A suggestion of error has been filed in this case to the effect that we erred in the opinion heretofore rendered. We might safely stand upon the opinion heretofore rendered, for the authorities therein cited show that until the year 1938 the United States Supreme Court had held that states were without power to tax the instrumentalities of the Government of the United States, either directly or indirectly.
It is said in the suggestion of error that the cases we cited were not income tax cases; but in the case of People ex rel. Rogers v. Mark Graves et al., 299 U.S. 401-409, 57 S. Ct. 269, 81 L. Ed. 306, it was held that the state of New York was not authorized to levy an income tax on the salary of the president of the Panama Railroad, and other employes of that company, which was entirely owned by the Government of the United States, and operated as its instrumentality. In the second syllabus it is said: "The operations of the Panama Railroad Company, of the capital stock of which the United States is the sole owner, are so connected with the Panama Canal as to confer upon the railroad company the immunity of a Federal instrumentality from state taxation, even though the railroad company to a limited extent utilizes *Page 517 its ships and railroad to carry private freight and passengers, and though it also operates in the Canal Zone a dairy, hotels, and a commissary for the benefit of the personnel of the Canal, the railroad company, and the armed forces of the United States in the Zone."
It is also held in the third syllabus: "The Federal government may use a corporation as a means to carry into effect substantive powers granted by the Constitution." And in the fourth syllabus it is held: "Where a corporation is immune from state taxation as an instrumentality of the Federal government, fixed salaries and compensation paid to its officers and employees in their capacity as such are likewise immune." And in the fifth syllabus it is said: "The general counsel, employed on a fixed salary, of a corporation which is a Federal instrumentality, is an employee of the corporation rather than an independent contractor, as respects the liability of his salary to state taxation."
This decision was rendered at the October term, 1936, of the United States Supreme Court, which was more than two years after the enactment of the statute involved in this suit.
In the case of Fred Miller v. City of Milwaukee, 272 U.S. 713, 47 S. Ct. 280, 71 L. Ed. 487, it was held that where income of a corporation which becomes the basis of dividends is derived from bonds of the United States government, a state cannot lay an income tax upon the dividends in the hands of stock-holders so far as they represent the income of such bonds. This case was decided at the October term, 1926, of the United States Supreme Court.
Until the decision in the case of Mark Graves et al. v. People ex rel. O'Keefe, 306 U.S. 466, 59 S. Ct. 595, 83 L. Ed. 927, 120 A.L.R. 1466, it is clear that the Federal law was that Federal instrumentalities were not subject to state taxation, either directly or indirectly, and that the consent of Congress was necessary before the states could tax such instrumentalities, either directly *Page 518 or indirectly. Some confusion and uncertainty, however, had been shown in the decisions of the Federal Supreme Court, in regard to the theory of whether or not the instrumentalities were engaged in a governmental function, or in a private function; and that where engaged in a private, rather than a governmental function, the state might tax it. Until 1936, when at the October term of the Supreme Court it was held, in the case of Brush v. Commissioner of Internal Revenue, 300 U.S. 352-378, 57 S. Ct. 495, 81 L. Ed. 691, 108 A.L.R. 1428, that salaries and compensation paid the municipal officers and employes, engaged in the performance of the city's governmental functions, are immune from Federal taxation, under the principle that neither a state nor a Federal government may levy a tax which will burden the activities of the other. This was held, although the city charged for the use of its facilities, exercised through the commissioners; and it was urged that, being so engaged in furnishing private customers for a price charged, such salaries were subject to taxation by the government. At page 372 of300 U.S. 57 S.Ct. at page 501, 81 L. Ed. 700, 108 A.L.R. 1428, the Court replied to this contention, saying:
