OJnntPll ilatu ^riynnl Slibrary Cornell University Library KF 6300.A32B45 Bender's federal revenue law, 1916: the R 3 1924 020 019 349 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924020019349 JBENDER'S Federal Revenue Law 1916 THE REVENUE ACT OF SEPTEMBER 8. 1916 WITH NOTES AND COMMENTARIES ALSO j FEDERAL TAXATION IN GENERAL BY THE PUBLISHER'S EDITORIAL STAFF ALBANY. N.Y. MATTHEW BENDER & COMPANY INCORPORATED 1917 Copyright, 1917 By Matthew Bender & Company Incorporated PREFACE. Wars and rumors of wars teach govemmentg new tricks of taxation. The word, trick, is not unworthy. Taxation has been defined as " the art of so plucking the goose as to secure the largest amount of feathers with the least amount of squawking. ' ' ^ Any nation- wide excitement facilitatesi the imposition of new burdens. Jingo is a great captain of the forces of revenue and expenditure. Public opinion, or sen- timent, wise or otherwise, is powerful upon public men. " In imposing a tax, the Legislature acts upon its constituents. This is, in general, a sufficient secur- ity against erroneons and oppressive taxation." Marshall, 'Ch.J., in McCuUoch v. Maryland, infra. Whenever there is a real or pretended need of money, ways and means must and will be found. Sovereignty, especially popular sovereignty, owns no limitations. We have Federal and State sovereignty, and in ordi- nary times the former has not often nor long used its taxing power to any great extent. General tendencies of centralization and special' temporary needs are now again awakening both the people and the government to a sense of things not formerly established in the national habits. ^ Colbert (1619-1683), Louis XIV's Finance Comptroller, a really great statesman who, when he died, had to be buried at night, for fear of outrages by vindictive ' ' geese. ' ' iv Peepace. Our national government was long a relatively inex- pensive affair. It paid its way by selling public lands, collecting low duties on imports, and raising an internal revenue on a few articles which were com- monly supposed to require a sort of police regulation.. But " the simple life " of the nation is a thing of the past. The Federal government is rapidly assuming functions long felt to belong to the States, besides other functions long thought not to be governmental at all. Greater public works are demanding immense sums. The wars of other nations are not only disturb- ing the normal commercial arrangements upon which our taxes were formerly based, but are inciting us to expensive measures of " preparedness " for possible wars of our own.^ The States not only will not, even where they could, relieve the Nation of these new burdens, but are increasingly shifting the burdens upon the Union. So there is nothing left for it, but that the Federal government should raise the needed money by its own taxation. A democratic republic wants what it wants when it wants it; and it will have to pay. We cannot dig a Panama canal, and build an Alaskan railway, and irrigate deserts, and enlarge the military and naval establishments, and dredge channels, and improve highways, and buy islands, and attempt the ^ ' ' The necessity for this legislation grows out of the extraor- dinary appropriations for the Army and Navy and the fortification of our country." Report, House Committee on Ways and Means, July 5, 1916. Report No. 922. 64th Congress. The opposition minority denied this, and charged the majority with unwarranted extravagance. Peeface. V carrying out of far-reaching plans of economic and social readjustment, without increasing the Federal taxation. Bonds are a very present help in time of trouble, but, after all, they are only charge accounts which must some day be paid by taxation. It will help to a "clearer understanding of this new Revenue Act, to observe and recognize that there is a distinct tendency to a change of Federal fiscal policy. (See General Introduction, post.) With the growth of modem industry, and partly out of the fiscal con- fusion (not to say financial and political demoraliza- tion) resulting from the immense cost of our Civil War, the country came to regard indirect taxation as the established basis of our whole system. Even such excise and consumption taxes as were availed of in the Internal Revenue System were confined to a few articles not universally recognized as necessaries, and they affected the people quite as indirectly as import duties. Other times have brought other ideas. National leaders have, at least temporarily, come to power who deny the wisdom of indirect tax'ation, and proclaim the moral and economic superiority of taxes paid with open eyes. They go further and say that they have ' ' reduced taxation at the custom house deliberately for the purpose of making room in our fiscal system for a tax on wealth." Mr. Underwood in the Senate. Cong. Rec. Vol. 53, p. 455. See also his speech, Cong. Rec Aug. 24, 1916, p. 15306. "We should give fuller recognition of the doctrine that the burdens of taxation should so far as possible be lifted vi Pkeface. from the backs of the poor, and that the wealth of the country should pay the greater part of the expenses of Government." Mr. Huddleston, of Alabama, in the House. Oong. Rec. Jan'y 4, 1916, p. 537. It is thus the avowed policy of the administration which enacted the present revenue measure to use the taxing power in ways to accomplish, if may be, economic and social purposes regarded by them as more conducive to the general welfare than the long operative high protec- tive tariff. It remains to be seen how the American fiscal policies wiU permanently be affected by the Great War and the restrictive legislation which may follow it in Europe. The Union may tax almost anything it pleases, quite as much as it pleases. Expediency is practically the only test. (1869) Veazie Bank v. Fenno, 8 Wall. 533, and other cases, post. Eeduction of taxation is less easy than increase. Habits of extravagance are hard to break. The sweep of progress in a land of rich resources cannot readily be stayed. The mechanism of taxation will increasingly be used to effect purposes hardly, or but indirectly, related to revenue. Nor is this mere, demagoguery. Eminent economists have followers among influential statesmen in justifying such collateral uses of the taxing power. Whichever political party controls, we are going to have and keep Federal taxes such as former generations have not known; and the enactment of the revenue legislation of 1916 affords a fitting occasion for reviewing the whole subject of Federal taxation. Pbeface. vii The present book endeavors to explain, in needed detail, the provisions of the new Act, and also to set forth, in proper relation, though necessarily in a more general manner, the main facts of the entire scheme of national taxation, whereof the Act of 1916 repre- sents or involves several detached aspects. In the very nature of the case, such a book may not purport to be exhaustive, and must be a manual rather than a treatise. TABLE OF CONTENTS PAGE Title page i Preface iii Table of contents ix General introduction 1 Act of September 8, 1916 13, 21 Tit. I. Introduction to income tax 13 Text of Title I, with notes 21 Tit. II. Introduction to estate tax 97 Text of Title II, with notes 103 Tit. in. Munitions tax, text of Title III, with notes 121 Tit. IV. Miscellaneous taxes 135 Beer 135, 158 Wines and cordials 136 Special taxes, in general 160, 163 Corporations 160, 169 Brokers 174 Pawnbrokers 178 Ship brokers 179 Customhouse brokers 181 Theatres 182 Circuses 184 Exhibitions and shows 185 Bowling and billiards 186 Tobacco and cigars 189 Tit. V. DyestufEs, text of title 200 Notes on Title V 204 Tit. VI. Printing paper, text of title 207 Notes on Title VI 208 Tit. VII. Tariff commission, text of title 210 Notes on Title VXI 217 Tit. Vin. Unfair competition, text of Title Vin, with notes 221 Tit. IX. Taking effect; amendment of appropriation for soldiers' families, text and notes 235 Table of Contents. PAGE Other law relevant to Act of September 8, 1916 238 Assessment and collection 239 Penalties 244 Protest and recovery 249 Construction of revenue laws 254 Federal taxation, in general 266 Origin, nature, history and limitations 266 Federal taxes classified 302 Internal revenue 303 Introductory and general 303 Special taxes 307 Rectifiers of spirits 308 Liquor dealers 308 Malt liquor dealers 308 Makers of stills 308 Brewers 308 FUled cheese, makers and dealers 308 Oleomargarine, makers and dealers 308 Adulterated, etc., butter, makers and dealers 308 Mixed flour, makers and dealers 309 Opium producers, importers, dealers 309 Spirits 309 Beer, ale, etc 312 Tcybacco, cigars, etc 314 Opium 320 Oleomargarine 323 Adulterated butter •. . . . 327 Filled cheese 328 Mixed- flour 329 Playing cards 330 White phosphorous matches 331 Bank circulation 331 Income tax, individual and corporate 333 Estate tax 334 Munitions makers 334 Table of internal revenue tax statutes 337 Table op Contents. xi PAGE Federal taxes classified — ConeI'd. Customs revenue 344 In general 344 Sketch of tariff history in United States 351 Tonnage and navigation 361 Jurisdiction : States, territories, islands, etc 366 Tabulation of rates of all taxes 373 Table of eases 381 Index 401 INTRODUCTION. GENERAL AND HISTORICAL, The Federal Government, even more than a State Government, must have a system of revenue which is not only certain but also elastic, to meet the changing needs of a populous country with responsible foreign relations. To find a system both certain and elastic is one of the vital problems of the nation, increasingly so with growing complexities in the national life. The Constitution (Art. I, Sec. viii, 1, 3, 7, 18) gives Con- gress control over commerce, both foreign and inter- state. Through this central power over the former we have, and have alway had, our tariff laws. The central power over internal commerce was early estab- lished by such cases as (1824) Gibbons v. Ogden, 9 Wheaton 1 (the Livingston-Fulton steamboat mon- opoly), and came to its far wider assertion in the Inter- state Commerce Act of February 4, 1887. It may even be that Federal taxation will ultimately follow Fed- eral regulation in this field? ^ Customs taxation has the advantage of relative certainty, but evidently lacks elasticity. For instance, the first express reason given by the present Secretary of the Treasury for demanding new taxes productive of quick returns was that the great war had reduced * A bill was introduced in the 64tli Congress to tax mail-order business as interstate commerce. [1] Intkoduction. the income from import duties. Eeadjustments in such matters are slow. At the time of the War of 1812 an attempt to raise needed emergency funds by increased import duties not only failed but restricted trade almost to extinction. Excise, the other great form of consumption tax, uniform in all the States, affords a more flexible source of national revenue. If the objects of consimiption and privilege taxes are wisely chosen, they are, in normal times, fairly certain; and they evidently are better adapted than customs duties for providing quick emergency increases of public funds.- From small beginnings, stigmatized by Jefferson as " infernal taxes " and long practically unused, there came ulti- mately to be developed in the Civil War period a huge and elaborate scheme of Internal Revenue which pro- duced twice as much as the tariff. A part of this survived, though hardly more than the framework of the system; and it was promptly availed of in 1898, when the Spanish War tax was imposed. Act June 13, 1898. Now, under the constraint of a European con- flict and its incidental effects, the Government again turns to " the gun behind the door." As was said by Mr. Chase, Secretary of the Treasury in 1863, " the chief reliance for any substantial increase, and even for the prevention of any possible decrease, must be on internal duties." These two instrumentalities, import duties and interi^al revenue, with a somewhat substantial earlier addition from the sale of public lands, have, save in Introduction. great crises, sufficed as sources of national income. Direct taxes, though, available under the express terms of the Constitution, have been little used. Though certain, they involve tedious difficulties of administra- tion, are too slow in responding to emergency needs, and partake of inequality as among the people of States of differing degrees of prosperity. They are in the nature of mere requisitions; and it was the experience, not only in the pre-constitutional Confed- eration, but of the Federal Union in 1798 (1 Stat. 597), 1813 (3 Stat. 33), 1815 (3 Stat. 164), March 5, 1816 (3 Stat. 255), and 1861 (12 Stat. 294), that they were unsatisfactory. (1796) Hylton v. U. S., 3 Dallas 171. The question of direct taxes has retained its great- est importance in connection with the Income Tax Cases. (1894) Pollock v. Farmers' L. & T., 157 U. S. 429; 158 U. S. 601; 39 L. ed. 759, 1108. Traditions grow as naturally as Topsy. Until the time of these cases it was almost a part of the general consciousness that direct taxes, under the Constitution, meant what early judges had intimated and early lawmakers had assumed, to-wit, poll and land taxes. But the old dicta, on re-examination, were rejected, and the tradi- tion regarding direct taxes was discredited. Yet, though courts might, by new rulings, force changes of method in taxation, the necessity for taxes and the sovereignty of the people still existed; and it was again shown that the mere name of a tax is not of paramount importance. If the people might not tax their incomes under the Constitution, as judicially Inteoduction. interpreted, they could and did change the Constitu- tion, so we have the Sixteenth Amendment. See Title I, Income Tax. All other advanced nations have preceded America into new fields of taxation. We have always had immense resonrces; we long had a relatively inex- pensive government; even our later expanded needs and extravagance and wastefulness were not sufficient to force us to adopt a reasoned permanent policy of taxation. Now, however, we face and must meet a new situation. As we derived our legal system and more than we usually acknowledge of our political institu- tions from the old world, so it is natural that American economists and legislators should look to Europe for methods of taxation. After all, human nature is not so different in different countries. Income and inheritance taxes are familiar revenue measures in the countries now at war. They have been used here in times of crises. Our States have not only tried them, especially inheritance taxes, but have presumed to warn the Federal Government to let them alone. See Tit. I, Income Tax and Tit. II, Estate Tax. Yet experience has shown that, by rea- son of our multiplicity of sovereignties and the amaz- ing mobility of modern population and property, it is perhaps only in the major control of the central gov- ernment that such taxing instrumentalities can most advantageously be wielded. Moreover, the immense Tise, and the tendency to abuse, of great corporate schemes, and the increasing assertion of Federal con- trol or regulation of interstate commerce are elements Inteodtjction. 5 in a new situation out of which a new fiscal policy is certain to arise. We shall rely relatively less than heretofore on customs duties, and this, quite apart from any merely political policy regarding protection. We shall develop a permanent system of taxation on corporate and indi- vidual income and on inheritances. We shall retain some of the well tried excises; and, keeping the well developed Internal Revenue administrative system as an always available expedient, we shall from time to time' in crises extend or, contract its reach, and also alter the rates on incomes and estates. A rational national budget, long felt to be needed, will doubtless be adopted to steady the whole structure. There is not much going backward in such matters, and the indi- cated tendency will not be substantially diverted even if the policy of protective tariff again prevails. While, therefore, the present Act is in a sense politi- cally opportunistic, and is thought by many to be a partisan expedient, it nevertheless confirms in a distinct manner a recent tendency towards a new permanent policy in Federal taxation. It would be inappropriate to 1-egar.d all the later Federal tax laws as mere makeshift legislation, or even as purely tem- porary measures to meet war emergencies, as was, e. g., the Spanish War Tax of 1898, or as the Emer- gency Revenue Act of 1914 originally purported to be. Nor does the inclusion in the present Act of minor features directly connected with the present war vitiate this opinion. We are still a long way from the happy Introduction. land where fiscal legislation is to be free from politics and truly scientific. In the present insta-nce there was much petty bickering in Congress and before the com- mittees. Concessions were made on geographic and other questioned considerations. The Executive, in bringing the fiscal crisis to the attention of Congress, proposed taxes which were hardly considered seriously by that body. Various schemes were tentatively adopted, only to be modified or rejected in the process of law-making. Bond issues were urged as a means of postponing the tax increase. Money had to be raised, and compromise was necessary. But Congress steadily refused to abandon the new general policy of freer trade and taxes on income and inheritance. Partisan political capital is naturally, perhaps fairly, sought to be made out of the increased duties imposed on certain dyestuffs, and out of the provision for a Tariff Commission ; but the debates and the votes indi- cate no purpose to return to high protection. The change has rather been to shift taxation from things to faculty, and to replace direct consumption taxes by taxes on income and inheritance. " No civilized nation collects as large a part of its revenue through con- sumption taxes as does the United States, and it is conceded by all that such taxes bear most heavily upon those least able to pay them. ... It is, therefore, deemed proper that, in meeting the extraordinary expenditures for the Army and Navy, our revenue system should be more evenly and equitably balanced, and a larger portion of our necessary revenues ool- Introduction. lected from the incomes and inheritances of those deriving the most benefit and protection from the Grovernment. " Eeport of House "Ways and Means Committee, July 5, 1916. Report No. 922, 64th Con- gress. The primary purpose of this book is to give and annotate the Revenue Act of September 8, 1916. As, however, it also offers a general statement regarding the entire scheme of Federal taxation, it would, in some respects, be more logical to begin with the general and follow with the particular. Yet, as already implied, we hardly have an established system of taxation, although the present legislation marks a step in the development of one. It is, therefore, doubtless better not to dislocate the new Act from immediate attention by appending it to what must necessarily be a mere outline treatment of the general subject. This legislation will continue to be spoken of as "War" taxation. As more carefully designated by the courts, the Act of June 13, 1898, was the War Revenue Act, and the Act of Oct. 22, 1914, was the Emergency Revenue Act. The income tax of the present Act, 'Sept. 8, 1916, had its predecessor in the Act of Oct. 3, 1913, Underwood Tariff, which in turn took over the corporation excise tax from the Act of Aug. 5, 1909, Payne-Aldrich Tariff. The Government (Supt. of Documents) published Regulations relative to the Act of Oct. 22, 1914, with synopsis of decisions and rulings under the Act of June 13, 1898; also a comparative print of the two Inteodtjction. Acts. Bender's War Eevenue Law, Act of 1914, covered the entire Emergency Eevenue Law, with anno- tations, and also contained a synoptic sketch of the whole Internal Eevenue System. By Joint Eesolution of December 17, 1915, the Emergency Act of 1914, 38 Stat. 745, was extended for one year, to and including December 31, 1916. The present Act of September 8, 1916, breaks in upon this extension period, at once repeals the stamp taxes, provides for a modified continuance of the special taxes after January 1, 1917, amends numerous laws, and embodies entirely new legislation. See the respec- tive subjects infra. The law of Federal taxation is chiefly either consti- tutional or administrative. In the ordinary case it very rarely happens that a constitutional question can be raised. An administrative officer naturally refuses to consider it; and few minor tribunals ard ready to take such objections seriously. We have not yet developed a true system of administrative law with appropriate special tribunals. Our method(?) is very like arguing criminal law with a policeman. In the end, we obey the law of taxation, as we do other laws ; but we have the privilege, meantime, of talking it over with clerks, and occasionally even with Chiefs, of administrative bureaus. There are, however, certain rules for this game. The Departments, while neces- sarily loyal to the statutes, are more and more being given discretionary power for formulating and enforc- ing regulations. Their rulings, at first often crude and Intbodtjction. tentative, especially in a new matter, gradually become consistent and systematic. Although departmental rulings^ do not bind, nor even always guide, the courts, they are authoritative and cannot be overruled by any other executive officer. They must be complied with before appeal can be had to a court. T. D. 20459, Dec. 22, 1898. Much needless trouble results from futile attempts to avoid a tax which has been imposed and insisted upon by the revenue officers. There are provisions for correction and for refund; and, where it is impracticable to pro- ^ The Department 's rulings, in correspondence with inquirers or collectors, or in special or general circulars, are printed in the periodic publication of Treasury Decisions. To make these rulings, or such of them as continue in force, more accessible and con- venient, the Department from time to time issues general circulars and even fuller compilations. Three volumes of Compilations of Decisions under the Act of 1898 were issued: Vol. I in January, 1899 (Treas. Dept. Document No. 2089, reprint with appendix) ; Vol. II in January, 1900 (Doc. No. 2166, with appendix), and Vol. Ill in January, 1901, covering 1900, and beginning the number- ing again at No. 1. (Doc. No. 2217.) This weekly publication is now well established as the official means of communicating new laws, regulations, decisions and rulings, both as to customs and internal revenue. The compilations include the general circulars and are topically indexed. A new oflScial edition, or a similar circular, will doubt- less be issued by the Treasury Department, covering questions which are sure to arise in applying the present law. These rulings are generally cited, " T. D." (Treasury Decision). A digest by Yerkes, covering internal revenue laws for the earlier period, 1864-1898, was issued in 1906 as Treas. Dept. Doc. No. 2438. This period had been reported in the Internal Revenue Beeord (which was not published after Dec, 1897). 10 Inteoduction. cure, upon courteous application, an acceptable ruling within the penalty time limit, it is better to pay the tax under protest and thereafter apply for refund and, if refused, appeal to the courts. R. S. § 3226. " The idea that every taxpayer is entitled to the delays of litigation is unreason." Swayne, J., in (1880) Springer v. U. S., 102 U. S. 586, 594; 26 L. Ed. 253. "It is a general and just principle of law * * * that, where a taxpayer insists upon relief, he should be required to settle the amount fairly due from him, whether the proper technical steps have been taken or not, before any relief is granted to him." (1900) Robards v. Franks, 103 Fed. Rep. 276, citing (1875) State Railroad Tax Gases, 92 U. S. 575, 23 L. Ed. 663. " No suit for the purpose of restraining the assess- ment or collection of any tax shall be maintained in any court." R. S. 3224. (1870) PuUan v. Kinsinger, 2 Abb. U. S. 94; (1874) U. S. v. Black, 11 Blatehf. U. S. 543, 128 U. S. 40; (1883) Snyder v. Marks, 109 U. S. 189, 27 L. Ed. 901; (1881) U. S. v. Savings Bank, 104 U. S. 728, 26 L. Ed. 908; Allen v. PuUman, 139 U. S. 658; Nye v. Washburn, 125 Fed. Rep. 818. But a sfxjckholder may sue to restrain a corporation from volun- tarily paying a tax charged to be unconstitutional. Such a suit does not violate R. S. 3224. (1894) Pollock v. Tanners' L. & T. Co., 157 U. S. 429; (1916) Brushaber v. U. P. E. R. Co., 240 U. S. 1. See discussion of tax collection post. Collection of a State license tax cannot be stayed by injunction, even if the tax is discriminatory, extor- tionate and illegal. It should be paid and the proper Introduction. 11 remedy sought. (1904) West. Un. Tel. v. Winnsboro, 71 S. C. 231. As to the value and force of administrative rulings, see: (1890) Schell's Executors v. Fauche, 138 U. S. 562, 572, 30 L. Ed. 627 (tariff). "In all cases of ambiguity the contemporaneous construction, not only of the courts, but of the departments, and even of the officials whose duties it is to carry the laws into effect, is universally held to be controlling. ' ' See also (1886) U. S. v. Hill, 120 U. S. 169, 30 L. Ed. 627 (naturalization fees) ; (1901) Fairbank v. U. S., 181 U. S. 283, 308, 45 L. Ed. 862; (1901) McClain v. Penna, etc., Co., 108 Fed. Eep. 618, 620; (1902) McNally v. Field, 119 Fed. Rep. 445, 448; (1904) TJ. S. V. Cole, 134 Fed. Eep. 697; (1903) Wheaton v. Weston & Co., 128 Fed. Eep. 151, 153, where the court ' ' regrets to be obliged to differ with " an attorney-general; (1890) St. Paul, etc., Ey. Co. V. Phelps, 137 U. S. 528, 34 L. Ed. 767 (land grants) ; (1890) Merritt v. Cameron, 137 U. S. 542, 34 L. ed. 772; (1874) Smythe v. Fiske, 23 Wall. 374, 382 (tariff). In an early case the court found the commissioner too ready to rule both ways, and, in determining what the law actually was, gave little weight to such rulings. (1867) Cardinel v. Smith, Deady U. S., 197, 204. See notes on Construction, post. As to whether a " ruling " might estop the govern- ment where, without wrong intent, it has been relied on by a person proceeded against : See (1904) Christie-Street Co. v. U. S., 129 Fed. Rep. 506. See this case cited and quoted elsewhere. And see (1871) Hirsh V. Commonwealth (Va.), 21 Gratt. 785. Department regu- lations may have the force of law; (1895) In re Huttman, 70 12 Inteoduction. Fed. Rep. 699 (divulging facts from license applications) ; (1879) Ex parte Reed, 100 U. S. 13, 25 L. Ed. 538, (navy) ; see (1901) Spreckels v. McClain, 109 Fed. Rep. 76; (1902) 113 Fed. Rep. 244. But not defeat the law; (1877) U. S. v. 200 Barrels, 95 U. S. 571, 24 L. Ed. 491; (1882) Campbell v. U. S., 107 U. S. 407, 410, 27 L. Ed. 592 (exporter's drawback); (1891) U. S. v. Eaton, 144 U. S. 677, 686, 36 L. Ed. 591 (oleomargarine) ; (1912) Marks v. U. S., 196 Fed. Rep. 476, 479. (opium case: "The treasury department cannot repeal an Act of Congress "); see (1886) U. S. V. Symonds, 120 U. S. 46, 30 L. Ed. 557 (navy); (1896) In re Kollock, 165 U. S. 526, 41 L. Ed. 813 (oleomargarine). The secretary of the treasury has the power to make regula- tions (R. S. § 161), and a regulation is a proper one which for- bids a collector to produce official records (distillers' reports) in a State court. (1900) Boske v. Comingore, 177 U. S. 459, affirm- ing (1899) 96 Fed. Rep. 552; (1903) In re Lamberton, 124 Fed. Rep. 446. R. S. § 3204, amended by June 21, 1906, requires the collector to certify certain records to local prosecuting officers^ But cf. Act of 1916, J 14 (b), post. ACT OF SEPTEMBER 8, 1916. TO INCREASE THE REVENUE AND FOR OTHER PURPOSES. TITLE I.— INCOME TAX.» HISTORICAL AND GENERAL. Some form of income tax is imposed in nearly every civilized country. Only English precedents, and few of these, are now of use to us. The British income tax was instituted in 1798, repealed in 1802, and reimposed in 1803. As then applied, it became so burdensome as to generate an ugly spite which caused Parliament, in 1815, to order the destruction of the very papers relat- ing to it. Yet it was later revived and has become a permanent part of the fiscal policy. Taxation is largely at the source. In the early Colonies it was found that the general property tax did not fall sufficiently upon certain occu- pations not connected with the land, and these latter were subjected to a faculty or occupation tax. Later some Coloniesi adopted a nearer approximation to income taxes, though more like licenses. And several States followed this practice. See under Special ^ The text of the Act of 1916 begins at page 21, post. The Government has issued (procurable through the Superin- tendent of Documents) a pamphlet on income taxes abroad; also a bibliography of works relating to income and inheritance taxation in America and abroad. [13] 14 The Fedebal Revenue Law, 1916. Taxes,. § 407 et seq. Virginia and Massachusetts developed the income tax idea, but the more modern plap of Wisconsin most fully embodies the principles of a true income tax.^ Under stress of civil war needs. Congress enacted a crude income tax provision which was operative in a defective way for about ten years, with much patching to strengthen it, and disappeared in the general reduc- tion of internal taxation. The legislation may be traced through the Acts of Aug. 5, 1861 ; July 1, 1862 March 3, 1863; June 30, 1864; July 4, 1864 (J. B.) March 3, 1865; March 10, 1866 ( J. R.) ; July 13, 1866 March 2, 1867; and July 14, 1870. These tax statutes were held not to offend the Con- stitution as direct taxes, and wfere upheld as excise or privilege taxes. (1868) Pacific Ins. Co. v. Soule, 7 Wall. 433, 19 L. Ed. 95; (1880) Springer v. U. S., 102 U. S. 586, 26 L. Ed. 713. And see (1882) Memphis, etc., R. R. Co. V. U. S., 108 U. S. 228, 27 L. Ed. 713, applying the tax to earnings of a Southern road in war-time as to dividends paid in Confederate notes. When, however, the next attempt was made to use this tax, by its incorporation in the Tariff Act of Aug. 28, 1894, 28 Stat. 509, a vigorous attack was made upon it, on constitutional grounds. The supposedly settled question as to what constituted direct taxation (capitation and land) was again opened for elaborate consideration, and was decided in a way to startle the 2 Hawaii has an Income Tax. Laws of 1901, Act 20, p. 31. Peacock v. Pratt, 121 Ted. Eep. 722. Income Tax. 15 country. (1894) Pollock v. Farmers' L. & T. Co., 157 U. S. 429, 39 L. Ed. 759; 158 U. S. 601, 39 L. Ed. 1108. The famous litigation need not here be discussed in detail. There was a great slaughter of popular obiter dicta. The Court twice heard the case, and was seriously divided in declaring the tax unconstitutional. The opinions and the briefs, of themselves, make up an elaborate treatise on Federal taxation. The Corporation Tax Law embraced in the Tariff Act of Aug. 5, 1909, was not a true income tax, but an excise on corporate business. Politically it was widely regarded as a concession — what Carl Schurz called a lightning rod to prevent popular indignation from striking down extreme protection. It was, moreover, intended not alone to produce needed revenue but as a step towards a closer administrative supervision of corporations. In fact, as amended, it produced a sub- stantial revenue, and it developed into the corporation income tax of 1913. The corporation excise of 1909 was upheld against objections on all the traditional lines, as well as by distinguishing the tax from the discredited income tax of 1894. (1910) Flint v. Stone Tracy Co., 220 U. S. 107, an elaborate test case. (1913) Stratton's Independence v. Howbert, 231 U. S. 399. The Pollock cases stunned the leaders, not only of the party which passed the Act of 1894, but of the opposition as well. There was a general belief that if Congress did not have the power to tax incomes in a practicable manner, the power should be given. There was much political feeling that the court had at 16 The Federal, Revenue Law, 1916. least unnecessarily deprived the Federal Government of a substantial source of revenue. The people there- upon applied an admirably conservative method of ' ' recall ' ', by accepting the decision and removing the Constitutional restriction. The 16th Amendment went into effect February 25, 1913.^ Economists say the exemption both ways of govern- ment securities, as between States and the Union, is a mistaken policy; that a low rate of interest on the securities is less important than equality in taxation, and such exemptions make evasion easier. The Federal income tax has been denounced as at least an unwise usurpation of a fiscal power which the States; need, even if they may not claim its exclusive use. The modern development of social and economic life has, however, tended to break down all geographic barriers in the country; and there are, economically speaking, no States lines. Such a tax properly requires an extended base, and its administration by the central government reduces the danger of innocent escape and ^ " The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." The objection of Governor Hughes, of New York, to the Amend- ment, was based, not upon the advantage to the State from the exclusive right to tax incomes, but upon the apparent authorization of a tax which might possibly be enforced against State instru- mentalities. " From whatever source derived " might include State and local securities. Even such immunity as these had before the amendment, was not express but only implied. Special Message to Legislature, January 5, 1910. Cf. the express exemption in section 4 of the Act of 1916. Income Tax. 17 fraudulent evasion. Few taxable incomes are now strictly local in origin. The socalled money centres draw their incomes from, or from operations upon, the earnings of railroads and industrials dependent on the population and resources of the whole country and regions beyond; and this fact is claimed to take the sting out of the criticism that the tax is sectional and unfair to the prosperous communities. It has been suggested that a harmonious plan could be devised whereby the Union would exclusively administer an enlarged system of income (and succession) taxation and, after taking its proper share, apportion the balance to the States. An amendment to this effect was offered during the consideration of the present Act. Cong. Eec, Aug. 25, 1916, p. 15340.* The modern demand for an income tax arose and gained strength independently of the change of party control. John Sherman disapproved its abandonment in 1870. Cleveland favored it in 1894; Eoosevelt in 1901; Taft in 1909. But it was the moderate tariff party which seized upon the power granted by the 16th Amendment. See Preface ante. The Tariff Act of Oct. 3, 1913, 38 Stat. 166, embodied a new income tax, individual and corporate, which was upheld against elaborate attacks on all points. (1915) Brus- * ' ' The fairest and justest tax ever levied sines men invented a tax system is a graduated income tax with reasonable exemptions. ... As long as the world spins on its axis and slides down the ecliptic no political party is ever going to the country on a proposi- tion to repeal the income tax. ' ' Speaker Clark, on the floor of the House, July 10, 1916. Cong. Ree. v. 53, p. 13311. This is not cited and quoted as embodying a legal principle! 18 The Fedeeax, Eevekue Law, 1916. haber v. Union P. E. Co., 240 TJ. S. 1. See also in the same volume, Stanton v. Baltic Mining Co., 103 ; Tyee Realty Co, v. Anderson, 115; Dodge v. Osborn, 118; Dodge V. Brady, 122. The persons who pressed this series of test cases after the Brushaber case was decided were told by White, Ch. J., in the last opinion, that the Court was glad to see an end of " further absolutely useless and unnecessary controversy." By the Act of Oct. 3, 1913, the corporate excise of 1909 was continued until January 1, 1913, and a similar, equivalent special excise was imposed for the interval until March 1, 1913, when the new tax became effective for five-sixths of 1913. The calendar year has since been the time unit. The $5,000 exemption of 1909 was eliminated. In so concise a commentary it is impossible to enlarge upon the detailed features of constitutionality. The few great test cases cited will be found to meet practically all the various larger questions which arise. The Act of 1913, now re-written with no essential change in principle, does not deny equal protection; it satisfies the demand of uniformity and equality ; the minimum exemption as to individuals is not unfair; the exemption of a large class of corporations is war- ranted, and accords with the national policy; despite the 16th Amendment, it makes exceptions as to govern- mental instrumentalities where there might be ques- tion; the scheme of graduated or progressive taxes is warranted; there is no offending element of double taxation ; the differences as to treatment of individuals, partnerships and corporations are warranted; the Income Tax. 19 slight retroactive feature, covering the current calen- dar year, is justified; non-resident aliens are properly taxable ; the due process of law clause is not offended. Brushaber v. U. P. E. E. Co., supra. In an ordinary instance it would be a mistake to approach this new law in a too technical spirit. The country was not used to an income tax in 1913. The Act then passed was confused and confusing. The Department Eegulations which were hurriedly issued and quickly supplemented were not always illuminat- ing. The law was administered as best it could be, in an expe.rimental, if not haphazard, manner, special rul- ings being made on the specific questions arising. Defects and deficiencies were disclosed in the early Eegulations, and in the Act itself, and some of these have been corrected. The process continues. The statute has now been, though somewhat carelessly, re-written, with a more convenient subdivision into sections and paragraphs. Most of the questions which ordinarily arise involve no real principles of law, but only details of administrative method. The Eegula- tions and Eulings are easily procurable from the Department or through the Public Printer (Supt. of Documents). When a ruling appears unfair, it does not follow that the aggrieved person must go to law. Unless large revenue is involved, or there is a lack of courteous frankness, the Department may often be convinced of error; and it has repeatedly reversed its rulings. It has urged that special letters of inquiry relative to returns be addressed to the local collector and not sent, in the first instance, to Washington. T. D. 1956. Feb. 14, 1914. As to the futility of trying to 20 The Federal EEVENUfi Law, 1916. enjoin the collection of a tax, see elsewhere in this book. (1883) Snyder v. Marks, 109 U. S. 189; (1902) Corbus V. Gold, 187 V. S. 455. The Grovernment has issued a compilation of Federal decisions in corporation and income tax eases which was made in preparation for the Act of' 1913. House Doc. 601, 62nd Cong. 2nd ses. 260 pp. 1912; also an exhaustive compilation on Taxation of Corporations in the various States : six parts and supplement. An indexed pamphlet of Regulations, No. 33, was issued by the Department January 5, 1914, containing the Income Tax Law of the Act of Oct. 3, 1913. It was modified from time to time in the Treasury Decisions (weekly). Permanent forms were prescribed by T. D. 1976, May 2, 1914; supplemented by T. D. 1977, May 2, 1914; T. D. 1998, June 16, 1914; T. D. 2030, Oct. 13, 1914; T. D. 2242, Sep. 17, 1915; T. D. 2258, Nov. 1, 1915; T. D. 2325, April 24, 1916. Various special rul- ings were issued as T. D 's and synopses of extant rul- ings were issued as T. D. 2090, Dec. 14, 1914; T. D. 2135, January 23, 1915; T. D. 2137, January 30, 1915; T. D. 2152, Feb. 12, 1915. Eulings on the tax of 1913 are in Vols. 16 and 17 of the collected Weekly Treasury Decision, Internal Revenue. In view of the changes now made, involving such a re-writing as to disturb all references to former section and paragraph numbers, a new Circular becomes necessary and will be found in the Weekly Treasury Decisions. As to the force of Departmental rulings, see the general Introduction ante. T. D. 2367, Sept. 14, 1916, extended and applied existing regula- tions pending a new issue. REVENUE ACT OF 1916. Approved September 8, 1916. TEXT OF THE ACT WITH NOTES. An Act To increase the revenue, and for other pur- poses. Be it enacted hy the Senate and House of Repre- sentatives of the United States of America in Congress assembled, TITLE I.— INCOME TAX. PART I.— ON INDIVIDUALS. Sec. 1. (a) That there shall be levied, assessed,, collected, and paid annually upon the entire net income received in the preceding calendar year from all sources by every individual, a citizen or resident of the United States, a tax of two per centum upon such income; and a lite tax shall be levied, assessed, col- lected, and paid annually upon the entire net income received in the preceding calendar year from all sources within the United States by every individual, a nonresident alien, including interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise. Sec. 1. (a) Normal tax on persons; rate, 2%; classes included. Besidence is held to be " that place where a man has his true, fixed and permanent home and principal establishment and to which, [21] 22 The Fedeeai. Eevbnue Law, 1916. whenever he is absent, he has the intention of returning, and indicates permanency of occupation as distinct from lodging or boarding or temporary occupation." A man may be a resident here, though having his domicile abroad. An alien may be physically here, as in temporary employment, and yet have no intention of establishing residence. T. D. 2242, Sept. 17, 1915. As to increasing a tax rate and making the increase apply retro- actively (1901) Patton v. Brady, 184 U. S. 608; (1873) Stockdale V. Ins. Co., 20 Wall. 323; (1910) Flint v. Stone Tracy Co., 220 U. S. 107; (1913) Billings v. U. S., 232 U. S. 261; (1915) Blalock V. Georgia, etc., Co., 228 Fed. Rep. 296; (1916) Brushaber v. U. P. R. Co., 240 U. S. 1; Brady v. Anderson, S. D. N. Y., Aug., 1916, N. Y. L. J., Sept. 30, 1916. (b) In addition to the income tax imposed by sub- division (a) of this section (herein referred to as the normal tax) there shall be levied, assessed, collected, and paid upon the total net income of every individual, or, in the case of a nonresident alien, the total net income received from all sources within the United States, an additional income tax (herein referred to as the additional tax) of one per centum per annum upon the amount by which such total net income exceeds $20,000 and does not exceed $40,000, two per centum per annum upon the amount by which such total net income exceeds $40,000 and does not exceed $60,000, three per centum per annum upon the amount by which such total net income exceeds $60,000 and does not exceed $80,000, four per centum per annum upon the amount by which such total net income exceeds $80,000 and does not exceed $100,000, five per centum per annum upon the amount by which such total net income exceeds $100,000 and does not exceed $150,000, six per centum Income Tax. 23 per annum upon the amount by which such total net income exceeds $150,000 and does not exceed $200,000, seven per centum per annum upon the amount by which such total net income exceeds $200,000 and does not exceed $250,000, eight per centum per annum upon the amount by which such total net income exceeds $250,000 and does not exceed $300,000, nine per centum per annum upon the amount by which such total net income exceeds $300,000 and does not exceed $500,000, ten per centum per annum upon the amount by which such total net income exceeds $500,000, and does not exceed $1,000,000, eleven per centum per annum upoa the amount by which such total net income exceeds $1,000,000 and does not exceed $1,500,000, twelve per centum per anlxum upon the amount by which such total net income exceeds $1,500,000 and does not exceed $2,000,000, and thirteen per centum per annum upon the amount by which such total net income exceeds $2,000,000. For the purpose of the additional tax there shall be included as income the income derived from dividends on the capital stock or from the net earnings of any corporation, joint-stock company or association, or insurance company, except that in the case of non- resident aliens such income derived from sources with- out the United States shall not be included. All the provisions of this title relating to the normal tax on individuals, so far as they are, applicable and are not inconsistent with this subdivision and sectioni three, shall apply to the imposition, levy, assessment, 24 The Federal Eevenue Law, 1916. and collection of the additional tax imposed under tMs subdivision. Sec. 1. (b) Additional tax on incomes above $20,000. Taxes may be classified and graded. (1905) Mich. Cent. v. Powers, 201 U. S. 245, 50 L. Ed. 744. The old idea of a proportional tax gave way before the growth of modem individual fortunes and corporate accumulations. It is now widely recognized that there is a sort of " unearned increment " in the snow-ball increase of wealth, and the incidence of such a tax should be correspondingly progressive. This view not only looks to increased revenue, but takes cognizance of social and industrial facts, and approves the use of the tax to correct inequalities possibly ascribable to defective govenmient or institutional injustice. " Taxes imposed with reference to the ability of the persons upon whom the burden is placed to bear the same have been levied from the foundation of the government. So, also, some authoritative thinkers, and a number of economic writers, contend that a progres- sive tax is more just and equal than a proportional one. In the absence of constitutional limitation, the question whether it is or is not is legislative and not judicial." (1899) Knowlton v. Moore, 178 U. S. 41, 109. The requirement of uniformity in the levy of excise laws is not intrinsic, but geographical. Xnowlton v. Moore, supra; (1903) McCray v. U. S., 195 U. S. 27; (1910) Flint v. Stone-Tracy Co., 220 U. S. 107. In (1916) Brushaber v. U. P. R. R. Co., 240 U. S. 1, the Court almost impatiently restates the propriety of progressive taxation, and the general principles of classification of taxables. (c) The foregoing normal and additional tax rates shall apply to the entire net income, except as herein- after provided, received by every taxable person in the calendar year nineteen hundred and sixteen and in each calendar year thereafter. Income Tax. 25 Sec. 1. (c) When the new rates are in effect. The normal tax rate was 1% under the Act of 1913. The new rate of 2% applies to income received after January 1, 1916. The return for the calendar year of 1916 is to be made on or before March 1, 1917. See. 8.(b). As to corporations, see $ 10. Although the 2% rate applies to all of 1916, it is provided in § 8 (d) proviso that where the tax is withheld at the source, the withholding during 1916 shall be only at the 1% rate. See eases cited on p. 22.^ Income Defined. Sec. 2. (a) That, subject only to such, exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages, or compen- sation for personal service of whatever Mnd and in whatever form paid, or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever: Provided, That the term ' ' dividends ' ' as used in this title shall be held to mean any distribution made or ordered to be made by a corporation, joint-stock company, association, or insur- ance company, out of its earnings or profits accrued since March first, nineteen hundred and thirteen, and ^ Brady v. Anderson, S. D. N. Y., Aug., 1916, N. T. Law Journal, Sept. 30, 1916, as to person dying before enactment but after retroactive incidence. 26 The Fedebal Eevenue Law, 1916. payable to its shareholders, whether in cash or in stock of the corporation, joint-stock company, association, or insurance company, which stock dividend shall be considered income, to the amount of its cash value. Sec. 2. (a) Income defined; dividends defined. An interesting form of personal "income" is "mileage" of government officers and employees. ' * The gain, profit or income ia the difference between the amount received as mileage and the amount properly expended while traveling, and this difference only should be returned." T. D. 2079, Nov. 24, 1914. Alimony above $3,000 is taxable as income. T. D. 2090, Dec. 14, 1914. Salaries received from exempt organizations are returnable by taxable persons receiving them. T. D. 2090, Dec. 14, 1914. A life insurance agent's renewal commissions are income for the year in which they are actually received by him. (1916) Edwards v. Keith, 224 Fed. Rep. 585; 231 id. 110. March 1, 1913, is taken throughout as the date of incidence of the present iocome tax. The tax is to be paid on dividends as received, without regard to the period when earned or carried on the books as undivided profits, T. D. 2274, Dec. 22, 1915. (b) Income received by estates of deceased persons during the period of administration or settlement of the estate, shall be subject to the normal and additional tax and taxed to their estates, and also such income of estates or any kind of property held in trust, including such income accumulated in trust for the benefit of unborn or unascertained persons, or persons with con- tingent interests, and income held for future distribu- tion under the terms of the will or trust shall be like- wise taxed, the tax in each instance, except when the income is returned for the purpose of the tax by the Income Tax. 27 beneficiary, to be assessed to the executor, adminis- trator, or trustee, as the case may be : Provided, That where the income is to be distributed annually or regularly between existing heirs or legatees, or benefi- ciaries the rate of tax and method of computing the same shall be based in each case upon the amount of the individual share to be distributed. Such trustees, executors, administrators, and other fiduciaries are hereby indemnified against the claims or demands of every beneficiary for all payments of taxes which they shall be required to make under the pro- visions of this title, and they shall have credit for the amount of such payments against the beneficiary or principal in any accounting which they make as such trustees or other fiduciaries. Sec. 2. (b) Income of decedent and trust estates. Such income is returnable, and subject to tbe same credits and deductions as individual income. See § 8 (c), infra. (c) For the purpose of ascertaining the gain derived from the sale or other disposition of property, real, personal, or mixed, acquired before March first, nine- teen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determin- ing the amount of such gain derived. Sec. 2. (c) How gain is ascertained. March 1, 1913, is the date of incidence of the present income tax, first enacted Oct. 3, 1913. As to ascertaining gain or loss, see section 5, 4th subdivision, and note. 28 The Federal Eevenub Law, 1916. Additional Tax Includes Undistributed Profits. Sec. 3. For the purpose of the additional tax, the taxable income of any individual shall include the share to which he would be entitled of the gains and profits, if divided or distributed, whether divided or distri- buted or not, of all corporations, joint-stock companies or associations, or insurance companies, however created or organized, formed or fraudulently availed of for the purpose of preventing the imposition of such tax through the medium of permitting such gains and profits to accumulate instead of being divided or distributed; and the fact that any such corporation, joint-stock company or association, or insurance com- pany, is a mere holding company, or that the gains and profits are permitted to accumulate beyond the reasonable needs of the business, shall be prima facie evidence of a fraudulent purpose to escape such tax; but the fact that the gains and profits are in any case permitted to accumulate and become surplus shall not be construed as evidence of a purpose to escape the said tax in such case unless the Secretary of the Treasury shall certify that in his opinion such accumu- lation is unreasonable for the purposes of the business. When requested by the Commissioner of Internal Revenue, or any district collector of internal revenue, such corporation, joint-stock company or association, or insurance company shall forward to him a correct statement of such gains and profits and the names and addresses of the individuals or shareholders who would be entitled to the same if divided or distributed. Income Tax. 29 Sec. 3. Additional tax includes undistributed profits. There is something almost naive about solemnly taxing income from a company which is created for the purpose of evading taxa- tion. It is perhaps the only way to legislate against evasive schemes of modern ingenuity. The astuteness of unwilling taxpayers keeps just a little bit ahead of the law-maker 's activity, and the record of such a chase, to wit, the latest form of a tax statute, is rarely smooth reading. As to what constitute " the reasonable needs of business," no clear principles can, in the very nature of the case, be established. In recognition of this fact, the " prima facie evidence " provision is expressly conditioned on the Secretary's certification. And the certificate will only issue on facts, the ascer- tainment of which will afford ample opportunity for mutual con- sideration of merits. As to discretionary powers granted to administrative and executive officials see notes passim under Titles VII and VIII post. Income Exempt From Law. Sec. 4. The following income shall be exempt from the provisions of this title : The proceeds of life insurance policies paid to individiaal beneficiaries upon the death of the insured; the amount received by the insured, as a return of premium or premiums paid by him under life insur- ance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon the surrender of the contract ; the value of property acquired by gift, bequest, devise, or descent (but the income from such property shall be included as income) ; interest upon the obligations of a State or any political subdivision thereof or upon the obligations of the United States or its possessions or securities issued under the provisions of the Federal 30 The FEDEBAii Eeatentjb Law, 1916. farm loan Act of July seventeenth, nineteen hundred and sixteen ; the compensation of the present President of the United States during the term for which he has been elected, and the judges of the Supreme and inferior courts of the United States now in ofiBice, and the compensation of all officers and employees of a State, or any political subdivision thereof, except when such compensation is paid by the United States Government. Sec. 4. Income which is exempt. Dividends from paid-up life policies were income, but, like other dividends, were to be excluded from returns for normal tax only. T. D. 2137, Jan. 30, 1915. But see § 8 (f), infra. The proceeds of an accident policy (injury, not death,) are returnable as income; also damages for " pain and suffering." T. D. 2135, Jan. 23, 1915. A clergyman's fees for masses, marriages, etc., and Easter offer- ings were ruled to be income — but not so Christmas gifts. T. D. 2090, Dec. 14," 1914. Total income may be made the measure of a tax, although part of the income is derived from nontaxable property. (1910) Flint v. Stone Tracy Co., 220 U. S. 107, 165. So also a State inheritance tax is not invalidated because it is imposed on an estate including Federal securities. (1899) Plummer V. Coler, 178 U. S. 115, 44 L. Ed. 998. The salary of a judge appointed subsequent to Oct. 3, 1913, as of one who is retired, is taxable. T. D. 2090, Dec. 14, 1914. The income tax of 1864r-1867 was not enforceable against the salary of a Massachusetts judge. Collector v. Day, 11 Wall. 113. Congress may not tax State salaries, but is free to tax salaries paid by the Federal government. See § 23, infra. A contractor building a public highway is not an officer or employee of a State or division thereof. T. D. 2152, Pt. I, Feb. 12, 1915. Income Tax. 31 The investment market now offers attractive tax-free securities, which, however, would be more tempting if other war-time oppor- tunities were not so plentiful. Few persons will try to make money by avoiding taxes when they can make more money by pay- ing them. A city is part of the sovereign power of a State, and its public revenues are not subject to Federal taxation. (1872) U. S. v. R. E. Co., 17 Wall. 322, 21 L. Ed. 597, where the income sought to be taxed was interest paid by a railroad under a mortgage given by it to the city to protect city bonds issued to secure the building of the road. In conducting a liquor dispensary, the State of South Carolina was not acting as a sovereign, but as a business corpora- tion, and the dispensary was taxable. (1905) S. C. v. U. S., 199 U. S. 437. A city engaged in distilling liquors cannot escape Federal taxa- tion on the ground that such business is not one of its lawful public functions. (1885) Salt Lake v. HoUister, 118 U. S. 256. Deductions Allowed. Sec. 5. That in computing net income in the case of a citizen or resident of the United States — (a) For the purpose of the tax there shall be allowed as deductions — First. The necessary expenses actually paid in carrying on any business or trade, not including per- sonal, living, or family expenses ; Second. All interest paid within the year on his indebtedness ; Third. Taxes paid within the year imposed by the authority of the United States, or its Territories, or possessions, or any foreign country, or under the authority of any State, county, school district, or muni- cipality, or other taxing subdivision of any State, not including those assessed against local benefits ; 32 The Federal Eevenxje Law, 1916. Fourth'. Losses actually sustained during the year, incurred in his business or trade, or arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not compensated for by insurance OTotherwise: Provided, That for the purpose of ascer- taining the loss sustained from the sale or other dis- position of property, real, personal, or mixed, acquired before March first, nineteen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such loss sus- tained ; Fifth. In transactions entered into for profit but not connected with his business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits arising therefrom ; Sixth. Debts due to the taxpayer actually ascer- tained to be worthless and charged off within the year ; Seventh. A reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade ; Eighth, (a) In the case of oU and gas wells a reason- able allowance for actual reduction in flow and pro- duction to be ascertained not by the flush flow, but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market val\ie in the mine of the product thereof, which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case Income Tax. 33 of both (a) and (b) tiiider rules and regulations to be prescribed by the Secretary of the Treasury : Provided, That when the allowances authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hun- dred and thirteen, the fair market value as of that date, no further allowance shall be made. No deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments, made to increase the value of any property or estate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made. Sec. 5. (a) Deductions allowed. Administration expenses, as distinct from expenses of a business belonging to the estate, are chargeable against the estate and not allowable as deductions. T. D. 2090, Deo. 14, 1914. Alimony in excess of $3,000 is taxable income, and, as it is a personal or family expense, the man ■who pays it cannot deduct it. T. D. 2090, Dec. 14, 1914. Sec. 5. (a) Third. Taxes. Taxes " imposed by the authority, etc." was inserted to cover special assessment districts and levee and school districts which the attorney-general held to be political subdivisions. T. D. 1946, Feb. 10, 1914. Taxes paid by a tenant are additional rent and deductible as business expense, if such. T. D. 2090, Dec. 14, 1914. No taxable person under our income law is relieved thereunder by reason of his being also subject to an income tax in another country. T. D. 2152, Feb. 12, 1915. 2 34 The Fbdebal Revenue Law, 1916. Sec. 5. (a) Fourth. Losses in business. Loss here means complete actual loss, and does not involve any element of depreciation, or wear and tear of physical property, or shrinkage of security values. Formerly there was no deduction for loss not sustained in business or trade, but the new fifth paragraph, q. v., is more liberal. Formerly fractional parts of a year were not considered in prorating, but a later ruling changed the basis, so that months are coimted, and a fraction of 15 days or more is deemed a month. T. D. 1989, June 2, 1914; T. D. 2005, July 8, 1914; T. D. 2291, Jan. 29, 1916. When personal property is sold at an advance after several years, the whole profit is not to be taken as income for the year when sold. So held of U. S. bonds, under income act of March 2, 1867. (1872) Gray v. Darlington, 15 Wall. 63. Such advance in value constitutes an increase of capital.^ The Act of 1867, by way of exception, required the profits of a realty sale to be included where the property was purchased within the two previous years. An unsuccessful attempt was made in the Senate to substitute this plan for the method adopted in the proviso of paragraph 4 which prescribes the date of original incidence of this income tax. Sec. 5. (a) Fifth. Losses not connected 'with business. This would not apply to a man who is both lawyer and farmer (as a business). The Senator in charge feared " transaction " would permit a deduction for losses sustained in a poker game," and the Senate tried to narrow it to " lawful business," but the House form prevailed. Cong. Rec, Aug. 26, 1916, p. 15451. A person cultivating or operating a farm for recreation or pleasure, on a basis other than recognized principles of commercial farming, the result of which is a continual loss from year to year, is not regarded as a farmer. The entire receipts may be ignored, and the expenses are personal expenses not deductible. T. D. 2153, Feb. 4, 1915. But a farm operated on commercial principles by a person having another profession or occupation is to be treated as a separate business in the regular way. ^ See Lynch v. Turrish, D. C. D. Minn., Sept. 4, 1916. Income Tax. 35 Sec. 5. (a) Sixth. Debts. Only debts included in a return of gross income and actually charged off are deductible. T. D. 2224, July 13, 1915. The separation of paragraphs Seventh and Eighth is manifestly a mere oversight due to the haste in which the act was repara- graphed in conference. Cf. Seventh of § 6. Sec. 5. (a) Seventh. Wear and tear, in general. There is no fixed rule nor rate applicable to depreciation. It depends on the nature of the property and is computed on cost and probable life. Shrinkage in security values is neither a deprecia^ tion nor a loss. T. D. 2152, Pt. II, Feb. 12, 1915. In trust estates, where there is physical property in the corpus required to be kept intact, a depreciation reduction is allowed; but not so when no such reserve is in fact used or established and the deduction claimed is really paid to beneficiaries as income. T. D. 2267, Nov. 5, 1915. Good will is not a tangible asset capable of appreciation or depre- ciation. No claim for deduction can be based on alleged decline in its value. T. D. 2137, Jan. 30, 1915. An actress may deduct for depreciation of her costumes only if she does not wear them off the stage. T. D. 2090, Dee. 14, 1914. Sec. 5. (a) Eighth. Wear and tear; ezhanstion of capital value. See notes to § 12 (a) Second. Credits Allowed. (b) For the purpose of the normal tax only, the income embraced in a personal return shall be credited with the amount received as dividends upon the stock or from the net earnings of any corporation, joint-stock company or association, trustee, or insurance company, which is taxable upon its net income as hereinafter provided ; 36 The Federal. Eetenue Law, 1916. (c) A like credit shall be allowed as to the amount of income, the normal tax upon which has been paid or withheld for payment at the source of the income under the provisions of this title. Sec. 5 (b) (c). Credits allowed. The items covered by (b) and (e) ■were formerly deductions. They are now made credits. Formerly it was expressly provided that, as to the normal tax, no return was required of such dividends, and a person having less than $20,000 total income including divi- dends, and a net income of less than $3,000 (exclusive of dividends) was not required to make a return. The new law requires, sec^ tion 8 (f), a return of all dividends. T. D. 1945, Feb. 7, 1914. Act of Oct. 3, 1913, par. D. proviso. The provision (e) was, at the Department's suggestion, changed to this form by dropping the proviso of the former eighth deduc- tion, which was confusing without being important. Nonresident Aliens. Sec. 6. That in computing net income in the ease of a nonresident alien — (a) For the purpose of the tax there shall be allowed as deductions — First. The necessary expenses actually paid in carrying on any business or trade conducted by him within the United States, not including personal, liv- ing, or family expenses ; Second. The proportion of all interest paid within the year by such person on his indebtedness which the gross amount of his income for the year derived from sources within the United States bears to the gross amount of his income for the year derived from all Income Tax. 37 sources within and without the United States, but this deduction shall' be allowed only if such person ineliades in the return required by section eight all the informar tion necessary for its calculation ; Third. Taxes paid within the year imposed by the authority of the United States, or its Territories, or possessions, or under the authority of any State, county, school district, or municipality, or other taxing subdivision of any State, paid within the United States, not including those assessed against local benefits ; Fourth. Losses actually sustained during the year, incurred in business or trade conducted by him within the United States, and losses of property within the United States arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not compensated for by insurance or otherwise : Pro- vided, That for the purpose of ascertaining the amount of such loss or losses sustained in trade, or speculative transactions not in trade, from the same or any kind of property acquired before March first, nineteen hun- dred and thirteen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such loss or losses sustained; Fifth. In transactions entered into for profit but not connected with his- business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits arising therefrom in the United States; Sixth. Debts arising in the course of business or 38 The Federal Eeventje Law, 1916. trade conducted by him within the United States due to the taxpayer actually ascertained to be worthless and charged off within the year; Seventh. A reasonable allowance for the exhaustion, wear and tear of property within the United States arising out of its use or employment in the business or trade; (a) in the case of oil and gas wells a reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow, but by the settled production or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the. Treasury : Provided, That when the allowance authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allowance shall be made. No deduction shall be allowed for any amount paid out for new buildings, permanent im- provements, or betterments, made to increase the value of any property or estate, and no deduction shall be made for any amount of expense of restoring prop- erty or making good the exhaustion thereof for which an allowance is or has been made. (b) There shall also be allowed the credits specified by subdivisions (b) and (c) of section five. Income Tax. 39 Sec. 6. (a) Nonresident aliens, deductions. Congress has here again chosen the long and easier method of adapting a general law to two classes which differ only slightly. The present Act here restates the deductions provided for citizens and residents in section 5, and inserts in each the necessary words to limit the tax and the deductions of nonresident aliens to property and transactions in the United States. See § 7 (b), as to personal exemption. And see § 13 (e) (f). The Act of June 30, 1864, was held not to impose a tax on the income of a nonresident alien represented by interest on bonds of an American railroad. (1868) E. E. v. Jackson, 7 Wall. 262. The Act of July 13, 1866, corrected the defect. Eoyalties paid to nonresident aliens are taxable income, and must be reported and paid on by users of patent rights. T. D. 2137, Jan. 30, 1915. Income from domestic bonds and stock owned by nonresident aliens were ruled not taxable, whether the securities were physically here or abroad or whether held anywhere by trustees. T. D. 2162, Feb. 24, 1915. This tax on foreigners' profits from business in America is not so much a true income tax as it is a tax in rem on property. As to taxing foreigners, see : (1879) E. E. v. Collector, 100 U. S. 595, an excise tax on interest paid by a corporation, under Act of July 13, 1866, 14 Stat. 138. This case was followed in (1882) tr. S. V. Erie Ey. Co., 106 U. S. 327, 703, where Meld, J., dis- sented in an elaborate opinion; (1901) Eidman v. Mkrtinez, 184 U. S. 578, under the legacy tax of the Way Revenue Act of June 13, 1898, holding intangible personalty, belonging to a nonresident alien and passing to another nonresident alien, not taxable; (1872) Barnes v. The Eailroads, 17 Wall. 294, 304, referring to. changing statutes and contrariety of decisions. A State may not tax nonresident bondholders of a domestic corporation and require the company to deduct the tax. (1872) E. E. Co. V. Penn., 15 Wall. 300, distinguishing (1868) E. E. Co. V. Jackson, 7 Wall. 262, which held the Act of June 30, 1864, did not apply to income of a nonresident alien. The Federal tax of 1861, 1862 and 1864 applied only to residents 40 The Fedebal Revenue Law, 1916. and to citizens abroad, but the Acts of March 10, and Jnly 13, 1866, included nonresident bondholders. Rulings and decisions on earlier forms of such -tax statutes are of little value, unless the exact text of the respective Acts be examined. The object was revenue, and a patch was promptly put on every hole that was discovered. Sec. 6 (b) (c). Nonresidenit aliens, credits. This applies, as to section 5 (b), only to the normal tax, and only to dividends of companies which are taxed under the corporation income tax. Personal Exemption. Sec. 7. (a) That for the purpose of the normal tax only, there shall be allowed as an exemption in the nature of a deduction from the amount of the net income of each of said persons, ascertained as pro- vided herein, the sum of $3,000, plus $1,000 additional if the person making the return be a head of a family or a married man with a wife living with him, or plus the sum of $1,000 additional if the person making the return be a married woman with a husband living with her ; but in no event shall this additional exemption of $1,000 be deducted by both a husband and a wife : Pro- vided, That only one deduction of $4,000 shall be made from the aggregate income of both husband and wife when living together: Provided further, That guard- ians or trustees shall be allowed to make this personal exemption as to income derived from the property of which such guardian or trustee has charge in favor of each ward or cestui que trust : Provided further. That in no event shall a ward or cestui que trust be allowed Income Tax. 41 a greater personal exemption than $3,000, or, if married, $4,000, as provided in this paragraph, from the amount of net income received from all sources. There, shall also be allowed an exemption from the amount of the net income of estates of deceased per- sons during the period of administration or settle- ment, and of trust or other estates the income of which is not distributed annually or regularly under the pro- visions of paragraph (b), section two, the sum of $3,000, including such deductions as are allowed under section five. (b) A nonresident alien individual may receive the benefit of the exemption provided for in this section only by filing or causing to be filed with the collector of internal revenue a true and accurate return of his total income, received from all sources, corporate or otherwise, in the United States, in the manner pre- scribed by this title ; and in case of his failure to file such return the collector shall collect the tax on such income, and all property belonging to such nonresident alien individual shall be liable to distraint for the tax. Sec. 7. (a) Personal exemption; head of family; guardian, etc. The original form of the House Bill ■would have constituted the aggregate income of parents and children a taxable entity, but this was amended out. The new " head of a family " provision is for the benefit of widowers and widows, bachelor uncles, maiden aunts and older brothers, who are bound or who bind themselves in loco parentis for the support of a household. It was readily a^eed in Congress that the second provided further very properly made good a mere oversight in the former 42 The Fedeeal Revenue Law, 1916. law. The language used is not clear, but " including, etc.," near the end, is merely another way of limiting an estate's exemption to one sum of $3,000. Obviously an estate cannot be married nor personally the head of a family. If husband or wife dies within the year, the appropriate executor should make the return, and may claim the full exemption, leaving the survivor to make return at the end of the year and claim exemption according to the status then existing. T. D. 2090, Dec. 14, 1914. The personal exemption, individual, or man and wife, applies only to the normal tax. If either individual has an income exceeding $20,000, i. e., liable for the additional tax, the exemption does not apply- There is no such exemption for corporations. See J 10. Sec. 7. (b) Personal exemption, how nonresident alien may secure. This appears to be an awkward compromise among several pro- posals which have been made tq stiffen the law as to collection from nonresident aliens. The Department urged a stringent measure to punish by double taxation and other penalties any person having control of such income who failed to return it and pay the tax. Secretary's Report for 1915, page 98. It would have been better law-making to place the provisions as to return and penalty else- where in the title than under Personal Exemption. This treatment of nonresident aliens is, at least, not in the nature of a concession to foreign investors in our properties ! But if we are to become a lending, instead of a borrowing, nation, we may not suffer any retaliation on this point. Under the Act of 1913, nonresident aliens were not entitled to the personal exemption. T. D. 2313, March 21, 1916. They are subject to the additional tax as to their income from all sources in the United States. 5 lb, supra. Returns. Sec. 8. (a) The tax shall be computed upon the net income, as thus ascertained, of each person subject Income Tax. 43 thereto, received in each preceding calendar year end- ing December thirty-first. (b) On or before the first day of March, nineteen hundred and seventeen, and the first day of March in each year thereafter, a true and accurate return under oath shall be made by each person of lawful age, except as hereinafter provided, having a net income of $3,000 or- over for the taxable year to the collector of internal revenue for the district in which such person has his legal residence or principal place of business, or if there be no legal residence or place of business in the United States, then with the collector of internal revenue at Baltimore, Maryland, in such form as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe, set- ting forth specifically the gross amount of income from all separate sources, and from the total thereof deduct- ing the aggregate items of allowances herein author- ized: Provided, That the Commissioner of Internal Revenue shall have authority to grant a reasonable extension of time, in meritorious cases, for filing returns of income by persons residing or traveling abroad who are required to make and file returns of income and who are unable to file said returns on or before March first of each year: Provided further, That the aforesaid return may be made by an agent when by reason of illness, absence, or nonresidence the person liable for said return is unable to make and render the same, the agent assuming the responsibility 44 The Federal. Eevenue Law, 1916. of making the return and incurring penalties provided for erroneous, false, or fraudulent return. Sec. 8. Betums, when and by whom to be made; when due; exten- sion of time; return by agent. § 8 (b). For refusal or neglect to make an individual return the penalty is from $20 to $1,000. § 18. Default of return, except in case of excusable sickness or absence, involves a mandatory 50% addition to the tax, which however may be avoided by a subsequent voluntary return. A willful false return involves an addition of 100%. In any case of default or fraud the collector may make a return which shall be prima facie legal. E. S. § 3176, amd. by § 16. The Department showed liberality in dealing with delinquents, when the law was new, and adopted a general plan of compromis- ing the specific penalties in minimum sums of $10 for corporations and $5 for individuals. T. D. 2193, April 24, 1915. " Wholesale evasions of the law throughout the country," and great losses of revenue through error and ignorance, were patiently tolerated, " as it is a new law and in many ways a complex law;" but the law has been clarified and strengthened, and the field force has been increased! for its enforcement. Treas. Kept. 1915. Oathg before notaries. (1888) U. S. v. Hall, 131 U. S. 50. The Secretary has repeatedly recommended that everyone with a gross income of $3,000 should be required to make a return, and permit the Department to ascertain the net, and attempts were also made in Congress to reduce the minimum exemption; but the law remains unchanged in these respects. Baltimore is designated because its Revenue District is the Dis- trict in which Washington City is located. (c) Guardians, trustees, executors, administrators, receivers, conservators, and all persons, corporations, or associations acting in any fiduciary capacity, shall make and render a return of the income of the person, trust, or estate for whom or which they act, and be Income Tax. 45 subject to all the provisions of this title which apply to individuals. Such fiduciary shall make oath that he has sufficient knowledge of the affairs of such person, trust, or estate to enable him to make such return and that the same is, to the best of his knowledge and belief, true and correct, and be subject to all the provisions of this title which apply to individuals: Provided, That a return made by one of two or more joint fiduciaries filed in the district where such fiduciary resides, under such regulations as the Secretary of the Treasury may prescribe, shall be a sufficient compli- ance with the requirements of this paragraph. Sec. 8. (c) Betums by fiduciaries. Any undistributed part of income becomes an entity, liable for normal and additional tax. If the" beneficiary is not in esse, the income is taxable to the estate and payable by the fiduciary. The estate is thus listed as a beneficiary, liable for the normal tax on undistributed income less than $20,000 and for both taxes on larger amounts. T. D. 2231, July 26, 1915. The fiduciary relationship of agent and principal does not make an ordinary agent a fiduciary as to income tax. T. D. 2090, Dec. 14, 1914. And T. D. 2137, Jan. 30, 1915, as to attorneys in fact. A real estate agent is not required to withhold a tax on rents collected. He stands for 'the landlord and cannot become agent for the ' ' debtor ' ' whose duty it is to withhold. Id. (d) All persons, firms, companies, copartnerships, corporations, joint-stock companies, or associations, and insurance companies, except as hereinafter pro- vided, in whatever capacity acting, having the control, receSipt, disposal, or payment of fixed or determinable annual or periodical gains, profits, and income of 46 The Fedeeal, Revenue Law, 1916. another individual subject to tax, shall in behalf of such person deduct and withhold from the payment an amount equivalent to the normal tax upon the same and make and render a return, as aforesaid, but sepa- rate and distinct, of the portion of the income of each person from which the normal tax has been thus withheld, and containing also the name and address of such person or stating that -the name and address or the address, as the case may be, are unknown: Provided, That the provision requiring the normal tax of individuals to be deducted and withheld at the source of the income shall not be construed- to require the withholding of such tax according to the two per centum normal tax rate herein prescribed until on and after January first, nineteen hundred and seventeen, end the law existing at the time of the passage of this Act shall govern the amount withheld or to- be withheld at the source until January first, nineteen hundred and seventeen. That in either case mentioned in subdivisions (c) and (d) of this section- no return of income not exceed- ing $3,000 shall be required, except as in this title provided. Sec. 8. (d) And see § 9. Withholding at. the source. The 1% rate applies until Jan. 1, 1917; thereafter 2%. Only the normal tax is withheld. See $ 9 as to details of method. The new 2% rate of normal tax applies to the entire calendar year of 1916, but withholding continues only at the old rate until January 1, 1917. Income Tax. 47 (e) Persons carrying on business in partnership shall be liable for income tax only in their individual capacity, and the share of the profits of the partner- ship to which any taxable partner would be entitled if the same were divided^ whether divided or other- wise, shall be returned for taxation and the tax paid under the provisions of this title : Provided, That from the net distributive interests on which the individual members shall be liable for tax, normal and additional, there shall be excluded their, proportionate shares received from interest on the obligations of a State or any political or taxing subdivision thereof, and , upon the obligations of the United States and its possessions, and all taxes paid to the United States or to any possession thereof, or to any State, county, or taxing subdivision of a State, and that for the purpose of computing the normal tax there shall be allowed a credit, as provided by section five, subdivision (b), for their proportionate share of the profits derived from dividends. And such partner- ship, when requested by the Commissioner of Internal Revenue, or any district collector, shall render a correct return of the earnings, profits, and income of the part- nership, except income exempt under section four of this Act, setting forth the item of the gross income and the deductions and credits allowed by this title, and the names and addresses of the individuals who would be entitled to the net earnings, profits, and income, if distributed. 