Case: LIPKE v. LEDERER, COLLECTOR OF INTERNAL REVENUE FOR THE FIRST DISTRICT OF PENNSYLVANIA
Abbreviation: Lipke v. Lederer
Decision Date: 1922-06-05
Docket Number: No. 596
Citation: 259 U.S. 557
Volume: 259
Reporter: United States Reports
Court: Supreme Court of the United States
Jurisdiction: United States
Parties: LIPKE v. LEDERER, COLLECTOR OF INTERNAL REVENUE FOR THE FIRST DISTRICT OF PENNSYLVANIA.
Judges: Mr. Justice Pitney concurs.
Pages: 557–565

Head Matter:
LIPKE v. LEDERER, COLLECTOR OF INTERNAL REVENUE FOR THE FIRST DISTRICT OF PENNSYLVANIA.
APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE EASTERN DISTRICT OF PENNSYLVANIA.
No. 596.
Argued March 21, 22, 1922.
Decided June 5, 1922.
1. In a suit to restrain revenue officers from seizure of property under color of an act of Congress, a substantial claim that the act, as construed and sought to be applied by them, is unconstitutional, will support a direct writ of error from thi3 court to the District Court. P. 560.
2. The so-called taxes retained in force and imposed by § 35 of the National Prohibition Act upon dealing in liquor prohibited and made criminal by the act, are in reality a penalty, and cannot be enforced by distraint of the offender's property without first affording him a due opportunity for a constitutional hearing. P. 561. '
3. Revised Statutes, § 3224, forbidding suits to restrain assessment or collection of any tax, and the statutory remedy of payment and action to recover, are inapplicable to such a case; and the person affected is entitled to relief by injunction, for want of an adequate legal remedy. P. 562.
274 Fed. 493, reversed.
Appeal from a decree of the District Court dismissing a bill to restrain the collection by distress, sale or otherwise, of amounts assessed as taxes and penalties under the National Prohibition Act.
Mr. Lincoln L. Eyre, with whom Mr. Francis J. Maneely and Mr. Otto A. Schlobohm were on the brief, for appellant.
Mrs. Mabel Walker Willebrandt, Assistant Attorney General, with whom Mr. Solicitor General Beck and Mr. Harvey B. Cox were on the brief, for appellee.

Opinion:
Mr. Justice McReynolds
delivered the opinión of the court.
Relying upon Ketterer v. Lederer, 269 Fed. 153, the court below dismissed the bill,, upon motion, for want of equity, 274 Fed. 493, and the cause is here by direct appeal.
The-bill alleges:
That complainant Lipke paid all internal revenue taxes required by the laws of the United States for the year ending June 30, 1920; and he holds a retail liquor license issued by the Court of Quarter Sessions, County o.f Philadelphia, for the year ending May 31, 1921. On December 29, 1920, he was arrested for selling liquor contrary to the National Prohibition Act and gave bail to appear and answer in the United States District Court. This prosecution is still pending.
That on March 18,1921, complainant received a written communication from the defendant which stated: " Notice is hereby given that there has been assessed against you the amoupt of tax stated on this notice. Demand hereby made for the immediate payment of said tax. If payment is not made within 10 days after date of this notice, a penalty of 5 per cent, of the amount of tax due will be added, plus interest at the rate of 1 per cent, per month until paid." The total assessment amounted to $557.29, made up of three items indicated thus — " R. L. D. Sec. 35 D. T. 45.83; 11 Mos. 21 3244 P. 11.46; S. F. P. A. 1-26-21 S. P. 500.00."
That on March 31st he received a second, written demand for $557.29 with penalty of 5 per cent, for failure to pay within prescribed time. And he was advised " If payment of tax and penalty is not received within 10 days, collection of the same, with any accrued interests thereon and costs, shall be made by seizure and sale of property."
That " In addition to the notice printed on said so-called tax bills, that-the property of your orator will be seized and sold for non-payment, your orator has been informed by officials of the defendant department that after the expiration of ten days from the rendition of said second notices, his property will be seized and sold by warrant of distress. . . . He is now subject, at any moment to have the defendant, as Collector of Internal Revenue, seize his property, real or personal, for the nonpayment of said fines and penalties and that he is wholly without adequate remedy at law to prevent such seizure of his property."
That §. 3244 Rev. Stats., has no application; § 35 of the Prohibition Act confers no such power as the Collector seeks to exercise; and he is undertaking to punish complainant by fine and penalty for an alleged criminal offense without hearing, information, indictment orvtrial by jury, contrary to the Federal Constitution. If the latter section has the meaning ascribed to it by the defendant, it is unconstitutional.
The prayer is for an injunction restraining the defendant from proceeding to collect the sum demanded by warrant of seizure, distress or sale or otherwise, and requiring a cancellation of the so-called. " tax bills."
Appellant maintains that the demand upon him was not for taxes, but for a penalty for an alleged criminal act; that the method adopted for enforcing this penalty is contrary to the Federal Constitution; and that if construed as appellee insists it should be, § 35 is unconstitutional.
Appellee maintains that the cause involves only questions of construction and, therefore, the appeal should be dismissed; that § 3224, Rev. Stats., prohibits the relief prayed; that the bill states no ground for equitable relief; and that full, adequate and complete remedy may be had at law.
The cause is properly here by direct appeal from the District Court. Appéllant claimed that as construed and sought to be enforced by the Collector, § 35 of the Prohibition Act conflicts with the Federal Constitution. The point is substantial and sufficient to support our jurisdiction. Towne v. Eisner, 245 U. S. 418, 425; Dahnke-Walker Milling Co. v. Bondurant, 257 U. S. 282; South Covington & Cincinnati Street Ry. Co. v. Newport ante, 97.
The National Prohibition Act, c. 85, 41 Stat. 305, is entitled "An Act To prohibit intoxicating beverages, and to regulate the manufacture, production, use, and sale of high-proof spirits for other than beverage purposes, and to insure an ample supply of alcohol and promote its use in scientific research and in the development of fuel, dye, and other lawful industries." " It is a comprehensive statute intended to prevent the manufacture and sale of intoxicating liquors for beverage purposes." United States v. Yuginovich, 256 U. S. 450. " Title II — Prohibition of Intoxicating Beverages" — contains thirty-nine sections.
" Sec. 3. No person shall on or after the date when the eighteenth amendment to the Constitution of the United States goes into effect, manufacture, sell, barter, transport, import, export, deliver, furnish or possess any intoxicating liquor except as authorized in this Act, and all the provisions of this Act shall be liberally construed to the end that the use of intoxicating liquor as a beverage may be prevented.
*
" Sec. 29. Any person who manufactures or sells liquor in viplation of this title shall for a first offense be fined not more than $1,000, or imprisoned not exceeding six months, and for a second or subsequent offense shall be. fined not less than $200 nor more than $2,000 and be imprisoned not less than one month nor more than five years.

