United States v. State of New York

• Decision Date: 07 February 1944
• Docket Number: No. 124.,124.
• Citation: 140 F.2d 608
• Parties: UNITED STATES v. STATE OF NEW YORK et al.
• Court: U.S. Court of Appeals — Second Circuit

140 F.2d 608 (1944)

UNITED STATES v. STATE OF NEW YORK et al.

No. 124.

Circuit Court of Appeals, Second Circuit.

February 7, 1944.

Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, J. Louis Monarch, and Paul R. Russell, Sp. Assts. to the Atty. Gen., and Irving Higbee, U. S. Atty., and B. F. Tompkins, Asst. U. S. Atty., both of Syracuse, N. Y., for plaintiff-appellee.

Nathaniel L. Goldstein, Atty. Gen. (Orrin G. Judd, Sol. Gen., of New York City, Wendell P. Brown, First Asst. Atty. Gen., and Henry S. Manley, Asst. Atty. Gen., of counsel), for defendant-appellant.

Denis J. Harrington, of Saratoga Springs, N. Y. (John A. Slade, of Saratoga Springs, N. Y., of counsel), for Saratoga Springs Commission and Saratoga Springs Authority.

Before L. HAND, CHASE, and FRANK, Circuit Judges.

CHASE, Circuit Judge.

This appeal is from a judgment for the plaintiff entered in the District Court for the Northern District of New York in a suit by the United States to recover taxes, with interest thereon, levied against the three defendants under § 615(a) (5) of the Revenue Act of 1932, c. 209, 47 Stat. 169, 26 U.S.C.A. Int.Rev.Acts, page 614, on sales of bottled mineral and table waters taken from the springs at the State Reservation in Saratoga, N. Y. The defense was that the Saratoga Springs Authority is immune from such taxation as an agency of the state of New York engaged in the performance of a governmental function of a non-taxable character.

The facts which were stipulated may be summarized as follows: From colonial times the waters found at Saratoga Springs have been recognized to possess marked medicinal value by virtue of the presence of various minerals, and they have been extensively used for drinking and bathing purposes. The springs were exploited by private enterprise until 1912, but unwise operation was taking its toll by lowering the water level to an alarming extent and in that year the state stepped in to prevent that. To preserve and to restore them to their former flow, the state acquired title to all the land on which the springs were located, and took immediate measures to return the subterranean water level to a height from which it had been lowered by the drilling of new wells while the business was privately conducted.

In 1916 the State Department of Conservation was given custody of the lands, but in 1930 control was put in a newlycreated Saratoga Springs Commission, a public commission of the State of New York and one of the defendants in this case. In 1933 the Saratoga Springs Authority, a public benefit corporation of the State of New York, took over the management and control of the premises by lease from the Commission. Large sums have been spent upon the improvement and maintenance of the springs, which are operated and made available to the people of New York and others for the purpose of spreading widely the healthful benefits to be derived from the use of such waters.

To that end the Authority maintains on the premises a variety of establishments for the better utilization of the natural resources found in the springs. There are bath houses, tennis courts, drink halls, and a recreational center. Bus service is provided, and there is a hotel sanitarium operated by others under lease from the Authority.

The sale of bottled waters is promoted by extensive and costly advertising, and in recent years this enterprise has always yielded a substantial profit, with the exception of one year when a loss was sustained. The profits realized are applied to the expenses of maintaining the Reservation, which is not self-supporting and requires for its continued existence the aid of a large annual appropriation from the state legislature to pay the current deficits and to meet the interest and principal payments upon outstanding indebtedness.

The contention of the defendants is that the nature of this enterprise indicates that its operation is a governmental function of the State of New York immune from taxation.

The levy which is the subject of this litigation is a tax of two cents per gallon laid upon the sale of bottled waters sold at more than 12½ cents per gallon. The district court held that the sales were not made in performing a non-taxable governmental function, and entered judgment for the United States. 48 F.Supp. 15.

The Supreme Court held in Collector v. Day, 11 Wall. 113, 20 L.Ed. 122, that state governments were entitled to immunity by constitutional implication from taxation by the nation of the exercise of functions which were essential to their existence as they were constituted when the Constitution was adopted and on the premise that salaries are exempt when paid by a state to its officers who perform functions which are themselves immune from federal taxation invalidated a tax upon the salary of a state probate judge. But this case has recently been disapproved if not altogether overruled. Graves v. People of State of New York ex rel. O'Keefe, 306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927, 120 A.L.R. 1466...