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PACIFIC INSURANCE COMPANY V. SOULE, 74 U. S. 433 (1868)
U.S. Supreme Court
Pacific Insurance Company v. Soule, 74 U.S. 7 Wall. 433 433 (1868)
Pacific Insurance Company v. Soule
74 U.S. (7 Wall.) 433
ON CERTIFICATE OF DIVISION FROM
THE CIRCUIT COURT FOR CALIFORNIA
1. When a person whose income or other moneys subject to tax or duty has been received in coined money makes his return to the assessor, the 9th section of the Internal Revenue Act of July 13, 1866, is to be construed as denying to him the right to return the amount thereof in the currency in which it was actually received, and to pay the tax or duty thereon in legal tender currency, and is to be construed to require that the difference between coined money and legal tender currency shall be
statement of the case.
added to his return when made in coined money, and that he shall pay the tax or duty upon the amount thus increased.
2. The income tax or duties laid by §§ 105 and 120 of the Act of June 30, 1864, and the amendment thereto of July 13, 1866, upon the amounts insured, renewed, or continued by insurance companies upon the gross amounts of premiums received, and assessments made by them, and also upon dividends, undistributed sums, and income, is not "a direct tax," but a duty or excise.
The Constitution of the United States [Footnote 1] ordains thus:
"Direct taxes shall be apportioned among the several states which may be included within the Union, according to their respective numbers."
With this provision of the Constitution in existence, Congress, by an internal revenue act of June 30, 1864, [Footnote 2] amended by act of July 13, 1866, laid a certain tax upon the amounts insured, renewed, or continued by insurance companies; upon the gross amount of premiums received and assessments by them; and a tax also upon dividends, undistributed sums, and income. A portion of the ninth section of the Internal Revenue Act of July 13, 1866, [Footnote 3] and acts amendatory thereto, provide:
"That it shall be the duty of all persons required to make returns or lists of income, and articles or objects charged with an internal tax, to declare in such returns or lists whether the several rates and amounts therein contained are stated according to their values in legal tender currency, or according to their values in coined money; and in case of neglect or refusal so to declare to the satisfaction of the assistant assessor receiving such returns or lists, such assistant assessor is hereby required to make returns or lists of such persons neglecting or refusing, as in cases of persons neglecting or refusing to make the returns or lists required by the acts aforesaid, and to assess the duty
thereon, and to add thereto the amount of penalties imposed by law in cases of such neglect or refusal. And whenever the rates and amounts contained in the returns or lists as aforesaid, shall be stated in coined money, it shall be the duty of each assessor receiving the same, to reduce such rates and amounts to their equivalent in legal tender currency, according to the value of such coined money in said currency, for the time covered by said returns. And the lists required by law to be furnished to collectors by assessors shall in all cases contain the several amounts of taxes or duties assessed, estimated or valued in legal tender currency only."
Prior acts of Congress had authorized the issue of United States notes, commonly called legal tender notes. The act first authorizing their issue, an act of February 25, 1862, [Footnote 4] enacted:
"Such notes shall be receivable in payment of all taxes, internal duties, excises, debts, and demands of every kind due to the United States (except duties on imports), and of all claims and demands against the United States, of every kind whatsoever (except for interest on bonds and notes, which shall be paid in coin), and shall also be lawful money and a legal tender in payment of all debts public and private, within the United States (except duties on imports and interest as aforesaid). And such United States notes shall be received the same as coin at their par value, in payment of any loans that may be hereafter sold or negotiated by the Secretary of the Treasury, and may be reissued from time to time, as the exigencies of the public interests shall require."
With these acts in force, the Pacific Insurance Company, a corporation engaged in the business of insurance in California, made returns upon the amounts insured, renewed &c., by it, upon its premiums and assessments, and finally upon its dividends, undistributed sums, and income; all as required by the statute; the correctness of all the returns being conceded. The different sources of income thus returned had been received by the company in coined money
(the currency of California), and the amounts as returned were the amounts in that form of currency. The aggregate tax under the statute upon this sum of coin was $5,376. The assessor then (against the protest of the insurance company) added to the amounts as returned, the difference in value between legal tender currency and coined money during the time covered by the returns; and fixing the tax upon the sum as thus increased, the aggregate amount of the tax came to $7,365. The collector demanded payment of this sum. The company refused to pay the $7,365, but tendered the $5,376 in legal tender notes. The collector refusing this, and having seized and being about to sell the insurance company's property, the company paid the larger sum, $7,365, under protest. The suit below was to recover back the amount wrongly paid. The case coming on to be heard upon demurrer, the court was divided in opinion upon seven questions, reducible, as this Court considered, in substance to these two:
"1. Whether that portion of the ninth section of the internal revenue act of July, 1866, above quoted,"
"is to be construed as merely providing a rule as to the currency in which accounts, returns, and lists are to be stated, with a view to uniformity in keeping the accounts of internal revenue, or whether it is to be construed as denying to a person who has received in coined money, incomes or other moneys subject to tax or duty, the right to return the amount thereof in the currency in which it was actually received, and to pay the tax or duty thereon in legal tender currency, and be construed to require that the difference between coined money and legal tender currency shall be added to his return when made in coined money, and that he shall pay the tax or duty upon the amount thus increased?"
