Senator REVERCOMB. That will be entirely satisfactory to me to read the brief that you have there.

Senator MCFARLAND. You may put it in the record.

Mr. O'HARA. Yes; I should like to, if I may, insert in the record, commencing on page 19 of the House hearings, the memorandum on what was then H. R. 2203, which was similar to the present bill. Senator REVERCOMB. I may say that the case in particular to which I called your attention, or any other case, would not, so far as I can see it, prevent the Congress from enacting legislation of this kind and declaring the policy of the Congress even though it be contrary to the decisions of the court.

Mr. O'HARA. That is exactly my position, I will say to the Senator. Senator REVERCOMB. It is purely a question of the policy of taxation, it is not a constitutional question?

Senator MCFARLAND. Without objection, the brief mentioned by the Congressman may be printed in the record.

(The matter referred to is as follows:)

MEMORANDUM RE H. R. 2203, A BILL TO AMEND THE JUDICIAL CODE IN RESPECT TO THE ORIGINAL JURISDICTION OF THE DISTRICT COURTS OF THE UNITED STATES IN CERTAIN CASES, AND FOR OTHER PURPOSES. [H. R. 2203 IS NOW H. R. 3592]

I. THE WRONG TO BE REMEDIED

The purpose of this bill is to protect employees of the United States from the exaction of a triple tax upon their compensation. It is not contended that employees of the United States should be immune from paying their just share in the expense of State governments, but it is contended that they should not be required to pay an income tax on their Federal salaries to more than one State government.' In many instances, however, employees of the United States are being subjected to such additional taxation.

For example, a person domiciled in Minnesota and employed by the United States in Washington, D. C., is liable to the State of Minnesota for a tax upon the income earned and received in Washington, D. C. This liability to the State of Minnesota is supported by the well-recognized rule that domicile establishes a basis for an income tax (Lawrence v. State Tax Commission, 286 U. S. 276). No objection is made to this tax.

However, merely because he is necessarily quartered in the District of Columbia, the taxing authorities of the District may use that fact as prima facie proof that he is domiciled in the District and may assess him with an additional tax upon the same salary. True, he can contest this prima facie case; he can offer evidence showing that he is in fact domiciled in Minnesota, but the burden of proof is upon him and there is no practical standard by which to determine whether or not he has produced enough evidence to overcome the prima facie case against him. He has no remedy except by costly appeal to the Board of Tax Appeals and perhaps to the courts. With a finding of facts made against him by the taxing authorities, he has, as a practical matter, a very slim chance of overturning the finding made against him.

For these reasons, the bill provides that if the Federal employee actually has an established domicile in a State and if he is liable to an income tax in that State, then he may declare that such a State is his place of domicile, and, so far as his Federal salary is concerned, he shall be liable to no other State than the State of his declared domicile.

Another example is that of a person domiciled in Idaho, working for the United States in Washington, D. C. He is one of the thousands who, for lack of adequate housing within their means, have been compelled to take up quarters in Virginia. He has never abandoned his domicile in Idaho and is liable to the State of Idaho for tax upon his Federal compensation earned in the District of Columbia. But the State of Virginia insists that it, too, has the right to tax such income, although he is not domiciled in Virginia, and although no portion of the income sought

1 For the purpose of this discussion the District of Columbia is classed with the States.

to be taxed is earned within that State. The mere fact that he has been quartered in Virginia for 6 months or more is the only basis upon which the right to tax is claimed. His only remedy is to contest the validity of the Virginia statutes. Being a person of small income the tax in dispute is not large enough to gain him admittance into the Federal courts and, therefore, he must pursue his case through the several State courts and in the end perhaps, in the Supreme Court of the United States. Persons in this situation can escape this triple taxation only by abandoning the domicile of their own States and transferring their allegiance to Virginia.

