Opinion
April 21, 1938.
1. INCOME TAX: State Tax on Income of Federal Employee. Whether an income tax may be imposed by the State on the salary of the joint employee of the Federal Land Bank, Federal Intermediate Credit Bank, Production Credit Corporation, and St. Louis Bank of Co-operatives, the four units of the Farm Credit Administration of St. Louis, must be determined by the interpretation of the Federal Constitution as construed by the Supreme Court of the United States.
2. INCOME TAX: State Tax on Income of Federal Employee. The states may impose taxes on Federal corporations created to carry out essential governmental functions, also on corporations utilized by the Federal government to carry out essential governmental functions.
They may also impose taxes on agencies licensed, chartered and supervised by the United States for the public benefit.
3. INCOME TAX: Federal Tax on Income of State Employees: State Tax on Income of Federal Employees. Whenever a state engages in a business which is of a private nature that business is not withdrawn from the taxing power of the nation.
The immunity of State instrumentalities from Federal taxation and the immunity of Federal instrumentalities from State taxation is equal and reciprocal.
That being so a Federal agency being engaged in a business which is of a private nature would not be immune from State taxation.
Those agencies through which either government immediately and directly exercises its sovereign powers, are immune from the taxing power of the other.
Not every person who uses his property or derives a profit in his dealing with the government may clothe himself with immunity from taxation on the theory that either he or his property is an instrumentality of government.
Each case must be determined upon its particular facts.
Where the four units of the Farm Credit Administration are Federal instrumentalities created for public purpose but the business of said units is of a private nature and the activities of the Farm Credit Administration are not traditionally Federal activities and it does not appear that an income tax upon the salary of an employee would interfere with the governmental activities of the Farm Credit Administration, such income tax may be imposed by the State.
Appeal from Circuit Court of City of St. Louis. — Hon. Granville Hogan, Judge.
AFFIRMED.
G.V. Head and G.N. Byrne for appellant.
(1) The units of the Farm Credit Administration of St. Louis are instrumentalities of the United States. Dallas Joint Stock Land Bank v. Ballard, 74 S.W.2d 297; Ellingston v. Iowa Joint Stock Land Bank, 264 N.W. 516; Federal Land Bank of Baltimore v. Hubard, 163 Va. 860, 178 S.E. 16; Federal Land Bank of Columbia v. State Highway Department, 172 S.C. 174, 173 S.E. 284; Federal Land Bank of New Orleans v. Crosland, 261 U.S. 374, 43 Sup. Ct. 385; Federal Land Bank of New Orleans v. Tatum, 164 So. 319; Federal Land Bank of St. Louis v. Priddy, 295 U.S. 229, 55 Sup. Ct. 705; Hartford Production Credit Assn. v. Clark, 172 A. 266; Kapaun v. Federal Land Bank of Omaha, 269 N.W. 564; Krauthoff v. Kansas City Joint Stock Land Bank, 23 F.2d 71; Langer v. United States, 76 F.2d 817; Leuthold v. Des Moines Joint Stock Land Bank, 266 N.W. 450; West Co. v. Johnson, 66 P.2d 1211; North Dakota-Montana Wheat Growers Assn. v. United States, 66 F.2d 573; Smith v. Kansas City Title Trust Co., 255 U.S. 180, 41 Sup. Ct. 243. (2) Defendant's salary as an employee of the Farm Credit Administration is not subject to State income taxation. Atkinson v. State Tax Comm., 62 P.2d 13; Ambrosini v. United States, 187 U.S. 1, 23 Sup. Ct. 1; Ashwander v. Tenn. Valley Authority, 8 F. Supp. 893; Baltimore National Bank v. State Tax Comm., 297 U.S. 211, 56 Sup. Ct. 417; Bank of United States v. Planters Bank of Georgia, 9 Wheat. 