Tax Status of Native American Village Corporation

B-205150 L/M, APR 8, 1982, OFFICE OF GENERAL COUNSEL

DIGESTS: 1. RECIPIENT OF FEDERAL GRANT FUNDS IS NOT AGENT OF UNITED STATES, AND THUS FEDERAL IMMUNITY DOES NOT PROVIDE EXEMPTION FROM PAYMENT OF STATE AND LOCAL TAXES. 2. FEDERAL CONTRACTORS ARE NOT AGENTS OF THE FEDERAL GOVERNMENT, AND ARE NOT IMMUNE TO STATE TAXATION. UNITED STATES V. NEW MEXICO, 42 CCH S.CT.BULL. P. B1741 (MARCH 24, 1982).

MR. LELAND LITTLE, CONTROLLER, KAWERAK, INC.:

THIS IS IN RESPONSE TO YOUR LETTER OF MARCH 3, 1982, IN WHICH YOU, IN EFFECT, REQUESTED THAT WE RECONSIDER THE CONCLUSIONS WE REACHED IN OUR LETTER TO YOU DATED JANUARY 27, 1982. IN YOUR LETTER, YOU STATED THAT KAWERAK, INC., DID NOT RECEIVE ANY MONETARY OR LAND DISTRIBUTIONS UNDER THE ALASKA NATIVE CLAIMS SETTLEMENT ACT, BUT WAS INSTEAD "FORMED BY GRANTS FROM THE BUREAU OF INDIAN AFFAIRS AND OTHER FEDERAL AGENCIES." YOU FURTHER INDICATED THAT KAWERAK, INC., WAS FUNDED SOLELY BY GRANTS AND CONTRACTS FROM FEDERAL AND ALASKA STATE AGENCIES. YOU EXPRESSED THE OPINION THAT, FOR THESE REASONS, "THE EXEMPTION FROM SALES AND PROPERTY TAXES PROVIDED TO FEDERAL AND STATE AGENCIES SHOULD PASS THROUGH TO KAWERAK AS THE PROVIDER OF THE SERVICES OFFERED BY THE AGENCIES."

WE NOTE THAT, IN DRAFTING OUR RESPONSE TO YOUR INITIAL INQUIRY, WE ACTED ON THE BASIS OF THE INFORMATION THAT KAWERAK, INC., WAS ONE OF THE VILLAGE CORPORATIONS ESTABLISHED UNDER THE ALASKA NATIVE CLAIMS SETTLEMENT ACT (ANCSA). WE ASSUMED THAT, AS SUCH, IT WAS SUPPORTED BY THE FEDERAL AND STATE FUNDS PROVIDED FOR IN THE ACT. YOU STATE IN YOUR LETTER THAT "NON- PROFIT CORPORATIONS, SUCH AS KAWERAK, DID NOT RECEIVE ANY MONETARY OR LAND DISTRIBUTIONS THROUGH ANCSA." ALTHOUGH IT IS UNCLEAR TO US WHY THIS SHOULD BE THE CASE (UNLESS KAWERAK IS NOT IN FACT A VILLAGE CORPORATION), WE NEED NOT SEEK AN EXPLANATION SINCE, EVEN IF KAWERAK RECEIVES NO FUNDING THROUGH ANCSA AND IS INSTEAD SUPPORTED BY GRANTS AND CONTRACTS FROM STATE AND FEDERAL AGENCIES, WE CONCLUDE THAT FEDERAL LAW DOES NOT PROHIBIT THE IMPOSITION OF CITY SALES AND PROPERTY TAXES UPON IT.

