A-60841, APRIL 27, 1935, 14 COMP. GEN. 798

A-60841: Apr 27, 1935

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TAXES - VIRGIN ISLANDS AS THE VIRGIN ISLANDS COMPANY IS AN INSTRUMENTALITY OF THE UNITED STATES GOVERNMENT. APPROPRIATED FUNDS ARE NOT AVAILABLE FOR PAYMENT OF A LICENSE TAX AND PREMIUM ON BOND IMPOSED AGAINST SAID FEDERAL CORPORATION BY THE LOCAL GOVERNMENT OF VIRGIN ISLANDS WHICH IS UNDER THE JURISDICTION OF. THAT WHEN SUCH BOND IS ISSUED A LICENSE WILL BE GRANTED. BASED ON THE FACT THAT THE LOCAL LAWS HAVE BEEN COMPLIED WITH AND THE VIRGIN ISLANDS COMPANY HAS A LOCAL LICENSE TO MANUFACTURE RUM. THESE VOUCHERS HAVE BEEN SUSPENDED BY THE REPRESENTATIVES OF THE GENERAL ACCOUNTING OFFICE. IT IS BELIEVED THAT THE BOND PREMIUM IS NOT A TAX AND THAT THE LICENSE FEE IS AN IMPOSITION TO WHICH THE CORPORATION MAY PROPERLY BE SUBJECTED.

A-60841, APRIL 27, 1935, 14 COMP. GEN. 798

TAXES - VIRGIN ISLANDS AS THE VIRGIN ISLANDS COMPANY IS AN INSTRUMENTALITY OF THE UNITED STATES GOVERNMENT, APPROPRIATED FUNDS ARE NOT AVAILABLE FOR PAYMENT OF A LICENSE TAX AND PREMIUM ON BOND IMPOSED AGAINST SAID FEDERAL CORPORATION BY THE LOCAL GOVERNMENT OF VIRGIN ISLANDS WHICH IS UNDER THE JURISDICTION OF, AND DERIVATIVE TO, THE UNITED STATES.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE INTERIOR, APRIL 27, 1935:

THERE HAS BEEN RECEIVED YOUR LETTER OF MARCH 13, 1935, AS FOLLOWS:

I AM ENCLOSING HEREWITH THE FOLLOWING PAPERS IN CONNECTION WITH A LICENSE TO BE SECURED FROM THE MUNICIPALITY OF ST. CROIX TO PERMIT THE VIRGIN ISLANDS COMPANY TO OPERATE A DISTILLERY:

1. ORDINANCE ENACTED BY THE COLONIAL COUNCIL OF ST. CROIX, AND APPROVED BY THE GOVERNOR JUNE 9, 1934.

2. VOUCHER IN THE AMOUNT OF $200 FOR THE PAYMENT OF RUM MANUFACTURER'S LICENSE TAX FOR THE FISCAL YEAR ENDING JUNE 30, 1935.

3. VOUCHER FOR THE PAYMENT OF A PREMIUM ON THE SURETY BOND REQUIRED BY LOCAL LAW PRIOR TO ISSUANCE OF RUM-DISTILLER'S LICENSE.

THE LAW, AS PROVIDED IN THE ORDINANCE REFERRED TO ABOVE, REQUIRES THAT ALL THOSE WHO MANUFACTURE OR PRODUCE RUM SHALL BE BONDED FOR $5,000, AND THAT WHEN SUCH BOND IS ISSUED A LICENSE WILL BE GRANTED. IN THE CASE OF THE VIRGIN ISLANDS COMPANY, WITH A PRODUCTION IN EXCESS OF 50,000 GALLONS PER YEAR, THE LICENSE TAX WOULD BE $200.

THE FEDERAL ALCOHOL CONTROL ADMINISTRATION HAS ISSUED A DISTILLER'SLICENSE AND A RECTIFIER'S LICENSE TO THE VIRGIN ISLANDS COMPANY, BASED ON THE FACT THAT THE LOCAL LAWS HAVE BEEN COMPLIED WITH AND THE VIRGIN ISLANDS COMPANY HAS A LOCAL LICENSE TO MANUFACTURE RUM.

