Petition for Writ of Certiorari — Brush v. Commissioner

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‘INDEX

PAGE

Petition

. Brief in support of petition

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Preliminary statement .

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Opinion

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Questions presented

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Argument

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1. The proper protection of municipalities from

federal interference requires that ‘usual

‘governmental function” be defined prag-

‘matically. Excessive strictness of definition,

should be avoided. The supply of pure water

to a’metropolis is a ‘‘usual governmental

function”? heal pices ©

2. A conflict among the circuits is plainly dis-

COUMAIIG aan a laeehatiasiiiasaiemtiesn ae

3. The rule of decision adopted by the Court

below will create confusion as to the legal

” limits of the taxing power of the Federal Gov-

N ernment and of the States

Conclusion

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Table of Cases Cited.

PAG

Block v. Hirsh, 256 U. S. 135. cael inasoion ienie . 13

Columbus v. Mercantile Trust Co., 218 U. S. 645. 11

Flint v. Stone Tracy Co., 220 U. 8. 107_ ae » Fe

Halsey v. Helvering, 75 F. (2d) 234 Te Kee

Helvering v. Powers, 293 U.S. 214... 2,9, 14

Hoskins v. Commissioner of Internal Revenue, 84 F.

I IIIT ceabiseisachubtneecicdsctopshceaomerbalandalasiepiidddeplatocnanetbiatictananaii 2, 10, 14

Jamestown & Newport Ferry Co. v. Commissioner of

Internal Revenue, 41 F. (2d) 920 _-__. 8, 14

Matter of Board of Water Supply, 211 N. Y.174......._ 12

Matter of City of New York, 234 N. Y. App. Div. 890... 13

Matter of Gillespie, 272 N. Y. 18...._+: EEE 13

Matter of Van Etten v. City of New York, 296 N . ¥.483 12

McGovern v. City of New York, 229 U.S. 363. 12

New Jersey v..New York, 283 U.S. 336__..____.6, 12

New York City v. Pine, 185 U. S. 93.2. 6, 12

People ex rel. Burhans v. City of New York, 198 N. Y.

IEE? - seabhidaasodahanenhinetnndndauhtaahinnbaeesaihdiniiamessasialabanhisigsadabsubethl 12

South Carolina v. United States, 199 U.S. 437__-___ 10

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Supreme Court of the United States

No. - October Term, 1936.

WituiuM Waittock Brusa,

Petitioner,

against

CoMMISSIONER OF INTERNAL REVENUE,

PETITION FOR WRIT OF CERTIORARI TO CIRCUIT

COURT OF APPEALS, SECOND CIRCUIT.

To the Honorable the Supreme Court of the United States:

The petition of William Whitlock Brush, petitioner-ap-

pellant below, respectfully shows:

I. Your petitioner, until lately the Chief Engineer of

the Bureau of Water Supply of the City of New York,

applied to-the Court below for the review of the determina-

tion of the United States Board of Tax Appeals to the

effect that his salary, paid for services rendered in that

capacity in 1931, was subject to a federal income tax.

. Il. The petition to review the determination of the

Beard of Tax Appeals came on for hearing before the Cir-

cuit Court of Appeals for the Second Circuit on April 8,

1936, before Manton, L. Hann and Cuasz, Cir. JJ., and was

argued by counsel; and on July 13, 1936, an opinion was

handed down, per Cuasz, Cir. J., sustaining the. determina-

tion of the Board of Tax Appeals and declaring your peti-

TR ER REST OE ee ae er Te OF ae a TEs eT Bin ene GAA Naina AES A BOL te 2 i

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tioner’s salary as Chief Engineer to the Bureau of Water,

Supply of the City of New York subject to federal income .

taxes. The opinion is reported in 85 F. (2d) 32.

