Under the 20th section of the Act of July 20, 1868, entitled "An
act imposing taxes on distilled spirits," &c., in the absence
of a distiller's having appealed to the Commissioner of Internal
Revenue (as under the 10th section of the act he may do) for the
correction of any error made by the assessor in fixing the "true
producing capacity" of his distillery, it is lawful for the
government to assess and collect, as for a deficiency, the taxes
upon the difference between the said "producing capacity" as
estimated by the assessor and the amount of spirits actually
produced by such distillery, even though the distiller have in good
faith reported and paid taxes upon his whole production and though
such production have exceeded 80 percentum of the producing
capacity aforesaid.
The 10th section of the "Act imposing taxes on distilled
spirits," &c., approved July 20, 1868, [
Footnote 1] enacts:
"That every assessor shall proceed at the expense of the United
States, with the aid of some competent and skillful person to be
designated by the Commissioner of Internal Revenue, to make survey
of each distillery registered for the production of spirits in his
district, to estimate and determine its true producing capacity
&c., a written report of which shall be made in triplicate,
signed by the assessor and the person aiding in making the same,
one copy of which shall be furnished to the distiller, one retained
by the assessor, and the other immediately transmitted to the
Commissioner of Internal Revenue. If the
Page 84 U. S. 183
Commissioner of Internal Revenue shall at any time be satisfied
that such report of the capacity of a distillery is in any respect
incorrect or needs revision, he shall direct the assessor to make
in like manner another survey of said distillery."
The 19th section of the same act makes it the duty of every
distiller, on the 1st, 11th, and 21st days of each month or within
five days thereafter,
"to render to the assistant assessor an account in duplicate,
taken from his books, stating the quantity and kind of materials
used for the production of spirits each day, and the number of wine
gallons and of proof gallons of spirits produced and placed in
warehouse."
The 20th section proceeded thus:
"On receipt of the distiller's first return in each month, the
assessor shall inquire and determine whether said distiller has
accounted, in his returns for the preceding month, for all the
spirits produced by him and to determine the quantity of spirits
thus to be accounted for, the whole quantity of materials used in
the production of spirits shall be ascertained, and forty-five
gallons of mash or beer, brewed or fermented from grain shall
represent not less than one bushel of grain; and seven gallons of
mash or beer, brewed or fermented from molasses shall represent not
less than one gallon of molasses. In case the return of the
distiller shall have been less than the quantity thus ascertained,
the distiller or other person liable shall be assessed for such
deficiency at the rate of fifty cents for every proof gallon,
together with the special tax of four dollars for every cask of
forty proof gallons, and the collector shall proceed to collect the
same as in cases of other assessments for deficiencies; but in no
case shall the quantity of spirits returned by the distiller,
together with the quantity so assessed, be for a less quantity of
spirits than 80 percentum of
the producing capacity of the
distillery as estimated under the provisions of this act."
In September, 1868, soon after the statute took effect, an
assessor addressed the Commissioner of Internal Revenue at
Washington for instructions on the subject of how the true
"producing capacity" of a distillery under section 10 of the
above-quoted act was to be determined.
Page 84 U. S. 184
The commissioner thus replies to him:
"In determining the true producing capacity of a distillery
under the said section, it makes no difference whether the
distillery is proposed to be run one, ten, or twenty-four hours,
nor what number of bushels the distiller proposes to mash per
day."
"You are to determine first what number of bushels of grain can
be mashed and fermented in twenty-four hours, and second what
quantity of spirits can be produced in twenty-four hours."
"What you are to determine is the absolute producing capacity,
without deduction for any cause; you must estimate the maximum
quantity of spirits which can be produced by the distiller,
supposing him to run continuously for twenty-four hours."
"The number of bushels which you determine upon these principles
can be mashed and fermented in twenty-four hours is the basis upon
which you will assess the
per diem capacity tax imposed by
section 13. [
Footnote 2] The
number of bushels so determined, multiplied by the quantity of
spirits which can under all circumstances (all the apparatus and
machinery being in good order) be produced in the distillery from a
bushel of grain will give the quantity of spirits which can be
produced in twenty-four hours, and this is the basis of the
examination to be made by you monthly of his return under section
20."