904; Biscoe v. Tax Commissioner, 236 Mass. 201, 128 N.E. 16; Blair v. Mathews, 29 F.2d 892; Bolster v. City of Lawrence, 225 Mass. 387, 114 N.E. 722; Briscoe v. Bank of Kentucky, 11 Pet. 257; Brooklyn Ash Removal Co. v. United States, 10 F. Supp. 152; Brush v. Commissioner of Internal Revenue, 57 Sup. Ct. 495; Buffington, Collector v. Day, 11 Wall. 113; Busby v. Indiana Board of Agriculture, 85 Ind. App. 572, 154 N.E. 883; Callam County v. United States, 263 U.S. 344, 44 Sup. Ct. 121, 68 L.Ed. 328; Campbell v. Commissioner of Internal Revenue, 87 359 F.2d 128; Caughlan v. Omaha, 103 Neb. 726, 174 N.W. 220; Chafor v. Long Beach, 174 Cal. 478, 163 P. 670; Childers v. Commissioner of Internal Revenue, 80 F.2d 27; Choctaw, O. G. Railroad v. Harrison, 235 U.S. 292, 35 Sup. Ct. 27, 59 L.Ed. 234; City of New Brunswick v. United States, 276 U.S. 547, 48 Sup. Ct. 371; City of Osceola v. Board of Equalization, 188 Iowa 278, 176 N.W. 284; Cobb v. Parnell, 183 Ark. 429, 36 S.W.2d 388; Commr. of Internal Rev. v. Harlan, 80 F.2d 660; Commr. of Internal Rev. v. Hindman, 88 F.2d 44; Commr. of Internal Rev. v. Modjeski, 75 F.2d 468; Commr. of Internal Rev. v. Ogden, 62 F.2d 334; Commissioner of Internal Rev. v. Schnackenberg, 90 F.2d 175; Commr. of Internal Rev. v. Sherman, 69 F.2d 755; Commissioner of Internal Revenue v. Ten Eyck, 76 F.2d 515; Curran v. Bank of Arkansas, 15 How. 304; Dobbins v. Commissioner of Erie County, 16 Pet. 448, 10 L.Ed. 1022; Domenech v. Nat. City Bank, 294 U.S. 199, 55 Sup. Ct. 369; Dravo Contracting Co. v. Fox, 16 F. Supp. 527; Dyess v. Wiseman, 76 S.W.2d 979; Fed. Compress Warehouse Co. v. McLean, 291 U.S. 17, 54 Sup. Ct. 267; Fed. Land Bank of Baltimore v. Hubard, 163 Va. 860, 178 S.E. 17; Fed. Land Bank of Berkley v. Warner, 292 U.S. 57, 54 Sup. Ct. 571; Fed. Land Bank of Columbia v. Gaines, 290 U.S. 247, 54 Sup. Ct. 168, 78 L.Ed. 298; Fed. Land Bank of Columbia v. State Highway Department, 172 S.C. 174, 173 S.E. 284; Fed. Land Bank of New Orleans, v. Crosland, 261 U.S. 374, 43 Sup. Ct. 385; Fed. Land Bank of St. Louis v. Priddy, 295 U.S. 229, 55 Sup. Ct. 705; Fidelity Deposit Co. v. Pennsylvania, 240 U.S. 319, 36 Sup. Ct. 298; First Natl. Bank v. Fellows, 244 U.S. 416, 37 Sup. Ct. 735; Flint v. Stone Tracy Co., 220 U.S. 107, 31 Sup. Ct. 357; Frey v. Woodworth, 2 F.2d 725; Gillespie v. Oklahoma, 257 U.S. 501, 42 Sup. Ct. 171, 66 L.Ed. 338; Graves v. Texas Co., 298 U.S. 393, 56 Sup. Ct. 818; Halsey v. Helvering, 75 F.2d 234; Heino v. Grand Rapids, 202 Mich. 363, 168 N.W. 512; Helvering v. Powers, 293 U.S. 225; Hibbard v. Wichita, 98 Kan. 498, 159 P. 399; Home Owners' Loan Corporation v. Anderson, 64 P.2d 14; Hoskins v. Commissioner of Internal Revenue, 84 F.2d 627; Indian Motorcycle Co. v. United States, 283 U.S. 570, 51 Sup. Ct. 601, 75 L.Ed. 1277; Indian Territory Illuminating Co. v. Oklahoma, 240 U.S. 522, 36 Sup. Ct. 453; Irwin v. Wright, 258 U.S. 219, 42 Sup. Ct. 293; Jaybird Mining Co. v. Weir, 271 U.S. 609, 46 Sup. Ct. 592; Johnson v. Maryland, 254 U.S. 55, 41 Sup. Ct. 16, 65 L.Ed. 126; King County v. United States Shipping Board Emergency Fleet Corp., 282 F. 950; Langer v. United States, 76 F.2d 817; Linton v. Childs, 105 Ga. 567, 32 S.E. 617; Long v. Rockwood, 277 U.S. 142, 48 Sup. Ct. 463; Luxton v. North River Bridge Co., 153 U.S. 525, 14 Sup. Ct. 891; McCulloch v. Maryland, 4 Wheat. 