Court Opinion

ID: 4602889
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:30:45.912851+00
Date Added: 2024-06-11T08:00:09.388909
License: Public Domain

JOHN W. BEALL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  THOMAS P. KEARNS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  THOMAS M. GREGORY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Beall v. CommissionerDocket Nos. 90893, 90894, 90895.United States Board of Tax Appeals39 B.T.A. 168; 1939 BTA LEXIS 1056; January 24, 1939, Promulgated *1056 Held, the salaries of the members of the Industrial Commission of Ohio and that of an employee of the commission are not constitutionally immune from Federal tax.  Herbert S. Duffy, Esq., and Eugene Carlin, Esq., for the petitioners.  Joe D. Hughes, Esq., and George W. Huntington, Esq., for the respondent.  VAN FOSSAN *168  These proceedings were brought by petitioners Beall, Kearns, and Gregory for a redetermination of their income tax liability for 1934 in the amounts of $65.99, $58.91, and $33, respectively, including penalties for failure to make and file returns.  The sole question presented is whether the salaries of petitioners Gregory and Beall, who are members of the Industrial Commission of Ohio, and petitioner Kearns, who is superintendent of safety and hygiene for the Industrial Commission, are constitutionally immune from Federal income tax.  FINDINGS OF FACT.  Thomas M. Gregory and John W. Beall, during the taxable year in question, were two of three duly appointed, qualified, and acting Commissioners of the Industrial Commission of Ohio, a part of the executive department of the state government, with offices in*1057  Lima, Ohio, and their salaries were $4,400 each for the year.  Their appointments are for terms of six years and are made by the Governor, with the advice and consent of the Senate.  Both took the oath of office as provided by law and gave bond in the sum of $10,000.  Removal for cause may be made by the Governor.  Thomas P. Kearns, during the taxable year in question, was the duly appointed, qualified, and acting superintendent of safety and hygiene for the Industrial Commission.  His appointment was by the Industrial Commission by virtue of authority vested in it by law, and his salary was $4,235 for the year 1934.  *169  Article II, section 35, of the state constitution, as amended, 1 provides that for the purpose of providing compensation to "workmen and their dependents, for death, injuries or occupational diseases, occasioned in the course of such workmen's employment", laws may be passed establishing a compulsory state insurance fund to be administered by the state.  The article provides that employers who are contributors to such a fund are not otherwise liable in damages for injuries or death to their employees.  Provision is also made for establishing a board whose*1058  duty is to classify all occupations according to the degree of hazard involved; to fix the rate of contribution by employers to the fund on the basis of this classification; to collect and administer the insurance fund; and to determine the rights of claimants thereto.  The article also directs the board to create a separate fund, from a portion not to exceed 1 percent of the contributions paid, to be used for the investigation and prevention of industrial accidents and diseases.  *1059  As provided by the state constitution 2 and the enabling laws 3 the duties of Gregory and Beall, as commissioners, are to fix and maintain the rates of the premium to be paid by each employer employing three or more persons; to administer, manage and invest the state insurance fund and determine the rights of injured workmen *170  and their dependents.  In addition, the commission has the control and administration of laws governing the life, health and safety of employees; it has power to prescribe hours of labor, safety devices, and fix safety standards of places of employment; and the power to promote arbitration and establish means of mediation; and the authority to conduct free employment offices.  Gregory and Beall are not permitted to hold any position of trust or profit or engage in any occupation interfering with or inconsistent with their duties as commissioners.  Their salaries for the year in question were paid out of the state treasury and are payable in the same manner as the salaries of other officers of the state, *1060  i.e., from appropriations out of money in the state treasury to the credit of the general revenue fund not otherwise appropriated.  Kearns is, as above indicated, an employee of the commission and is superintendent of safety and hygiene.  His duties, as prescribed by the statute, 4 are to conduct investigations and researches for the prevention of industrial accidents and diseases and publish such information as may be of benefit to employers and employees.  His salary is paid by the commission, out of the above mentioned 1 percent fund and not out of general state revenues.  Section 1465-101 of the Ohio General Code voids any contract of indemnity or insurance of employers against loss or liability for the payment of compensation or benefits to workmen and employees and their dependents for death, injury, or occupational disease, and prohibits the issuing of any licenses in the State of Ohio to enter into such agreements.  This law gives the Industrial Commission an exclusive monopoly in industrial insurance in the State of Ohio.  Prior to the passage of the law in question private companies did write such insurance in the state.  The Treasurer of the*1061 State of Ohio is custodian for the insurance fund and civil actions brought to recover amounts due to the fund by employers are brought in the name of the State of Ohio.  OPINION.  VAN FOSSAN: The question in the present cases is whether petitioners' salaries are constitutionally immune from Federal taxation by reason of the burden which such taxation would cast upon the State of Ohio.  After careful review of the pertinent decisions, we believe the recent opinion of the Supreme Court of the United States in , is controlling here.  