Willcuts v. Bunn, 282 U.S. 216 (1931)

Syllabus

U.S. Supreme Court

Willcuts v. Bunn, 282 U.S. 216 (1931)

Willcuts v. Bunn

No. 22

Argued December 2, 1930

Decided January 5, 1931

282 U.S. 216

Syllabus

1. The profits derived by an investor in municipal bonds from their sale by him at a higher price are taxable as income under the Revenue Act of 1924. P. 282 U. S. 223.

2. Federal taxation of such profits is not unconstitutional as a tax on state instrumentalities. So held where it did not appear that the bonds had been issued at a discount so that the gain derived from their resale could be considered to be in lieu of interest. P. 282 U. S. 224.

3. The power to tax is no less essential to our governmental system than the power to borrow money. To preserve the latter, it is not necessary to cripple the former by exempting subjects which fall within the general application of nondiscriminatory tax laws, where their taxation lays no direct burden upon a governmental instrumentality, and exerts only a remote, if any, influence upon the exercise of the functions of government. P. 282 U. S. 225.

4. In the case of the bonds of a state or its political subdivisions, the subject held to be exempt from federal taxation is the principal and interest of the bonds. Such obligations being contracts of the state or subdivision, a tax upon the amounts payable by their terms has been regarded as bearing directly upon the exercise of the governmental borrowing power. P. 282 U. S. 226.

5. But sales of such bonds by their owners, after they have been issued, are transactions distinct from the governmental contracts in the bonds, and the profits on such sales are in a different category of income from the interest payable on the bonds. P. 282 U. S. 227.

6. Sales of such bonds by those who have invested in them cannot be deemed inseparably connected with the exercise of the borrowing power of the state, so as to make immune from federal taxation the profits of the sales. P. 282 U. S. 228.

7. Before the power of Congress to lay the excise in question can be denied as imposing a burden upon the state's borrowing power, it must be made to appear that the burden is real, not imaginary; substantial, not negligible. Pp. 282 U. S. 230, 282 U. S. 234.

Page 282 U. S. 217

8. The assertion that such taxes operate to burden governmental power to borrow is at variance with uniform and long established practice. The history of income tax legislation is persuasive, if not controlling, upon this question of practical effect. Pp. 282 U. S. 232, 282 U. S. 234.

35 F.2d 29, reversed.

Certiorari, 280 U.S. 551, to review a judgment affirming a recovery by the present respondent in his suit against the Collector for money paid the latter, under protest, as an additional income tax.

Page 282 U. S. 223


Opinions

U.S. Supreme Court

Willcuts v. Bunn, 282 U.S. 216 (1931) Willcuts v. Bunn

No. 22

Argued December 2, 1930

Decided January 5, 1931

282 U.S. 216

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Syllabus

1. The profits derived by an investor in municipal bonds from their sale by him at a higher price are taxable as income under the Revenue Act of 1924. P. 282 U. S. 223.

2. Federal taxation of such profits is not unconstitutional as a tax on state instrumentalities. So held where it did not appear that the bonds had been issued at a discount so that the gain derived from their resale could be considered to be in lieu of interest. P. 282 U. S. 224.

3. The power to tax is no less essential to our governmental system than the power to borrow money. To preserve the latter, it is not necessary to cripple the former by exempting subjects which fall within the general application of nondiscriminatory tax laws, where their taxation lays no direct burden upon a governmental instrumentality, and exerts only a remote, if any, influence upon the exercise of the functions of government. P. 282 U. S. 225.

4. In the case of the bonds of a state or its political subdivisions, the subject held to be exempt from federal taxation is the principal and interest of the bonds. Such obligations being contracts of the state or subdivision, a tax upon the amounts payable by their terms has been regarded as bearing directly upon the exercise of the governmental borrowing power. P. 282 U. S. 226.

5. But sales of such bonds by their owners, after they have been issued, are transactions distinct from the governmental contracts in the bonds, and the profits on such sales are in a different category of income from the interest payable on the bonds. P. 282 U. S. 227.

6. Sales of such bonds by those who have invested in them cannot be deemed inseparably connected with the exercise of the borrowing power of the state, so as to make immune from federal taxation the profits of the sales. P. 282 U. S. 228.

7. Before the power of Congress to lay the excise in question can be denied as imposing a burden upon the state's borrowing power, it must be made to appear that the burden is real, not imaginary; substantial, not negligible. Pp. 282 U. S. 230, 282 U. S. 234.