48 The Fedeeal Revenue Law, 1916. Sec. 8. (e) Partners, how taxed on firm profits. Under the former law it was ruled that there was no provision for excluding any part of a share of firm profits by reason of the source. The share was held to be income derived from the partner- ship as the source, and the partner could not exclude interest on government securities nor dividends from taxable companies. T. D. 2337, June 1, 1916. (f) In every return shall be included the income derived from dividends on the capital stock or from the net earnings of any corporation, joint-stock com- pany or association, or insurance company, except that in the case of nonresident aliens such income derived from sources without the United States shall not be included. Sec. 8. (f) Returns to include all dividends. Cf. 5 5 (b) and $ 10. (g) An individual keeping accounts upon any basis other than that of actual receipts and disbursements, unless such other basis does not clearly reflect his income, may, subject to regulations made by the Com- missioner of Internal Eevenue, with the approval of the Secretary of the Treasury, make his return upon the basis upon which his accounts are kept, in which case the tax shall be computed upon his income as so returned. Sec. 8. (g) Books on taxable persons, how may be kept. There was great dissatisfaction when it appeared that the govern- ment was trying to compel the adoption of a particular method of Income Tax. 49 bookkeeping. Both the accrued basis and the cash basis are now approved. Assessment and Administration. Sec. 9. (a) That all assessments shall be made by the Commissioner of Internal Revenue and all persons shall be notified of the amount for which they are respectively liable on or before the first day of June of each successive year, and said amounts shall be paid on or before the fifteenth day of June, except in cases of refusal or neglect to make such return and in cases of erroneous, false, or fraudulent returns, in which cases the Commissioner of Internal Revenue shall, upon the discovery thereof, at any time within three years after said return is due, or has been made, make a return upon information obtained as provided for in this title or by existing law, or require the neces- sary corrections to be made, and the assessment made by the Commissioner of Internal Revenue thereon shall be paid by such person or persons immediately upon notification of the amount of such assessment; and to any sum or sums due and unpaid after the fifteenth day of June in any year, and for ten days after notice and demand thereof by the collector, there shall be added the sum of five per centum on the amount of tax unpaid, and interest at the rate of one per centum per month upon said tax from the time the same became due, except from the estates of insane, deceased, or insolvent persons. 50 The Fedeeai, Revenue Law, 1916. Sec. 9. Assessment and administration; notice of liability; when tax due; interest penalty. § 9 (a). The change in the date of required payment, from June 30 to June 15, was made to enable collections to be made within the fiscal year and to cause penalties to attach within the same fiscal year. Under the income tax sections of the Act of March 2, 1867, the tax was payable on or before April 30 in each year, including 1870. Held (by a divided court), that dividends accrued prior to January 1, 1870, were included, even though declared or made payable on or after the date so limited. (1872) Barnes v. The Railroads, 17 Wall. 294, 21 L. Ed. 554. (b) All persons, firms, copartnersMps, companies, corporations, joint-stock companies, or associations, and insurance companies, in whatever capacity acting, including lessees or mortgagors of real or personal property, trustees acting in any trust capacity, execu- tors, administrators, receivers, conservators, employ- ers, and all officers and employees of the United States having the control, receipt, custody, disposal, or pay- ment of interest, rent, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodical gains, profits, and income of another person, exceeding $3,000 for any taxable year, other than income derived from dividends on capital stock, or from the net earnings of corporations and joint-stock companies or associations, or insurance companies, the income of which is taxable under this title, who are required to make and render a return in behalf of another, as provided herein, to the collector of his, her, or its district, are hereby authorized and required to deduct and withhold from Income Tax. 51 such annual or periodical gains, profits, and income such sum as will he sufficient to pay the normal tax imposed thereon by this title, and shall pay the amount withheld to the officer of the United States Govern- ment authorized to receive the same ; and they are each hereby made personally liable for such tax, and they are each hereby indemnified against every person, cor- poration, association, or demand whatsoever for all payments which they shall make in pursuance and by virtue of this title. In all cases where the income tax of a person is withheld and deducted and paid or to be paid at the source, such person shall not receive the benefit of the personal exemption allowed in section seven of this title except by an application for refund of the tax unless he shall, not less than thirty days prior to the day on which the return of his income is due, file with the person who is required to withhold and pay tax for him a signed notice in writing claiming the benefit of such exemption, and thereupon no tax shall be with- held upon the amount of such exemption: Provided, That if any person for the purpose of obtaining any allowance or reduction by virtue of a claim for such exemption, either for himself or for any other person, knowingly makes any false statement or false or fraud- ulent representation, he shall be liable to a penalty of not exceeding $300. And where the income tax is paid or to be paid at the source, no person shall be allowed the benefit of any deduction provided for in sections five or six of 52 The Federal Eeventje Law, 1916. this title unless he shall, not less than thirty days prior to the day on which the return of his income is due, either (1) file with the person who is required to with- hold and pay tax for him a true and correct return of his gains, profits, and income from all other sources, and also the deductions asbed for, and the showing thus made shall then become a part of the return to be made in his behalf by the person required to with- hold and pay the tax, or (2) likewise make application for deductions to the collector of the district in which return is made or to be made for him : Provided, That when any amount allowable as a deduction is known at the time of receipt of fixed annual or periodical income by an individual subject to 'tax, he may file with the person, firm, or corporation making the pay- ment a certificate, under penalty for false claim, and in such form as shall be prescribed by the Commis- sioner of Internal Eevenue, stating the amount of such deduction and making a claim for an allowance of the same against the amount of tax otherwise required to be deducted and withheld at the source of the income, and such certificate shall likewise become a part of the return to be made in his behalf. If such person is absent from the United States, or is unable owing to serious illness to make the return and application above provided for, the return and application may be made by an agent, he making oath that he has sufficient knowledge of the affairs and property of his principal to enable him to make a full Income Tax. 53 and complete return, and that the return and applica- tion made by him are full and complete. (c) The amount of the normal tax hereinbefore imposed shall be deducted and withheld from fixed or determinable annual or periodical gains, profits, and income derived from interest upon bonds and mort- gages, or deeds of trust or other similar obligations of corporations, joint-stock companies, associations, and insurance companies, whether payable annually or at shorter or longer periods, although such interest does, not amount to $3,000, subject to the provisions of this title requiring the tax to be withheld at the source and deducted from annual income and returned and paid to the Government. (d) And likewise the amount of such tax shall be deducted and withheld from coupons, checks, or bills of exchange for or in payment of interest upon bonds of foreign countries and upon foreign mortgages or like obligations (not payable in the United States), and also from coupons, checks,, or bills of exchange for or in payment of any dividends upon the stock or interest upon the obligations of foreign corpora- tions, associations, and insurance companies engaged in business in foreign countries. And the tax in such cases shall be withheld, deducted, and returned for and in behalf of any person subgect to the tax hereinbefore imposed, although such interest or dividends do not exceed $3,000, by (1) any banker or person who shall sell or otherwise realize coupons. 54 The Federal Revenue Law, 1916. checks, or bills of exchange drawn or made in pay- ment of any such interest or dividends (not payable in the United States), and (2) any person who shall obtain payment (not in the United States), in behalf of another of such dividends and interest by means of coupons, checks, or bills of exchange, and also (3) any dealer in such coupons who shall purchase the same for any such dividends or interest (not payable in the United States), otherwise than from a banker or another dealer in such coupons. (e) Where the tax is withheld at the source, the benefit of the exemption and the deductions allowable under this title may be had by cojuplying with the foregoing provisions of this section. Sec. 9. (b) (c) (d) (e) Withholding at source; bow exemption and deductions to be secured. The Act of July 13, 1866, section 122, provided for the withholding of dividends at the source. See (1872) Barnes v. The Railroads, 17 "Wall. 294, 21 L. Ed. 554. " Congress may tax such a dividend before it is paid to the holders of the securities, either as the prop- erty of the company or of the shareholders, at the election of Congress, nor can either party have any just ground of complaint if proper regulations are enacted to apportion and distribute the burden." Clifford, J. The Secretary unavailingly recommended doing away with with- holding, and requiring only information, at the source except as to nonresident aliens. Alimony above $3,000 is to be normally taxed at the source. It must be returned with' other income by the recipient, and, being personal expense, is not to be deducted by the man paying it. T. D. 2090, Dec. 14, 1914. Income Tax. 55 The effect of the proviso in the third paragraph of section 9 (b) is not to relieve income from tax, but to enlarge the taxpayer's priv- ilege to claim exemption from the ■withholding, and enable him to make the claim for deduction when he receives payment or when he has ascertained the amount. (f) All persons, firms, or corporations undertaking as a matter of business or for profit the collection of foreign payments of such interest or dividends by means of coupons, checks, or bills of exchange shall obtain a license- from the Commissioner of Internal Eevenue, and shall be subject to such regulations enabling the Government to ascertain and verify the due withholding and payment of the income tax required to be withheld and paid as the Commissioner of Internal Revenue, with the approval of the Secre- tary of the Treasury, shall prescribe ; and any person who shall knowingly undertake to collect such pay- ments as aforesaid without having obtained a license therefor, or without complying with such regulations, shall be deemed guilty of a misdemeanor and for each offense be fined in a sum not exceeding $5,000, or imprisoned for a term not exceeding one year, or both, in the discretion of the court. (g) The tax herein imposed upon gains, profits, and income not falling under the foregoing and not returned and paid by virtue of the foregoing shall be assessed by personal return under rules and regula- tions to be prescribed by the Commissioner of Internal Revenue and approved by the Secretary of the Treas- ury. The intent and purpose of this title is that all 56 The Fedeeal Revenue Law, 1916. gains, profits, and income of a taxable class, as defined by this title, sball be charged and assessed with the corresponding tax, normal and additional, prescribed by this title, and said tax shall be paid by the owner of such income, or the proper representative having the receipt, custody, control, or disposal of the same. For the purpose of this title ownership or liability shall be determined as of the year for which a return is required to be rendered. The provisions of this title relating to the deduction and payment of the tax at the source of income shall only apply to the normal tax hereinbefore imposed upon individuals. Sec. 9. (g) General intent of the Act as to what is taxed. This catch-all provision which was strengthened at the request of the Department (Secretary's Eeport for 1915) is availed of to prevent escape through loop-holes which may be discovered or claimed ia the more specific portions of the Act. The last sentence of section 9 is apparently only a reminder and repetition, by way of precaution. That deductions and payment at the source apply only to the normal tax, is expressed in the other relevant sections, but the little word " normal " is easily overlooked; hence the special warning. Income is taxed when received, not when accrued. (1916) Edwards v. Keith, 224 Fed. Eep. 585; 231 Id. 110. Individuals and organizations may print their own certificates which must conform in all respects to official requirements. The commissioner or any collector will furnish samples. T. D. 1976, May 2, 1914, which contains the forms as revised. Income Tax. 57 PART II.— ON CORPORATIONS. Sec. 10. That there shall be levied, assessed, col- lected, ai^d paid annually upon the total net income received in the preceding calendar year from all sources by every corporation, joint-stock company or association, or insurance company, organized in the United States, no matter how created or organized but not including partnerships, a tax of two per centum upon such income; and a like tax shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources within the United States by every corporation, joint-stock company or association, or insurance company organized, authorized, or existing under the laws of any foreign country, including inter- est on bonds, notes, or other interest-bearing obliga- tions of residents, corporate or otherwise, and includ- ing the income derived from dividends on capital stock or from net earnings of resident corporations, joint- stock companies or associations, or insurance com- panies whose net income is taxable under this title: Provided, That the term ' ' dividends ' ' as used in this title shall be held to mean any distribution made or ordered to be made by a corporation, joint-stock com- pany, association, or insurance company, out of its earnings or profits accrued sinch March first, nineteen hundred and thirteen, and payable to its shareholders, whether in cash or in stock of the corporation^ joint- stock company, association, or insurance company. 58 The Federal Revenue Law, 1916. which stock dividend shall be considered income, to the amount of its cash value. The foregoing tax rate shall apply to the total net income received by every taxable corporation, joint- stock company or association, or insurance company in the calendar year nineteen hundred and sixteen and in each year thereafter, except that if it has fixed its own fiscal year under the provisions of existing law, the foregoing rate shall apply to the proportion of the total net income returned for the fiscal year ending prior to December thirty-first, nineteen hundred and sixteen, which the period between January first, nine- teen hundred and sixteen, and the end of such fiscal year bears to the whole of such fiscal year, and the rate fixed in Section II of the Act approved October third, nineteen hundred and thirteen, entitled ' ' An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," shall apply to the remaining portion of the total net income returned for such fiscal year'. For the purpose of ascertaining the gain derived or loss sustained from the sale or other disposition by a corporation, joint-stock company or association, or insurance company, of property, real, personal, or mixed, acquired before March first, nineteen hundred and thirteen, the fair market price or value of such property as of March first, nineteen hundred and thirteen, shall be the basis for determining the amount of such gain derived or loss sustained. Income Tax. 59 Sec. 10. Corporations, domestic aad foreign; tax 2%; dividends and gain defined. " We really have no corporation tax in our income-tax system. "We merely have a system by which we require the tax on dividends coming through corporations to be taken out of the corporation before it reaches the individual, but if that property is owned by an individual he has to take the tax out himself." Senator Under- wood, Aug. 31, 1916, Cong. Rec. p. 15,774. The Corporation Excise of 1909 was imposed only upon incomes above $5,000. The Income Tax of 1913 adopted a minimum exemp- tion for individuals, as in section 7 of 1916, but entirely eliminated the exemption as to corporations. " We did not want holding companies to be encouraged by the tax laws of the country. Upon the contrary, we did desire to dis- courage them. We also desired to destroy the system of inter- locking stockholders, which has led to much abuse. * • * " Senator Williams, Aug. 29, 1916, Cong. Eec. p. 15,608. The corporation tax is an excise on privilege, and is applicable where the privilege is exercised only part of the year. (1915) Blalock V. Ga., etc., Co., 228 Fed. Rep. 296. It is on income, not on proportionate amount of profit on sale of old holding. (1915) Gauley Mt. Coal Co. v. Hays, 230 Fed. Rep. 110. Conditional and Other Exemptions. Sec. 11. (a) That there shall not be taxed under this title any income received by any — First. Labor, agricultural, or horticultural organiza- tion; Second. Mutual savings bank not having a capital stock represented by shares ; Third. Fraternal beneficiary society, order, or asso- ciation, operating under the lodge system or for the 60 The Fedebal Ebvenite Law, 1916. exclusive benefit of the members of a fraternity itself operating under the lodge system, and providing for the payment of life, siek, accident, or other benefits to the members of such society, order, or association or their dependents ; Fourth. Domestic building and loan association and cooperative banks without capital stock organized and operated for mutual purposes and without profit ; Fifth. Cemetery company owned and operated exclusively for the benefit of its members ; Sixth. Corporation or association organized and operated exclusively for religious, charitable, scientific, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual; Seventh. Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual ; Eighth. Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare ; Ninth. Club organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net income of which inures to the benefit of any private stockhholder or member; Tenth, Farmers' or other mutual hail, cyclone, or fire insurance company, mutual ditch or irrigation com- pany, mutual or cooperative telephone company, or Income Tax. 61 like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meet- ing its expenses; Eleventh. Farmers ', fruit growers ', or like associa- tion, organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quan- tity of produce furnished by them ; Twelfth. Corporation or association organized for the exclusive purpose of holding title to property, col- lecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt from the tax imposed by this title ; or Thirteenth. Federal land banks and national farm- loan associations as provided in section twenty-six of the Act approved July seventeenth, nineteen hundred and sixteen, entitled " An Act to provide capital for agricultural development, to create standard forms of investment based upon farm mortgage, to equalize rates of interest upon farm loans, to furnish a market for United States bonds, to create Government depos- itaries and financial agents for the United States, and for other purposes." Fourteenth. Joint stock land banks as to income derived from bonds or debentures of other joint stock land banks or any Federal land bank belonging to such joint stock land bank. 62 The FEDEEAii Revenue Law, 1916. Sec. 11. (a) Nonbusiness organizations exempted. In (1910) riint V. Stone Tracy Co., 220 U. S. 107, 173, the right of Congress to make these and like exemptions was again em- phasized. The list of exempt oi^anizations has been extended at the suggestion of the Department, for the reason that much corre- spondence and many futile returns were involved without any com- pensatory revenue. Salaries paid by exempt organizations are not to have the tax withheld by the corporations but to be returned by the individual. T. D. 2090, Dec. 14, 1914. A close family corporation for holding property together is not in the exempt class, and is taxable. T. D. 2137, Jan. 30, 1915. (b) There shall not be taxed under this title any income derived from any public utility or from the exercise of any essential governmental function accru- ing to any State, Territory, or the District of Columbia, or any political subdivision of a State or Territory, nor any income accruing to the government of the Philip- pine Islands or Porto Rico, or of any political sub- division of the Philippine Islands or Porto Rico : Pro- vided, That whenever any State, Territory, or the District of Columbia, or any political subdivision of a State or Territory, has, prior to the passage of this title, entered in good faith into a contract with any person or corporation, the object and purpose of which is to acquire, construct, operate, or maintain a public utility, no tax shall be levied under the provisions of this title upon the income derived from the operation of such public utility, so far as the payment thereof will impose a loss or burden upon such State, Ter- ritory, or the District of Columbia, or a political sub- division of a State or Territory; but this provision is Income Tax. 63 not intended to confer upon such person or corporation any financial gain or exemption or to relieve such per- son or corporation from the payment of a tax as pro- vided for in this title upon the part or portion of the said income to which such person or corporation shall be entitled under such contract. Sec. 11. (b) Public utility and governmental function exempt. " Public utility " is here used in the legal, and not in the eco- nomic, nor the popular, sense. The Act of June 30, 1864, section 122, taxed railroads on the interest paid on their bonds. The City of Baltimore borrowed money for a company which gave a mortgage and paid interest to the city. Held, that the interest so paid was not taxable, as it was really a tax on the creditor And not on the corporation, the company being used as a convenient means of collection ; and the whole transaction was a nontaxable governmental function. (1872) U. S. v. E. R. Co., 17 Wall. 322, 21 L. Ed. 597. The State liquor dispensary of South Carolina was outside the governmental function and hence taxable as an ordinary corporate business. (1905) S. C. v. U. S., 199 U. S. 437. A contractor, building a public highway, is not a governmental ofiflcer or employee. T. D. 2152, 1915. Deductions. Sec. 12. (a) In the case of a corporation, joint-st;ock company or association, or insurance company, organ- ized in the United States, such net income shall be ascertained by deducting from the gross amount of its income received within the year from all sources — Sec. 12. Deductions. Corporate deductions are fewer in number and are here enu- merated in a different manner than individual deductions under 64 The Federai, Revekue Law, 1916. sections 5 and 6. It is well to note, in referring to a tax exemption, for instance, that it is here numbered fourth, whereas in the indi- vidual tax it is numbered third; etc. First. All the ordinary and necessary expenses paid within the year in the maintenance and operation of its business and properties, including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation haS' not taken or is not taking title, or in which it has no equity. Sec. 12. (a) First. Deductions ly domestic corporations; ordinary ezpenses. " To which the corporation has not taken title, etc.," was added, at the Department's request, in order to prevent the deduction, as a business expense, of interest paid on heavy incumbrances. It was also intended to conform the Act to the decision in (1913) 42 Broadway Co. v. Anderson, 209 Fed. Eep. 991, where a company with a capital stock of $600 owned a building for renting with a mortgage and bond indebtedness of $5,000,000, and it was held that its payments for mortgage interest were deductable as neces- sary expenses, under the Corporation Tax Act of Aug. 5, 1909. 36 Stat. 112. This ease was' affirmed (1914) 213 Fed. Rep. 777, and reversed (1915) 239 U. S. 69. Lobbying and campaign contributions are not ordinary and necessary expenses. T. D. 2137, Jan. 30, 1915. Second. All losses actually sustained and charged off within the year and not compensated by insurance or otherwise, including a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade; (a) in Income Tax. 65 the case of oil and gas wells a reasonable allowance for actual reduction in flow and production to be ascer- tained not by the flush flow, but by the settled produc- tion or regular flow ; (b) in the case of mines a reason- able allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be prescribed by the Secretary of the Treasury : Provided, That when the allowance authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that date, no further allow- ance shall be made; and (c) in the case of insurance companies, the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts: Provided, That no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or better- ments made to increase the value of any property or estate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made: Provided, further, That mutual fire and mutual employers' liability and mutual workmen's compensation and mutual casualty insurance com- panies requiring their members to make premium 3 66 The Fbdebal Eevenxje Law, 1916. deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance reserves : Provided further, That mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them and interest paid upon such amounts between the ascer- tainment thereof and the payment thereof, and life insurance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individ- ual policyholder, within such year ; Sec. 12. (a) Second. Losses, including wear and tear. The former depreciation deduction for mines was an arbitrary 5%i Tlie purpose is to avoid taxing capital as income. The Senate tried, but failed, to give lumber exploitation a similar provision. * ' Flush flow ' ' is the initial impetuosity of a " gusher. ' ' An attempt is made by (b) in the proviso of the second sub- division to prevent the escape of extraordinary profits from prop- erties of low cost or capitalization. Income Tax. 67 Under the Corporation Tax Law of Aug. 5, 1909, it was held proper to measure the excise tax by gross income, even though such income wasted the capital as in mining. (1913) Stratton's Independence v. Howbert, 231 U. S. 399. See Forty Fort Coal Co. v. Kirkendall, 223 F. E. 704. Shrinkage in the value of securities is neither a loss nor a depreciation, even when they are written off by order of the Comp- troller or a State banking department. Losses are ascertainable only when securities mature, are disposed of, or canceled. T. D. 2152, Feb. 12, 1915. " Not compensated " was explained in the Senate by an illus- tration. II the loss is $5,000 and the insurance is $10,000, there is no deduction ; but if the loss is $10,000 and the insurance is $5,000, a deduction of $5,000 will be allowed. Third. The amount of interest paid within the year on its indebtedness to an amount of such indebtedness not in excess of the sum of (a) the entire amount of the paid-up capital stock outstanding at the close of the year, or, if no capital stock,' the entire amount of capital employed in the business at the close of the year, and (b) one-half of its interest-bearing indebted- ness then outstanding: Provided, That for the pur- pose of this title preferred capital stock shall not be considered interest-bearing indebtedness, and interest or dividends paid upon this stock shall not be deduct- ible from gross income : , Provided further, That in cases wherein shares of capital stock are issued with- out par or nominal value, the amount of paid-up capital stock, within the meaning of this section, as represented by such shares, will be the amount of cash, or its equivalent, paid or transferred to the cor- poration as a consideration for such shares : Provided further, That in the case of indebtedness wholly 68 The Federal Revenue Law, 1916. secured by property collateral, tangible or intangible, the subject of sale or hypothecation in the ordinary business of such corporation, joint-stock company or association as a dealer only in the property constitut- ing such collateral, or in loaning the funds thereby procured, the total interest paid by such corporation, company, or association within the year on any such indebtedness may be deducted as a part of its expenses of doing business, but interest on such indebtedness shall only be deductible on an amount of such indebted- ness not in excess of the actual value of such property collateral : Provided further, That in the case of bonds or other indebtedness, which have been issued with a guaranty that the interest payable thereon shall be free from taxation, no deduction for the payment of the tax herein imposed, or any other tax paid pursuant to such guaranty, shall be allowed ; and in the case of a bank, banking association, loan or trust company, interest paid within the year on deposits or on moneys received for investment and secured by interest-bearing certifi- cates of indebtedness issued by such bank, banking association, loan or trust company; Sec. 12. (a) Third. Interest paid; stock yrith no par value; tax free bonds. Corporate shares without specific par value, being merely propor- tional participation certificates, are a modem contrivance now expressly authorized in some States. The first provided further was amended at the instigation of New York realty interests. ' The last sentence in paragraph Third is, of course, a part of the running text of the paragraph, and not of the last proviso. A Income Tax. 69 reader accustomed only to good English must not expect readily to make sense out of a hurriedly drawn statute. The last proviso in section 12 (a) Third refers to the tax-free covenant clause in bonds which was held to be a matter between cor- poration and bondholder, and the Department refused to differentiate between bonds with and without the guarantee. T. D. 1942, Feb. 3, 1914; T. D. 2137, Jan, 30, 1915. The Senate sought, without suc- cess, by a new section to invalidate all such agreements. Cong. Ree. Aug. 28, 1916, p. 15,545. Economically speaking it is evident that incom* thus not with- held but paid at the source is really paid by the stockholders whose dividends are pro tanto reduced. Fourth. Taxes paid within the year imposed by the authority of the United States, or its Territories, or possession, or any foreign country, or under the authority of any State, county, school district, or municipality, or other taxing subdivision of any State, not including those assessed against local benefits. Sec. 12. (a) Fourth. Taxes paid. A bank may not deduct from gross income taxes paid for stock- holders on their capital stock; but this applies only to taxes on the valu«. A bank may deduct any State excise or franchise tax imposed on the bank itself. T. D. 2152, Feb. 12, 1915. See note under section 5, Third, supra. Under the Act of 1913 income received by corporations on account of dividends was taxable against the paying company as a part of its net earnings, and also against the receiving company as income. T. D. 2137, Jan. 30, 1915. (b) In the case of a corporation, joint-stock com- pany or association, or insurance company, organized, authorized, or existing under the laws of any foreign country, such net income shall be ascertained by 70 Thr Federaij Eevenue Law, 1916. deducting from the gross amount of its income received within the year from all sources within the United States — First. All the ordinary and necessary expenses actually paid within the year out of earnings in the maintenance and operation of its business and property within the United States, including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity. Sec. 12. (b) Deductions by foreign corporations. Dediietions allowed domestic corporations are here restated from section 12 (a), with only suoh changes as are needed to adapt them to foreign corporations. Only such expenses, losses, wear and tear, and interest are deductable as apply to business and property in America. See note to section 12 (a). Second. All losses actually sustained within the year in business or trade conducted by it within the United States and not compensated by insurance or otherwise, including a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the business or trade; (a) and in the case (a) of oil and gas wells a reasonable allowance for actual reduction in flow and production to be ascer- tained not by the flush flow, but by the settled pro- duction or regular flow; (b) in the case of mines a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof which has been mined and sold during the year Income Tax. 71 for which the return and computation are made, such reasonable allowance to be made in the case of both (a) and (b) under rules and regulations to be pre- scribed by the Secretary of the Treasury: Provided, That when the allowance authorized in (a) and (b) shall equal the capital originally invested, or in case of purchase made prior to March first, nineteen hun- dred and thirteen, the fair market value as of that date, no further allowance shall be made ; and (c) in the case of insurance companies, the net addition, if any, required by law to be made within the year to reserve funds and the sums other than dividends paid within the year on policy and annuity contracts : Provided, That no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments, made to increase the value of any property or estate, and no deduction shall be made for any amount of expense of restoring property or making good the exhaustion thereof for which an allowance is or has been made : Provided, further, That mutual fire and mutual employers' liability and mutual workmen's compensation and mutual casualty insurance com- panies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to their policyholders, but shall return as taxable income all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for pur- poses other than the payment of losses and expenses and reinsurance reserves: Provided further. That 72 The Fedebal, Eevekue Law, 1916. mutual marine insurance companies shall include in their return of gross income gross premiums collected and received by them less amounts paid for reinsur- ance, but shall be entitled to include in deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them, and interest paid upon such amounts between the ascertain- ment thereof and the 'payment thereof, and life insur- ance companies shall not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder, or treated as an abatement of premium of such individual policy- holder, within such year ; Third. The amount of interest paid within the year on its indebtedness to an amount of such indebtedness not in excess of the proportion of the sum of (a) the entire amount of the paid-up capital stock outstanding at the close of the year, or, if no capital stock, the entire amount of the capital employed in the business at the close of the year, and (b) one-half of its interest- bearing indebtedness then outstanding, which the gross amount of its income for the year from business trans- acted and capital invested within the United States bears to the gross amount of its income derived from all sources within and without the United States : Pro- vided, That in the case of bonds or other indebtedness which have be«n issued with a guaranty that the interest payable thereon shall be free from taxation, no deduction for the payment of the tax herein imposed Income Tax. 73 or any other tax paid pursuant to such guaranty shall be allowed ; and in case of a bank, banking association, loan or trust company, or branch thereof, interest paid within the year on deposits by or on moneys received for investment from either citizens or residents of the United States and secured by interest-bearing certifi- cates of indebtedness issued by such bank, banking association, loan or trust company, or branch thereof; Fourth. Taxes paid within the year imposed by the authority of the United States, or its Territories, or possessions, or under the authority of any State, county, school district, or municipality, or other taxing subdivision of any State, paid within the United States, not including those assessed against local benefits ; Sec. 12. (b) ronrth. Taxes paid by foreign corporations. Domestic corporations, as well as individuals, may now deduct foreign taxes, but not so foreign corporations. Cf. J 12 (a) Fourth. (c) In the case of assessment insurance companies, whether domestic or foreign, the actual deposit of sums with State or Territorial officers, pursuant to law, as additions to guarantee or reserve funds shall be treated as being payments required by law to reserve funds. Sec. 12. (c) Insurance companies, domestic and foreign, State deposits as exempt reserves. Cf. section 12 (a) Second, first proviso (c) permitting insurance companies to deiduet lawful reserves. 74 The Federal Revenue Law, 1916. Returns. Sec. 13. (a) The tax shall be computed upon the net income, as thus ascertained, received within each preceding calendar year ending December thirty-first : Provided, That any corporation, joint-stock company or association, or insurance company, subject to this tax, may designate the last day of any month in the year as the day of the closing of its fiscal year and shall be entitled to have the tax payable by it computed upon the basis of the net income ascertained as herein provided for the year ending on the day so designated in the year preceding the date of assessment instead of upon the basis of the net income for the calendar year preceding the date of assessment; and it shall give notice of the day it has thus designated as the closing of its fiscal year to the collector of the district in which its principal business office is located at any time not less than thirty days prior to the first day of March of the year in which its return would be filed if made upon the basis of the calendar year ; Sec. 13. (a) Corporations may designate fiscal year other than calendar. It was found impracticable satisfactorily to administer such a law as the Corporation Excise of 1909 and arbitrarily compel every- body to adopt the calendar year or the Federal fiscal year. The designation and notice cannot be retroactive. B^ulations, Jan. 5, 1914, J 169. (b) Every corporation, joint-stock company or asso- ciation, or insurance company, subject to the tax herein Income Tax. 75 imposed, shall, on or before the first day of March, nineteen hundred and seventeen,, and the first day of March in each year thereafter, or, if it has designated a fiscal year for the computation of its tax, then within sixty days after the close of such fiscal year ending prior to December thirty-first, nineteen hundred and sixteen, and the close of each such fiscal year there- after, render a true and accurate return of its annual net income in the manner and form to be prescribed by the Commissioner of Internal Eevenue, with the approval of the Secretary of the Treasury, and con- taining such facts, data, and information as are appro- priate and in the opinion of the commissioner necessary to determine the correctness of the net income returned and to carry out the provisions of this title. The return shall be sworn to by the presi- dent, vice president, or other principal officer, and by the treasurer or assistant treasurer. The return shall be made to the collector of the district in which is located the principal office of the corporation, company, or association, where are kept its books of account and other data from which the return is prepared, or in the case of a foreign corporation, company, or association, to the collector of the district in which is located its principal place of business in the United States, or if it have no principal place of business, office, or agency in the United States, then to the collector of internal revenue at Baltimore, Maryland. All such returns shall as received be transmitted forthwith by the col- lector to the Commissioner of Internal Revenue ; 76 The Fedebal Revenue Law, 1916. Sec. 13. (b) Corporate returns, when and how made. As to penalties, see section 14 (c). Under the Act of Aug. 5, 1909, it was held that returns were required from all corporations not expressly exempted, and not only from such as were certain to be found taxable. (1912) U. S. V. Acorn Roofing Co., 204 Ted. Rep. 157. The invalidated Income Tax Law of 1894 required all business corporations to make return, whether or not they had net income. (c) In cases wherein receivers, trustees in bank- ruptcy, or assignees are operating the property or business of corporations, joint-stock companies or associations, or insurance companies, subject to tax im- posed by this title, such receivers, trustees, or assignees shall make returns of net income as and for such cor- porations, joint-stock companies or associations, and insurance companies, in the same manner and form as such organizations are hereinbefore required to make returns, and any income tax due on the basis of such returns made by receivers, trustees, or assignees shall be assessed and collected in the same manner as if assessed directly against the organization of whose business or properties they have custody and control; Sec. 13. (c) Returns by receivers, bankruptcy trustees, etc. Judicial and quasi ^judicial custodians frequently obtain author- ization to continue business operations. In many instances the situation does not grow out of financial distress, and substantial profits are often realized. (d) A corporation, joint-stock company or associa- tion, or insurance company, keeping accounts upon any Income Tax. 77 basis other than that of actual receipts and disburse- ments, unless such other basis does not clearly reflect its income, may, subject to regulations made by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, make its return upon the basis upon which its accounts are kept, in which case the tax shall be computed upon its income as so returned ; Sec. 13. (d) Corporate books, on what basis may be kept. See note under section 8 (g). (e) All the provisions of this title relating to the tax authorized and required to be deducted and with- held and paid to the officer of the United States Grov- ernment authorized to receive the same from the income of nonresident alien individuals from sources within the United States shall be made applicable to incomes derived from interest upon bonds and mort- gages or deeds of trust or similar obligations of domestic or other resident corporations, joint-stock companies or associations, and insurance companies by nonresident alien firms, copartnerships, companies, corporations, joint-stock companies or associations, and insurance companies not engaged in business or trade within the United States and not having any office or place of busines therein ; Sec. 13. (e) Withholding at source applies to bond interest, etc., due foreigners. See notes under section 6. 78 The Fedebal Revenue Law, 1916. (f ) Likewise, all the provisions of this title relating to the tax authorized and required to be deducted and withheld and paid to the officer of the United States Government authorized to receive the same from the income of nonresident alien individuals from sources within the United States shall be made applicable to income derived from dividends upon the capital stock or from the net earnings of domestic or other resident corporations, joint-stock companies or associations, and insurance companies by nonresident alien com- panies, corporations, joint-stock companies or asso- ciations, and insurance companies not engaged in busi- ness or trade within the United States and not having any office or place of business therein. Sec. 13. (f ) Withholding at source applies to dividends payable to foreigners. See notes under section 6. Assessment and Administration. Sec. 14. (a) All assessments shall be made and the several corporations, joint-stock companies or asso- ciations, and insurance companies shall be notified of the amount for which they are respectively liable on or before the first day of June of each successive year, and said assessment shall be paid on or before the fifteenth day of June : Provided, That every corpora- tion, joint-stock company or association, and insurance company, computing taxes upon the income of the fiscal year which it may designate in the manner herein- before provided, shall pay the taxes due under its Income Tax. 79 assessment within one hundred and five days after the date upon which it is required to file its list or return of income for assessment; except in cases of refusal or neglect to make such return, and in cases of erroneous, false, or fraudulent returns, in which cases the Com- missioner of Internal Revenue shall, upon the dis- covery thereof, at any time within three years after said return is due, make a return upon information obtained as provided for in this title or by existing law ; and the assessment made by the Commissioner of Internal Eevenue thereon shall be paid by such cor- poration, joint-stock company or association, or insur- ance company immediately upon notification of the amount of such assessment; and to any sum or sums due and unpaid after the fifteenth day of June in any year, or after one hundred and five days from the date on which the return of income is required to be made by the taxpayer, and after ten days' notibe and demand thereof by the collector, there shall be added the. sum of five per centum on the amount of tax unpaid and interest at the rate of one per centum per month upon said tax from the time the same becomes due: Pro- vided, That upon the examination of any return of income made pursuant to this title, the Act of August fifth, nineteen hundred and nine, entitled, "An Act to provide revenue, equalize duties and encourage the in- dustries of the United States, and for other purposes," and 'the Act of October third, nineteen hundred and thirteen, entitled, "An Act to reduce tariff duties and to provide revenue for the Government, and for other 80 The Fedebal Revenue Law, 1916. purposes ", if it shall appear that amounts of tax have been paid in excess of those properly due, the tax- payer shall be permitted to present a claim for refund thereof notwithstanding the provisions of sections thirty-two hundred and twenty-eight of the Eevised Statutes ; Sec. 14. (a) Assessment and administration; notification of amount; when tax due; interest penalty; refund of excess paid under former law. The change of the date of payment from June 30 to June 15 was made at the request of the Secretary in order to facilitate the com- pletion of collections within the government's fiscal year, and to insure the attaching of penalties within the same period. Where a special corporate fiscal year has been designated, as provided in section 13 (a), the tax is payable 105 days after the 60 days within which, according to section 13 (b), the return must be made. The general rule is that the return is due on or before March 1, and the tax is now payable June 15; hence the 105-day rule for special fiscal years. The 5% interest penalty is taken from Revised Statutes, section 3184. Notice is requisite to warrant the addition. U. S. v. Bristow, 20 Fed. Rep. 378. The provision is to be strictly contrued. U. S. v. AUen, 14 Fed. Rep. 263. The administration of this legislation is still experimental. Errors were numerous under the Acts of 1909 and 1913, and it is not only liberal, but shrewd, for Congress to extend the statute of limitations and so encourage frank accuracy and completeness of future returns. Revised Statutes, section 3228, requires claims for refund to be presented to the Commissioner within two years after the cause of action accrued. (b) When the assessment shall be made, as provided in this title, the returns, together with any corrections thereof which may have been made by the commis- sioner, shall be filed in the office of the Commissioner Income Tax. 81 of Internal Revenue and shall constitute public records and be open to inspection as such : Provided, That any and all such returns shall be open to inspection only upon the order of the President, under rules and regu- lations to be prescribed by the Secretary of the Treas- ury and approved by the President : Provided further, That the proper officers of any State imposing a gen- eral income tax may, upon the request of the governor thereof, have access to said returns or to an abstract thereof, showing the name and income of each such corporation, joint-stock company or association, or insurance company, at such times and in such manner as the Secretary of the Treasury may prescribe ; Sec. 14. (b) Setums are pubUc records; how inspected. There was no qualifying proviso in regard to publicity and inspection in the Act of 1909 as first enacted, but one was added by Act of June 17, 1910. Cf . note to R. S. 4 3167 in § 16, infra. Vigorous attempts were made to declare income tax returns ordinary public records, open for public inspection, but they failed. The Senator in charge said, " It was in consideration, not of the great fortunes, not of the big corporations, but of those of much more limited means who might be adversely affected by publication that the committee took the action it did; and the threat that this injury would come was one of the arguments usually made against income taxes," Cong. Eec. 1916, p. 16241. Regulations have been prescribed by the Secretary, covering inspection of returns, and were approved by Executive Order, July 28, 1914, and are contained in T. D. 2016, Aug. 18, 1914. (c) If any of the corporations, joint-stock companies or associations, or insurance companies aforesaid shall refuse or neglect to make a return at the time or times hereinbefore specified in each year, or shall render a 82 The Fbderal Eevenue Law, 1916. false or fraudulent return, such corporation, joint- stock company or association, or insurance company shall be liable to a penalty of not exceeding $10,000: Provided, That the Commissioner of Internal Revenue shall have authority, in the case of either corporations or individuals, to grant a reasonable extension of time in meritorious cases, as he may deem proper. Sec. 14. (c) Penalty for default or falsity of return. (See § 18.) Neglect or refusal to make the corporate return or the making of a false return involves a penalty up to $10,000. 4 14 (c). Fifty per cent, is also mandatorially added to the tax for failure of return, excepting excusable sickness or absence, but this may be avoided by a subsequent voluntary return. If the return is willfully false, 100% is added. And in any case of default of return or of a false return, the Collector may make return which is prima facie legal. E. S. 3176, amended by § 16 infra. A corporate officer who makes a false return to defeat or evade the tax is guilty of a misdemeanor penalized up to $2,000 and one year or both. $ 18. And see J 14 (d). (d) That section thirty-two hundred and twenty-five of the Revised Statutes of the United States be, and the same is hereby, amended so as to read as follows : " Sec. 3225. When a second assessment is made in case of any list, statement, or return, which in the opinion of the collector or deputy collector was false or fraudulent, or contained any understatement or undervaluation, no tax collected under such assess- ment shall be recovered by any suit unless it is proved that the said list, statement, or return was not false nor fraudulent and did not contain any understatement or Income Tax. 83 undervaluation; but this section shall not apply to statements or returns made or to be made in good faith, under the laws of the United States regarding annual depreciation of oil or gas wells and mines. ' ' Sec. 14. (d) Burden of. proof where falsity suspected; exception. The amendment of Revised Statutes, section 3225, consists in add- ing the exception after the semi-colon and " but ". Such phrases as " actual reduction in flow . . . ascertained not by the flush, etc.", and " market value in the mine " of a product " which has been mined and sold", section 5 eighth, section 6 seventh, section 12 (a) second, and section 12 (b) second, were enough to suggest this qualification to some conservative legislator. PART III.— GENERAL ADMINISTRATIVE PROVISIONS. Sec. 15. That the word " State " or " United States " when used in this title shall be construed to include any Territory, the District of Columbia, Porto Rico, and the Philippine Islands, when such construc- tion is necessary to carry out its provisions. Sec. 16. That sections thirty-one hundred and sixty- seven, thirty-one hundred and seventy-two, thirty-one hundred and seventy-three and thirty-one hundred and seventy-six of the Eevised Statutes of the United States as amended are herebv amended so as to read as follows : " Sec. 3167. It shall be unlawful for any collector deputy collector, agent, clerk, or other officer or em- ployee of the United States to divulge or to make 84 The Federal Revenue Law, 1916. known in any manner whatever not provided by law to any person tlie operation, style of work, or apparatus of any manufacturer or producer visited by him in the discharge of his official duties, or the amount or source of income, profits, losses, expenditures, or any par- ticular thereof, set forth or disclosed in any income return, or to permit any income return or copy thereof or any book containing any abstract or particulars thereof to be seen or examined by any person except as provided by law; and it shall be unlawful for any person to print or publish in any manner whatever not provided by law any income return or any part thereof or source of income, profits, losses, or expenditures appearing in any income return; and any offense against the foregoing provision shall be a misdemeanor and be punished by a fine not exceeding $1,000 or by imprisonment not exceeding one year, or both, at the discretion of the court ; and if the offender be an officer or employee of the United States he shall be dismissed from office or discharged from employment. Sec. 16. Amendment of Revised Statutes, 3176. The amendment here made of Revised Statutes, section 3167, is not precisely " edifying." The word " employee " is now spelled with, two e's at the end. The prohibition against publishing returns now omits " amounts." Cf . 5 21, infra, as to publishing statistics. And, finally, an ofiender who is dismissed or discharged is not dis- qualified from again holding governmental office. The original Regulations No. 33, under the Act of 1913, provided that the Collector, in certain cases of fraud, should make and return a copy of the return for use in investigation; but this was later annulled, and it was ruled that ' ' Collectors should not under any conditions retain copies of returns. " T. D. 2024, Oct. 15, 1914. Income Tax. 85 Copies cannot be procured for use in prosecution of indictments under State laws, T. D. 766, nor as between private litigants, T. D. 224, 1218. (1900) Boske v. Comingore, 177 U. S. 459, aff'g (1899) 96 Fed. Hep. 552; StegaU v. Thurman, 175 Fed. Rep. 813. Cf. 5 14 (b) and note; and see $ 21 as to of&cial statistics. " Sec. 3172, Every collector shall, from time to time, cause his deputies to proceed through every part of his district and inquire after and concerning all persons therein who are liable to pay any internal- revenue tax, and all persons owning or having the care and management of any objects liable to pay any tax, and to make a list of such persons and enumerate said objects. Sec. 16. B. S. 3172 amended. The amendment of Revised Statutes, section 3172, is the same as was made by section 34 of the Act of August 28, 1894 (which Act included the unconstitutional Income Tax), and makes the section apply to all internal revenue taxes. " Sec. 3173. It shall be the duty of any person, partnership, firm, association, or corporation, made liable to any duty, special tax, or other tax imposed by law, when not otherwise provided for, (1) in case of a special tax, on or before the thirty-first day of July in each year, (2) in case of income tax on or before the first day of March in each year, or on or before the last day of the sixty-day period next following the closing date of the fiscal year for which it makes a return of its income, and (3) in other cases before the day on. which the taxes accrue, to make a list or return, verified by oath, to the collector or a deputy collector of the^ 86 The Fedebal Revenue Law, 1916. district where located of the articles or objects, includ- ing the amount of annual income charged with a duty or tax, the quantity of goods, wares, and merchandise, made or sold and charged with a tax, the several rates and aggregate amount, according to the forms and regulations to be prescribed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, for which such person, partnership, firm, association, or corporation is liable: Provided, That if any person liable to pay any duty or tax, or owning, possessing, or having the care or management of property, goods, wares, and merchandise, articles or objects liable to pay any duty, tax, or license, shall fail to make and exhibit a list or return required by law, but shall consent to disclose the particulars of any and all the property, goods, wares, and merchandise, articles, and objects liable to pay any duty or tax, or any business or occupation liable to pay any tax as aforesaid, then, and in that case, it shall be the duty of the collector or deputy collector to make such list or return, which, being distinctly read, consented to, and signed and verified by oath by the person so owning, possessing, or having the care and management as aforesaid, may be received as the list of such person : Provided further, That in case no annual list or return has been rendered by such person to the collector or deputy collector as required by law, and the person shall be absent from his or her residence or place of business at the time the collector or a deputy collector shall call for the annual list or return, it shall be the duty of such collector or deputy collector to leave at Income Tax. 87 such place of residence or business, with some one of suitable age and discretion, if such be present, other- wise to deposit in the nearest post office, a note or memorandum addressed to such person, requiring him or her to render to such collector or deputy collector the list or return required by law within ten days from the date of such note or memorandum, verified by oath. And if any person, on being notified or required as aforesaid, shall refuse or neglect to render such list or return within the time required as aforesaid, or when- ever any person who is required to deliver a monthly or other return of objects subject to tax fails to do so at the time required, or delivers any return which, in the opinion of the collector, is erroneous, false, or fraudulent, or containsi any undervaluation or under- statement, or refuses to allow any regularly author- ized Government officer to examine the books of such person, firm, or corporation, it shall be lawful for the collector to summon such person, or any other person having possession, custody, or care of books of account containing entries relating to the business of such per- son, or any other person he may deem proper, to appear before him and produce such books at a time and place named in the summons, and to give testi- mony or answer interrogatories, under oath, respect- ing any objects or income liable to tax or returns thereof. The collector may summon any person resid- ing or found within the State or Territory in which his district lies ; and when the person intended to be sum- moned does not reside and can not be found within such State or Territory, he may enter any collection 88 The Fedeeal Revenue Law, 1916. district where such person may be found and there make the examination herein authorized. And to this end he may there exercise all the authority which he might lawfully exercise in the district for which he was commissioned : Provided, That ' person, ' as used in this section, shall be construed to include any corporation, joint-stock company or association, or insurance com- pany when such construction is necessary to carry out its provisions. Sec. 16. B. S. 3173 amended. The amendment of Revised Statutes, section 3173, substitutes first day of March for first Monday of March (as it was under the Act of 1894) for income tax returns, and makes provision for cases ■where a special fiscal year is chosen by corporations under section 13 (b) of the present Act. And, by the last proviso, it makes the section applicable to corporations. " Sec. 3176. If any person, corporation, company, or association fails to make and file a return or list at the time prescribed by law, or makes, willfully or otherwise, a false or fraudulent return or list, the col- lector or deputy collector shall make the return or list from his own knowledge and from such information as he can obtain through testimony or otherwise. Any return or list so made and subscribed by a collector or deputy collector shall be prima facie good and sufficient for all legal purposes. " If the failure to file a return or list is due to sick- ness or absence the collector may allow such further time, not exceeding thirty days, for making and filing the return or list as he deems proper. Income Tax. 89 " The Commissioner of Internal Eevenne shall assess all taxes, other than stamp taxes, as to which returns or lists are so made by a collector or deputy collector. In case of any failure to make and file a return or list within the time prescribed by law or by the collector, the Commissioner of Internal Uevenue shall add to the tax fifty per centum of its amount except that, when a return is voluntarily and without notice from tlie collector filed after such time and it is shown that the failure to file it was due to a reason- able cause and not to willful neglect, no such addition sliall be made to the tax. In case a false or fraudulent return or list is willfully made, the Commissioner of Internal Eevenue shall add to the tax one hundred per centum of its amount. ' ' The amount so added to any tax shall be collected at the same time and in the same manner and as part of the tax unless the tax has been paid before the dis- covery of the neglect, falsity, or fraud, in which case the amount so added shaU be collected in the same manner as the tax." Sec. 16. B. S. 3176 amended. The amendment of Revised Statutes, section 3176, is essentially a rewriting and rearrangement. It substitutes " failure " for " refusal or neglect;" and inserts "at the time prescribed" in the clause authorizing the Collector to make the return. It makes the 50% penalty expressly applicable to failure to file "-within the iime prescribed," and it provides that this penalty sihaU not apply in absence of willful neglect where a return is subsequently volun- tarily made without notice from the Collector. 90 The Fbdbeal Eevbnue Law, 1916. Absence, as relieving from the 50%' penalty, means temporary, not continuous, absence. T. D. 891, April 22, 1905. " Willfully or otherwise " is intended to meet such decisions as (1878) German Sav. Bk. v. Archbold, 15 Blatch. 398. The 100% penalty is constitutional. (1872) Doll v. Evans, C. C. E. D. Pa., Ted. Cases 3969, following Bartlett v. Kane, 16 How. 269 (penalty of added customs duties). Sec. 17. That it shall be the duty of every collector of internal revenue, to whom any payment of any taxes is made under the provisions of this title, to give to the person making such payment a full written or printed receipt, expressing the amount paid and the particular account for which such payment was made ; and when- ever such payment is made such collector shall, if required, give a separate receipt for each tax paid by any debtor, on account of payments made to or to be made by him to separate creditors in such form that such debtor can conveniently produce the same sepa- rately to his several creditors in satisfaction of their respective demands to the amounts specified in such receipts ; and such receipts shall be sufficient evidence in favor of such debtor to justify him in withholding the amount therein expressed from his next payment to his creditor ; but such creditor may, upon giving to his debtor a fuU written receipt, acknowledging the payment to him of whatever sum may be actually paid, and accepting the amount of tax paid as aforesaid (specifying the same) as a further satisfaction of the debt to that amount, require the surrender to him of such collector's receipt. Income Tax. 91 Sec. 17. Beceipts for taxes paid. Revised Statutes, section 3183, amd. by section 3 of Act of March 1, 1879, requires collectors to give receipts except for stamps sold and delivered and forbids issue of a receipt in lieu of a stamp. Section 17 of the present Act is practically the amendment of August 28, 1894, section 27, which was made Revised Statutes, section 3183a. Sec. 18. That if any individual liable to make the return or pay the tax aforesaid shall refuse or neglect to make such return at the time or times hereinbefore specified in each year, he shall be liable to a penalty of not less than $20 nor more than $1,000. Any individual or any officer of any corporation, joint-stock company or association, or insurance company required by law to make, render, sign, or verify any return who makes any false or fraudulent return or statement with intent to defeat or evade the assessment required by this title to be made shall be guilty of a misdemeanor, and shall be fined not exceeding $2,000 or be imprisoned not exceeding one year, or both, in the discretion of the court, with the costs of prosecution: Provided, That where, any tax heretofore due and payable has been duly paid by the taxpayer, it shall not be re-collected from any person or corporation required to retain it at its source, nor shall any penalty be imposed or col- lected in such cases from the taxpayer, or such person or corporation whose duty it was to retain it, for failure to return or pay the same, unless such failure was fraudulent and for the purpose of evading pay- ment. 92 The Federal Revenue Law, 1916. Sec. 18. Penalties for default or falsity of return. The penalties here provided apply only to persons as individuals or as corporate officers. The penalty incurred by a corporation, which may be up to $10,000, is provided in section 14 (c), sitpra. The smaller penalty here attaches to a defaulting taxable person, the larger to a person who, in, a representative or administrative posi- tion, is required to do something about a return, and acts fraudu- lently in regard to it. When the tax was new, penalties were not strictly enforced, and a scheme of compromises was adopted : $10 for corporations and $5 for individuals. T. D. 2193, April 24, 1915. It is now the avowed purpose to be more rigid in adhering to the statute. Sec. 19. The collector or deputy collector shall require every return to be verified by the oath of the party rendering it. If the collector or deputy collector have reason to believe that the amount of any income returned is understated, he shall give due notice to the person making the return to show cause why the amount of the return should not be increased, and upon proof of the amount understated may increase the same accordingly. Such person may furnish sworn testi- mony to prove any relevant facts, and, if dissatisfied with the decision of the collector, may appeal to the Commissioner of Internal Eevenue for his decision under such rules of procedure as may be prescribed by regulation. Sec. 19. Betum to le sworn; proceedings wben understated. By Revised Statutes, section 1, oath includes affirmation. An appeal must be made to the Commissioner before suit can be brought. R. S. 3226. The Commissioner has broad power under R. S. 3220 to remit and refund. Income Tax. 93 Sec. 20. That jurisdiction is hereby conferred upon the district courts of the United States for the district within which any person summoned under this title to appear to testify or to produce books shall reside, to compel such attendance, production of books, and testi- mony by appropriate process. Sec. 21. That the preparation and publication of statistics reasonably available with respect to the operation of the income tax law and containing classi- fications of taxpayers and of income, the amounts allowed as dedi^ctions and exemptions, and any other facts deemed pertinent and valuable, shall be made annually by the Commissioner of Internal Eevenue with the approval of the Secretary of the Treasury. Sec. 21. Official statistics of the tax may be published. Cf. § 14 (b). Sec. 22. That all administrative, special, and gen- eral provisions of law, including the laws in relation to the assessment, remission, collection, and refund of internal-revenue taxes not heretofore specifically repealed and not inconsistent with the provisions of this title, are hereby extended and made applicable to all the provisions of this title and to the tax herein imposed. Sec. 22. Other laws made applicable. This broad transfer includes much more statute law than can even be digested here. The most convenient way to ascertain what 94 The Fedeeal Eeventje Law, 1916. is deemed to apply under this section is to consult the official manual of Internal Revenue Laws, issued by the Department, new edition, 1911, with supplements. This is the official guide furnished revenue officers. Sec. 23. That the provisions of this title shall extend to Porto Eico and the Philippine Islands : Pro- vided, That the administration of the law and the col- lection of the taxes imposed in Porto Rico and the Philippine Islands shall be by the appropriate internal- revenue officers of those governments, and all revenues collected in Porto Rico and the Philippine Islands there- under shall accrue intact to the general Governments thereof, respectively: Provided further, That the juris- diction in this title conferred upon the district courts of the United States shall, so far as the Philippine Islands are concerned, be vested in the courts of the first instance of said islands: And provided further, That nothing in this title shall be held to exclude from the computation of the net income the compensation paid any official by the governments of the District of Columbia, Porto Rico, and the Philippine Islands, or the political subdivisions thereof. Sec. 23. How far apply to Island Possessions. The Internal Revenue Act of July 20, 1868, properly made a, tobacco tax applicable to Indian Territory, despite an early treaty assuring the Cherokees freedom from taxation of their products. (1870) Cherokee Tobacco, 11 "Wall. 616. Cf. H 15 and 20, and notes on 5 4; also ^§ 200, 300, 400, 500. Income Tax. 95 The Federal government does not tax State salaries but is free to, and does, tax those paid directly or indirectly by itself. Sec. 24. That Section H of the Act approved Octo- ber third, nineteen hundred and thirteen, entitled "An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," is hereby repealed, except as herein otherwise provided, and except that it shall remain in force for the assessment and collection of all taxes which have accrued there- under, and for the imposition and collection of all penalties or forfeitures which have accrued or may accrue in relation to any of such taxes, and except that the unexpended balance of any appropriation hereto- fore made and now available for the administration of such section or any provision thereof shall be available for the administration of this title or the corresponding provision thereof. Sec. 24. Bepeal and reservation. This repeals, generally, the Income Tax Law of 1913, which was part of the Underwood Tariff Act, and merely continues the power to enforce payment of accrued taxes and to penalize offenses. Cf. § 10, § 14 (a) second proviso, and § 25. Sec. 25. That income on which has been assessed the tax imposed by Section II of the Act entitled "An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," approved October third, nineteen hundred and thirteen, shall not be considered as income within the meaning of this 96 The Fedeeal Revenue Law, 1916. title : Provided, That this section shall not conflict with that portion of section ten, of this title, under which a taxpayer has fixed its own fiscal year. Sec. 25. Income assessed under former law excluded. This is intended to insure the payment of the new higher rate upon income subsequent to January 1, 1916, where the return for an arbitrary fiscal year overlaps the taxable calendar year. See 5 J 10, 14(a), proviso, and 24. ACT OF SEPTEMBER 8, 1916. TITLE II.— ESTATE TAX. HISTORICAL AND GENERAL. Eome, also, had heavy military expenses, and Angnstns, in 6 A. D. proposed a 5% tax on all inheritances and- legacies except those to near relations and the poor — Vicesima hereditatu/n et legatorum. It, also, was denounced as legalized prescription against the rich and the thrifty; but Augustus worked the trick of finding the proposal among Caesar's (forged) papers, and it became law as by virtue[ !] of a senatus eonsultum of 44 B*. C. Rome got the idea of such a tax from Egypt where she had a habit of taking what she wanted. England first imposed a legacy duty in 1780, and elaborated it by the Legacy Duty Act of 1796. The Succession Duty Act was passed in 1853. The Einance Act of 1894 established the estate duty, and regnilated the whole subject of legacy, succession and probate duties. The rates were increased in 1907, 1909-10, and again latterly.^ This class of taxation is not so new in our Federal legislation as some newspapers and even some Congressmen have supposed. The Stamp Act of July 6, 1797, eh. 11, 1 Stat. 527, imposed a legacy tax, or ad valorem duty, on testamentary dispositions, descents and successions, to be collected through stamp duties laid on the receipts for pasonent over. Personalty shares exceeding $50 were taxable. The influence of the English precedent is evident. The tax was to be operative for five years. Its taking effect was later post- poned six months. The repeal took effect July 1, 1802. No special consideration was given to the question as to the power of Congress to enact such a law. "" Some historical data may be found in such exhaustive opinions as those in (1897) Magoun v. 111. Trust, 170 U. S. 283; (1899) Knowl- ton V. Moore, 178 U. S. 41. 