Helvering v. Gerhardt - 304 U.S. 405 (1938)


U.S. Supreme Court

Helvering v. Gerhardt, 304 U.S. 405 (1938)

Helvering v. Gerhardt

No. 779

Argued April 7, 8, 1938

Decided May 23, 1938*

304 U.S. 405

Syllabus

1. The immunity from federal taxation implied for the protection of the States is to be narrowly limited,

First, because the method of exercise of the federal taxing power, by, and upon, all the people through their representatives in Congress affords a safeguard against its abuse at the expense of state sovereignty, and

Secondly, because the immunity is at the expense of the national sovereign power to tax, and, if enlarged beyond the necessity of protecting the States, its burden is thrown upon the National Government with benefit only to a privileged class of taxpayers. P. 304 U. S. 416.

2. The immunity from federal taxation of income received by individuals as compensation for services rendered to a State does not extend to cases where the burden of the tax to a state function is not shown to be actual and substantial, and not conjectural. P. 304 U. S. 421.

This principle applies even though the function be thought important enough to demand immunity from a tax upon the State itself. P. 304 U. S. 420.

3. The Port of New York Authority is a bi-state corporation created by compact between the States of New York and New Jersey approved by Congress. Pursuant to the compact and legislation of the two States, it has acquired and operates terminal and transfer facilities within a district embracing the port of New York and lying partly in each of the States. It has constructed interstate bridges and tunnels for vehicles, using funds advanced by the two States or derived from sale of its bonds. It operates an interstate bus line over one of the bridges and a terminal for interchange of freight between trucks and railroads. It collects tolls for use of the bridges and tunnels, and derives income from operation of the bus line and terminal building, but has no stock or

Page 304 U. S. 406

stockholders and is owned by no private persons or corporations. Its projects are said to be operated in behalf of the two States and in the interests of the public, and none of its profits enure to the benefit of private persons. Its property and the bonds and other securities issued by it are exempt by statute from state taxation. A resolution of Congress consenting to the Authority's comprehensive plan of port improvement declares that its activities will promote and facilitate interstate and foreign commerce, provide better and cheaper transportation, and aid in providing better postal, military, and other services of value to the Nation. Statutes of the two States declare that, in the construction, maintenance, and operation of the bridges and tunnels, it shall be regarded as performing a governmental function and shall be required to pay no taxes or assessments upon any of the property therein acquired by it.

Held:

(1) The salaries of a construction engineer and two assistant general managers, employees of the Port Authority, are taxable by the Federal Government. Pp. 304 U. S. 408, 304 U. S. 424.

These employees each took an oath of office. Neither the compact nor any state statute appears to have created an office or prescribed an oath or defined the function of such employees. Their occupations are not shown to be different in methods or duties from similar employments in private industry. A nondiscriminatory tax laid on their net income, in common with that of all other members of the community, could by no reasonable probability be considered to preclude the performance of the function which New York and New Jersey have undertaken, or to obstruct it more than like private enterprises are obstructed by taxation. Even though, to some unascertainable extent, the tax deprives the States of the advantage of paying less than the standard rate for the services which they engage, it does not curtail any of those functions which have been thought hitherto to be essential to their continued existence as States. The effect of the immunity, if allowed, would be to relieve the taxpayers of their duty of financial support to the National Government in order to secure to the State a theoretical advantage so speculative in its character and measurement as to be unsubstantial. Pp. 304 U. S. 410 et seq.

(2) The Court expresses no opinion as to whether a federal tax may be imposed upon the Port Authority itself with respect to its receipt of income or its other activities. P. 304 U. S. 424.

4. Brush v. Commissioner, 300 U. S. 352, is limited to the decision that the function of the State in connection with which the taxpayer

Page 304 U. S. 407

received the salary taxed was essentially governmental in character; the question whether the burden resulting to the State from the tax on his salary was so indirect or conjectural as to be but an incident of the coexistence of the two governments, and therefore not within the constitutional immunity, was not considered. Pp. 304 U. S. 422-423.

5. The applicable provisions of § 116 of the Revenue Act of 1932 do not authorize exclusion from gross income of the salaries of employees of a State or state-owned corporation. P. 304 U. S. 423.

6. Employees of the Port Authority of New York are not employees of the State or of a political subdivision of it within the meaning of Treasury Regulations 77, Art. 643, under the Revenue Act of 1932. P. 304 U. S. 423.

92 F.2d 999 reversed.

Certiorari, 303 U.S. 630, to review judgments of the Circuit Court of Appeals sustaining decisions of the Board of Tax Appeals holding the salaries of the present respondents immune from federal taxation.

Page 304 U. S. 408



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