1. Upon a writ of error to the district court based on a
constitutional question, the jurisdiction of this Court is not
limited to that question, but extends to the whole case. P.
269 U. S.
2. A consulting engineer engaged as such by a state or local
subdivision for work not permanent or continuous in character on
public water supply and sewage disposal projects, whose duties are
prescribed by his contract and who takes no oath of office and is
free to accept other, concurrent employment, is neither an officer
nor an employee within the meaning of § 201(a) of the War Revenue
Act of 1917, exempting from income tax the compensation or fees of
officers and employees under any state or local subdivision
thereof. P. 269 U. S.
3. The constitutional limitation forbidding the federal
government and the state to tax each other's agencies must receive
Page 269 U. S. 515
construction permitting each government to function with the
minimum of interference from the other. P. 269 U. S.
4. One who is not an officer or employee of a state does not
establish exemption from federal income tax merely by showing that
his income was received as compensation for service rendered under
contract with the state when it does not appear that the tax
impairs in any substantial manner his ability to discharge his
obligations to the state or the ability of the state or its
subdivisions to procure the services of private individuals to aid
them in their undertakings. P. 269 U. S.
299 F. 812, affirmed.
Error to review a judgment of the district court in a suit
brought against a former collector to recover money paid under
protest as income tax. The judgment allowed some of the items
claimed and rejected others. Both sides sued out writs of error.
That of the collector (No. 376) was not pressed at the argument in
this Court, and was dismissed.
Page 269 U. S. 518
MR. JUSTICE STONE, delivered the opinion of the Court.
Metcalf & Eddy, the plaintiffs below, were consulting
engineers who, either individually or as copartners, were
professionally employed to advise states or subdivisions of states
with reference to proposed water supply and sewage disposal
systems. During 1917, the fees received by them for these services
were paid over to the firm, and became a part of its gross income.
Upon this portion of their net income, they paid, under protest,
the tax assessed on the net income of co-partnerships under the War
Revenue Act of 1917. Act Oct. 3, 1917, c. 63, § 209, 40 Stat. 300,
307. They then brought suit in the United States District Court for
Massachusetts to recover the tax paid on the items in question on
the ground that they were expressly exempted from the tax by the
Act itself, and on the further ground that Congress had no power
under the Constitution to tax the income in question.
The district court found that two of the items were within the
statutory exemption; that the remaining eighteen were not exempt
from taxation, either by the provisions of the statute or under the
Constitution, and entered judgment accordingly. 299 F. 812.
The former collector sued out the writ of error in No. 376 as to
the two items on which a recovery was allowed. In No. 183 the writ
of error is prosecuted by the plaintiffs below as to the remaining
items. Judicial Code, § 238, before amendment of 1925.
As the case comes directly from the district court to this Court
on a constitutional question, the jurisdiction
Page 269 U. S. 519
of this Court is not limited to that question alone, but extends
to the whole case. Horner v. United States, No. 2,
143 U. S. 570
Greene v. Louisville, etc., R. Co., 244 U.
All of the items of income were received by the taxpayers as
compensation for their services as consulting engineers under
contracts with states or municipalities, or water or sewage
districts created by state statute. In each case, the service was
rendered in connection with a particular project for water supply
or sewage disposal, and the compensation was paid in some instances
on an annual basis, in others on a monthly or daily basis, and in
still others on the basis of a gross sum for the whole service.
The War Revenue Act provided for the assessment of a tax on net
income; but § 201(a) (40 Stat. 303) contains a provision for
exemption from the tax as follows:
"This title shall apply to all trades or businesses of whatever
description, whether continuously carried on or not, except --"
"(a) In the case of officers and employees under the United
States, or any state, territory, or the District of Columbia, or
any local subdivision thereof, the compensation or fees received by
them as such officers or employees. . . ."
The court found that the two items of income involved in No. 376
were received by one of the plaintiffs in error as compensation for
his services as the incumbent of an office created by statute -- in
one case as chief engineer of the Kennebec Water District, a
political subdivision of the State of Maine, and in the other as a
member of the Board of Engineers of the North Shore Sanitary
District, a political subdivision of the State of Illinois. The
collector does not press his writ of error in this case, and we
therefore dismiss the writ.
We think it clear that neither of the plaintiffs in error
occupied any official position in any of the undertakings
Page 269 U. S. 520
to which their writ of error in No. 183 relates. They took no
oath of office; they were free to accept any other concurrent
employment; none of their engagements was for work of a permanent
or continuous character; some were of brief duration, and some from
year to year, others for the duration of the particular work
undertaken. Their duties were prescribed by their contracts, and it
does not appear to what extent, if at all, they were defined or
prescribed by statute. We therefore conclude that plaintiffs in
error have failed to sustain the burden cast upon them of
establishing that they were officers of a state or a subdivision of
a state within the exception of § 201(a).
