Metcalf Eddy v. Mitchell Mitchell v. Metcalf Eddy

Citation46 S.Ct. 172,70 L.Ed. 384,269 U.S. 514
Decision Date11 January 1926
Docket NumberNos. 183,376,s. 183
CourtUnited States Supreme Court

Mr. Philip Nichols, of Boston, Mass., for Metcalf and others.

[Argument of Counsel from pages 515-517 intentionally omitted] Messrs. Assistant Attorney General Letts and Robert P. Reeder, of Washington, D. C., for Mitchell's administratrix.

Mr. Justice STONE, delivered the opinion of the Court.

Metcalf & Eddy, the plaintiffs below, were consulting engineers who, either individually or as copartners, were professionally employed to advise states or subdivisions of states with reference to proposed water supply and sewage disposal systems. During 1917 the fees received by them for these services were paid over to the firm and became a part of its gross income. Upon this portion of their net income they paid, under protest, the tax assessed on the net income of copartnerships under the War Revenue Act of 1917. Act Oct. 3, 1917, c. 63, § 209, 40 Stat. 300, 307. They then brought suit in the United States District Court for Massachusetts to recover the tax paid on the items in question, on the ground that they were expressly exempted from the tax by the act itself, and on the further ground that Congress had no power under the Constitution to tax the income in question.

The District Court found that 2 of the items were within the statutory exemption; that the remaining 18 were not exempt from taxation, either by the provisions of the statute or under the Constitution, and entered judgment accordingly. 299 F. 812.

The former collector sued out the writ of error in No. 376 as to the two items on which a recovery was allowed. In No. 183 the writ of error is prosecuted by the plaintiffs below as to the remaining items. Judicial Code, § 238 (Comp. St. § 1215), before amendment of 1925.

As the case comes directly from the District Court to this court on a constitutional question, the jurisdiction of this court is not limited to that question alone, but extends to the whole case. Horner v. United States, No. 2, 143 U. S. 570, 12 S. Ct. 522, 36 L. Ed. 266; Greene v. Louisville, etc., R. R. Co., 244 U. S. 499, 37 S. Ct. 673, 61 L. Ed. 1280, Ann. Cas. 1917E, 88.

All of the items of income were received by the taxpayers as compensation for their services as consulting engineers under contracts with states or municipalities, or water or sewage districts created by state statute. In each case the service was rendered in connection with a particular project for water supply or sewage disposal, and the compensation was paid in some instances on an annual basis, in others on a monthly or daily basis, and in still others on the basis of a gross sum for the whole service.

The War Revenue Act provided for the assessment of a tax on net income; but section 201(a), being 40 Stat. 303, contains a provision for exemption from the tax as follows:

'This title shall apply to all trades or businesses of whatever description, whether continuously carried on or not, except—

'(a) In the case of officers and employees under the United States, or any state, territory, or the District of Columbia, or any local subdivision thereof, the compensation or fees received by them as such officers or employees. * * *'

The court found that the two items of income involved in No. 376 were received by one of the plaintiffs in error as compensation for his services as the incumbent of an office created by statute; in one case as chief engineer of the Kennebec water district, a political subdivision of the state of Maine, and in the other as a member of the board of engineers of the North Shore sanitary district, a political subdivision of the state of Illinois. The collector does not press his writ of error in this case, and we therefore dismiss the writ.

We think it clear that neither of the plaintiffs in error occupied any official position in any of the undertakings to which their writ of error in No. 183 relates. They took no oath of office; they were free to accept any other concurrent employment; none of their engagements was for work of a permanent or continuous character; some were of brief duration, and some from year to year, others for the duration of the particular work undertaken. Their duties were prescribed by their contracts and it does not appear to what extent, if at all, they were defined or prescribed by statute. We therefore conclude that plaintiffs in error have failed to sustain the burden cast upon them of establishing that they were officers of a state or a subdivision of a state within the exception of section 201(a).

An office is a public station conferred by the appointment of government. The term embraces the idea of tenure, duration, emolument and duties fixed by law. Where an office is created, the law usually fixes its incidents, including its terms, its duties and its compensation. United States v. Hartwell, 6 Wall. 385, 18 L. Ed. 830; Hall v. Wisconsin, 103 U. S. 5, 26 L. Ed. 302. The term 'officer' is one inseparably connected with an office; but there was no office of sewage or water supply expert or sanitary engineer, to which either of the plaintiffs was appointed. The contracts with them, although entered into by authority of law and prescribing their duties, could not operate to create an office or give to plaintiffs the status of officers. Hall v. Wisconsin, supra; Auffmordt v. Hedden, 137 U. S. 310, 11 S. Ct. 103, 34 L. Ed. 674. There were lacking in each instance the essential elements of a public station, permanent in character, created by law, whose incidents and duties were prescribed by law. See United States v. Maurice, Fed. Cas. No. 15,747, 2 Brock. 96, 102, 103; United States v. Germaine, 99 U. S. 508, 511, 512, 25 L. Ed. 482; Adams v. Murphy, 165 F. 304, 91 C. C. A. 272.

