The Collector v. Beggs

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

The 10th section of the 'Act imposing taxes on distilled spirits,' &c., approved July 20th, 1868, enacts:

'That every assessor shall proceed at the expense of the United States, with the aid of some competent and skilful 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 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 per centum 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.

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. 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 per cent. 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 per centum 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 20th, 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.

Mr. C. H. Hill, Assistant Attorney-General, for the collector, plaintiff in error:

The judgment below was plainly wrong under the act. The distiller used so much grain; this the case admits. He did not, in fact, get from it all which the assessors had, in fixing the 'true producing capacity' of his distillery, fixed as the amount which he could have got. But that cannot now be helped. They fixed (if indeed the distiller did get all that was possible from his distillery) the true producing capacity too high. And he ought at once to have appealed, as the 10th section allowed him to do, to the Commissioner of Internal Revenue. That section provides a complete system for measuring the producing capacity of a distillery, and for correcting any errors made in such measurement. Any error which is made by the assessors must be corrected in the manner pointed out, namely, by the appeal. Then a new estimate may be made. But section 20 would seem to place the question beyond a doubt. The 80 per cent. therein required to be assessed is the '80 per centum of the producing capacity of the distillery, as estimated under the provisions of this act,' namely, under section 10.

The case falls within the principle established in many States, that an action will not lie to recover back a tax imposed on an overvaluation of property where the statutes provide a remedy for the correction of any errors made by assessors in valuing property.

Messrs. J. D. Cox and H. L. Burnett, contra:

1. The general object of the act is stated in the first clause of the 20th section. It is to 'determine whether said distiller has accounted in his returns for the preceding month, for all the spirits produced by him.' It is therefore not the purpose of the law to treat the distiller unfairly, not to tax him upon spirits which he does not produce, but only to ascertain his actual production by a reasonably certain rule, and to prevent fraud in his returns.

2. The basis of calculation is stated in the next clause, to wit: 'To determine the quantity of spirits thus to be accounted for, the whole quantity of materials used for the production of spirits shall be ascertained.'

In this case, it is part of the case as found, that Beggs's reports were 'true and correct.'

3. The next clause gives a 98; Howe v. Boston, 7 Cushing, 273. of materials used.

4. We have next the provision, that, if the distiller has returned a less quantity of grain used than this test would show, he shall be assessed for the deficiency, and the assessment shall be collected.

5. The section ends with the proviso, that '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 per centum of the producing capacity of the distillery, as estimated under the provisions of this act.'

The 'producing capacity' is estimated, in the quantity of spirits per bushel of grain which the apparatus can make; but in this last clause the gross quantity found by multiplying the product per bushel into the whole number of bushels fermented, is, by a natural substitution, used instead of the circumlocution which would otherwise be necessary.

Taking the several clauses together, it is manifest that no margin or latitude whatever is allowed the distiller as to the quantity of grain used. He must report the whole. He cannot even use his discretion in making the mash in his tubs thinner than it will be by using one bushel of grain to every forty-five gallons of the mixture which his vats will contain. He is charged with the use of the quantity of grain which is indicated by this measurement of his vats, and he must use this quantity or bear the loss; for, if he returns less, the assessor must charge him with the deficiency, estimate the gallons of spirits the grain would make, and taxes for that also must be collected from him.

The only latitude allowed is contained in the last clause, known as the eighty per cent. clause. His total product in spirits must not be less than eighty per cent. of what the whole quantity of grain used will make, at the rate per bushel fixed by the official estimate of the 'producing capacity' of his apparatus. The twenty per cent. is the maximum allowance to cover the variation in quality of grain, or the accidents or unskilfulness of manufacture.

Mr. Justice STRONG delivered the opinion of the court.