Construing the clause in the Internal Revenue Act of July 14,
1870, which imposed a tax for the year 1871 of 2 1/2 percent on all
undivided profits of corporations accrued and earned and added to a
surplus, contingent, or other fund, in connection with the previous
internal revenue statutes, it is plain that it was the intention of
Congress not to subject to that tax profits of a railroad
corporation during that year which were not divided, but were used
Action at law to recover an unpaid internal revenue tax.
Judgment for plaintiff. Defendant sued out this writ of error. The
case is stated in the opinion of the Court.
MR. CHIEF JUSTICE WAITE delivered the opinion of the Court.
The single question in this case is whether a railroad company
is liable, under the Act of July 14, 1870, c. 255, § 15, 16 Stat.
260, for a tax of 2 1/2 percent on its profits for 1871, not
divided but used for construction during that year. The section
referred to, so far as material, is as follows:
"That there shall be levied and collected for and during the
year 1871 a tax of two and one-half percent . . . on all undivided
profits of any such corporation which have accrued and been earned
and added to any surplus, contingent, or other fund."
The railroad company of which the Marquette, Houghton and
Ontonagon Company is the successor and for whose debts it is
liable, earned, in 1871, $102,738.30, as profits, which were
Page 123 U. S. 723
not divided, but were used during the year in the construction
of new works and in creating new facilities for business. This
amount was never in fact placed to the account of any particular
fund, but it was taken from the money in the treasury to pay for
the new structures and additions as they were made.
The act of 1870 was entitled "An act to reduce internal taxes
and for other purpose." It is proper therefore to construe this
particular provision in connection with the provisions of like
character in the statutes imposing internal taxes which preceded
that of 1870.
By the Act of July 1, 1862, c. 119, 12 Stat. 432, which was the
first of the series of internal revenue statutes with which that of
1870 was directly connected, railroad companies were required to
pay a tax of three percent on all payments of interest on their
bonded debt and on all dividends declared due or payable to
stockholders "as part of the earnings, profits, or gains of said
companies." § 81, p. 469. And by § 82, p. 470, of the same act,
banks, trust companies, savings institutions, and insurance
companies were required to pay the same tax on all dividends
"declared due or paid to stockholders, to policy holders, or to
depositors, as part of the earnings, profits, or gains of said . .
. companies, and on all sums added to their surplus or contingent
Following this was the Act of June 30, 1864, c. 173, 13 Stat.
223, which provided, § 120, p. 283, for a tax of five percent on
the dividends of banks, trust companies, savings institutions, and
insurance companies as in the act of 1862, and "on all
undistributed sums, or sums made or added during the year to their
surplus or contingent funds." As to railroad companies, it was
provided, § 122, p. 284, that they should pay the same tax on the
amount of the interest on their bonded debt, on dividends to
"as part of the earnings, profits, income, or gains of such
company, and on all profits of such company carried to the account
of any fund, or used for construction."
Sections 120 and 122 were amended in some respects by the Act of
July 13, 1866, c. 184, 14 Stat. 138, but these particular
provisions were retained in substantially the same language.
Page 123 U. S. 724
That the tax here levied was not necessarily a tax or all the
profits of these companies, but only on such as were used or
disposed of in the ways specified, is shown by § 121 of the act of
1864, 13 Stat. 284, which provided that if any bank legally
authorized to issue notes as circulation neglected to "make
dividends or additions to its surplus or contingent fund as often
as once in six months," the tax should be on "the amount of profits
which have accrued or been earned or received by said bank during
the six months next preceding the first days of January and July."
And that profits "used for construction" were not looked upon as
profits "carried to the account of any fund" or "added to any
surplus or contingent or other fund" is evident from the fact that
it was thought necessary when the taxes were increased in 1864 to
make special mention of them as something more than had been
already provided for -- that is to say, in "profits carried to the
account of any fund." When, therefore, profits "used for
construction" were left out in the act of 1870, it is evident to
our minds that Congress intended to reduce the tax on railroad
corporations to that extent. The question is not what would have
been the meaning of "profits carried to the account of any fund,"
or "added to any surplus, contingent, or other fund," if this
special provision in respect to profits "used for construction" had
never been made, but what the meaning is with that provision left
off after it had once been added. This is to be ascertained not by
inquiry into the manner of keeping railroad accounts, but by
interpreting the language used by Congress at different times to
give expression to its will; not by determining whether, as matter
of bookkeeping, it is usual to carry undivided profits used for
construction to a construction fund, but by studying the several
statutes to see if it was intended that, if so used, they should be
taxed under the act of 1870. In our opinion, it was not, and
consequently the current earnings of the company for the year 1871,
used as earned in new construction, were not taxable as profits of
The judgment of the circuit court is reversed, and the cause
remanded, with instructions to enter a judgment in favor of the
railroad company on the facts found.