PAGE, Collector of Internal Revenue, v. REGENTS OF UNIVERSITY SYSTEM OF GEORGIA, 93 F.2d 887

SIBLEY, Circuit Judge. The Board of Regents of the University System of Georgia and the corporation styled Regents of the University System of Georgia, sought an injunction against W. E. Page, as collector of internal revenue, to stop his seizure under warrants for federal taxes on admissions to intercollegiate football games during September and October, 1934, of moneys which the Regents claim. A declaratory decree settling the federal nontaxability of athletic contests held under authority of the Regents was also prayed.

This court has heretofore reversed a dismissal of the bill, and has ordered it tried on its merits. Regents v. Page, Collector, 5 Cir., 81 F.2d 577. The District Court has found the allegations of the bill proven, and decreed a final injunction. This appeal followed. Page resigned as collector pending this appeal, and afterwards died. Marion H. Allen succeeded him in office. On allegations that he was about to carry out what Page had begun, Allen was cited to show cause why he should not be made a party as successor in office under 28 U.S.C.A. § 780.

Allen did not controvert the allegations of fact, but objected that the action against Page was a personal one and could not thus be made one against the office of collector and in effect against the United States.

The statute referred to, so far as material to be quoted, provides: “Where, during the pendency of an action, suit, or other proceeding brought by or against an officer of the United States * * * relating to the present or future discharge of his official duties, such officer * * * ceases to hold such office, it shall be competent for the court * * * whether * * * one of first instance or an appellate tribunal, to permit the cause to be continued and maintained by or against the successor.” This case is within the words of the statute.

Without enlarging on its purpose and history, we apply it by ordering the successor made a party. The appellant desires to reopen the questions whether the holders of the money distrained upon, having collected it from ticket purchasers as tax, can deny the validity of the tax when called on to pay it over; and whether injunction is an available remedy to prevent its collection.

This court in its former decision held that the money was not collected as a tax, but under a peculiar contract with the ticket buyers whereby the complainants were entitled to assert ownership of it if they could prove that no tax is collectible. It was also held that under the peculiar circumstances, including that just mentioned, injunction was an available remedy. These holdings are adhered to as the law of the case. The next and great question is whether the tax is constitutionally collectible in view of the connection of the Regents with the State government.

It will be well to examine first the tax and its incidence, and the status of the Board of Regents. The tax is imposed by

section 500 of the Revenue Act of 1926, 44 Stat. 91, amended by

section 711 of the Revenue Act of 1932, 47 Stat. 271, 26 U.S.C.A. §§ 940-944, and is “a tax of 1 cent for each 10 cents or fraction thereof of the amount paid for admission to any place * * * to be paid by the person paying such for admission.” Admissions less than 41 cents are not taxed.

Exempted are “any admissions all the proceeds of which inure exclusively to the benefit of religious, educational, or charitable institutions”; but the exemption “shall not be allowed in the case of admissions to any athletic game or exhibition the proceeds of which inure wholly or partly to the benefit of any college or university (including any academy of the military or naval forces of the United States).” The tax is thus collectible on all athletic games or exhibitions of which any college or university gets all or a part of the proceeds, whether it be a football game, a track meet, or other athletic exhibition; whether an intercollegiate contest or one intra mures; and whether participated in by students or hired athletes.

As applied to a State university, the tax is to be viewed not simply as one on intercollegiate football games but on all forms of athletic exhibitions to which admission exceeding 41 cents is charged. Congress expressed no special purpose to single out intercollegiate football contests for taxation. While they were the occasion of the tax before us, the legitimacy of the tax as applied to a State university involves a wider field of discussion. The tax is laid on the purchasers of admissions, but the duty and responsibility of collecting and accounting for it is put on those selling the admissions.

Where the State and its agencies are sellers, there is thus an immediate and direct burden imposed by the federal government. But, if this burden be ignored, that laid upon the patrons of the athletic exhibition is felt by the State, for the tax tends to deter patronage. It may have to be absorbed by the State by reducing the price of admission. In the present case the football tickets were sold on a basis of $1.36 for admission and 14 cents for tax, total $1.50.

It seems very probable that $1.50 was the price the public was willing and accustomed to pay, and that the 14-cent' tax, if collectible, was to be absorbed by a reduction in the price. The tax affects the State quite as directly as when the recipient of its bond interest has to pay a federal tax on it, Weston v. Charleston, 2 Pet. 449, 7 L.Ed. 481; or a state judge a federal tax on his salary, Collector v. Day, 11 Wall. 113, 20 L.Ed. 122; or a State waterworks superintendent a federal tax on his salary, Brush v. Commissioner, 300 U.S. 352, 57 S.Ct. 495, 81 L.Ed. 691, 108 A.L.R. 1428.

