*1038 The city architect of San Francisco who, in addition to his own work for the city, conducted a private practice as an architect, and who was compensated by the city upon the basis of a percentage of the cost of construction projects in respect of which his services were performed, held not immune from Federal income tax upon such compensation.
*1217 Respondent determined the following deficiencies in petitioner's income taxes:
| 1924 | $952.24 |
| 1925 | 1,271.09 |
| 1926 | 2,324.11 |
| 1927 | 7,805.02 |
| 1928 | 1,648.73 |
Respondent added to petitioner's reported income compensation paid to him in each year for his services as city architect. Petitioner contends that this compensation is exempt.
FINDINGS OF FACT.
Petitioner is an individual, residing at San Francisco, California. From July 3, 1919, until December 4, 1928, he held the position and discharged the functions of city architect of San Francisco by virtue of a resolution of the board of public works, containing the following definition of his duties and provision for his compensation:
*1039 RESOLVED, that the duties of the City Architect shall be to prepare plans and specifications for all public buildings, works or improvements for which the *1218 Board of Public Works shall direct him to prepare such plans and specifications, and to supervise the construction of all public buildings, works or improvements the construction of which the Board of Public Works shall direct him to supervise. Further
RESOLVED, that the compensation of said John Reid, Jr., as such City Architect shall be six percent of the total cost of the construction of the respective public buildings, works or improvements the plans and specifications of which he shall so prepare and the construction of which he shall so supervise; provided, however, that if he prepares the plans and specifications, when directed by the Board of Public Works as aforesaid, but is not directed to, or does not, supervise the construction of any particular public building, work or improvement, his compensation for preparing such plans and specifications alone shall be four and one-half percent of the total cost of the construction of such public building, work, or improvement. Further
RESOLVED, that payments*1040 to said John Reid, Jr., as such City Architect, on account of such compensation, shall be made as his work progresses as follows:
Upon completion of the preliminary studies for the plans and specifications for any particular public building, work or improvement one-fifth of the entire compensation for that job.
Upon completion of specifications and general working drawings (exclusive of details) two-fifths additional.
And the remainder from time to time in proportion to the amount of service rendered.
Until the actual cost of construction of any particular public building, work or improvement shall be ascertained, the payments on account of such compensation of the City Architect as aforesaid shall be based upon the estimated cost of construction of said public building, work, or improvement, but such payments shall be applied on account of the compensation due as determined by the actual cost of the work.
The board or department of public works is an executive branch of the municipal government under the management of three commissioners appointed by the mayor. By article VI of the city charter it is empowered to employ such clerks, superintendents, inspectors, engineers, *1041 surveyors, deputies, architects, and workmen as shall be necessary to a proper discharge of its duties and to fix their compensation, and is directed to require adequate bonds from its officers and employees, except laborers. It is charged with the construction, maintenance, care, and control of all public ways, buildings and sewers, and with the supervision of all construction work in the city or county. Examinations, plans and estimates for public improvements required by the supervisors of the city are made by it, and all public works authorized are directed to be done under its supervision by written contract with the best competitive bidder.
On October 16, 1907, the board of supervisors, a legislative branch of the city government, authorized the board to appoint a city architect with fixed salary, bond, and duties; on May 12, 1913, this ordinance was superseded by a second, allowing the board in its discretion to employ persons necessary to perform architectural services *1219 for the city under contracts to pay them 6 percent of the cost of the building to be erected. Section 2 of the ordinance provides:
Section 2. Nothing herein contained shall be deemed or*1042 construed as preventing the Board of Public Works from appointing a City Architect or such persons as said Board of Public Works may deem necessary to perform architectural services for the City and County of San Francisco or to inspect and supervise the construction of public buildings, the intent and purpose of this Ordinance being to place in the discretion of the Board of Public Works the manner and method of obtaining plans and specifications for public buildings and the supervision of the construction thereof.
Prior to petitioner's appointment as city architect in July 1919, he was one of three consulting architects appointed by the board on March 29, 1912.
