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  • NELSON, Chairman of State Tax Commission et al. v. SEARS, ROEBUCK & CO. | Supreme Court | LII / Legal Information Institute
    what is taxed regardless of the time and place of passing title and regardless of the time the tax is required to be paid Cf McGoldrick v Berwind White Coal Mining Co 309 U S 33 49 60 S Ct 388 393 84 L Ed 565 128 A L R 876 So the nub of the present controversy centers on the use of respondent as the collection agent for Iowa The imposition of such a duty however was held not to be an unconstitutional burden on a foreign corporation in Monamotor Oil Co v Johnson 292 U S 86 54 S Ct 575 78 L Ed 1141 and Felt Tarrant Mfg Co v Gallagher 306 U S 62 59 S Ct 376 83 L Ed 488 But respondent insists that those cases involved local activity by the foreign corporation as a result of which property was sold to its local customers while in the instant case there is no local activity by respondent which generates or which relates to the mail orders here involved Yet these orders are still a part of respondent s Iowa business The fact that respondent could not be reached for the tax if it were not qualified to do business in Iowa would merely be a result of the impotence of state power Wisconsin v J C Penney Co supra Since Iowa has extended to it that privilege Iowa can exact this burden as a price of enjoying the full benefits flowing from its Iowa business Cf Wisconsin v J C Penney Co supra Respondent cannot avoid that burden though its business is departmentalized Whatever may be the inspiration for these mail orders however they may be filled Iowa may rightly assume that they are not unrelated to respondent s course of business in Iowa They are nonetheless a part of that business though none of respondent s agents in Iowa actually solicited or placed them Hence to include them in the global amount of benefits which respondent is receiving from Iowa business is to conform to business facts Nor is the mode of enforcing the tax on the privileges of these Iowa transactions any discrimination against interstate commerce As we have seen the use tax and the sales tax are complementary Sales made wholly within Iowa carry the same burden as these mail order sales A tax or other burden obviously does not discriminate against interstate commerce where equality is the theme Henneford v Silas Mason Co supra 300 U S at pages 583 586 57 S Ct at pages 527 528 81 L Ed 814 McGoldrick v Berwind White Coal Mining Co supra 309 U S at pages 48 49 60 S Ct at page 393 84 L Ed 565 128 A L R 876 Respondent however insists that the duty of tax collection placed on it constitutes a regulation of and substantial burden upon interstate commerce and results in an impairment of the free flow of such commerce It points to the fact that in its mail order business it is in competition with out of state mail order houses which need not and do not collect the tax on their Iowa sales But those other concerns are not doing business in the state as foreign corporations Hence unlike respondent they are not receiving benefits from Iowa for which it has the power to exact a price Respondent further stresses the cost to it of making these collections and its probable loss as a result of its inability to collect the tax on all sales 4 But cost and inconvenience inhered in the same duty imposed on the foreign corporations in the Monamotor and Felt Tarrant cases And so far as assumed losses on tax collections are concerned respondent is in no position to found a constitutional right on the practical opportunities for tax avoidance which its method of doing business affords Iowa residents or to claim a constitutional immunity because it may elect to deliver the goods before the tax is paid Prohibited discriminatory burdens on interstate commerce are not to be determined by abstractions Particular facts of specific cases determine whether a given tax prohibitively discriminates against interstate commerce Hence a review of prior adjudications based on widely disparate facts howsoever embedded in general propositions does not facilitate an answer to the present problem The judgment is reversed and the cause is remanded to the Iowa Supreme Court for proceedings not inconsistent with this opinion It is so ordered Reversed and remanded Mr Justice STONE took no part in the consideration or disposition of this case Mr Justice ROBERTS dissenting I think that the judgment should be affirmed The respondent a New York corporation conducts an interstate mail order business It has also established retail stores throughout the country In 1928 to secure the privilege of conducting stores in Iowa as a foreign corporation it obtained a permit which has been kept in force by payment of the fees prescribed by the State No question arises with respect to the collection by the respondent of the tax on sales made in stores in Iowa or on sales based upon orders taken in those stores but filled by forwarding articles from a warehouse in another state The controversy arises only over pure mail order sales These are consummated in the following manner The respondent forwards to persons in Iowa catalogues detailing the articles it has for sale the prices and the cost of transporting them A person in Iowa forwards his written order to one of the respondent s mail order houses located outside Iowa for the purchase of tangible personal property as listed and priced in respondent s catalogue the order being accompanied by a remittance of the purchase price plus transportation charges and usually specifying the method of transportation desired by the purchaser The order is accepted or rejected at the place where it is received and if accepted is filled by delivery to the post office or to a carrier for direct shipment from the extra state mail order house to the purchaser in Iowa This mail order branch of respondent s business is separate and distinct from any activity conducted at its stores in Iowa In conducting it the respondent is in direct competition with other mail order houses which conduct their business in exactly similar fashion but have no stores in Iowa and are not therein registered as foreign corporations The method necessarily pursued in the respondent s mail order business makes it a certainty that it will be unable by whatever practical efforts it may put forth to collect the amount of the use tax on all its mail order sales made to persons in Iowa In 1937 the number of its mail order transactions with some 300 000 persons in Iowa was approximately 1 200 000 Under the statute as attempted to be enforced against its mail order business if in 1937 the respondent had failed to collect from each customer the sum involved as tax it would have been liable to Iowa in the aggregate for two per cent on approximately 5 400 000 the volume of its Iowa mail order business in that year If it had made the effort to collect the tax the cost of so doing would have been approximately eighteen per cent of the total tax on the mail order sales made to persons in Iowa and in addition to that cost the respondent would have been liable for approximately 38 000 of tax uncollected from purchasers In addition as a result of the exaction the respondent s mail order business will be placed at a serious disadvantage in competition with other mail order concerns which have no retail stores in Iowa and so have a price advantage of two per cent of sales price as against respondent The penalty for failing to collect the tax as agent for the State or to pay the sum not susceptible of collection from purchasers as required by the State will be the revocation of respondent s permit for the conduct of its stores in Iowa which represent a large expenditure for furniture fixtures appliances and stock and will entail loss of rental values under long term leases I am of opinion that the attempted enforcement of the statute in the manner proposed by the taxing authorities of the State violates both the commerce clause and the Fourteenth Amendment of the Constitution First The respondent s mail order business is interstate commerce 1 and Iowa may not prohibit the respondent from conducting that business with her citizens 2 To attempt so to do would be a violation of the commerce clause of the Constitution Not only so but Iowa may not directly burden such commerce Therefore she may not tax the privilege of engaging in it regulate or license its pursuit 3 or tax the gross income derived from it 4 And even if the respondent maintained a force of agents in Iowa soliciting orders to be shipped in interstate commerce that fact would not render it amenable to the regulation or taxation of its mail order business 5 Thus Iowa may not lawfully license or regulate the business of agents soliciting orders to be shipped in interstate commerce 6 or limit or condition the right to enforce mail order contracts in Iowa courts 7 The power to exclude foreign corporations altogether from doing a local business does not enable the State to impose burdens upon the transaction of interstate commerce by a foreign corporation registered in the State and registration by a foreign corporation in order to do business within the State does not constitute a waiver of the corporation s right to transact interstate business free from the burdens of state regulation or taxation 8 Iowa may not abuse its conceded power to tax or regulate the respondent s activities within the State by attempting to compel compliance by the respondent with unconstitutional efforts to tax or burden its interstate commerce 9 And Iowa may not forfeit as it proposes to do the right to conduct a domestic business by reason of the refusal of the respondent to submit to a burden upon its interstate business 10 Clearly in this instance the effort is directly and substantially to burden the transaction of an interstate business with the state s citizens in violation of the commerce clause by the threat of penalizing disobedience by the forfeiture of the right to transact within Iowa an independent business which the respondent conducts in accordance with all existing laws including the law requiring it to deduct and pay over the amount of the Iowa sales tax Upon reason as well as upon the unbroken current of authority in this court Iowa has no such power to burden interstate commerce Monamotor Oil Co v Johnson 292 U S 86 54 S Ct 575 78 L Ed 1141 and Felt Tarrant Mfg Co v Gallagher 306 U S 62 59 S Ct 376 83 L Ed 488 relied upon by the petitioners are not in point The first is not