Mr. Justice STRONG (with concurred the CHIEF JUSTICE and Justices DAVIS and FIELD), dissenting.
I am unable to concur in the construction which a majority of my brethren have given to the acts of Congress relative to the income tax, and consequently I dissent from the judgments which have been directed in these cases. The reasons for this dissent I propose now to give, as briefly as I can.
Whatever may be said of the earlier acts of Congress, that of June 30th, 1864, [1] as amended by the acts of 1866 and 1867, provided a complete system of taxation upon incomes. The 116th section, which is the first that had reference to the subject, [2] enacted that there should be levied, collected, and paid annually upon the gains, profits, and income of every person residing in the United States, or of any citizen of the United States residing abroad, whether derived from any kind of property, rents, interest, dividends, or salaries, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any source whatever, a tax of five per centum on the amount so derived over $1000, and that a like tax should be levied, collected, and paid annually upon the gains, profits, and income of every business, trade, or profession carried on in the United States by persons residing without the United States and not citizens thereof. The same section declared that the tax therein provided for should be assessed, collected, and paid upon the gains, profits, or income for the year ending the 31st day of December next preceding the time for levying, collecting, and paying said duty. What that time was directed to be, as well as the duration of the tax, was defined by the 119th section, which enacted as follows: 'That the taxes on incomes herein imposed shall be levied on the 1st day of March, and be due and payable on or before the 30th day of April in each year.'
No language could be more comprehensive. It embraces income of every description, whether derived from labor or property, and it particularly mentions income derived from interest and dividends, adding the words, 'or from any source whatever.' It is not to be doubted that it includes income derived from dividends on stock held in railroad companies, and income received as interest on bonds of such companies. This section, I think, is the only one that imposes any income tax. All the other sections, from the 117th to the 123d inclusive, are classified under the title 'income,' and they relate to it, but they are provisions for the ascertainment of the amount, and for the collection of the tax. None of them impose any new or different tax upon the taxpayer. They all have reference to that income made taxable by the 116th section. That, it was known, might be derived from various sources, and provision was made for ascertaining its amount, as well as for collecting the tax upon every item composing it. The 117th section, as amended by the act of 1867, required that there should be included in the estimate, inter alia, the share of any person of the gains and profits of all companies, whether incorporated or partnership, who would be entitled to the same if divided, whether divided or otherwise, 'except the amount of income received from institutions or corporations whose officers, as required by law, withhold a per centum of the dividends made by such institutions, and pay the same to the officer authorized to receive the same, and except that portion of the salary or pay received for services in the civil, military, or naval, or other service of the United States, including senators, representatives, and delegates in Congress, from which the tax has been deducted.' But these exceptions recognize the dividends and interest received from such companies, and the gains from the salaries or pay of United States officers, as a part of the taxpayer's income. It is his share of the gains and profits of the companies, or corporations, and not the gains of the companies themselves which the exceptions direct shall not be included. The reason of this is too obvious to escape notice, unless it be forgotten that the 117th section is but part of a system for levying and collecting an income tax. If it be construed, as it must be, in connection with the other sections relating to the same subject, it is plain that its purpose was to ascertain only that part of a person's income, the tax upon which the next following section (the 118th) required should be paid by the taxpayer himself to the collector, leaving that part of his income, which consisted of his share of the gains and profits of institutions or corporations whose officers, as required by law, withheld a per centum of its dividends and paid the same to the officer authorized to receive it, to be ascertained and the tax thereon to be collected by the companies themselves. A special mode of collecting the tax on such dividends, interest, and government salaries was intended to be provided, and was actually provided.
Passing by the 118th and 119th sections, which relate to the manner of making returns of that part of a taxpayer's income the tax upon which he is required to pay directly to the collector, I come to the 120th, 121st, 122d, and 123d sections. They all relate to that portion of the taxpayer's income excepted by the 117th section from the return which he is required to make to the assessor by the 118th section. They provide for the collection of the tax upon that portion. The 120th imposes a duty of 5 per centum on all dividends in scrip and money thereafter declared due, wherever and whenever the same shall be payable to stockholders, policyholders, or depositors, as part of the earnings, income or gains of any bank, trust company, or savings institution, and of any fire, marine, life, or inland insurance company, either stock or mutual. This tax the banks and other institutions described were required to pay, and they were authorized to withhold from all payments made on account of any dividends or sums of money that may be due and payable as aforesaid the said duty of 5 per centum. It is unnecessary to notice particularly the 121st section.
