229 F. 902 | 3rd Cir. | 1916
The plaintiffs in these cases are pub-lie utility corporations organized under the laws of the State of New Jersey. They are lessors and lessees of the property of such corporations. The defendants were Collectors of Internal Revenue for the United States in the First and Fifth Districts of New Jersey respectively.
This litigation, including seventeen cases, numbered in this court 2011 to 2027 inclusive, grew out of the collection of taxes for the years 1909, 1910, 1911 and 1912, assessed against the lessor plaintiffs under section 38 of the Act of Congress, approved August 5, 1909 (36 Stat. 112, U. S. Comp. Stat. 1913, §§ 6300-6307), being a portion of the tariff act of that year and commonly called the Corporation Tax Law. The tax under this law is imposed upon the privilege of carrying on or doing business in a corporate capacity. The lessor plaintiffs contend that they were not subject to the tax, because prior to the year 1909 they had leased their property and franchises to the lessee plaintiffs, and had not been engaged in business within the meaning of the act since the leases were made.
The taxes were paid under protest, and after claims for their refund had been made and rejected, these suits were brought to recover the amounts paid. The lessees were joined with their respective lessors
There are two questions involved in these cases; (1) Were the lessor plaintiffs engaged in business within the meaning of the act, and therefore subject to the tax; and (2) Is recovery of the amounts paid for the years 1909 and 1910 barred by the federal statute of limitations, being sections 3220, 3226, 3227 and 3228 of the Revised Statutes of the United States? These two issues are raised in the respective cases by appropriate pleadings. The facts are established by a special verdict in each case. (D. C.) 219 Fed. 301; (D. C.) 227 Fed. 486; (D. C.) 227 Fed. 490; (D. C.) 227 Fed. 491 ; (D. C.) 227 Fed. 494.
In order to avoid confusion from the multiplicity of parties, the cases will be considered by their numbers rather than by their titles. In cases Nos. 2017, 2018, ¿021 and 2023, the first question alone is involved. In Nos. 2011, 2012, 2019, 2025, 2026 and 2027, only the second question is involved. In the remaining cases, Nos. 2013, 2014, 2015, 2016, 2020, 2022 and 2024, both questions are raised upon writs of error taken by one party or the other, that is, in this group of cases, the defendants allege that the lessor plaintiffs were engaged in business taxable under the act during the years 1909 to 1912 inclusive, and that recovery of payments for the years 1909 and 1910 is barred by the statute of limitations. Excepting in Nos. 2013 and 2020, the court gave judgment to the defendants in these cases for all payments made in the four years. The finding of the court in Nos. 2013 and 2020, that the lessor corporations were not doing business within the meaning of the act, is challenged by the defendant’s writs of error.
The first question, whether the lessor corporations were doing business in a manner to make them liable to the corporation tax, liad its rise in leases made between the different groups of lessor and lessee plaintiffs. These leases were similar in form to those commonly entered into by utility corporations when one surrenders to another for a long term its property and franchises, and reserves to itself only its non-delegable powers or franchises, which, under covenants, it undertakes to exercise for the benefit of the lessee.
The acts performed by the lessor corporations under their reserved powers, other than the maintenance of their corporate existence, as they appear in the special verdicts, were done in pursuance of the terms of leases, made before the enactment of the Corporation Tax Raw, and were performed at the direction of the lessee corporations. They may be summarized as follows:
In No. 2013, the lessor (1) authorized the voting of the stock of another company owned by it in favor of a proposed lease by that company ; (2) authorized the voting of stock in another company for the election of directors; (3) extended pipe lines for the use of the lessee under the terms of the lease.
In No. 2017 (227 Fed. 486), the lessor (1) sold certain stocks and bonds, and directed its trustee under a mortgage to pay the proceeds to the lessee; (2) applied to the Board of Public Utility Commissioners for leave to issue bonds to repay lessee for improvements; (3) direct
In No. 2018, the lessor (1) issued bonds to pay the lessee for expenditures made on the demised property; (2) rectified a mistake respecting the deposit of certain shares of stock; .(3) authorized the cancellation of an option.
In No. 2020, the lessee (1) maintained its corporate organization; (2) received and distributed rents.
In No. 2021 (227 Fed. 490), the lessor (1) authorized the purchase of property; (2) applied for a franchise to lay tracks; (3) renewed leases; (4). called for the return of old certificates of stock of merged! companies for cancellation.
In No. 2023, the lessor (1) requested the trustee of a mortgage of underlying property to deliver bonds for cancellation; (2) delivered for cancellation bonds that had been paid; (3) delivered its own bonds for certain shares of-stock under a consolidation antedating the lease.
In No. 2015 (227 Fed. 494), the lessor (1) provided for an issue of bonds to refund maturing bonds; (2) conveyed certain real estate covered by the lease; (3) petitioned for and accepted an ordinance for additional railway tracks.
In No. 2016, the lessor performed the same three acts as in No. 2015.
In No. 2022 and No. 2024, tire lessor’s acts were similar to those done in one or several of the preceding cases.