apposite because there the company was engaged in the distribution of gasoline in the State of Iowa This was the only activity drawn in question The statute merely required the company in distributing gasoline to users to add the tax to its sales price and report and return the amount of tax thus withheld In the second the collection of the use tax was imposed with respect to property sold by the corporation through its general agents who were doing business in the State of California and were handling articles sold for delivery in that State As an incident of such sales the seller was required to add the tax and make return of it to the State 11 In justification of the exaction it is said that the purchaser is in Iowa and the tax is on the purchaser s use in that State But if these facts were determinative they would justify the imposition of a tax or burden by the state of the purchaser s residence on every transaction in which goods are sold in interstate commerce Attention is also called to the fact that Iowa cannot effectively reach its own citizens in order to enforce the use tax on them This cannot however justify the state s attempt to save itself trouble by placing an unconstitutional burden upon interstate commerce conducted by a citizen of another state Reference is made to the circumstance that as a similar tax is laid on local sales in Iowa there is no discrimination in imposing the tax or its collection upon the respondent but the argument will not serve to legalize the tax A state cannot justify a burden on interstate commerce by laying a similar burden on local commerce 12 Second So far as the Fourteenth Amendment is concerned Iowa may lay a tax on any activity of the respondent which it pursues within the State but plainly upon the facts disclosed there is in the conduct of respondent s mail order business no such local activity The Supreme Court of the State 292 N W 130 135 correctly found The sales are consummated outside the State of Iowa in each instance They are separate and distinct from plaintiff s activities in Iowa The statute here challenged seeks to impose upon plaintiff the obligation that it shall at the time of making such sales whether within or without the state collect the tax imposed by this chapter from the purchaser The sales are made outside of Iowa and the statute requires plaintiff to collect the tax at the time the sales are made It clearly seeks to regulate activities of plaintiff outside the state Under repeated pronouncements of the Supreme Court of the United States hereinbefore reviewed and quoted from the State of Iowa has no such right Delivery to a designated carrier is delivery to the customer 13 and in this case is completed outside Iowa The attempt therefore to impose a burden upon such delivery or to regulate the transaction is but an effort on the part of Iowa to regulate or tax an event which occurs outside her borders and over which she has no jurisdiction 14 This court has recently enforced this principle in a case on its merits more favorable to the State s contention than the present 15 There is was said It follows that such a tax otherwise unconstitutional is not converted into a valid exaction merely because the corporation enjoys outside the state economic benefits from transactions within it which the state might but does not tax or because the state might tax the transactions which the corporation carries on outside the state if it were induced to carry them on within McGoldrick v Berwind White Coal Mining Company 309 U S 33 60 S Ct 388 84 L Ed 565 128 A L R 876 is distinguishable from the instant case for there the decision was grounded on the fact that the transfer of title and consummation of sale depended upon delivery by the seller in the taxing state In this aspect also the power of the State does not extend to measures which condition respondent s privilege to do business in another state free from the regulation or taxation of Iowa 16 The CHIEF JUSTICE joins in this opinion CC Transformed by Public Resource Org 1 The Use Tax Act provides in 6943 103 An excise tax is hereby imposed on the use in this state of tangible personal property purchased on or after the effective date of this chapter April 16 1937 for use in this state at the rate of two percent of the purchase price of such property Said tax is hereby imposed upon every person using such property within this state until such tax has been paid directly to the county treasurer to a retailer or to the commission as hereinafter provided The sales tax is a two per cent tax on gross receipts from sales of tangible personal property sold at retail in the state to consumers or users 6943 075 So far as material here the Use Tax need not be paid on property where a tax is required to be paid under the Sales Tax Act 6943 104 2 The retailer must also make quarterly returns 6943 113 Penalties are imposed for delay in filing returns 6943 118 for failure to do so or for failure to furnish data required by the commission 6943 120 3 In 1937 respondent mailed to residents of Iowa about 600 000 small catalogues and 427 000 large ones Respondent maintains 12 retail stores in Iowa its investment therein exceeding 500 000 The aggregate sales of the retail stores in Iowa for 1936 amounted to 5 080 000 for 1937 5 600 000 Its mail order sales in Iowa for 1936 aggregated about 5 900 000 for 1937 about 5 400 000 It estimates that it has some 300 000 Iowa customers of its mail order houses and that in 1937 there were about 1 200 000 orders received from Iowa customers One of respondent s witnesses testified that the catalogues and bulletins mailed out were out sole means of securing the mail order business But he also testified If a customer inquired from a clerk in the store as to whether or not he would have to pay a use tax upon an order I believe the clerk would unform him that if he himself mailed the order that there would be no sales tax or use tax charged 4 In Illinois respondent undertakes to collect the sales tax on mail orders from its Illinois customers A notice and schedule of the tax for various amounts of orders are contained in the Illinois catalogue It asserts that approximately 65 of those orders include an allowance for the tax Where the orders

    Original URL path: http://www.law.cornell.edu/supremecourt//text/312/359 (2012-11-09)
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  • UNITED STATES, Petitioner, v. Onofre J. SOTELO and Naomi Sotelo. | Supreme Court | LII / Legal Information Institute
    taxes Such a result would be directly inconsistent with Congress declarations that the amendment which became 17a 1 e met the Treasury Department s concern about ensuring post bankruptcy liability for these taxes IV In light of this legislative history little doubt remains as to the nondischargeability of respondent s liability under 17a 1 e The Court of Appeals did not consider this history but instead relied on more general policy factors The court observed that an inequity could arise from holding an individual liable for a tax owed by a corporation in cases where because the corporate liability vastly exceeds the individual s present or future resources his entire future earnings could be confiscated to compensate for the corporate liability Such a result in the court s view would contravene the Bankruptcy Act s basic policy of settling a bankrupt s past debts and providing a fresh economic start 551 F 2d at 1092 1093 However persuasive these considerations might be in a legislative forum we as judges cannot override the specific policy judgments made by Congress in enacting the statutory provisions with which we are here concerned The decision to hold an individual liable for a tax owed by a corporation even if there is a wide disparity between the corporation s liability and the individual s resources was made when Internal Revenue Code 6672 was passed since it is that section which imposes the liability without regard for the individual s ability to pay 12 And while it is true that a finding of nondischargeability prevents a bankrupt from getting an entirely fresh start this observation provides little assistance in construing a section expressly designed to make some debts nondischargeable We are not here concerned with the entire Act s policy but rather with what Congress intended in 17a 1 and its subdivision e The statutory language and legislative history discussed in Parts II and III supra demonstrate an intention to make a liability like respondent s nondischargeable 13 The Court of Appeals approach moreover would have the effect of allowing a corporation and its officers to escape all liability for unpaid withholding taxes see supra at 278 279 while leaving liable for such taxes after bankruptcy those individuals who do business in the sole proprietorship or partnership rather than the corporate form 14 In passing 17a 1 however Congress was expressly concerned about the fact that the operation of prior law was unfairly discriminatory against the private individual or the unincorporated small businessman H R Rep No 372 p 2 see S Rep No 114 pp 2 3 As discussed above Congress recognized that a bankrupt corporation dissolves and goes out of business 112 Cong Rec 13817 1966 remarks of Sen Ervin thereby avoiding IRS tax claims it was thought inequitable that a sole proprietor or other individual would remain liable after bankruptcy for the same type of claims See generally sources cited at 278 and n 11 supra This inequity between a corporate officer and an individual entrepreneur both of whom have a similar liability to the Government frequently would turn on nothing more than whether the individual was sophisticated enough to in effect incorporate himself 112 Cong Rec 13817 1966 remarks of Sen Ervin 15 Were we to adopt the Court of Appeals approach we would be instituting precisely the kind of arbitrary discrimination that 17a 1 was designed to alleviate 112 Cong Rec 13818 1966 statement of Sen Ervin 16 In terms of statutory language and legislative history then the liability of respondent under Internal Revenue Code 6672 must be held nondischargeable under Bankruptcy Act 17a 1 e The judgment of the Court f Appeals is accordingly Reversed and remanded TOP Mr Justice REHNQUIST with whom Mr Justice BRENNAN Mr Justice STEWART and Mr Justice STEVENS join dissenting The Government undoubtedly needs the revenues it receives from taxes but great as that need may be I cannot join the Court s thrice twisted analysis of this particular statute to gratify it The issue