Source: https://supreme.justia.com/cases/federal/us/284/498/
Timestamp: 2019-04-23 02:50:02+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 284 › Miller v. Standard Nut Margarine Co.
1. A suit to restrain collection of an excise imposed under the Oleomargarine Act is a suit to restrain collection of a tax, within the meaning of R.S. § 3224, and not a suit to collect a penalty. P. 284 U. S. 506.
2. Tax laws are to be interpreted liberally in favor of taxpayers; words defining things to be taxed may not be extended beyond their clear import; doubts must be resolved against the Government and in favor of the taxpayer. P. 284 U. S. 508.
3. R.S. § 3224 is declaratory of the equitable rule that a suit will not lie to restrain the collection of a tax upon the sole ground of its illegality, and it should be construed as nearly as may be in harmony with that rule and the reasons upon which it rests. P. 284 U. S. 509.
4. The section is general, and should not be construed as abrogating, by implication, the other equitable principle which permits suit to restrain collection where not only is the exaction illegal, but there exist special and extraordinary circumstances sufficient to bring the case within some acknowledged head of equity jurisprudence. Id.
5. The Oleomargarine Tax Act, before the Amendment of July 10, 1930, did not apply to substances resembling butter but containing no animal fat. P. 284 U. S. 506.
The product in question was made exclusively of cocoanut and peanut oils, salt, water and harmless coloring matter, and was sold for cooking, baking and seasoning.
6. Plaintiff made and sold a product not taxable under the Oleomargarine Act in reliance upon determinations by courts and the Commissioner of Internal Revenue interpreting the Act as inapplicable in like cases and upon assurance from the Bureau that its product would not be taxed. Later, the Commissioner changed his ruling, and, while not attempting to collect from other makers of like products who had obtained injunctions in which he had acquiesced and which had become final, directed that the tax be enforced against plaintiff's entire product from the beginning. This would have destroyed the business, ruined the plaintiff financially, and inflicted loss without remedy at law. Held that the Commissioner's action was not only based upon an erroneous construction of the statute, but was arbitrary and capricious, and that a suit could be maintained in the circumstances to enjoin the collection. Pp. 284 U. S. 508-510.
42 F.2d 79, 85, affirmed.
Certiorari to review affirmances of two decrees permanently enjoining collectors from collecting taxes imposed under the Oleomargarine Tax Law prior to the 1930 Amendment.
documentary evidence, together with specimens of the product sought to be taxed. The court found that the material allegations of the complaint were established by the evidence, and granted permanent injunction. The record states in condensed form the substance of the testimony, but does not contain the documents which were made exhibits and introduced in evidence. The Circuit Court of Appeals found, and it appears from the testimony brought up, that omitted exhibits constitute a material part of the evidence received, and that the record is consistent with the trial court's conclusion in respect of the facts; it held R.S. § 3224 does not apply, and affirmed the decree. 49 F.2d 79, 85.
In April, 1928, respondent commenced and thereafter carried on at Jacksonville, Florida, the manufacture and sale of Southern Nut Product. It contained no animal fat, but was made exclusively of cocoanut oil, peanut oil, salt, water, and harmless coloring matter; it was sold in one-pound cartons for cooking, baking, and seasoning. Respondent built up a valuable business in the sale of the product to dealers in Florida and other states.
United States district court for that state to recover the amount so exacted. After hearing evidence, including the testimony of chemists in the Bureau of Internal Revenue called in behalf of the collector, the court, in April, 1924, found that the product was not made in imitation or semblance of butter, was not intended to be sold as or for butter, and was not oleomargarine or taxable as such. Higgins Mfg. Co. v. Page, 297 F. 644. Thereupon, the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, promulgated the court's decision as Treasury Decision 3590, thus informing all concerned that the product was not subject to the tax.
"The court having held the product to be not taxable as oleomargarine, the fact that retailers advertise and sell it as butter, or as a substitute for butter, would not render them or the manufacturers liable under the internal revenue law."
20 F.2d 948, which was made permanent in December following.
In July, 1927, the Baltimore Butterine Company brought suit in the Supreme Court of the District of Columbia to enjoin the Commissioner and his deputy from enforcing the tax as declared in Treasury Decision 4006 against its product "Nu-ine" which was identical in content and appearance with "Nut-Z-All," made by the Higgins Manufacturing Company, and Southern Nut Product, made by respondent in this case. The court held the product not taxable, and granted a permanent injunction.
No appeal was taken in any of the cases above mentioned, and the petitioner, by letter, answering an inquiry made by respondent, advised respondent that its product would not be taxable as oleomargarine.
Relying on the decision in Higgins Mfg. Co. v. Page, 297 F. 644, Treasury Decision 3590, the Deputy Commissioner's letter to the institute and the injunctions about referred to, respondent believed the product which it proposed to manufacture and sell would not be taxable as oleomargarine, and, upon receipt of petitioner's letter, commenced manufacture and sale of the product.
with the materials and manufactured product on hand, and would destroy its business.
The complaint asserts that the exaction of ten cents per pound, while in the guise of a tax, is really a penalty imposed to eliminate competition with butter, and is therefore in excess of the power granted to the Congress by the Constitution. But, having regard to McCray v. United States, 195 U. S. 27, 195 U. S. 59, we treat the imposition laid by the act upon oleomargarine as a valid excise tax. The rule that § 3224 does not extend to suits brought to restrain collection of penalties (Lipke v. Lederer, 259 U. S. 557, 259 U. S. 562; Regal Drug Corp. v. Wardell, 260 U. S. 386) does not apply.
