United States v. New Mexico

Sandia Corporation, Zia Company, and Los Alamos Contractors, Inc. (collectively, the federal contractors) were three private companies that did contract work for the United States Department of Energy in New Mexico (defendant). Sandia managed a laboratory and conducted federally sponsored research. In exchange, the federal government granted Sandia licenses for its discoveries and reimbursed Sandia for its expenditures, including the salaries of its employees. Zia managed the Los Alamos Scientific Laboratory for a fixed fee. Los Alamos Contractors performed construction work at the government’s Los Alamos facilities. The federal contractors were all given bank accounts to make purchases for the government with federal funds. New Mexico subjected the federal contractors to a gross-receipts tax on goods and services sold in the state and a use tax on goods purchased out of state for in-state use. The taxes applied to fees and other payments the federal contractors received from the federal government and to federal property used by the federal contractors. In 1975 the United States government (plaintiff) filed a lawsuit against New Mexico in federal district court seeking a declaratory judgment that it was unconstitutional under the Supremacy Clause of the United States Constitution for New Mexico to tax the federal contractors. The district court granted summary judgment for the United States, and the United States Court of Appeals for the Tenth Circuit reversed. The United States Supreme Court granted certiorari.