Clinton v. State Tax Commission

• Decision Date: 20 September 1937
• Docket Number: 33526.
• Parties: CLINTON v. STATE TAX COMMISSION et al.
• Court: Kansas Supreme Court

71 P.2d 857

146 Kan. 407

CLINTON v. STATE TAX COMMISSION et al.

No. 33526.

Supreme Court of Kansas

September 20, 1937

Rehearing Denied Oct. 16, 1937.

Syllabus by the Court.

The doctrine of implied immunity from taxation must be given practical construction which permits both state and federal governments to function with minimum interference with each other.

The doctrine of implied immunity from taxation cannot be so varied or extended as seriously to impair taxing power of government imposing tax or appropriate exercise of functions of government affected by it.

The doctrine of implied immunity from taxation has its inherent limitations, being aimed at protection of operations of government, and not extending to anything lying outside or beyond functions essentially governmental in character.

Where immunity from taxation exists, it is absolute, resting on entire absence of power, but it does not exist where no direct burden is laid on governmental instrumentality, and there is only a remote, if any, influence on exercise of functions of government.

That government has power to undertake, and does undertake enterprises which it deems to be for public benefit, does not establish immunity from taxation.

In determining whether salary, wages, or compensation of employee of federal instrumentalities is immune from state income tax, court must consider not only nature and purpose of instrumentalities but probable legislative intent on the subject, where Congress had not expressly exempted such instrumentalities from taxation (G.L.1935, 79-3201 et seq 79-3205(b)(9).

Employee of certain federal instrumentalities, who claimed immunity from state income tax, was required to bring herself clearly within exemption of statute, and language relied on as creating such exemption would be strictly construed (G.L.1935, 79-3201 et seq., 79-3205(b)(9).

A clerk and stenographer who received salary from Federal Land Bank Federal Intermediate Credit Bank, Production Credit Corporation, and Bank for Cooperatives was not exempt from state income tax, since such corporations were not engaged in functions essentially governmental in character, employment was not by the federal government but by corporate employers compensation was not in payment of services related to functions of instrumentalities which might become governmental in character, income tax would not interfere unduly with efficient exercise of purposes of corporations, and Legislature did not intend that such salary should be exempt from state taxation (G.L.1935, 79-3201 et seq., 79-3205(b)(9); 12 U.S.C.A. §§ 636--640, 676, 694, 701, 931, 1061, 1111, 1138b, 1138c, and § 781, subds. 2, 4, 7, 9, 14).

1. The doctrine of implied immunity is a necessary development of our dual system of state and federal government. It must be given a practical construction which permits both governments to function with the minimum of interference each with the other, and that limitation cannot be so varied or extended as seriously to impair the taxing power of the government imposing the tax or the appropriate exercise of the functions of government effected by it.

2. The doctrine of implied immunity has its inherent limitations. It is aimed at the protection of operations of government and the immunity does not extend to anything lying outside or beyond functions essentially governmental in character. Where the immunity exists, it is absolute, resting upon an entire absence of power, but it does not exist where no direct burden is laid upon the governmental instrumentality, and there is only a remote, if any, influence upon the exercise of functions of government.

3. The fact a government has power to undertake, and does undertake, enterprises which it deems to be for the public benefit, does not establish immunity from taxation.

4. In determining whether the salary, wages, or compensation of an employee of certain federal instrumentalities is immune from a state income tax where the Congress has clearly undertaken the task of expressly declaring exemptions from state taxation, and in so doing has omitted such a tax from its enumerated exemptions, it becomes necessary to consider, not only the nature and purpose of the instrumentalities themselves, but also the probable legislative intent on the subject.

5. Where a person claims immunity from the common burdens of taxation which rest equally upon all, such person must bring herself clearly within the exemption and the language relied upon as creating such exemption must be strictly construed.