When it is a question of the federal government burdening by taxation the governmental operations of the States, or vice versa, it is not the amount of the burden but its real existence and its possibilities that condemn the tax. This is so in this,special field of constitutional law because “the power to tax involves the power to destroy,” in that the amount of tax if the power be once admitted must be left to the taxing legislature; as was fully explained in McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579.

Whether this stringent rule peculiar to our constitutional system of double government is to be applied in any case depends upon whether the function burdened by the tax is really a governmental function or some business or proprietary enterprise customarily and normally a matter of private operation and within the usual field of taxation. See South Carolina v. United States, 199 U.S. 437, 26 S.Ct. 110, 50 L.Ed. 261, 4 Ann.Cas. 737; Metcalf & Eddy v. Mitchell, 269 U.S. 514, 46 S.Ct. 172, 70 L.Ed. 384; Brush v. Commissioner, supra.

There is a faint contention made here • that higher education is not a legitimate governmental function, though common schools are admitted to be necessary to the success of a democracy. It is true that historically higher education in America was for a long period furnished by church seminaries and privately endowed and operated colleges; but this was due to the lack of public funds and not to a failure to recognize that highly educated leaders are also necessary to the success of democracy.

George Washington himself urged and sought to found a college for higher education in Virginia, and Thomas Jefferson pushed the idea to fruition in Virginia’s University. Even before this, Georgians were pressing the matter. The Georgia Constitution of 1777, art. 54, provided: “Schools shall be erected in each county, and supported at the general expense of the State, as the legislature shall hereafter point out.” Numerous acts of the period establishing towns and counties contain provisions for schools and academies in them.

When by the act of 1784 the counties of Washington and Franklin were laid out, 40,000 acres of land of the first quality were set apart “for the endowment of a college or seminary of learning.” Watkins’ Digest, p. 293. The following year, 1785, the University of Georgia was created and its property vested in a corporation styled “The Trustees of the University of Georgia,” and its government (subject to the Legislature) was committed to the trustees and a board of visitors.

The trustees, appointed by the Governor, with various changes continued till 1931, when they were succeeded by the Board of Regents, complainants here. The

preamble to the ancient act, Watkins’ Digest, p. 299, is an unanswerable argument for higher education as a function of democratic government. It reads in part: “As it is the distinguishing happiness of free government that civil order should be the result of choice and not necessity, and the common wishes of the people becomes the laws of the land, their public prosperity and even existence very much depends upon suitably forming the minds and morals of their citizens * * * This is an influence beyond the sketch of laws and punishments, and can be claimed only by religion and education.

It should therefore be among the first objects of those who wish well to the national prosperity to encourage and support the principles of religion and morality, and early to place the youth under the forming hand of society, that by instruction they may be molded to the love of virtue and good order. Sending them abroad to other countries for their education will not answer these purposes * * * and will always be the cause of so great foreign attachments that upon principles of policy it is not admissible,” etc.

The University of Georgia as a seat of higher learning with branches in many parts of the State has remained imbedded in the Constitutions and the statutes of the State ever since. The State of Georgia thus came into the Federal Union with this University declared as a part of its governmental activity. The Regents were created by the act of 1931 reorganizing the executive departments of the State. Acts* 1931, p. 7..

Section 45, p. 20, is: “There is hereby set up and constituted a department of the Slate Government of Georgia to be known as the ‘Board of Regents of the University System of Georgia.’ The name of the corporation heretofore established and existing under the name and style, ‘Trustees of the University of Georgia’ be and the same is hereby changed to ‘Regents of the University System of Georgia.’ ”

Section 48, p. 21: “The government of the University of Georgia, and all of its branches * * * is vested in a Board of Regents.” By

section 50, p. 21, the board is composed of persons appointed by the Governor and confirmed by the Senate, and the Governor is ex officio a member.

Section 51, p. 22, fixes their term of office, and

section 59, p. 24, their pay. By

section 77, p. 31, “The expense of the Board of Regents, other than that of the institutions under its control, shall be met out of a separate appropriation enacted for its maintenance and support.” By sections 55 and 65, pp. 23, 25, the powers, rights, privileges, and duties of the former Board of Trustees of the University of Georgia are vested in the Regents.

