Morpho Detection, Inc. v. Transportation Security Administration
405 U.S. App. D.C. 181
D.C. Cir.2013Background
- Morpho Detection contracted with FAA/TSA to supply Explosive Detection Systems (EDS) for U.S. airports; Washington state assessed Morpho about $5.28 million in use and B&O taxes on Morpho’s work at Seattle-Tacoma and Spokane airports; AMS Clause 3.4.2-7 generally requires contract price to include taxes but provides an after-imposed tax exception; ODRA denied Morpho’s contract-dispute seeking an equitable adjustment; TSA denied Morpho’s petition for review after adopting the ODRA decision.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Washington taxes are after-imposed under AMS 3.4.2-7(c). | Morpho argues taxes are after-imposed due to state interpretation. | TSA contends taxes are not after-imposed; contract may not incorporate the clause. | Not after-imposed; denial of Morpho's claim affirmed. |
| Whether AMS 3.4.2-7 is incorporated into Morpho’s contracts. | Contract should incorporate AMS 3.4.2-7 and its after-imposed-tax exception. | AMS clause not expressly incorporated; review limited to incorporation issues. | Non-incorporation shown; but issue not decisive since taxes aren’t after-imposed anyway. |
| What is the proper standard of review for TSA’s decision. | Review should be de novo. | Review standard open; arbitrary or capricious standard suffices. | De novo not required; even under strict review, taxes aren’t after-imposed. |
| Is the administrative assessment a qualifying after-imposed action. | ODRA/administrative action changing tax interpretation could be after-imposed. | Assessment did not change tax provisions post-contract; not after-imposed. | Assessment did not constitute after-imposed tax under the clause. |
Key Cases Cited
- Washington v. United States, 460 U.S. 536 (1983) (addresses the federal construction tax under state law and contractor incidence)
- Morrison-Knudsen Co. v. United States, 427 F.2d 1181 (Ct. Cl. 1970) (illustrates after-imposed tax concept in analogous context)
- Unification Church v. INS, 762 F.2d 1077 (D.C. Cir. 1985) (interprets ambiguous statutory language and tax definitions)
- Multimax, Inc. v. FAA, 231 F.3d 882 (D.C. Cir. 2000) (defines review framework for FAA dispute decisions)
- United States v. Fisk, 70 U.S. (3 Wall.) 445 (1865) (courts construe 'or' and related statutory language in tax context)