Source: https://openjurist.org/293/us/214
Timestamp: 2019-04-20 18:20:02+00:00

Document:
The validity of the statute has been sustained as one enacted for a public purpose and providing for the management of the enterprise by the commonwealth. Boston v. Treasurer and Receiver General, 237 Mass. 403, 413, 420, 130 N.E. 390, 392; Boston v. Jackson, 260 U.S. 309, 314, 316, 43 S.Ct. 129, 67 L.Ed. 274. The Supreme Judicial Court of Massachusetts has characterized the 'public operation' as 'undertaken by the commonwealth, not as a source of profit, but solely for the general welfare.' Boston v. Treasurer and Receiver General, supra. The trustees are the administrative agents of the commonwealth in this enterprise, and we may assume, as the Circuit Court of Appeals has held, that the trustees come within the general category of 'public officers' by virtue of their appointment by the Governor, with the advice and consent of the council, and their tenure and duties fixed by law.1 United States v. Hartwell, 6 Wall. 385, 393, 18 L.Ed. 830; Metcalf & Eddy v. Mitchell, 269 U.S. 514, 520, 46 St.Ct. 172, 70 L.Ed. 384. See Opinion of the Justices, 261 Mass. pages 542, 543, 550, 159 N.E. 55.
While the undertaking is for the public benefit, it is still a particular business enterprise—the operation of a street railway and the functions of the trustees are limited accordingly. The property remains in private ownership. The act, accepted by the company, constitutes in substance an agreement between the company and the commonwealth that the latter shall temporarily take over the management and operation and pay specified amounts by way of compensation. While the commonwealth may be called upon to bear losses that may occur, if the fares as fixed prove to be insufficient, the operation by the trustees is intended to be self-sustaining. The transportation service is to be rendered, as respondents' counsel say, 'under such a flexible system of rate-making as would allow the fixing of fares equal, as nearly as might be, to the cost of service.' The compensation of the trustees is undoubtedly a part of that cost. 'The main design of the act,' as stated by the Supreme Judicial Court, 'is public operation of the railway company at such rates of fare to be fixed by the trustees from time to time as shall afford revenue sufficient to defray all charges and the dividends established by the act.' Boston v. Treasurer and Receiver General, supra. The authority given to the trustees 'to regulate and fix fares,' and the further authority to ascertain such losses as may be incurred, which are to be borne by the commonwealth, are both incident to that main purpose.
We come then to the question whether the Congress has the constitutional power to impose an income tax upon the compensation of public officers of the character here involved. We do not regard that question as answered by mere terminology. The roots of the constitutional restriction strike deeper than that. The term 'public office' undoubtedly implies a definite assignment of public activity, fixed by appointment, tenure, and duties. But whether that field of activity, in relation to a state, carries immunity from federal taxation is a question which compels consideration of the nature of the activity, apart from the mere creation of offices for conducting it, and of the fundamental reason for denying federal authority to tax. That reason, as we have frequently said, is found in the necessary protection of the independence of the national and state governments within their respective spheres under our constitutional system. Collector v. Day, 11 Wall 113, 125, 127, 20 L.Ed. 122; Ambrosini v. United States, 187 U.S. 1, 7, 23 S.Ct. 1, 47 L.Ed. 49; Indian Motocycle Company v. United States, 283 U.S. 570, 575, 51 S.Ct. 601, 75 L.Ed. 1277. The principle of immunity thus has inherent limitations. Metcalf & Eddy v. Mitchell, supra, pages 522—524 of 269 U.S., 46 S.Ct. 172; Willcuts v. Bunn, 282 U.S. 216, 225, 226, 51 S.Ct. 125, 75 L.Ed. 304, 71 A.L.R. 1260; Indian Motocycle Company v. United States, supra, page 576 of 283 U.S., 51 S.Ct. 601; Fox Film Corporation v. Doyal, 286 U.S. 123, 128, 52 S.Ct. 546, 76 L.Ed. 1010; Board of Trustees v. United States, 289 U.S. 48, 59, 53 S.Ct. 509, 77 L.Ed. 1025. And one of these limitations is that the state cannot withdraw sources of revenue from the federal taxing power by engaging in businesses which constitute a departure from usual governmental functions and to which, by reason of their nature, the federal taxing power would normally extend. The fact that the state has power to undertake such enterprises, and that they are undertaken for what the state conceives to be the public benefit, does not establish immunity. South Carolina v. United States, 199 U.S. 437, 26 S.Ct. 110, 50 L.Ed. 261, 4 Ann.Cas. 737; Flint v. Stone Tracy Company, 220 U.S. 107, 172, 31 S.Ct. 342, 55 L.Ed. 389, Ann.Cas. 1912B, 1312; Murray v. Wilson Distilling Company, 213 U.S. 151, 173, 29 S.Ct. 458, 53 L.Ed. 742; Metcalf & Eddy v. Mitchell, supra; Indian Motocycle Company v. United States, supra; Ohio v. Helvering, 292 U.S. 360, 368, 369, 54 S.Ct. 725, 78 L.Ed. 1307. The necessary protection of the independence of the state government is not deemed to go so far.
The provision of section 1 of chapter 159 of the Massachusetts Special Acts of 1918 that the trustees shall not be considered public officers within the meaning of section 25 of chapter 514 of the Acts of 1909, and that section 1 of chapter 7 of the Revised Laws shall not apply to the trustees, creates special limitations of such a nature as not to derogate from their general status. See Opinion of the Justices, 261 Mass. page 543, 159 N.E. 55.

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