III. Your petitioner submits that the decision below is

in conflict with the decision of the United States Circuit

Court of Appeals for the Fifth Circuit in Hoskins v. Com- .

missioner of Internal Revenue, 84 F. (2d) 627 (1936), and

with the decision of the United States Court of Appeals for

_ the District of Columbia in Halsey v. Helvering, 75 F. (2d)

234 (1934), and that the conflict. should be resolved by this

Court at this time.

&

IV. Your petitioner avers that the Second Circuit’s de-

cision in the instant case -will result in confusion and

uncertainty as to the municipal and State agencies which

may be taxed by the federal government and, correspond-

ingly, which federal agencies may, likewise, be taxed by the

several States.

V. Your petitioner avers that the supply of pure water

to the City of New York, in adequate amounts, is a ‘‘usual :

governmental function’’, and that the claim of the federal

government, upheld by the Court below, that.it may swbject

your petitioner’s salary to federal income taxes, amounts

to an unwarranted and dangerous extension of the doctrine

of Hélvering v. Powers, 293 U. S. 214 (1934), and is other-

wise contrary to law..

Wugrerore, for reasons stated more fully in the an-

& ° wae P ° cote

nexed brief, your petitioner prays that a writ of certiorari

- may be issued out of and under the seal of this Court,

directed to the United States Circuit Court of Appeals

for the Second Circuit, commanding the said. Court to

certify and send to this Court; on a day certain to be

therein designated, a full and complete transcript of. the

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record and all proceedings of the said Circuit Court of

Appeals for the Second Circuit in this cause, being No. 246

on its calendar for the October Term, 1935, to the end that

the case may be reviewed and determined in this Court, as’

provided in Title 28, § 347 of the Code of Laws of the United

States, and that the said final. decree. of the said Circuit

Court of Appeals for the Second Circuit in this cause, and

every part thereof, may be reviewed by this Court, and the |

determination of the said Circuit Court of Appeals for the

Second Circuit, as well as the determination of the United.

States Board of Tax Appeals, which was affirmed by the

said Circuit Court of Appeals for the Second Circuit, may

be reversed and a mandate issued directing the redetermina-

tion of the amount of your petitioner’s income taxes for the

year 1931, as prayed for in your petittoner’s petition to

the said Board of Tax Appeals; and your petitioner prays

for such other and further relief as to this Court shall seem

Just and proper; and your petitioner will ever pray.

Dated: New York, N. Y., October 8, 1936.

Wituiam Wuittock Brusa,

Petitioner.

Boykin C. Wricut,

Cares ©, Par.in,

~ Counsel for Petitioner,

63 Wall Street,

New York, N. Y.

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Supreme Court of the United States

No. - October Term, 1936.

Wituium Wurritocx Brusx

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Petitioner,

agaist

CoMMISSIONER OF INTERNAL REVENUE,

BRIEF IN SUPPORT OF PETITION FOR CERTIORARI.

The City of New York is, with the exception of a negli-

gible area, supplied with water from a system owned and —

operated by the Bureau of Water Supply. Private enter-

prise demonstrated -its inadequacy to the task as far back

as the year 1833. See N. Y. Laws 1833, ch. 36; N. Y. Laws

1834, ch. 256.

Steadily developing over a period of 100 years, the

municipal water supply‘system now represents an outlay

of $480,000,000 (R. 23), and is the result of special statu-

tory powers of eminent domain exercised in counties far

beyond the city limits.t No profit flows from the system’s

operations, the loss fur- the year 1933 being $7,000,000

(R. 33). -

Water is, of.course, supplied to the City itself (e. g., for

fire hydrants, sewage disposal, street cleaning purposes and

public buildings) as well as to private consumers, and the

Bureau’s expenses are apportioned between public service

and private service in the ratio of 25.2% and 74.8% (R. 21).

But petitioner’s entire salary was adjudged taxable.*

*We may suggest to the Court that there are many employees of the

Bureau who give their entire time to the public service functions of the Bureau,

3 g., those who operate the high pressure water system used only to extinguish

res.

