Source: https://caselaw.findlaw.com/us-supreme-court/269/514.html
Timestamp: 2019-04-25 10:57:37+00:00

Document:
[269 U.S. 514, 515] Mr. Philip Nichols, of Boston, Mass., for Metcalf and others.
[269 U.S. 514, 518] Messrs. Assistant Attorney General Letts and Robert P. Reeder, of Washington, D. C., for Mitchell's administratrix.
Metcalf & Eddy, the plaintiffs below, were consulting engineers who, either individually or as copartners, were professionally employed to advise states or subdivisions of states with reference to proposed water supply and sewage disposal systems. During 1917 the fees received by them for these services were paid over to the firm and became a part of its gross income. Upon this portion of their net income they paid, under protest, the tax assessed on the net income of copartnerships under the War Revenue Act of 1917. Act Oct. 3, 1917, c. 63, 209, 40 Stat. 300, 307. They then brought suit in the United States District Court for Massachusetts to recover the tax paid on the items in question, on the ground that they were expressly exempted from the tax by the act itself, and on the further ground that Congress had no power under the Constitution to tax the income in question.
As the case comes directly from the District Court to this court on a constitutional question, the jurisdiction [269 U.S. 514, 519] of this court is not limited to that question alone, but extends to the whole case. Horner v. United States, No. 2, 143 U.S. 570 , 12 S. Ct. 522; Greene v. Louisville, etc., R. R. Co., 244 U.S. 499 , 37 S. Ct. 673, Ann. Cas. 1917E, 88.
We think it clear that neither of the plaintiffs in error occupied any official position in any of the undertakings [269 U.S. 514, 520] to which their writ of error in No. 183 relates. They took no oath of office; they were free to accept any other concurrent employment; none of their engagements was for work of a permanent or continuous character; some were of brief duration, and some from year to year, others for the duration of the particular work undertaken. Their duties were prescribed by their contracts and it does not appear to what extent, if at all, they were defined or prescribed by statute. We therefore conclude that plaintiffs in error have failed to sustain the burden cast upon them of establishing that they were officers of a state or a subdivision of a state within the exception of section 201(a).
An office is a public station conferred by the appointment of government. The term embraces the idea of tenure, duration, emolument and duties fixed by law. Where an office is created, the law usually fixes its incidents, including its terms, its duties and its compensation. United States v. Hartwell, 6 Wall. 385; Hall v. Wisconsin, 103 U.S. 5 . The term 'officer' is one inseparably connected with an office; but there was no office of sewage or water supply expert or sanitary engineer, to which either of the plaintiffs was appointed. The contracts with them, although entered into by authority of law and prescribing their duties, could not operate to create an office or give to plaintiffs the status of officers. Hall v. Wisconsin, supra; Auffmordt v. Hedden, 137 U.S. 310 , 11 S. Ct. 103. There were lacking in each instance the essential elements of a public station, permanent in character, created by law, whose incidents and duties were prescribed by law. See United States v. Maurice, Fed. Cas. No. 15,747, 2 Brock. 96, 102, 103; United States v. Germaine, 99 U.S. 508, 511 , 512 S.; Adams v. Murphy, 165 F. 304, 91 C. C. A. 272.
Nor do the facts stated in the bill of exceptions establish that the plaintiffs were 'employees' within the meaning of the statute. So far as appears, they were in the position of independent contractors. The record does [269 U.S. 514, 521] not reveal to what extent, if at all, their services were subject to the direction or control of the public boards or officers engaging them. In each instance the performance of their contract involved the use of judgment and discretion on their part and they were required to use their best professional skill to bring about the desired result. This permitted to them liberty of action which excludes the idea that control or right of control by the employer which characterizes the relation of employer and employee and differentiates the employee or servant from the independent contractor. Chicago, Rock Island & Pacific Ry. Co. v. Bond, 240 U.S. 449, 456 , 36 S. Ct. 403; Standard Oil Co. v. Anderson, 212 U.S. 215, 227 , 29 S. Ct. 252. And see Casement v. Brown, 148 U.S. 615 , 13 S. Ct. 672; Singer Mfg. Co. v. Rahn, 132 U.S. 518, 523 , 10 S. Ct. 175.
