Winston Bros. Co. v. State Tax Commission

• Decision Date: 05 November 1936
• Citation: Winston Bros. Co. v. State Tax Commission, 156 Or. 505, 62 P.2d 7 (Or. 1936)
• Parties: WINSTON BROS. CO. et al. v. STATE TAX COMMISSION et al. [*]
• Court: Oregon Supreme Court

62 P.2d 7

156 Or. 505

WINSTON BROS. CO. et al. v. STATE TAX COMMISSION et al.^[*]

Supreme Court of Oregon

November 5, 1936

In Banc.

Appeal from Circuit Court, Multnomah County; Robert Tucker, Judge.

Action for declaratory judgment by the Winston Bros. Company, a Minnesota corporation, and others, against the State Tax Commission and others.From a judgment for the defendantsthe plaintiffs appeal.

Reversed and remanded, with directions.

Howard P. Arnest, of Portland, for appellants.

Carl E Davidson, Asst. Atty. Gen. (I. H. Van Winkle, Atty. Gen., on the brief), for respondents.

RAND Justice.

The plaintiffs, in 1934, derived a profit from the performance of a contract which they had jointly entered into with the War Department for the reconstruction and repair of the south jetty at the mouth of the Columbia river.

The state of Oregon claims that this profit is subject to taxation.

Winston Bros. Company is a Minnesota corporation, having its principal office in that state.It transacted no business in Oregon during that year except that on account of which the tax is sought to be imposed, which is an excise tax for the privilege of doing business within this state.The other plaintiffs are copartners, each residing in the state of California and, except for the work done under this contract and under another contract with the War Department for work on the Bonneville Dam, they too transacted no business within the state during that year.The tax sought to be imposed against them is an income tax.

To obtain a determination as to whether the profits involved in this action are taxable by the state of Oregon, the plaintiffs brought this action, praying for a declaratory judgment and, from a judgment against them, plaintiffs appealed.

Plaintiffs' first contention is that, if the right to tax these profits is sustained, it will impede and embarrass the federal government in the execution of a national function.They base this contention upon the fact that the jetty on which the repairs were made was built and maintained by the federal government as an aid to navigation and that to permit any part of these moneys so paid for its repair to be taken by the state as taxes would embarrass the government in the execution of its national powers.

Plaintiffs further contend that, in doing this work, they were acting as a means or agency of the national government and, therefore are not subject to the tax for any profits realized in the performance of the work.

We think that this contention cannot be sustained.In Thomson v. Union Pacific Railroad, 9 Wall. (U.S.) 579, 591, 19 L.Ed. 792, the court said:

"We do not doubt the propriety or the necessity, under the Constitution, of maintaining the supremacy of the General Government within its constitutional sphere.We fully recognize the soundness of the doctrine, that no State has a 'right to tax the means employed by the government of the Union for the execution of its powers.'But we think there is a clear distinction between the means employed by the government and the property of agents employed by the government.Taxation of the agency is taxation of the means; taxation of the property of the agent is not always, or generally, taxation of the means.

"No one questions that the power to tax all property, business, and persons, within their respective limits, is original in the States and has never been surrendered.It cannot be so used, indeed, as to defeat or hinder the operations of the National government; but it will be safe to conclude, in general, in reference to persons and State corporations employed in government service, that when Congress has not interposed to protect their property from State taxation, such taxation is not obnoxious to that objection.

"We perceive no limits to the principle of exemption which the complainants seek to establish.It would remove from the reach of State taxation all the property of every agent of the government.Every corporation engaged in the transportation of mails, or of government property of any description, by land or water, or in supplying materials for the use of the government, or in performing any service of whatever kind, might claim the benefit of the exemption."

Again, in General Construction Co. v. Fisher,149 Or. 84, 39 P.2d 358, 360, 97 A.L.R. 1252, the same question was presented to this court and, in overruling it, the court said: "When plaintiff, as an independent contractor for gain, entered into a contract to perform labor and furnish materials to the federal government, it did not thereby become a part of, or an instrumentality of, the United States government, and its property and right to conduct business within the state are not immune from taxation by the state wherein it is located in performing its contract."

