Brushaber v. Un. P. R. Co., ante, p.
240 U. S. 1,
followed to effect that the district court has jurisdiction of an
action by a stockholder against the corporation to enjoin it from
voluntarily paying the tax under the Income Tax Law of 1913 on the
ground of its unconstitutionality.
This Court has, under § 238, Jud.Code, jurisdiction of a direct
appeal from the judgment of the district court refusing to enjoin a
corporation from paying the tax under the Income Tax Law of 1913,
in a suit brought by a stockholder on the ground of
unconstitutionality of the statute.
The Income Tax Law of 1913 is not unconstitutional as not
conforming with, or being beyond the authority of, the Sixteenth
Amendment.
Brushaber v. Un. P. R. Co., ante, p.
240 U. S. 1.
There is no authority for taking taxation of mining corporations
out of the rule established by the Sixteenth Amendment; nor is
there any basis for the contention that, owing to inadequacy of the
allowance for depreciation of ore body, the income tax of 1913 is
equivalent to one on the gross product of mines, and, as such, a
direct tax on the property itself, and therefore beyond the purview
of that amendment and void for want of apportionment.
Independently of the operations of the Sixteenth Amendment, a
tax on the product of the mine is not a tax upon property as such
because of its ownership, but is a true excise levied on the result
of the business of carrying on mining operations.
Stratton's
Independence v. Howbert, 231 U. S. 399.
The facts, which involve the constitutionality and construction
of provisions of the Income Tax Law of 1913 and its application to
mining corporations, are stated in the opinion.
Page 240 U. S. 107
MR. CHIEF JUSTICE WHITE delivered the opinion of the Court.
As in
Brushaber v. Union P. R. Co., ante, p.
240 U. S. 1, this
case was commenced by the appellant as a stockholder of the Baltic
Mining Company, the appellee, to enjoin the voluntary payment by
the corporation and its officers of the tax assessed against it
under the income tax section of the Tariff Act of October 3, 1913,
c. 16, 38 Stat. 166. As to the grounds for the equitable relief
Page 240 U. S. 108
sought in this case so far as the question of jurisdiction is
concerned are substantially the same as those which were relied
upon in the
Brushaber case, it follows that the ruling in
that case upholding the power to dispose of that controversy is
controlling here, and we put that subject out of view.
Further, also like the
Brushaber case, this is before
us on a direct appeal prosecuted for the purpose of reviewing the
action of the court below in dismissing on motion the bill for want
of equity.
The bill averred:
"That, under and by virtue of the alleged authority contained in
said income tax law, if valid and constitutional, the respondent
company is taxable at the rate of one percent upon its gross
receipts from all sources, during the calendar year ending December
31, 1914, after deducting (1) its ordinary and necessary expenses
paid within the year in the maintenance and operation of its
business and properties, and (2) all losses actually sustained
within the year, and not compensated by insurance or otherwise,
including depreciation arising from depletion of its ore deposits
to the limited extent of five percent of the 'gross value at the
mine of the output' during said year."
It was further alleged that the company would, if not
restrained, make a return for taxation conformably to the statute,
and would pay the tax upon the basis stated without protest, and
that to do so would result in depriving the complainant as a
stockholder of rights secured by the Constitution of the United
States, as the tax which it was proposed to pay without protest was
void for repugnancy to that Constitution. The bill contained many
averments on the following subjects, which may be divided into two
generic classes: (A) those concerning the operation of the law in
question upon individuals generally and upon other than mining
corporations, and the discrimination against mining corporations
which arose in favor of such other corporations and individuals
Page 240 U. S. 109
by the legislation, as well as discrimination which the
provisions of the act operated against mining corporations because
of the separate and more unfavorable burden cast upon them by the
statute than was placed upon other corporations and individuals --
averments all of which were obviously made to support the
subsequent charges which the bill contained as to the repugnancy of
the law imposing the tax to the equal protection, due process, and
uniformity clauses of the Constitution, and (B) those dealing with
the practical results on the company of the operation of the tax in
question, evidently alleged for the purpose of sustaining the
charge which the bill made that the tax levied was not what was
deemed to be the peculiar direct tax which the Sixteenth Amendment
exceptionally authorized to be levied without apportionment, and of
the resulting repugnancy of the tax to the Constitution as a direct
tax on property because of its ownership, levied without conforming
to the regulation of apportionment generally required by the
Constitution as to such taxation.