4 98 The Fedebal, Eevbntje Law, 1916. A tax of the same character was about to be imposed when the War of 1812 ended. The Act of July 1, 1862, sections 111-114, 12 Stat. 483, amended by June 30, 1864, sections 124, 125 (personalty, sections 126-150 (realty), and by July 13, 1866, imposed a tax on legacies and shares, and added a probate and administration stamp duty on the whole estate. Here again there was not much refined consideration of the constitutionality of the tax. Revenue was needed, and the records showed legislative precedent. The minimum, personal estate taxed was $1,000. The tax of 1864-66 was later upheld as an impost or excise, and as not being a direct tax. (1874) Scholey v. Rew, 23 "Wall. 331. The court, in 1899 Knowlton v. Moore, 178 U. S. 41, in passing upon a later tax (of 1898, infra), reviewed the whole subject exhaustively. The Civil War inheritance taxes were repealed July 14, 1870, 16 Stat. 256; the probate and administration taxes, June 6, 1872, 17 Stat. 256. The income tax of the Tariff Act of August 28, 1894, 28 Stat. 509, 553, imposed a tax on income including personal property acquired by g^ift or inheritance. This part of the Act was declared invalid in the famous Income Tax Cases, (1894) Pollock v. Farmers' L. & T. Co., 157 U. S. 429, 39 L. Ed. 759; 158 U. S. 601, 39 L. Ed. 1108; and the inheritance tax fell as a portion of an indivisible whole. See notes of Title I, Income Tax. But the Pollock case did not decide against a Federal inheritance or estate tax as such. The War Revenue Act of June 13, 1898, 30 Stat. 448, sections 29, 30, imposed a succession tax, with a scale of rates increasing on larger amounts. It and the progressive principle were upheld in (1899) Knowlton v. Moore, 178 U. S. 41, an elaborate test case, interpreting the uniformity requirement of the Constitution as little else than geographic (meaning general operation throughout all the States) ; distinguishing the Pollock eases from (1874) Scholey v. Rew, supra, which upheld the Civil War legacy taxes. The tax of 1898 applied only to personal property. Devised shares of a so-called real estate trust in Massachusetts were not taxable. (1915) Bartlett v. Gill, 221 Fed. Rep. 476; (1915) Gill v. Bartlett, 224 id. 927. The legacy tax of June 13, 1898, amended by March 2, 1901, was repealed April 12, 1902, to take effect July 1, 1902; and the Act of Estate Tax. 99 June 27, 1902, provided for refund of taxes paid in contingent estates. Several cases arose on questions of vesting and of dates. (1915) Uterbart v. U. S., 240 U. S. 598; (1914) U. S. v. Jones, 236 U. S. 106; (1914) McCoach v. Pratt, 236 U. S. 562, (1911) U. S. v. Fidelity W. Co., 222 U. S. 158; (1909) Hertz v. Woodman, 218 U. S. 205; (1904) Vanderbilt v. Eidman, 196 U. S. 480; (1913) Beer v. Moffatt, 209 Fed. Rep. 779. Inheritance taxes, collateral and direct, have in later decades been adopted by most of the States. Even organized effort has not suc- ceeded in constraining comity among the States, but local self- interest is gradually enforcing the suggestion that "the hen ought not to be kUled." It may yet be necessary for the Nation to supervise these taxes, and perhaps to collect and apportion them. In the Congressional preparation of the present Act, amendments were offered (by Mr. Sherman, Aug. 5, 1916, and by Mr. Gallinger, Aug. 21, 1916) providing for payment into the treasury of eaeh State of half the tax collected in such State. The present tax was opposed in Congress, on the ground that it would deprive the States of needed revenue. Cong. Rec. Aug. 11, 1916, p. 14,519; Aug. 23, pp. 15,238, 15,243; Aug. 24, p. 15,288. Much has been sought to be made of the fact that the States had in a manner pre-empted the tax; but there is no doubt of the Federal power to use it, and it is well argued that such a tax is better suited for Federal application. In view of the mobility of modern prop- erty and persons, succession is no longer local; and the interstate tax-war naturally suggests a central corrective. The taxing powers are concurrent, and the practical administration will find a way of avoiding the evils of a twilight zone of incidence and operation. Mr. Taft's inaugural suggested a graded inheritance tax. Mr. Roosevelt in 1906 recommended the Federal use of such a tax to con- trol "fortunes swollen beyond all healthy limits." The tax is undoubtedly well adapted for use in readjusting social and economic inequalities. It incidentally affords a means of checking up income tax returns. Legislators have followed economists in differentiating taxes, and permitting property (wealth) to pay the higher rate. It is widely recognized that labor incomes should pay less than prop- erty income, and this theory is at the basis of the distinction between the normal tax and the additional tax. On the other hand, there is 100 The Fbdeeal, Revenue Law, 1916. much crude thought that the court ought somehow to prevent Congress from doing what are intended to be stigmatized as " social- istic " things with " our " money. In fact, and properly, as else- where discussed in this book, the courts refuse to consider motives and the incidental or possible ultimate effects of tax laws, so long as basic principles of law and express constitutional limitations are not offended. The tax is not upon property, but upon devolution ; so that gen- eral principles and limitations as to strict property rights are not involved. The right to take property by will or descent is regulated by local municipal law. A State (here. New York), in taxing such a privilege, may measure the tax by the value of the property passing; and the tax is not invalidated by the merely incidental fact that the property includes Federal securities. (1899) Plum- mer v. Coler, 178 U. S. 115, 44 L. Ed. 998; Murdock v. "Ward, Id. 139; (1915) Uterhart v. U. S., 240 U. S. 598. Most States expressly exempt United States property in their jurisdiction, though this is " only from abundant caution." It is conclusively settled that no State may tax Federal property. (1885) Van Brocklin v. Tenn., 117 U. S. 151, and the earlier cases cited in the general treatment of the Federal power. This, however, does not prevent a State from imposing a transfer tax upon estates including Federal obligations. Plummer v. Coler, supra. The government does not estop itself by any contract, express or implied, that its bonds shall not be taxed. It has taxed, by express enact- ment, the interest on its own bonds. Act of July 1, 1862, 12 Stat. 474; Act of June 30, 1864, 13 Stat. 281, 479. (1899) Murdock v. Ward, supra, holding a New York estate taxable under the Act of 1898, though largely consisting of United States bonds; following Knowlton v. Moore, and Plummer v. Coler, in the same volume. In an action for refund of a tax collected under the Act of June 13, 1898, and March 2, 1901, on a legacy to Springfield, Ohio, for a park, it was held that Congress and the States have concurrent power to tax successions; that each may tax legacies to the other without taxing governmental property or agencies, for the reason that the tax is not on property, but only on the right of succession-. (1902) Snyder v. Bettman, 190 U. S. 249, 47 L. Ed. 1035. Estate TaxX^^iTT;^^ 101 New York, by its inheritance tax, may tax personal property bequeathed to the United States. ' ' The legacy becomes the property of the United States only after it has suffered a diminution to the amount of the tax, and it is only upon this condition that the legis- lature assents to a bequest of it." (1895) U. S. v. Perkins, 163 U. S. 625. A State inheritance tax, progressive on amounts arbitrarily fixed, does not ofEend the equality rule of the 14th Amendment. The tax is not on the money, but on the right to inherit, and may be graded on the value. (1897) Magoun v. 111. Trust & S. Bank, 170 U. S. 283, 42 L. Ed. 1037; (1899) Knowlton v. Moore, 178 U. S. 41, 109, under the Federal Act of 1898. A State (California) inheritance tax favoring near relatives by affinity as against collaterals (sons-in-law against brothers) was not repugnant to the 14th Amendment, which, at moat, only restrains such a tax as would obviously be so arbitrary and unreasonable as to be beyond the pale of governmental authority. (1905) Campbell V. Calif., 200 U. S. 87, 50 L. Ed. 382. Bentham (1748-1832) proposed the escheat of the greater part of estates, as the easiest way to get public income without serious injury to anybody. Both his plan and Mill's (1806-1873) recog- nized some gradation in the moral right of succession, and modem legislation has generally embodied some classification as to relation- ship and rates, and also the progressive principle. Our courts, while refusing to deal with the motives of legislation, sometimes go far afield in seeking economic principles to fortify legal positions in opinions. There can now be no question of the propriety of inheritance taxes, and everybody may have his own " Every dollar of taxes required might be obtained in this manner without interfering in the least with the forces which tend to the development of the country through the production of wealth." Andrew Carnegie, in his " Gospel of Wealth." When the Income Tax of 1894 was being considered, a Wash- ington correspondent knew " no better way to diminish the natural pangs attendant upon paying taxes than to collect as much income as possible in the fleeting moments when the property belongs to nobody in particular." This is Bentham's spirit, come to judgment. 102 The Federal Eevenxje Law, 1916. economic, social or moral theory for their justification. Thus, the back-tax theory was adopted by Shiras, J., in (1899) Plummer v. Coler, 178 U. S. 115, 44 L. Ed. 998. "After all, what is an inheritance tax but a debt exacted by the State for protection afforded during the lifetime of the decedent? It is often imprac- ticable to secure from living persons their fair share of contribution to maintain the administration of the State, and such laws seem intended to enable to secure payment from the estate of the citizen when his final account is settled with the State." Needless to say, this digression was not necessary for the justification of the decision rendered. It is, however, obvious that much of the popular denunciation aimed at by this judicial ( ?) retort is ill-founded. Inheritance taxes, as such, are no more confiscatory than other taxes — less than some. Moreover, taxation tends, of itself, to be regres- sive; persons of relatively large means do not even pay a true pro- portional tax. The little fish or, at least, the medium, are most easily caught. The cases above cited hold that it is warrantable for Congress to try to equalize this tendency. Lawyers have discovered, it is said, that a substantial " corpus " more readily pays liberal allowances than the richest client pays adequate fees! The government has issued Inheritance Tax Laws, a digest of foreign and American laws, being Senate Document No. 14, Sixty- first Congress, first session, government printing ofiBee. Also a library bibliography of works relating to inheritance and income taxation in America and abroad. ACT OF SEPTEMBER 8, 1916 TITLE II.— ESTATE TAX. TEXT WITH NOTES. Sec. 200. That when used in this title — The term ' ' person ' ' includes partnerships, corpora- tions, and associations; The term " United States " means only the States, the Territories of Alaska and Hawaii, and the District of Columbia; The term ' ' executor ' ' means the executor or admin- istrator, of the decedent, or, if there is no executor or administrator, any person who takes possession of any property of the decedent ; and The term " collector " means the collector of internal revenue of the district in which was the domicile of the decedent at the time of his death, or, if there was no such domicile in the United States, then the collector of the district in which is situated the part of the gross estate of the decedent in the United States, or, if such part of the gross estate is situated in more than one district, then the collector of internal revenue at Baltimore, Maryland. Sec. 201. That a tax (hereinafter in this title referred to as the tax), equal to the following percent- ages of the value of the net estate to be determined as 104 The Fedebal Reventje Law, 1916. provided in section two hundred and three, is hereby imposed upon the transfer of the net estate of every decedent dying after the passage of this Act, whether a resident or nonresident of the United States : One per centum of the amount of such net estate not in excess of $50,000 ; Two per centum of the amount by which such net estate exceeds $50,000 and does not exceed $150,000 ; Three per centum of the amount by which such net estate exceeds $150,000 and does not exceed $250,000; Four per centum of the amount by which such net estate exceeds $250,000 and does not exceed $450,000 ; Five per centum of the amount by which such net estate exceeds $450,000 and does not exceed $1,000,000 ; Six per centum of the amount by which such net estate exceeds $1,000,000 and does not exceed $2,000,000; Seven per centum of the amount by which such net estate exceeds $2,000,000 and does not exceed $3,000,000; Eight per centum of the amount by which such net estate exceeds $3,000,000 and does not exceed $4,000,000; Nine per centum of the amount by which such net estate exceeds $4,000,000 and does not exceed $5,000,000; and Ten per centum of the amount by which such net estate exceeds $5,000,000. Estate Tax. 105 Sec. 200. Definitions of words used. Uniformity, even as limited by Knowlton v. Moore, supra and imfra, does not require the inclusion of Porto Rico and the Philip- pines. See fuUer note on § 300. The revenue district of Baltimore includes the city of Washington. Of course, Congress does not, by the definition of " person," intend to imply that a corporation may become a decedent and suffer a taxable transfer of its estate! Sec. 201. Bate of tax on varying amounts. The progressive principle is no longer questionable. (1899) Knowlton v. Moore, 178 U. S. 41. As to the first subdivision, see section 203 (a) (2), exempting $50,000 in the case of a resident. A tax is on the transfer, not on the property; so that the prop- erty may be of any kind whatever. This tax on the transfer of the total net estate differs from the legacy tax of June 13, 1898, section 29, where Congress avoided taxing realty. (1915) Gill v. Bartlett, 224 Fed. Rep. 927; (1914) U. S. v. Jones, 236 U. S. 106. Sec. 202. That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated : (a) To the extent of the interest therein of the dece- dent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate. (b) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has created a trust, in contempla- tion of or intended to take effect in possession or 106 The Federal Eevenue Law, 1916. enjoyment at or after his death, except in case of a bona fide sale for a fair consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final dispositiqn or dis- tribution thereof, made by the decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the mean- ing of this title ; and (c) To the extent of the interest therein held jointly or as tenants in the entirety by the decedent and any other person, or deposited in banks or other institu- tions in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have belonged to the decedent. For the purpose of this title stock in a domestic cor- poration owned and held by a nonresident decedent shall be deemed property within the United States, and any property of which the decedent has made a trans- fer or with respect to which he has created a trust, within the meaning of subdivision (b) of this section, shall be deemed to be situated in the United States, if so situated either at the time of the transfer or the creation of the trust, or at the time of the decedent's death. Sec. 202. What constitutes gross estate. The section means what it says as to "every decedent:" that a foreigner dying in a local hotel shall not escape; but the reflear^ioe Estate Tax. 107 here to net estate, and the provisions of section 203 (b) greatly soften the blow. The poor man is not taxed in death, unless he leaves good American investments; and, even so, the tax need not apply to high charges of American undertakers and lawyers, if only a proper return is made. And Cf. § 202, last paragraph after (c), and § 205. Sec. 202 (a). Obviously the title to foreign realty could not be affected by such a law, nor could the lien of section 207 attach. Subdivision (a) formulates a principle which will limit the tax to the transfer of property within, or capable of being brought within, the grasp of American jurisdiction. In view of sections 210 and 211 any concealment would be difficult. The language is not of limitation but of inclusive definition. Section 202 (b) is aimed at what, in addition to its leg^itimate use, was once a popular method of attempting evasion of expenses and taxation. The second sentence rather loosely describes a prima facie case of quasi fraud. " Material part " ..." in the nature of "... " unless shown " may ultimately take a good many lawyers to the collector, or even to Washington, where officials have power to compromise tax cases. R. S., § § 3229, 3469 ; but see Dorsheimer v. U. S., 7 Wall. 166. The implication throughout the title is that questions of how returns shall be made, what shall be included, what delays are excusable, what interest penalties attach, etc., will be matter for negotiation with the department. Innocent and praiseworthy transfers for love and affection wUl not escape. Gifts and sales to take effect after death were taxed by Act of July 1, 1862. See the last paragraph of this section, after section 202 (c). The taxing power must make it clear that the statute was intended to cover the property in question. (1915) Gill v. Bartlett, 224 Fed. Eep. 927. As to compromising tax cases under Revised Statutes, sec- tions 3229, 3469 : (1812) U. S. v. Acorn Roofing Co., 204 Fed. Rep. 157 (under Corporation Tax of 1909); (1913) Willingham -v. U. S., 208 Fed. Rep. 137 (on a liquor special tax; also as to how far a deputy collector can bind the government). 108 The Federal. Revenue Law, 1916. Section 202 (c) is directed at another practice founded in some instances on a popular notion that a man can administer his own estate, or avoid administration and save trouble and expense. Here again the burden is on the survivor, and his proof mil not always be easy. The last detached paragraph of section 202 will doubtless occa- sion the formulation of regulations to insure the tracing of domestic corporate shares owned by nonresidents. In any event, in view of State laws as to stock transfer, it will be impracticable for shares held abroad to escape. Property, of whatever nature, does not escape by being sent out of the country, at least if the transferee or the trustee is subject to American jurisdiction. See § 209. The penalties under sec- tion 210 might fail to effect the discovery of a transfer abroad, if the books and papers of the decedent disclosed nothing. The Com- missioner has inquisitorial powers under the Revised Statutes if his suspicion is once aroused. Sec. 203. That for the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident;, by deducting from the value of the gross estate — (1) Such amounts for funeral expenses, administra- tion expenses, claims against the estate, unpaid mort- gages, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not com- pensated for by insurance or otherwise, support during the settlement of the estate of those dependent upon the decedent, and sucji other charges against the estate, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered; and (2) An exemption of $50,000; Estate Tax. 109 (b) In the case of a nonresident, by deducting from the value of that part of his gross, estate which at the time of his death is situated in the United States that portion of the deductions specified in paragraph (1) of subdivision (a) of this section which the value of such part bears to the value of his entire gross estate, wherever situated. But no deductions shall be allowed in the case of a nonresident unless the executor includes in the return required to be filed under section two hundred and five the value at the time of his death of that part of the gross estate of the nonresident not situated in the United States. Sec. 203. Dednotions. Sec. 203. (a) (1) These deductions are only such as follow from the limitation of the tax to the net estate; and the local judicial or administrative determination of net estate mil ordinarily be accepted. Cf. section 204, as to when the tax is payable, and section 207, as to payment by approximation. Tire, theft, etc., might open up questions of negligence. " Support " of " depend- ents," in view of the large minimum exemption, will be a matter of guesswork in high finance, or ultimately determined on the principles applied by local Surrogates' and Probate Courts in mak- ing allowances according to the "manner of life." Sec. 203. (a) (2) The exemption of $50,000 will obviously limit the incidence of the tax in most communities to relatively few estates. Men have been known intentionally to pay excessive income taxes, somewhat as a " coming " actress may gladly have a " $25,000 (sic) pearl necklace stolen from her boudoir," but many a "mil- lionaire," made such by publicity, must suffer the ignominy of a subminimum estate. The principle of apparent discrimination in fixing such a mini- mum is no longer questionable. See cases in the introduction to this title. 110 The Federal Eevenue Law, 1916. Sec. 203. (b) See section 202, last paragraph, and ef. title I, Income Tax, section 7 (b). Sec. 204. That the tax shall be due one year after the decedent's death. If the tax is paid before it is due a discount at the rate of five per centum per annum, calculated from the time payment is made to the date when the tax is due, shall be deducted. If the tax is not paid within ninety days after it is due interest at the rate of ten per centum per annum from the time of the decedent's death shall be added as part of the tax, unless because of claims against the estate, neces- sary litigation, or other unavoidable delay the collector finds that the tax can not be determined, in which case the interest shall be at the rate of six per centum per annum from the time of the decedent's death until the cause of such delay is removed, and thereafter at the rate of ten per centum per annumi Litigation to defeat the payment of the tax shall not be deemed necessary litigation. Sec. 204. Bate of tax; when due; discount; penalty. One year will not often suffice for the complete administration of such an estate as is here taxable. Reg:ulations provide for approx- imating the deductions under section 203, and also for " sufficient " payment of an approximated tax. The last sentence seems again to ascribe psycho-ethical power to Federal officials to test human motives; but perhaps it refers only to open attacks on the revenue measure? The tax itself cannot be enjoined. If it is objected to, and the dispute cannot be adjusted in courteous negotiation, pay- ment must be made, and all questions left for subseqent litigation. See the General Introduction, ante. Cf. section 208 as to collection by suit, and notes passim as to adjusting such matters by conference with the officials. Estate Tax. Ill Sec. 205. That the executor, within thirty days after qualifying as such, or after coming into possession of any property of the decedent, whichever event first occurs, shall give written notice thereof to the col- lector. The executor shall also, at such times and in such manner as may be required by the regulations made under this title, file with the collector a return under oath in duplicate, setting forth (a) the value of the gross estate of the decedent at the time of his death, or, in case of a nonresident, of that part of his gross estate situated in the United States ; (b) the deductions allowed under section two hundred and three ; (c) the value of the net estate of the decedent as defined in section two hundred and three; and (d) the tax paid or payable thereon ; or such part of such information as may at the time be ascertainable and such supple- mental data as may be necessary to establish the cor- rect tax. Eeturn shall be made in all cases of estates subject to the tax or where the gross estate at the death of the decedent exceeds $60,000, and in the case of the estate of every nonresident any part of whose gross estate is situated in the United States. If the executor is unable to make a complete return as to any part of the gross estate of the decedent, he shall include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate. The Commissioner of Internal Eev- enue shall make all assessments of the tax under the 112 The Federal Eevenue Law, 1916. authority of existing administrative special and gen- eral provisions of law relating to the assessment and collection of taxes. Sec. 205. Betnms. Such notice was required by the Act of July 13, 1866, 14 Stat. 140, after it was found that the tax under the earlier Acts was not successful. Cf. as to penalties, § 210. It is here recognized' that not all necessary f E|«ts will often be in the executor's knowledge until a considerable time elapses after the death. The regulations which the department has power to make concerning returns, etc. (the Act itself fixing no date, nor period, nor specific method), are not an unwarranted exercise of legislative power. See § 212, infra. Every estate exceeding $60,000 gross must be returned. This differs from the requirement of returns under the Income Tax, where a person decides in the first instance for himself whether his net income is $3,000. Here the Commissioner has a margin for calculating the net estate. Return must be made for the estate of every nonresident leaving any property in the United States, without regard to value. The Revised Statutes and other relevant provisions of extant law are made a part of this tax scheme for the purpose bf assess- ment. Section 211 makes all appropriate laws applicable for all purposes. Each district is canvassed for taxables. R. S., § 3172. Default or false return may involve summons for testimony and exhibition of books. R. S., 5§ 3173, 3174. Contempt proceedings may follow disobedience. R. S., § 3175. Falsity or neglect of summons is penalized up to $1,000, or prison to one year, or both. R. S., § 3179. See §« 210, 211, post. Returns may be verified before notaries public. (1888) U. S. v. Hall, 131 U. S. 50. Sec. 206. That if no administration is granted upon the estate of a decedent, or if no return is filed as pro- vided in section two hundred and five, or if a return Estate Tax. 113 contains a false or incorrect statement of a naaterial fact, the collector or deputy collector shall make a return and the Commissioner of Internal Bevenue shall assess the tax thereon. Sec. 206. Where no admiuistratioHj or proper return not made. This is done as explained under section 205, and according to the general provisions of the title. Sec. 207. That the executor shall pay the tax to the collector or deputy collector. If for any reason the amount of ttfe tax can not be determined, the payment of a sum of money sufficient, in the opinion of the col- lector, to discharge the tax shall be deemed payment in full of the tax, except as in this section otherwise provided. If the amount so paid exceedsthe amount of the tax as finally determined, the Comm i ssioner of In- ternal Revenue shall refund such excess to the executor. If the -amount of the tax as finally determined exceeds the amount so paid the commissioner shall notify the executor of the amount of such excess. From the time of such notification to the time of the final payment of such excess part of the tax, interest shallTje added thereto at the rate of ten per centum per annum, and the amount of such excess shall be a lien upon the entire gross estate, except such part thereof as may have been sold to a bona fide purchaser for a fair con- sideration in money or money's worth. The collector shall grant to the person paying the tax duplicate receipts, either of which shall be sufficient 114 The Fbdebaij Eevenue Law, 1916. evidence of such payment, and shall entitle the execu- tor to be credited and allowed the amount thereof by any court having jurisdiction to audit or settle his accounts. Sec. 207. Payment; approximated if delayed; receipts. Fixing the time of pajmaent at one year necessitates' this pro- vision for approximating the tax and paying a sufficient amount to await adjustment. The same plan is found in State inheritance tax laws. See section 204 and note. Cf. section 209, as to lien and as to bona fide sale. As the opinion of the collector determines the amount of an estimated "sufficient" payment, interest is not exacted on a postponed discovery of increase until notification, but interest then at once begins. The last clause of section 207 illustrates the propensity of the Federal government to assert its paramount power. > It is obvious that Congress might make laws of evidence for Federal courts, and' require or limit registration in Federal offices. The former enactments as to excluding unstamped papers were therefore binding in Federal practice. State courts, however, wher- ever the matter came up seriously, held that Congress might not superimpose rules of evidence or procedure upon State tribunals and administrative ofllces. In many cases where the question did not present itself in this aspect, the State courts seemed to acquiesce. (1865) Plessinger v. Dupuy, 25 Ind. 419; (1872) Chartiers Co. v. McNamara, 72 Pa. 278; (1865) Day v. Barker, 36 Mo. 125; (1865) Carpenter v. Johnson, 1 Nev. 331; (1866) Dorris v. Grace, 24 Ark. 326; (1866) Beebe v. Hutton, 47 Barb. 187; (1866) Patterson v. Fames, 54 Me. 203; (1866) Tobey v. Chipman, 13 Allen, 123; (1867) Knox v. Hinde- poper, 21 Wis. 527; (1867) Corbin v. Tracy, 34 Conn. 325; (1867) Cooke V, England, 27 Md. 14; (1870) Logan v. Dils, 4 "W. Va. 397, and many other cases where documents originally unstamped were post-stamped and there was no fraudulent intent. Estate Tax. 115 In (1869) New Haven & N. Co. v. Quintard, 6 Abb. Pr. N. S. 128, 143, concurring opinion says: "In the ease of (1867) Myers V. Smith, 48 Barb. 614, the court did not notice the very significant words in the Act ' with intent to evade,' etc., but merely assumed that the contract was invalid because not stamped." But when the question came up squarely and was well considered, the eases everywhere held) that a Federal tax law could not make rules of evidfence for State courts, nor interfere with State adminis- trative procedure. (1904) Tomlin v. Woods, 125 Iowa, 367; (1903) Bryan v. First Nat. Bank, 205 Pa. 7; (1902) Sulpho Bath Co. V. Allen, 66 Neb. 295; (1902) Pierpont v., Johnson, 104 111. App. 27; (1900) Small v. Slocumb, 112 Ga. 279, 53 L. E. A. 130; (1900) Cassidy v. St. Germain, 22 B. I. 53; (1899) Thomas v. Texas, 40 Tex. Crim. App. 562, 46 L. R. A. 454; (1899) Knox v. Eossi, 25 Nev. 96, 48 L. E. A. 305, note; (1898) People ex rel. Brew. Co. V. Fromme, 35 App. Div. (N. T.) 459; (1872) Moore v. Moore, 47 N. Y. 467; (1870) Barbour v. Gates, 43 N. Y. 40; (1870) Moore v. Quirk, 105 Mass. 49; (1869) Green v. Holway, 101 Mass. 243; (1867) Latham v. Smith, 45 111. 29 5 (1869) Clemens v. Conrad, 19 Mich. 170; (1870) Spooner v. Eifler, 1 Heisk. (Tenn.) 633; (1870) Wallace v. Craven, 34 Ind: 534; (1871) Davis v. Eichardson, 45 Miss. 499; (1906) Amos-Eichia Co. v. N. W. Mut. L., 143 Mich. 684; Duffy v. Hobson, 40 Cal. 240. Sec. 208. That if tlie tax herein imposed is not paid within sixty days after it is due, the collector shall, unless there is reasonable cause for further delay, commence appropriate-proceedings in any court of the United States, in the name of the United States, to subject the property of the decedent to be sold under the judgment or decree of the court. From the pro- ceeds of such sale the amount of the tax, together with the costs and expenses of every description to be allowed by the court, shall be first paid, and the bal- 116 The Fbdeeax, Eeyenue Law, 1916. anee shall be deposited aeoording to the ecember thirty-first. The first taxable year shall be the twelve months ending- December thirty- first, nineteen hundred and sixteen ; and The term " United States '* means- only the States, the Territories of Alaska and Hawaii, and the District of Columbia. See. 300. Who taxed; beginning wben. The Senate endeavored, in a complete rewriting of the Honse bill, to limit this tax to corporations, on the ground that the extra- ordinary profits of individual manufacturers would be reaeheA by their payment of the surtax on personal income ; but the idea, was rejected because of the possible facilitation of evasive schemes. The Act as passed imposes the tax on both indiTdduars and corpora- tions, in addition to the income tax. § 301 (1). In operation practically aR the taxable persons aare corparations. The general imposition of the tax is as q£ January, 1, 1916i The proviso in section 301 (1) does not change this date of incidence.. Various European taxes of this class, including a new Swiss diecree of September, 1916, are imposed- aJfeo" for the year 1915. By Act of April 30, 1900, 31 Stat., 141, all U. S. laws, not loyally inapplicable, were extended to Hawaii, and the Territory was, con- stituted an Internal Revenue District. By Act of April 12, 1900', 31 Stat. 77, extending U. S*. laws to Porto Rico, express exception was made of Imfiemiar Be'^fenuie Laws, in view of other provisions in the Act for a mutual reduction of 122 The Federal Revenue Law, 1916. 15% on tariff duties and the payment of a tax equivalent to our Internal Revei^ue rates on goods coming here from the Island. By Act of August 5, 1909, 36 Stat. 83, the Phihppine Islands have their own Internal Revenue system, the tax accruing intact to the Insular treasury. Alaska is a Territory of the U. S., subject to its Internal Revenue Laws. Act of Aug. 12, 1912, ch. 387. Sec. 301. (1) That every person manufacturing (a) gunpowder and other explosives, excepting blasting powder and dynamite used for industrial purposes; (b) cartridges, loaded and unloaded, caps or primers, exclusive of those used for industrial purposes; (c) projectiles, shells, or torpedoes of any kind, including shrapnel, loaded or unloaded, or fuses, or complete rounds of ammunition; (d) fire-arms of any kind and appendages, including small arms, cannon, machine guns, rifles, and bayonets; (e) electric motor boats, submarine or submersible vessels or boats; or (f) any part of any of the articles mentioned in (b), (c), (d), or (e) ; shall pay for each taxable year, in addition to the income tax imposed by Title I, an excise tax of twelve and one-half per centum upon the entire net profits actually received or accrued for said year from the sale or disposition of such articles manufactured within the United States : Provided, however, That no person shall pay such tax upon net profits received during the year nineteen hundred and sixteen derived from the sale and delivery of the articles enumerated in this section under contracts executed and fully per- Mtjnition Manufactubee's Tax. 123 formed by such person prior to January first, nineteen hundred and sixteen. Sec. 301. Tax on profits; rate; to what applicable. Section 301 (1). This is not a license or privilege tax, but an excise on net profits. Such a tax may be imposed on the gross receipts of sugar refineries. (1903) Spreckles v. McClain, 109 Fed. Rep. 76; 192 U. S. 397, 48 L. Ed. 496 (Act of 1898); or on the gross earnings of a railway. (1891) Maine v. Grand Trunk, 142 U. S. 217, 35 L. Ed. 994 (State tax). And see (1872) Beading E. R. V. Penn., 15 WaU. 284; Scholey v. Rew, 23 Wall. 331; (1910) Flint V. Stone Tracy Co., 220 U. S. 107. Although this tax avowedly applies to articles intended for foreign use, it is neither a tax on exports, prohibited by Const., Art. I, § 9, par. 5, nor a tax upon the articles themselves. See (1901) Fairbank v. U. S., 181 U. S. 283, which invalidated the Stamp Tax of 1898 on f oreigii bills of, lading. The Act of July 1, 1862, § 68, and of June 30, 1864, § 82, taxed the production of iron, steel, etc., and practically all other forms of manufacturing on an ad valorem basis. The general 5% tax of 1864 was repeated on articles at different stages of manufacture. The gun powder tax of the Acts of 1862-64 included all explosives, even those for commercial and sporting uses. The Senate in the present instance unsuccessfully tried to except sporting arms and ammunition. It is only fair to say that the munition makers did not oppose the tax as such, but objected only to its imposition on gross receipts (as contemplated and attempted), and to the exclusion of subcontractors and materialmen (which finally prevailed). The original bill in effect taxed net profits in excess of 10%, measuring the tax by gross receipts, and included a tax at lower rates on copper, etc. This feature was sought to be extended to include all component parts of, and materials entering into, munitions; but copper, cotton and other interests became so involved and so hostile, that the simpler tax was finally adopted. The committee was influenced by the reminder that corporations (most taxable 124 The Fedebal Bevbktie Law, 1916. persons are such) were used to taxes on net profits, imposed imder authoritative interpretations, and that much litigation, would result from a novel scheme for taxing gross receipts and compelling the company to prove that its net profits were not in excess of 10%. A part of this burden of proof still remains at the end of section 306. If this tax were upon " net profits " as such, its enforcement would bring into application all the old decisions regarding the meaning of these words. But Congress, aided by Departmental advisers, has learned to tie a judge's hands in reaching for dic- tionaries, ethical treatises and commercial manuals. Section 302, though less carefully than the corresponding provisions of the Income Tax Law, prescribes the ascertainment of the net profits which are taxable. In instances where taxable persons are not exclusively making munitions, there will be difficulty in separating these extraordinary profits, which are exceptionally taxed under Title HI, from ordi- nary profits taxable as income under Title I. A workable method, either by detailed accounting, or by arbitrary or compromise ascer- tainment, will be adopted in Regulations, and it will amount to saying that the net profits of mvinition njaking, after paying this tax under Title III, shall be an element of ordinary income, tax- able under Title I. The deductions for taxes paid (§ 302 (d)), will not include the income tax, as the munitions tax must first be determined, and both are required to be paid. But the exaction of both taxes does not prevent the deduction in income tax returns (§ 5 (3), J 6 (3), § 12 (a) Tourth), of a munitions tax so ascer- tained and paid. In other words, a munitions maker does not know what his income is until his profit on munitions is deter- mined — net of the munitions tax. It is somewhat analogous to the diminution of a legacy by the imposition of a transfer tax. C£ (1895) U. S. V. Perkins, 163 U. S. 625, quoted in the Introduc- tion to the Estate Tax, cmte. It is intended that a taxable persom pay both taxes, but not that he pay a second tax on a sum includ- ing the amount of a first tax. It is provided by section 407, para- graph 1, post, that a corporation paying the munition tax shall be Munition Manufactxtbee's Tax. 125 credited pro tanto on its assessed special tax, i. e., not deducted in estimating " fair value " as a basis for the tax, but applied as a credit to reduce the amount of special tax after it is determined inthe reg^ilar manner. The proviso in section 301 (1) does not relieve of tax. It merely qualifies the preceding " received or accrued," and provides against the application of the income tax principle which, in gen- eral, taxes receipts. A lawyer's fee earned in 1915 and paid in 1916 is taxed, if large enough for taxation, in 1916. See notes on Title I. Foreign governments may be slow in some of their pay- ments, and such belated remittances, covering 1915 shipments, are not here taxed. They are ordinary income. There will, however, be questions touching transactions begun in 1915 and continuing into 1916. Date of actual delivery (usually effected in America, and not involving shipment or arrival) will probably be deter- minative. See notes, infra, as to assessment by '' negotiation." (2) This section shall cease to be of effect at the end of one year after the termination of the present European war, which shall be evidenced by the proc- lamation of the President of the United States declar- ing such war to have ended. Sec. 301 (2). When the tax ceases. Such a use of Presidential proclamation to establish a state of facts is not uncommon. See notes on Title VIII. The time limitation is a clear indication that this tax is not deemed a normal revenue measure. The motives for its adoption were mixed, the first being to snatch easy money in sight, and there being also a sentimental, not to say moral, consideration. The time may come when some such tax will regularly be used as a regulative and restrictive expedient, upon the principle embodied in several portions of the special tax legislation. 126 The Fedeeal Eevenue Law, 1916. Sec. 302. That in computing net profits under the provisions of this title, for the purpose of the tax there shall be allowed as deductions from the gross amount received or accrued for the taxable year from the sale or disposition of such articles manufactured within the United States, the following items: Sec. 302. Computing net profits. The deductions allowed are practically those -which are now standard for such computations. It would be unprofitable to go back to the cases which determined the propriety of the several allowances that are now expressly stated in' the legislation. Troublesome questions may arise as to apportioning the various deductions where the taxable person is not exclusively manufac- turing munitions. It would necessitate either an almost pro- hibitory elaboration of accounting, or a deal of guesswork for a general manufacturing concern to return such details regarding its specialty manufacture of minor parts for munitions. So far as the official regulations do not clearly prescribe the method, it is a mat- ter for conference with the Department. (a) The cost of raw materials entering into the manufacture ; (b) Eunning expenses, including rentals, cost of repairs and maintenance, heat, power, insurance, man- agement, salaries, and wages; Section 302 (a) (b). The " necessary expenses," as they are classi- fied in other laws, are here divided into the separate items of cost of materials and running expenses. This probably resulted incident- ally from the original intention to tax also the preparation of mate- rials. Actual "running expenses" are not so difficult to ascertain or check. The danger point is in "management, salaries" (as was Munition Mantjpactueeb's Tax. 127 suggested by a Senator), but under section 306 the Commissioner, if ' ' dissatisfied, ' ' may investigate and determine the true net profit. He would not be likely to overlook a sudden, unwarranted increase of salaries. (c) Interest paid within the taxable year on debts or loans contracted to meet the needs of the business, and the proceeds of which have been actually used to meet such needs; (d) Taxes of all kinds paid during the taxable year with respect to the business or property relating to the manufacture; Section 302 (d), permitting deduction for taxes paid, is expressly qualified by section 301 (1) wMch makes this tax additional to the income tax. But this munition tax is credited to a corporation on the pa3rment of its special tax under section 407. See note to 5 301 (1). (e) Losses actually sustained within the taxable year in connection with the business of manufacturing such articles, including losses from fire, flood, storm, or other casualty, and not compensated for by insur- ance or otherwise ; and (f ) A reasonable allowance according to the condi- tions peculiar to each concern, for amortization of the values of buildings and machinery, account being taken of the exceptional depreciation of special plants. Section 302 (f). "Special plants" are temporary buildings or temporary alterations necessitated by hasty expansion to meet " war " orders which will have little value when the special purpose is served. Where new permanent extensions are made, appropriate 128 The Fbdebal Eevenjib Law, 1916. and intended for later mormaJ .use, tkis ipiineiple will permit special deduictiioins anly fer i/he ■espenses •<£ con-version. Cf. J 12, Second, 2nd premso. Sec. 303. If any person manufactures any article speafied in section three hundred and one and, during any taxable year or part thereof, whether under any agreement, arrangement, or under^anding, or other- wise, sells or disposes of any such article at less than th« fair market price obtainable therefor, either (a) in such manner as directly or indirectly to benefit such person or -any person directly or indirectly interested in the business of such person, or (b) with intent to cause such benefit, the gross amount received or accrued for such year or part thereof from the sale or disposition of such article shall be taken to be the amount which would have been received or accrued from the sale or disposition of such article if sold at the fair market price. Sec. 303. Penalty for evasive sales. This section applies the tax to gross receipts for the year in which any sales are made in a way to make net profits appear smailer than they really are. It is intended to prevent an ostensible low-price sale with an express or implied understanding that the concern or any person connected with it shall in some manner receive an undisclosed benefit by way of supplementing the ostensible price, ' ' Fair market price obtainable, ' ' taken with sections 306, 308, 310, 311, 312, and the Revised Statutes provisions for discretion in the Departmeiat, constitutes another of several instances in tiie Act which encourage the idea of " negotiation " with the Commissioner. As the tax is an emergency expedient, and there wUl be little time for the experimental administration, let alone liti- MuNmQN Manuea^ctuebb's Tax. 12& gation, it evidently is intended to use a roMgh. and ready procedure, and secure all possible revenue in the easiest possible manner. Relatively few taxable persons are affected, and, under the powers given in the later sections, the Department will be able to check the returns and constrain correction and increase to the point of acceptable approximate compliance with the Act. Sec. 304. On or before the first day of March, nine- teen hundred and seventeen, and the first day of March in each year thereafter, a true and accurate return under oath shall be made by each person manufactur- ing articles specified in section three hundred and one to the collector of internal revenue for the district in which such person has his principal ofi&ce or place of business, in such form as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe, setting forth specifically the gross amount of income received or accrued from the sale or disposition of the articles specified in section three hundred and one, and from the total thereof deducting the aggregate items of allowance authorized in section three hundred and two, and such other par- ticulars as to the gross receipts and items of allow- ance as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may require. Sec. 304. Returns, when and how made. The return must conform to the method prescribed by Eegula- tions and Forms of the Department, and the Commissioner may 5 130 The Federal Reventje Law, 1916. continue to demand further information until he is satisfied. See U 306, 308, 312. Sec. 305. All such returns shall be transmitted forthwith by the collector to the Commissioner of Internal Revenue, who shall, as soon as practicable, assess the tax found due and notify the person making such return of the amount of tax for which such person is liable, and such person shall pay the tax to the col-, lector on or before thirty days from the date of such notice. Sec. 305. Tax, assessment and payment. Assessment " as soon as practicable " mil afford ample oppor- tunity, in cases not suggesting fraud, for the Department to arrive at a fair figure, without using its power arbitrarily to make the assessment and shift the burden in a technical hearing. See $ 306. Sec. 306. If the Secretary of the Treasury or the Commissioner of Internal Revenue shall have reason to be dissatisfied with the return as made, or if no return is made, the commissioner is authorized to mate an investigation and to determine the amount of net profits and may assess the proper tax accordingly. He shall notify the person making, or who should have made, such return and shall proceed to collect the tax in the same manner as provided in this title, unless the person so notified shall file a written request for a hear- ing with the commissioner within thirty days after the date of such notice; and on such hearing the burden of establishing to the satisfaction of the commissioner Munition Manxjfactubeb's Tax. 131 that the gross amount received or accrued or the amount of net profits, as determined by the commis- sioner, is incorrect, shall devolve upon such person. Sec. 306. Unsatisfactory return; procedure. The Commissioner is not bound by section 305 to accept a return as correct and assess pro forma. In all except minor routine cases he will investigate under sections" 306, 308, and then proceed under section 306 to negotiate with taxable persons who are not suspected of fraud, or to assess arbitrarily against the suspects. A taxable person may thus report X, be assessed Y, and ultimately, by agree- ment or under arbitrary assessment, pay Z. In New York the onus probandi is similarly on the lawyer's office-boy to satisfy a Commissioner before a certain date that he does not in fact possess the $50,000 of personalty upon which he has, in some mysterious way, been assessed. The serious difference is that the munitions maker must pay whatever is finally assessed, and his only remedy is by later appeal to, or adjustment with, the Department, or fail- ing this, by suit to recover. R. S., 4§ 3220-3231. The obligation to pay does not rest upon the assessment. (1873) Dollar Sav. Bk. v. U. S., 19 Wall. 227; King v. U. S., 99 U. S. 229; but the assess- ment is prima facie evidence of the amount due. U. S. v. Bindskopf, 105 U. S. 418. Sec. 307. The tax may be assessed on any person for the time being owning or carrying on the business, or on any person acting as agent for that person in carrying on the business, or where a business has ceased, on the person who owned or carried on the business, or acted as agent in carrying on the business immediately before the time at which the business ceased. 132 The Fbdeeal Revenue Law,, 1916. Sea 307. Against whom assessed. This drag-net provision is to prevent evasion or loss in a shuffle. In conjiinetion with sections 310, 311, in view of penalties applicable, such method of escape will hardly be poptdar. Sec. 308. For the purpose of carrying out the pro- visions of this title the Commissioner of Internal Eevemie is authorized, personally or by his agent, to examine the books, accounts, and records of any per- son subject to this tax. Sec. 308. Examination of books, etc. The Collector already has this power under Revised Statutes, sec- tion 3173, as amended, now further amended by section 16 of this Act. Sec. 309. No person employed by the United States shall communicate, or allow to be communicated to any person not legally entitled thereto, any information obtained under the provisions of this title, or allow aijy such person to inspect or have access to any return furnished under the provisions of this title. Sec. 309. Betnms and data not public. This is provided in detail ia Revised Statutes, section 3167, as amended (now again amended by section 16, title I, of this Act, Income Tax, q. v. ) , the misdemeanor penalty being a fine up to $1,000, or prison to one year, or both. Sec. 310. Whoever violates any of the provisions of this title or the regulations made thereunder, or who knowingly makes false statements in any return, or Munition MANtrFACTUEEE 's Tax. 133 refuses to give such information as may he called for. is guilty of a misdemeanor, and upon eonvietion shall, in addition to paying any tax to whicli he is liaUe, be fined not more than $10,000, ox imprisoned not exceed- ing one year, or both, in the diseretioii of the court. Sec. 310. Penalty for any violation of title. This is an arbitrary penalty, roughly stated against " whom- ever." The payment of the tax is not escaped by submitting to the fine or punishment, but it is the tax to which "he is liable." " Whoever " is broadly inclusive of ofilcers of taxable companies and of outside persons who might be called on f of information, e. g., as to cost of materials or as to contracts of sale. Sec, 311. All adminisitrative, special, and general provisions of law, relating to the assessment and col- lection of taxes not specifically repealed, are hereby made to apply to this title so far as applicable and not inconsistent with its provisions. Sec. 311. Other laws made applicable. This omnibus embrace has a large grasp. It lends the tax- gatherer all the antennae and prehensile apparatus of a powerful government. Cf. U 22, 211, 311, 409. Sec. 312. The Commissioner of Internal Eevehue, with the approval of the Secretary of the Treasury, shall make all necessary regulations for carrying out the provisions of this title, and may require any person subject to such provisions to furnish him with further information whenever in his judgment the same is necessary to collect the tax provided for herein. 134 The Fbdeeal Revenue Law, 1916. Sec. 312. Administrative regulations. The special Department circular necessitated by this exceptional tax is procurable from the Bureau of Internal Revenue or, at a nominal cost, through the Superintendent of Documents. As to Department Regulations and Rulings, see General Introduction, ante. Cf. U 304, 306, 308, 310, 311. There shall be no doubt as to the inquisitorial powers granted. Miscellaneous Taxes. 135 TITLE IV.— MISCELLANEOUS TAXES. Sec. 400. That there shall be levied, collected, and paid a tax of $1.50 on all beer, lager beer, ale, porter, and other similar fermented liquor, brewed or manu- factured and sold, or stored in warehouse, or removed for consumption or sale, within the United States, by whatever name such liquors may be called, for every barrel containing not more than thirty-one gallons; and at a like rate for any other quantity or for the fractional parts of a barrel authorized and defined by law. And section thirty-three hundred and thirty-nine of the Eevised Statutes is hereby amended accordingly. Sec. 400. Fermented liquors, beer, etc. Cf. Act of July 1, 1862, 12 Stat. 432; Act of March 3, 1863, 12 Stat. 713, 737; Act of April 1, 1864; Act of July 13, 1866, 14 Stat. 98; Act of March 1, 1879, 20 Stat. 327; Act of June 13, 1898, 30 Stat. 448; Act of March 2, 1901, 31 Stat. 938; Act of April 12, 1902, 32 Stat. 54; Act of October 22, 1914, i 1. Fermented liquors are taxed under Revised Statutes, sections 3335 et seq., and brewers pay a special tax under Eevised Statutes, sec- tion 3244. The present Act merely amends section 3339 by increas- ing the barrel rate, which was made $1 by Act of April 12, 1902, and increased to $1.50 by Act of October 22, 1914. The present section 400 is merely a re-enactment of the essential part of section 1 of the Emergency Act of 1914. The tax rate has varied at different periods from 60 cents to $2. R. S. 3339 provides for fractional parts of a barrel, halves, thirds, quarters, sixths and eighths. The tax rate is apportioned as to packages containing these different amounts, but a single package containing more than one barrel and not more than 63 gallons is accounted two barrels or a hogshead. 136 The Fedebal. Eevenxjb Law, 1916. As the increase in the Act of 1914 was imposed, not as an extra tax, but by express substitution ' ' in lieu of the tax now imposed, ' ' the department requested Congress to add a proviso to the last section of the Act, so as to restore the former tax automatically when the emergency tax ceased. See § 24 of the Act of 1914. There is no such limitation in the present Act; so the rate of $1.50 becomes avowedly permanent. Such an increase of an excise tax is constitutional. (1902) Patton V. Brady, 184 U. S. 608, 46 L. Ed. 713. The added tax was on beer stored or removed by the brewer, not by the dealer. Op. Atty.-Gen. XXII, 279; XXIH, 227. T. D. 20,464, Dec. 28, 1898; 20,487, Jan. 3, 1899. Beer defined: (1884) Sarlls v. U. S., 152 U. S. 570, 38 L. Ed. 556; (1892) In re MeDonough, 49 Fed. Rep. 360. See definition of brewer, R. S. § 3244. Hop tonic, maltina, hop ale, etc. (1901) Davis v. Daugherty, 105 Fed. Rep. 769; T. D. 829, 19,154, 19,025. Root, spruce, ginger and herb beer. T. D. 19,383, July 2, 1898, 20,233, Oct. 22, 1898; T. D. 19,445. Rice beer. 35 Int. Rev. Rec. 253. See section 402 (i), infra, and section 406 for dislocated provisions affecting beer. Apropos of the war which induced this Act, beer as distinct from ale began in England when hops came over from Flanders early in the 16th century. Wellington repealed the beer tax in 1830. " The new beer bill has begun its operations. Everybody is drunk. Those who are not singing are sprawling. The sovereign people are in a beastly state." Sydney Smith, Life and Correspondence. Sec. 401. That natural wine within the meaning of this Act shall be deemed to be the product made from the normal alcoholic fermentation of the juice of sound, ripe grapes, without addition or abstraction, except such as may occur in the usual cellar treatment of clarifying and aging: Provided, however, That the Miscellaneous Taxes. 137 product made from the juice of sound, ripe grapes by- complete fermentation of the must under proper cel- lar treatment and corrected by the addition (under the supervision of a ganger or storekeeper-gauger in the capacity of ganger) of a solution of water and pure cane, beet, or dextrose sugar (containing, respec- tively, not legs than ninety-five per centum of actual sugar, calculated on a dry basis) to the must or to the wine, to correct natural deficiencies, when such addi- tion shall not increase the volume of the resultant pro- duct more than thirty-five per centum, and the result- ant product does not contain less than five parts per thousand of acid before fermentation and not more than thirteen per centum of alcohol after complete fermentation, shall be deemed to be wine within the meaning of this Act, and may be labeled, transported, and sold as " wine," qualified, by the name of the local- ity where produced, and may be further qualified by the name of its own particular type or variety: And provided further, That wine as defined in this section may be sweetened with cane sugar or beet sugar or pure condensed grape must and fortified under the provisions of this Act, and wines so sweetened or forti- fied shall be considered sweet wine within the meaning of this Act. Sec. 401. Wines, lianeurs, etc. The wine tax aroused more contest than almost any other part of the Act, but there are no special legal principles involved. The dispute rages between California, producing 90% of the country's wines and certain Eastern districts. Pacific Coast grapes are rich 138 The Fedeeal, Revenue Law, 1916. in sugar and hence in readily obtainable spirits. Eastern grapes have marked acidity and strength of flavor, do not quickly ferment, and are claimed to require or justify the addition of spirits, sugar and water. The grape brandy mentioned in all recent enactments is not properly a brandy, but spirits made for the most part from inferior grapes and refuse. It is a grape product, however, and the laws have favored its use in fortifying sweet wines, long per- mitting its withdrawal for this purpose at a nominal rate of tax. Eastern makers either had to use grain spirits, paying $1.10 a gallon, or purchase the California " brandy." The Act of October 22, 1914, taxed grape brandy 55 cents, as an emergency measure, but the temporary aspect made the revenue unsatisfactory and as there was no saving clause (as there was regarding fermented liquors), the tax would have expired and left only the old nominal charge. The contest broke out again when it was sought to make the tax permanent. It is a fight of localities and interests and definitions and, although it produces reams of record, the matter is obviously not sought to be solved on broad lines of principle. The best that Congress can do is to constrain a truce and require distinguishing labels. Each geog^raphical group accused the other of making something which was " not wine," though made on a basis of grape juice. After much wrangling, concessions were made to both sides, and an attempt is here made to define natural wine, and also to pre- scribe methods for correcting the natural deficiencies of the respec- tive kinds of grapes and permit commercial and label designations indicating the type of wine, with added specification of regional origin. It is conceded that, with sufiScient doctoring, even per- fectly innocuous, most of the known types of wine can be made almost anywhere. The quarrel is as to how much of such innocent doctoring shall be permitted by law, in view of the possibility of deceiving the public and in view of the conflicting geographical and commercial interests. Rulings of the Department of Agrir culture under former acts had operated to discriminate against so-called Ohio wines, which this new law now permits to be ameliorated up to 35% of resultant volume. ' ' The eastern fellows wanted it more, and the CaUf omia fellows wanted it less," said the Chairman, in reporting the conference results. Cong. Rec, v. 53, No. 226, p. 16770. Miscellaneous Taxes. 139 Sec. 402. (a) That upon all still wines, including vermuth, and upon all artificial or imitation wines or compound sold as wine hereafter produced in or imported into the United States, and upon all like wines which on the date this section takes eifect shall be in the possession or under the control of the pro- ducer, holder, dealer, or compounder there shall be levied, collected, and paid taxes at rates as follows : On wines containing not more than fourteen per centum of absolute alcohol, 4 cents per wine gallon, the per centum of alcohol taxable under this section to be reckoned by volume and not by weight. On wines containing more than fourteen per centum and not exceeding twenty-one per centum of absolute alcohol, 10 cents per wine gallon. On wines containing more than twenty-one per cen- tum and not exceeding twenty-four per centum of abso- lute alcohol, 25 cents per wine gallon. All such wines containing more than twenty-four per centum of absolute alcohol by volume shall be classed as distilled spirits and shall pay tax accordingly: Provided, That on all unsold still wines in the actual possession of the producer at the time this title takes effect, upon which the tax imposed by the Act approved October twenty-second, nineteen hundred and fourteen, entitled ' ' An Act to increase the internal revenue and for other purposes," and the joint resolution approved December seventeenth, nineteen hundred and fifteen, entitled " Joint resolution extending the provisions of the Act entitled ' An Act to increase the internal rev- enue, and for other purposes,' approved October 140 The Fedeeax, Eevenxie Law, 1916. twenty-second, nineteen hundred and fourteen, to December thirty-first, nineteen hundred and sixteen," has been assessed, the tax so assessed shall be abated, or, if paid, refunded under such regulations as the Commissioner of Internal Eevenue, with the approval of the Secretary of the Treasury, may prescribe. Sec. 402. Tax on wines, liaueurs, etc. Sec. 402. (a) Tax on still wines. The Act of 1914, in addition to taxing, at 55 cents per gallon, grape brandy used in fortifying sweet wines, taxed all still wines, of not more than 24% alcohol, hy gallons, pints and fractions, and (proviso to § 42 of Oct. 1, 1890, as amended), forfeited all fortified wines exceeding 24% in alcohol. The present Act imposes gallon rates on wines classified according to alcoholic content, and declares all wines above 24% alcohol to be distilled spirits (taxable at $1.10 per proof gallon under R. S., § 3251, as amended). The 24% test is in conformity to the Customs Law. The new tax takes effect September 9, 1916, and wines then in producers' possession, upon which the former tax was assessed or paid, are to pay the new tax and have an abatement or refund of the old. The general power to remit and refund is given by Revised Statutes, section 3220. The time limitation for claims is two years. R. S., 4 3228. Bottled wines of all kinds were taxed under Schedule B of the Act of 1898, June 13, chapter 448. This tax was elimiuated from Schedule B of the Act of 1914, and the whole matter brought under section 2, repealed April 12, 1902. And see the Act of June tJ, 1872, § 12. Vermuth was held not to be a wine. (1907) Taylor v. Treat, 153 Fed. Rep. 656 ; 166 id. 1021. It is now expressly included imder the wine tax. Imitation wines, not made from native grapes, are taxed ten cents a pint under Revised Statutes, section 3328. Wine made from native grapes was not an imitation cham- pagne, although carbonic acid gas was injected into it. (1873) U. S. V. One Case of Wine, 6 Ben. 493. The selling of wines is dealing in liquors and requires a special Miscellaneous Taxes. 141 tax under Eevised Statutes, section 3244. Vintners and druggists are excepted, under limitations, by section 3246. A fermented liquor made from oranges,, sugar and elder blos- soms is wine. T. D. 19,089, 1898. So, also, a wine used as " casing fluid for leaf tobacco," if it is potable. T. D. 19,333, 1898. A genuine medicinal blackberry cordial did not require a tax. T. D. 57, March 3, 1900. For an interesting sketch of wine duties in England see Sydney Buxton, Finance and Politics, I, 232 et seq. A chief reason why port and sherry are "fit for gentlemen" in England is that the " people were positively punished, fined and starved out of their taste " for other wines by the Methuen Treaty of 1703 and the sub- sequent taxes which discriminated in favor of Portugal " our old and faithful ally" when most other countries turned against England. (b) That the taxes imposed by this section shall be paid by stamp on removal of the wines from the cnstomshouse, winery, or other bonded place of stor- age for consumption or sale, and every person here- after producing, or having in his possession or under his control when this section takes effect, any wines subject to the tax imposed in this section shall file such notice, describing the premises on which such wines are produced or stored ; shall execute a bond in such form; shall make sueh inventories under oath; and shall, prior to sale or removal for consumption^ affix to each cask or vessel containing such wines such marks, labels, or stamps as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may from time to time prescribe ; and the premises described in such notice shall, for the purpose of this section, be regarded as bonded prem- ises. But the provisions of this subdivision of this' 142 The Federal Eevenub Law, 1916. section, except as to payment of tax and the affixing of the required stamps or labels, shall not apply to wines held by retail dealers, as defined in section thirty- two hundred and forty-four of the Eevised Statutes of the United States, nor, subject to regulations pre- scribed by the Conmiissioner of Internal Eevenue, with the approval of the Secretary of the Treasury, shall the tax imposed by this section apply to wines produced for the family use of the producer thereof and not sold or otherwise removed from the place of manufacture and not exceeding in any case two hundred gallons per year.' The Commissioner of Internal Eevenue is hereby authorized to have prepared and issue such stamps denoting payment of the tax imposed by this section as he may deem requisite and necessary; and until such stamps are provided the taxes imposed by this section shall be assessed and collected as other taxes are assessed and collected, and all provisions of law relating to assessment and collection of, taxes, so far as applicable, are hereby extended to the taxes imposed by this section. Sec. 402. (b) Payment of tax; notice to collector; stamps. The tax of 1914 was paid by stamps on bottles or containers when sold. The producer or possessor of such wines must notify the collector at once, but this does not apply to retailers. Under Revised Statutes, section 3244, paragraph 4, a retailer of wines is one who sells less than five wine gallons at a time. The new tax may be collected by assessment instead of by stamps. See R. S., § 3182 et seq. Receipts are given for cash pay- ments, but never for stamp payments nor in lieu of stamps. R. S., § 3183. Cf. proviso at the end of § 402 (e), imfra. MisoELiiANEOus Taxes. 143 (c) That under such regulations and official super- vision and upon the giving of such notices, entries, bonds, and other security as the Commissioner of Internal Eevenue, with the approval of the Secretary of the Treasury, may prescribe, any producer of wines defined under the provisions of this section or section four hundred and one of this Act, may withdraw from any fruit distillery or special bonded warehouse grape brandy, or wine spirits, for the fortification of such wines on the premises where actually made: Pro- vided, That there shall be levied and assessed against the producer of such wines a tax of 10 cents per proof gallon of grape brandy or wine spirits so used by him in the fortification of such wines during the preceding month, which assessment shall be paid by him within six months from the date of notice thereof : Provided further, That nothing herein contained shall be con- strued as exempting any wines, cordials, liqueurs, or similar compounds from the payment of any tax pro- vided for in this section. That sections forty-two, forty-three, and forty-five of the Act of October first, eighteen hundred and ninety, as amended by section sixty-eight of the Act of August twenty-seventh, eighteen hundred and ninety-four, are further amended to read as follows : Sec. 402. (c) Wine spirits used for fortifying; tax. The tax on wine spirits so used in fortifying wines was tax free under Act of October 1, 1890, paid a nominal tax (3 cents a gallon to cover government expenses) under Act of June 7, 1906, and a tax of 55 cents in the Act of 1914. After a bitter contest among wine- 144 The Fedeeal Eevenxjb Law, 1916. makers before Congress, a compromise was reached whereby this tax was reduced to 10 cents, and other features of the law were amended to make it more just and effective. See note to § 401, supra. " Sec. 42. That any producer of pure sweet wines may use in the preparation of such sweet wines, under such regulations and after the filing of such notices and bonds, together with the keeping of such records and the rendition of such reports as to materials and pro- ducts as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may prescribe, wine spirits produced by any duly author- ized distiller, and the Commissioner of Internal Revenue, in determining the liability of any distiller of wine spirits to assessment under section thirty-three hundred and nine of the Revised Statutes, is authorized to allow such distiller credit in his computations for the wine spirits withdrawn to be used in fortifying sweet wines under this Act. Sections 42, 43 and 45 (and also 46 and 49) of October 1, 1890, were amended by the Act of 1914 to fit the scheme then temporarily adopted. With the expiration, now become a repeal, of the Emergency Act of 1914, it was necessary tp re-enact such changes in the Act of 1890, 1894 as are involved in the new scheme. This special wine legislation has repeatedly been amended in details as to percentages of sugar, alcohol, etc., and nothing is to be gained in a general commentary by comparing the successive changes. The Act of 1916 as it stands is complete, and is an arbitrary state- ment of a technical matter of little general interest. II Sec. 43. That the wine spirits mentioned in sec- tion forty-two herein mentioned is the product result- ing from the distillation of fermented grape juice, to Miscellaneous Taxes. 145 which water may have been added prior to, during, or after fermentation, for the sole purpose of facilitating the fermentation and economical distillation thereof, and shall be held to include the product from grapes or their residues commonly known as grape brandy, and shall include commercial grape brandy which may have been colored with burnt sugar or caramel; and the pure sweet wine which may be fortified with wine spirits under the provisions of this Act is fermented or partially fermented grape juice only, with the usual cellar treatment, and shall contain no other substance whatever introduced before, at the time of, or after fermentation, except as herein expressly provided: Provided, That the addition of pure boiled or con- densed grape must or pure crystallized cane or beet sugar, or pure dextrose sugar containing, respectively, not less than ninety-five per centum of actual sugar, calculated on a dry basis, or water, or any or all of them, to the pure grape juice before fermentation, or to the fermented product of such grape juice, or to both, prior to the fortification herein provided for, either for the purpose of perfecting sweet wines according to commercial standards or for mechanical purposes, shall not be excluded by the definition of pure 3weet wine aforesaid: Provided, however, That the cane or beet sugar, or pure dextrose sugar added for sweetening purposes shall not be in excess of eleven percentum of the weight of the wine to be fortified: And provided further. That the addition of water herein authorized shall be under such regulations as 146 The Fedeeal Revenue Law, 1916. the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may from time to time prescribe: Provided, however, That records kept in accordance with such regulations as to the percentage of saccharine, acid, alcoholic, and added water content of the wine offered for fortification shall be open to inspection by any official of the Department of Agriculture thereto duly authorized by the Secre- tary of Agriculture ; but in no case shall such wines to which water has been added be eligible for fortification under the provisions of this Act, where the same, after fermentation and before fortification, have an alcoholic strength of less than five per centum of their volume. ' ' Sec. 45. That under such regulations and official supervision, and upon the execution of such entries and the giving of such bonds, bills of lading, and other security as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe, any producer of pure sweet wines as defined by this Act may withdraw wine spirits from any special bonded warehouse in original packages or from any registered distillery in any quantity not less than eighty wine gallons, and may use so much of the same a^ may be required by him under such regula- tions, and after the filing of such notices and bonds and the keeping of such records and the rendition of such reports as to materials and products and the dis- position of the same as the Commissioner of Internal Revenue, with the approval of the Secretary of the Miscellaneous Taxes. 147 Treasury, shall prescribe, in fortifying the pure sweet wines made by him, and for no other purpose, in accordance with the foregoing limitations and pro- visions; and the Commissioner of Internal Eevenue, with the approval of the Secretary of the Treasury, is authorized whenever he shall deem it to be necessary for the prevention of violations of this law to prescribe that wine spirits withdrawn under this section shall not be used to fortify wines except at a certain distance prescribed by him from any distillery, rectifying house, winery, or other establishment used for producing or storing distilled spirits, or for making or storing wines other than wines which are so fortified, and that in the building in which such fortification of wines is prac- ticed no wines or spirits other than those permitted by this regulation shall be stored in any room or part of the building in which fortification of wines is prac- ticed. The use of wine spirits for the fortification of sweet wines under this Act shall be under the immedi- ate supervision of an officer of internal revenue, who shall make returns describing the kinds and quantities of wine so fortified, and shall affix such stamps and seals to the packages containing such wines as may be prescribed by the Commissioner of Internal Eevenue, with the approval of the Secretary of the Treasury; and the Commissioner of Internal Eevenue, with the approval of the Secretary of the Treasury, shall pro- vide by regulations the time within which wines so fortified with the wine spirits so withdrawn may be subject to inspection, and for final accounting for the 148 The Fedeeai. Revenue Law, 1916. use of such wine spirits and for rewarehousing or for payment of the tax on any portion of such wine spirits which remain not used in fortifying pure sweet wines. ' ' (d) That under such regulations and upon the execu- tion of such notices, entries, bonds, and other security as the Commissioner of Internal Eevenue, with the approval of the Secretary of the Treasury, may pre- scribe, domestic wines subject to the tax imposed by this section may be removed from the winery where produced, free of tax, for storage on other bonded premises or from said premises to other bonded premises: Provided, That not more than one such additional removal shall be allowed, or for exportation from the United States or for use as distilling material at any regularly registered distillery : Provided, how- ever, That the distiller using any such wine as material shall, subject to the provisions of section thirty-three hundred and nine of the Revised Statutes of the United ■States, as amended, be held to pay the tax on the pro- duct of such wines as will include both the alcoholic strength therein produced by fermentation and that obtained from the brandy or wine spirits added to ■such wines at the time of fortification. Sec. 402. (d) Bemoval for storing, export or distillation. Revised Statutes, section 3309, provides a capacity tax on distillers. Assessment is on the actual product which, however, is assumed to be in no case less than 80% of the distillery's registered capacity. The tax on spirits is $1.10 a gallon. Assessments are a lien on the distillery and realty. Section 49 of October 1, 1890, was amended and embodied in the Act of 1914, providing for the recovery, by MlSCELLANEOTJS TaXES. 149 redistillation, of grape brandy used in fortifying wines. This privilege is now given by the provisos of section 402 (d), with penalty for evasion, section 402(f). And Cf. 5 404, m/ra, amend- ing R. S., § 3255, as amended June 3, 1896, and March 2, 1911. (e) That upon all domestic and imported sparkling wines, liqueurs, cordials, and similar compounds remaining in the hands of dealers when this section takes effect, or thereafter removed from the place of manufacture or storage for sale or consumption, there shall be levied and paid, by stamp, taxes as follows : On each bottle or other container of champagne or sparkling wine, 3 cents on each one-half pint or fraction thereof. On each bottle or other container of artificially car- bonated wine, 114 cents on each one-half pint or frac- tion thereof. On each bottle or other container of liqueurs, cordials, or similar compounds, by whatever name sold or offered for sale, containing sweet wine, fortified with grape brandy under the provisions of paragraph (c) of this section, II/2 cents on each one-half pint or fraction thereof. The taxes imposed by this section shall not apply to wines, liqueurs, or cordials on which the tax imposed by the Act approved October twenty-second, nineteen hundred and fourteen, entitled " An Act to increase the internal revenue, and for other purposes," and. the joint resolution approved December seventeenth, ■nineteen hundred and fifteen, entitled " Joint resolu- tion extending the provisions of the Act entitled ' An. 150 The Federal Revenue Law, 1916. •Act to increase the internal revenue, and for other pur- poses,' approved October twenty-second, nineteen hun- dred and fourteen, to December thirty-first, nineteen hundred and sixteen," has been paid by stamp. The Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, i^ hereby authorized to have prepared suitable revenue stamps denoting the payment of the taxes imposed by this section ; and all provisions of law relating to internal- revenue stamps, so far as applicable, are hereby extended to the taxes imposed by this section: Pro- vided, That the collection of the tax herein prescribed on imported still wines, including vermouth, and sparkling wines, including dhampagne, and on im- ported liqueurs, cordials, and similar compounds, may be made within the discretion of the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, by assessment instead of by stamps. Sec. 402. (e) Tax on champagne, liauenrs, etc. Liqueurs and cordials are practically the same, the words being used to cover the custom of trade. They and "similar com- pounds " included vermuths, beverage bitters, cocktails, maras- chino, cordialized liquors, fortified fruit juices and everything sufficiently like liquors and cordials to be classed with them. T. D. 2050, Nov. 13, 1914. But vermuth is now classed with still wines in 4 402 (a). Cocktails at the bar, as was solemnly ruled, are not taxable. T. D. 2078, Nov. 28, 1914. The Department was " unable to state " how service bottles could be kept constantly filled and yet properly stamped, but thought compliance with the law required complete emptying. The stamp must be conspicuously afiELxed and be completely effaced Miscellaneous Taxes. 151 as soon as the bottle is empty. T. D. 2053, Nov. 13, 1914. T. D. 2078, Nov. 28, 1914. This latter ruling was modified as to bulk sales by retailers. Where consumption is on the premises, the barrel must be stamped; where the sale is for consumption else- where the customer's container is to be stamped. T. D. 2338, May 23, 1916. The 1914 tax on champagne and sparkling wine was at the propor- tional rate of five cents per half pint and it was the same on arti- ficially carbonated wines. The new tax on champagne and sparkling wine is at the reduced rate of three cents per half pint; and the tax on artificially carbonated wines is further reduced to one and one-half cents per half pint. The new tax on liqueurs and cordials remains unchanged, at one and one-half cents per half pint. " Containing sweet wine, etc.," does not limit the tax. All liqueurs and similar compounds are taxed, whether or not they are made of fortified domestic sweet wines. The Act of 1914, section 2, amending section 6 of June 7, 1906, expressly permitted fortified sweet wines to be used in making cordials. Sweet wines fortified with spirits free from tax under the earlier law might not be used by a rectifier in producing imitation, spurious or compound liquors. T. D. 539, June 26, 1902. Wines and- liqueurs already stamped under the Act of 1914 are not retaxed. (f ) That any person who shall evade or attempt to evade the tax imposed by this section, or any require- ment of this section or regulation issued pursuant thereof, or who shall, otherwise than provided in this section, recover or attempt to recover any spirits from domestic or imported wine, or \\^ho shall rectify, mix, or compound with distilled spirits any domestic wines, other than in the manufacture of liqueurs, cordials, or similar compounds taxable under the provisions of this 152 The Fedebal Revenue Law, 1916. section, shall, on conviction, be punished for each such offense by a fine of not exceeding $5,000, or imprison- ment for not more than five years, or both, and all wines, spirits, liqueurs, cordials, or similar compounds as to which such violation occurs shall be forfeited to the United States. But the provision of this sub- division of this section and the provision of section thirty-two hundred and forty-four of the Eevised Stat- utes of the United States, as amended, relating to rectification, or other internal-revenue laws of the United States, shall not be held to apply to or prohibit the mixing or blending of wines subject to tax under the provisions of this section with each other or with other wines for the sole purpose of perfecting such wines according to commercial standards: Provided, That nothing herein contained shall be construed as prohibiting the use of tax-paid grain or other ethyl alcohol in the fortification of sweet wines as defined in section fifty-three of this Act. Sec. 402. (f) Penalty; fortification with grain spirits. The Act of 1914 amended and embodied section 6 of Act of June 7, 1906, imposing a penalty of from $200 to $1,000 for offenses against the provisions regarding fortification, recovery of wine spirits, etc. Section 48 of October 1, 1890, made it a misdemeanor to fortify wines with wine spirits not tax paid, the penalty being up to $2,000 for first offense and- up to one year for each repetition. The general provision penalizing distillers for fraudulent evasion is forfeiture of distillery and apparatus, a fine of from $500 to $5,000 and prison from six months to three years. E. S. 3257. By indictment or other form of action any person who evades or attempts evasion of a spirits tax may forfeit double the tax. B. S. 3256. Miscellaneous Taxes. 