Evening star., 1938-03-07
SUPREME COURT.
REVERSES RULINGS
ON DUAL TAXATION
Moves Toward Removing
Bans on Federal, State
Governments.
MARSHALL'S CONCEPTS
ARE HELD DESTROYED
Butler and McReynolds, in
Minority, Deplore Overthrow Of
Previous Decisions.
BY JOHN H. CLINE.

BY JOHN H. CLINE.
Specifically reversing two former
decisions. the Supreme Court today
took long step forward in breaking
down restrictions it had imposed on
the respective rights Of State and
Federal Governments to tax the agen-
cies of each other.
Only in rare instances does the
Supreme Court specifically reverse its
rulings. and today's decision drew
from dissenting Justices Butler and
McReynolds the assertion that the
court has destroyed concepts of the
taxing power which have prevailed
since the famous ruling of Chief
Justice Marshall in the case of Nc
Culloch versus Maryland in 1919.
That ruling forbade the State to tax
the assets of Federal bank in Bal
timore. Chief Justice Marshall assert
ing that "the power to tax implies
the power to destroy"
Commenting on today's ruling,
Justice Butler said:
The opinion brings forward no
real reason for so sweeping change
of construction of the Constitution"
Hughes Delivers Opinion.
The court divided five to two, with
Chief Justice Hughes delivering the
Majority opinion. Justices Cardozo
and Reed took no part In the decision
In another ruling Of importance.
- o,,vtA Aa1l hnt hN Y,a<n
enue Bureau may proceed to collect
an assessment of $364,354 against
Charles E. Mitchell, former head of
the National City Bank of New York,
for allegedly filing fraudulant in
come tax return in 1929. Mr.. Mitchell
had been indicted for the alleged fraud,
but was acquitted on all counts when
brought to trial.
This acquittal, Mr.. Mitchell con-
tended. cleared him of the fraud ale
cation and served as q bar to the COL
lection Of the Assessment based on the
supposed fraud.
In ruling against him, the Supreme
Court reversed the lower court on the
theory that the failure to prove fraud
in criminal case does not necessarily
mean the Government would be un-
able to establish its charge in a civil
proceeding to collect the assessment.
Justice McReynolds dissented In the
Mitchell case and Justice Brandeis
delivered the majority opinion.
Wyoming Case Involved.
The courts analysis of the facts. in
the decision announced by Chief Jus
tice Hughes, showed that the State o;
Wyoming had made a lease covering
. section Of school land to the Mid
west Oil Co. for the purpose of. pro-
ducing oil and gas, reserving a royalty
to the State. The oil company then
executed a declaration Of trust under
which corporation known as Wy
oming Associates derived certain bene-
fits.
This set-up presented the question
whether Wyoming Associates was sub
iect to Federal income tax on the
financial benefits it received, immunity
being claimed on the ground that
under the declaration of trust Wyom-
ing Associated was a State instru-
mentality.
Stated generally, tie theory of the
immunity claim was that q tax on
its benefits operated to the disad-
vantage of the State by jeopardizing
its royalties under the agreement.
The chief justice then pointed out
that the claim of tax immunity was
justified by decisions of the Supreme
Court in cases known as Burnet VS..
Coronado Oil & Gas Co. and Gil
lespie vs.. Oklahoma. In announcing
the courts decision to overrule these
cases, the chief justice said in part:
In numerous decisions we have
had occasions to declare that to- 4" the
power to tax should not be crippled
by extending the constitutional ex-
emption from taxation to those sub
tects which fall within the general
application Of non-discriminatory laws,
and where no direct burden is laid
upon the governmental instrument
tality and there Is only remote, II
any, influence upon the exercise Of
the functions of government. '''
Regard for Direct Effects.
These decisions in q variety of ap-
plications enforce what we deem to
be the controlling view-that immunity
from non-dscriminstory taxation
sought by the private person for his
property or gains because he Is en-
gagged in operations under 4 Govern
ment contract or lease cannot be
supported by merely theoretical con.
ceptons Of interference with the func-
tions of Government Regard must be
had to substance and direct effects.
And where 1t merely appears that
one operating under q Government
contract or lease Is subject to . tax
with respect to his profits on the
same basis as others who are engaged
IN similar businesses, there Is no
suddcient ground for holding that the
eject upon the Government is other
than indirect and remote. We are
convinced that the rulings in Gillespie
versus Oklahoma and Burnet versus
Coronado OIL h 0as Co. are out Of