Court Opinion

ID: 9636311
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:23:45.386932+00
Date Added: 2024-06-11T12:09:26.340019
License: Public Domain

BINGHAM, Circuit Judge
(dissenting).
This is an appeal from a decree of the District Court for Massachusetts dismissing the plaintiff’s bill of complaint. The bill, filed November 6, 1936, was brought by George P. Davis, a citizen of Massachusetts, against the Boston & Maine Railroad, a Massachusetts corporation, praying that the defendant be enjoined from making payments to the Collector of Internal Revenue of the tax imposed upon it under title IX of the Act of Congress-of August 14, 1935, c. 531 (49 Stat. 620, U. S.C. title 42, c. 7 [42 U.S.C.A. § 1101 et seq.]), and that title IX of that act beheld not to be an act of Congress within its powers under the Constitution of the United States. In the bill it is alleged, and it is conceded, that the plaintiff is a stockholder, owning an unspecified number of shares of stock of the defendant corporation; that the defendant is now, and was during the year 1936, engaged in the business of operating a railroad in Massachusetts, and during that time employed more than eight persons therein; that under section 901 of that act (42 U.S.C.A. § 1101) it is required to pay each calendar year after January 1, 1936, an excise tax; and that the corporation, though requested not to do so, nevertheless had decided to make payments under the act.
It further appears that on November 12, 1936, Guy T. Helvering, Commissioner of Internal Revenue, and William M. Welch, Collector of Internal Revenue for the District of Massachusetts, sought and were permitted to intervene as defendants; that on November 17, 1936, the plaintiff, the defendant, and the interveners filed a stipulation in which it was provided that “The only issue involved in this case, either *381directly or indirectly, is whether or not title IX of chapter 531 of August 14, 1935, 49 Stat. 620, is an act of Congress within its powers under the Constitution of the United States, or is violative of the Fifth Amendment thereof, and the only way that that issue is raised is in respect to payments under that title IX."
It appears, therefore, that the single question is whether title IX of the act is constitutional in so far as it requires the defendant corporation to make payments of taxes into the Treasury of the United States.
Title IX, the essential provisions of which appear in the footnote of the opinion of the court, is entitled “Tax on Employers of Eight or More,” and section 901 (42 U.S.C.A. § 1101), which imposes the tax, reads as follows:
“Section 901. On and after January 1, 1936, every employer (as defined in section 907 [section 1107 of this chapter]) shall pay for each calendar year an excise tax, with respect to having individuals in his employ, equal to the following percentages of the total wages (as 'defined in section 907 [section 1107 of this chapter]) payable by him (regardless of the time of payment) with respect to employment (as defined in section 907 [section 1107 of this chapter]) during such calendar year.”
For the calendar year 1936, the rate is fixed at 1 per centum; for the calendar year 1937, 2 per centum; and after December 31, 1937, 3 per centum.
By section 907 (42 U.S.C.A. § 1107), the term “employer” as used in section 901 means any person (individual or otherwise, section 1101 (3) (4), 42 U.S.C.A. § 1301 (3, 4) employing eight or more persons during the taxable year for the length of time there specified; that the term “wages” means cash or cash value of all remuneration paid employees for services rendered; and that the term “employment” means any service performed within the United States by an employee for his employer, except agricultural labor, domestic service in a private home, services of an officer or member of a crew of a vessel on navigable waters of the United States, services of a father in the employ of his son, daughter, or wife, or of a child under twenty-one for his father or mother; services performed in the employ of the United States or one of its instrumental-ities ; or in the employ of a state, or political subdivision thereof, or of a state instrumentality; for services performed for a corporation or organization'organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual.
It is apparent from a reading of these sections that the subject or activity upon which the tax is imposed for a given calendar year is a person, firm, or corporation, except those above stated, doing business within the United States in which eight or more individuals are employed; that the object of the tax is the act of the employer in having individuals' in his employ; and that the tax is at a fixed rate measured by the total wages paid by the employer to those employed. It is also reasonably certain that the business of the employer, the subject of the tax, is one carried on for profit and not one where no pecuniary benefit accrues to a private shareholder or to an individual.' The tax is spoken of in the act as an excise tax.
The plaintiff contends that this is not an excise tax. At one time he argues that no tax is an excise tax except a tax upon property, and then later concedes that such a* tax may be one imposed on one’s profession or calling, upon the manufacture; sale, use, or consumption of an article; but that it cannot be upon the doing of business or the doing it in a particular mode or form, or upon the act, not the privilege, of carrying on a business employing eight or more employees. He asserts that the tax in question is upon wages — an outgo — and that no one ever heard of a tax upon outgo. He fails to recognize that the tax is not upon the wages, that the wages paid out are merely the measure of the tax, and that the Supreme Court has expressly held that the act of making a gift inter vivos — outgo— may be made the basis of an excise tax upon the donor, measured by the value of the property given (Bromley v. McCaughn, 280 U.S. 124, 50 S.Ct. 46, 74 L.Ed. 226), or upon the act of using a boat, not the privilege of doing so (Billings v. United States, 232 U.S. 261 at page 281, 34 S. Ct. 421, 58 L.Ed. 596). We may therefore reasonably rest assured that, because the tax in question is measured by the wages, the property paid out, that it will not for that reason fail' of having been properly laid; nor for the reason that the act of the employer in carrying on a business *382employing eight or more individuals, not the natural right or privilege of doing so, is made the occasion of the tax.
It is certain that, prior to the adoption of the Sixteenth Amendment, a tax based on the ownership of property, real or personal, and the income derived from either, was a direct tax, and had to be laid according to the rule of apportionment; and that since then a tax upon income, derived from either source, is subject only to being uniform throughout the United States.
The tax here in question is manifestly not a direct tax upon property, and, if it is an indirect tax, an excise, the only constitutional limitation is that it be uniform. Article 1, § 8, cl. 1. It is there provided that “All Duties, Imposts and Excises shall be uniform throughout the United States.”
