Helvering v. Gerhardt Same v. Wilson Same v. Mulcahy 8212 781 1938, s. 779

CourtUnited States Supreme Court
Citation58 S.Ct. 969,304 U.S. 405,82 L.Ed. 1427
Docket NumberNos. 779,s. 779
PartiesHELVERING, Commissioner of Internal Revenue v. GERHARDT. * SAME v. WILSON. SAME v. MULCAHY. —781. Argued April 7, 8, 1938. Decide
Decision Date23 May 1938

[Syllabus from pages 405-407 intentionally omitted] Messrs. Homer S. Cummings, Atty. Gen., and Golden W. Bell, Asst. Sol. Gen., for petitioner.

Mr. Julius Henry Cohen, of New York City, for respondents.

Mr. Henry Epstein, of Albany, N.Y., for the State of New York and 26 other states, as amici curiae.

Mr. Justice STONE delivered the opinion of the Court.

The question for decision is whether the imposition of a federal income tax for the calendar years 1932 and 1933 on salaries received by respondents, as employees of the Port of New York Authority, places an unconstitutional burden on the States of New York and New Jersey.

The Port Authority is a bi-state corporation, created by compact between New York and New Jersey, Laws of N.Y. 1921, c. 154; Laws of N.J., 1921, c. 151, R.S.N.J.1937, 32:1—1 et seq., approved by the Congress of the United States by Joint Resolution of August 23, 1921, c. 77, 42 Stat. 174. The compact authorized the Authority to acquire and operate 'any terminal or transportation facility' within a specified district embracing the Port of New York and lying partially within each state. It directed the Authority to recommend a comprehensive plan for improving the port and facilitating its use, by the construction and operation of bridges, tunnels, terminals and other facilities. The Authority made such a recommendation in its report of December, 1921, adopted by the two states in 1922. Laws of N.Y. 1922, c. 43; Laws of N.J.1922, c. 9, R.S.N.J. 1937, 32:1—26 et seq.

In conformity to the plan, and pursuant to further legislation of the two states, the Authority has con- structed the Outerbridge Crossing Bridge, the Goth als Bridge, the Bayonne Bridge, and the George Washington Bridge, interstate vehicular bridges all passing over waters of the harbor or adjacent to it. It has also constructed the Holland Tunnel and the Lincoln Tunnel, interstate vehicular tunnels passing under the Hudson River. These enterprises were financed in large part by funds advanced by the two states and by the Port Authority's issue and sale of its bonds. In addition, the Authority operates an interstate bus line over the Goethals Bridge. It has erected and operates the Port Authority Commerce Building in New York City, which houses Inland Terminal No. 1, devoted to use as a freight terminal in connection with a plan to co-ordinate transportation facilities and reduce congestion. The terminal has no physical connection with any railroad facilities, dock or pier, but is used as a transfer terminal for interchange of freight brought by truck from and to the terminal and to and from eight railroad terminals.

The Port Authority collects tolls for the use of the bridges and tunnels, and derives income from the operation of the bus line and terminal building, but it has no stock and no stockholders, and is owned by no private persons or corporations. Its projects are all said to be operated in behalf of the two states and in the interests of the public, and none of its profits enure to the benefit of private persons. Its property and the bonds and other securities issued by it are exempt by statute from state taxation. The Joint Resolution of Congress consenting to the comprehensive plan of port improvement, Pub.Res. No. 66, 67th Cong., H.J.Resolution No. 337, July 1, 1922, 42 Stat. 822, declares that the activities of the Port Authority under the plan 'will the better promote and facilitate commerce between the States and between the States and foreign nations and provide better and cheaper transportation of property and aid in providing better postal, military, and other services of value to the Nation.' Statutes of New York and New Jersey relating to the various projects of the Port Authority Declare that they are 'in all respects for the benefit of the people of the two states, for the increase of their commerce and prosperity, and for the improvement of their health and living conditions, and the port authority shall be regarded as performing a governmental function in undertaking the said construction, maintenance and operation and in carrying out the provisions of law relating to the said (bridges and tunnels) and shall be required to pay no taxes or assessments upon any of the property acquired by it for the construction, operation and maintenance of such' bridges and tunnels. Laws of N.J.1925, c. 37, § 7, R.S.N.J.1937, 32:1—66; Laws of N.Y. 1925, c. 210, § 7; Laws of N.J.1926, c. 6, § 7, R.S.N.J.1937, 32:1—90; Laws of N.Y.1926, c. 761, § 7; Laws of N.J.1927, c. 3, § 7, R.S.N.J.1937, 32:1—113; Laws of N.Y.1927, c. 300, § 7; Laws of N.J. 1931, c. 4, § 14, R.S.N.J.1937, 32:1—131; Laws of N.Y.1931, c. 47, § 14.