involved is the dischargeability in the corporate officer s bankruptcy proceedings of taxes which the corporation is obligated to collect and pay over to the Government In order to conclude that the corporate officer remains liable for this corporate obligation the Court turns to an unlikely source indeed a 1966 amendment to the Bankruptcy Act the only apparent purpose of which was to ameliorate the lot of at least some bankrupts see infra at 284 285 and n 1 The Court then proceeds to slog its way to its illogical conclusion by reading a proviso obviously intended to limit dischargeability of the debts of a bankrupt so as to expand that category of debts It then attempts to bolster this inexplicable interpretation by construing not the legislation which Congress enacted but a letter from the Assistant Secretary of the Treasury not unnaturally opposing any expansion of the dischargeability in bankruptcy of tax related liabilities The net result of this perverse approach to an amendment to the Bankruptcy Act is to make nondischargeable a liability which might well have been dischargeable before Congress stepped in to alleviate some of the hardships resulting from the making of the debts of a bankrupt nondischargeable In the background of this remarkable decision is 6672 of the Internal Revenue Code which imposes a penalty upon a person required to collect truthfully account for and pay over any tax imposed by this title 26 U S C 6672 Perhaps recognizing that this provision not only does not support its conclusion but seriously undermines it the Court not surprisingly attempts to keep this provision in the background addressing it only obliquely in a footnote where it summarily concludes again in a remarkable tour de force of linguistics and logic that a penalty must mean the same thing as a tax The underlying debt in this case is that of a third person to pay the tax liability of another I would want far clearer language than can be found in this statute to reach the conclusion that this liability is not dischargeable in the bankruptcy proceedings of that third person I therefore dissent As an initial matter since 17a 1 e of the Bankruptcy Act is a proviso to 17a 1 I would have thought that respondent would have to fall within the terms of the latter before it is even appropriate to consider whether he falls within the terms of the former That is 17a first provides that a discharge in bankruptcy shall release a bankrupt from all of his provable debts 11 U S C 35 a 1976 ed It then excepts in 17a 1 through 17a 8 eight different categories of debts which are not to be generally discharged including taxes which became legally due and owing by the bankrupt to the United States or to any State or any subdivision thereof within three years preceding bankruptcy 11 U S C 35 a 1 1976 ed But this latter exception is itself in turn qualified in 17a 1 e Provided however That a discharge in bankruptcy shall not release a bankrupt from any taxes e which the bankrupt has collected or withheld from others as required by the laws of the United States or any State but has not paid over 11 U S C 35 a 1 e 1976 ed Thus the normal reading of 17a 1 should be to limit the nondischargeability of taxes to only those taxes legally due and owing by the bankrupt within the three years preceding bankruptcy and the subsections of 17a 1 including 17a 1 e are to be read as an exception to that limitation That exception provides that certain of the taxes described in 17a 1 will not be discharged even if more than three years old they will be nondischargeable without regard to time Normal statutory construction would thus suggest that the first inquiry should be whether the liability in question is a tax legally due and owing by the bankrupt Only if it is would it become necessary to consider whether it is also a tax collected from others but not paid over That this is the correct reading of the statute is further buttressed by the legislative history All the Committees which reported on the 1966 amendment to 17a stressed that its central purpose was to enable at least some bankrupts to more nearly achieve the fresh start promised by the Bankruptcy Act The Senate Committee on Finance for example in discussing the purpose of the proposed amendment agreed with the House Committee on the Judiciary that present law by denying any discharge of taxes presents a substantial deterrent to one fundamental policy of the Bankruptcy Act effective rehabilitation of the bankrupt S Rep No 999 89th Cong 2d Sess 9 1966 The Senate Committee went on to suggest slightly different methods from those advanced by the Judiciary Committee to achieve this goal but its Report like the others leaves no doubt that the central purpose of the amendment was to make the Act more favorable to at least some bankrupts by limiting with only a few specified exceptions the nondischargeability of taxes to only those due for the prior three years This avowed legislative purpose only heightens the incongruity of the Court s interpretation The statute s major purpose was to limit the nondischargeability of certain debts And yet the Court holds today that the enactment of 17a 1 e of that statute results in a nondischargeable debt without regard to whether that debt would have been totally nondischargeable before the passage of 17a 1 e that is without the slightest attention to the question of whether it is a tax legally due and owing by the bankrupt within the meaning of 17a 1 Thus by passing a statute with a basically beneficent purpose Congress has according to the Court not only made nondischargeable a liability which could potentially run into the hundreds of thousands of dollars but may have worsened rather than bettered the lot of the bankrupt 1 Finally even if the language and the history of this statute were less clear I would hesitate to depart from our longstanding tradition of reading the Bankruptcy Act with an eye to its fundamental purpose the rehabilitation of bankrupts This has always led the Court at least until today to construe narrowly any exceptions to the general discharge provisions See e g Gleason v Thaw 236 U S 558 562 35 S Ct 287 289 59 L Ed 717 1915 Admittedly 17a is not a compassionate section for debtors Bruning v United States 376 U S 358 361 84 S Ct 906 908 11 L Ed 2d 772 1964 but even it must be read consistently with the doctrine of Gleason supra And I simply cannot see anything in this case which justifies the Court in departing from this tradition by straining to read into the statute an exception to the dischargeability provisions that was not clearly there before this amendment was passed when the very purpose of the amendment which the Court is now construing was intended to be benevolent at least from the bankrupt s perspective Thus the initial question which should have been addressed by the Court today is whether the amounts for which respondent is liable are taxes legally due and owing by the bankrupt If they are not then the further question of whether they are nondischargeable in their entirety under 17a 1 e does not even arise And I see nothing which persuades me that respondent s liability is a tax legally due and owing by him Neither the Government nor the Court points to any section of the Internal Revenue Code which makes a corporate employee liable for the taxes which the corporate employer is required to withhold from the employees paychecks Sections 3102 3402 or 3403 of the Internal Revenue Code certainly cannot be read to do this because by their unmistakable terms they impose a duty and liability only upon an employer which a corporate employee regardless of his rank within the corporate hierarchy clearly is not Neither can 6672 of the Internal Revenue Code serve the purpose The liability imposed therein is specifically denominated a penalty and absent any indication to the contrary Congress is presumed to know the meaning of the words it uses especially in highly complex and intricate statutory schemes Indeed in another letter sent by Assistant Secretary of Treasury Surrey to the Chairman of the House Committee on the Judiciary when that Committee was considering what eventually became 17a 1 the following was specifically brought to the Committee s attention It is further believed by the Department that this bill is intended to discharge not only taxes but also penalties and interest However the bill makes reference only to taxes In this connection it is pertinent to point out that the U S Court of Appeals for the 10th Circuit in the case of United States v Mighell C A 10th 1959 273 F 2d 682 held that the word taxes in section 17 of the Bankruptcy Act 11 U S C 35 does not include penalties and by inference interest This apparent ambiguity could cause future litigation H R Rep No 687 89th Cong 1st Sess 7 1965 And yet Congress did not modify 17a 1 to include penalties I normally would not accord such passing references any weight but the contrary practice seems today de rigueur Ante at 276 277 The history of 6672 further bears out the notion that this always has been considered by Congress to be a penalty and not a tax For example 1004 of the War Revenue Act of 1917 an early predecessor of 6672 provided that anyone who failed to make a return required by the Act or otherwise evaded any tax imposed by the Act or failed to collect and pay over any such tax was subject to a penalty of double the tax evaded in addition to other penalties such as a 1 000 fine and imprisonment 40 Stat 325 Indeed even today the subchapter heading under which 6672 is found is titled Assessable Penalties Finally the very existence of 6672 bears testimony to the fact that there is no other section of federal law which makes the employee charged with the duty of collecting withholding taxes liable for those taxes If there were such a section 6672 would be unnecessary But it is the absence of such other provision which is dispositive of this case in my opinion 2 Instead of adopting the course which seems compelled by the structure and history of 17a 1 however the Court has chosen today a very different course It does give a passing nod to the question of whether one might have to satisfy 17a 1 before reaching 17a 1 e but then dismisses it in rather desultory fashion in a footnote noting only that there is no reason to believe that any taxes made nondischargeable by the specific terms of 17a 1 e would not also be taxes as that word is used more generally in 17a 1 Ante at 274 n 8 The Court then goes on to interpret 17a 1 in light of its limiting