THE LOCAL LICENSE HAS BEEN ISSUED TO THE VIRGIN ISLANDS COMPANY, AS WELL AS THE FEDERAL LICENSES. THE TWO VOUCHERS REFERRED TO ABOVE CALL FOR A PAYMENT OF THE LOCAL LICENSE FEE AND THE BOND PREMIUM, AND THESE VOUCHERS HAVE BEEN SUSPENDED BY THE REPRESENTATIVES OF THE GENERAL ACCOUNTING OFFICE.

IT IS BELIEVED THAT THE BOND PREMIUM IS NOT A TAX AND THAT THE LICENSE FEE IS AN IMPOSITION TO WHICH THE CORPORATION MAY PROPERLY BE SUBJECTED.

THE SUPREME COURT HAS RECENTLY REAFFIRMED THE POSITION THAT WHEN A STATE ENGAGES IN THE LIQUOR BUSINESS IT LAYS ASIDE ITS SOVEREIGN IMMUNITY AND ITS ACTIVITY IS NOT WITHDRAWN FROM FEDERAL TAXING POWER. OHIO V. HELVERING, 292 U.S. 360 (1934). ACCORD: SOUTH CAROLINA V. UNITED STATES, 199 U.S. 437 (1905). A FORTIORI, IT WOULD SEEM THAT A CORPORATION SUCH AS THE VIRGIN ISLANDS COMPANY, WHICH IS THE CREATURE OF LOCAL LAW IN THE VIRGIN ISLANDS, CANNOT ENGAGE IN THE MANUFACTURE OF RUM WITHIN ONE OF THE LEGISLATIVE DISTRICTS OF THE VIRGIN ISLANDS WITHOUT COMPLYING WITH ENACTMENTS OF THE LOCAL COLONIAL COUNCIL WHICH REGULATE THE ISSUANCE OF EVERY LICENSE TO MANUFACTURE RUM WITHIN THAT JURISDICTION.

IN THESE CIRCUMSTANCES, I INQUIRE WHETHER THE PAYMENT OF THE CLAIMS REPRESENTED BY THE TWO QUESTIONED VOUCHERS CAN BE AUTHORIZED.

THE SOUTH CAROLINA AND OHIO CASES REFERRED TO BY YOU WERE CASES IN WHICH THE RESPECTIVE STATES OF SOUTH CAROLINA AND OHIO HAD ENGAGED--- IN SOUTH CAROLINA THROUGH DISPENSERS AND IN OHIO THROUGH THE DEPARTMENT OF LIQUOR CONTROL--- IN THE SALE OF BEER AND INTOXICATING LIQUOR. THE QUESTION BEFORE THE SUPREME COURT OF THE UNITED STATES WAS WHETHER THESE RESPECTIVE STATES WERE REQUIRED TO PAY TO THE UNITED STATES INTERNAL-REVENUE TAXES OTHERWISE PROPERLY PAYABLE BY RETAIL DEALERS IN LIQUOR, AND THE STATES RESISTED SUCH PAYMENT ON THE CONSTITUTIONAL GROUND THAT THE FEDERAL GOVERNMENT WAS WITHOUT AUTHORITY TO TAX STATES OR THEIR INSTRUMENTALITIES UNDER THE PRINCIPLES APPLIED IN MCCULLOCH V. MARYLAND, 4 WHEAT. 316; INDIAN MOTOR CYCLE CO. V. UNITED STATES, 283 U.S. 570, AND NUMEROUS OTHER CASES. HOWEVER, IT WAS HELD IN THE CASES THAT THE IMMUNITY OF THE STATES FROM FEDERAL TAXES WAS LIMITED TO THOSE AGENCIES WHICH ARE OF A GOVERNMENTAL CHARACTER AND THAT WHENEVER A STATE ENGAGES IN A BUSINESS OF A PRIVATE NATURE IT EXERCISES NONGOVERNMENTAL FUNCTIONS, AND THE BUSINESS, THOUGH CONDUCTED BY THE STATES, IS NOT IMMUNE FROM THE FEDERAL TAXING POWERS.