316; Mallory v. White, 8 F. Supp. 989; Manning v. Pasadena, 58 Cal.App. 666, 209 P. 253; Metcalf and Eddy v. Mitchell, 267 U.S. 514, 46 Sup. Ct. 172; West Co. v. Johnson, 66 P.2d 1211; Moisseiff v. Commr. of Internal Revenue, 21 B.T.A. 515; Morrison v. MacLaren, 160 Wis. 621, 152 W.N. 475; Moulton v. City of Fargo, 39 N.D. 502, 167 N.W. 717; Nemet v. City of Kenosha, 109 Wis. 379, 172 N.W. 711; Nevada-California Power Co. v. Ullom, 3 F. Supp. 434; North Dakota-Montana Wheat Growers Assn. v. United States, 66 F.2d 573; Northwestern Mut. Life Insurance Co. v. Wisconsin, 275 U.S. 136, 48 Sup. Ct. 55; Ohio v. Helvering, 292 U.S. 360; Osborn v. Bank of United States, 9 Wheat. 738; Panhandle Oil Co. v. Mississippi, 277 U.S. 218, 48 Sup. Ct. 451; Parker v. Miss. State Tax Comm., 174 So. 567; Pease v. Commr. of Internal Revenue, 83 F.2d 122; People v. Cantor, 236 N.Y. 417, 141 N.E. 901; People v. Commissioner, 67 U.S. 620, 17 L.Ed. 451; People v. Graves, 57 Sup. Ct. 269; Pope v. New Haven, 91 Conn. 79, 99 A. 51; Port Angeles Western Ry. Co. v. Callam County, 20 F.2d 202; Powers v. Commissioner of Internal Revenue, 68 F.2d 634; Purnell v. Page, 133 N.C. 125, 45 N.E. 534; Railroad Co. v. Peniston, 18 Wall. 41; Ranier Natl. Park Co. v. Henneford, 45 P.2d 617; Reconstruction Finance Corp. v. Central Republic Trust Co., 17 F. Supp. 263; Reconstruction Finance Corporation v. Krauss, 12 F. Supp. 44; Reed v. Commr. of Internal Revenue, 34 F.2d 263; Regents v. Page, 18 F. Supp. 62; Sargent County v. State, 47 N.D. 561, 182 N.W. 270; Schaaf v. South Dakota Rural Credit Board, 39 S.D. 377, 164 N.W. 964; Schlosser v. Welch, 5 F. Supp. 993; Scibilia v. Philadelphia, 279 Pa. 549, 124 A. 273; Silas Mason Co. v. Henneford, 15 F. Supp. 958; Six Companies v. DeVinney, 2 F. Supp. 693; Smith v. Kansas City Tile Trust Co., 255 U.S. 180, 41 Sup. Ct. 243; Society for Savings v. Coits, 6 Wall. 604; South Carolina v. United States, 199 U.S. 437, 26 Sup. Ct. 110; State v. City of Columbia, 115 S.C. 108, 104 S.E. 337; State v. Fleming, 275 Mo. 509, 204 S.W. 1085; State v. Stewart, 54 Mont. 504, 171 P. 755; State v. Stewart, 53 Mont. 18, 161 P. 309; State ex rel. Thompson v. Truman, 319 Mo. 423, 4 S.W.2d 433; State of Alabama v. United States, 38 F.2d 897; State of North Dakota v. Olson, 33 F.2d 848; State of Ohio v. Helvering, 292 U.S. 360, 54 Sup. Ct. 725; State of Ohio v. Thomas, 173 U.S. 276, 19 Sup. Ct. 453; Swayne Hoyt v. United States, 57 Sup. Ct. 478; Texas Co. v. Carmichæl, 13 F. Supp. 242; Therrell v. Commissioner of Internal Revenue, 88 F.2d 869; Town of Orange v. City of Barre, 95 Vt. 267, 115 A. 238; Trinityfarm Const. Co. v. Grosjean, 291 U.S. 466, 54 Sup. Ct. 469; Trinityfarm Const. Co. v. Grosjean, 3 F. Supp. 785; Udall v. State Loan Board, 273 P. 721; United States Grain Corp. v. Phillips, 261 U.S. 106, 43 Sup. Ct. 283; United States Shipping Board Corp. v. Western Union Telegraph Co., 275 U.S. 415, 48 Sup. Ct. 198; United States