Untitled Texas Attorney General Opinion

. . Honorable George H. Sheppard Comptroller of Public Accounts Austin, Texas Dear Sir: opinion mo. o-4392 Re: Are Army Post Exchanges subject to the Texas Store Tax. You have requested the opinion of this department as to whether or not Army Post Exchanges are subject to the Texas Store tax. Army Post Exchanges have been established by the United States Army for msny years past and, therefore, they have acquired a well defined and essential position in the hY. Army Post Rxchsnges as they now exist are created in accordance with the United States Army Regulations No. 210-65 promulgated by the War Department. Said Army regulations are lengthy and in detail,. We believe they are well stated and summarized in the case of United States v. Query, 37 F. Supp. 972,~as follows: "AS set forth In the findings of fact this day filedherein, the Post Exchange at Fort Jackson is created and functions under United States Army regu- lations No. 210-65, C-l.and C-3, promulgated by the Secretary of War; under the authority given him by Congress. By these regulations the commanding of- ficer of each post Is directed to establish and main- tain a Post Exchange uhenever there is need for it, membership in which is limited to companies, troops, batteries, aero squadrons, or other similarly organ- ized units and detachments. The commanding officer of each army post has complete jurisdiction over the con- duct of all Post Rxchsnges 'tithinhis command, subject to the genera3 supervision of superior authority, and is held strictly responsible for their efficient operation and for the enforcement of army regulations applicable to Post Exchanges.. Under these regula- tions sales art made only to officers and enlisted men of the regular army, army nurses, contract sur- geons, members of the Reserve Corps while on active duty, officers and enlisted men of the Rational Guard Honorable George H. Sheppard, Page 2, (O-4392) when in federal service, clvllian employees authoriz- ed for service abroad, having a status recognized by the War Department as part of an expeditionary force, and civilians employed or serving at military posts. "The primary purposes of an exchange are to sup- ply troops at the lowest possible prices with articles of ordinary use, wear and consumption not supplied by the Government, to afford them means of rational recreation and amusement, and through exchange profits to provide, when necessary, the means for improving the company messes. The commanding officer of each army post is charged with the maintenance of recrea- tional athletics, entertainments, service clubs, li- braries, and community cooperation which are to be centered about the Post Exchsnge which provides the financial support necessary ~for their maintenance. !ChePost Exchange is governed by a council consisting of a Post Exchange officer and commanding officer of each company, troop, battery; hospital detachment, or similar organization participating therein. The Post Exchange officerX,s detailed by the commanding officer and receives no compensation for his services other than his regularArmy pay. "Dnder the Regulations of the Secretary of War the duties imposed upon officers in the management of exchange affalrs.are as binding upon them as any duty to which they may be assigned under competent military authority. Five per cent of Post Exchange profits, if any, are set aside as a fund which is'divided among the organizations which constitute the membership of the exchsnge, that is, the companies, troops, batteries, squadrons or units and detachments, and not individuals, and the balance is set aside as a portion of the recre- ation fund for the laying out, preparing and cultivating gardens, for the purchase of books, newspapers, period- icals, stationery, and similar articles for the ex- change library, gymnastic appliances, and prizes for athletic sports. These funds belong to no particular individual and those portions which are set aside for the participating orgsnI.zationshave membership in the Post Exchanges are held by such member organizations in trust, subject to the orders of the Secretary of War or congressional command. Where Post Exchange buildings have not been provided for from funds otherwise avail- able, the commanding officer is authorized to construct temporary buildings by the labor of troops and the us4 of necessary teams and such tools, wtidows, sashes, doors and other material as can be spared by the Quar- . . Honorable George H. Sheppard, Page 3, (O-4392) termaster Corps of the Army. The Post Quartermaster is authorized to sell to the exchange at cost any subsistence stores except exceptional articles, to furnish heating and suitable apparatus therefor for Post Exchsnge rooms and buildings, and to provide supplies for interior and exterior illumination. Messages on Post Exchange business over telegraph, radio and cable lines owned and operated by the War Department may be transmitted without charge, and penalty snvelopes may be used in the mails in con- ducting Post Exchange correspondence. United States Army Regulations specify what books and records shall be kept by Post Exchanges and the manner of auditing them." The Texas Store Tax, commonly referred to as the Chain store tax, is codified by Vernon as Article lllld of Vernon's Annotated Penal Code. It provides in part as follows: '!3eotion~2. Any person agent, recsiver, trustee, firm, corporation, association or copartnership desir- ing to operats, maintain, open or establish a store or mercantile establishmsnt in this State shall apply to the Compt$oller of Public Accounts for a license so go do.