6. The motion for a writ of mandamus to compel the State Tax Commission to exempt from the operation of our State Income Tax law plaintiff's salary for stenographic services, paid by four federal instrumentalities, to wit, the Federal Land Bank of Wichita, Federal Intermediate Credit Bank of Wichita, Production Credit Corporation of Wichita, and Wichita Bank for Cooperatives, examined and held: (a) Plaintiff's employers, the four corporations nam ed, are not engaged in functions essentially governmental in character, and plaintiff's compensation is not exempt by virtue of the doctrine of implied immunity; (b) she is not employed or paid by the United States but by her corporate employers as such, and her salary is not exempt within the meaning of our State Income Tax Law, G.S.1935, 79-3205; (c) it does not appear plaintiff's salary was in payment of services related to functions of the instrumentalities which might become governmental in character; (d) it is not disclosed the tax would interfere unduly, if any, with the efficient exercise of the purposes for which the instrumentalities were created; (e) it was not the intention of the lawmakers her salary should be exempt from state taxation.

Original proceeding in mandamus by Marjorie Clinton against the State Tax Commission of the State of Kansas, W. G. Fink, and others to be relieved of income tax.

Writ denied.

Earle W. Evans, Jos. G. Carey, and W. F. Lilleston, all of Wichita, for plaintiff.

D. C. Hill, of Wamego, and Ellis D. Bever and Thomas D. Mustard, both of Topeka, for defendants.

WEDELL Justice.

This is an original proceeding in mandamus. The question is whether the compensation received by plaintiff, a single woman, as clerk and stenographer from four corporations, agencies created by the Congress, to wit, the Federal Land Bank of Wichita, Federal Intermediate Credit Bank of Wichita, Production Credit Corporation of Wichita, and the Wichita Bank for Cooperatives, is taxable under the Kansas State Income Tax Law (G.L.1935, 79-3201 et seq.).

Plaintiff's tax return for the year 1936 shows she received the following compensation:

The Federal Land Bank of Wichita ............. $ 777.00

Federal Intermediate Credit Bank of Wichita ... 166.50

Production Credit Corporation of Wichita ...... 111.00

Wichita Bank for Cooperatives ................. 55 50

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Total ...................................... $1,110.00

The tax is computed on net income.

The pertinent portion of G.S.1935, 79-3205, provides:

"(b) Gross income does not include the following items which shall be exempt from taxation under this act: ***

"(9) salaries, wages or compensation paid by the United States to its officials or employees including members of the army, navy and marine corps."

In making the return plaintiff claimed her employers were agencies and instrumentalities of the United States and hence her salary was not taxable by the state. The claim was denied. The Tax Commission contends plaintiff's compensation is not paid by the United States but by the four corporations as such; the corporations are not engaged in the exercise of functions essentially governmental in character; the tax on plaintiff's salary does not constitute a serious interference, if any, with the purposes for which the agencies were created, and the Congress did not intend to exempt plaintiff's salary from state taxation. On the other hand, plaintiff insists that under the doctrine of implied immunity as construed by the Supreme Court of the United States her salary is immune from state taxation.

The doctrine of implied immunity takes root in our dual system of state and federal government. It is based on the conception that the power of one government to tax the governmental functions of the other is the power to destroy it. It does not, however, necessarily follow that every operation which is in some manner related to government is therefore essentially or inherently a governmental function. Moreover every tax, irrespective of its nature, cannot be said to seriously interfere with the primary purpose for which an instrumentality is created. Governments, both state and federal, have greatly enlarged their respective fields of activity. The instant case presents only one of a constantly mounting number of new operations which have come to be regarded as having some relation to government. The social and economic wisdom of this tendency is not a matter of judicial but one of legislative concern. It must, however, be obvious to the most casual observer that if the trend toward enlarged governmental activity continues with its present acceleration few fields of endeavor will remain entirely unrelated to governmental operations in one aspect or another. Clearly, there must be a limitation to the doctrine of implied immunity from taxation somewhere. Without such restriction it requires no vivid imagination to realize that huge sources of revenue would be entirely withdrawn from both state and federal governments. Without a practical application of the doctrine revenues would be seriously depleted notwithstanding an ever increasing demand for the discovery of new sources of revenue occasioned by unprecedented...