Brophy, Mary E.

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St. John's University School of Law

St. John's Law Review Volume 14 Number 2 Volume 14, April 1940, Number 2 Article 30 August 2013 Public Salary Tax Act of 1939 Mary E. Brophy Follow this and additional works at: https://scholarship.law.stjohns.edu/lawreview Recommended Citation Brophy, Mary E. (1940) "Public Salary Tax Act of 1939," St. John's Law Review: Vol. 14 : No. 2 , Article 30. Available at: https://scholarship.law.stjohns.edu/lawreview/vol14/iss2/30 This Recent Development in New York Law is brought to you for free and open access by the Journals at St. John's Law Scholarship Repository. It has been accepted for inclusion in St. John's Law Review by an authorized editor of St. John's Law Scholarship Repository. For more information, please contact selbyc@stjohns.edu. ST. JOHN'S LAW REVIEW"Appearance in person or by attorney. A party who is offull age may prosecute or defend a civil action in person or byattorney unless he has been judicially declared to be incompe-tent to manage his affairs. If a party has an attorney in theaction he cannot appear to act in person except with the con-sent of the court. Any corporation or voluntary associationmust appear by an attorney-at-law duly licensed to practiceunder the laws of this state." (Italics ours.)Section 280 of the Penal Law was amended by striking therefromthe words "other than itself." The omission of these words from thePenal Law destroys the contention in the Victor & Co. case that theintent of the Legislature was to permit the appearance in person by acorporation by immunizing them from liability.III.Through these amendments, a corporation now has absolutely noright to appear in person, since the so-called "enabling statutes" havebeen amended to exclude definitely corporate bodies, and the immu-nizing section has been amended, striking out the immunity. A cor-poration is now subject to prosecution for practicing law, even if itappears in person.The corporations may see fit to contest Section 236 as beingunconstitutional, on the ground that they are denied equal protectionof the laws under the United States Constitution. By Section 37 ofthe General Business Law the term "person" includes corporations,and the Fourteenth Amendment to the United States Constitutionstates that: " * * * nor shall any state * * * deny to any person withinits jurisdiction the equal protection of the laws." 34 However, a prob-able answer is that corporations are mere creatures of statutes 35 andmay, therefore, be regulated by the state which created them.SEYMOUR C. SIMON.PUBLIC SALARY TAX ACT OF 1939.-Ever since the Federal Gov-ernment has undertaken to combat the evils caused by the greatworld-wide economic depression, the burden of our national debt hasbecome steadily more onerous. The governmental measures taken tobring about a financial recovery, although they are quite different34 3 WILLOUGHBY, THE CONSTITUTION OF THE UNITED STATES (2d ed.1929) 1931 ("The provisions of the Fourteenth Amendment guarantee to indi-viduals and to corporations that they shall not by state law be excluded fromthe enjoyment of privileges which other persons and corporations similarlycircumstanced enjoy, or that they may not have imposed upon them burdenswhich others similarly circumstanced are free from").35 N. Y. STOCK CORP. LAW; N. Y. GEN. CORP. LAW.[ VOL. 14CURRENT LEGISLATIONfrom one another in many respects, all have one attribute in common.They are expensive. Thus, the National Government has had tomake pecuniary outlays. As a consequence Congress has found itnecessary to accumulate funds for the Treasury with greater rapidity.Accordingly, new and different sources of and methods for taxationhave been discovered and devised by the Legislators. One of the newtax laws is aimed at the salaries of governmental and state employees;popularly it is called the Public Salary Tax Act of 1939.That the power of taxing the people and their property is essen-tial to the very existence of government, is a well settled constitu-tional doctrine.1 Moreover, the Sixteenth Amendment provides theFederal Government with the power to tax private incomes.2 How-ever, the determination as to whether such right extends to govern-mental functions, and to the compensation