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Keywords

appeallease

leaserespondent

Related Cases

Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 52 S.Ct. 443, 76 L.Ed. 815, 3 USTC P 925, 10 A.F.T.R. 1625, 1932-1 C.B. 265

Facts

In January 1914, the state of Oklahoma leased certain lands to the Coronado Oil & Gas Company, with the state receiving a percentage of the gross production of oil and gas. The Commissioner of Internal Revenue assessed income and excess profits taxes on the company's net income for the years 1917, 1918, and 1919. The Board of Tax Appeals approved the assessment, but the Court of Appeals reversed this decision, arguing that taxing the income from the lease would burden the state's ability to maintain public schools.

In January, 1914, some of these lands were leased to the Coronado Oil & Gas Company; renewals followed in 1919. Under the first lease the state received fifty per cent., and under the second twelve and one-half per cent. of the gross production of oil and gas.

Issue

Whether the income derived by the Coronado Oil & Gas Company from its lease of state lands for oil and gas production is subject to federal taxation.

Rule

The court applied the principle that governmental instrumentalities are exempt from taxation by the other government, as established in previous cases, including Gillespie v. Oklahoma.

‘Just what instrumentalities of either a state or the federal government are exempt from taxation by the other cannot be stated in terms of universal application. But this court has repeatedly held that those agencies through which either government immediately and directly exercises its sovereign powers, are immune from the taxing power of the other.’

Analysis

The court reasoned that the lease to the Coronado Oil & Gas Company was an instrumentality of the state, serving the purpose of supporting public schools. Taxing the income from this lease would impose a burden on the state's governmental function, which is protected under the principle of tax immunity for governmental instrumentalities.

To tax the income of the lessee arising therefrom would amount to an imposition upon the lease itself.

Conclusion

The Supreme Court affirmed the judgment of the Court of Appeals, holding that the income from the lease was exempt from federal taxation.

The challenged judgment must be affirmed.

Who won?

Coronado Oil & Gas Company prevailed in the case because the court recognized that taxing the income from the lease would interfere with the state's ability to fulfill its educational responsibilities.

Here the lease to the respondent was an instrumentality of the state for the purpose of carrying out her duty in respect of public schools.

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