We need not more particularly state the averments as to the
various contentions in class (A), as their character will
necessarily be made manifest by the statement of the legal
propositions based on them which we shall hereafter have occasion
to make. As to the averments concerning class (B), it suffices to
say that it resulted from copious allegations in the bill as to the
value of the ore body contained in the mine which the company
worked, and the total output for the year of the product of the
mine after deducting the expenses as previously stated; that the
five percent deduction permitted by the statute was inadequate to
allow for the depletion of the ore body, and therefore the law to a
large extent taxed not the mere profit arising from the operation
of the mine, but taxed as income the yearly product which
represented to a large extent the yearly depletion or exhaustion
of
Page 240 U. S. 110
the ore body from which, during the year, ore was taken. Indeed,
the following alleged facts concerning the relation which the
annual production bore to the exhaustion or diminution of the
property in the ore bed must be taken as true for the purpose of
reviewing the judgment sustaining the motion to dismiss the
bill.
"That the real or actual yearly income derived by the respondent
company from its business or property does not exceed $550,000.
That, under the income tax, the said company is held taxable, in an
average year, to the amount of approximately $1,150,000, the same
being ascertained by deducting from its net receipts of $1,400,000
only a depreciation of $100,000 on its plant and a depletion of its
ore supply limited by law to five percent of the value of its
annual gross receipts, and amounting to $150,000; whereas, in order
properly to ascertain its actual income, $750,000 per annum should
be allowed to be deducted for such depletion, or five times the
amount actually allowed."
Without attempting minutely to state every possible ground of
attack which might be deduced from the averments of the bill, but
in substance embracing every material grievance therein asserted
and pressed in argument upon our attention in the elaborate briefs
which have been submitted, we come to separately dispose of the
legal propositions advanced in the bill and arguments concerning
the two classes.
Class A. Under this, the bill charged that the
provisions of the statute
"are unconstitutional and void under the Fifth Amendment in that
they deny to mining companies and their stockholders equal
protection of the laws and deprive them of their property without
due process of law"
for the following reasons:
(1) Because all other individuals or corporations were given a
right to deduct a fair and reasonable percentage for losses and
depreciation of their capital, and they were
Page 240 U. S. 111
therefore not confined to the arbitrary five percent fixed as
the basis for deductions by mining corporations.
(2) Because, by reason of the differences in the allowances
which the statute permitted, the tax levied was virtually a net
income tax on other corporations and individuals, and a gross
income tax on mining corporations.
(3) Because the statute established a discriminating rule as to
individuals and other corporations as against mining corporations
on the subject of the method of the allowance for
depreciations.
(4) Because the law permitted all individuals to deduct from
their net income dividends received from corporations which had
paid the tax on their incomes, and did not give the right to
corporations to make such deductions from their income of dividends
received from other corporations which had paid their income tax.
This was illustrated by the averment that 99 percent of the stock
of the defendant company was owned by a holding company, and that,
under the statute, not only was the corporation obliged to pay the
tax on its income, but so also was the holding company obliged to
pay on the dividends paid it by the defendant company.
(5) Because of the discrimination resulting from the provision
of the statute providing for a progressive increase of taxation or
surtax as to individuals, and not as to corporations.
(6) Because of the exemptions which the statute made of
individual incomes below $4,000, and of incomes of labor
organizations and various other exemptions which were set
forth.
But it is apparent from the mere statement of these contentions
that each and all of them were adversely disposed of by the
decision in the
Brushaber case, and they all therefore may
be put out of view.
Class B. Under this class, these propositions are
relied upon:
Page 240 U. S. 112
(1) That, as the Sixteenth Amendment authorizes only an
exceptional direct income tax without apportionment, to which the
tax in question does not conform, it is therefore not within the
authority of that Amendment.