That opinion, after a rationalization and discussion of prior decisions on this implied limitation on the taxing power of the Federal Government, *171  sets up as tests in considering such cases (1) whether the immunity attaches by reason of the function being essential to the preservation of the state government, and (2) whether the tax imposed is a real and actual burden to the state itself.  Upon close consideration of the facts in the instant cases, we are of the opinion that administration of the Industrial Commission is not indispensable or essential to the preservation of the State*1062  Government of Ohio.  So far as we are advised, the state performed full well its essential functions prior to the time of the enactment of the laws in question.  There would seem no basis for distinguishing these cases from that of , wherein we held that the salaries of employees of the Workmen's Compensation Commission of New Jersey were not immune from Federal tax.  Nor on the record can we hold that the tax in question imposes a real and actual burden upon the State of Ohio.  The burden is too remote and too conjectural and 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." It is true, as petitioners point out, the Workmen's Compensation Act here in question has been held to be constitutional, , but for present purposes that is beside the point.  Obviously, a state function may be constitutional but not "essential" within the meaning of *1063 Petitioners urge that the commission has the quasi-judicial power to hear and determine claims and controversies arising under the Workmen's Compensation law.  Such a judicial power, however, is not comparable, historically or otherwise, with that under consideration in . The judicial power, if it may be termed such, here exercised by petitioners as members of the commission, is an appendage to the established function of the commission, rather than to the judicial power of the state.  Concededly, petitioners are officers of the State of Ohio within the definition of that term by the Supreme Court in . Such a classification per se is not sufficient to grant petitioners immunity from Federal tax.  ;. , relied upon by petitioners, has been modified by *1064 , and the present issues must be determined in the light of the latter opinion.  It may be pertinent to observe that in large part the functions of the Industrial Commission performed by petitioners Gregory and Beall were concerned with the maintenance and operation of a state *172  industrial insurance fund.  This, it would seem, constitutes an entrance into trade or business on the part of the state.  The record shows that prior to the enactment of the laws in question private insurance companies wrote coverage for employers along the line now preempted by the state.  It should be noted that the state law is both compulsory and exclusive.  It gives a monopoly to the state and prohibits such business on the part of private companies.  Considering the cases from this approach, we believe them to be governed also by that line of Supreme Court cases which refuses immunity when the function in question is proprietary in nature.  ; *1065 ; . The above discussion and disposition primarily directed to the cases of Beall and Gregory, makes unnecessary a separate consideration of the status of petitioner Kearns.  His case falls within the same category.  We hold that the salaries of the several petitioners were not immune from Federal taxation and that respondent did not err.  Decisions will be entered for the respondent.Footnotes1. Sec. 35.  For the purpose of providing compensation to workmen and their dependents, for death, injuries or occupational diseases, occasioned in the course of such workmen's employment, laws may be passed establishing a state fund to be created by compulsory contribution thereto by employers, and administered by the State, determining the terms and conditions upon which payment shall be made therefrom.  Such compensation shall be in lieu of all other rights to compensation, or damages, for such death, injuries, or occupational disease, and any employer who pays the premium or compensation provided by law, passed in accordance herewith, shall not be liable to respond in damages at common law or by statute for such death, injuries or occupational disease.  Laws may be passed establishing a board which may be empowered to classify all occupations, according to their degree of hazard, to fix rates of contribution to such fund according to such classification, and to collect, administer and distribute such fund, and to determine all rights of claimants thereto.  Such board shall set aside as a separate fund such proportion of the contributions paid by employers as in its judgment may be necessary, not to exceed one per centum thereof in any year, and so as to equalize, insofar as possible, the burden thereof, to be expended by such board in such manner as may be provided by law for the investigation and prevention of industrial accidents and diseases.  Such board shall have full power and authority to hear and determine whether or not an injury, disease or death resulted because of the failure of the employer to comply with any specific requirement for the protection of the lives, health or safety of employes, enacted by the General Assembly or in the form of an order adopted by such board, and its decision shall be final; and for the purpose of such investigations and inquiries it may appoint referees.  When it is found, upon hearing, that an injury, disease or death resulted because of such failure by the employer, such amount as shall be found to be just, not greater than fifty nor less than fifteen per centum of the maximum award established by law, shall be added by the board, to the amount of the compensation that may be awarded on account of such injury, disease, or death, and paid in like manner as other awards; and, if such compensation is paid from the state fund, the premium of such employer shall be increased in such amount, covering such period of time as may be fixed, as will recoup the state fund in the amount of such additional award, notwithstanding any and all other provisions in this constitution. ↩2. Article II, sec. 35, Ohio State Constitution, as amended, supra.↩3. Secs. 1465-37 to 1465-102; 871-1 to 871-45; 154-1 to 154-45. ↩4. Sec. 1465-89a. ↩