Railroad Company v. Collector (100 U.S. 595)

ERROR to the Circuit Court of the United States for the District of Massachusetts.

This is a suit by the Michigan Central Railroad Company against Charles W. Slack, collector of internal revenue for the third collection district of Massachusetts, to recover a tax or duty of $860.33, paid to him, under protest, on the twenty-eighth day of February, 1870; which tax was assessed on or about the 19th of that month on sterling bond interest paid by said company in London in gold, in the previous month of January, by cashing certain coupons which then fell due.

The coupons were attached to certain sterling bonds issued by said company, to the amount of 95,700, and negotiated by their agents in London in 1852, or early in 1853. The bonds were due in July, 1872, and paid at maturity, in gold, in London.

So far as the company know, not one of them was ever held by any person in the United States, or by other than non-resident aliens, and the interest accruing was regularly paid in gold in full in London, without rebate or reservation of the United States internal-revenue tax.

Appeal was duly made to the Commissioner of Internal Revenue before this suit was brought.

The court below found for the defendant, whereupon the company brought the case here, and assigns for error that the court below erred in finding that Congress had power to impose the tax in controversy, and that, upon the facts, judgment must be for the defendant.

Mr. Francis W. Palfrey for the plaintiff in error.

It is a conceded proposition that the United States has not the power to tax non-resident aliens directly. As persons, they are not liable to our taxation. But it is alleged that their property was within our jurisdiction, and therefore taxable. The reply to this proposition is:--

1. That it is settled law in this court that the internal-revenue taxation on coupon interest is a tax on income, and so a tax on persons.

2. That the money set apart by the railroad company to pay the coupon interest due to its non-resident alien bondholders was not taxable property within the jurisdiction of the United States.

In support of the first proposition, it can hardly be necessary to do more than to cite Haight v. Railroad Company, 6 Wall. 15; Railroad Company v. Jackson, 7 id. 262, 269; Barnes v. The Railroads, 17 id. 294; United States v. Railroad Company, id. 322; Stockdale v. Insurance Companies, 20 id. 323, 330, 337; Railroad Company v. Rose, 95 U.S. 78.

And in support of the second: State Tax on Foreign-held Bonds, 15 Wall. 300, 324, 325; Murray v. Charleston, 96 U.S. 432; Caruthers v. Humphrey, 12 Mich. 270; Van Husan v. Kanouse, 13 id. 303; Union Bank v. The State, 9 Yerg. (Tenn.) 490; Oliver v. Washington Mills, 11 Allen (Mass.), 268, 273.

The Solicitor-General, contra.

MR. JUSTICE MILLER delivered the opinion of the court.