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TEER. SM ITT Sete wd Boe RE AE LEAL BSE ERT LE A a he

In asserting that the petitioner had no right to exclude

his salary as such engineer from his taxable income for the

year 1931, the Government wrote him as follows (R. 9):

“Tt is held that the supplying of water by water

plants to the residents of a community constitutes the

discharge of a proprietary function as distinguished

from an essential governmental function, conse-

As

quently the compensation of the officers and em-

ployees of such plants is subject to Federal Income

Tax:.’’ -(Italies ours.)

an ethployee (chief engineer) of the Bureau of Water

Supply, the body charged with the operation of the system,

the petitioner has duties which the Court below described

_as follows (R. 44-45) :

‘During 1931, the petitioner was regularly em-

ployed, as he had been previously for many years, by

the city of New York as the engineer in charge of its

Bureau of Water Supply. This was a statutory of-

fice for which he had duly qualified. He was paid a

fixed salary and was charged in general with the re-

sponsibility for supervising the maintenance of an

adequate supply of pure and wholesome water for

the city of New York and its inhabitants. The water

for public and private use in that city for the most

part, though not wholly, comes from an enormous

system owned by the city which has cost about half

a billion dollars and which must be still further en-

larged to meet the ever growing demands upon it.

Petitioner’ s duties require him to make surveys, plans

_and reports relative to improvements and enlarge-

ments of the system as well as to maintain,in good

condition the reservoirs, mains and equipment al-

ready possessed.”’ —

This Court need not go beyond its own records for proof of this. See

New York City v. Pine, 185 U. S. 93 (1902) ; McGovern v. City of New York,

229 U. S. 363 (1913) ; New Jersey v. New York, 283 U. S. 336 (1931).

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We digress for a moment to point out that the salary

of a taxpayer with practically identical duties was held

exempt in Halsey v. Helvering, 75 F. (2d) 234 (U.S. Ct. of

Appeals for the Dist. of Columbia, 1934). The Court’s

statement of the duties of the taxpayer (an engineer em-

ployed by two New Jersey towns) in the latter case illus-

trates the conflict between the two appellate. Courts. They |

said (p. 235): A

“* * * the official duty of the taxpayer as township

-engineer was to advise the town government in all

engineering matters, specifically including the con-

struction, maintenance, and alteration of streets and

ways, sewers, waterworks, and lighting systems; to

prepare plans and specifications for such works; to

advertise for bids; and to maintain custody of the

plans, maps, and documents thereof, keeping them

up to date by appropriate entries or new papers

- Showing changes and alterations.” (Italics ours.)

Opinion Below.

In delivering the opinion of the Cireuit Court of Ap-

peals, Judge Cuasr, after summarizing the facts, and the

argumeiits put forward by petitioner, and after acknowl-

edging the magnitude of the undertaking, said (R. 46):

““* * * but it is not equally clear that private enter-

prise adequately encouraged could not do it as well.

To say that it could not-in the light of common know!l-

edge as to modern private achievement in business

on a vast scale would seem to deny probability. In

any event such an assertion is not adequately sup-

ported by evidence in this record.”’

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He then went on to state that while water was indispensible

to the inhabitants, the conduct of a municipal water supply

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system is not ‘‘an activity necessary to its [the City’s]

existence as a government.’’ He added (R. 47-48) :

‘On the contrary, due regard mmust be had to dis-

tinguish between those activities which, though

impressed with a public interest and sometimes, even

often, performed by government are nevertheless

.done in a proprietary capacity in supplying to the

public for a direct charge what it could, and otherwise

would, procure ‘from private sources and those

services which have become the usual activities of

government because purely governmental power is

in some degree essential to their performance.’’

