1. Salaries of employees or officials of federal
instrumentalities are not immune under the Federal Constitution
from taxation by the States.
Graves . New York ex rel. O'Keefe,
ante, p.
306 U. S. 466. P.
306 U. S.
515.
2. The judgment of the Supreme Court of Utah holding the
salaries of an attorney for the Reconstruction Finance Corporation
and the Regional Agricultural Credit Corporation, both federal
agencies, exempt from state taxation does not rest squarely upon
the exemption in the Utah income tax law of salaries received from
the United States "for services rendered in connection with the
exercise of an essential governmental function," but appears also
to have been actuated by the doctrine that state taxation of such
salaries is forbidden by the Federal Constitution. P.
306 U. S.
513.
3. In view of the overruling of that doctrine by
Graves v.
O'Keefe, this Court vacates the judgment of the Supreme Court
of Utah and remands the case to that court, in order that it may
determine whether the salaries in question are exempted by the
state statute, purely as a question of local law. P.
306 U. S.
515.
95 Utah 43, 79 P.2d 6, vacated.
Certiorari,
305 U. S. 59, to
review a judgment sustaining a claim of exemption from state income
taxation, on appeal from a ruling of the above-named Tax
Commission.
Page 306 U. S. 512
MR. JUSTICE BLACK delivered the opinion of the Court.
The Utah's income tax law, effective in 1935, exempts all
"Amounts received as compensation, salaries or wages from the
United States . . . for services rendered in connection with the
exercise of
an essential governmental function. [
Footnote 1]"
(Italics supplied.) In his return of income taxes to the State
for 1935 under this law, respondent claimed "as deduction" and "as
exempt"
Page 306 U. S. 513
salaries paid him as attorney for the Reconstruction Finance
Corporation and the Regional Agricultural Credit Corporation, both
Federal agencies. The exemptions were denied by the Tax Commission
of Utah, but the Utah Supreme Court reversed. [
Footnote 2] Before the Commission and in the
Supreme Court of Utah, respondent asserted first that his salaries
were exempt by the terms of the State statute itself, and second
that they could not be taxed by the State without violating an
immunity granted by the Federal Constitution. In holding
respondent's income not taxable, the Supreme Court of Utah
said:
"We shall have to be content to follow, as we think we must, the
doctrine of the
Graves case [
Rogers v. Graves,
299 U. S.
401], until such time as a different rule is laid down
by the courts, the Congress, or the people through amendment to the
Constitution. [
Footnote 3]"
The
Graves case applied the doctrine that the Federal
Constitution prohibits the application of State income taxes to
salaries derived from Federal instrumentalities. We granted
certiorari in the present case because of the importance of the
principle of Constitutional immunity from State taxation which the
Utah court apparently thought controlled its judgment. [
Footnote 4]
Respondent contends that the Utah Supreme Court's decision
"was based squarely upon the construction of the Utah taxing
statute which was held to omit respondent's salaries as a subject
of taxation, and therefore that decision did not and could not
reach the Federal question, and should not be reviewed."
But that decision cannot be said to rest squarely upon a
construction of the State statute. The Utah court stated that the
question before it was whether respondent's salaries from the
agencies in question were "taxable income for the purpose of
the
Page 306 U. S. 514
state income tax law," and that the answer depended upon whether
these agencies exercised "essential governmental functions." But
the opinion as a whole shows that the court felt constrained to
conclude as it did because of the Federal Constitution and this
Court's prior adjudications of Constitutional immunity. Otherwise,
it is difficult to explain the court's declaration that respondent
could not be taxed under the
"doctrine of the
Graves case
until such time as a
different rule is laid down by the courts, the Congress, or the
people through amendment to the Constitution."
(Italics supplied.) If the court were only incidentally
referring to decisions of this Court in determining the meaning of
the State law, and had concluded therefrom that the statute was
itself intended to grant exemption to respondent, this Court would
have no jurisdiction to review that question. [
Footnote 5] But, if the State court did in fact
intend alternatively to base its decision upon the State statute
and upon an immunity it thought granted by the Constitution as
interpreted by this Court, these two grounds are so interwoven that
we are unable to conclude that the judgment rests upon an
independent interpretation of the State law. [
Footnote 6] Whatever exemptions the Supreme Court
of Utah may find in the terms of this statute, its opinion in the
present case only indicates that "it thought the federal
Constitution [as construed by this Court] required" it to hold
respondent not taxable. [
Footnote
7]
Page 306 U. S. 515
After careful review of this Court's decisions on the question
of intergovernmental immunity, the State court concluded that the
Reconstruction Finance Corporation and the Regional Agricultural
Credit Corporation were "instrumentalities" performing "essential
governmental duties," and that State taxation of respondent's
salaries violated the Federal Constitution as interpreted by the
Graves case. Anticipating that this Court might reexamine
that interpretation and apply a "different test," the State court
said that, "[u]ntil such is done, the states are bound by the
decision of the Supreme Court in
New York ex rel. Rogers v.
Graves, supra."
We have now reexamined and overruled the doctrine of
Rogers
v. Graves in
Graves v. O'Keefe ante, p.
306 U. S. 466.
Salaries of employees or officials of the Federal Government or its
instrumentalities are no longer immune, under the Federal
Constitution, from taxation by the States. Whether the Utah income
tax, by its terms, exempts respondent can now be decided by the
State's highest court apart from any question of Constitutional
immunity, and without the necessity, so far as the Federal
Constitution is concerned, of attempting to divide functions of
government into those which are essential and those which are
nonessential.
"We have frequently held that, in the exercise of our appellate
jurisdiction, we have power not only to correct error in the
judgment under review, but to make such disposition of the case as
justice requires. And, in determining what justice does require,
the Court is bound to consider any change, either in fact or in
law, which has supervened since the judgment was entered. We may
recognize such a change, which may affect the result, by setting
aside the judgment and remanding the case so that the state court
may be free to act. We have said that to do this is not to review,
in any proper sense of the
Page 306 U. S. 516
term, the decision of the state court upon a nonfederal
question, but only to deal appropriately with a matter arising
since its judgment and having a bearing upon the right disposition
of the case. [
Footnote 8]"
Applying this principle, we vacate the judgment of the Supreme
Court of Utah and remand the cause to that court for further
proceedings.
Judgment vacated.
THE CHIEF JUSTICE took no part in the consideration or decision
of this case.
[
Footnote 1]
Revised Stat. of Utah, 1933, 80-14-4, (2)(g).
[
Footnote 2]
9 P.2d 6.
[
Footnote 3]
79 P.2d 14.
[
Footnote 4]
305 U.S. 592.
[
Footnote 5]
Miller;s Executors v. Swann, 150 U.
S. 132,
150 U. S. 136;
Interstate Railway Co. v. Massachusetts, 207 U. S.
79,
207 U. S. 84;
Louisville & Nashville R. Co. v. Western Union Telegraph
Co., 237 U. S. 300,
237 U. S. 302;
cf. Carmichael v. Southern Coal Co., 301 U.
S. 495,
301 U. S.
507.
[
Footnote 6]
Abie State Bank v. Bryan, 282 U.
S. 765,
282 U. S.
773.
[
Footnote 7]
Cf. Red Cross Line v. Atlantic Fruit Co., 264 U.
S. 109,
264 U. S. 120;
Tipton v. Atchison, T. & S.F. Ry. Co., 298 U.
S. 141,
298 U. S.
152-153;
Illinois Cent. R. Co. v. Messina,
240 U. S. 395,
240 U. S.
397.
[
Footnote 8]
Patterson v. Alabama, 294 U. S. 600,
294 U. S.
607.