153 The proviso is an important concession to eastern producers who were formerly required by rulings under the statute to use grape brandy, the most of which was made on the Pacific coast. " That is an amendment dropped down at the bottom of the bill after the rest is all disposed of, permitting alcohol to be made out of grain and then call it wine. In other words, it is making whisky and calling it wine on a wine bill." Mr. Raker, of California, Sep- tember 6, 1916. Cong. Rec. 16,328. (g) That the Commissioner of Internal Revenue, by- regulations to be approved by the Secretary of the Treasury, may require the use at each fruit distillery of such spirit meters, and such looks and seals to be affixed to fermenters, tanks, or other vessels and to such pipe connections as may in his judgment be neces- sary or expedient ; and the said commissioner is hereby authorized to assign to any such distillery and to each winery where wines are to be fortified such number of gangers or storekeeper-gangers in the capacity of gangers as may be necessary for the proper super- vision of the manufacture of brandy or the making or fortifying of wines subject to tax imposed by this sec- tion; and the compensation of such officers shall not exceed $5 per diem while so assigned, together with their actual and necessary traveling expenses, and also a reasonable allowance for their board bills, to be fixed by the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, but not to exceed $2.50 per diem for said board bills. ^ (h) That the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, is hereby authorized to make such allowances for 154 The Fedeeal Eeventje Law, 1916. unavoidable loss of wines while on storage or during cellar treatment as in his judgment may be just" and proper, and to prepare all necessary regulations for carrying into effect the provisions of this section. Sec. 402. (h) Allowance for leakage. Provision for leakage allowance is made by Revised Statutes, sections 3294 (regauging), 3330b and 3433b. (i) That the second paragraph of section thirty- two hundred and sixty-four, Eevised Statutes of the United States of America, as amended by section five of the Act of March first, eighteen hundred and sev- enty-nine, and as further amended by the Act of Congress approved June twenty-second, nineteen hun- dred and ten, be amended so as to read as follows : " In all surveys forty-five gallons of mash or beer brewed or fermented from grain shall represent not less than one bushel of grain, and seven gallons of mash or beer brewed or fermented from molasses shall represent not less than one gallon of molasses, except in distilleries operated on the sour-mash principle, in which distilleries sixty gallons of beer brewed or fer- mented from grain shall represent not less than one bushel of grain, and except that in distilleries where the filtration-aeration process: is used, with the approval of the Commissioner of Internal Eevenue; that is, where the mash after it leaves the mash tub is passed through a filtering machine before it is run into the fermenting tub, and only the filtered liquor passes into the fermenting tub, there shall hereafter Miscellaneous Taxes. 155 be no limitation upon the number of gallons of water which may be used in the process of mashing or filtra- tion for fermentation; but the Commissioner of Internal Eevenue, with the approval of the Secretary of the Treasury, in order to protect the revenue, shall be authorized to prescribe by regulation, to be made by him, such character of survey as he may find suit- able for distilleries using such filtration-aeration pro- cess. The provisions hereof relating to filtration-aera- tion process shall apply only to sweet-mash distil- leries." Sec. 402. (i) Sixty gallons of beer represent one bushel of grain. This amendment of Revised Statutes, section 3264, reiQoves a requirement that seventy gallons of beer from grain shall represent not less than one bushel of grain, and substitutes the provision that there shall hereafter be no limitation to water used in mashing or filtration. It is not to be wondered at that American lawyers use indexes instead of tables of contents, in looking up the law, when such an amendment is hastily stuck into the ninth subdivision of a section on wines, instead of associating it with the initial section on fermented liquors. See, also, § 406. Sec. 403. That under such regulations as the Com- missioner of Internal Revenue, with the approval of the Secretary of the Treasury, may prescribe, alcohol or other distilled spirits of a proof strength of not less than one hundred and eighty degrees intended for export free of tax may be drawn from receiving cis- terns at any distillery, or from storage tanks in any distUlery warehouse, for transfer to tanks or tank 156 The Fedeeal Eevenue Law, 1916. cars for export from the United States, and all pro- visions of existing law relating to the exportation of distilled spirits not inconsistent herewith shall apply- to spirits removed for export under the provisions of this Act. Sec. 403. Bemoval of spirits for exportation. Revised Statutes section 3329, as amended, permits the exporta- tion, in distillers' original casks or packages, after payment of the tax, and provides for a drawback of the tax. Revised Statutes, section 3330, as amended, provides for such withdrawal from bonded warehouses in the original casks or packages. Revised Statutes, section 3287, as amended, permits the use of pipes and tank cars. Sec, 404. That section thirty- two hundred and- fifty- five of the Revised Statutes as amended by Act of June third, eighteen hundred and ninety-six, and as further amended by Act of March second, nineteen hundred and eleven, be further amended so as to read as follows : " Sec. 3255. The Commissioner of Internal Eev- enue, with the approval of the Secretary of the Treas- ury, may exempt distillers of brandy made exclusively from apples, peaches, grapes, pears, pineapples, oranges, apricots, berries, plums, pawpaws, persim- mons, prunes, figs, or cherries from any pro- vision of this title relating to the manufacture of spirits, except as to the tax thereon, when in his judgment it may seem expedient to do so: Miscellaneous Taxes. 157 Provided, That where, in manufacture of wine, artificial sweetening has been used the wine or the fruit pomace residuum may be used in the distilla- tion of brandy, as [and] such use shall not prevent the Commissioner of Internal Eevenue, with the approval of the Secretary of the Treasury, from exempting such distiller from any provision of this title relating to the manufacture of spirits, except as to the tax thereon, when in his judgment it may seem expedient to do so: And provided further, That the distillers mentioned in this section may add to not less than five hundred gallons (or ten barrels) of grape cheese not -more than five hundred gallons of a sugar solution made from cane, beet, starch, or corn sugar, ninety-five per centum pure, such solution to have a saccharine strength of not to exceed ten per centum, and may fer- ment the resultant mixture on a winery or distillery premises, and such fermented product shall be regarded as distilling material. ' ' Sec. 404. Brandy distillers' nse of grape cheese, etc. The amendment here made of Revised Statutes, section 3255, as already amended, consists in the addition of the provided further. Sec. 405. That distilled spirits known commercially as gin of not less than eighty per centum proof may at any time within eight years after entry in bond at any distillery be bottled in bond at such distillery for ■export without the payment of tax, under such rules and regulations as the Commissioner of Internal 158 The Fedeeal Revenue Law, 1916. Revenue, with the approval of the Secretary of the Treasury, may prescribe. Sec. 405. Bottling gin for export. Under existing law gin could be withdrawn and exported in original casks or packages. See note under J 403, supra. WeU-known for- eign brands of gin are now made in America, and under the laws referred to and this new bonded bottling provision may be exported in bottles to supplement the war-disturbed supply. Our govern- ment loses the tax on the product, but the country has the incidental benefits of the manufacture. Sec. 406. That section thirty-three hundred and fifty-four of the Revised Statutes of the United States as amended by the Act approved June eighteenth, eighteen hundred and ninety, be, and is hereby, amended to read as follows : ' ' Sec. 3354. Every person who withdraws any fer- mented liquor from any hogshead, barrel, keg, or other vessel upon which the proper stamp has not been affixed for the purpose of bottling the same, or who carries on or attempts to carry on the business" of bottling fermented liquor in any brewery or other place in which fermented liquor is made, or upon any prem- ises having communication with such brewery, or any warehouse, shall be liable to a fine of $500, and the property used in such bottling or business shall be liable to forfeiture : Provided, however, That this sec- tion shall not be construed to prevent the withdrawal and transfer of unfermented, partially fermented, or fermented liquors from any of the vats in any brewery Miscellaneous Taxes. 159 by way of a pipe line or other conduit to another build- ing or place for the sole purpose of bottling the same, such pipe line or conduit to be constructed and oper- ated in such manner and with such cisterns, vats, tanks, valves, cocks, faucets, and gauges, or other utensils or apparatus, either on the premises of the brewery or the bottling house, and with such changes of or addi- tions thereto, and such locks, seals, or other fasten- ings, and under such rules and regulations' as shall be from time to time prescribed by the Commissioner of Internal Revenue, subject to the approval of the Secre- tary of the Treasury, and all locks and seals prescribed shall be provided by the Commissioner of Internal Revenue at the expense of the United States: Pro- vided further, That the tax imposed in section thirty- three hundred and thirty-nine of the Revised Statutes of the United States shall be paid on all fermented liquor removed from a brewery to a bottling house by means of a pipe or conduit, at the time of such removal, by the cancellation and defacement, by the collector of the district or his deputy, in the presence of the brewer, of the number of stamps denoting the tax on the fermented liquor thus removed. The stamps thus canceled and defaced shall be disposed of and accounted for in the manner directed by the Commis- sioner of Internal Revenue, with the approval of the Secretary of the Treasury. And any violation of the rules and regulations hereafter prescribed by the Com- missioner of Internal Revenue, with the approval of the 160 The FEDESAii Revenue Law, 1916. Secretary of the Treasury, in pursuance of these pro- visions, shall be subject to the penalties above provided by this section. Every owner, agent, or superintendent of any brewery or bottling house who removes, or con- nives at the removal of, any fermented liquor through a pipe line or conduit, without payment of the tax thereon, or who attempts in any manner to defraud the revenue as above, shall forfeit all the liquors made by and for him, and all the vessels, utensils, and appar- atus used in making the same. ' ' Sec. 406. Amendment as to beer bottling. The amendment here made of Revised Statutes, section 3354, makes its first proviso apply not only to fermented, but to unfer- mented and partially fermented, liquors. The Revised Statutes section deals with the bottling business, and requires the payment, . at the time of withdrawal, of the tax imposed by Revised Statutes, section 3339. This is the tax of $1.50 per barrel referred to in section 400 of the present title, amending said Revised Statutes, section 3339, as to the rate. The withdrawal permitted is for the sole purpose of bottling the same. Special Taxes. Sec. 407. That on and after January first, nineteen hundred and seventeen, special taxes shall be, and hereby are, imposed annually, as follows, that is to say: Every corporation, joint-stock company or associa- tion, now or hereafter organized in the United States for profit and having a capital stock represented by shares, and every insurance company, now or here- after organized under the laws of the United States, Miscellaneous Taxes. 161 or any State or Territory of the United States, shall 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 com- pany, equivalent to 50 cents for each $1,000 of the fair value of its capital stock and in estimating the value of capital stock the surplus and undivided profits shall be included: Provided, That in the case of insurance companies such deposits and reserve funds as they are required by law or contract to maintain or hold for tihe protection ©f or payment to or apportionment among policyholders shall not be included. The amount of such annual tax shall in all cases be computed on the basis of the fair average value of the capital stock for the preceding year : Provided, That for the purpose of this tax an exemption of $99,000 shall be allowed from the capital stock as defined in this paragraph of each corporation, joint-stock company or association, or insurance company : Provided further. That a cor- poration, jioint-stock company or association, or insur- ance company, actually paying the tax imposed by section, three hundred and one of Title III of this Act shall be entitled to a credit as against the tax imposed by this paragraph equal to the amount, of the tax so actually paid: And provided further, That this tax shall not be imposed upon any corporation, joint-stock company or association, or insurance company not engaged in business during the preceding taxable year, or which is exempt under the provisions of section eleven, Title I, of this Act. 6 162 The Fedbeal Revenue Law, 1916. Every corporation, joint-stock company or associa- tion, or insurance company, now or hereafter organ- ized for profit under the laws of any foreign country and engaged in business in the United States shall pay annually a special excise tax with respect to the carry- ing on or doing business in the United States by such corporation, joint-stock company or association, or insurance company, equivalent to 50 cents for each $1,000 of the capital actually invested in the trans- action of its business in the United States : Provided, That in the case of insurance companies such deposits or reserve funds as they are required by law or con- tract to maintain or hold in the United States for the protection of or payment to or apportionment among policyholders, shall not be included. The amount of such annual tax shall in all cases be computed on the basis of the average amount of capital so invested during the preceding year : Provided, That for the pur- pose of this tax an exemption from the amount of capital so invested shall be allowed equal to such pro- portion of $99,000 as the amount so invested bears to the total amount invested in the transaction of business in the United States or elsewhere : Provided, further. That this exemption shall be allowed only if such cor- poration, joinit-stock company or association, or insur- ance company makes return to the Commissioner of Internal Revenue, under regulations prescribed by him, with the approval of the Secretary of the Treasury, of the amount of capital invested in the transaction of business outside the United States : And provided fw- Miscellaneous Taxes. 163 ther, That a corporation, joint-stock company or asso- ciation, or insurance company actually paying the tax imposed by section three hundred and one of Title III of this act, shall be entitled to a credit as against the tax imposed by this paragraph equal to the amount of the tax so actually paid: And provided further, That this tax shall not be imposed upon any corporation, joint-stock company or association, or insurance com- pany not engaged in business during the preceding taxable year, or which is exempt under the provisions of section eleven, Title I, of this Act. Special taxes: (License or occupation taxes), in general. The title re-enacts, with somff changes, the same plan, phraseology and tax rates as were found in the Act of October 22, 1914, and the Act of June 13, 1898 (30 Stat. 448), which in turn was similarly based on the Act of June 30, 1864 (13 Stat. 223), and the Act of July 1, 1862 (12 Stat. 432). The Acts of 1862 and 1864 required licenses to be taken out and forbade the occupation until the fee was paid. The present Act, as in 1898 and 1914, here imposes special taxes, and the last paragraph of section 408, infra, prohibits the business under penalty. The civil war license taxes were repealed July 14, 1870 (16 Stat. 256). The special taxes of the Spanish war tax were repealed April 12, 1902 (32 Stat. 96). The earlier " license " became a " special tax * in 1866, eh. 184. Special taxes are assessed on July 1st for the next fiscal year and are prorated to that date for a business beginning in the interval. They formerly were for the year ending April 30. R. S., § 3237. The change to July 1st was made by Act of October 1, 1890, to conform to the Federal fiscal year, which was fixed by August 26, 1842. See section 409, notes, post, as to records required to be kept and returns made; and as to penalty of double tax. 164' The Federal Revenue Law, 1916. Tha origin of all our modern licensing Acts may be traced to the time of. Edward VI (1547-1553), when, "to take away temptations to idleness " and' check vagrancy, two sessions justices were empow- ered to' grant licenses to ale and tippling houses. Stat. 5 and 6, Edward VI, ch. 25; Beeves' Hist, of English Law (Finlason ed.), vol. 5, p. 36. Samuel Johnson, in his great dictionary, defines excise as, " a hateful tax levied upon commodities, and adjudged not by the com- mon judges of property, but wretches hired by those to whom excise is paid." He has in mind the old " farming out " systems. His illustrative quotations include : " Excise. With hundred rows of teeth the shark exceeds, and on all trades like cassawar she f eedfe." — Marvel. As to the special taxes which are a part of the permanent tax system, or at least were on the statutes when the present Act was passed, see post. Section 409, post, extends all existing laws of this sort so far as applicable, to the new special taxes. The principal general provisions of the Revised Statutes are: Occupation not to be carried on until tax paid (4i 3232) ; business to be registered (§ 3233); partners at the same place pay only a single tax ( § 3234) ; payment of one tax does not cover several places of business (J 3235); when one person has more than one occupation a tax must be paid for each (^ 3236) ; the tax is due on July first, being annual, but apportioned pro rata for shorter periods (? 3237) ; to be paid by stamps (5 3238) ; the tax stamp to be conspicuously esjposed (^ 3239) ; each collector to keep a public list and to certify a copy to any public prosecutor on requisition (5 3240) ; in case of death or removal after payment, business may be carried on without a new tax (5 3241); payment does not authorize any violation of State law; the special taxes are imposed on brewers, manufacturers of stills, rectifiers, retail liquor dealers; wholesale liquor dealers; retail dealers in malt, liquors, wholesale dealers in malt liquors; manufaicturers of oleomargarine, wholesale dealers in oleomargarine, retail dealers in oleomargarine, manu- facturers of process or renovated butter, dealers in adulterated butter, manufacturers of filled cheese, wholesale dealers in filled cheese, retail dealers in filled cheese, manufacturers and packers of Miscellaneous Taxes. 165 mixed flour (J .3244, as amended). The Act of Dee. 17, 1914, imposes a nominal special tax on producers, etc., .of opium. Special occupation taxes are constitutional. (1866) License Tax Cases, 5 Wall. 462; (1900) American Sugar Ref. Co. v. Louisiana, 179 U. S. 89, 45 L. Ed. 102; (1901) W. "W. CargiU Co. v. Min- nesota, 180 U. S. 452 (grain warehouse) ; (1905) Cook v. Marshall Co., 196 U. S. 261, 45 L. Ed. 619 (cigarette) ; (1906) Armour Packing Co. v. Lacy, 200 U..B. 226, SO L. Ed. 451 (meat packers) ; (1909) Southern Oil. Co. v. Texas, 217 U. S. 114, 54 L. Ed. 688 (oil and coal). Constitutionality is presumed. (1895.) .Hooper v. California, 155 U. S. 648, 39 L. Ed. 297 (insurance). They are to be reasonably and faitly construed. (1900) De Bary, V. Souer, 101 Fed. Eep. 425; (1911) Sesnon v. U. S., 182 Fed. Rep. 573, 220 U. S. 609. It was the province of the States to license, and the earlier use of the word license in the Federal legislation led to confusion. The designation " special tax " has been used since 1866, July 13 (14 Stat. 4). E'ven under the Acts of 1862 and 1864 the license was nothing more than a tax receipt. (1866) License Tax Cases, 5 Wall. 462 (lottery) ; (1866) Perveai- v. Commonwealth, 5 Wall. 475 (liquor) ; (1865) McGuire v. i Commonwealth, 3 Wall. 387 (liquor); (1865) Commonwealth v. Holbxook, 10 Allen, 200 (liquor) ; (1867) State v. Delano, 54 Me. 501 (liquor) ; (1864) U. S. V. Riley, 5 Blatchf. 204 (liquor) ; (1894) Plumley v. Mass., 155 U. S. 461 (oleomargarine). Privilege or occupation taxes iave from the earliest times been popular (it would be better, perhaps, to say common) sources of revenue in the southern States; and the reports of the State courts contain much reasoning which wUl ibe found to apply to Federal legislation on the same subjects. (1848) Simmons v. State, 12 Mo., 268 (State tax on lawyers) ; (1847) Carroll v. Mayor, 12 Ala. 173 (city tax on auctioneers) ; (1856) Portland v. O'Neill, 1 Oreg. 218 (city tax on brokers) ; (1857) Gunter v. Leckey, 30 Ala. 591 (State tax on slave traders) ; (1872) St. Louis v. Laughlin, 49 Mo. 559 (on professions) ; (1876) State v. Johnson, 65 Me. 362 (inn- keeper) ; (1879) Ex parte City, JJe , Knox, 64 Ala. 463 (city tax on lawyers). 166 The Fedeeal Revenue Law, 1916. The District of Columbia has an elaborate scheme of oeeupation or license taxes, imposed by Congress. Act of July 1, 1902, ch. 1352 (32 Stat. 622). . Revised Statutes, section 3243, expressly says that the payment of a Federal special tax shall not authorize any violation of a State law, nor prohibit the imposition of State taxes. See, also, Act of July 1, 1862, ch. 119 (12 Stat. 432), J 67; June 30, 1864, eh. 173 (13 Stat. 223), § 81, and July 13, 1866, eh. 184 (14 Stat. 98). (1909) Ohio V. Kendle, 8 0. N. P. N. S. 109; Plumley v. Mass., 155 U. S. 461, 39 L. Ed. 223. State and local occupation taxes must not interfere with inter- state commerce. (1914) Browning v. Waycross, 233 U. S. 16. Nor with foreign commerce. (1914) Sault Ste-Marie v. International Transit Co., 234 U. S. 333. A State tax on importers would tax imports and be unconstitu- tional. (1827) Brown v. Md., 12 Wheat. 419. But the police power justifies the license taxing of the sale of imported liquors. (1847) License Cases, 5 How. 504. No State may hinder or burden the Federal government in the lawful exercise of the latter's taxing power. (1910) Flaherty v. Hanson, 215 U. S. 515, 54 L. Ed. 307, and cases cited, p. 524. A State privilege tax on telegraph companies which does not exempt Federal business is unconstitutional. (1912) Williams v. Talladega, 226 U. S. 404, 57 L. Ed. 275, reversing 164 Ala. 633. State privilege taxes may be both for revenue and for regulation, and are limited only by " due process " and the Fourteenth Amend- ment. (1913) Bradley v. Eichmond, 227 U. S. 477, 57 L. Ed. 603 (private banking); (1900) Gundling v. Chicago, 177 U. S. 183, 44 L. Ed. 725 (cigarettes) ; (1913) Citizens' Telephone v. Fuller, 229 U. S. 322, 57 L. Ed. 1206; (1914) Ohio Tax Cases, 232 U. S. 576 (railways). A State (Florida) may not impose an arbitrary and burdensome license tax. State and county, on merchants using any form of profit-sharing coupons. (1913) Van Deman & Lewis Co. v. Rast, 214 Fed. Rep. 827. City ordinances imposing an unreasonable license system on expressmen, truckmen, hackmen, etc., held unconstitutional. (1914) Adams Express Co. v. New York, 232 U. S. 14. Miscellaneous Taxes. 167 An ordinance imposing a license tax on tow-boats in the Gulf of Mexico was unconstitutional. (1884) Moran v. New Orleans, 114 U. S. 627. As to whether and what contracts may be enforced in default of required license. Benjamin on Sales (Bennett's 7th ed.), Bk. 3, eh. 3, esp. J 538; Bishop on Contracts, ch. 18. Many of the cases generally cited turn upon express statutory language or express terms of contracts, rather than on any principle. (1869) Hall V. Bishop, 3 Daly, 109 (lawyer) ; (1871) Tedrick v. Hiner, 61 111. 189, 38 L. E. A. 145 (lawyer) ; (1871) "Woodward v. Stearns, 10 Abb. Pr. (N. S.) 395 (broker, with express contract) ; (1873) Holt V. Green, 73 Pa. 200 (commercial broker); (1871) Lamed v. Andrews, 106 Mass. 435 (merchant); (1874) Ruckman V. Bei^holz, 37 N. J. L. 437 (real estate agent) ; but ef. (1892) Buckley v. Hamason, 50 Minn. 195, 16 L. R. A. 423; (1885) Pollard V. Phoenix Ins. Co., 63 Miss. 244, where failure to have a merchant's license invalidated fire policy on goods; cf. (1871) Lamed v. Andrews, 106 Mass. 435 (a merchant, under Act of 1864, ch. 173, § 79) ; (1869) Aiken v. Blaisdell, 41 Vt. 655 (sale of liquor across State line to evade prohibition); (1845) Smith v. Mawhood, 14 M. & W. 452 (tobacco). An express company was, because of a special method of handling shipments, held to pay a special tax as a liquor dealer, though it never owned the beer sold. (1905) Western Exp. Co. v. U. S., 141 Fed. Rep. 28. The ordinary C. 0. D. shipments do not make the carrier liable. (1902) U. S. v. Adams Exp. Co., 119 Fed. Rep. 240; though the shipper may be required to have a license for the place of delivery. (1885) 23 Fed. Rep. 134. As to what constitutes carrying on a business. (1898) Ledbetter v. U. S., 170 U. S. 610; (1886) U. S. v. Rennecke, 28 Fed. Rep. 847; (1875) U. S. v. Jackson, 1 Hughes, 531. Where special taxes vary with the amount of busiaess done, and a person has paid a higher tax, he may, on establishing his right to a lower classification, recover the excess paid. (1877) U. S. V. Kaufman, 96 U. S. 567. See R. S., J 3426. A wife may continue a husband's business without paying a new tax. T. D. 19,026, 19,411, of 1898. 168 The Fedeeai, Eevenub Law, 1916. A stockholder of a company may not continue business, as in the ease of a partnership, after dissolution. T. D. 45, Feb. 17, 1900. Under the Act of 1864 one professional license did not suffice for a firm. Collection of Circulars, 1871, pp. 156, 158; Special No. 4, July 30, 1864. Where a brewer's tax was paid by a firm, it was not necessary for the partner who continued after dissolution to pay again. (1889) U. S. V. Davis, 37 Fed. Eep. 468; (1878) U. S. v. Glab, 99 U. S. 225; (1867) Spielman v. State, 27 Md. 520. A business tax is to be assessed where the business is carried on and not at the residence. (1871) Bates v. Mobile, 46 Ala. 158; (1863) Miner v. Fredonia, 27 N, Y. 155. As to sales made away from the place of business, see (1901) U. S. V. ChevaJlier, 107 Fed. Rep. 434; (1909) De Bary v. Dunne, 172 Fed. Rep. 940. But one liquor license covers any number of bars on the same premises. T. D. 142, June 2, 1900; 169, June 29, 1900. By an executive order, dated October 13, 1914, am interring scheme of occupation or license taxation was established for the Canal Zone. The special license taxes include " dance," " hand organ," " fortune telling device," " cane rack," " doll rack," " merry- go-round," " trick riders," " peddler," etc. Lawyers paid a license tax under the Excise Tax Act of July 1, 1862, and Afit of June 30, 1864, and subsequently. In 1862 every person was deemed a lawyer whose business it was, for fee or reward, to prosecute or defend causes in court, " or give advice in relation to causes or matters pending therein." But this was later changed to include the giving of " legal advice in relation to any cause or matter whatever." November 9, 1914, the commissioner, in T. D. 2046, published a circular containing many rulings which had been made under the special tax provisions of the Act of 1898, not as binding, but as having great weight ; and in like manner, in T. D. 2051, a series of rulings on the stamp taxes of 1898, Schedule A, same Act. A special tax stamp is not retroactive. U. S. v. AngeU, 11 Fed. Rep. 34. A return for the assessment of a special tax must be verified by the person himself and not by an "agent." T. D. 49, Feb. 27, 1900. Miscellaneous Taxes. 169 Sec 407. First. Corporations, domestic and foreign. This is an excise tax on the privilege of doing business as a cor- poration. It is measured by the amount of capital engaged, and $99,000 of such capital is exempt. It does not conflict in principle with the corporation income tax, which is a tax upon business done, measured by the net profit. Yet there is a manifest confusion of principles in that the munitions manufacturer's tax (tit. Ill), which is an excise, measured by net profits, and in the nature of an extra income tax, is credited against the tax under this section. In the Senate, where this special corporation tax orig^inated as an amendment, the bill said " corporations actually paying, etc.," biit, in accord with the characteristic inefficient efficiency of hurried law- patching and the custom of " sticking in this word which occurs " elsewhere, "or insurance company," was tagged onto the first provided further, although obviously no insurance company pays any tax under section 301, title III. Moreover, the second provided further may operate to relieve altogether from this tax any new corporations, not engaged in business during the preceding taxable year, which may have been organized to make war munitions. " Fair value of its capital stock " was substituted for " tax on capital stock, surplus and undivided profits." The object was to avoid unjust taxation of an often deceptive par value. Fair value was assumed, in Congress, to mean market value, where there is a market. It was suggested that the average value might be found on the basis of a day or two in each month, or of the highest and the lowest. A strong appeal was made to relieve insurance companies from this tax on the score of multiple taxation; this tax, income tax, stamp tax and State license. The old stamp tax was repealed (see note after 5 413), and insurance reserves were finally excluded from this section by the first proviso, which, by the way, embraces only one sentence. The next sentence, preceding the second proviso, is part of the running text of the section. A State privilege tax of 2% on gross life insurance premiums on business vrithin the State was upheld: (1914) Equitable Life v. Penn., 238 U. S. 143. See Union Transit Co. v. Kentucky, 199 U. S. 194; "Western Union v. Kas., 216 U. S. 1. 170 The Fedebal Revenxie Law, 1916. The first half of section 407 deals with domestic corporations, the second with foreign. Here again, as in the provisions affecting nonresident aliens in title I, Congress has illustrated the old prin- ciple that repetition is easier than accurate condensation. The distinction was not made in the earlier forms of the bill, and the section was patched into the present shape in conference. Tax on Bankers until January 1, 1917. The repealing clause, section 410, infra, which, in broad terms, repeals the Emergency Tax Act of October 22, 1914, and the J. R. of December 17, 1915, extending the emergency taxes to December 31, 1916, excepts all of sections 3 and 4. This exception, therefore, leaves in force untU January 1, 1917, such special taxes as were in the former Act and are omitted from the new Act. Section 3 of the Act of October 22, 1914, in its first subdivision, reads : " First. Bankers shall pay $1 for each $1,000 of capital used or employed, and in estimating capital surplus and undivided profits shall be included. The amount of such annual tax shall in all cases be computed on the basis of the capital, surplus, and undivided profits for the preceding fiscal year. Every person, firm, or company, and every incorporated or other bank, having a place of business where credits are opened by the deposit or col- lection of money or currency, subject to be paid or remitted upon draft, check, or order, or where money is advanced or loaned on stocks, bonds, bullion, bills of exchange, or promissory notes, or where stocks, bonds, bullion, bills of exchange, or promissory notes are received for discount or sale, shall be a banker under this Act: Provided, That any postal savings bank, or savings bank having no capital stock, and whose business is confined to receiving deposits and loaning or investing the same for the benefit of its depositors, and which does no other business of banking, shall not be subject to this tax." The following notes include some of those which accompanied this section in Bender's War Revenue Law, Act of 1914, and they are retained because of the hang-over feature of this tax, as well as being illustrative for the general corporation excise tax which is now here substituted for the bankers' tax of the former Acts. MlSCELLASTEOUS TaXES. 171 This paragraph of the Aet of 1914 is only slightly altered from the corresponding provision of the Act of 1898, June 13, eh. 448, 30 Stat. 448, § 2, subd. 1, and Act of 1901, March 2, ch. 806, 31 Stat. 938, 5 2, subd. 1; repealed by Aet of April 12, 1902, ch. 500, 32 Stat. 96. See, also, Aet of June 30, 1864, eh. 173, 13 Stat. 223, 5 79, subd. 1, amended by Act of July 13, 1866, ch. 184, 14 Stat. 98, J S; and Act of July 1, 1862, eh. 119, 12 Stat. 432, § 64, subd. 1. The definition of a banker here given is that of Revised Statutes, section 3407 (in connection with tax on circulation). (1876) Selden V. Equitable Trust Co., 94 U. S. 419; (1875) Warren v. Shook, 91 U. S. 704; (1884) U. 6. v. Bank of Montreal, 21 Fed. Rep. 236; (1866) U. S. V. Farmers' L. & T. Co., 25 Fed. Cas. No. 15,070. Having a place of business, buying and selling stocks for cus- tomers, as a business, and using capital in this business, constituted a man a banker. (1890) Richmond v. Blake, 132 U. S. 592. "Having a place of business where deposits are received and paid out on checks, and where money is loaned upon security, is the substance of the business of a banker." Warren v. Shook, supra. For definition of banker, see (1872) Oulton v. Savings Inst., 17 Wall. 118. Capital, under the Act of 1864, did not include surplus earnings. (1866) Mechanics, etc., Bank v. Townsend, 5 Blatchf. 315; (1906) Merchants' Nat. Bank v. U. S., 42 Ct. CI. 6. The Act of 1872, June 6, ch. 315, 17 Stat. 256, interpreted "capital employed." " Capital " was held not to iuclude money temporarily borrowed by a banker in the ordinary course of his business to meet an emergency, but "the property taken from other investments or uses and set apart for and invested in the special business, and in the increase, proceeds and earnings of which property beyond expenditures incurred in its use, consist the profits made in the business." (1874) Bailey v. Clark, 21 Wall. 284. But, ipder the Act of 1898, the commissioner ruled that money borrowed or received on special deposit for use as capital was taxable as capital. T. D. 19,783, July 28, 1898; 20,154, Oct. 5, 1898; 20,645, Jan. 27, 1899. The earlier decisions doubtless led to the insertion in the Act of 1898 of the express provision for including surplus with capital. 172 The Fedeeal Ebvenue Law, 1916. And the tendency of the xulings on the Act of 1898 to exclude certain undivided profits probably caused their Express inclusion in the Act of 1914 and the new section of the present title. By the Act of 1866 there was a tax on :dividends and profits added to surplus. (1873) DoUar Sav. Bank v. U. S., 19 Wall. 227. Surplus means all of assets over liabilities, and, therefore, includes undivided profits. (1902) Leather Mfrs. Bank v. Treat, 116 Fed. Rep. 774, affirmed (1904) 128 Fed. Rep. 262. But, under the Act of 1898, a trust company^s accumulated profits, invested in securities, were not part of the capital surjjlus. (1909) Central Trust v. Treat, 171 Fed. Rep. 301; (1911) 185 Id. 760; (1909) Farmers' L. & T. v. Treat, 171 Id. 302; (1911) 185 Id. 760. A company investing its capital in real estate, bonds and mort- gages and dealing in these securities, is not a banker. (1876) Selden V. Equitable Trust, 94 U. S. 419; (1877) Oregon, etc., Trust v. Rathbun, 5 Sawyer, 32. A- fidelity and deposit company, doing a banking business solely with its deposits, and having its capital and surplus invested in realty and- securities, was ruled to pay as a bank on the entire amount, under the Act of 1898. T. D. 21,421, July 25, 1899; cf. Central Trust v. Treat, supra. Margins left with stock brokers are not properly check accounts. (1874) Clark v. Bailey, 12 Blatchf. 156, affirmed, 21 Wall. 284; but the question raised as to whether such a broker may not make banker's loans was answered by T. D. 21,152, May 12, 1899; a broker who keeps no checking accounts and who loans on stocks only in the sense that he temporarily supplements customers' mar- gins to carry stocks which he in turn hypothecates for loans, is not doing a banking business, even though he have some capital engaged. On default of a proper return for taxation, the collector may summon persons and books for examination under Eevised Statutes, section 3173. An attachment may issufe as for a contempt for refusal to answer questions. R. S., § 3175; (1870) In re Chadwiek, 1 Lowell, 439; (1900) In re Kinney, 102 Fed. Rep. 468; Landram v. U. S., 16 Ct. CI. 74, 85; Ldppman's Case, 3 Ben. 95. Examination of books under the Act of 1864, section 14, was not Miscellaneous Taxes. 173 an infringement of a constitutional right. (1868) In re Lippmann, 3 Ben. 95; (1871) In re Strouse, 1 Sawy,er, 605. Under the Act of 1868, July 20, section 49, an ofileer might examine bankers' and brokers' books without declaring his purpose. (187.0); Stanwood. v. Green, 2 Abb. U. S. 184. Other illustrative 1 Treasury Decisions, " T. D.," under the Act of 1898 : (20114) September 28, 1898. The provision for estimating the tax on the basis of the preceding year was ruled to apply only to such banks as had previously been in business, leaving a new bank to pay only the flat tax. An Act of March 2, 1901, amended the paragraph as it stood in 1898 by, inserting, " In the case of bankers who were not in business in the preceding fiscal year the tax shall be computed on the capital at the time of commencing business." The present Act restores the earlier reading by omitting the amend- ment" of 1901. (19758) July 25, 1898; (20114) September 28, 1898. A bank beginning busiiiess during^ the first month of the law's operation must make return and pay the full year's tax; at any later time dur- ing the year, pro rata for the remainder. (20336) November. 16, 1898. A new organization by the same per- sons during the year is taxable as a new bank. (20786) March 2, 1899. But a mere change of name does not require a new tax to be paid. (20419) Deeemlben 13,. 1898., Banks which have separately paid the tax and are subsequently during- the year consolidated, , must pay a further pro rata tax for the remainder of the year. (20723) February 18, 1899. Where a banker is also a broker, the value of a seat on the exchange is not to-be included in estimating the. banking" capital. A State bank, becoming a national bank, with no other change, need not pay a new tax. T. D. 123,, May 11, 1900. Lending- money on. goods and chattels is not banking. T. D. 20344, June; 25, 1898. And. see (1879) New Orleans v. Metrop. Loan, 31 La. Ann. 310. In estimating" capital and surplus,. United States bonds may not be deducted, nor the value- of realty, nor borrowed capital. T. D. 19,843,. 1898J as to banks. 174 The Fedebal Revenue Law, 1916. It was ruled January 15, 1915, as to bankers that the taxable total was to be the capital, surplus and undivided profits in use as shown by the books, excluding moneys borrowed, bills payable, redis- counts and time certificates of deposit. T. D. 2125. This is not a direct tax on property but a license tax on a priv- ilege, and as such constitutional. It is an ordinary question of fact how much of a total capital in a composite business is used in banking. (1916) Eeal Estate Title, etc., Co. v. Lederer, 229 Ted, Kep. 799. Every branch bank is separably taxable, being a separate place of business. T. D. 20,397, 1898. A new bank was held taxable on the paid-up capital and sur- plus and profits, if any, used in the business of the opening month. T. D. 2125, Jan. 15, 1915. Second. Brokers shall pay $30. Every person, firm, or company, whose business it is to negotiate purchases or sales of stocks, bonds, exchange, bullion, coined money, bank notes, promissory notes, or other secur- ities, for others, shall be regarded as a broker. Sec. 407. Second. Brokers. Cf. Act of Oct. 22, 1914, { 3, par. 2; June 13, 1898, § 2, par. 2; March 2, 1901, § 2, par. 2, repealed April 12, 1902, $ 2; June 30, 1864, i 79, par. 9, amd. by March 3, 1865, and July 13, 1866; July 1, 1862, 5 64, par. 13. " Ordinarily the term ' broker ' is applied to one acting for others; but the part of the dfefinition which speaks of ,purchases and sales for himself is equally important as that which speaks of sales and purchases for others. All parts of the definitions are qualified by the words 'whose business it is.' Thus, if A. B. has $10,000 which he desires to invest, and purchases United States stock, or State stock, or any other securities, he does not thereby become a broker. Nor if he owns $10,000 of United States stock which he wishes to sell to raise money to pay his debts or because he is not satisfied with six per cent, interest, is he thereby Miscellaneous Taxes. 175 made a broker. It is only when making sales and purchases is his business, his trade, his profession, his means of getting his living or of making his fortune, that he becomes a broker within the meaning of the statute. Nor is it believed that a sale, by one doing a banking business only, of a 'security received by him for the repayment of a legitimate loan, would make him a broker and subject to the tax. This would not be deemed an act of brokerage, either under the statute or upon general principles of law. When it is his business the statute properly holds all such acts, whether in the name of himself ostensibly or in the name of others, as the acts of a broker. The danger and the facility for evasion of the statute furnish excellent reasons for the adoption of this provi- sion." (1875) Warren v. Shook, 91 U. S. 704, 710. See (1893) Jackson v. Hough, 38 W. Va. 237. Persons who buy and sell stocks, etc., on their own account were held brokers. (1874) U. S. v. Cutting, 3 Wall. 441; (1866) Clark v. Gilbert, 5 Blatchf. 330. The department first ruled strictly on a person's taxability for negotiating stock purchases for himself (T. D. 2249), but later revoked the ruling (T. D. 2263, Nov. 15, 1915). The distinction made in Warren v. Shook as to "whose business it is" gives the true test. Brokers doing a speculative business in mining stocks on their own account are tasrable, though they do no commission business for -others. T. D. 19,562, June 23, 1898. A note broker is taxable, though operating only for his own account. T. D. 19,692, July 14, 1898; T. D. 20,549, Jan. 16, 1899. Bankers who buy and sell government securities for themselves are not brokers. (1874) U. S. v. Fisk, 3 Wall. 445. But bankers acting also for others are brokers. 11 Op. Atty.- Gen. 482. Mere inactive membership in a mining or stock exchange does not involve the tax. T. D. 19,567, June 24, 1898. But an inactive member who operates through another active member and splits commissions is liable. T. D. 19,943, Aug. 24, 1898. The mere lending of money for others, where the borrower pays a commission, is not taxable as a brokerage business. T. D. 19,894, Aug. 16, 1898. 176 The Federal Eevenxje Law, 1916. Country merehants who occasionally lend money on notes or mort- gages are not brokers. T. D. 19,940, Aug. 23, 1898. A land agent who also, as a material part of his business, bujrs notes for himself and others, is a taxable broker. T. D. 19,757, July 25, 1898; T. D. 20,028, Sept. 1898. The mere incidental negotiating of mortgage loans by a person having another regular business does not constitute him a broker. T. D. 19,872, Aug. 10, 1898; T. D. 20,262, Oct. 27, 1898; T. D. 20,544, Jan. 11, 1899. But one who, as agent for others, makes a business of negotiat- ing the sale of mortgages on commission is a broker. T. D. 20,676, Feb. 4, 1899. Lending money on mortgage is not taxable as brokerage, but the business of selling mortgage securities so taken requires a broker's tax to be paid. T. D. 21,620, Sept. 22, 1899. A broker's agent operating in another place than the main office, transmitting orders and remitting money to his principal, is taxable as a broker. T. D. 19,881, Aug. 10, 1898; T. D. 19,615, July 1, 1898. In Circular No. 508, Aug. 8, 1898, T. D. 19,843, it was ruled that no tax was required for a broker's branch having a clerk who merely received and transmitted orders. This was intended to apply only to certain small offices such as some of these main- tained in hotel lobbies, and the Commissioner later issued two cir- culars carefully prescribing the exception and requiring a tax on every branch office having the paraphernalia of a broker's office. T. D. 20,374, Nov. 25, 1898; T. D. 20,604, Jan. 23, 1899. C£. liquor dealer eases where a branch was not a separate concern. (1900) U. S. V. Chevallier, 102 Fed. Rep. 126, 107 id. 434; but see, also, liquor case, (1909) De Bary v. Dunne, 172 Fed. Rep. 940. The mere purchase of county, school and State orders at a discount was first ruled not to constitute a man a broker. T. D. 19,885, Aug. 11, 1898. But this was later modified to require a tax of anyone who made a business of buying such warrants and fee bills of witnesses. Appendix to volume I of the Compilation of Decisions (1899); T. D. 21,647, Oct. 10, 1899. "It is only when making sales and purchases as his business, his trade, his profes- sion, his means of getting his living or making his fortune, that Miscellaneous Taxes. 177 he becomes a broker within the meaning of the statute." (1875) Warren v. Shook, 91 U. S. 704. The rulings on what constitutes the selling of exchange are not a sure guide, inasmuch as the questions often obviously make an imperfect statement of the facts. General inquiries were answered to the effect that all selling of exchange was taxable, and special efforts were made to enforce the law against express companies and others which competed with banks. T. D. 20,593, 20594, Jan. 19, 1899; T. D. 20,717, Feb. 14, 1899; T. D. 20,785, March 1, 1899; T. D. 20,790, March 6, 1899; T. D. 21,075, April 28, 1899; T. D. 21,709, Oct. 31, 1899. But a steamship company which sold its checks to be sent abroad and individuals who occasionally sold their own checks or drafts were not taxed. T. D. 20,026, Sept. 8, 1898; T. D. 20,365, Nov. 21, 1898; T. D. 19,937, Aug. 23, 1898; T. D. 21,286, June 20, 1899. The question turns on what is exchange and the extent to which the transactions are a material part of the business. See A. G. 0. XXIII, 139, as to express companies' money order business. A broker doing business in both stocks and grain or produce paid a special tax in each capacity when commercial brokers were separately taxed. See notes to par. 4, infra. There was an express proviso in this paragraph of the Act of 1914 that bankers paying a special tax as such were not required to pay a tax as brokers. T. D. 19,870, Aug. 9, 1898; T. D. 19,998, Sept. 1, 1898; T. D. 20,167, Oct. 11, 1898; T. D. 21,607, Sept. 14, 1899. "Where a broker who has paid the tax goes into a partnership during the year, the new firm must also pay pro rata for the year, without rebate to the man who paid individually. T. D. 20,160, Oct. 10, 1898. It WEis, however, ruled that where one partner con- tinued a liquor business of a dissolved firm, taking in no new partner, he did not require to pay again. T. D. 20,346, Nov. 19, 1898. A person who buys and deals in life insurance contracts to the extent of making a business of it is dealing in securities and is a broker. T. D. 20,235, Oct. 22, 1898. A railway agent near a frontier who in the regular course of busi- ness exchanges American and foreign money is not a broker. T. D. 21,521, Aug. 22, 1899. 178 The Fedekal. Eevenue Law, 1916. A broker who buys and sells stocks in his own name on margin for another person and at the latter's risk, was a broker under the Act of June 30, 1864, section 99. (1872) Northrup v. Shook, 10 Blatchf. 243. A lawyer making investments for clients is not liable as a broker unless this becomes a " business." T. D. 19,843, 1898. A real estate agent and broker is not a taxable broker. T. D. 2083. The banker's tax ceases January 1, 1917, but it may be still a question, in a given case, whether an individual person is a broker (taxed) or a banker (not here taxed as such). Cf. notes, supra, on bankers. Third. Pawnbrokers shall pay $50. Every person, firm, or company whose business or occupation it is to take or receive, by way of pledge, pawn, or e;x;change, any goods, wares, or merchandise, or any kind of personal property whatever, as security for the repay- ment of money loaned thereon, shall be deemed a pawnbroker. Sec. 407. Third. Pawnbrokers. This paragraph may be traced through the Act of July 1, 1862, ch. 119, 12 Stat. 432, § 64, subd. 7; Act of June 30, 1864, ch. 173, 13 Stat. 223, i 79, subd. 10; Act of July 13, 1866, ch. 184, 14 Stat. 98, $ 9; Act of June 13, 1898, eh. 448, 30 Stat. 448, ^ 2, subd. 3; Act of March 2, 1901, ch. 806, 31 Stat. 938, § 2, subd. 3, repealed by Act of April 12, 1902, ch. 500, 32 Stat. 96, § 2; Act of Oct. 22, 1914, § 3, par. 3. A pawnbroker does not evade or avoid the tax by busong articles without issuing tickets but with a verbal agreement to resell. T. D. 20,439, Dec. 15, 1898. An occasional transaction in the nature of a loan on a pledge does not constitute pawnbroking. T. D. 19,843, Aug. 8, 1898. Lending money on warehouse receipts, without getting posses- sion of the goods, is not pawnbroHng. T. D. 198, Aug. 15, 1900. Miscellaneous Taxes. 179 Fourth. Ship brokers shall pay $20. Every person, firm, or company whose business it is as a broker to negotiate freights and other business for the owners of vessels, or for the shippers or consignors or con- signees of freight carried by vessels, shall be regarded as a ship broker under this section. Sec. 407. rourth. Ship brokers. The repeal ( § 410, infra) of the former taxes leaves in force until January 1, 1917, in lieu of the present new section, fourth, another section as follows: " Fourth. Commercial brokers shall pay $20. Every person, firm, or company whose business it is as a broker to negotiate sales or purchases of goods, wares, produce, or merchandise, or to negotiate freights and other business for the owners of vessels, or for the ship- pers or consignors or consignees of freight carried by vessels, shall be regarded as a commercial broker under this Act." Act of Oct. 22, 1914, § 3. In its amended form the paragraph applies only to ship brokers. The special taxes on general commercial brokers and commission merchants cease January 1, 1917. Cf. notes, infra, following those on § 407, subd. 9. Tax on commercial brokers until January 1, 1917. This paragraph in the Act of 1914 was practically as it had been in the earlier Acts of 1862, 12 Stat. 713; Act of 1864, 13 Stat. 223; Act of 1866, 14 Stat. 471; Act of 1898, 30 Stat. 448, repealed by Act of 1901, 31 Stat. 938. This was the first of the 1898 special taxes to be repealed; yet the finance chairman of the Senate, in insisting upon its reimposi- tion here, twice stated, as an argument, that it had remained to the end in the Spanish war emergency taxation. He owned that the field of the broker's activities was "right broad," but estimated there were only about 12,000 taxable brokers of this class. 180 The Federal. Eeventje Law, 1916, A, chief difficulty in. applying-, it successfully has always, been that many transactions of the class sought to be embraced, ■were not really such as properly could be included among brokers' opera- tions. The form of language used dbes not cover merchants as aueh. A broker,, properly speaking,- only negotiates a sale; he does not actually sell, as a merchant does. A commission merchant or factor may operate in his. O'wn name and he gets possession of the thing sold. A broker ordinarily does neither. Where men made sales on commission in their own names, at their own store, had the goods and ^ppsd thenx to customers, they were commission merchants, not brokers. (3-874) Slack, v. Tucker, 23 "Wall: 321", reversing 1 Holines, 485 (under Act of 1864). This point was met by adding a new paragraph tb the. section, and taxing commission merchants as such. The Act of July 13, 1866, ch. 184, 14 Stat. 98, § 9, did not apply to brokers who made purchases, but to those who made sales. (1872) Stockdale v. Doswell, 18 Wall. 156. A State tax on the business of real estate broker is constitutional. (1873) Wiltse V. State, 8 Heisk. (Tenn.) 544. But real estate brokers, as such, were not deemed covered by the Act of 1898. T. D. 19,755, July 23, 1898. Under the Act of 1866 a market gardener selling his products from his wagon in the city market was held a produce broker. (1870)' IT. S. V. Simons, 1 Abb. 470, T Phila. 607: Occasional transactions in cattle by a farmer do not make him a broker. (1867) U. S. v. Kenton, 2 Bond, 87. Members of a board of trade who are " scalpers or speculators,!' operating solely for themselves, are not commercial brokers. The words, "for themselves or others," in the paragraph regarding stock brokers are not found in this paragraph. T. D. 20,198, Oct. 14, 1898. A saliesman travelling at his own expense taking and forwarding orders to various makers for cigars sold on sample is a commercial broker. T. D. 19,575, June 27, 1898. A woman whodbes " shopping" for others and gets a discount for her trouble is not a broker; " rnstallment purchasers," however, who do not handle the goods but maintain a credit in stores against which their customers make direct purchases, are taxable. T. D. 19,884, Aug. 10. 1898. MiscellLaneous Taxes. 181 If diamonds on memorandum are obtained on credit and sold by the dealer for his own account, it is not brokerage; but i£ the business is really a selling of the consignor's goods on commission it is taxable. T. D. 20,164, Oct. 11, 1898. The mere selling of steamship passage tickets is not such negotia- tion of business for the owners of vessels as to make the ag6nt a broker. T. D. 20,717, 20718, Feb. 14, 1899. See T. iD. 20,725, under subd. 5, infra. EetaU merchants' who receive assortments of seeds for sale and accounting or letum are not taxable commission merchants. T. D. 2084. By T. D. 2107, Dec. 28, 1914, the Commissioner made the dis- tinction, as to both commercial brokers and commission merchants, that an exclusive agent tinder contract, buying or selling on commis- sion, was not 'taxable, but :the tax applied to the negotiating of -pur- ehases or sales by agents who acted for any and all applicants. It was held in 1898 that a contract agent might represent two or three houses without being taxable. T. D. 20,117. If not bound by agree- merit to exclusive representation, they were taxable. T. D. 19,966. Cf. notes on commission merchants, at the end of section 407. Fifth. Castomhouse brokers shall pay $10. Every person, flirm, or ■company whose occupation it is, as the agent -of others, to arrange entries and other custom- house papers, or transact business at any port of entry relating to the importation or exportation of goods, wares, oir merchandise, shall be regarded as a custom- housfi broker. Sec. 407. Pifth. Custom House Brokers, Act of June 30, 1864, ch. 173, 13 Stat. 223, § 79, subd. 15; Act of July 13, 1866, ch..ia4, 14 Stat. .98, J 9; Act of June 13, 1898, ch. 448, 30 Stat. 448, ? 2, subd. 5; Act of March 2, 1901, ch, 806, 31 Stat. '938, § 2, subd. 4, repealed by April 12, 1902, ch. 500, 32 Stat. 96, § 2; Act of Oct. 22, 1914, § 3, par. 5. 182 The Fedeeal Revenue Law, 1916. Must pay tax in each city where they do business, i. e., every branch office is taxed. R. S. § 3235; T. D. 19,576, June 27, 1898. A bill of sale of a vessel is a " custom house paper," but a lawyer who occasionally draws one is not a broker. T. D. 20,321, Nov. 12, 1898. " Other business for owners," under subdivision 4, does not per- mit a commercial broker to arrange entries, etc., without paying a tax as a custom house broker. T. D. 20,725, Feb. 20, 1899. A tax paid by a broker in his own name covers transactions made by him as agent for others. T. D. 20,206, 1898. Sixth. Proprietors of theaters, museums, and con- cert halls, where a charge for admission is made, having a seating capacity of not more than two hundred and fifty, shall pay $25; having a seating capacity of more than two hundred and fifty and not exceeding five hundred, shall pay $50 ; having a seating capacity exceeding five hundred and not exceeding eight hun- dred, shall pay $75 ; having a seating capacity of more than eight hundred, shall pay $100. Every edifice used for the purpose of dramatic or operatic or other repre- sentations, plays, or performances, for admission to which entrance money is received, not including halls or armories rented or used occasionally for concerts or theatrical representations, shall be regarded as a theater : Provided, That in cities, towns, or villages of five thousand inhabitants or less the amount of such payment shall be one-half of that above stated : Pro- vided further, That whenever any such edifice is under lease at the passage of this Act, the tax shall be paid by the lessee, unless otherwise stipulated between the parties to said lease. Miscellaneous Taxes. 183 Sec. 407. Sixth. Proprietors of theatres, etc. Cf. Act of July 1, 1862, ch. 119, 12 Stat. 432, § 64, subd. 17; Act of June 30, 1864, eh. 173, 13 Stat. 223, § 79, subd. 37; Aet of July 13, 1866, ch. 184, 14 Stat. 98, § 9; Aet of June 13, 1898, ch. 448, 30 Stat. 448, § 2, subd. 6; Act » of March 2, 1901, ch. 806, 31 Stat. 938, § 2, subd. 5, repealed by Act of April 12, 1902, ch. 500, 32 Stat. 96, J 2; Act of Oct. 22, 1914, § 3, par. 6. The house bill provided a flat rate for theatres in cities of a certain population, as was the method in the Act of 1898; but the Senate made a classification according to seating capacity- The House bill would also have taken one-half of one per cent, on gross receipts in cities over 3,000. The diflBculty has been to avoid too heavy a burden on " village movies " many of which operate only part time. This was the purpose of the new first proviso. It had been held that the " proprietor " of a still was the person who controlled it, i. e., the lessee, not the lessor. (1878) U. S. v. Van Slyke, 8 Biss. 227. " The distiller, owner, or person having possession." R. S. 5 3251. And the present Act follows the Acts of 1898 and 1914 in requiring payment by the lessee of a theatre, A tax stamp held by a lessee cannot be transferred with the lease to cover the transferee's conduct of the theatre. T. D. 20,396, 1898. The exception here (as the second proviso in par. 8) is an attempted expression of the liberal spirit in which such tax laws have always been enforced as to church, school, lodge, grange, lyceum and all purely educational, social, religious and charitable entertainments under non-money-making management. Many halls pompously called theatres may escape this tax and fall under paragraph 8; but the larger theatres properly so-called which have latterly been given over chiefly, though not exclusively, to "movies" and "varieties," belong to this class. It was said in the Senate debate that the ordinary typical " movie " would be taxed under this paragraph rather than under paragraph 8. It was so ruled under the former Act. T. D. 2040, 1900. Air-domes, not connected with theatres, were first taxed under the eighth clause of section 3, but later under the sixth. T. D. 2217, 1900. Where a theatre is closed during July and August, the tax is 184 The Fedbkal Revenue Law, 1916. reckoned pro rata from the opening to the next July at the yearly rate. Circular 508, Aug. 1898; T. D. 19,843, 1898. Seventh. The proprietor or proprietors of circuses shall pay $100. Every building, space, tent, or area where feats of horsemanship or acrobatic sports or theatrical performances not otherwise provided for in this section are exhibited shall be regarded as a circus : Provided, That no special tax paid in one State, Terri- tory, or the District of Columbia shall exempt exhibi- tions from the tax in another State, Territory, or the District of Columbia, and but one special tax shall be imposed for exhibitions within any one State, Terri- tory, or District. Sec. 407. Seventh. Circuses. Act of July 1, 1862, eh. 119, § 64, subd. 18; Act of June 30, 1864, ch. 173, 5 79, subd. 38; Act of July 13, 1866, ch. 184, J 9; Act of June 13, 1898, ch. 448, § 2, subds. 7, 8; Act of March 2, 1901, ch. 806, § 2, subds. 6, 7; Act of April 12, 1902, ch. 500, J 2, repeal; Act of Oct. 22, 1914, 5 3, subds. 7, 8. A circus is pretty well defined in general acceptance of lang^iage ; and, in the spirit of the exceptions in paragraphs 6 and 8, a " society circus," or taited " horse play," is not taxed. T. D. 19,944, 1898. It is best to inquire of the collector or Commissioner, but it would appear to be extremely important, in such inquiry, to state the facts adequately. Many rulings in the compilations, even where they are replies to lawyers, indicate that unfavorable decisions were called out by carelessly formulated questions. The " theatrical performances " here contemplated are only such as are usually given in a circus. T. D. 2046, Nov. 9, 1914. A small wagon show : trapeze, wire walking, trained ponies, music, etc., is not a circus, but a show under paragraph 8. T. D. 19,975, 1898. Miscellaneous Taxes. 185 A circus showing in one state in July must pay for the year begin- ning July 1st. If it then goes in August to another state, it is again ta:s:ed pro rata from August 1st to the next July, and so on. T. D. 2046, Nov. 9, 1914. Eighth. Proprietors or agents of all other public exhibitions or shows for money not enumerated in this section shall pay $10: Provided, That a special tax paid in one State, Territory, or the District of Colum- bia shall not exempt exhibitions from the tax in another State, Territory, or the District of Columbia, and but one special tax shaU be required for exhibitions within any one State, Territory, or the District of Columbia; Provided further, That this paragraph shall not apply to Chautauquas, lecture lyceums, agricultural or indus- trial fairs, or exhibitions held under the auspices of religious or charitable associations : Provided further, That an aggregation of entertainments, known as a street fair, shall not pay a larger tax than $100 in any State, Territory, or in the District of Columbia. Sec. 407. Eighth. Other exhibitions. For other similar tax provisions see the references to statutes under Seventh, Circuses, supra. Ordinary local ball games were not assessed (T. D. 20,228, Oct. 19, 1898) ; but professional ball in its larger forms was, as were general athletic fields. T. D. 20,190, Oct. 12, 1898. Theatres and halls used' as cafes with vaudeville, no entrance fee being charged, were taxed. T. D. 132, May 23, 1900. Concert beer gardens, free entrance, with stage performances, are taxable. T. D. 19,843, 1898. This would include cabaret shows in restaurants, but not mere music. T. D. 21,522, 21,636, 1899. A medicine vender's " big show " to attract a crowd is taxable. T. D. 19,830, 1898. 186 The Federal Eevbntje Law, 1916. Provision is made for having the Collector transfer stamps of traveling shows from one district to another. T. D. 2217, 2223. Fairs, racing meets, etc., are taxable; also special side shows on the grounds not connected with the management. T. D. 2046, Nov. 9, 1914. Mere speed tests of racing horses, as distinct from exhibitions of " feats " are not taxed. T. D. 2046, Nov. 9, 1914. A citizens' street fair was not assessed under the former Act. T. D. 251, Nov. 26, 1900. The last proviso in paragraph 8 is new and is intended to reach a recent development of proprietary peri- patetic " carnivals." Variety shows at summer resorts, including " acrobatic sports," were taxed in 1898. T. D. 2046, Nov. 9, 1914. Ajtnateur exhibitions for charitable or public objects are not tax- able. T. D. 20,840. Slot machine exhibitions are taxable under certain conditions. T. D. 20,121, 1898. Nintli. Proprietors of bowling alleys and billiard rooms shall pay $5 for each alley or table. Every building or place where bowls are thrown or where games of billiards or pool are played, except in private homes, shall be regarded as a bowling alley or a billiard room, respectively. Sec. 407. Ninth. Bowling alleys, etc. Cf. 1862, ch. 119, 12 Stat. 432; 1864, ch. 173, 13 Stat. 223; 1866, ch. 184, 14 Stat. 98; 1898, ch. 448, 30 Stat. 448; 1901, ch. 806, 31 S.tat. 938; 1902, ch. 500, 32 Stat. 96, repeal; Act of Oct. 22, 1914, i 3,\ 9. "Any person who appears to be, or for the time being is, in the possession and control of a place or building where a billiard table is kept for public use, is prima fade the proprietor of a bUliard- room and liable to pay this special tax." (1871) U. S. v. Howard, 1 Sawyer, 507. A safety lynn table is a pool table. T. D. 173, July 6, 1900. Miscellaneous Taxes. 187 A tivoli table used for pool or billiards requires a tax. T. D. 205, Aug. 28, 1900, modifying an earlier ruling, T. D. 20,126, 1898. A tax paid for bowling alleys does not cover pool tables which are substituted for the alleys. T. D. 231, Oct. 12, 1900. Tables called Klondike, Stevens, and Manhattan, and peg pool tables are included. T. D. 259, Dec. 21, 1900. A bagatelle table was not taxed. T. D. 20,102, 1898. The corresponding paragraph in the Act of 1914 was as follows: " Ninth. Proprietors of bowling alleys and billiard rooms shall pay $5 for each alley or table. Every building or place where bowls are thrown or where games of billiards or pool are played, and that are open to the public with or without price, shall be regarded as a bowling alley or a billiard room, respectively." It will be noted that both the definition and the exception are changed in form. The reference to the public is dropped, and the exception of private homes wUl hardly include social clubs. Such clubs, when bona fide, were not taxable under the former Acts. Circular 508, Aug. 8, 1898. A bowling alley in a college gymnasium, or at a Sunday school picnic grounds, not taxable. T. D. 19,890-20,021, 1898. An owner might have his stamp tax transferred to another loca- tion under Eevised Statutes, section 3241. T. D. 21,495, 1899. Tax on commission merchants until January 1, 1917. The repeal (5 410, infra) of the former special taxes, leaves in force until January 1, 1917, a tax on commission merchants as follows : " Tenth. Commission merchants shall pay $20. Every person, firm, or company whose business or occupation it is to receive into his or its possession any goods, wares or merchandise to sell the same on commission shall be regarded as a commission merchant: Provided, That any person having paid the special tax as a commercial broker shall not be required to pay the special tax as a commission merchant: Provided further, That this pro- vision shall not apply to commission houses run upon a cooperative plan." Act of Oct. 22, 1914, § 3. 188 The Fedeeal Eevenxje Law, 1916. This paragraph was new in 1914. See pax. 4, cmte. The House bill in 1914 (H. R. 18,891) retained only the former tax on aom- marcial brokers, but the Senate, on the special recommendation of its finance committee (Report No. 813), added this new elassifieation to meet the rulings and decisions which had tended to exclude a large class of mercantile agents. The afterthought tacking of eo important a measure at the ^end of a schedule out of its proper place is a characteristic illustration of the hasty and unreasoned manner in which much legislation is patched together. ' Now the wiole scheme of taxing commission merchants and- brokers is dropped, and only ship brokers are taxed. Corporations are taxed as such under paragraph 1. Under the Act of 1898 there was a good deal of contention as to what constituted the business of a mercantile commercial broker. Numerous rulings were made wHch disclosed no real principle until December 12, 1898, in T. D. 20,417, the Commissioner made a settled ruling that a commercial broker was one who, without being an exclusive agent, made a business of negotiating sales or pur- chases for others on com mission without acquiring title or possession of the goods. Mill agents who receive and forward orders, making their own bills and settlements for goods which are shipped direct from the mills to file customers, are brokers, unless they are agents exclusively representing certain houses. T. D. 19,938, Aug. 23, 1898; 19,966, Aug. 26, 1898; 20,117, Sept. 28, 1898; 20,168, Oct. 11, 1898; 20,189, Oct. 12, 189.8; 20,241, Oct. 25, 1898. Consignment commission merchants (tobacco, cotton, cattle, etc.) and commission auctioneers are not commercial brokers where they get actual possession of the things they sell for the owner. T. D. 19,766, July 27, 1898; 20,164, Oct. 11, 1898. But negotiating pur- chases and sales without consignment to the agent who merely negotiates on a commission is a "brokerage business. T. D. 20,592, Jan. 19, 1899. A person who receives goods into his possession and sells and delivers them on commission is, it appears, not to be regarded as a commercial broker. (1874) Slack v. Tucker, 23 Wall. 321, reversing 1 Holmes, 485 (Act of 1864) ; T. D. 20,295, Nov. 7, 1898, as to book agent. Miscellaneous Taxes. 189 Sec. 408. That on and after January first, nineteen hundred and seventeen, special taxes on tobacco, cigar, and cigarette manufacturers shall be, and hereby are, imposed annually as follows, the amount of such annual taxes to be computed in all cases on the basis of the annual sales for the preceding fiscal year : Manufacturers of tobacco whose annual sales do not exceed fifty thousand pounds shall each pay $3; Manufacturers of tobacco whose annual sales exceed fifty thousand and do not exceed one hundred thousand pounds shall each pay $6; Manufacturers of tobacco whose annual sales exceed one hundred thousand and do not exceed two hundred thousand pounds shall each pay $12; Manufacturers of tobacco whose annual sales exceed two hundred thousand pounds shall each pay at the rate of 8 cents per thousand pounds, or fraction thereof ; Manufacturers of cigars whose annual sales do not exceed fifty thousand cigars shall each pay $2 ; Manufacturers of cigars whose annual sales exceed fifty thousand and do not exceed one hundred thousand cigars shall each pay $3 ; Manufacturers of cigars whose annual sales exceed one hundred thousand and do not exceed two hundred thousand cigars shall each pay $6 ; Manufacturers of cigars whose annual sales exceed two hundred thousand and do not exceed four hundred thousand cigars shall each pay $12; 190 The Fedeeal Revenue Law, 1916. Manufacturers of cigars whose annual sales exceed four hundred thousand cigars shall each pay at the rate of 5 cents per thousand cigars, or fraction thereof ; Manufacturers of cigarettes, including small cigars weighing not more than three pounds per thousand, shall each pay at the rate of 3 cents for every ten thou- sand cigarettes, or fraction thereof. In arriving at the amount of special tax to be paid under this section, and in the levy and collection of such tax, each person, firm, or corporation engaged in the manufacture of more than one of the classes of articles specified in this section shall be considered and deemed a manufacturer of each class separately. Sec. 408. Tobacco, etc., manufacturers. R. S. 3244, subseetion 11, was amended Sept. 7, 1916, by a pro- viso that manufacturers, jobbers and wholesalers and their agents who travel to take orders and make deliveries of tobacco and tobacco products shall not be construed to be peddlers. This new classification and the new rates take effect January 1, 1917. See notes, infra, as to details of the changes. Dealers in tobacco were taxed under Acts of March 1, 1879, and March 3, 1883 ; repealed October 1, 1890. A special tax was again imposed on dealers by Act of June 13, 1898; repealed April 12, 1902. The Act of October 22, 1914, again included dealers, but this special tax on dealers ceases, under the repealing clause (section 410, infra), January 1, 1917. Taxes accrued and penalties attached may, however, continue to be enforced. A manufacturer of tobacco is defined by the Act of August 28, 1894, 28 Stat. 509. It does not include cigar making. A dealer in leaf tobacco is defined by Revised Statutes, sec- tion 3244, as amended by the Act of March 1, 1879, 20 Stat. 327, section 14, and the Act of March 3, 1883, 22 Stat. 488. And sec Miscellaneous Taxes. 191 the Act of August 5, 1909, 36 Stat. 110. The Act of 1914 made a new class of dealers who paid $4.80. The present Act does not increase, as did the Act of 1898, the tax on tobacco, cigars, cigarettes and snuff, i. e., on the products themselves. The extant laws are found in Revised Statutes, sec- tions 3355-3386a, as amended. The increase in 1898 was held con- stitutional. (1902) Patton v. Brady, 184 U. S. 608. The minimum manufacturer's tax in 1898 was $12. The tax for the same class in 1914 was $6 and is now $3. Revised Statutes, section 3244, provides for the registration of cigar makers, but it is deemed obsolete, as the provision was evi- dently left in the law by oversight when other portions were repealed. A record of factories is kept under section 3389. They paid a special tax before October 1, 1890, and under the Act of June 13, 1898, repealed April 12, 1902. The Secretary of the Treasury in his report for 1915 urged the strengthening of the law as to dealers in leaf tobacco, and also that they, as well as makers of cigars and tobacco, and peddlers, be required! to register on begioning business, instead of at the begin- ning of the special tax year, July first, when special taxes are not in force. Farmers and growers of tobacco are not manufacturers. Act of Aug. 28, 1894, 28 Stat. 509, proviso. All restrictions on them are expressly removed by the Act of October 1, 1890, 26 Stat. 618, as amended by section 69 of the Act of August 28, 1894. A farmer or producer is not a dealer when he sells leaf tobacco to manu- facturers, and unstemmed tobacco in natural leaf is not taxed. Act of Aug. 5, 1909, 36 Stat. 110. Employers who, as an accommodation, distributed manufactured tobacco to their workmen in a lumber camp, charging them cost prices, were held taxable dealers. (1881) U. S. Vinson, 8 Fed. Rep. 507. Tobacco products have regularly been taxed since 1862, the rates and some administrative details having been changed by various Acts. The present rates are found in Revised Statutes, section 3368, amended by 36 Stat. 109, August 5, 1909 (for tobacco and snuff), and in Revised Statutes, section 3394, amended by 36 Stat. 110, same Act (for cigars and cigarettes). 192 The Fedeeal Revenue Law, 1916. The clause, " In arriving, etc.," is changed from the form it had in the Act of 1914, where awkward phraseology made the meaning appear to be the opposite of what was intended. The purpose is to tax the function or operation, and any person who acts in various distinct capacities which are separately taxable must pay a tax for each capacity in which he acts. Only one tax is required of the owner of several factories of the same class, duplicate stamps being issued for the various places. T. D. 2061, Nov. 10, 1914. Tobacco taxes until January 1, 1917. The text of section 4 of the Act of October 22, 1914, which, by section 410 of the present Act, remains in force until January 1, 1917, and for aU purposes of assessment, collection and penalties in connection with taxes accrued under the former Act, is as follows : " Sec. 4. That on and after November first, nineteen hundred and fourteen, special taxes on tobacco dealers and manufacturers shall be and hereby are imposed annually as follows, the amount of such annual taxes to be computed in all cases on the basis of the annual sales for the preceding fiscal year: " Dealers in leaf tobacco whose annual sales or transfers do not exceed fifty thousand pounds shall each pay $6. Dealers in leaf tobacco whose annual sales or transfers exceed fifty thousand and do not exceed one hundred thousand pounds shall pay $12, and if their annual sales or transfers exceed one hundred thousand pounds shall pay $24 : Provided, That dealers in leaf tobacco whose annual sales or transfers do not exceed one thousand pounds shall be exempt from the tax herein imposed on dealers in leaf tobacco. " Dealers in tobacco, not specially provided for in this section, whose annual receipts from the sale of tobacco exceed $200, shall each pay $4.80 for each store, shop, or other place in which tobacco in any form is sold. " Every person whose business it is to seU, or ofler for sale, manufactured tobacco, snuff, cigars, or cigarettes shall be regarded as a dealer in tobacco : Provided, That no manufacturer of tobacco, snuff, cigars, or cigarettes shall be required to pay a special tax as a dealer in manufactured tobacco, snuff, cigars, or cigarettes for selling his own products at the place of manufacture. MiscELiiASTEous Taxes. 193 " Manufacturers of tobacco whose annual sales do not exceed one hundred thousand pounds shall each pay $6. " Mamifacturers of tobacco whose annual sales exceed one hundred thousand and do not exceed two hundred thousand pounds shall each pay $12. " Manufacturers of tobacco whose annual sales exceed two hundred thousand and do not exceed four hundred thousand poiinds shall each pay $24. " Manufacturers of tdbatjco whose annual sales exceed four hundred thousand and do not exceed one million pounds shall each pay $60. " Manufacturers of tobacco whose annual sales exceed one million and do not exceed five million pounds shall each pay $300. " Manufacturers of tobacco whose annual sales exceed five million and do not exceed ten million pounds shall each pay $600. " Manufacturers of tobacco whose annual sales ex«eed ten million and do not exceed twenty million pounds shall each pay $1,200. "Manufacturers of tobacco whose annual sales exceed twenty miliion pounds shall each pay $2,496. "Manufacturers of cigars whose annual sales do not exceed one hundred thousand cigars shall each pay $3. " Manufacturers of cigars whose annual sales exceed one hundred thousand and do not exceed two hundred thousand cigars shall each pay $6. "Manufacturers of cigars whose annual sales exceed two hundred thousand and do not exceed four hundred thousand cigars shall each pay $12. " Manufacturers of cigars whose annual sales exceed four hundred thousand and do not exceed one million cigars shall each pay $30. "Manufacturers of cigars whose annual sales exceed one million and do not exceed five million cigars shall each pay $150. "Manufacturers of cigars whose annual sales exceed five mUlion and do not exceed twenty million cigars shall each pay $600. "Manufacturers of cigars whose annual sales exceed twenty million and do not exceed forty million cigars shall each pay $1,200. " Manufacturers of cigars whose annual sales exceed forty million cigars shall each pay $2,496. 7 194 The Fedebal. Eevbntjb Law, 1916. " Manuf aeturers of cigarettes whose annual sales do not exceed one million cigarettes shall each pay $12. " Manufacturers of cigarettes whose annual sales exceed one million and do not exceed two million cigarettes shall each pay $24. " Manufacturers of cigarettes whose annual sales exceed two million and do not exceed five million cigarettes shall each pay $60. "Manufacturers of cigarettes whose annual sales exceed five million and do not exceed ten million cigarettes shall each pay $120. "Manufacturers of cigarettes whose annual sales exceed ten miUion and do not exceed fifty million cigarettes shall each pay $600. "Manufacturers of cigarettes whose annual sales exceed fifty miUion and do not exceed one hundred million cigarettes shall each pay $1,200. " Manufacturers of cigarettes whose annual sales exceed one hun- dred million cigarettes shall each pay $2,496. " In arriving at the amont of license tax to be paid hereunder, and in the levy and collection of such tax, each person, firm, or corporation engaged in the manufacture of cigars, cigarettes (includ- ing little cigars), or tobacco shall be considered and deemed. a single manufacturer." Every person who carries on any business or occu- pation for which special taxes are imposed by this title, without having paid the special tax therein pro- vided, shall, besides being liable to the payment of such special tax, be deemed guilty of a misdemeanor, and upon conviction thereof shall pay a fine of not more than $500, or be imprisoned not more than six months, or both, in the discretion of the court. Sec. 408. Penalty for violating Special Tax Law. The new arrangement of the Act into titles, with more section numbers, brings the special tobacco tax provisions into the general title of Special Taxes. The separate section 3, of the Act of Miscellaneous Taxes. 