Questions Presented. ©

Upon the record as outlined above, the petitioner main-

tains that the following questions of law arise for the

determination of this Court:

1. The supplying of water to Greater New York for use

by the City itself and its inhabitants being an under-

taking which cannot be either competently or safely

left to private enterprise and having been conducted

by the Government for over a century, should not the

salary of a municipal employee serving as engineer

to the Bureau of Water Supply be exempt from federal

income taxes?

2. In order to receive immunity, must the activity of

the municipality be ‘‘necessary to its existence as a

government’’ (R. 47), or is it sufficient that the activ-

ity is ‘‘essential to the normal life of the commun-

ity’’? Jamestown etc. Co. v. Commissioner, 41 F.

(2d) 920 (1st Cire., 1930), and other cases post, p. 15.

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ARGUMENT.

1. The proper protection of municipalities from fed-

eral interference requires that “usual govern-

mental function” be defined pragmatically. Ex-

cessive strictness of definition should be avoided.

The supply of pure water to a metropolis is a

“usual governmental function’. ;

It will be recalled that in Helvering v. Powers, 293 U.S.

214, 225 (1934), the States(were admonished that they

could not

‘‘withdraw sources of revenue from the federal tax-

ing power by engaging in businésses which consti-

tute a departure from usual governmental functions

and to which, by reason of their nature, the federal

taxing power would normally extend.’’ (Italics

ours.)

The substitution of ‘‘usual governmental functions’’

for the formerly prevalent phrase ‘essential governmental

functions’’ is one of the most noteworthy features of the

Powers case.* Yet the Court below seems to have over-

looked the change, and to have confined the privilege of city

employees against the federal taxation of their salaries to

employees engaged in functions the suspension of which

would suspend government itself. Governments in the

world today must carry on activities which are outside of

the meaning of the verb ‘‘to govern”. Governments cannot

rest content with the issuance of commands and prohibi-

tions. They must in modern societies purvey services. Of

* The origin of the earlier phrase is traceable to Flint v. Stone Tracy Co.,

220 U. S. 107, 172 (1911). It was devised to accentuate a distinction between

“those operations of the States essential to the execution of its governmental

functions, and which the State can only do itself, and those activities which are

of a private character”.

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10

course we appreciate the wisdom of, the rule in South Caro-

lina v. United States, 199 U.S. 487 (1905), that States can-

not withdraw unlimited areas from the field of federal

' taxation. _ ng ?

Now it is clear that it is ‘‘usual’’ for municipalities to

operate their own waterworks. In the Municipal Index

and Atlas, 1934-35 Edition, a list is given on pages 120-

132 of political units (of 10,000 population) which are

served by waterworks. Out of 969 separate waterworks 779

or 80.39% are municipally owned and operated, and only

190 or 19.61% are privately owned and operated. An exam-

ination of earlier editions of this reference work shows a

steady rise in the percentage of municipally owned and

operated waterworks. Unless we are. to reject facts and

wander along the by-paths of metaphysics and sophistry,

the syllogism would seem complete, and the petitioner’s -

right to tax exemption established.

To sanctify the dictum (for dictum it certainly was) in

Flint v. Stone Tracy Co., 220 U. S. 107, 172 (1911), that it

‘is no part of the essential governmental functions of a

State to providé means of transportation, supply artificial

light, water and the like’’, and to regard the utterance as an

immutable edict comparable to the laws of the Medes and

the Persians, is to close one’s eyes to the eternal processes

of change and development that go on unceasingly in our

political affairs. We know of no principle compelling a

federal court to hold that, even if it be assumed that water

-supply was not generally regarded as a usual governmental

function in 1911, that activity cannot become one by the

gradual unfolding of civic history... On the contrary, in

Hoskins v. Commisstoner of Internal Revenue, 84 F. (2d)

627 (Sth Cire., 1936), the Court took pains to point out that

- in considering whether a given activity (%. e., running a

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_ cafeteria in connection with a public school) was properly

a governmental function and those engaged in it properly

exempt from federal taxation, it should consider actualities

and not be bound by views prevailing in times past.

