Section 3 of the "Future Trading Act," purporting to impose a
tax of 20 cents per bushel upon all privileges or options for
contracts of purchase or sale of grain, known to the trade as
"privileges," "bids," "offers," "puts and calls," "indemnities," or
"ups and downs," is unconstitutional. Its purpose is not to raise
revenue, but to inhibit, by a penalty, the transactions referred
to, as part of the plan set up by the Act for regulating grain
exchanges under guise of the federal taxing power, which was
adjudged unconstitutional in
Hill v. Wallace, 259 U. S.
44. P.
269 U. S.
479.
300 F. 996 reversed.
Error to a judgment of the District Court for the defendant in
an action brought to recover money paid under protest as a stamp
tax.
Page 269 U. S. 479
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
Plaintiff in error seeks to recover two hundred dollars paid for
internal revenue stamps which, after due protest, he affixed to a
written "privilege or option for a contract for the sale of grain
in the form commonly known as an indemnity," as required by § 3 of
the "Future Trading Act," approved August 24, 1921. 42 Stat. 187,
c. 86. If, as he insists, that section is beyond congressional
power and therefore invalid, he must prevail; otherwise, the
judgment below must be affirmed.
That statute is entitled:
"An act taxing contracts for the sale of grain for future
delivery, and options for such contracts, and providing for the
regulation of boards of trade, and for other purposes."
Section 2 declares that the term "contract of sale" shall be
held to include sales, agreements of sale, and agreements to sell;"
the word "grain" shall . . . mean wheat, corn, oats, barley, rye,
flax, and sorghum;" the words
"'board of trade' shall be held to include and mean any exchange
or association, whether incorporated or unincorporated, of persons
who shall be engaged in the business of buying or selling grain or
receiving the same for sale on consignment."
Section 3:
"That, in addition to the taxes now imposed by law, there is
hereby levied a tax amounting to 20 cents per bushel on each bushel
involved therein, whether the actual commodity is intended to be
delivered or only nominally referred to, upon each and every
privilege or
Page 269 U. S. 480
option for a contract either of purchase or sale of grain,
intending hereby to tax only the transactions known to the trade as
'privileges,' 'bids,' 'offers,' 'puts and calls,' 'indemnities,' or
'ups and downs.'"
Sections 4 to 10 impose a charge of 20 cents per bushel upon all
grain involved in sale contracts for future delivery, with two
exceptions. But, as declared by
Hill v. Wallace,
259 U. S. 44,
259 U. S. 66,
their real purpose was to regulate
"the conduct of business of boards of trade through supervision
of the Secretary of Agriculture and the use of an administrative
tribunal consisting of that Secretary, the Secretary of Commerce,
and the Attorney General."
Section 11:
"That, if any provision of this act or the application thereof
to any person or circumstances is held invalid, the validity of the
remainder of the Act and of the application of such provision to
other persons and circumstances shall not be affected thereby."
Sections 4 to 10 were challenged in
Hill v. Wallace,
decided upon demurrer to the bill, and we held:
"The act is, in essence, and on its face a complete regulation
of Boards of Trade, with a penalty of 20 cents a bushel on all
'futures' to coerce Boards of Trade and their members into
compliance. When this purpose is declared in the title to the bill,
and is so clear from the effect of the provisions of the bill
itself, it leaves no ground upon which the provisions we have been
considering can be sustained as a valid exercise of the taxing
power."
We there said:
"There are sections of the act to which, under § 11, the reasons
for our conclusion as to § 4 and the interwoven regulations do not
apply. . . . Section 3, too, would not seem to be affected by our
conclusion. . . . This is the imposition of an excise tax upon
certain transactions of a unilateral character in grain markets
which approximate gambling or offer full opportunity for it, and
does not seem to be associated with § 4. Such a tax, without more,
would seem to be within the
Page 269 U. S. 481
congressional power. . . . But these are questions which are not
before us, and upon which we wish to express no definite
opinion."
Of course, the quoted statement concerning § 3 was intended to
preclude any possible inference that he had passed upon a matter
not directly in issue, and to indicate that it remained open for
discussion.
The present cause was tried upon a agreed statement of facts and
it appears --
That, at Emporia, Kans., October 23, 1923, plaintiff in error, a
member of the Chicago Board of Trade, in consideration of one
dollar, signed and delivered the following privilege or option, in
the form commonly known as an "indemnity," addressed to R. F.
Teichgraeber, for a contract for the sale of grain:
"I will sell one thousand bushels of contract grade wheat at
$1.11 1/4 per bushel, for delivery during May, 1924, same to be
delivered in regular warehouses under the rules of the Board of
Trade of the City of Chicago. This offer is made subject to
acceptance by you until the closing hour for regular trading on
October 24, 1923."
The transaction was one of those described by § 3 as
"privileges, bids, offers, puts and calls, indemnities, or ups and
downs."
After duly advising the collector that he denied validity of the
tax, plaintiff in error affixed to this written instrument $200 of
internal revenue stamps.
For many years prior to August 24, 1921, members of grain
exchanges bought and sold in large quantities agreements for
contracts for purchase or sale of grain subject to acceptance
within a definite time thereafter, commonly known as "indemnities."
When the holder of one of these elected to exercise his rights, the
specified amount of grain was bought or sold on the exchange
indicated for future delivery, and the agreement was thus finally
consummated.
By far the larger percentage of such agreements were subject to
acceptance during the following day at a price
Page 269 U. S. 482
ordinarily within one-fourth to three-fourths of a cent of the
price prevailing when the market closed on day of the agreement.
During many years, the uniform consideration paid was one dollar
per thousand bushels.
When the holder elected to exercise the option, the transaction
could be carried out only through and by members of exchanges open
to sales for future delivery.
The stipulated facts reveal the cost, terms, and use of
"indemnity" contracts, together with their relation to boards of
trade, and indicate quite plainly that § 3 was not intended to
produce revenue, but to prohibit all such contracts as part of the
prescribed regulatory plan. The major part of this plan was
condemned in
Hill v. Wallace, and § 3, being a mere
feature, without separate purpose, must share the invalidity of the
whole.
Wolff Packing Co. v. Industrial Court, 267 U.
S. 552,
267 U. S.
569.
This conclusion seems inevitable when consideration is given to
the title of the Act, the price usually paid for such options, the
size of the prescribed tax (20 cents per bushel), the practical
inhibition of all transactions within the terms of § 3, the
consequent impossibility of raising any revenue thereby, and the
intimate relation of that section to the unlawful scheme for
regulation under guise of taxation. The imposition is a penalty,
and in no proper sense a tax.
Child Labor Tax case,
259 U. S. 20;
Lipke v. Lederer, 259 U. S. 557,
259 U. S. 561;
Linder v. United States, 268 U. S. 5.
The judgment of the court below must be reversed, and the cause
remanded for further proceedings in conformity with this
opinion.