Such a situation was feared and was vigorously protested in the Congress when the District income-tax law was being enacted, and expressions in the debates leave no doubt that Congress never intended such a result. Representative Bates, one of the House conferees, said:

"We raised that particular point because we are much concerned about how those who come from our States would be affected by the income-tax provisions of the new law, and it was distinctly understood that in this bill there should be no triple taxation *."-(84 Congressional Record, 8973.)

* *

The bill is not intended to permit any Federal officer or employee to escape local taxation merely because he receives his compensation from the United States. The bill provides that, in the event he is not subject to income tax in the State of his domicile, his salary shall not be immune from income tax in any other State in which it might be subject to tax were it not for the immunity conferred by the act.

II. THE POWER OF CONGRESS TO REMEDY THE WRONG

Insofar as the bill affects the District of Columbia, it is needless to point out that Congress has plenary control.

As to the authority of Congress with reference to State taxes, the theory of the bill is that triple taxation of employees of the United States is an indirect burden on the Government of the United States and that Congress may properly legislate to prohibít such a burden. It is well known that for physical, geographical, and other reasons all of the employees of the United States at the seat of government cannot find living quarters within the District of Columbia. It is also a recognized fact that scattered throughout the whole United States there are employees of the United States who are compelled to live for long or short periods of time in States other than their real homes. If these persons

are to be protected in their right to retain citizenship in their States of domicile, they must assume the concomitant liability to pay income tax in their home States. It follows that if they are taxed also within the States of their temporary abode, they are in effect being subjected to an additional price for the enjoyment of their right to State citizenship.

It is apparent that the salaries of Government employees must be controlled by the economic necessities of such employees and that triple taxation of the income of employees must be reflected, however, remotely, in the compensation to be paid them. The morale of employees is likewise affected and, as can be seen, public employment in many instances carries with it this penalty, making a Government job to that extent less attractive. Congress would be fully justified, therefore, in declaring that such triple taxation indirectly and ultimately is a burden on the Federal Government. If there is any doubt on the question at all, the doubt is whether Congress can permit taxation of Federal salaries by the States; not whether it can exempt them, At least, that is the question which most seriously troubled Congress when it passed the act of April 12, 1939 (53 Stat. 574), the act which consented to State taxation of Federal salaries. (See 84 Congressional Record 1298-1332.)

III. SIGNIFICANCE OF DISTRICT OF COLUMBIA V. MURPHY AND GRAVES v. NEW YORK EX REL. O'KEEFE

There are two recent cases of some significance in connection with this bill. The case of District of Columbia v. Murphy (314 U. S. 441), decided December 15, 1941, concerned an employee of the Treasury Department who had come to the District of Columbia from Michigan. He contended he was domiciled in Michigan and, therefore, was not liable to tax on his income by the District of Columbia. The taxing authorities of the District of Columbia insisted that he was domiciled in the District within the meaning of the District of Columbia Income Tax Act (53 Stat. 1087). The Board of Tax Appeals received con

siderable evidence bearing upon the subject and found "as a fact" that the respondent had formed an intention to remain and make his home in the District for an indefinite period of time but held that "as a matter of law" he was not domiciled in the District.

The Court of Appeals affirmed the decision of the Board of Tax Appeals. The Supreme Court held that, although the act did not define the word "domicile" which was the basis of the tax liability, its congressional history made it clear that a man does not acquire a domicile in the District simply by coming here to live for an indefinite period of time while in the Government service. It held that his living here, however, may properly be taken to be his domicile until facts are adduced to establish the contrary and that the taxing authority is warranted in treating as prima facie taxable any person quartered in the District on the tax day, whose status the taxing authority deems doubtful.

The Court followed the general rule as to the necessity of intent and indicated a large number of circumstances which might reflect intent. It did not prescribe any formula by which these facts might be weighed or given value. On the contrary, it stated that its mention of these various items as being relevant must not be taken as any indication of the relative weight to be attached to them or as an effort to suggest a formula to handle all cases, or as an effort to suggest the possibility of devising a formula. But it did say significantly "in view of the legislative history showing that Congress was concerned lest there be 'triple taxation'-Federal, State, and District-the Board should consider whether taxes similar in character to those laid by this act have been paid elsewhere."

