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decided: April 11, 1932.



Hughes, Van Devanter, McReynolds, Brandeis, Sutherland, Butler, Stone, Roberts, Cardozo

Author: Mcreynolds

[ 285 U.S. Page 397]

 MR. JUSTICE McREYNOLDS delivered the opinion of the Court.

By the Enabling Act Congress required as a condition precedent to the admission of Oklahoma into the Union that her constitution should make provision for common schools; and for their benefit it granted certain lands to the State with the proviso that those valuable for minerals,

[ 285 U.S. Page 398]

     gas and oil should not be sold prior to January 1, 1915, but might be leased. Act of June 16, 1906, 34 Stat. 267, 270, 272, 273. The State Constitution established a common school system and pledged her faith to preserve the lands so conveyed by the United States as a sacred trust, "and to keep the same for the uses and purposes for which they were granted." The legislature prescribed regulations for leasing and directed payment of the proceeds into the school fund. Oklahoma Comp. Statutes of 1921, ยงยง 9415, 9417, 9423.

In January, 1914, some of these lands were leased to the Coronado Oil and 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. During the years here important the lessee's entire income came from the sale of its portion of such output.

The Commissioner of Internal Revenue assessed income and excess-profits taxes upon the corporation's net income for 1917, 1918 and 1919. The Board of Tax Appeals approved his action; the Court of Appeals, District of Columbia, ruled otherwise. The latter held that the lease to the Coronado Company was an instrumentality of the State for the utilization of lands dedicated to the support of public schools and that to tax the fruits of the lease would burden her in the performance of the governmental function of maintaining such schools. This conclusion, it properly thought, was necessary under Gillespie v. Oklahoma, 257 U.S. 501.

We are disposed to apply the doctrine of Gillespie v. Oklahoma strictly and only in circumstances closely analogous to those which it disclosed. In principle, however, the present claim of exemption cannot be distinguished from the one presented in the earlier cause and we adhere to the rule there approved.

[ 285 U.S. Page 399]

     True it is, as stated in Group No. 1 Oil Corp. v. Bass, 283 U.S. 279, 282, 283, "This Court has consistently held that where property or any interest in it has completely passed from the government to the purchaser, he can claim no immunity from taxation with respect to it, merely because it was once government-owned, or because the sale of it effected some government purpose. . . . Property which has thus passed from either the national or a state government to private ownership becomes a part of the common mass of property and subject to its common burdens." And, as there distinctly indicated, the exemption claimed by the Oil Corporation was denied because under the settled rule applied by the Texas Supreme Court the oil and gas from disposal of which the corporate income arose had been purchased, not obtained under a lease -- title had passed out of the State by a present sale. Status of the title was matter for determination under laws of the State as construed and applied by her courts. In the present cause there is no basis for saying that, according to the local law, the transaction between the State and the lessee amounted to a sale. The distinction between cases involving sales and those where leases had been made seemed sufficiently apparent when Group No. 1 Oil Corp. v. Bass was decided and is not less obvious now.

"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." Metcalf & Eddy v. Mitchell, 269 U.S. 514, 522.

The opinion in Gillespie v. Oklahoma, supra, has often been referred to as the expression of an accepted principle.

[ 285 U.S. Page 400]

     arising therefrom would amount to an imposition upon the lease itself.

The challenged judgment ...

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