207 F. 419 | D. Colo. | 1912
The limitations upon the time of the court have precluded the filing of a formal opinion upon this matter, which the court recognizes to be one of great importance. At the same time the latter consideration leads the court to the view that it would not be doing full justice to all concerned, especially in view of the very thorough argument, were it not at least to indicate the grounds upon which the conclusions presently to be announced are reached.
The case is presented to the court and to the jury upon a stipulation as to the facts. The stipulation concludes with an argument that three questions of law result from the record. The second question was waived upon the argument by counsel for the government; the third question, while not waived by counsel for the plaintiff, was not argued and is not considered to be for decision.
“Is the value of the ore in place that was extracted from the raining property of the plaintiff during the years in question projiei-ly allowable as depreciation in estimating the net income of the plaintiff subject to taxation under the Act of Congress of August 5, 1909, 36 Statutes, chapter 0, pp. 11, 112-117 (U. S. Comp. St. Supp. 1911, p. 946)?”
The determination of this question involves three matters: First, the meaning of “net income” as used in this statute; second, the meaning of “a reasonable allowance for depreciation of property,”- as therein used; and, third, a determination of whether the contention of the government is met by any constitutional limitations.
As to what is meant by the words “net income,” the relevancy of this results, of course, from the fact that the statute imposes an excise tax of one per cent, on such net income. Does “net income” as thus used contemplate an allowance in favor of the company for ore in place extracted from the property, or is it to be determined without such allowance? According to ordinary understanding it is undoubtedly true that in the operation of such corporations the ore extracted is not deemed an elerpent to be reckoned with in determining the net income. In popular sense the net income of mining properties is the proceeds of what is extracted, after deducting the cost of extraction and treatment, and the cost of administering the company which may be conducting the operations, and finally after a reasonable reservation for contingencies. This is true not only as a matter of general understanding, but has been held uniformly by the courts to be a proper rule in determining whether or not a dividend is declarable by such companies. The doctrine as deduced from People v. Roberts, 156 N. Y. 585, 51 N. E. 293, Morawetz on Private Corporations, § 442, and other authorities, is that the net income of a mining property for the purposes of dividends does not take into account so-called waste of the property by reason of the extraction of ore in place, but that such is to be determined by a computation of the proceeds of the company, after a deduction for operation, expenses of -the company, and such reasonable contingencies as may in the light of experience be ex
If. therefore, the net income is not affected for the purposes of dividends by the amount of ore extracted, neither should it be affected by that circumstance for the purpose of an excise tax. We conclude therefore that the words “net income” do not carry with them any contemplation of law that there shall be such a deduction as plaintiffs here claim.
The ordinary definition of “depreciation” is the lessening of value. As applied to mining properties, the word carries with it, as in the case of any other business, the idea of deterioration in visible improve-
It only remains to determine whether the effect of this would be to lead to constitutional barriers, and thus either to demonstrate that Congress could not have meant what the government here contends, or, second, that if Congress did mean this, it was attempting to do that which is contrary to the supreme law of the land.
The court says, on page 165 of 220 U. S., page 354 of 31 Sup. Ct. (55 L. Ed. 389, Ann. Cas. 1912B, 1312):
“Tlie measure of taxation being the Income of tlie corporation from all sources, as tliat is but tlie measure of a privilege tax witliin the lawful authority of Congress to impose, it is no valid objection that this measure includes, in part at least, property which as such coulcl not be directly taxed.”
This case reviews the prior cases, including Society for Savings v. Coite, 6 Wall. 594, 18 L. Ed. 897, and demonstrates that this is a rule which the Supreme Court of the United States has consistently adhered to. It follows, therefore, that this last question must likewise be resolved against the complainant and that a verdict must go accordingly.
The effect o f this rule is, of course, simply to eliminate any element of the complaint as a basis for recovery which rests upon this contention of law. However, the court is advised by counsel from the argument that there are certain items in the complaint which, independent of this, are due from the government—some matters connected with taxes and the like—and if counsel have agreed, as they intimated they would, upon this amount, the court will hand the jury a verdict finding in favor of the plaintiff for such sum confessedly due.