1. The special excise tax laid by the Revenue Act of 1916 on
"every corporation, joint-stock company or association, now or
hereafter organized in the United States for profit and having a
capital stock represented by shares, and every insurance company,
now or hereafter organized under the laws of the United States, or
any state or Territory," did not apply to associations, such as
"Massachusetts Trusts," not organized under, or deriving any
quality or benefit from, a statute. Eliot v. Freeman,
220 U. S. 178
265 U. S.
2. In adopting language used in an earlier act, Congress must be
regarded as adopting also the construction given that language by
this Court. P. 265 U. S.
3. The special excise laid by § 1000(a) of the Revenue Act of
1918 (40 Stat. 1057) on every " domestic corporation," -- the act
(§ 1) defining the term "corporation" as including "associations,
joint-stock companies, and insurance companies," and the term
"domestic," when applied to a corporation or partnership, as
meaning "created or organized in the United States" -- extends to
organizations exercising the privilege of doing business as
associations under the common law. P. 265 U. S.
4. Organizations known as "Massachusetts Trusts," created by
trust agreements, whereby property was conveyed to and managed in
business operations by trustees, the shares of the cestuis que
being represented by transferable certificates
entitling holder to
Page 265 U. S. 145
share ratably in the income and, upon termination of the trust,
in the proceeds of the property, held
created or organized in the United States and engaged in business
within the meaning of the Revenue Act of 1918, supra, loc.
cit. Crocker v. Malley, 249 U.
, distinguished. P. 265 U. S.
5. The Revenue Act of 1918 bases the special excise tax of a
domestic association upon the average value of its "capital stock,"
including surplus and undivided profits. Held
that, in the
absence of a fixed share capital, the "capital stock" is the net
value of the property owned by the association and used in its
business. P. 265 U. S.
6. Where taxes were unlawfully assessed under the Revenue Act of
1916, and paid under protest, the government was entitled to retain
the money in part satisfaction of a lawful retroactive assessment
for the same period under the Revenue Act of 1918. P. 265 U. S.
281 F. 363 affirmed in part and reversed in part.
Certiorari to judgments of the circuit court of appeals which
reversed judgments of the district court in favor of the present
petitioners, in their actions to recover moneys paid, under
protest, as special excise taxes.
MR. JUSTICE SANFORD delivered the opinion of the Court.
These four cases, which were heard together, involve the
question whether the trustees of three "Massachusetts Trusts" are
subject to the special excise taxes imposed upon certain
"associations" by the Revenue Act of 1916
Page 265 U. S. 146
(39 Stat. 756, c. 463), and the Revenue Act of 1918 [Footnote 1
] (40 Stat. 1057, c. 18),
based upon the value of their capital stock.
The petitioners in case No. 99 are the trustees of the "Hecht
Real Estate Trust;" in Nos. 100 and 101, the trustees of the
"Hay-market Trust;" and in No. 119, the trustees of the "Crocker,
Burbank & Co. Assn." Excise taxes were assessed against them
under these Acts and paid under protest. [Footnote 2
] They then brought suits for refund in the
Federal District Court in Massachusetts, an had recoveries. 276 F.
830. The judgments in their favor were reversed by the circuit
court of appeals. 281 F. 363. And these writs of certiorari were
granted. 260 U.S. 715.
