Gregg v. United States, 8820.

• Decision Date: 23 February 1938
• Docket Number: No. 8820.,8820.
• Citation: 22 F. Supp. 802
• Parties: GREGG v. UNITED STATES.
• Court: U.S. District Court — Western District of Pennsylvania

22 F. Supp. 802

GREGG v. UNITED STATES.

No. 8820.

District Court, W. D. Pennsylvania.

February 23, 1938.

John A. McCann, of Pittsburgh, Pa., for plaintiff.

Charles F. Uhl, U. S. Atty., of Pittsburgh, Pa.

McVICAR, District Judge.

The question for determination is whether the salary of plaintiff from 1925 to 1935, inclusive, as general manager of cafeterias in the public schools of the School District of the City of Pittsburgh, is taxable income under the federal income tax laws.

Cafeterias in city public high schools of the country at the present time and during a number of years in the past are in general use. Cafeterias were established and maintained in the public schools of the city of Philadelphia prior to 1911. The first cafeteria in the School District of the City of Pittsburgh was established in the year 1911 or 1912. Cafeterias since that time have been increased so that there are cafeterias in all of the high schools in Pittsburgh, and also in some other of its schools. The number of students in the high schools in Pittsburgh is approximately 40,000. Some of these high schools have an enrollment of approximately 3,000 students. Some of the students travel a considerable distance, as they reside a mile or more from the school. Each high school has a manager of its cafeteria. Plaintiff is general manager of all the cafeterias. The School District pays the original cost of equipping the cafeterias in its schools. It purchases the food and prepares the same for service to the student body. The diet prepared is a well-balanced one. The prices charged are made so as to cover the cost to the School District, which includes the salaries of the managers and the general manager. The School District furnishes free, light, water, heat, janitor service, and use of its buildings. The finances of the cafeteria system are in control of the School District. The lunch period, fixed by rule, is thirty minutes, which is staggered as to time.

The cafeteria service is of physical, moral, and educational benefit or advantage to the student body. It is an advantage physically, in that the students have a well-balanced diet, a sufficient time to eat lunch, and affords protection against the procuring of lunches in the neighborhood of the high schools where the food might not be of a proper character. The service is a moral advantage, in that it keeps the students within the school grounds and away from places where intoxicating liquors are sold, and also from other objectionable places. It is an educational value in that the students have the opportunity of observing a well-balanced diet for lunches; it assists not only as to the food supply but as to the time for eating lunches and otherwise, in keeping the students in mental condition for their work. A modern public high school in a city cannot be administered efficiently without a cafeteria.

The Commissioner of Internal Revenue assessed the income of the plaintiff as general manager of the cafeterias in the Pittsburgh schools for the years 1925 to 1935, inclusive, which, with interest, amounts to $648.52. This amount she paid under protest and made a claim for refund which was refused. She then brought the action in this case. It is the contention of the plaintiff that this income is exempt from taxation under the federal income tax laws. Defendant contends that it is taxable. In Brush v. Commissioner, 300 U.S. 352, 57 S.Ct. 495, 81 L.Ed. 691, 108 A.L.R. 1428, the question for the court's determination was whether the salary of the chief engineer of the Bureau of Water Supply of the City of New York was taxable income under the federal income tax laws. In the opinion of the court, written by Justice Sutherland, it is stated (300 U.S. page 360, 57 S.Ct. 495): "The answer depends upon whether the water system of the city was created and is conducted in the exercise of the city's governmental functions. If so, its operations are immune from federal taxation and, as a necessary corollary, `fixed salaries and compensation paid to its officers and employees in their capacity as such are likewise immune.' New York ex rel. Rogers v. Graves, 299 U.S. 401, 408, 57 S.Ct. 269, 81 L.Ed. 306."

The conclusion of the court was (300 U. S. page 370, 57 S.Ct. 495, 500): "That the acquisition and distribution of a supply of water for the needs of the modern city involve the exercise of essential governmental functions."

In the opinion it is stated (300 U.S. page 364, 57 S.Ct. 495, 497): "A federal tax in respect of the activities of a state or a state agency is an imposition by one government upon the activities of another, and must accord with the implied federal requirement that state and local governmental functions be not burdened thereby."

The court further stated (300 U.S. page 362, 57 S.Ct. 495, 496): "In the present case, upon the one side stress is put upon the adjective `essential', as used in the Flint v. Stone Tracy Case 220 U.S. 107, 31 S.Ct. 342, 55 L.Ed. 389, Ann.Cas.1912B, 1312, while, on...