Page 282 U. S. 217

8. The assertion that such taxes operate to burden governmental power to borrow is at variance with uniform and long established practice. The history of income tax legislation is persuasive, if not controlling, upon this question of practical effect. Pp. 282 U. S. 232, 282 U. S. 234.

35 F.2d 29, reversed.

Certiorari, 280 U.S. 551, to review a judgment affirming a recovery by the present respondent in his suit against the Collector for money paid the latter, under protest, as an additional income tax.

Page 282 U. S. 223

MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.

The respondent, Charles W. Bunn, in the years 1919 and 1920 purchased for cash, as investments, bonds issued by various counties and cities in the State of Minnesota. In January, 1924, he sold these bonds, realizing a net profit of $736.26. Upon this net profit, less a net loss of $41.20 suffered by him on similar bonds held less than two years, the Commissioner of Internal Revenue determined an additional income tax in the amount of $85.44. The plaintiff paid this amount to the Collector under protest, and claimed a refund upon the ground that the tax was illegal because assessed upon income from municipal bonds. The claim was rejected, and this suit was brought against the Collector to recover the money paid.

The complaint, alleging these facts, charged that the Revenue Act of 1924, if thus applied, was unconstitutional and void in that the tax was laid upon the instrumentalities of states. Demurrer to the complaint was overruled by the district court, and, the defendant having declined to plead further, judgment was entered for the plaintiff. The judgment was affirmed by the circuit court of appeals and this Court granted a writ of certiorari.

The Revenue Act of 1924 (c. 234, § 213, 43 Stat. 253, 267, 268, U.S.Code Tit. 26, § 954) clearly authorized the

Page 282 U. S. 224

tax. The Act included in the term "gross income" the grains and profits derived from "sales, or dealings in property, whether real or personal." See Irwin v. Gavit, 268 U. S. 161, 268 U. S. 166. The Act gave an express exemption to "interest upon the obligations of a state, territory, or any political subdivision thereof," but this exemption was not extended to profits realized on the sale of such obligations, and the statement of the Government is not challenged that it has been the uniform practice of the Treasury Department in administering the federal income tax acts in include in taxable income the gain derived from the sale of state and municipal bonds.

The authority of the Congress to lay a tax on the profit realized by an investor from the sale or conversion of capital assets in general is not open to dispute, and is not disputed. That is a matter of governmental policy, and not of constitutional power. [Footnote 1] The question raised here is not because the securities sold were capital assets, but because they were governmental in character.

The question is further limited by the fact that it does not appear that the securities were issued at a discount, so that the gain derived could be considered to be in lieu of interest. Whatever questions might arise in cases of that sort are not now before the court. [Footnote 2] The present case is simply one of profit obtained from purchase and sale, without qualification by any special circumstances.

The well established principle is invoked that a tax upon the instrumentalities of the states is forbidden by

Page 282 U. S. 225

the federal Constitution, the exemption resting upon necessary implication in order effectively to maintain our dual system of government. [Footnote 3] The familiar aphorism is

"that, as the means and instrumentalities employed by the general government to carry into operation the powers granted to it are exempt from taxation by the states, so are those of the states exempt from taxation by the general government."

Ambrosini v. United States, 187 U. S. 1, 187 U. S. 7. And a tax upon the obligations of a state or of its political subdivisions falls within the constitutional prohibition as a tax upon the exercise of the borrowing power of the state. Pollock v. Farmers' Loan & Trust Company, 157 U. S. 429, 157 U. S. 584-586; id., 158 U. S. 158 U.S. 601, 158 U. S. 618; National Life Insurance Company v. United States, 277 U. S. 508, 277 U. S. 521.