The "Massachusetts Trust" is a form of business organization,
common in that state, [Footnote
] consisting essentially of an arrangement whereby property is
conveyed to trustees, in accordance with the terms of an instrument
of trust, to be held and managed for the benefit of such persons as
may from time to time be the holders of transferable certificates
issued by the trustees showing the shares into which the beneficial
interest in the property
Page 265 U. S. 147
is divided. These certificates, which resemble certificates for
shares of stock in a corporation and are issued and transferred in
like manner, entitle the holders to share ratably in the income of
the property, and, upon termination of the trust, in the
Under the Massachusetts decisions, these trust instruments are
held to create either pure trusts or partnerships, according to the
way in which the trustees are to conduct the affairs committed to
their charge. If they are the principals and are free from the
control of the certificate holders in the management of the
property, a trust is created; but if the certificate holders are
associated together in the control of the property as principals
and the trustees are merely their managing agents, a partnership
relation between the certificate holders is created. Williams
215 Mass. 1, 5; Frost v. Thompson,
Mass. 360, 365; Dana v. Treasurer,
227 Mass. 562, 565;
Priestly v. Treasurer,
230 Mass. 452, 455.
These trusts -- whether pure trusts or partnerships -- are
unincorporated. They are not organized under any statute, and they
derive no power, benefit, or privilege from any statute. The
Massachusetts statutes, however, recognize their existence and
impose upon them, as "associations," certain obligations and
liabilities. [Footnote 4
The Hecht Real Estate Trust was established by the members of
the Hecht family upon real estate in Boston used for offices and
business purposes, which they owned as tenants in common. It is
primarily a family affair. The certificates have no par value, the
shares being for
Page 265 U. S. 148
one-thousandths of the beneficial interest. They are
transferable, but must be offered to the trustees before being
transferred to any person outside of the family. The trustees have
full and complete powers of management, but no power to create any
liability against the certificate holders. There are no meetings of
certificate holders, but they may, by written instrument, increase
the number of trustees, remove a trustee, appoint a new trustee if
there be none remaining, modify the declaration of trust in any
particular, terminate the trust, or give the trustees any
The Haymarket Trust is strictly a business enterprise. It was
established by the original subscribers who furnished the money for
the purchase of a building in Boston used for store and office
purposes. The shares are of the par value of $100 each. Except as
otherwise restricted, the trustees have general and exclusive
powers of management, but no power to bind the certificate holders
personally. At any annual or special meeting of the certificate
holders, they may fill any vacancies in the number of trustees,
depose any or all the trustees and elect others in their place,
authorize the sale of the property or any part thereof, and alter
or amend the agreement of trust.
The Crocker, Burbank & Co. Assn. is also a business
enterprise. It was formerly entitled the Wachusett Realty Trust.
The certificates have no par value, the shares being for ninety-six
thousandths of the beneficial interest in the property. The
trustees originally held the fee of certain lands subject to a long
lease and the stock of a Massachusetts corporation engaged in
manufacturing paper and owning and operating several mills. In
Crocker v. Malley, 249 U. S. 223
which the original trust instrument was before the Court, it was
held that the trustees were not subject as to the dividends
received from the corporation to the tax imposed by the Income Tax
Act of 1913 upon the net income of "every corporation,
Page 265 U. S. 149
joint-stock company or association, . . . organized in the
United States," but were subject only to the duties imposed by the
Act upon trustees. The original trust agreement involved in that
case has now, however, been modified, with the assent of the
certificate holders. By this modification, "the form of [the]
organization" was specifically "changed to that of an association,"
under its present name. The trustees were authorized to surrender
the stock of the manufacturing corporation, to acquire instead its
entire property, and to carry on the business theretofore conducted
by it, or any substantially similar business. The title to all the
trust property "and the right to conduct all the business" were
vested exclusively in the trustees, who were authorized to
designate from their number a president and other officers and to
prescribe their duties. The certificate holders were authorized at
any meeting to remove any trustee and elect trustees to fill any
vacancies. Since the modification of the trust agreement, the
trustees have carried on the manufacturing business in
substantially the same manner as it was formerly conducted by the
To determine rightly the scope and effect of the Revenue Acts
now in question, it is necessary to bear in mind the previous
legislation on the same subject, and the interpretation given it by
the decisions of this Court.
Section 38 of the Act of August 5, 1909, c. 6, 36 Stat. 11, 112
-- commonly called the Corporation Tax Law -- provided:
"That every corporation, joint stock company or association,
organized for profit and having a capital stock represented by
shares, and every insurance company, now or hereafter organized
under the laws of the United States or of any state or Territory, .
. . or now or hereafter organized under the laws of any foreign
country and engaged in business in any state or Territory of the
United States . . . shall be subject to pay annually a special
excise tax with respect to the carrying on or doing business,
Page 265 U. S. 150
. . . equivalent to one percentum upon the entire net income
over and above five thousand dollars received by it from all
sources, . . . or, if organized under the laws of any foreign
country, . . . from business transacted and capital invested within
the United States and its Territories. . . . [Footnote 5
In Flint v. Stone Tracy Co., 220 U.