THAT RULE HAS NO APPLICATION IN THIS CASE.

THE GOVERNMENT OF THE VIRGIN ISLANDS IS NEITHER A FEDERAL NOR A STATE GOVERNMENT. THE ISLANDS WERE PURCHASED FROM DENMARK, AND THE ACT OF JUNE 24, 1932, 47 STAT. 333, WHICH WAS QUOTED IN MY DECISION OF APRIL 12, 1933, IN A-48013, TO YOU AND NEED NOT BE REQUOTED HEREIN, AMENDED CERTAIN PRIOR LAWS FOR THE TEMPORARY GOVERNMENT OF THE WEST INDIES ISLANDS AND PROVIDED THAT UNTIL CONGRESS SHOULD OTHERWISE PROVIDE ALL LAWS THEN IMPOSING TAXES IN THE WEST INDIES ISLANDS, INCLUDING THE CUSTOM LAWS AND REGULATIONS--- INSOFAR AS COMPATIBLE WITH CHANGED SOVEREIGNTY AND NOT OTHERWISE THEREIN PROVIDED--- SHOULD CONTINUE IN FORCE AND EFFECT EXCEPT THAT ARTICLES THE GROWTH, PRODUCT, OR MANUFACTURE OF THE UNITED STATES SHOULD BE ADMITTED FREE OF DUTY. THE STATUTE FURTHER PROVIDED FOR AN EXPORT TAX ON SUGAR TO ANY FOREIGN COUNTRY, A TAX WHICH IS PROHIBITED SO FAR AS THE CONTINENTAL UNITED STATES IS CONCERNED. ALSO, FOR THE PRESENT FISCAL YEAR THE CONGRESS HAS APPROPRIATED IN THE ACT OF MARCH 2, 1934, 48 STAT. 393, $172,600 TO MEET DEFICIENCIES IN THE TREASURIES IN THE MUNICIPALITIES OF ST. THOMAS AND ST. JOHN, SUCH AMOUNTS TO BE EXPENDED ONLY AS AN EQUIVALENT AMOUNT IS RAISED BY MUNICIPAL REVENUES.

THE RECORD DISCLOSES THAT IN AN ATTEMPT TO REHABILITATE THE SUGAR, ETC., INDUSTRY IN THE VIRGIN ISLANDS THE PUBLIC WORKS ADMINISTRATION MADE AN ALLOTMENT OF $1,000,000 TO ACQUIRE LANDS, BUILDINGS, AND MILLS, AND THESE PROPERTIES WHEN ACQUIRED WERE LEASED TO THE VIRGIN ISLANDS CO., WHICH WAS CHARTERED BY AN ORDINANCE PASSED APRIL 9, 1934, BY THE COLONIAL COUNCIL OF THE MUNICIPALITIES OF ST. THOMAS AND ST. JOHN AND WAS APPROVED APRIL 16, 1934, BY THE GOVERNOR OF THE VIRGIN ISLANDS GOVERNMENT. THE INCORPORATORS WERE HAROLD L. ICKES, OSCAR L. CHAPMAN, AND PAUL H. PEARSON, WHO SUBSCRIBED FOR ONE SHARE OF STOCK EACH. THE THREE INCORPORATORS OF THE VIRGIN ISLANDS CO. ARE OFFICIALS OF THE UNITED STATES, AND IF THERE BE ANY BASIS WHATEVER FOR THE INCORPORATION OF THE VIRGIN ISLANDS CO., UNDER THE LAWS OF THE GOVERNMENT OF THE VIRGIN ISLANDS, IT WAS INCORPORATED AS AN INSTRUMENTALITY OF THE UNITED STATES, AND TO THIS COMPANY THERE WAS LEASED THE PUBLIC PROPERTY PURCHASED WITH THE ALLOTMENT OF $1,000,000 HEREINBEFORE MENTIONED. IT IS UNDERSTOOD THAT, AMONG OTHER THINGS, THE VIRGIN ISLANDS CO. HAS ENGAGED IN THE MANUFACTURE OF RUM FROM NATIVE SUGAR, AND THE ORDINANCE OF JUNE 8, 1934, BY THE COLONIAL COUNCIL OF THE MUNICIPALITY OF ST. CROIX WHICH WAS APPROVED JUNE 9, 1934, BY THE GOVERNOR OF THE VIRGIN ISLANDS FOR THE REGULATIONS AND CONTROL OF THE MANUFACTURE, SALE, AND EXPORTATION OF AND TO PROVIDE FOR THE TAXATION OF ALCOHOLIC BEVERAGES, PROVIDES THAT A MANUFACTURING COMPANY MUST GIVE A BOND IN THE PENAL SUM OF $5,000 TO THE EFFECT THAT NO LAW OF THE MUNICIPALITY OF ST. CROIX WILL BE VIOLATED AND MUST PAY ANNUALLY IN ADVANCE A LICENSE TAX OF $200 FOR MANUFACTURERS INTENDING TO PRODUCE MORE THAN 50,000 GALLONS PER ANNUM. IT IS UNDER THIS ORDINANCE THAT IT HAS BEEN PROPOSED TO PAY THE SUM OF $200 AS RUM MANUFACTURER'S LICENSE TAX FOR THE FISCAL YEAR 1935AND $100 FOR A BOND OF $5,000 ON THE ACTIVITIES OF THE VIRGIN ISLANDS CO. IN THE MANUFACTURE OF RUM.