The respondents, during the taxable years in question, were respectively a construction engineer and two assistant general managers, employed by the Authority at annual salaries ranging between $8,000 and $15,000. All took oaths of office, although neither the compact nor the related statutes appear to have created any office to which any of the respondents were appointed, or defined their duties or prescribed that they should take an oath. The several respondents having failed to return their respective salaries as income for the taxable years in question, the commissioner determined deficiencies against them. The Board of Tax Appeals found that the Port Authority was engaged in the performance of a public function for the States of New York and New Jersey, and ruled that the compensation received by the Authority's employees was exempt from federal income tax. The Circuit Court of Appeals for the Second Circuit, 92 F.2d 999 affirmed without opinion on the authority of Brush . Commissioner, 2 Cir., 85 F.2d 32, reversed 300 U.S. 352, 57 S.Ct. 495, 81 L.Ed. 691, 108 A.L.R. 1428; Commissioner v. Ten Eyck, 2 Cir., 76 F.2d 515, and New York ex rel. Rogers v. Graves, 299 U.S. 401, 57 S.Ct. 269, 81 L.Ed. 306. We granted certiorari because of the public importance of the question presented. 303 U.S. 630, 58 S.Ct. 649, 82 L.Ed. —-.

The Constitution contains no express limitation on the power of either a state or the national government to tax the other, or its instrumentalities. The doctrine that there is an implied limitation stems from McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579, in which it was held that a state tax laid specifically upon the privilege of issuing bank notes, and in fact applicable alone to the notes of national banks, was invalid since it impeded the national government in the exercise of its power to establish and maintain a bank, implied as an incident to the borrowing, taxing, war and other powers specifically granted to the national government by article 1, § 8 of the Constitution, U.S.C.A.Const. art. 1, § 8. It was held that Congress, having power to establish a bank by laws which, when enacted under the Constitution, are supreme, also had power to protect the bank by striking down state action impeding its operations; and it was thought that the state tax in question was so inconsistent with Congress's constitutional action in establishing the bank as to compel the conclusion that Congress intended to forbid application of the tax to the federal bank notes.1 Cf. Osborn v. Bank of the United States, 9 Wheat. 738, 865-868, 6 L.Ed. 204.

In sustaining the immunity from state taxation, the opinion of the Court, by Chief Justice Marshall, recognized a clear distinction between the extent of the power of a state to tax national banks and that of the national government to tax state instrumentalities. He was careful to point out not only that the taxing power of the national government is supreme, by reason of the constitutional grant, but that in laying a federal tax on state instrumentalities the people of the states, acting through their representatives, are laying a tax on their own institutions and consequently are subject to political restraints which can be counted on to prevent abuse. State taxation of national instrumentalities is subject to no such restraint, for the people outside the state have no representatives who participate in the legislation; and in a real sense, as to them, the taxation is without representation. The exercise of the national taxing power is thus subject to a safeguard which does not operate when a state undertakes to tax a national instrumentality.2 It was perhaps enough to have supported the conclusion that the tax was invalid, that it was aimed specifically at national banks and thus operated to discriminate against the exercise by the Congress of a national power. Such discrimination was later recognized to be in itself a sufficient ground for holding invalid any form of state taxation adversely affecting the use or enjoyment of federal instrumentalities. Miller v. Milwaukee, 272 U.S. 713, 47 S.Ct. 280, 71 L.Ed. 487; cf. Pacific Co., Ltd., v. Johnson, 285 U.S. 480, 493, 52 S.Ct. 424, 427, 76 L.Ed. 893. But later cases have declared that federal instrumentalities are similarly immune from nondiscriminatory state taxation—from the taxation of obligations of the United States as an interference with the borrowing power, Weston v. Charleston, 2 Pet. 449, 7 L.Ed. 481; and from a tax on 'offices' levied upon the office of a captain of a revenue cutter, Dobbins v. Erie County, 16 Pet. 435, 10 L.Ed. 1022.3 That the taxing power of the federal government is nevertheless subject to an implied restriction when applied to state instrumentalities was first decided in Collector v. Day, 11 Wall. 113, 20 L.Ed. 122, where the salary of a state officer, a probate judge, was held to be immune from federal income tax. The question there presented to the Court was not one of interference with a granted power in a field in which the federal government is supreme, but a...

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