Helvering v. Therrell, 303 U.S. 218 (1938)
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Scribd Government DocsHelvering v. Therrell, 303 U.S. 218 (1938)
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Scribd Government Docs303 U.S.
218
58 S.Ct. 539
82 L.Ed. 758
HELVERING, Commissioner of Internal Revenue,
v.
THERRELL and three other cases.*
Nos. 128, 129, 287, 597.
Argued Dec. 17, 1937.
Decided Feb. 28, 1938.
Messrs. Stanley F. Reed, Sol. Gen., and Homer S. Cummings, Atty. Gen.,
for Commissioner of Internal Revenue.
Mr. Harry M. Voorhis, of Orlando, Fla., for respondents Therrell and
Tunnicliffe.
Mr. Bernhard Knollenberg, of New York City, for petitioner McLoughlin.
Mr. John W. Townsend, of Washington, D.C., for respondent Freedman.
Mr. Justice McREYNOLDS delivered the opinion of the Court.
Has the federal government power to tax compensation paid to attorneys and
others out of corporate assets for necessary services rendered about the
liquidation of an insolvent corporation by a state officer proceeding as required
by her statutes?
The opinions below, Therrell v. Com'r of Internal Revenue, 5 Cir., 88 F.2d 869;
Tunnicliffe v. Com'r of Internal Revenue, 5 Cir., 88 F.2d 873; McLoughlin v.
Com'r of Internal Revenue, 2 Cir., 89 F.2d 699; Freedman v. Com'r of Internal
Revenue, 3 Cir., 92 F.2d 150, state the essential factsnot in dispute; make
adequate references to the relevant statutory provisions; and cite numerous
authorities.
3No. 128.
4
Under Florida statutes, Com.Gen.Laws Supp.Fla. 6102, 6105, when a bank
Under Florida statutes, Com.Gen.Laws Supp.Fla. 6102, 6105, when a bank
becomes insolvent, 'The State Comptroller may * * * appoint a liquidator
(subject to dismissal) to take charge of the assets and affairs of such bank * * *
(who,) under the direction and supervision of the Comptroller, shall take
possession of the books, records and assets of every description * * * and in his
name shall sue for and collect all debts, dues and claims belonging to it, and
upon the order of a court of competent jurisdiction may sell or compound all
bad or doubtful debts, and, on a like order, may sell all the real and personal
property * * * and * * * sue for and enforce the individual liability of the
stockholders.' He shall 'pay all money received by him to the State Treasurer to
be held as a special deposit * * * shall also make quarterly reports to or when
called upon, to the Comptroller.' The appointment must follow notice and be
confirmed by the Circuit Court. Liquidation expenses are payable out of the
corporate funds held by the Treasurer. 'The compensation of the liquidator shall
be fixed by the Comptroller, and shall be based upon the amount of work
actually necessary and performed, and shall in no case exceed five per cent. of
the cash collections.'
Respondent Therrell, liquidator for several banks, devoted substantially all his
time to the work. He held no commission from the Governor, took no oath of
office, but was formally appointed by the Comptroller and gave bond. His
compensation, for 1931 and 1932, paid from corporate assets, was assessed by
the Commissioner for federal income taxes. The Board of Tax Appeals
approved; but the Circuit Court of Appeals, Therrell v. Com'r of Internal
Revenue, 5 Cir., 88 F.2d 869, found immunity under the Federal Constitution.
6No. 129.
7
Respondent Tunnicliffe, liquidator of insolvent banks appointed by the
Comptroller of Florida, was assessed for federal income taxes upon the sums
received for services during 1931 and 1932. The Board of Tax Appeals
approved; the Circuit Court of Appeals, Tunnicliffe v. Com'r of Internal
Revenue, 5 Cir., 88 F.2d 873, ruled otherwise upon its opinion in No. 128. Both
causes present the same points.
8No. 287.
9
Petitioner McLoughlin was employed by the Insurance Department of New
York as legal counsel in the Liquidation Bureau and received for services
during 1932, $5,125. This bureau is in charge of a Deputy Superintendent of
Insurance, a civil service employe whose salary is paid by the state. It employs
many persons superintendents, attorneys, bookkeepers, stenographers,
adjusters, accountants, etc.
10
Under the statutes the superintendent may apply to the court for an order to
take over the assets of an insolvent insurance company and liquidate its affairs.
When this issues, the corporate charter is dissolved and the superintendent must
proceed to collect assets, adjust claims, etc. He determined petitioner's
compensation and caused it to be paid from assets of the several companies in
liquidation according to the time devoted to each.
11
The Commissioner assessed this compensation for federal income tax; the
Board of Tax Appeals approved. The Circuit Court of Appeals, McLoughlin v.
Com'r of Internal Revenue, 2 Cir., 89 F.2d 699, affirmed, and definitely held it
was not exempted by the Federal Constitution.
No. 597.
12
13
Freedman, employed as an attorney in Pennsylvania's Department of Justice,
received annual salary of $3,000. The Attorney General has power to appoint
attorneys to represent any department, board or commission of the state and fix
their compensation. The Secretary of Banking has broad powers over banks.
When one becomes unsound, he may, after notice and hearing and with the
Attorney General's consent, take possession and wind up its affairs. All
necessary expenses, including compensation of attorneys, special deputies,
assistants, and others employed about the proceedings, are paid from funds of
the corporation.
14
During 1932 the respondent was assigned for legal work relating to closed
banks and was paid by the Secretary of Banking out of their funds. The
Commissioner assessed the sum so received for federal income tax. The Board
of Tax Appeals approved; the Circuit Court of Appeals, Freedman v. Com'r of
Internal Revenue, 3 Cir., 92 F.2d 150, declared the salary exempt.
