Bailey Collector v. Clark

ERROR to the Circuit Court for the Southern District of New York; the case being thus:

The one hundred and tenth section of the Revenue Act of the United States, as amended on the 13th of July, 1866, enacts—

'That there shall be levied, collected, and paid a tax of one twenty-fourth of one per centum each month. . . upon the capital of any bank, association, company, or corporation, and on the capital employed by any person in the business of banking beyond the average amount invested in United States bonds.'

And the seventy-ninth section of the same act as amended, declares—

'That every incorporated or other bank, and every person, firm, or company having a place of business where credits are opened by the deposit or collection of money or currency, subject to be paid or remitted upon draft, check, or order; or where money is advanced or loaned on stocks, bonds, bullion, bills of exchange or promissory notes; or where stocks, bonds, bullion, bills of exchange, or promissory notes are received for discount or for sale, shall be regarded as a bank or as a banker.'

During the years 1869 and 1870, Clark and others were bankers within the meaning of this statute, doing business in the city of New York, under the name of Clark, Dodge & Co.; and at various times between the 1st of April, 1869, and the 1st of February, 1870, they made returns, as required by law, to the assessor of internal revenue for the district, of the amount of their fixed capital employed in banking, and of the amount of moneys deposited with them by their customers. The assessor required more than this; he insisted, against the objection of Clark, Dodge & Co., that all moneys borrowed by them from time to time, and temporarily in the ordinary course of their business, formed a part of their capital employed in the business of banking, and were subject to the tax imposed upon capital, under the section cited. He accordingly assessed a tax upon the several amounts thus borrowed within the dates mentioned, as part of the capital of the company.

One Bailey was at the time collector of internal revenue in the district, and as such officer enforced the payment of the taxes thus assessed, amounting to over six thousand dollars. Clark, Dodge & Co. protested at the time against the legality of the assessment, and appealed from the decision of the assessor to the Commissioner of Internal Revenue. Failing to obtain any rescission of the assessment or restitution of the moneys paid, they brought the present action for their recovery.

The action was tried by the court without the intervention of a jury, by stipulation of the parties, under the recent act of Congress. The court found the facts as above stated, but with greater detail, and held that the money thus temporarily borrowed by the plaintiffs in the ordinary course of their business was not capital of the company employed in the business of banking, and was not, therefore, liable to assessment as part of such capital; and that the assessment and collection of the tax was, therefore, illegal and unauthorized. The court accordingly gave judgment for the plaintiffs. To review that judgment, the case was brought here on writ of error.

Mr. G. H. Williams, Attorney-General, and Mr. S. F. Phillips, Solicitor-General, for the collector, the appellant; Mr. J. E. Burrill, for the appellees.

Mr. Justice FIELD, after stating the case, delivered the opinion of the court, as follows: