Dollar Savings Bank v. United States

ERROR to the Circuit Court for the Western District of Pennsylvania.

The United States brought an action of debt against The Dollar Savings Bank, in the court below, to recover certain internal revenue taxes, which the declaration alleged were due from it to the government. These taxes were asserted to have been authorized by an amendment contained in the ninth section of the Internal Revenue Act of July 13th, 1866, by which part of a prior Internal Revenue Act, the act, namely, of June 30th, 1864, was repealed, and in place thereof it was enacted:

'That there shall be levied and collected a tax of five per centum on all dividends in scrip or money thereafter declared due, wherever and whenever the same shall be payable, to stockholders, policy-holders, or depositors, or parties whatsoever,. . . as part of the earnings, income, or gains of any bank, trust company, savings institution, and of any. . . insurance company. . . in the United States or Territories,. . . and on all undistributed sums, or sums made or added during the year to their surplus or contingent funds; and said banks, trust companies, savings institutions, and insurance companies shall pay the said tax, and are hereby anthorized to deduct and withhold from all payments made on account of any dividends or sums of money that may be due and payable as aforesaid, the said tax of five per centum. And a list or return shall be made and rendered to the assessor,. . . on or before the tenth day of month following that in which any dividends or sums of money become due or payable as aforesaid; and said list or return shall contain a true and faithful account of the amount of taxes as aforesaid; and there shall be annexed thereto a declaration of the president, cashier, or treasurer of the bank, trust company, savings institution, or insurance company, under oath or affirmation, in form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true and faithful account of the taxes as aforesaid. And for any default in the making or rendering of such list or return, with such declaration annexed, the bank, trust company, savings institution, or insurance company making such default shall forfeit as a penalty the sum of $1000; and in case of any default in making or rendering said list or return, or of any default in the payment of the tax as required, or any part thereof, the assessment and collection of the tax and penalty shall be in accordance with the general provisions of law in other cases of neglect and refusal.

'Provided, That the tax upon the dividends of life insurance companies shall not be deemed due until such dividends are payable; nor shall the portion of premiums returned by mutual life insurance companies to their policy-holders, nor the annual or semi-annual interest allowed or paid to the depositors in savings banks or savings institutions, be considered as dividends.'

The view of the government was that this act required a tax of five per cent. to be levied and collected, amongst other things, on sums added during the year by the Dollar Savings Bank, the defendant in the case, to its surplus or contingent fund, without regard to the character of the bank, or the nature and purpose of that fund.

The section above quoted, as the reader has observed, contains a requirement that each bank shall make a certain return, 'in form and manner as may be prescribed by the commissioner of internal revenue, that the same contains a true and faithful account of the taxes aforesaid.' It appeared in this case that after the passage of the act in question, Mr. Rollins, the then commissioner of internal revenue, made, in February, 1867, a construction of it, so far as it affected banks of the character of the one now sued, and held that they were not required to pay a tax upon amounts which were added to their retained funds instead of being divided among their depositors, and that of course no return relating to any such subjects was required from such a bank.

This action of Commissioner Rollins was repeated by his successor, Commissioner Delano, in 1870; and it was reaffirmed and repeated by Commissioner Pleasanton, in 1871.

The Dollar Savings Bank, it seemed, had accordingly made no return during either of the years mentioned in the declaration, not being required to do so by the commissioner of internal revenue.

In the year 1872, the successor of Commissioner Pleasanton adopted a different construction of the act, and this action of debt was brought to recover the taxes which the declaration alleged should have been paid between June, 1866, and December, 1870, inclusive; and these taxes, thus alleged to be due, formed the subject-matter of this suit. The jury found a special verdict:

'We find that the Dollar Savings Bank is a banking institution created by the laws of the State of Pennsylvania, without stockholders or capital stock, and doing the business of receiving deposits to be loaned or invested for the sole benefit of its depositors; that the charter authorizes the retention of a contingent fund, accumulated from the earnings, to the extent of ten per centum of its deposits for the security of its depositors; that it has earned and added to the said contingent fund, or undistributed sum, from 13th July, 1866, to 31st December, 1870, $107,000 (the tax of five per cent. on its earnings having been paid prior to 13th July, 1866); that the earnings were carried to and added to the said contingent or undistributed fund semi-annually, on the first days of July and January in each year. And we find, if the court should be of opinion, on this state of facts, that the plaintiff is entitled to recover, a verdict for the United States for the sum of $5356, to which is to be added, if the court should be of opinion that plaintiff is entitled to interest on the semi-annual taxes, from the time they were due and payable, the further sum of $1100; but, if the court should be of opinion, on the said facts so found, that the plaintiff is not entitled to recover under the law, then we find for the defendant.'

The court rendered a judgment in favor of the United States for the principal sum of $5356, with costs of suit, and this writ of error was taken.

The errors assigned were:

1st. Holding that the act of Congress authorized the levy and collection of the tax.

2d. Holding that an action of debt was maintainable for the recovery of the tax.

No question was made in the court below as to whether debt was the proper form of action, nor any question except as to the liability of the savings bank to pay the tax.

Mr. B. R. Curtis, for the plaintiff in error:

1. The act of Congress does not authorize the levy and collection of the tax in question upon the defendant.

The decisions of the commissioners, Rollins and Pleasanton, were correct. They seem to have been founded upon this view of the law, that Congress intended to tax the net earnings of certain banking and other institutions named, whether those net earnings should be distributed to the stockholders in the form of dividends, or retained and added to the capital; and that in those cases in which Congress did not intend to tax the distributed earnings, they did not intend to tax the undistributed earnings; and as it is expressly declared in the law, that sums paid to depositors in savings banks are not to be deemed dividends within the meaning of that word in the law, neither should the sums which the bank has lawfully omitted to pay to its depositors, and has held undistributed, not as an addition to the capital stock (such banks having no capital stock), but only for the security of its depositors in the future, be deemed taxable as such surplus.

It is important to note in this connection, that, while this power of the commissioners to prescribe what returns should be made by savings banks was in full force, and while the construction placed by the commissioners on the law was known by public promulgation, Congress passed the act of July 14th, 1870, and in the fifteenth section used substantially the same language concerning the subject now in question as was contained in the act of 1866. The case, therefore, stands thus: Congress required the commissioner to prescribe what returns savings banks should make. This necessarily required him to put a construction on the law. He did so, and held that they were not required to return the sums held undistributed solely for the security of these depositors. After this practical construction had been made and acted on for nearly four years, Congress re-enacted the tax (though it was reduced in amount) in the same words which had received this practical construction.

It is a settled rule, that the re-enactment of a statute which had received a judicial construction in effect adopts that construction. And why not apply the same principle to a contemporaneous practical construction put upon the act by an officer expressly required to construe it?

2. An action of debt was not maintainable for the recovery of the taxes in question.

This was an action at the common law. The United States has no common law; but the thirty-fourth section of the Judiciary Act provides that the laws of the several States shall be the rules of decision in the trial of actions at the common law.

Now, by the law of Pennsylvania, as also of many other States, as it existed in 1789, an action of debt will not lie to recover a tax authorized to be levied and collected by a statute, which statute affords a remedy for its assessment and collection. The principle in all the decisions is, that where a statute creates a right, and provides a particular remedy by which that right may be vindicated, no other remedy than that afforded by the statute can be used.

Especially will no such action lie under the statute in question; because it expressly provides, that

'In case of any default in making or rendering said list or return, or of any default in the payment of the tax as required, or any part thereof, the assessment and collection of the tax and penalty shall be in accordance with the general provisions of law in other cases of neglect and refusal.'

Those other provisions here referred to are found in the act of July 13th, 1866. They require the assessor to make lists; they point out what the lists are to contain; they authorize him at any time within fifteen months from the time of the passage of the act, or from the time of the delivery of the list to the collector, to make special additional lists; and these general or special lists are to be delivered by him to the collector, to stand as his warrant for the levy of the tax upon the property of the dolinquent taxpayer, pursuant to the directions of the statute.

Further: Even if an action of debt could be sustained, according to the common law of Pennsylvania, or any common law, to recover taxes duly assessed, duly notified and demanded, it does not appear by the special verdict, nor is there any reason from the known facts even to conjecture, that any one of these taxes ever was duly assessed. For aught that appears, the commissioners of internal revenue prior to December 1st, 1870, gave such instructions to the assessors that none of these taxes were assessed; and when, at the end of that time, a new commissioner promulgated new views as to the construction of the law, this action of debt was brought. Now, if there had been any attempt regularly to assess these taxes, by reason of an assumed mistake in the construction of the law under which assessments had been omitted, the assessor could not have gone back to the term of fifteen months before he delivered his last list to the collector. Yet, without any attempt to make such a corrected assessment, so far as appears, or, indeed, ever to assess regularly the taxes demanded in this suit, the court below has rendered a judgment for their full amount.

Mr. C. H. Hill, Assistant Attorney-General, contra.

Mr. Justice STRONG delivered the opinion of the court.