Washington v. United States

Background

The dispute involved the State of Washington and the United States over how Washington’s sales and use tax applies to building construction. Before 1941, contractors paid tax on materials; after 1941, the landowner paid tax on the whole project. Because the Federal Government is immune from direct state taxation, federal projects were untaxed under the post-1941 system. In 1975 Washington changed its law to require contractors on federal projects to pay tax on materials, and the United States sued. A federal district court and the Ninth Circuit held the law discriminated against the Federal Government.

Reasoning

The Supreme Court examined whether the tax treats the Federal Government worse than other taxpayers. The majority looked at the State’s entire sales-tax system, noting the tax rate and scheme apply broadly and that the only difference is who, in a given transaction, bears legal responsibility for the tax. The Court found Washington had not singled out federal contractors for worse treatment and that taxing contractors as part of a statewide sales tax scheme did not violate the Federal Government’s immunity. The Court therefore reversed the Ninth Circuit and allowed the State to collect sales and use taxes from federal contractors.

Real world impact

States may, consistent with this decision, shift tax collection onto contractors when the United States cannot be taxed directly as project owner. Federal contractors may face upfront tax reporting and collection duties on federal jobs. The Court stressed that any broader immunity expansion must come from Congress, not the courts.

Dissents or concurrances

A dissent argued the 1975 change deliberately targeted federal projects, unlawfully circumventing federal immunity and singling out those who serve the United States for special taxation.