, the Court, in sustaining the constitutionality
of this section of the Act, said that the domestic corporations,
joint stock companies, or associations, as well as the insurance
companies, "must be such as are now or hereafter organized under
the laws of the United States or of any state or Territory," and
that the tax was imposed
"upon the doing of business with the advantages which inhere in
the peculiarities of corporate or joint stock organizations of the
that is, "upon the exercise of the privilege of doing business
in a corporate capacity, as such business is done under authority
of state franchises."
In Eliot v. Freeman, 220 U. S. 178
220 U. S. 185
it was held that this excise tax did not apply to two typical
Massachusetts trusts. The Court said:
"Under the terms of the Corporation Tax Law, corporations and
joint stock associations must be such as are 'now or hereafter
organized under the laws of the United States or of any state or
Territory. . . .' The language . . . 'now or hereafter organized
under the laws of the United States,' etc., imports an organization
deriving power from statutory enactment. . . . The description of
the corporation or joint stock association as one organized under
the laws of a state at once suggests that they are such as are the
creation of statutory law, from which they derive their powers and
are qualified to carry on their operations. . . . Entertaining the
view that it was the
Page 265 U. S. 151
intention of Congress to embrace within the corporation tax
statute only such corporations and joint stock associations as are
organized under some statute, or derive from that source some
quality or benefit not existing at the common law, we are of
opinion that the real estate trusts involved in these two cases are
not within the terms of the act."
We come now to the consideration of the Acts involved in the
1. Revenue Act of 1916.
-- Section 407, Title IV, of
this Act provides (39 Stat. p. 789) that:
"Every corporation, joint-stock company or association, now
or hereafter organized in the United States for profit and having a
capital stock represented by shares, and every insurance company,
now or hereafter organized under the laws of the United States, or
any state or territory,
. . . shall pay annually a special
excise tax with respect to the carrying on or doing business, . . .
equivalent to 50 cents for each $1,000 of the fair value of its
including the surplus and undivided profits, but less an
exemption of $99,000 from the capital stock.
And, in a separate paragraph, that:
"Every corporation, joint-stock company or association, or
insurance company, now or hereafter organized for profit under the
laws of any foreign country and engaged in business in the United
States shall pay annually a special excise tax, . . . equivalent to
50 cents for each $1,000 of the capital actually invested in the
transaction of its business in the United States."
Section 10, Title I, also provides that there shall be paid
annually a tax of two percentum upon the net income received "by
every corporation, joint-stock company or association, or insurance
company, organized in the United States, no matter how created or
The bill as introduced in the House of Representatives contained
this provision for an income tax, but no provision
Page 265 U. S. 152
for an excise tax. It was amended in the Senate so as to impose
on every corporation, joint-stock company or association, as
defined and limited in § 10, Title I, that is "organized in the
United States, no matter how created or organized," a special tax
of 50 cents for each $1,000 "of capital, surplus and undivided
profits used in any of the activities or functions of their
business." The Chairman of the Senate Committee on Finance, in
reporting the bill with this amendment, referred to it as "imposing
a small tax upon corporations in the nature of a license tax for
doing business." The House, however, did not agree to this
amendment. And later, pursuant to the report of a Conference
Committee, there was inserted in the bill, in lieu of the Senate
amendment, the provision for a special excise tax now contained in
§ 407 of the Act, in which the words "no matter how created or
organized" were omitted, and the words "organized under the laws of
the United States, or any state or Territory," which had been
contained in the Act of 1909, were inserted. 64th Cong. 1st Sess.
H.R. 16763, and Sen.Rep. No. 793, pt. 1, p. 2; 53 Cong.Rec. pt. 11,
p. 10663 and part 13, p. 14020.
It thus appears that Congress intended to make a clear
distinction between the provisions relating to the income tax and
to the excise tax, and purposely framed them, as shown by the
amendment incorporated in the bill before its final passage, so
that, while the income tax provision should apply to all domestic
corporations, joint-stock companies or associations, no matter how
created or organized, the excise tax provision should only apply to
such as were organized under statutory law. See United States
v. Publishing Co., 219 U. S. 1
219 U. S. 13
United States v. St. Paul Railway, 247 U.
, 247 U. S.
