Stockdale v. The Insurance Companies/Opinion of the Court

This was a suit brought in the court below against the plaintiff in error in his official character to recover taxes collected by him, which are alleged to have been illegally assessed against the insurance company. The appeal of the company to the Commissioner of Internal Revenue having been decided against it, the tax was paid and suit brought within six months, as provided by the act of Congress. The insurance company recovered a judgment in the Circuit Court, and the collector brings a writ of error in the interest of the government, the object of which is to test the legality of the tax thus levied and collected.

An agreed statement of facts shows that the taxes complained of were assessed upon dividends declared by the insurance company 'on the earnings which had accrued to said company between the 5th day of July, 1869, and the 30th day of June, 1870;' and the dividend was declared after the latter date.

This short statement raises two questions: 1. Was the tax valid as to so much of the dividend as arose from the earnings of the year 1869? 2. Was it valid as to that which arose from the earnings of the year 1870?

As regards the first proposition, it was much considered in the Barnes cases. It was argued in those cases with much ability, and four members of the court were of that opinion that the entire income tax expired with the year 1869, and that as the tax in those cases, as in these, was assessed on dividends declared in the year 1870, they were without authority of law.

The argument in those cases, so far as the opinion of the court was concerned, turned mainly on the question whether the law intended to impose the tax on the income of the corporation, in which case it was obviously the income of 1869 which was taxed, and, therefore, properly taxed; or on the income of the stockholder, ascertained by his dividend, in which case the minority of the court thought that dividends declared in 1870 were not liable to the tax, because the taxing power under the law expired with the preceding year. It is, perhaps, fairly inferable from the report of those cases, and the opinion in the subsequent case of The United States v. Baltimore and Ohio Railroad Company, that among those who composed the majority in the Barnes cases, there were some shades of difference in the precise grounds on which the validity of the taxes rested.

Without reopening that subject for an inquiry into those differences, it may be said that the question whether the tax was, in those cases, a tax on the shareholder or on the corporation, was, and is, one of form rather than substance.

The tax is imposed by the statute alike on all dividends declared, and on all undistributed earnings of the corporation, and it is made the duty of the corporation to pay it.

It is also made the duty of the corporation to make returns of these dividends and undivided earnings to the proper internal revenue officer, under a heavy penalty.

In the case of dividends declared, the corporation is authorized to deduct the amount of the tax from the dividend due to the shareholder, before paying it to him.

And it follows from this, that when a dividend is declared to any shareholder, whose dividend is for any special reason exempt from such tax, as in the case of the city of Baltimore on her stock in the railroad company, then the corporation declaring the dividend is not liable.

The effect of such a tax on the shareholder is the same, whether it be considered a tax on his share for the dividend earned by his share, or on the corporation on account of said earnings. And it is the same, whether the tax is imposed on the undivided earnings, or on those earnings after they have been divided. He in any and all these cases, in point of fact, ultimately suffers to that extent, or loses the amount of the tax. We are of opinion that the statute intended to tax those earnings for the year 1869, whether divided or undivided, and that the tax now in question is to that extent valid.

The question arising out of the tax in these cases, so far as the dividends are based on the earnings of the corporation for the year 1870, presents other considerations.

In the view taken by this court in the Barnes cases, it did not become necessary to pass upon the validity and effect of the seventeenth section of the act of 1870. That is entitled an act to reduce internal taxes, and for othr purposes. It repealed several sections of the internal revenue law absolutely. It fixed a period in the future for the cessation of others, and it reduced the income tax in a certain class of cases from five to two and a half per cent., and provided for its continuance through the years 1870 and 1871; at the end of which all income tax was to cease.

The section we are considering declared that sections 120, 121, 122, and 123 of the internal revenue law of 1864, as modified by subsequent statutes, 'shall be construed to impose the taxes therein mentioned to the first day of August, 1870, and after that date no further taxes shall be levied or assessed under said sections; and all acts or parts of acts relating to the taxes herein repealed, and all the provisions of said acts shall continue in full force for levying and collecting all taxes properly assessed, or liable to be assessed, or accruing under the provisions of former acts,' &c., &c.

But for the unfortunate and unnecessary use of the word 'construe' in this sentence, we apprehend that none of the resistance to the class of taxes now under consideration would have been thought of.