paid its officers and em-ployees engaged in a governmental capacity, has been greatly re-sponsible for a vast amount of litigation. The problem has beenwhether this constitutional power to impose taxes is subject tolimitation.Since the Federal Government is a government by virtue of dele-gated powers granted expressly by the people and contained in theUnited States Constitution,3 it cannot exercise any authority exceptthat expressly or impliedly granted it by the Constitution. There isno express provision in the Constitution prohibiting the Federal Gov-ernment from taxing the instrumentalities of the state nor is thereany such provision in regard to the states taxing instrumentalities ofthe Federal Government. It follows as a necessary corollary thattaxation of the compensation paid to officers and employees of stateand Federal Government, is likewise not expressly prohibited. Suchexemption, if it exists, must rest upon implication.4The application of implied immunity descends from McCullochv. The State of Maryland," decided in 1819, where the State of Mary-land sought to impose a tax upon notes of a bank of the UnitedStates. From this case was derived the doctrine that immunity fromtaxation was essential to the preservation of our dual system of gov-ernment, the independence of each government within its respectivesphere. The doctrine, that "the power to tax involves the power todestroy", 6 brought forth the conviction that the dual system of gov-ernment might disappear if each were permitted to tax the other.71 U. S. CONST. Art. I, § 8, cl. 1 ("The Congress shall have power to lay andcollect taxes * * * ").2 U. S. CoNsT. Amend. XVI ("The Congress shall have the power to layand collect taxes on incomes, from whatever source derived").3 U. S. CoNsT. Preamble; U. S. CoxsT. Art. I, § 1.4 U. S. CONST. Art. I, § 8, cl. 18 ("to make all laws which shall be neces-sary and proper for carrying into execution the foregoing powers").5 4 Wheat. 316 (U. S. 1819).8 McCulloch v. The State of Maryland, 4 Wheat. 316, 431 (U. S. 1819).7 Dobbins v. Commissioner of Erie County, 16 Pet. 435 (U. S. 1842);Collector v. Day, 11 Wall. 113 (U. S. 1870); Waneless Iron Co. v. Commis-1940 ]ST. JOHN'S LAW REVIEWIn 1842, the tax immunity of the governmental employee wasconceived in Dobbins v. Commissioner of Erie County,8 which heldthe income of a federal officer exempt from state tax. Collector v.Day,9 in 1870, held the salary of a state judicial officer exempt fromfederal tax. Both these cases reiterated the doctrine laid down inMcCulloch v. The State of Maryland. From these cases sprang agrowing area of tax immunity '0 because they created another doc-trine, which the Constitution does not state, namely, that the im-munities are correlative. Since the National Government is immunefrom state taxation, therefore the state government must be immunefrom federal taxation.. As the result of fusion of these two hypoth-eses there arose a confusion as to what constituted a governmen-tal function. The courts took cognizance only of essential and usualgovernmental functions, thus narrowing the basis of exemption."Since 1937 there has been evidenced a positive trend away fromtax immunity.12 The old fears, that the dual system of governmentmight disappear if one could tax the other, have been abating.13 Al-though in Canada and Australia, where substantially the same ques-tion of taxation exists, 14 the doctrine of intergovernmental immunitywas at first followed, the Supreme Court of Canada and the HighCourt of Australia eventually rejected the doctrine completely. Sub-sequent decisions of the United States Supreme Court limited the in-terpretation of the doctrine of intergovernmental immunity. No longercan it be thought that the power to tax involves the power to de-sioner of Internal Revenue, 75 F. (2d) 779 (C. C. A. 8th, 1935) ; Commissionerof Internal Revenue v. Modjeski, 75 F. (2d) 468 (C. C. A. 2d, 1935); Halseyv. Helvering, 75 F. (2d) 234 (D. of C. 1934); Helvering v. Powers, 293 U. S.214, 55 Sup. Ct. 171 (1934).8 16 Pet. 435 (U. S. 1842).9 11 Wall. 113 (U. S. 1870).10 Patterson v. Kentucky, 97 U. S. 501 (1877) (wherein it was held thatstates cannot tax United States patents) ; Mercantile Bank v. New York, 121U. S. 138, 7 Sup. Ct. 826 (1887) (exemption of