An office is a public station conferred by the appointment of
government. The term embraces the idea of tenure, duration,
emolument, and duties fixed by law. Where an office is created, the
law usually fixes its incidents, including its terms, its duties
and its compensation. United States v.
6 Wall. 385; Hall v. Wisconsin,
103 U. S. 5
term "officer" is one inseparably connected with an office; but
there was no office of sewage or water supply expert or sanitary
engineer, to which either of the plaintiffs was appointed. The
contracts with them, although entered into by authority of law and
prescribing their duties, could not operate to create an office or
give to plaintiffs the status of officers. Hall v. Wisconsin,
supra; Auffmordt v. Hedden, 137 U. S. 310
There were lacking in each instance the essential elements of a
public station, permanent in character, created by law, whose
incidents and duties were prescribed by law. See United States
2 Brock. 96, 102, 103; United States v.
Germaine, 99 U. S. 508
99 U. S.
-512; Adams v. Murphy,
165 F. 304,.
Nor do the facts stated in the bill of exceptions establish that
the plaintiffs were "employees" within the meaning of the statute.
So far as appears, they were in the position of independent
contractors. The record does
Page 269 U. S. 521
not reveal to what extent, if at all, their services were
subject to the direction or control of the public boards or
officers engaging them. In each instance, the performance of their
contract involved the use of judgment and discretion on their part,
and they were required to use their best professional skill to
bring about the desired result. This permitted to them liberty of
action which excludes the idea that control or right of control by
the employer which characterizes the relation of employer and
employee and differentiates the employee or servant from the
independent contractor. Chicago, Rock Island & Pacific Ry.
Co. v. Bond, 240 U. S. 449
240 U. S. 456
Standard Oil Co. v. Anderson, 212 U.
, 212 U. S. 227
And see Casement v. Brown, 148 U.
; Singer Mfg. Co. v. Rahn, 132 U.
, 132 U. S.
We pass to the more difficult question whether Congress had the
constitutional power to impose the tax in question, and this must
be answered by ascertaining whether its effect is such as to bring
it within the purview of those decisions holding that 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 power of the states to tax the
instrumentalities of the federal government. See,
federal taxation on state instrumentalities, Collector
11 Wall. 113; United
States v. Railroad Co.,
17 Wall. 322; Pollock
v. Farmers' Loan & Trust Co., 157 U.
, 157 U. S.
-586; Ambrosini v. United States,
187 U. S. 1
Flint v. Stone Tracy Co., 220 U.
cases holding that the Sixteenth
Amendment did not extend the taxing power to any new class of
subjects, Brushaber v. Union Pacific R. Co., 240 U. S.
; Peck & Co. v. Lowe, 247 U.
, 247 U. S. 172
Eisner v. Macomber, 252 U. S. 189
Evans v. Gore, 253 U. S. 245
253 U. S. 259
And, as to state taxation on federal instrumentalities,
See McCulloch v.
Page 269 U. S. 522
4 Wheat. 316; Dobbins v. Commissioners of
16 Pet. 435; The Banks
v. The Mayor,
7 Wall. 16; Weston v.
City Council of Charleston,
2 Pet. 449,
27 U. S. 467
Farmers' Bank v. Minnesota, 232 U.
; Choctaw, O. & G. R. Co. v.
Harrison, 235 U. S. 292
Indian Oil Co. v. Oklahoma, 240 U.
; Gillespie v. Oklahoma, 257 U.
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. Thus, the employment of
officers who are agents to administer its laws (Collector v.
Day; Dobbins v. Commissioners of Erie County, supra
obligations sold to raise public funds (Weston v. City Council
of Charleston, supra; Pollock v. Farmers' Loan & Trust Co.,
), its investments of public funds in the securities of
private corporations, for public purposes (United States v.
Railroad Co., supra
), surety bonds exacted by it in the
exercise of its police power (Ambrosini v. United States,
), are all so intimately connected with the necessary
functions of government as to fall within the established
exemption, and when the instrumentality is of that character, the
immunity extends not only to the instrumentality itself, but to
income derived from it (Pollock v. Farmers' Loan & Trust
Co., Gillespie v. Oklahoma, supra
), and forbids an occupation
tax imposed on its use (Choctaw, O. & Gulf R. Co. v.
). And see Dobbins v. Commissioners of Erie
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
Page 269 U. S. 523
property is an instrumentality of government within the meaning
of the rule. Thompson v. Pacific
9 Wall. 579; Railroad Co.
18 Wall. 5; Baltimore Shipbuilding
Co. v. Baltimore, 195 U. S. 375
Gromer v. Standard Dredging Co., 224 U.
, 224 U. S. 371
Fidelity & Deposit Co. v. Pennsylvania, 240 U.
; Choctaw, O. & G. R. Co. v. Mackey,
256 U. S. 531
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.