The right of Congress to have imposed this tax by a new statute, although the measure of it was governed by the income of the past year, cannot be doubted; much less can it be doubted that it could impose such a tax on the income of the current year, though part of that year had elapsed when the statute was passed. The joint resolution of July 4th, 1864, imposed a tax of five per cent. upon all income of the previous year, although one tax on it had already been paid, and no one doubted the validity of the tax or attempted to resist it.

Both in principle and authority it may be taken to be established, that a legislative body may by statute declare the construction of previous statutes so as to bind the courts in reference to all transactions occurring after the passage of the law, and may in many cases thus furnish the rule to govern the courts in transactions which are past, provided no constitutional right of the party concerned is violated.

In the case of the Wheeling Bridge, this court, in a suit brought under its original jurisdiction by the State of Pennsylvania, had declared the bridge a nuisance and decreed its modification or abatement. Congress then passed a law declaring it a post route and a lawful structure as it stood, and this court recognizing the right of Congress to regulate such a bridge under the commerce clause of the Constitution, dismissed the case from its further consideration.

This doctrine is reaffirmed in the case of the Clinton Bridge.

It is undoubtedly true that, in our system of government, the law-making power is vested in Congress, and the power to construe laws in the course of their administration between citizens, in the courts. And it may be conceded that Congress cannot, under cover of giving a construction to an existing or an expired statute, invade private rights, with which it could not interfere by a new or affirmative statute.

But where it can exercise a power by passing a new statute, which may be retroactive in its effect, the form of words which it uses to put this power in operation cannot be material, if the purpose is clear, and that purpose is within the power. Congress could have passed a law to reimpose this tax retrospectively, to revive the sections under consideration if they had expired, to re-enact the law by a simple reference to the sections. Has it done anything more? Has it intended to do anything more? Are we captiously to construe the use of the word 'construe' as an invasion of the judicial function where the effect of the statute and the purpose of the statute are clearly within the legislative function?

A critical view of the whole of the statute of 1870 shows that it was designed to recast the internal revenue laws, to repeal some taxes, modify others, and declare the re-enactment or continuance of others for a limited time. And this was especially true of the class of taxes embraced under the general head of income taxes of all kinds. The paragraph we have been considering was not in its essence an attempt to construe a statute differently from what the courts had construed it, for no construction on this subject had been given by any court. Nor was it an attempt by construing a statute to interfere with or invade personal rights which were beyond the constitutional power of Congress. But it was a legitimate exercise of the taxing power by which a tax, which might be supposed to have expired, was revived and continued in existence for two years longer.

It was, therefore, valid for that purpose, and the tax must be upheld. It follows that on the agreed statement of facts judgment should have been rendered for the defendant in the Circuit Court, and the judgment of that court is reversed and the case remanded, with directions to enter such a judgment.

This opinion disposes of all the cases, thirteen in number, in which Stockdale is plaintiff in error, submitted with this, and the same judgment is rendered in each of these cases.

Mr. Justice BRADLEY (with whom concurred the CHIEF JUSTICE).

Whilst I concur in the opinion of the court, it seems to me that the decision may be placed on a still more satisfactory ground.

The taxes in question were levied in 1870 under the 120th and 122d sections of the Internal Revenue Act of 1864, as amended. They were, in some cases, for earnings made in 1869, but divided in 1870, and in others for earnings made partly in 1869 and partly in 1870 (prior to the first of July, in the latter year), and divided in 1870, prior to July, except in one case, in which the dividend was declared on the 5th of July.

If the 119th section of the Internal Revenue Act, which directed that the income tax should cease to be collected in 1870, did not apply to the taxes imposed by the 120th and 122d sections, there is no doubt of the validity of the taxes in question, for there was no other limitation of time affixed to those sections except that made by the act of July 14th, 1870, which declared that sections 120 and 122 should be in force until the 1st of August, 1870, and no longer. I am clearly of opinion now, as I always have been, that the 119th section did not apply to the taxes imposed by sections 120 and 122. The group of sections from 116 to 119, inclusive, stood by themselves in the Internal Revenue Act of 1862 under the head of 'income tax,' forming sections 89 to 93 of that act. They related to the annual income tax payable by individuals directly. They did not include the taxes payable by banks, insurance, railroad, and canal companies in respect of their dividends and earnings, and in respect of the interest on the bonds of the latter companies. The latter taxes were payable at a different time and in a different manner. The personal income tax was carefully defined, and the respective duties of the individual and the assessor in reference to it were first fully set forth, and then came the 119th section, which, in conclusion, directed when the tax for each calendar year, thus imposed, should be levied, and when it should be paid, namely (as directed in the last revision), it was to be levied in March and paid before the 30th of April in each year, until and including the year 1870, and no longer.' This last expression is the one on which this whole question has been raised. By the connection of the sentence, the meaning of the terms, and the rules of logic as well as grammar, this phrase can only apply to the annual personal tax of which alone section 119 is treating.