Petitioner was consulted on every architectural problem of the municipal government both by the board of public works and by the agency primarily interested in the project under consideration, he made recommendations of every kind thereon, advising on proper sites, equipment, etc.; he supervised the erection of all public buildings, with the assistance of ten or fifteen municipal inspectors, who were employed and discharged by the city on his recommendation. He was present at all meetings of the Board of Public Works, *1043 and attended meetings of other municipal agencies as its representative. He submitted monthly reports to the board on the progress of his bureau's work, and annual reports covering the field of its activities.
During the period 1924 to 1928, inclusive, the bureau of architecture had supervision over some ninety construction projects, comprising school buildings, hospitals, fire and police stations. Of these, petitioner did the architectural work for twenty-four; architects for the remainder were recommended by him, and after their appointment he consulted with them, and passed upon the drawings and plans which they submitted, with recommendations for acceptance or rejection. He was also consulted on contracts for all construction work, recommending to whom such contracts should be awarded and exercising official supervision over their execution. He recommended subsequent alterations in plans or materials, and advised on the settlement of claims.
In respect of those projects for which petitioner was designated as architect, he proceeded to draw plans and perform all other architectural services in accordance with the board's resolution of authorization and without other contract*1044 or agreement. Most of his work was on school buildings, about which the board of education consulted him from the beginning in respect of sites and requirements. Correspondence relating to all the city's building projects was addressed to or referred to him. He was provided with an office, technical assistants and clerical help in the city hall. He *1220 also maintained at his own expense another office on Sansome Street, where he employed a staff of from twenty to thirty employees, comprising engineers, draftsmen, and clerical help. He personally paid their salaries and all other expenses incident to his business, most of which was for the city. He was not prohibited from accepting outside employment, but he refused this whenever it might conflict with the city's interest.
Petitioner received as compensation from the city 6 percent of the cost of those projects on which he was designated to do the architectural work. In sworn statements submitted by him to the Bureau of Internal Revenue, he and the president of the board of public works said that he performed without compensation the numerous services in addition to those on architectural work specifically assigned*1045 to him. His personal office staff assisted him in all his work, whether for the city or others. Of his fees for the city's work he received one fifth when his preliminary sketches were approved, two fifths when his working drawings were approved, and the remainder from time to time on certificates which he issued. Other architects appointed by the city received compensation on the same basis, but none was given so much work. This basis is that prescribed by the Institute of Architects of San Francisco, of which petitioner is president. The commissioners constituting the Board of Public Works were not architects; in approving or disapproving petitioner's plans, they relied on his skill in technical matters.
The following schedule reflects the compensation received by petitioner from the city for his architectural services, the expenses of his business, and the amounts added by respondent to the reported income as not tax-exempt because received from the city:
| Year | Compensation | Expenses | Added to income |
| 1924 | $108,680.43 | $91,335.11 | $17,345.32 |
| 1925 | 104,636.00 | 87,981.72 | 16,654.28 |
| 1926 | 101,069.34 | 74,688.92 | 26,380.42 |
| 1927 | 82,466.95 | 26,370.56 | 56,096.39 |
| 1928 | 22,999.61 | 5,293.00 | 17,706.61 |
*1046 OPINION.
STERNHAGEN: The respondent added to petitioner's income the compensation received for his architectural services to the city of San Francisco during the year 1924 to 1928, inclusive. Article 88 of Regulations 62, 65, and 69, and article 643 of Regulations 74, all provide in part that:
Compensation paid to its officers and employees by a State or political subdivision thereof * * * is not taxable.
*1221 Regulations 69 and 74 restrict the article's application to compensation paid for services rendered in connection with the exercise of an essential governmental function. The 1926 Act, section 1211, provides:
SEC. 1211. Any taxes imposed by the Revenue Act of 1924 or prior revenue acts upon any individual in respect of amounts received by him as compensation for personal services as an officer or employee of any State or political subdivision thereof (except to the extent that such compensation is paid by the United States Government directly or indirectly), shall, subject to the statutory period of limitations properly applicable thereto, be abated, credited, or refunded.
The cited regulations are not based upon any section of the acts, but upon the*1047 constitutional ground that those agencies through which the state or the Federal Government immediately and directly exercises its sovereignty are immune from the taxing powers of the other. ; . The exemption, however, is limited to an exercise of those powers which are governmental in character and does not extend to a state's activities in the operation of water or lighting plants, which have the characteristics of an ordinary private business, or to other proprietary functions. ; ; .