195 October 22, 1914, was but slightly modified from the Act of 1898, chapter 448, which revived the special tobacconist taxes that were repealed October 1, 1890, section 26, out of Revised Statutes, sec- tion 3244. The classification according to annual sales was adopted by the Act of 1898, the special taxes of which were repealed by Act of April 12, 1902, chapter 500. In its patch work on the new Act, Congress again failed to make a separate section of the last paragraph of section 408, which, of course, has no exceptional applicability to tobacco, but is the broad imposition of penalty for conducting any taxable business included in sections 407 or 408 without payment of the appropriate special tax. This penalty provision is the same as was found in the Act of October 22, 1914. But whereas the Act of 1914, section 23, had a further double tax penalty for evasion, this latter feature is omitted from the text of former section 23, as embodied in section. 409 of the present Act. Under Revised Statutes, section 3176, amended, a 100% penalty is imposed for fraud. By the Act of 1862 a person who carried on a taxable occupation without a license forfeited three times the tax. (J 59.) In 1863 (ch. 74, } 24) the penalty for knowingly offending might be two years. In 1864 (ch. 173, 5 73) it was prison or fine, or both. In 1867 (eh. 169) it was a fine for all except tobacco and liquor dealers for whom it might be two years. In 1870, July 14 (ch. 255), the most of the special taxes were repealed, except liquor and tobacco. The Act of 1698 revived many of them, as seen in the preceding notes. What is " carrying on the business? " (1886) U. S. v. Rennecke, 28 Fed. Rep. 847 (liquors; (1909) Cuzner v. Calif. Club, 155 Cal. 303, 20 L. R. A.(N'. S.) 1095, a bona fde social club not business; (1912) Easterbrook v. Hebrew Ladies' Orph. Soc, 85 Conn. 289, 41 L. R. A. (N. S.) 615, an orphans' home not a business; (1909) Atlantic Postal, etc., Co. v. Savannah, 133 Ga. 66, city license on local telegraph; (1908) Ellis v. State, 5 Ga. App. 615, laborer who sells lemonade on one Sunday does not violate the Sabbath law; (1905) Vanderbilt Univ. v. Cheney, 116 Tenn. 259, renting college property where the income is used for college purposes; (1902) 196 The Fedeeal Eeventje Law, 1916. U. S. V. Thomas, 115 Fed. Rep. 207, affirmed, 192 U.S. 363; (1913) Abrast Realty Co. v. Maxwell, 206 Fed. Rep. 333; (1912) McCoach V. Minehill, etc., Co., 228 U. S. 295, 57 L. Ed. 842; (1910) Flint V. Stone Tracy Co., 220 U. S. 107, 55 L. Ed. 389; (1910) Zonne v. Minneapolis Synd., 220 U. S. 187, 55 L. Ed. 428; (1914) Wilkes- Barre, etc., Co. v. Davis, 214 Fed. Rep. 511. Sec. 409. That all administrative or special pro- visions of law, including the law relating to the assess- ment of taxes, so far as applicable, are hereby extended to and made a part of this title, and every person, firm, company, corporation, or association liable to any tax imposed by this title, shall keep such records and render, under oath, such statements and returns, and shall comply with such regulations as the Commis- sioner of Internal Revenue, with the approval of the Secretary of the Treasury, may from time to time prescribe. Sec. 409. Laws made applicable; records and returns required. This is the omnibus clause now inserted in every such enactment. Cf. note to section 311, in title III. Revised Statutes, section 3173, as amended, gives the collector power to summon books and persons for examination. Sec. 410. That the Act approved October twenty- second, nineteen hundred and fourteen, entitled "An Act to increase the internal revenue, and for other purposes," and the joint resolution approved Decem- l)er seventeenth, nineteen hundred and fifteen, entitled *' Joint resolution extending the provisions of the Act entitled 'An Act to increase the internal revenue, and for other purposes,' approved October twenty-second, MlSCELiiANEOXTS TaXES. 197 nineteen hundred and fourteen, to December thirty- first, nineteen hundred and sixteen," are hereby repealed, except sections three and four of such Act as so extended, which sections shall remain in force till January first, nineteen hundred and seventeen, and except that the provisions of the said Act shall remain in force for the assessment and collection of all special taxes imposed by sections three and four thereof, or by such sections as extended by said joint resolution, for any year or part thereof ending prior to January first, nineteen hundred and seventeen, and of all other taxes imposed by such Act, or by such Act as so extended, accrued prior to the taking effect of this title, and for the imposition and collection of all penalties or for- feitures which have accrued or may accrue in relation to any of such taxes. Former stamp tazes ceasing September 9, 1916. The Act of October 22, 1914, contained an elaborate scheme of stamp taxes which, by the J. R. of December 17, 1915, were continued until January 1, 1917. But the present Act repeals them at once, as of September 9, 1916, the day following the approval of the Act. They applied (Schedule A) to bonds, debentures, etc.; stock issued, reissued or transferred; promissory notes; express and freight bills; telegraph and telephone messages; bonds of indemnity and of all kinds; certificates of damage, maritime, and all kinds required by law; brokers' notes or memoranda of sale; conveyances; customs entries, consumption or warehouse; insuranee premiums, with exceptions; passage tickets; proxies; powers of attorney; parlor and sleeping car seats; (Schedule B) to perfumeries, cos- metics and similar articles, and chewing gum. Statesmen of oppos- ing political parties are not always considerate in estimating their 198 The Fedeeal Revenue Law, 1916. opponents' motives, " But when the number of g^um-ehewing voters , was discovered — 700,000 — the caucus immediately decided gum should not be taxed." Senator Smoot, Aug. 23, 1916, Cong. Rec., 15,247. The repeal of these, stamp taxes does not affect the stamps employed under other provisions of law for taxing distilled and fermented liquors, wines, cordials, etc. It should be noted that section 410, repealing these taxes, makes the exception that all provisions for their assessment, collection and enforcement by penalty or forfeiture, shall remain in force as to all such taxes and penaJties accrued prior to September 9, 1916. The law of these taxes will be found fully treated in Bender's War Revenue Law, Act of 1914. Sec. 411. That the Commissioner of Internal Revenue, subject to regulation prescribed by the Secre- tary of the Treasury, may make allowance for or redeem stamps, issu,ed, under authority of the Act approved October twenty-second, nineteen hundred and fourteen, entitled "An Act to increase the internal revenue, and for other purposes," and the joint resolu- tion approved December seventeenth, nineteen hundred and fifteen, entitled " Joint resolution extending the provisions of the Act entitled ' An Act to increase the internal revenue, and for other purposes,' approved October twenty-second, nineteen hundred and four- teen, to December thirty-first, nineteen hundred and sixteen," to denote the payment of internal revenue tax, and which have not been used, if presented within two years after the purchase of such stamps. Sec. 411. Bedemption of stamps. Official Regulations No. 27 and supplement cover the procedure. Revised Statutes, section 3426, on the general subject was super- Miscellaneous Taxes. " 199 seded by the Aot of May 12, 1900, amended by Act of June 30, 1902. Stamps are redeemable only when offered by persons who were authorized to buy and use them. T. D. 19,224 of 1898. Sec. 412. That the provisions of this title shall take effect on the day following the passage of this Aet, except where otherwise in this title provided. Sec. 412. Taking effect of Act. Cf. sections 400, 407, 410. The beer and wine tax provisions took effect September 9, 1916. The stamp taxes ceased September 9, 1916. The special taxes continue unchanged until January 1, 1917, when various changes take effect. See notes, ante, on the respective subjects. Sec. 413. That all internal revenue agents and inspectors be granted leave of absence with pay, which shall not be cumulative, not to exceed thirty days in any calendar year, under such regulations as the Commis- sioner of Internal Eevenue, with the approval of the Secretary of the Treasury, may prescribe. Sec. 413. Vacations for revenue agents. This is " in the spirit of the age," but woefully out of place in a tax law. One senator appeared about to question it, but a colleague quickly said, " Oh, it's all right. This isn't an appropria- tion bill." ' ' This is not an appropriation bill, and under our rule there is no question of new legislation or relevancy involved. » * * There is no question of relevancy or germaneness involved in our work here." The President pro tempore of the Senate, Sept. 4, 1916; Cong. Rec, 16,095. T. D. 2369, Sept. 12, 1916, prescribes regulations for leaves of absence. 200 The Fedebal Eevbnue Law, 1916. TITLE v.— DYESTUFFS. Sec. 500. THat on and after the day following the passage of this Act, except as otherwise specially pro- vided for in this title, there shall be levied, collected, and paid upon the articles named in this section when imported from any foreign country into the United States or into any of its possessions, except the Phil- ippine Islands and the islands of Guam and Tutuila, the rates of duties which are prescribed in this title, namely : Free List. Group I. Acenaphthene, anthracene having a purity of less than twenty-five per centum, benzol, carbazol having a purity of less than twenty-five per centum, cresol, cumol, fluorene, metacresol having a purity of less than ninety per centum, methylanthracene, methyl- naphthalene, naphthalene having a solidifying point less than seventy-nine degrees centigrade, orthocresol having a purity of less than ninety per centum,, para- cresol having a purity of less than ninety per centum, pyridin, quinolin, toluol, xylol, crude coal tar, pitch of eoal tar, dead or creosote oil, anthracene oil, all other distillates which on being subjected to distillation yield in the portion distilling below two hundred degrees centigrade a quantity of tar acids less than five per centum of the original distillate, and all other products that are found naturally in coal tar, whether produced Dyestufps, 201 or obtained from coal tar or other source, and not otherwise specially provided for in this title, shall be .exempt from duty. Dutiable List. . G-roup II. Amidonaphthol, amidophenol, amidosali- cylic acid, anilin oil, anilin salts, anthracene having a purity of twenty-five per centum or more, anthra- quinone, benzoic acid, benzaldehyde, benzylchloride, benzidin, binitrobenzol, binitroehlorobenzol, binitro- naphthalene, binitrotoluol, carbazol h-aving a purity of twenty-five per centum or more, chlorophthalic acid, cumidin, dimethylanilin, dianisidin, dioxynapthhalene, diphenylaimin, metacresol having a purity of ninety per centum or more, methylanthraquinone, metanilic acid, naphthalene having a solidifying point of seventy- nine degrees centigrade or above, naphthylamin, naph- thol, naphthylenediamin, nitrobenzol, nitrotoluol, nitro- naphthalene, nitranilin, nitrophenylenediamin, nitro- toluylenediamin, orthocres'ol having a purity of ninety per centum or more, paracresol having a purity of ninety per centum or more, phenol, phthalie acid, phthalic anhydride, phenylenediamin, phenylnaphthy- lamin, resorcin, salicylic acid, sulphanilic acid, toluidin, tolidin, toluylenediamin, xylidin, or any sulphoacid or sulphoacid salt of any of the foregoing, all similar pro- ducts obtained, derived, or manufactured in whole or in part from the products provided for in Group I, and all distillates which on being subjected to distillation yield in the portion distilling below two hundred 202 The Federal. Eevenue Law, 1916. degrees centigrade a quantity of tar acids equal to or more than five per centum of the original distillate, all the foregoing not colors, dyes, or stains, photographic chemicals, medicinals, flavors, or explosives, and not otherwise provided for in this title, and provided for in the paragraphs of the Act of October third, nineteen hundred and thirteen, which are hereinafter specifically repealed by section five hundred and two, fifteen per centum ad valorem. Group III. All colors, dyes, or stains, whether soluble or not in water, color acids, color bases, color lakes, photographic chemicals, medicinals, flavors, synthetic phenolic resin, or explosives, not otherwise specially provided for in this title, when obtained, derived, or manufactured in whole or in part from any of the products provided for in Groups I and II, natural alizarin and indigo, and colors, dyes, or color lakes obtained, derived, or manufactured therefrom, thirty per centum ad valorem. Sec. 501. That on and after the day following the passage of this Act, in addition to the duties provided in section five hundred, there shall be levied, collected, and paid upon all articles contained in Group II a special duty of 2% cents per pound, and upon all articles contained in Group III (except natural and synthetic alizarin, and dyes obtained from alizarin, anthracene, and carbazol ; natural and synthetic indigo and all indigoids, whether or not obtained from indigo ; and medicinals and flavors) , a special duty of 5 cents per pound. Dtestupfs. 203 During the period of five years beginning five years after the passage of this Act such special duties shall be annually reduced by twenty per centum of the rate imposed by this section, so that at the end of such period such special duties shall no longer be assessed, levied, or collected; but if, at the expiration of five years from the date of the passage of this Act, the President finds that there is not being manufactured or produced within the United States as much as sixty per centum in value of the domestic consumption of the articles mentioned in Groups II and III of section five hundred, he shall by proclamation so declare, where- upon the special duties imposed by this section on such articles shall no longer be assessed, levied, or collected. Sec. 502. That paragraphs twenty, twenty-one, twenty-two, and twenty-three and the words ' ' salicylic acid " in paragraph one of Schedule A of section one of an Act entitled "An act to reduce tariff duties and to provide revenue for the Government, and for other purposes," approved October third, nineteen hundred and thirteen, and paragraphs three hundred and ninety-four, four hundred and fifty-two and five hun- dred and fourteen, and the words " carbolic " and " phthalic," in paragraph three hundred and eighty- seven of the " free list " of section one of said Act, and so much of said Act or any existing law or parts of law as may be inconsistent with this title are hereby repealed. 204 The Fedeeal Eeventie Law, 1916. This tax provision, involving as it does the principle of pro- tection, is naturally productive of much partisan political discussion ; but there is no new law, as such, in it. The peculiarity regarding dyes which has occasioned a special legislative treatment results from the fact that American industries using certain chemicals had come to rely to such extent (about 22/29) upon German sources of supply that the sudden discontinuance of importations caused an acute disturbance in these and allied indus- tries. Germany's leadership in the coal-tar chemical industry was at least partly the fruit of a German governmental policy in foster- ing export trade. Along with stringent provisions against unfair domestic competition, Germany has developed liberal and effective methods of encouraging cooperation in the matter of winning world markets. America has been active in measures intended to free domestic competition, but is only now beginning to differentiate her foreign commerce and treat it more liberally for the purpose of opening new markets. Legislation is pending in the sixty-fourth Congress which is intended to relieve American exporters from some of the restrictions that have hindered their efforts to extend their trade abroad. The portions of the Tariff Act of 1913 here amended or repealed deal chiefly with coal-tar products, including dyes. Vegetable and other dyestuffs are not in question, though here, too, the war has contracted the importations. There was not, until the war crisis developed, any serious demand for protection to foster a dye industry. The Act of 1913 taxed coal-tar products which were free under the Act of 1909. The principal reason why we lacked' the industry was because, in view of plentiful low-cost foreign supplies, it did not pay to elaborate the by-product exploitation. When war orders made heavy demands for these things for making explosives, American manufacturing chemists produced them. The war is more restrictive of importations than any tariff enactment could be, and this legislation can have little effect until peace is restored. The Senate tried to postpone its operation until the end of the war. So much has already been done to establish the industry under pro- tection of war limitations, and so many munition plants are expected to turn from explosives to dyes, that provision is made in section 501 for the gradual removal of the "special" specific duty after 1921. Dyestuffs. 205 The imposition clause is practically that of the general' Tariff Act. The Philippine Islands have their own tariff. " The purpose of this tax is to encourage this industry/' said an administration senator; and, when he was chided for inconsistency and reminded that his party denied- the feasibility of stimulating industry by taxation, he said: "It is a fundamental tenet of the Democratic party that industries can be stimulated . . . that the government can, if it chooses, make it profitable to raise pineapples in Alaska. . . . Democrats have denied that it was right or econom- ically profitable to stimulate industry by protective duties." And the duties were sought to be justified " on Democratic anti-monopoly grounds, not on the grounds of a protective tariff." Cong. Eec, Sept. 4, 1916, p. 16,104. The debates disclosed, as one ostensible reason for changing this schedxde, that a former mistaken policy had permitted foreigners to patent products which, although world monopolies, were then admitted free, whereas similar products were taxed. In the general excitement over the nation's threatened supply of blue-jeans overalls, the ways and means committee, report- ing the bill, naively said the consumers (being themselves manu- facturers of other goods, using dyes) offered to pay higher tariif prices on this material without requesting compensatory duties on finished products. Report No. 922, 64th Congress. Considerable testimony was taken on the subject by the Senate finance committee.' The whole incident has been availed of to charge the administra- tion with inconsistency in its tariff policy. In truth, there is much political buncombe about protection and the Constitution, especially since the Democratic Convention of 1892; but, off the hustings, nobody seriously demand's absolute free trade, and it is obvious- that even a revenue tariff is bound to have incidental restrictive •effects which will often amount to protection. In every legal aspect this title of the Act, even though partly emotional in origin, is indisputably warranted, and we are not here concerned with economics nor politics. Jefferson was a strict constructionist, ^ The government printing ofllee, superintendent of documents, can supply the report of these hearings, and also several special ofiScial publications on the dyestuff industry and -the later acute situation. 206 The Fedeeal. Eevenue Law, 1916. but lie bought Louisiana and, in the presence of general popular approval, he did not even pursue his first intention of obtaining constitutional sanction. Some objection was made to the manner in which the secretary of the Senate read this clause aloud, alluding to the difficulties of pronunciation. The president pro tern, ruled, " The secretary wUl adopt his own style of reading." It was also necessary to " amend " the speUing here and there. Group m, in section 501, includes "synthetic phenolic resins." The expert chemist who testified regarding these explained that the , true name of the thing was oxybenzylmethylencly«olanhydride, whereupon a senator was reminded of the Irishman who saw a Broadway sign and said, " If I had my flute here I could play it." Hearings, Senate Finance Committee, on H. R., 16,763, July 21, 1916. Pbinting Papee. 207 TITLE VI.— PRINTINa PAPER. Sec. 600. That paragraph, three hundred and twenty- two, Schedule M, and paragraph five hundred and sixty-seven of the free list of the Act entitled "An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," approved October third, nineteen hundred and thirteen, be amended so that the same shall read as follows : " 322. Printing paper (other than paper commer- cially known as handmade or machine handmade paper, japan paper, and imitation japan paper by whatever name known) , unsized, sized, or glued, suitable for the printing of books and newspapers, but not for covers or bindings, not specially provided for in this section, valued above 5 cents per pound, twelve per centum ad valorem: Provided, however, That if any country, dependency, province, or other subdivision of govern- ment shall impose any export duty, export license fee, or other charge of any kind whatsoever (whether in the form of additional charge or license fee or otherwise) upon printing paper, wood pulp, or wood for use in the manufacture of wood pulp, there shall be imposed upon printing paper, valued above 5 cents per pound, when imported either directly or indirectly from such country, dependency, province, or other subdivision of government, an additional duty equal to the amount of the highest export duty or other export charge imposed by such country, dependency, province, or other sub- division of government, upon either printing paper or 208 The Fedeeal Eevenue Law, 1916. upon an amount of wood pulp, or wood for use in the manufacture of wood pulp necessary to manufacture such printing paper. " 567. Printing paper (other than paper commer- cially known as handmade or machine handmade paper, japan paper, and imitation japan paper by whatever name known), unsized, sized, or glued, suitable for the printing of books and newspapers, but not for covers or bindings, not specially provided for in this section, valued at not above 5 cents per pound, decalcomania paper not printed." The TarifE Act of October 3, 1913, schedule M, par. 322, fixed the duty on printing paper, valued above two and one-half cents per pound, of 12% ad valorem; and it provided that if any country burdened paper, pulp, etc., with export duties or charges, an addi- tional duty should apply, equal to such extra burden. The free list (\ 567) included papers valued under two and one-half cents per pound. This was only a step beyond the Payne-Aldrich Tariff of 1909, in the enactment of which the publishers, without regard to politics, won their fight for lower duties on paper and pulp. War conditions increased the demand and reduced the supply, and prices went up. There was loose talk about manipulation and disloyal exportation : " the Paper Trust the most unconscionable combina- tion in our country . . . squeezing the very life out of the small papers, etc." The Senate by resolution of AprU 24, 1916, requested the Federal Trade Commission to inquire into the increased price of paper; but a report couM not promptly be had. A joint resolution was intro- duced August 15, 1916, in the House, authorizing and directing au embargo on print paper, but it failed of passage. Cong. Rec. p. 14,77S, Aug. 15, 1916. The whole " scare " about paper is another instance of an unwhole- some tendency to rush to Congress, or call upon the government, whenever things seem to be going wrong. Such a practice naturally Feinting Paper. 209 encourages Congress and the Government to fancy they can manage most human affairs better than mdividuals can; and, boldly spoken, this is not yet convincingly established. Numerous Goverment publications (Supt. of Documents) cover various phases of the whole pulp and paper question. The best spruce pulp has come from Canada, and the Dominion Government now practically prohibits its export sale from public lands. Canadian mannfacturers, as is the intention, are winning the paper trade. There is reason for thinking that here, as in the dye industry, America was caught unprepared, primarily because every- body interested was glad to avail of cheap foreign goods, and com- mercial chemists were making more money in other lines. The Taft Tariff Board's report showed that we were not seriously trying, on any adequate scale, to make our own paper. Lower priced papers are tariff-free under the Act of October 3, 1913 ; but, except on existing long-time contracts, no sufficient supply could be obtained after the war crisis developed, as the demand and the prices greatly increased all over the world. The ostensible pur- pose of this title is still further to free importations, by admitting paper of a higher price, with a view to tempting Canadian supplies which are barred by the price specification in the Tariff of 1913. Several attempts ha,ve been made to solve this pulp and paper question by special reciprocal arrangements with Canada, but they have all failed. See the retaliation feature of the Tariff Act of 1909, section 409, after which a similar provision in the Act of 1913 was modeled; and see the Reciprocity Act of July 22, 1911, which faUed because of other, general influences, operating in Canada to prevent approval of the reciprocity plan then attempted to be adopted by the two governments. Cf . notes under Title VIII. 210 The Federal Eevenue Law, 1916. TITLE VII.— TARIFF COMMISSION. Sec. 700. That a commission is hereby created and established, to be known as the United States Tariff Commission (hereinafter in this title referred to as the commission), which shall be composed of six mem- bers, who shall be appointed by the President, by and with the advice and consent of the Senate, not more than three "of whom shall be members of the same political party. In making said appointments mem- bers of different political parties shall alternate as nearly as may be practicable. The first members appointed shall continue in office for terms of two, four, six, eight, ten, and twelve years, respectively, from the date of the passage of this Act, the term of each to be designated by the President, but their suc- cessors shall be appointed for terms of twelve years, except that any person chosen to fill a vacancy shall be appointed only for the unexpired term of the member whom he shall succeed. The President shall designate annually the chairman and vice chairman of the com- mission. No member shall engage actively in any other business, function, or employment. Any member may be removed by the President for inefficiency, neglect of duty, or malfeasance in office. A vacancy shall not impair the right of the remaiiiing members to exercise all the powers of the commission, but no vacancy shall extend beyond any session of Congress. Taeipf Commission. 211 Sec. 701. That each, commissioner shall receive a salary of $7,500 per year, payable monthly. The commission shall appoint a secretary, who shall receive a salary of $5,000 per year, payable in like manner, and it shall have authority to employ and fix the com- pensations of such special experts, examiners, clerks, and other employees as the commission may from time to time find necessary for the proper performance of its duties. With the exception of the secretary, a clerk to each commissioner, -and such special experts as the commis- sion may from time to time find necessary for the con- duct of its work, all employees of the commission shall be appointed from lists of eligibles to be supplied by the Civil Service Commission and in accordance with the civil-service law. All of the expenses of the commission, including all necessary expenses for transportation incurred by the commissioners or by their employees under their orders in making any investigation or upon official business in any other places, than at their respective headquarters, shall be* allo.wed and paid on the pre- sentation of itemized vouchers therefor approved by the commission. Unless otherwise provided by law, the commission may rent suitable offices for its use, and purchase such furniture, equipment, and supplies as may be neces- sary. The principal office of the commission shall be in the city of Washington, but it may meet and exercise all 212 The Fedeeal EEVENtrE Law, 1916. its powers at any other place. Tlie coromission may, by one or more of its members, or by such agents aa it may designate, prosecute any inquiry necessary to its duties in any part of the United States or in any foreign country. Sec. 702. That it shall be the duty of said eommis- sion to investigate the administration and fiscal and industrial effects of the customs laws of this country now in force or which may be hereafter enacted, the relations between the rates of duty on raw materials and finished or partly finished products, the effects of ad valorem and specific duties and of compound specific and ad valorem duties, all questions relative to the arrangement of schedules and classification of articles in the several schedules of the customs law, and, in general, to investigate the operation of customs laws, including their relation to the Federal revenues, their effect upon the industries and labor of the country, and to submit reports of its investigations as hereafter provided. Sec. 703. That the commission shall put at the dis- posal of the President of the United States, the Com- mittee on "Ways and Means of the House of Repre- sentatives, and the Committee on Finance of the Senate, whenever requested, all information at its command, and shall make such investigations and reports as may be requested by the President or by either of said committees or by either branch of the Tariff Commission. 213 Congress, and shall report to Congress on the first Monday of December of each year hereafter a state- ment of the methods adopted and all expenses incurred, and a summary of all reports made during the year. Sec. 704. That the commission shall have power to investigate the tariff relations between the United States and foreign countries, commercial treaties, preferential provisions, economic alliances, the effect of export bounties and preferential transportation rates, the volume of importations compared with domestic production and consumption, and conditions, causes, and effects relating to competition of foreign industries with those of the United States, including dumping and cost of production. Sec. 705, That upon the organization of the com- mi^ion, the Cost of Production Division in the Bureau of Foreign and Domestic Commerce in the Department of Commerce shall be transferred to said commission, and the clerks and employees of said division shall be transferred to and become clerks and employees of the commission, and all records, papers, and property of the said division and of the former tariff board shall be transferred to and become the records, papers, and property of the commission. Sec. 706. That for the purposes of carrying this title into effect the commission or its duly authorized agent or agents shall have access to and the right to 214 The Federal Revenue Law, 1916. copy any document, paper, or record, pertinent to the subject matter under investigation, in the possession of any person, firm, copartnership, corporation, or association engaged in the production, importation, or distribution of any article under investigation, and shall have power to summon witnesses, take testi- mony, administer oaths, and to require any person, firm, copartnership, corporation, or association to pro- duce books or papers relating to any matter pertaining to such investigation. Any member of the commission may sign subpoenas, and members and agents of the commission, when authorized by the commission, may administer oaths and affirmations, examine witnesses, take testimony, and receive evidence. Such attendance of witnesses and the production of such documentary evidence may be required from any place in the United States at any designated place 'of hearing. And in case of disobedience to a subpcena the commission may invoke' the aid of any district court of the United States in requiring the attendance and testimony of witnesses and the production of documentary evidence, and such court within the juris- diction of which such inquiry is carried on may, in case of contumacy or refusal to obey a subpcena issued to any corporation or other person, issue an order requiring such corporation or other person to appear before the commission, or to produce documentary evidence if so ordered, or to give evidence touching the matter in question ; and any failure to obey such order of the court may be punished by such court as a con- tempt thereof. / Tamfp Commission. 215 Upon the application of the Attorney General of the United States, at the request of the commission, any such court shall have jurisdiction to issue writs of mandamus commanding compliance with the pro- visions of this title or any order of the commission made in pursuance thereof. The commission may order testimony to be taken by deposition in any proceeding or investigation pending under this title at any stage of such proceeding or investigation. Such depositions may be taken before any person designated by the commission and having power to administer oaths. Such testimony shall be reduced to writing by the person taking the deposition, or under his direction, and shall then be subscribed by the deponent. Any person, firm, copartnership, cor- poration, or association, may be compelled to appear ,and depose and to produce documentary evidence in the same manner as witnesses may be compelled to appear and testify and produce documentary evidence before the commission, as hereinbefore provided. Witnesses summoned before the commission shall be paid the same fees and mileage that are paid witnesses in the courts of the United States, and witnesses whose depositions are taken and the persons taking the same, except employees of the commission, shall severally be entitled to the same fees and mileage as are paid for like services in the courts of the United States : Pro- vided, That no person shall be excused, on the ground that it may tend to incriminate him or subject him to a penalty or forfeiture, from attending and testifying, 216 The Fedebal Eevenue Law, 1916. or producing books, papers, documents, and other evi- dence, in obedience to the subpoena of the commission ; but no natural person shall be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing as to which, in obedience to a subpoena and under oath, he may so testify or produce evidence, except that no person shall be exempt from prosecution and punishment for perjury committed in so testifying. 1 Sec. 707. That the said commission shall in appro- priate matters acit in conjunction and cooperation with the Treasury Department, the Department of Com- merce, the Federal Trade Commission, or any other departments, or independent establishments of the .Government, and such departments and independent establishments of the Government shall cooperate fully with the commission for the purposes of aiding and assisting in its work, and, when directed by the Presi- dent, shall furnish to the commission, on its request, all records, papers, and information in their possession relating to any of the subjects of investigation by said coromission and shall detail, from time to time, such officials an-d employees to said commission as he may direct. Sec. 708. It shall be unlawful for any member of the United States Tariff Commission, or for any employee, agent, or clerk or said commission, or any other officer or employee of the United States, to divulge, or to Tabifp Commission, 2fl7 make known in any manner whatever not provided for by law, to any person, the trade secrets or processes of any person, firm, copartnership, corporation, or association embraced in any examination or investiga- tion conducted by said commission, or by order of said commission, or by order of any member thereof. Any offense against the provisions of this section shall be a misdemeanor and be punished by a fine not exceeding $1,000, or by imprisonment not exceeding one year, or both, in the discretion of the court, and such offender shall also be dismissed from office or discharged from employment. The commission shall have power to investigate the Paris Economy Pact and similar organizations and arrangements in Europe. Sec. 709. That there is hereby appropriated, for the purpose of defraying the expense of the establishment and maintenance of the commission, including the pay- ment of salaries herein authorized, out of any money in the Treasury of the United States not otherwise appro- priated, the sum of $300,000 for the fiscal year ending June thirtieth, ■ nineteen hundred and seventeen, and for each fiscal year thereafter a like sum is authorized to be appropriated. There was a Revenue Commission in 1865 which accomplished nothing of importance. A Special Commissioner in 1866 chanced to be an able man, but his expert advice had no effect on a hostile Congress. In 1883 a Commission got so far as to recommend, and apparently justify, substantial changes in the tariff, but Congress acted quite in the contrary direction. The whole idea of a commis- sion fell into disrepute. Yet the demand for something of the kind was frequently renewed. 218 The Fedebal Revenue Law, 1916. A list of the previous, abortive efforts in recent years to create tariff boards was submitted in the Senate, September 5, 1916, and printed in the Record, page 16,198. The report of the 1882 Commission (2 vols. 2617 pp.) is procur- able from the Superintendent of Documents. Also the Report of Hearings before the House Committee, Sixtieth Congress, on the subject of a permanent Commission. In the Tariff Act of August 5, 1909, provision was made (looking to reciprocity treaties) whereby "to secure information to assist the President, etc.," the President was " authorized to employ such per- sons as may be required." This was done, and the President vetoed some tariff measures on the ground that he must wait for the " Board's " delayed report, and Congress declined June 30, 1912, to continue the necessary appropriations for the persons so employed. Between " The Tariff should be reformed only by its friends " and " The Tariff should be for revenue only " there has been little chance for " take the Tariff out of politics." Yet each party has latterly felt the need of favoring some such instrumentality for availing of disinterested expertness in obtaining and collating the facts which should influence, if not determine, tariff legislation. Doubtless Americans might be partisans and yet give unbiased minds to this problem, but it is at least equally doubtless that few have actually done so. " The saving sense of humor of the American press has pointed out so frequently the absurdity of a candidate for constable or coroner lathering himself into a foam over the inequities of a tariff, that we are at length in danger of regarding the tariff as the stock joke of politics." Cong. Rec. vol. 53, p. 204. When Germany enacted her tariff in 1902, it was the result of at least two years' painstaking work and co-operation by everybody concerned, but it was not deemed necessary to try to constrain a bal- ance of prejudice by making the commission nonpartisan. Even in the preparation of the present Revenue Act, as clearly appears from the Report of Hearings, the committee seemed unable to devise any better method of investigation than to ques- tion the men directly interested and pit them against one another in more or less open debate. It is not uncommon, on such occa- sions, for eminent legislators to acknowledge that they are making Takifp Commission. 219 laws about things regarding which they are hopelessly ignorant. Yet it was almost characteristic of a general attitude of mind when a Congressman remarked that, "Any man with brains enough to grease a gimlet knows enough to reduce the duties below the protec- tive point without a tariff board to guide him." Mr. Fordney, of Michigan, Cong. Ree. p. 12,205, July 7, 1916. The reasons assigned for creating the Commission are that, whether we have a protective or a revenue policy, we require the appropriate facts regarding regional products, labor cost, etc. ; that we need the aid of additional relevant data in deciding upon our trade policies and in the matter of treaty-making; and that, especially, we must prepare in every possible way to expand our commerce and to meet the expected commercial struggle to follow the great war; besides the fact that disastrous business disturbances are always incident to general tariff revisions where the details of fact, surmise and policy are sensationally aired in protracted public hearings and debates. " Changes should be made from time to time in the revenue laws as necessity appears, not by any method of bargain and trade or as the reward' of or punishment for political action, but upon reasons affecting the commercial development of the country. The advan- tages of a tariff law constructed under such auspices should be first a scientific classification of schedules to avoid confusion in adminis- tering the customs laws and to simplify the law and aid the business men in understajiding it; second, an adjustment of rates in accord- ance with the revenue to be raised and the results to be accomplished ; third, a strengthening of the National Government in the intelligent promotion of foreign trade ; fourth, adequate provision for the con- struction and change of commercial treaties." Mr. Borland, of Mis- souri, in the House, January 29, 1916. Cong. Bee. pp. 2041, 2045. Whether or not such a commission as is here created can succeed, there can be no doubting the absurd inefficiency of the traditional American method of preparing a tariff measure. Senator Underwood, who as House leader was sponsor for the Tariff Act of 1913, finds chiefly a political purpose in this title, and says the work proposed for the Commission can better be done by existing machinery, such as the Bureau of Foreign and Domestic Commerce (Dept. of Commerce), the new Federal Trade Commission, and the Census. Yet such work requires a central direction, even 220 The Federal Revenue Law, 1916. though various forces co-operate, and, to be efficient, must be co-or- dinated and continuous. See §§ 705, 707. The Commission, of course, cannot fix duties. It was gratuitously resented in Congress that any one should think of giving it power even to make reeommenda*^ions. There is therefore no question here of the constitutionality of delegating legislative powers. See (1891) Field- v. Clark, 143 U. S. 649, and notes under Title VHE. It may be permitted to regret that our legislative bodies have per- sistently refused to provide better means for insuring good drafts- manship in the final preparation of statutes. It will be of great . aid to serious, well trained members to have certified data avail- able; but it would be of substantial additional value to have every technical measure adequately revised, as to accuracy and consistency, before final enactment. Even in these days of enthusiasm for expert- ness and efficiency, we are still victims of the jack-of-all-trades notion that anybody can do anything, if it is within his rights as an American citizen. The Paris Economy Pact mentioned in the absurdly dislocated Senate amendment, tacked onto section 708, is a real or supposed agreement reported to have been reached among certain European belligerents for the purpose of restricting the post-bellum commerce of certain other belligerents. There was an Economic Conference in Paris in June, 1916, which agreed upon a memorandum of recommendations to the several governments. The memorandum and a discussion of it are found in The American Journal of International Law for October, 1916. There is always somebody in Congress ready and anxious to attack some power in Europe. Section 704 already covered the whole mat- ter of economic alliances as affecting America, but when, in the final rush of consideration, this amendment was offered, nobody objected. The Commission is given far-reaching powers for taking testi- mony, section 706, with provisions making contempt proceedings and mandamus available. The only favor accorded a witness is exemption from prosecution for penalties attaching to a transaction about which he may testify. Incrimination and perjury are expressly made applicable. Unfaie Competition. 221 TITLE VIII — UNFAIR COMPETITION. Sec. 800. That when used in this title the term " person " includes partnerships, corporations, and associations. Sec. 801. That it shall be unlawful for any person importing or assisting in importing any articles from any foreign country into the United States, commonly and systematically to import, sell or cause to be, imported or sold such articles within the United States at a price substantially less than the actual market value or wholesale price -of such articles, at the time of expo-rtation to the United States, in the principal markets of the country of their production, or of other foreign countries to which they are commonly exported, after adding to such market value or whole- sale price, freight, duty, and other charges and expenses necessarily incident to the importation and sale thereof in the United States : Provided, That such act or acts be done with the intent of destroying or injurying an industry in the United States, or of pre- venting the establishment of an industry in the United States, or of restraining or monopolizing any part of trade and commerce in such articles in the United States. Any person who violates or combines or conspires with any other person to violate this section is guilty of a misdemeanor, and, on conviction thereof, shall be 222 The Fbdekal Eevenue Law, 1916. punished by a fine not exceeding $5,000, or imprison- ment not exceeding one year, or both, in the discretion of the court. Any person injured in his business or property by reason of any violation of, or combination or con- spiracy to violate, this section, may sue therefor in the district court of the United States for the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages sustained, and the cost of the suit, including a reasonable attorney's fee. The foregoing provisions shall not be construed to deprive the proper State courts of jurisdiction in actions for damages thereunder. Sec. 801. Dumping of cheap foreign goods. In reporting the Tariff Bill of 1913 the committee (Report No. 5, 63d Cong. April 21, 1913) called attention to a practice prevailing in some countries of " dumping " goods abroad at a low export price when a surplus production at home permits of the exportation of a surplus or renders it desirable to ship such surplus in order to avoid breaking the home market, frequently safeguarded by pro- tective duties. To free domestic producers from this illegitimate competition, provision was sought to be made in the Tariff BUI of 1913 for a " dumping duty," equal to the difference between the home and foreign value of goods exported to and sold in this country at export prices, not exceeding 15% ad valorem. The Secretary of Commerce, in his report for 1915, and the new Federal Trade Commission recommended anti-dumping legislation by the Sixty-fourth Congress, to reach the practice of some countries which deliberately attempt by under-selling to destroy competition abroad and thus maintain their supremacy in certain lines. It is Unfair Competition. 223 not claimed that such a practice is theoretically violative of cominer- eial ethics, but merely that it creates an unfair condition ■which must be prevented in the interest of domestic manufacturers. It is only in dreamland that a man may do as he pleases with his own property. The Sherman Law and the Clayton Act have gone far to break up unfair domestic competition, and the section is intended to make sauce for the gander what is already sauce for the goose. Anti-dumping laws are in force in other countries: Canada, Australia, New Zealand, South Africa. They are described in a manual on Trust Laws and Unfair Competition issued March 15, 1915, by the United States Department of Commerce. The provisions of the Tariff Act of August 27, 1894, sections 73-77, which were continued in the Act of October 3, 1913, and are similar in form to those of title VIII, denounce restraint of tradte and of free competition and the attempt to increase the price in America of imported goods. Procedure, penalties and private damage suits were provided for. The Shipping Act of September 7, 1916, exempts from the Act of 1894, as well as from the Sherman Act of 1890, such agreements between carriers as are lawful under the new Shipping Act. The provisions of the Revenue Act of September 8, 1916, are directed against conspiracies temporarily to decrease prices by dumping, with the ulterior motive of destroy- ing or injuring American industry and so preparing the way for ultimate higher prices. ' Justice Hughes, off the bench, is quoted as having expressed an opinion disapproving the new anti-dumping provision, " I make bold to say that the clause is the high water mark of farcical legis- lation. It can not accomplish the purpose which apparently it was designed to accomplish, because its provisos eat the heart out of its prohibitions. You can not expect any protection from the appli- cation or enforcement of that clause." — New York Times, Nov. 5, 1916, p. 2. This section is far from being a broad prohibition of dumping. As it is drawn, it does not reach the case of bona flde excess of supply and low prices abroad which might lead to liberal exporta- tion and to all ordinary ill effects of dumping. It would appear that only crass instances of systematic unfairness could be punished under such a provision. 224 The Federal Eevenub Law, 1916. Sec. 802. That if any article produced in a foreign country is imported into the United States under any agreement, understanding, or condition that the importer thereof or any other person in the United States shall not use, purchase, or deal in, or shall be restricted in his using, purchasing, or dealing in, the articles of any other person, there shall be levied, col- lected, and paid thereon, in addition to the duty other- wise imposed by law, a special duty equal to double the amount of such duty: Provided, That the above shall not be interpreted to prevent the establishing in this country on the part of a foreign producer of an exclusive agency for the sale in the United States of the products of said foreign producer or merchant, nor to prevent such exclusive agent from agreeing not to use, purchase, or deal in the article of any other person, but this proviso shall not be construed to exempt from the provisions of this section any article imported by such exclusive agent if such agent is required by the foreign producer or if it is agreed between such agent and such foreign producer that any agreement, under- standing or condition set out in this section shall be imposed by such agent upon the sale or other disposi- tion of such articl'e to any person in the United States. Sec. 803. That the Secretary of the Treasury shall make such rules and regulations as are necessary for the carrying out of the provisions of section eight hundred and two. Unpaie 'Competition. 225 Sec. 802. Importations under restrictive agreement. This, as section 801, is intended to apply to importers the same principles of free competition that are enforced against domestic prodncers and merchants. The consignment method of importation has been a great evil of our customs administration. Many advantages accrue to the foreign house through having its branch or exclusive agency here. As soon as this section came up in the Senate for discussion it was casually amended by the first part of the proviso which the House accepted only with the final addition. Sec. 804. That whenever any country, dependency, or colony shall prohibit the importation of any article the product of the soil or industry of the United States and not injurious to health or morals, the President shall have power to prohibit, during the period such prohibition is in force, the importation into the United States of similar articles, or in case the United States does not import similar articles from that country, then other articles, the products of such country, depend- ency, or colony. And the Secretary of the Treasury, with the approval of the President, shall make such rules and regulations as are necessary for the execution of the provisions of this section. Sec. 804. Retaliatory ezclusion of imports. In later years the tendency has been to cultivate reciprocity, which means give and take, by exchange of concessions; but retaliation is now again in vogue. The whole idea, as often intemperately seized upon and embodied in crude measures, is more suggestive of petty spite than of large minded statesmanship. Section 804 states in its simplest form the principle that we shall treat another country 8 226 The Federal Revenue Law, 1916. as it treats us, as to direct trade relations between the two coun- tries. This, however, was seen not to be adequate to meet the situa- tion where one foreign country interferes with our trade with other countries, and the James amendment was embodied in section 805. The Tariff Act of October 1, 1890, authorized the President to suspend certain of its provisions. This was upheld as not repug- nant to the Constitution, and as not conferring legislative and treaty power on the Executive. (1891) Field v. Clark, 143 U. S. 649, Fuller, Ch. J., and Lamar, J., dissenting solely on this reciprocity provision as repugnant to section 1, article I. In this case the court refused to pass on the constitutionality of the Sugar Bounty Act of 1890. Where a statute provides for the fixing of a standard of tea and empowers an executive officer to enforce a prohibition of importa- tion, it is not imconstitutional as vesting the officer with legislative powers. (1903) Buttfleld v. Stranahan, 192 U. S. 470, following (1891) Field v. Clark, 143 U. S. 649. And see (1906) Union Bridge Co. v. U. S., 204 U. S. 364, 51 L. Ed. 523. Jefferson and Madison went so far in their efforts to punish for- eign governments by the imposition of trade restrictions, rather than go to war, that hostile critics sought to ridicule their " terrapia pol- icy." The present retaliatory legislation is attempted to be justified, in further part, by fears of stringent commercial methods to be adopted after the war by practically aU of Europe. It is signifi- cant that so able and trusted a leader as Lord Bryce opposes such plans as having immense capacities for mischief, and warns that to prolong hatreds and to increase suspicion would only lead to a recurrence of the calamities which inspire the iU-considered revenge. " There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory incon- venience of paying dearer during a short time for some sorts of goods. To judge whether such retaliations are likely to produce such an effect, does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general prin- ciples which are always the same, as to the skill of that insidious and crafty animal vulgarly called a statesman or politician, whose Unfaib Competition. 227 councils are directed by the momentary fluctuations of affairs. When there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people to do another injury ourselves, not only to those classes, but to almost all the other classes of them," Adam Smith, Wealth of Nations, book IV, eh. 11. Sec. 805. That whenever during the existence of a war in which the United States is not engaged, the President shall be satisfied that there is reasonable ground to believe that under the laws, regulations, or practices of any country, colony, or dependency con- trary to the law and practice of nations, the importa- tion into their own or any other country, dependency, or colony of any article the product of the soil or industry of the United States and not injurious to health or morals is prevented or restricted the Presi- dent is authorized, and empowered to prohibit or restrict during the period such prohibition or restric- tion is in force, the importation into the United States of similar or other articles, products of such country, dependency, or colony as in his opinion the public interest may require; and in such case he shall make proclamation stating the article or articles which are prohibited from importation into the United States; and any person or persons who shall import, or attempt or conspire to import, or be concerned in importing, such article or articles, into the United States contrary to the prohibition in such proclamation, shall be liable to a fine of not less than $2,000 nor more than $50,000, or to imprisonment not to exceed two years, or both. 228 The Fedeeai, Revenue Law, 1916. in the discretion of the court. The President may change, modify, revoke, or renew such proclamation in his discretion. Sec. 805. Prohibition of imports in retaliation for embargo. This section was inspired by a wish to get even with England for preventing American goods from reaching the continent. For instance, tobacco was formerly not deemed contraband; then our tobacco was stopped on its way to Germany; then British orders for a time permitted it to go to neutral ports, but later again re-established the embargo. It is to be noted that there is nothing mandatory about this legis- lation. Such a provision does not transfer legislative power to the executive. Congress enacted the suspension. The President's proclamation of a specified contingency is purely executive. (1891) Field V. Clarke, 143 U. S. 649. This whole scheme of retaliation and reprisals is questionable as to its policy, although there can be no doubt of the power of Con- gress to enact it. An unusual power and a tremendous responsibil- ity are given to the Executive. It appears more than doubtful that his use of the weapon, whoever he may be, will prove as carelessly casual as was the political buncombe of Congress in handing it over. Cf . the other sections of this title. Sec. 806. That whenever, during the existence of a war in which the United States is not engaged, the President shall be satisfied that there is reasonable ground to believe that any vessel, American or foreign, is, on account of the laws, regulations, or practices of a belligerent Grovernment, making or giving any undue or unreasonable preference or advantage in any respect whatsoever to any particular person, company, firm, or corporation, or any particular description of Unfaie Competition. 229 traffic in the United States or its possessions or to any citizens of the United States residing in neutral countries abroad, or ist subjecting any particular per- son, company, firm, or corporation or any particular description of traffic in the United States or its posses- sions, or any citizens of the United States residing in neutral countries abroad to any undue or unreasonable prejudice, disadvantage, injury, or discrimination in regard to accepting, receiving, transporting, or deliver- ing, or refusing to accept, receive, transfer, or deliver any cargo, freight or passengers, or in any other respect whatsoever, he is hereby authorized and empowered to direct the detention of such vessels by withholding clearance or by formal notice forbidding departure, and to revoke, modify, or renew. any such direction. That whenever, during the existence of a war in which the United States is not engaged, the President shall be satisfied that there is reasonable ground to believe that under the laws, regulations, or practices of any belligerent country or Grovernment, American ships or American citizens are not accorded any of the facilities of commerce which the vessels or citizens of that belligerent country enjoy in the United States or its possessions, or are not accorded by such belliger- ent equal privileges or facilities of trade with vessels or citizens of any nationality other than that of such belligerent, the President is hereby authorized and empowered to withhold clearance from one or more 230 The Federal Eevenue Law, 1916. vessels of such belligerent country until such belliger- ent shall restore to such American vessels and Amer- ican citizens reciprocal liberty of commerce and equal facilities of trade; or the President may direct that similar privileges and facilities, if any, enjoyed by vessels or citizens of such belligerent in the United States or its possessions be refused to vessels or citizens of such belligerent ; and in such case he shall make proclamation of his direction, stating the facilities and privileges which shall be refused, and the belligerent to whose vessels or citizens they are to be refused, and thereafter the furnish- ing of such prohibited privileges and facilities to any vessel or citizen of the belligerent named in such proclamation shall be unlawful; and he may change, modify, revoke, or renew such procla- mation; and any person or persons who shall furnish or attempt or conspire to furnish or be concerned in furnishing or in the concealment of furnishing facil- ' ities or privileges to ships or persons contrary to the prohibition in such proclamation shall be liable to a fine of not less than $2,000 nor more than $50,000 or to imprisonment not to exceed two years, or both, in the discretion of the court. In case any vessel which is detained by virtue of this Act shall depart or attempt to depart from the jurisdiction of the United States without clearance or other lawful authority, the owner or master or person or persons having charge or command of such vessel shall be severally liable to a fine of not less than $2,000 Unfair Competition. 231 nor more than $10,000, or to imprisonment not to exceed two years, or both, and in addition such vessel shall be forfeited to the United States. That the President of the United States is hereby authorized and empowered to employ such part of the land or naval forces of the United States as shall be necessary to carry out the purposes of this Act. Sec. 806. Refusal of clearance in retaliation for discrimination. This section empowers the President to refuse clearance to vessels which unwarrantedly refuse American freight or in any way dis- criminate against American citizens, localities or products; similarly to /vessels of any belligerent of a foreign war which discriminates against American commerce in favor of its own trade; or to deny ships and citizens of an offending belligerent American privileges until reciprocal commercial liberty is re-established. The first part of the section is aimed at the "black-lists" which England has issued in connection with her attempted enforcement of her own laws against trading with the enemy. This measure is claimed to be warranted by the fact that, with or without intent, names of innocent American traders have been unfairly included, and so deprived of opportunities for legitimate business; and also that lawful American trade has been diverted to British houses. The second paragraph of section 806 grows out of the really or supposedly unfair exclusion of Americans, in favor of others, from trade with neutral countries touching Scandinavian waters. It is claimed that England has practically and unwarrantedly closed cer- tain neutral waters and undertaken to supervise all commerce upon them, thereby not only denying unquestionable neutral rights, but incidentally enabling her own manufactures and shippers to strengthen their position in a trade which was formerly open to general competition. Here again there is 1 nothing mandatory about the legislation. It merely gives the President certain arms for use in international negotiation. 232 The Fedebal Revenue Law, 1916. Although Congress may not delegate its legislative power, it may and does hy its own enactment grant to administrative authorities the necessary powers of regulating details for making legislation effective. And the discretion in such instances is often free from control or review. Bates & Guild Co. v. Payne, 99 U. S. 106; Nishimura Ekin v. U. S., 142 U. S. 651; Passavant v. U. S., 148 U. S. 214; Buttfield v. Stranahan, 192 U. S. 470; Public Clearing House v. Coyne, 194 U. S. 497; Oceanic S. S. Co. v. Stranahan, 214 U. S. 320; Monongahela Bridge Co. v. U. S., 216 U. S. 177. Congress may also empower the President to effect the applica- tion and change of tariff duties according to facts to be ascertained by him. (1892) Field v. Clark, 143 U. S. 649. Even though the President is here authorized to use "the land and naval forces," it is to be recalled that there exists a Treaty for the Advancement of Peace, signed September 15, 1914, and pro- claimed November 11, 1914, which requires the submission of all differences to a commission of inquiry and binds us to refrain for one year from any hostile act. See Editorial in The American Journal of International Law, for October, 1916, Eaxly American embargo legislation. By various orders in council from 1806 to 1809 England presumed to close most of the world's ports, and Napoleon retorted by decrees closing English ports. Whether or not these measures were aimed at America, American trade chiefly suffered, and she had not the naval power to protect her interests. The Embargo Act of December 22, 1807 (inspired by a notion of President Jeiferson), prohibited aU foreign commerce — what Schouler calls "the most vigorous national legislation affecting private property ever yet enacted," and the country almost became insolvent. The Enforce- ment Act became a law January 9, 1809, and the distress and the disaffection increased. By the Nonintercourse Act of March 1, 1809, the trade prohibition was limited to England and France. This again was repealed May 1, 1810, but the President was given author- ity to revive the restriction against either country which should fall to respect American neutrality. Unfair Competition. 233 Napoleon agreed to revoke his decrees as of November 1, 1810, if England should withdraw her orders. President Madison was deceived by appearances, and proclaimed November 2, 1810, the revival as of February 2, 1811, of nonintereourse with England. The drift towards war could not be stopped. April 4, 1812, brought a new Embargo Act, intended to call shipping home for safety. The British orders in council were withdrawn June 17, 1812, but America declared war June 18, 1812 — a " clumsy, foolhardy, hap- hazard war," which at least fostered the spirit of nationality and gave the country a feeling of self-respect. In all these embargo measures an almost autocratic discretion was left to the Executive. They were lampooned as acts of a "terrapin" policy. An embargo was laid by Act of December 17, 1813, and repealed April 14, 1814 Further retaliation, not enacted. The Senate went still further, and inserted a section empowering the President, under certain conditions, during the existence of a war in which the United States was not engaged, to deny the use of the United States mails, express companies, telegraph, cable, or wire- less companies to citizens, firms, companies or corporations of cer- tain belligerent countries. This, however, was an excess of zeal. Having, by the formal action of " the greatest legislative body on Earth " thus, so to speak, succeeded in " asking the question in the hearing of the jury," no exception was taken when the matter was ruled out. As it was, there was campaign literature a-plenty in the postage-free Congressional Record. And, after all, nobody really wanted seriously to " hurt " anybody, anywhere. Fish restriction, not enacted. An attempt was made, by means of an amendment, which passed the Senate, to prohibit the admission of fresh or frozen halibut or salmon from the North Pacific waters, except in bond from an American port. Halibut banks extend 1,500 mUes along the Alaskan coast. Canada strictly regulates and restricts the use of her ports by American fishermen, whereas Canadian fishermen have 234 The Fedebal Revenue Law, 1916. free access to American markets. This legislation was demanded to prevent a threatened loss of an American industry to foreigners. See Cong. Eec. p. 15,334, et seq., Aug. 25, 1916. The amendment was killed in conference, doubtless because of dis- closures regarding the probable effect upon Atlantic fisheries and aU Canadian relations. The supporters of the bill went so far as to procure the ordering of an investigation into chaises of wrongful use of foreign influence to prevent the legislation. Cong. Reo. p. 16,189, Sept. 5, 1916; p. 16,598, Sept. 8, 1916. Title IX. 235 TITLE IX. Sec. 900. That if any clause, sentence, paragraph, or part of this Act shall for any reason be adjudged by any court of competent jurisdiction to be invalid, such judgment shall not affect, impair, or invalidate the remainder of said Act, but shall be confined in its operation to the clause, sentence, paragraph, or part thereof directly involved in the controversy in which such judgment shall have been rendered. Sec. 900. Partial invalidity not to vitiate the Act. "Unless it be impossible to avoid it, a general revenue statute shouldl never be declared inoperative in all its parts because a particular part relating to a distinct subject may be invalid." (1891) Field V. Clark, 143 U. S. 649; (1886) Huntington v. Worthen, 120 U. S. 97; (1880) AUen v. Louisana, 103 U. S. 80. In the Income Tax Cases, 157 U. S. 429, 158 id. 601, the income tax provisions of the General Revenue Act of August 28, 1894, were held wholly inoperative and void, because "being invalid as to the greater part, and falling as the tax would, if any part were held valid, in a direction which could not have been contemplated except in connection with the taxation considered as an entirety," "the scheme must be considered as a whole." Sec. 901. The Act approved August twenty-ninth, nineteen hundred and sixteen, being an Act making appropriations for the support of the Army for the fiscal year ending June thirtieth, nineteen hundred and 236 Fedeeai, Revenue Law. seventeen, and for other purposes, is hereby amended as follows: ' ' The sum of $2,000,000, therein appropriated to be expended under the direction of the Secretary of War for the support of the family of each enlisted man of the Organized Militia or National Guard, or of the Eegular Army, as therein provided, shall be available to be paid on the basis of and for time subsequent to June eighteenth, nineteen hundred and sixteen, the date of the call by the President, and the time for which such payment shall be made shall correspond with the time of service of the enlisted men, and payment shall be made without reference to the enlisted man having enlisted before or after the call by the President. ' ' Sec. 901. Appropriation for families of soldiers. This is a purely arbitrary insertion of an appropriation measure. Notwithstanding its merit, as a use of public money, it here par- takes of the vice of a " rider." It was designed to meet a contin- gency arising out of the sudden call and the unexpected detention of men for service on the Mexican border. Sec. 902. That unless otherwise herein specially provided, this Act shall take effect on the day follow- ing its passage, and all provisions of any Act or Acts inconsistent with the provisions of this Act are hereby repealed. Approved, September 8, 1916. Sec. 902. Taking effect; general repealing clause. The increased Income tax rates are in effect January 1, 1916. See Title I. Title IX. 237 The Estate Tax was effective from September 8, 1916, the day of the passage of the Act. See Title II. The Munition Tax is made applicable to the whole calendar year of 1916. See Title III. The Beer and Wine Taxes were in effect on September 9, 1916. See Title IV. The Special Taxes, to-wit, those of the Emergency Act of October 22, 1914, extended by the Joint Resolution of December 17, 1915, cease December 31, 1916; but a similar, though modified scheme of Special Taxes, goes into effect January 1, 1917. See Title IV. The Stamp Taxes of October 22, 1914, extended by J. B. Decem- ber 17, 1915, ceased September 9, 1916. See § 410. The Tariff Amendments, as to Dyestuffs, Title V, and Printing Paper, Title VI, were effective on September 9, 1916. The Tariff Commission existed from the passage of the Act, Sep- tember 8, 1916. See Title VII. The Unfair Competition provisions were in effect September 9, 1916. See Title VIII. Ordinarily the day is indivisible. A provision to take effect on the day following passage means midnight following the day of approval. But where this or like definite provision is lacking, it becomes competent to prove the exact time, as to hour and minute, when the Act was approved. U. S. v. IseUn, 87 Fed. Rep. 194; 91 !Ped. Rep. 699; Carriage Co. v. Stengel, 95 Fed. Rep. 637; Nunn V. Gerst Brewing Co., 99 Fed. Rep. 939; Salmon v. Burgess, 97 TJ. S. 381; Natl. Bk. v. Burkhardt, 100 U. S. 686; Louisville v. Sav. Bk., 104 U. S. 469; Burr v. U. S., 159 U. S. 78. The final repealing clause is a mere precaution, and such a one as legislative bodies, having an immediate purpose in mind, too often enact without due caution. Here and there through the Act all relevant extant law is swept into this measure " so far as appli- cable." Two legislative approximations are counted upon to facil- itate an administrative certainty. OTHER LAWS RELEVANT TO THE ACT OF 1916. Collection of taxes. Penalties. Protest and recovery. Construction of revenue laws. The Eevenue Act of 1916 has, wherever occasion could be found, expressly enacted the inclusion of all other relevant law, for the purpose of aiding the enforcement of the new legislation. §§ 22, 211, 311, 409, The two tariff amendments. Titles V and VI, merely become parts of the last general revenue measure, the Tariff Act of October 3, 1913, and are ipso facto sub- ject to all the provisions of the customs laws. The creation of the Tariff Commission and the enumeration of its functions and powers. Title VII, involve the practical embodiment of much law touching adminis- trative questions and the taking of testimony. The provisions regarding Unfair Competition, Title VIII, although essentially new and arbitrary, point the inquirer to other laws and law on questions of juris- diction, procedure, construction and even constitution- ality. For the practical purposes of such a manual as the present book, the important portions of other law here made applicable are those which deal with assess- ment, collection, penalties, enforcement, refund, reclam- ation, and recovery, and the precedents of jildioial [238] Laws Relevant to Act of 1916. 239 construction and application of other similar enact- ments. Some of these matters have incidentally been treated in the notes to the respective appropriate sec- tions of the Act ante. There is, of course, no question of the power of the Government to collect a tax. If a tax is imposed, and the officers find persons and property in their judg- ment taxable, the whole power of the nation is avail- able to enforce the law. Mistakes may be made, and injustice may be done ; but the administrative machine must grind on, and the remedy must be sought in the sequel. Assessments, as several times pointed out in the notes ante, may be matters, of relatively prompt correction, or may be adjusted by a sort of negotiation, but, once fixed and sent to levy, taxes are indeed * ' as sure as death." As to protest, recovery, etc., see notes infra. OTHER LAWS MADE APPLICABLE. COLLECTION OF TAXES. * ' Administrative * * * provisions ' ' include all existing appropriate measures for collection and enforcement, including the Government's right to recover by suit. E. S. §§ 3213, 3214; (1910) V. S. v. Chamberlain, 219 U. S. 250, 269. Deputies canvass every district in search of persons and objects subject to tax. R. S. § 3172, amd. by 28 Stat. 509. The department has, however, discontinued certain forms of routine canvassing. The appropriate return must be made, and a default or a false return 240 Fedeeal Revenue Law. may involve a summons for testimony and exhibition of books. E. S. § 3173, amd. by 28 Stat. 509. For failure the collector may apply to the- court for a con- tempt attachment. R. S. § 3175. Refusal or neglect of return involves a 50% penalty. False or fraudulent return involves a 100% penalty. E. S. § 3176, amd. by 28 Stat. 509. False return or neglect of summons involves as penalty a fine up to $1,000 or prison to one year, or both. R. S. § 3179. Taxes may be collected by distraint. R. S. §§ 3187 et seq. Suits for taxes and penalties must be in the name of the United States. Judic. Code, § 919 ; E. S. § 3213. As to taxes there is no limitation; as to penalties the limitation is five years, and as to crime, three or two- years according to degree. Judic. Code, § 1047, and Act of July 5, 1884, 23 Stat. 122. A common-law action would not lie to collect a legacy tax under the Act of June 30, 1864, or the Act of June 13, 1898. (1912) U. S. v. Fitts, 197 Fed. Rep. 1007; (1914) U. S. V. Priest, 210 Fed. Rep. 332. Revised Statutes, section 3173, as to power of col- lector to summon for examination does not apply to stamp taxation, but only where assessment is on returns. (1900) In re Kinney, 102 Fed. Rep. 468; (1875) In re Becker, Fed. Cas. No. 1208. A collector may not enforce production of corpora- tion books where the taxpayer is only a stockholder. (1870) In re Chadwick, 1 LoweU, 439. Nor a man's private papers. (1885) Boyd v. U. S., 116 II. S. 617 (a criminal case). Laws Relevant to Act of 1916. 241 Under 18 Statutes 187, Act June 22, 1874, in a civil suit for revenue by the Government, books and papers may be ordered produced on pain of confessing the allegations. The Government may require the production of books and papers in civil suits as well -as in criminal. Act of June 22, 1874, § 5, 18 Stat. 187. As to perjury. Criminal Code § 125 ; R. S. § 5392 ; (1908) U. S. V. Lamson, 165 Fed. Rep. 80; (1891) U. S. V. Bedgood, 49 Fed. Rep. 54; (1890) U. S. v. Edwards, 43 Fed. Rep. 67. Oath before notary. (1888) U. S. v. Hall, 131 U. S. 50. Before deputy collector. (1905) U. S. v. Hardison, 135 Fed. Rep. 419. Under section 3462 of Revised Statutes, a search warrant may issue to search any premises where the applicant officer believes a revenue fraud is being com- mitted. And evidence so obtained is not inadmissible merely because the w-arrant was improperly issued. 24 Atty.- Gen. Op. 685 ; T. D. 1609, in the Matter of Ripper. Under Revised Statutes, section 3463, rewards are paid to informers. Department Circular No. 99, 4th Revision; T. D. 21856, of 1899, and Regulations No. 12, revised. Extortion by informers penalized. R. S. § 5484; Crim. Code, § 145. Officers accepting bribes. R. S. § 3169. Officers must not aid violators in pre- paring statements. T. D. 1607. 13 Stat. 232, June 30, 1864, amended by 14 Stat. 107, 242 Federal Eevbntje Law. July 13, 1866, gave the remedy of distraint. This was not superseded by the provision for equity suit in 15 Stat. 125, 167, July 20, 1868, which gave a cumulative remedy. (1908) Blacklock v. U. S., 208 U. S. 75, dis- tinguishing (1889) Mansfield v. Excelsior Eefining Co., 135 U. S. 326; both dealing with the question as to what passes when the Government seizes land and sells it. See E. S. § 3187, § 3213. Act of March 4, 1913, chapter 166, amends Eevised Statutes, section 3186, unpaid taxes a lien on property. As to distinction between distraint and sale (and replevin by true owner), and seizure, condemnation and sale. See (1907) Sheridan v. Allen, 153 Fed. Eep. 568. If the statute fails adequately to provide a method of collection, the omission may not be cured by regula- tion und'Cr the power given by the statute to the Com- missioner, to the extent of making monthly assessments of an annual tax. (1901) Spreckles v. McClain, 109 Fed. Eep. 76. An interesting instance of collecting " back taxes " (which are ordinarily the product of special agents' investigations) was the plan adopted after the Equit- able building fire in New York city. Tentative returns were accepted, with permission to amend. Eeport of Commissioner, 1913, p. 14. After the great Chicago fire a special relief Act of Congress was passed, April 5, 1872. The steps requisite for the seizure and sale of lands are set forth in the Eevised Statutes. The collector Laws Eblevant to Act of 1916. 243 canvasses for persons liable (E. S. § 3172) ; return is made or compelled (E. S. §§ 3173-3181) ; the commis- sioner makes assessment and certifies to the collector (E. S. § 3182) ; the collector gives ten days' notice to pay (E. S. § 3184) ; the tax becomes a lien after this (E. S. § 3186) ; and the collector may then distrain and sell (E. S.