United States Commissioners of Sinking Fund of City of Louisville

This is an appeal from a judgment of the court of claims in favor of the city of Louisville, based upon a petition filed in that court for the recovery of seventeen thousand and some odd dollars, alleged to be due the city from the government on account of taxes improperly collected.

It appears that between the years 1862 and 1872 the city of Louisville, Ky., owned a large amount of bonds and stock of the Louisville & Nashville Railroad Company, upon which the company paid interest and declared cash dividends, retaining, however, during most of the time an undistributed surplus. Under the internal revenue law (section 122, Act June 30, 1864), in force during this period, the company paid taxes to the United States upon its gross receipts, its undistributed surplus, the interest payable on its bonds, and its cash dividends. The taxes paid on interest and dividends were deducted from the amounts due as interest and dividends, so that the revenues of the city of Louisville accruing from these sources were diminished to the extent of such deductions; but these deductions were not known to the commissioners of the sinking fund of the city until the time had expired for an application to the government to be repaid the taxes so deducted.

In 1872, in the case of U.S. v. Railroad Co., 17 Wall. 322, this court decided that a tax under the above-named section 122 of the internal revenue act, upon the interest on bonds issued by a railroad company, was a tax upon the creditor, and not upon the corporation paying it, and that a municipal corporation, being a portion of the sovereign power of a state, was not subject to taxation by congress upon its municipal revenues.

The time for making application for repayment of the taxes thus illegally obtained having passed (Rev. St. U.S. §§ 3220, 3228), resort was had to congress, which enacted the statute approved June 16, 1890 (26 Stat. 157). The statute authorized and required the secretary of the treasury and the commissioner of internal revenue 'to audit and adjust the claim of the board of sinking fund commissioners of the city of Louisville, Kentucky, for internal revenue taxes on dividends on shares of stock owned by said board for said city of Louisville in the Louisville and Nashville Railroad Company, to the extent such taxes were deducted from any dividends due and payable to said board, and to pass upon said claim and render judgment thereon, in the same manner and with the same effect as if said claim had been presented and prosecuted within the time fixed and limited by law.'

Pursuant to the provisions of this act, the city of Louisville presented to the proper officers of the treasury department its claim to recover taxes to the amount of $65,578.32, of which the officers allowed $42,514.03, the latter sum being made up, as stated, of two items, one of $24,801.14, taxes which had been deducted from cash dividends, and $17,712.89, taxes which had been deducted from surplus profits which, on the 17th of November, 1867, had been set apart by resolution of the board of directors of the railroad company as the basis of a stock dividend, which was directed to be distributed in February, 1868. The amount of $42,514.03, having been audited and allowed, was reported by the secretary of the treasury to congress for its action, there being no appropriation from which the money awarded the city could be paid.

Under the act of March 3, 1891, being an appropriation to supply deficiencies (26 Stat. 862, at page 867), congress provided as follows: 'Payment to city of Louisville, Kentucky: For payment to the city of Louisville, Kentucky, the amount found due, under the act of congress approved June 16, 1890, and reported to congress in house executive document No. 260, of the present session, $42,514.03.' The amount thus appropriated was duly paid to the city, as directed by congress.

Subsequently another application was made to congress, and that body passed the act approved February 25, 1893 (27 Stat. 477), a copy of which is set forth in the margin.

Under this act the city of Louisville applied to the proper officers of the government for a further refund of $34,667.80 on account of taxes claimed to have been illegally exacted. One item in this last-named claim, amounting to $3,008.40, the appellants insist was for taxes collected by the government from the railroad company upon its undistributed surplus in 1868 and 1871, and that this item had been in cluded in the claim presented in 1890, but had not been allowed because, as stated in the determination made by the commissioner of internal revenue, the act of June 16, 1890, under which the application for refunding was made, limited an adjustment of the claim 'to the extent that such taxes were deducted from any dividends due and payable, and did not direct the adjustment of the claim to the extent that taxes were deducted from interest or gross receipts.'

The acting commissioner of internal revenue audited and adjusted the claim made under the act of 1893, at its full amount, and as incidental to such audit and adjustment he assumed to re-examine the claim allowed in 1891. The result of such re-examination of the latter claim was a reduction to the extent of $3,548.89, which sum was deducted from the amount allowed under the act of 1893, reducing it to the sum of $31,359.02. When the claim reached the first comptroller a further sum of $17,633.85 was deducted by him, w ich consisted principally of the amount allowed and paid in 1891 for taxes on surplus, which left a balance payable to the city of $13,725.17, for which sum the comptroller directed a draft to be issued. To recover the amount thus deducted from the claim as audited and allowed under the act of 1893, the city of Louisville commenced this proceeding in the court of claims, which rendered judgment in its favor for the amount demanded. The government has brought the case here for review.

Charles C. Binney, for the United States.

Alphonso Hart, for appellees.

Mr. Justice PECKHAM, after stating the facts in the foregoing language, delivered the opinion of the court.