"Respondent contends that the municipality, in supplying water to its inhabitants, is engaged in selling water for profit; and seems to think that this, if true, stamps the operation as private and not governmental in character. We first pause to observe that the overhead due to the enormous cost of the system, and the fact that so large a proportion of the water is diverted for public use, rather plainly suggests that no real profit is likely to result. And to say that, because the city makes a charge for furnishing water to private consumers, it follows that the operation of the water works is corporate and not governmental, is to beg the question. What the city is engaged in doing in that respect is rather rendering a service than selling a commodity. If that service be governmental, it does not become private because a *Page 519 charge is made for it, or a profit realized. A state, for example, constructs and operates a highway. It may, if it chooses, exact compensation for its use from those who travel over it (see Bingaman v. Golden Eagle Western Lines,297 U.S. 626, 628, 56 S. Ct. 624, 80 L. Ed. 928 [930]); but this does not destroy the claim that the maintenance of the highway is a public and governmental function. . . . The contention is made that our decisions in South Carolina v. United States, 199 U.S. 437, 461, 462, 26 S. Ct. 110, 50 L. Ed. 261 [269, 270], 4 Ann. Cas. 737, and Flint v. Stone Tracy Co., 220 U.S. 107, 172, 31 S. Ct. 342, 55 L. Ed. 389 [421], Ann. Cas. 1912B, 1312, are to the effect that the supplying of water is not a governmental function; but in neither case was that question in issue, and what was said by the court was wholly unnecessary to the disposition of the cases and merely by way of illustration."
Hence, in 1936 it was held that the fact that a corporation which was a governmental agency or instrumentality, also engaged in business for profit incident to its governmental function, does not destroy its immunity from state taxation.
In Indian Motorcycle Co. v. United States, 283 U.S. 570, 51 S. Ct. 601, 75 L. Ed. 1277, it as held: "The instrumentalities, means, and operations whereby the United States exercises its governmental powers are exempt from taxation by the states, and the instrumentalities, means, and operations whereby the states exert the governmental powers belonging to them are exempt from taxation by the United States, by virtue of the principle implied from the independence of the national and state governments within their respective spheres and from the provisions of the Constitution which look to the maintenance of the dual system."
It was also held in the sixth syllabus: "Where the principal of exemption of Federal instrumentalities from state taxation and of state instrumentalities from Federal taxation applies, it is not affected by the amount of *Page 520 the particular tax or the extent of the resulting interference, but is absolute."
It was held in the seventh syllabus that: "A sale of motorcycles to a state agency, such as a municipal corporation, for use in its police service, is exempt from the excise tax imposed by section 600 of the Revenue Act of 1924, chap. 234, 43 Stat. at L. 322 [26 U.S.C.A. Int. Rev. Acts], on sales of motorcycles by the manufacturer." This decision was rendered at the October term, 1930, of the Supreme Court of the United States.
The immunity was that of state agencies from Federal taxation; immunity of Federal agencies from state taxation has existed practically from the beginning of the government, and the sales of government officials were held not subject to taxation by states in 1842, almost a century ago, when the cause of Dobbins v. Commissioners of Erie Co., 16 Pet. 435, 449, 10 L. Ed. 1022 was decided. In the course of the opinion in that case the Court said:
"The powers of the national government can only be executed by officers whose services must be compensated by Congress. The allowance is in its discretion. The presumption is that the compensation given by law is no more than the services are worth, and only such in amount as will secure from the officer the diligent performances of his duties. `The officers execute their offices for the public good. This implies their right of reaping from thence the recompense the services they may render may deserve,' without that recompense being in any way lessened, except by the sovereign power from whom the officer derives his appointment, or by another sovereign power to whom the first has delegated the right of taxation over all the objects of taxation, in common with itself, for the benefit of both. And no diminution in the recompense of an officer is just and lawful, unless it be prospective, or by way of taxation by the sovereignty who has a power to impose it, and which is intended to bear equally upon all according to their estate. *Page 521 The compensation of an officer of the United States is fixed by a law made by Congress. It is in its conclusive discretion to determine what shall be given. It exercises the discretion and fixes the amount, and confers upon the officer the right to receive it when it has been earned. Does not a tax, then, by a State upon the office, diminishing the recompense, conflict with the law of the United States, which secures it to the officer in its entireness? It certainly has such an effect; and any law of a State imposing such a tax cannot be constitutional, because it conflicts with a law of Congress made in pursuance of the Constitution, and which makes it the supreme law of the land." In the case notes in the Law Edition are found other cases holding to the same effect.
