Court Opinion

ID: 4605591
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:36:41.352814+00
Date Added: 2024-06-11T07:53:13.705500
License: Public Domain

JAMESTOWN & NEWPORT FERRY CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Jamestown & Newport Ferry Co. v. CommissionerDocket Nos. 19412, 25013.United States Board of Tax Appeals16 B.T.A. 638; 1929 BTA LEXIS 2545; May 23, 1929, Promulgated *2545  1.  A ferry corporation incorporated by special act of a state legislature, on the petition of a township, for the purpose of maintaining and operating a ferry between the mainland and the island on which the township is situated, is a private corporation engaged in the business of transportation and is not a governmental agency performing an essential governmental function, even though the township owns a majority of the corporation stock and by virtue of such ownership controls the corporation's operations.  2.  The petitioner's income for the taxable years was not derived from the exercise of an essential governmental function and since the facts show that no part of the income for these years accrued to the township, such income is not exempt from Federal income tax and no part of the net income for the taxable years is exempt from Federal taxation under section 213(b)(7) of the Revenue Act of 1921.  Guy Mason, Esq., and R. A. Littleton, Esq., for the petitioner.  B. M. Coon, Esq., for the respondent.  VAN FOSSAN *638  These are proceedings for the redetermination of the income and excess-profits taxes for the fiscal year ended February 28, 1922, and*2546  income taxes for the fiscal years ended February 28, 1923, and February 28, 1925, as to which the Commissioner has determined deficiencies of $1,804.70, $17.27, and $28.12, respectively.  It is alleged that the Commissioner erred in holding that all the income of petitioner for the respective taxable years is subject to tax.  FINDINGS OF FACT.  Petitioner is a private corporation, organized and existing under and by virtue of special acts of the Legislature of the State of Rhode Island, with its principal office at Jamestown, and is engaged in the operation of a public utility, namely, a steam ferry or steam ferries.  The town of Jamestown is situated on Conanicut Island in Narragansett Bay and its corporate limits include the entire island, the southern part of which extends into the Atlantic Ocean.  The village of Jamestown is located near the southern end of the island.  The town is about three miles west of the city of Newport, located upon another island, and approximately two miles east of the village of Sanderstown in the town of North Kingstown, which is adjacent to the towns of Narragansett and South Kingstown, on the mainland.  There is one municipal government, consisting*2547  of a town council of five members and town officers elected by the voters at annual town meetings, for the whole island.  *639  On April 2 and April 3, 1872, the town appointed a committee of three persons to investigate and report upon all facts relating to the cost of establishing a ferry between Jamestown Island and the city of Newport, and directed its representatives in the State Legislature to apply for authority to establish and maintain such a ferry and to do all things necessary or incident thereto.  By special act of April 11, 1872, amended April 26, 1872, Jamestown was granted authority to establish and maintain the desired ferry, and to do all things necessary or incident to the same; and was authorized to raise money, by taxation, by bond issue, or by loans upon the credit of the town, for the purpose.  On May 2, 1872, the town agreed to subscribe not in excess of $12,000 for 60 per cent of the capital stock of an association to be organized for the purpose of establishing and maintaining the ferry, upon condition that 40 per cent of the stock be first taken by responsible individual subscription.  A committee of three was appointed to act for the town in the*2548  organization of such association, with instructions to join with other members of the association in an application to the Legislature for an act of incorporation for the company and to transfer the interest of the town in the association to such corporation.  The town, on August 22, 1872, authorized the committee to subscribe for additional stock in the association, and on September 30, 1872, directed that its vote in the association on all questions be cast as a whole, in accordance with a majority decision of the committee.  On April 2, 1873, the town directed that the acting committee continue in office until the first Wednesday in April, 1874, and represent the town's stock after incorporation of the Jamestown and Newport Ferry Co.  On May 30, 1873, the petitioner was incorporated by the following special act of the State Legislature: AN ACT TO INCORPORATE THE "JAMESTOWN AND NEWPORT FERRY COMPANY." (Passed May 30, 1873) It is enacted by the General Assembly as follows: Section 1. George C. Carr, Frederick N. Cottrell, James W. Potter, (town's Committee), their successors in said office, John Eldred, Robert H. Watson, Benjamin Bateman, John Howland, Benjamin Cottrell, *2549  their associates and successors, are hereby created a body corporate and politic, by the name and style of the "Jamestown and Newport Ferry Company," for the purpose of establishing and maintaining a ferry between Jamestown and Newport, with full power and authority to own, build, hire and operate boats, whether propelled by steam or otherwise, and to build and own or hire wharves, and generally to do all things necessary or proper to be done, which may be incidental to, or may in any way appertain to the establishing and maintaining said ferry, with all the corporate powers and rights, and to be subject to all the duties and liabilities provided by chapter 139 of the General Statutes, and all acts in addition thereto or in amendment thereof.  *640  Sec. 2.  The capital stock of the said corporation shall not exceed one hundred thousand dollars, to be divided into shares of one hundred dollars each.  Sec. 3.  The town of Jamestown may subscribe for any amount of the capital stock of the said corporation, which may be authorized by a vote of the electors qualified to vote upon a question of taxation at a town meeting called for that purpose, and may hold the same and vote*2550  upon the shares so held in any meeting of said corporation, by such agent or committee as the said town may elect for that purpose.  Sec. 4.  The officers of the said corporation shall be a president, treasurer, clerk and a board of five directors, of which board the president shall be a member, the duties of which officers shall be prescribed by the by-laws.  Sec. 5.  The said corporation shall have the exclusive right to carry passengers and freight from their wharf in Jamestown to the city of Newport, and every person who shall, for hire and without the consent of said corporation or its authorized agent, take any passenger from their said wharf in Jamestown and land the same within the city of Newport, or who shall in like manner bring any passenger from Newport and land the same upon their said wharf in Jamestown shall be subject to a penalty of ten dollars for each and every passenger so taken, provided the price of such passage or freight be not tendered and paid to this company.  The electors of Jamestown on April 1, 1874, directed that a committee of three taxpaying electors, to represent the stock owned by the town in the petitioner and to be known as TOWN'S COMMITTEE*2551  - JAMESTOWN AND NEWPORT FERRY COMPANY, be elected annually on the first Wednesday in April.  George C. Carr, Frederick N. Cottrell, and John W. Potter were then elected as such committee.  On April 1, 1874, and April 3, 1878, the town voted that certain taxes be imposed, assessed and collected for the purpose of creating and maintaining a sinking fund with which to redeem the bonds issued by the town for the purchase of stock in the petitioner.  By Act of March 12, 1886, reciting that the town owned a majority of the stock in the ferry company, the Legislature authorized the town to execute a bond, not in excess of $30,000, to raise money for the use of the petitioner.  By act of March 22, 1888, amending the act of May 30, 1873, the State Legislature authorized and empowered the petitioner to establish and maintain an additional ferry between Jamestown and Narragansett Ferry, to build and own or hire wharves, boats, etc., and generally to do all things incident or in any wise appertaining to the establishment and maintenance of the ferries, with the same exclusive rights and privileges as to the additional ferry as were granted in the earlier act; and "with all the corporate powers*2552  and rights and to be subject to all the duties and liabilities provided by chapter 152 of the Public Statutes, and of all acts in addition thereto or in amendment thereof." By vote of the town on April 1, 1891, the board of directors of the ferry company were granted free passes on the ferries of the company.  On April 1, and April 30, 1896, the town authorized and *641  instructed its treasurer to borrow $20,000 and to lend the same, secured by mortgage, to the petitioner for the purpose of buying a new ferryboat, which should be insured for the benefit of the town for not less than $15,000.  This loan was authorized by the State Legislature on April 23, 1896.  By act of April 16, 1907, further amending the act of May 30, 1873, the Legislature authorized the petitioner from time to time to fix its capital stock in a sum not to exceed $100,000.  The town was authorized to purchase additional stock in the company, to loan the company any sums of money not exceeding $20,000 and secured by mortgage on all the property and franchises of the company, and to borrow the money for either purpose.  It was provided, however, that the town should continue to hold and own a majority*2553  of the capital stock of the company while it held and owned any stock or while the company was indebted to it.  By act of March 15, 1911, further amending the act of May 30, 1873, the petitioner was authorized in addition to the powers and privileges theretofore granted "to establish and maintain a ferry between Jamestown and the mainland at some point in either of the town of North Kingstown, South Kingstown or Narragansett," with full power and authority of acquire by purchase or otherwise, and to own boats and wharves and approaches thereto, and to do all things necessary or incident to establishing and maintaining the ferries, together with the rights and exclusive privileges theretofore granted as to existing ferries.  