* * * "Section 5. Every person, agent, r4c4iv4r, trustee, firm, corporation, association or copartnership opening, establishing, operating or maintaining one or more stores or mercantile establishments within this State, under the same general management, or ownership, shall pay the license fees hereinafter prescribed for the privilege of opening, establishing, operating or main- taining such stores or mercantile establishments. * * * "Section 7. The term 'store' as used in this Act shall be construed to mesn and include sag store or stores or any mercantile establishment or establishments not specifically exempted within this Act which are owned, operated, maintained, or controlled by the same person, agent, receiver, trustee, firm, corporation, copartnership or association, either domestic or foreign, in which goods, wards or merchandiss of any kind are sold, at retail or wholesale." There can be no doubt but that the Army Post Rx- changes sell the type of commodities which would bring them Honorable George H. Sheppard, Page Qr (O-4392) within the definition of the term "store" as defined in Section 7 above and that they are being "operated and main- tained" in this state. The chain store tax is an occupation tax. The Commission of Appeals of Texas in Hurt v. Cooper, 110 S. W. (2d) 899, stated as follows: n * * + We experience no difficulty in reaching the conclusion that the so-called license fees levied thereby are primarily occupation taxes.' The tax is levied directly on the individual, corporation, association, etc., that opens and operates the stores. If the Army Post Exchanges are governmental instrumentalities they are opened and operated by the United States Govern- msnt. The United States Supreme Court in McCulloch v. Maryland, 4 Wheat 316, held that the State of Maryland could not tax the operation by the United States Government of a bank in Maryland. Mr. Chief Justice Marshall, in speaking for the Court, concluded as follows: "But this is a tax on the operations of the bank, and is, consequently, a taxon the operation of an instrument employed by the government of the union to carry its powers into execution. Such a tax must be unconstitutional." It follovs, of necessity, that if the Army Post Exchanges are instruments employed by the Government of the United States to carry one of its powers into execution they are exempt from the Texas tax, supra, which tsxes the operation of stores. One of the powers given Congress by Section 8 of the Constitution of the United States is as follows: "To raise and support armies, but no appropria- tion of money to that use shall be for a longer term than two years; * * * To m&4 rules for the Government and regulation of the land end naval forces; * * * .' If Congress had enacted legislation which specifi- cally authorized the creation and maintenance of Army Post Exchanges there vould be no doubt but that Congress would be acting within the above-Quoted power granted t0.i.t. We . Honorable George K. Sheppard, Page 5, (O-4392) think that the operation of Army Post Exchanges is a very vital - feature of the support and maintenance _._ _. of the Army. Through them a service Is rendered to the army personnel which service must of necessity be furnished them because of their being under army orders and supervision twenty- four hours a day. We believe that the supplying at the lowest possible price of certain articles of ordinary use, wear and consumption which are not supplied by the Govern- ment to the men in the army is the exercise of a govern- mental function authorized by the Constitution just as is the furnishing to them by the Government of food and shelter. A more serious question, however, is presented by the fact that Congress has not enacted specific legis- lation for the creation of Army Post Exchanges but that the same are in existence pursuant to regulations issued by the Secretary of War. In this connection the history of the existence of Army Post Exchanges is important. A short summary of the same is contained in United States v. Query, supra, and reads as follows: In 1870, Acts of July 15, 1870, c. 294, j 20, 1.6Stat. 319, 10 U.S.C.A. i 1.6,Congress directed that the Secretary of War should pre- pare a system of general regulations for the administration of the affairs of the Army, which, when approved by Congress, should