The limitation of this principle to its appropriate applications is also important to the successful working of our governmental system. The power to tax is no less essential than the power to borrow money, and, in preserving the latter, it is not necessary to cripple the former by extending the constitutional exemption from taxation to those subjects which fall within the general application of nondiscriminatory laws, and where no direct burden is laid upon the governmental instrumentality, and there is only a remote, if any, influence upon the exercise of the functions of government. This distinction has had abundant illustration. Thus, while the salary of an officer of the state cannot be taxed by the federal government, the compensation paid by a state or a municipality to a

Page 282 U. S. 226

consulting engineer, who is neither an officer nor an employee of government, for work on public projects, may be subjected to a federal income tax. Metcalf & Eddy v. Mitchell, 269 U. S. 514, 269 U. S. 524. No constitutional implications prohibit a nondiscriminatory tax upon the property of an agent of government merely because it is the property of such an agent and used in the conduct of the agent's operations and necessary for the agency, McCulloch v. Maryland, 4 Wheat. 316, 17 U. S. 436; Railroad Co. v. Peniston, 18 Wall. 5, 85 U. S. 33; Central Pacific Railroad Co. v. California, 162 U. S. 91, 162 U. S. 126; Baltimore Shipbuilding Co. v. Baltimore, 195 U. S. 375, 195 U. S. 382; Choctaw, Oklahoma & Gulf Railroad Co. v. Mackey, 256 U. S. 531, 256 U. S. 537. The Congress may tax state banks upon the average amount of their deposits, although deposits of state funds by state officers are included. Manhattan Co. v. Blake, 148 U. S. 412. Both the Congress and the states have the power to tax transfers or successions in case of death, and this power extends to the taxation by a bequests to the United States, and to the taxation by the Congress of bequests to states or their municipalities. United States v. Perkins, 163 U. S. 625; Snyder v. Bettman, 190 U. S. 249, 190 U. S. 253-254.

In the case of the obligations of a state or of its political subdivisions, the subject held to be exempt from federal taxation is the principal and interest of the obligations. Pollock v. Farmers' Loan & Trust Company, supra. These obligations constitute the contract made by the state, or by its political agency pursuant to its authority, and a tax upon the amounts payable by the terms of the contract has therefore been regarded as bearing directly upon the exercise of the borrowing power of the government. In Weston v. Charleston, 2 Pet. 449, 27 U. S. 468-469, where the tax, laid under an ordinance of the city council upon United States stock which had been issued for loans made to the United States, was held invalid, the principle was

Page 282 U. S. 227

thus stated by Chief Justice Marshall:

"The right to tax the contract to any extent, when made, must operate upon the power to borrow, before it is exercised, and have a sensible influence on the contract. The extent of this influence depends on the will of a distinct government; to any extent, however inconsiderable, it is a burden on the operations of government. . . . The tax on government stock is thought by this Court to be a tax on the contract, a tax on the power to borrow money on the credit of the United States, and consequently, to be repugnant to the Constitution."

This language was applied by the Court in Pollock v. Farmers' Loan & Trust Company, supra (157 U.S. at p. 157 U. S. 586), in holding invalid federal taxation "on the interest" from municipal securities.

But it does not follow, because a tax on the interest payable on state and municipal bonds is a tax on the bonds, and therefore forbidden, that the Congress cannot impose a nondiscriminatory excise tax upon the profits derived from the sale of such bonds. The sale of the bonds by their owners, after they have been issued by the state or municipality, is a transaction distinct from the contracts made by the government in the bonds themselves, and the profits on such sales are in a different category of income from that of the interest payable on the bonds. Because the tax in question is described as an "income tax" and the profits on sales are included in "income," the distinction is not lost between the nature of a tax applied to interest and that of a tax applied to gains from sales. The federal income tax acts cover taxes of different sorts. Brushaber v. Union Pacific Railroad Company, 240 U. S. 1, 240 U. S. 17; Stanton v. Baltic Mining Company, 240 U. S. 103, 240 U. S. 114. The tax upon interest is levied upon the return which comes to the owner of the security according to the provisions of the obligation and without any further transaction on his part. The tax falls upon the owner by virtue of the mere fact of ownership, regardless

Page 282 U. S. 228

of use or disposition of the security. The tax upon profits made upon purchases and sales is an excise upon the result of the combination of several factors, including capital investment and, quite generally, some measure of sagacity; the gain may be regarded as "the creation of capital, industry and skill." Tax Commissioner v. Putnam, 227 Mass. 522, 531, 116 N.E. 904, 910.