AS WE EXPLAINED IN OUR LETTER OF JANUARY 27, 1982, WE DO NOT HAVE THE AUTHORITY TO QUESTION AN INTERPRETATION OF STATE OR LOCAL LAW MADE BY STATE OR LOCAL OFFICIALS. WE THUS DECLINED - AND CONTINUE TO DECLINE - TO REVIEW THE DETERMINATION BY THE CITY OF NOME THAT KAWERAK DOES NOT QUALIFY FOR THE EXEMPTIONS FROM TAXATION PROVIDED BY STATE LAW AND LOCAL ORDINANCE. WE FURTHER NOTE THAT THE STATE HAS THE AUTHORITY TO DETERMINE WHETHER FUNDS RECEIVED UNDER STATE GRANTS OR CONTRACTS ARE TO BE EXEMPTED FROM STATE OR LOCAL TAXATION. THUS, WE EXPRESS NO OPINION AS TO THE LEGAL SIGNIFICANCE OF THE FACT THAT KAWERAK, INC., IS FUNDED IN PART BY ALASKAN STATE AGENCY GRANTS AND CONTRACTS.

WE WILL CONSIDER, HOWEVER, THE LEGAL IMPLICATIONS OF THE FACT THAT KAWERAK, INC., DERIVES THE REMAINING PORTION OF ITS FUNDING THROUGH FEDERAL GRANTS AND CONTRACTS. IN 37 COMP.GEN. 85 (1957), WE HELD THAT FEDERAL FUNDS WHICH WERE GRANTED TO A GRANTEE BECAME THE PROPERTY OF THE GRANTEE AND WERE NO LONGER CONSIDERED FEDERAL FUNDS. WE FURTHER HELD THAT THE GRANTEE, IN DISBURSING GRANT FUNDS, WAS NOT TO BE CONSIDERED AN AGENT OF THE UNITED STATES. THUS WE DID NOT OBJECT TO THE PAYMENT FROM FEDERAL GRANT FUNDS OF NONDISCRIMINATORY STATE SALES TAXES ON SERVICES AND SUPPLIES PROCURED BY THE GRANTEE, AS PURCHASER, TO CARRY OUT THE PURPOSES OF THE GRANT. WE THINK THAT THE SAME PRINCIPLE GOVERNS IN THE CASE NOW BEFORE US: KAWERAK, IN DISBURSING GRANT FUNDS, IS NOT CONSIDERED TO BE AN AGENT OF THE FEDERAL GOVERNMENT, AND THUS IS NOT EXEMPT FROM PAYING LOCAL AND STATE TAXES ON THE GROUNDS OF FEDERAL IMMUNITY.

WITH REGARD TO THE ISSUE OF TAX IMMUNITY FOR FUNDS WHICH KAWERAK DERIVES FROM CONTRACTS WITH THE FEDERAL GOVERNMENT, IT HAS BEEN HELD BOTH BY THIS OFFICE AND THE UNITED STATES SUPREME COURT THAT FEDERAL CONTRACTORS ARE NOT, EXCEPT IN LIMITED CIRCUMSTANCES, AGENTS OF THE GOVERNMENT, AND ARE NOT IMMUNE TO STATE TAXATION. IN B-177215, NOVEMBER 30, 1972, WE NOTED THAT "A STATE SALES TAX, THE LEGAL INCIDENCE OF WHICH FALLS ON THE VENDEE (BUYER), DOES NOT INFRINGE THE CONSTITUTIONAL IMMUNITY OF THE GOVERNMENT WHERE IT IS DETERMINED THAT THE GOVERNMENT IS NOT IN FACT THE 'PURCHASER' WITHIN THE MEANING OF THE TAX STATUTE." THE WISCONSIN STATUTE UNDER CONSIDERATION IN THAT CASE CLOSELY RESEMBLED THE NOME ORDINANCE, IN THAT IT EXEMPTED FROM STATE SALES TAX SALES TO ENTITIES ORGANIZED AND OPERATED EXCLUSIVELY FOR RELIGIOUS, CHARITABLE, SCIENTIFIC OR EDUCATIONAL PURPOSES, AND SALES TO THE UNITED STATES AND ANY OF ITS AGENCIES OR INSTRUMENTALITIES. WE POINTED OUT THAT THIS EXEMPTION WOULD NOT APPLY TO SALES MADE TO GOVERNMENT CONTRACTORS, SINCE THE GOVERNMENT WOULD NOT BE THE "PURCHASER" IN SUCH CIRCUMSTANCES, UNLESS THE CONTRACTOR ACTED ONLY AS PURCHASING AGENT FOR THE GOVERNMENT. SINCE KAWERAK DOES NOT ACT AS A PURCHASING AGENT FOR THE FEDERAL GOVERNMENT, WE WOULD SIMILARLY CONCLUDE THAT THE EXEMPTION FROM TAXATION PROVIDED FOR IN THE NOME ORDINANCE DOES NOT APPLY.

