Department of Treasury v. City of Evansville

• Decision Date: 14 May 1945
• Docket Number: 28080.
• Parties: DEPARTMENT OF TREASURY v. CITY OF EVANSVILLE.
• Court: Indiana Supreme Court

60 N.E.2d 952

223 Ind. 435

DEPARTMENT OF TREASURY v. CITY OF EVANSVILLE.

No. 28080.

Supreme Court of Indiana

May 14, 1945

Appeal from Marion Superior Court, No. 3; Emsley W. Johnson, Jr. judge.

James A. Emmert, Atty. Gen., and John J. McShane and Winslow Van Horne, Deputy Attys. Gen., for appellant.

Ross McCord, Ice & Miller, of Indianapolis, for appellee.

YOUNG Judge.

This case involves the liability of the city for the payment of gross income tax upon income derived from certain activities and the decision depends upon whether or not the activities are private or proprietary within the meaning of the 1937 amendment to the gross income tax act. Originally the gross income tax act levied a tax upon the entire gross income of every 'person' engaged in any business or activity with certain exceptions not here involved, and defined the term 'person' to include municipal corporations. The 1937 amendment changed the definition of 'person' to read as follows:

'When used in this act, the term 'person' * * *, means and includes any * * * municipal corporation or any other political subdivision of the state engaged in private or proprietary activities or business, * * *.' Burns' Ind.Stat.1933, § 64-2601.

The City of Evansville is engaged in the following activities from which it derives gross revenue:

It owns and operates two city markets in which it leases stalls and stands to farmers and others engaged in the operation of retail food establishments.

It is located on the Ohio River and owns real estate along the river's edge, which it has improved and operates as a public wharf. Boats using the wharf facilities pay for such use.

It owns certain levee, street and park property which it leases to persons for farming and other uses. This includes street paving and repair equipment which it leases to contractors when not in use by the city.

It also owns and operates a municipal golf course as a part of its park system, in connection with which it collects fees for the privilege of playing and locker rentals.

It also, in connection with its park system, leases concession stands and shelter houses from which sales are made of soft drinks and confections.

During the period here involved, it also sold and leased park and airport land.

During the period here involved, it made sales of miscellaneous, obsolete or wornout equipment accumulated by the street department; also property acquired in a normal way by the park department, but no longer useful; also scrap and junk accumulated at the municipal airport.

It granted permits to persons desiring to cut into the city streets for utility connections and other purposes, and at the time of granting such permits charged the permittee a sum sufficient to pay the cost of replacing the cut pavement, which said sums were placed in the Street Department fund of the city.

The city operates a municipal airport at which gas and oil are sold and rental is received for the storage of planes. Income is also derived from soft drink concessions at the airport.

It owns and operates two cemeteries from which it derives revenue from the sale of lots and graves, containers for flowers and the installation of miscellaneous materials, foundations for stones and monuments, and service and sodding lots and graves. A house is located upon the cemetery grounds which is rented.

It owns and operates a rendering plant used for the reduction of dead animals and the salvaging of by-products available from such operation. By-products are sold in the open market.

Some of the property used in these activities was given to the city and some was purchased with money raised by taxation or the sale of bonds. Some of these activities have resulted in net loss which has been paid from funds derived from taxes. We have not referred to these matters in stating the several items involved, because the tax involved is not a profits tax and the taxability of every item of income depends solely upon the nature and character of the activity involved and not upon whether a profit is realized, or from what source a deficit is met, or how the property used was acquired.

For the years 1937 to 1941, the City of Evansville paid gross income tax upon its gross receipts derived from all the foregoing activities. Thereafter it filed its statement and petition for refund, which was denied and this action was brought to recover the gross income tax so paid. The case was submitted upon a stipulation of facts and the court found that the city's receipts from its markets, wharf, golf course privileges, street repairs, sale of gas and oil at the airport, and sale of lots and graves and service and sodding in its cemeteries, were not taxable under the terms of the gross income tax law, as amended in 1937, and found that receipts from locker fees, park and airport concessions, sale of park and airport land, miscellaneous sales of park, street and aviation acrap and junk and obsolete equipment, and sale of by-products of the rendering plant, are taxable under the gross income tax law as amended in 1937, and rendered judgment accordingly.

