State of California v. Anglim

• Decision Date: 08 June 1942
• Docket Number: No. 9853.,9853.
• Citation: State of California v. Anglim, 129 F.2d 455 (9th Cir. 1942)
• Parties: STATE OF CALIFORNIA v. ANGLIM, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Ninth Circuit

129 F.2d 455 (1942)

STATE OF CALIFORNIA v. ANGLIM, Collector of Internal Revenue.

No. 9853.

Circuit Court of Appeals, Ninth Circuit.

April 20, 1942.

As Amended on Denial of Rehearing June 8, 1942.

COPYRIGHT MATERIAL OMITTED

Earl Warren, Atty. Gen. of California, H. H. Linney, Lucas E. Kilkenny, and Adrian A. Kragen, Deputy Atty. Gen. of California, all of San Francisco, Cal., for appellant.

Samuel O. Clark, Jr., Asst. Atty. Gen., J. Louis Monarch, Alvin J. Rockwell, and Benjamin N. Brodsky, Sp. Assts. to Atty. Gen., all of Washington, D. C., and Frank J. Hennessy, U. S. Atty., and Esther B. Phillips, Asst. U. S. Atty., both of San Francisco, Cal., for appellee.

Before DENMAN, STEPHENS, and HEALY, Circuit Judges.

DENMAN, Circuit Judge.

This is an appeal from a judgment of the district court denying appellant, the State of California, a refund of employer excise taxes in the amount of $1,865.32 and similar employee taxes in the amount of $1,865.65, paid by it to appellee, Collector of Internal Revenue, under the Carriers' Taxing Act of 1937, c. 405, 50 Stats. 435, 45 U.S.C.A. §§ 261-273. The taxes were paid by the State Board of Harbor Commissioners which operated a railway hereafter described. For purposes of this opinion we assume such a tax is one on the state itself and that the state is entitled to sue for its recovery if illegally imposed.

The district court 37 F.Supp. 663, 667 overruled the state's contention that the Constitution gave the Congress no power to impose the tax on it, that court holding that the state's operation of its belt railway, hereinafter called the "Belt," carrying goods in interstate commerce along its docks and wharf frontage on San Francisco Bay, to and from other interstate carrier railways and ships, is not an "essentially and traditionally governmental function; that, in its operation of such line, the State is not immune from the payment of the federal excise tax imposed on it, nor are the employees of the Belt immune from the payment of the federal income tax imposed on them, by virtue of the provisions of the Carriers' Taxing Act of 1937."

The Belt is the railway of the state, held by the United States Supreme Court to be engaged in such interstate commerce and, whether or not the state is carrying merchandise thereon "in its `sovereign' or in its `private' capacity" under the power reserved to it by the Constitution, it is subject to the paramount power of Congress to regulate it as such carrier. United States v. State of California, 297 U.S. 175, 183, 184, 56 S.Ct. 421, 424, 80 L.Ed. 567. The regulation there sustained was a requirement that the trains be operated with the car coupling appliances required by the Safety Appliance Act, § 2, Act of March 2, 1893, c. 196, 27 Stat. 531, 45 U.S.C.A. § 2, and § 6 of the Act as amended April 1, 1896, 29 Stat. 85, 45 U.S.C.A. § 6.

The judgment imposed upon the funds of the state a statutory penalty of $100.00. The purpose of the penalizing statute was to compel the expenditure of the carrier's moneys in equipping its trains with the required couplers. That is to say, in no remote sense, as an alternative to the state's ceasing its railway operations, Congress could compel the expenditure of state funds for such physical equipment of its cars, if it owned or acquired such cars, as here it compels the state to pay funds to offset those paid by the Federal Government to its employees as pensions for their services to the state.

One of the questions presented by the appeal is whether this taxation of the state itself as employer and of the wages of the state's employees of the Belt, required to be withheld and paid over by the state, is a regulation of the Belt as an interstate carrier. Obviously, if it is, the Carriers' Taxing Act must be sustained under the principles established in United States v. State of California, supra, and in Board of Trustees of University of Illinois v. United States, 289 U.S. 48, 57, 58, 53 S.Ct. 509, 77 L.Ed. 1025, where the tariff on scientific apparatus imported by a state university was held a regulation of foreign commerce though it be regarded as imposed on the state.