Spruce Production Corp. v. Lincoln County, 285 F. 388; United States v. Baltimore Ohio Railroad Co., 17 Wall. 327, 21 L.Ed. 597; United States v. Doherty, 18 F. Supp. 793; United States v. Lewis, 10 F. Supp. 471; United States v. McCarl, 275 U.S. 1, 48 Sup. Ct. 12; United States v. Wright, 53 F.2d 300; Van Brocklin v. Anderson, 117 U.S. 151, 6 Sup. Ct. 670; Watson v. Commr. of Internal Revenue, 81 F.2d 626; Western Union Tel. Co. v. Texas, 105 U.S. 460, 26 L.Ed. 1068; Westfall v. United States, 274 U.S. 256, 47 Sup. Ct. 629; Weston v. City of Charleston, 2 Pet. 449; Ex parte Willman, 277 F. 819; Wiseman v. Dyess, 72 S.W.2d 517.
Donald Gunn, Roy McKittrick, Attorney General, and Edward H. Miller, Assistant Attorney General, for respondent.
(1) Not all persons working for every instrumentality created by act of Congress are immune from State income taxes. McCulloch v. Maryland, 4 Wheat. 316; Dobbins v. Commr. of Erie County, 16 Pet. 435; Collector v. Day, 11 Wall. 113; South Carolina v. United States, 199 U.S. 438; Pollock v. Farmers' Loan Trust Co., 157 U.S. 429; Ambrosini v. United States, 187 U.S. 1; Metcalf Eddy v. Mitchell, 269 U.S. 514; Willcuts v. Bunn, 282 U.S. 216; Indian Motorcycle Co. v. United States, 283 U.S. 570; Panhandle Oil Co. v. Mississippi, 277 U.S. 218; Burnet v. Coronado Oil Gas Co., 285 U.S. 393; Gillespie v. Oklahoma, 257 U.S. 501; Fox Film Corporation v. Doyal, 286 U.S. 123; United States v. California, 297 U.S. 175; New York ex rel. Rogers v. Graves, 81 L.Ed. 202; Wilson v. Shaw, 204 U.S. 24; Federal Land Bank of St. Louis v. Priddy, 295 U.S. 229; Smith v. Kansas City Title Trust Co., 255 U.S. 180; Baltimore Natl. Bank v. State Tax Comm. of Maryland, 297 U.S. 209; Brush v. Commissioner of Internal Revenue, 81 L.Ed. 443; Nicol v. Ames, 173 U.S. 515; Railroad Co. v. Peniston, 18 Wall. 5; Sloan Shipyards Corp. v. United States Shipping Board Emergency Fleet Corp., 258 U.S. 549; United States v. Strang, 254 U.S. 491; Thomson v. Pacific Railroad, 9 Wall. 579; Baltimore Shipbuilding Dry Dock Co. v. Baltimore, 195 U.S. 375; Trinityfarm Construction Co. v. Grosjean, 291 U.S. 466; Federal Compress Warehouse Co. v. McLean, 291 U.S. 17; Broad River Power Co. v. Query, 288 U.S. 178; Susquehanna Power Co. v. State Tax Comm. of Maryland, 283 U.S. 291; R.S. 1929, sec. 10119; 53 Congressional Record, pp. 6962, 6963. (2) The income of a joint employee of the several units of The Farm Credit Administration is not exempt from Missouri income taxes. Metcalf Eddy v. Mitchell, 269 U.S. 514; Burnet v. Jergins Trust, 288 U.S. 508; Brush v. Commr. of Internal Revenue, 81 L.Ed. 443; United States v. California, 297 U.S. 175; United States v. Butler, 297 U.S. 1; Smith v. Kansas City Title Trust Co., 255 U.S. 180; Railroad Co. v. Peniston, 18 Wall. 5; Helvering v. Powers, 293 U.S. 214; City of Boston v. Jackson, 260 U.S. 309; South Carolina v. United States, 199 U.S. 438; Vance v. Vandercook Co., 170 U.S. 438; Ambrosini v. United States, 187 U.S. 1; North Dakota v. Olson, 33 F.2d 848; Green v. Frazier, 253 U.S. 233; Thomson v. Pacific Railroad, 9 Wall. 579; United States v. Strang, 254 U.S. 491; Susquehanna Power Co. v. State Tax Comm. of Maryland, 283 U.S. 291; Broad River Power Co. v. Query, 288 U.S. 178; Federal Compress Warehouse Co. v. McLean, 291 U.S. 17; Flint v. Stone Tracy Co., 220 U.S. 107; United States v. McCarl, 275 U.S. 1; Baltimore Shipbuilding Dry Dock Co. v. Baltimore, 195 U.S. 375; Federal Land Bank of St. Louis v. Priddy, 295 U.S. 229; Bank of the United States v. Planters Bank of Georgia, 9 Wheat. 