United States v. State of California and California State Board of Equalization

FACTS

The United States, through the Departments of the Navy and Energy, contracted with Williams Brothers Engineering Company [“WBEC”] to manage oil drilling operations on federal land in California. California assessed WBEC $14 million in sales and use taxes for the years 1975 through 1981. The assessments were made pursuant to section 6384 of California’s Revenue & Taxation Code, which imposes sales and use taxes against federal construction contractors. WBEC was informed of the assessments through notices of tax deficiencies issued in 1978 and 1982.

WBEC paid the assessments, under protest, with funds provided by the U.S., pursuant to their contract. After each payment, WBEC, under the direction of the United States, pursued administrative claims through California’s Board of Equalization to obtain a refund of the taxes paid. After each administrative claim was denied, WBEC filed suit in state court. Both state court actions were dismissed, without prejudice, in January, 1988, when WBEC and California stipulated to a $3 million refund, based on erroneous assessments against personal property purchased by WBEC and used or installed by government personnel. The remaining $11…