Petitioner has introduced a mass of evidence establishing that he was designated city architect of San Francisco by a resolution of the board of public works; that the board's appointment of him as such was authorized by an ordinance of the board of supervisors, a legislative branch of the city government, and that his compensation as architect was fixed at 6 percent of the cost of the specific projects assigned*1048 him for planning and supervising or 4 1/2 percent in the case of those which he was to plan but not supervise. The resolution specifies no duties other than those required in the proper performance of specific assignments, but in practice petitioner rendered very substantial additional services in advising, supervising, reporting, recording, and making recommendations on all the architectural and construction work in which the board of public works and other city agencies were interested. He was provided with an office and staff in the city hall, and maintained at his own expense another office and another staff elsewhere. In his dealings with the public he acted generally as if he were a public official. He argues that his additional routine duties, his advice on all matters in which the board was interested, and the official recognition accorded him show that his own position and general supervision differentiate him from the other architects to whom the board also assigned specific work, and constitute him an officer or employee of a state agency.
*1222 The case is so similar to *1049 (), that the decision must likewise sustain the respondent's determination. In that case a joint building committee, authorized by a North Carolina statute and consisting of commissioners appointed by the Governor, engaged Underwood by contract to devote his entire time and services as an architect to specified state projects at a monthly salary of $500, plus expenses, which included those of his office and staff of assistants. In 1923 this contract was abrogated; petitioner continued as architect and supervisor of public construction work, but in lieu of salary and expenses he received as compensation from 1 1/2 to 6 percent of the moneys expended on the several projects, the percentage being measured by the services which he performed. He continued to devote his entire time to the public buildings, remained under the direction of the joint building committee, and attended meetings of the various boards interested in the projects. But he personally maintained his office, employed his own staff, and paid all expenses incident to his business out of the fees received from*1050 the state. In deciding that he was a private contractor and not a state employee, it was held that the services which he performed were those ordinarily performed by an architect and engineer, that he complied with the instructions and directions of his employers, but brought about the desired results through his own methods and instrumentalities; that the joint building committee was without technical skill and that their control of petitioner was confined to a determination of the kind and character of building construction and repairs to be undertaken, which petitioner proceeded to execute free from interference by the committee. These circumstances, together with the fact that his compensation was regulated by the value or amount of work done, the necessity for the use of judgment by petitioner, the maintenance of an office and staff of his own, and his personal liability for expenses, were held to establish that petitioner was an independent contractor although he had no other employment and was always at the command of the commission for a continuous and indefinite period.
There is no material difference in the facts here. Petitioner seeks to distinguish the Underwood*1051 case on the ground that Underwood's relation with the state was contractual, obliging him to devote his entire time and attention to state services. He contends that the resolution appointing him has no resemblance to a contract "other than that inherent in the acceptance by every officer or employee of the position tendered him." This distinction is not valid. In the first place the original contract of Underwood was abrogated in 1923, and while he continued to perform the same duties required by it, his *1223 compensation and liabilities were altogether changed. The "contract" referred to in the opinion is the new contract arising from the later arrangement. In any event, petitioner's acceptance of the conditions of employment listed in the resolution here resulted in an implied contract equally as effective as a written one.
The Underwood case is in conformity with the holdings of other courts. In , followed in , the Supreme Court said:
An office is a public station conferred by the appointment of government. The term embraces the idea of tenure, duration, *1052 emolument and duties fixed by law. Where an office is created, the law usually fixes its incidents, including its term, its duties and its compensation. ; . The term "officer" is one inseparably connected with an office; * * *
In refusing to exempt from taxation compensation paid to construction engineers, the Court said:
They took no oath of office; they were free to accept any other concurrent employment; none of their engagements was for work of a permanent or continuous character. * * * Their duties were prescribed by their contracts and it does not appear to what extent, if at all, they were defined or prescribed by statute. * * * the performance of their contract involved the use of judgment and discretion on their part, and they were required to use their best professional skill to bring about the desired result. This permitted to them liberty of action which excludes the idea of that control or right of control by the employer which characterizes the relation of employer and employee and differentiates the employee or servant from the independent contractor. *1053 * * * we do not find that it (i.e., taxation of compensation) impairs in any substantial manner the ability of plaintiffs in error to discharge their obligations to the state or the ability of a state or its sub-divisions to procure the services of private individuals to aid them in their undertakings.
