Avidan v. Commissioner

MAURICE S. AVIDAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Avidan v. Commissioner

Docket No. 87459.

United States Board of Tax Appeals

38 B.T.A. 951 ; 1938 BTA LEXIS 805 ;

October 20, 1938 , Promulgated

*805 Petitioner, a physician, was a part-time employee of the Workmen's Compensation Bureau, a division of the Department of Labor, State of New Jersey, inaugurated by Act of 1911, and amended by Act of 1918, and engaged in the administration of a statute providing compensation for employees injured in industrial pursuits. His salary was paid semimonthly by check upon the state treasury. Held, that his income from such salary was not exempt from taxation by the United States Government under the Revenue Act of 1934.

Samuel I. Bendet, C.P.A., for the petitioner.

J. R. Johnston, Esq., for the respondent.

DISNEY

*951 This proceeding involves income tax for the year u934. Respondent determined a deficiency of $271, all of which is in dispute. The only issue arises by reason of respondent's inclusion in petitioner's income of the sum of $6,175 salary received by petitioner. The facts were largely stipulated, though evidence of petitioner was taken at the hearing. From the stipulation and such evidence, we make the following findings of fact.

FINDINGS OF FACT.

Petitioner is a physician, residing at Newark, New Jersey, where he carries *806 on a general practice as a physician. He maintains an office for such general practice at 30 Stratford Place. In 1917 he was appointed by the Commissioner of Labor of the State of New Jersey, with the confirmation and approval of the statecivil service commission as a medical examiner, and has since that time been such medical examiner. He is classified as a member of the Workmen's Compensation Bureau of the Department of Labor of New Jersey on the official pay roll sheets made out for the Budget Commissioner and the Legislative Appropriation Committee of the State of New Jersey. He works in the Compensation Bureau, which is a part of the state labor department, which was created by an act of the Legislature of New Jersey by the laws of 1918, chapter 144, which amended and supplemented an act approved April 4, 1911. The bureau is charged with the administration of the Workmen's Compensation Law and deals with cases arising from accidental injuries to employees arising out of and in the course of their employment, under the provisions of the above act. In that department he is furnished a room at 1060 Broad Street, Newark, New Jersey, and a secretary. He is required by regulation *807 of the Commissioner of Labor of New Jersey to report at ten o'clock in the morning and finishes at about *952 one o'clock, except in emergencies. He is subject to call at any time by members of the Workmen's Compensation Bureau. His work consists of examining and reporting to the referee of compensation (under the provisions of the New Jersey Workmen's Compensation Law) upon the condition of injured people applying to the bureau for compensation. During 1934 he handled about 5,000 cases. He does not treat the applicants. In the examinations he follows his own judgment as to medicine and surgery.

Petitioner has a civil service status under the laws of New Jersey, and is entitled yearly to two weeks vacation with pay. He bears the title of medical examiner and has a certain district, Essex County. There are six districts in the state. He makes examinations every week day except Saturday; on that day he goes to the office furnished him, to dictate letters, but makes no examinations. His salary in 1934 was $5,400, paid twice a month, by check from the state treasurer, audited by the state comptroller. The amount of his salary does not depend on how much work he does *808 and is not on a fee basis. It is fixed by the Commissioner of Labor of New Jersey with the authority and approval of the state civil service commission, subject to approval of the Legislative Appropriation Committee of New Jersey and final adoption of the budget by the legislature.

After about two o'clock in the afternoon petitioner practices medicine privately, from his own office, keeping his office open until four o'clock and making outside calls, but not working at night. His practice as a general medical practitioner has been much restricted as to extent since he became connected with the Compensation Bureau, but, aside from extent, he carries on his duties as a general practitioner in much the same manner as before. In 1934 he had an assistant, a girl, at his private office. During the taxable year he received from his general practice a gross income of about $5,000, a net of $3,844.

The statute does not provide specifically for the office of medical examiner, but provides that the Workmen's Compensation Bureau shall be composed of the commissioner of labor, three deputy commissioners, and such referees and other employees as may in the judgment of the commissioner *809 of labor be necessary.