McCulloch v. Maryland, supra; Collector v. Day, supra; Dobbins
v. Commissioners of Erie County, supra.
In a broad sense, the taxing power of either government, even
when exercised in a manner admittedly necessary and proper,
unavoidably has some effect upon the other. The burden of federal
taxation necessarily sets an economic limit to the practical
operation of the taxing power of the states, and
Taxation by either the state or the federal
government affects in some measure the cost of operation of the
But neither government may destroy the other nor curtail in any
substantial manner the exercise of its powers. Hence, the
limitation upon the taxing power of each, so far as it affects the
other, must receive a practical
Page 269 U. S. 524
construction which permits both to function with the minimum of
interference each with the other, and that limitation cannot be so
varied or extended as seriously to impair either the taxing power
of the government imposing the tax (South Carolina v. United
States, 199 U. S. 437
199 U. S. 461
Flint v. Stone Tracy Co., supra,
at 220 U. S. 172
or the appropriate exercise of the functions of the government
affected by it (Railroad Co. v. Peniston, supra,
85 U. S. 31
While it is evident that, in one aspect, the extent of the
exemption must finally depend upon the effect of the tax upon the
functions of the government alleged to be effected by it, still the
nature of the governmental agencies or the mode of their
constitution may not be disregarded in passing on the question of
tax exemption, for it is obvious that an agency may be of such a
character, or so intimately connected with the exercise of a power
of the performance of a duty by the one government, that any
taxation of it by the other would be such a direct interference
with the functions of government itself as to be plainly beyond the
It is on this principle that, as we have see, any taxation by
one government of the salary of an officer of the other, or the
public securities of the other, or an agency created and controlled
by the other, exclusively to enable it to perform a governmental
function (Gillespie v. Oklahoma, supra
) is prohibited. But
here, the tax is imposed on the income of one who is neither an
officer nor an employee of government, and whose only relation to
it is that of contract, under which there is an obligation to
furnish service, for practical purposes not unlike a contract to
sell and deliver a commodity. The tax is imposed without
discrimination upon income whether derived from services rendered
to the state or services rendered to private individuals. In such a
situation, it cannot be said that the tax is imposed upon an agency
of government in any technical sense, and the tax itself cannot be
Page 269 U. S. 525
to be an interference with government or an impairment of the
efficiency of its agencies in any substantial way. Railroad Co.
v. Peniston; Gromer v. Standard Dredging Co.; Baltimore
Shipbuilding Co. v. Baltimore; Fidelity & Deposit Co. v.
Pennsylvania; Choctaw, O. & G. R. Co. v. Mackey,
As was said by this Court in Baltimore Shipbuilding Co. v.
(in holding that a state might tax the
interest of a corporation in a dry dock which the United States had
the right to use under a contract entered into with the
"It seems to us extravagant to say that an independent private
corporation for gain, created by a state, is exempt from state
taxation, either in its corporate person or its property, because
it is employed by the United States, even if the work for which it
is employed is important and takes much of its time."
P. 195 U. S. 382
And as was said in Fidelity & Deposit Co. v. Pennsylvania,
in holding valid a state tax on premiums collected by
bonding insurance companies on surety bonds required by United
"But mere contracts between private corporations and the United
States do not necessarily render the former essential government
agencies and confer freedom from state control."
P. 240 U. S.
These statement we deem to be equally applicable to private
citizens engaged in the general practice of a profession or the
conduct of a business in the course of which they enter into
contracts with government from which they derive a profit. We do
not suggest that there may not be interferences with such a
contract relationship by means other than taxation which are
prohibited. Railroad Co. v. Peniston, supra,
85 U. S. 36
recognizes that there may. Nor are we to be understood as laying
down any rule that taxation might not affect agencies of this
character in such a manner as directly to interfere with the
Page 269 U. S. 526
functions of government, and thus be held to be void. See
Railroad v. Peniston, supra,
at 85 U. S. 36
Farmers' Bank v. Minnesota, supra,
at 232 U. S. 522
Choctaw, O & Gulf Railway Co. v. Harrison, supra,
235 U. S.
But we do decide that one who is not an officer or employee of a
state does not establish exemption from federal income tax merely
by showing that his income was received as compensation for service
rendered under a contract with the state, and when we take the next
step necessary to a complete disposition of the question, and
inquire into the effect of the particular tax, on the functioning
of the state government, we do not find that it impairs in any
substantial manner the ability of plaintiffs in error to discharge
their obligations to the state or the ability of a state or its
subdivisions to procure the services of private individuals to aid
them in their undertakings. Cf. Central Pacific Railroad v.
California, 162 U. S. 91
162 U. S. 126
We therefore conclude that the tax in No. 183 was properly
No. 183, judgment affirmed.
No. 376, writ of error dismissed.