The petitioner further was authorized from time to time to issue for corporate purposes its capital stock and notes or bonds, or either of them, not exceeding the aggregate amount of $50,000 in addition to its then authorized capital stock, any stock so issued to be in shares of $100 par value each and to be first offered to stockholders in proportion to their holdings.  Jamestown was authorized to purchase such amounts of additional stock and to loan the company*2554  such amounts of money, secured by mortgage, as should be determined by vote of the qualified electors, with express authority to borrow money for either purpose.  It was provided, however, that the town should at all times hold and own a majority of the outstanding capital stock.  By act of April 20, 1911, the Legislature confirmed and validated the votes and acts of the electors of Jamestown in the town meeting held March 31, 1911, authorizing the issuance and sale of $50,000 in town bonds of $1,000 each dated May 1, 1911, and payable in 20 years with interest at 4 1/2 per cent per annum, payable semiannually.  By act of June 8, 1923, further amending the act of May 30, 1873, the Legislature authorized the petitioner to issue from time to time additional notes or bonds, not exceeding an aggregate of $175,000, for the purpose of purchasing a ferryboat or ferryboats to be used *642  in its business, and to secure such notes or bonds by mortgage upon its property.  Jamestown was authorized to endorse the note or notes of the petitioner, not exceeding $175,000 in the aggregate, or to borrow not more than $175,000 and loan the same to the petitioner, for the purpose of purchasing*2555  a ferryboat or ferryboats, such endorsement or such loan as the case might be, to be secured by the mortgage notes or serial bonds of the petitioner.  The electors of Jamestown on June 30, 1923, voted to loan the petitioner $100,000, secured by notes of the company and a mortgage upon all its property then owned or thereafter acquired during the term of the mortgage, for the purpose of purchasing a ferryboat, and voted to issue its serial bonds for that amount in the denomination of $1,000 each, dated July 1, 1923, and payable $10,000 each year for 10 consecutive years, with interest at 4 3/4 per cent per year, payable semiannually.  Petitioner is the only ferry company operating from Jamestown, and the ferry lines operated by it are the only mode of transportation between Jamestown and Newport, and Jamestown and the mainland of Rhode Island, except some small private boats.  A few of the permanent inhabitants of the island own small boats, but most of the private boats are pleasure craft owned by the summer residents.  In 1906 one other company, privately owned, undertook to operate ferries from Jamestown, but the venture failed and it became bankrupt in 1910.  No offers to buy*2556  its ferry lines have been made to petitioner and no other applications for franchises or permits to operate ferries have been made to the town of Jamestown.  If no ferry were operated regularly to and from Jamestown the island would lose a large percentage of its summer visitors, and transportation to and from the island could be carried on only in small private boats, launches and skiffs.  The only industry on the island, other than its activities as a summer resort, is agriculture, which consists of dairy farming and poultry raising, with very little truck gardening.  This business finds its support in part in the city of Newport.  All products shipped from the island are transported by petitioner's ferries.  The town has a permanent or all-year population of about 1,500 and a summer population of approximately 5,000.  The school facilities of the town consist only of a grammar school and all high school children on the island attend the Newport high school, their tuition being paid by Jamestown and the State of Rhode Island.  There are approximately 60 children, residents of Jamestown, who attend high school in Newport and use petitioner's ferry for that purpose.  Petitioner operates*2557  two ferries, using three boats during the summer season and two boats in the winter, one from East Jamestown to the city of Newport and one from West Jamestown to the village of Sanderstown.  It employs from 50 to 60 laborers, members of the *643  crews.  Each ferry requires about 50 minutes to make a round trip.  An hourly schedule from Jamestown is maintained from 6 o'clock in the morning to 12 o'clock midnight.  During the winter months the last two trips are eliminated, except on Tuesday and Friday nights.  The greatest safe capacity of the largest ferryboat is 42 automobiles and 500 passengers.  The ferries carry an average of about 1,500 or 2,000 passengers per day during the summer season and about 40 or less per trip during the winter.  Due to the seasonal fluctuation of the population of the island, the ferries are operated at a loss from about November 1 to about May 1 each year.  The petitioner charges a straight fare of 15 cents one way, with a weekly and monthly rate of 10 cents one way for commuters.  School children, town police and firemen and other town officers and employees, are transported by petitioner without charge, and no compensation is paid by the town*2558  to petitioner for such transportation.  All other persons, citizens of Jamestown as well as visitors, pay the regular rates of fare.  Petitioner owns and maintains three ferryboats.  