United States v. State of New York State of New York v. United States

• Decision Date: 02 March 1942
• Docket Number: 251,Nos. 238,s. 238
• Citation: 315 U.S. 510,62 S.Ct. 712,86 L.Ed. 998
• Parties: UNITED STATES v. STATE OF NEW YORK. STATE OF NEW YORK v. UNITED STATES
• Court: U.S. Supreme Court

315 U.S. 510

62 S.Ct. 712

86 L.Ed. 998

UNITED STATES

v STATE OF NEW YORK.

STATE OF NEW YORK

v. UNITED STATES.

Nos. 238, 251.

Argued Feb. 2, 1942.

Decided March 2, 1942.

As Amended April 13, 1942.

Messrs. Francis Biddle, Atty. Gen., J. Louis Monarch, of Washington, D.C., and Henry Epstein, of Albany, N.Y., for the United States.

Mr. Wm. Gerard Ryan, of Albany, N.Y., for the State of New York.

Mr. Justice BYRNES delivered the opinion of the Court.

The United States and the State of New York seek review of a judgment of the Circuit Court of Appeals for the Second Circuit reversing in part a District Court order for the distribution of the assets of a bankrupt estate. The Independent Automobile Forwarding Corporation was adjudicated a bankrupt on April 26, 1938. A total of $3053.20 eventually became available for distribution. This amount was insufficient even to meet those claims of the federal and state governments which were assertedly entitled to priority as taxes under § 64, sub. a(4) of the Bankruptcy Act.¹ The federal claims of this character were for amounts due under §§ 801 and 802 of Title VIII and under § 901 of Title IX of the Social Security Act,² and for certain taxes as to which no question is raised in this case. The state claims were for payments due its unemployment insurance fund, and for taxes not in issue here.

The state's appeal from the District Court's first order of distribution was discontinued by agreement of the parties because the Social Security Act had been extensively amended while the appeal was pending.³ A second order was thereupon entered by the District Court. The state again appealed to the Circuit Court of Appeals. It contended that the share of the assets granted to the federal government was excessive for three reasons: (1) the claim based on § 801 of Title VIII of the Social Security Act was a claim for a debt rather than for taxes and thus was not entitled to priority under § 64, sub. a (4) of the Bankruptcy Act; (2) no more than 10% of the claim based on § 901 of Title IX of the Social Security Act was entitled to allowance because the balance constituted a claim for a penalty rather than a tax and thus fell within the prohibition of s 57, sub. j of the Bankruptcy Act;⁴ and (3) the credit against the Title IX claim provided for in § 902, 42 U.S.C.A. § 1102, was incorrectly calculated. The Circuit Court of Appeals sustained the state's contention with respect to the Title VIII claim and reversed to that extent the order of the District Court, but rejected the state's arguments with respect to the claim under Title IX.

First. The claim based on Title VIII. Section 801 bears the heading 'Income tax on employees' and provides for a tax 'upon the income of every individual' equal to 1 per centum of the wages received by him with respect to employment during 1937.⁵ Section 802(a) provides that this tax 'shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wages as and when paid.' The employer is made liable for the payment of the tax. By regulation, pursuant to Title VIII,⁶ the Treasury Department has explicitly ruled that the tax may be assessed against the employer, regardless of whether he has in fact deducted it from the employee's wages. The Circuit Court (118 F.2d 537, 539) held that the employer was liable 'only as an agent bound to pay whether its duty to collect was performed or not' and that his liability was for a debt rather than for taxes.

As authority for this view it relied upon its decision of the same date in City of New York v. Feiring, 2 Cir., 118 F.2d 329. The city sales tax involved in that case was laid upon receipts from sales of personal property. The vendor was required to collect the amount of the tax from the vendee separately from the sales price. He was obliged to report periodically concerning his receipts from sales and to turn over to the City Comptroller the taxes due, whether or not he had actually collected them from the purchasers. If the vendor failed to collect the tax, the vendee was required to report the transaction and to pay the tax directly. Thus, the procedure contemplated was that the purchaser should bear the burden of the tax, but that the seller should collect and transmit it to the Comptroller. If the seller did not obtain it from the purchaser, however, the Comptroller was authorized to proceed to collect it from either of them. The Circuit Court of Appeals held that the claim of the City against a bankrupt vendor for the amount of the sales tax outstanding was a claim for a debt and not for taxes, within the meaning of § 64, sub. a(4). We reversed this decision and held that the burden imposed upon the seller by the city taxing act had 'all the characteristics of a tax entitled to priority' under § 64, sub. a(4). 313 U.S. 283, 61 S.Ct. 1028, 1030, 85 L.Ed. 1333.