^§§ 3187-3188) ; realty can be sold only after failure to find enough personalty (E, S. § 3196) ; the party is entitled to notice of sale (E. S. § 3197). (1878) Brown v. Goodwin, 75 N. Y. 409, All prerequisites must be strictly complied with. (1882) U. S. V. Allen, 14 Fed. Eep. 263. Eevenue officers are liable in damages for wrongful seizures, but where the court certifies probable cause the recovery is paid from the treasury. E. S. § 989 ; (1904) Haymes v. Brown, 132 Fed. Eep. 525; (1905) Agnew V. Haymes, 141 Fed. Eep. 631. In customs matters no collector or other officer is liable where there is provision in the statute for appeal. Act, October 3, 1913. Unlawful exaction may subject a collector as tort feasor to an action of trespass, or for damages sound- ing in tort. See (1904) 'Christie v. U. S., 129 Fed. Eep. 506. The department has from time to time issued pamph- let regulations, severally numbered, covering various subjects, with explanation and instructions. E. g.. No. 1, Assessments. No. 3, Legacy Tax. No. 6, Fer- mented Liquors. No. 7, Distilled Spirits. No. 8, Tobacco. No. 14, Abatement and Eefund. No. 27, 244 Federal Eevbntjb Law. Eedemption of Stamps. No. 29, Exportation Free of Tax. No. 31, Corporation Tax of 1909. No. 33, Income Tax of 1913. Etc. No Federal tax can be enjoined. (1883) Snyder v. ■Marks, 109 U. S. 189; E. S. § 3224. There is no ques- tion but that the law permits an arbitrary exercise of administrative discretion, though a beginning has been made in providing for administrative appeals in both custon^s and internal tax matters. Passavant v. U. S., 184 U. S. 214; Pittsburgh, etc., Ey. Co. v. Backus, 154 U. S. 421. OTHER LAWS MADE APPLICABLE. PENALTIES. See the notes ante passim, and under Construction infra. The general provision for the recovery of penalties is found in Eevised Statutes, sections 3213 et seq. The collector shall prosecute forfeitures, shall sue in the name of the United States for fines and penalties, and shall receive moneys so collected (including costs). A penalty may be recovered by indictment or by a civil action for debt. (1890) U. S. v. Craft, 43 Fed. Eep. 374; (1871) U. S. v. Foster, 2 Biss. 453; (1866) U. S. V. Morin, 4 Biss. 93; (1893) Lees v. U. S., 150 U. S. 476; (1880) U. S. v. Chouteau, 102 U. S. 603. All persons participating in acts which are misde- meanors are liable as principals. (1893) U.'S. v. Sykes, 58 Fed. Eep. 1000. The double tax penalty is from Eevised Statutes, section 3176, amended by 28 Statute 509, and it is also Laws Relevant to Act of 1916. 245 specially enacted as to spirits. §§ 3256, 3296. Con- stitutional. (1872) Doll V. Evans, C. C. E. D. Pa. Fed. Cases, 3969. Compare as to penalty of added customs duties. Bartlett v. Kane, 16 How. 269. The penalty attaches to an untrue report, although it be not wilfully false. (1878) German Sav. Bk. v. Archbold, 15 Blatch. 398. There being no provision as to Schedule B in the Act of 1898 analogous to that for post-stamping under A, it was ruled that voluntary disclosure, within the calendar month, of a liability would avoid the penalty. T. D. 239, November 3, 1900. A discussion of forfeitures is found in (1899) U. S. V. Two Barrels Whiskey, C. €. A., 96 Fed. Rep. 479 ; where a team and wagon being used without the own- er's knowledge to facilitate a revenue fraud, were not forfeited. Compare (1904) U. S. v. One Black Horse, 129 Fed. Rep. 167, where a liveryman's horse and wagon were forfeited for a similar use of them without the owner 's knowledge. The court suggested that the claimant should pursue the offender or seek remission from the Government. Contracts made for the purpose or with intention to evade revenue laws are illegal at common law, but only where both parties are parties to the intentional wrong. (1826) Armstrong v. Toler, 11 Wheat. 258; (1850) Kreiss v. Seligman, 8 Barb. 439. All offenses against revenue laws are purely statu- tory. There are no common-law offenses against the 246 Federal Revenue Law. United States. (1891) U. S. v. Eaton, 144 U. S. 677, 687. Cf. (1914) U. S. V. Priest, 210 Fed. Eep. 332. The penalties imposed do not exclude personal liabil- ity. They are imposed to induce payment of a debt and are not a substitute for payment. Both on general principles and because the Act of 1898, chapter 448, extended Revised Statutes, section 3213, to the war tax the Grovernment may sue in a civil action to recover a stamp tax under-paid on a deed. (1911) U. S. v. Cham- berlain, 219 U. S. 250; (1900) Fleshman v. MeClain, 105 Fed. Rep. 619 ; 106 Fed. Rep. 880. Department rules and regulations can-not be relied upon as affecting rules of evidence in court. (1904) U. S. V. Cole, 134 Fed. Rep. 697. See General Intro- duction ante. Attempts have been made to claim a sort of estoppel against the Government by reason of real or purported statements or acts of officials. See (1904) Christie- Street Co. V. U. S., 129 Fed. Rep. 506. ' ' The government would be in a sorry plight if the neglects, the careless speeches, and self-excusing or self-serving statements of its ministerial officers or agents could create waivers and estoppels in suits' by and against the government. ' ' Phillips, D. J. The law furnishes the attempt, not the intention, to defraud revenue. (1809) U. S. v. Riddle, 5 Cranch, 311. Cf. Henderson's DistiUed Spirits, 14 Wall. 44. An absence of wrong intent will not save butter with an abnormal absorption of water from being classed as adulterated, under the Oleomargarine Act, May 2, 1902, Laws Relevant to Act of 1916. 247 ch. 784, 32 Stat. 194. (1908) Coopersville Co. v. Lemon, 163 Fed. Eep. 145. A grocer who sold oleomargarine was held a taxable retail dealer, although he honestly supposed he was selling butter. (1899) Eagle v. Nowlin, 94 Fed. Eep. 646. But see (1911) U. S. v. 11150 Pounds of Butter, 188 Fed. Eep. 157; (1912) 195 Fed. Eep. 657, as to invalid regulations. ' ' The law is not so unreasonable as to attach culpa- bility, and consequently to impose punishment, where there is no intention to evade its provisions, and the usual means to comply with them are adopted. All punitive legislation; contemplates some relation be- tween guilt and punishment. To inflict the latter where the former does not exist would shock the sense of justice of everyone." Field, J., in (1877) Felton v. U. S., 96 U. S. 699, 703, action for penalty for defective arrangement of a distilling plant. Further, on intent, see (1873) U. S. v. Buzzo, 18 Wall. 125 (stamp tax) ; (1869) In re Quantity of Spirits, 3 Ben. 552; Fed. Cas. 11495, as to " knowingly and wil- fully." No question of intent is involved in a prosecution under Eevised Statutes, section 3449. It is a violation to ship liquors marked outside as " groceries." (1907) U. S. V. Liquor Dealers, 1'56 Fed. Eep. 219. Nor under section 3324 for failure to efface stamps and marks when emptying a cask of spirits. (1910) U. S. V. Gallant, 117 Fed. Eep. 281. Cf. (1908) U. S. V. Eogers, 164 Fed. Eep. 520. 248 Fedeeal Eevenue Law. To have in possession a stamp which has accidentally fallen off a package is an offense under Revised Stat- utes, section 3324, but not under the Act of March 1, 1879. (1885) U. S. v. Spiegel, 116 U. S. 270. As to " false or fraudulent intent " under the Cor- poration Excise Tax of 1909. (1914) Eliot Nat. Bk. v. G-iU, 218 Fed. Rep. 600; (1915) Nat. Bk. of Commerce, V. Allen, 223 Fed. Rep. 472. The burden of proving that a special tax has been paid rests on the accused. (1868) U. S. v. Devlin, 6 Blatchf. 71. The imposition of a fine or a forfeiture does not preclude the superimposition of the other. (1904) U. S. V. 7 Bbls. of Whiskey, 131 Fed. Rep. 806. Stamps and marks on packages of spirits are not in any respect intended to protect purchasers, but only to prevent fraud and obtain revenue; and a dealer may be penalized or suffer forfeiture for wrong marking even although the stamps used are excessive for the quantity of Hquor. Id. See R. S. §§ 3289, 3323. "Where the statute fixes a minimum money penalty, no verdict can be rendered for less, whatever the merits be, in a proven case. (1912) U. S. v. Acorn R. Co., 204 Fed Rep. 157. A wrongful act by one partner in the course of busi- ness makes all partners liable to the penalty. Under old Revised Statutes, ch. 47. (1866) U. S. v. Thom- asson, 4 Biss. 99. So as to double penalty for illegal importations. (1849) Commonwealth v. Sloan, 4 Cush. 52. Laws Relevant to Act of 1916. 249 Joint indictment of partners for false rettirns. (1866) U. S. V. McGinniss, 1 Abb. U. S. 120, cited also as U. S. V. Montjoy, Fed. Cas. 15678. An employer is responsible for wrongful act of employee only when the act is within the scope of employment. (1832) U. S. v. Halberstadt, Gilp. 262, Fed. Cas. 15,276. PROTEST, RECLAMATION AND RECOVERY. Corrective justice is afforded as to customs duties and internal taxes, by means of departmental appeal and action after unfavorable ruling. But the tax must be paid before the aid of a law court can be invoked. NikoU V. U. S., 7 Wall. 122; Dow v. Chicago, 11 Wall. 108; Hannewinkle v. Georgetown, 15 Wall. 548; Col- lector V. Hubbard, 12 Wall. 1; U. S. v. Pacific E. E., 4 Dillon, 66. The statute has superseded the common law suit for recovery against an officer. Schoenfeld v. Hendricks, 152 U. S. 691. No suit to restrain assessment or collection can be maintained in any court. E. S. § 3224; (1870) PuUan V. Kinsinger, 2 Abb. (U. S.) 94 ; Carey v. Curtis, 3 How. (U. S.) 236; Keely v. Sanders, 99 U. S. 443. See dis- cussion in General Introduction ante. Equity will not restrain a corporation, at the instiga- tion of a stockholder, from paying a tax. (1902) Cor- bus V. Gold, 187 U. S. 455. An Alaskan license tax, distinguishing the Pollock Cases, 157 U. S. 429; 158 U. S. 601. 250 Federal Eevenue Law. But a stockholder may sue to restrain voluntary payment of an income tax. (1915) Brushaber v. U. P. R. E., 240 U. S, 1. The 'Commissioner of Internal Eevenue has broad powers, under Eevised Statutes, section 3220 et seq., to refund taxes and remit penalties. No suit whatever may be instituted until after appeal to him, which may be lodged with the local collector. (1881) U; S. v. Savings Bank, 104 U. S. 728 ; E. S. §§ 3220, 3226. U. S. V. Kaufman, 96 U. S. 567; Hastings v. Herold, 184 Fed. Eep. 759. The limitations" for claims is two years. E. S> §§ 3227, 3228; (1883) James v. Hicks, 110 U. S. 272; Pub- lic Service Ey. v. Herold, 219 Fed. Eep. 301. Congress has at times extended the time for reclaims of taxes wrongly collected. E. g. under Act of 1898. See Act of July 27, 1912. Protest has generally been deemed, and often held, to be necessary to preserve the right to suit. Taxes voluntarily paid, without protest or notice, cannot be recovered. (1904) Cheseborough v. U. S., 192 U. S. 253. In this case the claimant had bought stamps and used them on a conveyance and subse- quently sought to attack the constitutionality of the law (Act of June 13, 1898). Both in this case and another (where the stamp S' were used on the manifest of a vessel in order to obtain the clearance required by statute) the question of duress was unsuccessfully raised. (1906) U. S. v. N. Y. and Cuba Mail, 200 U. S. 488; 125 Fed. Eep. 320. And see (1884) Swift Co. v. Laws Relevant to Act of 1916. 251 U. S., Ill U. S. 22 (mateli tax under Act of 1870, ch. 255, § 4). (1903) Christie Street 'Co. v. U. S., 126 Fed. Rep. 991, 994; (1901) Fairbank v. U. S., 181 U. S. 283; (1913) Merck v. Treat, 202 Fed. Eep. 138; (1914) Thames, etc., Co. v. TJ. S., 237 U. S. 19 (marine insur- ance stamp tax under Acts of 1898, 1902) ; (1914) U. S. V. Hvoslef, 237 U. S. 1 (charter party). Claimants are, however, not very strictly held to the need of formal protest. It may be constructive or , implied. (1907) Johnson v. Herold, 161 Fed. Rep. 593. See (1913) Abrast Realty 'Co. v. Maxwell, 206 Fed. Rep. 333 ; (1880) Real Est. Bk. v. U. S., 16 Ct. Cls. 335. See also as to protest: (1908) Herold v. Kahn, 159 Fed. Rep. 608; (1903) Cheseborough v. U. S., 192 U. S. 253; (1906) N. Y. & Cuba Mail v. U. S., 200 U. S. 488; Wright V. Blakeslee, 101 U. S. 174; Cambria Steel Co. V. McCoach, 225 Fed. Rep. 278. A threatened stoppage of business would be such a constraint as to make payment involuntary and imply a protest. Swift Co. v. U. S. supra. A commissioner may reconsider his own or a pre- decessor's rejection of a claim, but only fraud or mis- calculation will warrant a revision. Compiled Deci- sions, IX, 354; XI 676; T. D. 21285 of 1899; Dugan v. U. S. 34 Ct. Claims-, 458; U. S. v. Bk. of Metropolis, 15 Pet. 377. But see strong statement of the limitations upon this power, Op. Atty. Gen. H, 464 ; XIII, 388, 457 ; XIV, 275; XX, 280. Department Regulations No. 14, as revised, give instructions as to preparing claims. 252 Fedebal Eevenue Law. The commissioner may compromise, with or without sait, civil or criminal. K. S. § 3229. As to recovery from the Government under Revised Statutes, section 3226 by action following appeal to the department for restitution, see (1904) Christie Street V. U. S., supra; (1875) Cheatham v. IJ. S., 92 U. S. 85; (1881) U. S. V. Sav. Bank, 104 U. S. 728; (1883) Snyder V. Marks, 109 U. S. 189; (1891) Comr. Louisville v. Buckner, 48 Fed. Rep. 533 ; (1885) Kings Co. Sav. Inst. V. Blair, 116 U. S. 200; (1912) Emery Realty Co. v. U. S., 198 Fed. Eep. 242. The remedy under Revised Statutes, section 3226, must be pursued subject to the conditions and limita- tions in the statute. In the absence of such statute there would be no such remedy. (1903) Christie-Street v. U. S., 126 Fed. Rep. 991, sustaining demurrer and again (1904) 129 Fed. Rep. 506, sustaining amended petition. As to when interest will be allowed on a recovery back from the Government, see (1914) Klock Produce Co. V. Hartson, 212 Fed. Rep. 758. The general rule is that claims against the Govern- ment do not draw interest (U. S. v. New York, 160 U. S. 619), unless by stipulation or enactment. Angarica v. Bayard, 127 U. S. 260. And acceptance of return pay- ment without objection as to amount is a waiver of all interest claims. Stewart v. Barnes, 153 U. S. 456. Interest allowed in judgment for recovery of taxes wrongfully collected against protest and promptly Laws Relevant to Act of 1916. 253 reclaimed by suit. (1900) Penna. Go. for Ins. v. McClain, 105 Fed. Rep. 367, aff. 106 id. 618. Delay in prosecuting the reclaim affects the right to interest. (1900) Burrough v. Abel, 105 Fed. Rep. 366. As to recovery of legacy tax (Act 1898, ch. 448 ; 30 Stat. 448) from executor or legatee or the property, and by what proceedings, see (1914) TJ. S: v. Priest, 210 Fed. Rep. 332; (1911) U. S. v. Fidelity Trust Co., 222 U. S. 158, on refunding inheritance tax (Acts of 1898, ah. 448; 1902, ch. 1160) ; distinguishing (1905) Vander- bilt V. Eidman, 196 U. S. 480. Despite the unheeded demand in the Senate for the repayment to certain States of a cotton tax collected 1862-1868, where the Supreme Court split even on constitutionality of the law, the Federal Grovernment usually pays back what it improperly takes from citizens. The Government may not be sued without its con- sent. U. S. v. Lee, 106 U. S. 196. But by the Revised Statutes and special Acts it has often consented, though never as to torts of its officials, nor as to any other than Federal courts. Stanley v. Schwalby, 162 TJ. S. 255; Hill v. U. S. 149 U. S. 593. The Court of Claims, created by Act of February 24, 1855, has had its jurisdiction enlarged from time to 'time, but deals only with such classes of claims as are assigned to it. U. S. v. New York, 160 U. S. 598. See the " Tucker Act," of March 3, 1887. Hvoslef v. U. S., 217 Fed. Rep. 680; 237 U. S. 1. 254 Fedebal Eeventje Law. A broker who sues to recover taxes wrongfully col- lected must be able to set forth in his bill or a bill of particulars all the transactions in question. (1905) Haight & Freese v. McCoach, 135 Fed. Eep. 894. A person who is in fact liable for a special tax can- not recover one he has paid on the ground of defective or illegal assessment. (1907) Craft v. Schafer, 153 Fed. Rep. 175. As to lost stamps. (1896) U. S. v. American Tobacco, 166 U. S. 468; (1903) Cheeseborough v. U. S., 192 U. S. 253 ; Freeman v. U. S., 157 Fed. Rep. 195. Provision is made for re-stamping articles once duly stamped, when unavoidable accident has destroyed the stamps. R. S-., § 3315, amd. by Mch. 1, 1879, § 5. Special Circulars have been issued on the subject. Special Acts of Congress are sometimes passed to refund overpaid stamp taxes, such as stamps from private dies. Cf. Act of Feb. 24, 1905. EXISTma LAWS MADE APPLICABLE; CONSTRUCTION OF TAX LAWS. The present Act makes a large and important addi- tion to existing statute law, and repeals none of general character. In a general way, the provisions here made applicable are to be found in Revised Statutes, Title XXXV, especially ch. 2, as to assessment and collec- tion. The revision is, however, so old, and there are so many separate statutes (not always carefully drafted to fit into the scheme), that it is often difficult Laws Eelevant to Act of 1916. 255 to ascertain the present state of the law. The easiest quick method, in connection with the internal revenue system, is to examine the official compilation issued by the department in 1911, where an attempt is made to sandwich the new, and the amendatory, laws among the sections of the Revised Statutes. This compilation has been supplemented, and it may at any time be re-issued in revised form. In several of the cases cited in this book, on construction and interpretation, the courts have carefully traced the statute law affecting the matters under consideration. It is not safe, in matters of taxation, to rely much upon attempted deduction of principles of construction from decisions. The courts, in their efforts to assure validity to a tax law, do not always use technical language with accuracy, and hardly any general " principle " is universally applied, except that of common sense. The Department has now had ample opportunity to work out a fairly complete scheme of interpretation for such of the taxes as were in the Acts of 1898 and 1914. Even as to the Estate Tax, there are some avail- able precedents under the former legislation, and State law is full of analogy. The present amendments of the general tariff involve no new principles. The Muni- tions Tax is a mere spasm. As originally drafted, it was charged with trouble; but, as enacted, it is not exceptional, save in the choice, of taxables, a matter clearly within the legislative discretion. The commissioner has large powers under Revised Statutes, seoticfn 3447, as to establishing methods where 256 Fedebal Revenue Law. none is provided, and " making sucli regulations a& may have become necessary by reason of any alteration of law in relation to internal revenue." There is some confusion, not so much in the decisions reached as in the language of opinions, regarding the way in which tax laws should be construed. A statute may impose a forfeiture or other penalty, and yet not be, technically speaking, a penal law. Eevenue acts are not technically penal laws. Their penalties are imposed primarily to prevent fraud and accomplish a public good. (1845) Taylor v. U. S., 3 How. U. S. 197. Eevenue laws are not like penal laws, to be strictly construed, but should be construed fairly and reason- ably. (1904) U. S. V. Cole, 134 Fed. Eep. 697; (1901) Eidman v. Martinez, 184 U. S. 578 and cases cited. U. S. V. Distilled Spirits, 10 Blatch. 428. Tax laws are to be strictly construed against the Government and in cases of doubt liberally in favor of taxpayers. (1913) 42 B'way. Co. v. Anderson, 209 Fed. Eep. 991. This case, after being affirmed (1914) 213 Fed. Eep. 777, was reversed (1915) 230 U. S. 69. Eevenue laws are remedial, rather than penal, and a defendant is not to be favored. (1865) Cliquot's Champagne, 3 Wall. 114, 145; (1889) U. S. v. StoweU, 133 U. S. 1, 12; (1900) U. S. v. 2461/2 Pounds Tobacco, 103 Fed. Eep. 791; (1911) U. S. v. Thompson, 189 Fed. Eep. 838. It obviously was a mistake ever to speak of a tax law as * ' remedial ' ', but the courts have gone on doing so. Laws Relevant to Act of 1916. 257 even while calling attention to the inexactness of the language. Revenue laws are to be construed in a way to favor their enforcement. (1845) Taylor v. U. S., 3 How. U. S. 197; (1874) Smythe v. Fiske, 23 Wallace, 374, 380; (1832) U. S. v. Breed, 24 Fed. Cas. 1222, No. 14,638; (1870) U. S. v. Hodson, 10 "Wallace, 395; (1887) Chicago, W. & St. P. V. U. S., 127 U. S. 406; In re Chapman, 166 U. S. 661. The taxing power must make it clear that the statute was intended to cover the property in question. (1915) Gill V. Bartlett, 224 Fed. Rep. 927; U. S. v. Watts, 1 Bond, 580. Construction wiU, if possible, be such as to be con- sistent with other laws and decisions. (1887) Chicago & St. P. v. U. S., 127 U. S. 406 ; Bernier v. Bernier, 147 U. S. 242; (1907) Taylor v. Treat, 153 Fed. Rep. 656. License taxes should receive a reasonable construc- tion, fair to both parties. (1900) De Bary v. Souer, 101 Fed. Rep. 425; (1911) John J. Sesnon v. U. S., 220 U. S. 609, denying certiorari on 182 Fed. Rep. 573. The courts, perhaps not always consciously, feel -that there is a difference among revenue laws, and that, whatever the precise language may be, some offenses are more serious than others. It is not intended to say that judges deliberately permit either their own tem- peramental attitudes or their views of public opinion unduly to influence them. Psychologists know that the will to do right and the desire to think straight do not 9 258 Fedeeal Revenue Law. make up all the powers and suceptibilities of the human spirit. Sympathy is best excluded from judgment by recognition of the paramount necessity for uniform and certain justice. Attempts have been made to group such laws, as to the degree of strictness of interpretability, into those which do, and those which do not, impose forfeitures and quasi-criminal penalties. In some instances of stamp taxes, however, as where an unstamped instru- ment is excluded from evidence or record, or as a check which cannot be cashed, there is obviously small need of judicial severity in imposing even statutory pen- alties. On the other hand, regulative or quasi-police power taxe'S, even when the statute is not expressly more severe (as it generally is), are inevitably regarded by all public law officers as penal or quasi- penal. It is a settled rule that general comprehensive legis- lation on a subject is not superseded by later special or narrower legislation unless the contrary clearly appears. Revised Statutes, Title XXXV, contains such general laws. Any new enactment imposing internal revenue taxes is assumed to have contemplated the existence of the established system of revenue laws to which resort may be had in carrying the new law into effect. (1912) U. S. v. Barnes, 222 U. S. 513, holding R. S. § 3177 applicable to oleomargarine. Bernier v. Bernier, 147 U. S. 242. The letter of the law sometimes crowds the spirit, as in the case of the peddler who had a license but failed Laws Eelbvant to Act of 1916. 259 to post his name, residence or number conspicuously on his vehicle or his goods. He was convicted (upheld on appeal), although he was a walking peddler and carried his wares in his pocket. (1876) Commonwealth V. Cusick, 120 Mass. 183. A repeal does not extinguish a penalty or liability once incurred, and the law remains valid for enforce- ment. R. S. § 13; (1888) U. S. V. Reisinger, 128 U. S. 398; (1910) Hertz v. Woodman, 218 U. S. 205; (1873) Stockdale v. Insurance Cos., 20 Wall. 323 ; (1874) Blake V. Natl. Banks, 23 Wall. 307. See (1804) Pennington v. Coxe, 2 Cranch 33 (sugar excise); (1806) TJ. S. Vowell, 5 Cranch, 368 (import duty). Compare (1822) The Irresistible, 7 Wheaton, 551. Repeal is not to be inferred from mere implication. U. S. V. Cook Co. N. Bk., 25 Int. Rev. Rec, 266; U. S. v. 100 Bbl. Spirits, 12 Int. Rev. Rec. 153. Harrington's Distilled Spirits, 11 Wall. 356. If two enactments on a given subject can be read as consistent, they will both be enforced. Landram v. U. S., 118 U. S. 81 ; (1887) Chicago, W. & St. P. v. U. S., 127 U. S. 406; Cope v. Cope, 137 U. S. 682. Compare (1898) U. S. V. Ranlett & Stone, 172 U. S. 133. As to enforcing a repealed tax, and as to whether a beneficial interest in an estate is vested and taxable, see also (1904) Land Title & Trust v. McCoach, 127 Fed. Rep. 381, 129 Fed. Rep. 901; (1904) Phila. Trust V. McCoach, 127 Fed. Rep. 386, 135 Fed. Rep. 866, 129 Fed. Rep. 906, affirmed (1906) 203 U. S. 594, no opin- ion; (1904) Brown v. Kinney, 128 Fed. Rep. 310; 260 Fedebaxi Eevenue Law. (1904) Peck V. Kinney, 128 Fed. Rep. 313; (1905) Eidman v. Tilghmai', 136 Fed. Rep. 141, affirmed (1906) by divided court, 203 XJ. S. 580, no opinion. A construction adopted and applied by an executive officer is entitled to much weight in order to avoid con- flict between two departments in executing a law. (1865) Hugus v. Strickler, 19 Iowa, 413; (1865) Smith V. Waters, 25 Ind. 397; (1896) In re Mdse. Imported by Hoyt, 75 Fed. Rep. 998; (1901) Fairbank v. XJ. S., 181 U. S. 283, 308, where there is a full -discussion of the value of contemporaneous exposition and depart- mental construction of statutes, by Brewer, J. And see cases on the value of the commissioner's rulings, ante, Introductory. English courts recognize usages of the stamp office as a practical commentary on the law, although not conclusive. Edwards on The Stamp Act, p. 9 ; Tilsley on Stamp Laws, p. 10. The courts are influenced, but will not always be guided by executive or administrative precedent. Brown v. U. S. 113 TJ. S. 568; St. Paul & Ry. Co. v. Phelps, 137 U. S. 528; Merritt v. 'Cameron, 137 U. S. 542 ; U. S. V. Hill, 120 U. S. 169 ; Nunn v. Gerst Brewing Co., 99 Fed. Rep. 941; U. S. v. Alger, 152 U. S. 384; U. S. V. Tanner, 147 U. S. 661. The court (C. C. A., 3d Ct.), in (1901) McClain v. Penna., etc., Co., 108 Fed. Rep. 618, 620, passing on the War Tax of 1898, said: " If we were not fully con- vinced of the correctness of the views we have expressed, all doubt upon the subject would be removed Laws Relevant to Act of 1916. 261 by consideration of the fact that the War Revenue Act of 1864, the tax imposing language of which was, so far as material, precisely the same as that of the present Act, had been officially administered in accord- ance with our understanding of the effect of that language, and this established construction of it must be presumed to have been known to Congress when it again used the same language in the Act of 1898." And see (1904) James v. Appel, 192 U. S. 129, 135; (1898) U. S. V. Wong Kim Ark, 18 Sup. Ct. Rep. 456. But cf. (1873) Dollar Sav. Bk. v. U. S., 19 Wall. 227. Revised Statutes, section 3449, as to shipping liquors under other than proper names and marks, is highly penal in character and should be construed strictly. (1902) U. S. V. 20 Boxes, 123 Fed. Rep. 135, affirmed (1904) 133 id. 910. In deciding that the shipper of a quantity of corn liquor in boxes marked ' ' glass ; this side up with care, ' ' did not violate Revised Statutes, section 3449, Mc- Dowell, D. J., uses this strange language: " If the statute applies to all persons, a farmer or lawyer, moving his place of residence, and marks the box ' household goods,' is liable to a fine of $500 . . . whether one bottle or a large quantity are thus moved. ' ' ( Italics ours. — Why ' ' lawyer ? " ! ) The construction should be fair to, if not in direct favor of, the taxpayer. (1902) McNally v. Field, 119 Fed. Rep. 445, 448 (stamp tax of 1898) ; (1902) U. S. V. MuUins, 119 Fed. Rep. 334 (tax on spirits) ; (1904) Benziger v. U. S., 192 U. S. 38, 55 (tariff) ; (1896) 262 Fedbeal, Rbvbnite Law, Mutheson & Co. v. U. S., 71 Fed. Rpp. 394 (tariff) ; (1893) Eice & Co. v. U. S., 53 Fed. Rep. 910 (tariff) ; (1891) American Twine Co, v. Worthington, 141 U. S. 468, 474 (tariff) ; (1887) Hartranft v. Wiegmann, 121 U. S. 609, 616 (tariff) ; (1873) U. S. v. Isham, 17 Wall. 496 (stamp tax of 1864) ; (1870) U. S. v. Hodson, 10 Wall. 395 (distiller) ; (1868) U. S. v. Olney, 1 Abb. U. S. 275 (lottery). Stamp laws are positivi juris, involving nothing of principle or reason. (1834) Morley v. Hall, 2 Dowl. 494. They are to be construed strictly, with liberality as to exceptions. (1827) IT. S. v. Gooding, 12 Wheat. 460. (1807) Warrington v. Furbor, 8 East. 242. The government will not be given the benefit of an uncer- tain law. (1855) Gurr v. Scudds, 11 Exch. R. (H. & G.) 190; (1828) Doe v. Amos, 2 M. & R. 180. Stamp laws have been held directly penal, in restraint of common right and to be construed strictly. (1865) Hugus V. Strickler, 19 Iowa, 413; (1864) Celley V. Gray, 37 Vt. 136; (1868) Boyd v. Hood, 57 Pa. 98; (1867) Vail v. Knapp, 49 Barb. 299; (1869) New Haven, etc., Co. v. Quintard, 31 How. Pr. 29; (1833) IJ. S. V. 84 Boxes of Sugar, 7 Peters 453. As to what influence congressional proceedings on a bill should have in interpreting an Act, see 27 Opin. Atty.-Gen. 68, and (1875) U. S. v. Union Pacif, R. R. Co., 91 U. S. 72. " What the lawmakers intended to do is immaterial when what they actually did do is free from doubt." Cox, C. J., in (1904) N. Y. Telephone v. Treat, 130 Fed, Laws Relevant to Act of 1916. 263 Eep. 340, 342. But compare (1870) Legal Tender Cases, 12 Wall. 457, 531. The courts will not ordinarily interpret the pur- pose of an Act, as such, nor the political, economic nor moral motive of Congress. This is one reason why- there is no direct decision on the constitutionality of a protective tariff. The nearest approach, in the view of those who disapprove high protection, is the language used in Loan Ass'n v. Topeka, 20 Wall. 655. See this case quoted infra. Sometimes, however, the courts go pretty far into history, economics and sociology, in the effort to find a supporting reason for an enactment. Church of Holy Trinity v. U. S., 143 U. S. 457. Compare Plummer v. Coler, 178 U. S. 115, quoted in notes under Title II ante; also (1897) Trans-Missouri F. Ass'n Case, 166 U. S. 318; (1911) Standard Oil Case, 221 U. S. 1. * ' A thing may be within the letter of a statute and not within its meaning, and within its meaning, though not within its letter. The intention of the lawmaker is the law." (1874) Smythe v. Fiske, 23 Wall. 374, 380, holding that revenue laws are to be construed liberally, as not being rigidly penal. " In cases of serious ambiguity in the language of the Act, or doubtful classification of articles, the con- struction is to be in favor of the importer, as duties are never imposed on the citizen upon vague or doubtful interpretations. ' ' (1863) Powers v. Barney, 5 Blatchf . 202 (tariff). And see (1873) U. S. v. Isham, 17 Wall. 496, 504; (1886) Hartranft v. Weigmann, 121 U. S. 264 FEDERAii Revenue Law. 609; (1855) Gurr v. Scudds, 11 Exch. R. (H. & G.) 190; (1828) Doe v. Amos, 2 M. & E. 180. It is constitutional to increase an excise as well as a property tax, and such an increase naay be made at least while the property is held for sale and before it has passed into the hands of the consumer. (1902) Patton v. Brady, 184 U. S. 608, a tobacco case, with an interesting general discussion of excise law in the opinion of Brewer, J. Held, under the Act of 1898, that tax stamping of tobacco in the factory at the old rate was -a construc- tive removal and warranted the assessment of the additional tax. (1900) Eobards Tobacco Co. v. Franks, 103 Fed. Eep. 276, affd., 112 id. 784. Congress may tax anything except exports ; but its direct taxes must be apportioned, and its indirect taxes must be uniform. (1866) License Tax Cases, 5 Wall. 462, occupation tax. Act of 1864; (1894) Income Tax Cases, 157 U. S. 429, income tax of 1894; (1898) Nicol V. Ames, 173 U. S. 509, war tax 1898, sale on exchange ; (1880) Springer v. U. S., 102 U. S. 586, income, Act of 1864, 1865; (1903) Spreckles v. McClain, 192 U. S. 397, 48 L. E. A. 496, on sugar refining, 1898; (1868) Pacific Ins. Co. V. Soule, 7 Wall. 433, income tax, Acts of 1864, 1866. But the Federal government may not tax either the property or the instrumentalities of a State. (1894) Pollock V. Trust Co., 157 U. S. 429, 584. And see Federal Taxation in general, post. Laws Relevant to Act op 1916. 265 Further, as to constitutionality of internal revenue laws, see (1903) Thomas v. U. S., 192 U. S. 363, 48 L. Ed. 481, as to memorandum of stock sale; (1901) Bettman v. Warwick, 108 Fed. Eep. 46, as to a notary public's official bond; (1901) Dougherty v. U. S., 181 U. S. 622, 45 L. Ed. 1033, as to oleomargarine; (1910) Flint V. Stone Tracy Co., 220 TT. S. 107, 55 L. Ed. 389, as to corporation excise tax; (1901) Pat- ton V. Brady, 184 U. S. 608, 46 L. Ed. 713, as to the increased tobacco tax under the Act of 1898; (1905) South Carolina v. U. S., 199 U. S. 437, 50 L, Ed. 261. ' ' In performing the delicate and important duty of construing clauses in the Constitution of our country, which involve conflicting powers of the government of the Union, and of the respective States, it is proper to take a view of the literal meaning of the words to be expounded, of their connection with other words, and of the general objects to be accomplished by the pro- hibitory clause, or by the grant of power." " The presumption is in favor of every legislative act, and the whole burden of proof lies on him who denies it constitutionality." Marshall, Ch. J., in (1827) Brown v. Maryland, 12 Wheaton, 419, 436, 437. FEDERAL TAXATION IN GENERAL. ORIGIN, NATURE, HISTORY AND LIMITATIONS. The fundamental principles of Federal taxation were established by a relatively small number of judicial decisions. Many of them, indeed, were never questioned, Congress itself promptly interpreting the Constitution in ways that met popular approval, or at least avoided arousal of hostility. Most of the ques- tions which reached the courts were echoes of the old Colonial geographic jealousies. In comparatively recent times questions have arisen regarding what were long supposed to be established prineiplesj and the highest courts have divided so almost hopelessly as to make it appear there were few if any established principles. Yet it remains true that the United States in the trying period of its early exist- ence easily worked out a practicable scheme of taxation which was not short of amazing in view of conditions at the time the Constitution was adopted. The socalled " judicial misfortune " of the Pollock cases, 157 U. S. 429; 158 U. S. 601, 39 L. Ed. 759, 1108, which rather appeared to, than did, abandon the earlier construction of Constitutional direct taxes-, does not invalidate the statement just made. And the trouble the Courts have had in the Insular cases does not dis- credit the work of earlier judges who knew nothing of strange outlying " possessions." When Marshall, Fedeeal, Taxation in General. 267 Ch. J., wrote his great opinions, he struck through to the hard wood, and did not peck at the bark. He dealt with principles which, moreover, he was not obliged to hunt for in decided cases. Every modern lawyer ought to be required now and then to re-read those early cases in order to be reminded that a trained intellect can think in terms of legal science without stopping to label each separate discrimination of mental process with the name of somebody else who once before thought on similar lines. Men who in these latter days of microscopic specialization detect brush naarks on the old canvas are not therefore greater artists. The Colonies differed among themselves climatic- ally, socially and economically. They were long enough relatively independent to make quick and mutually con- ciliatory readjustment difficult. They were, so to speak, married late in life — a union of convenience which justified a very strict ante-nuptial contract. The Constitution was a compromise, but it gave far-reach- ing taxing powers to Congress. The text of the relevant portions, and that of the recent amendment, are as' follows: Representatives and* direct taxes shall be appor- tioned among the several States which may be included within this Union, according to their respective num- bers, etc. I, ii, 3. All bills for raising revenue shall originate in the House of Representatives ; but the Senate may propose or concur with amendments, as on other bills. I, vii, 1. 268 Federal Eevenue Law. The Congress shall have power : To lay and collect taxes, duties, imposts, and excises^ to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniform through- out the United States. I, viii, 1. To regulate commerce with foreign nations, and among the several States, and with the Indian tribes. I, viii, 3. No capitation or other direct tax shall be laid unless in proportion to the census or enumeration herein before directed to be taken. I, ix, 4. No tax or duty shall be laid on articles exported from any State. I, ix, 5. No State shall, without the consent of the Congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws ; and the net produce of all duties and imposts laid by any State on imports or exports shall be for the use of the treasury of the United States, and all such laws shall be subject to the revision and control of the Congress. I, x, 2. No State shall, without the consent of Congress, lay any duty of tonnage, etc. I, x, 3. The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, with- out apportionment among the several States, and with- out regard to any census or enumeration. 16th Amend- ment. Federal Taxation in Geneeai,. 269 Regardless -of how little the States surrendered, or thought they were surrendering, it was progressively made clear that there could be no strength in the Union unless there were adequate power in its government. One after another the contentions for strict, narrow construction went by the board, until the Union pos- sessed the authority it needed. It required a broad power of taxation and no State must be permitted to prejudice its exercise. It was futile for States to claim power over inter- state commerce, if the Union meant a unified country and not a loose confederation of sovereignties. (1824) Gibbons v. Ogden, 9 Wheaton, 1 (the Fulton steam- boat monopoly). It would stultify and neutralize the whole idea of a central government and shift the sovereign suprem- acy, if individual States might stop or retard its legitimate, necessary activities by burdening its instru- mentalities so as to make it dependent on the States. (1842) Dobbins v. Commissioners, 16 Peters, 435 (Fed- eral salary) ; and see Marshall, Ch. J., in McCuUoch V. Md., p. 432. If it needed a bank, it must have it, free from State impediment through license taxation. (1819) McCul- loch V. Maryland, 4 Wheaton, 316; (1824) Osborn v. Bank of U. S., 9 Wheaton, 738. If it borrowed money on its obligations, these secur- ities must not be discredited by local taxation. (1829) Weston V. City Council of Charleston, 2 Peters, 449 ; (1864) Bank Tax Case, 2 Wall. 200; (1869) Bank of 270 Federal, Revenue Law. Louisville v. Kentucky, 9 Wall. 353, holding that a State may tax national bank shares as distinct from the capital. If it imposed import duties, no State must be per- mitted at once to license-tax the importer before he could sell his goods. (1827) Brown v. Maryland, 12 Wheaton, 419. Marshall's own later re-statement of the conclusions of McCuUoch V. Maryland was, " All subjects over which the sovereign-power of a state extends, are objects of taxation; but those over which it does not extend are, upon the soundest principles, exempt from taxation. The sovereignty of a state extends to every- thing which exists by its own authority, or is intro- duced by its permission ; but not to those means which are employed by Congress to carry into execution the powers conferred on that body by the people of the United States. The attempt to use the power of taxation on the means employed by the government of the Union, in pursuance of the constitution, is itself an abuse, because it is the usurpation of a power which the people of a single state cannot give. The states have no power, by taxation or otherwise, to retard, impede, burden, or in any manner control the opera- tions of the constitutional laws enacted by Congress to carry into execution the powers vested in the gen- eral government." (1829) "Weston v. Charleston, 2 Peters, 449, 467. As Wilson, J., said in (1793) Chisholm v. Georgia, 2 Dallas, 419, 457, " As to the purposes of the Union, Federal Taxation in Geneeal. 271 Greorgia is not a sovereign state." This case lield that one State might be sued by a citizen of another State. But the Eleventh Amendment forbidding this was promptly proposed in 1794 and was declared in force January 8, 1798. It made State repudiation possible. There was, of course, never any very serious ques- tion of the Federal right and power to tax. Practically all the questions went to kinds and methods of taxa- tion; and the Constitution was the acknowledged charter to be interpreted for application on all points. " The power to tax is the one great power upon which the whole national fabric is based. It is as neces- sary to the existence and prosperity of a nation as is the air he breathes to the natural man. It is not only the power to destroy, but it is also the power to kpep alive." Peckham, J., in (1898) Nicol v. Ames, 173 U. S. 509. The Federal tax power as such is unlimited. Only its use is restricted. It must not be used to tax exports. If it lays duties or excises, they must be uniform. If it lays direct taxes (poll or land), they must be apportioned. The purposes for which it lays taxes must be public purposes (debts, defense, welfare). The Union received its power by grant from the States, i. e., the people of the States; but the grant was irrevocable, and the sovereignty, once acquired, knows no restrictions outside the grant, and draws to itself all implied power. (1816) Martin v. Hunter, 272 Fedebal Eevenub Law. 1 "WTieaton, 304, upholding the Federal appellate jurisdiction in cases involving treaties. Congress has the powers which are expressly given by the Constitution, plus the associated implied pow- ers, also delegated as necessarily accompanying the express powers, and further plus the resulting powers which arise from the very nature of a Federal legisla- ture with enumerated powers and are necessary and proper for any such government. The United States as a conqueror of a foreign territory would have full sovereignty regardless of powers expressly delegated. Hamilton, Works, IV, 104. Ed. 1851. The Constitution is one of enumeration and not definition of powers. (1824) Gibbons v. Ogden, 9 Wheaton, 1. And these are implied and resulting powers which do not differ is substance from the powers expressly enumerated. (1870) The Legal Tender Cases, 12 "Wall. 457. The almost Tinlimited extent of the Federal taxing power early frightened the States as a mere instrument of centralization, inimical to the old theory of State sovereignty. A new phase of the States ' rights ques- tion is now latterly seen in the jealousy of the States lest the Federal government usurp fields of taxation even where there is no doubt of the States ' concurrent power, and the States have begun the legitimate development of local revenue systems, only to find the central Government encroaching. This is where there clearly is a concurrent jurisdiction, and it becomes a Federal Taxation in General. 273 question of political or economic expediency. The tendency is to map out fields in a way to avoid conflict, evasion and injustice thxougli duplication. One group of leaders would have the Federal gov- ernment continue the policy of relying chiefly on tariff duties and excises, with an occasional emergency pro- vision. Another group, now in power, would have the States yield to the United States, wholly or partly, the income, corporation and succession taxes. It appears certain that these latter sources of revenue will henceforth be availed of by the Federal govern- ment, even though some of the States also use some of them. " Either state or federal government would prob- ably have the constitutional right to take all a man's property or income and expend it generally among the public, or for their good, i. e., to enact absolute social- ism ; and under our system there may be double taxa- tion, state or federal, or even double or triple taxation by the several states, as has happened in the case of succession taxes. Such laws are lamentable, and to be interpreted away so far as possible; but there appears to be no constitutional objection." Frederick J. Stimson in Cycl. of Amer. Govt., Constitutional Basis of Taxation. In the process of threshing out the main principles alluded to, the States contended for every limitation discoverable in the language of the Constitution or in the nature of sovereignty. When the great charter 274 Fedeeal Eevenxje Law. was in the making and representatives and taxes were about to be declared apportionable, somebody said " Direct taxes ", and the suggestion was adopted as though perfectly clear to everybody. Springer v. U. S., 102 TJ. S. 586. In fact, there was no such term as " direct taxes " then in ordinary use, and it came, not from English law, but from the study of political philosophy then developing the science of economics. The word still puzzles the courts, though it was early intimated, without being specifically decided, that the only direct taxes were capitation and land taxes. (1796) Hylton v. U. S., 3 Dallas, 171. And all the " direct " taxes ever levied and apportioned con- stituted a legislative construction to the same effect. The first tax question to reach the Supreme Court was a fictitious case brought up from Virginia in 1796 to test the Act of June 5, 1794 (1 Stat. 373). It was held that the tax on carriages was not a direct tax, requiring apportionment, but a tax on expense, a duty, and, being uniform, was constitutional. (1796) Hylton v. U. S., 3 Dallas, 171. We are so accustomed to regard the Supreme Court as the touchstone of constitutionality that the language of Chase, J., in his concurring opinion is interesting and illuminative of the growth of the court's power. " It is unnecessary, at this time, for me to determine whether this court, constitutionally possesses the power to declare an act of congress void on the ground of its being made contrary to, and in violation of, Federal Taxation in General. 275 the constitution." Page 175. Compare (1803) Mar- bury V. Madison, 1 Cranch, 137, as to the powers of the court under the Constitution. The apportionment requirement, Article I, section 2, paragraph 3, was inserted for the protection of the Southern States, because they had much thinly settled land, with slaves, as against less land and few or no slaves elsewhere. But, being a compromise and wrong in principle, apportionment was not to be favored over uniformity and not to be extended by implication. (1796) Hylton v. U. S., 3 Dallas, 171, 177. The Articles of Confederation (VIII) provided that public expenses should be defrayed out of a common treasury supplied by the States in proportion to the value of all lands and improvements. At that period hardly any other source of substantial revenue than a land tax was conceivable. When men later came to discuss the " direct taxes " of the Constitution, they continued to think of the old unpopular requisitions of the Confederation. Direct taxes were levied July 14,, 1798, 1 Stat. 597, $2,000,000; August 2, 18l3, 3 Stat. 33, $3,000,000; January 19, 1815, 3 Stat. 164, $6,000,000; March 5, 1816, 3 Stat. 255, $3,000,000; and August 5, 1861, 12 Staft 294, $20,000,000. The Act of 1861 was very unsatisfactory in operation. Special enforcement acts were passed June 7, 1862 and February 6, 1863. (1871) Turner v. Smith, 14 Wall. 553 ; (1878) Keeley v. Sand- ers, 99 U. S. 441; (1885) Van Brocklin v. Tenn., 117 U., S. 151. 276 Federaxi Eevenue Law. The income taxes of June 30, 1864, March 3, 1865 and July 13, 1866 were not direct taxes. (1868) Pacific Ins. Co. v. Soule, 7 WaU. 433; (1880) Springer v. U. S., 102 U. S. 586. The tax on bank circulation, Act of July 13, 1866, was not a direct tax. (1869) Veazie Bank v. Fenno, 8 WaU. 533. The suc- cession tax of 1864, 1866 was not a direct tax. (1874) Scholey v. Eew, 23 Wall. 331. An act passed in 1889 to repay to the States the amount of the 1861 direct tax was vetoed by President Cleveland as a "sheer, bold gratuity"; but under Act of March 2, 1891, about $15,000,000 was .so remitted. The Income Tax Cases, which invalidated the income tax of the Tariff Act of 1894, for the first time threw serious doubt upon the correctness of the initial dicta in Hylton v. U. S., and by refined distinguishing found a way to declare the general income tax unconstitu- tional as a direct tax on both real estate and personal property. (1894) Pollock v. Farmers' L. & T. Co., 157 U. S. 429; 158 U. S. 601. They decided " First, that no sound distinction existed between a tax levied on a person solely because of his general ownership of real property, and the same tax imposed solely because of his general ownership o'f personal property. Secondly, that the tax on the income derived from such property, real or personal, was the legal equivalent of a direct tax on the property from which said income was derived, and hence must be apportioned." (As restated by White, J., in Knowlton v. Moore.) Federal Taxation in General. 277 This decision led to the adoption of the Sixteenth Amendment. Writing later in (1898) Nicol v. Ames, 173 U. S. 509, upholding the War Tax of 1898 on sales on exchanges, Peckham, J., said, " It is no part of the duty of this court to lessen, impede or obstruct the exercise of the taxing power by merely abstruse and subtle distinctions as to the particular nature of a specified tax, where such distinction rests more upon the differing theories of political economists than upon the practical nature of the tax itself." And in (1900) Knowlton v. Moore, 178 U. S. 41, upholding the War Eevenue Legacy Tax of June 13, 1898, the opinion approvingly quotes the foregoing language and its context from Nicol v. Ames. The uniformity requirement of Article I, Section 8, Paragraph 1, as to all duties, imposts and excises, has been most fruitful of litigation. The rule permits a liberal classification of objects, provided only the classification is not unreasonable. There must be no discrimination within a class, nor within a group of similar things reasonably classifiable together; and geographically the same plan and method must every- where prevail. (1899) Bell's Gap Co. v. Penna., 134 U.S. 232; (1891) Pacif. Exp. Co. v. Seibert, 142 U. S. 339; (1884) Head Money Cases, 112 U. S. 581: " Per- fect uniformity and perfect equality of taxation, in all the aspects in which the human mind can view it, is a baseless dream." p. 595; (1885) Kentucky Ey. Cases, 115 U. S. 321; (1897) Magoun v. 111., etc.. Bank, 170 U. S. 283. 278 Fedebal Revenue Law. Rates as well as objects of taxation may be classified. An inheritance tax need not be at a flat rate for vary- ing degrees of relationship. (1897) Magoun v. Illinois Bank, 170 U. S. 283. It is held a proper classification to tax sales on exchanges without taxing all sales or even all similar sales. (1898) Nicol v. Ames, 173 U. S. 509. To warrant a tax on testamentary transfers it is not necessary to tax all transfers. (1901) Orr v. Oil- man, 183 U. S. 278. Not only may individuals be exempted where cor- porations are taxed, (1889) Home Ins. Co. v. N. Y,, 134 U. S. 594, but a particular kind of corporation may be chosen as among all. (1885) Kentucky Rail- road Tax Cases, 115 U. S. 321. The requirement of " uniformity " in the Constitu- tion means nothing more than geographical uniformity. (1900) Knowlton v. Moore, 178 U. S. 41, holding the Spanish War Federal Income- Tax (1898-1902) con- stitutional. The same plan and method must be applied everywhere within the jurisdiction. Legal Tender Oases, 12 Wall. 457; Edye v. Robertson, 112 U. S. 580. " Absolute equality and strict justice are unattain- able in tax proceedings. The legislature must be left to decide for itself how nearly it is- possible to approx- imate so desirable a result. It must happen under any tax law that some property will be taxed twice, while other property will escape taxation altogether." Cooley, 'Constitutional Limitations, 7th ed., p. 738. Fedebai, Taxation in Gtenbeal. 279 That a person pays two taxes, say State and Federal, on the same thing, does- not mean that he suffers double taxation. The authorities are concurrent. The tax is repeated, not doubled. The power to tax is " a concurrent power, and in the case of a tax on the same subject by both govern- ments, the claim of the United States, as the supreme authority, must be preferred." Chase, Ch. J., in (1868) Lane Co. v. Oregon, 7 Wall. 71, 77. The States have wide powers and' discretion as to objects and methods of taxation with which the Fed- eral authority will not try to interfere. Kirkland v. Hotchkiss, 100 U. S. 491; State Bank v. Knoop, 16 How. 369; Farrington v. Tenn., 95 U. S. 679. A State may not require wholesale importers and merchantsr to take out a license for the wholesale sell- ing of importations. (1827) Brown v. Maryland, 12 Wheaton 419. State laws taxing alien passengers debarking in State ports are unconstitutional, as they assume to regulate foreign commerce, a power exclusively vested in Congress. (1849) Passenger 'Oasfes 7 How. 283, 12 L. Ed. 702. A head tax imposed on ship owners for bringing immigrants to American ports is not a true tax subject to constitutional limitations, but a regulative measure raising a fund for use in mitigating evils, and is proper legislation under the power to regulate foreign com- merce. (1884) Head Money Cases, 112 U. S. 580. 280 Fedeeal Revenue Law. ' ' The interest, wisdom and justice of the representa- tive body, and its relations with its constituents, fur- nish the only security, where there is no express con- trad;, against unjust and excessive taxation, as well as agajnst unwise legislation generally." (1830) Providence Bank v. Billings, 4 Peters, 514, discussing earlier cases. Illustrative leading cases on- conflicting -and concur- rent taxing power, as between the Federal government and the States, have been cited in connection with jthe Act of 1916 ante. Much of what is called double taxation- is unavoidably incident to complex modern life under our system of government. If the duplication involve no- inequality, there is no injustice. There is no Federal constitu- tional protection against double or unequal taxation in States,, so long as- the inequality is not arbitrarily unjust. (1914) St. Louis S. W. Ey. Co. v. Arkansas, 235 U. S. 350. And see Providence Bank v. Billings, 4 Peters-, 514 ; Farrington v. Tenn., 95 U. S. 679 ; David- son V. N. 0., 96 U. -S. 97; Head Money Cases, 112 U. S. 580j Sturges v. Carter, 114 U. S. 511; Tenn. v. Whith- worth, 117 U. S. 129 ; Bank v. Tennessee, 161 U. S. 134 ; 163 U. S. 416 ; Patton v. Brady, 184 U. S. 608. It is a mistaken theory -that a tax involves want of due process of law merely because it appears to the taxpayer to lack wisdom and to operate injustice. The courts will not exceed their powers and try to correct what is thus assumed to be an erroneous or unwise Fedebai, Taxation in General. 281 exercise of legislative authority. (1916) Bru&haber v. U. P. E. R. Co., 240- U.S. 1. Hamiltqn, in number 32 of The Federalist, said: "A tax might be laid on a particular article by a State, which might render it inexpedient that thus a further tax should be laid on the same article by the Union ; but it would not imply a constitutional inability to impose -a further tax. The quantity of the imposi- tion, the expediency or inexpediency of an increase on either side, would be mutually questions of pru- dence ; but there Would be involved no direct contradic- tion of power." Expediency is the test. The courts will not examine into the reason or the wisdom of any particular tax. They have established a few ruling principles, and the lawmakers may, within these limits, patch up any scheme they may deem economically or politically expedient. The haphazard methods adopted, the tenta- tive plans quickly rejected, the rapid -shifts of policy — all these things are clearly not scientific nor edifying ; but they are within the law. President Wilson, in his first message, suggested as among ' ' many additional sources of revenue which can justly be resorted to without hampering the industries of the country or putting any too great charge upon individual expenditure," gasoline, naphtha, automo- biles and internal explosion engines, stamps on bank checks, pig iron, and fabricated iron and steel. Cong. Rec, 4 Jan, '16, p. 534. The Secretary of the Treasury 282 FBDEBAii Eevenue Law. (Report for 1915, p. 52) and some of the Congressional leaders made other suggestions. Yet not only were many of these semi-official proposals wholly ignored in later discussions, but entirely new schemes were adopted in the final stages of legislative consideration. Much was formerly made of the supposed exact meaning of the words, tax, duty, impost, excise, direct, capitation, etc. ; and the books are full of attempted definitions. The fact that the makers of the Constitu- tion made no attempt to define the terms is taken as a proof of their intention to confer the whole compre- hensive power. (1869) Veazie Bank v. Fenno, 8 Wall. 533. Broadly speaking, the word tax covers every enforced contribution. Duty, which in England covers many other things, and here is popularly confined to import taxes is indef- initely equivalent to impost. Duties and imposts were doubtless used to cover everything not included in taxes and excises. (1868) Pacific Ins. Co. v. Soule, 7 Wall 433, holding an income tax to be a duty or an excise; (1869) Veazie Bank v. Fenno, 8 Wall. 533, holding that tax on bank circulation to be a " duty." But there is no clear discrimination in the courts' use of these words. The War Act of 1898 as taxing exchange sales was held " a dlity or excise." (1898) Nicol V. Ames, 173 U. S. 509. Excise has long historical associations with taxes on spirits; was so used in the Constitution; was so applied to the Act of March 3, 1791, which occasioned Fbdebal Taxation in General. 283 the Whiskey Eebellion. The ancient excises were hate- ful to the people as an unwarranted interference with individual liberty ; but, as time went on, they came to be regarded in a broader sense as license or privilege taxes. Latterly all occupation taxes have been classed as excises, in a way that would have puzzled the early Americans who associated excise and rum and willingly paid faculty or license or occupation taxes which par- took somewhat of income taxes. Excise is an inland imposition upon consumption or sale of commodities, sometimes upon-the manufacturer, sometimes on the vendor. (1868) Pacific Ins. Co. v. Soule, 7 Wall. 433. " Exactions for the support of the government may assume the form of duties, imposts, or excises, or they may also assume the form of license fees for permis- sion to carry on particular occupations or to enjoy special franchises, or .they may be specific in form, as when levied upon corporations in reference to the amount of capital stock or to the business done or profits earned by the individual or corporation." (1874) Scholey v. Eew, 23 Wall. 331. Even the sacred principle, " no taxation without representation," does not exempt -the District of Columbia from direct taxes. The power to tax " is general without limitation as- to place. It consequently extends to all places over which the government extends." Marshall, Ch. J., in this decision, refers to " the American empire." (1820) Loughborough v. Blake, 5 Wheaton, 317. See Metropolitan v. D. C, 284 Fedeeax. Revenue Law, 132 U. S. 1; Mormon Church v. U. S., 136 U. S. 1; Talbott V. Silver, 13» U. S. 438. By Act of February 24, 1804, the then existing tariff legislation was extended to the Louisiana territories acquired by Treaty of April 30, 1803. After the laying of a direct tax by Act of January 19, 1815, Congress by a separate Act of February 27, 1815, applied its provisions to the District of Columbia. The war power has been used -as the instrument of taxation. U. S. v. Eice, 4 Wheaton, 246 (War of 1812) ; Fleming v. Page, 9 How. 603 (Mexican War) ; Dooley V. U. S., 182 U. S. 222; 183 U. S. 151 (Spanish War). The so-eaUed Insular Cases were reviewed by E. P. Whitney, in an article in the Columbia Law Eeview for February, 1902. See Dooley v. U. S., supra; De Lima v. Bidwell, 182 U. S. 1; Downesv. Bidwell, 182 U. S. 244; Pepke v. U. S., 183 U. S. 176 (also cited as 14 Diamond Rings). See post as to Outlying and Insular Possessions. We have relatively permanent, or at lea-st continu- ing, tax laws ; and there is little or no thought in con- nection with any particular tax regarding any specific purpose for which the tax is levied. Emergency tax laws sometimes mention a purpose generally in the title. The first tariff act referred to protection but it has ever since been a choice between an Act to Reduce and an Act to Increase. This absence of a declared purpose makes it difficult to bring up some revenue laws for test as to their constitutionality, Federal, Taxation in Geneeal. 285 as the courts will not look for motives and purposes. In the absence of a proper budget system, taxation for general account undoubtedly encourages wasteful appropriations. The Tariff of 1909 was "An Act to provide revenue, equalize duties and encourage the industries of the United States, and for other purposes. ' ' Early tariff acts specified the purposes of the taxes imposed, e. g., March 26, 1804, to defray the expenses of vessels for protecting commerce and carrying on warlike operations- against Tripoli and other Barbary powers. No inference or presumption of a legislative con- struction is to be drawn by reason of the title under which any particular section is placed. R. S. 5600. The courts will not inquire into the motive of a tax, if its purpose is public. Congress may tax to regulate, or even to destroy. (1819) McCuUoch v. Maryland, 4 Wheaton, 316; (1869) Veazie Bank v. Fenno, 8 Wall. 533. The power of Congress to tax for any purpose other than to pay debts and expenses has been questioned, but the courts have never sought to define specific limits. The courts will not look into motives, nor pur- sue speculation as to possible resulting evils of legis- lation. (1908) Oceanic Nav. Co. v. Stranahan, 214 U. S. 320. Practically the only limitation as to pur- pose is that the purpose must be a public one, and in determining this the Legislature has wide discretion. The court does not keep the conscience nor guide the 286 Federal Eeventje Law. thought of Congress. (1895) U. S. v. Realty Co., 163 U. S. '427, upholding the sugar bounty appropriation of March 2, 1895, without passing on the bounty act itself of October 1, 1890, 26 Stat. 567, §§ 231 et seq.; (1910) Flint V. Stone Tracy Co., 220 U. S. 107. Private and public functions are nowadays not always clearly distinguished. Even when it is settled academically that a taxation purpose must be public, there remains the often complex question as to whether a purpose which looks public may not really be private ; and there is also a tendency in public opinion to favor the extension of governmental function. Moreover, as to whether a purpose shall be deemed public, will often depend upon geographic considerations. A national tax should have a national purpose. It might be wise and just to impose a tax which at first blush appeared discriminatory, for a purpose seemingly local, where further analysis would show both the burden and the benefit to be ultimately equalized. Such lucubrations, if not checked, lead to ' ' politics ' ', protection, single- tax, wealth equalization, paternalism, socialism, and the rest. ' ' The theory of our government, state and national, is opposed to the deposit of unlimited power anywhere. The executive, the legislative and the judicial branches are all of limited and defined powers. ... Of all the powers conferred upon government, that of taxation is most liable to abuse .... This power can as readily be employed against one class of individuals and in favor of another, so as to ruin the one class and give Pedebai, Taxation in General. 287 unlimited wealth and prosperity to the other, if there is no implied limitation of the uses for which the power may be exercised. To lay with one hand the power of the government on the property of the citizen, and with the other to bestow it on favored individuals to aid private enterprises and build up private fortunes, ia none the less a robbery because it is done under the forms of law and is called taxation." Miller, J., in Loan Asscn. v. Topeka, 20 Wallace 655, 663. Health, and hospitals, and charity in calamity are public purposes. Science, expositions, education, parks and recreation have been recognized and aided, and seals and game have been protected. The welfare clause has already been far stretched to warrant taxation, and will doubtless be extended rather than contracted. The tendency is to permit the Federal government to do anything it pleases, so long as it does not subvert the very system of the Federated States. Pensions and bounties for military service are deemed in public, and not in private, interest. The qualified reference to them in the 14th Amendment, pargraph 4, gives them Constitutional sanction. Trade bounties are more questionable. The so-called bounty on dried fish, Act of August 10, 1790, was really a drawback of duty on the salt used. It was repealed by Act of March 3, 1807. The sugar bounty of October 1, 1890, escaped direct judicial test. IT- S. v. Realty Co., 163 U. S. 427. 288 Fedbrax, Eevenue Law. SMp subsidies have been a sore question. When steam navigation threatened American success in foreign shipping, we tried a mail subvention in 1845. Other countries have extensively subsidized shipping, but there has been a persistent hostility to the plan in America. Vigorous efforts were made in Congress from 1898 to 1907 to commit the country to this policy. John Bigelow said he never heard of appeals for, and Congressional debates on, ship subsidies " without thinking of a story told by Lucian, the rigdumfunnydos of Samosata, about a simpleton who busied himself in milking a he-goat into a sieve." The taxing power has been extensively used in a discriminatory way to aid domestic shipping and encourage certain desired imports. Even so-called trade reciprocity is usually sought to be made effective by means of more or less abitrary, exceptional changes in rates of import duties which are often made exces- sively high for the avowed purpose of dicker and con- straint. Tonnage duties from July 20, 1790, through and beyond the War of 1812, were employed as direct and indirect means of ' ' punishing ' ' foreign countries which did not give fair treatment to American trade and seamen. See discussion of tariffs and shipping laws post. The first Tariff Act, July 4, 1789, provided for a 10 per cent, discount on duties for goods imported in vessels owned by American citizens. In the Act of August 10, 1790, this took the form of an added duty of 10 per cent, on goods imported in vessels not American. Federal Taxation in General,. 289 By March 3, 1815, this discrimination and also certain heavy tonnage duties were repealed to take effect when the President should be satisfied that foreign countries had abolished their disorimination and countervailing duties. By March 1, 1816, following the treaty of December 22, 1815, discrimination against Great Britain was repealed, but was restored and again abandoned by a proclamation under the Act of May 29, 1830. Special Acts and proclamations of various times dealt with other foreign countries. Any imposition of burden producing revenue is capable of designation as a tax, and the motive will not be inquired into in testing the propriety of a tax. This principle was followed in the bank circulation case. (1869) Veazie Bank v. Fenno, 8 Wall, 533. Compare Doyle V. Conn. Ins. -Co., 94 U. S. 535. The question as to how public funds are to be used, when once they are obtained, is a matter of legislative policy and therefore, under our free institutions, amenable to public opinion. It would be hazardous to say that anything was not a public purpose which the public in controlling majority demanded, Eegulative taxation, by way of a quasi police power, is approved. An Act which on its face is a revenue measure is not to be questioned constitutionally by judicial inquiry into either conducive motive or ulti- mate effect. (1903) McCray v. U. S., 195 U. S. 27, as to oleomargarine. " It has been urged as an objection to this measure that while purporting to be legislation for revenue, its 10 290 Federal Revenue Law. real purpose is to destroy, by use of the taxing power, one industry of our people for the protection and benefit of another. If entitled to indulge in such a suspicion as a basis of official action in this case, and if entirely satisfied that the consequences indicated would ensue, I should doubtless feel constrained to interpose executive dissent." Pres. Cleveland, on approving the Oleomargarine tax law of August 2, 1886. See this and other regulatory taxes post. No export tax is permitted by the Constitution. Art. I, § 9, par. 5. This was one of the compromises induced by geographic influences. The South had cotton and rice. The North had few products for sale but was active in trade and wished to ship south- ern products. Federal tax laws have often excepted from revenue charges goods intended for export, e. g., section 405 of the Act of 1916, ante. It was held that they might tax tobacco which was intended for export, Turpin v. Bur- gess, 117 U. S. 504, and require identification stamps on exported tobacco. Pace v. Burgess, 92 U. S. 372. But when the whole question came up in (1901) Fair- bank V. U. S., 181 U. S. 283, the foreign bill of lading stamp tax of the Act of 1898 was held unconstitutional, the court refusing to be influenced by the fact that such legislation had often and long been enforced. Compare dissenting opinion. The prohibition of export duties was sought to affect interstate trade, (1860) Almy v. California, 24 How, 169, but it applies only to exports to foreign countries. Fedebal Taxation in Gteneeal. 291 (1868) Woodruff v. Parham, 8 Wall. 123. The Supreme Court had difficulty in testing by this rule the imposition of duties on shipments to Porto Eico, but held them not to be export duties, as the island is not foreign. (1901) Dooley v. U. S., 183 U. S. 151. Compare the Insular cases cited ante. The use of embargo and retaliatory shipping legisla- tion, and its effect on import and export trade are elsewhere discussed. And see discussion under Title VIII, Act of 1916, o«ie. The Webb Bill, which passed the House September 2, 1916, is " To promote export trade." It excepts associations and agreements solely affecting export trade from the prohibitions and restraints of the Act of July 2, 1890 (Sherman Anti-Trust Act). It relieves such associations from the prohibition of the Act of October 15, 1914 (Clayton Act), against the acquisition by one corporation of the stock of another. It makes applicable as among competing export trades the pro- hibition of the Act of September 26, 1914 (Federal Trade Commission) against unfair methods of com- petition even outside the country. And it requires export trade associations under penalty to register with the Federal Trade 'Commission. Association, as used in the Act, means any corporation or combination, by contract or otherwise, of two or more persons, partnerships or corporations. The power to regulate commerce has increasingly been exercised. (1824) Gibbons v. Ogden, 9 Wheaton 1; (1827) Brown v. Maryland, 12 Wheaton 419; (1837) 292 Fedekax, Eeventje Law. N. Y. V. Miln, 11 Peters 102 ; License Cases, 5 How. 504 ; Passenger Cases, 7 How. 283. But see Bowman v. Ey. Co., 125 U. S. 508; Leisy v. Hardin, 135 U. S. 100. The power of regulation includes the power of pro- hibition. Champion v. Ames, 181 U. S. 321. The regulation of commerce in the modern sense came with, or after, the development of modern methods of transportation and trade. When the main principles were once established, there were few abuses requiring Federal intervention, until the extraordinary develop- ment of corporate control aroused Congress to attempt regulation by statute. Wheeling Bridge Case, 13 How. 518; Ward v. Maryland, 12 Wall. 418; Welton v. Mis- souri, 91 U. S. 275. From 1886 on, following earlier agitation, step after step has been taken in an ever increasing tendency to check unfair competition by Federal regulation. The Inter-state Commerce Act of February 4, 1887, became the foundation of an immense structure of regulative law affecting transportation, gradually extended to include land and water common carriers, express, sleeping car, pipe line, telegraph and telephone. The complete and paramount character of the power -of Congress over interstate commerce is fully set forth, with citation of authorities, in (1914) Houston, etc., R. ■Co. V. U. S. 234 U. S. 342. The purpose, character and scope of the powers of ■the Interstate Commerce 'Commission are discussed in Texas, etc., R. Co. v. Interstate C. C, 162 U. S. 197; (1914) IJ. S. V. LouisviUe & N. E. Co., 235 U. S. 314. Fedeeal Taxation in Gbneeal. 293 The Commission's conclusions on questions of fact are not reviewable by the courts. (1914) Louisville, etc., Co. V. U. S. 216 Fed. Eep. 672; (1914) Florida, etc., Co. V. U. S., 234 U. S. 167 ; (1914) St. Louis, etc., Co. v. U. S., 217 Fed. Eep. 80; (1915) Meeker v. Lehigh V. E. Co., 236 IT. S. 412 (constitutional as not infringing right to jury) ; (1915) Mills v. Lehigh V. E. Co., 238 U. S. 473. Other illustrative cases are: U. S. v. Delaware & Hudson Co., 213 U. S. 366 ; U. S. v. Lehigh Valley E. E. Co., 220 U. S. 257 ; U. S. v. Del., Lack. & W. E. Co., 238 U. S. 516. The Elkins Act, February 19, 1903, is independent of, and supplemental to, the interstate act and not merely an amendment. (1914) Hocking Valley v. U. S., 210 Fed. Eep. 735. It was directed against secret rebates. The pipe-line amendment, June 29, 1906, 34 Stat. 584, is constitutional. (1914) Pipe Line Cases, 234 U. S. 548. The Eayburn bill, on the calendar of the 64th Congress, would extend the jurisdiction of the Inter- state Commerce Commission over the issuance of rail- way securities. It is possible that the Adamson so-called eight-hour law, of 1916, following other labor legislation previ- ously enacted, may lead to Federal control of wages as well as of rates. The Act of June 29, 1906 (Hepburn Act) gave the Commission certain powers as to fixing rates, and an enlarged supervision over records and accounts. The 294 Federal Eevenue Law. commodities clause was intended to prevent railroads from operating both as private shippers and as public carriers. U. S. v. Delaware & Hudson Co., 213 U. S. 366; U. S. V. Lehigh Valley, 220 U. S. 257; U. S. v. D., L. & W. R. Co., 238 U. S. 516. The Sherman Law, Act of July 2, 1890, 26 Stat, 209, based upon the commerce clause of the Constitution, was a remedial statute for the enforcement of the common law against monopolies. Illustrative earlier cases are: (1895) U. S. v. E. C. Knight Co., 156 U. -S. 1, substantially modified by later decisions; (1897) TJ. S. V. Trans-Missouri Freight Assn., 166 U. S. 290; (1898) U. S. V. Joint Traffic Assn., 171 U. S. 505; (1899) U. S. V. Addyston Pipe & Steel Co., 175 U. S. 211; (1902) Union Sewer Pipe Co. v. Connolly, 184 V. S. 540; (1904) U. S. v. Northern Securities Co., 193 U. S. 197; (1905) TJ. S. v. Swift & Co., 196 U. S. 375; (1908) Loewe & Co. v. Lawlor, 208 U. S. 283. Federal Anti-trust Decisions, a four volume com- pilation, was published by the Government in 1912, embracing aU cases under the Act of July 2, 1890 (Sherman Act). In application, the law was found to have tremendous scope but to be deficient in definition. If its use and attempted use were not always wise or fair, they at least made clear that the Federal power was bound to be employed for the purpose of keeping competition free. Recent legislation has gone further and been made more definite. The Federal Trade Commission Act, September 25, 1914, is, of itself, not an anti-trust law. Federal Taxation in General. 295 but is intended to provide additional administrative and quasi judicial machinery for applying all law and laws to the purpose of making competition free and fair. The Act of October 15, 1914 (Clayton Act) attempts to clarify and specify the earlier prohibitions of the indefinite negations found in the Sherman Act, to which it is thus supplemental by way of a bill of particulars. It deals with price discrimination, tying-up contracts, intercorporate holdings and interlocking directorates, and provides for its enforcement, including injunction in favor of individuals whereas only the Attorney General could invoke the former law. Far as the Act appears to go, it did not go far enough for one promi- nent Senator, who expressed his opinion in these few well chosen words, ' ' When the Clayton bill was first written it was a raging lion with a mouthful of teeth; it has degenerated into a tabby-cat, with soft gums, and plaintive mew, and anaemic appearance. It is a sort of legislative apology to the trusts, delivered hat in hand, accompanied by assurances that no discourtesy is intended." An administrative, quasi judicial body, the Inter- State Commerce Commission's chief earlier function was investigation. Further Acts broadened its activities and powers, e. g., March 2, 1889; February 11, 1893 ; June 29, 1906 ; June 18, 1910. 296 Federal Eevbntje Law. It was hampered in its examination of witnesses by a decision that the Fifth Amendment was applicable. The amendment of 1893 provided that nobody should be excused, but also that nobody should be prosecuted. This " immunity bath " has narrowed the field of inquiry. There remains, and perhaps necessarily so, a good deal of indefiniteness in the terms of the law. All such attempts to regulate the larger affairs of business in any measure of detail come to involve as many fine dis- tinctions in moral standard and intellectual process as are involved in the ethical conduct of an individual life. We transfer our consciences to courts and com- missions and then nothing we do is wrong unless we get caught. Yet we are working out a few general principles which will prevent the complete subversion of righteousness in the stormy sea of modern com- mercial struggle. The reign of law and the supremacy of reason will partly save us from a too ecstatic faith in virtue by legislation. " The problem of the future is how to make our great corporations effective instruments for the equit- able distribution of wealth. This must come through regulation and control exercised by a Federal commis- sion adequately endorsed with power and jurisdic- tion. ' ' Mr. Morgan in the House, May 19, 1914. Cong. Eec, V. 51, p. 9703. There can be no question that the tax system should be such as to facilitate social and industrial reforms. It is not so clear that the machinery of taxation should Fedebal Taxation in Geneeal. 297 be used in avowed attempts to effect specific reforms, nor to foster a paternal socialism. The Department of Commerce was created in 1903. Its organization, history and work are set forth in a pamphlet issued by the Department. The Bureau of Corporations began in 1909 the publication of an exhaustive examination of existing systems of cor- poration taxation in the various States; and also issued, March 15, 1915, an elaborate study on Trust Laws and Unfair Competition, covering legislation and decisions. These may be had from the Superintendent of Documents. The Library of Congress issues bibliographies on the Federal control of commerce and corporations. A Commerce Court was created by the Act of June 18, 1910, to unify and expedite the' adjudication of cases arising under the Intra-state Commerce Act. It was constituted by designation of Circuit Court Judges. It proved reactionary, and for this and other reasons was abolished December 31, 1913. The Cotton Futures Act of August 18, 1914, was held unconstitutional as originating in the Senate. (1915) Hubbard v. Lowe, 226 Fed. Eep. 135. The Cotton Futures Act of Aug. 11, 1916, went into operation September 1, 1916. The subject of options and futures in agricultural products has been dealt with in Government publica- tions, beginning with a volume of 337 pages in 1892. Supt. of Documents. Such forms of Federal regulation as have above been 298 Federal Revenue Law. sketched do not involve the taxing power, but intima- tions are not lacking that taxation may ultimately fol- low control. The enactment of the Corporation Excise Tax Law of 1909 was inspired in part by purpose to insure the ascertainment of data to facilitate regula- tion. So also will taxation be the easier because of the elaborate system now available for obtaining and checking information regarding all corporate activities. A bill was introduced December 6, 1915, to tax mail- order houses doing an inter-state business. H. E. 712, Cong. Rec, Aug. 3, 1916, p. 13977. The Federal Government has other income than that from taxation. The public accounts do not present a clear classification. Some of the more important sources are land sales, Consular fees, coinage profits, interest on deposits, patents, fines, immigration, sur- plus postal revenue. District of Columbia receipts, Panama Canal tolls, etc, Annual Report of Secretary of Treasury. Postage is not a true tax, but payment for a specific service. By reason of the Goverimient monopoly, it has some of the nature of an imposed burden. And the like is true of tolls and other fee charges. All such payments are directly compensatory or contributive, and by so much reduce the general taxation which would be necessary to furnish the service without such payments. The tendency is towards extending so-called free Government service, and this means increased general taxation. People too easily fall into' Federal Taxation in General. 