## Facts

- Utah’s income tax statute exempted “salaries, wages, and compensation received from the United States for services rendered in connection with the exercise of an essential governmental function.”
- W. Q. Van Cott worked as an attorney for the Reconstruction Finance Corporation and the Regional Agricultural Credit Corporation, both federally created instrumentalities, and received salary from them.
- Van Cott claimed his compensation was exempt from Utah income tax under the state exemption and under federal intergovernmental tax-immunity doctrine.
- The Utah State Tax Commission rejected the exemption claim and sought to tax the salary.
- The Utah Supreme Court ruled for Van Cott, treating the compensation as exempt under the Utah statute and also as constitutionally immune from state taxation.

## Issues

1. Whether the Federal Constitution immunizes salaries of employees or officers of federal instrumentalities from state income taxation.
2. Whether Utah’s income tax exemption statute, as a matter of state law, exempts Van Cott’s salaries as compensation received from the United States for essential governmental functions.

## Decision

- The U.S. Supreme Court held that salaries of employees or officials of federal instrumentalities are not immune from state income taxation under the Federal Constitution.
- The Court vacated the Utah Supreme Court’s judgment because it appeared influenced by a constitutional-immunity premise rejected by the Court’s intervening decision in *Graves v. New York ex rel. O’Keefe*.
- The Court remanded for the Utah Supreme Court to decide whether the salaries are exempt solely under the Utah statute as a question of local law.

## Legal Principles

- The Federal Constitution does not, by itself, bar nondiscriminatory state income taxation of salaries paid to employees or officers of federal instrumentalities.
- When a state court’s judgment rests partly on an erroneous federal constitutional premise, the Supreme Court may vacate and remand for reconsideration under correct federal law.
- Interpretation and application of a state tax exemption are questions of state law for state courts, absent a controlling federal rule.

## Conclusion

The Supreme Court rejected constitutional immunity for salaries paid by federal instrumentalities and vacated and remanded so the Utah courts could determine, without relying on federal immunity doctrine, whether Utah’s statutory exemption independently covered Van Cott’s compensation.


State Tax Comm'n v. Van Cott, 306 U.S. 511 (1939)