The tax not being on the obligations of the state or municipality, or on the investment therein, as such, the question is whether the tax must nevertheless be held to be invalid because sales by investors are to be deemed inseparably connected with the exercise of the borrowing power of the state. When the Constitution prohibits states from laying duties on imports, the prohibition not only extends to a tax upon the act of importing, but also to one upon the occupation of the importer or upon the articles imported. A tax on the sale of an article, imported only for sale, is a tax on the article itself. Brown v. Maryland, 12 Wheat. 419, 25 U. S. 444. Similarly, with respect to federal taxation of articles exported from any state, the constitutional inhibition gives immunity to the process of exportation and to the transactions and documents embraced in that process. Fairbank v. United States, 181 U. S. 283; United States v. Hvoslef, 237 U. S. 1; Thames & Mersey Marine Insurance Co. v. United States, 237 U. S. 19. Only on that construction can the constitutional safeguard be maintained. Again, when the United States has assumed duties with respect to Indian lands, a state cannot impose an occupation or privilege tax on operations conducted in or upon such lands by lessees who have been constituted federal instrumentalities for the purpose of discharging the Government's obligation, Choctaw, Oklahoma & Gulf Railroad Co. v. Harrison, 235 U. S. 292, 235 U. S. 298, or upon the leases themselves or capital stock representing them, Indian Territory Illuminating

Page 282 U. S. 229

Oil Co. v. Oklahoma, 240 U. S. 522, 240 U. S. 530, or upon the net income of such a lessee, Gillespie v. Oklahoma, 257 U. S. 501, 257 U. S. 504. See also Jaybird Mining Co. v. Weir, 271 U. S. 609, 271 U. S. 612. [Footnote 4] These cases are not analogous to the one under consideration. If the tax now in question is to be condemned, it must be because of practical consequences, and not because purchases and sales by private owners of state and municipal bonds are a part of the state's action in borrowing money. It would be far-fetched to say that such purchases and sales are instrumentalities of the state. They are not transactions made directly or indirectly in behalf of the state or in the course of the performance of any duty of the state. Sales are merely methods of transferring title to the obligation -- that is, the right to receive performance of the promise of the state or municipality.

That a transfer of government bonds is not inseparably connected with the exercise of the Government's borrowing power so as to make the transfer per se immune from taxation is clearly demonstrated by the decisions upholding nondiscriminatory taxation laid upon the transmission of such securities upon the death of the owner. This Court has decided that a state may lay a transfer tax upon a legacy although it consists entirely of bonds of the United States, Plummer v. Coler, 178 U. S. 115, and that the Congress may tax the transfer of the net assets of a decedent's estate although municipal bonds are included in determining the net value, Greiner v. Lewellyn, 258 U. S. 384. In Plummer v. Coler, supra (p. 178 U. S. 125), the tax of the state was sustained despite the provision of the Act of Congress under which the bonds were issued that they should be exempt "from taxation in any form by or under state, municipal, or local authority." Id., pp. 178 U. S. 134-135;

Page 282 U. S. 230

Act of July 14, 1870, c. 256, § 1, 16 Stat. 272, R.S. § 3701, U.S.Code, Tit. 31, § 742. See also Orr v. Gilman, 183 U. S. 278, 183 U. S. 289; Blodgett v. Silberman, 277 U. S. 1, 277 U. S. 12-13. And in Greiner v. Lewellyn, supra (p. 258 U. S. 387), the Court said that

"the estate tax . . . , like the earlier legacy or succession tax, is a duty or excise, and not a direct, tax like that, on income from municipal bonds. Pollock v. Farmers' Loan & Trust Co., supra. . . . Municipal bonds of a state stand in this respect in no different position from money payable to it. The transfer upon death is taxable whatsoever the character of the property transferred and to whomsoever the transfer is made. It follows that, in determining the amount of decedent's net estate, municipal bonds were properly included."

On similar grounds, as the federal government has power to tax transfers of property by gift inter vivos, Bromley v. McCaughn, 280 U. S. 124, there would seem to be no question of its constitutional authority to include in such taxation gifts of state or municipal securities.