(2) Not being within the authority of the Sixteenth Amendment,
the tax is therefore, within the ruling of
Pollock v. Farmers'
Loan & Trust Co., 157 U. S. 429, a
direct tax and void for want of compliance with the regulation of
apportionment.
As the first proposition is plainly in conflict with the meaning
of the Sixteenth Amendment as interpreted in the
Brushaber
case, it may also be put out of view. As to the second, while
indeed it is distinct from the subjects considered in the
Brushaber case to the extent that the particular tax which
the statute levies on mining corporations here under consideration
is distinct from the tax on corporations other than mining and on
individuals, which was disposed of in the
Brushaber case,
a brief analysis will serve to demonstrate that the distinction is
one without a difference, and therefore that the proposition is
also foreclosed by the previous ruling. The contention is that as
the tax here imposed is not on the net product, but in a sense
somewhat equivalent to a tax on the gross product of the working of
the mine by the corporation; therefore the tax is not within the
purview of the Sixteenth Amendment, and consequently it must be
treated as a direct tax on property because of its ownership, and
as such void for want of apportionment. But, aside from the obvious
error of the proposition, intrinsically considered, it manifestly
disregards the fact that, by the previous ruling, it was settled
that the provisions of the Sixteenth Amendment conferred no new
power of taxation, but simply prohibited the previous complete and
plenary power of income taxation possessed by Congress from the
beginning from being taken out of the category of indirect taxation
to which it inherently belonged, and being placed
Page 240 U. S. 113
in the category of direct taxation subject to apportionment by a
consideration of the sources from which the income was derived --
that is, by testing the tax not by what it was, a tax on income,
but by a mistaken theory deduced from the origin or source of the
income taxed. Mark, of course, in saying this we are not here
considering a tax not within the provisions of the Sixteenth
Amendment -- that is, one in which the regulation of apportionment
or the rule of uniformity is wholly negligible because the tax is
one entirely beyond the scope of the taxing power of Congress, and
where consequently no authority to impose a burden, either direct
or indirect, exists. In other words, we are here dealing solely
with the restriction imposed by the Sixteenth Amendment on the
right to resort to the source whence an income is derived in a case
where there is power to tax for the purpose of taking the income
tax out of the class of indirect, to which it generically belongs,
and putting it in the class of direct, to which it would not
otherwise belong, in order to subject it to the regulation of
apportionment. But it is said that, although this be undoubtedly
true as a general rule, the peculiarity of mining property and the
exhaustion of the ore body which must result from working the mine
cause the tax in a case like this, where an inadequate allowance by
way of deduction is made for the exhaustion of the ore body, to be
in the nature of things a tax on property because of its ownership,
and therefore subject to apportionment. Not to so hold, it is
urged, is as to mining property but to say that mere form controls,
thus rendering in substance the command of the Constitution that
taxation directly on property because of its ownership be
apportioned wholly illusory or futile. But this merely asserts a
right to take the taxation of mining corporations out of the rule
established by the Sixteenth Amendment when there is no authority
for so doing. It moreover rests upon the wholly fallacious
Page 240 U. S. 114
assumption that, looked at from the point of view of substance,
a tax on the product of a mine is necessarily, in its essence and
nature in every case, a direct tax on property because of its
ownership unless adequate allowance be made for the exhaustion of
the ore body to result from working the mine. We say wholly
fallacious assumption because, independently of the effect of the
operation of the Sixteenth Amendment, it was settled in
Stratton's Independence v. Howbert, 231 U.
S. 399, that such tax is not a tax upon property as such
because of its ownership, but a true excise levied on the results
of the business of carrying on mining operations. Pp.
231 U. S. 413
et seq.
As it follows from what we have said that the contentions are in
substance and effect controlled by the
Brushaber case,
and, insofar as this may not be the case, are without merit, it
results that, for the reasons stated in the opinion in that case
and those expressed in this, the judgment must be, and it is,
Affirmed.
MR. JUSTICE McREYNOLDS took no part in the consideration and
decision of this case.