It is also fairly certain that the Supreme Court has held that a tax upon an incidence of ownership of property, which does not amount in fact to a direct tax upon the property itself, may be an excise. It was held, as above said, that a tax on the act of using a boat, an incidence of ownership, even though the use made of it be in foreign waters by a citizen of the United States, permanently domiciled abroad, is an excise within section 8 of article 1. Billings v. United States, 232 U. S. 261, 34 S.Ct. 421, 58 L.Ed. 596. It reached the same conclusion in regard to a tax on carriages which the owner “kept for his own use”' — the act of so keeping. Hyl-ton v. United States, 3 Dali. 171, 175, 1 L. Ed. 556. In that case, Chase, Justice, after expressing the view that the power granted to Congress to lay duties, imposts, and excises was the most comprehensive of the powers granted to Congress to lay taxes, other than the one embraced in the “general term tax,” said:
“It seems to me, that a tax on expense is an indirect tax; and I think, an annual tax on a carriage for the conveyance of persons, is of that kind; because a carriage is a consumable commodity; and such annual tax on it, is on the expense of the owner.”
In Veazie Bank v. Fenno, 8 Wall. 533, 539, 547, 19 L.Ed. 482, the court had under consideration an act of Congress providing that:
“Every national banking association, State bank, or State banking association, shall pay a tax of ten per centum on the amount of notes of any person, State bank, or State banking association, used for circulation and paid out by them after the first day of August, eighteen hundred and sixty-six.” 14 Stat. 146, § 9.
It will be seen that this act imposed a tax upon the act of paying out the notes of any person, state bank, or state banking association used for circulation; that it was not a tax upon the notes, but upon the use made of them- — -the act of paying them out, an incidence of ownership.
In that case it was first contended that the tax was a direct tax, and, second, that it was a tax on a franchise granted by the state. It was held not to be a direct tax or a tax on a franchise granted by a state, but was a tax upon the issuance of bank bills under the franchise of the bank; that it stood no differently than a tax upon bills of lading issued by a railroad company, in the exercise of its corporate franchise for freight received, which were proper “objects of taxation within the powers of Congress, and not exempted by any relation to the State which granted the charter of the railroad.” And in answer to the contention that the tax was “excessive, and so excessive as to indicate a purpose on the part of Congress to destroy the franchise of the bank,” the court replied:
“that the judicial cannot prescribe to the legislative departments of the government limitations upon the exercise of its acknowledged powers. The power to tax may be exercised oppressively upon persons, but the responsibility of the legislature is not to the courts, but to the people by whom its members are elected. So if a particular tax bears heavily upon a corporation, or a class of corporations, it cannot, for that reason only, be pronounced contrary to the Constitution.”
Like excise .taxes imposed upon an incidence of ownership, such as the act of selling liquor or of selling lottery tickets (License Tax Cases, 5 Wall. 462, 18 L.Ed. 497; State of South Carolina v. United States, 199 U.S. 437, 26 S.Ct. 110, 50 L. Ed. 261, 4 Ann.Cas. 737; Ohio v. Helvering, 292 U.S. 360, 54 S.Ct. 725, 78 L.Ed. 1307; United States v. Yuginovich, 256 U.S. 450, 41 S.Ct. 551, 65 L.Ed. 1043); the manufacture, sale or removal for sale of articles (United States v. American Chicle Co., 256 U.S. 446, 41 S.Ct. 548, 65 L.Ed. 1041; Patton v. Brady, 184 U.S. 608, 22 S. Ct. 493, 46 L.Ed. 713); the sale or transfer of securities (Provost v. United States, *383269 U.S. 443, 46 S.Ct. 152, 70 L.Ed.. 352; Thomas v. United States, 192 U.S. 363, 24 S.Ct. 305, 48 L.Ed. 481; Treat v. White, 181 U.S. 264, 21 S.Ct. 611, 45 L.Ed. 853); the manufacture and sale of oleomargarine (McCray v. United States, 195 U.S. 27, 24 S.Ct. 769, 49 L.Ed. 78, 1 Ann.Cas. 561); on successions or receipt of property at death (Scholey v. Rew, 23 Wall. 331, 23 L. Ed. 99; Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969; New York Trust Co. v. Eisner, 256 U.S. 345, 41 S.Ct. 506, 65 L.Ed. 963, 16 A.L.R. 660) ; and on the act of making a gift inter vivos, as above stated in Bromley v. McCaughn, 280 U.S. 124, 50 S.Ct. 46, 74 L.Ed. 226.
As taxes laid on such acts have been uniformly sustained as excise taxes under the power of Congress to levy duties, imposts, and excises, it remains to be considered whether it is within the power of Congress to levy such a tax upon the act of doing business, or doing business in a particular manner or form, or on a particular act done in carrying on a business.
In Thomas v. United States, 192 U.S. 363, 24 S.Ct. 305, 306, 48 L.Ed. 481, the appellant had been indicated for violation of the internal revenue laws of.the United States in that, being a broker (doing a brokerage business), he had sold certain shares of stock and omitted affixing the required revenue stamps upon the memorandum of sale. He was found guilty, and, a judgment sentencing him to pay a fine of $500 having been entered, sued out a writ of error. He contended that the right of sale and transfer was a natural or inherent attribute of property or ownership'; and that such a natural right could not be made the occasion of a tax. The government contended that it was not a direct tax, but one “in the nature of a duty or excise upon transactions in business activity or forms of commercial dealing” ; that “Congress has the power to declare that any person who shall engage in the business or occupation of buying or selling certificates of stock shall pay a tax measured by the price realized.” Chief Justice Fuller in delivering the opinion of the court said:
“The present case involves a stamp tax on a memorandum or contract of sale of a certificate of stock, which plaintiff in error claims was unlawfully exacted because not falling within the class of duties, imposts, and excises, and being, on the contrary, a direct tax on property.
“There is no occasion to attempt to confine the words duties, imposts, and excises to the limits of precise definition. We think that they were, used comprehensively to cover customs and excise duties imposed on importation, consumption, manufacture, and sale of certain commodities, privileges, particular business transactions, vocations, occupations, and the like.