be enforced until altered or revoked b the same authority. In 1875, Act of March 1, 18 75, c. 115, 18 Stat. 337, 10 U.S.C.A., 1 16, Congress repealed that part of the Act which required that such regu- lations be reported to and approved by that body, and authorized the President to make and publish regulations for the government of the Army in accordance with existing laws. On July 25, 1895, Post Exchanges were established under regulatizns promulgated by the Secretary of War. + * * "Congressional approval of the creation and operation of Army Post Exchanges will be found in the several appropriation acts, commencing with the year 1903 until the present time. In 1903, Act of March 2, 1903, c.975, 52 Gtat.927, 937,938, Congress appropriated $500,000 'for continuing the construction, equipment, and maintenance of suitable buildings at military posts and stations for the conduct of the post exchange, school, library, reading, lunch, amusement rooms and gymnasium, to be expended in the discretion and under the direction of the Secretary of War,* and Honorable George II. Sheppard, Page 6, (O-4392) every year theresfter various appropriations for the same purposts were made. In 1933 and 1934 Congress required the balances of disbanded organization funds, amounting to $298,068, which had been derived from Post Exchange activities covered into the federal Treasurv. Act of March 4, 1933, ch. 281, 47 Stat."i573;Act of June 26, 1934, c. 756, 48 Stat. 1224, 1229, 31 U.S.C.A. p 725g." The duties of the Chief of Staff of the Army have been defined by Congress and are contained in 10 U.S.C.A., Sec. 33. Said Section reads as follows: "The Chief of Staff shall preside over the War Department Gensral Staff and, under the : direction of the President, or of the Secretary of War under the direction of the President, shall cause to be made, by the War Department General Staff, the necessary plans for recrmlting, Org-Qing, supplying, eQuipPi%, mobilizing, training, and demobilizing the Army of the United States, and for the use of the military forces for national defense. II4 shall transmit to the Secretary of War the plans and recommendations prepared for that purpose by the War Department General Staff and advise him in regard thereto; upon the approval of such plans or recommendations by the Secretary of War, he shall act as the agent of the Secretary of War in carrying the same into effect. (June 3, 1916, c. 134, 1 5, 39,Stat. 167; June 4, 1920, c. 227, subchapter~l, 1 5, 41 Stat. 764." Section 16 of 10 U.S.C.A. reads as follows: "Ths ,Prekidentis authorized to mske.and publish regulations for the government of the Army in accordance with existing laws, which shall be in force and obeyed until altered or revoked by the same authority: Provided, That said regulations shall not be inconsistent with the laws of the United States. (July 15, 1870, c. 294, j 20, 16 Stat. 319; Mar. 1, 1875, C. 115, 18 Stat. 337.) In accordance with the above authority granted by Congress Army Regulations No. 210-65 were issued on July 1, 1941. Said regulations were promulgated by General G. C. Marshall, Chief of Staff, by order of the Secretary of War and they supersede all previous letters and instructions Honorable George R. Shsppard, Page 7, (O-4392) pertaining to exchanges. Said regulations read in part as follows: "1. Pu+oses;d;sz;hTys ~s;e;;l;;~d for the fo o persons to whom sales are authorizsd (par. 13), at the lowest possible prices, with articles of ordinary use, vear, and consumption not supplied by the Government. "(2) To afford to military personnel facili- ties for comfort, recreation, and amusement to in- clude, as may be desirable, the financial support and maintenance of recreational athletics, enter- tainmsnts, service clubs, libraries, and community cooperation within the limits prescribed in AR 210-50 "(3) To provide, when necessary, the means for improving organization messes. b. Exchanges should be conducted in such a manner-as to be of real assistance and convenience to enlisted men and not as large profit making institutions.~ "2. Establishment - a. Whenever conditions make it desirable and prac5icable, the commanding officer of a post, camp, or station will establish and maintain an exchange to include such number of branches, departments, and subordinate activities thereof as may be necessary to serv4 the military personnel." Further, it is a ~411 settled rule of law that rules and regulations like the above have the force.of law the same as specific Congressional enactments if they pertain to matters within the rule making power delegated to the authority promulgatin the same. See Rx parte Reed, 100 U, 3. 