Case: BURNET, COMMISSIONER OF INTERNAL REVENUE, v. CORONADO OIL & GAS CO.
Abbreviation: Burnet v. Coronado Oil & Gas Co.
Decision Date: 1932-04-11
Docket Number: No. 341
Citation: 285 U.S. 393
Volume: 285
Reporter: United States Reports
Court: Supreme Court of the United States
Jurisdiction: United States
Parties: BURNET, COMMISSIONER OF INTERNAL REVENUE, v. CORONADO OIL & GAS CO.
Judges: Me. Justice Brandéis, Mr. Justice Roberts, and Mr. Justice Cardozo join in this opinion.
Pages: 393–413

Head Matter:
BURNET, COMMISSIONER OF INTERNAL REVENUE, v. CORONADO OIL & GAS CO.
No. 341.
Argued January 15, 1932.
Reargued March 16, 1932.
Decided April 11, 1932.
Solicitor General Thacher, with whom Assistant Attorney General Youngquist and Messrs. Sewall Key, Hayner N. Larson, and Franc.2 H. Horan were on the brief, for petitioner.
Messrs. David A. Richardson and Thos. P. Gore, with whom Messrs. Samuel W. Hayes and Eugene Jordan were on the brief, for respondent.

Opinion:
Me. Justice McReynolds
delivered the opinion of the Court:
By the Enabling Act Congress required as a condition precedent to the admission of Oklahoma into the Union that her constitution should make provision for common schools; and for their benefit it granted certain lands to the State with the proviso that those valuable for min erais, gas and' oil should not be sold prior to January 1, 1915, but might be leased. Act of June 16, 1906, 34 Stat. 267; 270, 272, 273. The State Constitution established a common school system and pledged her faith to preserve the lands so conveyed by the United States as a sacred trust, "and to keep the same for the uses and purposes for which they were granted." The legislature prescribed regulations for leasing and directed payment of the proceeds into the school fund. Oklahoma Comp. Statutes of 1921, §9415, 9417, 9423.
In January, 1914, some of these lands were leased tó the Coronado Oil and Gas Company; renewals followed in 1919. Under the first lease the State received fifty per cent, and under the second twelve and one-half per cent, of the gross production of oil and gas. During the years here important the lessee's entire income came from the sale of its portion of such output.
The Commissioner of Internal Revenue assessed income and excess-profits taxes upon the corporation's net income for 1917, 1918 and 1919. The Board of Tax Appeals approved his action; the Court of Appeals, District of Columbia, ruled otherwise. The latter held that the lease to the Coronado Company was an instrumentality of the State for the utilization of lands dedicated to the support of public schools and that to tax the fruits of the lease would burden her in the performance of the governmental function of maintaining such schools. This conclusion, it. properly thought, was necessary under Gillespie v. Oklahoma, 257 U. S. 501.
We are disposed to apply the doctrine of Gillespie v. Oklahoma strictly and only in circumstances closely analogous to those which it disclosed. In principle, however, the present claim of exemption cannot be distinguished from the one presented in the earlier cause and we adhere .to the rule there approved.
True'it is, as stated in Group No. 1 Oil Corp. v. Bass, 283 U. S. 279, 282, 283, " This Court has consistently held that where property or any interest in it has completely passed from the government to the purchaser, he can claim, no immunity from taxation with respect to it', merely because it was once government-owned, or because the sale of it effected some government purpose. . . . Property which has thus passed from either the national or a state government to private ownership becomes a part of the common mass of -property and subject to its common burdens." And, as there distinctly indicated, the exemption claimed by the Oil Corporation was denied because under the settled rule applied by the Texas Supreme Court the oil and gas from disposal of which the corporate income arose had been purchased, not obtained under a lease — title had passed out of the State by a present sale. Status of the title was matter for determination under laws of the State as construed and applied by her courts. In the present cause there is no basis for saying that, according to the local law, the transaction between the State and the lessee amounted to a sale. • The distinction between cases involving sales and those where leases had been made seemed sufficiently apparent when Group No 1 Oil Corp. v. Bass was decided and is not less obvious now.
" Just what instrumentalities of. either a state or the federal government are exempt from taxation by the other cannot be stated in terms of universal application. But this Court has repeatedly held that those agencies through which either government immediately and directly exercises its sovereign powers, are immune from the taxing power of the other." Metcalf Eddy v. Mitchell, 269 U. S. 514, 522.
The opinion in Gillespie v. Oklahoma, supra, has often been referred to as the expression of an accepted principle. Metcalf & Eddy v. Mitchell, supra; Jaybird Mining Co. v. Weir, 271 U. S. 609, 613; Northwestern Insurance Co. v. Wisconsin, 275 U. S. 136, 140; Heiner v. Colonial Trust Co., 275 U. S. 232, 234; Shaw v. Oil Corp., 276 U. S. 575, 579; Panhandle Oil Co. v. Knox, 277 U. S. 218, 221, 222; Carpenter v. Shaw, 280 U. S. 363, 366; Willcuts v. Bunn, 282 U. S. 216, 229; Group No. 1 Oil Corp. v. Bass, supra; Indian Motocycle Co. v. United States, 283 U. S. 570, 576; Choteau v. Burnet, 283 U. S. 691, 696.
When Oklahoma undertook to lease her public lands for the benefit of the public schools she exercised a function strictly governmental in- character. Consequently, South Carolina v. United States, 199 U. S. 437, much relied upon, is not in point.
The States are essential parts of the plan adopted by the Federal Constitution; and we accept as settled doctrine that the United States can lay no tax upon their governmental instrumentalities. Texas v. White, 7 Wall. 700, 725; Collector v. Day, 11 Wall. 113; Pollock v. Farmers Loan & Trust Co., 157 U. S. 429, 584; Farmers Bank v. Minnesota, 232 U. S. 516, 527.
" It is an established principle of our constitfitional system of dual government that the instrumentalities; means and operations whereby the United States exercises its governmental powers are exempt from taxation by the States, and that the instrumentalities, means and operations whereby the States exert the governmental powers belonging to them are equally exempt from taxation by the United States." Indian Motocycle Co. v. United States, supra. Each government is supreme in its sphere; and in order to preserve our dual system this fact must be given practical recognition.
Here the lease to the respondent was an instrumentality of the State for the purpose of carrying out her duty in respect of public schools. To tax the income of the lessee arising therefrom would amount to an imposition upon the lease itself.
The challenged judgment must be
Affirmed.