Commissioner of Internal Revenue v. Ten Eyck

• Decision Date: 01 April 1935
• Docket Number: No. 274.,274.
• Citation: 76 F.2d 515
• Parties: COMMISSIONER OF INTERNAL REVENUE v. TEN EYCK.
• Court: U.S. Court of Appeals — Second Circuit

76 F.2d 515 (1935)

COMMISSIONER OF INTERNAL REVENUE v. TEN EYCK.

No. 274.

Circuit Court of Appeals, Second Circuit.

April 1, 1935.

Frank J. Wideman, Asst. Atty. Gen., and Sewall Key and A. F. Prescott, Sp. Assts. to Atty. Gen., for petitioner.

John C. Watson, of Albany, N. Y. (Laurence Graves, of Washington, D. C., of counsel), for respondent.

John J. Bennett, Jr., Atty. Gen., Henry Epstein, Sol. Gen., of New York City, for the State of New York.

T. Harry Rowland, of Camden, N. J., and Harold D. Saylor, of Philadelphia, Pa., for Delaware River Joint Commission.

Julius Henry Cohen, of New York City, Gen. Counsel for The Port of New York Authority.

Wendell P. Brown, of Albany, N. Y., Wilbur LaRoe, Jr., of Washington, D. C., Austin J. Tobin and William A. Pallme, both of New York City, and Charles E. Goldberg, on the brief, amici curiæ.

Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

MANTON, Circuit Judge.

Respondent is the chairman of the Albany Port District Commission, and the petitioner seeks to tax his salary received for the year 1930, under the Revenue Act of 1928 (45 Stat. 791), 26 USCA § 2001 et seq. The Board of Tax Appeals held that his income was exempt because it was a salary paid by the state of New York to a state officer, for services rendered in the performance of an essential governmental function.

The questions presented are whether the Albany Port District Commission was performing a usual governmental function, and whether immunity extends to those functions exercised by the state, or its political subdivision, in connection with a power claimed by petitioner to be relinquished to the federal government under the Constitution.

The Albany Port District was a public corporation, organized pursuant to an act of the New York Legislature. Laws New York 1925, c. 192; Laws New York 1927, c. 523; Laws New York 1929, c. 293; Laws New York 1932, c. 631; Laws New York 1933, c. 406. The District included the cities of Albany and Rensselaer and all lands and waters in the Hudson river contiguous thereto, subject to the right of the state in and to the lands under the waters of the Hudson river. An administrative Commission for the District, consisting of five members, was appointed by the Governor, the members taking the constitutional oath of office.

The District and Commission were established as a result of recommendations made by the United States Board of Army Engineers, which recommendations resulted in the provision in the Rivers and Harbors Act of March, 1925 (43 Stat. 1186), of a national appropriation of $11,000,000 to provide a deep navigable channel in the Hudson river, from Albany, at the eastern terminus of the New York State Barge Canal, to the Atlantic Ocean. This appropriation and authorization were conditioned upon the erection of a District and of a governing agency to provide Port facilities satisfactory to the Chief Engineers and the Secretary of War, at an initial cost of $5,600,000. The state of New York memorialized Congress to approve this project, and the cities of Albany and Rensselaer obligated themselves to meet the requirements of the federal government and expended more than the estimated cost of the initial development. It required a public agency or instrumentality to carry out the enterprise. The state has contributed upwards of $175,000,000 for the construction of the Barge Canal System, connecting with the facilities at the Port of Albany, which is the point of interchange, or junction, between the deepened water navigation of the Hudson river and the Barge System. See Report No. 952, Rivers & Harbors Act, March 3, 1925. It was the desire of the citizens of the state of New York to improve the navigable rivers within the state confines, and this expenditure primarily was for the carrying out of this purpose. It aided and assisted the development of the state by making remote portions thereof available for commerce and navigation. It likewise served and assisted the Middle West and New England. It required the action by the state, as such, to effect this result.