The words, "now or hereafter organized under the laws of the
United States or any state or Territory" appear in the Act of 1916
in precisely the same place with reference
Page 265 U. S. 153
to the preceding words "every corporation, joint-stock company
or association" as in the Act of 1909, and are separated from them
in like manner by the phrase "and every insurance company,"
followed by the like comma. And it is clear that, in the
intermediate phrase "now or hereafter organized in the United
States for profit and having a capital stock represented, by
shares," the words "in the United States" were inserted in the Act
of 1916 after the word "organized" merely by reason of the fact
that this Act refers to domestic and foreign corporations,
joint-stock companies and associations in two separate paragraphs
instead of in the same paragraph as in the Act of 1909. The words
"organized in the United States" have no different effect, as
applied to domestic corporations, joint-stock companies and
associations, from the word "organized" as used in the Act of 1909,
and in no wise remove the ensuing general limitation that they must
be such as are "organized under the laws of the United States, or
any state or Territory."
And since these limiting words, when used in the Act of 1909,
had been held by this Court, in Eliot v. Freeman,
the intention of Congress to embrace within the statute only such
corporations and joint-stock associations as "are organized under
some statute, or derive from that source some quality or benefit
not existing at the common law," they must be given the same
meaning and effect when used in the Act of 1916. In adopting the
language used in an earlier act, Congress must be considered to
have adopted also the construction given by this Court to such
language, and made it a part of the enactment. Sessions v.
Romadka, 145 U. S. 29
145 U. S. 43
Latimer v. United States, 223 U.
, 223 U. S. 504
And here the legislative history of the excise tax provision of the
Act of 1916 and the marked contrast between its language and that
of the income tax provision of the same Act plainly show, aside
from this rule of statutory construction, that this is what
Congress in fact intended.
Page 265 U. S. 154
We conclude that, as the trusts involved in these four cases are
not organized under any statute and derive from such source no
quality or benefit, they are not within the terms of the excise tax
provision of the Act of 1916.
2. Revenue Act of 1918.
-- Section 1 of this Act
provides (40 Stat. p. 1057) that, when used in the Act, the "term
corporation' includes associations, joint-stock companies, and
insurance companies;" the "term `domestic,' when applied to a
corporation or partnership, means created or organized in the
United States," and the "term `foreign' . . . means created or
organized outside the United States."
Section 1000(a) provides that, in lieu of the tax imposed by §
407 of the Revenue Act of 1916,
"Every domestic corporation shall pay annually a special excise
tax with respect to carrying on or doing business, [Footnote 6
] equivalent to $1 for each $1,000
of so much of the fair average value of its capital stock for the
including the surplus and undivided profits, as is in excess of
$5,000, and every
"foreign corporation shall pay annually a special excise tax
with respect to carrying on or doing business in the United States,
equivalent to $1 for each $1,000 of the average amount of capital
employed in the transaction of its business in the United States
during the preceding year. [Footnote 7
By § 1400(a) Title IV of the Revenue Act of 1916-, including §
407 relating to excise taxes, is specifically repealed, except for
the assessment and collection of taxes accrued thereunder and the
imposition and collection of penalties and forfeitures.
Reading together the defining and enacting sections of the Act,
it is as if § 1000(a) provided in terms that every
Page 265 U. S. 155
corporation, association, joint-stock company and insurance
company, "created or organized in the United States," shall pay a
special excise tax, as prescribed, with respect to the carrying on
or doing business. And it must be given effect as thus read.
The terms of this Act are in marked and significant contrast
with those of the Acts of 1909 and 1916. Not only is the Act of
1916 specifically repealed, but the well defined words of
limitation "organized under the laws of the United States, or any
state or Territory," that had been used in that Act as well as in
the Act of 1909, are omitted, and in lieu thereof the excise tax is
extended, broadly, to every "association" created or organized in
the United States and carrying on or doing business therein. And
thereby, in our opinion, the intention of Congress is plainly shown
to extend the tax from one imposed solely upon organizations
exercising statutory privileges, as theretofore, to include also
organizations exercising the privilege of doing business as
associations at the common law.
