The Corporation Tax Law of 1909 was adopted before the
ratification of the Sixteenth Amendment, and imposed an excise tax
on the doing of business by corporations, and not in any sense a
tax on property or upon income merely as such.
Flint v.
Stone-Tracy Co., 220 U. S. 107. The
Corporation Tax Law does not in terms impose a tax upon corporate
property or franchises as such, nor upon the income arising from
the conduct of business unless it be carried on by the
corporation.
The Act of August 5, 1909, c. 6, § 38, 36 Stat. 11, 112, does
not impose a tax upon the income derived from the management of
corporate property by receivers under the conditions of this
case.
193 F. 289, 198 F. 774, affirmed.
The facts, which involve the construction of the federal
Corporation Tax Act and the determination of whether the same
imposed a tax upon the income derived from the management of
corporate property by receivers appointed by the court, are stated
in the opinion.
Page 231 U. S. 145
MR. JUSTICE PITNEY delivered the opinion of the Court.
These cases were heard together in the district court and in the
circuit court of appeals (
sub. nom. Pennsylvania Steel Company
v. New York City Rail Company, 193 F. 286). They were argued
together in this Court, and may be disposed of in a single
opinion.
In the years 1909 and 1910, certain lines of street railway in
the City of New York, that may be conveniently designated as the
Third Avenue system, were in the hands of the respondent Whitridge,
as receiver, under orders made in the year 1908 by the Circuit
Court of the United States for the Southern District of New York in
actions pending therein against the several proprietary companies.
One of these actions was a foreclosure suit; the others were
creditors' actions based upon the insolvency of the respective
companies. The powers conferred upon the receiver did not vary in
any respect now
Page 231 U. S. 146
material, and so a recital of the substance of one of the orders
will suffice as an example. This order constituted Whitridge
receiver of all the railroads and other property of the company,
including tracks, cars, and other rolling stock and equipment,
easements, privileges, and franchises, and the tolls, earnings,
income, rents, issues, and profits thereof, with authority
"to run, manage, and operate the said railroads and properties,
to collect the rents, income, tolls, issues, and profits of said
railroads and property, to exercise the authority and franchises of
said defendant, and discharge its public duties, acting in all
things subject to the supervision of this Court."
By the same order, the officers, agents, and employees of the
company were required to turn over and deliver to the receiver all
of the said property in their hands or under their control, and the
company was enjoined from interfering in any way with his
possession or management.
In the same years (1909 and 1910), certain other lines of street
railway in the City of New York, which may be described as the
Metropolitan system, were in the possession of the respondents
Joline and Robinson as receivers, appointed in the year 1907 by the
Circuit Court of the United States for the same district, in
several actions therein pending against the corporations which were
owners of these lines. The orders appointing these receivers
contain provisions substantially similar to those already recited.
(
See In re Metropolitan Railway Receivership, 208 U. S.
90,
208 U. S.
93-96).
In the year 1911, petitions were filed in the circuit court in
behalf of the United States, praying for orders directing the
receivers to make returns of the net income of the respective
railway corporations for the years 1909 and 1910, to the collector
of internal revenue in the manner required by the provisions of the
Corporation Tax Law (Tariff Act of August 5, 1909, § 38, 36 Stat.
c. 6, pp. 11, 112-117).
Page 231 U. S. 147
The applications were resisted by the receivers on the ground
that the respective corporations did not, during the years 1909 and
1910, carry on any business in respect of the property that was in
their hands as such receivers; that they as such receivers managed,
controlled, and operated the same, and carried on all the business
in respect thereto, and received all the income arising therefrom,
not acting in place of the directors and officers of the respective
companies, but as officers of the court, and that they were
therefore not subject to the provisions of the act.
Jurisdiction of the controversy having been transferred to the
district court by virtue of the new Judicial Code, § 290, that
court sustained the contention of the receivers (193 F. 286) and
the circuit court of appeals affirmed this decision (198 F. 774).
The cases are brought here by writs of certiorari.
