American Constitutional Law: Introductory Essays & Selected Cases

By Alpheus Thomas Mason; William M. Beaney | Go to book overview

Graves v. New York ex rel. O'Keefe

306 U.S. 466, 59 S.Ct. 595, 83 L.Ed. 927 ( 1939)

Graves, an attorney for a federal agency, the Home Owners' Loan Corporation, failed to include his salary in his New York income tax return for 1934 on the theory that a federal instrumentality would be burdened if such a tax were paid. The New York appellate courts held that Graves's salary was free from tax. The New York Tax Commission obtained review on certiorari.

MR. JUSTICE STONE delivered the opinion of the Court. . . .

For the purposes of this case we may assume that the creation of the Home Owners' Loan Corporation was a constitutional exercise of the powers of the federal government. . . . As that government derives its authority wholly from powers delegated to it by the Constitution, its every action within its constitutional power is governmental action, and since Congress is made the sole judge of what powers within the constitutional grant are to be exercised, all activities of government constitutionally authorized by Congress must stand on a parity with respect to their constitutional immunity from taxation. McCulloch v. Maryland. . . . And when the national government lawfully acts through a corporation which it owns and controls, those activities are governmental functions entitled to whatever tax immunity attaches to those functions when carried on by the government itself through its departments. . . .

The single question with which we are now concerned is whether the tax laid by the state upon the salary of respondent, employed by a corporate instrumentality of the federal government, imposes an unconstitutional burden upon that government. The theory of the tax immunity of either government, state or national, and its instrumentalities, from taxation by the other, has been rested upon an implied limitation on the taxing power of each, such as to forestall undue interference, through the exercise of that power, with the governmental activities of the other. That the two types of immunity may not, in all respects, stand on a parity has been recognized from the beginning, McCulloch v. Maryland, . . . and possible differences in application, deriving from differences in the source, nature and extent of the immunity of the governments and their agencies, were pointed out and discussed by this Court in detail during the last term. Helvering v. Gerhardt.* . . .

____________________
*
In Helvering v. Gerhardt, JUSTICE STONE: had written:

In sustaining the immunity from state taxation, the opinion of the Court, (In McCulloch v. Maryland) by Chief Justice Marshall, recognized a clear distinction between the extent of the power of a state to tax national banks and that of the national government to tax state instrumentalities. He was careful to point out not only that the taxing power of the national government is supreme, by reason of the constitutional grant, but that in laying a federal tax on state instrumentalities the people of the states, acting through their representatives, are laying a tax on their own institutions and consequently are subject to political restraints which can be counted on to prevent abuse. State taxation of national instrumentalities is subject to no such re

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