970 F.

2d 739
38 Cont.Cas.Fed. (CCH) P 76,384

UNITED STATES of America, Plaintiff-Appellant,

v.
Earl KABEISEMAN, Director of Revenue, State of Wyoming;
Wyoming Department of Revenue and Taxation; State
of Wyoming, Defendants-Appellees.
No. 91-8032.

United States Court of Appeals,

Tenth Circuit.
July 21, 1992.

John J. McCarthy, Atty., Tax Div. (Shirley D. Peterson, Asst. Atty. Gen.,
and Gary R. Allen, David English Carmack, and David M. Katinsky,
Attys., Tax Div., Dept. of Justice, Washington, D.C., with him on the
brief, Richard Allen Stacy, U.S. Atty., of counsel), Cheyenne, Wyo., for
plaintiff-appellant.
Matthew D.C.P. Meuli, Asst. Atty. Gen. (Vicci M. Colgan, Sr. Asst. Atty.
Gen., with him on the brief), Cheyenne, Wyo., for defendants-appellees.
Before EBEL, Circuit Judge, McWILLIAMS, Senior Circuit Judge, and
HUNTER, Senior District Judge.*
McWILLIAMS, Senior Circuit Judge.
This case has its roots in McCulloch v. Maryland, 17 U.S. (4 Wheaton)
316, 4 L.Ed. 579 (1819). In McCulloch, the Supreme Court held that
under the Supremacy Clause of the United States Constitution, Article VI,
clause 2, a law passed by the state legislature of Maryland imposing a tax
on a branch of the Bank of the United States located in Maryland was
"unconstitutional and void." In so doing, Chief Justice Marshall observed
that "the power to tax involves the power to destroy." Id. at 431.

In the instant case, we are concerned with the effort of the State of Wyoming to

impose on a private contractor, under contract with the United States to operate
a federally owned facility located in Wyoming, a sales tax on diesel fuel and a
license tax on gasoline used by the private contractor in the performance of its
contract with the United States.
2

The United States brought the present action in the United States District Court
for the District of Wyoming against Earl Kabeiseman, Director of Revenue for
the State of Wyoming, the Wyoming Department of Revenue, and the State of
Wyoming. By amended complaint, the United States challenged the imposition
and collection of a sales tax on diesel fuel and a license tax on gasoline from a
private contractor under a personal service contract with the United States.1 The
United States sought a declaration that the collection of such taxes violated the
Supremacy Clause and asked for a refund of such taxes theretofore collected
and an injunction prohibiting future collection of such taxes. By answer, the
defendants asked that the United States be denied any relief.

Thereafter, both the United States and the defendants, who will hereinafter be
referred to as Wyoming, filed cross-motions for summary judgment. As we
understand it, the parties were unable to agree on any stipulation of facts. The
summary judgment motions, however, were supported by numerous affidavits.
In any event, the motions for summary judgment were heard, and the district
court denied the motion of the United States and granted the motion of
Wyoming. A motion of the United States to reconsider was denied and final
judgment in favor of Wyoming was duly entered.

As indicated, the parties did not formally stipulate to the facts, although
numerous affidavits did indicate that there was no real disagreement over the
critical background facts. The district court in its order granting Wyoming's
motion for summary judgment summarized the background facts out of which
the present controversy arises and neither party, on appeal, takes any particular
exception to the district court's summarization. Accordingly, we set forth here
the district court's recital of the background facts, which reads as follows:

NPR-3, a 9,481-acre federal facility located in Natrona County, Wyoming,

some 35 miles north of Casper, is one of three naval petroleum reserves in the
country currently administered by the Department of Energy (DOE), formerly
the Atomic Energy Commission (AEC). The other two, designated NPR-1 and
NPR-2, are located in California in Kern County and Buena Vista Hills,
respectively. All are engaged in the production of crude oil and natural gas. On
October 23, 1981, DOE contracted with Lawrence-Allison & Associates West,
Inc. (LAAW), a private contracting company, for the operation and
maintenance of NPR-3. This contract was renewed for five years in September

1986.
6

In order to operate NPR-3, refined petroleum products, including gasoline and

diesel fuel, are needed for drill rigs, motor vehicles, and for fracturing of wells.
The Defense Fuel Supply Center (DFSC), located within an agency of the
Department of Defense, purchases gasoline and fuel oil for federal agencies.
Each year, LAAW submits to DFSC an estimate of the amount of various
petroleum products it will need to operate NPR-3 for the year. Potential
vendors are then approached by DFSC. Most of the petroleum products needed
to operate NPR-3 are purchased by DFSC. In the event LAAW's estimate is
short, LAAW contracts directly with the vendor. The taxes paid on these latter
purchases are not contested by the Government.

