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37. Was the state's imposition of the sales tax constitutional in this situation?
The state collected a generally applicable sales tax from the contractor on materials purchased for the work with money from the special bank account.
The federal government hired a private contractor to repair and maintain the roads in a national park located wholly within a state. In a written agreement, the government agreed to pay the contractor an annual fixed fee and to reimburse the contractor for all expenses associated with the work. The agreement provided that the contractor must pay for all materials and expenses from a special bank account into which the government would deposit required payments and reimbursements.
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A is incorrect. Although a state may not impose a tax directly on the federal government, the tax in this situation was imposed, instead, on the contractor. Contractors, as independent taxable entities, are not protected by the Constitution's guarantee of federal supremacy and are thus subject to the state taxes in question. United States v. New Mexico, 438 U.S. 696 (1978).
B is incorrect. The fact that the source of the funds was the federal government is not relevant to the analysis of whether the tax is valid. The validity standard requires that the tax be nondiscriminatory and not directly applied to the federal government.
C is incorrect. This answer comes to the correct conclusion using incorrect legal reasoning. The constitutional test for the validity of such a tax is that the tax must be nondiscriminatory and may not apply directly to the federal government.