13; Denby v. Berry, 2t 3 U. S. 29; and Smith v. Whitney, 116 U. S. 167. Congress has delegated the authority to make rules and regulations for the Government of the Army. It has placed on the Chief of Staff, as agent of the Secretary of War, the duty of supplying the Army of the United States. Army Post Exchanges have been established pursuant to such authority for the purpose of supplying to the Army personnel certain commodities not supplied by the Army itself. We believe, therefore, that the regulations issued concerning Army Post Exchanges were promulgated under the authority of Congress. Our opinion in this respect is bolstered by the fact that from time to time Congress has appropriated money for the construction and maintenance of buildings to be used as post exchanges. Another Congressional recognition of the existence of Post Exchanges existing by order of the Secretary of War is the Honorable Georgs H. Sheppard, Page 8, (O-4392) Buck Resolution which was passed by th4 76th Congress, Third Session. It reads in part as follows: "Section 3. (a) * * * "(b) A person shall be deemed to be an authorizpd purchassr under this section'only with respect to purchases which he is permitted to make from commissaries, ship's stores, or voluntary unincorporated organizations of Army or Navy personnel, under regulations promulgated by the Secretary of War or the Secretary of the Navy. " The cas4 of United States v. Cordy, 58 F. (2d) 1013, is au- thority for the proposition that Army Post Rxchanges are main- tained pursuant to statutory authority. The court stated as' follovs: "Armv Post Rxchanzes are mediums established and maint&ned by army-regulations, statutory authority, for the convenience - o officers snd.enlisted men whereby. at reasonable cost to them, certain creature comforts in th4 vay of clothing, food, etc., as well as recreation and amusement, not otherwise provided by regu- lations, may be secured." (Rmphasls ours) There is a conflict between the courts which have passed on the question of whbther or not these exchanges are governmental instrum4ntalities. ti 1921 the Circuit Court of Appeals, Fourth Circuit, decided the~case'of Keank v. United States; 272 Fed. 577. The.Court consisted of two Circuit Judges snd one District Judge. The District Judge wrote the main opinion of the Court and held that an Army Post Exchange as it was then known was not a "department of the governm4nt" within the meaning of a Federal Criminal Statute concerning conspiracies to defraud the United States. One of the Circuit Judges, howev4r, concurred in the reversal of the trial court's decision but disagreed with the majority of the Court as to the status of a post sxchange. Circuit Judgs Woods stated as follows: q * * * The system of post exchanges vas a government undertaking of the War Department and is universally rscognized as sn adjunct of that depart- ment. It had its foundation and has its existence in an order of the Secretary of War for the pro- motion of the welfare of the soldiers of the United States army. Regulations for the managsment of all post exchanges 8~4 prescribed by authority of the Honorable George H. Sheppard, Page 9, (O-4392) President, as Commander in Chief of the Army, through the Secretary of War. The exchanges are conducted by officers and soldiers desig- nated and assigned as such under authority of the Secretary of War to perform that official military duty. Every post commander is re- quired by the regulations to institute a post exchange. No soldier or other person has any authority or control of the affairs of post exchanges, except by military order. The regulations for their management have force of law under Section 161 of the Revised Statutes of the United States. U.S. v. Eaton, 144 U.S. 677, 12 S. Ct. 764, 36 L. Ed. 591; U.S. v. ;;st;;;423' U.S. 515, 34 sup.ct. 666, 58 L. . . "The mere:facts that the government does not .. assume the debts or claim the profits, and that soldiers are not r4QUir4d to join the post ex- changes, are not controlling; for even the distri- bution of their profits and assets and the pay- ment of their debts are regulated by the War Department. It can hardly be doubted that an officer refusing to perform the military duty of establishing or maintaining a post exchange would be subject to court-martial." The last statement above was apparently made in snswer to the factor relied on most by the majority of the court; that is, that the United States Government was not liable for the debts nor entitled to the profits of the post exchanges. In 1933 the Supreme Court of California decided the case of People v. Standard Oil Co. of California, 22 Pac. (2d) 2. The Court held that Army Post Exchanges were volun- tary, unincorporated, cooperative associations for whose debts. the government was not liable.. Therefore, the Court con- cluded, sales of gasoline to them were not sales "to ths government of the United States or any department thereof for official use of ,said government." The Supreme Court of the United States reversed the California Supreme Court in Standard Oil Co. of California, 291 U. S. 242, 78 L. Ed. 775, on the grounds that the military reservation grounds had been ceded to the United States and, therefore, Californials tax was not collectible thereon. The court did not pass on the status of an Army Post