Meigs v. United States, 3587.

• Decision Date: 28 October 1940
• Docket Number: No. 3587.,3587.
• Citation: 115 F.2d 13
• Parties: MEIGS v. UNITED STATES.
• Court: U.S. Court of Appeals — First Circuit

115 F.2d 13 (1940)

MEIGS v. UNITED STATES.

No. 3587.

Circuit Court of Appeals, First Circuit.

October 28, 1940.

David Burstein, of Boston, Mass. (Hale & Dorr, George H. B. Green, and Samuel S. Dennis, 3d, all of Boston, Mass., on the brief), for appellant.

George H. Zeutzius, of Washington, D. C. (Samuel O. Clark, Jr., J. Louis Monarch, and Paul S. McMahon, all of Washington, D. C., and Edmund J. Brandon, and C. Keefe Hurley, both of Boston, Mass., on the brief), for appellee.

Before MAGRUDER and MAHONEY, Circuit Judges, and PETERS, District Judge.

MAHONEY, Circuit Judge.

This is an appeal from a judgment of the District Court of the United States for the District of Massachusetts in favor of the government.

The plaintiff brought suit in 1935 to recover income taxes for the year 1932 which he alleged had been illegally assessed and collected from him upon compensation received by him as a nonresident gynecologist at the Pondville State Cancer Hospital in the Commonwealth of Massachusetts. The original petition stated that the plaintiff was an employee of the Commonwealth of Massachusetts at the Pondville Hospital during the entire calendar year 1932 and received during the year a salary of $1,172.60 in payment of services rendered in connection with the exercise of an essential governmental function of said Commonwealth and, therefore, was not taxable under the Revenue Act of 1932, 47 Stat. 169, 26 U.S.C.A. Int. Rev.Act, page 145 et seq.

After the enactment of the Public Salary Tax Act of 1939, 53 Stat. 575, 26 U. S.C.A. Int.Rev.Code, §§ 22 (a), and while this case was pending, the petition was amended and recited that during the entire calendar year of 1932 the plaintiff was an employee of the Commonwealth of Massachusetts at the Pondville State Cancer Hospital and received a salary during the year of $1,172.60; that the income tax paid on the amount was attributable to compensation for personal services as an officer or employee of the Commonwealth of Massachusetts, or an agency or instrumentality of said Commonwealth and that this suit for the recovery of such amount was pending on the date of the enactment of said Act. The plaintiff also contended in the amended petition that his salary was immune from federal income tax prior to recent decisions on the ground that it was earned in the exercise of an essential governmental function of the Commonwealth by an employee thereof and that the plaintiff was entitled to a refund in the same manner as in the case of an income tax erroneously collected, pursuant to the provisions of Section 201 of the Public Salary Tax Act of 1939, 26 U.S. C.A. Int.Rev.Code, § 22 note. The pertinent provisions of this Act are as follows:

"Sec. 201. Any amount of income tax (including interest, additions to tax, and additional amounts) for any taxable, year beginning prior to January 1, 1938, to the extent attributable to compensation for personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing —

* * * * * *

"(c) shall, if collected on or before the date of the enactment of this Act, be credited or refunded in the same manner as in the case of an income tax erroneously collected, in the following cases —

* * * * * *

"(3) Where a suit for the recovery of such amount is pending on the date of the enactment of this Act; * * *."

At the close of all the evidence, the District Court granted the government's motion for judgment and denied the plaintiff's request for certain findings of fact and conclusions of law. The plaintiff then brought this appeal.

The facts as found by the court below may be summarized as follows:

In 1926, St.1926, c. 391, the Legislature of Massachusetts passed an emergency act which it declared to be "necessary for the immediate preservation of public health", and under its authority the Pondville State Cancer Hospital was established. The conduct of persons attached to the hospital is governed by rules and regulations promulgated by the Department of Public Health, and by the Superintendent of the Hospital. The physicians on the resident staff give their full time to the hospital and do not engage in outside practice, while the members of the visiting staff have regular calling hours at certain periods of each and every week.

The plaintiff is a gynecologist with an office in the City of Boston and an extensive private practice. He is a member of the staff of each of four hospitals in Boston, from only one of which, the Huntington Memorial Hospital, he receives a salary. In 1927 he became senior gynecologist of the visiting staff of the Pondville Hospital and at that time was paid for his services on a fee basis and mileage. In October, 1931, he was transferred to a salary basis of $1,200 a year. This salary basis was later changed in accordance with general pay adjustments in effect throughout the State, but the services rendered by the plaintiff during the year 1932 were the same as the services rendered by him prior to October 4, 1931 on a fee basis. The change in pay was made as a matter of economy.