904; Briscoe v. Bank of the Commonwealth of Kentucky, 11 Pet. 257; St. Louis Lodge No. 9, B.P.O.E. v. Koeln, 262 Mo. 444, 171 S.W. 329; St. Louis Y.M.C.A. v. Gehner, 329 Mo. 1007, 47 S.W.2d 776; State ex rel. Thompson v. Truman, 319 Mo. 423, 4 S.W.2d 433; Michigan v. Michigan Trust Co., 286 U.S. 334; Panhandle Oil Co. v. Mississippi, 277 U.S. 218; Restatement of the Law of Agency, Sec. 1; 53 Congressional Record, pp. 6962, 6969, 7305, 7315, 7317; 12 U.S.C.A., Secs. 810-824, 921.
Action to collect three dollars and forty-eight cents State income tax on the salary of defendant for the year 1934. She is a joint employee of the Federal Land Bank, Federal Intermediate Credit Bank, Production Credit Corporation, and St. Louis Bank of Co-operatives, being the four units of the Farm Credit Administration of St. Louis. The units are corporations organized under acts of Congress. They lend money to farmers for different agricultural purposes. Two of the units are owned and operated by farmers.
The petition was conventional. The answer pleaded the history of said acts of Congress, with a detailed explanation of the organization and functions of said corporate units. It then pleaded that defendant as a joint employee of said units was a Federal instrumentality within the meaning of the Federal Constitution, and as such her salary was immune from taxation by the State government. The court sustained a demurrer to the answer. Defendant declined to plead further. Judgment for plaintiff for the tax. In due course defendant appealed.
Is the tax prohibited by the Federal Constitution? This is the only question presented by the record. The case is well briefed, for which we are thankful. Of course, the question must be determined by an interpretation of the Federal Constitution as construed by the Supreme Court of the United States. It is admitted that the decisions on the immunity of Federal and State governmental instrumentalities from taxation are in confusion.
However, the states may impose taxes on Federal corporations created to carry out essential governmental functions. [Railroad v. Peniston, 18 Wall. 5; Sloan Shipyards Corp. v. U.S. Shipping Board Emergency Fleet Corp., 258 U.S. 549; United States v. Strang, 254 U.S. 491.]
They also may impose taxes on corporations utilized by the Federal government to carry out essential governmental functions. [Thompson v. Union Pacific Railroad Co., 9 Wall. 579; Baltimore Shipping Dry Dock Co. v. Baltimore, 195 U.S. 375, 385; Trinity Farm Construction Co. v. Grosjean, 291 U.S. 466.]
They also may impose taxes on agencies licensed, chartered and supervised by the United States for the public benefit. [Federal Compress Warehouse Co. v. McLean, 291 U.S. 17; Broad River Power Co. v. Query, 288 U.S. 178; Susquehanna Power Co. v. State Tax Commission, 283 U.S. 291.]
On the other hand, agents of a state engaged in dispensing liquor under its sovereign power are not immune from Federal taxation. In so ruling it was stated that "whenever a State engages in a business which is of a private nature, that business is not withdrawn from the taxing power of the Nation." [South Carolina v. United States, 199 U.S. 437, 438.]
