Opinion
No. 32763.
May 24, 1937. Suggestion of Error Overruled July 1, 1937.
1. TAXATION.
A person claiming exemption from taxation has burden to establish his right clearly, since exemptions from taxation will not be presumed.
2. TAXATION.
A statute granting exemption from taxation is strictly construed (12 U.S.C.A., sec. 931).
3. TAXATION.
The salary of a vice president of a federal land bank is not exempt from state income tax, since federal land banks, though federal instrumentalities, were established primarily to make loans on farm lands, are operated in part for profit, and private investors may own their stock (Laws 1934, chap. 120; 12 U.S.C.A., sec. 931).
4. TAXATION.
The federal and state governments are supreme within their respective spheres, and the Federal Constitution impliedly prohibits either from taxing the governmental instrumentalities of the other, but neither the federal government nor a state can deprive the other of its revenue by engaging in private business.
APPEAL from the chancery court of Hinds county. HON. V.J. STRICKER, Chancellor.
Herbert M. Fant, J.M. Thomas, and E.F. Steiner, all of New Orleans, for appellant.
Under the first paragraph of section 26 of the Federal Farm Loan Act (12 USCA 931) all Federal Land Banks are exempt from taxation except taxation upon real estate.
Even in the absence of this statutory exemption, the Federal Land Banks would have been exempt from all state taxation. The Federal Land Banks are agencies of the United States government (See Federal Land Bank v. Tatum, 164 So. 319, and authorities therein cited) and as such are exempt from state interference "by taxation or otherwise."
McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579.
Inasmuch as the Federal Land Bank of New Orleans is exempt from the state income tax, it is the contention of the appellant that the salary paid him by that bank is likewise exempt.
Rogers v. Graves, 81 L.Ed. 202; Brush v. Commissioner of Internal Revenue, 81 L.Ed. 443.
There can be no question but that under section 26 of the Federal Farm Loan Act, the Federal Land Bank of New Orleans is exempt from state taxation; and the Supreme Court of the United States has held that such an exemption of the employer extends to the salaries of officers and employees. We, therefore, respectfully submit that the salary of the appellant received from the Federal Land Bank of New Orleans during the year 1934 was and is exempt from the Mississippi State Income Tax Law. J.A. Lauderdale, Assistant Attorney-General, for appellee.
The burden of proof to show that he is entitled to exemption from income tax on salary received by him as an employee of the Federal Land Bank is upon the appellant. All doubts and ambiguities are resolved in favor of the State.
Jackson Fertilizer Co. v. Stone, 173 Miss. 183; Tupelo Garment Co. v. State Tax Commission, 178 Miss. ___; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 78 L.Ed. 1348; Chas. Ilfield Co. v. Hernandez, 292 U.S. 69, 78 L.Ed. 1127.
The rule that ambiguities in statutes imposing taxes are to be resolved in favor of taxpayers does not apply. Deductions are allowed only when plainly authorized.
Helvering v. Inter-Mountain Life Ins. Co., 294 U.S. 686, 79 L.Ed. 1227; Chas. Ilfield Co. v. Hernandez, 292 U.S. 62, 78 L.Ed. 1127, 54 S.Ct. 596; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 78 L.Ed. 1348, 54 S.Ct. 788.
The Federal Land Bank possesses characteristics of a private business corporation and is engaged in private business enterprises as well as acting as an agency or instrumentality of the United States government. Before appellant can successfully contend that he is exempt from the income tax levied by the Mississippi statute he must show that the corporation is principally engaged in a governmental function, that it is owned by the Federal government and that the duties of appellant are essential to the performance of governmental functions.
The Federal government cannot withdraw sources of revenue from the state taxing power by engaging in businesses which constitute a departure from usual governmental functions.
Buffington v. Day, 11 Wall. 113, 20 L.Ed. 122; Texas v. White, 7 Wall. 700, 19 L.Ed. 227; Brush v. Commissioner, 81 L.Ed. 443.
We concede that a Federal Land Bank is an instrumentality of the Federal government engaged, in part at least, in the performance of the governmental functions. However, it has been judicially determined by no less authority than the Supreme Court of the United States that such banks were created by Congress for the purpose of and are actually engaged in private business enterprises.
Federal Land Bank of St. Louis v. Priddy, 295 U.S. 229, 79 L.Ed. 1408.
The case of New York ex rel. Rogers v. Graves, 81 L.Ed. 202, is not analogous to the case at bar.
In the case at bar it is not shown that the government owned the stock of the Federal Land Bank or any part thereof. It is not shown that the bank was engaged exclusively or principally in the performance of a governmental function (except by conclusion of pleader).
It is not shown that the duties of the appellant were in any way connected with the bank in the performance of any governmental function.
The exemption granted by 39 Stat. 380, Title 12, U.S.C.A., section 931, is not broad enough to exempt appellant from income tax on salary received by him.
A tax on the salary received by the appellant would not be a tax on the bank nor upon its income.
