304 U.S. 405 (1938), 779, Helvering v. Gerhardt

Docket Nº:No. 779
Citation:304 U.S. 405, 58 S.Ct. 969, 82 L.Ed. 1427
Party Name:Helvering v. Gerhardt
Case Date:May 23, 1938
Court:United States Supreme Court
 
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304 U.S. 405 (1938)

58 S.Ct. 969, 82 L.Ed. 1427

Helvering

v.

Gerhardt

No. 779

United States Supreme Court

May 23, 1938

Argued April 7, 8, 1938

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

1. The immunity from federal taxation implied for the protection of the States is to be narrowly limited,

First, because the method of exercise of the federal taxing power, by, and upon, all the people through their representatives in Congress affords a safeguard against its abuse at the expense of state sovereignty, and

Secondly, because the immunity is at the expense of the national sovereign power to tax, and, if enlarged beyond the necessity of protecting the States, its burden is thrown upon the National Government with benefit only to a privileged class of taxpayers. P. 416.

2. The immunity from federal taxation of income received by individuals as compensation for services rendered to a State does not extend to cases where the burden of the tax to a state function is not shown to be actual and substantial, and not conjectural. P. 421.

This principle applies even though the function be thought important enough to demand immunity from a tax upon the State itself. P. 420.

3. The Port of New York Authority is a bi-state corporation created by compact between the States of New York and New Jersey approved by Congress. Pursuant to the compact and legislation of the two States, it has acquired and operates terminal and transfer facilities within a district embracing the port of New York and lying partly in each of the States. It has constructed interstate bridges and tunnels for vehicles, using funds advanced by the two States or derived from sale of its bonds. It operates an interstate bus line over one of the bridges and a terminal for interchange of freight between trucks and railroads. It collects tolls for use of the bridges and tunnels, and derives income from operation of the bus line and terminal building, but has no stock or

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stockholders and is owned by no private persons or corporations. Its projects are said to be operated in behalf of the two States and in the interests of the public, and none of its profits enure to the benefit of private persons. Its property and the bonds and other securities issued by it are exempt by statute from state taxation. A resolution of Congress consenting to the Authority's comprehensive plan of port improvement declares that its activities will promote and facilitate interstate and foreign commerce, provide better and cheaper transportation, and aid in providing better postal, military, and other services of value to the Nation. Statutes of the two States declare that, in the construction, maintenance, and operation of the bridges and tunnels, it shall be regarded as performing a governmental function and shall be required to pay no taxes or assessments upon any of the property therein acquired by it.

Held:

(1) The salaries of a construction engineer and two assistant general managers, employees of the Port Authority, are taxable by the Federal Government. Pp. 408, 424.

These employees each took an oath of office. Neither the compact nor any state statute appears to have created an office or prescribed an oath or defined the function of such employees. Their occupations are not shown to be different in methods or duties from similar employments in private industry. A nondiscriminatory tax laid on their net income, in common with that of all other members of the community, could by no reasonable probability be considered to preclude the performance of the function which New York and New Jersey have undertaken, or to obstruct it more than like private enterprises are obstructed by taxation. Even though, to some unascertainable extent, the tax deprives the States of the advantage of paying less than the standard rate for the services which they engage, it does not curtail any of those functions which have been thought hitherto to be essential to their continued existence as States. The effect of the immunity, if allowed, would be to relieve the taxpayers 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. Pp. 410 et seq.

(2) The Court expresses no opinion as to whether a federal tax may be imposed upon the Port Authority itself with respect to its receipt of income or its other activities. P. 424.

4. Brush v. Commissioner, 300 U.S. 352, is limited to the decision that the function of the State in connection with which the taxpayer

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received the salary taxed was essentially governmental in character; the question whether the burden resulting to the State from the tax on his salary was so indirect or conjectural as to be but an incident of the coexistence of the two governments, and therefore not within the constitutional immunity, was not considered. Pp. 422-423.