LAAW accepts delivery of all the petroleum products, with title passing
directly from the vendor to DOE. The fuel is pumped directly into
Government-owned storage tanks. LAAW withdraws the fuel as needed in the
course of managing and operating NPR-3. LAAW issues checks bearing its
own name but drawn against funds deposited by DOE in a special checking
account. The bank accumulates these checks daily and electronically notifies
the United States Treasury. Soon thereafter, the bank credits DOE's account.

We are here concerned with the efforts of Wyoming to impose and collect from
Lawrence-Allison & Associates West, Inc. (LAAW) a sales tax on diesel fuel
and a license tax on gasoline used by LAAW in its performance under its
contract with the United States whereby LAAW operates and maintains Naval
Petroleum Reserve-3 (NPR-3) in Natrona County, Wyoming. In its motion for
summary judgment, the United States contended that both the sales tax and the
license tax collected by Wyoming were, in actual effect, an unconstitutional
levy upon the United States. The basic position of Wyoming in its motion for
summary judgment was that, as concerns both the sales tax on diesel fuel and
the license tax on gasoline, it was imposing a tax on LAAW, not the United
States. The United States and Wyoming are, however, apparently in accord
with the following language from South Carolina v. Baker, 485 U.S. 505, 523,
108 S.Ct. 1355, 1366, 99 L.Ed.2d 592 (1988), reh'g denied, 486 U.S. 1062, 108
S.Ct. 2837, 100 L.Ed.2d 937 (1988), which serves as a good starting point:

9 sum, then, under current intergovernmental tax immunity doctrine the States can
In
never tax the United States directly but can tax any private parties with whom it
does business, even though the financial burden falls on the United States, as long as
the tax does not discriminate against the United States or those with whom it deals.
10

We shall consider the sales tax on diesel fuel and the license tax on gasoline

seriatim.
I. Diesel Fuel
11

Wyo.Stat. 39-6-404(a) (1977) provides in pertinent part as follows:

12
Except
as provided by W.S. 39-6-405, there is levied and shall be paid by the
purchaser on all sales of twenty-five cents ($.25) or more an excise tax of three
percent (3%) upon:
13 the sales price of every retail sale of tangible personal property within the state
(1)
(emphasis added).
14

Wyo.Stat. 39-6-402(a)(iii) (1977) defines a sale as that term is used in the

statute above set forth as follows:

15
"Sale"
means any transfer of title or possession for a consideration including the
fabrication of tangible personal property when the materials are furnished by the
purchaser ... (emphasis added). 2
16

The United States argues that 39-6-404(a) provides that the Wyoming sales
tax "shall be paid by the purchaser," and that under the undisputed facts the
United States is the purchaser of the diesel fuel.3 In this regard, the district
court in its order granting Wyoming summary judgment did refer, several
times, to the United States as being the purchaser of the diesel fuel.
Notwithstanding, the district court, relying on the definition of "sale" in 39-6402(a)(iii), held that LAAW was in "possession [of the diesel fuel] for a
consideration" and under 39-6-402(a)(iii) and 39-6-404(a)(1), was subject to
a sales tax on the diesel fuel. The district court based this holding on the fact
that LAAW accepted delivery of the diesel fuel and paid for it with their own
business checks signed by an LAAW employee. However, as mentioned in the
district court's summarization of the facts, the checks were drawn against funds
deposited in a special checking account by the United States Department of
Energy (DOE).

17

Under the described circumstances, it is doubtful that LAAW ever had legal
"possession" of the diesel fuel, but, in any event, if the United States was the
"purchaser" of the diesel fuel, Wyoming cannot impose and collect a sales tax
from LAAW--a nonpurchaser. So, in our view, the validity of Wyoming's
imposition of a sales tax on LAAW depends, in the first instance, on whether
LAAW or the United States was the purchaser of the diesel fuel.

