Court Opinion

ID: 6881395
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:16:49.172572+00
Date Added: 2024-06-11T16:05:35.968417
License: Public Domain

MAGRUDER, Circuit Judge
(concurring).
With some misgivings, I concur in the result. I do not think that the classifications in the challenged provision of the Internal Revenue Law of Puerto Rico are invalid under Section 2 of the Organic Act, 39 Stat. 951, 48 U.S.C.A. § 737, providing “that no law shall be enacted in Portó Rico which shall deprive any person of life, liberty; or property without due process of law, or deny to. any person therein'the equal protection of the laws”. I question whether the provisions of the Reciprocal Commercial Trade Agreement with Sweden can be invoked by the present plaintiff, a Puerto Rican corporation.
But the classifications under review violate the spirit, and I think the letter, of the proviso in Section 3 of the Organic Act, as amended, 44 Stat. 1418, 48 U.S.C.A. § 741a, reading as follows: “That the internal-revenue taxes levied by the Legislature of Porto Rico in pursuance of the authority granted by this Act [chapter] on articles, goods, wares, or merchandise may be levied and collected as such legislature may direct, on the articles subject to said tax, as soon as the same are manufactured, sold, used, or brought into the island: Provided, That no discrimination be made between the articles imported from the United States or foreign countries and similar articles produced or manufactured in Porto Rico.”
The Treasurer contends that the foregoing proviso was not intended to deprive the legislature of the power of classification within the limitations of due process, equal protection of the laws, and the rule of uniformity in taxation; that however narrow the classification might be, the proviso is not offended if articles imported from the United States or ^foreign countries, and falling within such classification, are taxed at the same rate as articles manufactured in Puerto Rico, falling within the same classification. If this argument is accepted, then there is no forbidden discrimination, because round stick matches imported into Puerto Rico from the United States or abroad are taxed at the same rate as round stick matches made in Puerto Rico, and square stick matches imported from the United States or abroad are taxed at the same rate as square stick matches made in Puerto Rico.
It is true, the revenue law in question does not in terms discriminate between articles of domestic and non-Puerto Rican manufacture. Nevertheless, it seems to me, the Organic Act is violated when the legislature, as in this case, devises an extremely narrow classification that has no purpose or significance other than to com fer a tax advantage upon Puerto Riqan manufacturers of a given article to 'the prejudice of foreign manufacturers of a similar article.
It appears that the only wooden matches now produced in Puerto Rico are round stick matches made by the Pan American Match Company, a Puerto Rican corporation organized in 1935. One infers that the square stick matches such as are produced in Sweden could not profitably be produced in Puerto Rico. Swedish manufacturers have not yet been able to manufacture round stick matches as cheaply as square stick matches. Perhaps Swedish manufacturers may in the future succeed in overcoming the competitive handicap after expenditure of time and money in experimenting with new methods of manufacture; but that possibility does not negative the discrimination in the revenue law in its present application.
The purpose of the legislature is frankly avowed by the Treasurer in his brief. The revenue law is one of a series of enactments designed to foster desperately needed local manufacturing industries. As stated in the Treasurer’s brief:
“Substantially, the question presented * * * is of the power of the legislature of Puerto Rico, in the exercise of its local police and taxing powers, to make such classifications of commodities [in this in-tance, matches] for the purpose of insular excise taxes, as will tend to foster the development of local manufacturing industries.
“In this particular case it appears that the intent of the legislature was thus to foster the manufacture of a type of matches (round matches) being produced in the Island, locally, as well as elsewhere [in the United States mainland and capable of production likewise in Sweden], as against a type (square matches) being produced only abroad, in Sweden.”
Thus the explanation of the classification between round and square stick match*977es is that the former are made in Puerto Rico and* the latter abroad. But the prohibition against discrimination in the proviso of Section 3 of the Organic Act would seem to be ineffective indeed, if the legislature may seize upon some minute and immaterial difference between an article of Puerto Rican manufacture and a similar article of non-Puerto Rican manufacture as a basis of establishing a tax differential favoring the local manufacturer.
The fostering of local industries is normally a legitimate legislative purpose. But under the limitation in the Organic Act the Puerto Rican legislature cannot pursue this policy to the extent of prescribing tax differentials in the revenue laws designed to favor Puerto Rican manufacturers as against non-Puerto Rican manufacturers of similar articles. Sancho v. Bacardi Corp., 1 Cir., 109 F.2d 57, did not involve this particular provision of the Organic Act.
I agree that the taxpayer is entitled to be relieved of the tax only to the extent of the discrimination, as Judge MAHO-NEY points out in the latter part of his opinion.