In No. 2014 (227 Fed. 491), the lessor, under its corporate powers to engage in the business of leasing property, leased all its property and franchises to the Public Service Corporation of New Jersey.
These several corporate activities (excepting those in Nos. 2013 and 2020), were held by the trial court to constitute doing business within the meaning of the Corporation Tax Law. This law provides:
“That every corporation * * * organized for profit * * * and engaged m business in any state * * shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation. * * * ” Comp. St. 1913, § 6300.
It has been repeatedly held by the Supreme Court of the United States, Anderson v. The Forty-Two Broadway Co., 239 U. S. 69, 36 Sup. Ct. 17, 60 L. Ed.-; Stratton’s Independence v. Howbert, 231 U. S. 399, 414, 34 Sup. Ct. 136, 58 L. Ed. 285; McCoach v. Mine-hill Ry. Co., 228 U. S. 295, 306, 33 Sup. Ct. 419, 57 L. Ed. 842, that the tax thus imposed is not an income tax, but is an exise upon the conduct of business in a corporate capacity. The character of corporate business intended to be taxed is described by the law only by the general expression “carrying on or doing business.” From the beginning, therefore, the courts have been called upon to construe the law and to determine what corporate acts constitute doing business within its meaning.
It was recognized at once that certain corporate acts concern only the maintenance of corporate existence, and have no relation to the conduct of the business for which a corporation is organized, while others are done and performed solely in furtherance of that business
“The question is rather what the corporation is doing than what it could do.”
Under its powers, this corporation could have engaged in the business of building and leasing power plants, and in tire prosecution of that business would have been subject to taxation under the Corporation Tax Raw. What it did was to divest itself by lease of its entire corporate property and corporate powers, except its power to exist, just as the other lessor corporations did under appropriate powers. What it was doing when the taxes in dispute were assessed against it, was the maintenance of its corporate entity and the collection and distribution of rents received for its demised property.
We are of opinion that the trial court erred in holding in this and other cases, that the lessor plaintiffs were doing business within the meaning of the act, and were therefore subject to the corporation tax, but that it did not err in holding in Nos. 2013 and 2020, that the lessor plaintiffs were not doing business within the meaning of the act.
The second question in these cases, whether recovery of the amounts paid for the years 1909 and 1910 is barred by the federal statute of limitations, depends upon the nature of the actions and tire character in which the defendants are sued. 219 Fed. 301.
In the cases grouped in the beginning of this opinion, in which the second question appears, the plaintiffs sought to recover for taxes paid for the years 1909 and 1910, as well as in some of the cases for
The statutes limiting the period within which the government subjects itself to the judgments of the courts for the recovery of revenues erroneously or illegally collected, are these:
The Corporation Tax Raw of 1909 (section 38) provides:
“That all laws relating tp the collection, remission, and refund of Internal revenue taxes, so far as applicable to and not Inconsistent with the provisions of this section, are hereby extended and made applicable to the tax Imposed by this section.” Comp. St. 1913, § 6307.
The particular statutes contemplated are sections 3220, 3226, 3227 and 3228 of the Revised Statutes of the United States, the provisions of which, in so far as they affect the issues of these cases, are as follows :
“Sec. 3220. The Commissioner of Internal Revenue * * * is authorized, on appeal to him made, to remit, refund, and pay back all taxes erroneously or illegally assessed or collected.”
"Sec. 3226. No suit shall be maintained in any court for the recovery of any internal tax alleged to have been erroneously or illegally assessed or collected * * until appeal shall have been duly made to the commissioner oi internal revenue * * and a decision of the commissioner has been had therein.
“Sec. 3227. No suit or proceeding for the recovery of any internal tax alleged to have been erroneously or illegally assessed or collected * * * shall be maintained in any court, unless the same Is brought within two years next after the cause of action accrued.
"Sec. 3228. All claims for the refunding of any internal tax alleged to have been erroneously or illegally assessed or collected * * * must be presented to the commissioner of internal revenue within two years next after the cause of action accrued.” Comp. St. 1913, §§ 5944, 5949-5951.
The plaintiffs maintain that they are not subject to the two year limitation of these statutes, for the reason that they have not pursued the remedy prescribed by the statutes, but have followed another remedy afforded by law. In other words, they claim that they have not sued the collectors in their official capacity under a federal law which limits their right of action to two years, but have sued the collectors in their personal or individual capacity under a state law, which extends their right of action to four years.
This distinction is based upon the contention, that in collecting taxes from corporations for the privilege of doing business when in fact they were not doing business within the meaning of the act, the defendant collectors acted without warrant of law and committed torts for which they are personally liable. This contention is based, first, upon the legal proposition that a public official who attempts to enforce an unconstitutional act of Congress or of a State legislature, and thereby invades personal or property rights, is liable personally
Opposed to these contentions the defendants maintain, that the remedy provided .by the statute for the recovery of taxes erroneously or illegally collected, is an exclusive remedy and no other can be substituted for it. Snyder v. Marks, 109 U. S. 189, 193, 3 Sup. Ct. 157, 27 L. Ed. 901; De Bary v. Dunne (C. C.) 162 Fed. 961; Cheatham v. United States, 92 U. S. 85, 88, 89, 23 L. Ed. 561. Therefore, if the defendants are sued officially, the plaintiffs are limited by the federal two year statute of limitation, and if sued personally, they are-without right to recover at all.