"2. (Sixth in the series.) Whether the taxes paid by the plaintiff, and sought to be recovered back in this action, are not direct taxes within the meaning of the Constitution? "
MR. JUSTICE SWAYNE delivered the opinion of the Court.
The plaintiff brought an action to recover back certain taxes upon its business and income, which it had paid to
the defendant upon compulsion and under protest. The defendant demurred to the plaintiff's complaint. Upon the argument of the demurrer, the opinions of the judges of the circuit court were opposed upon seven questions, which are set forth in the record. According to the view which we take of the case, it will be sufficient to answer two of them. They cover the entire grounds of the controversy between the parties, and their determination will be conclusive.
They are the first and the sixth. The first is:
"Whether that portion of the ninth (9th) section of the Act of Congress, approved July 13, 1866, entitled 'An act to reduce internal taxation,' and to amend an act, entitled 'An act to provide internal revenue to support the government, to pay interest on the public debt, and for other purposes,' approved June 30, 1864, and acts amendatory thereof, which provides as follows, to-wit:"
" That it shall be the duty of all persons required to make returns or lists of income, and articles or objects charged with an internal tax, to declare in such returns or lists whether the several rates and amounts therein contained, are stated according to their values in legal tender currency, or according to their values in coined money; and in case of neglect or refusal so to declare, to the satisfaction of the assistant assessor receiving such returns or lists, such assistant assessor is hereby required to make returns or lists for such persons neglecting or refusing, as in cases of persons neglecting or refusing to make the returns or lists required by the acts aforesaid, and to assess the duty thereon, and to add thereto the amount of penalties imposed by law in cases of such neglect or refusal. And whenever the rates and amounts contained in the returns or lists as aforesaid, shall be stated in coined money, it shall be the duty of each assessor, receiving the same, to reduce such rates and amounts to their equivalent in legal tender currency, according to the value of such coined money in said currency, for the time covered by said returns. And the lists required by law to be furnished to collectors, by assessors, shall, in all cases, contain the several amounts of taxes or duties assessed, estimated or valued in legal tender currency only"
"is to be construed as merely providing a rule as to the currency in which accounts, returns, and lists are to be stated, with a view to uniformity in keeping the accounts of internal revenue,
or whether it is to be construed as denying to a person who has received, in coined money, incomes or other moneys subject to tax or duty, the right to return the amount thereof in the currency in which it was actually received, and to pay the tax or duty thereon in legal tender currency, and be construed to require that the difference between coined money and legal tender currency shall be added to his return, when made in coined money, and that he shall pay the tax or duty upon the amount thus increased."
We think there can be no doubt as to the proper solution of this question. A brief analysis of the provisions of the statute which bear upon the subject, will be sufficient to maintain the conclusion at which we have arrived.
1. The person making the return is required to declare whether the amounts set forth in it are stated according to their value in legal tender currency or in coined money.
2. If he fail to do so, he is subjected to a penalty, and the assessor is required to make the returns for him.
3. The list, with all the amounts therein stated, according to their values in legal tender currency, is to be placed by the assessor in the hands of the collector.
4. The collector is charged with the aggregate amount, and credited with his collections and otherwise, as is provided by the statute.
5. The taxes are made a lien, and, in default of payment, property is to be seized and sold by the collector. Both personal and real estate are liable. Full directions are given for the conduct of the proceedings.
The meaning of the statute, examined by its own light, is so clear that argument or illustration is unnecessary. It was the object of Congress to provide a uniform basis of taxation, in order to secure uniformity in the burdens imposed. "Equality is equity." According to the theory of the plaintiff, it had a right to have the assessment made upon the amounts received in coin, and to pay in currency, while others, whose receipts were in currency, were to be taxed upon that basis, and to pay in the same medium as the plaintiff. Such a result would be subversive of the
plainest principles of reason and justice. It cannot be supposed that such was the intention of those who framed the law. Certainly nothing in its language would warrant the construction contended for.
Where the power of taxation, exercised by Congress, is warranted by the Constitution, as to mode and subject, it is, necessarily, unlimited in its nature. Congress may prescribe the basis, fix the rates, and require payment as it may deem proper. Within the limits of the Constitution it is supreme in its action. No power of supervision or control is lodged in either of the other departments of the government.
To this question it must be answered, that the statute did deny to the plaintiff the right to have the assessment made otherwise than as it was made by the assessor, and that it required the plaintiff to pay the amount of the taxes set forth in the list delivered by the assessor to the collector, and which was paid by the plaintiff, under protest, as appears by the record.
II. The sixth question is:
"Whether the taxes paid by the plaintiff, and sought to be recovered back in this action, are not direct taxes, within the meaning of the Constitution of the United States."
In considering this subject, it is proper to advert to the several provisions of the Constitution relating to taxation by Congress.