provision 17a 1 e instead of the other way around a tour de force which compels admiration if not agreement The critical and indeed only question for the Court then becomes whether respondent was required to collect and pay over the taxes Finding that respondent was so required within the meaning of 6672 of the IRC the Court concludes he falls within the language of 17a 1 e and that is the end of the matter The justifications for engaging in this unorthodox method of statutory construction are supposedly threefold but are in my opinion far from satisfactory First the Court asserts that respondent s liability is clearly encompassed within the plain terms of 17a 1 e But as indicated above such liability is encompassed within the terms of 17a 1 e only if we ignore both the structure and purpose of the statute and proceed directly to 17a 1 e without considering whether 17a 1 is first satisfied The Court next relies on certain concerns expressed by the Treasury Department in a letter from the Assistant Secretary to the Chairman of the House Judiciary Committee No doubt 17a 1 e was included partially in response to that letter But there is certainly nothing contained in that or any other provision to indicate that in adding 17a 1 e Congress also intended to extend the concept of taxes in 17a 1 to include the 100 penalty imposed by 6672 or to encompass a corporate official s responsibility presumably under the corporate charter and state law to collect and pay over federal withholding taxes The Court emphasizes the phrase and other persons in the letter and then observes that there is no reason to believe that Congress did not intend to meet Treasury s concerns in their entirety Ante at 277 But emphasizing that phrase to the exclusion of the rest of the letter and the language and structure of the statute places a weight upon that phrase which it cannot bear Indeed one could reach a much different conclusion by simply emphasizing other parts of the letter such as the Department s concern with the inequity of granting a taxpayer a discharge of his liability for payment of trust fund taxes which he has collected from his employees Emphasis supplied H R Rep No 372 88th Cong 1st Sess 6 1963 And even the Court recognizes that the Department may not have focused on the specific question presented here Ante at 277 But most importantly when interpreting the Bankruptcy Act in general with its fundamental goal of rehabilitating bankrupts and when interpreting this provision in particular with its avowed purpose of furthering that basic goal of the Act the Court is

    Original URL path: http://www.law.cornell.edu/supremecourt//text/436/268 (2012-11-09)
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  • UNITED STATES v. SANCHEZ et al. | Supreme Court | LII / Legal Information Institute
    persons to register at the time of the payment of the tax with the Collector of the District in which their businesses are located The Code then makes it unlawful with certain exceptions not pertinent here for any person to transfer marihuana except in pursuance of a written order of the transferee on a blank form issued by the Secretary of the Treasury 2591 Section 2590 requiries the transferee at the time he applies for the order form to pay a tax on such transfer of 1 per ounce or fraction thereof if he has paid the special tax and registered 2590 a 1 or 100 per ounce or fraction thereof if he has not paid the special tax and registered 2590 a 2 The transferor is also made liable for the tax so imposed in the event the transfer is made without an order form and without the payment of the tax by the transferee 2590 b Defendants in this case are transferors It is obvious that 2590 by imposing a severe burden on transfers to unregistered persons implements the congressional purpose of restricting traffic in marihuana to accepted industrial and medicinal channels Hence the attack here rests on the regulatory character and prohibitive burden of the section as well as the penal nature of the imposition But despite the regulatory effect and the close resemblance to a penalty it does not follow that the levy is invalid First It is beyond serious question that a tax does not cease to be valid merely because it regulates discourages or even definitely deters the activities taxed Sonzinsky v United States 1937 300 U S 506 513 514 57 S Ct 554 555 556 81 L Ed 772 The principle applies even though the revenue obtained is obviously negligible Sonzinsky v United States supra or the revenue purpose of the tax may be secondary Hampton Co v United States 1928 276 U S 394 48 S Ct 348 72 L Ed 624 Nor does a tax statute necessarily fall because it touches on activities which Congress might not otherwise regulate As was pointed out in Magnano Co v Hamilton 1934 292 U S 40 47 54 S Ct 599 603 78 L Ed 1109 From the beginning of our government the courts have sustained taxes although imposed with the collateral intent of effecting ulterior ends which considered apart were beyond the constitutional power of the lawmakers to realize by legislation directly addressed to their accomplishment These principles are controlling here The tax in question is a legitimate exercise of the taxing power despite its collateral regulatory purpose and effect Second The tax levied by 2590 a 2 is not conditioned upon the commission of a crime The tax is on the transfer of marihuana to a person who has not paid the special tax and registered Such a transfer is not made an unlawful act under the statute Liability for the payment of the tax rests primarily with the transferee but

    Original URL path: http://www.law.cornell.edu/supremecourt//text/340/42 (2012-11-09)
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  • SONZINSKY v. UNITED STATES. | Supreme Court | LII / Legal Information Institute
    S 509 516 19 S Ct 522 43 L Ed 786 Bromley v McCaughn 280 U S 124 50 S Ct 46 74 L Ed 226 Its power extends to the imposition of exercise taxes upon the doing of business See License Tax Cases 5 Wall 462 18 L Ed 497 Spreckles Sugar Refining Co v McClain 192 U S 397 412 24 S Ct 376 48 L Ed 496 United States v Doremus 249 U S 86 94 39 S Ct 214 63 L Ed 493 Petitioner does not deny that Congress may tax his business as a dealer in firearms He insists that the present levy is not a true tax but a penalty imposed for the purpose of suppressing traffic in a certain noxious type of firearms the local regulation of which is reserved to the states because not granted to the national government To establish its penal and prohibitive character he relies on the amounts of the tax imposed by section 2 on dealers manufacturers and importers and of the tax imposed by section 3 on each transfer of a firearm payable by the transferor The cumulative effect on the distribution of a limited class of firearms of relatively small value by the successive imposition of different taxes one on the business of the importer or manufacturer another on that of the dealer and a third on the transfer to a buyer is said to be prohibitive in effect and to disclose unmistakably the legislative purpose to regulate rather than to tax The case is not one where the statute contains regulatory provisions related to a purported tax in such a way as has enabled this Court to say in other cases that the latter is a penalty resorted to as a means of enforcing the regulations See Child Labor Tax Cases 259 U S 20 35 42 S Ct 449 450 66 L Ed 817 21 A L R 1432 Hill v Wallace 259 U S 44 42 S Ct 453 66 L Ed 822 Carter v Carter Coal Co 298 U S 238 56 S Ct 855 80 L Ed 1160 Nor is the subject of the tax described or treated as criminal by the taxing statute Compare United States v Constantine 296 U S 287 56 S Ct 223 80 L Ed 233 Here section 2 contains no regulation other than the mere registration provisions which are obviously supportable as in aid of a revenue purpose On its face it is only a taxing measure and we are asked to say that the tax by virtue of its deterrent effect on the activities taxed operates as a regulation which is beyond the congressional power Every tax is in some measure regulatory To some extent it interposes an economic impediment to the activity taxed as compared with others not taxed But a tax is not any the less a tax because it has a regulatory effect United States v Doremus supra 249 U S

    Original URL path: http://www.law.cornell.edu/supremecourt//text/300/506 (2012-11-09)
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  • UNITED STATES, Petitioner, v. REORGANIZED CF & I FABRICATORS OF UTAH, INC., et al. | Supreme Court | LII / Legal Information Institute
    question is whether the exaction ought to be treated as a tax and if so an excise without some such dispositive direction Here and there in the Bankruptcy Code Congress has included specific directions that establish the significance for bankruptcy law of a term used elsewhere in the federal statutes Some bankruptcy provisions deal specifically with subjects as identified by terms defined outside the Bankruptcy Code 11 U S C 523 a 13 for example addresses restitution issued under title 18 United States Code and 507 a 1 refers to any fees and charges assessed against the estate under chapter 123 of title 28 Other bankruptcy provisions directly adopt definitions contained in other statutes thus 761 5 7 and 8 adopt the Commodity Exchange Act s definitions of commodity option contract market contract of sale and so on Not surprisingly there are places where the Bankruptcy Code makes referential use of the Internal Revenue Code as 11 U S C 101 41 C i does in referring to an employee pension benefit plan that is a governmental plan as defined in section 414 d of the Internal Revenue Code and as 346 g 1 C does in providing for recognition of a gain or loss to the same extent that such transfer results in the recognition of gain or loss under section 371 of the Internal Revenue Code It is significant therefore that Congress included no such refer ence in 507 a 7 E even though the Bankruptcy Code itself provides no definition of excise tax or excise tax This absence of any explicit connector between 507 a 7 E and 4971 is all the more revealing in light of the following history of interpretive practice in determining whether a tax so called in the statute creating it is also a tax as distinct from a debt or penalty for the purpose of setting the priority of a claim under the bankruptcy laws CCSBDB1S Although 507 a 7 giving seventh priority to several different kinds of taxes was enacted as part of the Bankruptcy Act of 1978 