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STOCKDALE v. THE INSURANCE COMPANIES.

October 1, 1873

STOCKDALE
v.
THE INSURANCE COMPANIES.



ERROR to the Circuit Court for the District of Louisiana; the case being thus: The 116th section of the act of June 30th, 1864, as amended by the 13th section of the act of March 2d, 1867,*fn1 enacts: 'SECTION 116. That there shall be levied, collected, and paid annually upon the gains, profits, and income of every person residing in the United States, or of any citizen of the United States residing abroad, whether derived from any kind of property, rents, interest, dividends, or salaries, or from any profession, trade, employment, or vocation, carried on in the United States or elsewhere, or from any other source whatever, a tax of five per centum on the amount so derived over $1000, and a like tax shall be levied, collected, and paid annually upon the gains, profits, and income of every business, trade, or profession carried on in the United States by persons residing without the United States, and not citizens thereof. And the tax herein provided for shall be assessed, collected, and paid upon the gains, profits, and income for the year ending the 31st day of December next preceding the time for levying, collecting, and paying said tax.'The 117th section of the same act, as amended in the same way, required that there should be included, inter alia, in the estimate of gains, profits, and income, which the act made it obligatory on the taxpayer to return, the share of any person of the gains and profits of all companies, whether incorporated or partnership, who would be entitled to the same if divided, whether divided or otherwise, 'Except the amount of income received from institutions or corporations whose officers, as required by law, withhold a per centum of the dividends made by such institutions, and pay the same to the officer authorized to receive the same, and except that portion of the salary or pay received for services in the civil, military, or naval, or other service of the United States, including senators, representatives, and delegates in Congress, from which the tax has been deducted.' The 118th section related to the manner of the party's making and the assessor's obtaining returns of that portion of the taxpayer's income which was to be paid by such taxpayer directly. The 119th section, as amended by the already-mentioned section of the act of March 2d, 1867,*fn2 enacts: 'SECTION 119. That the taxes on incomes herein imposed shall be levied on the 1st day of March, and be due and payable on or before the 30th day of April in each year, until and including the year 1870, and no longer.' The 120th section, as amended by the 9th section of the act of July 13th, 1866,*fn3 enacts: 'That there shall be levied and collected a tax of five per centum on all dividends thereafter declared due, whenever the same shall be payable to stockholders, policy-holders, or depositors or parties whatsoever, as part of the earnings, income, or gains of any bank, trust company, savings institution, and of any fire, marine, life, or inland insurance company, in the United States, and on all undistributed sums, or sums made or added during the year to their surplus or contingent funds. And said banks, trust companies, savings institutions, and insurance companies shall pay the said tax, and are hereby authorized to deduct and withhold from all payments made on account of any dividends or sums of money that may be due and payable as aforesaid, the said tax of five per centum. And a list or return shall be made and rendered to the assessor. And for any default in the making or rendering of such list or return, with such declaration annexed, the bank, trust company, savings institution, or insurance company making such default, shall forfeit as a penalty the sum of $1000.' The 121st section enacted that any bank of issue which should not make a dividend or add to its surplus fund as often as once in six months should make a return to the assessor of the district, where it was, of its profits during every six months preceding the 1st of January and July, &c. The 122d section, as amended by the 9th section of the act of July 13th, 1866, after enacting that any railroad, canal, turnpike, canal navigation, or slack-water company, indebted by bonds &c., upon which interest is to be paid, or any such company that may have declared any dividend, due or payable to its stockholders, as part of the earnings, profits, income, or gains of such company, and all profits of such company carried to the account of any fund, or used for construction, shall be subject to and pay a tax of five per centum on the amount of all such interest, dividends, or profits, whenever the same shall be payable, proceeds: 'And said companies are hereby authorized to deduct and withhold from all payments on account of any interest, . . . and dividends, due and payable as aforesaid, the tax of five per centum; and the payment of the amount of said tax so deducted from the interest, or coupons, or dividends, ans certified by the president or treasurer of said company, shall discharge said company.' The 123d section of the same act, as amended by the 13th section of the act of March, 1867, enacted: 'SECTION 123. That there shall be levied, collected, and paid on all salaries of officers, or payments for services to persons in the civil, military, naval, or other employment or service of the United States, including senators, representatives, and delegates in Congress, when exceeding the rate of $1000 per annum, a tax of five per centum on the excess above the said $1000; and it shall be the duty of all paymasters and all disbursing officers under the government of the United States, or persons in the employ thereof, when making any payment to any officers or persons as aforesaid, whose compensation is determined by a fixed salary, or upon settling or adjusting the accounts of such officers or persons, to deduct and withhold the aforesaid tax of five per centum; and the pay-roll, receipts, or account of officers or persons paying such tax as aforesaid, shall be made to exhibit the fact of such payment.' On the 14th of July, 1870, Congress passed an act, entitled 'An act to reduce internal taxation and for other purposes.' This act repealed certain sections of the previous internal revenue acts; limited the duration of the others, and reduced the income tax in certain cases from five to two and a half per cent.; limiting its duration. By its 17th section it enacted: 'That sections 120, 121, 122, and 123 of the act of June 30th, 1864, &c., as amended by the act of July 13th, 1866, and the act of March 2d, 1867,*fn4 SHALL BE CONSTRUED to impose the taxes therein mentioned to the 1st day of August, 1870, but after that date no further taxes shall be levied or assessed under said sections.' In this state of statutory enactment, Stockdale, collector of internal revenue at New Orleans, assessed a tax on the Atlantic Insurance Company (and on certain other insurance, railroad, and banking companies of that city), 'on the earnings which had accrued to said company between the 5th day of July, 1869, and the 30th of June, 1870.' The dividend was declared after this latter date. The taxes were paid under protest and the companies having brought suits in the court below to recover them, and having there got judgments against the collector for them, that officer brought the cases here by the present writ of error. Two questions accordingly arose here: 1. Was the tax valid as to that part of the dividend which arose from the earnings of the year 1869? 2. Was it valid as to that part which arose from the earnings of the year 1870?

