Barnes v. The Railroads - 84 U.S. 294 (1872)
U.S. Supreme Court
Barnes v. The Railroads, 84 U.S. 17 Wall. 294 294 (1872)
Barnes v. The Railroads
84 U.S. (17 Wall.) 294
The one hundred and sixteenth section of the Internal Revenue Act of June 30, 1864, amended by the Act of March 2, 1867, laid a tax of 5 percent on; incomes derived from any source whatever. The one hundred and nineteenth section enacted
"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 one hundred and twenty-second section, as subsequently amended, imposed a tax of 5 percent on all interest payable and dividends declared by any railroad or canal company &c., whenever payable, to be paid by the company and deducted from the amount payable to the bond or stockholder.
Held, by a Court nearly equally divided and the majority who agreed in the judgment not agreeing in the grounds of it, that interest or dividends which accrued prior to the 1st of January, 1870, were taxable under the act, though payable or declared on or after the date named.
The one hundred and sixteenth section of the Act of June 30, 1864, as amended by the thirteenth section of the Act of March 2, 1867, [Footnote 1] 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 5
percentum on the amount so derived over $1.000, 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 one hundred and seventeenth 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 percentum 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 one hundred and eighteenth 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 one hundred and nineteenth section, as amended by the already-mentioned section of the Act of March 2, 1867, [Footnote 2] 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 one hundred and twenty-second section of the same act as amended by the ninth section of the Act of July 13, 1866, [Footnote 3] enacts:
"SECTION 122. That any railroad, canal, turnpike, canal navigation, or slack-water company indebted for any money for which bonds or other evidence of indebtedness have been issued, payable in one or more years after date, upon which interest is stipulated to be paid or coupons representing the interest, or any such company that may have declared any dividend in scrip or money, due or payable to its stockholders, including nonresidents, whether citizens or aliens, 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 5 percentum on the amount of all such interest or coupons, dividends, or profits, whenever and wherever the same shall be payable and to whatever party or person the same may be payable, including nonresidents, whether citizens or aliens."
"And said companies are hereby authorized to deduct and withhold from all payments on account of any interest or coupons and dividends due and payable as aforesaid, the tax of 5 percentum, and the payment of the amount of said tax so deducted from the interest or coupons or dividends and certified by the president or treasurer of said company shall discharge said company from that amount of the dividend or interest or coupon on the bonds or other evidences of their indebtedness so held by any person or party whatever, except where said companies may have contracted otherwise."
This is the material part of the section; another paragraph, however, being referred to in one of the opinions given further on in the case as bearing on the question hereafter stated as in controversy, the paragraph, which runs thus, is added:
"And a list or return shall be made and rendered to the assessor or assistant assessor on or before the 10th day of the month following that in which said interest, coupons, or dividends become due and payable, and as often as every six
months, and said list or return shall contain a true and faithful account of the amount of tax, and there shall be annexed thereto a declaration of the president or treasurer of the company, under oath or affirmation in form and manner as may be prescribed by the Commissioner of Internal Revenue, that the same contains a true and faithful account of said tax. And for any default in making or rendering such list or return, with the declaration annexed, or of the payment of the tax as aforesaid, the company making such default shall forfeit as a penalty the sum of $1,000, and in case of any default in making or rendering said list or return or of the payment of the tax or any part thereof as aforesaid, the assessment and collection of the tax and penalty shall be made according to the provisions of the law in other cases of neglect or refusal."
The one hundred and twenty-third section of the same act, as amended by the thirteenth 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 $1,000 per annum, a tax of 5 percentum on the excess above the said $1,000, 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 5 percentum; and the payroll, receipts, or account of officers or persons paying such tax as aforesaid, shall be made to exhibit the fact of such payment."
In this state of statutory enactment, the Philadelphia & Reading Railroad Company (a corporation of Pennsylvania) on the 22d of December, 1869, declared a dividend, payable January the 17, 1870, on their stock as part of the profits made between the 1st of July and 1st of December, 1869, the dividend being made in pursuance of a power in the company's charter which authorized its managers to declare
at least twice in each year such dividend of the company's profits as they deemed advisable, the same to be payable at the expiration of ten days.
So too the Harrisburg, Portsmouth, & Mount Joy & Lancaster Railroad Company, having a large capital stock and having issued bonds for money, with interest payable semiannually on the 1st of January and July, declared on the 10th of January, 1870, a dividend on their stock as part of their income and gain made between the 1st of July, 1869, and the 1st of January following. Apart from this dividend, a semiannual installment on the bonds fell due on the 1st of January, 1870.
In both the cases and in the cases of several other railroad companies [Footnote 4] which had made dividends or were about to pay interest, the assessor of the district assessed a tax of 5 percent on this dividend. The companies refused to pay, and the collector, one Barnes, distrained. Thereupon the companies sued Barnes in trespass.
The question in the cases was whether the duration of the tax upon "interest or coupons, dividends or profits" of railroad, canal, and other companies imposed by the 122d section, quoted above, was subject to the limitation fixed by the 119th section, taken in connection with the 116th section. In other words, whether a tax upon the profits, interest, or dividends mentioned in the said 122d section was authorized to be assessed and collected, where such profits were set apart or where such interest or dividends became due and payable after the 31st of December, 1869, and especially as in the second of the above-mentioned cases, where the dividend was declared after that date. The government contended that the limitation referred to was not applicable to the tax described in the 122d section, and that the assessment and collection thereof, upon interest, dividends &c.,
due and payable subsequent to that date, were authorized -- a position denied by the railroad companies and their stockholders and creditors.
The court below was of opinion that the tax was not authorized, and gave judgment accordingly. From that judgment the collector brought the cases here.
In this Court, the cases were twice argued. On the first argument, the court being then composed of eight judges, there was an equally divided bench. After the accession of MR. JUSTICE HUNT, a new argument was ordered, and it was accordingly reargued by Mr. G. H. Williams, Attorney General, and Mr. S. F. Phillips, Solicitor General, for the Collector, and by Messrs. J. G. Gowen, Chapman Biddle, and Theodore Cuyler for different railroad companies interested.