“Taxes of this sort have been repeatedly sustained by this court, and distinguished from direct taxes under the Constitution. As in Hylton v. United States, 3 Dall. 171, 1 L.Ed. 556, on the use of carriages; in Nicol v. Ames, 173 U.S. 509, 19 S.Ct. 522, 43 L.Ed. 786, on sales at exchanges or boards of trade; in Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969, on the transmission of property from the dead to the living; in Treat v. White, 181 U.S. 264, 21 S.Ct. 611, 45 L.Ed. 853, on agreements to sell shares of stock denominated ‘calls’ by the New York stock brokers; in Patton v. Brady, 184 U.S. 608, 22 S.Ct. 493, 46 L.Ed. 713, on tobacco manufactured for consumption.” (Italics supplied.)
And in affirming the judgment of the lower court he stated: “The stamp duty is contingent on the happening of the event of sale." A particular act in the conduct of the business of a broker. And in conclusion said: “As such it falls * * * within the second class of the forms of taxation.”
In Spreckels Sugar Refining Co. v. McClain, 192 U.S. 397, 24 S.Ct. 376, 48 L. Ed. 496, the plaintiff below was a Pennsylvania corporation incorporated for the purpose of “refining sugar, which will involve the buying of the raw material therefor, and selling the manufactured products, and of doing whatever else should be incidental to the said business of refining.” It sought to recover certain sums paid by it under protest to the defendant-collector, as unlawfully exacted under the twenty-seventh section of the Act of June 13, 1898 (30 Stat. 464). That act imposed a tax upon every person, firm, corporation or company carrying on or doing the business of refining sugar, measured by the gross annual receipts in excess of a named sum. It reads as follows:
“Sec. 27. That every person, firm, corporation, or company carrying on or doing the business of refining petroleum, or refining sugar, or owning or controlling any pipe line for transporting oil or other products, whose gross annual receipts ex*384ceed two hundred and fifty thousand dollars, shall be subject to pay annually a special excise tax equivalent to one-quarter of one per centum on the gross amount of all receipts of such persons, firms, corporations, and companies in their respective business in excess of said sum of two hundred and fifty thousand dollars.”
Here, again, the appellant contended that the tax was a direct tax. The government’s contention was that it was an excise and plainly indirect; that it made “no difference how the manufacturing activities are measured in the imposition of the tax.”
It is apparent from a reading of the section that the tax is not based on the doing of business in corporate form, for it is imposed upon a person or firm, as well as upon a corporation. It was limited, however, to the doing of business in a particular way, the refining of petroleum or refining of sugar. In holding the tax to be an excise, the court said (at page 411 of 192 U.S., 24 S.Ct. 376, 380, 48 L.Ed. 496):
“Clearly the tax is not imposed upon gross annual receipts as property, but only in respect of the carrying on or doing the business of refining sugar. It cannot be otherwise regarded because of the fact that the, amount of the tax is measured by the amount of the gross annual receipts. The tax is defined in the act as ‘a special excise tax,’ and, therefore, it must be assumed, for what it is worth, that Congress had no purpose to exceed its powers under the Constitution, but only to exercise the authority granted to it of laying and collecting excises.” (Italics supplied.)
It did not trouble the court in that case that the tax was imposed only on those whose “gross annual receipts exceeded $250,000,” and not on other persons, firms or corporations, whose gross annual receipts were less, and who were consequently exempted from payment of the tax. And, after reviewing many decided cases bearing on the question, the court concluded (at pages 412, 413 of 192 U.S., 24 S.Ct. 376, 381, 48 L.Ed. 496) :
“We cannot hold that the tax imposed on the plaintiff expressly with reference to its ‘carrying on or doing the business of * * * refining sugar,’ and which was to be measured by its gross annual receipts in excess of a named sum, is other than is described in the act of Congress, — -a special excise tax, and not a direct one to be apportioned among the states according to their respective numbers. This conclusion is inevitable from the judgments in prior cases, in which the court has dealt with the distinctions, often very difficult to be expressed in words, between taxes that are direct and those which are to be regarded simply as excises. The grounds upon which those judgments were rested need not be restated or re-examined. It would subserve no useful purpose to do so. It must suffice now to say that they clearly negative the idea that the tax here involved is a direct one, to be apportioned among the states according to numbers.”
In Flint v. Stone Tracy Co., 220 U.S. 107, 31 S.Ct. 342, 55 L.Ed. 389, Ann.Cas. 1912B, 1312, the question arose under section 38 of the Act of Congress of 1909 (36 Stat. 112), which reads:
“Sec. 38. That every corporation, joint stock company or association, organized for profit and having a capital stock represented by shares, and every insurance company, now or hereafter organized under the laws of the United States or of any State or Territory of the United States or under the Acts of Congress applicable to Alaska or .the District of Columbia, or now or hereafter organized under the laws of any foreign country and engaged in business in any State or Territory of the United States or in Alaska or in the District of Columbia, shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation, joint stock company or association, or insurance company, equivalent to one per cen-tum upon the entire net income over and above five thousand dollars received by it from all sources during such year, exclusive of amounts received by it as dividends upon stock of other corporations, joint stock companies or associations, or insurance companies, subject to the tax hereby imposed; or if organized under the laws of any foreign country, upon the amount of net income over and above five thousand dollars received by it from business transacted and capital invested within the United States and its Territories, Alaska and the District of Columbia during such year, exclusive of amounts so received by it as dividends upon stock of othef corporations, joint stock companies or associations, or insurance companies, subject to the tax hereby imposed: Provided, however, That nothing in this section *385contained shall apply to labor, agricultural or horticultural organisations, or to fraternal beneficiary societies, orders, or associations operated under the lodge system, and providing for the payment of life, sick, accident, and other benefits to the members of such societies, orders or associations, and dependents of such members, nor to domestic building and loan associations, organized and operated exclusively for the mutual benefit of their members, nor to any corporation or association or-ganised and operated exclusively for religious, charitable, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual." (Italics supplied.)
The second paragraph of this section sets forth wha.t deductions may be made from the gross amount of income to ascertain the net income by which the tax is to be measured.
The third paragraph provides for the deduction of the sum of $5,000 from the net income as determined under the second paragraph, and that the tax shall be computed upon the remainder of such net income for the year ending December 31, 1909, and for each calendar year thereafter, and requires the taxpayer to make a return on or before the 1st day of March, 1910, for the tax of 1909, and a like return on the 1st day of March in each year thereafter.