We think that our decision in the Feiring case is controlling here. The New York City sales tax involved in that case and the obligation imposed by §§ 801 and 802 of Title VIII of the Social Security Act cannot be distinguished in any material respect. It was observed in the Feiring case that while the sales tax was intended to rest upon the purchaser 'in its normal operation', 'both the vendor and the vendee are made liable for payment of the tax in invitum * * * and the tax may be summarily collected by distraint of the property of either the seller or the buyer.' 313 U.S. 283, at page 287, 61 S.Ct. 1028, at page 1030, 85 L.Ed. 1333. The burden of the tax provided for by §§ 801 and 802 likewise will normally rest upon the employee, but the Commissioner of Internal Revenue may proceed to collect it from the employer whether or not he has deducted it from the wages of the employee.

Two distinctions between the cases are urged by the State. One is that § 802(a) of Title VIII provides that the tax 'shall be collected by the employer of the taxpayer' and thus reveals a Congressional intent that only a claim against the employee should be treated as one for a tax. The other asserted distinction is that Title VIII in its entirety is designed to impose two distinct taxes; § 801 imposes an 'income tax' upon the employee, while § 804 imposes an 'excise tax' upon the employer.⁷ But a tax for purposes of § 64, sub. a(4) includes any 'pecuniary burden laid upon individuals or property for the purpose of supporting the government,' by whatever name it may be called. State of New Jersey v. Anderson, 203 U.S. 483, 492, 27 S.Ct. 137, 140, 51 L.Ed. 284. Although he may not be referred to in §§ 801 and 802 as the taxpayer, and although he may also be subject to the 'excise tax' prescribed by § 804, the plain fact is that the employer is liable for the § 801 tax whether or not he has collected it from his employees. We therefore hold that the Title VIII claim of the United States against the estate of this bankrupt employer is entitled to the priority afforded by § 64, sub. a(4).

Second. The claim under Title IX. Section 901 imposes upon this employer, in addition to the obligations discussed above, an 'excise tax' equal to 2 per centum of the total wages payable by him during 1937. Section 902, however, permits him to credit 'against the tax imposed by § 901 (section 1101 of this chapter)' the amount of his 1937 contributions to the State unemployment fund, but provides that the total credit 'shall not exceed 90 per centum of the tax against which it is credited.'

(a) The State contends that § 902(a) in effect exacts a penalty, equal to 90% of the amount of the tax levied by § 901, from an employer who fails to make the payments to the State unemployment fund required by state law. Since § 57, sub. j of the Bankruptcy Act provides that claims by the United States for penalties are not allowable,⁸ it argues, only 10% of the tax imposed by § 901 is actually a tax for purposes of § 64, sub. a (4) of the Bankruptcy Act. There is no merit to this contention. While the issue here is cast in somewhat different terms, it is similar in outline to that raised by the constitutional objection to the Act which was set to rest in Steward Machine Co. v. Davis, 301 U.S. 548, 57 S.Ct. 883, 81 L.Ed. 1279, 109 A.L.R. 1293. There it was argued that the 90% credit provisions amounted to coercion of the States which was repugnant to the Tenth Amendment and to the federal system. The Court recognized that the effect of the scheme was to encourage the States to establish and maintain unemployment insurance funds and thus to cooperate with the federal government in meeting a common problem. It observed that 'every rebate from a tax when conditioned upon conduct is in some measure a temptation' but it concluded that 'to hold that motive or temptation is equivalent to coercion is to plunge the law in endless difficulties', and to accept 'a philosophical determinism by which choice becomes impossible.' 301 U.S. at pages 589, 590, 57 S.Ct. at page 892, 81 L.Ed. 1279, 109 A.L.R. 1293. These considerations are equally pertinent to the suggestion that the 90% rebate arrangement constitutes the imposition of a 'penalty' within the meaning of § 57, sub. j upon an employer who fails or refuses to contribute to a state fund. The amount of the tax assessable under § 901 is definite and fixed, once the single variable, the total of the wages paid during the year, is determined. Although the employer is free to obtain a credit against it by contributing to his state fund, it cannot be said that it is any the less a tax because the employer has failed, either through choice or lack of resources, to make such a contribution. Either the state or the federal government must provide the money to meet the requirements of relief to the unemployed. By his contributions to the state, an employer has diminished the demand upon the financial resources of the federal government. But by his failure to contribute, the employer has increased this demand and sharpened the...