, and to draw

"ad

from those pools such machinery ay can be used’ for the

; Rae ary of this eventual production contract. they fail

‘to find the appropriate machiuery in the Government = AN

* he contract directs the contractor to buy the machinery.

each case, however, with the prior special approval of the

Air Force Contracting Officer. The contract grants an oe.

pendityre of up to 16 million dollars on behalf of the- Gov.

crument for that purpose! fe

One provision of it I should like to read into the record.

I will give this to you. (Addressing the Reporter. )

| “You are not duthorized to expend or to obligate

the Government in furtherance of your performance

hereunder more than $#6,000,000 in the aggregate

Pending the execution of the definitive contract.

each expenditure, order, subcontract or commitment

made by you in furtherance of your: perforniance

herein, if on a CPFF basis or if for ab amount that —

shall exceed either 5% of the amount last above stated

or $25,000.00 whichever is less, shall be approved by

the Contracting Officer. Tit} to all work under this

contract completed or in the course of manufacture

or assembly at your plant, shall be in the Govern-

ment. ‘Title to all items of facilities, material; parts

and equipment for which you will be entitled to be

reimbursed under this contract or under the: defini-

tive contract shall vest in the Government upon de-

livery to you at any point within the continental

limits of the United States, or at any place: or time

directed by the Contracting Officer. and all such

property shall remain personalty although it may be

affixed to realty not belonging to the Government.

Property accountability shall be in the Air Force In-

: dustrial Property Accountability. Officer designated

‘by the officer having over-all responsibility for the

administration of this contract.” *

. , =.

. . “s ~-

7 ; 53°

. .This contract provides for reimbursement to the cOrpo-

ration for the amount of money which itexpends upon be-

half of the Government in’ acquiring these tools. It

provides for no other payments to’ the Corporation. _ In

other words all the services performed by the Corporation

are performed entirely free of charge, and we simply have

a Wash out item. Money going out to pay fer the todls and

money coming ift from the Government is feim ment.

And I offer a copy of the contract in evidence. ‘Hands to

Mr. Gotcu: Will you mark this “Taxpayer's Exhibit 1°?

(Addressing the Reporter. )

( Reporter's Note: Taxpayer's Exhibit | was marked for

_ purpose of identification by the Reporter. )

Mr. Goucn: Taxpayer's Exhibit 1 will be admitted.

Mr. D. K. Barnes: The procedure under the contract is

a determination by General Motors Corporation that a par-

ticular tooP is necessary to perform the production job .

coming up, and that it is not available in Government pools.

Next the .Corporatién analyzes sources and selects the

source from ‘which it would like to buy the tool and no

doubt quotes a ~>ice. Then it applies to the Contracting

cer represe tin the Air Force for permission to buy

that particular with Government funds, and-offers evi-

dence showing che proposed purchase is reasonable and

necessary.’ The Contracting Officer with the advice of his

staff approves the transaction. Thereafter a purchase order

is issued to the supplier. That purchase order shows the -

contract number, it shows€tBat the equipment is to be

shipped on a government bill of lading, it shows approval

of the contracting office; it shows reference to the facilities

Schedulé-under the contract. And finally it states, “Not

subject to Kansas State sales or use tax.” | :

I offer in evidence an actual copy of one transaction of

the type just described. (Hands to Mr. Gough. )

‘ oe .

| Bt

Mr. Goucn: Will. you mark this “Taxpayer's Exhibit 2) -.

please? (Addressing the Reporter. )

(Reporter's Note: Taxpayer's Exhibit 2 was marked for

purposes of identification by the Reporter. )

Mr. Goucu: — Exhibit 2 is. admitted in evi-

dence. a ,

Mr: D. K. Barnes: Tools are purchased for the account

of the Government pursuant to that Government contract

and in'the manner indicated in.that procedure. The title

under the.terms of the contract vests in the Government as

soon as it passes from the vendor of the tools. Thev are,

held for—by the Corporation for the account of the Govee

. ernment.” The Government carrying the accountability foi

them itself all during the time they are in the plant. And

they are used solely in the performance of the Government's

work on another contract. The provisions of the contract

of course would be violated if the tools were to be used for

anything else. At the moment they are not being used for

anything. They are being held waiting for the assemb!y to

be completed before the production begins. ;