Here again individuals and partnerships were exempted from paying the tax, as it was not imposed on them. See pages 140, 141 of 220 U.S., 31 S.Ct. 342, 55 L.Ed. 389, Ann.Cas.l912B, 1312.
In construing section 38 for the purpose of ascertaining its meaning, the court said (at page 144 of 220 U.S., 31 S.Ct. 342, 346, 55 L.Ed. 389, Ann.Cas.l912B, 1312) :
“A reading of this portion of the statute shows the purpose and design of Congress in its enactment and the subject-matter of its operation. It is at once apparent that its terms embrace corporations and joint stock companies or associations which are organized for profit, and have a capital stock represented by shares. Such joint stock companies, while differing somewhat from corporations, have many of their attributes and enjoy many of their privileges. * * * The tax is to be equivalent to 1 per cent of the entire net income over and above $5,000, received by such corporation or company from all sources during the year, excluding, however, amounts received by them as dividends upon stock of other corporations * * * subject to the tax imposed by the statute. * * *
“While the mere declaration contained in a statute that it shall be regarded as a tax of a particular character does not make it such if it is apparent that it cannot be so designated consistently with the meaning and effect of the act, nevertheless the declaration of the lawmaking power is entitled to much weight, and in this statute the intention is expressly declared to impose a special excise tax with respect to the carrying on or doing business by such corporation, joint stock company or association, or company. It is therefore apparent, giving all the words of the statute effect, that the tax is imposed not upon the franchises of the corporation, irrespective of their use in business, nor upon the property of the corporation, but upon the doing of corporate or insurance business, and with respect to the carrying on thereof, in a sum equivalent to 1 per centum upon the entire net income over and above $5,000 received from all sources during the year; that is, when imposed in this manner it is a tax upon the doing of business, with the advantages which inhere in the peculiarities of corporate or joint stock organisation of the character described. As the latter organizations share many benefits of corporate organization, it may be described generally as a tax upon the doing of business in a corporate capacity. * * * In other words, the tax is imposed upon the doing of business of the character described, and the measure of the tax is to be the income, with the deductions stated, received not only from property used in business, but from every source. '* * * This interpretation of the act, as resting upon the doing of business, is sustained by the reasoning in Spreckels Sugar Refining Co. v. McClain, 192 U.S. 397, 24 S.Ct. 376, 48 L. Ed. 496, in which a special tax measured by the gross receipts of the business of refining oil and sugar was sustained as an excise in respect to the carrying on or doing of such business." (Italics supplied.)
Having ascertained the intention of Congress as expressed in the statute, the court proceeded to consider whether the statute so construed was constitutional, and said:
“It is contended that it is not; certainly so far as the tax is measured by the income of bonds nontaxable under Federal statutes, and municipal and state bonds beyond the Federal power of taxation. And *386so of real and personal estates, because as to such estates the tax is direct, and required to be apportioned according to population among the states.”
After recounting the provisions of the Constitution relating to the laying of taxes, and restating what was held in the Pollock Case and in Knowlton v. Moore bearing upon this contention, the court said:
“The act now under consideration does not impose direct taxation upon property solely because of its ownership, but the tax is within the class which Congress is authorized to lay and collect under article 1, § 8, clause 1 of the Constitution, and described generally as taxes, duties, imposts, and excises, upon which the limitation is that they shall be uniform throughout the United States.
“Within the category of indirect taxation, as we shall have further occasion to show, is embraced a tax upon business done in a corporate capacity, which is the subject-matter of the tax imposed in the act under consideration. The Pollock Case construed the tax there levied as direct, because it was imposed upon property simply because of its ownership. In the present case the tax is not payable unless there be a carrying on or doing of business in the designated capacity, and this is made the occasion for the tax, measured by the standard prescribed. The difference between the acts is not merely nominal, but rests upon substantial differences between the mere ownership of property and the actual doing of business in a certain way. * * * The tax under consideration, as we have construed the statute, may be described as an excise upon the particular privilege of doing business in a corporate capacity, i. e., with the advantages which arise from corporate or quasi corporate organization.” (Italics supplied.)
In discussing the contention that the attempted taxation was void because it taxed franchises which were the creation of the state in its sovereign right and authority, the court said:
“The inquiry in this connection is: How far do the implied limitations upon the taxing power of the United States over objects which would otherwise be legitimate subjects of Federal taxation, withdraw them from the reach of the Federal government in raising revenue, because they are pursued under franchises which are the creation of the st.ates?
“In approaching, this subject we must remember that enactments levying taxes, as other laws of the federal government when acting within constitutional authority, are the supreme law of the land. The Constitution contains only two limitations on the right of Congress to levy excise taxes: they must be levied for the public welfare, and are required to be uniform throughout the United States. As Mr. Chief Justice Chase said, speaking for the court in License Tax Cases, 5 Wall. 462, 471, 18 L.Ed. 497, 500: ‘Congress cannot tax exports, and it must impose direct taxes by the rule of apportionment, and indirect taxes by the rule of uniformity. Thus limited, and thus only, it reaches every subject and may be exercised at discretion.’ The limita'tions to which the chief justice refers were the only ones imposed in the Constitution upon the taxing power.”
The court then took up the inquiry “as to implied limitations upon the exercise of the Federal authority to tax because of the sovereignty of the states over matters within their exclusive jurisdiction, having in view the nature and extent of the power specifically conferred upon Congress by the Constitution of the United States.” It said:
“We must remember, too, that the revenues of the United States must be obtained in the same territory, from the same people, and excise taxes must be collected from the same activities, as are also reached by the states in order to support their local government.”
And after restating his construction of the statute — that the tax imposed by the act was upon activities connected with doing business in a corporate capacity, activities which arise from and out of the exercise of franchises granted by the state, the court held:
“We think it is the result of the cases heretofore decided in this court, that such business activities, though exercised because of state-created franchises, are not beyond the taxing power of the United States. * * * When the Constitution was framed, the right to lay excise taxes was broadly conferred upon the Congress. At that time very few corporations existed. If the mere fact of state incorporation, extending now to nearly all branches of trade and industry, could withdraw the legitimate objects of Federal taxation from the exercise of the power conferred, the *387result would be to exclude the national government from many objects upon which indirect taxes could be constitutionally imposed.”