Nor do the facts stated in the bill of exceptions establish that the plaintiffs were 'employees' within the meaning of the statute. So far as appears, they were in the position of independent contractors. The record does not reveal to what extent, if at all, their services were subject to the direction or control of the public boards or officers engaging them. In each instance the performance of their contract involved the use of judgment and discretion on their part and they were required to use their best professional skill to bring about the desired result. This permitted to them liberty of action which excludes the idea that control or right of control by the employer which characterizes the relation of employer and employee and differentiates the employee or servant from the independent contractor. Chicago, Rock Island & Pacific Ry. Co. v. Bond, 240 U. S. 449, 456, 36 S. Ct. 403, 60 L. Ed. 735; Standard Oil Co. v. Anderson, 212 U. S. 215, 227, 29 S. Ct. 252, 53 L. Ed. 480. And see Casement v. Brown, 148 U. S. 615, 13 S. Ct. 672, 37 L. Ed. 582; Singer Mfg. Co. v. Rahn, 132 U. S. 518, 523, 10 S. Ct. 175, 33 L. Ed. 440.

We pass to the more difficult question whether Congress had the constitutional power to impose the tax in question, and this must be answered by ascertaining whether its effect is such as to bring it within the purview of those decisions holding that the very nature of our constitutional system of dual sovereign governments is such as impliedly to prohibit the federal government from taxing the instrumentalities of a state government, and in a similar manner to limit the power of the states to tax the instrumentalities of the federal government. See, as to federal taxation on state instrumentalities, Collector v. Day, 11 Wall. 113, 20 L. Ed. 122; United States v. Railroad Co., 17 Wall. 322, 21 L. Ed. 597; Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429, 585, 586, 15 S. Ct. 673, 39 L. Ed. 759; Ambrosini v. United States, 187 U. S. 1, 23 S. Ct. 1, 47 L. Ed. 49; Flint v. Stone Tracy Co., 220 U. S. 107, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312. See, cases holding that the Sixteenth Amendment did not extend the taxing power to any new class of subjects, Brushaber v. Union Pacific R. R. Co., 240 U. S. 1, 36 S. Ct. 236, 60 L. Ed. 493, L. R. A. 1917D, 414, Ann. Cas. 1917B, 713; Peck & Co. v. Lowe, 247 U. S. 165, 172, 38 S. Ct. 432, 62 L. Ed. 1049; Eisner v. Macomber, 252 U. S. 189, 40 S. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570; Evans v. Gore, 253 U. S. 245, 259, 40 S. Ct. 550, 64 L. Ed. 887, 11 A. L. R. 519. And, as to state taxation on federal instrumentalities, see McCulloch v. Mary- land, 4 Wheat. 316, 4 L. Ed. 579; Dobbins v. Commissioners of Erie County, 16 Pet. 435, 10 L. Ed. 1022; The Banks v. The Mayor, 7 Wall. 16, 19 L. Ed. 57; Weston v. City Council of Charleston, 2 Pet. 449, 467, 7 L. Ed. 481; Farmers' Bank v. Minnesota, 232 U. S. 516, 34 S. Ct. 354, 58 L. Ed. 706; Choctaw, O. & G. R. R. v. Harrison, 235 U. S. 292, 35 S. Ct. 27, 59 L. Ed. 234; Indian Oil Co. v. Oklahoma, 240 U. S. 522, 36 S. Ct. 453, 60 L. Ed. 779; Gillespie v. Oklahoma, 257 U. S. 501, 42 S. Ct. 171, 66 L. Ed. 338.

Just what instrumentalities of either a state or the federal government are exempt from taxation by the other cannot be stated in terms of universal application. But this court has repeatedly held that those agencies through which either government immediately and directly exercises its sovereign powers, are immune from the taxing power of the other. Thus the employment of officers who are agents to administer its laws (Collector v. Day; Dobbins v. Commissioners of Erie County, supra), its obligations sold to raise public funds (Weston v. City Council of Charleston, supra; Pollock v. Farmers' Loan & Trust Co., supra), its investments of public funds in the securities of private corporations, for public purposes (United States v. Railroad Co., supra), surety bonds exacted by it in the exercise of its police power (Ambrosini v. United States, supra), are all so intimately connected with the necessary functions of government, as to fall within the...

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