Timm Aircraft Corp. v. Byram

213 P.2d 715, 34 Cal. 2d 632, 1950 Cal. LEXIS 275
CourtCalifornia Supreme Court
DecidedJanuary 20, 1950
DocketL. A. 20527
StatusPublished
Cited by9 cases

This text of 213 P.2d 715 (Timm Aircraft Corp. v. Byram) is published on Counsel Stack Legal Research, covering California Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Timm Aircraft Corp. v. Byram, 213 P.2d 715, 34 Cal. 2d 632, 1950 Cal. LEXIS 275 (Cal. 1950).

Opinions

TRAYNOR, J.

Defendants levied ad valorem taxes for the year 1944-1945 on a bank deposit of plaintiff Timm Aircraft Corporation assessed to it as a solvent credit. Timm paid the taxes under protest and then brought this action to recover them, contending that the deposit was owned by the United States and was constitutionally exempt from taxation by a state or its subdivisions. Judgment was entered for Timm, and defendants appeal.

Under a contract with the War Department Timm manufactured military aircraft on a cost-plus-a-fixed-fee basis. The contract provided that Timm was not an agent of the United States but an independent contractor at all stages of the manufacture, including the acquisition of materials and the furnishing of labor. Title to all completed work was in the United States and title to all material, equipment, and supplies for which Timm was entitled to reimbursement vested in the United States upon delivery to Timm. The United States could elect to terminate the contract for Timm’s failure to prosecute the work with promptness and diligence or when “conditions arise which make it advisable or necessary in the interest of the Government that work be discontinued under [635]*635this contract- ” If the United States elected to terminate the contract, it was obligated to make full and prompt settlement of Timm’s claims for reimbursement of expenditures before termination, and of all claims against Timm for obligations incurred by it in the performance of the contract.

To provide Timm with the necessary funds to perform the contract, the United States by two supplemental agreements dated April 13, 1942, and March 13, 1943, agreed to make advance payments to Timm of sums not to exceed the amount specified in the agreements. Timm was required to furnish adequate security for the payments and to deposit the funds in a special bank account or accounts “separate from the contractor’s general or other funds.” The payments were to be used “by the contractor exclusively as a revolving fund for carrying out the purposes of the principal contract and any amendments thereto and not for any other business of the contractor. ’ ’ If the United States terminated the principal contract, Timm was obligated to repay the balance remaining in the account and the United States retained “a lien upon such balances to secure the repayment of the advances, which lien shall be superior to any lien of the bank or any other person upon such account or accounts.” Withdrawals from the account were subject to previous approval by the contracting officer or his representative to insure that the funds would be withdrawn only for the purposes of the principal contract.

Pursuant to these agreements three-party deposit agreements were executed by Timm, the United States, and the California Bank of Los Angeles, under which the advance payments were deposited to Timm’s account, subject to the terms of the supplemental agreements. Checks drawn on the account had to be countersigned by the contracting officer, whose signature indicated the requisite approval of the withdrawal. Timm periodically drew checks on the special account for the estimated amount of current expenditures. Upon certification by Timm that the funds were to be used for the specified purposes, the contracting officer countersigned the cheeks. Timm then deposited these checks to its operating account, from which it paid obligations incurred in the performance of the contract. Vouchers for these expenditures were then forwarded to the contracting officer, and after verification and approval the special account was replenished in the amount of the funds so expended. At all times, the [636]*636amount of the special deposit, plus the amount in Timm’s operating account, and the aggregate amount of the outstanding vouchers, was equal to the total advanced to Timm under the agreements. The taxes were levied on the balance on deposit in the special account on the tax day.

Defendants contend that the deposit was not the property of the United States, that it was owned by Timm, and that Timm’s interest in the funds deposited was of substantial value to it. Upon examination of the agreements and the statutes under which the advance payments were made, it is our conclusion that this contention is correct, and that the judgment of the trial court must be reversed.

A state tax upon the property or receipts of a private contractor can no longer be avoided on the doctrine of intergovernmental tax immunity merely because the United States eventually bears the burden of the tax. “The asserted right of the one [government] to be free of taxation by the other does not spell immunity from paying the added costs, attributable to the taxation of those who furnish supplies to the Government and who have been granted no tax immunity.” (Alabama v. King & Boozer, 314 U.S. 1, 9 [62 S.Ct. 43, 86 L.Ed. 3, 140 A.L.R 615]; Smith v. Davis, 323 U.S. 111, 116 [65 S.Ct. 157, 89 L.Ed. 107]; Curry v. United States, 314 U.S. 14, 18 [62 S.Ct. 48, 86 L.Ed. 9]; James v. Dravo Contracting Co., 302 U.S. 134, 160 [58 S.Ct. 208, 82 L.Ed. 155, 114 A.L.R. 318]; Metcalf & Eddy v. Mitchell, 269 U.S. 514 [46 S.Ct. 172 70 L.Ed. 384]; Kaiser Co. v. Reid, 30 Cal.2d 610, 628-629 [184 P.2d 879].) In the absence of an express congressional grant of immunity, the tax in question may be avoided only if it is imposed on property of the United States or is so measured by such property as to be in substance and effect a tax thereon. (United States v. Allegheny County, 322 U.S. 174, 186 [64 S.Ct. 908, 88 L.Ed. 1209]; see Powell, The Remnant of Intergovernmental Tax Immunity, 58 Harv.L.Rev., 757, 773-787; cf., New York v. United States, 326 U.S. 572 [66 S.Ct. 310, 90 L.Ed. 326].)

To perform its obligations under the contract, Timm had to make large expenditures for labor and materials. It could not have done so without outside help in view of the time that would elapse before reimbursement. It could have borrowed from a private lender on the strength of the contracts and deposited the money to its account to cover future expenditures. Had it done so, it would clearly have been regarded as the owner of the account for tax purposes despite [637]*637any obligation to use it only to finance its performance of the contract. Sinc.e interest charges on a private loan, however, would have increased the cost of manufacture to the United States, the Secretary of War chose to pay a part of the contract price to Timm in advance of the expenditures. Timm is no less the owner of the account for tax purposes because the funds were provided by the United States rather than by a private lender.

In view of the prohibition of advances of public funds (Rev. Stats. § 3648, 31 U.S.C.A. § 529), special statutory authorization for payment of advances under war contracts was necessary.

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Timm Aircraft Corp. v. Byram
213 P.2d 715 (California Supreme Court, 1950)

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Bluebook (online)
213 P.2d 715, 34 Cal. 2d 632, 1950 Cal. LEXIS 275, Counsel Stack Legal Research, https://law.counselstack.com/opinion/timm-aircraft-corp-v-byram-cal-1950.