15
What limitations does the Federal Constitution impose upon the United States
in respect of taxing instrumentalities and agencies employed by a state and,
conversely, how far does it inhibit the states from taxing instrumentalities and
agencies utilized by the United States, are questions often considered here.
McCulloch v. Maryland, 1819, 4 Wheat. 316, 4 L.Ed. 579; Weston v. City of
Charleston 1829, 2 Pet. 449, 7 L.Ed. 481; Dobbins v. Commissioners of Erie,
16 Pet. 435, 10 L.Ed. 1022; Lane County v. Oregon, 7 Wall. 71, 19 L.Ed. 101;
Veazie Bank v. Fenno, 8 Wall. 533, 556, 19 L.Ed. 482; South Carolina v.
United States, 199 U.S. 437, 457, 26 S.Ct. 110, 115, 50 L.Ed. 261; Metcalf &
Eddy v. Mitchell, 269 U.S. 514, 46 S.Ct. 172, 70 L.Ed. 384; Indian Motocycle
Co. v. United States, 283 U.S. 570, 51 S.Ct. 601, 75 L.Ed. 1277; Burnet v. A.
T. Jergins Trust, 288 U.S. 508, 516, 53 S.Ct. 439, 441, 77 L.Ed. 925; Ohio v.
Helvering, 292 U.S. 360, 368, 54 S.Ct. 725, 726, 78 L.Ed. 1307; Helvering v.
Powers, 293 U.S. 214, 55 S.Ct. 171, 173, 79 L.Ed. 291; New York ex rel.
Rogers v. Graves, 299 U.S. 401, 57 S.Ct. 269, 81 L.Ed. 306; Brush v.
Commissioner, 300 U.S. 352, 57 S.Ct. 495, 81 L.Ed. 691, 108 A.L.R. 1428.
16
The Constitution contemplates a national government free to use its delegated
powers; also state governments capable of exercising their essential reserved
powers; both operate within the same territorial limits; consequently the
Constitution itself, either by word or necessary inference, makes adequate
provision for preventing conflict between them.
17
Among the inferences which derive necessarily from the Constitution are these:
No state may tax appropriate means which the United States may employ for
exercising their delegated powers; the United States may not tax
instrumentalities which a state may employ in the discharge of her essential
governmental dutiesthat is those duties which the framers intended each
member of the Union would assume in order adequately to function under the
form of government guaranteed by the Constitution.
18
By definition precisely to delimit 'delegated powers' or 'essential governmental
duties' is not possible. Controversies involving these terms must be decided as
they arise, upon consideration of all the relevant circumstances.
Notwithstanding discordant views which have sometimes arisen because of
varying emphasis given to one or another of such circumstances, it is now
settled doctrine that the inferred exemption from federal taxation does not
extend to every instrumentality which a state may see fit to employ. Exemption
depends upon the nature of the undertaking; it is cabined by the reason which
underlies the inference.
19
Veazie Bank v. Fenno, supra, sustained a tax laid by the federal government
upon notes issued by state banks, notwithstanding the view entertained by two
Justices that it amounted to 'taxation of the powers and faculties of the State
governments, which are essential to their sovereignty, and to the efficient and
independent management and administration of their internal affairs.'
20
South Carolina v. United States, supra, gave occasion for much consideration
of the federal government's power to tax instrumentalities utilized by a state. It
ruled, against a stout dissent, that although South Carolina had the right to
control the sale of liquors through the dispensary system nevertheless Congress
could tax the dispensers who acted as agents of the state in making sales.
'Looking, therefore, at the Constitution in the light of the conditions
surrounding at the time of its adoption, it is obvious that the framers, in
granting full power over license taxes to the national government, meant that
that power should be complete; and never thought that the states, by extending
their functions, could practically destroy it.'
21
Burnet v. A. T. Jergins Trust, supra, upheld a federal tax upon the receipts by
the lessee of oil lands which belonged to the city of Long Beach, Cal. 'The
subject of the tax is so remote from any governmental function as to render the
effect of the exaction inconsiderable as respects the activities of the city.'
22
In Ohio v. Helvering, supra, we held that the agencies and operations of the
state of Ohio in the conduct of its Department of Liquor Control were subject to
excise taxes prescribed by Congress. 'Whenever a state engages in a business of
a private nature, its exercises nongovernmental functions, and the business,
though conducted by the state, is not immune from the exercise of the power of
taxation which the Constitution vests in the Congress.'
23
Helvering v. Powers, supra, ruled that the compensation of members of the
Board of Trustees of the Boston Elevated Railway Company was subject to the
federal income tax notwithstanding they were appointed by the Governor of the
state, confirmed by the council, and endowed with large powers to regulate and
fix fares, etc. '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.'
24
The cases last referred to strikingly illustrate the outcome of efforts here to
apply the recognized doctrine in respect of taxing state agencies. According to
them and others of like nature due weight, we are unable to conclude that the
Commissioner erred in making any one of the assessments involved in the four
cases presently before us. He gave proper application to the rule which we must
recognize as established. The compensation of the taxpayers was paid from
corporate assetsnot from funds belonging to the state. No one of them was an
officer of the state in the strict sense of that term. The business about which
they were employed was not one utilized by the state in the discharge of her
essential governmental duties. The corporations in liquidation were private
enterprises; their funds were the property of private individuals.
25
It follows that the judgments in Nos. 128, 129, and 597 must be reversed; the
judgment in No. 287 must be affirmed.
26
Mr. Justice CARDOZO and Mr. Justice REED took no part in the
26