The State filed its motion for a new trial, which was overruled, and brings the case to this court upon appeal. The City filed no motion for a new trial and has assigned no cross-errors. There is no challenge of the lower court's actions upon the items held taxable. Therefore only the items held not taxable are before us, and the sole question is whether or not the income of the city derived from the items held not taxable constitute income from private or proprietary activities or business within the meaning of the 1937 amendment to the gross income tax law.

The rule is universally recognized that municipal corporations exist and act in a dual capacity--one public or governmental and the other private or proprietary. In its public or governmental capacity, it acts as the agent of the state for the benefit and welfare of the state as a whole, but when acting for the peculiar and special advantage of its inhabitants, rather than for the good of the state at large, the city is spoken of as acting in a private or proprietary capacity. State v. Fox, 1902, 158 Ind. 126, 135, 136, 137, 63 N.E. 19, 56 L.R.A. 893; Aiken v. City of Columbus, 1906, 167 Ind. 139, 144, 146, 147, 78 N.E. 657, 12 L.R.A.,N.S., 416; City of Kokomo v. Loy, 1916, 185 Ind. 18, 20, 21, 112 N.E. 994; Logansport v. Public Service Commission, 1931, 202 Ind. 523, 532, 177 N.E. 249; Huntington v. Northern Indiana Power Co., 1937, 211 Ind. 502, 5 N.E.2d 889, 6 N.E.2d 335; Dillon, Municipal Corporations, 5th Ed., Vol. 3, § 1303, p. 2134; Chadwick, Treasurer v. City of Crawfordsville, 1940, 216 Ind. 399, 412, 413, 24 N.E.2d 937, 129 A.L.R. 469; Dillon on Municipal Corporations Vol. I § 109, p. 182; 1 McQuillin, Municipal Corporations, 2d Ed., § 126, p. 381, 37 Am.Jur. § 114, p. 727, 43 C.J. §§ 178, 180, pp. 179, 184.

In the case of City of Kokomo v. Loy, supra, the appellee was injured working as an employee in a city park. His injuries were caused by the discharge of a cannon which he was attempting to unload under the direction of the park superintendent. The suit was prosecuted upon the theory that the city was acting in its private and proprietary capacity in maintaining and conducting the park. The city contended that it was acting in a governmental capacity and was not liable. There was a verdict for the plaintiff which was affirmed, and Judge Lairy recognized the dual capacity in which cities may act, and pointed out the distinctions between the two capacities, and stated the accepted rule in the following language, 185 Ind. at pages 21 and 22, 112 N.E. at page 995:

'Municipal corporations exist in a dual capacity, and their functions are twofold. In one they exercise the right springing from sovereignty, and while in the performance of the duties pertaining thereto, their acts are political and governmental. Their officers and agents in such capacity, though elected or appointed by them, are nevertheless public functionaries performing a public service, and as such they are officers, agents, and servants of the state. In the other capacity the municipalities exercise a private, proprietary or corporate right, arising from their existence as legal persons and not as public agencies. Their officers and agents in the performance of such functions act in behalf of the municipalities in their corporate or individual capacity, and not for the state or sovereign power.'

The reason for the rule is a little more clearly stated in the following sentence from the discussion of the subject in 37 American Jurisprudence at page 727:

'But in its proprietary or private character, the theory is that the powers are supposed not to be conferred primarily or chiefly from considerations connected with the government of the state at large, but for the private advantage of the compact community which is incorporated as a distinct legal personality or corporate individual; * * *.'

This language in American Jurisprudence is taken almost verbatim from Judge Dillon's treatise.

The rule is stated in McQuillin on Municipal Corporations 2d Ed., Vol. I, Sec. 126, p. 381, as follows:

'A municipal corporation proper has a twofold capacity or character--one governmental, the other private. It has a public character as regards the state at large in so far as it is its agent in government, and private (so-called) in so far as it is to promote local necessities and conveniences for its own community.'

In the case of Chadwick v. City of Crawfordsville, 1940 216 Ind. 399, at page 412, 24 N.E.2d 937, at page 943, 129 A.L.R. 469 involving taxation of utility property owned and operated by a municipality, this court used the following...