Pease v. Commissioner of Internal Revenue, 6949.
| Decision Date | 15 April 1936 |
| Docket Number | No. 6949.,6949. |
| Parties | PEASE v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Sixth Circuit |
B. B. Wickham, of Cleveland, Ohio (Charles D. Hamel, John Enrietto and Hamel, Park & Saunders, all of Washington, D. C., on the brief), for petitioner.
Harry Marselli, of Washington, D. C. (Frank J. Wideman and Sewall Key, both of Washington, D. C., on the brief), for respondent.
Before MOORMAN, HICKS, and ALLEN, Circuit Judges.
The petitioner, a civil engineer, was president and principal stockholder of the Pease Engineering Company of Cleveland, Ohio. In the taxing years of 1924 to 1930, inclusive, he supervised the construction, improvements, and repairs of streets, alleys, bridges, sidewalks, and sewer drains in eight villages and one city in Ohio, for which he was paid for his services to the villages fees equal to an agreed percentage of the cost of their improvements. The city, Cleveland Heights, paid a fixed salary. In each of the years he was paid a salary as president of the Pease Engineering Company and was free to practice his profession. The Commissioner of Internal Revenue assessed a tax against his income received from the municipalities after allowing deductions therefrom for laboratory, office, and overhead expenses and for salaries and wages paid to assistants and employees. The Board of Tax Appeals sustained the Commissioner.
The petitioner contends that he was an officer of each of the municipalities engaged in carrying out essential functions of government, and that the fees and salary received by him for his services were immune from taxation. Collector v. Day, 11 Wall. 113, 20 L.Ed. 122. He relies on Wright v. Clark, 119 Ohio St. 462, 164 N.E. 512, as fixing his status. That was a suit by a taxpayer on behalf of the village of Bedford, Ohio, to recover money paid to Wright for supplies furnished for public works while he was acting as engineer for the village. The suit was brought under section 3808 of the General Code of Ohio, which provided that no officer of the corporation should have any interest in the expenditure of money on the part of the corporation other than his fixed compensation, and that any violation of the provision by an officer should render him liable for all sums of money received contrary thereto. Wright was appointed engineer of the village by the council for two years, and was to be paid for his services on a commission basis. The court held that he was liable as an officer within the meaning of the statute.
While the federal courts are bound by a state statute as construed by the highest court of the state with reference to a rule of property in the state or a question of state law, it has never been held that they must adopt a state definition of terms in applying federal taxing acts. They may accept such definitions in the absence of a definition in the federal act (Wurlitzer Co. v. Helvering, Commissioner, 81 F.(2d) 928 (6 C.C.A.); but there is no rule of law or construction that...
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