In the case of Chas. E. Smith v. Kansas City Title T. Co.,255 U.S. 180, 41 S. Ct. 243, 65 L. Ed. 577, it was held that: "The creation of Federal land banks and joint stock land banks by the Federal Farm Loan Act of July 17, 1916, as amended by the Act of January 18, 1918 [12 U.S.C.A. sec. 991], and the grant of authority to them to act for the government as depositaries of public moneys and purchasers of government bonds, brings them within the creative power of Congress although they may be intended, in connection with other privileges and duties, to facilitate the making of loans upon farm security at low rates of interest."
It was also held in the sixth syllabus that: "Federal land banks and joint stock land banks, having been created by Congress in the exercise of its legitimate authority by the Federal Farm Loan Act of July 17, 1916, as amended by the Act of January 18, 1918, the power to make the farm loan bonds issued by them under the authority of those acts on the security of farm mortgages and notes exempt as to principal and interest from Federal, state, municipal, and local taxation, necessarily follows." This decision was rendered in 1920, at the October term of the Supreme Court of the United States, and establishes the immunity of Federal land banks, and *Page 522 their instrumentalities, from state and municipal taxation.
In the recent case of Luther Pittman v. Home Owners' Loan Corp., 308 U.S. 21, 60 S. Ct. 15, 84 L.Ed. ___, 124 A.L.R. 1263, it was held that: "A state statute imposing a tax upon every mortgage recorded or offered for record, at the rate of ten cents for every $100 of the principal amount of the debt secured, is, not merely a fee for the privilege of recording the mortgage, but a tax on the mortgage itself, so as to be inapplicable to a mortgage offered for record by an instrumentality of the United States." In the fourth syllabus it also held that: "It is within the constitutional authority of Congress to provide that a corporation created by it to facilitate the performance of its governmental functions, such as the Home Owners' Loan Corporation (including loans and mortgages made and held by such a corporation) shall be exempt from state and municipal taxation." And in the fifth syllabus it is said: "The activities of a corporation through which the national government lawfully acts must be regarded as governmental functions, and as entitled to whatever immunity attaches to those functions when performed by the government itself through its departments."
In the sixth syllabus it is further held that: "Congress has the power, not only to create a corporation to facilitate the performance of governmental functions by it, but also to protect the operations thus validly authorized." And in the seventh syllabus it was said, "The power conferred on Congress to make all laws necessary and proper for carrying out the powers expressly granted to it includes the power to preserve what it has validly created or authorized." In the eighth syllabus it is held that, "In the exercise of its power to protect the lawful activities of its agencies Congress has that dominant authority which necessarily inheres in its action within the national field." *Page 523
From these cases it will be seen that Congress has full power to protect the agencies it creates from state taxation, and we deem it unnecessary to go into the many other cases which could be cited to the same effect, but we shall cite one more, a Mississippi case involving the levy of a tax upon the instrumentality of the Government by the state of Mississippi, being the case of Panhandle Oil Co. v. State of Mississippi on relation of R.H. Knox, Attorney General, 277 U.S. 218, 48 S. Ct. 451, 72 L. Ed. 857, 56 A.L.R. 583, in which it was held that "States may not burden or interfere with the exertion of national power or make it a source of revenue or take the funds raised or tax the means used for the performance of Federal functions." And, further, "A state may not impose a tax measured by the quantity sold upon the privilege of one of its citizens of selling gasoline to the Federal government for use of its Coast Guard Fleet or Veterans' Hospital which the United States is empowered by the Constitution to maintain and operate." This case was decided at the October, 1927, term of the Court, and it must have been fresh in the minds of the Legislature when enacting the statute of 1934.