It then considered the case of State v. South Carolina v. United States, 199 U.S. 437, 461, 26 S.Ct. 110, 50 L.Ed. 261, 4 Ann.Cas. 737, where it was held that the agents of the state government, carrying on the business of selling liquor under state authority, were liable to pay the internal revenue tax imposed by the federal government and said that the rule to be deduced from that and previous cases was “that the exemption of state agencies and instru-mentalities from national taxation was limited to those of a strictly governmental character, and did not extend to those used by the state in carrying on business of a private character”; and that, while federal taxation did not extend to “the-means and instrumentalities employed in carrying on the governmental operations of the state,” this “limitation has never been extended to the exclusion of the activities of a merely private business from the Federal taxing power, although the power to exercise them is derived from an act of incorporation by one of the states.”
It then considered the question of whether “this taxation is so unequal and arbitrary in the fact that it taxes a business when carried on by a corporation, and exempts a similar business when carried on by a partnership or private individual, as to place it beyond the authority conferred upon Congress.” It pointed out that the limitation of uniformity in laying the tax did “not require the equal application of the tax to all persons or corpora~ tions who may come within its operation, but is limited to geographical uniformity throughout the United States” and held:
“In levying excise taxes the most ample authority has been recognized from the beginning to select some and omit other possible subjects of taxation, to select one calling and omit another, to tax one class of property and to forbear to tax another.”
And, in support of the proposition, refers to many cases cited in the margin.
Later the court considered the question whether the measure of the tax by the net income of a corporation or company received by it from all sources was so arbitrary and baseless as to fall outside the authority of the taxing power. As to this it said (at pages 165-167 of 220 U.S., 31 S.Ct. 342, 355, 55 L.Ed. 389, Ann.Cas. 1912B, 1312):
“The tax must be measured by some standard, and none can be chosen which will operate with absolute justice and equality upon all corporations. Some corporations do a large business upon a small amount of capital; others with a small business may have a large capital. * * * There is no rule which permits a court to say that the measure of a tax for the privilege of doing business, where income from property is the basis, must be limited to that derived from property which may be strictly said to be actively used in the business. Departures from that rule, sustained in this court, are not wanting. In United States v.. Singer, 15 Wall. Ill, 21 L.Ed. 49, an excise tax was sustained upon the liquor business, which was fixed by the payment of an amount not less than 80 per cent of the total capacity of the distillery. Whether such capacity was used in the business was a matter of indifference, and this court said of such a measure: ‘Everyone is advised in advance of the amount he will be required to pay if he enters into the business of distilling spirits, and every distiller must know the producing capacity of his distillery. If he fail under these circumstances to produce the 'amount for which, by the law, he will in any event be taxed if he undertakes to distill at all, he is not entitled to much consideration.’ * * * We must not forget that the right to select the measure and objects of taxation devolves upon the Congress, and not upon the courts, and such selections are valid unless constitutional limitations are overstepped. ‘It is no part of the function of a court to inquire into the reasonableness of the excise, either as respects the amount or the property upon which it is imposed.’ ”
It seems to me that the foregoing decisions demonstrate that the act of doing business, or of doing business in a particular way or form, may be selected by Congress as a proper object for laying an excise tax; and that the act of employing individuals in a business or occupation may likewise be a proper object for an excise tax. And it also seems to me that an excise tax, in the instances mentioned, may properly be measured by the gross or net income of the business, or by the gross or net income from all sources, or by outgo; or by any other standard having relation to the object of the tax and by which the tax may reasonably be measured, as *388was done in the Singer Case, where the excise upon the business of distilling liquor was measured by an amount not less than 80 per centum of the total capacity of the distillery, whether that capacity was availed'of or not.
The decisions of the Massachusetts court, construing the term “.commodity” in the Constitution of that state and relied upon in the opinion of the court in this case, furnish no aid in the construction of article 1, section 8, clause 1, of the Federal Constitution, and the determination of the requisites of an excise tax thereunder, for the word “commodity,” as respects an occupation or business, is construed as limited to an occupation of business receiving governmental aid, or to such a one “as to properly call for governmental regulation.” No such limitation has been placed by the Supreme Court in article 1, § 8, cl. 1. See the Spreckels.Case, supra.
While the power of Congress to select the occasion or object of the tax and the method of measurement is discretionary, its power to select the subjects of taxation are apparently limited by the Constitution. Under its requirements Congress cannot select as the subject of taxation the activities of a state, or its instrumentalities, of a governmental nature, but unquestionably has the right to select the business of an individual or a firm, or a corporate organization; and Congress in the selection of the subjects of taxation under title IX did not exceed its power, for it expressly excluded the business activities of a state and its instrumentalities, whether of a private or governmental character; and it seems to be generally conceded that when Congress, in the laying of a tax, has acted within its constitutional authority in the selection of a given subject of taxation, “the taxing power conferred by the Constitution knows no limits except those expressly stated in that instrument” — apportionment in the case of a direct tax, and uniformity for an indirect one; and that, if a tax be within its lawful power, the exercise of that power may not be judicially restrained because it may indirectly affect a power reserved to the states and tend to regulate or suppress a local activity, as in McCray v. United States, 195 U.S. 27, 24 S.Ct. 769, 49 L.Ed. 78, 1 Ann.Cas. 561, where it indirectly tended to regulate and suppress a local activity — the manufacture of colored oleomargarine — a matter of state control; or as in Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969, the transmission or receipt of property-on the occasion of death — the right to regulate which is likewise within the exclusive control of a state.
In the former case it was said (at page 60 of 195 U.S., 24 S.Ct. 769, 778, 49 L.Ed. 78, 1 Ann.Cas. 561):
“ ‘This principle is pertinent only when there is no power to tax a particular subject, and has no relation to a case where such right exists. In other words, the power to destroy, which may be the consequence of taxation, is a reason why the right to tax should be confined to subjects which may be lawfully embraced therein, even although it happens that in some particular instance no great harm may be caused by the exercise of the taxing authority' as to a subject which is beyond its scope. But this reasoning has no application to a lawfúl tax, for if it had there would be an end of all taxation; that is to say, if a lawful tax can be defeated because the power which is manifested by its imposition may, when further exercised, be destructive, it would follow that every lawful tax would become unlawful, and therefore no taxation whatever could be levied.”