In support thereof, the court cited numerous cases, all of which support the doctrine thus announced.

Plaintiffs' next contention is that the contract was completely performed by the plaintiffs on property the title to which, by consent of the state, had passed to the federal government and over which the state had ceded to the United States the exclusive legislative jurisdiction, reserving to the state merely the right to serve state process in civil and criminal matters.

The undisputed evidence in the case shows that the work which the plaintiffs contracted to perform and did perform consisted of rebuilding parts of the south jetty at the mouth of the Columbia river that had washed away; that this jetty was constructed as an aid to navigation in 1885 by the federal government; that it is composed of rock built up to an elevation of 25 feet above low water on which the government owns and maintains a trestle and railroad track for the operation of trains to transport rock needed for the reconstruction or repair of the jetty; that the jetty commences on Fort Stevens, a military reservation of the United States, and extends directly therefrom on to certain tidelands and from thence over lands underlying navigable waters, and is some 6 or 7 miles in length; that the reconstruction work performed by the plaintiffs were done upon that part of the jetty lying below and beyond said tidelands; and that the work performed by the plaintiffs consisted merely in replacing with rock the parts of the jetty that had been washed away and in repairing the trestle and track.This rock, the evidence shows, was quarried in the state of Washington and was delivered to the plaintiffs free on board cars on said military reservation by the Spokane, Portland & Seattle Railway Company, from which point it was transported over the government owned track on to the jetty and to the place of use; and that no part of the work performed by the plaintiffs was performed at any place outside the military reservation except that performed on the jetty.

Obviously, therefore, if the state of Oregon owns any lands over which plaintiffs' operations were performed, they necessarily consist of the lands covered by the military reservation of Fort Stevens, the tidelands over which the jetty is in part built, or the lands underlying the navigable waters over which it is constructed.

It is well settled that, upon admission of this state into the Union, the state acquired title in its proprietary capacity to all lands within its borders which are covered and uncovered by the tide, and also to all lands lying under the navigable waters of the state.As to those lands lying between the high and low water mark, commonly referred to as tidelands, the state became the absolute owner of them, subject only to the paramount right of navigation inherent in the public, and the lands became subject to its jurisdiction and disposal.Until disposed of by the state, the state held the title to these lands in its proprietary capacity and, after they had been disposed of by the state, their grantees took them free from any right therein of the upland owner and subject only to the paramount right of navigation.Bowlby v. Shively,22 Or. 410, 30 P. 154, affirmed inShively v. Bowlby,152 U.S. 1, 14 S.Ct. 548, 38 L.Ed. 331;Astoria Exchange Company v. Shively,27 Or. 104, 39 P. 398, 40 P. 92;Corvallis & E. R. Co. v. Benson,61 Or. 359, 121 P. 418.See, also, Hinman v. warren,6 Or. 408;Parker v. Taylor,7 Or. 435;andParker v. Rogers,8 Or. 183.

As to the other class, the lands underlying the navigable waters of the state, although the title passed to the state by virtue of its sovereignty, its rights were merely those of a trustee for the public.In its ownership thereof, the state represents the people, and the ownership is that of the people in their united sovereignty, while the waters themselves remain public so that all persons may use the same for navigation and fishing.These lands are held in trust for the public uses of navigation and fishery, and the erection thereon of wharves, piers, lighthouses, beacons, sea walls, and jetties, and other facilities of navigation and commerce.Being subject to this trust, they are publici juris; in other words, they are held for the use of the people at large.Unlike tidelands, therefore, the state can make no sale or disposal of the soil underlying its navigable waters so as to prevent the use by the public of such waters for the purposes of navigation and fishing, but must hold them in trust for the public.Cook v. Dabney,70 Or. 529, 139 P. 721;Alsos v. Kendall,111 Or. 359, 227 P. 286;Gatt v. Hurlburt,131 Or. 554, 284 P. 172.

The Act of Congress, Feb. 14, 1859, admitting this state into the Union, in part, provided (11 Stat. 383, § 2): "All the navigable waters of said State, shall be common highways and forever free, as well as to the inhabitants of said State as to all...