299 the error of fancying the Government something apart from themselves and their own money. Federal revenue bills must originate in the House; but the Senate may amend them. Const. I, vii, 1. Field V. Clark, 143 U. S. 649; Twin City Bk. v. Nebeker, 167 U. S. 196; Millard v. Eoberts, 202 U. S. 429; Flint V. Stone Tracy Co., 220 U. S. 107. Cf. p. 297. It little matters that the powers of the Federal Gov- ernment are derivative. The Constitution was a com- promise. One chief reason for its adoption was the demonstrated need of an adequate central taxing power and commerce control. (1796) Hylton v. U. S., 3 Dallas, 171, 178; (1824) Gibbons v. Ogden, 9 Wheaton, 1, 190. State jealousy continued to struggle, and it is an excellence of our dual system that there must always be more or less of conflict between the tendencies to centralization and those to decentralization. It is sug- gestive of the equilibrium between centripetal and cen- trifugal forces. But there is no longer any question that the Union dominates the States. Its powers may be regarded as delegated or granted ; but they are the essential powers of sovereignty, and they either include or imply all the powers of sovereignty. (1816) Martin V. Hunter, 1 Wheaton, 304; (1819) McCuUoch v. Md., 4 Wheaton, 316; (1827) Brown v. Md., 12 Wheaton, 419 ; Slaughter House Cases, 16 Wallace, 36. The express nominal limitations of the Constitution in regard to taxation do not, in fact, conflict with this statement. They are really the expression of a political purpose; they fix the character of our governmental 300 Federal Eevbntje Law. system. In order to arrive at our present conception of a federated union of commonwealths, and to attain to its present realization, we should have been obliged to adhere to the principle of these limitations, even if they had not been expressed. In the very nature of things, the States must not be unequally taxed, and they must not be permitted to destroy one another by taxation, nor to neutralize the benefits of the Union by weakening the Federal Government through taxing it or its instrumentalities. Yet it remains true, and it is a characteristic of our system to which much of its success is doubtless ascribable, that we have both sovereign States and a dominant Union. It is only a King by divine right who can do no wrong. Republics are given to tinkering. Many of the rights of men are still so new that men are wont to give them much attention. Nations become confused as to what constitutes a right; and, in the proud possession of our self-granted charter, we lose the sense of proportion as to what can and cannot be done by law and other institutional means. In earlier days, despite our boasted social equality, our Govern- ment had an aristocratic aspect and sought to guard State rights and individual property rights. Later, with the growth of industries, and the precipitate exploitations of resources, we experienced a plutocratic tendency of control, the danger of which came to be realized even by the wiser leaders among its bene- ficiaries. Latterly a popular trend has set in, which rnay or may not make for some form of socialism. FedebaJj Taxation in General. 301 " The people " feel their power. It is not alone that demagogues mislead " the people." There is a grow- ing recognition of the fact, all important in a republic, that government and economic power must not be permitted to detach themselves too much from the people, no matter how defective the people 's ability to do the best thing. Whether right or wrong, such restrictive and regulative measures as the Sherman Law, the Interstate Commerce Commission, the Clay- ton Act, the Trade Commission, and the still rudi- mentary schemes for more popular participation in elections and legislation, are all in response to the demands of popular judgment based on the conscience or the sentiment of " the people." If the people make a mess of things, it is, after all, their own affair. They clearly have the legal, as well as the political power to tax themselves (including any whilom disapproving minority) to provide for the general welfare as they see it. This power may lawfully be used, within limi- tations, to equalize the opportunities for prosperity by correcting inequalities resulting from past legislation and compensating for accumulated results of former legal inequalities. We may or may not approve the tendency, which may of may not be a happy one ; but all that law, even fundamental constitutional law, can do in the matter is to insist upon the progressive appli- cation of established principles of legislation, interpre- tation and administration. If this brake fails to hold, which is not at all likely, it still remains the people's affair. CLASSIFICATION OF FEDERAL TAXES. The Constitution, as has been seen, neither contains a system of taxation, nor imposes upon Congress the duty of devising one. We have looked at the conditions out of which the Union arose, and have noted that the new Federal Government was intended to have, and actually obtained and developed, the broadest powers consistent with the political forms which were adopted. It might, in effect, use any method of taxation which would not tend to destroy the scheme of Federated Government. The prohibition as to export duties, and the prescription of method as to direct taxes, :and the requirement as to uniformity all looked to the one end of saving the States while creating a Union. In fact Congress, without any thought of adopting a taxation system or of any classification of taxes, merely began to exercise the taxing power in much the same way as the separate Colonies had done, and as England was known to do. It imposed excises and customs duties. It tried tonnage taxes. Being mindful of the old discredited system of requisitions under the Con- federation and, feeling that the Constitution had cor- rected the defect of lack of compelling power, it tried direct taxes. It imposed an inheritance tax. It employed stamps for collecting consumption and other excises. In other words, it did not " study taxation " ; it " just taxed." Even in the Civil War days when, with a suddenness which precluded sober reflection and careful discrim- ination. Congress was rushed into a riot of taxation, Fbdbeai. Taxes Classified — Inteenal Revenue. 303 no really new taxes were discovered or invented. Excise and consumption taxes were piled high, and tariff duties were piled high upon the pile. License, or faculty, taxes; manufacturers' taxes; consumption taxes ; income taxes — all 'are so many forms of excise or internal revenue. Later the Income Tax Cases, 157 U. S. 429 ; 158 U. S. 601, almost violently turned a tradition which ran one way into an authoritative decision running another way, and the mysterious direct taxes of the Constitu- tion were found to be a sort of general property tax such as the Federal Government will hardly ever seek to impose. See the discussion of direct taxes ante. We have, therefore, only two great classes of taxes, Internal Eevenue and Customs Duties. It would per- haps be better to say that the latter constitute a class, and all other taxes fall, for want of other classification, into the former. Tonnage, the only other form expressly mentioned in the Great Charter, has always been more or less confused with tariff legislation. If we come later to the taxation of inter-state commerce, such impositions will be excises. INTERNAL EEVENUE. The internal revenue taxes are of several distin- guishable kinds, though not technically so classified. 1. Special taxes on occupations which are definite in amount, like license fees. 2. Documentary and proprietary stamp taxes, where the unit rate is definite, and the taxpayer can usually readily determine the total amount. 304 Fedebax. Eevenub Law. 3. Taxes on specified things: Liquors, tobacco, opium, playing cards, matches, oleomargarine, filled cheese, mixed flour and bank circulation. Those on liquors and tobacco are large revenue producers, but they are also quasi-police or regulative measures in the guise of taxes. The idea of protecting the com- munity runs with, and occasionally outruns, the thought of revenue. 4. Excise taxes which are proportioned to the tax- able amount of capital employed, business done, income received, or estate passing. The severest penalties and the strictest enforcement apply, for the most part, to the regulative statutes and the taxes on liquori and tobacco. Aside from, the technical provisions of the laws, it is in the very atmosphere of modern tax enforcement that purely revenue measures should be administered with less severity than police and quasi-police regulations. "Where the government only wants money, and the amount is not excessive, the people generally pay a tax without serious default or deception, and there is little need of criminal or penal enforcement. Ordinary occupation and stamp taxes occasion more adminis- trative difficulties than actual litigation or punishment. In the fourth class mentioned above, where the tax is assessed on reported or ascertained data, there is felt to be a hardship similar to the severity of the regula- tive taxes. The Government here encroaches further upon private grounds, by more or less inquisitorial methods in search of frauds, and a sort of resentment Federal Taxes Classified — Intehnal Eevenue. 305 leads tlie taxpayer to contest the assessment. A man may often elect whether or not he is to incur any one of the taxes of the first three classes j but he is, in a sense, cornered as to the fourth class, and must sub- mit with good or bad grace. Therefore, as well as because these taxes largely have their initial incidence upon corporations, it is here that the major part of civil litigation arises. The organization and administration of the Internal Revenue Office are provided for by Title XXXV and certain other sections of the Eevised Statutes, as amended, and by subsequent acts. The easiest way to examine these laws as a whole is to refer to the official compilation made under the direction of the commis- sioner.^ The Eevised Statutes were compiled under the Act of June 27, 1866, and their form controlled as to all earlier Acts. U. S. v. Bowen, 100 U. S. 508; U. S. V. Lacher, 134 U. S. 624. Compare TJ. S. v. Hirsch, 100 U. S. 35. But many sections have been repealed, and one has -but to read the Act of September 8, 1916, to realize how the sections are constantly being amended. The second edition of the Eevised Statutes, following the Acts of Feburary 18, 1875, 18 Stat. 316, and Febru- ary 27, 1877, 19 Sat. 240, has continued to be amended. There are unofficial compilations available. ^ The latest Compilation of Internal Revenue Laws is tbat of 1911, showing the law in force March 4, 1911, with explanatory notes. It is Treas. Dept. Document No. 2601, and can be purchased from the Public Printer. Supplements are issued, with the text of new Acts, pending a re-editing of the Compilation as a whole. 306 Fedebai, Eeventje Law. The first act concerning internal duties was that of March 3, 1791, affecting imported and domestic dis- tilled spirits, and creating revenue districts and a scheme of administration. The Act of July 6, 1797 imposed stamp taxes. The Act of April 23, 1800 established a G-eneral Stamp Office. This earlier legis- lation was abolished in 1802. At a special session in May, 1813, the first systematic internal revenue taxa- tion was imposed, affecting sugar refining, carriages, distilleries and other forms of production. It was made necessary by the War of 1812. " An Act to Abolish Internal Duties " was passed December 23, 1817. The Act of July 1, 1862, created the Internal Revenue Office and became the basis for all our later " war " revenue legislation and practically of the whole system. Both it and its amendatory successors drew largely upon earlier American and English acts. The Internal Revenue Bureau is a part of the Treasury Department, with a commissioner appointed by the President. There are fifty revenue districts, with collectors, gang- ers, storekeepers, revenue agents, etc. In the Civil War period nearly every possible object was taxed. A score of acts were passed before reduc- tions began. The principal acts were those of March 3, 1863; March 7, 1864; June 30, 1864, a new general act; December 22, 1864; March 3, 1865; March 10, 1866 ; July 13, 1866, another general act ; March 2, 1867 ; July 20, 1868; July 14, 1870; June 6, 1872; December 24, 1872, A reprint was ordered by the Senate on Fedeeal Taxes Classified — Internal REVENtrB. 307 May 16, 1898 of all internal revenue laws from August 5, 1861 to March 3, 1873, and it was printed as a docu- ment for usie in considering the War Revenue Law of 1898. The Act of March 3, 1883 reduced taxes, repeal- ing the stamp tax on checks and proprietory articles. The Act of August 2, 1886 defined butter and taxed oleomargarine. The Act of October 1, 1890 (McKinley Bill) taxed opium. The Wilson Bill of August 27, 1894 reimposed a tax on playing cards. The Act of June 6, 1896 taxed filled cheese. The War Revenue Act of June 13, 1898 taxed mixed flour. The Act of April 9, 1912 taxed white phosphorus matches. Special or license taxes are imposed by Revised Statutes, section 3244, but it has been largely amended, and several subjects are covered by separate acts. Special taxes, generally, are covered by Revised Stat- utes, sections 3232-3246. The permanent special taxes are on rectifiers, liquor dealers, malt dealers, .still makers, brewers, makers of oleomargarine, adulterated butter, filled cheese, mixed flour and opium. The general subject of Special Taxes has been dealt with under Title IV of the Act of 1916 ante, in connec- tion with the occupation taxes imposed by the Emerg- ency Act of 1898, reimposed by the Revenue Act of 1914, and part of which have been continued by the Act of 1916. There was formerly an annual license tax of $100 per mile on railroads in Alaska. It was repealed July 308 Federal Revenue Law. 18, 1914. An additional income tax is now collected and applied to general territorial purposes. The special taxes of the permanent law are due July 1 of each year. They are pro-rated when business is begun between July and July. R. S. § 3237, amd. Octo- ber 1, 1890. The taxes are as follows : RectijBers of less than 500 barrels a year $100 Rectifiers of 500 barrels or more 200 Liquor dealers, wholesale 100 Liquors dealers, retail 25 Malt liquor dealers, wholesale 50 Malt liquor dealers, retail 20 Still manufacturers, $20 per still and 50 Brewers, less than 500 barrels 50 Brewers, 500 barrels or more 100 Filled cheese, manufacturers 400 Filled cheese, dealers, wholesale 250 Filled cheese dealers, retail 12 Oleomargarine, manufacturers 600 Oleomargarine dealers, wholesale, in imitation butter 480 Oleomargarine dealers, retail, in imitation butter 48 Oleomargarine dealers, wholesale, free from coloring 200 Oleomargarine dealers, retail, free from color- ing 6 Adulterated butter, manufacturers 600 Adulterated butter dealers, wholesale 480 Fedebai, Taxes Classified — Inteenal Eevenue. 309 Adulterated butter dealers, retail $48 Process or renovated butter, manufacturers. . 50 Mixed flour, makers, packers, repackers 12 Opium, makers, importers, dealers, etc 1 Distilled spirits, including imitation wines, etc., are covered by Revised Statutes, sections 3247-3334, with amendments and separate acts. The tax under Eevised Statutes, section 3251, as amended August 28, 1894, is $1.10 per proof gallon, payable by stamps. It was twenty cents under the Act of Juy 1, 1862, and has repeatedly been changed. The Act of July 20, 1868 was held to impose an excise which only required to be uniform. U. S. v. Singer, 15 Wall. 111. There are a few exemptions, such as spirits for Grovernment and scientific purposes. Distilling may not be claimed to be a municipal function. Salt Lake v. HoUister, 118 U. S. 256. Applejack is distilled spirits, U. S. v. Ridenour, 119 Fed. Rep. 411. Ordinarily the tax attaches as soon as spirits are made, even though then destroyed. Greenbrier Co. v. Johnson, 88 Fed. Rep. 638. Notice must be given of intention to carry on the business. R. S. § 3259. A rectifier pays a special tax, but not a distiller. All stills must be registered. R. S. § 3258. They must also be reported when made and set up. R. S. § 3258. 310 Federal Eevenue Law. A bond is required. E. S. § 3260, amd. by May 28, 1880. Tbe bond is liable for the tax. TJ. S. v. National Surety Co., 157 Fed. Rep. 174. A distiller must own the premises or have special written consent of the owner. R. S. § 3262, amd. May 28, 1880. Plans must be filed. R. S. § 3263. Capacity is determined by oflBcial survey and re-survey. R. S. § 3264, amd. June 22, 1910. Thercf are strict regulations as to the location of plants. R. S. §§ 3266, 3280. Receiving cisterns and larger warehouses are required and are under inspection and control. R. S. §§ 3267-3274. A bonded warehouse is a Government instrumentality. George v. Fourth Nat. Bank., 41 Fed. Rep. 263. General bonded warehouses are covered by the Act of August 28, 1894. Plants must always be accessible for inspection, and officers may break and dig in their searches. R. S. §§ 3275-3278. Sunday must be observed. R. S. § 3283. Gauging and stamping are done when the spirits are taken from the original cisterns. When the tax is paid the spirits must be removed from the distillery. R. S. § 3287, amd. March 2, 1911; R. S. § 3288. , Detailed books, records and reports are required. R. S. §§ 3303 et seq. If reports show product less than 80% of capacity, the deficiency is taxed. R. S. § 3309. Rectifying is under strict supervision. R. S. §§ 3317 et seq., amd. March 1, 1879, July 16, 1892, August 28, 1894. Fedebal Taxes Classified — Intebnai. Revenue. 311 Bottling in bond is covered by the Act of March 3, 1897. Provision is made for permitting the manufactui:e, under special internal revenue regulations, of alcohol for denaturization only, without payment of the spirits tax. Several stringent requirements of the statutes are relaxed, but the stills must be registered, and all processes, distilleries and stores are under strict super- vision. The penalty for violation of any provision of law or regulation may be up to $5,000, or prison up to five years, or both. Act of October 3, 1913, Tariff Act, par. N, subsec. 2 ; Act of June 7, 1906, amd. March 2, 1907. The Report of the Secretary of the Treasury for 1915 recommended *' a reasonable tax " on dena- tured alcohol, because of the decrease in returns from domestic spirits. There is great detail of regulation at every stage. Regulations and Instructions Concerning the Tax on Distilled Spirits issued as Manual No. 7, July 10, 1914, from the Internal Revenue Bureau. Heavy penalties apply to offenses and defaults. Evading the tax involves a doubling. R. S. § 3256. Fraud by a distiller involves forfeiture of plant, pro- duct and materials, a fine of from $500 to $5,000, and prison from six months to three years. U. S. v. Three Stills, 47 Fed. Rep. 495; Harkins v. Willard, 146 Fed. Rep. 703; Coffey v. U. S., 116 U, S. 427. Failure to register a still involves forfeiture, fine and prison. R. S. § 3258. Default or falsity of preliminary notice. R. S. § 3259. Forfeiture, fine and prison follow default 312 Fedebal Revenue Law. or fraud in bonds. E. S. § 3260. Failure to keep la distillery accessible or to admit an officer. B. S. |§ 3275, 3276. Not only failure or falsity in exposing tbe required sign is penalized, but forfeiture, fine and prison attach to working in or carrying to or from premises not exposing signs. R. S. § 3279. Rectifying is guarded by similar penalties. R. S. § 3281, amd. F-ebruary 8, 1875. The operation of an illicit distillery involves arrest. Act of March 1, 1879, § 9. Unstamped packages are forfeited. R. S. § 3289. Any offense or omission not specifically covered is penalized by fine ajid forfeiture- E. S. § 3456. Fermented liquors are covered by Revised Statutes, section 3335-3354, amendments and Act of June 18, 1890, 26 Stat. 162. By section 400 of the Act of September 8, 1916, the beer tax is fixed at $1.50 per barrel not exceeding thirty-one gallons. The same rate was fixed by the Act of October 22, 1914, which increased the tax from $1 as it stood under the Act of April 12, 1902. It had been raised from $1 to $2 by the "War Revenue Act of 1898, and reduced to $1.60 by Act of March 2, 1901. A brewer must give notice of intention to start busi- ness, and furnish information. R. S. § 3335. He pays a special tax under Revised Statutes, sec- tion 3244. See above. He must give bonds. R. S. § 3336, amd. April 29, 1886. Keep detailed books, and render monthly state- ments, both under oath. R. S. §§ 3337, 3338. Fedeeal Taxes Classified — Intebnal Revenue. 313 The tax is paid by stamps which must be procured from the local collector, affixed to packages in a way to be destroyed, and be cancelled with the maker's name. E. S. §§ 3341, 3342, amdts. March 3, 1875, July 24, 1897. Beer may be removed for bulk storage, under permit, the stamps to be affixed on withdrawal. E. S. § 3345. The maker's name must be on every package. R. S. § 3349. Beer may be withdrawn, under regula- tions, before payment of the tax, for bottling, H. S. § 3354. This was «imended by section 406 of th« Act of 1916, ante, .to include near beer. Provision is made for exportation iree of internal tax. Act of June 18, 1890. This was formerly covered by Eevised Statutes, section 3441. Tax evasion and fraud in book entries or statements involve forfeiture of product and apparatus, a fine of from $500 to $1000, and prison up to one year. E. S. § 3340, amd. March 1, 1879. Neglect and fraud as to cancelation, of stamps are penalized $100 for each package and prison to one year. E. S. § 3342, amd. March 3, 1875. Sale, purchase or removal of an unstamped or fraudulently stamped package involves a penalty of $100 and prison to one year. E. S. § 3343. The same for a retailer or other person who draws from a keg without effacing the stamp. E. S. § 3344. Counterfeiting, removing for re-use, or handling or having fraudulent stamps involved a fine of from $100 to $1,000 and prison from six months to three years. E. S. § 3346, amd. March 1, 1879. Unauthorized eras- ure of a maker 's name is penalized $50 for each cask. 314 Fedekal Revenue Law. ■R. S. § 3349. Beer not tax-paid after original removal is seized and forfeited. Absence of stamps is notice and prima facie evidence. R. S. § 3352. A person ■other than the own-er who removes or defaces a stamp is fined $50 and is liable to the owner for damages. R. S. § 3353. The penalty for fraud in bottling is a $500 fine, with forfeiture of the property; but pro- vision is made for legitimate withdrawal from brewery to bottling place through pipe lines. R. S. § 3354, amd. ■June 18, 1890. Tobacco and snuff are covered by Revised Statutes, sections 3355-33f86, amendments and separate acts. Cigars are covered by Revised Statutes, sections 3287-3406. Before beginning business a manufacturer of tobacco or snuff (defined in the Act of August 28, 1894, section 69) must file a detailed statement in prescribed form, and give a prescribed bond of from $2,000 to $20,000. He then receives an official certificate for posting in his factory. Default in procuring or posting a certificate is penalized from $100 to $500. Manu- facturing without giving the? bond involves a fine of from $1,000 to $5,000 and prison from one to five years. A sign mus^ be exposed under penalty of from $100 to $500. Regulations require it to be in English. Detailed, sworn inventories are required annually. Prescribed books must be kept for daily entry of trans- actions, and monthly extracts, verified, must be filed on Federal Taxes Classified — Internal Eevbnub. 315 or before the tenth of each month. The penalty for default is a fine of from $500 to $5,000, with prison from six months to three years. R. S. § 3357, amd. October 1, 1890. Dealers in leaf tobacco are required, under penalty, to register with the collector. Act of October 1, 1890. They formerly paid a special tax under the Act of 1898, repealed April 12, 1902. Records must be kept in a prescribed manner, under penalty. R. S. § 3360. Farmers and growers are in no way restricted as to their selling. Tobacco -must be put up in prescribed packages and stamped before sale. R. S. § 3362, amd. August 5, 1909, ,§ 3iO; R. S. § 3363, amd, October 1, 1890, § 31; U. S. v. 288 Packages Tobacco, 103 Fed. Rep. 453, affd., by Felsenheld v. U. S., 186 U. S. 126. Packages must not be re-used, and a caution label is required under penalty. R. S. § 3864. The buying of unbranded or unstamped tobacco is penalized $50 for each offense. R. S. § 3366. Snuff of all kinds is taxed eight cents per pound. Smoking and chewing tobacco in any manner pre- pared is taxed eight cents per pound. R. S. § 3368, amd. August 5, 1909, § 31. The tax is paid by stam,ps procurable only by author- ized persons. R. S. § 3369. "Where manufacturing is done by one person for another, the actual maker must affix the stamps. Fraud in this involves forfeiture, fine of each person from $100 to $5,000, and prison up to three years. R. S. 316 Federal Revenue Law. I 3370. Eemoval without tax payment, or any fraud or falsity in entries in records or in regard to stamp- ing involves forfeiture of products, materials, tools and fixtures. Absence of stamps is notice and prima facie evidence. E. S. §§ 3372, 3373. The Commis- sioner may assess additional tax within two years of removal without payment. R. S. § 3371. Any removal in improper packing or without proper stamping involves a penalty of from $1,000 to $5,000 and prison from six months to two years. R. S. § 3374. Affixing used or false stamps- is a felony punished by a fine of from $1,000 to $5,000, and prison from two to five years. When a box or wrapper is emptied, the stamps must be destroyed. Willful failure is fined $50, with prison from ten days to- six months. Giving, receiving, selling or buying such box or wrapper, without destruction, is penalized- $100 and prison twenty days to one year. Any person who re-uses such a package is fined $100 ,to $500, with prison one to- three years. R. S. § 3376. Provision is- made for stamping imported tobacco. E. S. § 3377, amd. March 1, 1879. Tobacco peddlers, also, must register, give bond and receive- certificate, under penalties. R. S. § 3381, amd. October 1, 1890. Revised Statutes, section 3385, amended by June 9, 1880, pro-vided for the exportation of manufactured tobacco, free of internal revenue tax, but under requirement of export stamps. This was constitu- tional. Pace v. Burgess, 92 U. S. 372; Turpin v. Fedeeal. Taxes Classified — Internal Revenue. 317 Burgess, 117 U. S. 504. By amendment of August 8, 1882, the ten cent charge on each package was removed. Where the internal tax has been paid, there is a draw- back on exportation. E. S. § 3386, amd. March 1, 1879. Fraud in claiming drawback forfeits triple the claim or $500 at the option of the Secretary of the Treasury. Manufacturers of cigars formerly paid a special tax under the War Eevenue Act of June 13, 1898, repealed April 12, 1902. They must, before beginning business, file a pre- scribed statement, give a prescribed bond, and receive a certificate for posting. Default of posting is penal- ized $100. Manufacturing without giving bond is pen- alized $100 to $5,000, with prison three months to five years. E. S. § 3387, amd. October 1, 1890. A sign ,(in English) must be erected, under penalty $100 to $500. E. S. § 3388. Verified annual inventories, daily book entries, and monthly statements are required under penalty $500 to $5,000, with prison six months to three years. E. S. § 3389, amd. October 1, 1890. Deal- ers in cigar materials may be required to furnish sworn statements and, if fraud is suspected, may be examined. E. S. § 3391. Cigars must be boxed in a prescribed manner in new boxes, under penalty up to $1,000, with prison up to two years. So also cigarettes. Each box must, under penalty of $50, bear a caution stamp. E. S. §§ 3392, 33Q3 ; Act of August 5, 1909, § 32 ; Act of March 1, 1879, §16. 318 Fedekal Revenue Law. The tax is as follows : On cigars weighing more than three pounds per 1,000, $3 per 1,000. On cigars weighing not more than three pounds per 1,000, seventy-five cents per 1,000. On cigarettes weighing more than three pounds per 1,000, $3.60 per 1,000. On cigarettes weighing not more than three pounds per 1,000, $1.25 per 1,000. Tobacco wrappers mean cigars. Paper wrappers mean cigarettes. Eevised Statutes, section 3394, amended August 5, 1909, section 33, which also restricts the enclosing of picture cards, lottery or chance tickets, etc., in pack- ages. The tax is paid by stamps, procurable only by authorized persons. E. S. § 3395. As to the commissioner's power to make regulations. Ludloff V. U. S., 108 U. S. 176. Eemoval of cigars from a factory, without proper marking and stamping, involves forfeiture, fine $100 to $1,000, and prison six months to two years. Fraud in the use of stamps is a felony, with fine $100 to $1,000, and prison six months to three years. Cigars for export are exempted. E. S. § 3397, amd. March 1, 1879, § 16; Jackson v. TJ. S., 21 Fed. Eep. 35. The absence of the factory number from boxes in innocent hands involves forfeiture. IT. S. v. Quantity of Cigars, 18 Fed. Eep. 147. Absence of stamps is notice and prima facie evidence. E. S. § 3398. Federal Taxes Classified — Intbbnal Eevenub. 319 Where cigars are made by one person for another, the maker must stamp, and fraud or collusion involves forfeiture, a fine $100 to $5,000, and prison six months to three years. E. S. § 3399. Sale or removal without payment of tax, false entries in records, and falsity or fraud in regard to stamps involve, besides other pen- alties, forfeiture of product, material, machinery and realty. E. S. § 3400. This may include licensed or rented machines. U. S. v. 220 Machines, 99 Fed. Eep. 559. Provision is made for stamping imported cigars and cigarettes under regulations. E. S. §§ 3402, 3392, amd. August 5, 1909, § 32. The buying of unbranded or unstamped cigars is penalized $50. E. S. § 3404. Empty boxes must not be re-used. Willful failure to destroy stamps is penalized by fine up to $50 with prison ten days to six months. Fraudulent re-use involves penalty to $100 and prison to one year. E. S. § 3406. Manufacture, for export, out of imported materials, may be carried "on in bonded warehouses, under strict regulation. This does not include distilled spirits. The provisions were section 15 of the Tariff Act of July 24,' 1897, became section 23 of the Tariff Act of August 5, 1909, and are paragraph M of the Tariff Act of October 3, 1913. Under this latest form of the sec- tion, cigars so made wholly of a particular imported tobacco may be withdrawn for home consumption upon payment of both duty and domestic tax, and be stamped to indicate character and origin, but also place of manufacture. 320 Federal Revenue Law. Opium was taxed by the Act of October 1, 1890, 26 Statute 567, amended by Act of March 3, 1897, 29 Statute 228, and by Act of February 9, 1909, 35 Statute 614. While the penalties are severe, the law is not prop- erly a revenue measure, but a method of suppressive regulation. (1912) Marks v. U. S., 196 Fed. Eep. 476 (as to what constitutes manufacture) ; (1912) Shelley v. U. S., 198 Fed. Eep. 88; (1913) 229 U. S. 239 (as to what is not manufacture) ; (1911) U. S. v. Don Kee, 192 Fed. Rep, 733 (an insufficient indictment). The tax by section 36 of the Act of 1890 was $10 per pound. Each manufacturer was under penal bond up to $5,000, subject to increase, and was obliged to file such notices, inventories, etc., as might be required by regulation. Imported and domestic opium was required to be stamped. The penalty for any viola- tion of the act was up to $1,000, or prison to one year, or both, together with forfeiture. By the Act of February 9, 1909, the importation of opium, except for medicinal purposes, was prohibited, under penalty $50 to $5,000, or prison to two years, or both. The Act of January 17, 1914, repealed and replaced the Act of October 1, 1890. A tax of $300 per pound was imposed upon opium manufactured for smoking. Only a citizen under bond may manufacture. A broad definition is inserted. Every manufacturer shall file such notices and inventories, and keep such books, and render such Fedeeai, Taxes Ciassified — Intebnal Revenue. 821 returns, and erect such signs, etc., as required by regulation. The bond is penal and not less than $100,000, subject to increase. The tax is paid by stamps subject to all provisions of stamp law. The penalty for any violation is not less than $10,000 or prison not less than five years, or both, besides forfeiture. The forfeited opium, under the Act of 1890, as amended by Act of March 3, 1897, could be sold: under Act of January 17, 1914, it is destroyed. The Act of December 17, 1914, is an exhaustive attempt still further to control the opium trade. Every person who makes or deals in any form of opium or opium compound must register with the collector, and pay a special tax of one dollar per year. Government purchasers are exempt. Opium shall not be sold or given away without a written order in prescribed form, to be made in duplicate both being preserved for two years, available for inspection and use by the author- ities. This does not apply to lawful use in medicine, but doctors, dentists and veterinaries are required to keep detailed records ; nor to druggists filling prescrip- tions, but the records must be kept accessible for two years ; nor to exportation conformably to the laws of another country ; nor to Government medical officers. The act applies to the States, District of Columbia, Alaska, Hawaii, insular possessions and the Canal Zone. Detailed returns as to names and amounts are required for periods not exceeding three months. 11 322 Federal. Revenue Law, Deliveries may not be made from one State into another, excepting common carriers transporting what is lawful. The act does not apply to preparations and remedies not containing more than two grains of opium, or one- quarter grain of morphine, or one-eighth grain of heroin, or one grain of codeine, or any salt or deriva- tive, in one fluid ounce, etc. Mere possession, except by a registered person, is unlawful and is presumptive evidence of violation, except as to registered nurses, etc., persons who have it under lawful prescription, etc., etc. Violation of any requirement of the act involves, upon conviction, a fine of not more than $2,000, or prison not more than five years, or both. A special appropriation was made to enable the commissioner to appoint agents, deputies, inspectors, etc. The act does not impair the provisions of Act of June 30, 1906, nor the prohibition of importation under the Act of February 9, 1909. The legislation is criticised in (1915) U. S. v. "Woods, 224 Fed. Rep. 278. The Act of December 17, 1914, " Harrison Act," is constitutional. U. S. v. Brown, 224 Fed. Rep. 135. A synopsis of rulings on narcotics was issued as T. D. 2172. Regulations under the Act of December 17, 1914 are in T. D. 2126 ; those under the Act of January 17, 1914 were in T. D. 2211. Fedeeai, Taxes Classified — Intebnal Bbvenxte. 323 It may be assumed that the statute has a moral end, as well as revenue in view, but the moral end is to be reached only through and within the limits of a revenue measure. (1915) U. S. v. Jin Fuey Moy, 225 Fed. Eep. 1003;241U. S. 394. The Federal courts occasionally warn the central government off local lots. In reversing an unwarranted conviction under the Opium Law of 1890', the C. C. A. remarked, " Congress has no authority to exercise police power in the states, and a revenue law should not be strained for the purposes of conviction." (1915) Seidler v. U. S., 228 Fed. Rep. 336. See (1915) Chin Sing v. U. S., 227 Fed. Rep. 397. Au osteopath is eligible for registration if registered in his State as- a physician. T. D. 2232. A firm name is not a sufficient signature of a narcotic order form. Individual responsibility must be indi- cated. T. D. 2244. Oleomargarine, adulterated, process or renovated butter are covered by the Acts of August 2, 1886, 24 Stat. 209 ; Oct. 1, 1890, 26 Stat. 621, amended by Act of May 9, 1902, 32 Stat. 193. The Act of 1886, as amended by Act of 1902, makes all imitation dairy products subject to the laws of States into which they are brought. The " original package ' ' provision does not protect them. The oleomargarine Act (1886, ch. 209, amended 1902, ch. 93) is upheld by (1904) McCray v. U. S., 195 324 Federal Eevenue Law. IT. S. 27, 49 L. Ed. 78. " The manufacture * * * may be prohibited by a free govermnent without a violation of fundamental rights." p. 64; (1910) Vermont v. U. S., 217 U. S. 605, 54 L. Ed. 899; (1909) Moxley v. Hertz, 216 U. S. 344, 54 L. Ed. 610. Makers and dealers pay special taxes under Eevised Statutes, section 3244, as well as a tax on the product. See (1914) Hammond Packing Co. v. Montana, 233 U. S. 331, as to State legislation on the subject. (1888) PoweU V. Penna, 127 U. S. 678, 32 L. Ed. 253; (1897) SchoUenberger v. Penna, 171 U. S. 1, 43 L. Ed. 49; (1897) Collins v. New Hamp., 171 U. S. 30, 43 L. Ed. 60. The Commissioner (Report 1913) found the whole law unsatisfactory and urged a complete revision. The Secretary of the Treasury, in his report for 1915, returns to the question of the necessity of stiffening the law, in view of enormous frauds latterly disclosed. During 1915 in four cases nearly $18,000,000 under- payment of tax was discovered. Numerous indict- ments and convictions have been had. The tax was imposed on the theory that it would make for honesty by preventing deception, benefit the farmer and dairyman, and be in the interest of public health. "Wisely or unwisely, the purpose was to destroy a business. President Cleveland refused to veto the original Act, because he deemed it the function of Congress to determine such questions of policy. Here are a few words from the statutory definition : ' ' all lard extracts and tallow extracts, and all mixtures and compounds of tallow, beef -fat, suet, lard, lard-oil. Federal. Taxes Classified — Inteenai. Eeventje. 325 vegetable oil, annotto, and other coloring matter, intes- tinal fat, and offal fat made in imitation or semblance of butter, etc." The penalties for not paying the high special taxes are in some instances from $1,000 to $5,000. Morris V. U. S. 161 Fed. Eep. 672; Hartman v. U. S. 168 Fed. Eep. 30. Manufacturers must file such notices, inven- tories and bonds (not less than $5,000), and keep such records, and use such signs, and conduct their busi- ness under such surveillance as may be required by regulations of the Commissioner. Specific provisions apply to packages and branding, under penalty up to $1,000 and two years. The so-called caution label is required under penalty. The tax on the product is ten cents per pound. So far, so good. But there follows a proviso that the tax shall be one-fourth of one cent, when artificial coloration is not used to make the product look like butter. McCray V. U. S., 195 U. S. 27 (admixing artificially colored butter) ; Cliff v. U. S., 195 U. S. 159 and Moxley v. Hertz, 216 U. S. 344 (adding palm oil). It was under this provision that the recent great frauds were accom- plished. ; Unpaid taxes, when discovered, may be assessed back for two years. Beyond this limit, suit is neces- sary. In five recent cases involving nearly $20,000,000, it was found that only about one-fifth could so be assessed. 326 Fedekai, Revenue Law. Imported oleomargarine pays fifteen cents internal revenue, in addition to two and one-half cents tariff. Buying oleo without proper stamps and brands involves a penalty of $50. Buying from a maker who has not paid the special tax involves forfeiture and $100. Stamps on emptied packages must be destroyed under penalty of fine and prison. Eemoving stamps involves $100 to $2,000, and prison thirty days to six months. Oleo found unstamped, or unbranded, or containing deleterious ingredients is forfeited. Exports- are permitted without internal tax. Fraud in the business involves forfeiture of product, materials and factory, besides a fine $500 to $5,000, and prison six months to three years. U. S. v. Mfg. Apparatus, 141 Fed. Eep. 475; Hardesty v. U. S., 168 Fed. Rep. 25. There is a penalty of $1,000 for any offense or default not otherwise specified; together with forfeiture against makers and wholesalers. Rip- per V. U. S., 179 Fed. Eep. 497. There is a special board of chemists to aid the Com- missioner in his decisions. , The due process clause of the 5th Amendment does not limit nor restrict an express constitutional grant of power to tax. (1903) McCray v. U. S., 195 V. S. 27, upholding the Oleomargarine Act of 1886, amended 1902; (1896) In re KoUock, 165 U. S. 526; (1915) Kercheval v. Allen, 220 Fed. Rep. 262; (1915) U. S. v. Orr, 223 Fed Rep. 220; (1915) Mitchell v. Cole, 226 Fed. Esp. 824 (as to who is a wholesaler). Fbdeeai, Taxes Classified — Inteenal Revenue. 327 , Regulations as to retailing are found in T. D. 2233. Payment of the Federal tax gives no right to con- travene a State law. (18&4) Plumley v. Mass., 155 U. S. 461, 39 L. Ed. 223. Renovated and adulterated butter. The Act of May 9, 1902, covers this tax, defines the products, makes provisions similar to those under oleomargarine for notices, bonds, signs, packages, marks, etc., and makes portions of the Oleo Act applicable. Adulterated butter is taxed ten cents per pound. Process or renovated butter is taxed one-fourth of one cent per pound. There is no provision for the free exportation of renovated butter. The Act of 1902 makes broad requirement that all wholesalers in all imitation dairy products keep such records and make such returns as may be required by regulation, under penalties. (1912) U. S. v. 11,150 Pounds of Butter, 195 Fed. Rep. 657; (1908) Coopers- ville Co. V. Lemon, 163 Fed. Rep. 145. The commissioner found the law unsatisfactory and urged a revision and substitution of the butter fat test for the present moisture test, which in strict enforcement has done injustice to the point of oppress- iveness. Report, 1913. And see Report for 1915, Sec- retary of Treasury. There are special taxes on makers and dealers (R. S. § 3244), as well as stamp' taxes on the product. 328 Federal Eevbnue Law. The secretary of agriculture enforces this law, under the Food and Drugs Act of 1906. A dealer in adulterated butter is liable whether or not he " knowingly " offended. (1913) Lawrence v. Seyburn, 202 Fed. Eep. 913. Many States have stringent laws affecting artificial dairy products. New Hampshire tried to forbid the sale of Oleo otherwise than when colored pink, but the law was not upheld. Collins v. N. H., 171 U. S. 30. Filled cheese was taxed by the Act of June 6, 1896, 29 Stat. 253. This business has practically ceased since 1910. There is a coupon-stamp tax on the prodnct, and both makers and dealers pay special taxes (R. S., § 3244). When the product is exported it must first pay the tax; not relieved as in tobacco. (1904) Cornell v. Coyne, 192 U. S. 418. Manufacturers mnst give such notices, inventories and statements, and keep such books and records, and furnish such bonds, not less than $5,000, as may be required by regulations, under penalty $500 to $1,000. Packing, marking, branding, etc., are specifically pre- scribed, under penalty $50 to $500, prison 30 days to one year. Signs are required under penalty, as are caution labels. The tax is one cent per pound. Imported filled cheese is subject to all the provisions, and pays an internal tax of eight cents per pound. Unpaid taxes can be assessed back for two years without suit. I'ederax, Taxes Classified — Intebnal Revenue. 329 There are other penalties and forfeitures, practically as in regard to imitation butter supra. Department Regulations No. 22 and a Circular in T. D. 1516 cover the whole matter. Mixed flour was taxed by the Act of June 13, 1898, 30 Stat. 448, sections 36-49, amended March 2, 1901, 31 Stat. 494 and by Act of April 12, 1902, 32 Stat. 96. The makers and packers pay a special tax under Revised Statutes, section 3244, and the product pays a tax collected by coupon-stamps. This tax is of course not in any true sense a revenue measure. Department Regulations No. 25, revised, cover the matter. The law provides for posting the special tax certifi- cate ; for marking each package in two-inch letters ; for enclosing a card two inches by three showing the formula; under penalty $250 to $500 and prison 60 days to one year. The method of packing and brand- ing is prescribed, and any offense or the removal of marks is penalized $250 to $500 with prison 30 days to one year. A caution label is required under penalty. The tax is according to weight, and is from four cents for 196 lbs, to one-half cent for 24% lbs. or less. There is a provision for retailing from a tax paid larger package, under penalty. Imported mixed flour has the same rate of internal tax. All the usual provisions and penalties of this class of legislation are also found in the statute. 330 Federal Revenue Law. The whole measure has proven unsatisfactory. There appears to be no good reason for prohibiting or burdening the combined use of pure grain flours. The Agricultural Department has urged a new law per- mitting this, as a means of cheapening bread, and a Bill was introduced in the 64th Congress. The present law has operated practically to destroy the business The Treasury Department recommends repeal. See Congressional Record, Vol. 53, No. 212, p. 15,383. Playing cards. Taxed by the Act of August 28, 1894, 28 Stat. 509, 560. The manufacturer must register, for control, but does not pay a special tax. Cards such as are used in games like ' ' authors ' ' are exempt ; but the tax applies to all substitutes for ordi- nary cards. T. D. 959, Dec. 13, 1905. (1906) U. S. v. Neustaedter, 149 Fed. Rep. 1010, where Thomas, D. J., wrote thus vigorously about the badly framed law, the " intention should have been expressed distinctly, rather than in a form that causes doubt and tends to baffle an appreciation of ■ the meaning. * * * The statute is so ambiguous as to be positively unfair, and it is so obviously misleading as to offend the sense of justice. * * * It is hoped that the attention of Congress may be called to the necessity of amending the statute, so that i'ts meaning may be plain." The tax is two cents on every pack of not more than 54 cards. Only registered makers can buy stamps. Federal Taxes Classified — Inteenal Ebvenue. 331 Eevised Statutes, section 3429, is re-enacted as to penalties for violation of stamp features, the penalty generally applicable being fine to $1,000 or prison at hard labor to five years, or both. Every omission to affix stamp involves a $50' penalty, as does removal of stamp or reuse of package or other attempted evasion. Cards may be exported free of this tax. Imported cards pay the internal tax besides duty. Tax on white phosphorous matches. The Act of April 9, 1912, oh. 75, 37 Stat. 81, imposes a tax (to take effect July 1, 1913) on white phosporous matches, to be paid by stamps, two cents per hundred. The maker must be registered and give a bond, but pays no special or license tax. In 1871 the English stamp office prepared match stamps bearing the legend ex luce lucellum (from light a little profit), but the classical punster was punished; the wrappers were destroyed. The earliest " match " tax was probably the old Druid tribute which was collected by requiring all inhabitants to extinguish their fires on an October evening and bring the required payment to the temple, and thereafter permitting only those who paid to take fire from the altar. The tax on bank circulation is covered by Eevised Statutes, section 3407-3417, as amended February 8, 1875. 332 Federal Revenue Law. The tax on State bank circulation illustrates the oft quoted statement of Marshall, C. J., in (1819) McCnl- loch- V. Maryland, 4 Wheaton, 316, 431, that the power to tax involves the power to destroy. It was designed to drive such circulation out of exist- ence. See (1884) Head Money Cases, 112 U. S. 580, 596, 28 L. Ed. 798, restating the case (1869) Veazie Bk. V. Fenno, 8 Wall. 533, 549. Yet it; was seriously, though only incidentally, argued in recent debates that the circulation tax of 1875 should be removed and the States permitted to develop a safe local bank currency. Cong. Eec. p. 18,522. The enactment of the Federal Reserve Bank Act indicates, however, that the country is no longer in danger of radical legislation on the money question. Clearing house certificates are not deemed circulat- ing notes. T. D. 1271, Nov. 14, 1907. Revised Statutes, section 3408, taxes circulation, and section 3583 makes it a criminal offense to issue notes, checks or any obligations under a dollar for use as money. See R. S., § 5214. U. S. v. Van Auken, 96 U. S. 366. The tax on circulation, generally, is one-d;welfth of 1 per cent on the monthly average issue, and an addi- tional one-sixth of 1 per cent, on issues above 90 per cent, of the capital. When circulation drops to 5 per cent, of the capital the tax does not apply. A tax of 10 per cent, is imposed on the issue by any Fedebai, Taxes CIjASSipied — Intebnal Revenue. 333 bank, National or State, of notes of any State bank, or of any municipality; also upon every person or cor- poration other than a National bank for their own notes. The Act of 1875 merely broadened Eevised Statutes, sections 3412, 3413. This legislation accomplished its purpose of destroy- ing all competition with Federal currency as a circu- lating medium, but it remains as a gun behind the door. Income Tax, corporate and individual. This was imposed by the second section of the Tariff Act of 1913, October 3, ch. 16. All relevant internal revenue laws are made applicable. It applies to Porto Rico and the Philippines, but the revenues so collected accrue to the respective general insular governments. The income tax which was part of the Wilson Tariff Act, August 5, 1894, 28 Stat. 509, §§ 27-37, was held unconstitutional. (1895) Pollock v. Farmers' L. & T. Co., 157 U. S. 429, 39 L. Ed. 759; 158 U. S. 601, 39 L. Ed. 1108. The income tax of October 3, 1913, was upheld as constitutional. (1915) Brushaber v. U. P. E. Co., 240 U. S. 1. It embodied the essentials of the Corporation tax imposed by the Tariff Act of 1909, Act of August 5, 1909, ch. 6, 36 Stat. 112, amended by June 17, 1910, which was upheld and elaborately considered in the Corporation Tax' Cases (1911) Flint v. Stone Tracy Co., 220 U. S. 107-177, 55 L. Ed. 389, distinguishing the 334 Federal Revenue Law. Income Tax Cases, (1894) Pollock v. Farmers' Loan, 157U. S.429;158U. S.60L A general income tax, individual and corporate, con- stitutes Title I of the Act of September 8, 1916, and is fully treated in an earlier part of this book. The Munition Manufacturer's Tax of the Act of September 8, 1916, is a special excise tax. It is fully considered in an earlier part of this book. Inheritance or legacy taxes have been, and now are, imposed. The whole subject is fully treated in the discussion ante of the new Estate Tax, Title II of the Act of September 8, 1916. The tax on legacies, Act of June 13, 1898, 30 Stat. 464, §§ 29, 30, was repealed April 12, 1902, 32 Stat. 96, with a saving clause ; and the Act of June 27, 1902, 32 Stat. 406, provided for refunding certain taxes wrong- fully collected on contingent interests. Succession tax sections 29-31 of the Act of 1898, held constitutional: not a direct tax; not lacking uni- formity of reason of exemption; not exercise of power belonging to the States. (1899) High v. Coyne, 93 Fed. Rep. 450; affirmed (1900) 178 U. S. Ill, 44 L. Ed. 997; (1900) Knowlton v. Moore, 178 U. S. 41-110, 44 L. Ed. 969 ; elaborate opinion by Justice White. ( 1904) Vanderbilt v. Eidman, 196 V. S. 480, 49 L. Ed. 563; (1901) Eidman v. Martinez, 184 U. S. 578, 46 L. Ed. 697 ; (1909) Hertz v. Woodman, 218 U. S. 205, 54 L. Ed. Federal Taxes Classified — Internal Revenue. 335 1001; (1911) Eobertson v. U. S., 220 U. S., 616, 55 L. Ed. 611. Stamp taxes, documentary and proprietary, have been largely used by the Federal Government. The Civil War period had an elaborate scheme, Act of July 1, 1862 et seq. The Spanish War Revenue Act of June 13, 1898, revised many of the former stamp taxes, but they were wholly repealed by the Act of April 12, 1902. The Revenue Act of October 22, 1914, again revived the system in many details, and the taxes were, by J. R. December 17, 1915, extended to December 31, 1916. When the Act of 1916 was originally drafted, it provided for their further continuance, but as passed September 8, 1916, it repealed all these stamp taxes as of the next day. So far as they are now of direct interest, they are referred to at the end of the notes on Title IV of the 1916 Act ante. The methods of assessment and collection of taxes are covered by sections 3172-3231, and amendments. These matters have been dealt with under Other Law Relevant to Act of 1916 ante, and incidentally under the respective titles of the Act. In an address before the 1916 meeting of the Ameri- can Bar Association, President Frank J. Goodnow, of Johns Hopkins University, on Private Rights and Administrative Discretion, said, ' ' The exercise of arbi- trary administrative discretion in tax proceedings is perhaps carried the furthest in the law of the Federal 336 Federal Revenue Law. Government. Here, as a result of statute as inter- preted by the courts, practically every judicial remedy which elsewhere is open to the individual is cut off with the exception of an action for money had and received, brought after involuntary payment under protest against the tax collector. Gary v. Curtis, 3 How. U. S. 236; Cheeseborough v. U. S., 192 U. S. 253; Wright v. Blakeslee, 101 U. S. 175. . . . Although under Ameri- can law individuals may be more than amply protected in their rights against unconstitutional legislative action, they are very largely left to the tender mercies of admini-stra'tive discretion in the case not only of their privileges, but as well of the rights recognized as theirs by the constitutional bill of rights. American law has not as yet devised effective remedies against administrative discrettion. ' ' As elsewhere intimated in this book, however, it is not expedient for the average practitioner in the ordinary case to quote such opinions to the officials. In all minor matters, as the law stands, the taxpayer comes off better by avoiding denunciation of the man who, for better or worse, has the discretionary power. Miscellaneous statutory provisions. Questions of jurisdiction, suits, evidence, practice, duties and disci- pline of officers, penalties for perjury and bribery, claims. Government priority in involvent estates, etc., etc., are covered by the Judicial Code, the Criminal Code, scattered sections of the Revised Statutes and special acts. Federal Taxes Classified — Internal Revenue. 337 Several other acts and Eevised Statutes sections are in force, dealing with various subjects, such as post- stamping, section 3422, redemption, section 3426 amended, manufacturing in bonded warehouse, section 3433 amended, withdrawals, drawbacks, assessment of unstamped articles, section 3437, refunds of taxes on export bills of lading, foreign bills of exchange, etc. Eevised Statutes, sections 3441-3465, contain certain provisions applicable in common to several objects. The relation of U. S. Federal taxation to Alaska, Hawaii, Porto Rico, the Philippines, etc., is explained in a later portion- of this book. GENERAL TABLE OF STATUTES AFFECTING INTERNAL REVENUE. The development of the Internal Revenue system and legislation may be traced through the statutes, as follows : March 3, 1791, ch. 15, 1 Stat. 199. Excise on spirits. June 5, 1794, ch. 45, 1 'Stat. 373. Internal duties on carriages for persons. May 28, 1796, ch. 37, 1 Stat. 478. Increasing carriage duties. July 6, 1797, ch. 11, 1 Stat. 527. Stamp tax on documents. December 15, 1797, ch. 1, 1 Stat. 536. Positponing stamp tax of 1797. 338 Federal. Revenue Law. March 19, 1798, ch. 20, 1 Stat. 545. Amending stamp tax of 1797. April 7, 1798, ch. 25, 1 Stat. 547. Extending law of 1794. July 14, 1798, ch. 75, 1 Stat. 597. Direct tax on dwellings and slaves. See note, 1 Stat. 580, for list of direct tax acts. February 28, 1799, ch. 17, 1 Stat. 622. Amending stamp tax of 1797. April 23, 1800, ch. 31, 2 Stat. 40. Establishing a general stamp office. March 3, 1801, ch. 19, 2 Stat. 109. Amending Act of 1800. April 6, 1802, ch. 19, 2 Stat. 148. Repealing internal taxes. July 22, 1813, ch. 16, 3 Stat. 22. Method of collecting direct and internal taxes. July 24, 1813, ch. 22, 3 Stat. 39. Establishes office of commissioner of internal revenue. July 24, 1813, ch. 24, 3 Stat. 40. Carriage tax. July 24, 1813, ch. 25, 3 Stat. 42. Distillers. July 24, 1813, ch. 26, 3 Stat. 44. Auction sales. August 2, 1813, ch. 37, 3 Stat. 53. Direct tax. August 2, 1813, ch. 39, 3 Stat. 72. License tax on retail merchants, liquor dealers, etc. Fedebal Taxes Classified — Internal Revenue. 339 August 2, 1813, oh. 53, 3 Stat. 77. Stamp tax on notes, bills, etc. August 2, 1813, ch. 56, 3 Stat. 82. Further details as to method of collection, December 10, 1814, ch. 11, 3 Stat. 148. Amending stamp tax of 1813. December 15, 1814, ch. 12, 3 Stat. 148. New ratQS on carriages. December 21, 1814, ch. 15, 3 Stat. 152. Spirits and licenses. December 23, 1814, ch. 16, 3 Stat. 159. Auctions, licenses, etc. January 18, 1815, ch. 22, 3 Stat. 180, 186. Manufactured goods, furniture, etc. February 27, 1815^ ch. 61, 3 Stat. 217. Gold and silver plate, etc. March 3, 1815, ch. 91, 3 Stat. 230. Amending Att of 1815 as to furniture, watches, etc. February 22, 1816, ch. 18, 3 Stat. 254. Eepealing tax on plate and jewelry. April 9, 1816, ch. 41, 3 Stat. 264. Eepealing tax on furniture and watches. April 19, 1816, ch. 5«, 3 Stat. 291. Amending spirits license Act of 1814. December 23, 1817, ch. 1, 3 Stat. 401. To abolish internal duties. March 3, 1823, ch. 55, 3 Stat. 779. To permit validating by post payment deeds, etc. August 5, 1861, ch. 45, 12. Stat. 292. Tariff and direct tax, including income. 340 Federal Eevenue Law. July 1, 1862, ch. 119, 12 Stat. 432. General internal revenue act ; provides for depart- ment; basis of all later legislation on the subject. March 3, 1863, ch. 74, 12 Stat. 713, 737. Amends 1862 Act. March 7, 1864, ch. 20, 13 Stat. 14. Amends 1862 Act. June 30, 1864, ch. 173, 13 Stat. 223. Complete general Act, elaborating Act of 1862. July 4, 1864, 13 Stat. 417. Joint resolution ; special income. December 22, 1864, 13 Stat. 420. Amends general Act. March 3, 1865, ch. 78, 13 Stat. 469. Amends last Act. March 10, 1866, ch. 15, 14 Stat. 4. Interprets general Act. July 13, 1866, ch. 184, 14 Stat. 98. First general Act to reduce ; special taxes substi- tuted for licenses. March 2, 1867, ch. 169, 14 Stat. 471. Changes and reductions. March 31, 1868, 15 Stat. 58. Eeductions. July 20, 1868, ch. 186, 15 Stat. 125. New Act covering spirits, tobacco, etc. July 14, 1870, ch. 255, 16 Stat. 256. Repeals certain occupation taxes, certain stamp taxes, etc. Federal Taxes Classified — Internal Revenue. 341 March 3, 1871, 16 Stat. 601. Resolution for reduction. June 6, 1872, ck 315, 17 Stat.. 230. Reduction of taxes. December 24, 1872, ch. 13, 17 Stat. 401, Reduction of department. March 3, 1873, 17 Stat. 621. A compilation of Internal Revenue Laws. February 8, 1875, ch. 36, 18 Stat. 310. Tax on State bank circulation. March 1, 1879, ch. 125, 20 Stat. 327. Numerous amendments of Revised Statutes. March 3, 1883, ch. 121, 22 Stat. 488. To reduce ; and to repeal tax on checks, matches, etc. August 2, 1886, ch. 840, 24 Stat. 209. Oleomargarine. October 1, 1890, 26 Stat. 567. McKinley bill : opium tax. August 28, 1894, 28 Stat. 509. Wilson bill: income tax (unconstitutional) : tax on playing cards. June 6, 1896, ch. 337, 29 Stat. 253. Filled cheese. June 13, 1898, ch. 448, 30 Stat. 448. Spanish war tax. April 12, 1900, ch. 191, 31 Stat. 77. Foraker Act, Porto Rico. April 30, 1900, ch. 339, 31 Stat. 141. Hawaii. 342. Federal Revenue Law. May 12, 1900, ch. 393, 31 Stat. 177. Redemption spoiled stamps. March 2, 1901, ch. 806, 31 Stat. 988. Amending Act of 1898; reduction and repeal. July 25, 1901, 32 Stat. Pt. 2, p. 1983. Executive proclamation under Foraker Act of 1900. February 26, 1902. Joint resolution; return of imprinted stamps. March 8, 1902, ch. 140, 32 Stat. 54. Philippines. April 12, 1902, ch. 500, 32 Stat. 96. War Revenue Repeal Act. May 9, 1902, ch. 785, 32 Stat. 193. Amends oleomargarine law. June 27, 1902, ch. 1160, 32 Stat. 406. Refund and remission of certain taxes; legacy and bill of lading. June 30, 1902, 32 Stat. 506. Redemption of stamps. July 1, 1902, ch. 1369, 32 Stat. 691. Philippines. June 7, 1906, 34 Stat. 217. Denatured alcohol. June 29, 1906, 34 Stat. 620. Porto Rico. February 1, 1909, 35 Stat. 590. Refunding taxes on foreign exchange. February 4, 1909, ch. 65, 36 Stat. 594. Porto Rico. Fedebal Taxes Classified — Inteenal Revenue. 343 February 9, 1909, ch. 101. Philippines. August 5, 1909, ch. 6, 36 Stat. 118. Payne- Aldrich tariff, excepts insular possessions ; establishes corporation excise. April 9, 1912, 37 Stat. 81. Phosphorous matches. October 3, 1913, ch. 16, § 4, subd. D. Porto Rico. There are a few minor acts not here emmierated, and the recent acts which are the subject of specific treatment in the present book. CUSTOMS REVENUE. The Federal plan was adopted in a general way from the scheme in use in New York. The Act of September 2, 1789, organized the Federal Customs service in the Treasury Department, and it was improved by the Act of March 2, 1799. The Act of August 6, 1846, established the bonded warehouse system. The appraisers were organized under the Act of March 3, 1851, into a board by Presidential appointment, and this branch was further improved by the general Customs Administrative Act of June 10, 1890. Fees were abolished in 1870, and Depart- ment special agents or detectives were sent to aid and to watch local ofScials. The 'Customsi provisions of the Revised Statutes compiled under the Act of June 27, 1866, have practi- cally been superseded, the most of the re'levant sec- tions having been repealed. There was a general Act of March 3, 1875, and the whole plan was rewritten into the Customs Administrative Act of June 10, 1890. The " Dockery Bill," included in the Act of July 31, 1894, abolished the office of Commissioner of Customs, and made other changes in the Treasury Department. Penalties for undervaluation were increased by the Act of July 24, 1897. The Tariff Act of August 5, 1909, § 28, amended and practically replaced the Act of 1890. By § 29 of the Act of 1909, a Court of Customs Appeals was Fedeeal Taxes Classified — Customs Revenue 345 created, with exclusive appellate jurisdiction (taking over pending matters from Circuit and District Courts) for reviewing final decisions of the Board of General Appraisers. Section 30 established a special Division of the Department of Justice for customs matters, with an Assistant Attorney General, a Deputy and other attorneys-. Judicial Code, § 188. Amendments February 25, 1910; March 3, 1911. Under the Act of August 24, 1912, the Customs serv- ice was reorganized and sot reported to Congress by the President, March 3, 1913. The Tariff Act of October 3, 1913, again rewrote the administrative features, by way of further amend- ments to the Act of June 10, 1890. Despite all the various enactments effecting admin- istrative changes^, the general organization of the Treasury Department remains much as when it was established in 1789. Revised Statutes 23^-345. There was some reorganization under March 3, 1875, and again under July 31, 1894. The Secretary, besides a general Assistant "A," and an Assistant " B " for Internal Revenues, has an Assistant " C" for Cus- toms matters. The scattered force has naturally re- quired frequent expansion, and latterly has included 124 collectors.!, 39 surveyors, with deputy collectors, weighers, gangers, inspectors, etc., at 128 Ports of Entry, and a constantly increasing number of interior delivery ports. The nine General Appraisers are appointed by the President and constitute a board, organized into three groups, with office- in New York. 346 Fedebal Eeventjb Law. There are also Marine Officers and a Revenue Cutter service. The Customs service is elaborate, and its proceed- ing are technical. In early days things and men were taken somewhat at face value, but, with the develop- ment of modern commercial complexities and inequali- ties, it has been necessary to devise and enforce the strictest possible supervision. An extensive use is made of oaths, but practically nobody is believed. Invoices, manifests, valuations, book entries, corres- pondence and statements are all subjected to a rigid checking which begins abroad. Meticulous regulations and far reaching detectivism prevail. Importers themselves, incited by competition, have helped to elaborate the scheme. Nor is it possible to administer an extended, complex customs law by any other means. A detailed invoice must be prepared at the place of exportation, and have endorsed upon it a declaration sworn before an American consular officer covering much detail as to origin, market value or cost, etc. Except as to $100 of personal luggage, no entry can be made of any importation without the production of a certified invoice (or other sworn papers in special instances where the collector may conduct a searching examination) . A Consular certificate does not establish the truth of a value given. Upon entry by invoice a sworn declara- tion must be filed by the importer in a form officially prescribed (now by regulation, not by the statute). Fraud or falsity involves a penalty for each offense up Federal Taxes Classified — Customs Revenue 347 to $5,000 or two years prison, or both, besides for- feiture of the goods or their value. Corrections may be made before actual entry, and 1 per cent, additional (not penal) is added where appraisal exceeds the entry value. Where the appraised value exceeds the declared value by more than 75 per cent, fraud is presumed, except for clerical errors. In proceedings the burden is on the claimant to rebut the presumption. ,If goods are consigned, not sold, the entry must include, besides the certified invoice, a further -statement by the manufacturer or consignor with consular attest. The appraisers ascertain, estimate and appraise the actual market value abroad at the time of exportation, or, if this is impracticable, then the cost of production. Where foreign market value cannot be established, the appraisal shall not be less than the American wholesale market price, deducting duties, transportation, insur- ance and other necessary expenses and a commission on consigned goods (not exceeding 6%) or an allowance for general expenses and profit on purchased goods (not exceeding 8%). The appraisal is reported to the collector who may within 60 days appeal to redppraisement, and the importer may appeal within ten days. The decision of the general appraiser is final unless the importer, within five days, or the collector, within ten days, appeals to the general board. The collector 'si decision as to rate and amount of duties is final unless the importer files a protest within 30 days of liquidation 348 Federal Rbvenxte Law. or 15 days of payment, when the whole record goes to the general board for determination which is conclusive excerpt where appeal is taken to the Court of Customs Appeals. The general appraisers, appraisers and collectors have extensive- powers^ to cite and examine parties and witnesses and to require production of books and papers. Refusal to attend or to answer involves a summary penalty of from $20 to $500. False •s'wearing is perjury and if on the part of a person interested also involves forfeiture. Decisions of appraisal are preserved, reported to the Treasury Department, published in abstract, with reference to samples deposited in New York. Ad valorem duties are assessed on actual market value or normal wholesale price at the place and time of expor- tation, including the value of packing materials or con- tainers. Goods: deposited in bonded warehouses may be withdrawn within three years on payment of duties and charges as of the time of withdrawal. In -suits involving seizure, the burden is on the claim- ant, and in actions for the recovery of value of goods imported contrary to law, the burden is on the defend- ant, probable cause to be judged by the court. If any exporter or importer refuses or fails to submit his books and records to inspection, he may be refused entry as to all his goods. Provision is made concern- ing fruits and other perishable articles. There is a permanent indefinite appropriation available for Federal Taxes Classified — Customs Eevbnue. 349 refunding excessive duties paid on approximate esti- mation. The right of appeal being established, there is no liability on the part of any customs officer towards an importer. Bribery or attempted improper influence of an officer involves a fine up to $2,000 or hard labor up to one year, or both ; and any gift or offer is prima face evidence and puts the burden on the accused of proving innocence. Receiving or solicitation by an officer involves a fine up to $5,000 or hard labor up to two years, or both ; with the burden similarly placed on the accused. Baggage and personal effects arriving in transit to another country may be left in a collector's care without entry. The Acts of 1909 and 1913 have a so-called counter- vailing clause providing for an additional duty equal to the net amount of any bounty or grant given by a foreign country in aid of exportation. By the Act of December 17, 1903, following the com- mercial treaty with Cuba, December 11, 1902, provision was made for a 20 per cent, reduction of the rates of the Tariff Act of 1897 ; and the Acts of 1909 and 1913 expressly avoided abrogating or affecting this treaty. The Department issues a manual of 'Customs Regu- lations. The last edition in 1915 contains 27 chapters and 1216 numbered articles, and is fully indexed. The Treasury Decisions, under customs, internal revenue and other laws, are now published weekly. Various synopses and digests have been issued by the Depart- ment, covering portions and all of extant rulings. The 350 Fedeeal Revenue Law. new series of Weekly Decisions began January, 1899. A Quarterly Bulletin is issued, showing the appeals pending in the Court of Customs Appeals. The rules of the court are printed in a separate pamphlet. The decisions of the Court are included in the Weekly Decisions. Ladies, returning frpm Europe, who are " sur- prised ' ' and horrified by the strict modern applica- tion of the personal baggage exemption clause, may be "surprised" to know that the Supreme Court scolded a woman about her band boxes as early as (1821) The Robert Edwards, 6 Wheaton 187, under the Act of 1799. UNITED STATES TARIFF ACTS. HISTORICAL SKETCH. Customs diuties were familiar sources of public revenue when the Colonies became a Federal Republic, and it was well known that they could be made restric- tive, either for protection or for retaliation. Greece and Eome had had them, and modern Europe was full of object lessons. Until well into the last century our country continued industrially to rest on agriculture and handicraft, with incidental commercial carrying. Hamilton and others early talked of encouraging indus- try, and the first Tariff Act, July 4, 1789, was avowedly, though mildly, protective in this sense. The entire Act occupies three pages in a modem reprint. It was sup- plemented by the Act of August 10, 1790.^ The matter aroused little general interest, however, and restriction as such was not seriously contemplated until foreign complications over the carrying tradte induced the Embargo of 1807, and the Non-inter- course Act, 1809, and the end of the European wars checked what had been a profitable export business in natural products. From the beginning it was sought to favor American shipping by a discriminatory dif- ference of 10 per cent, in duties. Duties were doubled as a war measure by the Act of July 1, 1812, but trade was almost stopped. The restrictions and the check on export trade operated to ^ Hamilton's Report on Manufactures (Dec. 5, 1791 to the House) lias been reprinted, procurable at a nominal cost through the Super- intendent of Documents. 352 Federal Eevenue Law. compel a domestic industrial development, and the influx of goods from Europe after the war led the new manufacturers to demand further restriction. Describing conditions after the Napoleonic wars, President Wilson's History says, " Peace changed the very face of trade. . . . Crops fell short in Europe after the scourge of war, and America filled all the ships she could get with grain for the markets over sea. English merchants poured their goods once again into the American ports, so long shut against them by embargoes and war. . . . Manufactures had sprung up while the ports were closed. . . . Industries long ago begun upon a small scale took heart to grow, and those which Americans had hitherto not dreamed of attempting were hardily embarked upon. ... It was manifestly a menace to every young industry that a flood of English imports should continue to pour into the country at the open ports. The remedy was a protective tariff." The Tariff Act of April 27, 1816, adopting many specific duties and the minimum principle, raised the average percentage above 20, and embraced some dis- tinctly protective duties, but was mainly a fiscal meas- ure and included a free list. Commercial and financial disorders, aside from tariff questions, prepared the way in 1819 for the first extended and insistent demand for the principle of excluding foreign competition. The movement not only prevented certain reductions which had been foreshadowed in 1816, but drove vigorously in the opposite direction. It barely failed in 1820, but Federal Taxes Classified — Customs Revenue 353 forced the Tariff Act of May 22, 1824, with substantial increjas-es to an average of about 37 per cent. This was the period when England initiated a system of reci- procity which ultimately led her to practical free trade. At the present time (1916) the Great War has induced a movement in England, not yet momentous, for a return to restrictive and retaliatory tariff methods. A national convention of protectionists at Harrisburg in 1827 at once indicated and increased a general agita- tion in favor of restriction. The question became more and more a geographical one. The Tariff Act of May 19, 1828, the " economic monstrosity ' ' often called ' ' the tariff of abomina- tions," was the result of a miscarried political trick. Both Clay and Calhoun later told the story. The South and the "West, hoping to make the bill unacceptable to New England and so cause its rejection with a shift of responsibility, burdened it with heavy duties; but Webster turned the tables and the Act passed. John Eandolph said, ' ' 'The bill referred to manufacturers of no sor't or kind, except the manufacture of a Presi- dent." Rates were reduced, and the Act improved, by July 14, 1832, but the protective principle was deliberately retained. There was talk of nullification, and the " bloody bill " was enacted to enforce the tariff, but the storm passed over. The Compromise Tariff Act of March 2, 1833, primarily a political expedient to placate the agricul- tural States, provided for a gradual red-uction of duties after December 31, 1833, until 1842, when a 12 354 Fedeeai, Revenue Law. general rate of 20 per cent, should apply. When, in 1836, the national debt was about to be extinguished, provision was made for distributing the surplus revenue as " loans " to the States. About $28,000,000 was so ' ' loaned ' ' and never recalled. The panic of 1837 broke the dream. The comprehensive Tariff Act of August 30, 1842 repudiated the compromise of 1833, and raised duties to an average of about 33 per cent. Numerous industries had become established. Not ordy statesmen but economists differ as to how much their establishment and success had resialted from restrictive tariff measures. It is certain that politics, quite apart from all pretense of attachment to eco- nomic principle, played a large part in the legislation of 1828, 1842 and 1846. The Tariff Act of July 30, 1846, purported to be primarily a revenue measure, and was only moderately protective, with average ad valorem duties of about 25 per cent. The lists were classified into lettered schedules, and the warehouse privilege was accorded. When the Act of March 3, 1857, was passed, the Federal revenues were again needlessly large, and there was no strong hostility to a general reduction, leaving a maximum protection of about 24 per cent and making many raw materials and other articles free. As this book is not a campaign document, it is . fair to express the calm judgment of non-partisan economists that tariff acts caused neither the financial crises of 1837 and 1857, nor the prosperity of 1846- 1860. Congresses enact fiscal legislation, but they do Fedebal Taxes Classified — Customs Eevbnue 355 not yet establish nor control economic nor natural laws. There was a period of reciprocity with Canada following the Act of June 5, 1854. The falling off of revenues induced a return to higher rates and specific duties in the Act of March 2, 1861. As Mr. Morrill himself said, "however, the legis- lation was not asked for, and was but coldly welcomed, by manufacturers who always and justly fear insta< bility." Cong. Globe, 1869-70, p. 3295. But the Civil War broke out, and increased revenue was impera- tively needed. Congress, at short intervals beginning August 5, 1861, and for nearly four years, extended and raised the duties. The Act of July 14, 1862, imposed large increases to compensate industry for the growing burden of internal taxation. There was now no longer any question that a restricted tariff was becoming a national policy. All " strict construction " was discredited. While taxes went up, of necessity, the so-called " interests " played the game of " hunt protection." Average duties rose from about 37 per cent in 1862 to about 47 per cent in the comprehensive Act of June 30, 1864. The effect reached beyond the return of peace, and the payment or reduction of the huge national debt was made the warrant for a con- tinuance of the high rates. A Revenue Commission in 1865 and the Special Commissioner in 1866 accom- plished little or nothing towards rationalizing the legislation of fiscal readjustment. The country clearly preferred first to escape the annoying internal taxes. There was much post-bellum tariff tinkering before 356 Federal, Revenue Law. the general Acts of July 14, 1870 and June 6, 1872. Duties were removed from revenue producers, and political influences growing out of the war were able to maintain the high protective policy. The customs legislation had become confused to the point of bewilderment, and it was difficult to ascertain the state of the law regarding particular consignments of goods. Slowly a demand developed for the withdrawal of extreme protection from certain industries, well estab- lished and popularly thought unfairly prosperous and dangerously powerful. In 1882 a Tariff Board was created which recommended a 20 per cent reduction, but 'Congress, instead, raised duties and reduced in- ternal taxes, while improving the form of the law, again using lettered schedules, by the Act of March 3, 1883. Even the change of party control in 1884, and the unsuccessful House bills of 1884 and 1888, despite the strong efforts of President Cleveland, hardly marked a substantial advance in the movement for a change of national tariff policy. The Tariff Act of October 1, 1890 (McKinley Act) was an out and out protective measure intentionally reducing revenue. Growing agitation, in both parties, for a revision downward only induced a strong reactionary assertion of the principles back of the "American System." But the Act of 1890 removed the sugar duty and gave a bounty to sugar producers, which was repealed by the Tariff Act of 1894. Congress in 1895 authorized the payment of bounties earned. The Supreme Court avoided passing on the bounty question, but upheld Federal Taxes Classified — Customs Revenue 357 the later act providing for payment. Field v. Clark, 143 U. S. 649; U. S. v. Carlisle, 5 D. C. App. 138; U. S. V. Realty 'Co., 163 U. S. 427. Under a provision in the Act of October 1, 1890, a number of cpmmercial agreements were made for a limited reciprocity, especially with, sugar producing ^ countries. The Act of August 27, 1894 (Wilson Act), which became a law without Executive approval, though resulting from a movement ostensibly for a revenue tariff, embodied no clear policy, and hardly checked the protection current which swept in the strongly restric- tive Act of July 24, 1897 (Dingley Act). Some further reciprocal agreements were made under section 5 of thisi Act. Meanwhile public opinion in opposition to extreme restriction was becoming stronger and better organized. It was also increasingly difficult to devise schedules to provide adequate revenue. An eminent New Yorker, John Bigelow, avowed free-trader, sent Governor Hughes, in 1908, an inter- esting open letter, privately printed, in which he sug- gested the total abolition of customs tariffs, and the substitution, as a means of revenue, of a scheme whereby the government, in parting with the exclusive usufruct of any portion of itg land, water, air and sun, should reserve a continuing compensa- tion. He argued that the Government should become a silent partner in every venture based on a lucrative privilege. It was the same idea as is involved in reserving payment for an easement. 