Court Opinion

ID: 6876098
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:07:58.037922+00
Date Added: 2024-06-11T16:05:29.987180
License: Public Domain

EVANS, Circuit Judge
(dissenting).
Convinced that the decisions of the Supreme Court in Helvering v. Therrell, 303 U.S. 218, 58 S.Ct. 539, 82 L.Ed. 758, and Helvering v. Gerhardt, 304 U.S. 405, 58 S.Ct. 969, 82 L.Ed. 1427, control the disposition of this appeal and adversely to this respondent, I find myself unable to agree with the conclusions voiced in the majority opinion.
The exhaustive discussions of questions somewhat similar to those presented by the instant appeal, appearing in several recent opinions of the Supreme Court, make a lengthy statement of my views unnecessary and inappropriate. Ours is the duty to apply the decisions of the Supreme Court in these income tax cases to the facts of each particular case. To illustrate: Our understanding of the scope and effect of the Sixteenth Amendment is quite inconsequential in view of the holdings in Brushaber v. Union Pacific R. Co., 240 U.S. 1, 36 S.Ct. 236, 60 L.Ed. 493, L.R.A.1917D, 414, Ann.Cas.l917B, 713; Peck & Co. v. Lowe, 247 U.S. 165, 38 S.Ct. 432, 62 L.Ed. 1049; Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521, 9 A.L.R. 1570; Evans v. Gore, 253 U.S. 245, 40 S.Ct. 550, 64 L.Ed. 887, 11 A.L.R. 519. These decisions govern. Our plain, if not always simple, duty is to apply them.
Likewise, any previously entertained views as to the scope of the term “essential governmental functions” which we may have had, and the limitations on the Federal taxing power by reason thereof, must yield in the face of specific holdings of the Supreme Court in particular cases.
Does Helvering v. Gerhardt, supra, settle the questions before us? Or perhaps stated differently and better — Does the imposition of a Federal tax upon the income of a master in chancery whose appointment is made and whose compensation is fixed by a state court but paid entirely by the litigants, impair or impede the activities of an essential governmental function ?
In Helvering v. Therrell, 303 U.S. 218, 58 S.Ct. 539, 82 L.Ed. 758, the Court said [page 542]:
“ * * * Notwithstanding discordant views which have sometimes arisen because of varying emphasis given to one or another of such circumstances, it is now settled doctrine that the inferred exemption from federal taxation does not extend to every instrumentality which a state may see fit to employ. Exemption depends upon the nature of the undertaking; it is cabined by the reason which underlies the inference.”
*594The fact which it is urged distinguishes the instant case and lifts it out of the class or group of officers engaged in “essential governmental functions'” who,' under the Collector v. Day decision, are immune from. Federal income tax is the payment of the taxpayer’s income by litigants rather than payment by the state of Illinois. The decision of the Court in Helvering v. Gerhardt, supra, seems to warrant, and in fact necessitates, a test which this and other courts, as well as the Board of Tax Appeals, have not heretofore made in determining whether an officer’s salary is exempt from Federal income tax. Our failure to make this test previously was not from lack of desire or want of conviction, but because of our plain duty to apply the decisions of the Supreme Court. The first intimation of a change in the test came in the Therrell Case where the Court said: “The compensation of the taxpayers was paid from corporate assets — not from funds belonging to the state.”
A correct interpretation of this language, however, requires the admission that the foregoing quotation was made as a partial test to determine the official status of the taxpayer and the character — the essential or non-essential governmental character of his duties.
In Helvering v. Gerhardt, supra, however, there is laid down a stricter test for one successfully claiming immunity as a state officer' engaged in an essential governmental function. A few quotations therefrom are set forth to support this statement:
“When immunity is claimed from a tax laid on private persons, it must clearly appear that the burden upon the state func-' tion is actual and substantial, not conjectural.”
“The effect of the immunity if allowed would be to relieve respondents of their duty of financial support' to' the national government, in order to secure to the state a theoretical advantage so speculative in' its character and measurement as to- be unsubstantial. A tax immunity. devised for protection of the states as- governmental entities cannot be pressed so far.”
