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The Collector v. Hubbard, 79 U.S. 12 Wall. 1 1 (1870)

The Collector v. Hubbard

79 U.S. (12 Wall.) 1


1. A promise on the part of a collector of taxes to repay a tax illegally collected and paid only under protest cannot be implied where statute makes it the duty of such officer to pay into the public treasury without any deduction on account of claims of any description the gross amount that he receives.

2. The 19th section of the Act of July 13, 1866, which enacts that no suit shall be maintained in any court to recover a tax illegally assessed, except on certain conditions stated in the section, operates on all suits brought subsequently to the time fixed by the act for it to take effect, and on suits brought in state courts as well as in federal.

3. Prior acts giving persons a right to sue, without similar conditions, did not confer on them any such vested right so to sue, in regard to transactions which occurred before the passage of the act of 1866, as that they still could sue irrespective of the conditions after the time when this act by its terms was to take effect.

4. Nor had such persons, in such a case as is mentioned in the first paragraph above, any vested right to sue independently of statute.

5. The 117th section of the Internal Revenue Act of 1864, which required a stockholder in companies mentioned in the section to return as income all gains and profits in them to which be should be entitled, whether the same were "divided or otherwise," embraces not only dividends declared, but profits not divided and invested partly in real estate, machinery, and raw material and partly applied to the payment of debts incurred in previous years.

The 117th section of the Internal Revenue Act of June 30th, 1864, [Footnote 1] which laid what was known as the income tax,

Page 79 U. S. 2

after providing for the collection of an income tax from certain classes of companies specified, and enacting that "in estimating the annual gains, profits, or income of any person," revenue from such and such sources "shall be included and assessed as part of the income of such person," proceeds:

"And the gains and profits of all companies, whether incorporated or partnership, other than the companies specified in this section, shall be included in estimating the annual gains, profits, or income of any person entitled to the same, whether divided or otherwise."

With this enactment in force, one Hubbard owned, A.D. 1864, certain shares in two manufacturing companies (being companies other than those previously specified in the section), which in that year made large profits and made dividends of part of them, though not of the whole of them. The excess was not divided, nor had it been apart from the general assets of the respective corporations, or appropriated for the use or the stockholders, otherwise than as the law would imply from the existence of them. On the contrary, it was part of the case as settled and admitted by the parties:

"That from time to time during said year, and without any intention to defraud the government, unless the investment hereinafter named constituted such fraud by implication of law, said corporations invested said profits in part in real estate, machinery, and raw material, proper for carrying on their business, and in part for the payment of debts incurred in previous years, and the same remained so invested in 1865."

Hubbard, when making in the year just named his return of income for the preceding year, returned as part of his income the dividends which had been made on his stock, but would not return the undivided profits. The assessor insisted on his returning his proportion of these also, settling the proportion by a reference to the number of shares which

Page 79 U. S. 3

he held in the company compared with the whole number into which its capital stock was divided. Under compulsion from the assessor, he then did make such return, and under like compulsion did pay, on the 19th August, 1865, the tax accordingly, protesting in due form against the collection. The assessor had given Hubbard due notice of where appeals from the assessment would be held, but Hubbard did not make any appeal, either to the assessor or to the Commissioner of Internal Revenue, according to the provisions of law in that regard, which allowed him to do so, though it did not make his having done so a condition of his bringing suit. On the contrary, relying on his simple payment under protest, he brought suit in the circuit court of the United States to recover the tax. It was not denied that at the time when he brought that action such a suit could be maintained to recover such a tax illegally paid under protest though no such appeal had been made. However, after Hubbard had thus brought his suit in the circuit court, Congress, on the 13th July, 1866, passed an act [Footnote 2] whose 19th section was thus

"That no suit shall be maintained in any court for the recovery of any tax alleged to have been erroneously or illegally assessed or collected, until appeal shall have been duly made to the Commissioner of Internal Revenue, according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof; and a decision of said commissioner shall be had thereon, unless such suit shall be brought within six months from the time of said decision, or within six months from the time this act takes effect,"


The suit was called for trial in June, 1867, and in consequence of this enactment and the admitted want of appeal to the commissioner, the circuit court dismissed the case.

The plaintiff then, on the 9th of August, 1867, sued the collector in indebitatus assumpsit in one of the state courts of Connecticut, a case as above stated being agreed on, and it

Page 79 U. S. 4

being further admitted that the collector had, prior to the bringing of the suit, paid over to the Treasury of the United States the whole amount of the tax collected; a payment over which was made in pursuance of the act of Congress of March 3, 1865, [Footnote 3] by which collectors were required to pay daily into the treasury the gross amount of all duties, taxes, and revenue received or collected in virtue of the internal revenue acts, without any abatement or deduction on account of compensation, &c., or claims of any description whatever; the act, however, or other acts containing provisions authorizing a person from whom a tax has been collected to sue the collector for its recovery, and provisions for repayment by the treasurer to the collector of whatever should be thus recovered against him.

In the suit in the state court, the collector set up the fact of his payment over, and more particularly the act of 1866 as a bar to the suit, maintaining, also, as a second ground, that if the suit was not thus barred the tax had been rightly assessed and levied.

The court in which this second suit was brought gave judgment for the plaintiff, and on error to the supreme court that judgment was affirmed. The case was now brought here under the 25th section of the Judiciary Act. The questions being:

"I. Did the act of Congress of 1866 incapacitate Hubbard from bringing the second suit?"

"II. If not, were the undivided profits, applied as they bad been, 'income' within the meaning of the act of 1864? "

Page 79 U. S. 8

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