As repeatedly pointed out by this Court, the Corporation Tax Law
of 1909 -- enacted, as it was, after Congress had proposed to the
legislatures of the several states the adoption of the Sixteenth
Amendment to the Constitution, but before the ratification of that
Amendment -- imposed an excise or privilege tax, and not in any
sense a tax upon property or upon income merely as income. It was
enacted in view of the decision of this Court in
Pollock v.
Farmers' Loan & Trust Co., 157 U.
S. 429,
158 U. S. 158 U.S.
601, which held the income tax provisions of a previous law (Act of
August 27, 1894, 28 Stat. c. 349, pp. 509, 553, §§ 27
et
seq.) to be unconstitutional because amounting in effect to a
direct tax upon property within the meaning of the Constitution,
and because not apportioned in the manner required by that
instrument.
As was said in
Flint v. Stone-Tracy Co., 220 U.
S. 107,
220 U. S. 145,
respecting the Act of August 5, 1909:
"The tax is imposed not upon the franchises of the corporation
irrespective of their use in business, nor upon the property of the
corporation, but upon the doing of corporate or insurance
Page 231 U. S. 148
business, and with respect to the carrying on thereof, in a sum
equivalent to one percentum upon the entire net income over and
above $5,000 received from all sources during the year -- that is,
when imposed in this manner, it is a tax upon the doing of business
with the advantages which inhere in the peculiarities of corporate
or joint-stock organizations of the character described. As the
latter organizations share many benefits of corporate organization,
it may be described generally as a tax upon the doing of business
in a corporate capacity."
This interpretation was adhered to and made the basis of
decision in
Zonne v. Minneapolis Syndicate, 220 U.
S. 187, and
McCoach v. Minehill Railway Co.,
228 U. S. 295,
228 U. S.
300.
A reference to the language of the act
* is sufficient
to
Page 231 U. S. 149
show that it does not in terms impose a tax upon corporate
property or franchises as such, nor upon the income arising from
the conduct of business unless it be carried on by the corporation.
Nor does it in terms impose any duty upon the receivers of
corporations or of corporate property with respect to paying taxes
upon the income arising from their management of the corporate
assets or with respect to making any return of such income.
And we are unable to perceive that such receivers are within the
spirit and purpose of the act, any more than they are within its
letter. True, they may hold, for the time, all the franchises and
property of the corporation excepting its primary franchise of
corporate existence. In the present cases, the receivers were
authorized and required to manage and operate the railroads and to
discharge the public obligations of the corporations in this
behalf. But they did this as officers of the court, and subject to
the orders of the court, not as officers of the respective
corporations nor with the advantages that inhere in corporate
organization as such. The possession and control of the receivers
constituted, on the contrary, an ouster of corporate management and
control, with the accompanying advantages and privileges.
Without amplifying the discussion, we content ourselves with
saying that, having regard to the genesis of the legislation, the
constitutional limitation in view of which it was evidently framed,
the language employed by the lawmaker, and the reason and spirit of
the enactment, all considerations alike lead to the conclusion that
the Act of 1909 did not impose a tax upon the income derived from
the management of corporate property by receivers under such
conditions as are here presented.
Decrees affirmed.
*
"SEC. 38. That every corporation . . . organized for profit and
having a capital stock represented by shares . . . organized under
the laws of the United States or of any state . . . and engaged in
business in any state . . . shall be subject to pay annually a
special excise tax with respect to the carrying on or doing
business by such corporation . . . equivalent to one percentum upon
the entire net income over and above five thousand dollars received
by it from all sources during such year, exclusive of amounts
received by it as dividends upon stock of other corporations . . .
subject to the tax hereby imposed. . . ."
"Second. Such net income shall be ascertained by deducting from
the gross amount of the income of such corporation . . . received
within the year from all sources, (first) all the ordinary and
necessary expenses actually paid within the year out of income in
the maintenance and operation of its business and properties. . .
."
"And on or before the first day of March, nineteen hundred and
ten, and the first day of March in each year thereafter, a true and
accurate return under oath or affirmation of its president,
vice-president, or other principal officers, and its treasurer or
assistant treasurer, shall be made by each of the corporations . .
. subject to the tax imposed by this section, to the collector of
internal revenue for the district in which such corporation . . .
has its principal place of business."