Even before Flint v. Stone Tracy Co., supra, this Court

had made pronouncement upon the subject of the duty of

municipalities in reference to waterworks in Columbus v.

Mercantile Trust Co., 218 U. 8. 645 (1910), saying (p. 658) :

‘No higher police duty rests upon municipal

authority than that of furnishing an ample supply of

_ pure and wholesome water for public and domestic

uses. The preservation of the health of the com-

munity is best obtained by the discharge of this duty,

to say nothing of the preservation of property from

fire, so constant an attendant upon crowded condi-

tions of municipal life.’’ ,

We submit that the legislature was both right and rea-

sonable, in concluding in 1833 and in adhering to that view

ever since, that supplying water to New York City was an

act ‘‘which the State [or its political subdivisions] can only

do for itself,’’—the phrase used in Flint v. Stone Tracy Co.,

220 U.S. 107, 172 (1911).

While the Court probably intended us to apply a priori

tests to determine whether an activity might be so charac-

terized, nevertheless we submit that the more obvious illus-

trations, which we cite in the margin,* may be supple-

mented by illustrations evolved from a posteriori or experi-

ential tests as well. And we maintain that the case at bar

presents a perfect practical instance of an activity ‘which

the State can only do itself’’:

ba The Governor of a State (or the Mayor of a City), the members of the

legislature, the judiciary and the law-enforcing agencies, are by virtue of their

functions clearly within the group envisaged in the quoted phrases.

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‘The population of Greater New York, as shown by the

1930 census, was 6,930,446. In developing its water sup-

ply system, the City has already spent $480,000,000 (R. 23).

This, as the Court well knows, has involved condemning for

reservoirs and other instrumentalities related to water

supply purposes areas of ground many square miles in

extent, and situated far beyond the city limits: It is more

than questionable whether private capital could have been

assembled in sufficient quantities to carry. on the needed

construction operations. And since, as an incident to these

operations, it has been made the City’s express duty (L.

1905, ch. 724, § 35, as amended by L. 1928, ch. 525, 45) to

build and maintain highways and bridges in the vicinity of

the reservoirs, and to give police protection to neighboring

localities during the period of construction (7bid.), addi-

tional reasons are revealed for not trusting to private

capital to carry out the enterprise.

The wide geographical areas exploited in connection

with the maintenance of a supply adequate to the City’s

expanding needs may be discerned by reference to the fol-

lowing cases:

New York City v. Pine, 185 U. S. 93 (1902),

Byram River, Westchester County;

McGovern v. City of New York, 229 U. 8. 363

(1913), lands in Ulster County;

New Jersey v. New York, 283 U.S. 336 (1931),

headwaters of Delaware River, Delaware, Sul-

livan, Orange and Rockland Counties;

People ex rel. Burhans v. City of New York, 198

N. Y. 439 (1910), lands in Ulster County;

Matter of Board of Water Supply, 211 N. Y. 174

(1914), lands in Ulster County;

Matter of Van Etten v. City of New York, 226

N. Y. 483 (1919), Esopus Creek, Ulster

County ;

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Matter of Gitlespie, 272 N. Y. 18. (1936), Esopus

Creek, Ulster County;

Matter of City of New York (Mohansic Lake),

234 App. Div. 890 (2nd Dept., 1931), lands in

Yorktown, Westchester County.

It was, therefore, quite reasonable for the legislature to -

determine, in its wisdom, that the City should not have to

trust to the dubious efficacy of private capital but should be

empowered to do the acts and complete the enterprise itself.

While the quoted phrase, ‘‘which the State can only do

itself’’, presupposes a fairly absolute standard of possibil-

ity or impossibility, yet a legislative determination that an .

act can only be done by the State should, like any other

“‘declaration by a legislature concerning public conditions

that by necessity and duty it must know,”’ Block v. Hirsh,

256 U. S. 135, 154 (1921), be respected by the Courts, until

shown to be mistaken by a more impressive array of evi-

dence than can be found in the record in the instant case.