We pass to the more difficult question whether Congress had the constitutional power to impose the tax in question, and this must be answered by ascertaining whether its effect is such as to bring it within the purview of those decisions holding that the very nature of our constitutional system of dual sovereign governments is such as impliedly to prohibit the federal government from taxing the instrumentalities of a state government, and in a similar manner to limit the power of the states to tax the instrumentalities of the federal government. See, as to federal taxation on state instrumentalities, Collector v. Day, 11 Wall. 113; United States v. Railroad Co., 17 Wall. 322; Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 585 , 586 S., 15 S. Ct. 673; Ambrosini v. United States, 187 U.S. 1 , 23 S. Ct. 1; Flint v. Stone Tracy Co., 220 U.S. 107 , 31 S. Ct. 342, Ann. Cas. 1912B, 1312. See, cases holding that the Sixteenth Amendment did not extend the taxing power to any new class of subjects, Brushaber v. Union Pacific R. R. Co., 240 U.S. 1 , 36 S. Ct. 236, L. R. A. 1917D, 414, Ann. Cas. 1917B, 713; Peck & Co. v. Lowe, 247 U.S. 165, 172 , 38 S. Ct. 432; Eisner v. Macomber, 252 U.S. 189 , 40 S. Ct. 189, 9 A. L. R. 1570; Evans v. Gore, 253 U.S. 245, 259 , 40 S. Ct. 550, 11 A. L. R. 519. And, as to state taxation on federal instrumentalities, see McCulloch v. Mary- [269 U.S. 514, 522] land, 4 Wheat. 316; Dobbins v. Commissioners of Erie County, 16 Pet. 435; The Banks v. The Mayor, 7 Wall. 16; Weston v. City Council of Charleston, 2 Pet. 449, 467; Farmers' Bank v. Minnesota, 232 U.S. 516 , 34 S. Ct. 354; Choctaw, O. & G. R. R. v. Harrison, 235 U.S. 292 , 35 S. Ct. 27; Indian Oil Co. v. Oklahoma, 240 U.S. 522 , 36 S. Ct. 453; Gillespie v. Oklahoma, 257 U.S. 501 , 42 S. Ct. 171.
When, however, the question is approached from the other end of the scale, it is apparent that not every person who uses his property or derives a profit, in his dealings with the government, may clothe himself with immunity from taxation on the theory that either he or his [269 U.S. 514, 523] property is an instrumentality of government within the meaning of the rule. Thompson v. Pacific Railroad, 9 Wall. 579; Railroad Co. v. Peniston, 18 Wall. 5; Baltimore Shippbuilding Co. v. Baltimore, 195 U.S. 375 , 25 S. Ct. 50; Gromer v. Standard Dredging Co., 224 U.S. 362, 371 , 32 S. Ct. 499; Fidelity & Deposit Co. v. Pennsylvania, 240 U.S. 319 , 36 S. Ct. 298; Choctaw, O. & G. R. R. Co. v. Mackey, 256 U.S. 531 , 41 S. Ct. 582.
But neither government may destroy the other nor curtail in any substantial manner the exercise of its powers. Hence the limitation upon the taxing power of each, so far as it affects the other, must receive a practi- [269 U.S. 514, 524] cal construction which permits both to function with the minimum of interference each with the other; and that limitation cannot be so varied or extended as seriously to impair either the taxing power of the government imposing the tax (South Carolina v. United States, 199 U.S. 437, 461 , 26 S. Ct. 110, 4 Ann. Cas. 737; Flint v. Stone Tracy Co., supra, at page 172 (31 S. Ct. 342)) or the appropriate exercise of the functions of the government affected by it (Railroad Co. v. Peniston, supra, 31).
It is on this principle that, as we have see, any taxation by one government of the salary of an officer of the other, or the public securities of the other, or an agency created and controlled by the other, exclusively to enable it to perform a governmental function (Gillespie v. Oklahoma, supra), is prohibited. But here the tax is imposed on the income of one who is neither an officer nor an employee of government and whose only relation to it is that of contract, under which there is an obligation to furnish service, for practical purposes not unlike a contract to sell and deliver a commodity. The tax is imposed without discrimination upon income whether derived from services rendered to the state or services rendered to private individuals. In such a situation it cannot be said that the tax is imposed upon an agency of government in any technical sense, and the tax itself cannot be deemed [269 U.S. 514, 525] to be an interference with government, or an impairment of the efficiency of its agencies in any substantial way. Railroad Co. v. Peniston; Gromer v. Standard Dredging Co.; Baltimore Shipbuilding Co. v. Baltimore; Fidelity & Deposit Co. v. Pennsylvania; Choctaw, O. & G. R. R. Co. v. Mackey, supra.
These statement we deem to be equally applicable to private citizens engaged in the general practice of a profession or the conduct of a business in the course of which they enter into contracts with government from which they derive a profit. We do not suggest that there may not be interferences with such a contract relationship by means other than taxation which are prohibited. Railroad Co. v. Peniston, supra, at page 36, recognizes that there may. Nor are we to be understood as laying down any rule that taxation might not affect agencies of this character in such a manner as directly to interfere with the [269 U.S. 514, 526] functions of government and thus be held to be void. See Railroad v. Peniston, supra, at page 36; Farmers' Bank v. Minnesota, supra, at page 522; Choctaw, O & Gulf Railway Co. v. Harrison, supra, at page 272.
But we do decide that one who is not an officer or employee of a state, does not establish exemption from federal income tax merely by showing that his income was received as compensation for service rendered under a contract with the state; and when we take the next step necessary to a complete disposition of the question, and inquire into the effect of the particular tax, on the functioning of the state government, we do not find that it impairs in any substantial manner the ability of plaintiffs in error to discharge their obligations to the state or the ability of a state or its subdivisions to procure the services of private individuals to aid them in their undertakings. Cf. Central Pacific Railroad v. California, 162 U.S. 91, 126 , 16 S. Ct. 766. We therefore conclude that the tax in No. 183 was properly assessed.

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