The steamer Conanicut, built in 1886, and the steamer Beavertail, built in 1896, were purchased at the time of their construction at costs of $28,000 and $22,000, respectively.  The steamer John A. Sanders was purchased in 1912 for $12,000, and approximately $25,000 or $30,000 was spent to put in into shape.  No other boats were acquired until 1925, when the Huguenot was bought for $55,000 cash, which was made up from the current balance on hand at the time, $15,000, and funds borrowed for the purpose.  Since then one other boat has been purchased.  Petitioner also owns landing docks or wharves at Jamestown and Sanderstown, acquired in 1872 and 1911, respectively, and uses a wharf at Newport, the site for which was set aside many years ago for the use of Jamestown.  Since the incorporation of petitioner Jamestown has owned a majority of the capital stock and during the taxable years 1922 and 1923 it owned and held 280 shares of 422 shares of capital stock then issued and outstanding. *2559  In 1924 the town acquired additional shares of stock and some time subsequent to that year it acquired, and now owns and holds, all the capital stock of petitioner.  A committee of three taxpaying electors, designated as the "Town Committee - Jamestown and Newport Ferry Company," have been elected annually by the voters of Jamestown, at the same time and in the same manner as the town council and other town officials, to represent the town's interests and stock in the corporation.  The members of this committee also have been directors of the petitioner and, prior to 1924, the committee selected two additional stockholders outside of the town as directors to complete the board of five.  Since the acquisition by the town of all the capital stock this committee, in conformity with an act of the Legislature and instructions from the town, has *644  selected as the additional directors two taxpaying electors of Jamestown.  The officers of petitioner are a president, vice president, secretary, and treasurer, who are elected by the board of directors.  In 1914 the treasurer was paid a salary of $150 per year, which was increased to $500 per year in 1916 or 1917.  Annual meetings of*2560  the stockholders are held at which the town stock is represented by its committee.  During the taxable years the gross income of petitioner varied from approximately $160,000 to $170,000 a year, each succeeding year showing a slight increase over the preceding year.  The annual cost of operation and annual expenses, together with cost of repairs, improvements, replacements and renewals of equipment, approximately equaled the gross income each year.  In October or November of each year, at the end of the summer season, petitioner usually had a balance on hand ranging from $5,000 to $20,000, but at the close of the fiscal year there was generally no balance.  The funds with which petitioner purchased its boats and equipment were obtained largely from loans by Jamestown under authority of acts of the Legislature, the town taking a mortgage on petitioner's property as security.  Petitioner kept its books upon an accrual basis, but has never created a reserve fund or set aside moneys for replacement of equipment.  It has never paid dividends or credited any amount on its books to the stockholders.  The private stockholders have never received any individual or personal benefits from their*2561  holdings, either by way of free transportation on the ferries or otherwise.  Petitioner filed an original income-tax return or a tentative return on the basis of a fiscal year ending the last day of February for the years 1922 to 1925, inclusive.  Petitioner claimed that its income, or the proportion thereof which the stock owned by Jamestown bore to the total outstanding stock, was exempt from taxation under section 213(b)(7) of the Revenue Acts of 1921 and 1924.  The respondent denied the claim, adjusted the net income disclosed upon the returns, and asserted the deficiencies in controversy.  OPINION.  VAN FOSSAN: The petitioner claims that its income, or at least that proportion thereof which the stock owned by the town of Jamestown bears to the total stock outstanding, is exempt from Federal income taxation under section 213(b)(7) of the Revenue Acts of 1921 and 1924.  Section 213(b)(7) of the Revenue Act of 1921, which is substantially similar to the corresponding section of the Revenue Act of 1924, is as follows: That for the purpose of this title (except as otherwise provided in section 233) the term "gross income" - * * * (b) *645  Does not include the following*2562  items, which shall be exempt from taxation under this title: * * * (7) Income derived from any public utility or the exercise of any essential governmental function and accruing to any State, Territory, or the District of Columbia, or any political subdivision of a State or Territory, or income accruing to the Government of any possession of the United States, or any political subdivision thereof.  Whenever any State, Territory, or the District of Columbia, or any political subdivision of a State or Territory, prior to September 8, 1916, entered in good faith into a contract with any person, the object and purpose of which is to acquire, construct, operate, or maintain a public utility, no tax shall be levied under the provisions of this title upon the income derived from the operation of such public utility, so far as the payment thereof will impose a loss or burden upon such State, Territory, District of Columbia, or political subdivision; but this provision is not intended and shall not be construed to confer upon such person any financial gain or exemption or to relieve such person from the payment of a tax as provided for in this title upon the part or portion of such income*2563  to which such person is entitled under such contract; * * *.  