18

As indicated, NPR-3 is currently administered by the DOE, and it is undisputed

that refined petroleum products, including diesel fuel, as well as gasoline, were
purchased by the Defense Fuel Supply Center (DFSC), a sub-agency of the
Defense Logistics Agency, which is itself a component part of the Department
of Defense. In this regard each year, at DOE's direction, LAAW provides DOE
with an estimate of the requirements for refined petroleum products at NPR-3
for the coming year. DOE then gives this information to DFSC, which
thereafter purchases from various sources petroleum products for DOE in
accordance with Federal Acquisition Regulations. After receiving bids, DFSC
awards contracts to the successful bidders. Such contracts include
specifications as to type, quality, price, and delivery location. The contracts
also provide that the DFSC is liable for the nonpayment of the petroleum
products. At no time did LAAW or its employees participate in the DFSC
procurement process. These contracts further provide, as does the contract
between LAAW and DOE, that title to the refined petroleum products
purchased by DFSC passes directly from the vendor to DOE.

19

Further, it is not in dispute that when DOE's fuel storage and holding facilities
at NPR-3 have available storage capacity, LAAW schedules deliveries of
petroleum products by requesting that the contract supplier deliver a specific
refined product in accordance with the DFSC contract. The products are then
delivered to NPR-3 in the supplier's trucks and pumped from the truck by the
driver into government-owned storage tanks, or into equipment, drilling rig
tanks or temporary tanks at well sites. When delivery is made, an LAAW
employee signs a receipt or delivery ticket and accepts a copy from the driver.

20

As concerns payment for the purchase of the diesel fuel here involved, as noted
above, LAAW issues the supplier a check bearing its own name, signed by an
LAAW employee, but drawn on federally owned funds deposited in a checking
account opened and maintained pursuant to a DOE letter of credit. DOE
maintains the account at the drawee bank which is funded by a letter of credit in
favor of DOE and issued by the United States.

21

Under the described circumstances, it is quite clear to us that the United States,
and not LAAW, is the purchaser of the diesel fuel here involved, and under
39-6-404(a) the sales tax shall be paid by the purchaser.4 "Purchasers who,
within Wyoming, take title to or the possession of tangible personal property,
for their use and not for subsequent resale, owe sales tax on that transaction."
Sublette County School District No. 1 v. State Board of Equalization, 770 P.2d
218, 220 (Wyo.1989). As above mentioned, the district court itself referred to
the United States as the purchaser of the diesel fuel.

22

23

The district court's reliance on Wyo.Stat. 39-6-402(a)(iii) (1977) is misplaced.

Under Wyoming law, it would appear that LAAW never had legal "possession"
of the diesel fuel. Craig v. Gudim, 488 P.2d 316, 319 (Wyo.1971). Accepting
delivery does not constitute possession. But, in any event, the sales tax falls on
the "purchaser," whether he be purchasing "title" or "possession." Under
Wyoming statutes, Wyoming cannot impose and collect from LAAW a sales
tax on the diesel fuel purchased by the United States. The district court erred in
holding that LAAW was liable for the sales tax on diesel fuel thus acquired by
the United States.
Wyoming's reliance on United States v. New Mexico, 455 U.S. 720, 102 S.Ct.
1373, 71 L.Ed.2d 580 (1982) is misplaced. There the contractors under contract
with the United States placed orders with third party suppliers in their own
names and identified themselves as being the purchasers. In holding that the
contractors were not protected by the Supremacy Clause of the Constitution and
were subject to the New Mexico use tax, the Court stated that:

24 immunity is appropriate in only one circumstance: when the levy falls on the
tax
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.
25

Id. at 735, 102 S.Ct. at 1383.

26

In the instant case, the United States placed the orders for diesel fuel, as well as
taking title thereto, directly from the vendor. Counsel suggests that this is a
distinction without a difference. We disagree and believe that there is a critical
difference between the instant case and United States v. New Mexico, supra.

II. Gasoline
27

Wyo.Stat. 39-6-209(a) (1977 and Supp.1991) provides, in part, as follows:

28 There is levied and shall be collected a license tax of eight cents ($.08) per gallon
(a)
on all gasoline used, sold or distributed for sale or use in this state ... (emphasis
added).
29

As concerns the effort of Wyoming to impose a license tax on LAAW, it is

Wyoming's position that when LAAW withdraws gasoline from the federally
owned storage tanks at NPR-3, it becomes liable for the license tax set forth in
39-6-209(a).

30

As we understand it, the United States concedes that under County of Natrona
v. Casper Air Service, 536 P.2d 142, 145 (Wyo.1975), the license tax with
which we are here concerned is not a sales or use tax and by its terms applies to
stored gasoline when it is "withdrawn from storage." In this latter connection,
i.e., "withdrawn from storage," see Edelman v. Boeing Air Transport, 289 U.S.
249, 252, 53 S.Ct. 591, 592, 77 L.Ed. 1155 (1933), which holds that for the
purpose of a license tax, "use" occurs at the time of withdrawal.

