## Facts

- California imposed a motor vehicle fuel “license tax,” measured by gallonage, on the privilege of distributing motor vehicle fuel.
- The statute exempted fuel “sold to the government of the United States or any department thereof for official use.”
- Standard Oil Company of California, a statutory “distributor,” sold gasoline in California to U.S. Army Post Exchanges (PXs).
- California assessed the distributor tax on those sales; Standard Oil paid under protest and sued for a refund.
- PXs were established and operated under War Department regulations issued under congressional authority.

## Issues

1. Whether the Supreme Court had appellate jurisdiction where the state statute, as construed, was challenged as repugnant to the U.S. Constitution.
2. Whether Army Post Exchanges are the United States or a federal “department,” or otherwise federal instrumentalities, for purposes of applying the state tax exemption.
3. Whether applying the state fuel tax to sales to PXs unconstitutionally burdens a federal instrumentality.

## Decision

- The Court held it had jurisdiction because the statute’s validity as construed was challenged on federal constitutional grounds.
- The Court held the legal status of PXs is a federal question, and the state court’s characterization was not binding.
- The Court concluded PXs are arms of the federal government—integral parts of the War Department—and share federal immunity under the Constitution and federal statutes.
- The Court reversed and remanded for further proceedings, declining to decide the ultimate constitutional question because the state court might construe the statutory exemption differently once PXs’ federal status was correctly recognized.

## Legal Principles

- The legal status of an entity created and governed under federal law, when relevant to applying a state statute, is determined by federal law and reviewed independently by the Supreme Court.
- Army post exchanges, created and supervised under War Department authority pursuant to Congress, are federal instrumentalities and integral parts of the War Department.
- When a state court’s construction of a state tax exemption rests on an incorrect understanding of a federal entity’s status, the proper course may be remand for reconsideration before reaching constitutional tax-immunity questions.

## Conclusion

The Court recognized Army post exchanges as federal instrumentalities and reversed the state judgment sustaining California’s fuel tax as applied, remanding for the state court to reconsider the statutory exemption under the correct federal characterization without reaching a final constitutional ruling on intergovernmental tax immunity.


Standard Oil Co. of California v. Johnson, 316 U.S. 481 (1942)