It is urged however, that a federal tax on the profits of sales of such securities should be deemed, as a practical matter, to lay such a burden on the exercise of the state's borrowing power as to make it necessary to deny to the federal government the constitutional authority to impose the tax. No facts as to actual consequences are brought to our attention, either by the record or by argument, showing that the inclusion in the federal tax of profits on sales of state and municipal bonds casts any appreciable burden on the state's borrowing power. We are left to the inadequate guidance of judicial notice. It may be considered to be a matter of common knowledge that the bonds of states and their municipalities are, for the most part, purchased for investment. But while, in the language of the tax act regarding deductions for losses, the purchase of municipal bonds for investment, as in the

Page 282 U. S. 231

case of other investments, may be regarded as "entered into for profit," as distinguished from mere personal use, it may be doubted whether the prospect on the part of the ordinary investor of obtaining profit on the resale of such obligations is so important an element in inducing their acquisition that a federal tax laid on such profits, in common with profits derived from the sales of other property, constitutes any substantial interference with the functions of state governments. While the tax is laid on gains, there is also a deduction for losses on sales, and whether investors in such securities would consider it an advantage if both provisions were eliminated is a matter of mere speculation. It must be remembered that we are dealing not with any express constitutional restriction, but only with an asserted implication. The constitutional provisions authorizing the Congress to lay taxes (Article I, § 8; Sixteenth Amendment) are certainly broad enough to cover the tax in question, and before we can restrict their application upon the ground of a burden cast upon the state's borrowing power, where the tax is not laid upon the contracts made by the state in the exercise of that power, or upon the amounts payable thereunder, but is laid upon the result of distinct transactions by private owners, it must clearly appear that a substantial burden upon the borrowing power of the state would actually be imposed. But we have nothing but assertion and conjecture. The assertion might as easily be made as to the necessity of the complete immunity of such securities from federal taxation in the case of estate taxes, and, if mere conjecture were sufficient as to the possibility of a burden being cast by the tax on the essential authority of the state, it could be as readily entertained in the one case as in the other. Indeed, the existence of the illegal burden might be more easily assumed in the case of the estate tax, where the entire value of the securities, and not merely gains on sales, are taken into the reckoning in determining the amount of the tax.

Page 282 U. S. 232

There is, however, an outstanding fact, more important than any possible conjecture. That fact is found in uniform and long established practice. This practice clearly indicates that neither the federal government nor the states have found a tax on the profits of the sales of their securities to be a burden on their power to borrow money. So far as we are advised, the federal government has not at any time deemed it to be necessary to exempt from taxation the profits realized by owners on the sale of its obligations, with the exception, recently made, of short-term Treasury bills issued on a discount basis and payable without interest. [Footnote 5] Such profits are included in the general

Page 282 U. S. 233

phrase "gains, profits and income" from "sales, or dealings in property," in the Act under consideration. And we understand that, under all federal income tax acts, these or similar words have been construed invariably by the administrative authorities as including profits derived from the sale of state and municipal bonds. The present case appears to be the first in which the tax in this respect has been assailed. No state has ever appeared at the Bar of this Court to complain of this federal tax, and it is not without significance that, in the present instance, the

Page 282 U. S. 234

States of New York and Massachusetts do appear here as amici curiae in defense of the tax. [Footnote 6]

The history of income tax legislation is persuasive, if not controlling, upon the question of practical effect. Plummer v. Coler, supra (pp. 178 U. S. 137-138). Before the power of the Congress to lay the excise tax in question can be denied in the view that it imposes a burden upon the states' borrowing power, it must appear that the burden is real, not imaginary; substantial, not negligible. We find no basis for that conclusion, or any warrant for implying a constitutional restriction to defeat the tax.

Judgment reversed.

[Footnote 1]

Merchants' Loan & Trust Co. v. Smietanka, 255 U. S. 509, 255 U. S. 519-520; Goodrich v. Edwards, 255 U. S. 527; Walsh v. Brewster, 255 U. S. 536.

[Footnote 2]

It appears that the Treasury Department has ruled that, where a municipality originally issues a bond at a discount and redeems it at par, the return represented by the discount is interest in another form, and is not taxable. See O.D. 647, Cumulative Bulletin No. 3, July December, 1920, p. 123; O.D. 737, id., p. 49; O.D. 762, Cumulative Bulletin No. 4, January-June 1921, p. 31.

[Footnote 3]

Collector v. Day, 11 Wall. 113, 78 U. S. 127; United States v. Railroad Company, 17 Wall. 322, 84 U. S. 327; Mercantile Bank v. New York, 121 U. S. 138, 121 U. S. 162; Pollock v. Farmers' Loan & Trust Company, 157 U. S. 429, 157 U. S. 584-586; id., 158 U. S. 158 U.S. 601, 158 U. S. 618; Ambrosini v. United States, 187 U. S. 1; Metcalf & Eddy v. Mitchell, 269 U. S. 514, 269 U. S. 523; National Life Insurance Co. v. United States, 277 U. S. 508, 277 U. S. 521.

