Capitol Building & Loan Ass'n v. Kansas Commission of Labor and Industry

• Decision Date: 08 October 1938
• Docket Number: 33961.
• Parties: CAPITOL BUILDING & LOAN ASS'N et al. v. KANSAS COMMISSION OF LABOR AND INDUSTRY et al.
• Court: Kansas Supreme Court

83 P.2d 106

148 Kan. 446

CAPITOL BUILDING & LOAN ASS'N et al. v. KANSAS COMMISSION OF LABOR AND INDUSTRY et al.

No. 33961.

Supreme Court of Kansas

October 8, 1938

Syllabus by the Court.

Building and loan associations organized under the state law did not become "federal instrumentalities" exempt from making contributions to unemployment compensation fund created by a state statute merely because the associations subscribed for stock in a federal home loan bank, or because of their consequent relationship thereto under pertinent state and federal statutes. Laws 1937, c. 255; Gen.St.1935 17-10a01; Federal Home Loan Bank Act, 12 U.S.C.A. § 1421 et seq.; Federal Social Security Act, 42 U.S.C.A. § 301 et seq.

A "federal instrumentality" is a means or agency used by the federal government.

A building and loan association organized under Kansas law does not become a federal instrumentality which is exempt from making contributions to the unemployment compensation fund by the mere fact that it has subscribed for stock in a federal home loan bank, nor because of its consequent relationship thereto under pertinent state and federal statutes.

Original action in mandamus by the Capitol Building & Loan Association and others against the Kansas Commission of Labor and Industry, Frank O'Brien, and others, individually and as members of the commission, to determine whether the plaintiffs were exempt from making contributions to the Unemployment Compensation Fund created by statute.

Writ denied and judgment for defendants.

John S Dean, Jr., and Mark L. Bennett, both of Topeka, for plaintiffs.

Clarence V. Beck, Atty. Gen., C. Glenn Morris, Asst. Atty. Gen. and Clark H. McPherson, Unemployment Compensation Division, of Topeka, for defendants.

DAWSON Chief Justice.

This is an original action in mandamus to determine the question whether the plaintiffs are exempted from making contributions to the unemployment compensation fund created by the statute of 1937. Laws of 1937, ch. 255, G.S.1937 Supp., 44-701 et seq. This statute was enacted to articulate with certain acts of Congress, the Federal Home Loan Bank Act, 12 U.S.C.A. § 1421 et seq., p. 962 et seq., and the Federal Social Security Act, 42 U.S.C.A. § 301 et seq., p. 126 et seq. Another Kansas statute to be considered is chapter 143 of the Session Laws of 1933, G.S.1935, 17-10a01, which authorizes building and loan associations to subscribe for the stock of a federal home loan bank and thus become members of its corporate entity.

Except as exempted by the terms of our local statute, every employer of eight or more persons for as much as twenty weeks per calendar year is required to make contributions to an unemployment compensation fund calculated upon a specified percentage of the wages paid to his employees. The fund thus provided is administered by the unemployment compensation division of the Commission of Labor and Industry, the official personnel of which are the defendants named in this action.

Section 3(i) of the statute, G.S.1937 Supp., 44-703, subparagraph (i), in part reads:

"*** The term 'employment' shall not include: *** (2) Service performed in the employ *** of the United States government, or of an instrumentality *** of the United States. ***"

Plaintiffs herein are Kansas corporations duly organized and operating as building and loan associations. All three of them have exercised the privilege of subscribing for shares of the capital stock of the Federal Home Loan Bank of Topeka which is admittedly a federal instrumentality. Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 41 S.Ct. 243, 65 L.Ed. 577; Federal Land Bank v. Priddy, 295 U.S 229, 55 S.Ct. 705, 79 L.Ed. 1408.

Plaintiffs contend that by virtue of their stock ownership in this federal instrumentality and their consequent membership in its corporate entity they themselves are likewise federal instrumentalities, and under the terms of our local statute quoted above they too are exempt from the making of contributions to the unemployment compensation fund.

The defendant commission of labor and industry declines to accept plaintiffs' construction of the statute and insists upon their contributing to the unemployment compensation fund in conformity with the percentage rates which employers of individuals in general are required to pay.

