Meredith v. State Tax Commission

• Decision Date: 12 December 1939
• Citation: 163 Or. 305,96 P.2d 1082
• Parties: MEREDITH <I>v.</I> STATE TAX COMMISSION ET AL.
• Court: Oregon Supreme Court

163 Or. 305

96 P.2d 1082

MEREDITH

v. STATE TAX COMMISSION ET AL.

Supreme Court of Oregon.

Argued November 8, 1939.

Affirmed December 12, 1939.

Taxation — Exemption — Government

1. When the national government lawfully acts through a corporation which it owns and controls, those activities are "governmental functions" and entitled to whatever tax immunity attaches to those functions when carried on by the government through its departments.

Taxation — Courts — Decisions

2. An employee of the Home Owners' Loan Corporation, all of whose stock was owned by the United States government, was in 1935 an "employee of the United States" within state statute exempting from state income tax compensation of officials or employees of the United States which should be so exempt by "federal law," in view of decisions of Supreme Court of United States which were then controlling, notwithstanding they were subsequently overruled.

Statutes — Taxation — Exemption

3. In passing statute exempting from gross income salaries, wages, and other compensation received from the United States by officials or employees thereof which are or shall be exempt from state taxation by federal law, the Legislature is presumed to have had in mind decisions of Supreme Court of United States holding that Federal Constitution impliedly prohibited states from taxing instrumentalities of federal government or compensation of officers and employees of the United States or governmental instrumentalities created by acts of Congress.

                  Home Owners' Loan Act, note, 121 A.L.R. 117
                  61 C.J. Taxation, § 376
                

In Banc.

Appeal from Circuit Court, Multnomah County.

JOHN P. WINTER, Judge.

Suit by Helen Meredith against State Tax Commission of the State of Oregon and Charles V. Galloway, John H. Carkin, and Earl L. Fisher, as Commissioners thereof, to review determination of the State Tax Commissioners denying plaintiff's application for a refund of income tax paid. From a decree for plaintiff, the defendants appeal.

AFFIRMED.

Ralph R. Bailey, Assistant Attorney General (I.H. Van Winkle, Attorney General, and Carl E. Davidson, Assistant Attorney General, on the brief), for appellants.

Harry Lehrer, of Portland (Cookingham & Hanley, of Portland, on the brief), for respondent.

BAILEY, J.

The state tax commission appeals from a decree of the circuit court ordering a refund to the plaintiff, Helen Meredith, of $11.66 paid by her as personal income tax for the year 1935.

There is no dispute as to the facts in the case. The plaintiff, during the entire year 1935, was a resident of Oregon and was engaged as a regular, full-time employe in the Portland office of Home Owners' Loan Corporation. For such services she received a salary of $1,383, which constituted her entire income for that year. On March 18, 1936, she filed with the state tax commission her individual income tax return for the year 1935, in which it was stated that she had received the sum of $1,383 and was entitled to a personal exemption of $800, leaving a balance of $583, the tax on which, at the statutory rate of two per cent, amounted to $11.66. With the filing of her tax return she transmitted the sum of $5.83 and thereafter, on September 30, 1936, remitted and paid to the commission the further sum of $5.83. Both these payments were made under protest.

Home Owners' Loan Corporation was created and organized in the year 1933, pursuant to the Home Owners' Loan act of that year (48 Stat. 128, 12 U.S.C.A. § 1461 et seq.). The capital stock of the corporation has at all times been owned exclusively by the United States government. The corporation is engaged in loaning money, obtaining the funds for its lending activities from the United States treasury in payment for the total capital stock subscribed by the secretary of the treasury, and from the public through the sale of bonds.

On or about October 15, 1936, Mrs. Meredith, pursuant to § 69-1528, Oregon Code 1935 Supplement, appealed to the state tax commission for revision of the tax assessed against her for the year 1935. In her application she requested a refund of the amount which she had paid, on the ground that her entire income for the year 1935 was received by her as an employe of the United States through the instrumentality of Home Owners' Loan Corporation, and was therefore not subject to taxation by the state of Oregon. On October 19, 1936, her appeal was denied by the commission, and on December 16, 1936, the plaintiff, pursuant to § 69-1529, Oregon Code 1930, filed this suit in the circuit court for a review of the determination of the state tax commission denying her application for a refund. Upon a trial in that court a decree was entered reversing and setting aside the ruling of the state tax commission and ordering that $11.66 paid by the plaintiff as personal income tax for the year 1935 be refunded to her, also awarding her judgment for costs and disbursements in that court. In conformance with § 69-1529, supra, the state tax commission prosecutes this appeal.

The only provisions of the personal income tax law of this state which are material to the question here presented are §§ 69-1503 and 69-1506, Oregon Code 1935 Supplement, both of which have reference to payment of tax on income received during the year 1935.

Section 69-1503, supra, provides that:

"A tax is hereby imposed upon every resident of the state upon and with respect to his entire net income, as hereinafter defined, including also his entire net income from personal service earned both within and without the state."

This section further provides the rate that shall be paid for the tax year 1933 and each succeeding tax year thereafter.

The term "gross income" is defined as including "income derived from salaries, wages or compensation for personal service, of whatever kind and in whatever form paid": subdivision 1 of § 69-1506, supra. Subdivision 2 of this section reads in part as follows:

"The term `gross income' does not include the following items, which shall be exempted from taxation under this act:

* * * * *

"(f) Salaries, wages and other compensation received from the United States by officials or employees thereof which are or shall be exempt from state taxation by federal law."

1. It is conceded that the creation of Home Owners' Loan Corporation was a constitutional exercise of the powers of the federal government. When the national government lawfully acts through a corporation which it owns and controls, those activities are governmental functions and entitled to whatever tax immunity attaches to those functions when carried on by the government through its departments: McCulloch v. Maryland, 4 Wheat, 316, 432, 4 L.Ed. 579; Indian Motorcycle Co. v. United States, 283 U.S. 570, 51 S.Ct. 601, 75 L Ed. 1277; Graves v. New York ex rel. O'Keefe, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927, 120 A.L.R. 1466. As early as the case of Dobbins v. Commissioners of Erie County, 16 Pet. 435, 448, 449, 10 L.Ed. 1022, the supreme court of the United States decided that the state "was without authority to tax the instruments, or compensation of persons, which the United States may use and employ as necessary and proper means to execute its sovereign power": New York ex rel. Rogers v. Graves, 299 U.S. 401, 57 S.Ct. 269, 81 L.E. 306. See also, Collector v. Day, 11 Wall. 113, 20 L.Ed. 122.

In Graves v. New York ex rel. O'Keefe, supra, decided March 27 of this year, it is said:

"The single question with which we are now concerned is whether the tax laid by the state upon the...