It is true that the Chairman of the Ways and Means Committee of
the House of Representatives, in a statement as to "the general
principles of the bill" -- which included many kinds of taxes --
while saying that the committee had made an important change in the
rates and exemptions in the capital stock tax, made no reference to
any enlargement to the class or organizations to which the tax
would apply, and that the Chairman of the Senate Committee on
Finance, in reporting on the bill, while stating that it "provided
for the continuance of the capital stock tax on the basis of the
fair average value of the capital stock of the corporation," and
made certain changes in rates, likewise made no reference to any
such enlargement in the scope of its provisions. 56 Cong.Rec. pt.
12, App. p. 698; 65th Cong.3d Sess., Sen.Rep. No. 617, p. 17. We
cannot, however, regard the slight negative inference which
Page 265 U. S. 156
be drawn from the failure of these chairmen to point out the
enlargement of the class of organizations made subject to the
excise tax as sufficient to overcome the evidence of the
legislative intention drawn from the plain and unambiguous language
of the Act itself, emphasized by the contrast with that of the Act
of 1916 which it supplanted.
Nor can we agree with the contention that the definition clause
of the Act is not to be held applicable to the excise tax provision
on the ground that the Act consolidated many former taxing acts,
and its general definitions may have been inadvertently extended to
the excise tax provision without any actual intention of departing
from the language of the former statute in this respect. This is
not a mere revision and consolidation of former statutes to which a
new interpretation is not to be given without some substantial
change in phraseology. McDonald v. Hovey, 110 U.
; Buck Stove Co. v. Vickers, 226 U.
. It is a new statute, supplanting and changing
the former statutes in many respects, and in which there is a
significant change of phraseology, incorporated in the general
definition clause made applicable, expressly, to every provision of
Nor does the language of the Act in this respect call for the
application of the established rule that, in the interpretation of
statutes levying taxes, their provisions are not to be extended by
implication beyond the clear import of the language used, and, in
case of doubt, are to be construed most strongly against the
government and in favor of the taxpayer. Gould v. Gould,
245 U. S. 151
245 U. S. 153
United States v. Merriam, 263 U.
, 263 U. S. 187
Here, the language of the Act is specific, leaving no substantial
doubt as to its meaning, and the taxpayers are seeking by
implication to limit its clear import.
3. We also conclude that these three trusts are "associations"
created or organized in the United States and engaged in business
within the meaning of the Act. The trustees of the Hecht and
Haymarket Trusts insist that
Page 265 U. S. 157
they are not such "associations." The trustees of the Crocker
Association, on the other hand, admitted in the circuit court of
appeals and at the bar that, since the modification of the original
trust agreement, the trust constitutes an "association."
The word "association" appears to be used in the Act in its
ordinary meaning. It has been defined as a term
"used throughout the United States to signify a body of persons
united without a charter, but upon the methods and forms used by
incorporated bodies for the prosecution of some common
1 Abb.Law Dict. 101 (1879); 1 Bouv.Law Dict. (Rawle's 3d Rev.)
269; 3 Am. & Eng. Enc.Law (2 ed.) 162, and Allen v.
54 N.Y.S. 8, 23, in which this definition was cited
with approval as being in accord with the common understanding.
Other definitions are:
"In the United States, as distinguished from a corporation, a
body of persons organized, for the prosecution of some purpose,
without a charter, but having the general form and mode of
procedure of a corporation."
Webst. New Internat.Dict. "[U.S.] An organized but unchartered
body analogous to but distinguished from a corporation."
Pract.Stand.Dict. And see Malley v. Bowditch,
259 F. 809,
812; Chicago Title Co. v. Smietanka,
275 F. 60; also
United Mine Workers v. Coronado Co., 259 U.
, 259 U. S. 392
in which unincorporated labor unions were held to be "associations"
within the meaning of the Anti-Trust Law.
We think that the word "association," as used in the Act,
clearly includes "Massachusetts Trusts" such as those herein
involved, having quasi
-corporate organizations under which
they are engaged in carrying on business enterprises. [Footnote 8
] What other form of
"associations," if any, it includes we need not and do not
Page 265 U. S. 158
It is true that, in Eliot v. Freeman, supra
220 U. S. 186
it was said that the two trusts there involved could "hardly be
said to be organized within the ordinary meaning of that term."