The case was remanded with directions to the Board for further proceedings in conformity with the opinion.

It will be noted that the case more or less restates with elaboration the common law doctrines guiding the determination of domicile and, in some respects, suggests that removal to Washington, D. C., for employment in the Federal service is of less significance than would be a removal to other places where that purpose was not present. The case makes the problem of the Federal employee difficult, however, because it asserts that the taxing authority is warranted in treating as prima facie taxable any person quartered in the District on tax day whose status it deems doubtful. It is an inducement to the taxing authorities to rule against every person, and to compel him to assume the expensive and usually prohibitive burden of upsetting the ruling.

A second case is Graves v. New York ex rel. O'Keefe (306 U. S. 466), decided March 27, 1939. In that case an employee of the Home Owners' Loan Corporation claimed immunity from the State income tax in New York upon the ground that such tax placed an unconstitutional burden upon the Federal Government. The Court very carefully avoided passing upon any question except the one which was vital. It assumed for the purpose of the case that the Home Owners' Loan Corporation was such an instrumentality as would make its activities immune from State tax. It said that in that case it need not be determined whether the power of Congress to grant tax exemptions, as an incident to the exercise of its known powers, extends beyond the constitutional immunity of Federal agencies which courts have implied (p. 478). And it carefully limited its opinion to the assertion that Congress had given no intimation that it intended to grant or withhold immunity from State taxation of the salary of the Corporation's employees and that since Congress was silent on the matter, the congressional intention could not be gathered from the statute by implication. The Court said:

"Whatever scope this may give to the national Government to claim immunity from State taxation of all instrumentalities which it may constitutionally create, and whatever authority Congress may possess as incidental to the exercise of its delegated powers to grant or withhold immunity from State taxation, Congress has not sought in this case to exercise such power."

In a concurring opinion Mr. Justice Frankfurter specifically states that the question whether or not Congress by express legislation may grant immunity is a matter to be determined when occasion arises.

The Court was dealing with an agency which itself had been expressly exempted from taxation and the question was whether or not, in the absence of an express declaration by Congress, the employees of the agency were likewise exempt. The case did not decide that employees of the United States itself were subject to State taxation and those circumstances presumably had something to do with the fact that Congress by the act of 1939 specifically made the salaries of employees of the United States subject to State taxation.

Moreover, the fact that Congress expressly made the salaries of Government employees subject to State taxation shows that Congress was of the opinion that it had the discretion to determine whether or not the salaries of employees of the United States might be subject to State taxation.

So far as the Graves case is concerned, it neither affirms nor denies the power of Congress to declare that salaries of Federal employees shall be immune from State taxation. It merely reserves that question for determination when it arises. On the other hand, there can be no question that the decision recognizes that, if a State tax is a burden on the Federal Government, the Congress has the right to proscribe it; and that, if Congress specifically determines that a given State tax is a burden upon the Federal Government, the Court will not make an independent effort to review the correctness of that determination. It seems more likely that such a determination would fall within the realm of political questions which the courts may not consider.

Mr. O'HARA. Now, if the Senators have no other questions of me, I shall be happy to get out of your way.

Senator MCFARLAND. We would be glad to have you stay with us, Congressman, but I don't think that I have any questions.

Mr. O'HARA. I might say that since Senator Bushfield came in, I happen to know that one of the residents of his State (Congressman Case called it to my attention), who is a resident of this city but domiciled in the State of South Dakota, has been very seriously affected by this proposition. I assume the Senator is familiar with that case. Senator REVERCOMB. Mr. Chairman, may I ask to be excused at this time to attend a Military Affairs Committee meeting which has been specially called, and I will return as soon as I can.

Senator MCFARLAND. Surely.

Senator REVERCOMB. You go right ahead, if you please.

