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36. Must the agency pay the state gross receipts tax?
A federal statute established a national lottery and created a new federal agency to administer it. In order to sell lottery tickets directly to the public, the agency established outlets throughout the country, including in a particular state. The state levies a general tax on the gross receipts from all gaming operations within the state. The state seeks to tax the agency on the sales of lottery tickets from its outlets within the state.
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A state tax levied directly against the property or operation of the federal government without the consent of Congress is invalid. Non-discriminatory, indirect taxes on the federal government or its property are permissible if they do not unreasonably burden the federal government. For example, state income taxes on the salaries of federal employees are valid unless taxes imposed are higher on federal employees than on state or local employees. See Davis v. Michigan Dep't of Treasury, 489 U.S. 803 (1989).
B is correct. The federal agency is not required to pay the state gross receipts tax because it amounts to a tax directly on the federal government (or its agency), which states are not permitted to do. States may not regulate the property or operations of the federal government, including through direct taxation on the United States or its agencies. Here, the state seeks to tax the agency on the sales of lottery tickets from its outlets within the state, amounting to a direct tax, and is therefore not permitted.
A is incorrect. This answer reaches the correct answer with the wrong reasoning. It is true that the federal agency is not required to pay the state-imposed tax on the lottery receipts, but not because statutory authorization is required for a federal agency to pay any money to a state. In fact, a federal agency may pay taxes to a state absent explicit statutory authorization when the tax is non-discriminatory and INDIRECTLY imposed upon the federal government. Nevertheless, the agency is not required to pay this tax because it is a DIRECT tax on the federal government and states may not regulate the property or operations of the federal government.
C is incorrect. The fact that a tax is generally applicable and non-discriminatory is not the threshold for whether it is permissible. It is the direct nature of the tax on the federal agency that renders it unconstitutional here.
D is incorrect. This is a misstatement of the law. The federal government IS exempt from direct state taxation. And, as explained above, the gaming tax imposed on the federal lottery in this case is unconstitutional because it is a direct tax upon federal agency operations.