The manifest purpose of the Act is to exempt from taxation the income of the States, their political subdivisions, and the other governmental entities named.  The income of public utilities, although they are engaged in a business in some respects public in character and perform a public service and for thit reason are subject to the regulations and control of the State or other government, is not, as such, exempt.  It is only when such income accrues to the governments that it becomes exempt.  Not only is the purpose and intent to restrict the exemption to income of the specified governments themselves clearly stated in affirmative language, but any contrary intent and purpose is expressly negatived.  The petitioner contends that it is not only a public utility, but also an instrumentality of the town of Jamestown, exercising an essential governmental function, and that its income for the taxable years accrued to the town, a political subdivision of the State of Rhode Island.  The respondent admits that petitioner is a public utility, but denies that it is an instrumentality of Jamestown, exercising an essential governmental*2564  function, and that its income for the taxable years accrued to the town.  The immunity of the States, their property and the instrumentalities employed in the exercise of their governmental powers and duties, from Federal taxation, independently of statutory exemption, is well settled doctrine. ; ; ; . On the other hand, it is equally well settled that when the States depart from governmental activities and engage in private business, they lose their sovereign character and become private citizens, subject to Federal taxation so far as the operations of that business are *646  concerned. ; ; . It is not every agency or instrumentality of a State that is exempt from Federal taxation, but only those immediately and directly employed in the*2565  exercise of its sovereign powers, the exemption being founded in the prohibition to interfere with the exercise by the State of its governmental functions.  . Cf. . The mere fact that a corporation is created by a State or the Federal Government, or under the authority of either, and is employed by its creator, does not render it exempt from taxation by the other government.  In , holding that the Bank of the United States was not a private corporation, but a public corporation created for National purposes and exempt from State taxation, the court conceded that had it been a private corporation with private trade and profit its purpose it would be subject to taxation by the State.  As to such a corporation the court said: This mere private corporation engaged in its own business, with its own views, would certainly be subject to the taxing power of the State, as any individual would be; and the casual circumstance of its being employed by the government in the transaction of its fiscal affairs would no more exempt*2566  its private business from the operation of that power than it would the private business of any individual employed in the same manner.  In , the court, referring to the immunity of the States and their instrumentalities from Federal taxation, said at pages 157 and 158: The cases unite in exempting from Federal taxation the means and instrumentalities employed in carrying on the governmental operations of the State.  The exercise of such rights as the establishment of a judiciary, the employment of officers to administer and execute the laws and similar governmental functions can not be taxed by the Federal Government.  ; ; . But this limitation has never been extended to the exclusion of the activities of a merely private business from the Federal taxing power, although the power to exercise them is derived from an act of incorporation by one of the States.  We, therefore, reach the conclusion that the mere fact that the business taxed is done*2567  in pursuance of authority granted by a State in the creation of private corporations does not exempt it from the exercise of Federal authority to levy excise taxes upon such privileges.  The fact that a corporation derives its powers from a State and renders a service of a public nature, for the public benefit and convenience, and is subject to supervision and regulation by the State because of the public character of its operations, does not constitute it an instrumentality of the State in the exercise of its governmental *647  functions and render it exempt from taxation by the United States.  In that case it was held that so-called public service corporations, such as street and interborough railways, created and operating under franchises from the State and subject to regulation by the State, are not exempt from Federal taxation.  In passing on this phase of the case the court used the following language at pages 171 and 172: In the case of , this Court held that when a State, acting within its lawful authority, undertook to carry on the liquor business, *2568  it did not withdraw the agencies of the state, carrying on the traffic, from the operation of the internal revenue laws of the United States.  