337 Pa. 48 | Pa. | 1940
Opinion by
These appeals present a question of statutory construction. The Unemployment Compensation Law of December 5, 1936 (Second Special Session of 1936), P. L. 2897, which provides for the payment of contributions by employers into the Unemployment Compensation Fund, exempts from its operation (section 4 (j)
Fidelity-Philadelphia Trust Company, a corporation of the State of Pennsylvania and member of the Federal Reserve System, filed a bill in equity to restrain the Secretary of Labor and Industry of the Commonwealth from attempting to enforce the act against it. Several other trust companies in Philadelphia and Pittsburgh, being likewise Pennsylvania corporations and Federal Reserve members, brought similar proceedings. It is their contention that the word “instrumentality” is to be given its general dictionary meaning of a “means,” “medium,” or “agency.” Defendant, on the other hand, maintains, on behalf of the Commonwealth, that the phrase “instrumentality of the United States,” as used in the act, is intended to cover only those federal agencies which the State, by reason of the federal nature of our government, is impliedly prohibited from taxing. The court below dismissed the bills brought by the trust companies and they now appeal.
Although the act provides in form for a payment of “contributions,” such enforced contributions are in reality excise taxes on the right to employ: Carmichael v. Southern Coal & Coke Co.) 301 U. S. 495, 508; Steward Machine Co. v. Davs, 301 U. S. 548, 582, 583.
By the Federal Reserve Act of December 23, 1913, ch. 6, section 9, 38 Stat. 259, 12 U. S. C. A. section 321, a state bank or trust company may, on application, subscribe to the stock of a Federal Reserve Bank and be
The approach to the solution of this question should be made in the light of the well known principle that language which provides exemptions from the general imposition of a tax must be strictly construed: Commonwealth v. Lowry-Rodgers Co., 279 Pa. 361, 366; Commonwealth v. Wark Co., 301 Pa. 150, 153; Sellers’s Estate, 325 Pa. 377, 380.
When there is borne in mind the purpose of the Unemployment Compensation Law, as expressed in Article 1, section 3, thereof, which, as a declaration of public policy, asserts that the general welfare requires the exercise of the police powers of the Commonwealth for the compulsory setting aside of unemployment reserves to be used for the benefit of persons unemployed through no fault of their own, it is practically impossible to believe that the legislature intended to exempt banks and trust companies from the operation of the act except in so far as it was constitutionally compelled to do so. The employes of state banks and trust companies which are members of the Federal Reserve System are subject to the same risk of unemployment as other workers, are just as dependent upon their wages for the necessities of life and just as likely, when unemployed, to become charges upon the state and to suffer all the other ills which the Unemployment Compensation Law was designed to alleviate. Therefore, it being admitted that the legislature had the power to impose this tax upon such banks, it would appear to be highly unlikely that their exemption was intended; rather it would seem reasonable to suppose that the exemption was meant to cover only those governmental agencies which were created by the federal government, or are wholly owned by it, or are not operated, at least exclusively, for private profit but are engaged primarily in the performance of some essential governmental function, — a viewpoint which gains force from a state
In the cases which have arisen in the state courts in regard to unemployment compensation laws and similar legislation, it has uniformly been held that the term “instrumentality of the United States” does not have a general but a technical meaning and does not apply to financial institutions which become members of a Federal Home Loan Bank or a Federal Reserve Bank: Capitol Building & Loan Association v. Kansas Commission of Labor and Industry, 148 Kans. 446, 83 Pac. (2d) 106; Unemployment Compensation Commission of North Carolina v. Jefferson Standard Life Insurance Co., 215 N. C. 479, 2 S. E. (2d) 584; Unemployment Compensation Commission of North Carolina v. Wachovia Bank & Trust Co., 215 N. C. 491, 2 S. E. (2d) 592; Western Bank & Trust Co. v. Ohio Unemployment Compensation Commission, Franklin County Court of Appeals, Ohio, opinion filed Oct. 9, 1939. Of course, Congress may employ state corporations as “instrumentalities of the United States” in the broadest sense of that term, (Clallam County v. United States, 263 U. S. 341; Westfall v. United States, 274 U. S. 256, 259), and may make frauds that impair their efficiency crimes (Westfall v. United States, supra; Hiatt v. United States, 4
Apart from what has heretofore been said, there is another aspect of the question which, in our opinion, is conclusive of the issue. There are, no doubt, governmental agencies so intimately connected with the exercise of a power or the performance of an indispensable function of the government that any taxation of them would be such a direct interference as plainly to be beyond the reach of the taxing power of the state:
Appellants ask that, if they are not exempted from the operation of the act, the Commonwealth should at least be restrained, until final adjudication of the present case, from enforcement against them of the penal provisions of section 803 and the provision in section 308 for interest at the rate of one per cent instead of one-half of one per cent a month on unpaid contributions. As far as section 803 is concerned, the penalties there provided for apply only after a conviction in summary proceedings, and as no such proceedings have been instituted this question is academic. In regard to section 308, however, since appellants had reasonable cause to seek an interpretation of the statute, and since their resort to the courts was made in good faith, they are entitled to relief, pendente lite, from an interest charge over and above the rate of six per cent per annum: see Fidelity-Philadelphia Trust Company’s Appeal, 337 Pa. 34. An interest rate of one per cent per month must be regarded as so disproportionate to the actual detriment resulting to the Commonwealth from its failure to receive the contributions when due as to be penal in nature rather than compensatory. While, of course, it is permissible for the State to prescribe such an interest charge in case of default after the proper interpretation of the act has been judicially established, harsh penalties or unusual interest rates cannot be imposed, pending litigation intended to test the construction or validity of an act, so as to deter or intimidate parties affected thereby from resorting to the courts for that purpose: Ex parte Young, 209 U. S. 123, 147; Wadley Southern Ry. Co. v. Georgia, 235 U. S. 651, 662, 663; Pacific Mail S. S. Co. v. Schmidt, 241 U. S. 245, 250; Oklahoma Operating Co. v. Love, 252 U. S.