The Corporation buys’ othér tools which it uses in the

performance of other Government contracts. Those tcols

are owned by the Corporation. Their cost, of course, is’

recovered through the’ price of the article sold to the Gov-

ernment, and on those tools tax is paid. And none are in-

volved in this transaction. The machinery which will make

up the finished plant for the performance of this produc tion

contract. while largely purchased in the manner indicated —

is in part supplied by the Government pool, and all of it

constitates Government furnished property, there being no

distinction, from piece to piece based upon its source. |

have nothing more to say with-respect to this item. Those

are the facts. The -questien of the policy, constitutionality

or statutory application of the tax to those things is ont of

our hands... That is ‘between the: State of Kansas and the

it be an acquisition for resale and therefore exempt?

Federal Government. We have just presented the facts to

you and will abide by your decision whatever it might. be.

Do you wish me to proceed? ( Addressing Mr. Gough. )’.

Mr. Govcn: ‘Mr. Mitchner, do you have any particular

questions in regard to this particular question?

Mik. Mircuner: One question. In regard to the ap-

proval of the Coutracting Officer did I understand that the.

Contracting Officer must approve all the purchases of

$25,000 or more, and.that the purchases under $23.000 do

not reqiire the approval of the Contracting Officer? Pi

‘Ma. D. K. Barnes: That is not my understanding.

Min. Kinc: On the Facility Contract, which we are talk- _

ing of here, the Contracting Officer approves all purchases.

Mk. Mircuner: The contract did mention. however,

something about any purchases over $23.000 or more, did

“ aw ‘

itnot? =

Mr. Kinc: We couldn't be obligated for purchases under

$25,000. ae |

Mr. Mitcuner: I understocd also that the purchases are

made and paid for by General Motors, or the Buick-Olds-

mobile-Pontiac Assembly ‘Division of General Motors, and

then reimbursement is made by the-Government?

Mr. D. K. Barnes: That is correct.

Mr. Mircuxer: The Director's position vould he that

General Motors through its assembly division as the pur-

chaser would be the consumer and. would be liable for the

tax, : ‘ . ,

Me. D. K. Barnes: ‘May IT ask Mr. Mitchner a question?

(Addressing Mr. Gough. )

~ Mr. Govucn: Yes, go ahead. nf

Mr. D, K. Barnes: Mr. Mitchner, in that event wouldn't

Mk. Mrrenxer: The Director does not believe so. These

machines and equipment and so on are purchased by Gen-

_ eral Motors and are used, by General Motors in the carrying

out of this contract.

- Mr. D. K. Barnes: That i is correct, as Agent for the Gov-

ernment.

Mr. GoucH: -Mr. Galia, you are apparently here on. be- >

half of the United States Air Force, do you have any ques-

‘tions ‘you would like to ask, or any statement you would:

like to make?

Mr. Gauia: I merely want to make certain that our case -

is well presented, and if there are any questions on the part

of the Commission that.they wish to have clarified, that is

_ ofa relation as it.exists between the.contractor and the Air

~ Force, I will attempt to answer them.

Mr. Goucu: You do,not propose to go beyond the terms

of the contract at this particular time? _ (Addressing Mr.

D. K. Barnes. ) “3

Mr..D. K. BARNES: That is correct, I do_not.

. Mr, Goucu: All right, you may proceed with the oilies

items involved.

oo -- oe —- Senna ——— Qe ee eee

( Matter immaterial to present proceeding omitted. )

Mr. Goucn: Are there any-further questions?

(‘Reporter's Note: No audible response. )

Mr. Goucn: Very well. . The taxpayer will be granted

fwenty days ip which to submit a brief and the Director of

Revenue ‘will be granted. ten days ip which to file wi ply

brief. . ede

If there is nothing further that will conclude the hearing.

Thank you very much for your presentation, ‘Mr. Barnes.

Mr. D.K K. Barnes: Thank vou, Mr. Gough.

’

e a

. .

R. H. Incram, CSR.

Transcribed 3/28 /52.

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