[Footnote 4]

Compare McCurdy v. United States, 246 U. S. 263; Shaw v. Gibson-Zahniser Oil Corporation, 276 U. S. 575, 276 U. S. 578-579.

[Footnote 5]

In Gray v. Darlington, 15 Wall. 63, where the question related to the federal tax under the Act of March 2, 1867, 14 Stat. 477, 478, upon the profits on the sale of bonds of the United States, the point of the decision was that the statute applied only to annual "gains, profits and income," and did not extend to the increase in value of the bonds which had taken place in several prior years and was realized in the preceding year. But it was not questioned that annual gains or profits on the sale of government bonds were taxed by the Act. See Hays v. Gauley Mountain Coal Co., 247 U. S. 189, 247 U. S. 191.

In O.D. 729, Cumulative Bulletin No. 3, July December, 1920, pp. 123, 124, the Treasury Department ruled:

"In the case of Treasury certificates of indebtedness which are offered by the Government at par and accrued interest and not at a discount, only the coupon interest can be considered exempt from normal tax, and from surtax to the extent provided by the Act approved September 24, 1917. Where such certificates are subsequently purchased at a discount, the difference between the purchase price and the par value of the certificates received at maturity is profit subject to both normal tax and surtax. The subscriber for Treasury certificates who sells them at a discount sustains a deductible loss, which is the difference between the par value of the certificates and the selling price. Any gain or loss on the sale of Treasury certificates of indebtedness prior to maturity should be determined in accordance with § 202 of the Revenue Act of 1918."

In the 71st Congress, 1st session, an amendment was proposed to § 5 of the Second Liberty Bond Act as amended (40 Stat. 290, as amended U.S.Code, Tit. 31, § 754), providing for the issue of Treasury bills "on a discount basis and payable at maturity without interest" and that (subdivision (b)) all certificates of indebtedness and treasury bills issued thereunder

"both as to principal and interest, and [any gain from the sale or other disposition thereof shall be exempt] from all taxation (except estate or inheritance taxes) now or hereafter imposed by the United States, or by any local taxing authority, and no loss from the sale or other disposition thereof shall be allowed as a deduction, or otherwise recognized, for the purposes of any tax now or hereafter imposed by the United States or any of its possessions."

H.R. 1648, 71st Cong., 1st sess. The committee reports in the Senate and House of Representatives state that the amendment, in relation to both certificates of indebtedness and the new Treasury bills,

"provides that gain from the sale of either shall be tax exempt, with the necessary supplementary provision that any loss shall not be recognized. Inasmuch as these are short-term obligations, any advance in price will, as a practical matter, represent nothing more than interest."

71st Cong., 1st sess., H.R.Rep. No. 13, Sen.Rep. No. 9. The words above italicized were, however, omitted in the Act as passed. Act of June 17, 1929, c. 26, 46 Stat. 19, 20. By act of June 17, 1930 (c. 512, 46 Stat. 775), a similar provision as to tax on profits on sales, but limited to the short-term Treasury bills issued at a discount, was enacted. The committee report in the House of Representatives stated that the reason for this enactment was found in the special nature of such Treasury bills. 71st Cong., 2d sess., H.R.Rep. Nos. 1609 and 1759. Aside from these Treasury bills, the federal tax on profits on sales of federal securities has not been changed.

[Footnote 6]

Undoubtedly each of these states has in view the circumstance that it subjects to its own income taxation the gains derived from the sale of federal securities, and it does not desire, in the absence of an applicable legislative restriction, to be deprived of that source of revenue as a corollary of a decision against the power of the federal government to tax the gains derived from the sale of state securities. The State of New York disavows any claim that "the tax in question has any appreciable tendency to burden its fiscal operations" or those of its municipalities. The Commonwealth of Massachusetts contends that:

"1. The nondiscriminatory taxation of all gains derived from the use of business knowledge and of human ingenuity in dealings in intangible property can have no material effect to impair the ability of a government to issue its bonds and obligations, even if gains from the sale of such bonds are subjected to the tax."

"2. The history of the exemption of state instrumentalities from federal taxation and of the exemption of federal instrumentalities from state taxation reveals that the doctrine of exemption has protected governmental obligations only from taxation of the principal amount of such obligations and of the stated interest upon such obligations."