285 U.S. 393 (1932)
By the Enabling Act Congress required as a condition precedent to the admission of Oklahoma into the Union that her constitution should make provision for common schools.1 For their benefit it granted certain lands to the State with the proviso that those valuable for minerals, gas and oil should not be sold prior to January 1, 1915, but might be leased.2
The State Constitution established a common school system and pledged her faith to preserve the lands so conveyed by the United States as a sacred trust.3 It required keeping the lands for the uses and purposes for which they were granted.4 The legislature prescribed regulations for leasing and directed payment of the proceeds into the school fund.5
In January 1914 some of these lands were leased to the Coronado Oil and Gas Company.6 Renewals followed in 1919.7 Under the first lease the State received fifty per cent of gross production.8 Under the second lease the State received twelve and one-half per cent of gross production.9 During the years here important the lessee’s entire income came from the sale of its portion of such output.10
The Commissioner of Internal Revenue assessed income and excess-profits taxes upon the corporation’s net income for 1917, 1918 and 1919.11 The Board of Tax Appeals approved his action.12 The Court of Appeals, District of Columbia, ruled otherwise.13 The latter held that the lease to the Coronado Company was an instrumentality of the State for the utilization of lands dedicated to the support of public schools and that to tax the fruits of the lease would burden her in the performance of the governmental function of maintaining such schools.14 This conclusion was necessary under Gillespie v. Oklahoma.15
Whether the net income derived by Coronado Oil and Gas Company from its leases of Oklahoma school lands is subject to federal income and excess-profits taxes?16
The United States can lay no tax upon the governmental instrumentalities of the States.17 Agencies through which a state immediately and directly exercises its sovereign powers are immune from the taxing power of the United States.18 When a state leases public lands dedicated to public schools it exercises a function strictly governmental in character.19 Taxing the income of the lessee arising from the lease amounts to an imposition upon the lease itself.20
No. Oklahoma received the lands under the Enabling Act with the requirement that they support common schools and the state constitution pledged to preserve them as a sacred trust for that purpose.21 The legislature directed leasing with proceeds paid into the school fund.22 In January 1914 the lands were leased to Coronado Oil and Gas Company with renewals in 1919.23 The state received fifty percent or twelve and one-half percent of gross production.24 The lessee's entire income came from sale of its portion of the output.25
The lease therefore constituted an instrumentality of the state for carrying out its governmental duty regarding public schools.26 Federal taxation of the lessee's income would burden that function.27
The net income is exempt from federal income and excess-profits taxes.28
Related opinions on this issue
Joined by Justice Brandeis, Justice Roberts, Justice Cardozo
Justice Stone dissented on the ground that Gillespie v. Oklahoma should be overruled.29 He explained that the Texas leases upheld as taxable in Group No. 1 Oil Corp. v. Bass were indistinguishable in operation and effect from the Oklahoma leases.30 Both involved private lessees acquiring property rights for their own benefit from governmental grants.31 The taxed income derived from the lessee's private business of producing and selling oil that became his property.32 No distinction of substance justified continued immunity for the Oklahoma leases.33
Since comparison of the two methods of disposing of state assets reveals only formal differences, this Court must now deal with an irreconcilable conflict in the theories upon which two of its decisions rest.34
Whether the doctrine announced in Gillespie v. Oklahoma requires that such income be exempt from federal taxation?35
The doctrine of Gillespie v. Oklahoma holds that income derived by a lessee from leases of state school lands is exempt from federal taxation.36 The lease is an instrumentality of the state for the performance of its governmental function of maintaining public schools.37 The Court adheres to that rule when the present claim of exemption cannot be distinguished in principle from the earlier cause.38
Yes. The Court of Appeals correctly concluded that taxation would burden the state's performance of its governmental function and that this result was necessary under Gillespie v. Oklahoma.39 The present facts are closely analogous.40 Lands were granted for schools and leased rather than sold.41 Proceeds were devoted to the school fund.42 The lessee's income arose directly from the lease.43 The Court therefore applies the doctrine strictly and adheres to the rule there approved rather than distinguishing the claim.44
Gillespie v. Oklahoma requires exemption of the income from federal taxation.45
Related opinions on this issue
Joined by Justice Stone, Justice Roberts
Justice Brandeis dissented and urged that Gillespie v. Oklahoma be frankly overruled because it wrongly extended tax immunity to vast private incomes.46 He argued that stare decisis is not an inflexible command in constitutional cases where legislative correction is impossible.47 The controversy is usually over the application to existing conditions of some well-recognized constitutional limitation rather than pure interpretation.48
The Court should bring its opinions into agreement with experience and newly ascertained facts so that judicial authority rests on the force of its reasoning.49