However, the decision was based solely upon the ground that they
were not subject to the tax imposed by the Act of 1909 because they
were not organized under any statute, and the inference from the
entire opinion is that, if the Act had not required such a
statutory organization, they would have been held to be within its
terms. And we think that the present trusts are both "created" and
"organized" in the United States within the meaning of the Act.
The trustees of the Hecht and Haymarket Trusts earnestly rely,
however, upon the decision in Crocker v. Malley, supra,
conclusively determining that they cannot be held to be
"associations" unless the trust agreements vest the shareholders
with such control over the trustees as to constitute them more than
strict trusts within the Massachusetts rule. This case arose under
§ II, G(a), of the Income Tax Act of 1913 imposing a tax upon the
net income of "every corporation, joint-stock company or
association, . . . organized in the United States, no matter how
created or organized." Section II, D, provided that trustees or
other fiduciaries were exempt from
Page 265 U. S. 159
this tax upon dividends received from corporations taxable upon
their net income. The precise question was whether the trustees of
The Wachusett Realty Trust were subject to the income tax upon
dividends received from a Massachusetts corporation that was itself
taxable upon its net income. The trustees insisted that they were
not an "association" subject to this tax, under G(a), but merely
trustees and entitled to the exemption as fiduciaries under D. The
trust had been created by a Maine corporation which contemplated
dissolution, for the benefit of its shareholders. It had
transferred to the trustees the fee of certain lands leased to a
Massachusetts manufacturing corporation engaged in operating
several mills, and also the stock in that corporation which it
held. The purpose of the trust was to convert this property into
money and distribute the net proceeds to the beneficiaries, within
a period left to the discretion of the trustees. Meanwhile, they
were to distribute the net income, but could apply any funds for
the repair and development of the property or the acquisition of
other property, pending conversion and distribution. Their
function, as emphasized in the opinion, was not to manage the
mills, but simply to collect the rents and income, with a large
discretion in its application. The beneficiaries had no control
except in certain matters in which their consent was required.
The court, after stating that the declaration of trust on its
face was "an ordinary real estate trust of the kind familiar in
Massachusetts," and that there "could be little doubt that, in
Massachusetts, this arrangement would be held to create a trust,
and nothing more," said that, "as the plaintiffs undeniably are
trustees, if they are to be subjected to a double liability, the
language of the statute must make the intention clear," and
"it would be a wide departure from normal usage to call the
beneficiaries here a joint-stock association when they are admitted
not to be partners in any sense, and when they
Page 265 U. S. 160
have no joint action or interest and no control over the fund.
On the other hand, the trustees, by themselves, cannot be a
joint-stock association within the meaning of the act unless all
trustees with discretionary powers are such, and the special
provision for trustees in D. is to be made meaningless. We perceive
no ground for grouping the two -- beneficiaries and trustees --
together in order to turn them into an association by uniting their
contrasted functions and powers, although they are in no proper
sense associated. . . . We presume that the taxation of
corporations and joint-stock companies upon dividends of
corporations that themselves pay the income tax was for the purpose
of discouraging combinations of the kind now in disfavor, by which
a corporation holds controlling interests in other corporations
which in their turn may control others, and so on, and in this way
concentrates a power that is disapproved. There is nothing of that
sort here. Upon the whole case, we are of opinion that the statute
fails to show a clear intent to subject the dividends on the
Massachusetts corporation's stock to the extra tax imposed by
This opinion is based primarily upon the view that the Income
Tax Act, considering its purpose, did not show a clear intention to
impose upon the trustees as an "association" a double liability in
reference to the dividends on stock in the corporation that itself
paid an income tax, when, considered as "trustees," they were by
another provision of the Act exempt from such payment. And the
language used arguendo
in reaching this conclusion that
the trustees could not be deemed an association unless all trustees
with discretionary powers are such, and that there was no ground
for grouping together the beneficiaries and trustees in order to
turn them into an association, is to be read in the light of the
trust agreement there involved, under which the trustees were, in
substance, merely holding property for the collection of the
Page 265 U. S. 161
income and its distribution among the beneficiaries, and were
not engaged, either by themselves or in connection with the
beneficiaries, in the carrying on of any business. Zonne v.