92 Stat 2590 1978 Act a priority provision for taxes was nothing new Section 64 a of the Bankruptcy Act of 1898 1898 Act which governed as frequently amended until 1978 gave priority to taxes legally due and owing by the bankrupt to the United States or a State county district or municipality 30 Stat 544 563 4 On a number of occasions this Court considered whether a particular exaction whether or not called a tax in the statute creating it was a tax for purposes of 64 a and in every one of those cases the Court looked behind the label placed on the exaction and rested its answer directly on the operation of the provision using the term in question The earliest such cases involved state taxes and are exemplified by City of New York v Feiring 313 U S 283 61 S Ct 1028 85 L Ed 1333 1941 In considering whether a New York sales tax was a tax entitled to priority under 64 a the Court placed no weight on the tax label in the New York law and looked to the state statute only to ascertain whether its incidents are such as to constitute a tax within the meaning of 64 Id at 285 61 S Ct at 1029 See also New Jersey v Anderson 203 U S 483 492 27 S Ct 137 140 51 L Ed 284 1906 New York v Jersawit 263 U S 493 495 496 44 S Ct 167 167 168 68 L Ed 405 1924 The Court later followed the same course when a federal statute created the exaction In United States v New York 315 U S 510 62 S Ct 712 86 L Ed 998 1942 the Court considered whether taxes so called in two federal statutes id at 512 n 2 62 S Ct at 713 n 2 were entitled to priority as taxes under 64 a In each instance the decision turned on the actual effects of the exactions id at 514 517 62 S Ct at 714 716 with the Court citing Feiring and Anderson as authority for its enquiry 315 U S at 514 516 62 S Ct at 714 715 See also United States v Childs 266 U S 304 309 310 45 S Ct 110 111 69 L Ed 299 1924 United States v Sotelo 436 U S 268 275 98 S Ct 1795 1800 56 L Ed 2d 275 1978 We cannot agree with the Court of Appeals that the penalty language of Internal Revenue Code 6672 is dispositive of the status of respondent s debt under Bankruptcy Act 17 a 1 e 5 Congress could of course have intended a different interpretive method for reading terms used in the Bankruptcy Code it created in 1978 But if it had so intended we would expect some statutory indication see Midlantic Nat Bank v New Jersey Dept of Environmental Protection 474 U S 494 501 106 S Ct 755 759 760 88 L Ed 2d 859 1986 whereas the most obvious statutory indicator is very much to the contrary in the specific instances noted before it would have been redundant for Congress to refer specifically to Internal Revenue Code definitions of given terms if such cross identity were to be assumed or presumed as a matter of interpretive course While the Government does not directly challenge the continuing vitality of the cases in the Feiring line it seeks to sidestep them by arguing first that similarities between the plain texts of 4971 and 507 a 7 E resolve this case This approach however is inconsistent with New York and Sotelo in each of which the Court refused to rely on the terminology used in the relevant tax and bankruptcy provisions 6 The argument is also unavailing on its own terms for even if we were to accept the proposition that comparable use of similar terms is dispositive the Government s plain text argument still would fail The word excise appears nowhere in 4971 whereas by contrast 26 U S C 4401 explicitly states that it imposes an excise tax And although there is one reference to excise taxes that applies to 4971 in the title of the chapter covering that section Subtitle D Miscellaneous Excise Taxes the Government disclaims any reliance on that caption Tr of Oral Arg 14 17 20 see also 26 U S C 7806 b No inference implication or presumption of legislative construction shall be drawn or made by reason of the location or grouping of any particular section or provision or portion of this title Furthermore though 4971 a does explicitly refer to its exaction as a tax the Government disavows any suggestion that this language is dispositive as to whether 4971 a is a tax for purposes of 507 a 7 E while 4971 b imposes a tax equal to 100 percent of the accumulated funding deficiency to the extent not corrected the Government says that this explicit language does not answer the question whether 4971 b is in fact a tax under 507 a 7 E Reply Brief for United States 13 14 Tr of Oral Arg 19 24 The Government s positions then undermine its suggestion that the statutes texts standing together demonstrate that 4971 a imposes an excise tax The Government s second effort to avoid a New York and Sotelo interpretive enquiry relies on a statement from the legislative history of the 1978 Act that all Federal State or local taxes generally considered or expressly treated as excises are covered by 507 a 7 E 124 Cong Rec 32 416 1978 remarks of Rep Edwards id at 34 016 remarks of Sen DeConcini But even taking this statement as authoritative it would provide little support for the Government s position Although the statement may mean that all exactions called 7 excise taxes should be covered by 507 a 7 E 8 4971 does not call its exaction an ex cise tax And although the section occurs in a subtitle with a heading of Miscellaneous Excise Taxes the Government has disclaimed reliance on the subtitle heading as authority for its position in this case recognizing the provision of 26 U S C 7806 b that no inference of legislative construction should be drawn from the placement of a provision in the Internal Revenue Code See supra at Tr of Oral Arg 19 If on the other hand the statement in the legislative history is read more literally its apparent upshot is that among those exactions that are taxes the ones that are expressly treated as excises are excise taxes within the meaning of 507 a 7 E But that proposition fails of course to answer the question whether the exaction is a tax to begin with In sum we conclude that the 1978 Act reveals no congressional intent to reject generally the interpretive principle that characterizations in the Internal Revenue Code are not dispositive in the bankruptcy context and no specific provision that would relieve us from making a functional examination of 4971 a We proceed to that examination CCSCDB1S Anderson and New York applied the same test in determining whether an exaction was a tax under 64 a or a penalty or debt a tax is a pecuniary burden laid upon individuals or property for the purpose of supporting the Government Anderson 203 U S at 492 27 S Ct at 140 New York 315 U S at 515 62 S Ct at 714 715 accord Feiring 313 U S at 285 61 S Ct at 1029 B 64 extends to those pecuniary burdens laid upon individuals or their property for the purpose of defraying the expenses of government or of undertakings authorized by it Or as the Court noted in a somewhat different context a tax is an enforced contribution to provide for the support of government a penalty as the word is here used is an exaction imposed by statute as punishment for an unlawful act United States v La Franca 282 U S 568 572 51 S Ct 278 280 75 L Ed 551 1931 We take La Franca s statement of the distinction to be sufficient for the decision of this case if the concept of penalty means anything it means punishment for an unlawful act or omission and a punishment for an unlawful omission is what this exaction is Title 29 U S C 1082 requires a pension plan sponsor to fund potential plan liability according to a complex statutory formula see also 26 U S C 412 and 26 U S C 4971 a requires employers who maintain a pension plan to pay the Government 10 percent of any accumulated funding deficiency If the employer fails to correct the deficiency before the earlier of a notice of deficiency under 4971 a or an assessment of the 4971 a exaction the employer is obligated to pay an additional tax of 100 percent of the accumulated funding deficiency 4971 b 9 The obviously penal character of these exactions is underscored by other provisions including one giving the Pension Benefit Guaranty Corporation PBGC an entirely independent claim against the employer for the total amount of the unfunded benefit liabilities 29 U S C 1362 b 1 A a claim which in this case the PBGC has asserted and which is still pending see Pension Benefit Guaranty Corp v Reorganized CF I Fabricators of Utah Inc 179 B R 704 N D Utah 1994 see also 1306 1307 We are indeed unable to find any provision in the statutory scheme that would cast the tax at issue here in anything but this punitive light D The legislative history reflects the statute s punitive character SU21S The bill also provides new and more effective penalties where employers fail to meet the funding standards In the past an attempt has been made to enforce the relatively weak funding standards existing under present law by providing for immediate vesting of the employees rights to the extent funded under plans which do not meet these standards This procedure however has proved to be defective since it does not directly penalize those responsible for the underfunding For this reason the bill places the obligation for funding and the penalty for underfunding on the person on whom it belongs namely the employer H R Rep No 93 807 p 28 1974 U S Code Cong Admin News 1974 pp 4670 4694 DCSAccord S Rep No 93 383 p 24 1973 The Committee Reports also stated that since the employer remains liable for the contributions necessary to meet the funding standards even after the payment of the excise taxes it is anticipated that few if any employers will willfully violate these standards H R Rep No 93 807 supra at 28 S Rep No 93 383 supra at 24 25 Given the patently punitive function of 4971 we conclude that 4971 must be treated as imposing a penalty not authorizing a tax Accordingly we hold that the tax under 4971 a was not entitled to seventh priority as an excise tax under 507 a 7 E but instead is for bankruptcy purposes a penalty to be dealt with as an ordinary unsecured claim CCSIIIDB1S Hence the next question whether the Court of Appeals improperly subordinated the Government s 4971 claim to those of the other general unsecured creditors Though we have rejected the argument that the 4971 claim is for an excise tax within the meaning of 507 a 7 E both parties agree that the 4971 claim is allowable on a nonpriority unsecured basis 10 CF I s reorganization plan did not lump all unsecured claims in one nonpriority class however but instead created four classes of unsecured creditors only the first two of which would receive funds Class 