It is true that the United States Supreme Court, in the case of Graves v. People ex rel. O'Keefe, 306 U.S. 466, 493, 59 S. Ct. 595, 597, 83 L. Ed. 927, 120 A.L.R. 1466, overruled many cases in force for a long time prior thereto, and held that there was, in effect, no implied immunity by the Constitution in favor of either national or state government in the manner of taxation of one by the other; and it appears to have abolished all distinctions, so far as the Federal government is concerned between governmental functions and private functions engaged in by United States created corporations. In the course of its opinion in this case the Court said: "The single question with which we are now concerned is whether the tax laid by the state upon the salary of respondent, employed by a corporate instrumentality of the federal government, imposes an unconstitutional burden *Page 524 upon that government. The theory of the tax immunity of either government, state, or national, and its instrumentalities, from taxation by the other, has been rested upon an implied limitation on the taxing power of each, such as to forestall undue interference, through the exercise of that power, with the governmental activities of the other. That the two types of immunity may not, in all respects, stand on a parity has been recognized from the beginning, McCulloch v. Maryland, supra, 4 Wheat. [316], 435, 436 [4 L.Ed. [579], 608, 609], and possible differences in application, deriving from differences in the source, nature and extent of the immunity of the governments and their agencies, were pointed out and discussed by this Court in detail during the last term. Helvering v. Gerhardt, supra, [304 U.S. 405], pages 412, 413, 416, 58 S.Ct. [969] pages 972, 973 [82 L.Ed. [1427], 1432, 1433, 1434]. So far as now relevant, those differences have been thought to be traceable to the fact that the federal government is one of delegated powers in the exercise of which Congress is supreme; so that every agency which Congress can constitutionally create is a governmental agency. And since the power to create the agency includes the implied power to do whatever is needful or appropriate, if not expressly prohibited, to protect the agency, there has been attributed to Congress some scope, the limits of which it is not now necessary to define, for granting or withholding immunity of federal agencies, from state taxation." (Citing a long list of authorities).
In the course of its opinion the Court further said: "The theory, which once won a qualified approval, that a tax on income is legally or economically a tax on its source, is no longer tenable. New York ex rel. Cohn v. Graves, 300 U.S. 308, 313, 314, 57 S. Ct. 466, 467, 81 L. Ed. 666 [670, 671], 108 A.L.R. 721; Hale v. Iowa State Bd. of Assessment Review, 302 U.S. 95, 108, 58 S. Ct. 102, 106, 82 L. Ed. 72 [80]; Helvering v. Gerhardt, *Page 525 supra [304 U.S. 405, 58 S. Ct. 969, 82 L. Ed. 1427]" and other authorities.
In other words, in this case the Supreme Court seems to have repudiated a doctrine long maintained, that there was an implied constitutional limitation on the power of one government to tax the instrumentalities of the other, but left open the question of whether or not Congress could by act forbid taxation of its instrumentalities. The question so left open was foreclosed in Pittman v. H.O.L.C., 308 U.S. 21, 60 S. Ct. 15, 84 L.Ed. ___, 124 A.L.R. 1263. The Supreme Court of the United States, in Pollock v. Farmers' Loan Trust Co., 158 U.S. 601, 15 S. Ct. 912, 39 L. Ed. 1108, held that an income tax was, in effect, a tax upon the source of the income, and if the income was derived from a Federal instrumentality, a tax upon the income, to such extent, was a tax on the instrumentality itself, and prohibited by the Constitution. This decision was rendered in 1895, and stood as recognized law of the country until overruled in 1938, at the October term of the Supreme Court. Consequently, at the time the income tax law of 1934, chapter 120 of the Laws of 1934, was enacted, it is plain that the legislature so understood. It is said that the rule that the legislature is presumed to act with knowledge of the law should not be applied, for the reason that the act was plain on its face, and plainly applied the tax here involved.
