Helvering v. Powers - 293 U.S. 214 (1934)


U.S. Supreme Court

Helvering v. Powers, 293 U.S. 214 (1934)

Helvering v. Powers

No. 17

Argued October 12, 15, 1934

Decided December 3, 1934

293 U.S. 214

Syllabus

1. The provision of the Revenue Acts of 1926, §§ 212(a), 213(a), and 1928, §§ 21, 22(a), for taxing income derived "from compensation for personal service . . . of whatever kind and in whatever form paid," is broad enough to embrace the compensation of state officers if not constitutionally immune. P. 293 U. S. 224.

2. A Treasury Regulation cannot limit this statutory provision or define the boundaries of its constitutional application. Id.

3. Constitutional immunity of the compensation of a state officer from federal taxation is not a necessary result of his being a state officer; it depends upon the nature of the political activities assigned to him, and upon whether they come within the fundamental reason for denying federal authority to tax -- viz., necessary protection of the independence of national and state governments in their respective spheres in our constitutional system. P. 293 U. S. 224.

4. One of the limitations of the principle of tax immunity as between the state and national governments is that the State cannot withdraw sources of revenue from the federal taxing power by engaging in businesses which go beyond usual governmental functions and to which, by reason of their nature, the federal taxing power would normally extend. P. 293 U. S. 225.

5. The fact that the State has power to undertake such enterprises, and that they are undertaken for what the State conceives to be the public benefit, does not establish immunity. Id.

6. In operating a street railway, whether permanently or for a limited time, the State is undertaking a business enterprise of a sort that is normally within the reach of the federal taxing power and is distinct from the usual governmental functions that are immune from federal taxation in order to safeguard the necessary independence of the State. P. 293 U. S. 227.

7. If a business undertaken by a State is not immune from a federal excise tax upon its operations, the compensation of those who conduct it for the State is not exempt from a federal income tax. P. 293 U. S. 227.

Page 293 U. S. 215

8. A street railway company and its properties, including a reserve fund, are taken over by the State, to be publicly operated and managed for a limited period of time, pursuant to a special Act of the Legislature agreed to by the company. The operations during that period are to be under the exclusive control of a board of trustees, who are officers of the State specially appointed for the purpose, and the management is to be such that the cost of the venture, including operating expenditures, upkeep, and other charges against income and surplus, with dividends agreed to be paid on the company's stock, shall be met by the income; but if there are deficits, these are to be paid by the State and assessed against the towns and cities along the railway. At the end of the period, the properties are to be restored to the company in good condition and the fund undiminished. The salaries of the trustees, fixed by the statute, are payable by the company -- part of the costs of operation. As incidents of the main purpose, the trustees have exclusive authority to regulate and fix the fares and to ascertain any losses incurred, which are to be borne by the State.

Held, that the salaries of the trustees are not constitutionally immune from income tax under the Federal Revenue Acts of 1926 and 1928.

68 F.2d 634 reversed.

Certiorari, 292 U.S. 620, to review a judgment reversing a decision of the Board of Tax Appeals sustaining a deficiency assessment of income tax.

Page 293 U. S. 220



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