The 122d section enacted 'that any railroad, canal, turnpike, canal navigation, or slack-water company, indebted for any money for which bonds or other evidence of indebtedness have been issued, payable in one or more years after date, upon which interest is stipulated to be paid, or coupons representing the interest, or any such company that may have declared any dividend in scrip or money due or payable to its stockholders, including non-residents, whether citizens or aliens, as part of the earnings, profits, income, or gains of such company, . . . shall be subject to and pay a tax of 5 per centum on the amount of all such interest or coupons, dividends or profits, whenever and wherever the same shall be payable, and to whatsoever party or person the same may be payable, including non-residents, whether citizens or aliens; and said companies are hereby authorized to deduct and withhold from all payments on account of any interest or coupons, and dividends, due and payable as aforesaid, the tax of 5 per centum; and the payment of the amount of said tax so deducted from the interest, or coupons, or dividends, and certified by the president or treasurer of said company, shall discharge said company from that amount of the dividend, or interest, or coupons on the bonds or other evidences of their indebtedness so held by any person or party whatever, except where said companies may have contracted otherwise.'
The 123d section enacted that there should be levied, collected, and paid on the excess above $1000 of all salaries of officers of the United States a tax of 5 per centum, and it required paymasters and disbursing officers to deduct and withhold said tax when making payment to such officers.
All these sections, I think, relate to the tax upon income, whether derived from interest, dividends, or from any source whatever, imposed by the 116th section, and their sole purpose was, not to impose a new tax, but to provide a different mode of collection from the taxpayer. The dividends, interest, and salaries mentioned in them were not required by the 117th and 118th sections to be included in the general estimate, or in the return made to the assistant assessor, because their amount was as certainly ascertainable by the corporations or officers required to collect the tax as it could have been by any return of the taxpayer, and it was more easily and certainly collectible.
I need not say more upon this branch of the case. If there could be a doubt in any mind that the tax for the collection and payment of which provision was made in the 122d section was a part of that imposed upon income by the 116th, it must be set at rest by the decision in Jackson v. The Northern Central Railway, a case tried in the Circuit Court of the United States for the District of Maryland, and subsequently removed here. The primary question in that case was whether the tax on interest payable by railroad companies (namely, the tax spoken of in the 122d section) was chargeable against non-resident aliens, and it was ruled by the Chief Justice that it was not. The ruling was based upon the position that the tax on such interest was the same as that imposed by the 116th section of the act of 1864, viz., a part of the income tax, and that as the 116th section did not include non-resident aliens, the tax on interest spoken of in the 122d was not chargeable against them-the deduction of 5 per cent. being only a mode of collecting the income tax. This decision was subsequently affirmed in the Supreme Court, [3] and the language of the court was as follows: 'The decision was placed mainly upon the ground that, looking at the several provisions bearing upon the question, and giving to them a reasonable construction, it was believed not to be the intent of Congress to impose an income tax on non-resident aliens; that they were not only not included in the description of persons upon whom the tax was imposed, but were impliedly excluded by confining it to residents of the United States and citizens residing abroad [an exclusion only found in the 116th section], and that the deduction from the prescribed income of the interest on these railroad bonds, when paid by the companies, was regarded as simply a mode of collecting this part of the income tax. We concur in this view.' I understand this case as determining several things: First, that the 116th and 122d sections of the act of 1864 are parts of one system, devised for income taxation; second, that the tax on railroad dividends, and on interest of railroad indebtedness, is not a different tax from that imposed upon income generally; and, third, that the 122d section was intended merely to provide a special mode of collection for a part of the tax.
This decision was made, it is true, before the act of 1864, as amended by the act of 1866, had been again amended by the act of 1867, but the later amendment made no other change in the law than extending its provisions so as to embrace dividends and interest payable to non-resident aliens.
Regarding it, then, as an incontrovertible proposition that the tax mentioned in the 122d section is not a different tax from that imposed by the 116th, that it is a part of the tax levied upon income generally, no matter from what source derived, and that the purpose of the section was to provide a special mode of collection of the tax upon income consisting of railroad interest and dividends, I cannot comprehend why it did not expire with the expiration of the tax upon other income. When that expired was determined by the 119th section, which was in the following words: 'The taxes on incomes herein imposed shall be levied on the first day of May, and be due and payable on or before the thirtieth day of June of each year until and including the year 1870, and no longer.' Whatever else this clause may mean, it manifestly embraces in terms taxes on income from any source all income upon which the act imposed a tax. It excepts none. It does not speak of taxes on income, a return of which is required to be made by the taxpayer to the assessor, but its language is 'taxes on incomes herein imposed.' As the 119th section imposed no tax, the reference must be to the income tax imposed by all parts of the act-to all of them, as well those upon railroad dividends, &c., as well as those imposed upon dividends of telegraph, manufacturing, or other companies, or upon income from any source.
