David H Ryan Vs State of Washington

Article I wrote for Them Dam Writers.

October 1936

David H. Ryan, one of the early contractors at the Grand Coulee dam site operations, brought suit against the state of Washington, seeking a refund on taxes imposed on his successful bids on the projects he worked on. The first case he brought was based on the tax assessed upon the total amount of sales of merchandise made by him and also upon the total amount of gross income he received from completing a Federal government contract, all within the area comprised of the Columbia Basin project. The tax to be rejected in the second case was based upon the total amount of gross income received by him during his second contract, building the construction railroad. Ryan questioned whether the state of Washington had any jurisdiction within the territory of the project, sufficient to permit the state to impose and collect an occupation tax for services rendered by Ryan to the Federal government.

On November 29, 1933, Ryan, a resident of San Diego, California, entered into a contract with the United States for excavation activities at the dam site for the sum of $534,500. The specifications provided, among other things, that he should obtain all required licenses and permits, should give preference -- after ex-service men -- to citizens who were residents of the county and state in which the work was to be performed, should furnish compensation insurance in compliance with the laws of the state wherein the work was to be done, and should comply with all applicable provisions of Federal, state, and municipal safety laws and building and construction codes.

Ryan started the first contract about January 1, 1934 and completed it that summer. During the entire contract, he maintained his office and living quarters within the area of the project.

After the completion of the first contract, Ryan, on July 18, 1934, entered into a second contract for the construction of a railroad to the dam site, for $235,570. The railroad was to be 34.5 miles in length, extending from the Northern Pacific tracks at Odair, to the dam site. The specifications for this contract contained the same provisions as the first. Ryan lived for about half of the time during the second contract at Coulee City, outside of the territory of the project, and for the rest of the contract, he was at the dam site on government land.

On July 16, 1934, two days before the start of Ryan's second contract, the US entered into a contract with Silas Mason Company, Inc., and others, for construction work on the dam and power plant, for $29,339,301.50. This contract did not include any of the work to be done by Ryan.

The contract of Silas Mason Company, Inc. is referenced as it grew out of an action similar to Ryan's suits, Silas Mason Co. v. State Tax Commission. Mason's claim that he shouldn't have to pay the tax, and Ryan's similar claim, were tried in superior court at the same time and all the evidence was applied to all three cases. They lost and the three further appeals were argued in the court on the same day, using records containing identical statements of facts.

The specifications attached to the contract of Silas Mason Company, Inc., provided that the contractor set up with the state and county authorities for schools, and that police protection would be furnished by the Washington State Patrol in cooperation with the Federal government, but that the contractor should provide a jail.

During the time that the construction work was in progress, the US acquired the land that formed the area of the project. One condemnation proceeding stated that a particular tract was acquired by the US around May 14, 1934, after Ryan had commenced work. Included in the project area are school lands of the state and also tribal lands, all of which had been taken over by the Federal government.

During the period of the construction work under his first contract, Ryan maintained warehouses on ground within the project and at the dam site, where he stored and sold gasoline, oil, tires and automobile accessories. He paid the state a tax on these sales, the recovery of which forms a part of the basis of his first action.

At its regular session of 1933, the state legislature passed an act known as the Occupation Tax Act. The act related to certain business activities "within this state." At its special session of 1933, the legislature amended to apply to all business activities "within this state," which became effective January 18, 1934, shortly after Ryan’s first contract had been awarded. His complaint is that his contracts constituted sales of services, within the provisions of the act, in connection with the proceeds of his contracts, which he felt were exempt from the tax. He felt the state had no jurisdiction, as this was a Federal project.

Article I, Section 8, clause 17, of the constitution of the United States, as interpreted by the courts at the time, provided that Congress shall have power: "To exercise exclusive legislation in all cases whatsoever, over such district (not exceeding ten miles square) as may, by cession of particular states, and the acceptance of congress, become the seat of the government of the United States, and to exercise like authority over all places purchased by the consent of the legislature of the state in which the same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful buildings.”

The provision of Art. I, Section 8, clause 17 is that there are two ways in which lands within the jurisdiction of the state may become subject to the exclusive jurisdiction of the US: (1) By purchase by the United States for certain specified purposes, with the consent of the state, and (2) cession of exclusive jurisdiction to the US by the state.

By interpretation over a number of years, the term "needful buildings" had been applied to the following: a navy yard, a military hospital, a military reservation, an army training and mobilization station, a customs house, locks and dams, a post office, a penitentiary, an Indian training school, a military cemetery, a soldiers' home, and a courthouse.

Next, the state gave its consent to the acquisition of lands for sites of locks, dams, etc. The term "needful buildings" was deemed broad enough to include locks and dams. It is very probable that specific mention of locks and dams was made in the statute in order to remove any doubt of the provision.

This was not a contest between the Federal government and the state as to jurisdiction. It was a contest between the state, asserting its jurisdiction, and an individual who asserts that exclusive jurisdiction rests in the Federal government. The governments were working together, and recognizing each other. The Federal government furnished the money, supervised the work, and maintained the operation of the project. The state furnished a large amount of money for the preliminary work and then, through the Columbia Basin Commission, acted in an advisory capacity to the Federal government. The state also had an option to take over the entire project when completed.

In so far as the legislative acts in question were concerned, they held authority upon the business activities of Ryan and Silas Mason within the project. The tax had to be paid.