municipal bonds from federaltax); California v. Cent. Pac. R. R., 127 U. S. 1, 8 Sup. Ct. 1073 (1887)(state cannot tax a federal corporate franchise); Indian Motorcycle Co. v.United States, 283 U. S. 570, 51 Sup. Ct. 601 (1931) (sale of motorcycles tomunicipal corporation for use in its police service is not subject to federaltaxation)."I Flint v. Stone Tracy Co., 220 U. S. 107, 31 Sup. Ct. 342 (1911) ; Helver-ing v. Powers, 293 U. S. 214, 55 Sup. Ct. 171 (1934) ; United States v. Cali-fornia, 297 U. S. 175, 56 Sup. Ct. 421 (1936).12 (1939) 17 TEx. L. REv. 452; (1939) 11 RocxY MT. L. Rv. 200; (1939)12 So. CALIF. L. Riv. 417.13 Lewinsohn, Tax Exempt Salaries and Securities: A Re-examination(1937) 23 A. B. A. J. 685.4 B SrrISH NORTH AMERICAN ACT, 30, 31 VIcT. c. 3; COMMONWEALTH OFAUSTRALIA CONSTITUTION AT, 63, 64, VIcT. c. 12. See Bank of Toronto v.Lambe, [1887] 12 A. C. 575; Forbes v. Attorney-General for Manitoba, [1937]35 T. L. R. 211; Amalgamated Society of Engineers v. Adelaide Steamship Co.,[1920[ 28 C. L. R. 129; Webb v. Outtrim, [1907] A. C. 81; Caron v. TheKing, [1924] A. C. 999.[ VOL. 14CURRENT LEGISLATIONstroy; 15 nor that a tax upon net income is a tax on the source of theincome; 16 nor that the economic burden of the tax may be passed onto the Government, the employee of which is taxed.17The gradual trend away from immunity reached its climax inthe latest case to come before the Supreme Court-Graves v. NewYork ex rel. O'Keefe.18 In this case the respondent, a resident ofNew York, and lawyer for the Home Owner's Loan Corporation,sought a refund of the tax paid upon his salary upon the grounds thata wholly owned instrumentality of the United States, the HomeOwner's Loan Corporation, is immune from state taxation, and totax the employee of the Government's corporation would be to imposea burden upon and impair a governmental function. The court heldthat the imposition of such a tax by the State of New York did notplace an unconstitutional burden upon the Federal Government. "Theimmunity sought by the respondent is not ond to be implied from theConstitution because, if allowed it would impose to an inadmissibleextent a restriction on the taxing power which the Constitution hasreserved to the state governments." 19The termination of immunity of the governmental and state em-ployee was consummated by an Act of Congress 20 providing for tax-ation of state employees by the Federal Government and the taxationof federal employees by the state government.2 1 It may be contendedthat such legislation will be sustained as constitutional, 22 since therationale of the doctrine of implied immunity necessary to the pres-ervation of our dual system of government has been destroyed byprevious decisions of the United States Supreme Court.MARY E. BROPHY.15 Western Union Telegraph Co. v. Attorney-General of Massachusetts,125 U. S. 530, 8 Sup. Ct. 961 (1888) ; City of New Brunswick v. United States,276 U. S. 547, 48 Sup. Ct. 371 (1928).26 New York ex rel. Cohn v. Graves, 300 U. S. 308, 57 Sup. Ct. 466 (1937);Hale v. State Board, 302 U. S. 95, 58 Sup. Ct. 102 (1937).17 James v. Dravo Contracting Co., 302 U. S. 134, 58 Sup. Ct. 208 (1937);Helvering v. Mountain Producers Corp., 303 U. S. 376, 58 Sup. Ct. 623 (1938);Helvering v. Gerhardt, 304 U. S. 405, 58 Sup. Ct. 969 (1938) ; Metcalf & Eddyv. Mitchell, 269 U. S. 514, 46 Sup. Ct: 172 (1926); Burnet v. A. T. JerginsTrust, 288 U. S. 508, 53 Sup. Ct. 439 (1933); McLoughlin v. Commissioner,303 U. S. 218, 58 Sup. Ct. 539 (1938).28 306 U. S. 466, 59 Sup. Ct. 595 (1939).19 Graves v. O'Keefe, 306 U. S. 466, 478, 59 Sup. Ct. 595 (1939).20 53 STAT. 574, 26 U. S. C. A. §§ 22, 116, 5 U. S. C. A. § 84a (Supp. 1939).21 "Section 22(a) of the Internal Revenue Code is amended by insertingafter the words 'compensation for personal service' the following: ('includingpersonal service as an officer or employee of a state for any political subdivisionthereof, or any agency or instrumentality of any one or more of the fore-going')."22 53 STAT. 574, 26 U. S. C. A. §§ 22, 116, 5 U. S. C. A. § 84a (Supp.1939); see N. Y. Times, Jan. 26, 1940, p. 19, col. 5.194o0]

Public Salary Tax Act of 1939

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Public Salary Tax Act of 1939

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