Western Syndicate, 220 U. S. 187
220 U. S. 190
And see Smith v. Anderson,
L.R., 15 Ch.Div. 247.
It results that Crocker v. Malley
is not an authority
for the broad proposition that, under an Act imposing an excise tax
upon the privilege of carrying on a business, a Massachusetts Trust
engaged in the carrying on of business in a
-corporate form, in which the trustees have similar
or greater powers than the directors in a corporation, is not an
"association" within the meaning of its provisions.
We conclude, therefore, that, when the nature of the three
trusts here involved in considered, as the petitioners are not
merely trustees for collecting funds and paying them over, but are
associated together in much the same manner as the directors in a
corporation for the purpose of carrying on business enterprises,
the trusts are to be deemed associations within the meaning of the
Act of 1918, this being true independently of the large measure of
control exercised by the beneficiaries in the Hecht
cases, which much exceeds that exercised by the
beneficiaries under the Wachusett Trust. We do not believe that it
was intended that organizations of this character -- described as
"associations" by the Massachusetts statutes and subject to duties
and liabilities as such -- should be exempt from the excise tax on
the privilege of carrying on their business merely because such a
slight measure of control may be vested in the beneficiaries that
they might be deemed strict trusts within the rule established by
the Massachusetts courts.
That the Crocker Association is engaged in carrying on business
within the meaning of the Act, is obvious. And so of the Hecht and
Haymarket Trusts. A corporation
Page 265 U. S. 162
owning and renting an office building is engaged in business
within the meaning of an excise statute. Flint v. Stone-Tracy
p. 220 U. S. 171
Zonne v Western Syndicate, supra,
at p. 220 U. S.
4. It is urged, however, by the trustees of the Crocker
Association that they are not subject to an excise tax under the
Act of 1918 because the tax imposed on a domestic "association" is
measured by "the fair average value of its capital stock," the
argument being that this tax, of necessity, can apply only to
"associations" having a fixed "capital stock" represented by shares
-- that is, a designated share capital whose amount is fixed by the
articles of association or trust agreement. Hence, it is insisted,
the tax cannot apply to this association, which, it is claimed, has
no "capital stock" within the meaning of the Act. The trustees of
the Hecht Trust do not make this contention.
The certificates in this association, as stated, have no par
value, the shares being for ninety-six thousandths of the
beneficial interest in the property. No "capital" account is kept
by the trustees, but they have a profit and loss account, in which
they are charged with all the property transferred to them at a
valuation, against which liabilities and reserves are shown, the
balance being carried as the net interest of the shareholders. And
their books show the "dividends" disbursed to shareholders. The
amount of the present tax was assessed by the Collector by taking
the fair value of the assets of the association over its
liabilities and calling the difference its capital stock.
It is true that, generally speaking, in the technical sense, the
capital stock of a corporation is a sum fixed by its corporate
charter as the amount paid or to be paid in by the stockholders for
the prosecution of the business of the corporation and the benefit
of its creditors. 1 Cook on Corporations, 7th ed., 38, and cases
cited in note 2.
Page 265 U. S. 163
However, in statutes relating to taxation, sometimes drawn
without regard to the technical meaning of the words, the courts
will construe "capital stock" to mean the actual property of the
corporation, when necessary to carry out the intent of the statute.
p. 39; Security Co. v. Hartford,
89, 101; Henderson Bridge Co. v. Commonwealth,
99 Ky. 623,
641. And see People v. Coleman,
126 N.Y. 433.
We think that in the Act of 1918, in which the tax upon an
association is based upon the average value of its "capital stock,"
including surplus and undivided profits, these words are not to be
given a technical meaning, but should be interpreted in their
entirety and, in the absence of a fixed share capital, as
equivalent to the capital invested in the business -- that is, the
net value of the property owned by the association and used in its
business. As was said by the circuit court of appeals, the phrase
in the statute as to
"including surplus and undivided profits puts beyond doubt the
question of the congressional intent to measure this tax by
business and financial realties, not by bookkeeping forms or mere
And this construction is in harmony with the provision as to the
excise tax on a foreign association, which is fixed upon the value
"of its capital actually invested in the transactions of its
business in the United States."
We therefore conclude that the Crocker Association was also
subject to the tax, and that this was properly measured by the
Collector by the net value of its property, no question being made
as to the correctness of his valuation.
