Helvering v. Claiborne-Annapolis Ferry Co.

Citation93 F.2d 875
Decision Date04 January 1938
Docket NumberNo. 4210.,4210.
PartiesHELVERING, Commissioner of Internal Revenue, v. CLAIBORNE-ANNAPOLIS FERRY CO. OF ANNAPOLIS, MD.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

Helen R. Carloss, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., and

Sewall Key and A. F. Prescott, Sp. Assts. to Atty. Gen., on the brief), for petitioner.

Ridgely P. Melvin, of Annapolis, Md., and A. Harding Paul, of Washington, D. C., for respondent.

Before PARKER and SOPER, Circuit Judges, and McCLINTIC, District Judge.

PARKER, Circuit Judge.

This is a petition to review a decision of the Board of Tax Appeals. The respondent taxpayer is a private corporation engaged in operating a ferry across the Chesapeake Bay between Annapolis on the Western shore and Claiborne and Metapeake on the Eastern shore. The distance across the bay at this point is 23 miles and taxpayer received from the state of Maryland for the maintenance of the ferry during the year 1931 the sum of $23,000, or $1,000 per mile, which was paid in monthly installments. Taxpayer's net income for the year 1931, exclusive of the amount paid it by the state, was $93,118.29, and was earned for the most part in the transportation of automobiles, passengers, and trucks. The amount received from the state was used for the operation of the ferry and was not segregated from other income. The Board held that this amount "was not income within the meaning of the Sixteenth Amendment, but was a contribution to capital by the state to encourage, promote and maintain a ferry service in the public interest, and, as such, was not properly includable in petitioner's gross income for tax purposes." Two questions are presented for our consideration: (1) Whether the $23,000 received from the state was income or was contribution to capital, and (2) whether, if income, it was exempt from taxation because a contribution by the state towards the maintenance of the public ferry.

On the first question, we think that the amount received by taxpayer from the state was clearly income as distinguished from contribution to capital. It was paid to the taxpayer by the state in consideration of the maintenance of the ferry and was as truly earned by the operation of that enterprise as were the tolls collected from vehicles and passengers. It was used like other income for operating expenses and the accumulation of a fund from which dividends should be paid; and no part of it, so far as the record shows, went into the invested capital of the enterprise. "`Income,' says the Supreme Court, `may be defined as the gain derived from capital, from labor, or from both combined,' provided it be understood to include profit gained through a sale or conversion of capital assets." Eisner v. Macomber, 252 U.S. 189, 207, 40 S.Ct. 189, 193, 64 L.Ed. 521, 9 A.L.R. 1570. Certainly, the amount received from the state for the maintenance of the ferry was gain to the taxpayer; and it was gain derived from the capital invested in the ferry and the labor involved in its operation.

The amount received by taxpayer from the state was in no sense a gift, which is a transfer without consideration. Noel v. Parrott, 4 Cir., 15 F.2d 669; Bogardus v. Commissioner, 58 S.Ct. 61, 82 L.Ed. ___. It was made in consideration of the maintenance of the ferry service; it was paid monthly; and its payment would not have been continued from month to month if the service had not been maintained. "Bounties granted by a government are never pure donations, but are allowed either in consideration of services rendered or to be rendered, objects of public interest to be obtained, production or manufacture to be stimulated, or moral obligations to be recognized." Allen v. Smith, 173 U.S. 389, 402, 19 S.Ct. 446, 451, 43 L.Ed. 741.

And it is equally clear that the amount paid by the state was not intended by anyone as a contribution towards or an addition to the capital investment of the taxpayer. Taxpayer's capital was invested in wharves and ferryboats; and the payment by the state was intended, not to reimburse taxpayer for expenditures it had made in their purchase or equipment, but to compensate it in part for their operation. As stated above, it was treated in all respects like other income and was available for operating expenses or for the payment of dividends. The case of Edwards v. Cuba Railroad Co., 268 U.S. 628, 45 S.Ct. 614, 615, 69 L.Ed. 1124, upon which taxpayer chiefly relies, is readily distinguishable. In that case the subsidy payments made by the Cuban government were used to reimburse taxpayer for capital expenditures. The court said: "Relying on the contract for partial reimbursement, plaintiff found the money necessary to construct the railroad. The subsidy payments were proportionate to mileage completed; and this indicates a purpose to reimburse plaintiff for capital expenditures. All — the physical properties and the money subsidies — were given for the same purposes. It cannot reasonably be held that one was contribution to capital assets, and that the other was profit, gain or income. Neither the laws nor the contracts indicate that the money subsidies were to be used for the payment of dividends, interest or anything else properly chargeable to or payable out of earnings or income. The subsidy payments taxed were not made for services rendered or to be rendered." The subsidy paid taxpayer by the state of Maryland was more nearly analogous to the case of "additional compensation" awarded the railroads by the government during the period of federal control, which has been held properly taxable as income of the railroads. Southern Ry. Co. v. Commissioner, 4 Cir., 74 F.2d 887, 893, and cases there cited. Such "additional compensation" was distinguished in those cases from the allowance made the railroads for undermaintenance, which, like the subsidy in the Cuba Railroad Case, was treated as a restoration of capital and not taxable as income.

On the second question, there can be no question but that the operation of a public ferry as a link in the state highway system is a proper function of the state and that the proceeds of such operation by the state itself would not be subject to the federal income tax (Jamestown & Newport Ferry Co. v. Commissioner, 1 Cir., 41 F.2d 920); but it by no means follows that the income of a private corporation engaged in operating such a ferry would not be subject to such tax. Cf. Susquehanna Power Co. v. State Tax Commission of Maryland, 283 U.S. 291, 293, 51 S.Ct. 434, 435, 75 L.Ed. 1042; Broad River Power Co. v. Query, 288 U.S. 178, 181, 53 S.Ct. 326, 327, 77 L.Ed. 685; South Carolina Power Co. v. South Carolina Tax Commission, D. C., 52 F.2d 515, 526. Nor is the payment made by the state to a private corporation necessarily exempt from such tax because made as compensation or part...

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  • United States v. Maryland Jockey Club, 6712.
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    ...245 (1944). And see, particularly, the opinion of Circuit Judge Parker, speaking for our Court, in Helvering v. Claiborne-Annapolis Ferry Co., 4 Cir., 93 F.2d 875. The taxpayer was a private corporation which operated a ferry across Chesapeake Bay between Annapolis and Claiborne, and Matape......
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    ...1108; Lykes Bros. S.S. Co., Inc., 1940, 42 B.T.A. 1395, 1401, affirmed 5 Cir., 1942, 126 F.2d 725, 727; Helvering v. Claiborne-Annapolis Ferry Co., 4 Cir., 1938, 93 F.2d 875, 876. 12 Treas.Reg. 86, Art 113(a)(8)—1; Treas.Reg. 94, Art. 113(a)(8)—1; Treas.Reg. 101, Art. 113(a)(8)—1; Treas.Reg......
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    ...did not constitute taxable income but were a capital contribution to the recipient. In Helvering v. Claiborne-Annapolis Ferry Co., 93 F2d 875 (4th Cir. 1938), the court held that a subsidy from the state of Maryland to the defendant corporation for the maintenance of a public ferry was addi......

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