These provisions make it very plain that the members of the Board of Regents are public officers having power to govern the University System, and that the corporation styled Regents of the University System of Georgia is a public corporation intended to hold the title to its property and do its business. The relation of the Regents and the corporation to the State was considered in State of Georgia v. Regents, 179 Ga. 210, 175 S.E. 567, 571.

These expressions occur in the opinion: "It is thus seen that the Regents of the University System of Georgia is a distinct corporate entity, though controlled by a Board of Regents which is designated as a department of the state government." “So long as the board does not exercise its powers capriciously or arbitrarily, or so as to thwart the purpose of the Legislature in establishing a system of university education, the board itself must determine what is necessary for the usefulness of the system, and thus will govern the University of Georgia and its several branches.

The powers granted are broad and comprehensive, and, subject to the exercise of a wise and proper discretion, the regents are untrammeled except by such restraints of law as are directly expressed, or necessarily implied.” “It may be conceded that the State is the equitable and beneficial owner of all property now vested in the Regents of the University System, and that the corporation by that name is the holder only of legal title.” That the Regents are public officers and the funds they raise are public moneys, and specifically those raised by the athletic associations such as are here involved, was emphatically declared by the Legislature in the act of 1935.

Acts 1935, p. 171. There can be no doubt that the Board of Regents and the instrumentalities which they employ, including the athletic associations, are governmental agencies of education. The last and most doubtful question is whether athletic games and exhibitions for which admission is charged can be considered a part of the governmental function of education at a State university so as to be free of federal taxation.

That the Board of Regents have both 'at the University at Athens and the Technological School at Atlanta made physical education an integral part of the University’s function, and that they authorize and supervise public exhibitions for which admission is charged as a part of the program, admits of no doubt. The formal catalogues and bulletins of both institutions set forth at length the opportunities and the requirements for physical education. At Athens all students, male and female, are required to take two years of such education, military drill for males being recognized as equivalent.

One teaching degree includes sports in its curriculum, being designed to qualify graduates not only to teach in the State High Schools but to direct the physical education in such schools. In both institutions the head of the Department of Physical Education holds the office of dean of men in the faculty. Other instructors, often called “coaches,” are also members of the faculty. The conduct of athletic contests and the qualifications of contestants are regulated by faculty rules approved by the Regents and are related to scholastic standing. The

schedule of contests for each year is approved by the faculty and by the Regents. Their details are handled at each institution by an athletic association composed of faculty members and alumni and incorporated to facilitate such business transactions as the improvement of the athletic grounds and equipment. They are wholly under control of the Regents and are their agents. The chancellor of the University System is himself president of the Athletic Association at Athens.

The taxes here in question were assessed against these associations, and the pleadings of the collector insist that the associations are to be considered separate from the Regents of the University System, but that position is untenable and has been abandoned in argument. The tickets which gave rise to the tax show on their face that they were sold for the University, for they state that the University of Georgia contends that there is no liability to the tax, but the University is collecting the 14 cents as a part of the charge of admission and will retain it as such if a tax is not collectible.

The money from admissions is, like all other funds of the associations, audited by the State Auditor, and as already stated was claimed specifically as the State’s by the State Legislature itself in the act of 1935. The highest State governmental authority has thus ratified the use of the associations and the charge for admissions to the games as proper functions of the University. Athletics as a formal feature of education is recent in America, aside from military and naval exercises. But the conception and practice go back at least to the ancient Greeks.

The Olympic and Isthmian games were public institutions designed especially to promote physical development, and their crowns were the honors most sought after. At Athens the stadium was hard by the theater, and both were public institutions. Plato in his Republic names gymnastics as the second in the trilogy of public educational activities. The Germans today call their high schools gymnasiums. In America the acquisition of grounds for school athletics is held to be a proper educational purpose, and even to authorize condemnation of the land. Reiger v.

Board of Education, 287 Ill. 590, 122 N.E. 838; State ex rel. School District v. Chelan County, 69 Wash. 189, 124 P. 484. Apparatus for football and basketball may be bought with public funds. Anderson v. Board of Education, 49 N.D. 181, 190 N.W. 807. Damages arising from injuries in the gymnasium and on football field are not recoverable because the activities are a part of the educational program and so a governmental function. Spencer v. School District, 121 Or. 511, 254 P. 357; Mokovich v. School District, 177 Minn. 446, 225 N.W. 292.