The taxes imposed by sections 120 and 122 on the banks, insurance, railroad, and canal companies (which were never included in the annual income tax, but expressly excluded, or excepted therefrom) may be, as, in the Baltimore and Ohio Railroad case, we decided they were substantially, taxes on the stockholders and bondholders, though nominally, and in form, imposed on the companies. Still, they are not referred to in the 119th section. The only taxes referred to in that section were those annual taxes, payable directly by the individuals themselves, in April (or some other month) of each year. The corporation taxes were not thus payable, and were not included in the limitation.

The phrase in question is first found in the Internal Revenue Act of July 1st, 1862, 12 Stat. 474, sec. 92. That act is divided into various parts, ranged under distinct and separate headings, which are inserted in large capitals in the body of the act. Thus we have sections 68 to 75 under the head of manufactures, articles, and products; section 76, under auction sales; section 77, under carriages, &c.; sections 78 and 79, under slaughtered cattle, hogs, and sheep; section 80, under 'railroads, steamboats, and ferry-boats,' imposing a tax of three per cent. on gross earnings; section 81, under railroad bonds,' being the section corresponding to section 122 in the act of 1864; sections 82 to 85, under banks, trust companies, savings institutions, and insurance companies,' corresponding to sections 120, 121 in the act of 1864; sections 86, 87, under salaries and pay of officers, &c.; section 88, under advertisements; sections 89 to 93, under 'income duty,' corresponding to sections 116 to 119 of the act of 1864, and so on. Under the last head, section 92 commences as follows: 'That the duties on incomes herein imposed shall be due and payable on or before the 30th day of June, in the year 1863, and in each year thereafter, until and including the year 1866, and no longer; and to any sum or sums annually due and unpaid for thirty days after the 30th of June, as aforesaid, and for ten days after demand thereof, &c., there shall be levied, in addition thereto, the sum of five per centum, &c., as a penalty, &c.' Here we have the exact language of section 119 in the act of 1864 and its subsequent amendments. An inspection of the act of 1862 shows demonstrably that the language of this section refers only to the income tax imposed by section 89, which exactly corresponds to section 116 of the act of 1864. I believe no one who has carefully examined the act of 1862 ever had a doubt on the subject.

Now, all these various provisions for different classes of taxes are contained in the act of 1864 and the several acts amendatory thereof, but somewhat differently collocated. Thus the sections on income duty in the latter act are sections 116 to 119, and come before the sections on railroad bonds, banks, &c., which are sections 120 to 122. But the general frame of the sections, and the language used in each respectively, are the same. Can it be possible that the phrase, 'until and including the year 1870, and no longer,' in section 119 of the latter act, standing, as it does, in substantially the same sentence and relative section as the corresponding words did in the act of 1862, embraced within their scope whole classes of taxes which it did not embrace in the act of 1862? taxes totally repugnant as to time and manner of payment to those described, and specially referred to in the section and sentence where the words occur. Such cannot, it seems to me, be the true construction of the act.

It is not necessary for us to explain why it was that a period was fixed to the income tax proper, and not to the taxes payable by the companies on dividends and interest. The former was an exceedingly odious tax, involving an inquiry into all the sources of every individual's income, and it may well have been the design of Congress to indicate from the start that it was to be only temporary in its operation. But no one, I think, can carefully compare the two acts, of 1862 and 1864, without coming to the conclusion that the limit of the income tax was affixed only to that tax designated as 'income tax' in the act of 1862.

JUDGMENT REVERSED.

Mr. Justice STRONG, with whom concurred Justices DAVIS and FIELD, dissenting.