"If his returns exceed 80 percent of this, no assessment is
necessary unless it shall appear that his actual production is in
excess of his returns."
In this state of things, one Beggs, a distiller, made true and
correct reports for the months of September, October, and November,
1868, of all the spirits by him actually produced. The amount of
such spirits so reported exceeded 80 percentum of the producing
capacity of the distillery of plaintiff for the said months
respectively.
He also paid all the taxes assessable against him for such
product so reported.
But by a survey of the distillery, which had been made in
pursuance of the above-quoted section 10 of the Act of July
Page 84 U. S. 185
20, 1868, and in force during the said months of September,
October, and November, 1868, the distillery was estimated to be
capable of producing from each bushel of grain used three and
one-quarter gallons of spirits.
The amounts reported by Beggs as having been produced at his
distillery during the said months was less than three and
one-quarter gallons for each bushel of grain by him used during
that time.
Hereupon the assessor, maintaining that Beggs was bound to pay
taxes upon the amount of three and one-quarter gallons for each
bushel of grain used by him during those months, assessed him upon
the difference between the amount reported in his returns aforesaid
and the said estimated product of three and one-quarter gallons per
bushel as fixed and determined in the survey, and made return of
this assessment to the collector.
On demand made by the collector, Beggs paid under protest the
sum assessed, and having made application for repayment of it to
the Commissioner of Internal Revenue, who refused to repay it, he
brought suit in the court below against the collector, one
Stevenson, to recover it.
The court found the facts above stated and held the assessment
illegal, and the plaintiff entitled to recover.
Judgment being entered accordingly, the collector brought the
case here.
Page 84 U. S. 187
MR. JUSTICE STRONG delivered the opinion of the Court.
The twentieth section of the Act of Congress in question
prescribed a mode for the ascertainment of the quantity of spirits
for which a distiller was required to account in his monthly
returns to the assessor. By a previous section, the distiller was
required to make a return, but the twentieth
Page 84 U. S. 188
section made it the duty of the assessor, on the receipt of the
distiller's first return in each month, to inquire and determine
whether he had accounted, in his return for the preceding month,
for all the spirits produced by him, and, to determine the quantity
of spirits thus to be accounted for, it required that the whole
quantity of materials used for the production of spirits should be
ascertained. It gave also a rule by which the quantity of materials
used for the production of spirits should be ascertained and
settled by the assessor, and it then enacted that in case the
return of the distiller had been less than the quantity thus
ascertained, be should be liable to be assessed for such
deficiency, at the rate of fifty cents for every proof gallon,
together with the special tax of $4 for every cask of forty proof
gallons, which the collector was required to collect. It also
enacted that in no case should the quantity of spirits returned by
the distiller, together with the quantity so assessed, be less than
80 percentum of the producing capacity of the distillery, as
estimated under the provisions of the act.
The next preceding section (the 19th) made it the duty of every
distiller, on the 1st, 11th, and 21st days of each month or within
five days thereafter, to render to the assistant assessor an
account in duplicate, taken from books he was required to keep,
stating not only the number of wine gallons and of proof gallons of
spirits produced and placed in warehouse, but also the quantity and
kind of materials used for the production of spirits each day.
The purpose of these requisitions, as well as of many others
made by the statute, was obviously to guard against fraudulent
returns and to secure to the government a tax upon all spirits
produced and upon all which might have been produced from the
quantity of materials used. Hence the distiller was required to
return not merely the amount of his product, but the kind and
quantity of materials used by him, and the assessor was directed to
test the accuracy of that return and to estimate, from the quantity
of materials ascertained by him to have been used, the number of
gallons of spirits which should have been accounted for.