An athletic association was held exempt from taxation because an educational institution in German Gymnastic Association v. Louisville, 117 Ky. 958, 80 S.W. 201, 65 L.R.A. 120, 111 Am.St.Rep. 287. Although the scholar for a long period looked down upon the athlete, at this time we are recurring to the ancient idea that the body cannot he neglected while educating the mind. Public contests are not an abuse of physical education.

It is true they employ but a few of the students, but they give stimulus and life to the whole athletic enterprise. “To make the team” in any athletic spprt is a supreme incentive to careful and systematic effort; and to star upon it is like an Olympic crown.

Great judgment is necessary to prevent the stimulus of publicity from becoming too great, lest the athletic tail be found wagging the dog of mental culture in the schools, but in principle the public ’ exhibition of the best in athletics is not different from the school exhibitions of our boyhood or from the honors and speakerships at commencements of most colleges. The contests between colleges in athletics are only a superlative degree of the public exhibition.

They resemble the intercollegiate debates of the oratorical department; but the present public taste welcomes the former far more enthusiastically than the latter. Baseball, basketball, tennis, golf, boaDracing, field athletics as well as football, are made the subject of intercollegiate contests, but in popularity by far the greatest of these is football. But the record discloses that this was not always so, for baseball greatly overshadowed football until after the World War. The writer can remember when Field Dayyvas the day of glory for athletes at the University.

The charging of admission to athletic contests and exhibitions does not alter their educational or their governmental status, though it adds a danger of prostitution. It is common for educational exhibitions to be financed by admission charges,’ which have often been also a source of revenue to the school. School exhibitions of the older days were instances. Dramatic entertainments and public debates by students in English education, and by glee clubs in musical education, are modern instances. The income from all these at the University is audited, and the net earnings go to the institution.

So it is of athletic events. The University has never had adequate support by appropriations of tax money, and has had to seek other income. It is admitted that the department of physical education could not be maintained but for admission charges. These mainly support that department, including most 'of the. salaries, the purchase of equipment, and the improvement of the athletic fields, and they help maintain the infirmary; but there have been surpluses turned into the common fund nominally as loans but never repaid.

The intercollegiate football contests at present furnish by far the greater part of this income. The admission charges authorized by the Regents (and claimed by the Legislature) to any student activity, whether athletic, musical, or literary, which is recognized as a part of the educational program, and to be used wholly in its support, are in their nature a governmental arrangement for public revenue. Governments raise money by taxation, by licenses, and by selling what they have that is salable.

A license may be issued as an aid to regulation under the police power, or it may be for revenue, and in both aspects it is the exercise of a governmental function. An admission ticket to an athletic exhibition held as a part of an educational program, the money to be used for the support of such education, is, when issued under authority of the State, not unlike a license. It raises money from the purchaser for a public purpose which otherwise would call for taxation. To prohibit or to tax it is an interference with legitimate governmental financing.

Each student at the University and the School of Technology is charged at matriculation $10 as an athletic fee which helps support the department of physical education and entitles the student to the privileges of the gymnasium and swimming pools and athletic grounds, and to admission to all athletic events. It would hardly be supposed that these fees could be federally taxed, though they are for a seasonal admission to the University and its facilities, and within the words of the statute.

It may be conceded that for the Regents to hire athletes to give performances in order to make money would be taxable, for it would be for the State to enter a commercial field. In exhibitions of the State’s own students there is an education of the few who directly participate in coolness and self-control under supreme excitement, in loyalty and teamwork, and a rewarding of them for faithfulness and proficiency in their physical training. There is also stimulated the interest and the efforts of all students in athletics.

Between using the students in the department of physical education and hiring performers there is about the difference that existed between the Greek citizen games and the Roman gladiatorial shows. It must be admitted also that there has existed in college football a practice through the use of scholarships or other things of securing football players rather than students. This abuse has been due more to enthusiastic alumni than to college authorities, but it has in general been corrected. There can be no such charge made against the management of the Regents as exhibited in this record.

The patrons of intercollegiate football games probably do not connect what they see and hear, and especially what they themselves do, with education, but that does not change the ultimate truth. There are also many problems connected with such games that have led some institutions to reject them as undesirable, but their value in the educational program is for the judgment of the educational authorities. Where the State government includes them as useful and incidentally uses them as .a source of income, it is not for the federal tax officers nor for the judges to overrule their decision.

Under long-established principles the United States ought not to tax these admissions, and the statute will be held not to apply to a State university. Judgment affirmed. The general exemption from the tax of admissions which inure to the benefit of religious, charitable, and educational institutions was made because Congress knew the burden would fall thus on the institutions.