A state income tax on the salary of appellant would not tax the United States government, or its instrumentalities, and it could not be a burden on same. If the appellant performed services under contract with the bank, he clearly would be liable for income tax. Metcalf v. Mitchell, 269 U.S. 514, 70 L.Ed. 392. Or if he was employed in a private business his salary would be subject to income tax. There would be no discrimination against the Federal government, or its agencies.
Educational Films Corp. v. Ward, 282 U.S. 379, 75 L.Ed. 400.
This is an appeal from a decree of the chancery court of Hinds county. The question involved is whether appellant's salary as vice president of the Federal Land Bank of New Orleans is subject to state income tax, under chapter 120, Laws 1934. Appellant is a resident of the state of Mississippi; holds that position with the Federal Land Bank of New Orleans, and receives an annual salary of $4,590. The chancellor denied the exemption from taxation, and from that decree appellant prosecutes this appeal.
In considering this question, the principle should be kept in mind that exemptions from taxation will not be presumed; the burden is on the claimant to establish clearly his right; the statute is strictly construed against the claim. Jackson Fertilizer Company v. Stone, 173 Miss. 183, 162 So. 170; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 54 S.Ct. 788, 78 L.Ed. 1348; Charles Ilfeld Co. v. Hernandez, 292 U.S. 62, 54 S.Ct. 596, 78 L.Ed. 1127.
The exemption here is claimed upon the ground that the land bank is a federal governmental agency, and for that reason not only its assets but the salaries of its officers are exempt from state taxation. The federal exemption statute, 39 Stat. 380, section 26 (12 U.S.C.A., section 931), is not broad enough in its language to cover the salaries of the bank's officers and employees. It provides, in substance, that every federal land bank and national farm loan association, including the capital and reserve or surplus, and the income derived therefrom shall be "exempt from federal, state, municipal, and local taxation, except taxes upon real estate."
The question is not without difficulty. We have reached the conclusion, however, that the decree of the chancellor was right. The solution, we think, turns upon whether federal land banks are predominantly governmental or private instrumentalities; in other words, whether they were established mainly for private purposes with governmental powers incidental, or the converse. Federal land banks, though federal instrumentalities, possess many of the characteristics of private business corporations. The statute does not contemplate that their stock shall be wholly or even chiefly owned by the government; private investors may own it. Subscription to its stock by the borrowing national farm loan associations is compulsory. Their operations are, in part at least, for a profit. They have the power to enter into contracts, borrow money, receive interest, pay the expenses and commissions of agents, pay dividends on their stock, and they may acquire and dispose of property in their own right. The outstanding purpose in their establishment was to make loans on farm lands. Federal Land Bank of St. Louis v. Priddy, 295 U.S. 229, 55 S.Ct. 705, 79 L.Ed. 1408; Federal Land Bank v. Gaines, 290 U.S. 247, 54 S.Ct. 168, 78 L.Ed. 298.
Under our dual form of government, the Federal Constitution impliedly prohibits either the federal or state governments from taxing the governmental instrumentalities of the other; each is supreme within its sphere. Metcalf Eddy v. Mitchell, 269 U.S. 514, 46 S.Ct. 172, 70 L.Ed. 384; Brush v. Commissioner of Internal Revenue, 57 S.Ct. 495, 81 L.Ed. 443; New York ex rel. Rogers v. Graves, 57 S.Ct. 269, 81 L.Ed. 202. In the Brush Case the court held that salaries and compensation paid to municipal officers of the city of New York, engaged in the performance of the city's governmental functions, were immune from federal taxation, under the principle that neither a state nor the federal government may levy a tax which will burden the governmental activities of the other. That case involved the question of whether the salary of the chief engineer of the bureau of water supply of the city of New York was subject to a federal income tax. The decision was based on the fact that the maintenance of the waterworks system was predominantly for the purpose of fire protection and promoting the public health and convenience. The court held that the fact that a charge was made for water furnished private consumers did not prevent it from being a governmental instrumentality. The Rogers Case involved the question of whether the salary of the general counsel of the Panama Railroad Company was subject to a New York state income tax, of which state he was a resident. The court held that it was not; that the construction, operation, and maintenance of the Panama Canal was within the commerce clause of the Federal Constitution, and the canal was an instrumentality of the federal government, and the operation of the Panama Railroad, the entire capital stock of which was owned by the federal government, was so connected with the Panama Canal as to confer upon the railroad company the character of a federal instrumentality, free from state taxation, notwithstanding the railroad company to a limited extent engaged in private business. But reversing the facts of that case: Had a large part of the stock of the railroad company been privately owned, and had the railroad been operated mainly for private purposes — in other words, had it been predominantly a private enterprise and its governmental activities incidental and intended only in aid of its private business — would the result have been the same? We think not. We are of the opinion that such a condition would bring the railroad within the principle that neither the federal government nor a state can deprive the other of its revenue by engaging in private business.
Affirmed.