Howard v. Commissioners of Sinking Fund of Louisville

Background

A group of workers at a Naval Ordnance Plant sued after the City of Louisville annexed the land where the federal plant sits and began charging a one-percent license fee on salaries and business profits. The United States had acquired the land and accepted exclusive jurisdiction. The workers asked a Kentucky court to declare the plant outside the city and to stop the tax. State courts upheld the city, and the case reached the Supreme Court.

Reasoning

The Court addressed two questions: whether Kentucky could lawfully include the federal tract within city boundaries, and whether the city’s fee counted as an income tax under the federal Buck Act. The Court said the land remained part of Kentucky so the city could annex it, and that annexation did not interfere with the United States’ exclusive jurisdiction. The Court read the Buck Act to allow local governments to collect taxes measured by wages or receipts and held the ordinance fit that definition.

Real world impact

The ruling means employees at the federal plant must pay Louisville’s one-percent fee as an income-style tax under federal law. Cities may include federal areas within municipal boundaries without removing the United States’ exclusive control. Local governments may rely on the Buck Act to tax wages and receipts in federal areas when local law imposes such a tax. The judgment of the lower courts was affirmed.

Dissents or concurrances

Justice Douglas, joined by Justice Black, dissented. He argued the charge is a license fee on the privilege of working in the city, not an income tax, and said Congress had not authorized taxing that privilege when the employer is the United States.