A RECENT DECISION BY THE U. S. SUPREME COURT LENDS SUPPORT TO OUR REASONING. IN UNITED STATES V. NEW MEXICO, 42 CCH S.CT.BULL. P. B1741 (MARCH 24, 1982), THE COURT CONSIDERED THE EXTENT TO WHICH A STATE MAY IMPOSE TAXES ON CONTRACTORS WHO CONDUCT BUSINESS WITH THE FEDERAL GOVERNMENT. THE COURT NOTED THAT:

"*** IMMUNITY MAY NOT BE CONFERRED SIMPLY BECAUSE THE TAX HAS AN EFFECT ON THE UNITED STATES, OR EVEN BECAUSE THE FEDERAL GOVERNMENT SHOULDERS THE ENTIRE ECONOMIC BURDEN OF THE LEVY. THAT IS THE IMPORT OF ALABAMA V. KING & BOOZER 314 U.S. 1 (1941), WHERE A SALES TAX WAS IMPOSED ON THE GROSS RECEIPTS OF A VENDOR SELLING TO A COST-PLUS GOVERNMENT CONTRACTOR. THE COURT FOUND IT CONSTITUTIONALLY IRRELEVANT THAT THE UNITED STATES REIMBURSED ALL THE CONTRACTOR'S EXPENDITURES, INCLUDING THOSE GOING TO MEET THE TAX: THE GOVERNMENT'S RIGHT TO BE FREE FROM STATE TAXATION 'DOES NOT SPELL IMMUNITY FROM PAYING THE ADDED COSTS, ATTRIBUTABLE TO THE TAXATION OF THOSE WHO FURNISH SUPPLIES TO THE GOVERNMENT AND WHO HAVE BEEN GRANTED NO TAX IMMUNITY.' 314 U.S., AT 9. THAT THE CONTRACTOR IS PURCHASING PROPERTY FOR THE GOVERNMENT IS SIMILARLY IRRELEVANT; IN KING & BOOZER, TITLE TO GOODS PURCHASED BY THE CONTRACTOR VESTED IN THE UNITED STATES IMMEDIATELY UPON SHIPMENT BY THE SELLER. ID., AT 13.

"SIMILARLY, IMMUNITY CANNOT BE CONFERRED SIMPLY BECAUSE THE STATE TAX FALLS ON THE EARNINGS OF A CONTRACTOR PROVIDING SERVICES TO THE GOVERNMENT. JAMES V. DRAVO CONTRACTING CO. 302 U.S. 134 (1937), ***

"WHAT THE COURT'S CASES LEAVE ROOM FOR, THEN, IS THE CONCLUSION THAT TAX IMMUNITY IS APPROPRIATE IN ONLY ONE CIRCUMSTANCE: WHEN THE LEVY FALLS ON THE UNITED STATES ITSELF, OR ON AN AGENCY OR INSTRUMENTALITY SO CLOSELY CONNECTED TO THE GOVERNMENT THAT THE TWO CANNOT REALISTICALLY BE VIEWED AS SEPARATE ENTITIES, AT LEAST INSOFAR AS THE ACTIVITY BEING TAXED IS CONCERNED. ***"

42 CCH S.CT.BULL. PP. B1752-3.

IN OUR VIEW, KAWERAK, INC., IS NOT "AN AGENCY OR INSTRUMENTALITY SO CLOSELY CONNECTED TO THE GOVERNMENT THAT THE TWO CANNOT REALISTICALLY BE VIEWED AS SEPARATE ENTITIES." UNDER SUCH CIRCUMSTANCES, WE CANNOT CONCLUDE THAT FEDERAL IMMUNITY PROHIBITS THE IMPOSITION OF LOCAL TAXES ON KAWERAK.