See also, Nigro v. United States, 276 U.S. 332, 48 S.Ct. 388, 72 L.Ed. 600, where a lawful tax, which tended indirectly to effect a regulation of a reserved power of a state, was upheld.
And in the McCray Case, at pages 58, 59 of 195 U.S., 24 S.Ct. 769, 49 L.Ed. 78, 1 Ann.Cas. 561 it was held that, where the activity selected by Congress for taxation was a lawful subject, its power to tax was unlimited and its motive or purpose (to suppress or regulate) could not be inquired into by the courts.
As to the power of the courts in this respect, the court said (at page 55 of 195 U. S., 24 S.Ct. 769, 776, 49 L.Ed. 78, 1 Ann. Cas. 561):
“It is, of course, true, as suggested, that if there be no authority in the judiciary to restrain a lawful exercise of power by another department of the government, where a wrong motive or purpose has impelled to the exertion of the power, that abuses of a power conferred may be temporarily effectual. The remedy for this, however, lies, not in the abuse by the judicial authority of its functions, but in the people, upon whom, after all, under our institutions, reliance must be placed for the correction of abuses committed in the exercise of a lawful power.”- (Italics supplied.)
*389And, in the same connection, it was said (at pages 54, 55 of 195 U.S., 24 S.Ct. 769, 776, 49 L.Ed. 78, 1 Ann.Cas. 561) that the contention “that, because a particular department of the government may exert its lawful powers with the object or motive of reaching an end not justified, therefore it becomes the duy of the judiciary to restrain the exercise of a lawful power wherever it seems to the judicial mind that such lawful power has been abused * * * reduces itself to the contention that, under our constitutional system, the abuse by one department of the government of its lawful powers is to be corrected by the abuse of its powers by another department,” that “the proposition, if sustained, would destroy all distinction between the powers of the respective departments of the government, would put an end to that confidence and respect for each other which was the purpose of the Constitution to uphold, and would thus be full of danger to the permanence of our institutions.”
In considering the effect of the due process clause of the Fifth Amendment upon a lawful exercise of the taxing power, though indirectly tending to regulate or suppress a local activity, the court said:
“That provision, as we have previously said, does not withdraw or expressly limit the grant of power to tax conferred upon Congress by the Constitution. From this it follows, as we have also previously declared, that the judiciary is without authority to avoid an act of Congress exerting the taxing power, even in a case where, to the judicial mind, it seems that Congress had, in putting such power in motion, abused its lawful authority by levying a tax which was unwise or oppressive, or the result of the enforcement of which might be to indirectly affect_ subjects not within the powers delegated to Congress.”
It is certain that the uniformity clause is complied with. That clause exacts only a geographical uniformity, and there is no semblance of ground for claiming a violation of that requirement. Knowlton v. Moore, 178 U.S. 41, 20 S.Ct. 747, 44 L.Ed. 969; Patton v. Brady, 184 U.S. 608, 622, 22 S.Ct. 493, 46 L.Ed. 713; Billings v. United States, 232 U.S. 261, 281, 34 S.Ct. 421, 58 L.Ed. 596; Brushaber v. Union Pacific R. R., 240 U.S. 1, 24, 36 S.Ct. 236, 60 L.Ed. 493, L.R.A.1917D, 414, Ann.Cas. 1917B, 713.
The acts of Congress imposing an excise tax on the business activities of corporations, but exempting like business activities of a partnership or private individual, have been held within the authority of Congress. Flint v. Stone Tracy Co., 220 U.S. 107, at page 158, 31 S.Ct. 342, 55 L.Ed. 389, Ann.Cas.l912B, 1312. It is there said:
“In levying excise taxes the most ample authority has been recognized from the beginning to select some and omit other possible subjects of taxation, to select one calling and omit another, to tax one class of property and to forbear to tax another.”
See pages 140, 141 of that case in 220 U.S., 31 S.Ct. 342, 352, 55 L.Ed. 389, Ann. Cas.l912B, 1312.
I do not think that Congress rendered its exercise of the taxing power illegal by reason of the exemptions stated in title IX, or by omitting to tax business activities employing less than eight individuals. Quong Wing v. Kirkendell, 223 U.S. 59, 32 S.Ct. 192, 56 L.Ed. 350; State Board of Tax Commissioners v. Jackson, 283 U.S. 527, 537, 539, 51 S.Ct. 540, 543, 75 L.Ed. 1248, 73 A.L.R. 1464.
One would gather from reading the opinion of the court in this case that, on collection of the tax, title IX at once appropriated it to the payment of unemployment benefits under the compensation laws of the states; that what it authorized was the taking of the property of the taxpayer —employer—and turning’it over to his employees. But, there is not a word in title IX providing for any such disposition. On the contrary, title IX (section 905 (a), 42 U.S.C.A. § 1105 (a) explicitly provides for the collection of the tax by the Bureau of Internal Revenue and its payment as general revenue into the Treasury of the United States.
It is asserted that title IX is not a revenue measure; that it does not provide revenue with which the United States may pay its debts and provide for the general welfare of the nation. But, as heretofore pointed out, the tax imposed by section 901 (42 U.S.C.A. § 1101) has all the indicia of a validly laid excise. It is to be collected by the Bureau of Internal Revenue the same as all internal revenue taxes are, and paid into the Treasury of the United States “as internal revenue collections”; and in section 905 (b), 42 U.S.C.A. § 1105 (b), the taxpayer is required each year to make a return under oath of his tax and file it with the collector. Title IX makes no provision for the expenditure of a penny o’f *390the tax. On its face, then, title IX discloses that it is a revenue measure, and we are informed that it will in fact bring into the Treasury the first year of its enforcement millions of dollars, and increasing millions each year thereafter. It cannot, therefore, be claimed that title IX is a subterfuge and not a revenue producer.