11 comprised small claims 1 500 or less grouped together for administrative convenience see 11 U S C 1122 b Class 12 comprised general unsecured claims except for those assigned to other classes Class 13 covered the 4971 claim and some other much smaller subordinated penalty claims and Class 14 claims between the CF I Steel Corporation and its subsidiaries all of which were bankrupt the net value of which was zero The plan provided nonetheless that if a court determined that a Class 13 claim should not be subordinated or that the Class 13 claims should not be separately classified the claim or claims w ould be placed in Class 12 Appellees Appendix in No 94 4034 et al CA 10 pp 95 101 137 141 196 200 When the Government challenged the proposal to subordinate its claim the Bankruptcy Court confirmed the reorganization plan App to Pet for Cert A 31 and ordered that the 4971 claim be subordinated to the claims of all other general unsecured creditors of CF I pursuant to 11 U S C 510 c Id at A 21 The District Court subsequently ruled that the 4971 claim should be equitably subordinated to the claims of the general creditors under Section 510 c Id at A 18 In the Tenth Circuit the Government again contested subordination under 510 c which CF I defended even as it sought to sustain the Bankruptcy Court s result with two new alternative arguments first that 11 U S C 1122 a restricting a given class to substantially similar claims prohibited placement of the 4971 claim in Class 12 because of its dissimilarity to other unsecured claims and second that because 11 U S C 1129 a 7 authorizes creditors with impaired claims i e those getting less than full payment under the plan like those in Class 12 here to reject a plan that would give them less than they would get from a Chapter 7 liquidation courts must have the power to assign a claim the same priority it would have in a Chapter 7 liquidation in which a noncompensatory prepetition penalty claim would be subordinated 11 U S C 726 a 4 The Court of Appeals addressed neither of these arguments however relying instead on the broad construction given 510 c in In re Virtual Network Servs Corp 902 F 2d 1246 C A 7 1990 subordinating a claim otherwise entitled to priority under 507 a 7 to those of general unsecured creditors and holding specifically that section 510 c 1 does not require a finding of claimant misconduct to subordinate nonpecuniary loss tax penalty claims 53 F 3d at 1159 The Court of Appeals took note of the Bankruptcy Court s finding that declining to subordinate the IRS s penalty claim would harm innocent creditors rather than punish the debtor and concluded that the bankruptcy court correctly addressed the equities in this case Ibid Nothing in the opinion of the Court of Appeals or for that matter in the rulings of the Bankruptcy Court and the District Court addresses the arguments that the Bankruptcy Court s result was sustainable without reliance on 510 c The court never suggested that either 1122 a or the Chapter 7 liquidation provisions were relevant We thus necessarily review the subordination on the assumption that the Court of Appeals placed no reliance on the possibility that the Bankruptcy Code might permit the subordination on any basis except equitable subordination under 510 c DB1S So understood the subordination was error In United States v Noland 517 U S 116 S Ct 1524 134 L Ed 2d 748 1996 we reversed a judgment said to rely on 510 c when the subordination turned on nothing other than the very characteristic that entitled the Government s claim to priority under 507 a 1 and 503 b 1 C We held that the subordination fell beyond the scope of a court s authority under the doctrine of equitable subordination because categorical subordination at the same level of generality assumed by Congress in

    Original URL path: http://www.law.cornell.edu/supremecourt//text/518/213 (2012-11-09)
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  • UNITED STATES v. LA FRANCA. | Supreme Court | LII / Legal Information Institute
    unmistakably are penalties and are so denominated The other two notwithstanding they are called taxes are in their nature also penalties Putting aside for later consideration the item of 4 68 we consider for the present only the other three items By section 35 supra it is provided that upon evidence of an illegal sale under the National Prohibition Act tax shall be assessed and collected in double the amount now provided by law This in reality is but to say that a person who makes an illegal sale shall be liable to pay a tax in double the amount of the tax imposed by preexisting law for making a legal sale which existing law renders it impossible to make A tax is an enforced contribution to provide for the support of government a penalty as the word is here used is an exaction imposed by statute as punishment for an unlawful act The two words are not interchangeable one for the other No mere exercise of the art of lexicography can alter the essential nature of an act or a thing and if an exaction be clearly a penalty it cannot be converted into a tax by the simple expedient of calling it such That the exaction here in question is not a true tax but a penalty involving the idea of punishment for infraction of the law is settled by Lipke v Lederer 259 U S 557 561 562 42 S Ct 549 66 L Ed 1061 See also Regal Drug Corp v Wardell 260 U S 386 43 S Ct 152 67 L Ed 318 There is nothing in United States v One Ford Coupe 272 U S 321 47 S Ct 154 71 L Ed 279 47 A L R 1025 or Murphy v United States 272 U S 630 47 S Ct 218 71 L Ed 446 to the contrary The first of these cases was a proceeding to forfeit an automobile because used in violation of law the other was a suit in equity to enjoin the occupation and use of premises for a year because use in the commission of offenses under the National Prohibition Act and to abate the maintenance as a nuisance The distinction made by these four cases is that in the first two the purpose of the proceedings was punishment while as to the other two the purpose in the first case was to enforce a simple tax not one which had been as here converted by a change of its nature into a penalty and in the second case the purpose was prevention Murphy v United States supra page 632 of 272 U S 47 S Ct 218 Respondent already had been convicted and punished in a criminal prosecution for the identical transactions set forth as a basis for recovery in the present action He could not again of course have been prosecuted criminally for the same acts Does the fact that the second case is a civil action under the circumstances here disclosed alter the rule In United States v Chouteau 102 U S 603 26 L Ed 246 a distiller and his sureties were sued upon a bond one of the breaches of which was that the distiller had removed spirits from his distillery without first paying the tax thereon To this it was pleaded that before the suit was brought two indictments had been found against the distiller for the same removals and that upon the recommendation of the Attorney General the government and accepted a specified sum in compromise and satisfaction of the indictments which were thereupon dismissed and abandoned The court held that the compromise was the same in principle as a conviction in the criminal proceedings and that the action was barred and at page 611 of 102 U S said Admitting that the penalty may be recovered in a civil action as well as by a criminal prosecution it is still as a punishment for the infraction of the law The term penalty involves the idea of punishment and its character is not changed by the mode in which it is inflicted whether by a civil action or a criminal prosecution The compromise pleaded must operate for the protection of the distiller against subsequent proceedings as fully as a former conviction or acquittal He has been punished in the amount paid upon the settlement for the offence with which he was charged and that should end the present action according to the principle on which a former acquittal or conviction may be invoked to protect against a second punishment for the same offense To hold otherwise would be to sacrifice a great principle to the mere form of procedure and to render settlements with the government delusive and useless In United States v McKee 4 Dill 128 Fed Cas No 15 688 where the defendant was indicted convicted and punished for conspiring with others to defraud the United States by unlawfully removing distilled spirits from their distilleries without the payment of taxes it was held by Mr Justice Miller and Judge Dillon sitting together that this constituted a bar to a civil suit to recover the penalty of double the amount of the taxes of which the government had been defrauded by means of the conspiracy the transactions in both cases being the same To the same effect see United States v Gates 25 Fed Cas page 1263 No 15 191 In the light of these decisions it is clear that if the Willis Campbell Act be so construed as to justify a recovery in this case a grave question as to the constitutionality of the act will be presented The decisions of this court are uniformly to the effect that A statute must be construed if fairly possible so as to avoid not only the conclusion that it is unconstitutional but also grave doubts upon that score United States v Jin Fuey Moy 241 U S 394 401 36 S

    Original URL path: http://www.law.cornell.edu/supremecourt//text/282/568 (2012-11-09)
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  • WOODS v. CLOYD W. MILLER CO. et al. | Supreme Court | LII / Legal Information Institute