The opinion of the court was delivered by: Mr. Justice Miller delivered the opinion of the court.

Messrs. Charles Case and J. D. Rouse, in support of the judgment below:

1. The tax of five per cent. imposed upon the dividends of railroad companies by section 122 of the act of June 30th, 1864, as amended, is a tax upon the income of the stockholder, and not a tax upon the corporation.

This is expressly decided in United States v. Railroad Company,*fn5 where the government sought to collect a tax from the Baltimore and Ohio Railroad Company, on interest due on bonds of that company held by the city of Baltimore; and where it failed because the revenues of a municipality incorporated by the State are not taxable. If anything to the contrary to this was adjudged in the case of Barnes v. The Railroads,*fn6 decided five weeks previously, it was overruled in the later case. But the official reports of the two cases show plainly, that nothing different was adjudged, and that the learned justice who announced the judgment of the court in the Barnes case, while he rightly announced the judgment, misconceived the ground upon which the majority of the court went; and that the decision in the later case is reconcilable with the judgment in the former, though not with certain assertions in the opinion then delivered by the learned judge who announced that judgment,*fn7 as to what 'the court' decided.

2. The tax upon incomes imposed by the act of June 30th, 1864, as amended, expired by limitation the 31st day of December, 1869.

The limitation is found in section 119, which provides 'that the taxes on incomes herein imposed shall be levied on the 1st day of March, and be due and payable on or before the 30th day of April in each year, until and including the year 1870, and no longer.' It is elsewhere provided that the taxes so to be levied were to be levied upon the incomes 'for the year ending the 31st day of December next preceding the time for levying, collecting, and paying said tax.' Therefore the last levying of such tax being for the year 1870, it was limited to income of 1869.

3. There has been no legislation which could effect an extension of the time during which such tax could be imposed.

The 17th section of the act of July 14th, 1870, is simply declaratory of the opinion of Congress, and not a re-enactment of the law itself. This very attempt to continue the law in force by construction is an admission that it had expired. Now the construction of statutes belongs, not to Congress but to the judiciary. If the law were still in force, the judiciary would be bound to place upon it a construction given by Congress, and Congressional construction would have the effect of legislation, after the passage of the act. But Congress cannot construe statutes retroactively. This is perfectly settled.*fn8

Mr. G. H. Williams, Attorney-General, and Mr. S. F. Phillips, Solicitor-General, contra.

This was a suit brought in the court below against the plaintiff in error in his official character to recover taxes collected by him, which are alleged to have been illegally assessed against the insurance company. The appeal of the company to the Commissioner of Internal Revenue having been decided against it, the tax was paid and suit brought within six months, as provided by the act of Congress. The insurance company recovered a judgment in the Circuit Court, and the collector brings a writ of error in the interest of the government, the object of which is to test the legality of the tax thus levied and collected.

An agreed statement of facts shows that the taxes complained of were assessed upon dividends declared by the insurance company 'on the earnings which had accrued to said company between the 5th day of July, 1869, and the 30th day of June, 1870;' and the dividend was declared after the latter date.

This short statement raises two questions: 1. Was the tax valid as to so much of the dividend as arose from the earnings of the year 1869? 2. Was it valid as to that which arose from the earnings of the year 1870?

As regards the first proposition, it was much considered in the Barnes cases.*fn9 It was argued in those cases with much ability, and four members of the court were of that opinion that the entire income tax expired with the year 1869, and that as the tax in those cases, as in these, was assessed on dividends declared in the year 1870, they were without authority of law.
The argument in those cases, so far as the opinion of the court was concerned, turned mainly on the question whether the law intended to impose the tax on the income of the corporation, in which case it was obviously the income of 1869 which was taxed, and, therefore, properly taxed; or on the income of the stockholder, ascertained by his dividend, in which case the minority of the court thought that dividends declared in 1870 were not liable to the tax, because the taxing power under the law expired with the preceding year. It is, perhaps, fairly inferable from the report of those cases, and the opinion in the subsequent case of The United States v. Baltimore and Ohio Railroad Company,*fn10 that among those who composed the majority in the Barnes cases, there were some shades of difference in the precise grounds on which the validity of the taxes rested.

Without reopening that subject for an inquiry into those differences, it may be said that the question whether the tax was, in those cases, a tax on the shareholder or on the corporation, was, and is, one of form rather than substance.

The tax is imposed by the statute alike on all dividends declared, and on all undistributed earnings of the corporation, and it is made ...


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