In Nigro v. United States, 276 U.S. 332, 353, 48 S.Ct. 388, 394, 72 L.Ed. 600, a like contention was made in regard to the Anti-Narcotic Act after its amendment in 1919, in the Revenue Act of 1918 (see 26 U. S.C.A. §§ 1040-1051, 1053, 1383-1391). That amendment had increased the tax imposed under section 1 of the original act (38 Stat. 785), so that the income from the tax became “substantial.” It mounted “to about one million a year.” In view of this, the court said:
“If there was doubt as to the character of this act as an alleged subterfuge, it has been removed by the change whereby what was a nominal tax before was made a substantial one. It is certainly a taxing act now as we held in the Alston Case [274 U.S. 289, 47 S.Ct. 634, 71 L.Ed. 1052].”
The contention that title IX is not a revenue measure is without foundation. It clearly is such, and will produce millions of dollars for the Treasury. “Taxation may run pari passu with expenditure.” Patton v. Brady, 184 U.S. 612, 620, 22 S.Ct. 493, 497, 46 L.Ed. 713. The expenditures of the government for a number of years now have exceeded its revenues, and it is common knowledge that its budget for a like period has been and still is unbalanced. It cannot be said that the government was without need of revenue when title IX was enacted.
The activity selected as the subject of the tax being lawful, the tax being clearly an excise, and a revenue measure, as disclosed on the face of the act (title IX) imposing it, and being such in fact and not a subterfuge — it cannot be declared unconstitutional even though it may indirectly affect a reserved power of a state.
The Child Labor Tax Case, 259 U.S. 20, 42 S.Ct. 449, 66 L.Ed. 817, 21 A.L.R. 1432, is without application to the facts in this case. The provision of the act there considered was section 1200 of Title XII of the Act of Congress entitled “Tax on Employment of Child Labor,” 40 Stat. 1138, and reads as follows:
“Sec. 1200. That every person (other than a bona fide boys’ or girls’ canning club recognized by the Agricultural Department of a State and of the United States) operating (a) any mine or quarry situated in the United States in which children under the age of sixteen years have been employed or permitted to work during any portion of the taxable year; or (b) any mill, cannery, workshop, factory, or manufacturing establishment situated in the United States in which children under the age of fourteen years have been employed or permitted to work, or children between the ages of fourteen and sixteen have been employed or permitted to •work more than eight hours in any day or more than six days in any week, or after the hour of seven o’clock post meridian, or before the hour of six o’clock ante meridian, during any portion of the taxable year, shall pay for each taxable year, in addition to all other taxes imposed by law, an excise tax equivalent to 10 per centum of the entire net profits received or accrued for such year from the sale or disposition of the product of such mine, quarry, mill, cannery, workshop, factory, or manufacturing establishment.”
Under this statute, the subjects of the tax are (1) persons operating a mine or quarry employing therein children under sixteen years of age; (2) persons operating a mill, cannery, workshop, factory, or manufacturing establishment employing children under fourteen years of age; and (3) persons operating the latter activities employing children between fourteen and sixteen years of age more than eight hours a day or six days in the week, or after 7 o’clock at night or before 6 o’clock in the morning, any portion of a year.
And the objects of the tax were the acts of employing children in the different activities in violation of the regulations there stated.
The measure of the tax was 10 per cen-tum of the entire net profits received or accrued for such year from the sale of products of any of the activities mentioned.
In that statute, the acts made the object or occasion of the tax were in themselves direct regulations of the employer’s business, in a detailed and specified manner, pertaining to matters reserved exclusively to the states, not mere' aids to the collection of the tax.
*391In construing the law to ascertain its meaning from the. language of the act, the court said (at page 36 of 259 U.S., 42 S.Ct. 449, 450, 66 L.Ed. 817, 21 A.L.R. 1432):
“Does this law impose a tax with only that incidental restraint and regulation which a tax must inevitably involve f Or does it regulate by the use of the so-called tax as a penalty? If a tax, it is clearly an excise. If it were an excise on a commodity or other thing of value, we might not be' permitted under previous decisions of this court to infer solely from its heavy burden that the act intends a prohibition instead of a tax. But this act is more. It provides a heavy exaction for a departure from a detailed and specified course of conduct in business. That course of business is that employers shall employ in mines and quarries, children of an age greater than 16 years; in mills and factories, children of an age greater than 14 years, and shall prevent children of less than 16 years in mills and factories from working more than 8 hours a day or 6 days in the zveek. If an employer departs from this prescribed course of business, he is to pay to the government one-tenth of his entire net income in the business for a full year. The amount is not to be proportioned in any degree to the extent or frequency of the departures, but is to be paid by the employer in full measure whether he employs 500 children for a year, or employs only one for a day. * Moreover, if he does not know the child is within the named age limit, he is not to pay; that is to' say, it is only where he knowingly departs from the prescribed course that payment is to be exacted. Scienters are associated with penalties, not with taxes. The employer’s factory is to be subject to inspection at any time not only by the taxing officers of the Treasury, the Department normally charged with the collection of taxes, but also by the Secretary of Labor and his subordinates, whose normal function is the advancement and protection of the welfare of the workers. In the light of these features of the act, a court must be blind not to see that the so-called tax is imposed to stop the employment of children within the age limits prescribed. Its prohibitory and regulatory effect and purpose are palpable. * * * Out of a proper respect for the acts of a co-ordinate branch of the government, this court has gone far to sustain taxing .acts as such, even though there has been ground for suspecting, from the weight of the tax, it was intended to destroy its subject. But in the act before us the presumption of validity cannot prevail, because the proof of the contrary is found on the very face of its provisions. * , * * Taxes are occasionally imposed on the discretion of the Legislature on proper subjects with the primary motive of obtaining revenue from them and with the incidental motive of discouraging them by making their continuance onerous. They do not lose their character as taxes because of the incidental motive. But there comes a time in the extension of the penalizing features of the so-called tax when it loses its character as such and becomes a mere penalty, with the characteristics of regulation and punishment. Such is the case in the law before us.” (Italics supplied.)