    the cessation of hostilities to act to control the forces that a short supply of the needed article created If that were not true the Necessary and Proper Clause Art I 8 cl 18 would be drastically limited in its application to the several war powers The Court has declined to follow that course in the past Hamilton v Kentucky Distilleries Co supra pp 155 156 Ruppert v Caffey supra pp 299 300 We decline to take it today The result would be paralyzing It would render Congress powerless to remedy conditions the creation of which necessarily followed from the mobilization of men and materials for successful prosecution of the war So to read the Constitution would be to make it self defeating We recognize the force of the argument that the effects of war under modern conditions may be felt in the economy p144 for years and years and that if the war power can be used in days of peace to treat all the wounds which war inflicts on our society it may not only swallow up all other powers of Congress but largely obliterate the Ninth and the Tenth Amendments as well There are no such implications in today s decision We deal here with the consequences of a housing deficit greatly intensified during the period of hostilities by the war effort Any power of course can be abused But we cannot assume that Congress is not alert to its constitutional responsibilities And the question whether the war power has been properly employed in cases such as this is open to judicial inquiry Hamilton v Kentucky Distilleries Co supra Ruppert v Caffey supra The question of the constitutionality of action taken by Congress does not depend on recitals of the power which it undertakes to exercise Here it is plain from the legislative history that Congress was invoking its war power to cope with a current condition of which the war was a direct and immediate cause n7 Its judgment on that score is entitled to the respect granted like legislation enacted pursuant to the police power See Block v Hirsh 256 U S 135 Marcus Brown Co v Feldman 256 U S 170 Chastleton Corp v Sinclair 264 U S 543 Under the present Act the Housing Expediter is authorized to remove the rent controls in any defense rental area if in his judgment the need no longer exists by reason of new construction or satisfaction of demand in other ways n8 The powers thus delegated are far less extensive than those sustained in Bowles v Willingham supra pp 512 515 Nor is there here a grant of unbridled administrative p145 discretion The standards prescribed pass muster under our decisions See Bowles v Willingham supra pp 514 516 and cases cited Objection is made that the Act by its exemption of certain classes of housing accommodations n9 violates the Fifth Amendment A similar argument was rejected under the Fourteenth Amendment when New York made like exemptions under the rent control statute which was here for review in Marcus Brown Co v Feldman supra pp 195 198 199 Certainly Congress is not under greater limitations It need not control all rents or none It can select those areas or those classes of property where the need seems the greatest See Barclay Co v Edwards 267 U S 442 450 This alone is adequate answer to the objection equally applicable to the original Act sustained in Bowles v Willingham supra that the present Act lacks uniformity in application p146 The fact that the property regulated suffers a decrease in value is no more fatal to the exercise of the war power Bowles v Willingham supra pp 517 518 than it is where the police power is invoked to the same end See Block v Hirsh supra Reversed MR JUSTICE FRANKFURTER concurs in this opinion because it decides no more than was decided in Hamilton v Kentucky Distilleries Co 251 U S 146 and Jacob Ruppert v Caffey 251 U S 264 and merely applies those decisions to the situation now before the Court 1 Section 204 b of the Act provides that no person shall demand accept or receive any rent for the use or occupancy of any controlled housing accommodations greater than the maximum rent established under the authority of the Emergency Price Control Act of 1942 as amended and in effect with respect thereto on June 30 1947 Controlled Housing Rent Regulation 12 Fed Reg 4331 contains similar provisions 2 a 4 a Provisions of this statute and regulation not here material allow adjustment of maximum rentals when necessary to correct inequities and permit a 15 increase if negotiated between landlord and tenant and incorporated in a lease of a designated term 2 Section 206 a makes it unlawful to offer solicit demand accept or receive any rent for the use or occupancy of any controlled housing accommodations in excess of the maximum rent prescribed under section 204 Section 206 b authorized the Housing Expediter to apply to any federal state or territorial court of competent jurisdiction for an order enjoining any act or practice which constitutes or will constitute a violation of subsection a of this section 3 Proclamation 2714 12 Fed Reg 1 That proclamation recognized that a state of war still exists On July 25 1947 on approving S J Res 123 terminating certain war statutes the President issued a statement in which he declared that t he emergencies declared by the President on September 8 1939 and May 27 1941 and the state of war continue to exist however and it is not possible at this time to provide for terminating all war and emergency powers 4 Section 204 c provides The Housing Expediter is hereby authorized and directed to remove any or all maximum rents before this title ceases to be in effect in any defense rental area if in his judgment the need for continuing maximum rents in such area

    Original URL path: http://www.law.cornell.edu/supremecourt//text/333/138 (2012-11-09)
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  • 102 U.S. 586 | Supreme Court | LII / Legal Information Institute
    virtue of which the tax complained of was levied conferred no authority for either its assessment and levy the sale of his property or the execution of a deed therefor The deed recites the act approved July 1 1862 and that of March 30 1864 as amended No act of Congress bears the latter date Consequently the deed was not admissible in evidence But if it be contended by the United States that the act of June 30 1864 13 Stat 218 was the one referred to it is then submitted that that act as amended by that of March 3 1865 did not authorize the proceedings taken by the collector The power to levy the tax is a limited one and if the limits prescribed by law are transcended the levy is void West School District of Canton v Merrills 12 Conn 437 In every case where an individual tax is upon trial shown to be greater than the amount authorized a sale of the land for the payment of such tax will be deemed void Kemper v McClelland 19 Ohio 324 Elwell v Shaw 1 Greene Iowa 335 Blackwell Tax Titles 160 161 The levy upon and sale of the property of the plaintiff in error was in violation of the provision of the Constitution of the United States declaring that no person shall be deprived of his life liberty or property without due process of law 3 Story Const 661 1 id 623 625 Murray s Lessee v Hoboken Land and Improvement Co 18 How 272 Wynehamer v The People 13 N Y 378 People v Berberrich 11 How N Y Pr 289 Due process of law in its true and largest signification means law in its regular course of administration by the courts of justice and not the execution of a power vested in ministerial officers Hake v Henderson 4 Dev N C L 15 Taylor v Porter 4 Hill N Y 146 Bank of Columbia v Okely 4 Wheat 235 White v White 5 Barb N Y 481 Reed v Wright 2 Greene Iowa 22 Hoocock v Bennett 2 Cow N Y 740 Kenny v Beverly 3 Hen M Va 336 Brown v Hummel 6 Pa St 87 Ervine s Appeal 16 id 256 Arrowsmith v Burlingame 4 McLean 498 5 Webster s Works 487 488 Cooley Taxation 316 319 The request to the court below to charge the jury that a party claimining title to land under a summary or extraordinary proceeding must show that all the indispensable preliminaries to a valid sale have been complied with should have been granted Games v Stiles 14 Pet 322 Thatcher v Powell 6 Wheat 119 Cooley Taxation 308 328 334 353 354 Rex v Cooke 1 Cowp 26 Blackwell Tax Titles 214 216 Leland v Bennett 5 Hill N Y 286 Denike v Rourke 3 Biss 39 Hardin v Owings 1 Bibb Ky 214 Mr Assistant Attorney General Smith contra TOP MR JUSTICE SWAYNE after stating the facts delivered the opinion of the court The central and controlling question in this case is whether the tax which was levied on the income gains and profits of the plaintiff in error as set forth in the record and by pretended virtue of the acts of Congress and parts of acts therein mentioned is a direct tax It is fundamental with respect to the rights of the parties and the result of the case It will be last considered Many of the other points made by the plaintiff in error reproduce the same thing in different forms of language They will all be responded to without formally restating any of them This will conduce to brevity without sacrificing clearness and will not involve the necessary omission of anything proper to be said The plaintiff in error advises us by his elaborate brief that on the trial of the case below the proceedings were merely formal and that no arguments or briefs were submitted and only such proceedings were had as were necessary to prepare the case for the Supreme Court This accounts for the numerous defects in the record as a whole It was doubtless intended that only the question presented in the first of the assignments of error should be considered here In that respect the record is full and sufficient Other alleged errors however have been pressed upon our attention and we must dispose of them There is clearly a misrecital in the deed of one of the acts of Congress to which it refers By the act of the 30th of March 1864 was clearly meant the act of the 30th of June in the same year There is no act relating to internal revenue of the former date But the plaintiff in error cannot avail himself of this fact for several reasons The point was not brought to the attention of the court below and cannot therefore be insisted upon here It comes within the rule falsa demonstratio non nocet It was the act of June 30 1864 as amended by the act of March 3 1865 that was in force when the tax was assessed The latter act took effect April 1 1865 and declared that the duty herein provided for shall be assessed collected and paid upon the gains profits and income for the year ending the thirty first day of December next preceding the time for levying collecting and paying said duty The tax was assessed for the year 1865 in the spring of 1866 under the act of 1865 according to the requirements of that act and we find upon examination that the assessment was in all things correct 13 Stat 469 479 The criticism of the plaintiff in error in this regard is therefore without foundation The proceedings of the collector were not in conflict with the amendment to the Constitution which declares that no person shall be deprived of life liberty or property without due process of law The power to distrain personal property for the payment of taxes is almost as old as the common law Cooley Taxation 302 The Constitution gives to Congress the power to lay and collect taxes duties imposts and excises Except as to exports no limit to the exercise of the power is prescribed In McCulloch v Maryland 4 Wheat 316 Mr Chief Justice Marshall said The power to tax involves the power to destroy Why