358 Federal. Revenue Law. It was suggestive of the corporate excise tax. But he would have the reservation made in all land grants, patents and charters, so that the Government might increasingly enjoy the agreed percentage of profit. He hardly hoped to realize the legend of Pilsen in Bohemia, where pursuant to some such plan adopted in 1842 the Biirger Bran (city brewery) " pays taxes " to the owners of realty. The Tariff Act of August 5, 1909 ( Payne- Aldrich) was planned as a concession to moderate views. An attempt was made to enact an inheritance tax, and the Corporation Excise was finally embodied in the legis- lation. High rates of duties were retained, but pro- vision was sought to be made for fostering reciprocity, by imposition of a high maximum tariff (25 per cent ad valorem additional), subject to waiver by Presi- dential proclamation in favor of countries which did not discriminate against the United States. The Executive was authorized to employ persons to assist him in securing necessary information, and under this provision the so-called Taft Tariff Board was con- stituted. The Act of July 26, 1911, was intended to promote reciprocal trade relations with Canada. The President's refusal to approve the several sched- ule revisions of 1911 and 1912 combined with other political tendencies to give control to a party which had, with some weakness and inconsistency, stood for a revenue tariff. The Tariff Act of October 3, 1913, is avowedly competitive, and not protective, though the many restrictive features necessarily leave the legis- lation moderately protective in its effect. It reduced Federax, Taxes Classified — CtJSTOMS Eevenue ' 359 average rates from about 40 per cent to about 28 per cent: ad valorem from 18.5 per cent to 9.7 per cent. It simplified the schedules, extended tbe ad valorem system as against specific duties, and was, generally, a revision downward, with an extended free list. It provided that sugars should be free after May 1, 1916, but this provision was repealed by Act of April 27, 1916. The Tariff Act of 1913 was passed on the avowed principle that the attempt should not be made to sup- port the government by customs duties. A general Income Tax was imposed, and the Corporation Excise Tax of 1909 was re-written as the corporation part of the Income Tax. Partisan political talk about " loose construction " theories is really an attempted exploitation of phan- toms. There is, and can be, no very serious question- ing of the Congressional power under the Constitution to impose protective duties. Even if a case were made out, on theoretic or technical grounds, it would, at this late day, be academic. It is perhaps safe to surmise that the, administration which enacted the revenue legislation of 1913 and 1916 is hostile, not so much to protection per se as to what it deems the mis- use of the theory in the exploitation of the whole peo- ple for the special benefit of a few. Atlee Pomerene, of Ohio, an Administration Senator, said, September 5, 1916, " Truth compels the state- ment that there never has been any law fathered by the Eepublican Party, high though it may have been in protective character, that was not at the same time a revenue-producing bill; and there never has been a 360 Fedeeai, Ebventjb Law. revenue proposed by the Democrats wMch was not pro tanto also protective in character, and often highly protective. ' ' Cong. Rec. 16199. Here is a fair and more characteristic sample of the " argument " heard in the Congressional " debates " on such subjects: " I believe antidumping legislation is necessary to adequately protect American indus- tries. I do not believe that you can fully and effectually protect them until there is enacted into law a tariff bill that has been thoroughly baptized with the protective religion of William McKinley." 'Cong. Eee. v. 53, p. 4728. And here is one from the other side of the House, a courteous retort, if such there ever was ! "You have been shooting off your bazoos and gasifying your protective tariff humbuggery on the American people long enough. We have called your hand." July 7, 1916, Cong. Rec. p. 12150. So far from marking a return to any former hostility to centralization, the new tendencies, illustrated by the Income Tax of the Tariff Act of 1913 and other legislation, as well as the present Act of 1916, show a remarkable purpose to acquiesce in the idea of a strong central government, and to make new and extended use of its recognized power. See the General Introduction, ante. If the nation wants high protection, it wiU return as it went. If all Europe, after the Great War, goes protection- mad, we may nevertheless prefer not to enter the scramble. The indications are that, whichever party prevails, we shall not, for a long time at least, rely to so great extent as heretofore upon a fiscal policy in- volving high duties with marked protective restriction. Federal Taxes Classified — Customs Revenue 361 The Federal election, November 1916, while giving no " mandate " on this subject, shows that the nation does not repudiate the moderate tariff of 1913. Wilson's History of the American People closes with a reference to the changed aspect with which the Gov- ernment stood (1900) upon the threshold of a new ceoitury. " Statesmen knew that it was to be their task to release the energies of the country for the great day of trade and of manufacture which was to change the face of the world: to ease the processes of labor, govern capital in the interest of those who were its indispensable servants in pushing the great industries of the country to their final value and perfection, and make law the instrument, not of justice merely, but also of social progress."^ TONNAGE TAXES AND NAVIGATION LAWS. England had navigation laws, i. e., restrictive meas- ures to favor home shipping, as early as the fourteenth century. For about two centuries from 1645 she legis- lated in the spirit of the illiberal and economically false Navigation Acts. She may have had her reward, even then, though her greatest trade prosperity fol- lowed the adoption of a liberal policy. ^ The government (Superintendent of Documents) publishes papers, pamphlets and compilations covering the whole history of the tariff in chronological grouping. The text of any particular tariff law may be had, as also pamphlets which progressively com- pare each act with its predecessor. 362 Fedebal Revenue L^w. Shipbuilding and shipping were important, when not chief, among the Eastern Colonies in America. The Eevolution left the industry and the trade sadly crippled. British orders in council hampered their growth, and the Algerian and Barbary pirates exer- cised no mean restriction. The Eevenue Act of 1789 gave a 10% reduction of duty on- merchandise imported in home shipping. Ton- nage taxes markedly discriminated in favor of domestic vessels. The Act of September 1, 1789, providing for registration, clearing and regulation of shipping, is the foundation of our navigation laws. It has been sought by discrimination to protect American ship- ping, but the object has usually been regulation and not revenue. There were Acts of July 20, 1790, Decem- ber 31, 1792, February 18, 1793. (1806) U. S. v. Grundy, 3 Cranch, 337. The Embargo of 1794 was, after sixty days, left to the President's discretion. There was a Non-intercourse Act of June 13, 1798 followed by February 27, 1800. (1804) The Charming Betsy, 2 Cranch, 64; (1805) Hallet v. Jenks, 3 Cranch, 210. There was an Embargo Act of December 22, 1807, followed by April 25, 1808; removed by March 1, 1809 and replaced by a new Non-intercourse Act. This was suspended June 10, 1809, restored August 10, 1809, removed pursuant to May 1, 1810 by proclamation Federal Taxes Classified — Customs Eeventie. 363 November 2, 1810. British, imports were prohibited February 2, 1811 and an eiribargo was laid April 4, 1812. A vessel might not even come into American waters to inquire whether she might lawfully discharge. (1813) The Penobscot, 7 Cranch, 356. ' It was competent for Congress to empower the President, by proclamation of certain facts, to revive a restrictive act. (1813) Cargo of the Brig Aurora v. IT. S., 7 Cranch, 382. Compare discussion in notes on Title VIII of the Act of 1916. This riot of attempted retaliation in matters of trade and shipping did not prevent the War of 1812, nor did the war stop the use of the old methods. There was a Non-intercourse Act of April 18, 1818. Attenipts were made to secure trade and trade facilities by treaty preferentials and offering to remove tonnage taxes. Such reciprocity was offered in direct trade in 1815 and in indirect shipping in 1828. Meantime foreign shipping was excluded from the coast trade. The Act of May 31, 1830, marked a new policy. Many reciprocal arrangements were made. Steam presently destroyed the packet trade. England gave subsidies. The United States for a time after 1845 tried mail subventions but went over to the contract system. By Act of July 5, 1884 the Commissioner of Naviga- tion took charge of the tonnage tax, and this bureau became part of the Department of Commerce by Act 364 Federal Eevenue Law. of February 14, 1903, as the Bureau of Navigation. The Department also has a Steamboat Inspection Service. The Act of August 5, 1909, section 36, imposed ton- nage duties of two cents a ton (not aggregating more than ten cents in any one year) on ships from North and Central America, certain adjacent islands and the northern coast 'of South America ; and six cents (not aggregating more than thirty cents a year) on other vessels. This repealed Revised Statutes, section 4232 and part of Revised Statutes, section 4219, and sections 11 and 12 of the Act of June 19, 1886, but left Revised Statutes, section 2793 and Revised Statutes, section 2792 asi amended by May 28, 190S, sections 1, 5. The Act of August 5, 1909, section 37, imposed a $7 gross ton tonnage on foreign built yachts. U. S. v. Billings, 190 Fed. Rep. 359, 232 IT. S. 261, 289. The constitutional prohibition as to tonnage taxes does not apply to Federal taxation of foreign shipping. Aguirre v. Maxwell, 3 Blatchf . 140 ; The North Cape, 6 Bissell, 505; State Tonnage Tax Cases, 12 Wall. 204. A State may not tax foreign vessels on the theory that the proceeds are for quarantine purposes. S. S. Co. v. Port Wardens, 6 Wall. 31 ; Cannon v. New 0., 20 Wall. 580. By the Tariff Acts of 1909 and 1913, a discriminat- ing additional duty of 10% was put upon importa- tions in foreign owned vessels, except as covered by treaties ; and a retaliatory provision forfeited, except- ing treaties, both goods and ships in certain cases Fbdebal Taxes Classified — Customs Revenue. 365 where other countries have discriminatory legislation. The Act of 1913 granted a 5% discount of duty on importations in vessels of domestic registration, but see T. D. 34246. It has been intimated in the notes upon Title VIII of the Act of 1916 ante, that the great war has per- haps induced a nervousness in regard to the whole sub- ject of international trade relations. If the war itself shocked tender susceptibilities as a demonstration of retarded human development, it would be downright puerile for the modern world to return to a general system, or chaos, of petty discrimination and retalia- tion in matters of trade and shipping. The Shipping Board Law, September 7, 1916, creates a control of foreign trade analogous to the control of railroads and express companies by the Interstate Commerce Com- mission. It empowers (section 36) the Secretary of the Treasury to refuse clearance to vessels declining American freight for any other than a reason involving ship construction and capacity. The Department of Commerce publishes a manual of Navigation Laws of the United States, edition 1915, procurable from Superintendent of Documents; also Rules and Regulations covering the steamboat inspec- tion service, edition 1916. JURISDICTION OF FEDERAL TAXATION. A summary statement as to territories and insular possessions is here appended. The general subject of jurisdiction has already been treated. OUTLYING AlTD INSULAE POSSESSIONS. Revised Statutes, section 3448, applies the existing laws to spirits, liquors, tobacco, snuff and cigars, pro- duced anywhere within the exterior boundaries of the United States whether or not within a revenue district. Alaska was made part of the Oregon district in 1872, and was given a territorial government by Act of August 12, 1912. Indian lands are included, despite treaties. (1883) U. S. V. 43 Gallons of Whiskey, 108 U. S. 491. Under the organic Act of April 30, 1900, ch. 339; 31 Stat. 141, the Territory of Hawaii was made a- revenue district. From the annexation (July, 1898) to June 14, 1900, when the organic act took effect, Hawaii was, as to commercial relations, deemed foreign territory. After June 14, 1900, goods.taxable for internal revenue in this country could not be sent to Hawaii without paying this tax. T. D. 120, May 5, 1900; T. D. 125, [366] JUEISDICTION OF FEDERAL TAXATION. 367 May 12, 1900; T. D. 157, June 14, 1900. (1857) Simp- son V. Peaslee, 20 How. 571, was cited to support the ruling that the date of the sailing of the ship would determine whether a consignment was taxable. (1904) The Kawailani, 128 Fed. Eep. 879. By the Treaty of Peace of December 10, 1898, fol- lowing the Spanish War it was left to Congress to determine the status of the newly acquired insular possessions. By the ratification of the treaty, the islands ceased to be foreign territory, but this result did not follow the mere military occupation. Fleming V. Page, 9 How. 603 ; De Lima v. Bidwell, 182 U. S. 1 ; Dooley v. U. S., 182 U. S. 222. After dividing on the question whether the Constitution became applicable upon annexation, or only after incorporation, the court has inclined to the latter view. (1900) Downes'V. Bid- well, 182 U. S. 244; Hawaii v. Mankichi, 190 U. S. 197; Eassmussen v. TJ. S., 197 U. S. 516. Upon this interpre- tation, therefore. Congress, in devising plans for administering insular affairs, is not limited by the Constitution, except as to fundamental personal rights. The U. S. internal revenue system as a whole, does not apply to Porto Rico. Under the Foraker Act, April 12, 1900, chapter 191 (31 Statute 77), each country receiving goods from the other collected its own internal revenue on shipment from each to the other in lieu of tariff dues. (1913) Jordan v. Eoche, 228 U. S. 436. 368 Federal Revenue Law. The Foraker Act was held constitutional. (1900) Downesr v. Bidwell, 182 U. S. 244, in imposing duties on imports, as the island was not a part of the United States for revenue purposes. Porto Eico has her own system of excise, for her own benefit, in lieu of the internal revenue system of the United States. A general revenue bill was enacted by the insular legislature, approved January 31, 1901, imposing taxes on spirits, tobacco, cards, medicinal preparations, oleomargarine, arms and ammunition, matches, liquor dealers and certain documentary stamp taxes. Dr. Jacob H. Hollander, Excise Taxation in Porto Eico, in^ the Quarterly Journal of Economics, February, 1902. Section 14 of the Foraker Act makes United States laws effective in Porto Eico, " except the internal revenue laws, which, in view of the provisions of sec- tion three, shall not have force and effect in Porto Eico." T. D. 216, September 25, 1900. Section 3 of the same act imposes- on Porto Eico goods coming into United States the same internal revenue taxes as are imposed by law on domestic goods. Porto Eico cigars brought to the United States require the same stamps here as domestic cigars. Circulars 54 and 56, April, 1900; Circular 81, July, 1901 ; Circular 85, August, 1901. As to bay rum brought from Porto Eico. (1908) Newhall v. Jordan, 160 Fed. Eep. 661, following Cheeseborough v. U. S., 192 U. S. 253, that a tax paid JXTBISDICTION OF FbDEBAL TAXATION. 369 by mistake cannot be recovered. S. c. (1906) 149 Fed. Rep. 586; (1908) Anderson v. Newhall, 161 Fed. Rep. 906; (1913) Jordan v. Roche, supra. See Act of February 4, 1909, ch. 65 ; T. D. 1462, 1481 ; Circular No. 734. There is a deputy United States collector at San Juan. Act of June 29, 1906 ; T. D. 1031 ; Circular No. 679. See Tariff Act of 1913, ch. 16, October 3, § 4, subd. D. Porto Rico is now American territory de facto and de jure. (1907) Ponce v. R. C. Church, 210 U. S. 296. The Treasury Department has issued circulars, e. g., Numbers 57, 59, 606, 693. The internal revenue laws of the island are found in chapters 2, 3 of Title IX of the Political Code, sec- tions 3024-3090 of Revised" Statutes of Porto Rico, 1911. Pending the development of an adequate local system of revenue, customs duties equivalent to 15% of the regular rates were imposed as between the Island and the United States. Philippines. From the ratification of peace, April 11, 1899, to November, 1901, the islands were commercially treated as foreign, though certain taxable articles might be bonded for consumption there. The Supreme Court decided that they were not foreign after their cession, and they thus acquired a status like Porto Rico's. (1901) Pepke v. U. S., cited also as 14 Diamond Rings, 183 U. S. 176. 370 Federal Revenue Law. A temporary civil government was established pur- suant to the Act of March 2, 1901, 31 Statutes 910, the Act of July 1, 1902, 32 Statutes 691, which exempted certain exports to the Philippine Islands and allowed rebates or drawbacks as on exports to strictly foreign countries, and the Act of February 6, 1905. Taxable materials were exempted for export by the Act of March 8, 1902, 32 Statute 54. The Philippine Commisision enacted the Internal Revenue Law of 1904 (July 2) for the islands. They have their own bureau and a complete administrative machinery for the enforcement of an elaborate law covering license taxes, alcohol, tobacco, banJsing, docu- mentary stamp taxes, capitation tax, insurance, for- estry, mining, business, manufacture and occupation. Internal taxation in the Philippines. By John S. Ford, Baltimore, 1907, Johns Hopkins University Studies, Series XXV, No. 1. The United States Congress ratifies the acts of the Commission. See Act of February 9, 1909, chapter 101. The Act of August 6, 1909, 36 Statute 83, equalized duties ; exempted from the Philippine Islands internal revenue laws taxable articles for export to the United States (where they pay a revenue tax in lieu of customs) ; exempted from United States internal rev- enue laws taxable articles for export to the islands (where they pay a revenue tax), and provided that all internal revenue collected in or for account of the islands should go intact to the insular treasury for the general government of the Philippines. JUEISDIOTION 0^ FeDEEAL TAXATION. 371 The Tariff Act of 1913, Act of October 3, chapter 16, re-embodies a like system. The Treasury Department has issued rulings and instructions, Circulars No. 39, July 1, 1910; No. 57, November 1, 1909 ; No. 37, August 10, 1909 ; No. 8, regu- lations revised to July 1, 1910. An Act was approved August 29, 1916, to declare the purpose of the United States as to the future status of the Philippines, and to provide a more autonomous government for the islands. Section 11 forbids export duties and provides for internal taxation. Guam was included in the Spanish cession of Decem- ber 10, 1898, but its status has never been determined by legislation. The Executive has heretofore con- trolled its affairs under a special administration entrusted to the Navy Department. The same is true of Tutuila and Manua (Samoa), ceded by the partition treaty of December 2, 1899. The Panama Canal Zone was acquired by the treaty of November 18, 1903. Under the Act of April 28, 1904, the President was empowered to provide a form of government, andl this was done by a series of Execu- tive orders beginning May 9, 1904. TABLE OF FEDERAL TAXES. [373] TABLE OF FEDERAL TAXES. 1. TAXES UNDER ACT OF SEPTEMBER 8, 1916. Income Tax. Income, net annual, individual, citizen or resident, normal tax 2% Exemption $3,000 plus $1,000 for head of family. Income, net annual, individual non-resident alien, from all sources in United States, normal tax 2% Exemption under restrictions. Income, individual, additional tax, on income: $20,000 to $40,000 1% 40,000 to 60,000 : 2% 60,000 to 80,000 3% 80,000 to 100,000 4% 100,000 to 150,000 5% 150,000 to 200,000 6% 200,000 to 250,000 7% 250,000 to 300,000 ,. . 8% 300,000 to 500,000 9% 500,000 to 1,000,000 10% 1,000,000 to 1,500,000 11% 1,500,000 to 2,000,000 12% Exceeding $2,000,000 13% This talble of sur-taxes applies to all individuals, including non-resident aliens as to income from aU sources in United States. Inoome, corporate, net annual, all sources of American organizations and all American sources of foreign organizations 2% Numerous mutual, eo-operative, non-competitive, fra- ternal, etc., associations exempted. There is no Tnim'TrmTin exemption for corporations. [375] '0 376 Table of Fedekal Taxes. Estate Tax. Estate, net, every decedent, resident or non-resident. Exemption, $50,000 for resident. Notice to collector reqniired within 30 days aifter executor, etc., qualifies or has possession. On estaite up to $50,000 1% $50,000 to 150,000 2% 150,000 to 250,000 3% 250,000 to 450,000 4% 450,000 to 1,000,000 5% 1,000,000 to 3,000,000 6% 2,000,000 to 3,000,000 7% 3,000,000 to 4,000,000 8% 4,000,000 to 5,000,000 9% Estate exeeedingr $5,000,000 10% Mimitions Manufacturer's Tax. On annual net profits 12%% This is an excise in addition to the income tax. It ceases one year after termination of European war. It applies to gunpowder, explosives (except industrial uses), cartridges, caps, primers, projectiles, shells, tor- pedoes, shrapnel, fuses, fire-arms, small arms, cannon, machine guns, rifles, bayonets, electric motor boats, sub- marines, and also to component parts of such articles. Beer, Ale, Etc. Beer and all fermented liquors, per barrel of 31 gallons ; like rate for part barrel. $1 50 Single package, 31 gallons to 63 gallons 3 00 Wines, Etc. Still wines, vermuth, artificial wines, etc., domestic and imported, per wine gallon : Containing up to 14% volume alcohol 04 Containing from 14% to 21% 10 Containing from 21% to 24% 25 Containing more than 24% 1 10 Table of Fbdekal, Taxes. 377 Wine spirits or grape brandy used in fortifying wines, per proof gallon $0 10 Sparkling wines or champagne, per bottle, % pint or less 03 Artificially carbonated wine, per bottle, V^ pint or less. 01% Liqueurs, cordials, etc., per bottle, % pint or less. . . 01% SPECIAL TAXES AFTEE JANUARY 1, 1917. See notes under Title IV. Every corporation with capital stock for profit, organ- ized under American law, on each $1,000 fair value of capital stock, including surplus and undivided profits, an annual special excise tax of 50 Exemption, $99,000. Exemption of insurance reserves and certain co-op- erative, charitable, etc., organizations. Munitions tax credited against this tax. Every like corporation orgariized under foreign law and doing business in United States, on each $1,000 actually invested in such business 50 Brokers 30 00 Pawnbrokers 50 00 Shipbrokers 20 00 Custom-house brokers 10 00 Theatres, museums, concert halls: Seating capacity not over 250 25 00 Seating capacity 250 to 500 50 00 Seating capacity 500 to 800 75 00 Seating capacity over 800 100 00 Rates one-half in towns of 5,000 or less. Circuses 100 00 All other exhibitions and shows 10 00 Exemption, religious, educational, etc. Bowling and billiards, per alley or table 5 00 Private homes excepted. 378 Table of Federal Taxes. Manufacturers of tobacco : Sales not exceeding 50,000 pounds $3 00 Sales 50,000 to 100,000 pounds 6 00 Sales 100,000 to 200,000 pounds 12 00 Sales exceeding 200,000 pounds per 1,000 pounds . 08 Manufacturers of cigars : Sales not exceeding 50,000 cigars 2 00 Sales 50,000 to 100,000 cigars 3 00 Sales 100,000 to 200,000 cigars 6 00 Sales 200,000 to 400,000 cigars 12 00 Sales exceeding 400,000 per 1,000 cigars 05 Manufacturers of cigarettes, per 10,000 or fraction. ... 03 Includes small cigars ■weighing not more than three pounds per 1,000. 2. TAXES NOT IN ACT OF SEPTEMBER 8, 1916. Special Taxes: Rectifiers of spirits, less than 500 barrels annually $100 00 Rectifiers of spirits, 500 barrels or more 200 00 Liquor dealers, -wholesale 100 00 Liquor dealers, retail 25 00 Malt liquor dealers, wholesale 50 00 Malt liquor dealers, retaU 20 00 StiU manufacturers 50 00 Plus for each still or -worm 20 00 Brewers, less than 500 barrels annually 50 00 Brewers, 500 barrels or more 100 00 Filled cheese, manufacturers 400 00 Filled cheese, dealers, wholesale 250 00 Filled cheese, dealers, retail 12 00 _ Oleomargarine, manufacturers 600 00 Oleomargarine colored to imitate butter, dealers, whole- sale 480 00 Oleomargarine colored to imitate butter, dealers, retail. 48 00 Oleomargarine free from coloring, dealers, wholesale. . 200 00 Table op Federal Taxes. 379 Oleomargarine free from coloring, dealers, retail $6 00 Adulterated butter, manufacturers 600 00 Adulterated butter, dealers, wholesale 480 00 Adulterated butter, dealers, retail 48 00 Process or renovated butter, manufacturers 50 00 Mixed flour, makers, packers, repaekers 12 00 Opium producers, makers, importers, etc 1 00 Stringently regulated. See Text. Spirits: Distilled spirits, per gallon 1 10 Special ten-cent stamps for cases of bottled goods and for export. Deficiency in production is taxed according to capac- ity and materials. Tobacco : All kinds of prepared tobacco, per pound 08 Snuff, per pound 08 Cigars weighing more than three pounds per 1,000 .... 3 00 Cigars weighing not more than three pounds per 1,000 . 75 Cigarettes weighing not more than three pounds per 1,000 1 25 Cigarettes weighing more than three pounds per 1,000. 3 60 MisceUaneous Taxes, Chiefly Regulative: Oleomargarine, colored like butter, per pound 10 Oleomargarine, not colored like butter, per pound 00% Oleomargarine, imported, besides duty 15 Adulterated butter, per pound 10 Process or renovated butter, per pound ' 00^4 Filled cheese, per pound 01 Filled cheese, imported, besides duty. 08 Mixed flour, per barrel, 98 to 196 pounds 04 Mixed flour, per y^. barrel, 49 to 98 pounds 02 Mixed flour, per % barrel. 24% to 49 pounds 01 Mixed flour, per % barrel, 24% pounds or less. . . . 00% Mixed flour, imported, same, plus duty. 380 Table of Fedeeal, Taxes. Opium, for smoking, per poimd $300 Ot/ Playing cards, per pack 02 Wliite phosphorous matches, per 100 02 Bank circulation, private and State bank, on issue, per month 1/12 of 1% Bank circulation, except national, on issue exceed- ing 90% of capital, additional 1/6 of 1% Bank on pa3drig out private or State bank or municipal notes, on amount 10% Every person or bank other than national, on own notes paid out 10% Every person or bank, including national, on pay- ing out private, state bank or municipal notes. . 10% Tariff: It is impracticable to tabulate the rates of customs duties in a condensed form. They are found in the Tariff Act of October 3, 1913, procurable as a public document. The Act of September 8, 1916, -which see, changes the rates on certain dyestuffs and chemicals (Title V), and on certain papers (Title VI). Tonnage Duties: On vessels entering United States ports from North and parts of South America, per ton . . $0 02 Not to exceed 10 cents in one year. On vessels from other foreign ports 06 Not to exceed 30 cents in one year. On foreign-built yachts, per gross ton 7 00 TABLE OF CASES. [381] TABLE OF CASES. [References are to pages] A Abrast Realty v. Maxwell, 206 F. R. 333 196, 251 Adams Exp. Co. v. N. Y., 232 U. S. 14 166 Agnew V. Haymes, 141 F. R. 631 243 Aguirre v. Maxwell, 3 Blateh. 140 364 Aiken v. BlaisdeU, 41 Vt. 655 167 Allen V. Louisiana, 103 U. S. 80 235 Allen V. Pullman, 139 U. S. 658 10 Almy V. Calif, 24 How. 169 290 American Sugar Ref. Co. v. Louisiana, 179 U. S. 89 165 Amer. Twine Co. v. "Worthington, 141 U. S. 468 262 Amos-Richia Co. v. N. W. M'ut. L., 143 Mich. 684 115 Anderson v. NewhaU, 161 F. R. 906 369 Angariea v. Bayard, 127 U. S. 260 252 Armour Packing Co. v. Lacy, 200 U. S. 226 165 Armstrong v. Toler, 11 Wheat. 258 245 Atlantic Postal v. Savannah, 133 Ga. 66 195 Aurora Cargo v. U. S., 7 Cranch, 382 363 B Bailey v. Clark, 21 Wall. 284 171 Bank v. Tenn., 161 U. S. 134 280 Bk. of Louisville v. Ky., 9 WaU. 353 269 Bank Tax Case, 2 Wall. 200 269 Barbour v. Gates, 43 N. Y. 40 115 Barnes v. Railroads, 17 Wall. 294 , 39, 50, 54 Bartlett v. GUI, 221 F. R. 476 98 Bartlett v. Kane, 16 How. 269 90, 245 Bates V. Mobile, 46 Ala. 158 168 Bates, etc., Co. v. Payne, 99 U. S. 106 232 Becker, In re. Fed. Cas. No. 1208 240 [383] 384 Table of Cases. [References are to pages] Beebe v. Hutton, 47 Barb. 187 114 Beer v. Moflatt, 209 T. E. 779 99 BeU's Gap Co. v. Pa., 134 U. S. 232 277 Benziger v. P. S., 192 U. S. 38 261 Bernier v. Bemier, 147 U. S. 242 257, 258 Bettman v. Warwick, 108 P. R. 46 265 BUlings V. U. S., 232 U. S. 261 22 Blacklock v. U. S., 208 U. S. 75 242 Blake v. Nat. Bks., 23 Wall. 307 259 Blalock V. Ga., etc., Co., 228 F. D. 296 22, 59 Boske V. Comingore, 177 U. S. 459 11, 85 Bowman v. Ry. Co., 125 U. S. 508 292 Boyd V. Hood, 57 Pa. 98 262 Boyd V. U. S., 116 U. S. 617 240 Bradley v. Richmond, 227 U. S. 477 166 Ex rel. Brew. Co. v. Fromme, 35 App. Div. 459 115 Brown v. Goodwin, 75 N. Y. 409 243 Brown v. Kinney, 128 F. R. 310 259 Brown v. Md., 12 Wheat. 419 166, 265, 270, 279, 291, 299 Brown v. U. S., 113 U. S. 568 260 Browning v. Waycross, 233 U. S. 16 166 Brushaber v. U. P. R. R. Co., 240 U. S. 1 10, 17, 19, 22, 24 250, 281, 333 Bryan v. First Nat. Bk., 205 Pa. 7 115 Buckley v. Hamason, 50 Minn. 195 167 Barr v. U. S., 159 U. S. 78 237 Burroughs v. Abel, 105 F. R, 366 253 Buttfleld V. Stranahan, 192 U. S. 470 226, 232 Cambria Steel Co. v. MeCoach, 225 F. R. 278 251 Campbell v. CaUf, 200 U. S. 87 101 Campbell v. U. S., 107 U. S. 407 11 Cannon v. N. 0., 20 Wall. 580 364 Cardinal v. Smith, Deady U. S. 197 11 Carey v. Curtis, 3 How. U. S. 236 249, 336 Table of Cases. 385 [References are to pages] CargiU Co. v. Minnesota, 180 U. S. 452 165 Cargo of Brig Aurora v. U. S., 7 Cranch 382 363 Carpenter v. Johnson, 1 Nev. 331 114 Carriage Co. v. Stengel, 95 F. R. 637 237 Carroll v. Mayor, 12 Ala. 173 165 Cassidy v. St. Germain, 22 R. I. 53 115 Celley v. Gray, 37 Vt. 136 262 Central Trust v. Treat, 185 F. R. 760 172 In re Chadwick, 1 Lowell, 439 172, 240 Champion v. Ames, 181 U. S. 321 292 In re Chapman, 166 U. S. 661 257 The Charming Betsy, 2 Cranch 64 362 Chartiers Co. v. McNamara, 72 Pa. 278 114 Cheatham v. U. S., 92 U. S. 85 252 Cherokee Tobacco, 11 "Wall. 616 94 Cheseborough v. U. S., 192 U. S. 253 250, 251, 254, 336, 368 Chicago, W. & St. P. v. U. S., 127 U. S. 406 257, 259 Chin Sing v. U. S., 227 F. R. 397 323 Chisholm v. Ga., 2 Dallas, 419 270 Christie Street Co. v. U. S., 129 F. R. 506 11, 243, 246, 251, 252 Church of Holy Trinity v. U. S., 143 U. S. 457 263 Citizens' Telephone v. Fuller, 229 U. S. 322 166 Ex parte City v. Knox, 64 Ala. 463 165 Clark V. Bailey, 21 Wall. 284 172 Clark V. Gilbert, 5 Blatchf. 330 175 Clemens v. Conrad, 19 Mich. 170 115 Cliff V. U. S., 195 U. S. 159 325 Cliquot's Champagne, 3 Wall. 114 256 Coffey V. U. S., 116 U. ?. 427 311 Collector v. Day, 11 Wail. 113 30 Collector v. Hubbard, 12 Wall. 1 249 Collins V. N. H., 17111. S. 30 324, 328 Comr. Louisville v. Buckner, 48 F. R. 533 252 Commonwealth v. Cusick, 120 Mass. 183 259 Commonwealth v. Holbrook, 10 Allen, 200 165 Commonwealth v. Sloan, 4 Cush. 52 248 Cook V. Marshall Co., 196 U. S. 261 165 13 386 Table of Cases. [References are to pages] Cooke V. England, 27 Md. 14 114 Coopersville Co. v. Lemon, 163 F. R. 145 247, 327 Cope V. Cope, 137 U. S. 682 259 Corbin v. Tracy, 34 Conn. 325 114 Corbus V. Gold, 187 U. S. 455 20, 249 ComeU V. Coyne, 192 U. S. 418 328 Craft V. Sehafer, 153 F. R. 175 254 Cuzner v. Calif. Club, 155 Cal. 303 195 D Davidson v. N. 0., 96 U. S. 97 •. 280 Davis V. Daugherty, 105 F. R. 769 136 Davis V. Richardson, 45 Miss. 499 115 Day V. Barker, 36 Mo. 125 114 DeBary v. Dunne, 172 F. R. 940 168, 176 DeBary v. Souer, 101 F. R. 425 165, 257 DeLima v. BidweU, 182 U. S. 1 284, 367 Dobbins v. Conunissioners, 16 Pet. 435 269 Dodge V. Brady, 240 U. S. 122 18 Dodge V. Osbom, 240 U. S. 118 18 Doe V. Amos, 2 M. & R. 180 262 DoU V. Evans, Fed. Cas. 3969 90, 245 Dollar Sav. Bk. v. U. S., 19 Wall. 227 131, 172, 261 Dooley v. U. S., 182 U. S. 222 367 Dooley v. U. S., 183 U. S. 151 284, 291 Dorris v. Grace, 24 Ark. 326 114 Dougherty v. U. S., 181 U. S. 622 265 Dow V. Chicago, 11 Wall. 108 249 Downes v. BidweU, 182 U. S. 244 284, 367, 368 Doyle V. Conn. Ins. Co., 94 U. S. 535 289 Duffy V. Hobson, 40 CaUf. 240 115 Dugan V. U. S., 34 Ct. Cls. 458 251 E Eagle V. Nowlin, 94 F. R. 646 247 Easterbrook v. Heb. Orph. Soc, 85 Conn. 289 195 Table of Cases. 387 [Eeferences are to pages] Edwards v. Keith, 231 F. 11. 110 26, 56 Edye v. Robertson, 112 U. S. 580 278 Eidman v. Martinez, 184 U. S. 578 39, 256, 334 Eidman v. TUgham, 203 U. S. 580 260 Eliot Nat. Bk. v. Gill, 218 F. R. 600 248 Ellis V. State, 5 Ga. App. 615 195 Emery Realty Co. v. U. S., 198 F. R. 242 252 Equitable Life v. Penn., 238 U. S. 143 169, F Fairbank v. U. S., 181 U. S. 283 11, 123, 251, 260, 290 Farmers' L. & T. Co. v. Treat, 185 F. R. 760 172 Farrington v. Tenn., 95 U. S. 679 279, 280 Felton V. U, S., 96 U. S. 699 247 Field V. Clark, 143 U. S. 649 226, 228, 232, 235, 299, 357 Flaherty v. Hanson, 215 U. S. 515 166 Fleming v. Page, 9 How. 603 284, 367 Fleshman v. MoClain, 106 F. R. 880 246 Flint V. Stone Tracy Co., 220 U. S. 107 15, 22, 24, 30, 62 123, 196, 265, 286, 299, 333 Florida, etc., Co. V. U. S., 234 U. S. 167 293 40 Fort Coal Co. v. Kirkendall, 223 F. R. 704 67 42 Broadway Co. v. Anderson, 239 U. S. 69 64, 256 14 Diamond Rings, 183 U. S. 176 284 Freeman v. U. S., 157 F. R. 195 254 G Ganly Mt. Coal Co. v. Hays, 230 F, R. 110 59 George v. Fourth Nat. Bk., 41 F. R. 263. 310 Germ. Sav. Bk. v. Archbold, 15 Blateh. 398 90, 245 Gibbons v. Ogden, 9 Wheaton, 1 1, 269, 272, 291, 299 Gill V. Bartlett, 224 F. R. 927. 98, 105, 107, 257 Gray v. Darlington, 15 Wall. 63 34 Green v. Holway, 101 Mass. 243 115 Greenbrier Co. v. Johnson, 88 F. R. 638 309 Table of Cases. [References are to pages] Gundling V. Chicago, 177 U. S. 183 166 Gunter v. Leekey, 30 Ala. 591 165 Gurr V. Seudds, 11 Exch. E. (H. & G.) 190 262 H Haight & Freese v. McCoach, 135 F. R. 894 254 Hall V. Bishop, 3 Daly, 109 167 Hallett V. Jenks, 3 Cranch, 210 362 Hammond Packing Co. v. Montana, 233 U. S. 331 324 Hannewinkle v. Georgetown, 15 WaE. 548 249 Hardesty v. U. S., 168 F. R. 25 326 Harkins v. Willard, 146 F. R. 703 311 Harrington's Distilled Spirits, 11 Wall. 356 259 Hartman v. U. S., 168 F. R. 30 325 Hartranft v. Wiegmann, 121 U. S. 609 262 Hastings v. Herold, 184 F. R. 759 250 Hawaii V. Mankiohi, 190 U. S. 197 367 Haymes v. Brown, 132 F. R. 525 243 Head Money Cases, 112 U. S. 581 277, 279, 280, 332 Henderson's Dist. Spirits, 14 Wall. 44 246 Herold v. Kahn, 159 F. R. 608 251 Hertz V. Woodman, 218 U. S. 205 99, 259, 334 High V. Coyne, 178 U. S. Ill 334 Hill V. U. S., 149 U. S. 593 253 Hirsh V. Commonwealth, 21 Gratt. 785 11 Hooking VaUey v. U. S., 210 F. R. 735 293 Holt V. Green, 73 Pa. 200 167 Home Ins. Co. v. N. Y., 134 U. S. 594 278 Hooper v. Calif., 155 U. S. 648 165 Houston, etc., Co. v. U. S., 234 U. S. 342 292 Hubbard v. Lowe, 226 F. R. 135 297 Hugus V. Strickler, 19 Iowa, 413 260, 262 Huntington v. Worthen, 120 U. S. 97 235 In re Huttman, 70 F. R. 699 11 Hvoslef V. U. S., 237 U. S. 1 253 Hylton V. U. S., 3 Dallas, 171 3, 274, 275, 276, 299 Table op Cases. 389 [References are to pages] I Income Tax Cases, 157 U. S. 429; 158 id. 601. .98, 235, 264, 276, 303 Insular Cases 284 Irresistible, The, 7 Wheaton, 551 259 J Jackson v. Hough, 38 W. Va. 237 175 Jackson v. U. S., 21 F. R. 35 318 James v. Appel, 192 U. S. 129 261 James v. Hicks, 110 U. S. 272 250 John J. Sesnon v. U. S., 220 U. S. 609 257 Johnson v. Herold, 161 F. R. 593 251 Jordan v. Roche, 228 U. S. 436 367, 369 K Kawailani, The, 128 F. R. 879 367 Keeley v. Sanders, 99 U. S. 443 249, 275 Kentucky Ry. Cases, 115 U. S. 321 277, 278 Kercheval v. Allen, 220 F. R. 262 326 King V. U. S., 99 U. S. 229 131 Kings Co. Sav. Inst. v. Blair, 116 U. S. 200 252 Kinney, In re, 102 F. R. 468 240 Kirkland v. Hotchkiss, 100 U. S. 491 279 Klock Produce Co. v. Haftson, 212 F. R. 758 252 Kollock, In re, 165 U. S. 526 11, 326 Knowlton v. Moore, 178 U. S. 41 .24, 97, 98, 100, 101 105, 276, 277, 278, 334 Kxiox V. Hindepoper, 21 Wis. 527 114 Knox V. Rossi, 25 Nev. 96 115 Kreiss v. Seligman, 8 Barb. 439 245 L Lambeiton, Jw re, 124 F. R. 446 11 Landram v. U. S., 118 U. S. 81 172, 259 Land Title & T. Co. v. MeCoach, 127 F. R. 381 259 390 Table op Cases. [Eeferenees are to pages] Lane v. Oregon, 7 Wall. 71 279 Lamed v. Andrews, 106 Mass. 435 167 Latham v. Smith, 45 lU. 29 115 Lawrence v. Seyburn, 202 F. R. 913 328 Leather Mfrs. Bk. v. Treat, 128 F. R. 262 172 Ledbetter v. U. S., 170 U. S. 610 167 Lees V. U. S., 150 U. S. 476 244 Legal Tender Cases, 12 "Wall. 457 263, 272, 278 Leisy v. Hardin, 135 U. S. 100 292 License Cases, 5 How. 504 166, 292 License Tax Cases, 5 Wall. 462 165, 264 Lippman's Case, 3 Ben. 95 172 Loan Assn. v. Topeka, 20 Wall. 655 263, 287 Loewe & Co. v. L&wlor, 208 U. S. 283 294 Logan V. Dils, 4 W. Va. 397 114 Loughborough v. Blake, 5 Wheat. 317 283 Louisville v. Buckner, 48 F. R. 533 252 LouisvUIe V. Sav. Bk., 104 U. S. 469 237 Louisville, etc., Co. v. U. S., 216 F. R. 672 293 LudlofE V. U. S., 108 U. S. 176 318 Lynch v. Turrish, D. C. Minn 34 M MeClain v. Penna., etc., Co., 108 F. R. 618 11, 260 McCoach V. MinehiU, etc., Co., 228 U. S. 295 196 McCoach V. Pratt, 236 U. S. 562 99 MoCray v. U. S., 195 U. S. 27 24, 289, 323, 325, 326 McCuUoch V. Md., 4 Wheat. 316 iii, 269, 270, 285, 299, 332 McDonough, In re, 49 F. R. 360 136 McGuire v. Com'wealth, 3 WaU. 387 165 McNally v. Field, 119 F. E. 445 11, 261 Magoun v. 111. Trust Co., 170 U. S. 283 97, 101, 277, 278 Maine v. Grand Trunk, 142 U. S. 217 123 Mansfield v. Excelsior Ref. Co., 135 U. S. 326 242 Marbury v. Madison, 1 Craneh, 137 275 Marks V. U. S., 196 F. R. 476 11, 320 Table of Cases. 391 [References are to pages] Martin v. Hunter, 1 Wheaton, 304 271, 299 Mechanics, etc., Bk. v. Townsend, 5 Blatoh. 315 171 Meeker v. Lehigh V. R., 236 U. S. 412 293 Memphis, etc., R. R. v. U. S., 108 U. S. 228 14 Mdse. Imported by Hoyt, In re, 75 F. R. 998 260 Merchants' Nat. Bk. v. U. S., 42 Ct. CI. 6 171 Merck v. Treat, 202 T. R. 133 251 Merritt v. Cameron, 137 U. S. 542 11, 260 Metropolitan V. D. C, 132 U. S. 1 283 Mich. Cent. v. Powers, 201 U. S. 345 24 Millard v. Roberts, 202 U. S. 429 299 MiUs V. Lehigh V. R., 238 U. S. 473 293 Miner v. Fredonia, 27 N. Y. 155 168 MiteheU v. Cole, 226 F. R. 824 326 Monongahela Bridge Co. v. U. S., 216 U. S. 177 232 Moore v. Moore, 47 N. T. 467 115 Moore v. Quirk, 105 Mass. 49 115 Moran v. N. Orleans, 114 U. S. 627 167 Morley v. Hall, 2 Dowl. 494 262 Mormon Church v. U. S., 136 U. S. 1 284 Morris v. U. S., 161 F. R. 672 325 Moxley v. Hertz, 216 U. S. 344 324, 325 Murdoek v. Ward, 178 U. S. 139 100 Mutheson v. U. S., 71 F. R. 394 262 Myers v. Smith, 48 Barb. 614 115 N Natl. Bk. V. Burkhaxdt, 100 U. S. 686 237 Nat. Bk. of Cbm'rce v. Allen, 223 F. R. 472 *. . . . 248 NewhaU v. Jordan, 160 F. R. 661 > 368 New Haven, etc., Co. v. Quintard, 31 How. Pr. 29 115, 262 N. Y. V. Mihi, 11 Peters, 102 292 N. Y. & Cuba Mail v. U. S., 200 U. S. 488 251 N. Y. Tdephone v. Treat, 130 F. R. 340 262 New Orleans v. Metrop. Loan, 31 La. Ann. 310 173 Nieol V. Ames, 173 U. S. 509 264, 271, 277, 278, 282 392 Table or Cases. [References are to pages] NikoU V. U. S., 7 Wall. 122 249 Nishimura Ekin v. U. S., 142 U. S. 651 232 North Cape, The, 6 BisseU, 505 364 Northrup v. Shook, 10 Blatchf. 243 178 Nunn V. Gerst Brew. Co., 99 F. R. 939 237, 260 Nye V. Washburn, 125 F. R. 818 10 o Oceanic Nav. Co. v. Stranahan, 214 U. S. 320 232, 285 Ohio V. Kendle, 8 0. N. P. N. S. 109 166 Ohio Tax Cases, 232 U. S. 576 166 Oregon, etc.. Trust v. Rathbun, 5 Sawyer, 32 172 Orr V. Gilman, 183 U. S. 278 278 Osbom V. Bk. of U. S., 9 Wheat. 738 269 Onlton V. Sav. Inst., 17 Wall. 118 171 P Pace V. Burgess, 92 U. S. 372 290, 316 Pacif. Exp. Co. V. Seibert, 142 U. S. 339 277 Pacif. Ins. Co. v. Soule, 7 Wall. 433 14, 264, 276, 282, 283 Passavant v. U. S., 148 U. S. 214 232, 244 Passenger Cases, 7 How. 283 279, 292 Patterson v. Eames, 54 Me. 203 114 Patton V. Brady, 184 U. S. 608 22, 136, 191, 264, 265, 280 Peacock v. Pratt, 121 F. R. 722 14 Peck V. Kmney, 128 F. R. 313 260 Penna. Co. for Ins. v. MeClain, 106 F. R. 618 253 Pennington v. Cox, 2 Cranch, 33 250 Penobscot, The, 7 Cranch, 356 363 Peo. ex ret Brew. Co. v. Fromme, 35 App. Div. N. Y. 450. . . . 115 Pepke V. U. S., 183 U. S. 176 284, 369 Pervear v. Com'wealth, 5 Wall. 475 165 Phila. Trust Co. v. MeCoach, 203 U. S. 594 259 Pierpont v. Johnson, 104 111. App. 27 115 Pipe Line Cases, 234 U. S. 548 293 Pittsb., etc., Ry. Co. v. Backus, 154 U. S. 421 244 Table of Cases. 393 [References axe to -pages] Plessinger v. Dupuy, 25 Ind. 419. 114 Plumley v. Mass. 155 U. S. 461 165, 166, 327 Plummer v. Coler, 178 U. S. 115 30, 100, 102, 263 Pollard V. Phoenix Ins. Co., 63 Miss. 244 167 Pdllock V. r. L. & T. Co., 157 U. S. 429, etc 3, 10, 15, 98, 249 264, 266, 276, 333, 334 Ponce V. R. C.'Cliurch, 210 U. S. 296 369 Portland v. O'Neill, 1 Greg. 218 165 Powell V. Penna., 127 U. S. 678 324 Powers V. Barney, 5 Blatch. 202 263 Providence Ek. v. Billings, 4 Pet. 514 280 Public Clearing House v. Coyne, 194 U. S. 497 232 Public Service Ry. v. Herold, 219 P. R. 301 250 PuUan V. Kinsinger, 2 Abb. U. S. 94 10, 249 Quantity of Spirits, In re, 3 Ben. 552 247 R R.R. V. Collector, 100 U. S. 595 39 R. R. V. Jackson, 7 Wall. 262 39 R. R. Co. V. Penna., 15 Wall. 300 39 Rassmussen v. U. S., 197 U. S. 516 367 Evading R. R. v. Penn., 15 Wall. 284 123 Real Est. Bk. v. U. S., 16 Ct. CI. 335 251 Real Estate 'Title Co. v. Lederer, 229 F. R. 799 174 'Ex parte Reed, 100 U. S. 13 11 Rice & Co. V. U. S., 53 F. R. 910 262 Richmond v. Blake, 132 U. S. 592 171 Ripper v. U. S., 179 F. R. 497 326 Robards v. Franks, 109 F. R. 276 10 Robards Tobacco Co. v. Franks, 112 F. R. 784 264 The Robert Edwards, 6 Wheaton 187 350 Robertson v. U. S., 220 U. S. 616 335 Ruckman v. Bergholz, 37 N". J. L. 437 167 394 Table of Cases. [References are to pages] s St. Louis V. LaugWin, 49 Mo. 559 165 St. Louis, etc., Co. v. U. S. 217 P. R. 80 293 St. Louis S. W. Ry. v. Arkansas, 235 U. S. 350 280 St. Paul, etc., Ry. v. Phelps, 137 U. S. 528 11, 260 Salmon v. Burgess, 97 U. S. 381 237 Salt Lake v. Hollister, 118 U. S. 256 31, 309 SarUs V. U. S., 152 U. S. 570 136 Sault Ste. Marie v. Intern. Transit, 234 U. S. 333 166 ScheU's Executor's v. Fauche, 138 U. S. 562 11 Sehoenfeld v. Hendricks, 152 U. S. 691 249 Scholey v. Rew, 23 Wall. 331 98, 123, 276, 283 SehoUenberger v. Pa., 171 U. S. 1 324 Seidler v. U. S., 228 F. R. 336 323 Selden v. Equitable Trust Co., 94 U. S. 419 171, 172 Sesnon v. U. S., 220 U. S. 609 165, 257 Shelley v. U. S., 229 U. S. 239 320 Sheridan v. Allen, 153 F. R. 568 242 Simmons v. State, 12 Mo. 268 165 Simpson v. Peaslee, 20 How. 571 367 Slack V. Tucker, 23 Wall. 321 180, 189 Slaughter House Cases, 16 Wall. 36 299 Small V. Sloeumb, 112 Ga. 279 115 Smith V. Mawhood, 14 M. & W. 452 167 Smith V. Waters, 25 Ind. 397 260 Smythe v. Fiske, 23 Wall. 374. 11, 257, 263 Snyder v. Bettman, 190 U. S. 249 100 Snyder v. Marks, 109 U. S. 189 10, 20, 244, 252 Sou- Carolina v. U. S., 199 U. S. 437 31, 63, 265 Southern OU Co. v. Texas, 217 U. S. 114 165 Spielman v. State, 27 Md. 520 168 Spooner v. Eifler, 1 Heisk. Tenn. 633 115 Spreekles v. McClain, 192 U. S. 397 11, 123, 242, 264 Springer v. U. S., 102 U. S. 586 10, 14, 264, 274, 276 Standard Oil Case, 221 U. S. 1 263 Stanley v. Schwalby, 162 U. S. 255 253 Table of Cases. 395 [References are to pages] Stanton v. Baltic Mining Co., 240 U. S. 103 18 Stanwood v. Green, 2 Abb. U. S. 184 173 Sifcate V. Delano, 54 Me. 501 165 State V. Johnson, 65 Me. 362 165 State Bk. v. Knoop, 16 How. 369 279 State B. R. Tax Cases, 92 U. S. 575 10 State Tonnage Tax Cases, 12 Wall. 204 364 S. S. Co. V. Port Wardens, 6 WaU. 31 364 Stegall V. Thurman, 175 F. R. 813 85 Stewart v. Barnes, 153 U. S. 456 252 Stockdale v. Doswell, 16 WaU. 156 180 Stockdale v. Ins. Co., 20 WaU. 323 22, 259 Stratton's Independence v. Howbert, 231 U. S. 399 15, 67 In re Stronse, 1 Sawyer, 605 173 Stnrges v. Carter, 114 U. S. 511 280 Sulpbo Bath Co. v. Allen, 66 Neb. 295 115 Swift Co. V. U. S. Ill U. S. 22 250, 251 T Talbott V. SUver, 139 U. S. 438 284 Taylor v. Treat, 153 F. R. 656 140, 257 Taylor v. U. S., 3 How.-U. S. 197 256, 257 Tedrick v. Hiner, 61 lU. 189. ... , 167 Tenn. v. Whithworth, 117 U. S. 129 280 Texas, etc., Co. v. Interstate C. C, 162 U. S. 197 292 Thames, etc., Co. v. U. S., 237 U. S. 19 251 Thomas v. Texas, 40 Tex. Crim. App. 562 115 Thomas v. U. S., 192 U. S. 363 265 Tobey v. Chipman, 13 AUen, 123 114 Tomlin v. Woods, 125 Iowa, 367 115 Trans-Missouri Fight Case, 166 U. S. 318 263 Turner v. Smith, 14 WaU. 553 275 Turpin v. Burgess, 117 U. S. 504 290, 316 Twin City Bk. v. Nebeker, 167 U. S. 196 299 Tyee Realty Co. v. Anderson, 240 U. S. 115 18 396 Table of Cases. [References are to pages] u Union Bridge Co. v. U. S., 204 U. S. 364 226 Union Sewer Pipe Co. v. Connolly, 184 U. S. 540 294 Union Transit v. Kentucky, 199 U. S. 194 169 Uterhart v. U. S., 240 U. S. 598. 99, 100 U. S. V. Acorn R. Co., 204 F. R. 157 76, 107, 248 U. S. V. Adams Exp. Co., 119 F. R. 240 167 U. S. V. Addyston Pipe & S. Co., 175 U. S. 211 294 U. S. V. Alger, 152 U. S. 384 260 U. S. V. Allen, 14 F. R. 263 80, 243 U. S. V. Amer. Tobacco, 166 U. S. 468 254 U. S. V. Angell, 11 F. R. 34. 168 U. S. V. Bk. of Metrop., 15 Pet. 377 251 U. S. V. Bk. of Montreal, 21 F. R. 236 171 U. S. V. Barnes, 222 U. S. 513 258 U. S. V. Bedgood, 49 F. R. 54 241 U. S. V. Billings, 232 U. S. 261, 289 364 U. S. V. Black, 11 Blatchf. U. S. 543 10 U. S. V. Bowen, 100 U. S. 508 305 U. S. V. Breed, 24 Fed. Cas. 1222 257 U. S. V. Bristow, 20 F. R. 378 80 U. S. V. Brown, 224 F. R. 135 322 U. S. V. Buzzo, 18 Wall. 125 247 U. S. V. Carlisle, 5 D. C. App. 138 357 U. S. V. Chamberlain, 219 U. S. 250 239, 246 U. S. V. CbevaUier, 107 F. R. 434 168, 176 U. S. V. Chouteau, 102 U. S. 603 244 U. S. V. Cole, 134 F. R. 697 11, 246, 256 U. S. V. Craft, 43 F. R. 374 244 U. S. V. Cutting, 3 Wall. 441 175 U. S. V. Davis, 37 F. R. 468 168 U. S. V. Del. & Hudson, 213 U. S. 366 293, 294 U. S. V. D., L. & W., 238 U. S. 516 293, 294 U. S. V. Devlin, 6 Blatch. 71 248 U. S. V. Distilled Spirits, 10 Blatch. 428 256 U. S. V. Don Kee, 192 F. R. 733 .' 320 Table of Cases. 397 [References are to pages] IT. S. V. Eaton, 144 U. S. 677 11, 246 U. S. V. E. C. Knight Co., 156 U. S. 1 294 U. S. V. Edwards, 43 F. R. 67 241 U. S. V. 84 Boxes of Sugar, 7 Peters, 453 262 U. S. V. 11,150 Lbs. Butter, 195 F. R. 657 247, 327 U. S. V. Erie Ry. Co., 106 U. S. 327 39 U. S. V. Farmers' L. & T., 25 Fed. Cas. No. 15,070 171 U. S. V, Fidelity Trust, 222 U. S. 158 99, 253 U. S. V. Fisk, 3 Wall. 445 175 U. S. V. Fitts, 197 F. B. 1007 240 U. S. V. 43 Gals. Whiskey, 108 U. S. 491 366 r. S. V. Foster, 2 Biss. 453 244 U. S. V. Gallant, 117 F. R. 281 247 U. S. V. Glab, 99 U. S. 225 168 U. S. V. Gooding, 12 Wheat. 460 262 U. S. V. Grundy, 3 Cranch. 337 362 TJ. S. V. Halberstadt, Gilp. 262 249 U. S. V. HaU, 131 U. S. 50 44, 112, 241 U. S. V. Hardison, 135 F. R. 419 241 IT. S. V. Hill, 120 U. S. 169 11, 260 U. S. V. Hirsch, 100 U. S. 35 305 U. S. V. Hodson, 10 Wall. 395 257, 262 TJ. S. V. Howard, 1 Sawyer, 507 186 TJ. S. V. Hvoslef, 237 U. S. 1 251 U. S. V. Iselin, 91 F. R. 699 237 U. S. V. Isham, 17 Wall. 496 262, 263 TJ. S. V. Jackson, 1 Hughes, 531 167 U. S. V. Jin Fuey Moy, 241 U. S. 394 323 U. S. V. Joint TrafQc Assn., 171 U. S. 505 294 U. S. V. Jones, 236 U. S. 106 99, 105 TJ. S. V. Kaufman, 96 U. S. 567 167, 250 U. S. V. Kenton, 2 Bond, 87 180 U. S. V. Lacher, 134 U. S. 624 305 TJ. S. V. Lamson, 165 F. R. 80 241 U. S. V. Lee, 106 U. S. 196 253 U. S. V. Lehigh V. E., 220 U. S. 257 293, 294 TJ. S. V. Liquor Dealers, 156 F. R.. 219 247 398 Table of Cases. [Eeferences are to pages] TJ. S. V. L. & N. R. Co., 235 U. S. 314 292, 293 U. S. V. McGiimiss, 1 Abb. U. S. 120 249 U. S. V. Mifg. Apparatus, 114 F. R. 475 326 U. S. V. Montjoy, 1 Abb. U. S. 120 249 U. S. V. Morin, 4 Biss. 93 244 U. S. V. MuUins, 119 F. R. 334 261 U. S. V. Natl. Surety Co., 157 F. R. 174 310 U. S. V. Neustaedter, 149 F. R. 1010 330 U. S. V. N. y., 160 U. S. 598 .252, 253 U. S. V. N. T. «& Cuba Mail, 200 U. S. 488 250 U. S. V. Northern Securities Co., 193 U. S. 197 , 294 U. S. V, Olney, 1 Abb. U. S. 275 262 U. S. V. One Black Horse, 129 F. R. 167 245 U. S. V. One Case of Wine, 6 Ben. 493 140 U. S. V. Orr, 223 F. R. 220 326 U. S. V. Pacific R. R., 4 Dillon, 66 249 U. S. V. Perkins, 163 U. S. 625 101, 124 U. S. V. Priest, 210 F. R. 332 240, 246, 253 U. S. V. Quantity of Cigars, 18 F. R. 147 318 U. S. V. R. R. Co., 17 WaU. 322 31, 63 U. S. V. Ranlett & Stone, 172 U. S. 133 259 U. S. V. Realty' Co., 163 U. S. 427 286, 287, 357 U. S. V. Reisinger, 128 U. S. 398 259 U. S. V. Rennecke, 28 F. R. 847 167, 195 U. S. V. Bice, 4 Wheaton, 246 , 284 U. S. V. Riddle, 5 Cranch, 311 246 U. S. V. Ridenour, 119 F. R. 411 309 U. S. V. Riley, 5 Blatchf . 204 165 U. S. V. Rindskopf, 105 U. S. 418 131 U. S. V. Rogers, 164 F. R. 520 247 U. S. V. Sav. Bk., 104 U. S. 728 10, 250, 252 U. S. V. 7 Bbls. of Whiskey, 131 F. R. 806 248 U. S. V. Sinunons, 1 Abb. 470 180 U. S. V. Singer, 15 Wall. Ill 309 U. S. V. Spiegel, 116 U. S. 270 248 U. S. V. StoweU, 133 U. S. 1 256 U. S. V. Swift & Co., 196 U. S. 375 294 Table of Cases. 399 [References are to pages] U. S. V. Sykes, 58 F. E. 1000 244 U, S. V. Symonds, 120 U. S. 46 11 U. S. V. Tanner, 147 U. S. 661 260 U. S. V. Thomas, 192 U. S. 363 196 U. S. V. Thomasson, 4 Biss. 99 248 U. S. V. Thompson, 189 F. R. 838 256 U. S. V. Three Stills, 47 F. R. 495 311 U. S. V. Trans-Missouri Freight, 166 U. S. 290 , 294 U. S. V. 20 Boxes, 133 F. R. 910 261 U. S. V. 2 Bbls. Whiskey, 96 F. R. 479 245 U. S. V. 200 Barrels, 95 U. S. 571 11 U. S. V. 2461/2 Lbs. Tobacco, 103 F. R. 791 256 U. S. V. 220 Machines, 99 F. R. 559 319 U. S. V. Union Pacif ., 91 U. S. 72 262 U. S. V. Van Auken, 96 U. S. 366 332 U. S. V. Van Slyke, 8 Biss. 227 183 U. S. V. Vinson, 8 F. R. 507 191 U. S. V. Vowell, 5 Cranch, 368 259 U. S. V. Watts, 1 Bond, 580 257 U. S. V. Wong Kim Ark, 18 Sup. Ct. Rep. 456 261 U. S. V. Woods, 224 F. R. 278 322 V Vail V. Knapp, 49 Barb. 299 262 Van Brocklin v. Tenn., 117 U. S. 151 100, 275 Vanderbilt v. Eidman, 196 U. S. 480 99, 253, 334 Vanderbilt Univ. v. Cheney, 116 Tenn. 259 195 Van Deman & L. Co. v. Rast, 214 F. R. 827 166 Veazie Bank v. Fenno, 8 Wall. 533 vi, 276, 282, 285, 289, 332 Vermont v. U. S., 217 U. S. 605 324 w Wallace v. Craven, 34 Ind. 534 115 Ward V. Md., 12 Wall. 418 292 Warren v. Shook, 91 U. S. 704 171, 175, 177 Warrington v. Furbor, 8 East. 242 262 400 Table of Cases. [Eef erences are to pages] Welton V. Mo., 91 U. S. 275 292 Western Exp. Co. v. U. S., 141 F. R. 28 167 Western Union v. Kansas, 216 U. S. 1 169 Western U. Tel. v. Winnsboro, 71 S. C. 231 11 Weston V. City CouncU, 2 Peters, 449 269, 270 Wheaton v. Weston & Co., 128 F. B. 151 11 WheeUng Bridge Case, 13 How. 518 292 Wilkesbarre, etc., Co. v. Davis, 214 F. E. 511 196 Williams V. TaUadega, 226 U. S. 404 166 WilUngham v. U. S., 208 F. R. 137 107 Wiltse V. State, 8 Heisk. Tenn., 544 180 Woodruff V. Parham, 8 WaU. 123 291 Woodward v. Steams, 10 Abb. Pr. N. S. 395 167 Wright V. Blakeslee, 101 U. S. 174 251, 336 W. W. Cargill Co. v. Minnesota, 180 U. S. 452 165 z Zonne v. Minneapolis Synd., 220 U. S. 187 196 INDEX THE PRINCIPAL TITLES OF THE ACT OF SEPTEMBER 8, 1916, ARE SEPARATELY INDEXED UNDER APPROPRIATE RESPECTIVE HEADS IN THE GENERAL INDEX. FOR ANY DETAIL REGARDING ANY PARTICULAR TAX, LOOK, THERE- FORE, UNDER THE NAME OF THE TAX. SEE BEER AND WINE TAXES; DYESTUFFS, ETC. (4011 INDEX The principal Titles of the Act of September 8, 1916, are separately indexed under appropriate respective heads in the general index. For any detail regarding any particular tax, look, therefore, under the name of the tax. See Beer and Wine Taxes: Dyestufis, etc. A (References are to pages.) Act of 1914 extended by joint resolution 8 Act of 1916, significance of 5 Administration, fiscal policy of v, vi Administrative discretion, arbitrary 335, 336 Administrative law, defective 8 Administrative rulings 8, 9, 11> 12 Alaska 366 Alcohol, see Beer and Wine. Anti-dumping laws, see Unfair Competition. Apportionment of direct taxes 275 Army appropriation bill amended 235 Assessment and collection 239, 335 B Bank circulation, tax on 331, 332 Beer, etc., tax on 312 Beer brewers, see Special Taxes. Beeb and Wine Taxes, Act of September 8, 1916, Title IV. Alcohol, for export 155 use in fortifying wines 152 Beer, ale, etc., tax 135 amount of water allowed 154 bottling. . 158, 159 quantitative grain test 154 Blending of wines 152 Bottling beer and near-beer 158, 159 Carbonated wines, tax on 149 Champagne, tax on 149 Cordials 141 tax on 149, 150 Distillation of wine residuum I57 wine spirits 144, 153 [403] 404 Index. {References are to pages.) Beer and Wine Taxes, etc. — Cont'd. Distiller, capacity tax on 148 Distillers, use of casks, pipe-line, tank-ears 156 Distillery of fruit spirits 153, 156 Fermented liquors, see Beer. fortification of sweet wines 143, 144, 145, 146, 152 Fruit distillery, regulation of 153, 156 Gin, exportation of 157 Grain, amount of product from 154 Grape brandy 140, 143, 144 distiUer of 144 recovery of 148 tax on 143 Grape cheese as distilling material 157 Leakage, allowance for .153, 154 Liqueurs, tax on ' 149, 150 Loss of wine on storage 153, 154 Natural wine defined 136 Near-beer, bottling of 158, 159 Sparkling wines, tax on 149 Spirits, for export 155 from wine residuum 157 tax on 148 Stamps for wine tax 141, 142, 149, 150 Sugar, added to wine 145 Vermuth 139, 140 Water, added to wine 145 use of, in beer making 154, 155 Wine dealer, retail 142 Wine, defined 136, 137 designated by locality and type 137 duties in England 141 producers, reg^ilations affecting 144, 146 residuum, distillation of 157 spirits, defined 144 spirits, see Grape Brandy. sugar and water added 136, 137 tax, evasion of 151 former, abatement of 139, 140 geographic influences 137, 138 how payable '. 141, 142 Wines, artificial or imitation 139, 140 eligible for f ortif 3dng 146 exportation of 148 fortified or sweetened 137 Index. 405 {References are to pages.) Beek and "Wine Taxes, etc. — Cont'd. Wines — Cont'd. removal for distillation 148 storage 148 sparkling, tax on 149 still, taxed on alcohol content 139 sweet, fortifying with grape brandy 140, 143, 144, 146 alcohol 152 sweetened or fortified 137 tax paid under former law 149 BlacMist, see Unfair Competition. • Bounties 287 Brandy, see Beer and Wine. Butter, renovated or adulterated 327 c Canada, fish from 233 Cards, playing 330 Chase, Secretary, quoted 2 Cheese, filled, see Filled Cheese. Chemicals, see Dyestuffs. Chewing gum, tax repealed 196, 197 Cigars, tax on 314, 317, 318 Civil war taxes 302, 306 Classification in taxation 277, 278 Clayton Act, 1914 295 Clearances, see Unfair Competition. Coal tar products, see Dyestuffs. Colbert, quoted iii Collection of taxes 239 Collection of tax, not enjoinable 10, 20 Colors, see Dyestuffs. Commerce, see Unfair Competition. Commerce and the Constitution 1 Commerce court 297 Commerce, department of 297 regulation of 291 406 Index. (References are to pages.) Commission, tariff 210 Common-law offense, none in taxation 245 Competition, see Unfair 'Competition. Compromise by commissioner 252 Compromise of tax eases 107 Concurrent powers of States and United -States 273, 279 Congress may not delegate powers 232 Congress, powers of 272 Constitution, United States 1, 4, 8, 16 tax provisions of 267, 268 on direct taxes 275 on export tax 290 powers, express and implied 272 and taxation 299 on uniformity 277, 278 Constitutionality of part not to invalidate whole Revenue Act. . . 235 Constitutionality of revenue laws 265 Construction, by administrative ofBeers 260 contemporaneoTis 11, 260 as to purpose of act 263 of tax laws 264 et seq. Consumption taxes 2, 6 Corporation tax, enjoining 249, 250 Corporation Tax Law of 1909 15, 18, 59, 298 Corporations, see Special Taxes. taxation of - 20 Cosmetics, tax repealed 196, 197 Cotton futures 297 Court of Claims 253 Courts and tax policy 281 Customs, see Tariff. administration 344 law, procedure 346 regulations, manual 349 revenue 344 service, technical 346 Index. 407 {References are to pages.) D Direct taxes 3, 274, 275, 276 Discrimination, trade, see Unfair Competition. Distillation, see Beer and Wine. Distilled spirits, taxes on 309 Department regulations ' 8, 9 Documentary stamp tax repealed 196, 197 Double taxation 280 Due process of law 280, 326 Dumping, see Unfair Competition. Duty 282 Dyestupps, Act 01" September 8, 1916, Title Y. Customs, duties on dyestuffs 200, 202 Dyestuffs, additional special duty 202, 203 dutialble list 201 free list 200 tariff duties on 200 Protective tariff and dye industry 205 Tariff, duties on Dyestuffs ^ 200, 202 E Effect, when Act of September 8, 1916, in 236 Embargo, see Unfair Competition. legislation, early American 232, 362 Emergency Act, 1914, extended 8 Emergency Revenue Act, 1914 7 Emergency taxation 2 Employer and employee, wrongful act 249 Equality- in taxation 277, 278 Estate Tax, Act of September 8, 1916, Title II. Baltimore, collector at 103 Bentham, plan to escheat estates 101 Carnegie, Andrew, quoted 101 Compromising tax cases 107 Estate, how valued for taxation 105 non-resident decedent's 106 valuation of gross 105 net 108 408 Index. (References are to pages.) Estate Tax, etc. — Cont'd. Estate — Cont'd. tax, Act Sept. 8, 1916, Tit. II 103 ante mortem transfer 106, 107, 117 collection by suit 115, 116 deductions for non-residient 109 resident 108, 109 departmental regulations 119, 120 discount for prepayment 110 economic theory of 101, 102 English 97 evasive trust or transfer 105, 117 executor, etc., to give notice Ill exemption 108 false return, penalty 118 history 97, 98 how payable 113 imposed „ . . . . 103 interest after notice 113 interest on delayed payment 110 lia;bility of trustee or transferee attempting evasion . . 117 lien for ten years 117 not a property tax 100, 105 notice to collector required- Ill on drefault or falsity of return 112, 113 other provisions of law applicable 119 payable before distribution- 116 payment of approximated amount 113, 114 payment by •beneficiary 116 penalty for any default in duty 118 progressive feature 98, 101, 102, 105 receipt for pa3rment 113, 114 re-imbursement or contribution 116 return required Ill, 112 state and national 99, 100 and swollen, fortunes 99 when payable 110, 116 where no administration 112, 113 Estate taxes, digest of U. S. and foreign 102 Evidence, Federal laws and State courts 114, 115 Executor, etc., notice to collector Ill to return decedent estate Ill, 112 Federal securities' and Estate tax 100 Liability, personal, for evading estate tax 117 Lden, estate tax, a, for 10 years J17 Index. 409 {References are to pages.) Estate Tax, etc. — Cont'd. Notice by executor to collector Ill, 112 Return of executor for estate tax Ill, 112 Situs of property for estate tax. 106, 108 State courts and Federal tax laws .114, 115 States, use of inhfiritance tax by 99, 100 Wealth, taxation of 99 Estoppel, by official ruling 11 none by administrative act 246 Evidence, Federal laws and State courts .114, 115 Excise 282 flexible source of revenue 2 Executive power and legislation 226 Explosives, see Dyestuffs. Export tax 290 Export trade, encouragement of 291 F Federal functions, expanding iv government and the states 269, 270, 272, 279, 281 regulation of wealth 296, 301 revenues, sources of 298 Tax Law, growth of 266 tax power, extent of 271, 273 taxes, kinds of 302 taxation, earlier was light iii in general 266 et seq. limitations on 299 taxation in outlying possessions 366 trade commission 294 union and sovereign states 300 Fermented liquors, see Beer. Filled cheese, tax 328 Fiscal policy, Federal changing iv Fish restriction, not enacted 233 Mour, mixed, see Mixed Flour. Foreign relations, see Unfair Competition. 410 Index. {Beferences are to pages.) G Gin, exportation of 157 Goodnow, F. J., quoted 335 Government and the people 300, 301 Guam 371 H Hawaii 366 income tax in 14 Head money tax 279 Hepburn Aet, 1906 293 I Implied powers imder Constitution 272 Importations, see Unfair Competition. Income tax 333 use by states 4 cases 276 Income Tax, Act of Sbptembee 8, 1916, Title I. Absence, ground for extension 88 Accounts, corporate, how may be kept 76, 77 returns may be on accrued or cash basis 49 Additional tax on incomes over $20,000 22, 24 on dividends, etc 23, 28 on estate income 26 provisions applicable 23 Administration expenses of estate not deductible 33 Administrative provisions, general 83 Agent, return by 43 Agricultural organizations exempt 59 Alien, non-resident, taxed 21 deductions 36, 39 Alimony 26, 33 Amortization allowance 32 Appeal from increase of return 92 Assessment and administration 49 as to corporations ' 78 Assignees in insolvency, returns by 76 Baltimore, collector at, designated in certain cases. . .43, 44, 75 Index. 411 {References are to pages.) Income Tax, etc. — Cont'd. Bankrupt companies, returns by 76 Boards of trade exempt ■ 60 Bond interest, etc., withholding 53 Bonds, Federal, State, etc 29 with tax-free covenant 68 Bookkeeping, see Accounts. Books of account, corporate, -how kept 76, 77 examination of 87 Building and loan associations exempt 60 Burden of proof as to truth of return ; 82, 83 Calendar year, the time unit 21, 57 Canvassing for taxables 85 Cemeteries exempt 60 Certificate for deduction ^2 Certificates, official and" private forms 56 Charitable societies exempt 60 Civic leagues exempt 60 Clark, Speaker, on income tax 17 Clubs, social etc., exempt 60 Collector to canvass district for taxables 85 when to make the return 86, 88 Compensation, as income 25 Corporate fiscal year by designation. 74 return, penalty 81, 82 tax when payable 78 Corporations, certain exempt 59 domestic deductions by 63 income tax on 57, 59 no minimum- exemption 59 return by 74, 75, 85 Coupons, foreign 55 Credits allowed citizen or resident, for normal tax 35, 36 non-resident alien 38, 40 Debts, worthless, deductible 32, 35 Decisions, see Rulings. Deductions, application for 52 by certain mutual companies 65, 66 by citizen or resident, in computing net income 31 by domestic corporation 63 by foreign corporation 69 by non-resident alien 36, 39 none for improvements 65 personal, falsity in claiming 51 when tax withheld 51 412 Index. (References are to pages.) Income Tax, etc.— Cont'd. Default or fraud- in corporate return 79, 81, 82 Depletion or exhaustion, allowance for 64, 65 Dividends, defined 25 from taxable companies credited 35 to be returned 48 undistributed profits 28 Domestic corporations taxed 57 Earnings as income 25 Educational institutions exempt 60 Estates, income, exemption 41 Examination of taxable person 87 Excess tax payment, refund of 79, 80 Executor, return of 44 Exempt corporations 59 income 29 Exemption, head of family 40, 41 income of estates 41 no minimum for corporations '. 59 non-resident 41, 42 notice claiming 51 personal 40 ward or cestui que trust .' 40 when tax withheld 51 Exemptions, corporate conditional and other 59 Expenses, corporate, deductible 64 of foreign corporation 70 necessary, deductible 31 Extension of time for returns 88 False return or statement, penalty 91 Farmers' sales associations, exempt 61 Federal land banks exempt 61 Fiduciary, return of 44 Fiscal year, corporation may fix 74 Foreign bonds with tax-free covenant 72 corporations taxed 57 certain mutual 70, 71 deductions by 69 dividends, etc 55 pa3nQients, collection of 55 securities, withholding 53 Foreigners, withholding as to 77 Forms, private and official 56 Fraternal orders exempt 60 Fraud and evasion, penalty 91 Index. 413 (Beferenees are to pages.) Incx)me Tax, etc. — Cont'd. Gain or loss, alien, ascertaining 38 individual, how ascertained 27 corporate, ascertaining 58, 59 Gains, as income 25 Gifts, as income 29 Government function, not taxable 62 Guardian, return by 44 Guardianship, exemption 40 Hawaii, income tax 14 Head of family, extra exemption 40, 41 Holding companies 28 Hughes, Gov., quoted*. 16 Improvements, not deductible 65 Incidence of income tax, date of 25, 26, 58 Income of decedent estates 26 defined 25 exemptions 29, 30 fixed, tax withheld 45, 50, 53, 54 under former Act distinguished 58, 95 Income tax. Act of 1884, unconstitutional 14, 16 Act, Oct. 3., 1913 17, 18 repealed, exception 95 Act, Sep. 8., 1916 21 additional 22 British 13 cases, " Pollock " 15 Civil War 14 on corporations 57, 59 general clause of imposition 56 general intent of Act 56 Gov. Hughes on 16 graded 24 history 13 how to get ruling 19 imposed 21 individual 21 individual non-resident 21 new rate for all of 1916 24, 25, 58 normal tax 21 and politics 17 progressive 24 rates 21, 22, 23, 57 regulations 19 414 Index. (References are to pages.) Income Tax, etc. — Cont'd. Income tax -^Cont'd. State and National 16, 17 sur-tax 22 withholding in 1916 25 Income taxes, foreign 13 Increased, return may be, if understated 92 Information in returns inviolate 83, 84 "^ Insurance agent's commissions 26 companies, mutual, deductions by 66 benefits 29, 30 reserves 65, 73 Interest, as income 25 deductible by corporations 67 paid by foreign corporation 72 penalty for delay 49 penalty for delayed corporate tax 79 Jurisdiction of courts in proceedings 93, 94 territory included 83 Labor organizations exempt 57 Land banks, certain- joint stock, exempt 61 Lia;bility determined as of year returned 56 for default of withholding 50 License for handling foreign payments 55 Loss or gain, ascertaining 58 Losses, corporate, deductible 64 of foreign corporation 70 individual deductible 32, 34 Married person, exemption 40, 41 Mines, depletion of 32 M'unicipal function, no tax on 31 Mutual companies, certain, deductions by. 65, 66 insurance, certain, exempt 60 savings banks, exempt 59 Non-resident aliens, individual 21, 36 corporations 57, 69 deductions 36, 39 exemption 41, 42 withholding as- to 77 Notification of amount of tax due ; .49, 50 Official salaries 30 Oil and gas, exhaustion of 32 Other relevant law made applicable 93 Par value, stock without 67 Index. 415 (References are to pages.) Income Tax, etc. — Cont'd. Partners, returns by 47, 48 Payment of income tax 49 of tax, receipt for 90 Penalties, compromise of 92 how certain collected, 89 Penalty for default or falsi^ of corporate return 81, 82, 91 for default of personal return 91 for delayed payment 49 for failure to withhold 50 Personal exemption 40 Philippine Islands 94 Porto Rico 94 Ptef erred stock dividends not deductible 67 Professional income 25 Profits, as income 25 undistributed 28 Progressive or graded taxation 24 Public, to what extent returns are ' 80, 81, 93 utility, income from not taxed 62 work, contractor not exempt 62, 63 Publication of returns 83, 84, 93 Rate of tax for all of 1916 24, 25, 58 Realty companies, interest deductible 68 holding companies, certain exempt 61 Receipt for tax paid 90 Receiver, return by 44 Receivers of corporations, return by 76 Refund of excess tax paid 79, 80 Religious societies exempt 60 Rent, as income '. 25 Repeal of emergency taxes of 1913, exception 95 Residence 21 Retroactive tax legislation 22 Return, by agent of person liable 43, 52 by corporation 74, 75, 85 default of 44, 91 default, 50 per cent, penalty 82, 89 every, to include dividends 48 , extension of time for 43 by fiduciary 44 firaudulent, 100 per cent, penalty 82, 89 by guardian, trustee, etc 44 March 1st 43, 85 416 Index. {References are to pages.) Income Tax, etc. — Cont'd. Eetum — Cont'd. notice by collector requiring, from absentee 86 penalty for refusal or neglect 91 proceedings to increase 92 Beturns, divulging facts from 83, 84 when collector may make 86, 88 inspection of, as records 80, 81 public records to -what extent 80, 81, 93 to be verified '. 92 Rulings, on Income tax 20 Salaries, as income 25 fcy exempt organizations 62 governmental, not state 94 official 30 Secrecy of returns 83, 84 Securities, governmental 29, 30 Sickness, ground for extension 88 States and income tax 16, 17 State function, not taxable 62 obligations 29 Statistics of income tax authorized 93 Stock with no nominal or par value 67 Summons for examination 87 Sur-tax. See Additional tax 22 Tax, how assessed 49 if paid relieves withholding agent 91 when payable 49, 50 Taxes, paid, deductible 31, 33 paid by domestic corporation 69 paid by foreign corporation 73 Tax-free covenant in bonds 68 Telephone, cooperative, exempt 61 Testimony, taking, on suspected return 92 Trustees in bankruptcy, returns by 76 Understatement in return, proceedings upon 92 Undistributed profits 28 Uniformity in taxation 24 United States obligations 29 Wages, as income 24 Wear and tear, allowance for 32, 35 corporate, deductible 64 foreign corporation 70 Index. 417 {References are to pages.) Income Tax, etc. — Cont'd. Withholding applies only to normal tax 56 as to corporate securities 53 as to non-resident aliens 77 as to foreign securities 53 at source 45, 50, 53, 54 how secure deductions 51 how secure exemption 51 1 per cent, till Jan. 1, 1917 46 Year, calendar and fiscal 58 Indian lands 366 Industries, injuring by dumping 221 Inheritance tax, see Estate Tax. not new 4 use by states 4 Inheritance taxes, foreign 13 Injunction and corporation tax 249, 250 Injunction, none against a tax 10, 20, 249, 250 Inspectors of internal revenue, leave of absence 199 Insular cases 284 possessions 366 Intent in violation of revenue laws 247 Internal revenue, agents, leave of absence 199 bureau 305 compilation of laws 305 as emergency tax 2, 5 history 306 system, long simple v table of acts i 337 taxes 303 Interest on recovery of tax 252 Interstate commerce, regulation 292, 295 taxation of 1 J Jefferson, quoted 2 Joint resolution, December 17, 1915 8 Jurisdiction of Federal tax power 366 418 Index. (References a/re to pages.) L Land tax 3 Legacy tax, see Estate Tax. 1898 334 Legislation and' administrative discretion 232 Legislation and executive power 226 Legislation, special, not supersede general 258 tax, a compromise 6 License taxes, see Special Taxes. Lost stamps 254 M Marshall, C. J., on tax legislation iii on construction 265 Matches, phosphorous 331 Militia, support of families 235 Miscellaneous takes, Act of September 8, 1916, Title IV 135 see l^ame of Tax. Mixed flour, tax 329 Munition Manufactubebs' Tax, Act op September 8, 1916, TlTM III. Assessment, how made 130 how made on unsatisfactory return 130 Books and accounts, examination of 132 Burden on tax-payer of satisfying commissioner 130, 131 Commissioner's powers 133 Deductions from gross receipts 126, 127 Departmental regulations 133, 134 Evasive sales, penalty 128 Further information may be required of any person 133 Hearing upon request of dissatisfied tax-payer 130, 131 Imposition of 121 In addition to income tax 122, 124 Information not public 132 Jurisdiction of tax 121 Net profits, how computed 124, 126 Not apply to contracts completed before Jan. 1, 1916. .122, 123 Notice of assessment 130 On business which has ceased 131 Index. 419 (References are to pages.) MuinnoN Manufacturers' Tax, etc. — Cont'd. Other laws made applicable 133 Owner or agent taxable 131 Payment, when due 130 Penalty for disclosing facts 132 Penalty for refusal or falsity of return, or any violation . 132, 133 Bate of taxation 122 Returns kept secret , 132 Eetums, refusal or falsity of 132, 133 Returns, when and how 129 Upon whom 121, 131 What is taxed 122, 123, 124, 125 When in effect 121 When tax ceases 125 N National, see Federal. National guard, support of families 235 National leaders, new, in power v National revenue, source of 3 Navigation laws 361 Neutrality, see Unfair Competition. o Object of taxation vi, 285, 286 Occupation taxes, see Special Taxes. Oleomargarine tax ■. 323, 325 Opium, see Special Taxes. tax on 320 P Panama canal zone 371 Paper, see Printing Paper. Partner, wrongful act by 248, 249 Penalties 244 cumulative. 248 remission of 250 Philippines 369 420 Index. {References are to pages.) Phosphorous matches 331 Playing cards 330 Policy, national, of taxation v,vi, 6 Polities and taxation 6 Poll tax 3 Porto Eico 367 Postage 298 Peinting Papee, Act of September 8, 1916, Titoi VI. Canada and paper pulp 209 Customs duty on paper 207 Paper, printing, tariff duty on 207 Printuig paper, tariff duty on 207 Pulp, paper .209 Tariff duty on print paper 207 Protection, policy of 5, 6, 286, 351 Protest and reclamation 249, 251 Public opinion and taxation iii Public purpose, taxation must have 285, 286 Public purposes, what are 287 Purpose of taxation vi, 285, 286 R Rates of taxation, table of 374 Eaybum Bill, Railroad securities 293 Rebates, secret 293 Reciprocity, see Unfair Competition. Recovery of tax, interest on 252 ■wrongfully collected 250, 252 Redemption of stamps 198 Reforms, social and industrial 296 Refund of taxes '..... 250 Regulations, commissioner's power 255 Regulations, departmental 8, 9, 12, 19, 243 Relevant law made applicable to Revenue Act 238 Relief, only after payment 10 Repeal, effect of 259 Repealing clause. Act of September 8, 1916 236 Index. 421 {References a/re to pages.) Reprisals, see Unfair Competition. Restraining tax >..>.......... 10 Restraint of trade, see Unfair Competition. Retaliation, discussed, not enacted 233 see Unfair Competition. Revenue Act, September 8, 1916, other laws applicable 238 Revenue Law strictly statutory 245 Revenue measures in Congress 299 Rulings, departmental 8, 9, 11, 12, 243 s Sherman Law, 1890 , 294 Ship subsidies 288 Shipping, see Unfair Competition. Sixteenth amendment 268, 277 Soldiers, support of families of 235 Somoa 371 Special or license taxes 307 Special tax, burden of proof 248 Special taxes, rates and payment 308 see Table of Taxes. SPECiAii OR License Taxes, Act of Septembee 8, 1916. Bankers, special tax 170 Base-ball 185 Beer gardens 185 Billiards 186 Bowling alleys 18ft Brokers, special tax on 174- Cabarets 185 Capital stock, tax on value 160, 161, 169" Charity entertainments, not taxed 185 Chautaiiquas, not taxed 185 Cigar makers 191 Cigars, see Tobacco. Cigarettes, see Tobacco. Circuses, Special tax on 184 Commercial brokers, special tax 179 Commission merchants 187 Company, see Corporation. 422 Index. [References are to pages.) Special oe License Taxes, etc. — Cont'd. Concert hall, see Theatre. Corporations exempt from special tax 161 Corporations, foreign, special tax 162 Corporations, special and munitions taxes 161 Corporations, special tax on domestic 160, 161, 169 Corporation tax, exemption 161 Ci^stomhouse brokers, special tax 181 Entertainments, what taxed 182, 185 Exhibitions, public, special tax 185 Fairs 185, 186 Horse races 186 Insurance, reserve funds 161 Joint-stock company, see Corporation. Lecture lyceums, not taxed 185 Lessee of theatre pays tax 182 Manufacturers of tobaccos 189, 190 Museum, see Theatre. Pawnbrokers, special tax on 178 Penalty for evading special tax 194, 195 Pool 186 Public exhibitions, special tax 185 Records and returns, special taxes 196 Ship brokers, special tax on 179 Shows, see Theatres and Circuses. Special tax on Bankers 170 on brokers 174 on circuses 184 on commercial brokers 179 on commission merchants 187 on corporations 160, 162 on customhouse brokers 181 on pawnbrokers 178 ship brokers 179 tobacco, etc 189 Special taxes imposed 160 in general 163 laws extended to apply 196 penalty for evasion 194, 195 records and returns 196 in Revised Statutes 164 and state laws 166 when due 163 when take effect 199 Street fair 185, 186 Index. 423 {References cure to pages.) Special ob License Taxes, etc. — Cont'd. Theatres in smaller cities 182 lessee pays tax 182 special tax 182, 183 Tobacco dealers 190 growers 191 etc., manufacturers 189 special taxes '. . . . 189 Tobacco taxes until January 1, 1917 192 Vaudeville 185 Spirits, see Beer and Wine. distilled, taxes on : 309 Stamp taxes 335 former repealed 196 Stamps, redemption of 198 State courts and Federal tax laws 114, 115 State taxation and Federal government 269, 270, 272, 279, 281 States, shifting burden to nation iv use of income and inheritance taxes 4 Stimson, F. J., quoted on right to tax 273 Succession tax, see Estate Tax. Suit, none to enjoin tax 10 Suits against United States government 253 System, none of taxation 7 of revenue 1 Tabifp Commission, Act of September 8, 1916, Title VIII. Books and tariff investigation 214 Borland, Mr., quoted ► . . 219 Depositions in tariff inquiries 215 Dumping, investigation of 213 Examination in tariff inquiries 214 Fordney, Mr., quoted 219 Foreign Commerce Bureau and Tariff Commission 213 Foreign trade relations 212, 213 "" Germany, tariff making in 218 Immunity in tariff inquiries 216 Jurisdiction, court, in tariff inquiries 215 Paris Economy Pact 217, 220 Perjury in tariff inquiries 216 424 Index. {References are to pages.) Tariff Commission, etc. — Cont'd. Tariff Boards, previous 217, 218 Tariff Commission, appropriation for 217 argument for 219 constitution of 210, 211 and the courts 215 created 210 divulging secrets 216 duties of 212 and legislation 220 and other bodies 212, 216 perjury before 216 and polities 219 powers of 211, 212, 213, 217 procedure in investigations 213, 214 taking testimony 213, 214 witnesses 214, 215, 216 Tariff revisions 217 Testimony in tariff inquiries 214, 215 Trade secrets, divulging 216 Underwood, Mr., quoted 219 Witnesses in tariff investigations 214 Tariff, see Tariff Commission. • administration. , 344 changes by Act of 1916 200, 207, 210 history of, in United States 351 policy of reduction v taxation, characteristics of 1 Tax, cannot be restrained 10 land 3 Law and Constitution- 235 name of, unimportant 3 pajTment, unavoidable 10 poll 3 Taxation, collateral use of vi, 24, 285, 289 and commerce 1 definition of ill expediency the test vi indirect, long favored v motive or purpose of 285 Index. 425 {References wre to pages.) Taxation — Cont'd. must have public purpose 285 not for revenue 285, 286, 289, 301 purpose of vi, 285, 286, 301 usually not scientific 6 of -wealth v, vi, 99 and welfare 301 Taxes, under different names 282 rates of all, table of 374 Title of a tax law, effect of 285 Tolbaceo, etc., see Special Taxes. and snuff, tax on 314, 315 Tonnage taxes 361 Trade, restraint of, see Unfair Competition. Treasury decisions, " T. D." 9, 20 Treasury department, organization 345 V U Unfair Competition, Act of September 8, 1916, Title VIII. Agents, exclusive, of foreign producers 224 American trade, discriminations against 227, 228 Anti-dumping law, Hughes, J., on 223 legislation 222 Army and navy, and retaliatory laws 231 Belligerents in war, acts of 227, 228 Black-list affecting neutrals 228, 231 Bryee, Lord, opposed to retaliation 226 Clearance of vessels, withholding iif retaliation 229 Commerce, American, and foreign war 228 unfair competition in 221 Competition, unfair, in importations 221 remedy for damage 222 Conspiracy for unfair competition- 221 Delegation of legislative power 232 Discrimination abroad against Americans 228, 229 Double duty, penalty for restricted imports 224 Dumping foreign goods 222 Foreign countries, retaliation against .- . .227, 228 Hughes, Justice, quoted. 223 426 Index. {References are to pages.) Unfair Competition, etc. — Cont'd. Import trade, unfair competition- in 221 Importations, by exclusive agents 224 prohibited by other countries 225 prohibition of, in retaliation 227 under restrictive agreements 224 Industries, destruction or injury of 221 Jurisdiction in unfair competition cases 222 Legislation and executive power ■ 226 Market value, under-selling 221 Monopoly and imports 221 Neutral trade, in time of war 231 President, power to suspend laws 226 and prohibition of importations 227, 228 and retaliatory shipping laws 228, 231 Prohibition of imports, retaliation for 225 Reciprocity and retaliation 225 Eeprisals in foreign trade 227, 228 Restraint of trade 221 Restrictive agreements on importations 224 Retaliation and reciprocity 225 by withholding clearance 229 Retaliatory exclusion of imports 225 Shipping, American, and foreign war 228 Smith, Adam, quoted, on retaliation 226 Sugar bounty 226, 286, 287 Tariff, doubled' on restricted imports 224 Trade, foreign, retaliatory restrictions on 227 restraint of 221 restrictions in retaliation 226 Treaties and retaliatory laws 232 Unfair competition 221 by beUigerents 227, 228 remedy for damage by 222 retaliatory exclusion 225 restrictive agreements 224 Vessels, American, and foreig^n war 228 clearance of, withholding in retaliation 229 War and trade retaliation 227 War, European, and American trade 227, 228 War zones and American conunerce 231 Underwood, quoted v Uniformity of taxation 277, 278 Index. 427 {References are to pages.) V Vessels, see Unfair Competition. w Wax, and- taxation iii, iv, vi, 1, 2, 6j 7, 365 and trade retaliation 227 of 1812 2 European, effect of vi, 7 power, use of, for taxation 284 Revenue Act, 1898 7 taxes, so-caUed 7 Wealth, equitaJble distribution of 296, 301 taxation of v, vi, 99 Webb BiU to promote exports 291 Wilson, President, quoted 281, 352, 361 Wine and' Beer taxes, see Beer and Wine. [Whole number of pages 438.]