*1 Gen., REVE of In- COMMISSIONER OF for petitioner, Commissioner INTERNAL NUE ternal Revenue. et al. v. WHITE’S ESTATE Hawkins, Longfellow, & Delafield No. 395. Jr., Delafield, City (Lewis York L. Appeals, Circuit Circuit. Court Second Mc- Raymond P. City, York Aug. 1944. Nulty, Y., counsel), for of Brooklyn, N. respondents. Jr., Lewis Delafield, L. City, Triborough Bridge amicus curiae. HAND, Before N. AUGUSTUS
CHASE, Judges. Circuit HAND, Judge. AUGUSTUS N. involves deficiencies against income taxes assessed Caroline White, protest. deceased, and under overpaid The Tax Court had held that she $2,308.59 such taxes to the extent for 1939. petition question raised of the Tax determination review the on the bonds is whether interest Court Authority owned Triborough Bridge income tax the decedent were (4) of the Revenue (b) under Section Int.Rev.Code, Act of 26 U.S.C.A. (4). of the Tax Court (b) exempt and overpaid her the decedent for 1938 and In our taxes in Commissioner v. Estate herewith, we sustained filed ruling Court that of the Tax York Au the bonds of the Port New the above statute. under opinion requires us in that Our discussion say anything, as to Sec little, more (b) Revenue Act and tion (4)-l Art. the interest on the to render from income tax Port like the bonds of the Authority in the other case. Triborough Bridge Authority was by Chapter 145 of the created Laws Chapter as amended 3 of York as a “body politic constituting corporation.” By benefit the New Corporation Law, General (4), Consol.Laws ben- corporation corporation organ- efit “a ized partly provement profits enure to the Gen., Clark, Atty. Jr., Asst. Samuel O. states, or to the benefit this or Key, Monarch, Louis and Sewall J. people thereof.” Atty. Chertcoff, Sp. Bernard Assts. *2 provides: by Authority creating The bonds were never The Act the bers. any and the electors of the at state election found, and hereby “It determined City the of the of New authority of clared that creation the any his of state- never included them corporate pur- carrying and the out of its city. Aft- of the indebtedness of the ments of poses respects in all for benefit York, Authority in 1933the organized er the was people of the state City of engineering force of the Bureau wel- improvement and of their health Structure, Plant and which had theretofore fare, their traffic of and increase work, engaged been and in the construction purpose, prosperity, and and ais bridges relating all records part of project and that the is an essential Authority. it transferred to In 1933 system, highway and applied Emergency to the Federal Admin- authority performing will an essential be istrator grant, United Public Works loan and of of governmental function in exercise application granted, and the act, powers by conferred it this ” * * * Administrator, through N.Y.1933, 145, 13, as c. § $9,200,000 a grant made of a loan of N.Y.1937, by amended Laws $35,000,000by purchasing bonds Au- Authority operates two The owns and agreement in that amount under an part a vital of which form September 1, 1933, dated required City the System, Highway New York State and opinion by Authority to furnish an are of the State bond counsel bonds and interest carry York and traffic as intrastate New exempt by would imposed be from all taxes system. They of that constructed the United States under the Constitution or pursuant plans approved by the War by the opin- State of New York. Such an Department nav- are across ion was furnished. igable but, rivers since The bonds involved this single Secretary of War $53,- were issued the amount of right prescribe the tolls. 000,000 and were used in to refund creating law Under state .Au- $35,000,000 bonds issued construct, acquired power by held Corpo- Reconstruction Finance bridges connecting operate maintain and Authority ration. When the its issued York, Boroughs City New three bonds it asked the Commissioner for rul- necessary acquire property, with the ing and by was advised him that consent, ei- name of the exempt terest was from income He tax. condemnation, by purchase or to make ther said a letter to Moses, Robert Chairman employees agents, use of and facili- (dated February 1937), constructing ties and to issue bonds following: bridges. The under which it was statute Triborough believed that “It provided organized also an instrumen- Bridge Authority is fiduciaries, legal be investments for should York, tality City New state taxation other should be York; of the State taxes, than transfer and estate should not by such bonds issued be or state and should be debts of the be, effect, issued payable only out of funds of the power; borrowing of its in the exercise provided also the state would will, there- on such bonds that interest right of to collect alter the income tax.” fore, from Federal necessary to fulfill the terms of the bonds. plainly a subdivision The empowered bridges were built to exercise government state its Tax functions behalf of financed construction from acquired through City the amount Note Fund long- delegate its proceeds right of sales legislation $5,- the toll and maintain powers amount term 162,509. April Mayor Authority is in bridges. essence appointed organized but so Department the three members Authority, who were re- involve the direct not to persons holding for cause. The bonds. Its him moval primary of its bonds as traditional and virtue of the state issued functions imagine organized ex- under which it functions as statute adopted enacting enforcing gen- cept to resolution its mem- those activi eral Under the decisions its Bonds well as laws. character as universally re- ties People garded functions. Graves been so and have O’Keefe, 466, by York ex Revenue. rel. Commissioner of Internal *3 477, 595, 927, 120 A.L.R. 59 S.Ct. 83 L.Ed. 22 Because of the Reve- (b) (4) 1466; Commissioner, Brush 300 v. U.S. ap- nue Act of 1938 and the 352, 372, 495, 691, 81 A. 57 S.Ct. 108 L.Ed. plicable in thereto hav'e 1428; City Bridge Ala L.R. Kansas Co. v. majority of court rendered the interest Cir., 48, Bridge Corp., State 5 59 F.2d bama taxpayer’s from 49; Marohn, 417, 432, Gaynor 268 v. N.Y. we see no to reason discuss the 13; Zimmerman, 198 N.E. Robertson v. whether there is constitutional 52, 740; 65, People ex 268 N.E. 196 prohibition against tax rest our Bridge rel. Buffalo and