5. A question remains in Cases Nos. 100 and 119, which has not
been argued by counsel, as to the taxes for the years ending June
30, 1919, which were assessed against the trustees of the Haymarket
Trust and the Crocker Association under the Act of 1916, and paid
by them before the passage of the Act of 1918. The latter Act,
which was approved and became effective February
Page 265 U. S. 164
24, 1919, was retroactive in its provisions, and covered the
year ending June 30, 1919 (40 Stat. at 1126). Thereafter,
additional taxes were assessed against the trustees, representing
the differences between the amount of the taxes which they had paid
under the Act of 1916 and those prescribed by the Act of 1918.
See note 2
In view of the retroactive provision of the Act of 1918, we are
of opinion that the taxes for the year ending June 30, 1919, cannot
now be recovered, even though originally their assessment under the
Act of 1916 was unauthorized, since they thereafter became due
under the Act of 1918, and that they may now be retained by the
United States. See Anderson v. Loan & Trust Co.,
F. 322, 325, and New York Life Ins. Co. v. Anderson,
F. 527, 530; also Crocker v. Malley, supra,
249 U. S.
The decrees of the circuit court of appeals are accordingly
affirmed in Cases Nos. 100, 101, and 119, and in No. 99 affirmed as
to the taxes assessed for the years ending June 30, 1919, and June
30, 1920, and reversed as to those assessed for the six months
ending June 30, 1917, and the year ending June 30, 1918.
Affirmed in part.
Reversed in part.
MR. JUSTICE HOLMES and MR. JUSTICE BRANDEIS took no part in the
decision of these cases.
The date of this Act is February 24, 1919.
In No. 99, the trustees of the Hecht Trust were assessed under
the Act of 1916 with taxes for the six months ending June 30, 1917,
and the year ending June 30, 1918, and under the Act of 1918 for
the years ending June 30, 1919, and June 30, 1920. In No. 100, the
trustees of the Haymarket Trust were assessed under the Act of 1916
with a tax for the year ending June 30, 1919, and in No. 101 they
were assessed under the Act of 1918 with an additional tax for the
year ending June 30, 1919, and a tax for the year ending June 30,
1920. In No. 119, the trustees of the Crocker Association were
assessed under the Act of 1916 with a tax for the year ending June
30, 1919, and under the Act of 1918 with an additional tax for the
Such trusts also exist in other states. See generally,
as to their characteristics, Sears' Trust Estates as Business
Companies and Wrightington's Unincorporated Associations.
By c. of the Acts of 1909, § 1, the trustees of
"a voluntary association under a written instrument or
declaration of trust the beneficial interest under which is divided
into transferable certificates of participation or shares,"
are required to file copies of the instrument of trust with
designated public officers, and by c. 184 of the Acts of 1916, such
associations may be sued for debts, obligations, or liabilities,
and their property may be subjected to attachment and execution as
if they were corporation. See
2 General Laws, 1921, c.
Provisions referring to Alaska and the District of Columbia and
to certain deductions, which are immaterial for present purposes,
are omitted in this and subsequent citations.
Subsection (c) provides that the tax imposed by this section
shall not apply in any year to any corporation which is not engaged
These excise tax provisions of the Revenue Act of 1918 are
reenacted, in like terms, in the Revenue Act of 1921, 42 Stat. 227,
In the present cases, the circuit court of appeals said:
"It is a matter of common knowledge that, for most business and
financial purposes, all the larger organizations of this sort have
for years been indistinguishable from corporations. One might
almost say that they are a device under which parties make their
own corporation code. Business concerns so organized have come to
occupy a large field in industry and in finance. At least two
substantial textbooks have been written on the law concerning such
organizations and dealing with their advantages for general
business purposes. . . . In Dana v. Treasurer,
562, 565, it appears that the Amoskeag Manufacturing Company,
commonly known to be one of the largest enterprises in New England,
is so organized. The Pepperell Manufacturing Company, before this
court in Malley v. Bowditch, supra,
had a capitalization
of over $7,500,000; the Crocker Trust operates large paper
manufacturing mills, employing about 1,000 men, with gross assets
of over $10,000,000."
281 F. at 370.