Page 84 U. S. 189
The quantity of materials used, as ascertained by the assessor,
was made a measure of production, and upon all spirits ascertained
by that measure to have been produced, either actually or
potentially, the distiller was expressly required, by the twentieth
section, to pay the tax, without any reference to his return, or to
what had been actually produced. In no case could he escape from
liability to pay a tax on at least 80 percentum of what his
distillery was estimated to be capable of producing, but if he
produced more, or if the quantity of materials which he had used,
as ascertained and determined by the assessor, showed that his
production had been or should have been greater, he was subjected
to the required tax on the quantity of spirits which that
ascertained quantity of materials was capable of producing, and not
merely upon 80 percentum of that quantity. This was the unequivocal
language of the act. Thus the quantity of materials used,
as
ascertained by the assessor, and not the actual product of
spirits, was made the measure of liability to taxation and of its
extent.
This construction of the 20th section is in entire harmony with
all the other parts of the act. The 10th section directed a survey
of every distillery registered, or intended to be registered, for
the production of spirits in order to estimate and determine its
true producing capacity. This survey was required to be made by the
assessor of the collection district, with the aid of some competent
and skillful person to be designated by the Commissioner of
Internal Revenue. The mode in which the producing capacity of the
distillery was to be ascertained, as prescribed by the regulations
of the commissioner, was by measuring each mash, or fermenting tub
-- by calculating how many bushels of grain, when mashed (if grain
was used), the fermenters would hold, by considering the period of
fermentation, and deducing therefrom the number of bushels which
could be fermented in twenty-four hours. This ascertained, the
assessor and his assistant were directed to estimate the quantity
of spirits that could be produced in the distillery from a bushel
of grain, and multiplying that by the number of bushels that
Page 84 U. S. 190
could be fermented therein in twenty-four hours, the producing
capacity of the distillery was to be ascertained and fixed as a
standard of taxation, or rather to determine the minimum of
taxation. At all events, the distiller was made taxable for a
production of spirits not less than 80 percent of the producing
capacity of his distillery, as determined by the survey, whether
that quantity was actually produced by him or not, or whether he
used a bushel of grain or not. Eighty percent of the estimated (not
the actual) capacity of the distillery was the smallest amount for
which he was made taxable. But if he actually produced more, or if
the quantity of grain or other materials used for distillation, as
ascertained by the assessor, showed a larger production, he was
made taxable to the full extent of that production thus shown. No
other interpretation can be given to the 20th section.
Now applying this to the facts of this case as found by the
circuit court, it becomes very evident that the judgment should
have been given for the defendant below.
It is true the actual production of spirits for the three
months, September, October, and November, 1868, as returned by the
plaintiff below, and correctly returned, was more than 80 percent
of the producing capacity of his distillery for those three months.
Whether it was more than 80 percent of the producing capacity,
as determined by the survey provided for in the tenth section
of the act, is not found, nor is it material. It is found that
by reason of the survey made in pursuance of that section, the
distillery was estimated to be capable of producing from each
bushel of grain used three and one-quarter gallons of spirits; that
the quantities reported by the plaintiff, as having been produced
during those three months, were less than three and one-quarter
gallons for each bushel of grain used by him during that time, and
that the additional assessment made, of which he complains, was for
the difference between the quantity reported in his returns and the
estimated product of three and one-quarter gallons for each bushel
of grain used, the possible production determined by the
survey.
Page 84 U. S. 191
Such being the facts as found, the plaintiff was expressly
declared by the 20th section to be assessable for the difference
between his return and the estimated possible product, and it was
made the duty of the collector to collect it. The survey and
estimate of producing capacity made under the 10th section were
conclusive, while they remained, though subject to revision, under
the direction of the Commissioner of Internal Revenue. And the
extent of liability to taxation was, under the Act of Congress,
directed to be measured not by the actual product of spirits, but
by what should have been the product of the materials used
according to the estimate made under the 10th section.
It follows that the assessment made was legal, and that the
plaintiff is not entitled to recover. The circuit court therefore
erred in giving judgment for the plaintiff.
Judgment reversed and the record remitted with instructions
to enter judgment for the defendant.
[
Footnote 1]
15 Stat. at Large 129.
[
Footnote 2]
This was a tax of $2 per day on every distiller whose distillery
had an aggregate capacity for mashing and fermenting twenty bushels
of grain or less, or sixty gallons of molasses or less, in
twenty-four hours &c. -- REP.
