Graves v. People of State of New York Keefe, 478

CourtUnited States Supreme Court
Citation59 S.Ct. 595,120 A.L.R. 1466,83 L.Ed. 927,306 U.S. 466
Docket NumberNo. 478,478
Decision Date27 March 1939

83 L.Ed. 927
59 S.Ct. 595
306 U.S. 466
GRAVES et al.



No. 478.
Argued March 6, 1939.
Decided March 27, 1939.

Page 467

Mr. Henry Epstein, of Albany, N.Y., for petitioner.

[Argument of Counsel from page 467 intentionally omitted]

Page 468

Mr. Daniel McNamara, Jr., of Brooklyn, N.Y., for respondent.

[Argument of Counsel from pages 468-471 intentionally omitted]

Page 472

Mr. Robert H. Jackson, Sol. Gen., for the United States, as amicus curiae, by special leave of Court.

[Argument of Counsel from Pages 472-474 intentionally omitted]

Page 475

Mr. Justice STONE delivered the opinion of the Court.

We are asked to decide whether the imposition by the State of 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 $2,400. 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 Subdivision 2f of § 359, since repealed, exempted from the tax 'Salaries, wages and other compensation received from the United States of officials or employees thereof, including persons in the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 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, 57 S.Ct. 269, 81 L.Ed. 306, which sustained the claim that New York could not constitutionally tax the salary of an employee of the Penama Rail Road Company, a wholly-owned corporate instrumentality of the United States. We granted certiorari December 19, 1938, 305 U.S. 592, 59 S.Ct. 252, 83 L.Ed. —-, 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., 12 U.S.C.A. § 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), 12 U.S.C.A. § 1463(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 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, 58 S.Ct. 468, 82 L.Ed. 607. 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, 432, 4 L.Ed. 579; Van Brocklin v. Tennessee, 117 U.S. 151, 158—159, 6 S.Ct. 670, 674, 29 L.Ed. 845; South Carolina v. United States, 199 U.S. 437, 451, 452, 26 S.Ct. 110, 112, 50 L.Ed. 261, 4 Ann.Cas. 737; Helvering v. Gerhardt, 304 U.S. 405, 412—415, 58 S.Ct. 969, 971—973, 82 L.Ed. 1427. 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, pages 421, 422 of 4 Wheat.; Smith v. Kansas City Title Co., 255 U.S. 180, 208, 41 S.Ct. 243, 248, 65 L.Ed. 577; Federal Land Bank v. Crosland, 261 U.S. 374, 43 S.Ct. 385, 67 L.Ed. 703, 29 A.L.R. 1; 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 govern-

Page 478

mental 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, pages 435, 436 of 4 Wheat., 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, pages 412, 413, 416, 58 S.Ct. pages 972, 973.

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, 583, 585, 18 L.Ed. 229; Bank of New York v. Supervisors of New York County, 7 Wall. 26, 30, 31, 19 L.Ed. 60; Thomson v. Union Pacific Railroad, 9 Wall. 579, 588, 590, 19 L.Ed. 792; People of New York v. Weaver, 100 U.S. 539, 543, 25 L.Ed. 705; Mercantile Bank v. New York, 121 U.S. 138, 154, 7 S.Ct. 826, 834, 30 L.Ed. 895; Owensboro National Bank v. Owensboro, 173 U.S. 664, 668, 19 S.Ct. 537, 538, 43 L.Ed. 850; Shaw v. Gibson-Zahniser Oil Corp., 276 U.S. 575, 581, 48 S.Ct. 333, 335, 72 L.Ed. 709; Oklahoma v. Barnsdall Refineries, 296 U.S. 521, 525, 526, 56 S.Ct. 340, 342, 80 L.Ed. 366; Baltimore National Bank v. State Tax Comm., 297 U.S. 209, 211, 212, 56 S.Ct. 417, 419, 80 L.Ed. 586; British-American Company v. Board of Equalization, 299 U.S. 159, 57 S.Ct. 132, 81 L.Ed. 95; James v. Dravo Contracting Co., 302 U.S. 134, 161, 58 S.Ct. 208, 221, 82 L.Ed. 155, 114 A.L.R. 318; Helvering v. Gerhardt, supra, pages 411, 412, 417, 58 S.Ct. pages 971, 974; cf. United States v. Bekins, 304 U.S. 27, 52, 58 S.Ct. 811, 815, 82 L.Ed. 1137. 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 con-

Page 479

stitutional 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. Baltimore National Bank v. State Tax Comm., supra.

It is true that the silence of Congress, when it has authority to speak, may sometimes give rise to an implication as to the Congressional purpose. The nature and extent of that implication depend upon the nature of the Congressional power and the effect of its exercise.1 But

Page 480

there is little scope for the application of that doctrine to the tax immunity of governmental instrumentalities. The constitutional immunity of either government from taxation by the other, where Congress is silent, has its source in an implied restriction upon the powers of the taxing government. So far as the implication rests upon the purpose to avoid interference with the functions of the taxed government or the imposition upon it of the economic burden of the tax, it is plain that there is no basis for implying a purpose of Congress to exempt the federal government or its agencies from tax burdens which are unsubstantial or which courts are unable to discern. Silence of Congress implies immunity no more than does the silence of the Constitution. It follows that when exemption from state taxation is claimed on the ground that the federal...

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