Exchange, however. Later in 1933 the Circuit Court of Appeals, Fifth Circuit, decided the case of Pan American Petroleum Corporation Honorable George H. Sheppard, Page 10, (O-4392) v. Alabama, 67 Fed. (2d) 590. The question involved in the case was the right of Alabama to tax gasoline sold to post exchanges. The Court concluded, first, that the Alabama tax became due and payabls upon the withdraw1 of gasoline from storage within the state whether the same be for sale or other use. Secondly, the Court relied on the California Supreme Court case of People v. Standard Oil co., supra, and stated as follows: ' * * * Furthermore, a post exchange is, of cours4, not the government; nor is it a de- partment or instrumentality thereof. On the contrary, a post exchange is a voluntary, un- incorporated, cooperative association of army organizations in which all share as partners in the profits and losses. !I%4 government has no shars in the profits, and is not bound by the losses. We are therefore of opinion that salas made by appellant to the post exchanges at Camp McCellsn and Naxwell Field are not ex- empt from the stat4 exise taxes. Standard Oil Co. (Cal. sup.) 22 P.p9$e2v; In 1937 the Federal District Court, Eastern Dls- trict, South Carolina, decided the c&s4 of United States v. Query, 21 Fed. 3upp. 784. In that case the court passed on the status of Civilian Conservation Corps camp exchanges whfuh were established by speciffc congressionsl authority to perform the same service and purpose that Army Post Ex- changes serve in the Army. !I314 Court concludsd as follows: "in performing its constitutional functions, the United Statea must operate through sn in- stmuaentality or agency. Here It operates through the agency of ths camp exchange as an integral part of the Civilian Conversation Corps. The tax falls directly upon the camp exchange and the provisions of th4 state statute directly affect this instrum4ntality of the federal governm4nt selected for the exercise of its powers. The state tax in effect is upon the government's transactions in tha exercise of its lawful pow- 4r. The Civilian Conservation Corps camp ex- change is of such a character and so intimately connected with the exercise of the operation of the Civilian Conservation Corps, the,exercise of a powtr granted by the Act of Congress authorized by the Federal Constitution, that it is such a direct interference with the functions of the government itsslf as to be clearly beyond the taxing power of the state." Honorable George H. Sheppard, Page 11, (O-4392) In March, 1941, the same District Court decided another case also styled United States v. Query, reported In 37 Fed. Supp. 972. Excerpts from the Court's opinion concerning the facts surrounding the operation of post exchanges and their history have been previously quoted herein. The Court made what we think is the most thorough analysis of the status of Army Post Rxchanges mad4 in any of the cases and concluded that they were Federal ln- strumentalities. On June 27, 1941, the Circuit Court of Appeals, Fourth Circuit, affirmed the judgment of the lower court upon the opinion of the District Judge. See Query v. United States 121 F. (2d) 631.~ Application for writ of certiorari vas made in which both parties asked the Supreme Court of the United States to review the case snd pass on the question bscause of Its public importance. On Rovember 17, 1941, the Supreme Court denied the petition. It is important to note that the same Circuit Court of Appeals that affirmed the Query case decided the K4sne case back In 1921. In effect, therefore, the earlier case is overruled on this point. After the Query case had been decided in the District Court, but prior to the time the Supreme Court denied application for writ of certiorari therein, tht Supreme Court of California decided the case of Standard Oil Co. of California v. Johnson, 119 P. (2d) 329. The California Court reviewed the .authoritiesand concluded as follows: "It seems to us after a study of the authorities upon the.question before us, that the great weight of authority is,in favor of the riilingof the trial court, holding that an army post exchange is not an instrumentality or department of the federal government, but on the other hand, 'is an organization largely engaged in business of a private nature and that sales to it should not be beyond the reach of the taxing pover of the state wherein it is located.' People v. Standard Oil Company of California, supra, 218 Cal. at page 128, 22 P. (2d) at page 4." All of the cases that hold post exchanges not to be Federal instrumentalities seem to base their conclusion on the assumption that they are voluntary cooperative associations in which the United States has neither a share In the profits nor is liable for the loss4s. While it is true that the Army Regulations specifically provide that the creditors of an exchange may not look beyond the assets Honorable George PI. Sheppard, Page 12, (O-4392) of ths exchange for the satisfaction