In enacting the law, the legislature recognized that there were incomes which were beyond its power to tax. In section three of said chapter imposing the tax, it used the language, "On the first $2,000.00 of taxable income or any part thereof, at the rate of two and one-half per centum; On the next $3,000.00 of taxable income or any part thereof, at the rate of three and one-half per centum" and so on, until in regard to the income without limitation, the words "taxable income" are used. The legislature must have intended only to tax that which it understood could lawfully be taxed, and not to violate *Page 526 constitutional principles and the decisions of the Court, that incomes from instrumentalities of the government could not be taxed.
Mr. Black defines "taxable" as follows: "Subject to taxation; liable to be assessed, along with others, for a share in a tax. Persons subject to taxation are sometimes called `taxables;' so property which may be assessed for taxation is said to be taxable."
It is said in the suggestion of error that when a decision is overruled it necessarily relates back to the original time when the case so decided was overruled, and that the law then in effect should have validity from that time. He also cites cases to the effect that the Court may limit the law, when overruling the decision, to prospective operation.
We do not think that the legislature intended the shares of a national bank to be taxed, because of the Court's decisions which then held that instrumentalities of the United States could not be taxed as income. The overruling of a decision of the Court which has rendered a course of action necessary, should not operate to affect the legality of the situation under the former decisions, especially as to contracts and legislation made in pursuance of law as declared by the highest court of state or nation. Every person and every officer is obliged to accept the decisions of the highest court as binding, and their personal judgment must yield to the judicial declaration. We cannot assume that the legislature intended to oppose its private judgment, if it had a diverse opinion, to the decision of the United States Supreme Court — the highest court of the national government. It must be presumed that it enacted the law here involved with full knowledge of, and intent to be guided by, the rules then in force and declared to be constitutional by the Supreme Court of the United States.
In Chicot Co. Drainage Dist. v. Baxter State Bank,308 U.S. 371, 60 S. Ct. 317, 84 L.Ed. ___, it was held that: "The actual existence of a statute which has been declared *Page 527 unconstitutional is an operative fact which cannot justly be ignored, and the question of the effect of its unconstitutionality cannot be disposed of by merely applying a principle of absolute retroactive invalidity." Chief Justice Hughes, speaking for the Court, said: "The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the challenged decree." (Citing cases.)
"It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to such a determination, is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects — with respect to particular relations, individual and corporate, and particular conduct, private and official. Questions of rights claimed to have become vested, of status, of prior determinations deemed to have finality and acted upon accordingly, of public policy in the light of the nature both of the statute and of its previous application, demand examination. These questions are among the most difficult of those which have engaged the attention of courts, state and federal, and it is manifest from numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified."
It is true that the Court was there dealing with the question of res adjudicata, and held that where it had been adjudged and had become final, the change of judicial decision did not affect the finality of the judgment. Our own Court, in the case of Wisconsin Lbr. Co. v. State of Miss., 97 Miss. 571, 54 So. 247, overruled a former construction of the statute there involved; but held: *Page 528 "Where a sale of state or public land is valid according to the laws of the state, as expounded and administered by its highest judicial tribunal when the sale was made, its validity and obligation cannot be impaired by any subsequent action of the legislature, or decision of the courts altering the construction of the law, under the Constitution of the United States, art. 1. sec. 10, and the state constitution 1890, sec. 16, prohibiting the passage of laws impairing the obligation of contracts."
In State v. Longino, 109 Miss. 125, 67 So. 902, Ann. Cas. 1916E, 371, this Court held: "Where under Code 1906, section 1169, providing that it shall be a criminal offense for the president, cashier, teller, etc., conducting the business of receiving on deposit money, etc., to receive any deposit, while knowing that the institution is insolvent, the statute was judicially declared not to apply to certain acts, but subsequently the ruling of the court was reversed, and such acts held a criminal offense under the statute, and between the two decisions defendant committed such acts. No conviction could be had under the statute in question for violations committed between the first and second decisions of the court, since the holding by the court as to whether a criminal statute is, or is not, applicable to a particular state of facts is within the spirit of the constitutional prohibition against the passage of ex post facto laws, the decision of a court in construing a statute, being as much a part of the law of the land as a legislative enactment, unlike their decision relating to the common law, which are mere evidence of the law."