Throughout the opinion in the above case, the court was particular to keep in mind the difference between a statute imposing an excise tax upon a subject properly taxable, and having merely an incidental tendency to regulate or suppress a matter within state control, and one which bn 'its face disclosed that its direct and sole purpose was to rfegulate a matter of state concern, and to penalize any departure from the regulations. But the language of title IX is not on its face reasonably capable of a construction that its sole and direct purpose was to regulate a matter of state concern and to penalize any departure therefrom, and not to provide revenue for the Treasury of the United States.
The Child Labor Tax Case and kindred cases are a far cry from the one now before us. The tax here in question is certainly an excise; the tax provisions of title IX disclose on their face that the tax is levied to provide general revenue to defray the expenses of government; that the tax is collected and paid into the Treasury of the United States as general revenue, with all the attendant circumstances commonly provided for the collection of any tax; that not a penny of it is set apart for any particular purpose, either before or after it reaches the Treasury; and that in fact it will produce millions of dollars of revenue, and therefore is a revenue tax.
The opinion of the court in this case, in substance and effect, takes the position that, if the tax is an excise, if it is a revenue producing measure, and if its proceeds are paid as general revenue into'the Treasury of the United States, without being *392appropriated to any specific purpose, either before or after it reaches there, and although these things are so, the court may inquire into the purpose and motive of Congress in laying the tax, and, if it can discover that the tax tends indirectly to regulate the taxpayer’s business, it may declare the tax provisions unconstitutional, even though title IX is on its face and in fact a tax revenue producing measure. This, according to the decisions of the Supreme Court herein referred to, it cannot do. This was conceded in the Child Labor Tax Case, and was so held in the opinions of the Supreme Court in the McCray and Knowlton Cases, supra, by Mr. Justice White. See, also, A. Magnano Co. v. Hamilton, 292 U.S. 40, 44, 45, 54 S.Ct. 599, 601, 78 L.Ed. 1109. A like holding was recently had in a unanimous decision of the Supreme Court in the case of Sonzinsky v. United States (U.S.) 57 S.Ct. 554, 555, 81 L.Ed. -, decided March 29, 1937, where the court had under consideration the National Fire Arms Act of 1934, 48 Stat. 1236 (26 U.S.C.A. §§ 1132-1132q), requiring dealers to register with the Collector of Internal Revenue and pay a special tax of $200 a year. Sonzinsky was convicted of dealing in firearms without having paid the tax, and contended that the act “merely pretends to be a revenue measure and is, in reality, a police measure.” In that case, it was said:
“Every tax is in some measure regulatory. To some extent it interposes an economic impediment to the activity taxed as compared with others not taxed. But a tax is not any the less a tax because it has a regulatory effect.”
In other words, it was a valid tax even though it tended indirectly to regulate the taxpayer’s business.
The opinion of this' court also takes the position that section 901 of title IX (42 U.S.C.A. § 1101) coerces the states to enact unemployment compensation laws; that the coercion is brought about in this fashion : “A state [not complying, that is, not enacting such a law] must itself bear whatever financial burdens result to it from unemployment in its industries. * * * A state may not comply at once, but if the Act is held valid the disadvantages resulting to the state and its employers and the consequent dissatisfaction of its employees, it is quite obvious, will sooner or later compel all the states to enact such legislation.”
In this statement, the court fails to recognize that a state must bear the financial burdens resulting to it from unemployment, irrespective of the tax imposed by title IX upon employers. It also fails to recognize that the tax upon the employer does not impose the burden upon the state of caring for its unemployed. That burden rests upon the state, and always will, whether it enacts an unemployment compensation act or not. There is no compulsion in this. It is free to enact such, a law or not as it sees fit. Its employers and the employees may think that the state should enact such a law, but that is not compulsion that results directly or even indirectly from the tax imposed by section 901 of title IX. The most that could possibly be said of it is that, so far as the state is concerned, the result would be indirect and remote, but in such a case it does not lie with the courts to say that the Title imposing the tax was enacted solely to coerce the states to enact unemployment compensation laws. What was said in Massachusetts v. Mellon, 262 U.S. 447, at page 482, 43 S.Ct. 597, 599, 67 L.Ed. 1078, is here applicable: The burden of taxation “falls upon their [the States’] inhabitants, who are within the taxing power of Congress as well as that of the states where they reside”; that “the statute [does not] require the states to do or to yield anything. If Congress enacted it with the ulterior purpose of tempting them to yield, that purpose may be effectively frustrated by the simple expedient of not yielding.” The conduct of a state, in the instant case, in enacting an unemployment law, or in refraining from so doing, being voluntary, its decision as to taking either course would seem to present a political question, not one for the courts. Id. 262 U.S. 447, at page 483, 43 S.Ct. 597, 67 L.Ed. 1078. Furthermore, it appears that, in the case of Massachusetts, its unemployment law was enacted before title IX became a law. In view of this, it can hardly be said that Massachusetts was coerced by title IX to enact its law, and did not do so voluntarily.
It is also contended that section 902, the section of title IX (42 U.S.C.A. § 1102) allowing the taxpayer a credit on his tax, likewise coerces the states to enact unemployment laws, but this contention stands no differently than the one just considered. It can enact such a law or not as it sees fit, and, having enacted it, it can repeal it at will. The interest of a state, if *393any, in the allowance of the credit, is wholly remote.
It is further contended that the allowance of this credit coerces the taxpayer. Wherein it does so I fail to see. He surely is not compelled to take the credit.' His freedom of choice is as undeniable as anything can be. He can take it or leave it. If he takes it, he is relieved to a certain extent from paying taxes to two sovereign-ties on the same activity. It is now a common thing in federal tax laws to allow a credit of a portion of a tax paid to a state upon the same activity, and even to a foreign nation. United Shoe Machinery Corp. v. White, 89 F. (2d) 363, decided by this court April 5, 1937.
It was undoubtedly discretionary with Congress to prescribe the qualifications of the credit it proposed to allow. But, as the parties in this case have stipulated that “the only way” the constitutionality of title IX “is raised is in respect to payments under that Title” of taxes by the defendant into the Treasury of the United States, we are not now concerned with the question of the construction and validity of section 902 allowing the credit.
Title IX is an act of Congress complete in itself. It does not even refer to any other title. Its construction and validity depend upon what is stated within its four corners, not upon any other title. See section 1103 (42 U.S.C.A. § 1303).
The tax should be sustained.