The Railroad Retirement Act of 1937, Act of Congress of June 24, 1937, c. 382, 50 Stat. 307, 45 U.S.C.A. §§ 228a-228r, and the Carriers' Taxing Act of 1937, as shown by their legislative history, were companion bills enacted at about the same time and by their text and similarity of definitions indicate that it was the purpose of Congress by means of the Taxing Act to supply revenue which would reimburse the Treasury of the United States for expenditures made pursuant to the Retirement Act for the payment of retirement allowances to employees retired under the last named act. This is shown not only by the interlocking provisions of the two bills which were passed by the House in the same week, but by the unanimity of the statements of the chairmen of the two committees presenting the bills to the House, that they were "companion," the one to provide the revenue to make the expenditures for the other. Congressional Record, June 25, 1937, pp. 7922, 7928, 7931. Id. June 24, 1937, p. 8199.

The state argues that, even though the legislative history shows this the purpose of Congress, "it is clear that said act Retirement Act does not appropriate any money raised pursuant to its provisions for the payment of retirement pensions nor for any other specific purpose. Neither is any language used in the act showing that the revenues paid into the Treasury pursuant to its provisions are earmarked for any purpose. The most that can be said in this connection is that it is a possible inference from the legislative history of the Taxing Act that Congress was motivated to enact it in order to raise revenue to reimburse the Treasury for the outflow of funds which might thereafter be appropriated from any funds in the Treasury for the payment of pensions to employees retired under the Retirement Act."

We do not agree that, though the tax funds which the employer and employees added to the resources of the Nation to compensate for the draft made upon such resources by the pensions to be paid such employees, they are, nevertheless, to be deemed not raised for an interstate commerce purpose because they are not "earmarked" in the National Treasury for that purpose. It is enough that the outgo from the National Treasury for the pensions is to an equal extent expected by the Congress to be balanced by the inflow from the tax moneys of the benefitted employees and of their employer, presumably benefitted by the pensions paid them. Cf. Binns v. United States, 194 U.S. 486, 494, 24 S.Ct. 816, 48 L.Ed. 1087.

The state asks the question: "If the federal income tax by its terms levied a tax upon all of the income of the State of California, could such a tax be justified upon the ground that it is an act regulating interstate commerce because it appears from its legislative history that its enactment was motivated by the desire of Congress to add to the funds in the United States Treasury an amount substantially equal to the estimated amount required for the payment of retirement pensions awarded under the terms of the Railroad Retirement Act of 1937?"

The answer is obvious. The limited purpose of the tax shows that it could not absorb all of the state's income. If the payment of moneys for pensions to its employees in its interstate commerce enterprise is not compensated in the rates it charges for its switching services, and the state is required to make up the deficit, its amount would not so affect the state's total income that its functioning as a state would be substantially impaired. Cf. South Carolina v. United States and other cases of federal taxation of states considered hereafter.

The state makes no such showing of fact with reference to the effect of this railway pension portion of the companion acts, as that in the suit between the Railroad Retirement Board and the Alton Railroad Co., 295 U.S. 330, 55 S.Ct. 758, 79 L. Ed. 1468, concerning the earlier Railroad Retirement Act of 1934. That suit was between different parties and insofar as it rests on the facts offered in evidence is not res judicata of any matter in issue here. Indeed, the state does not contend that the Railroad Retirement Act of 1937 is unconstitutional.

In the absence of any evidence showing that its enforcement would violate any provision of the Constitution (Cf. Borden's Farm Products Co. v. Baldwin, 293 U.S. 194, 209, 55 S.Ct. 187, 79 L.Ed 281) its constitutionality cannot be successfully challenged, if, as held in an opinion of Mr. Justice Van Devanter in Lindsley v. National Carbonic Gas Co., 220 U.S. 61, 78, 31 S.Ct. 337, 340, 55 L.Ed. 369, Ann. Cas.1912C, 160, "* * * any state of facts reasonably can be conceived that would sustain it, because the existence of that state of facts at the time the law was enacted must be assumed." Mr. Justice Sutherland states the rule in Adkins v. Children's Hospital, 261 U.S. 525, 544, 43 S. Ct. 394, 396, 67 L.Ed. 785, 24 A.L.R. 1238, "This court, by an unbroken line of decisions from Chief Justice Marshall to the present day, has steadily adhered to the rule that every possible presumption is in favor of the validity of an act of Congress until overcome beyond rational doubt."

We take judicial notice, based upon our present knowledge...