The Workmen's Compensation Bureau is maintained entirely by funds payable from the state treasury. Section 1 of chapter 81, Laws of New Jersey of 1923, provides for payments by mutual associations and stock companies writing compensation or employers' liability insurance in New Jersey, and each self-insurer, to the Tax Commission, of a sum equal to 1 percent of the total compensation paid out by such insurer during the preceding year, and provides for the payment of such moneys to the state treasurer by the tax commissioner, for the purpose of carrying out the purposes and provisions of the *953 Workmen's Compensation Law. The law authorizes the Workmen's Compensation Bureau to make such rules and regulations as may be necessary to carry out the purposes of the act.

OPINION.

DISNEY: The question here to be decided is not complex: Is an employee of the Workmen's Compensation Bureau or division of the Department of Labor of the State of New Jersey constitutionally exempt from income tax upon his salary as such employee? The question as to whether petitioner is employee, independent contractor, or officer does not enter here. Not only is there *810 no showing that the petitioner took an oath of office as an officer, but the act creating the Workmen's Compensation Bureau enumerates the officers and does not include therein the position held by petitioner, and it is not to be denied that he comes within the language providing for "other employees as may in the judgment of the Commissioner of Labor be necessary." Without such general provision there would have been no authority for the employment and payment of the petitioner by the Workmen's Compensation Bureau. We, therefore, proceed to consider petitioner as an employee.

In considering this question, it should be kept in mind that any decisions (such as , relied upon by petitioner) based directly or indirectly upon the regulations of the Commissioner of Internal Revenue exempting state officers and employees from Federal income taxation are not applicable herein. A regulation attempting to create an exemption is void. ; affd., ; certiorari denied, *811 . Claim of immunity herein must therefore be based squarely upon the Constitution of the United States and not upon the regulations promulgated by the Commissioner of Internal Revenue. , has made it clear that immunity from taxation under the Constitution under the claim of participation in an essentially governmental function must be based upon participation in a function so essentially governmental as to be indispensable and essential to the continued existence of the state government.

Though recognizing the validity of the statement by Daniel Webster, in arguing , "An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation", epitomized by Chief Justice Marshall as "the power to tax involves the power to destroy", we nevertheless recognize that the power to prevent or be immune from taxation may also involve the power to destroy, when such a power is directed at a sovereign whose lifeblood is taxation. Such effect obviously follows to the same extent *812 *954 as there is broadening of immunity under claim of state governmental function beyond and outside of the vital sovereign powers, protected by the rationale of , involving the salary of a state officer, a probate judge. In the interrelation of the two governments in the Federal-state system adopted by the Constitution there was necessarily in the minds of the framers thereof recognition of the necessity of coordinating the activities of the two governments with a minimum of friction between the two sets of governmental machinery, and reason dictates that there was no contemplation of allowance of immunity from taxation by each other beyond those administrative activities indispensably necessary to the operation of dual governments over a citizenry common to both.

By definition precisely to delimit "delegated powers" or "essential governmental duties" is not possible. Controversies involving these terms must be decided as they arise, upon consideration of all the relevant circumstances. Notwithstanding discordant views which have sometimes arisen because of varying emphasis given to one or another of such circumstances, *813 it is now settled doctrine that the inferred exemption from federal taxation does not extend to every instrumentality which a State may see fit to employ. Exemption depends upon the nature of the undertaking; it is cabined by the reason which underlies the inference. [

Workmen's compensation statutes are in pursuance of a trend toward broadening the activities of the sovereign in a manner which is often referred to as paternalistic. We are not here concerned with the wisdom of such a statute, but look only to the question as to whether it is such an "indispensable function of the state" that a burden is laid upon state sovereignty by the taxation of those individuals engaged in administering it, within the reasoning of Applying that decision, we think the function being performed by the petitioner is not one "essential to the preservation of state government", and therefore come to the conclusion that the administration of the Workmen's Compensation Law of New Jersey is not so essentially an indispensable governmental function as to call for immunity from taxation *814 by the Federal Government of the salary paid to petitioner as an employee engaged therein. This conclusion renders it unnecessary for us to consider the further question suggested as to reality of burden of taxation passed on to the state.

We therefore hold that the respondent did not err in including in petitioner's net income the salary received by him from the State of New Jersey as an employee of the Workmen's Compensation Bureau.

Reviewed by the Board.

Decision will be entered under Rule 50.

OPPER concurs only in the result.