; , cited by respondent, is not directly in point. It merely construed a local statute and held that petitioner was not such an employee or officer of the city "in the ordinary sense" as to prevent his being paid other than monthly.
In ; certiorari denied, , Mesce was employed by virtue of a Chicago ordinance authorizing the board of local improvements to retain the services of a building expert for testimony in court proceedings growing out of public improvements. The ordinance prescribed compensation of $50 a day and a percentage of the value of buildings for which plans, diagrams, etc., had to be prepared. In denying Mesce exemption as a city officer, the Court said:
He selected his own office, paid the rent and*1054 for its equipment, and employed at his own expense his assistants. * * * He used his own methods and instrumentalities and did the work of appraising values in his own way and as his judgment dictated, and in so doing he was free, and for such work he received his pay.
*1224 Again in ; affirming , the Eighth Circuit Court of Appeals denied exemption to a construction engineer, employed by contract to repair state buildings, and said:
He was not compelled to devote all his time to the work. There were no working hours. He was not on any payroll. He did not receive a salary or wages; he could accept concurrent employment * * *; was liable for damages caused by delay; employed and paid his own men * * *.
Similar considerations have supported similar conclusions in numerous other case. See ; reversing ; and affirming ; ; *1055 ; ; ; ; dismissed on respondent's motion, ; .
On the other hand, if an architect, lawyer, physician or other professional man is employed by a state to perform whatever tasks may be assigned him (although not precluded from accepting other employment), if his service is continuous and regular, if his work is of a routine and recurring character, or if no definite object is to be accomplished, he has been held an officer or employee and not an independent contractor. ; ; affirming ; ; ; ; *1056 ; ; . Although petitioner's service was in fact regular and continuous, this was because of the city's building activity; had it ceased, he would have been without work or remuneration. While he did much routine, attended meetings, and made recurring reports, and in fact gave recommendations whenever asked, these services were beyond the express contemplation of the resolution and had no effect upon his compensation. Each task which the resolution authorized had to be specially assigned, and any compensation which he might draw had to rest entirely on such special assignment, which, moreover, the board of public works was not legally bound to give in any instance. Had it become dissatisfied with his services, no discharge would have been necessary to dismiss him; a mere failure to assign him new projects would instantly have left him without responsibility of any kind and without compensation. If his services were continuous, the continuity resulted from no term employment, but from a series of fresh employments which kept him steadily*1057 engaged. This is characteristic of an independent contractor, not an employee.
*1225 In his brief petitioner refers to sworn statements made before the Internal Revenue Bureau, wherein he said that the numerous services performed by him in addition to those required by the projects assigned for his preparation and supervision were done in a spirit of public service and not for compensation. He now seeks to deny that this is true, and argues that such statements are not admissions against interest. It seems unnecessary to pass upon the question of admission because the record is sufficiently complete to indicate that no part of the compensation paid was expressly intended to cover these additional services. The resolution of appointment limits the duties of the city architect to the preparation of plans for and supervision of construction of those works which "the Board shall direct him to plan and supervise," and his compensation is limited to the cost of these specific projects. Petitioner stated that he was unwilling to accept a salary as city architect because it would infringe a rule of the local Institute of Architects regarding fees. He and other architects were*1058 all paid on the same basis and that basis was prescribed by the institute. If a part of petitioner's compensation is expressly allocated to his additional services, he would not be receiving the 6 per cent for his specific services, and would hence infringe the rule which his scruples require him to observe strictly.
This uniform 6 percent rule has a further significance, for if all available architects in the city were committed to charge alike and all others paid income tax, there is in fact no burden upon the municipality in taxing the petitioner likewise. Cf. . Thus the petitioner's principal ground for his derivative Constitutional claim is absent.
Judgment will be entered for the respondent.