Senator MCFARLAND. Mr. Truscott.

Mr. TRUSCOTT. There came down this morning Mr. Marshall, receiver of taxes, the city solicitor and assistant solicitor, Mr. Wernick, who has been handling our wage problems, and he is familiar with all the ramifications of the legislation; and, with the chairman's permission, he will be able to testify at this time.

Senator MCFARLAND. What are your initials?
Mr. TRUSCOTT. Frank F.

Senator MCFARLAND. You may state your full name for the record. STATEMENT OF ABRAHAM WERNICK, AN ATTORNEY FOR THE CITY OF PHILADELPHIA

Mr. WERNICK. Abraham Wernick.

Senator MCFARLAND. In what capacity do you appear?

Mr. WERNICK. I am appearing here as an assistant city solicitor of the city of Philadelphia with Mr. Truscott, my chief, representing the mayor of Philadelphia and the city itself in opposition to this bill.

Senator MCFARLAND. Very well, you may proceed.

Mr. WERNICK. Our position in opposing this bill is purely from a legal angle.

In other words, we want to point out what I believe the distinguished Members of the Senate would know anyhow, the constitutional objections to the bill.

In approaching that subject, I want to call attention first to some basic

L

Senator MCFARLAND. Thanks for assuming that we know something.

Mr. WERNICK. I know some of the distinguished Members of the Senate, and I know some of them are constitutional lawyers and some of them are jurists, and when I come here it is not with the idea that I am going to tell them something. They know it anyhow. It is like a lawyer appearing before the court. The court knows the law, but the lawyer is supposed to call attention of the court to the law. That is my position here.

Senator BUSHFIELD. Very diplomatic.

Mr. WERNICK. My approach to it is this: Believing that this is a serious encroachment on State rights, I want to state what I consider to be some of the basic and fundamental truths underlying an inquiry of this type which sometimes are overlooked.

I first want to call attention to article II of the Articles of Confederation, which provides that:

Each State retains its sovereignty, freedom, and every power, jurisdiction, and right which is not by this Confederation expressly delegated to the United States, in Congress assembled.

This reservation to the State was afterward retained in the tenth amendment to the Constitution, which reads that:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively or to the people. Now, this reservation to the State has been recognized constantly by the Supreme Court of the United States.

I start with the early case of Buffington v. Day (11 Wall. 113, 20 L. ed. 122, 125), and the case of Lane Co. v. Oregon (7 Wall. 76, 19 L. ed. 104), and the more recent case of Burnet v. Coronado Oil & Gas Co. (285 U. S. 393, 76 L. ed. 815, 820), which stated that:

Each government is supreme in its sphere; and in order to preserve our dual system this fact must be given practical recognition.

And in a more recent case of Parker v. Brown (317 U. S. 341, 87 L. ed. 315), where Mr. Justice Stone, now Chief Justice, calls attention to that.

Therefore, we start with the basic proposition of the Federal Government and the State proceeding side by side in its various spheres of sovereignty.

One of the spheres of sovereignty or one of the orbits of sovereignty that has always been retained by the State and has always been in the State is the right of taxation. As the Supreme Court of the United States said in one of the early cases: Lane Co. v. Oregon (7 Wall. 71, 19 L. ed. 101, 104) :

Now, to the existence of the States, themselves, necessary to the existence of the United States, the power of taxation is indispensable. It is an essential function of government. It was exercised by the Colonies; and when the Colonies became States, both before and after the formation of the Confederation, it was exercised by the new governments. * * * The Constitution, it is true, greatly changed this condition of things. It gave the power to tax, both directly and indirectly, to the National Government, and subject to the one prohibition of any tax upon exports and other conditions of uniformity in respect to indirect, and of proportion in respect to direct taxes, the power was given without any express reservation. On the other hand, no power to tax exports or imports, except for a single purpose and to an insignificant extent, or to lay any duty on tonnage, was permitted to the States. In respect, however—