is it not competent for Congress to apply to realty as well as personalty the power to distrain and sell when necessary to enforce the payment of a tax It is only the further legitimate exercise of the same power for the same purpose In Murray s Lessee v Hoboken Land and Improvement Co 18 How 274 this court held that an act of Congress authorizing a warrant to issue without oath against a public debtor for the seizure of his property was valid that the warrant was conclusive evidence of the facts recited in it and that the proceeding was due process of law in that case See also De Treville v Smalls 98 U S 517 Sherry v McKinley 99 id 496 Miller v United States 11 Wall 268 Tyler v Defrees id 331 The prompt payment of taxes is always important to the public welfare It may be vital to the existence of a government The idea that every tax payer is entitled to the delays of litigation is unreason If the laws here in question involved any wrong or unnecessary harshness it was for Congress or the people who make congresses to see that the evil was corrected The remedy does not lie with the judicial branch of the government The statute of Illinois had no application to the point whether the premises should be sold by the collector en masse or in two or more parcels The fact that the house was on one lot and the barn on the other that the whole was surrounded by a common enclosure and that the entire property was occupied as a single homestead rendered it not improper for the collector to make the sale as it was made No suspicion of bad faith attaches to him He was clothed with a discretion and it is to be presumed that he exercised it both fairly and well Olcott v Bynum 17 Wall 44 Certainly the contrary does not appear If the tax was not a direct tax the instructions given by the court brief as they were covered the whole case and submitted it properly to the jury The plaintiff in error was entitled to nothing more The fourth instruction which he asked for was liable to several fatal objections It was too general and indefinite It left it for the jury to decide what were the indispensable preliminaries required by the law and Constitution in the numerous particulars specified It referred to matters to which the attention of the court below does not appear to have been called and in regard to which if this had been done the requisite proof would doubtless have been supplied It falls within the principle of the rule so often applied by this court that where instructions are asked in a mass if one of them be wrong the whole may be rejected The record does not purport to give all the testimony and its defects are doubtless largely due to the mode in which the case was tried and the single object already stated which the parties then had in view The instruction was properly refused To grant or refuse a new trial was a matter within the discretion of the court That it was refused cannot be assigned for error here Several other minor points have been earnestly argued by the learned plaintiff in error but as they are all within the category of not having been taken in the court below we need not more particularly advert to them This brings us to the examination of the main question in the case The clauses of the Constitution bearing on the subject are as follows Representatives and direct taxes shall be apportioned among the several States which may be included within this Union according to their respective numbers which shall be determined by adding to the whole number those bound to service for a term of years and excluding Indians not taxed three fifths of all other persons No capitation or other direct tax shall be laid unless in proportion to the census hereinbefore directed to be taken Was the tax here in question a direct tax If it was not having been laid according to the requirements of the Constitution it must be admitted that the laws imposing it and the proceedings taken under them by the assessor and collector for its imposition and collection were all void Many of the provisions of the Articles of Confederation of 1777 were embodied in the existing organic law They provided for a common treasury and the mode of supplying it with funds The latter was by requisitions upon the several States The delays and difficulties in procuring the compliance of the States it is known was one of the causes that led to the adoption of the present Constitution This clause of the articles throws no light on the question we are called upon to consider Nor does the journal of the proceedings of the constitutional convention of 1787 contain anything of much value relating to the subject It appears that on the 11th of July in that year there was a debate of some warmth involving the topic of slavery On the day following Gouverneur Morris of New York submitted a proposition that taxation shall be in proportion to representation It is further recorded in this day s proceedings that Mr Morris having so varied his motion by inserting the word direct it passed nem con as follows Provided always that direct taxes ought to be proportioned to representation 2 Madison Papers by Gilpin pp 1079 1081 On the 24th of the same month Mr Morris said that he hoped the committee would strike out the whole clause He had only meant it as a bridge to assist us over a gulf having passed the gulf the bridge may be removed He thought the principle laid down with so much strictness liable to strong objections Id 1197 The gulf was the share of representation claimed by the Southern States on account of their slave population But the bridge remained The builder could not remove it much as he desired to do so All parties seem thereafter to have avoided the subject With one or two immaterial exceptions not necessary to be noted it does not appear that it was again adverted to in any way It was silently incorporated into the draft of the Constitution as that instrument was finally adopted It does not appear that an attempt was made by any one to define the exact meaning of the language employed In the twenty first number of the Federalist Alexander Hamilton speaking of taxes generally said Those of the direct kind which principally relate to land and buildings may admit of a rule of apportionment Either the value of the land or the number of the people may serve as a standard The thirty sixth number of that work by the same author is devoted to the subject of internal taxes It is there said They may be subdivided into those of the direct and those of the indirect kind In this connection land taxes and poll taxes are discussed The former are commended and the latter are condemned Nothing is said of any other direct tax In neither case is there a definition given or attempted of the phrase direct tax The very elaborate researches of the plaintiff in error have furnished us with nothing from the debates of the State conventions by whom the Constitution was adopted which gives us any aid Hence we may safely assume that no such material exists in that direction though it is known that Virginia proposed to Congress an amendment relating to the subject and that Massachusetts South Carolina New York and North Carolina expressed strong disapprobation of the power given to impose such burdens 1 Tucker s Blackstone pt 1 app 235 Perhaps the two most authoritative persons in the convention touching the Constitution were Hamilton and Madison The latter in a letter of May 11 1794 speaking of the tax which was adjudicated upon in Hylton v United States 3 Dall 171 said The tax on carriages succeeded in spite of the Constitution by a majority of twenty the advocates of the principle being reinforced by the adversaries of luxury 2 Mad Writings pub by Congress p 14 In another letter of the 7th of February 1796 referring to the case of Hylton v United States then pending he remarked There never was a question on which my mind was better satisfied and yet I have very little expectation that it will be viewed in the same light by the court that it is by me Id 77 Whence the despondency thus expressed is unexplained Hamilton left behind him a series of legal briefs and among them one entitled Carriage tax See vol vii p 848 of his works This paper was evidently prepared with a view to the Hylton case in which he appeared as one of the counsel for the United States In it he says What is the distinction between direct and indirect taxes It is a matter of regret that terms so uncertain and vague in so important a point are to be found in the Constitution We shall seek in vain for any antecedent settled legal meaning to the respective terms There is none We shall be as much at a loss to find any disposition of either which can satisfactorily determine the point There being many carriages in some of the States and very few in others he points out the preposterous consequences if such a tax be laid and collected on the principle of apportionment instead of the rule of uniformity He insists that if the tax there in question was a direct tax so would be a tax on ships according to their tonnage He suggests that the boundary line between direct and indirect taxes be settled by a species of arbitration and that direct taxes be held to be only capitation or poll taxes and taxes on lands and buildings and general assessments whether on the whole property of individuals or on their whole real or personal estate All else must of necessity be considered as indirect taxes The tax here in question falls within neither of these categories It is not a tax on the whole personal estate of the individual but only on his income gains and profits during a year which may have been but a small part of his personal estate and in most cases would have been so This classification lends no support to the argument of the plaintiff in error The Constitution went into operation on the 4th of March 1789 It is important to look into the legislation of Congress touching the subject since that time The following summary will suffice for our purpose We shall refer to the several acts of Congress to be examined according to their sequence in dates In all of them the aggregate amount required to be collected was apportioned among the several States The act of July 14 1798 c 75 1 Stat 53 This act imposed a tax upon real estate and a capitation tax upon slaves The act of Aug 2 1813 c 37 3 id 53 By this act the tax was imposed upon real estate and slaves according to their respective values in money The act of Jan 19 1815 c 21 id 164 This act imposed the

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