At the outset, we think it clear that in the enactment of our statute of 1937 the legislature had no thought of enlarging the existing exemptions from state taxation which were and are the right and privilege of federal instrumentalities. The statutory provision concerning exemption of federal instrumentalities from taxation was merely declaratory of existing law, for certainly if that statutory declaration of exemptions had been omitted entirely, any and all federal instrumentalities would ordinarily have been exempted from state taxation except as federal legislation might expressly permit it, as in the familiar instance of state taxation of national banks. Owensboro National Bank v. Owensboro, 173 U.S. 664, 19 S.Ct. 537, 43 L.Ed. 850; First Nat. Bank v. Geary County, 102 Kan. 334, 339-341, 170 P. 333, L.R.A.1918C, 986. See, also, Union Pacific Railroad Company v. Peniston, 85 U.S. 5, 18 Wall. 5, 21 L.Ed. 787.

Does an ordinary building and loan association organized under Kansas corporation law actually become a federal instrumentality from the mere fact that it acquires five or more shares of stock in a federal home loan bank and to that extent becomes a member of the corporate entity of the latter institution?

On behalf of plaintiffs, their counsel argue that by precedent and analogy an affirmative answer to this question is required.

Looking first into the authorities relied on to support plaintiffs' contention, we note that on February 1, 1937, the Internal Revenue Department promulgated a rule to guide its revenue collectors and all concerned with the affairs of that department. As quoted in plaintiffs' brief it reads:

"Building and loan associations, savings and loan associations, cooperative banks, homestead associations, insurance companies and savings banks chartered by the various states which are members of the federal home loan bank system are instrumentalities of the United States within the above-stated rule and that services performed by individuals in their employ come within the exception extended by sections 811(b) (6) and 907(c) (5) of the Social Security Act [42 U.S.C.A. §§ 1011 (b) (6), 1107(c)]. The organizations and their employees are not, therefore, subject to the taxes imposed by titles VIII and IX of the social security act [sections 801 et seq., 901 et seq., 42 U.S.C.A. §§ 1001 et seq., 1101 et seq.]."

It may readily be admitted that the federal revenue department is staffed with competent lawyers, and that the department's opinions are entitled to respect and consideration; but those opinions are ex parte opinions and do not have the convincing weight of adjudications arrived at in sharply contested judicial proceedings. In our often quoted case of Harrison v. Masonic Mutual Benefit Society, 61 Kan. 134, 59 P. 266, where the power and duty of the clerk of this court to collect certain fees from litigants was called in question, we said:

"In all cases of ambiguity of statutes, the contemporaneous construction of the legislative and executive departments, and of the officials whose duty it is to carry the law into effect, will be allowed great, and oftentimes determining, weight. ***" (Syl.¶2.)

In promulgating its rule quoted above, the federal revenue department was considering the matter of exemptions from the payment of taxes under the federal act, so it cannot be said that its interpretation of the federal law is authoritative in the interpretation of our local statute, although it is entitled to careful consideration for two good reasons, first because of the probability that the federal ruling is correct although not the result of a contested lawsuit, and second because of the desirability that the interpretation of state and federal statutes should be harmonious and free from inconsistency wherever practicable.

But the diligence of counsel for the defendant commission bas unearthed and submitted for our further instruction the opinions of various other public officials whose duty it has also been to consider the general subject with which we are presently concerned. These include official opinions of the attorney general of Missouri, dated March 10, 1938, and of the attorney general of North Carolina dated December 11, 1937. Of equal significance is another opinion which appears in the appendix to defendants' brief--that of the general counsel for the Social Security Board, dated December 21, 1937, some ten months subsequent to that of the federal revenue department quoted above. Reduced to a sentence this opinion, as well as those of the attorneys general we have perused, holds that building and loan associations and similar financial institutions do not become instrumentalities of the federal government so as to exempt them from contributing to the various state unemployment compensation funds from the mere fact of their acquisition of stock ownership and consequent membership in the corporate entity of a federal home loan bank which is itself an instrumentality of the United States and is itself exempt from such state taxation.

Counsel for plaintiffs also cite for our consideration certain cases where prosecutions and convictions under federal criminal laws have been sustained against officers or employees of state corporations on the ground that such corporations were instrumentalities of the federal government. We would agree that if the state corporation was actually performing a substantial...