In this connection it should be stated that the immunity of State instrumentalities from Federal taxation, and the immunity of Federal instrumentalities from State taxation is equal and reciprocal. [Willcuts v. Bunn, 282 U.S. 216; Pollock v. Farmers Loan Trust Co., 157 U.S. 429, 584; Ambrosini v. United States, 187 U.S. 1, 7; Indian Motorcycle v. United States, 283 U.S. 570, 577; Burnet v. Coronodo Oil Gas Co., 285 U.S. 383; United States v. California, 297 U.S. 175, 184.]
If the immunity of State and Federal instrumentalities is equal, it would seem to follow, under the ruling in the South Carolina case, supra, that a Federal agency engaged "in a business which is of a private nature" would not be immune from State taxation.
The rule with reference to immunity of Federal instrumentalities from State taxation and immunity of State instrumentalities from Federal taxation also is stated as follows:
"The very nature of our constitutional system of dual sovereign governments is such as impliedly to prohibit the Federal government from taxing the instrumentalities of a state government, and in a similar manner to limit the powers of the states to tax the instrumentalities of the Federal government. . . .
"Just what instrumentalities of either a state or the Federal government are exempt from taxation by the other cannot be stated in terms of universal application, but this court has repeatedly held that those agencies through which either government immediately and directly exercises its sovereign powers, are immune from the taxing power of the other. . . .
"When, however, the question is approached from the other end of the scale, it is apparent that not every person who uses his property or derives a profit, in his dealings with the government, may clothe himself with immunity from taxation on the theory that either he or his property is an instrumentality of government within the meaning of the rule. . . .
"As cases arise, lying between the two extremes, it becomes necessary to draw the line which separates those activities having some relation to government, which are nevertheless subject to taxation, from those which are immune. Experience has shown that there is no formula by which that line may be plotted with precision in advance. But recourse may be had to the reason upon which the rule rests, and which must be the guiding principle to control its operation. Its origin was due to the essential requirement of our constitutional system that the federal government must exercise its authority within the territorial limits of the states; and it rests on the conviction that each government, in order that it may administer its affairs within its own sphere, must be left free from undue interference by the other." [Metcalf Eddy v. Mitchell, 269 U.S. 514, l.c. 521, 525.]
Under this rule each case must be determined from its particular facts. In the instant case it is admitted that the four units of the Farm Credit Administration are Federal instrumentalities created for a public purpose. Even so, the business of said units is of a private nature. Furthermore, the activities of the Farm Credit Administration are not traditional Federal government activities. Indeed, the Supreme Court of the United States, on a consideration of the Federal legislation in question, stated as follows:
"It is to be borne in mind that federal land banks, although conceded federal instrumentalities, possess also some of the characteristics of private business corporations. [See Federal Land Bank v. Gaines, supra, 254.] The statute does not contemplate that their stock is to be wholly, or even chiefly, government owned. Its acquisition by private investors is permitted . . . and its subscription by the borrowing national farm loan associations is compulsory. . . . The operations of the federal land banks are, in part at least, for profit. . . . In the conduct of their business they may enter into contracts, . . . borrow money, receive interest and fees, . . . pay the expenses and commissions of agents, . . . and pay dividends on their stock. While they are required to deposit in trust farm mortgages as security for farm loan bonds, . . . they may acquire and dispose of property in their own right, including land. . . . They thus have many of the characteristics of private business corporations, distinguishing them from the Government itself and its municipal subdivisions, and from corporations wholly government owned and created to effect an exclusively governmental purpose." [Federal Land Bank v. Priddy, 295 U.S. 229, l.c. 232, 233.]
Furthermore, it does not appear that said tax would interfere with the governmental activities of the Farm Credit Administration.
Attention is directed to cases on the question of immunity from taxation as follows: People v. Graves, 299 U.S. 401, decided January 4, 1937, and Brush v. Commr. of Internal Revenue, 300 U.S. 352, decided March 15, 1937. In ruling those cases the court did not employ the same reasoning. We agree with defendant that the opinion in said cases do not clarify the confusion existing with reference to the question.
The judgment should be affirmed. It is so ordered. All concur, except Hays, C.J., absent.