Intergovernmental Taxation Today
| Author | David Fellman |
| DOI | 10.1177/000271624020700105 |
| Published date | 01 January 1940 |
| Date | 01 January 1940 |
| Subject Matter | Articles |
27
Intergovernmental
Taxation
Today
By
DAVID
FELLMAN
ZONE
of
the
important
by-products
of
the
American
federal
system
has
been
the
problem
of
intergovern-
mental
taxation.
The
courts
have
been
wrestling
with
the
problem
ever
since
John
Marshall
ruled
that,
even
in
the
absence
of
any
definite
constitutional
provision,
Maryland
could
not
tax
the
notes
of
the
United
States
Bank,
on
the
general
theory
that
the
states
may
not
interfere
by
taxation
with
the
execution
by
the
National
Government
of
its
valid
powers.’
The
immunity
was
made
re-
ciprocal
some
fifty
years
later
when
state
instrumentalities
were
put
beyond
the
national
taxing
power,
the
Court
pro-
claiming
that
either
way
&dquo;the
exemption
rests
upon
necessary
implication,
and
is
upheld
by
the
great
law
of
self-preserva-
tion.&dquo;
2
The
proposition
that
neither
the
national
nor
the
state
governments
may
tax
each
other’s
instrumentalities
and
employees
grew,
in
the
course
of
litiga-
tion,
into
a
confusing
body
of
legal
prin-
ciples.
Rules
were
announced
in
terms
of
sweeping
absolutes,
only
to
suffer
the
corrosion
of
limitation,
distinction,
ex-
ception,
and
occasional
overruling.
Dur-
ing
the
past
two
years
all
three
branches
of
the
National
Government
have
co-
operated
in
reducing
the
area
of
tax
immunity.
The
law
of
intergovern-
mental
taxation
is
now
beginning
to
square
with
the
necessities
of
legal
logic
and
social
justice.
FEDERAL
TAXATION
OF
STATE
INSTRUMENTALITIES
The
gradual
whittling
down
of
ancient
doctrine
may
be
seen
in
considering
the
cases
dealing
with
the
Federal
taxation
of
state
instrumentalities.
In
Collector
v.
Day
3 the
Court
decided
that
the
Na-
tional
Government
could
not
constitu-
tionally
tax
the
salary
of
a
state
official,
and
in
the
Pollock
case
4
immunity
was
extended
to
the
interest
derived
from
state
and
local
bonds.
The
rule
of
im-
munity,
however,
was
steadily
narrowed
in
scope
in
subsequent
decisions.
One
important
exception
was
developed
where
the
state
engaged
in
nongovern-
mental
or
proprietary
activities.
In
South
Carolina
v.
United
States
5
the
Supreme
Court
held
that
a
state-owned
and
state-operated
liquor
dispensary
sys-
tem
was
taxable,
on
the
theory
that
there
can
be
no
immunity
when
the
state
enters
&dquo;an
ordinary
private
business.&dquo;
Such
functions
as
the
courts,
police,
ad-
ministration
of
the
law,&dquo;
schools,
hos-
pitals
and
parks,7
public
ferries,8
and
water
works
9 were
considered
govern-
mental
in
character.
On
the
other
hand
the
courts
ruled
that
a
state-owned
liq-
uor
business,&dquo;’
college
football
contest,&dquo;
a
public
wharf,12
a
street
railway
sys-
1
McCulloch
v.
Maryland,
4
Wheat.
316
(1819).
2
Collector
v.
Day,
11
Wall.
113,
127
(1870).
3
Ibid.
4
Pollock
v.
Farmers’
Loan
&
Trust
Co.,
157
U.
S.
429,
158
U.
S.
601
(1895).
5
199
U.
S.
437
(1905).
6
Collector
v.
Day,
supra,
note
2;
Indian
Motocycle
Co.
v.
United
States,
283
U.
S.
570
(1931);
Ambrosini
v.
United
States,
187
U.
S.
1
(1922).
7
Hoskins
v.
Comm’r,
84
F.
(2d)
627
(C.
C.
A.
5th,
1936);
Mallory
v.
White,
8
F.
Supp.
989
(D.
C.
Mass.
1934);
Comm’r
v.
Schnack-
enberg,
90
F.
(2d)
175
(C.
C.
A.
7th,
1937).
8
Jamestown
&
Newport
Ferry
Co.
v.
Comm’r,
41
F.
(2d)
920
(C.
C.
A.
1st,
1930).
9
Brush
v.
Comm’r,
300
U.
S.
352
(1937).
10
South
Carolina
v.
United
States,
supra,
note
5;
Ohio
v.
Helvering,
292
U.
S.
360
(1934).
11
Allen
v.
Regents,
304
U.
S.
439
(1938).
12
Galveston
v.
United
States,
10
F.
Supp.
810
(Ct.
Cl.
1935),
cert.
denied,
297
U.
S.
712
(1936).
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