The clause is also a clear enactment that the income to which it refers should not be subject to a tax unless derived or received prior to January 1st, 1870. No one who carefully reads the whole act can doubt that the 119th section must be construed in connection with the 116th, and that it speaks of the income made taxable by that section. That enacted, as has already been noticed, that the tax thereby imposed, including the tax on income derived from dividends and interest, should 'be assessed, collected, and paid upon gains, profits, and income for the year ending the 31st day of December next preceding the time for levying, collecting, and paying said tax.' Incontestably, therefore, though the last annual tax was required to be levied on the 1st of March, 1870, it was required to be a tax on the income of the year 1869. Hence it is plain the provision that the taxes on income should be levied on the 1st of March in each year until and including the year 1870, and no longer, must mean that the income of 1870 should not be subject to taxation.
I think, therefore, these two propositions are beyond any reasonable doubt, or I should so think were it not that a majority of my brethren are of a different opinion.
1. The tax upon dividends made, and interest payable, by railroad, canal, turnpike, canal navigation, and slack-water companies, for the payment and collection of which provision was made by the 122d section, was a tax on income within the meaning of the 116th section, and not a different and independent tax.
2. That the tax upon all income, without regard to its source, 'derived' or 'received' by the taxpayer prior to January 1st, 1870, expired with the close of the next preceding year.
These conclusions are demanded, I think, alike by the letter of the act of Congress and by its spirit. To my mind they seem to be the only reasonable construction that can be given to it. I see nothing to warrant the belief that Congress intended to impose a burden upon income from one species of property greater or longer continued than that imposed upon income from other property, or that they intended to discriminate against Federal officers and compel them to pay a tax on their salaries, after taxes upon all other salaries had ceased. The dividends received by a shareholder of a railroad company, or a canal, turnpike, or slack-water navigation company, or of a banking, trust, or insurance company, are, in every sense, as much his income as are the dividends he may receive from any other company; for example, a bridge, or a manufacturing corporation. So is the interest received for loans to a railroad company as truly income of the bondholder as is the interest received by him from permanent loans to any other corporation, or to natural persons. Was it the intention of Congress to enact that one who lent his money to a telegraph company, or to a mining or manufacturing company, should be exempt from a tax upon his interest received after December 31st, 1869; but that one who lent to a canal or railroad company should continue to pay the tax indefinitely and for all time? Is such a reasonable construction of the act of 1864 and its amendments? I cannot believe it. I cannot attribute to Congress any such injustice. The act shows no intent to make any such discriminations. Yet such discriminations are made if the tax mentioned in the 122d section, as well as that mentioned in the 123d, did not expire when the tax on other income expired.
I come now to the question-important to be considered in view of the pleadings in these cases-whether the tax mentioned in the 122d section was a tax upon the railroad companies, or a tax upon the stockholders and bondholders of those companies. In regard to this there ought to be no doubt. If it was a tax upon the railroad company, then the income of the stockholders and bondholders, derived from their dividends and interest, was exempt from all income tax, although the 116th section taxed income derived from any source, including interest and dividends. Such income was not to be returned to the assessor, and if not taxed in the mode designated in the 122d section, it was not taxed at all. To such an absurdity the construction that the section lays a tax upon the railroad company for its income inevitably leads.