“The basis upon which constitutional tax immunity of a state has been supported is the protection which it affords to the continued existence of the state. To attain that end it is not ordinarily necessary to confer on the state a competitive advantage over private .persons in carrying on the • operations of its government. There is no such necessity here, and the resulting impairment of the federal power to tax argues against the advantage. The state and national governments must coexist. Each must be supported by taxation of those who are citizens of both. The mere fact that the. economic burden of such taxes may be passed on to a state government and thus increase to some extent, here wholly conjectural, the expense of its operation, infringes no constitutional immunity. Such burdens are but normal incidents of the organization within the same territory of two governments, each possessed of the taxing power.”
“ * * * The immunity has been still more narrowly restricted in those cases where some part of the burden of a tax, collected not from a state treasury but from individual taxpayers, is said to be passed on to the state. In these cases the function has been either held or assumed to be of such a character that its performance by the state is immune from direct federal interference; yet the individuals who personally derived profit or compensation from- their employment in carrying out the function were deemed to be subject to federal income tax.”
“They [judicial pronouncements] * * * definitely establish, two guiding principles of limitation for holding the tax immunity of state instrumentalities to its proper function. The one, dependent upon the nature of the function being performed by the state or in its behalf, excludes from the immunity activities thought not to be essential to the preservation of state governments even though the tax be collected from the state treasury. * * * The other principle, exemplified by those cases 'where the .tax laid upon individuals affects, the state only as the burden is' passed on to it by the taxpayer, forbids recognition of the immunity when the burden on the state is so speculative and uncertain that if allowed it would restrict the federal, taxing- power without affording any corresponding tangible protection to the state government; even though the function be thought important enough to demand immunity from a tax upon the state itself, it is not necessarily protected from a tax which well may be substantially or entirely absorbed by private persons. Metcalf & Eddy v. Mitchell, supra; Willcuts v. Bunn, 282 U.S. 216, 51 S.Ct. 125, 75 L.Ed. 304, 71 A.L.R. 1260.”
*595The conclusion which I draw from these excerpts is that recognition of immunity will be denied, when the interference with the state governmental functions, through the imposition of Federal income tax, is so uncertain as to be conjectural, theoretical or speculative.
In the final analysis the objection to the levy of a Federal income tax on the compensation of a state official engaged in an essential governmental function is that it interferes with the state’s activities in an essential function. If so, then it follows if there arises no burden — no objection to the activities of the state by reason of the levy of such tax — the reason for the immunity fails. For there is no recognition of such immunity appearing in the Sixteenth Amendment nor in the Federal statute which definitely includes all incomes within its scope.
The origin of the immunity must be traced to judicial pronouncement, to the decision in Collector v. Day, supra. That the immunity has been narrowed by the various decisions referred to in the Gerhardt Case must be admitted.
As the decisions of today stand, the real test is, as it should be, the effect of the tax on the exercise of the state’s essential governmental activities. If it is a burden and it results in an interference with these activities, then, under the existing decisions, the tax is unconstitutional.
Dealing with actualities and not with theories, with a very practical matter, to-wit, taxation, I am unable to see how a tax on the compensation of a special master, whose fees are paid by the litigant, interferes with that official’s or the court’s activities. It does not even appear that the compensation fixed by the court did not include an allowance for the payment of these taxes. Doubtless the court in making its allowances as compensation to the master, took into consideration his expenses such as office rent, supplies, telephone, etc. And it is also possible, in fact probable, that the sum which the master would be required to pay as income tax, was considered when the court fixed the compensation of his special master. He should, at least, have taken it into consideration.
While it must be admitted that the exact question here presented was not decided by the Gerhardt Case, another Corirt of Appeals has held that the Gerhardt Case necessitated its holding that the source of the compensation of the state officer is controlling. Saxe v. Shea, 2 Cir., 98 F.2d 83.