" Sec. 35. All provisions of law that are inconsistent with this Act are repealed only to the extent of such inconsistency and the regulations herein provided for the manufacture or traffic in intoxicating liquor shall be construed as in addition to existing laws.' This Act shall not relieve anyone from paying any taxes or other charges imposed upon the manufacture or traffic in such liquor. No liquor revenue stamps or tax receipts for any illegal manufacturé or sale shall be issued in advance, but upon evidence of such illegal manufacture or sale a tax shall be assessed against, and collected from, the person responsible for such illegal manufacture or sale in double the amount now provided by law, with an additional penalty of $500 on retail dealers and $1,000 on manufacturers. The payment of such tax or penalty shall give no right to engage in the manufacture or sale of such liquor, or relieve anyone from criminal liability, nor shall this Act relieve any person from any liability, civil or criminal, heretofore or hereafter incurred under existing laws.
" The commissioner, with the approval of the Secretary of the Treasury, may compromise any civil cause arising under this title before bringing action in court; and with the approval of the Attorney General he may compromise any such cause after action thereon has been commenced."
The mere use of the word " tax " in an act primarily designed to define and suppress crime is not enough to show that within the true intendment of the term a tax was laid. Child Labor Tax Case, ante, 20. When by its very nature the imposition is a penalty, it must be so regarded. Helwig v. United States, 188 U. S. 605, 613. Evidence of crime (§ 29) is essential to assessment under § 35. It lacks all the ordinary characteristics of a tax, whose primary function " is to provide for the support of the government " and clearly involves the idea of punishment for infraction of the law — the definite function of a penalty. O'Sullivan v. Felix, 233 U. S. 318, 324.
The Collector demanded payment of a penalty and § 3224, which prohibits suits to restrain assessment or collection of any tax, is without application. And the same is true as to statutes granting the right to sue for taxes paid under protest. A revenue officer without notice has undertaken to assess a penalty for an alleged criminal act and threatens to enforce payment by seizure and sale of property without opportunity for a hearing of any kind.
Section 35 prescribes no definite mode for enforcing, the imposition which it directs, and, if it be interpreted as above stated, we do not understand counsel for the United States claim that relief should be denied to the appellant. Before collection of taxes levied by statutes enacted in plain pursuance of the taxing power can be enforced, the taxpayer must be given fair opportunity for hearing— this is essential to due process of law. Central of Georgia Ry. Co. v. Wright, 207 U. S. 127, 136, 138, 142. And' certainly we cannot conclude, in the absence of language admitting of no other construction, that Congress intended that penalties for crime should be enforced through the secret findings and summary action of executive officers. The guarantees of due process of law and trial by jury are not to be forgotten or disregarded. See Fontenot v. Accardo, 278 Fed. 871. A preliminary injunction should have been granted.
The decree of the court below must be reversed and the cause remanded for further proceedings in conformity with this opinion.
Reversed.
Sec. 3244. Special taxes are imposed as follows:
*
Fourth. Retail dealers in liquors shall pay twenty-five dollars. Every person who sells, or offers for sale foreign or domestic distilled spirits or wines, in less quantities than five wine gallons at the same time, shall be regarded as a retail dealer in, liquors.
Sec. 3224. No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.