THERE IS NO LEGAL BASIS FOR CHARGING PUBLIC MONEYS WITH THE PROPOSED PAYMENTS OF PREMIUM ON BOND AND LICENSE TAX IN THIS CASE, THE VIRGIN ISLANDS CO. IS OWNED AND CONTROLLED BY THE UNITED STATES AND WAS ESTABLISHED AS RECITED IN THE ABOVE REFERRED TO ORDINANCE APPROVED APRIL 16, 1934, AMONG OTHER THINGS, TO AID IN EFFECTING THE ECONOMIC REHABILITATION OF THE VIRGIN ISLANDS, TO PROMOTE THE WELFARE OF THE PEOPLE OF THE VIRGIN ISLANDS, AND TO EXERCISE ALL THE POWERS CONFERRED UPON IT IN THE ORDINANCE IN ORDER TO SO ADVANCE AND ACCOMPLISH SUCH ECONOMIC REHABILITATION AND PROMOTION OF THE GENERAL WELFARE OF THE INHABITANTS OF SAID ISLANDS. ALL OF ITS ACTIVITIES ARE INCIDENTAL THERETO, AND THE CASE IS WHOLLY UNLIKE THE ONES CONSIDERED IN THE SOUTH CAROLINA AND OHIO CASES REFERRED TO IN THE LETTER OF MARCH 13, 1935. THE UNITED STATES IS SOVEREIGN OVER THE VIRGIN ISLANDS AND THE DERIVATIVE GOVERNMENT THEREIN IS WITHOUT AUTHORITY TO TAX THE UNITED STATES OR ITS INSTRUMENTALITIES OR AGENCIES. SEE ASIATIC PETROLEUM CO. V. UNITED STATES, 65 CT.CLS. 100, 112 AN EXTRACT FROM WHICH IS LIKEWISE QUOTED IN MY ABOVE REFERRED TO DECISION OF APRIL 12, 1933, TO YOU; SEE ALSO CLALLAM COUNTY V. UNITED STATES, 263 U.S. 341.

ACCORDINGLY YOU ARE ADVISED THAT THE VOUCHERS TRANSMITTED WITH YOUR LETTER OF MARCH 13, 1935, MAY NOT BE APPROVED AS A LEGAL CHARGE AGAINST PUBLIC MONEYS WHETHER IN THE TREASURY OR IN THE IMMEDIATE CONTROL OF THE VIRGIN ISLANDS CO. ..END :