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.
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.
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