But look now at the language of the section. It required any railroad company indebted for any money for which bonds or other evidence of indebtedness have been issued, bearing interest, payable one or more years after date, or any such company that should declare any dividend as part of the earnings, profits, or gains of such company, should be subject to, and pay a tax of 5 per centum on all such interest, dividends, or profits whenever and wherever the same should be payable, and to whatsoever party or person the same should be payable, and authorized the companies to deduct and withhold from all payments on account of any interest or dividends, due and payable as aforesaid, the tax of 5 per centum. It further enacted that the payment of the amount so deducted from the interest or dividends should discharge the company from that amount of the dividend, or interest, due to the stockholder or bondholder. It is too clear for argument that this was a collection of the tax from the stockholder, or creditor, and not from the company, and we have, in effect, so decided in the Case of the State Freight Tax. [4] Not a dollar was to be taken from the treasury of the company. The tax was to come wholly from the share, or the bondholder. The company was constituted the mere tax collector, and was made liable only in default of its duty as such. If authorities are needed in support of so plain a proposition, they may be found in Jackson v. Railroad Company, cited above, and in Haight v. Railroad Company, [5] both construing this act. Indeed, in some of the States this mode of collecting a tax from shareholders and bondholders of corporations has of late been frequently adopted, and, so far as I know, it has never before been thought that the tax in such cases was a tax upon the companies, instead of a tax upon their shareholders or creditors. As well might it be claimed that when a tax collector is charged with the amount of the duplicate of taxes he is empowered by his warrant to collect, the taxes are laid upon him, and not upon those from whom he is required to collect them.
But the opinion of the majority of my brethren, that by the 122d section Congress intended to tax the railroad companies for their gains, profits, and income, and not to tax their bondholders and shareholders, leads to a very remarkable result. The interest due from the companies to their creditors-interest which accrued in 1869-is treated as income of the companies for that year, and they are taxed for it. Such is the effect of the judgments entered. The companies are compelled to pay an income tax, not upon what they received, but upon what they were obliged to pay to their creditors. A construction of the act of Congress that leads to such a result cannot be right. It seems to me the fact that the tax was exacted out of interest payable by the companies, as well as from dividends declared and payable by them, demonstrates that Congress had in view, in the 122d section, not the income of the companies, nor a tax upon them for it, but the income of share and bondholders, and a tax upon them. Railroad companies were taxed upon their gains in another section, the 103d. They were not intended to be taxed in this.
Holding it, then, to be very clear that this section imposed no new tax, and that its design was merely to provide a mode of collection of a part of the income tax imposed by the 116th section upon the holders of the bonds and stock of railroad companies, the question is not, in my judgment, what the majority of the court considers it to be, whether the income upon which the tax in controversy in these cases was attempted to be levied was the income of the railroad companies for 1869, but whether it was the income of the stockholders and bondholders for that year. In two of the cases the dividends were declared in December, 1869, but were made payable in January, 1870. They were not, therefore, receivable until 1870. In all the other cases the dividends were declared, and the interest fell due in the year last mentioned. True, the dividends were out of profits made by the companies in 1869, and the interest on the debt due by them accrued in that year. But were the dividends and the interest income of the stockholders and bondholders then? Plainly, that which was the income of the companies in one year may not have been the income of their shareholders or creditors until the next. If it was not their income until 1870, it was not taxable against them, and the tax claimed in these cases is, as I have shown, a tax upon them. That nothing was income of the taxpayers until it was receivable by them is most apparent. The act itself sufficiently shows this. It was income 'derived,' or received, either actually, or potentially, that alone was made taxable. The tax was levied 'whenever' and wherever the dividends or interest should become payable. The companies were required to render returns to the assessors, or assistant assessors, on the tenth day of the month following that in which the interest, coupons, or dividends became 'due and payable.' [6] The tax was an excise. It was taking out of the income a part of it, and it must, therefore, have been a tax upon something received, or receivable-something out of which the tax could be paid when exacted. And such was the uniform construction given to the act of Congress by the government, until after the tax had expired. Prior to the act of 1864 there was a tax on dividends of three per cent., and when by that act the rate was raised to five per cent. the Commissioner of Internal Revenue issued a circular, dated July 1st, 1864, declaring that 'all dividends payable on and after July 1st, 1864, no matter when declared, are subject to the duty of 5 per centum.' I have no doubt, therefore, that the dividends declared, and the interest accrued, must be regarded as income of the stockholders, or bondholders, for the year in which they became payable. It is quite immaterial, then, that the profits of the companies were made, or that the interest on their debt accrued, in 1869. They were not the taxpayers, and the tax was not levied upon their income. It was levied only upon that part of their gains, or the interest due from them, which had become payable to, and, therefore, income of their shareholders and bondholders. Those persons have paid taxes upon the full income of six entire years under the act of 1864. The judgments in these cases compel them to pay a tax upon their income for six years and a half, when all other persons whose income was derived from interest or dividends in other companies were relieved at the expiration of six years. In my judgment, the act of Congress warrants no such injustice.
I think the judgments in all the cases should be affirmed.
[See the next case, and note to it on pages 335, 336.]
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