If a state may not thus withdraw from the operation of a Federal taxing law a subject-matter of such taxation, it is difficult to see how the incorporation of companies whose service, though of a public nature, is, nevertheless, with a view to private profit, can have the effect of denying the Federal right to reach such properties and activities for the purposes of revenue.  It is no part of the essential governmental functions of a state to provide means of transportation, supply artificial light, water, and the like.  These objects are often accomplished through the medium of private corporations, and though the public may derive a benefit from such operations, the companies carrying on such enterprises are nevertheless private companies, whose business is prosecuted for private emolument and advantage.  For the purpose of taxation they stand upon the same footing as other private corporations upon which special franchises have been conferred.  The true distinction is between the attempted taxation of those operations of the states essential*2569  to the execution of its governmental functions, and which the state can only do itself, and those activities which are of a private character.  The former, the United States may not interfere with by taxing the agencies of the state in carrying out its purposes; the latter, although regulated by the State, and exercising delegated authority, such as the right of eminent domain, are not removed from the field of legitimate Federal taxation.  In South Carolinav.United States, where the State prohibited the private traffic in liquor and conducted the business itself through agents appointed by it, the Supreme Court held that the agents were not exempt or immune from the Federal excise tax upon dealers in liquor.  The decision holds in effect that the act of prohibition and the designation of the means for trafficking in liquor were in the exercise of the State's police power, a sovereign governmental power, but the conduct of the business itself was purely of a private character and discharged no governmental function whatever.  Likewise, in Flint v.Stone Tracy Co., the so-called public service corporations were engaged in providing a service of a public character, *2570  in conducting a business affected by a public interest and one from which the public derived a distinct benefit.  Because of the public interest involved, the business properly was subject to the supervision, regulation and control of the State.  Nevertheless, the business - that of transportation - was held to be a private undertaking, *648  conducted primarily with a view to private profit.  Though the granting of the franchise or charter and the adoption of rules and regulations for the proper conduct of the business to the end that its maintenance and operation would be productive of the greatest benefit to the public was the exercise of governmental power, the corporation which was authorized by the State to conduct the service or business was not an agency or instrumentality exercising a governmental function of the State.  It was a private corporation, organized with a view to private profit and operating a private business, and as such was subject to Federal taxation.  So it is in the present case.  The petitioner is a private corporation, organized under special act of the State legislature and authorized to maintain and operate a ferry, a means of transportation across*2571  water.  A "ferry" has been variously defined and often has been referred to as a continuation of the highway from one side of the water over which it passes to the other.  Because of this relation to the highway and upon the ground that it is the duty of any government (national, state or municipal) to provide suitable roads and highways for the public, it has been held that when a county government established a ferry, and itself operated the ferry, it was in the exercise of a strictly governmental function.  (See .) Petitioner strongly relies on this case and cites it as complete authority for the proposition that the the operation of a ferry, even by a private corporation, under authority from the State, is in the exercise of a governmental function of the State.  Reserving comment as to the soundness of that decision, which might well be questioned in the light of the holding of the Supreme Court in , and *2572 , it is sufficient here to point out that there the ferry was operated by the State itself through one of its political subdivisions, which distinguishes it from the instant case.  Nothing in the cited case justifies a holding that the maintenance and operation of a ferry by a private corporation under authority from the State is an exercise of an essential governmental function by an instrumentality of the State.  It will be noted that while the language employed may at first appear to give support to the view contended for by the petitioner, the court carefully limited its decision to the establishment and operation of the ferry by the governmental body itself.  Moreover, it is not entirely accurate, indeed it is misleading, to say that a ferry is a continuation of the highway and, therefore, a part of the highway.  The term "ferry" essentially connotes a means of transportation.  