Similar- complaints, mutatis mutandis, were filed in the seventeen-cases. One of the complaints, with matters unimportant to the present consideration omitted, is excerpted in the margin.
“A suit cannot be maintained against a collector of internal revenue to recover back taxes alleged to have been illegally exacted, when the tax payer has failed within two years next after the cause of action accrued to present to the Commissioner of Internal Revenue his claim for the refunding in the manner pointed out by law.”
In speaking for the court, Mr. Justice Woods said:
“In our opinion no suit can be maintained for taxes illegally collected unless a claim therefor has been made within the time prescribed by the law. When the law says the claim must be presented within two years, the implication is that, unless so presented, the right to demand the repayment of the tax is lost, and the Commissioner has no authority to refund it, and, of course, the right of suit is gone. We regard the presentation of the claims to the Commissioner of Internal Revenue for the refunding of a tax alleged to have been illegally exacted as a condition on which alone the Government consents to litigate the lawfulness of the original tax. It is clearly not the intent of the statute to allow the collector to be sued -unless the taxpayer has first applied for relief to the Commissioner within the time and in the manner pointed out by law and relief has been denied him. Cheatham v. United States, 92 U. S. 85 [23 L. Ed. 561]; Railroad Co. v. United States, 101 U. S. 543 [25 L. Ed. 1068]; Arnson v. Murphy, 115 U. S. 579 [6 Sup. Ct. 185, 29 L. Ed. 491].”
We are of opinion.that the learned trial judge committed no error in ruling in the cases in which the question arose that recovery by the plaintiffs for the taxes paid for the years 1909 and 1910 is barred by the federal statute of limitations.
In Nos. 2017, 2018, 2021 and 2023, the judgments of the court below are reversed. In Nos. 2011, 2012, 2013, 2019, 2020, 2025, 2026 and 2027, the judgfnents below are affirmed. In Nos. 2014, 2015, 2016, 2022 and 2024, the judgments below are reversed, and new trials are directed in conformity with this opinion.
McPHERSON, Circuit Judge, did not participate in the consideration and decision of these cases.
No. 2011.
Plaintiffs, Public Service Railway Company and Consolidated Traction Company, corporations and bodies politic of the State of New Jersey, say:
“1. Consolidated Traction Company * * * leased all of its property and franchises, except its franchises to be a corporation, to the North Jersey-
“2. By virtue of a merger and consolidation agreement, Public Service Railway Company was formed by said North Jersey Street Railway Company and others, and thereby all of the said leasehold property became vested in Public Service Railway Company.
“3. Defendant was * * Collector of Internal Revenue for the United Si,ates in Vie Fifth District of Wew Jersey * * * and as such duly commissioned under the laws of the United States.
“4. The Commissioner of Internal Revenue of the United States, claiming to act under and by virtue of the provisions of an act of Congress, approved August 5, 1909, assessed a special excise tax against the plaintiff Consolidated Traction Company, for excise taxes for the year ending December 81, 1909, for the sum of $6,225, and that notwithstanding the fact that under and by virtue of the aforesaid lease, said company was not doing business within the meaning of the said act, nor could it do the same, hut was simply maintaining' its corporate existence and collecting and distributing to its stockholders the rental paid to it under said lease, and said plaintiff, the said Consolidated Traction Company, was not liable under Vie law for the payment of said taxes. Nevertheless, the said defendant required and compelled the payment of said sum of $6,225, in spite of the protests of the plaintiffs, and thereby the plaintiffs, Public Service Railway Company, as lessee in possession and operation of said leasehold property under the terms of said lease (which required it to pay all taxes against said Consolidated Traction Company or the leasehold estate) was thereupon wrongfully, illegally and improperly compelled by the defendant to pay the said sum of $0,225, which sum the plaintiff Public Service Railway Company, under protest that said company was not lawfully liable for said taxes, did pay on June 10, 1910, to the said defendant.
“5. (A claim with similar averments covering taxes assessed for the year ending December 31, 1910, and collected and paid on June 29, 1911.)
“6. Plaintiffs made claim for a refund of the said several sums so paid to the said defendant as aforesaid to the Commissioner of Internal Revenue, on the ground that the same were severally illegally, improperly and wrongfully assessed and collected, by several applications m writing, which applications are now on file with the Commissioner of Internal Revenue and to which plaintiffs pray leave to refer, which claim was refused by said Commissioner of Internal Revenue on November 18, 1913; whereby on that date an action accrued therefor to the plaintiffs.
“7. By reason of said payments * * * Public Service Railway Company demands as damages, the sums so paid as aforesaid.”