GRAVES V. NEW YORK EX REL. O'KEEFE

• Decision Date: 27 March 1939
• Citation: 306 U. S. 466
• Court: U.S. Supreme Court

Graves v. New York ex rel. O'Keefe

No. 478

Argued March 6, 1939

Decided March 27, 1939

306 U.S. 466

CERTIORARI TO THE SUPREME COURT OF NEW YORK

Syllabus

1. The receipt of salary by a resident of New York as an examining attorney for the Federal Home Owners' Loan Corporation, is constitutionally subject to nondiscriminatory taxation by a State. P. 475.

2. For the purposes of this case, it is assumed that the creation of the Home Owners' Loan Corporation was a constitutional exercise of the powers of the Federal Government, and that all activities of the Government constitutionally authorized by Congress are governmental, and stand on a parity with respect to immunity from state taxation. P. 477.

3. Whether Congress, as an incident to the exercise of specifically granted powers, has power to grant tax exemptions extending beyond the constitutional immunity of federal agencies which courts may imply is a question not determined in this case. P. 478.

Page 306 U. S. 467

4. No purpose of Congress either to grant or to withhold immunity from state taxation of salaries of employees of the Home Owners' Loan Corporation is expressed or implied in the Home Owners' Loan Act of 1933, 48 Stat. 128, or is to be inferred from the silence of Congress. P. 479.

5. A tax on income is not legally or economically a tax on its source, and there is no basis for the assumption that the economic burden of a nondiscriminatory state income tax on the salary of an employee of the National Government or of a governmental agency is passed on so as to impose a burden on the National Government tantamount to an unconstitutional interference by the one government with the other in the performance of its functions. P. 480.

6. Assuming that the Home Owners' Loan Corporation is clothed with the same constitutional immunity from state taxation as the Government itself, it cannot be said that the present tax on the income of its employees lays any unconstitutional burden upon it. P. 486.

7. Collector v. Day, 11 Wall. 113, and New York ex rel. Rogers v. Graves, 299 U. S. 401, are overruled insofar as they recognize an implied constitutional immunity from nondiscriminating income taxation of the salaries of officers or employees of the national or state governments or their instrumentalities. Id.

278 N.Y. 691, 16 N.E.2d 404, reversed.

Certiorari, 305 U.S. 592, to review the affirmance of an order, 253 App.Div. 91; 1 N.Y.S.2d 195, setting aside a decision of the Tax Commission of the New York rejecting a claim for refund of a tax.

Page 306 U. S. 475

MR. JUSTICE STONE delivered the opinion of the Court.

We are asked to decide whether the imposition by the New York of an income tax on the salary of an employee of the Home Owners' Loan Corporation places an unconstitutional burden upon the federal government.

Respondent, a resident of New York, was employed during 1934 as an examining attorney for the Home Owners' Loan Corporation at an annual salary of ,400. In his income tax return for that year, he included his salary as subject to the New York state income tax imposed by Art. 16 of the Tax Law of New York (Consol.Laws, c. 60). Subdivision 2f of § 359, since repealed, exempted from the tax

"Salaries, wages and other compensation received from the United States of officials or employees thereof, including persons in the military or naval forces of the United States. . . ."

Petitioners,

Page 306 U. S. 476

New York State Tax Commissioners, rejected respondent's claim for a refund of the tax based on the ground that his salary was constitutionally exempt from state taxation because the Home Owners' Loan Corporation is an instrumentality of the United States Government, and that he, during the taxable year, was an employee of the federal government engaged in the performance of a governmental function.

On review by certiorari, the Board's action was set aside by the Appellate Division of the Supreme Court of New York, People ex rel. O'Keefe v. Graves, 253 App.Div. 91, 1 N.Y.S.2d 195, whose order was affirmed by the Court of Appeals. 278 N.Y. 691, 16 N.E.2d 404. Both courts held respondent's salary was free from tax on the authority of New York ex rel. Rogers v. Graves, 299 U. S. 401, which sustained the claim that New York could not constitutionally tax the salary of an employee of the Panama Rail Road Company, a wholly owned corporate instrumentality of the United States. We granted certiorari, 305 U.S. 592, the constitutional question presented by the record being of public importance.

The Home Owners' Loan Corporation was created pursuant to § 4(a) of the Home Owners' Loan Act of 1933, 48 Stat. 128, 12 U.S.C. § 1461 et seq., which was enacted to provide emergency relief to home owners, particularly to assist them with respect to home mortgage indebtedness. The corporation, which is authorized to lend money to home owners on mortgages and to refinance home mortgage loans within the purview of the Act, is declared by § 4(a) to be an instrumentality of the United States. Its shares of stock are wholly government-owned. § 4(b). Its funds are deposited in the Treasury of the United States, and the compensation of its employees is paid by drafts upon the Treasury.