It is said in the suggestion of error that this Court, in the case of Parker v. State Tax Commission, 178 Miss. 680,174 So. 567, held that the salary of the vice president of the Federal Land Bank was subject to income tax. This case was decided in March, 1937, and overlooked or ignored the case of Federal Land Bank v. Tatum, 174 Miss. 264, 164 So. 319, in which it was held *Page 529 that Federal land banks were instrumentalities of the Federal government, and that the Moratorium Law was not applicable to deeds of trust given to Federal land banks.
In the decision in the last mentioned case we followed Smith v. Kansas City Title Trust Co., 255 U.S. 180, 41 S. Ct. 243, 65 L. Ed. 577, supra, holding that the mortgages and deeds of trust of such bank were not subject to such taxation; and also followed the cases of Federal Land Bank v. Crosland, 261 U.S. 374, 43 S. Ct. 385, 67 L. Ed. 703, 29 A.L.R. 1, in which Federal land banks were held to be instrumentalities of the Federal government. The case of Federal Land Bank v. Tatum, 174 Miss. 264, 164 So. 319, was decided at the September, 1935, term, and accords with the understanding of the law upon the subject of taxing instrumentalities by state and state authorities, and understands such taxes to be prohibited in such cases.
Of course, the state Court, in deciding questions arising under the Constitution and laws of the United States, is not a court of final appellate jurisdiction, and decisions in such cases are not controlling if contrary to the decisions of the Supreme Court of the United States. This is exemplified in the case of Louisville N.R. Co. v. State, 107 Miss. 597, 65 So. 881, where the state Court had upheld chapter 122, Laws 1908, which prohibits a foreign corporation from removing cases to the Federal courts, by prohibiting it from doing an intrastate business, if it exercises such right of removal. The court of original jurisdiction, the Chancery Court, first held the statute unconstitutional, which judgment was reversed by the Supreme Court of this state, which held it to be constitutional, and remanded the case; whereupon the Chancellor again held the state statute unconstitutional. The case was reversed and remanded to the Chancery Court the second time, whereupon that court followed the directions of the Supreme Court, and entered the *Page 530 proper judgment. The cause was again appealed to the Supreme Court, and in the meantime the Federal Supreme Court in Harrison v. St. Louis S.F.R. Co., 232 U.S. 318, 34 S. Ct. 333, 58 L. Ed. 621, L.R.A. 1915F. 1187, and other cases, held that the statute prohibiting the exercise of a Federal right as a condition to doing intrastate business in the state, was unconstitutional.
After these decisions this Court reversed its former judgment, and followed the Federal Supreme Court decision, declaring the statute unconstitutional. This Court in its opinion said: "Ordinarily, the opinions heretofore rendered would constitute the law of the case, and the matters therein decided would not be again examined by us; but the law of the case rule has no application here for the reason that the right claimed by appellant is one which arises under the Constitution and laws of the United States, and with reference to all such questions this court is not one of final jurisdiction, but is simply an intermediate appellate court, from whose decision an appeal lies to the Supreme Court of the United States, the decisions of which court, in all such matters, are binding upon and must be followed by us."
Therefore, the case of Parker v. Mississippi State Tax Commission, supra, is not binding because, first, it is not applicable to the case here; second, because one division of the Court cannot overrule a prior state court decision, and cannot overrule the decisions of the United States Supreme Court; and, as stated, it is not a final authority.
We deem it unnecessary to go further into the discussion of the question presented, because the authorities cited in the former opinion in this case sustain the holding of the controlling opinion heretofore delivered. It would require a protracted opinion to discuss the various cases and point out the distinctions, and recognize their different holdings, even if that can be done. Such *Page 531 an opinion would require a volume, rather than conform to the length of a Court opinion.
It follows from what we have said that the suggestion of error must be, and is, hereby overruled.
Smith, C.J., and Griffith and Anderson, JJ., dissenting.