The plaintiff was at all times and during the taxable year of 1932 in charge of the gynecological service and his duties were to take charge of all the gynecological cases and female cases of cancer, or cancer relative to the female genital organs, and to determine in conjunction with other members of the staff, which cases were to be operated on and which cases were to receive radium and X-ray treatment. He also had charge of the out patient clinic for gynecological patients. In his field of gynecology no other doctor at the hospital controlled his activities. The resident physicians consulted with him as to such gynecological cases and he told them what to do. He decided what course of procedure to follow and the treatment or operation of patients within his field of gynecology and did just as he did in private practice, and the hospital was only interested in seeing that his handling of the cases was up to standard. He was, of course, subject to the rules and regulations governing physicians on the visiting staff of the hospital.

In the schedule of "Surgical and Medical visits" his time at the hospital is listed as Tuesdays of alternate weeks but he and his assistant, Dr. Parsons, arranged their visits to suit their own convenience and one or the other of them was usually there each Tuesday; the plaintiff being there one-half a day each week or a full day in alternate weeks. As the service was covered, the hospital authorities did not interfere with this arrangement. It is clear that the plaintiff spent only a small proportion of his time at the hospital and his work there constituted only a very minor part of his professional activities.

The question whether the Pondville State Cancer Hospital is an agency or instrumentality of the Commonwealth of Massachusetts engaged in an essential governmental function was waived at the oral argument before this Court. For the purposes of the instant case, then, it is assumed that the state hospital is such an agency or instrumentality. The sole question is whether the plaintiff during the year 1932 was an employee of an agency or instrumentality of the Commonwealth of Massachusetts so that his compensation for services is exempt from taxation under the provisions of the Public Salary Tax Act of 1939.

In 1939, the Supreme Court in the case of Graves v. People of New York ex rel. O'Keefe, 1939, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927, 120 A.L.R. 1466, completely discarded the former doctrine that state or federal employees were constitutionally immune from non-discriminatory income taxation by the other sovereignty. This subjected to federal taxation the incomes of all state or local employees whether they were employed in an agency engaged in an essential governmental function or not. However, in order to prevent undue hardship by the retroactive taxation of incomes hitherto considered immune, Congress enacted the Public Salary Tax Act, supra.

The purpose of the Act was to provide that where a taxpayer asserted immunity as a state employee as to taxes prior to the taxable year beginning January 1, 1939, such immunity would be allowed, under certain procedural circumstances here fulfilled, if the same result would have been reached prior to the O'Keefe decision. Coates v. United States, 2 Cir., 1940, 111 F.2d 609. See H.R.Rep. No. 26, 76th Cong., 1st Sess. (1939). The taxability of independent contractors with the State, or state employees of an agency considered not to be engaged in an essential governmental function had long been recognized and was in no wise changed by this Act. J. E. Huckabay v. Com'r, 1939, 40 B.T.A. 9; John T. Rowland v. Com'r, 1939, 40 B.T.A. 11. See H.R.Rep. No. 26, supra. The immunity was to be no broader and no narrower than formerly. It seems incontrovertible that the words "officer or employee" as used in the Public Salary Tax Act were intended to have a meaning no broader than that formerly given to the same words in exemptive provisions of income tax statutes, e. g., Revenue Act of 1926, § 1211¹, 44 Stat. 130, 26 U.S.C.A. Internal Revenue Acts, page 342. Coates v. United States, supra. To secure the advantage of such an expressed exemption, it was always necessary to establish that the taxpayer was employed in an essential governmental agency and that he was an officer or employee and not an independent contractor. See, e.g., Saxe v. Anderson, D.C.S.D.N.Y. 1937, 19 F.Supp. 21, affirmed, Saxe v. Shea, 2 Cir., 1938, 98 F.2d 83; Burnet v. Livezey, 4 Cir., 1931, 48 F.2d 159; cf. Metcalf & Eddy v. Mitchell, 1926, 269 U.S. 514, 46 S.Ct. 172, 70 L.Ed. 384. Similar showings must be made to come within the provisions of the Public Salary Tax Act. Thus, the contention of the plaintiff that the exemption provided in the Act is broader than that formerly allowed is...