The powers conferred upon the Commission, by the state, to promote the commerce and the industrial welfare of the state, were very broad. The act creating the District provided for its perpetual existence as a public corporation. It declared that the District was created for a public purpose; that the members of the Commission were to be appointed by the Governor of the state with continuous tenure of office, taking the constitutional oath of office for the duties established by law. The act (chapter 192, Laws New York 1925, §§ 9, 10) authorized the issuance of bonds. It did not provide that these bonds were to be a lien or mortgage upon the specific improvements required by Congress to be carried out by the Port Commission. It did provide that the cities within the District should raise certain moneys by taxation in their annual budget, and that such costs would be borne by the cities of the District in the proportion that the assessed valuation had to the taxable property. Payment of the bonds was secured by the general taxes of the cities of Albany and Rensselaer, and the proceeds were pledged for the payment of the bonds. Section 10, as amended. The act provides: "the development of such port shall be deemed and is hereby declared to be a public purpose." Section 8, as amended by Laws 1927, c. 523, § 1. The bonds were exempt from transfer and inheritance tax (section 10, as amended). Subsection 15 of section 5, as amended by Laws 1929, c. 293, § 2, provided that "`facilities,' `port facilities,' `terminals,' and `terminal work'" should include "wharves, docks, piers, terminals, railroad tracks on terminals, cold storage and refrigerating plants, warehouses, elevators, and such property real or personal," as would be used in connection therewith. The Commission did not operate the grain elevator erected thereon but leased it, as it did a molasses mill. It did operate the railroad, and charged rates authorized by the Interstate Commerce Commission. But we think that this terminal was intended as an instrument of government rather than of commerce only. In providing it and operating it, the state of New York was engaged in a usual governmental function as distinguished from a proprietary function.

Port and harbor developments have long been regarded as governmental functions in providing for the welfare and prosperity of the people. In the past, the national government has appropriated large sums of money for the improvement of ports and navigable waters. It has created a Board of Engineers for rivers and harbors to investigate and report on such improvements and to advise and pass upon plans of local authorities in the carrying out of such projects. Act June 13, 1902, § 3, 32 Stat. 372, as amended (33 USCA § 541); Act March 2, 1919, 40 Stat. 1275. Section 8 of the Merchant Marine Act 1920 (46 USCA § 867) has made it the duty of the Shipping Board to co-operate with the Secretary of War in investigating ports and port facilities. They are directed "to advise with communities regarding the appropriate location and plan of construction of wharves, piers, and water terminals."

Nor can the development of port or terminal facilities be classified solely as federal or private functions. There are many instances of State control or control under a state agency, and the statutes contemplate that the development of harbor and port facilities be mainly in the hands of the states. The federal government has encouraged the upbuilding of ports of the nation by the states themselves. Nothing enacted by Congress or done by the federal government indicates a desire to exclude or restrict state participation in carrying out these projects which were desirable from the standpoint of state governments. On any broad consideration it may reasonably be considered as a usual governmental function of a state.

The essence of port and harbor development is to provide adequate terminal facilities. Historically, port activities have been shown to be almost universally, directly subject to the supervision of agencies of government. Commissions similar to this one, created for purposes of supervision and control of ports, in nearly all instances, have been governmental agencies, so constituted as to exercise the same kind of regulatory and supervisory functions as does the Albany Port District Commission; they either own the whole or a very large part of the water front of the port or haven. Illustrations of these are the Hamburg and Northern European ports.¹ There, the operations are not regarded as a proprietary or profit making activity of the government, and where ports are under the supervision of Port Committees, operated usually at a loss, or, at best, earning only sufficient operating revenue to meet the cost thereof, and where the committee, as such, controls and regulates the dock facilities and provides for warehouses, ferries, and quays, the facilities are regarded as being under governmental control, operated as a usual function of government. The French ports follow a standardized pattern developed by the central government and are provided for by legislation.² This governmental character of the leading port organizations of the continent indicates that in the regulation and development of such ports and harbors the governments treat these functions as essentially governmental in character. The English ports are similarly operated.³ Intrusting the regulation and operation of terminal facilities of a port to a central public agency is not unusual in England;⁴ nor in Scotland.⁵ In the Dominion of Canada, it is likewise regarded as a usual governmental function, as illustrated by the operation and development of the Port of Montreal.⁶

The necessity of a comprehensive plan for the organization and development of port facilities in the principal harbors of this country has been recognized, and...