Erie Fort Public opinion, as we did the case of Commis- 298, 292, Davis, 14 277 N.Y. sioner v. Estate of deceased, solely upon Shamberg, Alexander J. N.E.2d 74. the Au argued whether is In both important of these litigations we a viewed as possible have been afforded all aid by coun- city agency of state, or an sel the Commissioner and for the tax- exemption acting on behalf of payers in which kept briefs have been apply the bonds statute cannot in a most compass reasonable and have said Authority only and not obligations of the everything which we think could have been city. city But if the had continued said on behalf of respective parties. operated thereafter and had Order affirmed. and had collected own bonds for the benefit issued its enterprise instead those of the Authori Judge (dissenting). ty, disputed is not companion As I said in the case of Com- in been free from v. Estate of come tax. While we realize that 998, I go would not to the stake to vindi- emptions legislative grace are matters my position. cate But I think that rea- appropriate and must be found in stat dissenting sons for utes, yet there is a limit to technical cogent, apply here with greater somewhat exemption even an stat force; pretense there can be even less exemption ute. The for the here has been vested course to free the states the bur from any significant part with “sovereign den of income taxes on investments power of the State.” Bridge Author- enterprises welfare. ity is engaged in a business of a kind make no difference whether the or which, while often gov- conducted ego its alter liable. either case the ernments, has also often been conducted governmental burden would be ac a privately-owned ; utility companies tivity griev and that is the substance of the think, therefore, it cannot be said ance both and of tax Authority’s that the “strictly activities are payer. The motives induced the cre governmental” (or are what public corporation operate the ation a “primary functions”) call bridges, leaving instead of them of South doctrine Carolina v. literally city, managed by 26 199 S.Ct. United U.S. 50 is, municipal which the form 261, Ann.Cas.737, Flint v. L.Ed. Stone exercised, were to be seems activities Tracy Co., quite court immaterial. 1912B, 55 L.Ed. Ann.Cas. S.Ct. paid moneys 1312—which were authoritative when Con- first enacted gress what now § organic law, the title lands 22(b) within the doctrine later —or city and, after the (if Court decisions are rele- full, prop all its here, doubt).1 vant rights pass erties and to and become vested distinguish To contending between one would think of such No agency regard an privately-owned on the bonds of to the ex emption purely operating company, us technical. much-needed length discussed cases cited at case. prevented city’s precautions city, is law. The bridge under a franchise “alter becoming the (a) tax-exempt ground it; entire ego,” my colleagues call delegated or the preclude plan avowedly designed activi- “traditionally exactly Authority is alter-egoism, ty” became thereby “double,” “counterpart” or not the “political of the state subdivision” Accordingly, self.”2 “second company, issuing did that the state; agree distinguish between such that “to so “on or the behalf of” the city” “purely technical.” agency up, contention would not stand marked seems to me Such distinction spite company vicariously the fact that the importance so to when a court is asked performs a “the “state” function for grant an ambiguous construe statute as to *4 position My colleagues’ welfare.” then, must, essentially rest As, financial investment my dissent have patently, purchase by some February letter case discussed the stock of such a company Commissioner 1937 from not render the on interest its bonds shown there thority’s Chairman. tax, mune from federal the rationale of that, decisions under the that majority opinion here the the not issued letter, because Court, such-a when the that, investment is such Treasury, Secretary of paid, be sole regula Treasury as no such property. My colleagues thus owner of the express tion, light especially in If a hold in effect as follows: years many published for warning, public utility com- owns rul Bulletins, that such Internal Revenue operates bridge, toll and even of the force ings “have none company’s principal as Depart not do commit Decisions interest, payable exclusively out of the law”; ment to cbmpany’s earnings (the bondholders hav- which, a series letter was that this ing company’s property, no lien on the years, period the Com over a of several distinguished earnings, from its and there po varying and inconsistent took being city), taxability concerning the sitions to its Authorities; and that on bonds bondholders is not a of their in- that nothing indicates the attention of Con come to the federal income tax. brought to this letter or similar gress was grounds set forth in detail my Sham- pretend Respondents not even letters. dissent, berg think neither Con- purchased her bonds decedent their knowledge stitution, Act, nor the reg- Revenue nor the on, of, or in reliance with letter. For justifies ulation, such a conclusion. estoppel. no basis for an affords It my that, reasons stated true, colleagues say, It is un- in er think Act, the interest would der the this char they say that “bonds of ror when “had issued its bonds the—if always been enterprise.” acter But for the benefit ** Even empt city did do. precisely what the not Court, of this deciding favor when had, because, Tax pains if it do so took spoke “ambiguity of nu taxpayer, would have been its expressions.” administratrive merous imposed by state the debt limitation berg I have called attention to the frequently “al- Courts words use February 1940 the bankers ego” fact parent when hold ter pany $50,000,- who sold issue torts of the debts or liable for Tri-Borough Bridge Authority subsidiary. prospective investors generally recognized bonds warned “tech- usually pejorative been advised counsel the bankers had used but a nical” interest on it was not clear that reached on a conclusion defend from federal the bonds was grounds. warnings lawyer wag similar that a has said published wins, in 1939 and 1940 bankers loses, “tech- a ease never selling nicality.” of bonds of oth- substantial blocks dissenting opinion er such Authorities. Sham-