5. The applicable provisions of § 116 of the Revenue Act of 1932 do not authorize exclusion from gross income of the salaries of employees of a State or state-owned corporation. P. 423.

6. Employees of the Port Authority of New York are not employees of the State or of a political subdivision of it within the meaning of Treasury Regulations 77, Art. 643, under the Revenue Act of 1932. P. 423.

92 F.2d 999 reversed.

Certiorari, 303 U.S. 630, to review judgments of the Circuit Court of Appeals sustaining decisions of the Board of Tax Appeals holding the salaries of the present respondents immune from federal taxation.

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STONE, J., lead opinion

[58 S.Ct. 970] MR. JUSTICE STONE delivered the opinion of the Court.

The question for decision is whether the imposition of a federal income tax for the calendar years 1932 and 1933 on salaries received by respondents, as employees of the Port of New York Authority, places an unconstitutional burden on the States of New York and New Jersey.

The Port Authority is a bi-state corporation, created by compact between New York and New Jersey, Laws of N.Y.1921, c. 154; Laws of N.J. 1921, c. 151, approved by the Congress of the United States by Joint Resolution of August 23, 1921, c. 77, 42 Stat. 174. The compact authorized the Authority to acquire and operate "any terminal or transportation facility" within a specified district embracing the Port of New York and lying partially within each state. It directed the Authority to recommend a comprehensive plan for improving the port and facilitating its use by the construction and operation of bridges, tunnels, terminals, and other facilities. The Authority made such a recommendation in its report of December, 1921, adopted by the two states in 1922. Laws of N.Y.1922, c. 43; Laws of N.J.1922, c. 9.

In conformity to the plan, and pursuant to further legislation of the two states, the Authority has constructed

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the Outerbridge Crossing Bridge, the Goethals Bridge, the Bayonne Bridge, and the George Washington Bridge, interstate vehicular bridges all passing over waters of the harbor or adjacent to it. It has also constructed the Holland Tunnel and the Lincoln Tunnel, interstate vehicular tunnels passing under the Hudson River. These enterprises were financed in large part by funds advanced by the two states and by the Port Authority's issue and sale of its bonds. In addition, the Authority operates an interstate bus line over the Goethals Bridge. It has erected and operates the Port Authority Commerce Building in New York City, which houses Inland Terminal No. 1, devoted to use as a freight terminal in connection with a plan to coordinate transportation facilities and reduce congestion. The terminal has no physical connection with any railroad facilities, dock, or pier, but is used as a transfer terminal for interchange of freight brought by truck from and to the terminal and to and from eight railroad terminals.

The Port Authority collects tolls for the use of the bridges and tunnels, and derives income from the operation of the bus line and terminal building, but it has no stock and no stockholders, and is owned by no private persons or corporations. Its projects are all said to be operated in behalf of the two states and in the interests of the public, and none of its profits enure to the benefit of private persons. Its property and the bonds and other securities issued by it are exempt by statute from state taxation. The Joint Resolution of Congress consenting to the comprehensive plan of port improvement, Pub.Res. No. 66, 67th Cong., H.J.Resolution No. 337, July 1, 1922, 42 Stat. 822, declares that the activities of the Port Authority under the plan

will the better promote and facilitate commerce between the States and between the States and foreign nations and provide better and cheaper transportation of property and aid in providing better

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postal, military, and other services of value to the Nation.

Statutes of New York and New Jersey relating to the various projects of the Port Authority declare that they are

in all respects for the benefit of the people of the two states, for the increase of their commerce and prosperity, and for the improvement of their health and living conditions, and the port authority shall be regarded as performing a governmental function in undertaking the said construction, maintenance, and operation and in carrying out the provisions of law relating to the said [bridges and tunnels], and shall be required to pay no taxes or assessments upon any of the property acquired by it for the construction, operation and maintenance of such

bridges and tunnels. Laws of N.J.1925, c. 37, § 7; Laws of N.Y.1925, c. 210, § 7; Laws of N.J.1926...

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