THE PUBLIC
SALARY TAX ACT OF 1939
AN ACT
Relating to the taxation of the compensation of public officers
and employees.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That this act may
be cited as the "Public Salary Tax Act of 1939".
TITLE I
Sec. 1. Section 22(a) of the Internal Revenue Code (relating to
the definition of "gross income") IS AMENDED by inserting
after the words "compensation for personal service" the
following: ("including personal service as an officer or employee
of a State, or any political subdivision thereof, or any agency or
instrumentality of any one or more of the foregoing)".
Sec. 2. Section 116(b) of the Internal Revenue Code (exempting
compensation of teachers in Alaska and Hawaii from income tax) is
repealed.
Sec. 3. Section 22(a) of the Internal Revenue Code is amended by
adding at the end thereof a new sentence to read as follows: "In
the case of judges of courts of the United States who took office on or
before June 6, 1932, the compensation received as such shall be included
in gross income".
Sec. 4. The United States hereby consents to the taxation
compensation, received after December 31, 1938, for personal service as
an officer or employee of the United States, any Territory or possession
or political subdivision thereof, the District of Columbia, or an agency
or instrumentality of one or more of the foregoing, by any duly
constituted taxing authority having jurisdiction to tax such
compensation, if such taxation does not discriminate against such
officer or employee because of the source of such compensation.
TITLE II
Sec. 201. Any amount of income tax (including interest, additions
to tax, and additional amounts) for any taxable year beginning prior to
January 1, 1938, to the extent attributable to compensation for personal
service as an officer or employee of a State, or any political
subdivision thereof, or any agency or instrumentality of any one or more
of the foregoing -
(a) shall not be assessed, and no proceeding in court for the
collection thereof shall be begun or prosecuted (unless pursuant to an
assessment made prior to January 1, 1939);
(b) if assessed after December 31, 1938, the assessment shall be
abated, and any amount collected in pursuance of such assessment shall
be credited or refunded in the same manner as in the case of an income
tax erroneously collected; and
(c) shall, if collected on or before the date of the enactment
of this Act, be credited or refunded in the same manner as in the case
of an income tax erroneously collected, in the following cases -
(1) Where a claim for refund of such amount was filed before
January 19, 1939, and was not disallowed on or before the date of
the enactment of this Act;
(2) Where such claim was so filed but has been disallowed and
the time for beginning suit with respect thereto has not expired on
the date of the enactment of this Act;
(3) Where a suit for the recovery of such amount is pending on
the date of the enactment of this Act; and
(4) Where a petition to the Board of Tax Appeals has been
filed with respect to such amount and the Board's decision has not
become final before the date of the enactment of this Act.
Sec. 202. In the case of any taxable year beginning after December
31, 1937, and before January 1, 1939, compensation for personal service
as an officer or employee of a State, or any political subdivision
thereof, or any agency or instrumentality of any one or more of the
foregoing, shall not be included in the gross income of any individual
under Title I of the Revenue Act of 1938 and shall be exempt from
taxation under such title, if such individual either -
(a) did not include in his return for a taxable year beginning
after December 31, 1936, and before January 1, 1938, any amount as
compensation for personal service as an officer or employee of a
State, or any political subdivision thereof, or any agency or
instrumentality of any one or more of the foregoing; or
(b) did include any such amount in such return, but is entitled
under section 201 of this Act to have the tax attributable thereto
credited or refunded.
Sec. 203. Any amount of income tax (including interest, additions to
tax, and additional amounts) collected on, before, or after the date of
the enactment of this Act for any taxable year beginning prior to
January 1, 1939, to the extent attributable to compensation for personal
service as an officer or employee of a State, or any political
subdivision thereof, or any agency or instrumentality of any one or more
of the foregoing, shall be credited or refunded in the same manner as in
the case of an income tax erroneously collected, if claim for refund
with respect thereto is filed after January 18, 1939, and the
Commissioner of Internal Revenue, under regulations prescribed by him
with the approval of the Secretary of the Treasury, finds that
disallowance of such claim would result in the application of the
doctrines in the cases of Helvering against Therrell (303 U.S. 218),
Helvering against Gerhardt (304 U.S. 405), and Graves et. al. against
New York ex rel O'Keefe, decided March 27, 1939, extending the classes
of officers and employees subject to Federal taxation.
Sec. 204. Neither section 201 nor section 203 shall apply in any
case where the claim for refund, or the institution of the suit, or the
filing of the petition with the Board, was, at the time filed or begun,
barred by the statute of limitations properly applicable thereto.
Sec. 205. Compensation shall not be considered as compensation
within the meaning of sections 201, 202, and 203 to the extent that it
is paid directly or indirectly by the United States or any agency or
instrumentality thereof.
Sec. 206. The terms used in this Act shall have the same meaning
as when used in Chapter I of the Internal Revenue Code.
Sec. 207. No collection of any tax (including interest, additions
to tax, and penalties) imposed by any State, Territory, possession or
local taxing authority on the compensation, received before January 1,
1939, for personal service as an officer or employee of the United
States or any agency or instrumentality thereof which is exempt from
Federal income taxation and, if a corporate agency or instrumentality,
is one (a) a majority of the stock of which is owned by or on behalf of
the United States, or (b) the power to appoint or select a majority of
the board of directors of which is exerciseable by or on behalf of the
United States, shall be made after the date of the enactment of this
Act.
Sec. 208. This title shall not apply with respect to any officer
or employee of a State, or any political subdivision thereof, or any
agency or instrumentality of any one or more of the foregoing, after the
Secretary of the Treasury has determined and proclaimed that it is the
policy of such State to collect from any individual any tax, interest,
additions to tax, or penalties, on account of compensation received by
such individual prior to January 1, 1939, for personal service as an
officer or employee of the United States or any agency of
instrumentality thereof. In making such determination the
Secretary of the Treasury shall disregard the taxation of officers and
employees of any corporate agency or instrumentality which is not exempt
from Federal income taxation, or which if so exempt is one (a) a
majority of the stock of which is not owned by or on behalf of the
United States and (b) the power to appoint or select a majority of the
board of directors of which is not exerciseable by or on behalf of the
United States.
Sec. 209. In the case of judges of the Supreme Court, and of the
inferior courts of the United States created under article III of the
Constitution, who took office on or before June 6, 1932, the
compensation received as such shall nt be subject to income tax under
the Revenue Act of 1938 or any prior revenue Act.
Sec. 210. For the purpose of this Act, the term "officer or
employee" includes a member of a legislative body and a judge or
officer of a court.
Sec. 211. If either title of this Act, or the application thereof
to any person or circumstances, is held invalid, the other title of the
Act shall not be affected thereby.
Approved, April 12, 1939.