The decrees are affirmed; costs to be paid by appellants.
"We are not impressed by the argument that because the Commissioner of Internal Revenue had made a ruling that the phrase “instrumentality of the United States” included state member banks of the Federal Reserve System, the legislature of Pennsylvania, in subsequently enacting the Unemployment Compensation Law, must have intended the phrase to have the meaning ascribed to it by the Commissioner. The latter is an administrative officer and not a judicial tribunal, and therefore the principle of statutory construction sought to be invoked does not apply: see Public Service Ry. Co. v. Board of Public Utility Commissioners, 81 N. J. L. 363, 80 Atl. 27; People’s Gas Light and Coke Co. v. Ames, 359 Ill. 152, 194 N. E. 260; Unemployment Compensation Commission of North Carolina v. Wachovia Bank & Trust Co., 215 N. C. 491, 2 S. E. (2d) 592.
National Bank v. Commonwealth, 76 U. S. 353, 362; Thomson v. Pacific Railroad, 76 U. S. 579, 590, 591; Railroad Company v. Peniston, 85 U. S. 5, 30, 36; Farmers’ & Mechanics’ National Bank v. Dearing, 91 U. S. 29, 34; Baltimore Shipbuilding & Dry Dock Co. v. Baltimore, 195 U. S. 375, 382; Fidelity & Deposit Co. of Maryland v. Pennsylvania, 240 U. S. 319, 323; Metcalf & Eddy v. Mitchell, 269 U. S. 514, 523, 524; Educational Films Corporation v. Ward, 282 U. S. 379, 391, 392; Alward v. Johnson, 282 U. S. 509, 514; Susquehanna Power Co. v. State Tax Commission of Maryland, 283 U. S. 291, 294; Fox Film Corporation v. Doyal, 286 U. S. 123, 128; Broad River Power Co. v. Query, 288 U. S. 178, 180; Federal Compress & Warehouse Co. v. McLean, 291 U. S. 17, 23; James v. Dravo Contracting Co., 302 U. S. 134, 156, 157; Helvering v. Gerhardt, 304 U. S. 405, 424; Graves v. People of State of New York, 306 U. S. 466, 487.
For example: National Banks, 12 U. S. C. A. section 548; Federal Deposit Insurance Corporation, 12 U. S. C. A. section 264(p); Federal Reserve Banks, 12 U. S. C. A. section 531; Federal Land Banks and National Farm Loan Associations, 12 U. S. C. A. section 931; Federal Farm Mortgage Corporation, 12 U. S. C. A., section 1020f; Federal Intermediate Credit Banks, 12 U. S. C. A. section 1111; Central Bank for Coöperatives, Production Credit Corporations, Production Credit Associations, and Banks for Cooperatives, 12 U. S. C. A., section 1138c; National Agricultural Credit Corporation, 12 U. S. C. A. section 1261; Federal Home Loan Banks, 12 U. S. C. A. section 1433; Home Owners’ Loan Corporation, 12 U. S. C. A. section 1463(c); Federal Sav
"Whether the amendments of August 10, 1939, to the Federal Security Act subject national banks to state unemployment compensation laws need not presently be discussed.
As of December 31, 1937, but 78 of Pennsylvania’s 390 state banks and trust companies were members of tbe Federal Reserve System.