See . The water itself is the continuation of the highway, however incapable of convenient passage it may be by human beings *649  without the aid of artificial devices or contrivances, *2573  and a ferry, which necessarily implies a boat or raft or the like, is the means by which the highway is traversed.  It has been defined as: A liberty to have a boat upon a river for the transportation of men, horses, and carriages with their contents, for a reasonable toll * * *.  The place where such liberty is exercised.  * * * Ferry properly means a place of transit across a river or arm of the sea; but in law it is treated as a franchise, and defined as the exclusive right to carry passengers across a river, or arm of the sea, from one vill to another, * * *.  Bouvier's Law Dictionary, Vol. 2, p. 1208.  It is, of course, well recognized that the right to license ferries, and to grant franchises for the establishment, maintenance and operation of ferries, is one of the powers reserved to the States.  See ; ; and . The exercise of such right by the State is in discharge of its governmental powers.  The license or franchise having been granted to a private person, or corporation, however, the actual maintenance and operation of*2574  the ferry business, the transportation service, is in no wise a governmental function and such person is not an instrumentality of the State exercising a governmental function.  Nor does the fact that the State owns a majority of the stock of the corporation to which the franchise or license is granted render the corporation an instrumentality of the State for the exercise of a governmental function.  The corporation is, nevertheless, a private corporation, conducting a private business, and subject to Federal and State taxation.  In -4, it was held that a railroad company incorporated by the State, and in which the State owned two-thirds of the stock, was not exempt from State taxation in the absence of express statutory exemption.  The court said, in passing: We can not see that the claim of the company is at all strengthened by the fact that the State was to be the largest stockholder, and to some extent preferred in the division of profits.  The corporation in that way was not made a part of the government.  It had certain duties to the public to perform; but it*2575  was, notwithstanding the State's interest in its stock, just as much a private corporation as any other railroad company is.  * * * The public ownership of the stock gave the company no more rights against the State than a private ownership would.  * * * We think it clear that the petitioner is not an instrumentality of the town of Jamestown exercising an essential governmental function and as such exempt from Federal taxation, but is a private corporation conducting a private business.  ; cf. generally . It follows that petitioner's income for the taxable years was not derived from the exercise of an essential governmental function. *650  There remains only to consider whether or not petitioner's income for the taxable years accrued to the town of Jamestown, within the meaning of section 213(b)(7), it being conceded that petitioner operates a public utility and that its income was derived from a public utility.  In *2576 , we pointed out the difficulty attending any attempt to encompass by definition the meaning of the word "accrue" as employed in the revenue acts.  Its meaning in every case must be found in the accompanying language and in the subject matter with respect to which the term is used.  We deem it unnecessary, however, for the purposes of this case to seek a comprehensive definition of the term.  Clearly then, when the statute exempted from taxation "income derived from any public utility * * * and accruing to any State * * * or any political subdivision of a State * * *" it referred only to income belonging to the State or its political subdivision.  It is familiar doctrine that a corporation is a distinct legal entity separate and apart from its stockholders.  (See , citing , and .) The town of Jamestown was only a stockholder in the petitioner.  The fact that the town owned a majority of the stock, or even all the stock, is of no consequence.  The separateness of the two identities, *2577  or legal entities, the corporation and the stockholder, is maintained.  The income of the corporation is not the income of the stockholder.  The stockholder is not entitled to the income of the corporation or any part of it, until it has been set apart by proper corporate action.  In the instant proceeding the income in respect of which the deficiencies are asserted was income of the petitioner, a private corporation, and not income of the town of Jamestown, a stockholder in such corporation.  It is found as a fact that petitioner did not declare dividends and did not credit any amount on its books to its stockholders.  The town therefore was not entitled to the income in question, or any part of it.  It follows, necessarily, that no part of that income accrued to the town of Jamestown.  We conclude, therefore, that petitioner is not exempt from Federal income taxation and that no part of its net income for the taxable years is exempt from Federal taxation under section 213(b)(7) of the Revenue Act of 1921.  Accordingly, the deficiencies as determined by the respondent are approved.  Reviewed by the Board.  Judgment will be entered for the respondent.GREEN dissents.