"Representatives shall be apportioned among the several states which shall be included in this Union, according to their respective numbers,"
&c. [Footnote 5]
"Congress shall have power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniform throughout the United States. [Footnote 6]"
"No capitation or other direct tax shall be laid, unless in proportion
to the census of enumeration hereinbefore directed to be taken."
"No tax or duty shall be laid on articles exported from any state. [Footnote 7]"
These clauses contain the entire grant of the taxing power by the organic law, with the limitations which that instrument imposes.
The national government, though supreme within its own sphere, is one of limited jurisdiction and specific functions. It has no faculties but such as the Constitution has given it, either expressly or incidentally by necessary intendment. Whenever any act done under its authority is challenged, the proper sanction must be found in its charter, or the act is ultra vires and void. This test must be applied in the examination of the question before us. If the tax to which it refers, is a "direct tax," it is clear that it has not been laid in conformity to the requirements of the Constitution. It is therefore necessary to ascertain to which of the categories, named in the eighth section of the first article, it belongs.
What are direct taxes was elaborately argued and considered by this Court in Hylton v. United States, [Footnote 8] decided in the year 1796. One of the members of the court, Justice Wilson, had been a distinguished member of the Convention which framed the Constitution. It was unanimously held, by the four justices who heard the argument, that a tax upon carriages, kept by the owner for his own use, was not a direct tax. Justice Chase said:
"I am inclined to think, but of this I do not give a judicial opinion, that the direct taxes contemplated by the Constitution are only two, to-wit, a capitation or poll tax simply, without regard to property, profession, or any other circumstance, and a tax on land."
Patterson, Justice, followed in the same line of remark. He said:
"I never entertained a doubt that the principal, I will not
say the only, object the framers of the Constitution contemplated as falling within the rule of apportionment, was a capitation tax and a tax on land. . . . The Constitution declares that a capitation tax is a direct tax; and both in theory and practice, a tax on land is deemed to be a direct tax. In this way, the terms 'direct taxes,' and 'capitation and other direct tax,' are satisfied."
The views expressed in this case are adopted by Chancellor Kent and Justice Story in their examination of the subject. [Footnote 9]
Duties are defined by Tomlin to be things due and recoverable by law. The term, in its widest signification, is hardly less comprehensive than "taxes." It is applied, in its most restricted meaning, to customs; and in that sense is nearly the synonym of "imposts." [Footnote 10]
Impost is a duty on imported goods and merchandise. In a larger sense, it is any tax or imposition. [Footnote 11] Cowell says it is distinguished from custom, "because custom is rather the profit which the prince makes on goods shipped out." [Footnote 12] Mr. Madison considered the terms "duties" and "imposts" in these clauses as synonymous. [Footnote 13] Judge Tucker thought "they were probably intended to comprehend every species of tax or contribution not included under the ordinary terms, taxes and excises.'"
Excise is defined to be an inland imposition, sometimes upon the consumption of the commodity, and sometimes upon the retail sale; sometimes upon the manufacturer, and sometimes upon the vendor. [Footnote 14]
The taxing power is given in the most comprehensive terms. The only limitations imposed are that direct taxes, including the capitation tax, shall be apportioned, that duties, imposts, and excises shall be uniform, and that no duties shall be imposed upon articles exported from any state. With these exceptions, the exercise of the power is in all respects unfettered.
If a tax upon carriages kept for his own use by the owner is not a direct tax, we can see no ground upon which a tax upon the business of an insurance company can be held to belong to that class of revenue charges.
It has been held that Congress may require direct taxes to be laid and collected in the territories as well as in the states. [Footnote 15]
The consequences which would follow the apportionment of the tax in question among the states and territories of the Union, in the manner prescribed by the Constitution, must not be overlooked. They are very obvious. Where such corporations are numerous and rich, it might be light; where none exist, it could not be collected; where they are few and poor, it would fall upon them with such weight as to involve annihilation. It cannot be supposed that the framers of the Constitution intended that any tax should be apportioned, the collection of which on that principle would be attended with such results The consequences are fatal to the proposition.
To the question under consideration it must be answered, that the tax to which it relates is not a direct tax, but a duty or excise; that it was obligatory on the plaintiff to pay it.
The other questions certified up, are deemed to be sufficiently answered by the answers given to the first and sixth questions.
Article I, § 2.
13 Stat. at Large §§ 105, 120, pp. 276, 283.
14 id. 98.
12 Stat. at Large 345, § 1.
Art. 1, § 2.
Ib., 1, § 8.
Art. 1, § 9.
3 U. S. 3 Dall. 171.
1 Kent's Commentary, 267; Story on the Constitution 670. See also Rawle on the Constitution 8; The Federalist, No. 34; and Tucker's Blackstone, Appendix, 294.
Tomlin's Law Dictionary, title "Duty;" 1 Story on the Constitution, § 952; Hylton v. United States, 3 Dall. 171.
Story's Const. Abr., § 474.
Cowell's Interpreter, title "Impost."
1 Story's Constitution 669, note.
Bateman's Excise Law 96; 1 Story's Constitution § 953; 1 Blackstone's Commentary 318; 1 Tucker's Blackstone, Appendix, 341.
Loughborough v. Blake, 5 Wheat. 317.
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