31

Further, as we understand it, the United States concedes that the State of
Wyoming could impose a license tax on the "mere use" by LAAW of the
gasoline purchased and owned by the United States, but argues that 39-6209(a) does not provide for such. In thus arguing, the United States urges us to
modify the word "use" as it appears in 39-6-209(a) with language appearing
in Wyoming's general use tax statute. In the latter statute "use" is said to mean
and include "the exercise of any right or power over tangible personal property
incident to ownership or by any transaction where possession is given by lease
or contract." Wyo.Stat. 39-6-502(a)(vii) (1977). Since LAAW does not "own"
the gasoline, the United States argues that LAAW is not subject to the tax
provided for in 39-6-209(a). We decline to do this statutory redrafting.

32

As indicated, Wyo.Stat. 39-6-502(a)(vii) does state that the word "use" means
"the exercise of any right or power over tangible personal property incident to
ownership or by any transaction where possession is given by lease or
contract." However, 39-6-502(a) limits the definition of "use" appearing in
39-6-502(a)(vii) to "this article," and that "article" concerns Wyoming's use tax,
which is Article 5. As indicated, we are not here concerned with a sales or use
tax on gasoline, but a license tax imposed pursuant to Article 2.

33

Further, we think the United States' reliance on Texas Co. v. Siefried, 60 Wyo.
142, 147 P.2d 837 (1944), reh'g denied, 150 P.2d 99 (Wyo.1944), is misplaced.
Texas Co. was concerned with an earlier license tax on gasoline "used" within
the State of Wyoming and the Wyoming Supreme Court in that case held that it
was the act of withdrawing the gasoline from a storage tank that triggered the
license tax. "Ownership" of the withdrawn gasoline was not a particular issue in
that case. It is true that in Texas Co. the Wyoming Supreme Court did look to
the general use tax statute then in existence as an aid to interpretation, but such
reference does not indicate to us that the word "use" in 39-6-209(a) carries
with it that the "use" must be "incident to ownership." In Texas Co. the
Wyoming Supreme Court held that the "word 'use' ..., in its proper definition,
[is] broad enough to include such acts as storing and withdrawal from
storage,...." Id., 1147 P. at 844. This suggests that "use" need not be "incident to

ownership."5
34

In sum, Wyo.Stat. 39-6-209(a) imposes a license tax on all gasoline used, sold
or distributed for sale or used within the State of Wyoming, and neither the
statute nor the case law requires that the "use" be "incident to ownership."

35

The license tax on LAAW's use of the gasoline purchased and owned by the
United States falls within the ambit of such cases as South Carolina v. Baker,
485 U.S. 505, 108 S.Ct. 1355, 99 L.Ed.2d 592 (1988), reh'g denied, 486 U.S.
1062, 108 S.Ct. 2837, 100 L.Ed.2d 937 (1988); United States v. New Mexico,
455 U.S. 720, 102 S.Ct. 1373, 71 L.Ed.2d 580 (1982); Alabama v. King &
Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed. 3 (1941); and James v. Dravo
Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155 (1937), and does not
offend McCulloch v. Maryland, 17 U.S. (4 Wheaton) 316, 4 L.Ed. 579 (1819).

36

Accordingly, the judgment of the district court as it relates to the sales tax on
diesel fuel is reversed. The judgment as it relates to the license tax on gasoline
is affirmed.

Honorable Elmo B. Hunter, Senior District Judge, for the District of Missouri,
sitting by designation

The contract between the United States and the private contractor provided that
any state sales tax or license tax imposed on, and collected from, the private
contractor were costs of the contract to be paid by the United States

Wyo.Stat. 39-6-405(a)(xv) (1977 and Supp.1991), in effect, exempts sales to

the United States from the sales tax. This exemption recognizes the teaching of
McCulloch v. Maryland, 17 U.S. (4 Wheaton) 316, 4 L.Ed. 579 (1819)

It is agreed that purchases of diesel fuel are subject to a sales tax under
Wyo.Stat. 39-6-404 (1977)

Of course if Wyoming attempted to impose a sales tax on the United States for
its purchase of the diesel fuel, such would violate McCulloch v. Maryland, 17
U.S. (4 Wheaton) 316, 4 L.Ed. 579 (1819)

We note that the use tax involved in United States v. New Mexico, supra,
which tax was upheld, taxed the "mere use" of the property there in question
and did not require that such use be "incident to ownership."