Page 306 U. S. 477

For the purposes of this case, we may assume that the creation of the Home Owners' Loan Corporation was a constitutional exercise of the powers of the federal government. Cf. Kay v. United States, 303 U. S. 1. As that government derives its authority wholly from powers delegated to it by the Constitution, its every action within its constitutional power is governmental action, and, since Congress is made the sole judge of what powers within the constitutional grant are to be exercised, all activities of government constitutionally authorized by Congress must stand on a parity with respect to their constitutional immunity from taxation. McCulloch v. Maryland, 4 Wheat. 316, 17 U. S. 432; Van Brocklin v. Tennessee, 117 U. S. 151, 158-159; South Carolina v. United States, 199 U. S. 437, 451-452; Helvering v. Gerhardt, 304 U. S. 405, 412-415. And when the national government lawfully acts through a corporation which it owns and controls, those activities are governmental functions entitled to whatever tax immunity attaches to those functions when carried on by the government itself through its departments. See McCulloch v. Maryland, supra, 17 U. S. 421-422; Smith v. Kansas City Title Co., 255 U. S. 180, 208; Federal Land Bank v. Crosland, 261 U. S. 374; New York ex rel. Rogers v. Graves, supra.

The single question with which we are now concerned is whether the tax laid by the state upon the salary of respondent, employed by a corporate instrumentality of the federal government, imposes an unconstitutional burden upon that government. The theory of the tax immunity of either government, state or national, and its instrumentalities from taxation by the other has been rested upon an implied limitation on the taxing power of each, such as to forestall undue interference, through the exercise of that power, with the governmental

Page 306 U. S. 478

activities of the other. That the two types of immunity may not in all respects stand on a parity has been recognized from the beginning, McCulloch v. Maryland, supra, 17 U. S. 436, and possible differences in application, deriving from differences in the source, nature, and extent of the immunity of the governments and their agencies were pointed out and discussed by this Court in detail during the last term. Helvering v. Gerhardt, supra, 306 U. S. 412-413, 306 U. S. 416.

So far as now relevant, those differences have been thought to be traceable to the fact that the federal government is one of delegated powers in the exercise of which Congress is supreme, so that every agency which Congress can constitutionally create is a governmental agency. And since the power to create the agency includes the implied power to do whatever is needful or appropriate, if not expressly prohibited, to protect the agency, there has been attributed to Congress some scope, the limits of which it is not now necessary to define, for granting or withholding immunity of federal agencies from state taxation. See Van Allen v. Assessors, 3 Wall. 573, 70 U. S. 583-585; Bank of New York v. Supervisors, 7 Wall. 26, 74 U. S. 30-31; Thomson v. Union Pacific Railroad, 9 Wall. 579, 76 U. S. 588-590; New York v. Weaver, 100 U. S. 539, 543; Mercantile Bank v. New York, 121 U. S. 138, 154; Owensboro National Bank v. Owensboro, 173 U. S. 664, 668; Shaw v. Gibson-Zahniser Oil Corp., 276 U. S. 575, 581; Oklahoma v. Barnsdall Refineries, 296 U. S. 521, 525-526; Baltimore National Bank v. State Tax Comm'n, 297 U. S. 209, 211-212; British-American Co. v. Board of Equalization, 299 U. S. 159; James v. Dravo Contracting Co., 302 U. S. 134, 161; Helvering v. Gerhardt, supra, 304 U. S. 411-412, 304 U. S. 417; cf. United States v. Bekins, 304 U. S. 27, 52. Whether its power to grant tax exemptions as an incident to the exercise of powers specifically granted by the Constitution can ever, in any circumstances, extend beyond the constitutional

Page 306 U. S. 479

immunity of federal agencies which courts have implied is a question which need not now be determined.

Congress has declared in § 4 of the Act that the Home Owners' Loan Corporation is an instrumentality of the United States, and that its bonds are exempt, as to principal and interest, from federal and state taxation except surtaxes, estate, inheritance, and gift taxes. The corporation itself, "including its franchise, its capital, reserves and surplus, and its loans and income," is likewise exempted from taxation; its real property is subject to tax to the same extent as other real property. But Congress has given no intimation of any purpose either to grant or withhold immunity from state taxation of the salary of the corporation's employees, and the Congressional intention is not to be gathered from the statute by implication. Cf. ...