We therefore submit that the Court below erred in

cavalierly disregarding the findings of the State legislature

and in concluding—recklessly concluding, we are tempted

to say—that to deny the adequacy of private enterprise to

this stupendous task is “‘to deny probability’? (R. 46). On

the contrary, the Court’s conclusion itself is in utter disre-

gard not only of probability but of actuality, and of a cen-

tury of civic history.

2. A conflict among the circuits is plainly discernible.

The Court below stated in its opinion (R. 49):

‘“‘The petitioner’s work in furtherance of the supply.

of water by the city of New York as above outlined

and for which he has been paid thé salary taxed is

not, in the light of the foregoing considerations, part

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of what his employer has to do to perform its neces- —

sary functions as a political subdivision of the state

of New York. So the salary of the petitioner was

not part of the expense attendant upon the exercise

of what may be said to be usual governmental

powers, Helvering v. Powers supra, or in the doing

of what the states have traditionally engaged.”’

The Second Circuit’s holding in the instant case lim-

iting immunity to what is ‘‘necessary’’ for the City to.do to

maintain its existence as a political subdivision of the State,

and the further emphasis upon tradition, are in sharp con-

. flict with Hoskins v. Commissioner of Internal Revenue,

ante, p. 10, where the Fifth Circuit took’ pains to point out

that in the light of present day conditions, the running of a

cafeteria in connection with a public school was ‘‘now’’ a

proper. governmental activity, entailing as a result the

exemption from federal taxation of the salary of the super-

intendent of the cafeteria. There is also manifest a sharp

contrast with Jamestown & Newport Ferry Co. v. Commis-

sioner of Internal Revenue, 41 F. (2d) 920 (1st Cire., 1930),

holding that the income of a ferry company, of which the

town of Jamestown, R. I., held a majority of the stock, was

' exempt from federal income taxes on the ground, among

others, that the ferry was ‘‘essential to the normal life of

this community’’ (p. 923), a markedly broader and more

liberal test than that of necessity to existence as a political

subdivision, adopted by the Court below.

‘Fhe decision is also ‘in conflict-with Halsey v. Helvering,

ante p. 7, a case where the salary of a township engineer

with duties practically identical with those of the petitioner

was held exempt by the United States Court of Appeals for

the District of Columbia.

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3. The rule of decision adopted by the Court below

will create confusion as to the legal limits of the

taxing power of the Federal Government and of

the States.

The logic of the Second Cireuit’s decision limiting, as it

does, immunity from taxation to functions ‘‘necessary’’ to

existence as a governmental body must inevitably lead to

the conclusion that the Federal Government can tax the

total income received by a municipality from its supply of

water, and income derived by the State or its subdivisions

from canals, waterways, parks, ete.

The decision would seem to lead, correlatively, to a

wide extension of the powers of the State to tax federal

agencies, including among others, the Tennessee Valley

Authority.

Conclusion.

We submit that the case merits.the attention of this

Court because the status for federal tax purposes of mu-

nicipal water supply employees has not yet been passéd

upon by this Court; because the problem, raised by one type

or another of subdie. servant, has given rise to sharp

conflicts among the Circuit Courts of Appeals; because it

is but a short step from taxing this petitioner to taxinig the

municipal enterprise itself; because (in cities of over 10 000

population) there are 779 municipally owned waterworks

in the country whose employees, numbered by the thou-

sands, are affected by the decision below; and because fed-

eral interference with their relations impinges upon vital

points in city government, , the provision of adequate

protection against fire os ‘an of adequate means for

sewage disposal and the cleaning of the streets.

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The Petition ter Certiorari Should be Granted.

October 8, 1936.

- Respectfully submitted,

; . Boykin C. Wricut,

Cuares C. Partin,

4 | Counsel for Petitioner,

F . 63 Wall Street, -

: New York, N. Y.

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