Petitioner does not here assign as error the finding below that respondent's product was not oleomargarine. He seeks reversal upon the grounds that the statute forbids injunction against the collection of the tax even if erroneously assessed, that this assessment was made by the Commissioner under color of his office, was not arbitrary or capricious, and that, if there is any exception to the application of § 3224, this case is not within it.
intestinal fat, and offal fat made in imitation or semblance of butter, or (2) calculated or intended to be sold as butter or for butter."
That definition remained in force until July 10, 1931. It was amended by the Act of July 10, 1930, 46 Stat. 1022, effective twelve months later, the material parts of which are printed in the margin.** The hyphen in the phrase "vegetable-oil" was eliminated, and a comma was inserted between those words and "annotto." Words added are shown in italics and words deleted are within brackets.
When the Act of 1886 was passed, various imitations of and substitutes for butter, the principal ingredients of which were the fats of cattle and swine, were being manufactured and sold in large quantities. Products such as respondent's which contain no animal fat were unknown, and were not made in substantial quantities until much later. There is nothing in the Act, or that has been brought to our attention, to suggest that Congress anticipated the development of the art later to occur. Annotto had long been used to color butter and cheese, and was then being used to make oleomargarine resemble butter. It is a coloring material found in association with the oil content of the covering of certain tree seeds.
When prepared for sale and use, the colorant is contained in a stiff oily mass that was then well known in the market. The words "vegetable-oil cannotto" appropriately describe that substance. The hyphen between "vegetable" and "oil," and the absence of any punctuation mark following them, signify that the words so compounded qualify "annotto," and indicate that such coloring material was meant. And that construction is strongly supported by the use in the same connection of the words "and other coloring matter."
Regulations promulgated under the Act omit the hyphen and add a comma, thus making the phrase to read "vegetable oil, cannotto." The Commissioner's determination that respondent's product is oleomargarine necessarily was based on that version. It is elementary that tax laws are to be interpreted liberally in favor of taxpayers, and that words defining things to be taxed may not be extended beyond their clear import. Doubts must be resolved against the government, and in favor of taxpayers. United States v. Merriam, 263 U. S. 179, 263 U. S. 188; Bowers v. N.Y. & Albany Co., 273 U. S. 346, 273 U. S. 350. The legislative history and passage of the amendatory Act of 1930 show that the Commissioner, as well as the Congress, found that an enlargement of the definition was necessary in order to cover products such as respondent's. The language used in the original Act was not sufficiently clear and definite to include products containing no animal fat. The Commissioner's rendition of the governing phrase was without warrant. His determination that respondent's product was oleomargarine and taxable under the Act was erroneous, and, in view of his earlier interpretations and the court decision which had become final, must be held arbitrary and capricious. It was without force. Interstate Commerce Commission v. Louisville & N. R. Co., 227 U. S. 88, 227 U. S. 91; Kwock Jan Fat v. White, 253 U. S. 454, 253 U. S. 457, 253 U. S. 464; United States v. Mann, 2 Brock. 9, 11.
that extraordinary and exceptional circumstances render its provisions inapplicable. Hill v. Wallace, 259 U. S. 44, 259 U. S. 62; Dodge v. Osborn, supra, p. 240 U. S. 121; Dodge v. Brady, supra. Cf. Graham v. Du Pont, 262 U. S. 234, 262 U. S. 257; Brushaber v. Union Pacific R. Co., 240 U. S. 1.
at law. It is clear that, by reason of the special and extraordinary facts and circumstances, § 3224 does not apply. The lower courts rightly held respondent entitled to the injunction.
This case was decided in the Circuit Court of Appeals at the same time as No. 251, 49 F.2d 79, presents the same question, and is governed by the foregoing opinion.
In my opinion, R.S. § 3224, which says that "No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court," cannot rightly be construed as permitting the present suit, whose sole purpose is to enjoin the collection of a tax. Enacted in 1867, this statute, for more than sixty years, has been consistently applied as precluding relief, whatever the equities alleged.
*Together with No. 252, Rose, Collector of Internal Revenue v. Standard Nut Margarine Company of Florida.
"Sec. 2. That, for the purposes of this Act, certain manufactured substances, certain extracts, and certain mixtures and compounds, including such mixtures and compounds with butter, shall be known and designated as 'oleomargarine,' namely: all substances heretofore known as oleomargarine, oleo, oleomargarine oil, butterine, lardine, suine, and neutral; all mixtures and compounds of oleomargarine, oleo, oleomargarine oil, butterine, lardine, suine, and neutral; all lard extracts and tallow extracts, and all mixtures and compounds of tallow, beet fat, suet, lard, lard oil, fish oil or fish fat, vegetable oil, annatto, and other coloring matter, intestinal fat, and offal fat -- if (1) made in imitation or semblance of butter, or [when so made] (2) calculated or intended to be sold as butter or for butter, or (3) churned, emulsified, or mixed in cream, milk, water, or other liquid, and containing moisture in excess of 1 percentum or common salt. . . ."

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