of their debts the expenditure of the profits in certain specific ways to inure to the benefit of the Army is also required. In this way the United States Government is receiving the profits just as much as if they vere deposited ln the Federal Treasury, in our opinion. In this connection we agree with the statement of the Federal District Court in Falls City Brewing Co. v. Reeves, 40 F. Supp. 35, as follows: ' * * * It is clear from the facts in this case that a Post Exchange Is an integral. part of sn army organization and is au es- sential factor in military life. They are not purely voluntary org.anizations,as is con- tended by the State in this case, but they are set up, organized and operated pursuant to military authority. It is the duty of the commanding officer of the post to establish and maintain a post exchange whenever there is a need for it; the duties of a post 4x- chsnge officer are his official duties as an army officer, and he receives entire compen- sation for the performance of these duties in the salary received by him from the United States Government as an army officer. The post exchange officer, the post exchange steward, and the post exchange assistants perform their respective duties under official assignments of duty; the option does not exist for them to re- fuse the assignment. The Post Exchange occupies a building constructed and maintained by the Federal Government and equipped with federal funds. Ths general welfare and morale of the personnel In a military training camp 1s a very important part of any military program looking -to a well-trained and efficient army. The view is nowvmll established that adequate recre- ational facilities for soldiers in training are as important as adequate drill fields. Much energy and large expenditures are devoted by those in civilisn life in providing such.faclli- ties for soldiers in nearby posts. Some 4x- penditures for this purpose come by way of directsappropriations by the United States Con- gress, but a large portion can be attributed to the proceeds that are made available by the operations of the Post Rxchsnge, which proceeds inurs .to the benefit of the Government thereby relieving the Government from additional appropri- ations to this extent. * * * Considered ln this Honorable George H. Sheppard, Page 13, (O-4392) light it is certainly a subordinate or auxiliary agency and falls easily within the accepted definition of an lnstrumental- ity of the United States." Hovever, even if the statement frequently used by some of the Courts were true that post exchanges are volun- tary, unincorporated associations in whose profits the Government has no interest and for whose losses the Govern- ment is notliable, w4 still do not understand that this would.prevent them from being Government instrumentalities if, as we conclude, they are performing a Governmental function undtr Congressional authority. These recent Federal cases ar4 in accord with the recent Federal administrative rulings. On August 5, 1939, Acting Attorney General of the United Statss, Robtrt PI. Jackson, ruled that Army Post Exchanges were Government instrumentalities and he cited the additional cases of Thomas B. Dugan v. U. 5. 34 Ct. Cls. 458, and Henry Woog, Adminis- trator, vs. U. S., 48 Ct. 01s. 80. The Social Security Tax Unit, Bureau of,~Internal Revenue, has ruled the same way. See 298-s.s.‘P. 269. The Army Regulations themselves, pro- mulgated by order of the Secretary of War, state that 4x- changes 4x4 Governmental instrumentalities. In reaching our conclusion w4 arc inclined to follow the r4cent Fsderal decisions rather than the older cases and the California 3upreme Court. We do so for two reasons. In the first place the question discussed herein is essentially a Federal question and the interpretation placed on such a question by the Federal courts and by the Federal administrative agencies should be given more weight than the decisions of a state court. This is especially true because the case of United Statss v. Query, supra, directly passed on this question and the Supreme Court of the United States denied an application for writ of certiorari in November, 1941. We adopt this vitw for the second reason that in our opinion a full analysfs of the operation of Army Post Rxchanges leads to the conclusion that they are Federal instrum4ntalities perfoiming a necsssary and vital Governmental function under Congressional authority. As such they are exempt from the payment of the Texas Chain Store Tax. Our Opinion No. O-2317, which was written prior to the decisions in th4 Query case and the Falls City Honofable George H. Sheppard, Page 14, (O-4392) Brewing Company case, insofar as the ssme holds post 4x- changes not to be Federal lnstmunentalltles, is hereby ex- pressly overruled. Yours very truly ATTORNEY GENERAL OF TEXA3 By /$/ Billy Goldberg Billy~G;;~;~ BG:ej:eac 13, 1942 A.PPROVED,F'EB APPROVED OPINION /a/ Grover Sellers COMMITTEE FIRST ASSISTANT BY B.W.B. ATTORI?EYGEI'?ERAL C-