Montana v. United States

1979-02-22

Headline: Court prevents the United States from relitigating a state-court loss and enforces collateral estoppel, leaving Montana’s 1% public-contractor gross receipts tax intact for now and blocking the federal challenge in federal court.

Holding: The Court held that because the United States controlled and participated in prior state litigation, the Montana Supreme Court’s adverse ruling estops the Government from relitigating the same constitutional claims in federal court.

Real World Impact:

Estops the federal government from relitigating identical state-court tax claims.
Leaves Montana’s 1% public-contractor tax intact while merits remain undecided.
Affects contractors’ bids and costs for public projects involving federal or state funds.

Topics: state taxes on contractors, federal immunity from discriminatory taxes, government contracting costs, preclusion rules

Summary

Background

Montana charges a one percent gross receipts tax on contractors who work on public construction projects but not on private jobs. A contractor on a federal dam, Peter Kiewit Sons’ Co., sued in Montana court with the United States directing and financing the litigation; the Montana Supreme Court upheld the tax. The contractor later brought a related state claim, which the Montana court dismissed as barred by the earlier judgment. The United States then pursued its separate federal challenge.

Reasoning

The Court considered whether the United States could relitigate the same constitutional questions in federal court and whether the tax discriminated against the Federal Government. The majority found the Government had effectively controlled the earlier state litigation (it directed filing, funded counsel, and pursued appeals), so issue preclusion (collateral estoppel) prevents relitigation of the same claims. The Court rejected the Government’s argument that later changes about tax credits made the issues materially different, and it reversed the District Court without reaching whether the tax violates the Supremacy Clause.

Real world impact

Because the ruling rests on preclusion, the Montana tax challenge was dismissed on procedural grounds rather than decided on the merits. The United States cannot relitigate the identical constitutional claims it previously prosecuted in state court, so federal contractors and agencies may still face the tax unless different facts or a new legal posture supports reconsideration. The constitutional question itself remains undecided by this Court in this case.

Dissents or concurrances

Justice White dissented, saying factual changes (notably federal contractors’ later access to tax credits) meant the federal suit raised different issues and should have been heard on the merits; he would have found the tax discriminatory. Justice Rehnquist concurred separately on a limited point about cited authorities.