Chaplin v Commissioner of Taxes (SA) [1911] HCA 13; (1911) 12 CLR 375 (18 May 1911)

HIGH COURT OF AUSTRALIA

Chaplin Defendant, Appellant; and Commissioner of Taxes for South Australia Plaintiff, Respondent,

H C of A

On appeal from the Local Court of Adelaide.

18 May 1911

Griffith C.J., Barton and O'Connor JJ.

Nesbit K.C. (H. K. Paine with him), for the appellant.

E. E. Cleland, for the respondent.

Nesbit K.C., in reply.

Griffith C.J.

This is an appeal transmitted to the High Court under the Judiciary Act 1903-1907 raising the question whether the Commonwealth Salaries Act 1907 is valid. The appellant is an officer of the Commonwealth residing in South Australia who has been assessed for income tax, and the question raised is whether he is liable or not.

This Court held in the case of Baxter v. Commissioners of Taxation, New South Wales[1] that officers of the Commonwealth were not liable to such tax in respect of their salaries for reasons to which it is not necessary to refer at length. But in the course of the judgment in that case, speaking for myself and my brothers Barton and O'Connor, I said[2]:—"The question whether a State tax upon the emoluments of federal officers is within the prohibition is a minor question, for the federal Parliament can make its grants subject to such a tax. Quilibet potest renunciare juri pro se introducto." In D'Emden v. Pedder[3], the Court did not apply their minds to the question whether the federal Parliament could or could not renounce the claim to the privilege asserted in that case. But the doctrine laid down by this Court was admittedly based upon that laid down by the Supreme Court of the United States in the great case of M'Culloch v. Maryland[4]. That principle, however, has always been understood in the United States to be subject to qualification. In Cooley's Constitutional Limitations, 7th ed., at p. 682, a book which is recognized as of considerable authority, it is said:—"It follows as a logical result from this doctrine that if the Congress of the Union may constitutionally create a Bank of the United States, as an agency of the national government in the accomplishment of its constitutional purposes, any power of the States to tax such bank, or its property, or the means of performing its functions, unless with the consent of the United States, is precluded by necessary implication."

In the case of California v. Central Pacific Railroad Co.[5] the question was as to the taxation of a franchise granted by the United States Congress, and, after discussing the general nature of franchises, the Court went on to say:—"In view of this description of the nature of a franchise, how can it be possible that a franchise granted by Congress can be subject to taxation by a State without the consent of Congress?" In an earlier case, National Bank v. Commonwealth[6] the Court said:—"But it is argued that the banks, being instrumentalities of the Federal Government, by which some of its important operations are conducted, cannot be subjected to such State legislation. It is certainly true that the Bank of the United States and its capital were held to be exempt from State taxation on the ground here stated, and this principle, laid down in the case of M'Culloch v. Maryland34 Wheat., 316., has been repeatedly affirmed by the Court. But the doctrine has its foundation in the proposition, that the right of taxation may be so used in such cases as to destroy the instrumentalities by which the Government proposes to effect its lawful purposes in the States, and it certainly cannot be maintained that banks or other corporations or instrumentalities of the Government are to be wholly withdrawn from the operation of State legislation. The most important agents of the Federal Government are its officers, but no one will contend that when a man becomes an officer of the Government he ceases to be subject to the laws of the State. The principle we are discussing has its limitation, a limitation growing out of the necessity on which the principle itself is founded. That limitation is, that the agencies of the Federal Government are only exempted from State legislation, so far as that legislation may interfere with, or impair their efficiency in performing the functions by which they are designed to serve that Government. Any other rule would convert a principle founded alone in the necessity of securing to the Government of the United States the means of exercising its legitimate powers, into an unauthorized and unjustifiable invasion of the rights of the States." In the case of Thomson v. Pacific Railroad[8] the Court said:—"There are other instances in which exemption, to the extent it is established in M'Culloch v. Maryland24 Wheat., 316., might have been held to arise from the simple creation and organization of corporations under Acts of Congress, as in the case of the National Banking Associations; but in which Congress thought fit to prescribe the extent to which State taxation may be applied." Reference was there made to, amongst others, the case of Van Allen v. Assessors[10]. In that case[11] a form of a Statute passed by Congress is given in these terms:—"That nothing in this Act shall be construed to prevent all the shares in any of the said associations, held by any person or body corporate, from being included in the valuation of personal property of such person or corporation in the assessment of taxes imposed by or under State authority, at the place where such bank is located, and not elsewhere, but not at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State."

What I have said shows how the doctrine is regarded in the United States and how it is applied. In Van Allen v. Assessors[12] the Supreme Court held that the State of New York, which imposed the tax, had not kept within the limits allowed by the Act of Congress. The privilege is a privilege of the Federal Government that its instrumentalities may be unimpeded. If it grant a salary for the performance of duties, that is the same in principle as the grant of a franchise to an individual or to a company. The grant, if no more is said, is free from taxation by the State, but in making the grant the Commonwealth may say that the grant to the individual is subject to State taxation. It is then impossible to say there is any interference with the free exercise of the federal power. It is unimportant in what form the right to a limited interference is granted. Provided that it is granted, it cannot be asserted with truth that there is any interference with the free exercise of the powers of the Commonwealth. These being the doctrines which I conceive have application to this case, the only question is whether the Act passed by the Federal Parliament gives effect to them. The terms of the Act that are material are these:—

The taxation by a State, in common with other salaries earned within the State, of—

(a)

the official salaries of officers of the Commonwealth residing in the State earned in the State ...

shall not, if the taxation is not a higher rate or to a greater extent than is imposed on other salaries of the same amount earned in the State, be deemed—

(c)

to be an interference with the exercise of any power of the Commonwealth, &c.

That is, in substance, saying that the grant of a salary to an officer of the Commonwealth is made on condition that he is subject to a law of the State as to taxation to the same extent as any other citizen, and is a solemn declaration that such taxation is not an interference with the exercise of the powers of the Commonwealth. The limitation, it is to be observed, is the same as that in the Act of Congress which was in question in Van Allen v. Assessors[13]. If the State Parliament were to impose upon salaries of Commonwealth officers an income tax higher than that on other salaries of the same amounts, then the doctrine of Baxter v. Commissioners of Taxation, New South Wales[14] would come in, and the Act would be so far void.

For these reasons I think that what we said in Baxter v. Commissioner of Taxes, New South Wales[15], whether regarded as a dictum or not, is sound law and part of the law of the Commonwealth.

Our opinion upon this question disposes of the whole case, because, if the appellant is not exempt from taxation, the question whether the assessment is conclusive and binding on him, he not having appealed against it, does not arise. It is unnecessary, therefore, to send the case back to the Supreme Court, and the appeal will be dismissed.

Barton J.

I concur.

O'Connor J.

I concur.

Appeal dismissed with costs.

Solicitor, for the appellant, H. K. Paine.

Solicitor, for the respondent, C. J, Dashwood, Crown Solicitor for South Australia.